Our next
chapter
Annual Report 2018
Contents
Strategic report
2018 results
At a glance
Executive chairman’s statement
Our business model
Our strategy
Strategic progress
Market overview
Group managing director’s statement
Managing director’s review
Chief financial officer’s review
Corporate responsibility
Risk management and principal risks
Corporate governance
Board of directors
Chairman’s introduction to
corporate governance
Corporate governance statement
Report of the Nomination Committee
Report of the Audit and
Risk Committee
Directors’ remuneration report
Directors’ report
Statement of directors’ responsibilities
in respect of the financial statements
Financial statements
Independent auditors’ report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of changes
in equity
Consolidated balance sheet
Consolidated cash flow statement
Notes to the financial statements
Company balance sheet
Company statement of changes
in equity
Notes to the Company financial
statements
Appendix
Company information
Forward-looking statements
1
2
6
8
10
12
14
16
18
24
30
36
44
46
48
52
54
62
78
82
84
92
93
94
95
96
97
148
149
150
156
163
164
Countrywide plc is the leading
integrated property services
provider bringing people and
property together across the
residential, commercial and
financial services sectors.
With a network of over 850
branches, the Group has the
largest estate agency and
lettings network, is the largest
independent mortgage broker,
and is the leading provider of
surveying and conveyancing
services in the UK.
For more information, view our website:
www.countrywide.co.uk
2018 results
Financial results1
Group income1
£627.1m
(2017: £672.8m)
Adjusted EBITDA2
£32.7m
(2017: £65.6m)
Loss for the year
£218.2m
(2017: £207.3m)
Basic loss
per share
30.8p
(2017: 89.3p)
Adjusted earnings
per share3
Net debt to adjusted
EBITDA ratio4
0.6p
(2017: 8.7p)
2.2x
(2017: 3.0x)
1. 2017 comparatives restated for the Group following the adoption of IFRS 15 (impacting Sales and Lettings and B2B) and a prior year error
correction (impacting Sales and Lettings). All 2017 comparatives impacted by these changes are restated hereafter (see note 2).
2. Earnings before interest, tax, depreciation, amortisation, exceptional items, contingent consideration, share-based payments and share
of profits from joint venture, referred to hereafter as ‘adjusted EBITDA’. Please see note 4 for reconciliation and note 2 for justification
of this alternative performance measure.
3. Adjusted earnings per share is calculated on profit for the year before exceptional items, amortisation of acquired intangibles,
contingent consideration and share-based payments (net of taxation) (see note 13).
4. Net debt to adjusted EBITDA ratio (see note 32).
Operational results
Properties exchanged
Properties under management
46,828
125,014
18
17
46,828
54,205
18
17
125,014
125,914
Income from
complementary services1
Mortgages
completed
£20.3bn
Surveys and
valuations
381,893
44
38
18
17
20.3bn
17.7bn
18
17
381,893
365,223
44p
18
17
1. Complementary services is the income earned for each £1 of estate agency income from other Group services such as conveyancing and
financial services.
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements
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FOR SALE
FOR SALE
FOR SALE
FOR SALE
FOR SALE
FOR SALE
FOR SALE
FOR SALE
homes
homes
homes
homes
homes
homes
homes
homes
Asset
Asset
Asset
Asset
Asset
Asset
Asset
Asset
At a glance
We are the clear market leader in the property
services sector and our diversity across products,
geography and customer segments provides
resilience throughout the property cycle.
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Breadth of our offering
Branches
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Sales
Lettings
850+
“We are the
largest employed
mortgage
distributor in
the UK”
Surveying
Conveyancing
Moves assisted each year
Breadth of our offering
Breadth of our offering
Breadth of our offering
Breadth of our offering
Breadth of our offering
Breadth of our offering
Breadth of our offering
Breadth of our offering
TO LET
TO LET
TO LET
TO LET
TO LET
TO LET
TO LET
TO LET
Lettings
Lettings
Lettings
Lettings
Lettings
Lettings
Lettings
Lettings
86k+
We focus on having
the right brands in the
right location that serve
customers across all
property-related services.
We have a portfolio of
65 brands ranging from
local or national presence
to internationally
recognised brands.
Land and new
homes
Mortgages and
insurance
Asset
management
Commercial
A selection of our brands
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| Countrywide plc Annual report 2018
Breadth of our offering
FOR SALE
TO LET
Lettings
Breadth of our offering
homes
FOR SALE
TO LET
Asset
Lettings
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Our segments
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homes
Asset
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Breadth of our offering
FOR SALE
TO LET
Lettings
homes
Asset
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Sales and Lettings
Our Sales and Lettings business consists of approximately 870 physical locations across 65 brands.
We have unparalleled coverage of the UK property market and are uniquely placed to support our
customers across the residential sales and lettings market.
Total income (£m)
329.2
-9% (20171: 361.5)
Adjusted EBITDA (£m)
1.2
-96% (20171: 27.4)
Read more in our segmental review pages 18 to 19
Financial Services
We have a dedicated network of over 520 mortgage and protection consultants operating under
the Countrywide brand, and in Mortgage Intelligence, we own one of the most successful networks
of advisors in the UK. The Buy to Let Business and Mortgage Bureau provide specialist lending to
those market segments.
Total income (£m)
Adjusted EBITDA (£m)
83.9
-4% (2017: 87.3)
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16.6
-16% (2017: 19.7)
Read more in our segmental review pages 20 to 21
B2B
As one of the largest property businesses serving corporate clients in the UK, we provide services
to most major lenders, investors, house builders, commercial businesses, corporations,
local authorities and housing associations.
Total income (£m)
213.3
-3% (2017: 220.7)
Read more in our segmental review pages 22 to 23
Adjusted EBITDA (£m)
27.9
-21% (20171: 35.5)
1 . Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements
4
| Countrywide plc Annual report 2018
Our next chapter
At Countrywide we believe we should
be the authors of our own success.
Over the last year we’ve reset the
business, built strong foundations
and developed a strategy that
underpins our future.
We’re ready to start our next chapter.
Annual report 2018 Countrywide plc
| 5
Strategic reportCorporate governanceFinancial statements Executive chairman’s statement
We’re ready to start our
next chapter
“I am confident that
in Countrywide we
have a first-class
team who will help
restore our growth
and retain our
leading position in
the market place.”
In January 2018, following a Board
review of the business, the former chief
executive left the Company and I was
appointed executive chairman. We
were in the fortunate position that within
the Group we have an industry expert,
Paul Creffield, who at that time was
responsible for our B2B division but
prior to 2015 had led our successful
Sales and Lettings business in London.
He was appointed group operations
director and immediately began to
strengthen our Sales and Lettings team
both through internal promotion and
external appointments, a number of
whom returned to the business having
left under the previous management.
In August, I was delighted to announce
that Paul would be promoted to group
managing director and join the Board.
In August, we also announced a capital
refinancing plan which resulted in us
raising £125 million (after deduction
of commissions, fees and expenses)
by way of a firm placing and placing
and open offer. We sought to make
the fundraising as inclusive as we could
for all shareholders and know that some
retail investors were disappointed by
the structure of the capital raising.
To secure the future of the Company,
however, we had no alternative but to
raise the capital in the way that we did.
This was a substantial fundraising and
I would like to thank all shareholders,
both existing and new, who have
shown confidence in the Group’s
strategy and turnaround plan.
Peter Long
Executive chairman
2018 was undoubtedly one of the
most challenging years that the Group
has faced. It was one where, to ensure
the future success of our business,
we made extensive management
changes, reset our strategy and
implemented a capital refinancing
plan. These measures allowed us
to put in place the strategic levers
for our three-year turnaround plan.
The retail-centric strategy, centralised
decision-making and significant
investment in head-office based
functions that was introduced in the
business in October 2015, together
with a significant increase in the
Group’s indebtedness as a result
of acquisitions, dividend payments
and share buybacks, resulted in a
sharp loss of market share within
Sales and Lettings and decline in
profitability that overshadowed
the stronger performance in
other areas of the Group.
6
| Countrywide plc Annual report 2018
Financial results
I am pleased to report that in this
reset year for the Group, and against
a backdrop of increasing geo-political
and economic uncertainty, we have
delivered financial results in-line with
the Board’s expectations, setting our
baseline for our turnaround plan.
Two fundamental areas of focus have
been on restoring listings and building
the pipeline within our Sales and
Lettings business, both of which we
have achieved. In terms of the pipeline,
having started the year 19% down
on the previous year, we ended
2018 with the pipeline flat year-on-year.
Pleasingly the UK, excluding London,
which accounts for 64% of this business
unit’s income, finished the year up 5%.
Income for the year reduced from £673
million to £627 million. Adjusted EBITDA
at £33 million was £33 million lower than
the prior year. Loss for the year stood at
£218 million (2017: £207 million) and
adjusted earnings per share (EPS) was
0.6 pence versus 8.7 pence in 2017.
As stated in August, the Group does not
expect to pay dividends in the medium
term and there will, therefore, be no
dividend for the 2018 financial year.
Three-year recovery plan
We have reset the strategy for the
Group, under-pinned by a “back to
basics” principle within Sales and
Lettings. Our business is led by
experienced industry experts
and now that we have a sensible
long-term capital structure in place,
we are focused on our three-year
turnaround. Rigorous planning by
our teams gives the Board confidence
that, in the normal course of business,
we have a sound three-year plan
which sets the Group up for
long-term future success.
Our strategy comprising five pillars
outlined below will be covered in
greater detail within the annual report:
• “Back to basics” in Sales and Lettings:
Having lost focus on what the Group
had traditionally done well, resulting
in a significant loss of market share
in Sales and Lettings, the Group has
taken a range of actions to restore
both market share and profitability;
• Increased sales of complementary
services: This had reduced from
50p in the £1 at the time of flotation
in 2013 to 38p in the £1 in the
financial year 2017. The actions
taken by the Group saw this
increase to 44p at the end of the
financial year and further growth
is targeted in the three-year plan;
• Cost efficiency: This will be achieved
through a number of measures
including reduction in central
functions, transformation of the
Group’s IT estate and investment
in contact centre optimisation;
• Continued growth in B2B and
Financial Services: The Group
has strong positions within these
markets which it will seek to
expand and enhance as part of
the three-year turnaround; and
• Financial discipline and cash flow:
In addition to reduced interest
costs, focus is on bringing a greater
financial discipline to budgeting and
the forecasting process coupled with
a more rigorous approach to working
capital management.
Board changes
At the conclusion of the Annual General
Meeting in April 2018, Richard Adam
stepped down from the Board. On
1 October Mark Shuttleworth joined the
Board. An experienced finance leader,
he has considerable restructuring and
turnaround experience. On 1 January
2019, Mark took on the role of Chair
of the Group Audit and Risk Committee.
Colleagues
The future success of Countrywide
not only lies with its sound financial
structure and robust and deliverable
growth plan. As important are the
colleagues across the Group who in
very trying circumstances, not only
in 2018 but also in previous years,
have shown dedication and
commitment to our Group.
“We made extensive management changes, reset
our strategy and implemented a capital refinancing
plan. These measures allowed us to put in place the
strategic levers for our three-year turnaround plan.”
Some very tough decisions have
needed to be taken and the results
achieved would not have been possible
without a fantastic team of colleagues
who will continue to play an integral
part in our future success.
On behalf of the Board, I would like
to personally thank our colleagues
for all their efforts. I am confident that
in Countrywide we have a first-class
team who will help restore our
growth and retain our leading
position in the market place.
Outlook
We have been encouraged by the
progress made in 2018 in resetting the
business as part of our return to growth
strategy. The principles within “back to
basics” in Sales and Lettings resulted in
the growth in the register and the sales
pipeline in the UK, coupled with an
increase in market share of listings.
The market weakness we encountered
in Q4 due to the uncertainties
surrounding Brexit ,which are not only
affecting our sector but also the wider
economy and consumer confidence
as a whole, have continued into 2019.
As a result, we are experiencing
a slow-down in residential and
commercial property transactions,
in particular in London and the South.
This will affect our H1 EBITDA by some
£3 - £5 million. We currently expect full
year EBITDA to be broadly in-line with
2018, (after absorbing the impact of
the ban on tenant fees of £9 million,
effective from June) although it is too
early to anticipate whether we will be
able to recover the H1 shortfall in our
traditionally stronger H2. As a Group
we are in a stronger position than we
have been for some considerable time
with sound business fundamentals and,
despite the difficult market conditions
we are facing, we remain confident
in delivering our turnaround.
Peter Long
Executive chairman
7 March 2019
Annual report 2018 Countrywide plc
| 7
Strategic reportCorporate governanceFinancial statements Our business model
Creating value for our key
stakeholders
Customers
People
Shareholders
Cost efficiency
Financial discipline and cash flow
Our values
Products and services
Sales
Lettings
Mortgages and
insurance
Surveying
Conveyancing Land and new
homes
Asset
management
Commercial
How we create revenue
B2C
Estate agency
Lettings
Mortgages
Insurance
Conveyancing
B2B
Mortgage lending and distribution
Land and new homes
Asset management
Commercial property management
Surveying
Utilising our scale and diverse offering for the benefit of our customers
Strategic
partnerships
Complementary
services
Branch network
Multichannel
Brands
Optimising our resources
People
Cost efficiency
Cash
Connecting people and property
8
| Countrywide plc Annual report 2018
We aim to deliver sustainable stakeholder value
through investment in our people and by delivering
market-leading products and services for our
customers in Sales and Lettings, Financial Services
and the B2B sector.
Creating value for our key stakeholders
Our vision is to create sustainable shareholder value through being the provider of choice for all
residential and commercial property services in the UK.
Customers
We provide straightforward
products and services
that deliver what our
customers need to help
them throughout their
lifetime property journeys.
People
Our aim is to develop,
retain and recruit the
most dynamic, talented
and professional people
and create a culture where
people are valued, can be
themselves, develop and
realise their potential.
Read more on our stakeholders and our values on pages 30 to 35
Shareholders
Our strategy aims to deliver
long-term sustainable
shareholder value.
Communities
Successfully delivering
our strategy supports
the property dreams of
thousands of people and
businesses each year.
We provide careers for
over 10,000 colleagues
who support national
and local charities.
Utilising our scale and diverse offering for the benefit of our customers
Complementary services
Multichannel
We offer a suite of services
We utilise all our channels,
to meet all of the property-
in branch, by phone,
related needs of our B2C
and online, to market our
customers including
products more effectively
vendors, buyers, landlords
and support our customers
and tenants. We optimise
through the channels of
revenue streams through
their choice and at times
appropriate cross-divisional
that suit them.
referral of services.
Branch network
Our national network of 870
branches is the foundation
of our operating model. We
have invested in our existing
branch network to provide
industry expertise and
local knowledge.
Strategic partnerships
Our B2B customers,
including financial
institutions and national
developers, benefit from
our scale and view our
extensive network as an
attractive route to market
for their products.
Read more on our segmental reviews on pages 18 to 23
Optimising our resources
Brands
Our multiple brand strategy
allows us to focus on
specific sectors of both
regional and national
housing markets and
tailor our products and
services appropriately.
People
We invest in recruiting,
training and developing
industry experts who
understand their local
markets and the needs
of our customers to ensure
the delivery of high levels
of customer service.
Cost efficiency
Ensuring that we have
a lean and efficient
organisation in our support
functions, together with a
sustainable and scalable
infrastructure that supports
our colleagues in the branch
and fee earners in B2B.
Cash
We are committed to driving
operating cash flow and
in prioritising our capital
allocation we remain
committed to reducing
leverage to less than 1x.
Cash management is a
key performance metric
for all business units.
Annual report 2018 Countrywide plc
| 9
Strategic reportCorporate governanceFinancial statements Our strategy
5 pillars of future profitability
We have a clear strategy to turn the business
around and deliver profitable growth.
• Grow income from complementary services to greater than 55p per
£ of estate agency revenues
£10m – £15m
Our strategic focus
Key priorities
1: “Back to basics” in
Sales and Lettings
• Build back capability and expertise at branch, territory and regional
level, and through that grow the register of properties available for
sale and pipeline
Three year turnaround 2019-2021
• Focus on winning stock, growing register and pipeline of fees
• Continue to grow market share
• Reduce spans of control
• Split Sales and Lettings management
• Grow our market share of listings
2: Income from complementary
• Focus on complementary services in each property transaction
• Grow revenues in Financial Services and Conveyancing
• Investment in lawyer and mortgage and protection consultant
(MPC) numbers to support growth
• Mobilise programme to transform the aged IT infrastructure
• IT transformation and deliver 30-35% reduction in IT costs by 2021
and applications
• Launch programme to optimise customer contact centre
processes and costs
• Reduce functional costs to efficient operational levels and investing
back into our branch network
• Grow coverage of MPC and lawyer numbers to optimise productivity
• Branch MPC numbers to average > 600
and branch coverage
• Plans being reviewed to be more productive with existing customers
and facilitating their remortgages
• Plans to increase permanent staff and focus on the consumer
opportunity for surveys in our surveying business
• Continue to explore opportunities with new developers/capitalise
on urban regeneration opportunity
• Complete contact centre optimisation and deliver 15-20% reduction
in contact centre costs by 2021
• Deliver 5-10% cost reduction in Group-wide overheads by 2021
• Significant increase in existing customers remortgaging with us
• Growth in Surveyors B2C instructions
• Increase share of sales of new homes
• Improvement in market share of listings of new homes
• Equity raise of £125 million (net) and re-set revolving credit
• Focus on reducing leverage to 1.0x in the medium term
facility and covenants
• Reduced leverage to 2.2x
• Focus on maximising operating cash flow
services
3: Cost efficiency
4: Continued growth in B2B
and Financial Services
5: Financial discipline and cash flow
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| Countrywide plc Annual report 2018
The size of the prize
Illustrative impact
on adjusted EBITDA
£5m– £10m
£15m – £20m
£4m – £8m
Illustrative impact
on interest costs
£4m – £6m
Our strategic focus
Key priorities
1: “Back to basics” in
Sales and Lettings
• Build back capability and expertise at branch, territory and regional
level, and through that grow the register of properties available for
Three year turnaround 2019-2021
• Focus on winning stock, growing register and pipeline of fees
• Continue to grow market share
The size of the prize
Illustrative impact
on adjusted EBITDA
£5m– £10m
sale and pipeline
• Reduce spans of control
• Split Sales and Lettings management
• Grow our market share of listings
2: Income from complementary
• Focus on complementary services in each property transaction
services
• Grow revenues in Financial Services and Conveyancing
• Investment in lawyer and mortgage and protection consultant
(MPC) numbers to support growth
• Grow income from complementary services to greater than 55p per
£ of estate agency revenues
£10m – £15m
3: Cost efficiency
• Mobilise programme to transform the aged IT infrastructure
• IT transformation and deliver 30-35% reduction in IT costs by 2021
£15m – £20m
• Complete contact centre optimisation and deliver 15-20% reduction
in contact centre costs by 2021
• Deliver 5-10% cost reduction in Group-wide overheads by 2021
4: Continued growth in B2B
and Financial Services
and branch coverage
• Grow coverage of MPC and lawyer numbers to optimise productivity
• Branch MPC numbers to average > 600
£4m – £8m
• Significant increase in existing customers remortgaging with us
• Growth in Surveyors B2C instructions
• Increase share of sales of new homes
• Improvement in market share of listings of new homes
5: Financial discipline and cash flow
• Equity raise of £125 million (net) and re-set revolving credit
• Focus on reducing leverage to 1.0x in the medium term
Illustrative impact
on interest costs
£4m – £6m
Annual report 2018 Countrywide plc
| 11
and applications
processes and costs
• Launch programme to optimise customer contact centre
• Reduce functional costs to efficient operational levels and investing
back into our branch network
• Plans being reviewed to be more productive with existing customers
and facilitating their remortgages
• Plans to increase permanent staff and focus on the consumer
opportunity for surveys in our surveying business
• Continue to explore opportunities with new developers/capitalise
on urban regeneration opportunity
facility and covenants
• Reduced leverage to 2.2x
• Focus on maximising operating cash flow
Strategic reportCorporate governanceFinancial statements
Strategic progress
2018: A year of reset
We have made significant progress
in a very short time. There is more to do.
1: “Back to basics” in
Sales and Lettings
2: Income from
complementary services
3: Cost efficiency
• UK register up 9%
• UK sales pipeline up 5%
• Listings market share up from 7.29%
to 7.73% during 2018
• Strengthened management team
with experience – built branch
staff to operational levels
• Fee discipline in place with fixed fees
with pipeline underpinned by material
level of fixed fee arrangement
• Sales and Lettings structure finalised
– far better spans of control in
place now
• Separate regional and branch
management structure in place
and service line P&Ls introduced
• Clear plans in place to turnaround
loss making branches
• Complementary services continuing
to build with pence in the £ growing
from 38p in 2017 to 44p in 2018
• Clear focus on how complementary
services can drive better outcomes
for the customer underpinned
by investment in training
• Stronger alignment of Financial
Services (FS) and Conveyancing
complementary services across
the Group
• Sales management driving close
alignment on all complementary
services - FS, Conveyancing,
Surveying and New Homes
• Investment in lawyer and mortgage
and protection consultant numbers
is underway to support growth
• Group wide functional costs
(excluding IT) reduced by 14%
in 2018, allowing for reinvestment
back into our branch network,
opportunity for further 5-10% p.a.
• Closed larger London HQ and
relocated to smaller offices in Aldgate
• IT transformation mobilised
and underpins three year cost
opportunity of 30-35% cost savings
on IT cost base (from 2017 base)
whilst ensuring systems provide
the foundation for the build back
and a differentiator for us
• Transformation underway to establish
optimal customer contact centre
(CCC) design and processes
and planning to achieve 15-20%
cost savings p.a.
Closing register units in UK
Sales and Lettings
Complementary services income
for every £1 of Sales and Lettings
income (£)
Indirect costs (£m)
+9%
-9%
+16%
017
ec 2
31 D
018
ec 2
31 D
O
At IP
d
017
e
d
ec 2
n
ar E
31 D
Ye
d
018
e
d
ec 2
n
ar E
31 D
Ye
2014
2015
2016
2017
2018
12
| Countrywide plc Annual report 2018
4: Continued growth in B2B
and Financial Services
5: Financial discipline
and cash flow
• Advanced plans in place to grow
mortgage and protection consultant
numbers in the branch channel
during 2019
• Continued investment to grow
• Successful equity raise of £140 million
through firm placing and placing and
open offer to reduce Group debt
and reset revolving credit
facility covenants
alternative FS channels, and online
opportunities within Surveying
• Net debt in 2018 at £71 million
and leverage down to 2.2x
• Good progress in land & new homes
with register up 49% year on year.
Sales capability now integrated
with estate agency branches
• Underlying operating free cash
of £40 million (after unwind of
£18 million of previous cyclical cash
management), a conversion of 124%
• Key client contracts retained
in valuations
• Key client retentions in Lambert
Smith Hampton (LSH)
• A continued focus on debt
collection with significant
improvements in LSH in 2018
Growth in Surveying income and
Financial Services non-core
channels income (£m)
Operating cash flow (OCF) conversion
1
.
1
2
1
.
0
3
1
1
+2%
.
5
3
8
.
5
7
6
.
2
5
6
.
5
8
6
.
6
5
6
+17%
.
9
7
2
.
7
2
3
%
1
6
%
4
2
1
.
5
2
2
2017
2018
2014
2015
2016
2017
2018
Surveying income
Financial Services non-core channels income
Adjusted EBITDA (£m)
Operating cash flow (£m)
Operating free cash normalised for impact
of £17.9 million cyclical cash management practices
Read more detail on page 16
Annual report 2018 Countrywide plc
| 13
Strategic reportCorporate governanceFinancial statements Market overview
Strong fundamentals and
future opportunities
We are the market leader in a highly fragmented
and fundamentally robust UK real estate sector.
In contrast there were 2.5% fewer
approvals for house purchases
over the same period as market
conditions became tougher.
The absence of buy to let business
continued to impact on overall market
lending. Despite the 25bp increase
in the bank rate in August 2018,
mortgage rates have been falling
across all product types as lenders
compete for business.
Lettings
Over the course of 2018 rental growth
in Great Britain slowed despite lower
stock levels. There were 4% fewer
properties available to rent in 2018
compared with 2017 as the reduction
in tax relief available to landlords
weighed on investor purchases
and caused some of the most
indebted landlords to sell up.
(Source: Association of Residential
Letting Agents).
House price growth in the UK (2018 v 2017)
+8%
6-8%
4-6%
2-4%
0-2%
Less than 0%
Housing market
The housing market in 2018 has been
over-shadowed by the continuing
political and economic uncertainty
from the UK’s planned exit from the
European Union on 29 March 2019
(“Brexit”), resulting in the overall
market for housing transactions
in the UK being down 2.1% at
1,194,830 (2017: 1,220,060).
House prices
The pace of house price growth
gradually slowed throughout 2018.
Prices at the end of the year were 2.8%
higher year on year to November 2018,
(compared to 4.5% growth at November
2017) (Source: Office of National
Statistics).The national average
has been dragged down by weaker
performance in London and the South
where affordability and changes to tax
policy have hit hardest. Average house
price growth in the Midlands ended the
year to November 2018 4.5% higher
than in 2017, while prices in London
for the same period were 0.7%
below last year’s level.
The regional pattern of sales over
the year was similar. While activity
fell in each region compared with
2017 (year to August 2018 comparison
on Her Majesty’s Land Registry data)
the average fall in the Midlands and
North was half of that in London
and the South.
Mortgage market
Gross mortgage lending rose by 3%
to £269 billion (Source: UK Finance) in
2018. This was supported by continued
strength in remortgaging. There were
4.2% more remortgage approvals in the
year to November 2018 (Source: Bank
of England) than the previous year.
14
| Countrywide plc Annual report 2018
However, affordability is an issue
for tenants and this is keeping a cap
on rental growth. The rate of rental
growth in Great Britain fell from 2.4%
in 2017 to 0.4% in 2018. The fall was
mainly driven by a slowdown in London
rents, where affordability is tightest.
Rental growth in the capital decreased
from 3.2% in 2017 to 0.1% in 2018.
(Source: Countrywide data).
UK commercial investment
market
In spite of persistent uncertainty around
Brexit, 2018 was a relatively strong year
for the UK commercial property market,
with investment market activity and
returns in 2018 running ahead of the
consensus view at the beginning
of last year.
The overall picture belies a substantial
variation in performance between the
key commercial sectors. A substantial
and structural change in shopping
patterns is leaving the UK effectively
over shopped leading to falling values
and increased vacancy rates in the retail
sector. Meanwhile, strong demand
for industrial and logistics space linked
to the growth in ecommerce saw
investors and developers flock to
the sector in 2018, evidenced by
sector leading rental growth and
record volumes of £8 billion.
As we approached the end of 2018
we saw greater evidence of uncertainty
in the markets feeding through into
transaction levels. Looking forward into
2019, we are cautious around activity
volumes in the capital investment
and occupier markets. The economic
and political uncertainty against the
backdrop of Brexit is causing investors
in particular to sit on their hands and
wait on the outcome. This will have
an impact on the commercial markets
which we expect to be more notable
in the first half of 2019.
Outlook for 2019
The outlook for 2019 falls in the shadow
of the UK’s exit from the EU. The
uncertainty arising from the delay
in securing a deal continues to affect
confidence. Availability of finance
however remains strong, with fierce
competition among lenders.
In the short-term, there are few signs
that levels of activity will pick up from
2018 levels. Transaction volumes will
be hindered by affordability levels
and uncertainty. The resulting lack
of stock liquidity means that deals
will take longer to complete. Tax
policy means that buy to let investors
will not be returning in the short term
and affordability is continuing to limit
new demand in the homebuyer market.
In 2019 we expect house prices to
be broadly flat reflecting the market
uncertainty and impact this is currently
having on public sentiment. The
slowdown will be more pronounced
in London and the South, with London
prices expected to fall by a greater level
year on year in 2019 as the capital is
hit harder by Brexit uncertainty and
stretched affordability.
Rental growth
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
4
1
-
b
e
F
4
1
-
r
p
A
4
1
-
n
u
J
4
1
-
g
u
A
4
1
-
t
c
O
4
1
-
c
e
D
5
1
-
b
e
F
5
1
-
r
p
A
5
1
-
n
u
J
5
1
-
g
u
A
5
1
-
t
c
O
5
1
-
c
e
D
6
1
-
b
e
F
6
1
-
r
p
A
6
1
-
n
u
J
6
1
-
g
u
A
6
1
-
t
c
O
6
1
-
c
e
D
7
1
-
b
e
F
7
1
-
r
p
A
7
1
-
n
u
J
7
1
-
g
u
A
7
1
-
t
c
O
7
1
-
c
e
D
8
1
-
b
e
F
8
1
-
r
p
A
8
1
-
n
u
J
8
1
-
g
u
A
8
1
-
t
c
O
8
1
-
c
e
D
GB
London
Source: Hamptons International Lettings Index (based on Countrywide data).
Annual report 2018 Countrywide plc
| 15
Strategic reportCorporate governanceFinancial statements Group managing director’s statement
Our key strengths
“2018 was a year
of reset for the
business and we
are now positioned
to move forward
into profitable
growth, not
withstanding
the challenging
market.”
Our three-year recovery
plan progress
As our executive chairman, Peter Long,
has commented, our three-year plan
comprises five key pillars and I am
delighted to be able to report on
progress against each of these:
1. “Back to basics”
in Sales and Lettings
We advised the market at the beginning
of the year of our intention to build back
staffing and expertise in our Sales and
Lettings business at regional, area and
branch level. We shared our plan to
separate our service lines of sales
and lettings to report into dedicated
management to help us achieve the
right level of support and direction for
each business area. I am delighted to
say that this has been achieved, and at
regional level we now have 89 regional
directors in post, all of whom are very
experienced in their fields of operation.
We also welcomed back over 300
colleagues who had previously
left the business.
All this results in uncertainty in people’s
minds, impacting on sentiment and
causing some reticence amongst
homebuyers and sellers. Against that
backdrop, I am delighted that we have
been able to build back our register
of available stock and pipelines of fees
in our UK Sales and Lettings business.
Our diversity in the property services
sector benefits us and in particular I
would call out an excellent performance
by our Hamptons lettings business,
where we saw income increase
by 5% year on year and units under
management also up 4% year on
year against a market that is
decreasing in size.
Paul Creffield
Group managing director
2018 was certainly a year of change
not only for the Group but also for me
personally. At the start of the year we
identified that our strategy required
resetting. Following management
changes early in 2018, I assumed
the role of group operations director,
assuming responsibility for our
Sales and Lettings business and
spearheading our “back to basics”
principle. In August I became group
managing director, continuing our
reset and return to profitable growth.
All this could not have been achieved
without the help and dedication of
our colleagues across the Group and
I want to take this opportunity to thank
everyone for their commitment and
drive to support our turnaround.
We are clearly trading against a tough
external environment that is well
covered in the media most notably;
coverage around house prices,
transaction numbers and Brexit.
16
| Countrywide plc Annual report 2018
We have decentralised our business
and significantly reduced our overheads
and re-invested the cost savings
to fund the build back in front-office
and experienced staff. In addition,
our local management have been
empowered with marketing and
people budgets so they can better
react to local market conditions.
As a result, we have seen our market
share of listings grow from 7.29%
at the beginning of 2018 to 7.73%
in December. This translates through
to our UK trading Sales business
seeing their register of available
stock up 9% year on year.
2. Income from
complementary services
In a tough trading environment, we are
well placed with our Group businesses
to improve sales of complementary
services which include; conveyancing
and the provision of mortgages,
insurance and protection products
to both our buyers and sellers.
We stated that this will be a core
focus for us. We entered 2018 with
complementary services income
generated by our Sales business
at 38p for every £ generated in Sales
income. I am delighted to state that
at the end of 2018 we achieved an
average throughout the year of 44p
in the £, an increase of 16%. We intend
to build upon this success over the
next three years.
3. Cost efficiency
Our plan is to invest in our IT
infrastructure and applications which
have lacked investment over the years.
As a result, the operating costs grew
dramatically on an aged IT estate.
We also committed to invest in our
processes and contact centres to
modernise and improve customer
service alongside reducing operating
costs. This is a three-year programme
and I’m pleased to say we are
tracking in-line with the plan.
We have also committed to reducing
further our central overheads and
driving efficiency from our central
functions. During 2018 we reduced
our central function costs by 14% year
on year and we expect further savings
over the three-year plan period.
4. Continued growth in B2B
and Financial Services
Our B2B businesses delivered a
resilient performance in 2018. Our
Conveyancing business is starting to
see pipeline growth and will benefit
from the additional instructions through
the complementary services section
above. Our commercial business,
Lambert Smith Hampton is experiencing
significant slowdown in its transactional
market as a result of the political and
economic uncertainty surrounding
Brexit. The new homes business is
particularly exciting as we have been
winning many new schemes that will
mature through to release and sale
in 2019 that will boost our exchange
numbers moving ahead.
Our surveying business was affected
in Q4 as mortgage lending by our key
clients reduced, but since Christmas
we are seeing a significant upturn in
their lending. Overall, the surveying
business delivered a robust
performance in a challenging market
and we are well positioned for 2019.
Prior to 2018 we experienced an overall
decline in the focus of our Financial
Services business within Sales and
Lettings. This was largely due to the
amount of changes in the UK Sales
and Lettings business, and as a result
we have seen a reduction in our
Mortgage and Protection Consultant
(MPC) headcount this year. This has
impacted performance in our core
branch-based Financial Services
business but we are confident this
will return as headcount is being built
back and an improved retention plan
introduced. Other specialist network
and Financial Services businesses
moved ahead year on year. I am also
delighted to report that in 2018, we
placed over £20 billion of mortgage
business, a new record for the group.
We expect further growth in this exciting
business as we launch further initiatives
to improve the penetration of our
remortgage business for customers
who previously obtained their mortgage
through us. As we sell more properties,
this will deliver further opportunity to
grow the written mortgage numbers.
5. Financial discipline and cash flow
Good progress has been made
on our approach to working capital
management and an Investment
Committee now oversees our
investments. We are prioritising
investment into our IT estate,
contact centre modernisation
and our branch network.
Debt collection has received strong
focus through 2018 and debtor days
have reduced in our commercial
business, Lambert Smith Hampton.
The capital refinancing, together
with our focus on working capital
management, resulted in net debt
for the full year down to £70.7 million
and net debt to adjusted EBITDA
ratio of 2.2x.
Summary
Significant progress was made in 2018
as we reset the strategy and delivered
a capital refinancing plan that gives us
the stability and flexibility to execute our
three-year turnaround plan. Having built
back our industry expertise and staffing
levels within our Sales and Lettings
business, we now have a register and
pipeline that is in positive territory and
gives us the solid trading base to move
forward. External factors will continue
to challenge the industry, but the
long-term UK housing market
fundamentals remain strong. As we
look ahead long-term, we believe that
we have the right strategy in place
to maximise these opportunities.
“The five pillars of our strategy and future
profitable growth are now well founded.
With the quality and experience of our
people and loyal support of our customers,
I am confident as to the future.”
Paul Creffield
Group managing director
7 March 2019
Annual report 2018 Countrywide plc
| 17
Strategic reportCorporate governanceFinancial statements Managing director’s review
18
| Countrywide plc Annual report 2018
Sales and Lettings
Summary
• Total income down 9%; adjusted
EBITDA of £1.2 million, down 96%
• Properties under management
86,415, down 3%; Lettings
income down 1%
• 43,769 homes exchanged,
down 13%
• Average FTE down 2% to 5,467
At the heart of our “back to basics”
principle in Sales and Lettings was
to build back industry expertise to
support the growth in the register
of properties available for sale,
to grow the pipeline of agreed sales
in the UK and to improve income from
complementary services. The build
back of industry expertise is now
largely complete, with experienced
managing directors for the North,
South, Hamptons and our Premier
& City business; and we have a full
complement of staffing and separate
Sales and Lettings expertise at
regional and branch management
level. At a territory level, we have
seven seasoned managing
directors now in place supported
by 89 regional managers giving an
average span of control of around
ten branches for each territory.
Sales
We are encouraged by the progress
we have made in “back to basics” and
in the growth in the register and the
pipeline in the UK. The register of
properties available for sale in UK
Sales and Lettings was up 9% year
on year. The pipeline of agreed sales
awaiting exchange of contracts in
UK Sales and Lettings was up 5%,
having begun the year down 21%.
Our estate agency income fell by
16% year on year, principally the result
of the lower entry pipeline of sales
agreed as we ended 2017. Our
Central London brands Hamptons
International and John D Wood have
outperformed the market decline,
compared to an overall decline
in the Central London market.
Lettings
Our lettings performance was resilient
with an overall decline of just 1%
compared with the decline of 8%
in 2017. Our London lettings business
grew by 1%, a good performance in
a challenging market, that helped
offset a 3% decline in the UK.
Properties under management
were 86,415, an overall decline
of 3% in line with the market which
has seen private landlords exit
the market as a result of SDLT
and tax changes.
Income from
complementary services
Our income from complementary
services, comprising Financial
Services and Conveyancing delivered
by our branch network, has increased
from 38 pence to 44p in the £. This is
the additional income driven from this
activity expressed as an amount
compared to each £ of income
from sales exchanged income.
Key performance indicators – UK1
Key performance indicators – London1
Number
of exchanges
38,973
18
17
38,973
45,286
Average fee
per exchange (£)
2,409
Number
of exchanges
4,796
Average fee
per exchange (£)
10,386
18
17
2,409
2,547
18
17
4,796
5,214
18
17
10,386
10,847
Number of branches
at year end
Average rental properties
under management
Number of branches
at year end
Average rental properties
under management
714
18
17
64,718
143
714
729
18
17
64,718
68,064
18
17
143
151
21,697
18
17
21,697
21,313
1. Branch allocations have moved between UK and London markets during 2018 and therefore the split of KPIs does not agree to 2017 annual
report segment disclosures (although aggregate totals remain the same).
Annual report 2018 Countrywide plc
| 19
Strategic reportCorporate governanceFinancial statements Managing director’s review continued
20
| Countrywide plc Annual report 2018
Financial Services
impacted by a loss of fee earning
consultants in the branches.
MI operates a network and club for
third party Appointed Representatives
(AR) and Directly Appointed (DA)
mortgage brokers respectively.
MI provides regulatory oversight for
sales made by the network and assists
both the network and the club through
arranging mortgage and insurance
deals with our panels of lenders and
insurance providers. The network
firms employ over 400 regulated
individuals, all of whom are contracted
to sell only the financial products
arranged by MI. In 2018, MI generated
£12.5 billion (2017: £10.2 billion)
of gross mortgage distribution
from the club and the network.
TBTLB conducts our specialist
business in the buy to let sector,
and now also handles all customers
who wish to transact by phone.
The business has experienced
growth from both its strong existing
customer relationships and reputation
in the buy to let market, as well as
from new telephony referrals from
our Sales and Lettings branch network
and customer contact centre.
As a result of the continued
expansion, the business has
increased its gross distribution
to £1.8 billion (2017: £1.5 billion),
an increase of 20% year on year.
Mortgage Bureau is our specialist
new build mortgage brokerage. In
2018 Mortgage Bureau has focused
on building its relationship with other
Group new build businesses, as well
as on independent growth from its
direct relationships with new build
developers. As a result, the business
has increased its gross distribution
to £0.9 billion (2017: £0.8 billion);
an increase of 16% year on year.
In April we launched a new
General Insurance product with
our strategic partner, AXA. Rated
5 stars by Defaqto, the new product
represents excellent quality and
value for our customers.
Summary
• Income down 4% and
adjusted EBITDA of £16.6 million
(2017: £19.7 million), down 16%
• Over £20 billion mortgage
completions, up 15% on 2017,
against a market backdrop
of only 3% growth
Operating review
In 2018 the UK mortgage market grew
by approximately 3% year on year,
with overall gross lending finishing
at £269 billion1 (2017: £261 billion). In
comparison, Countrywide mortgages
completed grew 15% from £17.7 billion
in 2017 to £20.3 billion in 2018.
Financial Services income was
£83.9 million, (2017: £87.3 million),
with another year of strong double
digit income growth across the
combined The Buy to Let Business
(TBTLB), Mortgage Bureau and
Mortgage Intelligence (MI) channels
offset by lower transactional volumes
from estate agency sales which were
1. Source: Bank of England 2019.
Key performance indicators
Number of
mortgages arranged
109,379
Total mortgages
written (£billion)
20.3
Average number of mortgage
and protection consultants
652
18
17
109,379
96,031
18
17
20.3
17.7
18
17
652
666
Number of mortgage
protection policies sold
50,899
18
17
50,899
60,876
1st
Largest single
employed mortgage
broker in the UK
3rd
Largest single
mortgage
distributor
We completed
£20.3bn
of mortgages
Annual report 2018 Countrywide plc
| 21
Strategic reportCorporate governanceFinancial statements Managing director’s review continued
22
| Countrywide plc Annual report 2018
B2B
Summary
• Income down 3%, adjusted EBITDA
down 21% to £27.9 million
• Strong year for contract retention
and service delivery improvement
in surveying
• Successful implementation
of new instruction technology
in conveyancing leading to
operational benefits
• Excellent contract retention
in Lambert Smith Hampton in a
challenging commercial market
Operating review
Income across our B2B business
was down 3% with another good
performance in surveying and
valuations, and conveyancing
offset by a slower market for new
homes and a slower commercial
transactional property market for
our Lambert Smith Hampton business.
Surveying
Our surveying business delivered
another year of growth in both income
and adjusted EBITDA and significantly
improved service delivery to our
lender clients. This position was
strengthened in 2018 with key
contract retentions including
Santander, alongside key contract
wins including Coventry Building
Society and in the expanding
market of equity release where
we renewed our long-term contract
with Just Retirement.
The surveying business continues
to help lead the industry with the
introduction of new technologies and
new valuation approaches to better
assess property risk for its lender
clients. Following the substantial
investments in the IT technology
infrastructure within our business,
service levels to our core client base
have improved, which resulted in an
improved turnaround time of our
mortgage valuations by 27% to
under 4.5 days, when comparing
Q4 2017 and Q4 2018.
Conveyancing
The business continued to build on
successes in prior years in improving
customer service, and in 2018 saw
another record year as measured
by the customer through our Net
Promoter Score (NPS) of +54 (up
from +38 in 2017). In this regard the
business celebrated another award
winning year, winning five awards,
including the What Mortgage Award
– Best Legal Services Provider, Best
Conveyancing Service at the Money
Facts Awards and the Best
Conveyancer at the Mortgage
Strategy Awards 2018.
Land & New Homes
and Asset Management
Whilst our Land & New Home
business sold over £1.2 billion
of new homes in 2018, the rate of
completions and house exchanges
was impacted by the slower market
for second hand homes in the UK.
Pleasingly, the closing register
finished 49% higher than the
closing register in 2017.
Lambert Smith
Hampton (LSH)
In the face of the uncertain economic
and political environment, our
commercial business, Lambert Smith
Hampton, saw a resilient performance
with overall income down 4%, with
excellent contract retention in a
difficult market, consulting services
were robust, down only 1% with
most consulting divisions showing
increased income.
Whilst capital markets were up
10%, assisted by the 3% year on
year increase in UK investment
transactions, overall transactional
services were down 6% reflecting the
substantial uncertainty in key sectors.
Key performance indicators
Number of surveys/valuations completed
381,893
18
17
381,893
365,223
Conveyances completed
25,873
18
17
25,873
26,870
Corporate properties under management
Exchanges – new homes
38,599
18
17
38,599
36,624
3,059
18
17
3,059
3,705
Annual report 2018 Countrywide plc
| 23
Strategic reportCorporate governanceFinancial statements Chief financial officer’s review
A more sustainable capital
structure
“We finished the
year with a net
debt to adjusted
EBITDA ratio
of 2.2x.”
Himanshu Raja
Chief financial officer
2018 marked a significant year for the
Group. The previous four years had
seen an increase in the Group’s
indebtedness as a result of acquisitions,
dividends and share buybacks and the
material decline in profitability resulting
from the sharp loss of market share.
Our firm placing and placing and open
offer announced on 2 August 2018
raised net proceeds of £125 million.
Net debt at the end of the year was
£71 million, with a net debt to adjusted
EBITDA ratio of 2.2x compared with the
£212 million of net debt we carried at
30 June 2018. The Group now has
a sustainable capital structure and
covenant package and we are grateful
to shareholders and our lender group
for their support to underpin the
Group’s recovery. We remain
committed to reducing leverage
to 1x in the medium term.
Overall Group income fell by 7%
to £627.1 million which is a resilient
performance against the backdrop
of both a challenging market and
the previously reported 19% opening
24
| Countrywide plc Annual report 2018
pipeline deficit in Sales at the
beginning of 2018.
The Group’s adjusted EBITDA for
the year ended 31 December 2018
was £32.7 million (2017: £65.6 million),
and includes £2.2 million of net charges,
not related to current trading, arising
from a review of the carrying value
of certain assets and liabilities.
The Group’s underlying trading
(excluding the £2.2 million of
net charges unrelated to current
trading) was in line with the Board’s
expectations at £34.9 million.
Our statutory results were further
impacted by restructuring and
significant impairment charges relating
to historical acquisitions, resulting in
a loss for the year of £218.2 million.
The Group incurred net exceptional
charges of £245.4 million comprising
principally non-cash impairment
charges of £218.0 million, with further
movements for: strategic and
restructuring costs of £12.8 million;
onerous lease provisions of £6.1 million,
£5.2m restitution of trust funds, and
financing costs of £6.5 million, offset
by £3.2 million of exceptional income
in relation to professional indemnity
(see note 10).
Finance costs before exceptional items
have decreased by £4.2 million during
the year as a result of reduction in our
borrowings following the proceeds from
the capital refinancing plan in August
2018. Net debt has reduced during the
year by £125.8 million to £70.7 million
with a net debt to adjusted EBITDA
ratio of 2.2x.
Prior year retained earnings have been
restated for the impact of the following:
£(0.9) million credit in respect of the
adoption of IFRS 15 ‘Revenue from
contracts with customers’ (see note
2(c)); and £3.6 million debit in respect
of the correction of a prior year error
in respect of the restitution of trust funds
following legal advice received during
preparation of results for the first half
of the year (see note 2(d)).
In respect of the trust funds, having
received further legal advice in the
second half of 2018, the Group now
understands that all, rather than some,
of the historical and untraceable funds
arising from the Lettings business for
the period from 2008-2017 should be
held in trust under a separate client
account. As a result, the Group has
transferred an additional £5,185,000
into a separate client account in
December 2018 in full restitution
of these client funds. This further
advice during the latter part of 2018
has caused a change in the accounting
estimate taken at 30 June 2018 and,
given the magnitude of the increase
in charge, this has been treated
as an exceptional cost.
Summary of results
2018 results were principally influenced
by the previously announced opening
pipeline deficit of 19% which resulted
in our income in the Sales and Lettings
business for the full year down 9%
and adjusted EBITDA declining 96%
to £1.2 million (2017: £27.4 million).
The Group saw an improved second
half performance and finished the
year with a growth in the register
of properties available for sale
and a stronger pipeline in our
UK Sales and Lettings business.
Income in our B2B businesses was
£213.3 million, down 3% and adjusted
EBITDA down 21% to £27.9 million, with
another year of good performance in
our surveying and valuations business
and in conveyancing. The decline
in B2B profitability reflected in part
non-current trading items of £1.1 million
(from the net charges of £2.2 million
noted above) relating to impairment
of receivables and the effect of slower
market for new homes and a slower
commercial transactional property
market in particular in the second half.
Our land and new homes business
finished the year with a register that
was up 49% year on year and a
stronger pipeline of properties
sold subject to contract.
Financial Services income was £83.9
million, down 4%, and adjusted EBITDA
of £16.6 million, down 16% with another
year of strong double digit income
growth across the combined The Buy
to Let Business, Mortgage Bureau and
Mortgage Intelligence channels offset
by lower transactional volumes from
estate agency sales.
Within Group, we took the difficult
decision to right size the head
office functions and to unwind the
centralisation that had been introduced
since 2015; which provided the
opportunity to reinvest some
£6 million in the front line.
Income statement
Reconciliation of statutory operating profit and adjusted EBITDA (see note 4)
Adjusted EBITDA1
Contingent consideration
Share-based payments
Depreciation and amortisation
Share of profit from joint venture
Exceptional income
Exceptional costs
Operating (loss)/profit
Sales and
Lettings
£’000
1,191
57
(691)
(7,448)
–
–
Financial
Services
£’000
16,613
(1,830)
(225)
(2,493)
–
–
(216,315)
(223,206)
(3,131)
8,934
B2B
£’000
27,931
(409)
(569)
(7,586)
–
2,663
(1,890)
20,140
All other
segments
£’000
(13,052)
(3,907)
(211)
(4,935)
(1,518)
504
(20,701)
(43,820)
2018
Total
£’000
32,683
(6,089)
(1,696)
(22,462)
(1,518)
3,167
(242,037)
(237,952)
20172
Total
£’000
65,587
(3,929)
(1,623)
(33,490)
690
–
(225,869)
(198,634)
1. Earnings before interest, tax, depreciation, amortisation, exceptional items, employment-linked contingent consideration, share-based payments and
share of profits from joint venture, referred to hereafter as ‘adjusted EBITDA’ (see note 4 for reconciliation).
2. Restated from prior year following the adoption of IFRS 15 and the correction of a prior year error (see note 2).
“The Group now has
a sustainable capital
structure and covenant
package and we are
grateful to shareholders
and our lender group for
their support to underpin
the Group’s recovery.
We remain committed
to reducing leverage to
1x in the medium term.”
Contingent consideration
Contingent consideration of £6.1 million
(2017: £3.9 million) relates to previous
acquisitions where the consideration
arrangements require the vendors
to remain in employment and as
such have been treated as a post-
combination employment expense;
they are being accrued over the
relevant periods specific to each
of the agreements, with commitments
extending out to 2021.
Certain of this contingent consideration
is also subject to performance
conditions being satisfied, with target
adjusted EBITDA levels which must
be achieved in order to realise the full
payment, with a reduced payment made
if targets are not fully met. Accruals for
contingent consideration are therefore
reviewed at each period end as future
earn-out assumptions are revisited and
any credits to the income statement
in respect of downward revisions to
estimates are reported in the same way.
Annual report 2018 Countrywide plc
| 25
Strategic reportCorporate governanceFinancial statements
Chief financial officer’s review continued
Share-based payments
The share-based payment charge
to the income statement of £1.9 million
(2017: £1.8 million) before National
Insurance credit of £0.2 million
(2017: £0.2 million) comprises: a
decreased charge in respect of annual
nil-cost option grants under the three
year long term incentive plan (LTIP)
to senior managers amounting to £0.2
million (2017: £0.8 million) as a result
of aligning non-market conditions to
underlying performance across grants;
share incentive plan (SIP) charges of
£0.9 million (2017: £0.9 million) arising
from employee participation and new
SAYE charges of £0.5 million incurred
following implementation of the scheme
from May 2018 after cessation of the
SIP scheme; and deferred bonus
share plan charges of £0.3 million
(2017: £0.1 million).
The Group has seen a significant
decline in profitability since 2014
and therefore the impact of truing
up for non-market conditions, matching
reward to performance, has seen the
share-based payment charge reduce
accordingly since 2014, becoming
a less material feature of the income
statement after the vesting of all
elements of the IPO scheme in March
2016. However, as the Group is now
in a turnaround situation, it is anticipated
that the incentivisation of performance
will result in future LTIP awards which,
provided Group performance meets
these targets, will see the share-based
payment charge continue to increase
and could reintroduce material volatility
into the income statement.
Depreciation and amortisation
Our depreciation and amortisation
charge continues to be separated
to indicate the depreciation and
amortisation that relates to assets
purchased for use in the business
and amortisation arising on those
intangible assets that have been
recognised as a result of business
combinations. The underlying
depreciation and amortisation
charge decreased by £10.2 million
to £17.5 million. This was principally
due to the impairments in 2017 and
June 2018 decreasing the value
of assets giving rise to a charge.
The depreciation charge was
£10.2 million (2017: £17.2 million).
Amortisation of acquired intangibles
has decreased to £4.9 million
(2017: £5.8 million) following
impairments in 2017 and in June
2018. As previously signposted,
following the impairments in 2017
and H1 2018, we reviewed the useful
economic lives of our brands and
from 1 July 2018 adopted finite lives
of fifteen years in respect of all of our
brand names. This resulted in £1.7
million of amortisation charges
during the second half of the year.
Exceptional income
During H1 2018 the Group received
exceptional income of £3.2 million
(2017: £nil) from: a professional
indemnity claim settled in the Group’s
favour of £2.1 million; and a professional
indemnity provision release of £1.1
million following reassessment of
our claims position.
Exceptional costs
Significant operational progress
has been made with the strategy
and turnaround plan during the year.
However, the continued subdued
external environment and the effects
of the weaker opening pipeline which
became apparent after conclusion
of the 2018 business planning
process, have resulted in
further impairment charges.
Cash flows driving the current
impairment review align to the latest
three-year strategy and turnaround plan
that has been endorsed by the Board.
Exceptional costs incurred in the
year amounted to £248.5 million
(2017: £225.9 million), comprising
items that have resulted in cash
charges of £21.1 million and £227.4
million of non-cash charges as follows:
• Impairment charges of £218.0 million
in respect of goodwill, brand names
and customer contracts and further
intangible assets (computer software)
and tangible fixed assets and
investments into the property
technology sector.
• Strategic and restructuring costs
comprising; people-related
restructuring costs of £4.2 million
incurred principally as a result of our
review and rationalisation of group
wide central functions; associated
restructuring and cost optimisation
consultancy costs of £7.1 million and
£1.5 million of property closure costs
in respect of a head office in London
that closed during Q4 2018;
• Onerous lease provisions with
a present value of £6.1 million
have been recognised in relation
to economic outflows arising from
onerous contracts in relation to
loss making branches, unwinding
over a period to 2026;
• £5.2 million incurred in restitution
of trust funds in full during
H2 2018; and
• Financing costs of £6.5 million,
which comprise a £2.2 million
write-off of previously capitalised
banking fees and £4.3 million in
relation to professional fees incurred
during the refinancing of the balance
sheet (excluding transaction fees
offset directly against share premium).
26
| Countrywide plc Annual report 2018
The principal reason for the tax credit
is the £214.3 million impairment of
intangible and tangible assets which
resulted in unwind of the related
deferred tax liability.
Countrywide’s business activities
operate predominantly in the UK.
All businesses are UK tax registered
apart from a small operation in Ireland.
We act to ensure that we have a
collaborative and professional
relationship with HMRC and continue
to receive a low risk rating. We conduct
our tax compliance with a generally
low risk approach whilst endeavouring
to maintain shareholder value and
optimise tax liabilities. Tax planning
is done with full disclosure to HMRC
when necessary and being mindful
of reputational risk to the Group.
Transactions will not be undertaken
unless they have a business purpose
or commercial rationale.
In addition to our corporation tax
contribution, our businesses generate
considerable tax revenue for the
Government in the UK. For the year
ended 31 December 2018, we will pay
corporation tax of £nil (2017: £1.4 million)
on profits for the year; we collected
employment taxes of £129.2 million
(2017: £128.7 million) and VAT of £80.5
million (2017: £87.7 million), of which the
Group has incurred £38.8 million and
£2.8 million (2017: £36.4 million and
£3.0 million) respectively. Additionally
we have paid £11.4 million (2017: £11.8
million) in business rates and collected
£33.7 million (2017: £38.7 million)
of stamp duty land tax though
our conveyancing business.
The total tax contribution of the Group
was £296.4 million (2017: £307.7 million),
which includes both taxes borne of
£53.0 million (2017: £52.6 million) and
taxes collected totalling £243.4 million
(2017: £255.1 million).
Profit for the year – underlying
and statutory
The Group reported underlying
profit attributable to equity holders
(“underlying earnings”) of £4.5 million
(2017: £20.2 million), a decrease of 78%
for the year ended 31 December 2018.
The Group’s statutory loss after tax
of £218.2 million (2017: loss of £207.3
million) is after net exceptional costs
of £245.4 million (2017: £225.9 million),
contingent consideration charges
of £6.1 million (2017: £3.9 million),
share-based payment charges,
after National Insurance credit, of £1.7
million (2017: £1.6 million) and non-cash
charges of £4.9 million for amortisation
of acquisition-related intangible assets
(2017: £5.8 million) related to historical
acquisitions, together with the
corresponding tax effect.
Earnings per share
Adjusted earnings per share declined
to 0.6 pence (2017: 8.7 pence). Statutory
basic earnings per share declined to a
loss of 30.8 pence (2017: 89.3 pence).
These are based on the weighted
average number of shares in issue
of 707.6 million (2017: 232.3 million),
following the issue of 1.4 billion shares
on 30 August 2018. A reconciliation
of the basic and adjusted earnings
per share is provided in note 13.
Professional indemnity
provisions
During 2018 the Group received
reduced numbers of professional
indemnity valuation claims, in line with
expectations, and achieved closure
of challenging cases. Estimating
the liability for PI claims is highly
judgemental and we updated our
financial models to reflect the latest
inputs and trends and took advice from
our panel of lawyers in respect of open
claims. The progress made during the
year on some individually significant
claims, aligned with the low level of
claims made, resulted in some
unwinding of the provision.
Interest
Our drawdown on bank borrowing
facilities decreased from £210 million
at the prior year end to £85 million
at 31 December 2018, principally
as a result of the payment of net
proceeds of £125 million arising from
our equity raise on 30 August 2018
being applied to the revolving
credit facility.
As a consequence, finance costs were
down £4.2 million to £8.4 million
(before exceptional costs).
Taxation
A tax charge of £1.0 million (2017: £5.9
million) was recognised on underlying
profits of £5.4 million (2017: £26.1 million)
which represents an effective tax rate
of 17.5% (2017: 22.5%). The Group also
recognised an exceptional tax credit
of £35.5 million (2017: £9.7 million)
on losses before tax of £258.1 million
(2017: £237.2 million) which results
in an overall tax credit for the year
of £34.5 million (2017: £3.8 million).
This represents an effective tax
rate of 13.7% (2017: 1.8%).
Annual report 2018 Countrywide plc
| 27
Strategic reportCorporate governanceFinancial statements Chief financial officer’s review continued
adjusted EBITDA, which when
correcting for these cyclical cash
management practices would deliver
an operating cash flow conversion
rate of 124% (2017: 77%). Continued
focus has been brought to bear on
working capital management,
delivering reductions in the
debtors days within our
commercial business unit.
Capital expenditure has been focused
primarily on computer software.
During the first half of the year,
the Group disposed of its interest
in unlisted residential property fund
units for proceeds of £15.8 million.
Exceptional cash flows of £14.0 million
mainly comprise: £4.2 million of
redundancy costs; £6.7 million of
transformation project consultancy
charges and £5.0 million of payments
for the restitution of trust funds offset
by £2.1 million of professional indemnity
claim settlement receipts.
The £140 million proceeds arising
from the firm placing and placing and
open offer, net of the transactional
costs of £14.9 million, were used to
reduce the balance on the revolving
credit facility and reduce leverage.
Cash flow
In the statutory cash flow, cash
generated from operations decreased
by £60.9 million to an outflow of £2.8
million for the year (2017: inflow of
£58.1 million), principally driven by a
reduction in adjusted EBITDA of £32.9
million. This was exacerbated by the
unwind, during the first half of the year,
of cyclical cash management practices
previously undertaken, which involved
the delay in supplier payments at 31
December 2017 until after the year
end, amounting to £17.9 million.
The non-GAAP cash flow represented
below shows operating cash flow
conversion of 69% (2017: 104%) of
Non-GAAP cashflow
Adjusted EBITDA
Changes in working capital:
Decrease in trade & other receivables
Decrease in trade & other payables
Decrease in provisions
Changes in working capital
Operating cash flow (OCF)
OCF conversion rate
Use of funds
Capital expenditure
Repayment of finance leases
Net interest expense
Tax
Pension
Cash from operations
Deferred and contingent consideration from historic acquisitions
Purchase of investments
Proceeds from disposals
Purchase of own shares
Financing fees paid
Exceptionals
Total cash flow before capital refinancing
Capital refinancing
Cost of refinancing
Net capital raise
RCF repaid
Net decrease in cash and cash equivalents
Opening cash
Closing cash
1. Restated from the prior year for the adoption of IFRS 15 and correction of a prior year error (see note 2).
28
| Countrywide plc Annual report 2018
2018
£m
32.7
2017 Restated1
£m
65.6
14.9
(23.1)
(2.0)
(10.2)
22.5
68.8%
(9.3)
(2.1)
(7.5)
2.0
(2.0)
3.6
(7.9)
(1.5)
16.0
(0.5)
(0.9)
(14.0)
(5.2)
140.0
(14.9)
125.1
(125.0)
(5.1)
22.5
17.4
18.4
(12.5)
(3.0)
2.9
68.5
104.4%
(14.5)
(3.7)
(9.8)
(3.0)
(2.0)
35.5
(7.3)
–
0.7
(1.4)
(0.7)
(6.4)
20.4
36.8
–
36.8
(80.0)
(22.8)
45.3
22.5
Pensions
As at 31 December 2018 the net defined
benefit scheme liabilities were £4.6
million (2017: £5.6 million). The reduction
in the scheme liabilities of £2.8 million
exceeded the reduction in the value
of the scheme assets.
Pension contributions of £2.0 million
(2017: £2.0 million) were made in the
year, in line with the payment profile
agreed with the trustees in 2016 and
which remains in place for another
two years.
Tax strategy
The Group’s Board approved strategy
in relation to tax is published on our
investor relations website in line
with HMRC guidelines.
Himanshu Raja
Chief financial officer
7 March 2019
Net debt
At 31 December 2018, the Group
had net debt (including finance
lease liabilities) of £70.7 million
(31 December 2017: £196.4 million
as restated following net debt
amendments in respect of the
correction of a prior year error
– see note 20) with a net debt
to adjusted EBITDA ratio of 2.2x
(31 December 2017: 3.0x, as restated).
Net debt reflects a decrease of
£125.8 million principally due to
the net proceeds received in
respect of the firm placing and
placing and open offer undertaken
on 30 August 2018 (see note 26).
The Board has previously
acknowledged the need to bring the
leverage ratio down to the Group’s
medium term target of 1x. The net debt
reconciliation is provided in note 20.
Net debt maturity and changes
to committed bank facilities
In August 2018 the Company agreed an
amendment, extension and restatement
agreement relating to its term and
revolving credit facility with its lender
partners which provides the Company
with the financial flexibility to invest in
the business as it takes action to restore
the Sales and Lettings business back to
profitable growth. The Group reduced
its borrowing facility to a £125 million
revolving credit facility (RCF) repayable
in September 2022.
Going concern
The Board’s assessment in relation
to going concern is included in
note 2 to the financial information.
The directors have confirmed that,
after due consideration, they have
a reasonable expectation that the
Company and the Group have
adequate resources to continue
in operational existence for the
foreseeable future. For this reason,
they continue to adopt the going
concern basis in preparing the
financial statements.
Dividend
Given the scale of challenge required
to turn around the Sales and Lettings
business and the desire to invest in
cost and growth initiatives to build a
sustainable and profitable business
for the long term, whilst remaining
committed to reducing our leverage,
the Board has decided that there will
be a nil dividend recommendation
for 2018 (2017: nil pence).
In assessing future dividends, the Board
will consider: the future investment
in the business; and maintaining
appropriate levels of gearing.
Other information
Tenant fees
The draft Tenant Fees Bill in November
2017 sets out the Government’s
approach to banning lettings fees paid
by tenants. This will take effect from
1 June 2019. We estimate that, after
mitigation, this will have £9 million
impact on adjusted EBITDA in 2019.
The Group has an extensive
programme of activity to ensure
that we are fully compliant with the
new legislation as well as plans to
mitigate the effect of the ban.
Annual report 2018 Countrywide plc
| 29
Strategic reportCorporate governanceFinancial statements Corporate responsibility
Engaging with stakeholders
Our relationship with stakeholders
is very important to the business.
Communities
We aim to make the
communities in which
we work better places to live
and do business, encouraging
our businesses to support
causes in their local
communities.
People
We recognise that our people
are our greatest asset as they are
experts in their field and deliver for
our customers. We recognise the
importance of development and
opportunities available
to them.
Our key
stakeholders
Shareholders
We communicate to investors all
matters that are material to an
understanding of the future
prospects of the Group and
the use of their funds.
Customers
Our continued focus on providing
the best service to our customers
has been recognised in numerous
industry awards across our sectors.
30
| Countrywide plc Annual report 2018
Embedding our culture
Our people are our greatest asset. The backbone
of Countrywide who live and breathe our values
and deliver for our customers every day.
Responsible
We do the right thing.
We listen, take time
to understand and
always tell the truth.
Personal
We are a people business.
We care about our
customers and each
other. We have fun.
Straightforward
We keep it simple, dealing
with the complicated
things so our customers
don’t have to.
Passionate
We love working with
property and we work
hard, knowing that what
we do really matters.
Non-financial reporting directive
Reporting requirements
Where to read more in this report
Environmental factors
Details can be found in our corporate responsibility section, corporate governance
statement, and greenhouse gas emissions within the directors’ report.
Employees
Read more about our communication and engagement with our people.
Human rights, social
matters and anti-bribery
& corruption
Business model
Details of our policies and commitments to ethical standards can be found in our corporate
responsibility section, with modern slavery statements also available on our website.
Our strategy is to be the provider of choice for residential and commercial property
services, by delivering. Our aim is to deliver sustainable shareholder value through the
investment in our people and in delivering market-leading products and services.
Page
35, 48, 81
33
35
8
Non-financial KPIs
Details of our performance on non-financial KPIs can be found in our operating segment
reviews, providing insight into the underlying business drivers.
19-23
Annual report 2018 Countrywide plc
| 31
Strategic reportCorporate governanceFinancial statements Corporate responsibility continued
Gender diversity
Employees
4,614
6,024
Board
3
7
Senior management
41
20
10,638
10
61
Male
Female
Grand total
Senior management comprises employees with responsibility for planning, directing or controlling the activities of the
Group or a strategically significant part of it. Directors of subsidiary companies are included only to the extent that the
subsidiary is significant in the context of the Group as a whole.
32
| Countrywide plc Annual report 2018
In addition to this Executive blogs are
shared across the organisation and
local meetings held throughout the
business units.
In 2018 we launched the Countrywide
long service programme to recognise
and celebrate key service milestones.
Colleagues are featured on the Roll
of Honour on Our Place and receive
a personal message from the group
managing director. Since launching
the programme over 2,000 colleagues
have been recognised, celebrating
over 9,500 years’ service.
Diversity and inclusion
At Countrywide we recognise that the
promotion of equality, diversity and
inclusion concerns us all and is the
responsibility of all colleagues. We all
contribute to ensuring that the Company
continues to be a welcoming and
productive environment, where there
is equality of opportunity, fostered in
an environment of mutual respect and
dignity. We are committed to treating
everyone, colleagues and customers,
with dignity and respect. We promote
an environment free from discrimination,
harassment and victimisation.
Countrywide’s principle of diversity
encompasses acceptance and
respect. It means understanding
that each individual is unique and
recognises our individual differences.
We understand that simply having
diversity in our work force is not enough;
we must create an inclusive environment
where all people can contribute and
reach their full potential.
People
Our people are our greatest asset.
As experts in their field who deliver
for our customers we recognise
the importance of development
and opportunity.
Our vision is to be the provider of choice
for residential and commercial property
services in the UK. In order to achieve
this we develop, retain and recruit
dynamic, talented, professional people
and create a culture where people are
valued, can be themselves and realise
their potential.
2018 was a year of reset. We made
significant progress in ensuring we
have the right level of headcount
and expertise at territory, regional and
branch level across the UK Sales and
Lettings business. We continued to grow
headcount with focus on recruitment for
our Financial Services business, and
continued career development and
progression within our B2B business.
We recognise that our people need
to be inspired to be the best they
can be, feel valued and engaged.
To support this we offer a range
of benefits and development
opportunities for our people.
Award winning reward
Under One Roof, winner of ‘Employee
Benefit Awards 2017’ offers colleagues
and their families discounts on a range
of Countrywide products and services
and since launch 6,000 employees
and/or their families have benefited
from Under One Roof discounts.
Countrywide has a flexible approach
to on-the-job learning and a commitment
to keeping our teams safe and legal.
Compliance training is managed through
our online system and completion rates
are at an all-time high. Modules provide
colleagues with tailored courses to
support them in the roles they perform.
Further courses will become available
as we introduce induction and
on-boarding programmes and
maximise our use of technology.
Our surveying business continues to
attract trainee surveyors who benefit
from intense training to then begin their
career with an award winning surveying
team. Over 200 surveyors have become
AssocRICS qualified since the launch of
the programme.
We delivered over one thousand
classroom training sessions
throughout 2018 to support our
colleagues in Sales and Lettings,
these are underpinned by the Career
Development Framework which maps
opportunities within the business and is
supported by online and on-the-job
coaching and development.
Share plans form a key part of the Group
total reward offering. During the year, an
in depth review of the Company share
plans took place, resulting in closure of
the Share Incentive Plan (SIP) and the
successful introduction of a Save as You
Earn (SAYE) plan on a three year term.
Countrywide provides colleagues with
regular information updates including
financial results and market updates
through Our Place (intranet). In addition
to this Executive blogs are shared
across the organisation and local
meetings held throughout the
business units.
HR support
In 2018 the HR team underwent a major
restructure to deliver significant savings
in line with our focus on cost. HR
services moved from a business
partnering model to a help desk and
online query management service whilst
in parallel developed the capability of
our management teams. HR Connect
was launched as a self-service tool to
support hiring managers and colleagues
throughout the business.
Communication and
engagement
Countrywide delivers timely, clear and
consistent messaging to all colleagues.
Updates include financial results and
market updates through Our Place.
Our Place is a key communication
channel with over 60% of colleagues
regularly visiting the site for updates
including: financial results, market
updates, blogs and business
related information.
Our Place hosts High Fives, a group-
wide recognition programme, created
to encourage colleagues, managers and
executives to recognise performance
and behaviours that reflect the values
of Countrywide. Since launching in
April 2017 over 60,000 High Fives
have been issued thanking
colleagues across the Group.
Annual report 2018 Countrywide plc
| 33
Strategic reportCorporate governanceFinancial statements Corporate responsibility continued
34
| Countrywide plc Annual report 2018
Social and
community matters
Our social and community interest
objective, which includes the
promotion of human rights, ethical
issues and abolition of modern
slavery, is to establish a common
and coherent approach within our
Group businesses to support
investment in the communities
in which they operate.
Working in partnership with
communities over a sustained period
is fundamental to our sustained
success. We employ over 10,000
people working in local communities
across the country. We encourage
our businesses to: make donations
to local and national charities; support
and organise fundraising events and
local community initiatives; and
support our employees in their
personal fundraising ambitions.
Charitable giving
We encourage our people to
support local charities within the
communities we serve. Countrywide
also supports a workplace charitable
giving scheme so that employees can
donate to their charities of choice, tax
efficiently through payroll deduction.
Similarly, the subsidiary businesses
are encouraged to support causes
within their local communities,
and colleagues from across the
country participate in a number
of local initiatives.
Human rights
While the Group is accountable
to investors, we take into account
the interests of all our stakeholders,
including our colleagues, customers
and suppliers, as well as the local
community and the environment
in which we operate.
Countrywide’s reputation is one
of its key assets and, as a major player
in the UK property services sector,
adhering to the highest standards
of integrity, personal conduct, ethics
and fairness is deemed to be of vital
importance. Due to the regulatory
requirements in the UK we have
judged that human rights are not
a material risk for the business.
We do, however, work closely with our
third-party external suppliers to ensure
their human rights and ethics policies
are aligned with those of Countrywide.
Environmental factors
Environmental savings make good
business sense. Our primary objective
is to minimise our carbon footprint
and our commitment to the reduction
of energy consumption, principally
in our fleet and branch footprint,
has a positive impact both on the
environment and reducing costs
to the Group. Our greenhouse gas
emissions are included on page 81
in the directors’ report.
Modern slavery
We are committed to ensuring
that there is no modern slavery
or human trafficking in our supply
chains or in any part of our business.
Our Anti-slavery Policy reflects our
commitment to acting ethically and
with integrity in all our business
relationships and to implementing
and enforcing effective systems
and controls to ensure slavery and
human trafficking is not taking place
anywhere in our business and in
our supply chains.
A copy of our modern slavery
statement can be found on our
website: https://www.countrywide.
co.uk/modern-slavery-act-statement-
countrywide-plc.pdf/.
Anti-bribery and corruption
The Group has in place arrangements
to ensure compliance with the Bribery
Act 2010 and our corporate ethics
policy, included within the staff
handbook, includes policies regarding
ethical standards within Countrywide,
including anti-bribery and corruption,
money laundering, employee share
dealing and more. Whistleblowing
policies and training modules, with
associated employee reporting
channels, also exist to support
these ethical standards.
Charity case study
Hamptons International have
been supporting their chosen
charity Cancer Research UK since
2013. Since then they have raised
more than £244,000 from across
the business.
In 2018 Hamptons’ main fundraiser
was the Virgin Sport British 10k. This
10 kilometre run takes place in central
London and passes some of London’s
top sights. In July 2018, Hamptons
entered 30 keen runners who
together raised £7,665 for Cancer
Research UK at this fantastic event.
Overall in 2018, Hamptons raised over
£32,000 for Cancer Research UK.
Annual report 2018 Countrywide plc
| 35
Strategic reportCorporate governanceFinancial statements Risk management and principal risks
Our approach to risk
management
Risk
assurance
e
s
o
P urp
Risk
strategy
Customers
Risk
monitoring
and
reporting
Risk
governance
Str
a
t
e
g
y
Risk
culture
Colleagues
Products
and services
V
i
s
i
o
n
Risk
control
a lu e s
V
Risk
identification
Risk
assessment
In doing so, the following core
principles have been agreed
to direct the approach:
• Protect value and provide assurance
regarding the controls over the
principal risks;
• Be straightforward and pragmatic
whilst also providing assurance
regarding the operation of clearly
defined minimum controls; and
• Embed the right culture with support
and training to ensure accountability
and ownership across the whole
Group but particularly in the front
line of the businesses.
In addition, the associated Group risk
appetite framework has also been
reviewed and a series of macro-level
risk appetite statements proportionate
to the nature, scale and complexity of
risks faced by the business are in place.
Risk governance
The Group operates a three lines
of defence model. Responsibility for
approving, establishing and maintaining
the RMF rests with the Board. There is
a clear organisational structure in place
with documented, delegated authorities
and responsibilities from the Board to
the Executive Committee.
Individual business units are
responsible for executing their activities
in accordance with these delegated
authorities and as part of the previously
mentioned strategic reset, our
governance committee structure
has also been streamlined and a
clearer documented focus on risk
and compliance has been implemented
for executive and senior leadership
team meetings.
Identifying and managing
the risks to our business
The Group recognises that the
successful management of risk as part
of its everyday activities is essential to
support the achievement of its strategic
objectives. The Board is responsible for
the overall stewardship of the systems
of risk management and internal control.
The Board in conjunction with the
Audit and Risk Committee regularly
undertakes a robust assessment of the
principal risks facing the Company.
A summary of the principal risks and
uncertainties facing the Group is
provided on pages 38 to 42.
The Group’s Risk Management
Framework
The Group operates a Risk
Management Framework (‘RMF’) which
seeks to establish an interactive set
of arrangements and processes to
support the effective and consistent
management of risk. The outputs of
the RMF provide assurance that risks
are being appropriately identified and
managed and that an independent
assessment of management’s approach
to risk management is being performed.
The Group has continued to embed the
components of the RMF to ensure that
it is aligned with evolving regulatory
requirements within the businesses.
The eight components of the RMF
are shown in the diagram above.
Risk strategy
During 2018 an extensive review has
been undertaken of the Group’s
approach to governance, risk and
compliance and, in line with the
strategic theme that has been followed
elsewhere in the Group, a “back to
basics” reset has been carried out.
36
| Countrywide plc Annual report 2018
Three lines of defence:
1. First line of defence
Senior management is responsible
for ensuring that risks associated with
our business activities are identified,
assessed, controlled, monitored,
reported and establishing an
appropriate culture and tone
from the top.
2. Second line of defence
Our ‘control’ functions, and the
Executive Committee, set policy and
frameworks for managing key risks.
3. Third line of defence
Internal Audit supports the Group
Audit and Risk Committee and
provides independent assurance on
the system of risk and internal control.
Underpinning the Countrywide RMF is the ‘three lines of defence’ model:
Third line
• Review first and second lines
• Provide an independent
perspective and challenge
the process
• Objective assurance over
the control environment
Second line
• Develop and oversee the RMF
• Oversee and challenge risk
management
• Provide guidance and direction
• Set policy
First line
• Deliver day to day risk management
• Follow the Group RMF
• Apply internal controls and risk
responses
Risk culture
Operating principles and expectations
for risk management are driven by a
clear tone-from-the-top. During the
year there was further reinforcement
of expectations about keeping the
business and its customers safe
and legal along with the need for
a continuous improvement mindset.
The Group’s Code of Conduct provides
the basis for establishing expectations
of all colleagues and this is reinforced
via an annual programme of
compliance and ethics training
along with senior manager
attestations of policy compliance.
Risk identification
Effective risk management requires
that the Group has a complete
understanding of the risks it faces and
these are defined in the risk universe.
Countrywide plc Board
Group Audit and Risk Committee
Executive Committee
Group Risk & Compliance Function
Sales and Lettings
business unit
Financial Services
business unit
B2B
business unit
Group function
leadership teams
Risk assessment
A standardised assessment framework
is used to evaluate risk exposures at
both business unit and overall Group
levels which enables consistent
measurement. Risk assessment
follows both a bottom-up approach
through individual business unit /
functional teams and a top-down
quarterly review by the Executive
Committee (ExCo) and Group Audit
and Risk Committee (GARC).
Risk control
Controls operate across the business
at entity level through Group policy
minimum control standards and locally
through individual business unit
standard operating procedures.
Risk monitoring and reporting
Monitoring and reporting of risk
exposures is undertaken through
Executive and Senior Leadership
Team meetings and is overseen by the
Group’s risk and compliance function.
The GARC receives a consolidated risk
report on a quarterly basis, detailing
the risks facing the Group and the
expected six month position against
a series of planned mitigating actions.
The Committee is also provided with
regular reports on the activities of the
Group’s risk and compliance function.
Risk assurance
Assurance regarding the management
of risk is provided across the three-
lines-of-defence model. Management
committees consider outputs from
reviews performed by the first line
(e.g. quality assurance results and
management reviews), the second line
(e.g. risk reviews conducted in relation
to specific themed areas) and the third
line via internal audit reports along
with progress in implementing agreed
management actions. The results
of this assurance activity are reported
at all relevant levels within the Group
including ExCo and GARC.
Annual report 2018 Countrywide plc
| 37
Strategic reportCorporate governanceFinancial statements Risk management and principal risks continued
Principal risks and
uncertainties facing
the Group
The Board has undertaken a robust
assessment of the Group’s principal
risks. Crystallisation of these risks could
cause the Group’s future results of
operations, financial condition and
prospects to differ materially from
current expectations. This includes the
ability to maintain appropriate levels of
capital or achieve stated targets and
commitments along with other expected
benefits. In addition, risks relating to the
Group that are not currently known, or
that are currently deemed immaterial,
may individually or cumulatively also
potentially have a material adverse
effect on the future results of
operations, financial condition
and prospects.
The table below sets out the
principal risks faced by the Group
together with mitigating factors and
associated commentary on any changes
in risk profile.
Risk and impact
Mitigation
Change
Commentary
Financing and capital structure
The Group undertakes open and regular
Decrease The Group successfully
communication with its lending institutions.
The consideration of debt covenants and
available headroom is built into the Group’s
planning, budgeting and forecasting processes,
with regular monitoring undertaken against
covenant compliance.
The Group has developed detailed operating
plans and budgets to support the restoration
of profitable growth and continually seeks to
optimise its working capital through close
and proactive cash management.
completed its capital
refinancing plan in
August 2018 which was
supported by shareholders
and the Group’s lending
syndicate. The Group raised
£125 million in net proceeds
and an amended revolving
credit facility was secured with
its lender group which now
extends to September 2022.
As a result, net debt was
reduced from £212 million
at 30 June 2018 to £71 million
at 31 December 2018.
Covenants were also reset, and
further details are available on
page 276 of the Prospectus
relating to our 2018 Placing
and open offer, on our investor
relations website at: https://
www.countrywide.co.uk/
corporate/investor-relations/
investing-in-countrywide/
countrywide-prospectus-
2018.pdf/.
Effective management of
the Group’s capital structure,
banking facilities and
covenants is central to the
achievement of its strategic
objectives and profitability.
38
| Countrywide plc Annual report 2018
Change
Increase
Investment in restoring lettings
market expertise remains
ongoing and the Group will
continue to reduce its
dependency on housing
sales transactions. In addition,
it has embarked on the
transformation of its IT systems
and customer contact centres
which will yield cost savings
in 2019 and beyond.
Risk and impact
Mitigation
Exposure to UK housing market trends
The Group continuously monitors the state of
UK housing market transaction levels, pricing,
mortgage approvals and other forward-looking
indicators such as interest rate predictions.
Financial scenario planning is also undertaken
as part of the annual budgeting and three-year
planning process to assess the potential impact
of the political and economic uncertainty arising
from Brexit.
The Group has also developed mitigation plans
to address its cost base at a business unit level
should there be a material change in the level
of housing transactions.
The UK housing market
continues to follow cyclical
trends and be impacted in
particular by continuing
uncertainty around the
implications of the UK’s
planned exit from the
European Union (Brexit).
There remains a high
correlation between the
volumes and prices of
houses sold and business
performance within areas
such as Estate Agency,
Conveyancing, Surveying,
Mortgage Broking and
in relation to other
complementary services
that are offered.
Professional indemnity exposure
The previous downturn in the
UK housing and commercial
property markets along with
the impact of sub-prime
lending exposed the Group
to a higher level of
professional indemnity
insurance claims within
its surveying division.
Decrease Further improvements have
been experienced in this area
during 2018 and the volume of
claims remains considerably
reduced when compared to
prior years.
Risk management in the
Group’s surveying operations
remains a top priority and
continues to deliver
recognisable benefits for our
clients as well as the business.
To support the approach further
in this regard, senior colleagues
with lender credit risk
experience have also been
recruited into the first line
risk management team.
The Group has consciously changed its risk
profile and continues to avoid property
valuations relating to higher risk lending and
client types. The Group’s valuation and surveying
business serves predominantly the UK’s largest
ten lenders and does not operate in the sub
prime market.
Monitoring arrangements including operational
controls implemented for the review and audit of
valuation reports along with the targeted use of
automated valuation models continue to aid
checks in perceived higher risk cases. Further
investment is also ongoing to provide the
Group’s surveying workforce with technology
that aids compliance.
Close monitoring of legacy claim trends and
related financial provisions remains ongoing.
Different professional indemnity insurance
arrangements are maintained for the Group’s
commercial property business, Lambert Smith
Hampton, as potential individual exposures
could be larger. In doing so, this protects overall
Group cover and effectively ring-fences
commercial risks, delivering a financially
beneficial position.
Annual report 2018 Countrywide plc
| 39
Strategic reportCorporate governanceFinancial statements
Risk management and principal risks continued
Risk and impact
Mitigation
Change
Commentary
Potential loss of a major business partner or contract
The Group has a number
of material commercial
relationships with banks,
building societies, insurers
and other key partners.
The loss of one of these
contracts, or a significant
reduction in volumes or fees,
could have a significant
impact on revenues in more
than one area of the business
and consequently on the
Group’s profitability.
The Group has an agreed approach to corporate
client management with key relationship
responsibilities defined at senior management
level and supported by members of the Group’s
Executive Committee. Regular reviews are
undertaken with key clients to ensure
continued focus on investment, maintenance
of service levels and compliance with
contractual requirements.
A highly experienced relationship management
team is also in place with responsibility for
key client liaison and developing new
contract opportunities.
Resilience of IT infrastructure and arrangements for the protection of data
The business relies upon a
series of interdependent
systems for operational
performance and financial
information; a failure of one
of these, a security breach
or a cyber-attack could
impact the Group’s
operations, reputation
and future profitability.
In addition to implementing a series of
progressive IT system improvements to support
operational performance during 2018, significant
capital investment has also been approved to
underpin a Group wide IT transformation
programme. This is being supported by specialist
consultants and further system improvements
will be implemented in 2019 and beyond.
The Group’s in-house information security team
continues to monitor information security risks
and potential data breaches.
Ongoing Group-wide training is being
maintained to ensure that colleagues are
aware of good information security practices
and data protection requirements.
Following the implementation of the General
Data Protection Regulation (GDPR) in May 2018,
improvements have also been made to relevant
working practices and controls and these will
continue into 2019.
No
change
The importance of key
partner alliances remains
a key focus as part of the
Group’s B2B strategy.
The Group continues to benefit
from strong relationships with
its corporate partners and has
retained existing, as well as
won new clients during 2018.
Increase
A review has been completed
of the Group’s IT related risks
and the requirements of the
IT transformation programme
have been mapped to ensure
that these will be reduced
on a prioritised basis.
Ongoing risk monitoring
of the IT transformation
programme is undertaken
monthly by the Executive
Committee and also at every
meeting of the Group’s
Audit and Risk Committee.
40
| Countrywide plc Annual report 2018
Risk and impact
Mitigation
Change
Commentary
Changing regulatory environment
The Group maintains close
links and open dialogue with
its regulators and continues
to monitor regulatory
developments along with
the consequent implications
for its businesses.
The overall cost of regulation
continues to grow (e.g. the
implementation of SM&CR).
Our businesses operate
across multiple regulated
sectors. Failure to meet
current legal or regulatory
requirements could lead to
financial penalties and/or
reputational damage,
including withdrawal of
authorisation or licences
required for the Group
to do business.
The Group continues to maintain an appropriate
‘tone at the top’, which is cascaded via its Code
of Conduct, policies and management
communications along with associated
compliance and ethics training.
No
change
Expertise within the main business areas is
supported by centralised legal and compliance
teams who monitor existing business practices
and any changes closely.
A programme of core compliance and ethics
training is also in place across the Group which is
supported by learning management technology.
Results are monitored closely by both the
Executive Committee and the Group’s
Audit and Risk Committee.
Specific projects are mobilised to address
material regulatory changes (e.g. the Financial
Conduct Authority’s Senior Managers’ and
Certification Regime – SM&CR).
Robust complaints management systems are
in place across all operating divisions.
Increasing competition in the evolving markets that we operate in
Countrywide operates across
a range of highly competitive
markets, a number of which
are experiencing changes
due to technological
advancements.
The Group’s strategy is to concentrate on
its strengths of being an integrated property
services provider that brings people and
property together through its sales, lettings
and financial services businesses operating
out of its 870 branches.
Increasing competition, from
existing competitors or new
entrants, could lead to a
reduction in market share
and/or a decline in revenues.
Targeted management reporting and staff
incentive schemes have been developed
that continue to drive the link between Group
value related services; these benefit customers
as well as the Group’s businesses.
The Group’s service offering is monitored
continually to ensure that customer
expectations are met.
No
change
The Group’s strengths lie in the
expertise and advice it is able
to offer customers across a
wide range of services. In
particular, reinvestment in the
sales and lettings business
continues to strengthen
industry experience and the
ability to service changing
customer needs at local level.
Annual report 2018 Countrywide plc
| 41
Strategic reportCorporate governanceFinancial statements
Risk management and principal risks continued
Risk and impact
Mitigation
Change
Commentary
Securing and retaining excellent people
The Group’s ability to
deliver its strategy is
dependent on attracting,
developing, motivating
and retaining people of the
highest quality. An inability
to recruit or retain talent
could impact the ability to
deliver financial performance
and growth targets.
The Group continues to invest in its people.
During 2018, standard career development
frameworks were developed for the Sales
and Lettings business along with clear retention
plans in Financial Services. The Group also
continues to fund graduate and trainee
schemes in Surveying, Conveyancing, Lambert
Smith Hampton and supports professional
development for colleagues in support functions.
The Group has also recently launched a
wellbeing programme (BeWell) to support
colleagues’ mental, physical and financial
health as well as the environment.
A range of employee benefits are in place that
seek to incentivise and motivate performance
across all levels of management. These are
overseen by the Remuneration Committee.
A structured approach has been developed
for talent recruitment by investing in internal
capability to support the Group’s employer
of choice strategy.
No
change
People are at the heart of
the Group’s business and are
essential to deliver its strategy.
Following the increased level of
colleague attrition experienced
in the Sales and Lettings
business during 2017, further
investment at branch, area
and regional levels in 2018 has
improved the position with over
300 colleagues returning to
the Group during the year.
In addition, the Group continues
to monitor overall levels of
colleague engagement to
drive activity that focuses on:
improving morale; reducing
attrition; and identifying
potential pressure points to
improve operational efficiency.
Brexit
The UK is due to leave the European
Union (EU) in March 2019. Brexit has
created inherent uncertainty across
the UK and the EU. As a result of the
consequential uncertainty to the UK
economy, the impact to interest rates
and the change of consumer spending
habits is unknown.
The directors recognise that the
outcome of Brexit presents an
unavoidable risk, although since the
referendum there has been a material
impact to the results of the Group as a
result of the reduction in transactional
market volumes. Additionally, the level
of risk discussed above is subject to
whether there is a “hard” or “soft”
Brexit, however it should also be
considered that future economic
weaknesses may be offset by new
reforms targeting the housing
market in general.
Whilst it is not possible to predict the
outcome of Brexit, the directors have
considered specific threats to the
business plan and methods to mitigate
those risks, as outlined in the
‘Exposure to UK housing market
trends’ risk. They are monitoring
the developments and continue
to update our plans accordingly.
As Brexit could impact future cash
flows and forecasts, it should be
noted that, whilst the directors have
performed sensitivity analysis on
their impairment calculation, the
assessments are based on there
being no significant adverse change
to the current macro economic
climate. Our going concern
assessment has been performed
on the same basis. As the Group
operates within the UK, has a limited
number of EU employee and is
primarily service based, it is protected
from other significant Brexit risks.
42
| Countrywide plc Annual report 2018
Viability statement
The Group’s prospects are assessed
through the Group’s strategic planning
process, including review by the
executive team of the three-year plan
with business unit functional leaders.
The Board participates by means of
a detailed review and approval of the
three-year plan, which is followed by
the development of a detailed annual
operating plan and budget, also
signed off by the Board. Financial
projections for the next three years
are compiled from estimates of
financial performance after taking
into account principal risks. A central
review of debt covenant compliance
and headroom is completed.
Key assumptions underpinning
the strategic plan include:
market volume forecasts, market share
growth forecasts and cost reductions,
including benefits from existing major
rationalisation benefits. In 2018,
the Group completed its capital
refinancing plan raising net proceeds
of £125 million, and agreed an
extension and amendment to its
revolving credit facility of £125 million.
The new facility provides a revised
covenant package that recognises
that the Group is in a turnaround
position in a challenging market
environment. The facility expires
in September 2022. The Board
has a reasonable expectation that
the Group will be able to amend
and extend its facility upon expiry
with its existing banks or to bring
new lenders into the syndicate.
Assessment of viability
The directors have assessed the
viability of the Group over a three-year
period, taking account of the Group’s
current position and the potential
impact of the principal risks and
mitigating actions detailed above.
The directors have determined that
a three-year period to 31 December
2021 is the most appropriate
timeframe as: this period aligns with
the Group’s business planning and
budgeting cycle and the performance
measurement period for the long term
incentive plan; and demand is driven
by consumer confidence which is
difficult to project beyond a three-
year period.
The strategic plan reflects the
directors’ best estimates of the
prospects of the business. The plan
was then stress tested by overlaying
the possible financial impact of a
number of scenarios beyond those
included in the plan.
These scenarios are based on those
principal risks (above) considered to
be most important, namely: exposure
to UK housing market trends (volumes
and house price levels); increasing
competition (volumes and fees); and
regulatory compliance (incorporating
professional indemnity, the changing
regulatory environment and the impact
of changes in legislation in respect of
tenancy fees).
These scenarios were tested against
a decline in transactional volumes
and the consequent knock-on impact
of reduction in earnings within our
estate agency operations to other
related areas of the Group. The results
take into account the availability and
effectiveness of mitigating actions,
including changes to our cost base
and flexing of capital expenditure
(capex). Each of these actions would
be potentially available to avoid
or reduce the impact of the
identified risks.
The directors considered the financial
and operational impact of these
severe, but plausible, scenarios
to determine their overall effect
on the Group’s financial position.
This assessment considered the
Group’s expected financial position,
existing banking facilities and potential
management actions. The results of
the stress testing showed that the
Group would be able to withstand
the impact of those scenarios by
adjusting its operating plans.
However, this statement is not a
guarantee because not all future
events and conditions are predictable.
Particularly, and as discussed above,
the terms on which the United
Kingdom may withdraw from the
European Union are not clear and
therefore it is difficult to evaluate the
potential implication on the Group’s
trade, customers, suppliers and the
wider economy.
Viability statement
Based on their assessment
of prospects and viability above,
the directors confirm that 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 three-year
period ending 31 December 2021.
The directors also considered it
appropriate to prepare the financial
statements on the going concern
basis, as explained in the basis
of preparation paragraph in
note 2 of the financial statements.
The strategic report was
approved by the Board of
Directors on 7 March 2019
and signed on its behalf by:
Peter Long
Executive Chairman
Annual report 2018 Countrywide plc
| 43
Strategic reportCorporate governanceFinancial statements
Board of directors
As at the date of signing the directors’ report, the
following people were directors of the Company:
Peter Long
Executive chairman
David Watson
Deputy chairman and
senior independent
non-executive director
Himanshu Raja
Chief financial officer
Paul Creffield
Group managing
director
Cathy Turner
Independent
non-executive director
David joined the Group
in September 2013 as
non-executive director of
Countrywide and is deputy
chairman and the senior
independent non-executive
director. David is currently
a non-executive director
of Hermes Fund Managers
Limited and Kames Capital
plc, where he chairs the
audit committees, and
senior independent
non-executive director
at TR Property Investment
Trust plc. He has extensive
industry and accounting
experience. David has had
a distinguished career as
a finance director. Most
recently he was finance
director of the general
insurance division of Aviva.
Before that he held various
other senior financial roles
at Aviva and at Prudential
and M&G Group. David is
a chartered accountant
and a graduate of City
University Business School.
Peter was appointed
non-executive director of
Countrywide in February
2016 and took over as
non-executive chairman
at Countrywide’s annual
general meeting on 27
April 2016. On 24 January
2018 he became executive
chairman of Countrywide.
A respected business
leader, Peter was chairman
of Royal Mail plc from June
2015 to September 2018,
and also had a long and
successful executive career
in the travel industry.
This included transforming
a small UK tour operator,
First Choice, into Europe’s
largest leisure travel group,
TUI Group. In February
2016 after a planned
succession transition
period Peter stepped down
as chief executive of TUI
AG joining its Supervisory
Board and where on 13
February 2018 he was
appointed vice chairman.
He was formerly senior
independent non-executive
director of RAC plc
(2001-2005) and Rentokil
Initial plc (2006-2014). He
was also a non-executive
director of Debenhams plc
(2006-2009).
Himanshu joined the Board
in June 2017 and assumed
the chief financial officer
role from 1 August 2017.
Himanshu brings strong
turnaround skills and a
proven track record of
value creation with over
25 years’ experience
in large multinational
organisations in the
business and IT
services, software and
telecommunications
sectors. He led the Group’s
capital raise and the
re-setting of the Group’s
banking facilities in August
2018. Himanshu was
previously chief financial
officer of G4S plc for three
years where he was
responsible for finance,
treasury, tax, IR and M&A
and IT and procurement
and led a significant
improvement in contract
risk management and
governance across the
Group and delivered
significant cost
transformation and
cash flow improvement.
Prior to G4S plc, Himanshu
was chief financial officer
of Misys plc, under PE
ownership; and before that,
was chief financial officer of
Logica plc, where he led
the sale of the group to
CGI in a £2.1 billion
transaction. Himanshu
graduated in law from the
University of Wales, and
qualified as a chartered
accountant in 1989.
Paul rejoined the Group
in October 2006 (having
worked for Countrywide
previously), and was
promoted to the Board
as group managing director
in August 2018. With over
35 years of industry
experience, Paul has
an in-depth knowledge
of the market and
operations. Since joining
the Group, Paul has led
the B2B business unit, was
commercial development
managing director
(responsible for Lambert
Smith Hampton and the
Vista commercial property
fund), and led the London
and high value market
brands for Sales and
Lettings. Paul was formerly
operational managing
director at Rightmove plc,
and held senior roles
within Nationwide
Building Society.
Cathy was appointed
non-executive director
of Countrywide and chair
of the remuneration
committee in July 2013.
Cathy is also a non-
executive director and
chair of the remuneration
committee for Aldermore,
part of FirstRand, and
Quilter PLC. She is a
partner at the senior
advisory firm Manchester
Square Partners LLP, an
honorary fellow of UNICEF
UK and a member of the
board of the Gurkha
Welfare Trust. Cathy is
a former council member
of the Royal College of Art
and has extensive industry
experience working with
Deloitte & Touche, Ernst
& Young and Towers
Watson in her early career.
She subsequently joined
Barclays PLC, where she
was a member of the group
executive committee with
responsibility for human
resources, corporate affairs,
strategy, and brand and
marketing. During her time
with Barclays, she was
also director of investor
relations for four years and
had extensive experience
in remuneration in her
many roles. She was chief
administrative officer of
Lloyds Banking Group PLC.
Cathy is a graduate of the
University of Lancaster.
44
| Countrywide plc Annual report 2018
Chairman
Executive director
Independent non-executive directors
Non-independent non-executive director
1
2
6
1
Key
Committee membership:
Audit and Risk Committee
Nomination Committee
Remuneration Committee
Chair of Committee
Jane Lighting
Independent
non-executive director
Rupert Gavin
Independent
non-executive director
Natalie Ceeney CBE
Independent
non-executive director
Mark Shuttleworth
Independent
non-executive director
Caleb Kramer
Non-independent
non-executive director
Jane was appointed
non-executive director in
June 2014. She has spent
her career in broadcast
media, including chief
executive officer of
Channel 5 Broadcasting,
CEO of Flextech plc and
founder and CEO of
Minotaur International. She
was formerly non-executive
director at Paddy Power
plc, a senior independent
director at Trinity Mirror,
a trustee of the Royal
Television Society,
governor of the National
Film and Television School
and a member of the British
Screen Advisory Council.
Rupert was appointed
non-executive director in
June 2014. He is chairman
of the board of trustees of
Historic Royal Palaces and
also chairs the Honours
Committee for Arts and
Media. Rupert has a range
of other board positions,
at both chairman and
director level in a variety
of businesses, with a strong
consumer bias. Most
recently, he was chief
executive officer of Odeon
and UCI Cinemas Group
between 2005 and 2014.
Rupert was previously
at the BBC where he
was chairman and
chief executive of BBC
Worldwide and also at BT
where he was managing
director of the consumer
division, before which he
was at the Dixons Stores
Group, latterly as deputy
managing director.
Natalie was appointed as
a non-executive director
in April 2017. Natalie chairs
the board of Innovate
Finance, is a non-executive
director of Anglian Water
and Sports England, and
leads an independent
strategy consultancy
practice. After training as
a strategy consultant at
McKinsey & Company,
Natalie’s executive career
has included chief
executive officer roles
at HM Courts and Tribunals
Service, The Financial
Ombudsman Service, and
The National Archives, and
as a member of HSBC’s UK
executive team, leading
digitally enabled, customer
focused change. Natalie is
a graduate of the University
of Cambridge.
Caleb Kramer joined the
Group in May 2009 and
was subsequently
appointed as a director. He
is a managing director and
portfolio manager (Europe)
at Oaktree Capital
Management (UK) LLP.
Before joining Oaktree in
2000, Caleb co-founded
Seneca Capital Partners
LLC, a private equity
investment firm. From 1994
to 1996, he was employed
by Archon Capital Partners,
an investment firm. Before
1994, Caleb was an
associate in mergers and
acquisitions at Dillon Read
and Co. Inc. and an analyst
at Merrill Lynch and Co. Inc.
He graduated with a BA
degree in economics from
the University of Virginia.
Mark was appointed
non-executive director in
October 2018 and became
chair of the Audit and Risk
Committee on 1 January
2019. He has spent his
executive career as a CFO,
with extensive Plc, venture
capital and US experience.
He finished his executive
career as CFO of Pace Plc,
a FTSE 250 company.
Prior to that, Mark had
considerable experience
in the Middle East where
he was the CFO of
Emirates Integrated
Telecommunications
(“du”), based in the UAE,
and prior to that, was the
Group CFO of Qtel (now
known as Ooredo), the
publicly quoted Qatar
headquartered telecoms
company. His executive
career has covered a
significant amount of
restructuring, both from
within the profession and
subsequently in industry
before moving into
telecoms 15 years ago,
focusing on electronic
manufacturing and
distribution with
International scale. He is a
chartered accountant and
certified INSEAD Director.
Annual report 2018 Countrywide plc
| 45
Strategic reportCorporate governanceFinancial statements Corporate governance
Chairman’s introduction
to corporate governance
“As we reshape
the business for
the future, our
success is very
much dependent
on developing
a culture across
the Group that
supports the
implementation
of our plans and
strategy.”
Peter Long
Executive chairman
Dear shareholder
On behalf of the Board, I am pleased
to present Countrywide’s corporate
governance statement.
2018 saw the Group focus on its
strategy and turnaround. In order
to ensure the Group has the financial
flexibility to execute the strategy and
turnaround plan, on 2 August 2018 we
announced the launch of a firm placing
and placing and open offer which,
following shareholder approval, raised
gross proceeds of £140 million. The
Group’s high standards of corporate
governance underpinned and
supported the capital raise process,
and I was delighted and grateful at
both the level of support we received
from our shareholders, and to welcome
new investors.
There are considerable changes
going on in the corporate governance
environment, principally with the
introduction of a new UK Corporate
Governance Code that will be
applicable to the Group’s 2019
reporting year. The Board continues
to recognise the value and importance
of meeting the principles of good
corporate governance as set out in the
Code. The Board acknowledges that
achieving high standards of corporate
governance is a continual process and
changes to the structure and operation
of our governance processes will
continue to be embedded during the
course of 2019 in order to ensure full
alignment with our risk and internal
audit capabilities. As a Group, we are
committed to building a progressive
framework of strong risk management
in order to continue and support
our strategy and turnaround plan.
Key priorities include re-building
a strong and resilient Sales and
Lettings network across the UK,
regaining market share and getting
the business back to growth. As we
reshape the business for the future,
our success is very much dependent
on developing a culture across the
Group that supports the implementation
of plans and strategy. I recognise the
Board plays a vital role in embedding
culture throughout the business
and I am pleased to report that our
boardroom has a healthy culture
which continues to be based on
openness and accountability. Our
boardroom culture both encourages
and supports constructive challenge
from our non-executive directors.
This has been borne out by our 2018
Board and Committee evaluation,
which has provided valuable insights.
46
| Countrywide plc Annual report 2018
There have been a number of changes
to the Board over the past year.
After Alison Platt, the Group’s chief
executive, left the business on 24
January 2018, I took over as executive
chairman. The Board was also
strengthened by the appointments of
Paul Creffield as executive director on
2 August 2018, and Mark Shuttleworth
as independent non-executive director
on 1 October 2018.
Further details of changes to the Board
are contained in my Nomination
Committee Report on pages 52 to 53.
The Nomination Committee will
continue to review the composition
of the Board to ensure we have
the appropriate balance of skills,
experience, diversity and independence
to support building a sustainable
business for the long term.
The Board aims to present a fair,
balanced and understandable
assessment of the Group’s position and
prospects. It understands the importance
of effective reporting, risk management
and internal control procedures which are
incorporated within Countrywide’s normal
management and governance processes.
As chairman of the Board I am
responsible for leading the Board
and ensuring we play a full and
constructive part in the development
and delivery of the Group’s strategy
and overall commercial objectives.
Following the recent completion of the
above-mentioned Board and Committee
evaluation, no significant issues were
raised. The review process is described
in more detail on page 53.
Peter Long
Executive chairman
7 March 2019
Board activities in 2018
Growth
Growth comprises a key strategic focus
as the Company seeks to regain market
share, leveraging from its network and
diversified business lines. Continued
investment in and development of
strategy is therefore central to
Board review and discussion.
Activities
• New management immediately
implemented a back to basics
approach in Q1 2018, empowering
local management within a
framework of compliance oversight,
best practice and support;
• Reducing non-fee earning head
office staff numbers by one third
and investing in recruitment,
retention and training at local
fee generating level; and
• Instigating a full three year strategy
review led by senior leaders from
the business and subject experts.
Productivity
The Board pays close attention to the
Group’s cost reduction and operational
efficiency programmes aimed at
delivering a more centralised platform
for supporting local operations,
including updating its IT infrastructure.
The capital raise in August 2018 has
enabled the company to invest in its
infrastructure and operations in a
number of key areas including IT
development and recruitment of
industry expertise.
Activities
• Commissioned AlixPartners to review
IT infrastructure, supplier arrangements
and operational structures including
customer contact centres;
• The Group obtains appropriate
professional risk insurance cover
with significant claims and trends
referred to Board and Board
Committee review; and
• Re-aligning head office roles with
• The views of employees and
customers are regarded as a critical
indication of performance, with
routine confidential staff surveys,
customer surveys and reporting on
customer complaints and outcomes
at Board and Board Committee level.
Organisation
The Board considers that providing top
down leadership and placing the
Company’s core values at the heart of
operations will underpin the turnaround.
The Board’s composition and guiding
hand is central to this process.
Activities
• Succession planning in terms of
reviewing the capabilities and any
skill gaps of the Board members
and top team;
• Reviewing performance
of senior management;
• Ensuring alignment of performance
with good business practices; and
• Monitoring delivery of core values
across the organisation through
regular management reporting
and site visits.
focus on delivering tangible benefits
to business operations; and
• Removing superfluous layers of
head office decision making
protocols and management.
Sustainability
The Board extols the importance
of sustainable business performance
and corporate responsibility.
Activities
• All staff, including all executive
leaders and Board members, are
required to complete online training
modules that cover key areas of
compliance;
• Accountability for sustainable
business practices is more firmly
vested at the “first line” of defence
at operational level, with guidance
and oversight provided at the
“second line” of defence utilising
compliance specialists. The Group’s
Executive Committee receives
reports and analysis on performance,
which is in turn referred to the Board
and its constituent committees for
scrutiny and debate;
• The Group’s risk register is updated
and referred to at Board and at Board
Committee level with input received on
risk appetite, priorities and mitigation;
Annual report 2018 Countrywide plc
| 47
Strategic reportCorporate governanceFinancial statements Corporate governance statement
Introduction
This corporate governance report
intends to give shareholders a clear
understanding of Countrywide’s
corporate governance arrangements
and their operation within the Group
during the year, including an analysis
of the level of compliance with the
principles of the UK Corporate
Governance Code (‘the Code’)
issued by the Financial Reporting
Council in April 2016. The Code
can be viewed at www.frc.org.uk.
Compliance with the
2016 Code
The directors have considered the
contents and requirements of the Code
and note the following instance of
non-compliance: as a result of Alison
Platt’s departure on 24 January 2018,
Peter Long was appointed to the role
of executive chairman on a temporary
basis due to the exceptional need to fill
the vacancy left by Alison. As a result,
the Company is not in compliance with
the Code to that extent. Furthermore,
the executive chairman has, during the
financial year, resigned two of his non
executive directorships including his
role as Chairman of Royal Mail plc.
The board is wholly satisfied that the
executive chairman brings particular
skills, was able to devote sufficient time
to Countrywide throughout the year and
that shareholders’ interests have been
and continue to be best served by
his serving in an executive capacity.
The executive chairman, in conjunction
with the executive team, is committed
to steering the Company through its
turnaround, which requires sufficient
calls on his time to deal with
performance and strategy
at a detailed level.
The corporate governance report
comprises pages 48 to 51. Additional
information in respect of the operation,
and terms of reference, of the
Remuneration Committee is included
within the separate directors’
remuneration report.
The role of the Board,
decision making and division
of responsibilities
The Board provides leadership to the
Group and is collectively responsible for
the long term success of the Company.
It sets the strategy and oversees its
implementation, ensuring that
acceptable risks are taken and
appropriate governance structures and
controls are in place. It ensures that the
right people and resources are in place
for the Group to meet its objectives,
review management performance and
deliver long term value to shareholders
and other stakeholders.
The Board has a close working
relationship with the new group
managing director and his executive
and senior leadership teams through
a continuous programme of Board
presentations and informal meetings.
Members of the Board have visited
selected Group locations and branches.
The experience and quality of the
Company’s staff and leadership, in
conjunction with appropriate policies
to incentivise and reward performance,
underpins the relationship between the
Board and management, with alignment
and focus on the turnaround strategy.
In pursuit of these leadership objectives,
the Board retains control of key
decisions and has in place a formal
schedule of matters specifically
reserved for its approval which can
be found at www.countrywide.co.uk/
investor-relations/corporate-
governance. The Board’s retention
of decision making and control of these
key areas ensures effective stewardship
and risk management by providing
integrated reporting, for example,
in respect of strategic priorities and
associated risk and mitigating
governance controls.
The roles of chairman and chief
executive are designed to be
separated, clearly defined and
approved by the Board. A copy of the
intended division of responsibilities
between the roles of the chairman and
the chief executive is available to view
on the corporate governance section
of the Company’s website. The group
managing director was appointed to
the board during the year although
the chairman remains in the role of
executive chairman, assuming some
of the responsibilities of the role of
chief executive officer.
The Board delegates matters to the
three Board Committees (Audit and
Risk, Nomination and Remuneration),
in line with their terms of reference
and the formal schedule of matters
reserved for Board approval.
Further information on the work
of these Committees during the year
can be found in each of their separate
reports following this corporate
governance introduction, and the
specific terms of reference for each
of the Committees can be found on
the corporate governance section of
our website. The Board delegates the
detailed implementation of matters
approved by the Board and the day
to day operational aspects of the
business to the executive directors.
Specific decisions reserved for the Board are summarised as follows:
Responsibility
Specific actions during the year
Strategy and direction • Approval of strategy and annual budgets.
• Authorisation of acquisition and disposal activity.
• Review of internal control arrangements and affirmation
of risk management strategies.
Risk management
and internal controls
• Approval of financial statements, other updates to the
market and recommendations on dividends.
• Approval of authority levels and financial and
treasury policies.
• Review of internal control and risk management,
including health and safety.
Governance
• Appointments to and removals from the Board.
• Membership of the Board and Committee structure.
• Review of governance arrangements.
48
| Countrywide plc Annual report 2018
The Company maintains directors’
and officers’ liability insurance
cover for its directors and officers.
The Company has made qualifying
third party indemnity provisions (as
defined in the Companies Act 2006)
for the benefit of its directors during
the year; these provisions remain in
force at the date of this report.
Effectiveness
The Board and its Committees continue
to benefit from an appropriate balance
of expertise, experience, independence
and knowledge of the Group and its
business sectors. At 31 December 2018,
the Board comprised three executive
and seven non-executive directors.
The Nomination Committee
considers the skill set and sector
experience of the Board, appointments
to the Board, director development
and succession planning.
Details of these activities and the
process of Board evaluation and
development are discussed in the
Nomination Committee report on
pages 52 to 53.
The Board held eight meetings in
accordance with its scheduled calendar
and, as a result of the level of activity
during the year, held six additional
meetings. The Board Committee
meetings are scheduled around
the regular Board meetings.
The directors’ attendance at the
scheduled Board meetings and Board
Committee meetings is shown in the
table below. Attendance is expressed
as the number of meetings that each
director attended out of the number
they were eligible to attend as chairs
or Committee members (i.e. excluding
attendance where this was by
invitation only).
Board attendance
Director
Peter Long
Alison Platt1
Himanshu Raja
Paul Creffield2
Caleb Kramer3
David Watson4
Cathy Turner4
Richard Adam5
Jane Lighting4
Rupert Gavin4
Natalie Ceeney
Mark Shuttleworth6
Date of appointment
11 February 2016
1 September 2014
12 June 2017
2 August 2018
19 February 2013
2 September 2013
31 July 2013
9 June 2014
9 June 2014
25 June 2014
28 April 2017
1 October 2018
Board
meetings
14/14
0/0
14/14
5/5
10/14
13/14
12/14
5/5
14/14
14/14
14/14
1/1
Audit and Risk
Committee
meetings
Nomination
Committee
meetings
Remuneration
Committee
meetings
–
–
–
–
–
6/6
6/6
3/3
6/6
–
1/1
1/1
2/2
–
–
–
–
2/2
2/2
1/1
2/2
2/2
–
–
–
–
–
–
–
9/9
9/9
1/1
8/9
8/9
9/9
1/1
1. Alison Platt resigned from the Board with effect from 24 January 2018.
2. Paul Creffield was appointed to the Board on 2 August 2018.
3. Caleb Kramer was engaged in overseas activities which meant he was unable to attend four Board meetings, some of which were unscheduled
during the refinancing process.
4. David Watson, Cathy Turner, Jane Lighting and Rupert Gavin were absent from each of the specific Board / Committee meetings as detailed above
due to the unscheduled nature of some of these meetings during the refinancing process.
5. Richard Adam resigned from the Board with effect from 25 April 2018.
6. Mark Shuttleworth was appointed to the Board on 1 October 2018.
Annual report 2018 Countrywide plc
| 49
Strategic reportCorporate governanceFinancial statements Corporate governance statement continued
Independence
The Code notes that the Board
should identify in the annual report
each non-executive director that
it considers to be independent.
Each of the non-executive directors
is considered to be independent,
with the exception of Caleb Kramer
as he holds the position of managing
director at Oaktree Capital
Management (UK) LLP, a major
shareholder of the Company.
The Code recommends that at least
half the Board, excluding the chairman,
should comprise non-executive
directors determined by the Board
to be independent. Including the
appointment of Mark Shuttleworth
on 1 October 2018, there are six (of a
possible seven) non-executive directors
determined to be independent and
therefore the Board complies with
recommendation B.1.2 of the Code.
Similarly, the composition of the
three Board Committees complies
in all respects with the independence
provisions of the Code.
Accountability
The Board remains committed
to presenting a fair, balanced and
understandable assessment of the
Group’s position and prospects and
of the importance of effective reporting,
risk management and internal control
procedures. Both the Audit and Risk
Committee and the Board received
drafts of the annual report to facilitate
review and provide an opportunity
for challenge and discussion.
The Board is responsible for
determining the nature and extent of
the significant risks it is willing to take
in achieving its strategic objectives.
Principal risks associated with the
Group’s business are summarised on
pages 38 to 42 of the strategic report.
The Board has an Audit and Risk
Committee which monitors and reports
on the Group’s risk management
systems. The Audit and Risk Committee
also considers how the Board should
apply corporate reporting and internal
control principles and is responsible
for maintaining an appropriate
relationship with the Group’s auditors,
PricewaterhouseCoopers LLP.
The report of the Audit and Risk
Committee is set out on pages 54 to 61.
Remuneration
Details relating to the Company’s policy
on remuneration together with the level
and components of remuneration
available to the Company’s directors
are provided in the Remuneration
Committee’s report on pages 62 to 77.
Dialogue with shareholders
As chairman, I ensure that views
of shareholders are communicated
to the Board as a whole and offer
non-executive directors the
opportunity to attend discussions
with major shareholders.
We actively seek channels through
which to engage with investors and
during 2018 the Company undertook
a wide variety of investor relations
activities. Institutional shareholders
represent the largest group of
shareholders and much of the activity
is focused on this group. The chief
financial officer and I hosted or
attended the majority of the events
held, whilst key senior executives also
participated in meetings and activities
with institutional shareholders.
Shareholder relations are given high
priority by the Board. The prime means
of communication with the majority
of our shareholders is via the interim
and annual reports, supplemented
by interim trading updates, which aim
to provide shareholders with a clear
understanding of the Group’s activities
and results. General presentations are
given to both shareholders and analysts
following the publication of the interim
and annual results and at other
appropriate points to share the strategic
plans and offer an opportunity to
engage with the business unit
managing directors and other
senior executives.
Employee engagement
Our people are key to the success of
the business and the Board promotes
full management engagement and open
dialogue with the Group’s employees.
For example, the group managing
director operates an open door policy
and engages with the wider workforce
through regular blogs and site visits,
regular communications and updates.
This is provided in conjunction with
divisional management communication
for example routine marketing
newsletters on the “Our Place” internal
website; competitions and prizes;
the “Hall of Fame” recognition scheme;
and the intra colleague “High Five”
acknowledgement scheme, amongst
other means of engaging which will be
further developed throughout the year.
An employee survey that captures the
views of the Company’s people was
commissioned in the summer and its
results were reviewed by the Board
in September 2018 with differences
in participation and satisfaction levels
across the divisions but with overall
participation of 57%. It was noted that
the survey was completed during
a challenging point in the Group’s
standing and as such should make
a good benchmark to compare with
subsequent progress.
Remuneration policies supporting long
term success and gender diversity are
covered in more detail in the Director
remuneration report on pages 62 to 77
and the Board reviews recruitment
strategy and management’s
approach to diversity.
Other stakeholders
The Board engages and is made aware
of engagement with its shareholders,
investors and stakeholders and how
their interests are aligned with the duty
to promote the success of the Company
and with regard to long term decision
making, standards of business conduct
and fairness. The Board has identified
the key stakeholders as including
employees, business relationships
(customers, suppliers), community and
environment and is satisfied that their
views and opinions are taken into
account in Board discussions and
decision making. The Group is
accountable to its stakeholders,
shareholders and investors, and the
Board will take into account the interest
of all, as well as the local community
and the environment in which
we operate.
The Group’s reputation is one of its
key assets and, as a major player in the
UK property services sector, adhering
to the highest standards of integrity,
personal conduct, ethics and fairness
is deemed to be of vital importance.
50
| Countrywide plc Annual report 2018
Industry participation
• engages in consultation with
Government regulators and
relevant trade bodies including
the Association of Residential
Letting Agents on issues affecting
the housing sector, related industry
services and consumer protection
• engages with journalists and
reputable research bodies
on topical themes
• provides support to public bodies,
including The Property Ombudsman
Scheme, Royal Institute of Chartered
Surveyors, Association of Mortgage
Intermediaries and the Council of
Mortgage Lenders
Environmental matters
Environmental savings make good
business sense. Our primary objective
is to minimise our carbon footprint and
any negative impact we may have on
the environment.
Constructive use of the AGM
Shareholders have the opportunity
to address questions to the chairman
and the chairs of the Audit and Risk,
Remuneration and Nomination
Committees at the AGM, where all
directors will be in attendance.
All shareholders are encouraged
to attend the AGM. Shareholders
wishing to lodge questions in advance
of the AGM, or to contact the Board
at any other time, are invited to do
so by writing to the company secretary
at the registered office address given
in note 1 to the financial statements.
Peter Long
Executive chairman
7 March 2019
The Board ensures that in its
interactions with stakeholders,
the Group:
Customers
• seeks to be honest and fair in
its relationships with customers
• provides the standards of products
and services that have been agreed
• takes all reasonable steps to ensure
the safety and quality of products
or services that it produces
• promotes relevant Ombudsman
redress schemes and subscribes
to industry Codes of Best Practice
Suppliers
• seeks to be honest and fair in its
relationships with suppliers and
subcontractors
• pays suppliers and subcontractors
in accordance with agreed terms
• has a policy not to offer, pay or
accept bribes or substantial favours
• encourages suppliers and
subcontractors to abide by the same
standards and principles
Shareholders
• is financially accountable to
its investors
• communicates to investors all
matters that are material to an
understanding of the future
prospects of the organisation
• aims to protect investors’ funds,
manage risks and ensure funds
are used as agreed
Local communities
• aims to make the communities
in which we work better places
to live and do business
• aims to be sensitive to the local
communities’ cultural, social and
economic needs
• endeavours to protect and preserve
the environment wherever
Countrywide operates
• encourages its subsidiary
businesses to support causes
within their local communities
Annual report 2018 Countrywide plc
| 51
Strategic reportCorporate governanceFinancial statements Report of the Nomination Committee
Report of the Nomination
Committee
Peter Long
Chair of the Nomination Committee
Dear shareholder
On behalf of the Board, I am pleased
to present Countrywide’s report
of the Nomination Committee.
Role and responsibilities
The Committee is responsible for
ensuring that the composition of the
Board and its Committees is appropriate
and enables it to function effectively.
This requires evaluation of the balance
of skills, experience, knowledge and
diversity and the resultant identification
of any gaps, either in the short, medium
or longer term, and recommendations
to address these.
Succession planning for key
Board positions forms part of our
wider remit and, as such, we have
insight into the Group’s leadership
and development programme.
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| Countrywide plc Annual report 2018
We are also responsible for agreeing
the annual Board effectiveness
review process and monitoring
any actions arising.
Committee composition
The membership of the Committee
during 2018, together with appointment
date, is set out below.
The composition of the Committee did
change during the period as detailed
below; however, we remained
in full compliance with the Code
recommendation that a majority
of members should be independent
non-executive directors throughout
the period.
Attendance by members at the
meetings is shown on page 49.
Member
Peter Long
Cathy Turner
David Watson
Richard Adam
Rupert Gavin
Jane Lighting
Nomination Committee member since
27 April 2016
31 July 2013
2 September 2013
9 June 2014 to 25 April 2018
25 June 2014
9 June 2014
• The Board’s understanding of, and
engagement with, key stakeholder
groups including investors,
employees and customers;
• The provision of Management
updates between formal meetings,
and encouraging opportunities for
non-executive directors to engage
with senior management;
• The enhancement of the Board’s
oversight of the identification,
likelihood and impact of risks;
• The management of the board
agenda cycle to enable directors
to cover areas of priority in more
depth during Board and
Committee meetings; and
• The top priorities for the Board
were identified as: succession
planning; monitoring progress
of the turnaround; maintaining an
open and collaborative approach;
addressing long-term strategy;
and ensuring adequate discussion
time at meetings.
Following the externally facilitated
evaluation, I am pleased to confirm
the effective performance of each
non-executive director and the time
commitment of each non-executive
director. I am therefore confident
that each of them is in a position to
discharge their duties to the Company
in the coming year and, accordingly,
with the exception of Cathy Turner who
will be stepping down after the AGM,
and as detailed in the notice of the AGM
all directors will stand for re-election.
Peter Long
Chair of the Nomination Committee
7 March 2019
The Committee’s work
The Committee held two
formal meetings during 2018.
On 24 January 2018, Alison Platt,
the Group’s Chief Executive, left
the business and I took over
as executive chairman.
On 2 August 2018, Paul Creffield,
who has been with the Group since
2006, joined the Board as group
managing director.
Mark Shuttleworth was appointed to
the Board on 1 October 2018 and became
chair of the Company’s Audit and Risk
Committee with effect from 1 January
2019. Mark brings substantial restructuring
and turnaround expertise; and was
appointed taking account of the balance
of skills, experience and diversity of the
Board. The appointment process was led
by the Nomination Committee and was
assisted by the external search firm,
Ridgeway Partners. Ridgeway has
no connection with the Company.
Board and Committee
composition
The Company believes that diversity
of experience and approach, including
gender and race diversity, amongst
Board members is of great importance
and it is the Company’s policy to give
careful consideration to issues of Board
balance and diversity when making
new appointments. The search for
candidates and any subsequent
appointments are, therefore, made
purely on merit regardless of gender,
race, religion, age or disability in order
to secure an appropriate balance of
skills and attributes that are needed
to ensure effective stakeholder
engagement and delivery of
the business strategy.
Given our commitment to appointing
the best people and ensuring that all
employees have an equal chance of
developing their careers within the
Group, we do not think it is appropriate
to set targets for Board appointments.
As gender diversity remains a topic
of significant discussion, we note that
currently three of the ten members of
our Board are female. In addition to Board
diversity, we believe in promoting diversity
at all levels of the organisation and further
details of our workforce gender diversity
are set out on page 33.
Induction and training
Following Mark’s appointment to
the Board, as with all directors of
the Company, he received a tailored
induction programme which provided
him with the opportunity to gain a good
understanding of the Group business
and organisation, operations and
governance environment, in order to
maximise his contribution to the Board
as quickly as possible. Key stages of the
induction programme were: provision
of documents in relation to the Board,
strategy, performance and corporate
governance; meetings with the
executive directors to gain an overview
of the business and current trading and
key commercial issues; meetings with
other directors and senior executives
to discuss commercial issues and
projects; and site visits, as required, to
key locations to gain an understanding
of the business and operations.
All directors are also offered
subsequent training to suit their
needs and continuous professional
development requirements. All directors
also have access to the advice and
services of the company secretary in
addition to access to independent
professional advice at the Company’s
expense where they judge it necessary
to discharge their duties as directors.
Board effectiveness
Countrywide Board review 2018
Countrywide engages the services
of Lintstock to assist with the annual
assessment of Board performance,
which in relation to 2018 comprised
completing online questionnaires
designed in conjunction with the
chair. Lintstock has no other
relationship with the Company.
In addition to assessing core Board
and Committee performance topics,
the exercise was weighted to ensure
that issues identified in previous Board
reviews were followed up, as well as
having a particular focus on themes
that emerged during 2018, resulting
in focus on the following areas:
• The evaluation of the Board’s skills
and review of succession planning for
the Board’s non-executive directors;
• Ensuring the adequacy of
succession plans for key
members of management;
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements Report of the Audit and Risk Committee
Report of the Audit and
Risk Committee
“The Committee
has been
strengthened and
realigned to
reassure
shareholders that
their interests
are properly
protected.”
Mark Shuttleworth
Chair of the Audit and Risk Committee
Dear shareholder
On behalf of the Board, I am pleased
to present the report of the Audit and
Risk Committee.
On 1 January 2019, I was appointed
chair of the Audit and Risk Committee,
having been a committee member
since joining the Board as an
independent non-executive director
on 1 October 2018. I would like to thank
my predecessor, David Watson, for his
assured leadership of the Committee
and his continued membership
following Richard Adam’s step down
as independent non-executive director
of the Company, and chair of the
Audit and Risk Committee at the
Company’s Annual General Meeting
on 25 April 2018.
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| Countrywide plc Annual report 2018
Since my appointment, I have reviewed
the operation and the role of the
Committee to ensure that it continues
to provide the support to the Board that
is required and to also ensure that the
Committee is fulfilling its role in the
review of the integrity of the Group’s
financial reporting, monitoring the
effectiveness of the Group’s risk
management and internal controls
framework, and its effective oversight
of the Group’s internal audit function
and its external auditor.
With a view to adopting a continuous
improvement mind set within the
Committee, and taking into account
the journey the Company has been on,
I have adjusted the standing agendas
and qualitative reporting into the
Committee to include regular monitoring
of the Group’s transformation of its IT
infrastructure and applications and
associated risks, and also to strengthen
the Group’s processes around
addressing and closing out risks
identified by the Group’s internal audit
function and external auditors. I have
also reviewed the composition of the
committee to ensure that its skill sets
are appropriate to the Group. I am
pleased that Natalie Ceeney has
joined the committee which, with
her considerable financial services
background, is a welcome addition.
The assurance framework required
by the Committee is provided by
complementary contributions from
management reports, internal and
external audit reports and risk
management and compliance reports.
However, as chair of the Committee
I have also held meetings with the
Company’s internal (Deloitte) and
external (PwC) auditors, the chief
financial officer, the enterprise risk
director, senior members of the Group
finance department, and other senior
executives in order to ensure an
understanding of key issues relevant to
the Committee are being addressed.
That said, during the year, the
Committee continued its key financial
oversight role for the Board, outlined
in its terms of reference, to reassure
shareholders that their interests are
properly protected in respect of the
Group’s financial management
and reporting.
During 2018, the Committee has:
• continued to scrutinise the activities,
performance, independence and
effectiveness of the external auditors;
• supported the Board with its ongoing
monitoring and evaluation of the
effectiveness of the Group’s risk
management and internal controls
systems;
• determined the focus of the Group’s
internal audit activity, monitored its
effectiveness, reviewed its findings
and verified that recommendations
were being appropriately
implemented;
• continued to monitor the integrity
of the Group’s financial statements
and satisfy itself that any significant
financial judgements made by
management are sound. Our report
details the significant financial
judgements; and
• reviewed the Group’s prospectus
in connection with the open offer
and placing in August 2018 and the
Group’s associated amendment,
extension and restatement of its
revolving credit facility, and satisfied
itself on the additional covenant
headroom which this provided.
I will be available at the Annual General
Meeting, together with David Watson,
to answer any questions about the work
of the Committee during the year and
its focus going forward.
Mark Shuttleworth
Chair of the Audit and Risk Committee
7 March 2019
Committee composition
The membership of the Committee, together with appointment date, is
set out below:
Member
Audit and Risk Committee member since
Mark Shuttleworth (chair)
1 October 2018
Jane Lighting
Cathy Turner
David Watson
9 June 2014
31 July 2013
2 September 2013
Natalie Ceeney
9 October 2018
The composition of the Committee
changed during the period with Richard
Adam resigning from 25 April 2018,
following the announcement on 5
October 2017 of his intention to step
down at the 2018 AGM, and the
appointment of Mark Shuttleworth
on 1 October 2018. There was also
the appointment of Natalie Ceeney
to the Committee on 9 October 2018.
The Committee remained in full
compliance with the UK Corporate
Governance Code (‘the Code’)
recommendation of a minimum of
three independent non-executive
directors throughout the period.
The Committee members were
selected for their range of financial
and commercial expertise, necessary
to fulfil the Committee’s duties.
The Board considers that as chartered
accountants both the Committee Chair,
Mark Shuttleworth, and the Group’s
deputy chairman, David Watson,
have recent and relevant financial
experience. The biography of each
member of the Committee is set
out on pages 44 to 45.
Attendance by members at the
Committee meetings is shown on
page 49. Meetings are attended, by
invitation, by the chief financial officer,
the enterprise risk director, the Group
financial controller, the company
secretary and the Group’s external
auditors, PwC. In addition, the Group’s
outsourced internal audit provider,
Deloitte, is invited to attend appropriate
sections of the meetings. At the end of
each meeting, a private session is held
by the Committee with representatives
of both the external and internal
auditors which is not attended
by management.
The Committee’s work
The Committee works to a structured
programme of activities, developed
from its terms of reference, with
agendas for the four scheduled
meetings of the Committee during
2018 organised to coincide with key
events in the annual reporting cycle.
The Chair of the Committee reports,
at each subsequent Board meeting,
on the business of the Committee
meeting and recommendations
made by the Committee. The main
matters that the Committee considered
during the year are described below.
Financial reporting and
significant judgements
Financial reporting
The Board and the Committee
have reviewed this annual report,
the half year financial statements,
as well as the going concern basis
of preparation of the Group’s
consolidated financial statements
at these points, in particular
the underlying assumptions
and sensitivities.
We considered the presentation of the
financial statements and, in particular,
the compliance with financial reporting
and disclosure requirements associated
with the Group’s premium listing.
In respect of each of these matters,
the Committee reviewed papers
presented by management and
discussed critical judgements
and estimates inherent within
the conclusions, providing
challenge where necessary.
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements Report of the Audit and Risk Committee continued
The Committee also reviewed the
reporting from the external auditors,
incorporating accounting and reporting
matters, internal control findings and
their management representation letter
to ensure that these matters had been
considered and consistent conclusions
had been reached.
The Committee assesses whether
suitable accounting policies have been
adopted and whether management
has made appropriate estimates and
judgements. The Committee also
considered the Group’s tax strategy
and concluded that management’s
current approach remained appropriate
and approved the publication of the
Group’s tax strategy on our investor
relations website during the year.
The Committee also considered
whether the 2018 annual report was
fair, balanced and understandable
and whether it provided the necessary
information for the shareholders to
assess the Group’s performance,
business model and strategy. In
reaching this view, the Committee
took into account: its own knowledge
of the Group, and its strategy and
performance in the year; debates and
discussions regarding principal risks
and uncertainties; robust processes
to ensure internal verification of the
factual content within the document;
and a detailed review, by senior
management and the external auditor,
to ensure consistency and overall
balance. After careful review and
consideration of all relevant information,
the Committee was satisfied that, taken
as a whole, the annual report is fair,
balanced and understandable and
affirmed that view to the Board.
Prior to the publication of the 2018
annual report, the Committee undertook
a detailed assessment of the viability
statement and reviewed with
management the appropriateness
of the Group’s choice of a three-year
assessment period, the Group’s current
position and future plans and potential
impact of risks to the business and
recommended to the Board that the
directors can believe that they have
a reasonable expectation that the
Company will be able to continue in
operation and meet its liabilities as
they fall due over the three-year
period of their assessment. The viability
statement, together with further details
of the Group’s approach, appears within
our risk section of our strategic report
on page 43.
Significant issues considered in relation to the financial statements
In the year under review, the Committee considered the following significant matters, which include an element of judgement,
in relation to the financial statements.
Matter and description
Action the Committee has taken and conclusion
The Committee reviewed the methodology and challenged
the results of the impairment test prepared by management.
The Committee reviewed the assumptions used in relation
to long-term growth, resulting headroom and sensitivities
applied by management. The Committee also considered
the adequacy of the disclosures provided, particularly for
the case of cash generating units where changes in key
assumptions could give rise to an impairment.
The Committee also reviewed the finite lives attributed to brand
names from 1 July 2018 and resultant amortisation charges.
Conclusion: The Committee was satisfied with the carrying
value of goodwill and intangibles with an indefinite life and
the related disclosures as at 31 December 2018.
Impairment of goodwill and intangibles
with an indefinite life
The total value of the Group’s goodwill was £233.8 million
as at 31 December 2018 and relates to a number of
historical acquisitions.
The estimation of the recoverable amount of goodwill
supported by the Group’s cash generating units requires
significant judgement, primarily in relation to: the achievability
of the long-term business plans and future cash flows which
is dependent on circumstances both within and outside of
management’s control; the discount rates applied; and the
macroeconomic assumptions underlying the valuation process.
As a result of a half year impairment review of the carrying
value of goodwill and intangibles with an indefinite life, the
following impairments were recorded: £14 million of goodwill
and £58 million of brand names in relation to the UK Sales and
Lettings cash generating unit and £31 million of goodwill and
£68 million of brand names in relation to the London Sales and
Lettings cash generating unit. Further impairments of assets
with finite lives were also incurred and detailed in note 10.
From 1 July 2018, as signposted in the 2017 annual report,
finite lives have been attributed to brand names and
amortisation charges incurred. As a result of a year end
impairment review of the carrying value of goodwill, the
following impairments were recorded: £1 million of goodwill
in relation to the Commercial cash generating unit.
The balance remaining at the 2018 financial year end in respect
of goodwill was £233.8 million (see note 14 to the consolidated
financial statements. Details of the Group’s impairment,
impairments test and related disclosures are provided
in notes 10 and 14).
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| Countrywide plc Annual report 2018
Matter and description
Action the Committee has taken and conclusion
Presentation and disclosure of exceptional items
The Committee reviewed the treatment of items considered
as exceptional items that are separately disclosed by virtue
of their size, nature or incidence. Management prepared
documentation to support these items and the disclosure
proposed in the financial statements.
For more detail in respect of exceptional items see note 10.
The Committee reviewed and challenged the disclosures
prepared by management in relation to exceptional items,
considered that the nature of these items was within the
Group’s accounting policies and with the guidance issued
by the FRC, that they were being applied consistently from
year to year and that these items included both debits and
credits in a balanced manner.
Professional indemnity provisions
The total value of the Group’s professional indemnity
provisions as at 31 December 2018 was £9.5 million.
The Committee receives quarterly updates on the status of
the professional indemnity provision which includes the status
of existing claims, including legal updates on those cases which
are individually significant, and the number and nature of new
claims arising.
Onerous lease provisions
The total value of the Group’s onerous lease provisions in
respect of loss making branches as at 31 December 2018
was £3.6 million, with associated dilapidations provisions
(see note 23).
Onerous lease provisions with a present value of £6.1 million
(see note 10) were recognised during the year.
The Committee will receive quarterly updates on the status
of the onerous lease provision which will include reconciliation
of the utilisation of the provision within trading results and
release of unutilised provisions to exceptional items.
Conclusion: The Committee was satisfied that the Group’s
accounting policies have been applied consistently and that
the designation of exceptional items was subject to objective
and balanced criteria and was appropriate to give an improved
understanding of the continuing operations of the Group.
The Committee reviewed the methodology and resultant
professional indemnity provision prepared by management
and provided robust challenge to any underlying assumptions
adopted in respect of claim rates, claim liability rates, average
loss per claim and provisions on discrete cases of significance
based on current legal advice.
The Committee concluded that the methodology
and assumptions adopted were reasonable, and concurred
with the provision release of £1.1 million and £2.1 million
of income arising from a favourable claim outcome within
exceptional items.
In addition, a further £2.8 million of provision release has been
recorded within adjusted EBITDA as this relates to the revision
of assumptions based on recent claims experience and the
release of provisions which were not established by charging
the costs as exceptional items but within underlying
trading results.
The Committee notes that evaluating these potential liabilities
is highly judgemental and in smaller populations of claims,
estimates can be significantly affected by the outcome,
good or bad, of a limited number of claims. Accordingly,
sensitivity disclosures have been provided in note 3.
Conclusion: The Committee was satisfied with the level of
professional indemnity provisions and the related disclosures
as at 31 December 2018.
The Committee reviewed the methodology and resultant
onerous lease provision prepared by management, noting
that the underlying assumptions adopted in respect of branch
performance aligned with the Board approved budget.
The Committee concluded that the methodology and
assumptions adopted were reasonable, as was the release
of £0.7 million of the provision to adjusted EBITDA, to align
with underlying branch contributions, during 2018.
The Committee notes that evaluating these potential liabilities
is highly judgemental and estimates can be significantly
affected by the outcome, good or bad, of the trading
performance of a limited number of branches. Accordingly,
sensitivity disclosures have been provided in note 3.
Conclusion: The Committee was satisfied with the level
of onerous lease provisions and the related disclosures
as at 31 December 2018.
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements
Report of the Audit and Risk Committee continued
Matter and description
Action the Committee has taken and conclusion
Impairment risk of investment in subsidiaries
and intercompany receivables
The total value of investments in subsidiaries and intercompany
receivables in the parent company balance sheet are £206.6
million and £195.3 million respectively.
Linked to the impairment testing of goodwill noted above, the
Committee had reviewed the discounted cashflow forecast also
used in the impairment assessment of the value in use of
subsidiaries and the ability of subsidiaries to repay the
intercompany receivables on the Company balance sheet.
As a result of the impairment charges recorded within the
consolidated financial statements during the year detailed
above, the Committee have focused on this area due to the
size of the investment and intercompany receivable balances
and the risk of impairment arising due to the deterioration in
business performance.
Management performed an assessment of the carrying
value of the investments and intercompany receivables
and compared this to the recoverable value, using the same
discounted cashflow forecast used in the impairment test of
goodwill described above. The results showed that there was
insufficient headroom between the carrying value and the
recoverable value, and therefore impairment changes
have been recognised in the parent Company as follows:
£179.8 million impairment of investment carrying value;
and a £37.3 million impairment of intercompany receivables.
Other issues considered by the Committee:
Going concern
The Group has net debt of £71 million.
As explained in note 32 to the financial statements, the
Group meets its day to day working capital requirements
through a revolving credit facility (RCF), which was amended
and extended in August 2018, and the Group currently has a
£125 million committed facility through to 30 September 2022.
Management forecasts show that this facility provides adequate
liquidity for the Group.
As at 31 December 2018, a total of £40 million remained
undrawn from these facilities. During the period from inception
of this reset RCF, the Group has complied with the financial
covenant requirements, being the leverage ratio (the ratio
of net debt to adjusted EBITDA) and interest cover
(the ratio of adjusted EBITDA to net interest payable).
Consideration of the going concern risk is a fundamental
responsibility of the Board and the Committee has given this
matter its full attention. The going concern assertion has a
significant impact on the financial statements in terms of both
the valuation of assets and liabilities held and the presentation
of assets and liabilities as non-current.
Conclusion: The Committee was satisfied with the impaired
carrying value of the investments in subsidiaries and
intercompany receivables held by the Company.
In assessing the Company’s ability to continue as a going
concern, the Board regularly reviews forecasts of the Group’s
cash flow and profit forecasts to assess the potential of a
breach of the banking covenants. In assessing the forecasts,
the Board also considers the impact of potential risks and
opportunities. The Group’s forecasts and projections, which
have been prepared for the period to 31 December 2021 for
going concern assessment purposes, show that it will be able
to operate within the level of its current facilities and comply
with its banking covenants, in particular the leverage ratio
(details of which are provided in the prospectus issued in
relation to our placing and open offer undertaken in
August 2018).
The Committee reviewed a management paper detailing the
ability of the Group to continue as a going concern, including:
future profitability of the Group, forecast future cash flows,
associated headroom under financing facilities and banking
covenants. The Committee also reviewed and noted the
amendment to the Group’s revolving credit facility, signed
in August 2018, and noted the additional covenant headroom
which this provided. The key judgements, assumptions and
estimates underpinning this review, and the associated
sensitivities, were discussed and considered.
Conclusion: The Committee was satisfied that it was
appropriate for the Group to adopt the going concern basis
of accounting in the financial statements and recommended
the same to the Board.
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| Countrywide plc Annual report 2018
Matter and description
Action the Committee has taken and conclusion
Viability statement
Consideration of the prospects and viability of the Group
is a fundamental responsibility of the Board and the Committee
has given this matter its full attention.
Restitution of trust funds
The Group holds money on behalf of parties to property
transactions. For example, the Group holds deposits made
by lessees of properties. Generally, the Group does not
recognise this client money on its consolidated balance sheet.
However, the Group deposits client money in interest-bearing
accounts and recognises the interest component as finance
income in the Group’s consolidated income statement.
The Group takes all practical and reasonable measures to
identify the ownership of the funds and to trace and return
funds in a timely manner. Historically, balances that remained
untraceable and were more than six years old were recognised
in the Group’s consolidated income statement as other income
and an indemnity was put in place by Countrywide Group plc to
the underlying subsidiary entities to ensure that any claims
arising subsequently on these funds would be met by the
Countrywide Group plc. In practice, less than 1% of the funds
released have ever been claimed and paid out.
Following a management review of client accounting,
and having received legal advice on the use of such funds,
the Group understands that some of these historical and
untraceable funds arising from the Lettings business for the
period from 2008-2017 should be held in trust under a separate
client account. A prior year error correction, along with a related
reduction in retained earnings net of deferred tax was
recognised at 30 June 2018 amounting to £4.5 million.
The Group’s operating segment results for the Sales and
Lettings operating segment for 2017 (as the comparative
period) were also restated (see note 2d).
Additional investigations and further legal guidance during
H2 2018 resulted in a revision to the accounting estimate.
Accordingly, a further charge of £5.2 million has been
recognised as an exceptional cost in H2 2018 (see note 10).
IFRS 15 and balance sheet restatement
The adoption of IFRS 15 has led to changes in the revenue
recognition policies across the Group and significant
restatement of prior period balance sheets and income
statements. The project involved reviewing a number of
business units number of business units to confirm the
contractual performance obligations arising given the
diverse nature of the Group’s activities.
Management provided presentations that captured the key
judgements applied under the new accounting policy adopted
and this included the adoption of a policy to ensure appropriate
recognition of revenue be that over time or point in time.
Management provided the Committee with a paper on the
viability of the Group, over a three-year period, which included
a review of the principal risks and considered and modelled a
number of severe but plausible scenarios. The key judgements,
assumptions and scenario modelling were discussed.
Conclusion: The Committee approved the viability statement
and recommended its adoption by the Board.
The Committee reviewed management’s assessment of the
position at 30 June 2018 and related legal advice, along with
disclosures adopted within the interim financial statements
(see note 2d).
As this position was still subject to further investigation, the
Committee reviewed revised papers on conclusion of this
investigation, which were also subject to review by the Group’s
internal auditor, which also incorporated further legal guidance
on the matter. As a result of this change in estimate, all relevant
funds have now been reinstated into a separate client account
held in trust.
Conclusion: The Committee is satisfied that the disclosures
given within the accounts are sufficient to gain a proper
understanding of the nature of the prior year error correction
and the change to accounting estimate giving rise to an
exceptional charge in the second half of the year.
The new revenue recognition policy includes disclosure
of the significant judgements and estimates in relation to
its application and the Committee is satisfied that these
have been properly disclosed.
Conclusion: The Committee is satisfied that the disclosures
given within the accounts are sufficient to gain a proper
understanding of the methodology of accounting for revenue
across the Group including the recognition of deferred income
at the balance sheet date.
For further information on the critical accounting estimates and assumptions refer to the notes to the consolidated financial
statements on pages 108 to 109. For a discussion of the areas of particular audit focus by the auditor, refer to pages 86 to 88
of the independent auditors’ report.
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements
Report of the Audit and Risk Committee continued
Oversight of the external audit
The Committee’s oversight of the
external auditors includes reviewing
and approving the annual audit plan. In
reviewing the plan, the Committee
discusses and challenges the auditors’
assessment of materiality and financial
reporting risk areas most likely to give
rise to material error.
PwC reported to the Board and
confirmed its independence in
accordance with ethical standards
and that it had maintained appropriate
internal safeguards to ensure its
independence and objectivity.
Assignments awarded to PwC have
been, and are, subject to controls by
management that have been agreed by
the Committee to monitor and maintain
the objectivity and independence
of the external auditors.
To further safeguard the objectivity and
independence of the external auditors,
the Committee has a formal policy
governing the engagement of the
external auditors to provide non-audit
services, providing details of prohibited,
audit-related and permitted services.
The policy requires approval by the
chief financial officer of any work
undertaken by PwC and mandates
Committee approval, prior to the
commencement of work.
Risk management
and internal control
The Board recognises that the
successful management of risk as
part of our everyday activities is
essential to support the achievement
of our strategic objectives. Through
delegation by the Board, the Committee
is responsible for reviewing and
monitoring the effectiveness of the
Group’s risk management systems
and internal control. Operation of the
Group’s Risk Management Framework,
which is designed to support consistent
and effective management of risk
throughout the Group, is overseen
by an oversight structure, as detailed
on pages 36 and 37, which includes
the Committee. Following the change
of executive leadership in 2018,
the Company’s approach to risk
management has been reset and
agreed with the Committee to ensure
clear focus in both Executive and
Senior Leadership Team meetings.
The Board has an ongoing process
to identify, evaluate and manage the
significant risks faced by the Group.
This was in place throughout the year
and up to the date of the approval
of the annual report. This process is
regularly reviewed by the Board and
accords with UK Corporate Governance
Code guidance. Management is
responsible for the identification,
evaluation and management of these
risks together with the design, operation
and monitoring of associated controls
to manage risks to an acceptable level.
The Committee considered, discussed
and made decisions in relation to a
range of risk and internal control-related
matters during the course of the year,
the most significant of which are
outlined below:
• reviewed, and recommended to the
Board for approval, changes to the
Committee’s terms of reference
and calendar of duties;
• reviewed the quarterly Group Risk
Report on the ‘top risks’ facing the
Group, the relative assessment of
impact and likelihood and actions
underway or taken to deliver target
risk ratings over a six-month horizon;
• approved the annual internal audit
plan, outlining those areas to be
covered by the work of internal
audit during 2018 and monitored
the progress against the plan at
each meeting. This included updates
on progress to deliver management
actions relating to internal audit
actions. The Committee also received
and approved changes to the plan
during the year;
• completed an annual review of
the effectiveness of the Group’s
internal audit function, under the
direction of the Group’s enterprise
risk director, using a questionnaire
for key stakeholders as an
underlying framework;
• completed an annual review of the
effectiveness of the Group’s risk
management and internal control
systems;
• received updates from the Group’s
enterprise risk director in relation
to the Group’s Financial Conduct
Authority-regulated operations,
including regulatory relationship
matters and outputs from the
Financial Services business unit’s risk,
audit and governance committee;
• approved the 2019 Group risk
function plan, outlining the objectives
and activities of the Group risk
function for the forthcoming year;
• monitored completion and pass rates
of mandatory compliance and ethics
related training courses taken by
colleagues throughout the Group;
• monitored the risks and
associated controls over the financial
reporting processes, including the
process by which the Group’s
financial statements are prepared
for publication;
• reviewed reports from the external
auditors on any issues identified
during the course of its work,
including a report on control
weaknesses identified; and
• reviewed, and recommended
for approval, the Group’s risk
management disclosures for
inclusion within the annual
report and accounts, including
the consideration of the Group’s
viability statement as required
under the Code.
60
| Countrywide plc Annual report 2018
The total of non-audit fees and audit fees paid to PwC during the year is set out in the table below:
Matter
Audit-related assurance services
Tax advisory services
Other non-audit services*
Non-audit fees
Audit fees (excluding audit-related assurance services)
* £982,000 of these non-audit services related to work undertaken in relation to the capital refinancing plan.
2018
£’000
58
–
992
1,050
558
2017
£’000
50
2
49
101
542
During the year, the Group can confirm
that it has complied with the provisions
of The Statutory Audit Services for
Large Companies Market Investigation
(Mandatory Use of Competitive Tender
Processes and Audit Committee
Responsibilities) Order 2014.
Annual evaluation of
Committee performance
The Committee’s activities formed part
of the evaluation of Board effectiveness
performed in the year. Details of this
process and the actions taken arising
from the external evaluation undertaken
by Lintstock can be found on page 53.
Amounts paid to PwC were reported
to and considered by the Committee.
Non-audit fees will remain subject to
scrutiny and approval by the Committee.
The assessment of the effectiveness
of our external auditors is based on a
framework setting out the key areas of
the audit process for the Committee to
consider. The framework takes the form
of an annual questionnaire covering
all key aspects of the audit, including
the contribution of management to
an effective audit process, and is
completed by each member of the
Committee and by the chief financial
officer. Feedback was also sought
from other members of the Group
finance team, divisional management
and the Group chief risk and
compliance officer. Based on responses
to the questionnaires, management
produced a report for detailed
consideration by the Committee.
The feedback from this process
was considered by the Committee.
Following robust debate and challenge,
action plans were developed in relation
to better communication during the
audit cycle between PwC and the
Group’s divisional teams. In its
evaluation of the external audit function,
the Committee concluded that it was
satisfied with the work of PwC and
that PwC continued to be effective,
objective and independent.
External audit tender
As noted in last year’s Report of the
Audit and Risk Committee, the Group
put its external audit contract out to
tender in advance of its 2017 audit.
This was because as a listed company,
also in the FTSE 350 at the time of the
decision, the Group would be obliged
to tender its audit for the year ending
31 December 2017 to ensure that it
would be in a position to meet the
ten year requirement to retender
the Group’s audit.
As a result, the Committee initiated the
process for the tender of the external
audit during the final quarter of 2016 in
order to allow the process to conclude
for consideration and recommendation
to the Board in the February 2017
Committee meeting. There were
no contractual obligations restricting
our choice of external auditors and
no auditor liability agreement had
been entered into. However, Deloitte
provides internal audit services to the
Group and, to allow continued provision
of services, was excluded from the
tender process by mutual consent.
Following its initiation and supervision
of the process, the Committee
concluded its deliberations at its
meeting in February 2017, resulting in
the recommendation to the Board to
approve the reappointment of PwC,
which was ratified by shareholder
approval at the AGM on 27 April 2017.
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Strategic reportCorporate governanceFinancial statements Directors’ remuneration report
Directors’ remuneration
report
Cathy Turner
Chair of the Remuneration Committee
Annual statement
Dear shareholder
On behalf of the Board, I present
below our directors’ remuneration
report for the year ended
31 December 2018.
It has been one of the most challenging
years the Group has faced, with
extensive changes being made
to ensure the future success of the
business. Although, in this year of reset
for the Group, financial results have
been delivered in line with the Board’s
expectations based on the turnaround
plan, overall financial performance has
seen a significant decline in profitability.
As you would expect in such
circumstances the remuneration
decisions for 2018 are reflective
of this performance. Whilst this is
a disappointing outcome it clearly
demonstrates the application of pay
for performance. The focus now shifts
to ensuring the remuneration strategy
for 2019 onwards fully supports the
turnaround plan at a critical time
for the Group.
During the year Paul Creffield joined
the Board as group managing director
on 2 August 2018, having been
promoted from his previous role
of group operations director and
bringing with him a wealth of
experience within the sector. In his
role of group managing director Paul
is responsible for the day to day running
of the business and has line reporting
responsibility for all areas. Peter Long
has remained in post as executive
chairman, focusing primarily on external
communication and investor relations,
and as a result his remuneration has
remained unchanged. Himanshu Raja,
chief financial officer during 2018,
has reported into Paul Creffield from 2
August 2018. Alison Platt stepped down
from the Board on 24 January 2018.
As referred to in the chief financial
officer’s review, the capital refinancing
of August 2018 deleveraged the
Group’s balance sheet providing the
Group with greater long term certainty,
flexibility and balance sheet strength,
together with improved liquidity and
covenant headroom. The impact of
the firm placing and open offer had,
as you would expect, a significant
negative impact on executive director
reward as a result of share dilution,
affecting the value of existing executive
shareholdings in the same way as other
shareholders and also impacting the
value of in-flight awards such as the LTIP.
As part of the strategic plan that
followed the capital refinancing, the
Committee supported the introduction
of the ‘Absolute Growth Plan’ (AGP),
an incentive plan designed to reward
62
| Countrywide plc Annual report 2018
• The performance conditions that
apply to the long-term incentive grant
policy, whereby nil-cost awards are
granted annually, will be adjusted
earnings per share and relative total
shareholder return, with weighting
split two-thirds/one third respectively.
Our immediate focus as part of the
business reset is to regrow earnings
and value creation over the next
three years, hence the focus on
a narrower number of performance
measures for the 2019 awards.
The impact of the capital refinancing
on EPS in 2018 has resulted in the
targets for the 2019 award to be set
at significantly higher growth levels
than usual. The measures will provide
strong alignment between the senior
executive team and shareholders.
Ongoing grant levels are expected
to be consistent with the normal
grant policy. However, in recognition
of the current low share price, the
Committee has determined that
2019 award levels will be reduced
significantly i.e. less than half
the typical award, for the Group
managing director and chief financial
officer. Further, the maximum value
of any individual payouts has been
capped as to avoid undue windfalls
for a recovery in the share price.
The Committee believes that the
current remuneration policy continues
to incentivise the delivery of strong
yet sustainable financial results and
the creation of shareholder value.
In line with good practice, the policy
has been included in this report, with
some supplementary notes located
on the company website for reference.
Further details of how the current policy
will be applied in practice for the 2019
financial year are set out in the annual
report on remuneration on page 65.
the Executive Team for achievement
of significant and sustainable
shareholder value growth.
Given the business situation and
specific design of the AGP, we
consulted widely with key existing
and prospective shareholders. There
were a wide range of views. Whilst the
majority of shareholders would support
its introduction, due consideration was
given to all dialogue as well as the
broader business environment,
and so the plan was withdrawn.
The current remuneration policy, which
was approved by shareholders at the
2017 AGM, continues to be appropriate
and therefore no changes have been
made since that shareholder approval.
The annual report on remuneration
is subject to an annual shareholder
advisory vote and will be presented
to shareholders at the AGM on
30 April 2019.
2018 performance and reward
During 2018, against challenging
market conditions, Group adjusted
EBITDA of £32.7 million for the year
ended 31 December 2018 was £32.9
million below the £65.6 million
achieved in 2017.
The Committee, whilst
acknowledging the positive steps
taken by management to improve the
performance of the Sales and Lettings
business in particular, was disappointed
with the absolute level of profitability.
This outcome, coupled with our
commitment to pay for performance,
led to negative remuneration outcomes
for the 2018 financial performance
for a third consecutive year:
• annual bonus: no bonuses were
payable to the executive directors
for 2018;
• LTIP: there was no vesting of
LTIP awards for Paul Creffield and
Himanshu Raja in 2018. The 2016
LTIP, of which Paul Creffield
participated, did not vest due to the
non-achievement of the challenging
adjusted EPS and relative TSR-based
performance conditions attached to
these awards. Himanshu Raja did not
join the Group until 12 June 2017 and
therefore did not participate in the
LTIP before this time.
These negative remuneration outcomes
were broadly reflective of the wider
employee population experience, with
the share dilution significantly reducing
the value of existing LTIP awards
for the executive directors and
senior management. Some technical
adjustments were made in line with
the plan rules and HMRC rules for the
all employee share plans, although
these did not fully offset the impact
of the capital refinancing.
Remuneration policy for 2019
The Committee regularly reviews the
remuneration policy for the executive
directors and senior managers to
ensure it is transparent and aligned
to the interests of shareholders; it is
weighted to incentivise sustainable
performance; it is structured to ensure
higher awards are only achieved for
exceptional performance against
challenging targets; and it encourages
an appropriate level of risk taking
commensurate with the risk profile
of the business. The Committee’s
most recent conclusions are that the
existing remuneration policy remains
appropriate and should continue
to operate for 2019.
The key points to note are as follows:
• there will be no increase to either the
group managing director or chief
financial officer’s salaries in 2019;
• no increase in fee for the executive
chairman;
• benefits and pension provision will
remain unchanged (although will be
reviewed as part of the policy review
ahead of the 2020 AGM);
• the structure and quantum of the
annual bonus, with one-third of any
award deferred into shares, continues
to be appropriate. The 2019 annual
bonus framework will be largely
consistent with the 2018 annual
bonus, with 70% of the award now
based on adjusted EBITDA, with
the remaining 30% incorporating
strategic/personal targets. The
strategic/personal targets will align
with the strategic objectives of the
Group and represent both personal
and customer outcomes; and
Annual report 2018 Countrywide plc
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Shareholder support
The Committee was pleased to receive
positive support from 94.18% of the
shareholders who voted on our 2018
remuneration report (the annual
statement and annual report on
remuneration). The remuneration
policy was approved by shareholders
at the AGM on 27 April 2017, where
positive support of 99.71% was
received. We remain committed
to ongoing engagement with our
shareholders and take an active
interest in their views and voting
on this remuneration report.
I hope that you find this report
informative in respect of how we
remunerate and incentivise our
directors through a remuneration
policy that is supportive of,
and aligned to, the Company’s
strategic aims and objectives.
Cathy Turner
Chair of the Remuneration Committee
7 March 2019
UK Corporate
Governance Code
The Committee spent time during
2018 considering the implications
of the new revised UK Corporate
Governance Code which comes into
effect for Countrywide from 1 January
2019. The Committee already reviews
and approves the pay arrangements
for senior executives below the Board
and has taken an active interest in
understanding pay policies more
generally across the workforce.
During 2019 we will be formalising
our processes so that greater attention
can be given to reviewing pay and
employment conditions across
the Group.
As noted earlier in the corporate
governance section, the Board as
a whole will be seeking to develop
the ways in which it engages with
employees. Existing mechanisms which
include branch visits, colleague surveys
and Board dinners with commercial
teams will form the foundations on
which we can build further avenues
for hearing the employee voice. The
Committee members will play an active
part in this process so that they are fully
informed of employee sentiment when
setting executive remuneration.
Looking ahead
By the end of 2019, the remuneration
policy will have been in place for
three years and will therefore need
to be renewed at the 2020 AGM.
During 2019, the Committee will
be reviewing the policy to ensure it
remains appropriately aligned to the
business needs, reflects developments
in market practice and remains
compliant with the new UK Corporate
Governance Code. Any material
changes which are planned will
be the subject of consultation
with our major shareholders.
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| Countrywide plc Annual report 2018
PART A: annual report on remuneration
Directors’ remuneration for the year ended 31 December 2018 (audited)
The remuneration of the directors for the years 2018 and 2017 was as follows:
Salary and fees
Taxable benefits5
Annual bonuses
Long term incentives
Pension6
Total7
2018
£’000
2017
£’000
2018
£’000
2017
£’000
2018
£’000
2017
£’000
2018
£’000
2017
£’000
2018
£’000
2017
£’000
2018
£’000
2017
£’000
Executive directors
Peter Long3
Himanshu Raja
Paul Creffield8
Non-executive directors
Peter Long3
Caleb Kramer11
David Watson
Cathy Turner
Rupert Gavin
Jane Lighting
Natalie Ceeney4
Mark Shuttleworth9
Former directors
Alison Platt1
Jim Clarke2
Richard Adam10
169
410
187
180
40
102
55
45
45
55
11
–
229
–
180
40
95
55
45
45
36
–
48
–
18
1,365
575
198
55
1,553
–
14
6
–
–
–
–
–
–
–
–
1
–
–
21
–
8
–
–
–
–
–
–
–
–
–
15
9
–
32
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
62
28
–
–
–
–
–
–
–
–
7
–
–
97
–
34
–
–
–
–
–
–
–
–
–
169
486
221
180
40
102
55
45
45
55
11
–
271
–
180
40
95
55
45
45
36
–
86
30
–
150
56
–
18
1,483
676
237
55
1,735
1. Alison Platt stepped down from the Board on 24 January 2018, however served notice with the Company until 23 January 2019 as was stipulated
in her contract. Further details are noted in the payments to past directors. During her time in post she acted as a non-executive director for
Tesco plc and retained a fee of £84,500.
2. Jim Clarke stepped down from his role as chief financial officer on 1 August 2017, leaving the Company on 31 December 2017. The table above
reflects remuneration for his period as a director only. Mr Clarke was succeeded by Himanshu Raja, who joined the Board on 12 June 2017 and
took up the chief financial officer post on 1 August 2017.
3. Peter Long served as non-executive chairman until 24 January 2018, at which time he became executive chairman. During 2018 he served
as a non-executive director for three companies and retained the following fees during the year for his services; Royal Mail plc £215,342
(stepped down on 19 September 2018); Parques Reunidos Servicios Centrales, S.A.U (“Parques”) 135,614 euros (stepped down on 17 July 2018);
TUI AG 246,000 euros.
4. Natalie Ceeney received pro-rata fees during 2017 reflecting her start date of 28 April 2017.
5. Benefits consist of the provision of a car allowance, life assurance and private medical and health insurance.
6. Alison Platt, Himanshu Raja and Paul Creffield received a 15% of salary supplement in lieu of pension entitlements.
7. Matching shares were also issued to the eligible executive directors under the Share Incentive Plan (until cessation of the plan in April 2018),
following the introduction of the employee-wide share incentive plan in 2013. The aggregate value of these in each year in respect of each
executive director is disclosed within the SIP share awards below.
8. Paul Creffield joined the Board on 2 August 2018. His remuneration is shown for the period in which he served as a director.
9. Mark Shuttleworth joined the Board on 1 October 2018. He received pro-rata fees during 2018.
10. Richard Adam stepped down from his role on 25 April 2018.
11. Caleb Kramer’s services are provided to the Company under an agreement between the Company and Oaktree Capital Management FIE LLC.
2018 base salaries and pension
Executive
Peter Long
Paul Creffield
Himanshu Raja
Annual salary / fee from 1 January 2018 (or date of appointment)
£360,0001
£450,0002
£410,000
Pension
allowance
0%
15%
15%
1. Peter Long previously received a fee of £180,000 per annum as non-executive chairman. This was increased to £360,000 per annum for the period
that he is executive chairman of Countrywide. He is not eligible for other employment benefits and does not participate in any incentive plans.
2. Paul Creffield was appointed to the Board as group managing director on 2 August 2018. His annual salary was set at £450,000 per annum.
When setting his salary, the Committee considered a number of reference points. Whilst external benchmarking data was viewed to provide wider
market context, internal relativities, the skills and experience of the individual and the criticality of the role in rebuilding the business were more
influential factors considered. The Committee is of the view that this salary level adequately reflects the scope and responsibilities of the role.
Annual report 2018 Countrywide plc
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Directors’ remuneration report continued
PART A: annual report on remuneration continued
2018 annual bonus award (audited)
Executive directors had the potential to receive an annual bonus of up to 120% of base salary.
As set out in the capital raise prospectus, the Remuneration Committee decided to restructure the annual bonus plan during
the course of 2018, to better align with the turnaround strategy. The Remuneration Committee determined that there would
be no bonus payable for performance during H1 2018 due to not achieving the threshold performance targets. As noted at
the time of the capital raise, any bonuses for H2 2018 would be, as before, subject to the achievement of adjusted EBITDA
and strategic objectives, but also be based on the achievement of turnaround objectives.
The maximum bonus that could be earned by Executive Directors for 2018 was half of the normal maximum, so 60% of base
salary for the group managing director and the chief financial officer. The intention was to ensure that the targets for the senior
managers and the wider leadership team were relevant and motivational.
H1 annual bonus
Group adjusted EBITDA, income and cost income targets (up to 70% of bonus)
The primary driver of the award was based on Group adjusted EBITDA, Group income and Group operating
cash flow performance relative to a sliding scale of challenging targets set at the start of the financial year.
More particularly, the table below sets out details of the adjusted EBITDA, income and operating cash flow targets,
performance against these targets and the resultant bonus outturn. As noted above, the financial performance was assessed
for the first six months of the financial year, based on performance to that time and with an assessment of potential full
year performance.
Measure
Weighting
Threshold
On-target
Maximum
Actual
Payout
Group adjusted EBITDA
Group income
Operating cash flow
25% (i.e. up to 30% of salary)
25% (i.e. up to 30% of salary)
20% (i.e. up to 24% of salary)
£60m
£622m
£54m
£72m
£692m
£72m
£75m
£705m
£83m
£32.7m 0% of salary
£627.1m 0% of salary
£(3)m 0% of salary
Performance required
Personal/strategic targets (up to 30% of bonus)
This part of the bonus was based on the Committee’s assessment of performance against personal/strategic targets. Details of
the targets and the Committee’s assessment of performance against them are as follows:
Target
Weighting
Personal/strategic targets
30% (i.e. up to 36% of salary)
Committee’s assessment of whether target was met
n/a due to overall financial result
However, this element of the bonus was only payable to the extent that a threshold level of financial performance was
delivered. As this threshold level of financial performance was not delivered, no portion of this element of bonus was payable.
66
| Countrywide plc Annual report 2018
H2 annual bonus
As noted above, the Committee felt it necessary to set performance targets post capital raising, which reflected the
turnaround strategy and the key indicators of that strategy being delivered. Any bonus payment required Group adjusted
EBITDA of £40 million to be achieved. This was not achieved. Thereafter, the performance was assessed against individual
criteria as set out below:
Target
Performance assessment
Outcome
0%
0%
0%
0%
0%
0%
0%
Measure
Paul Creffield
Market share of listings
Pipeline convergence year
on year
Cross sales target (pence
in the £)
Leadership
Himanshu Raja
Capital structure
Cost reduction
Reset KPIs
Leadership
8% increase on 2017
Closing pipeline convergence year on year
by end of 2018
16% increase on 2017
Establish, develop and engage the executive
committee to set strategic direction and lead
the organisation through the turnaround
6% increase
1% down
16% increase
Achieved
Re-set covenants to provide headroom for the
build back of the business
Achieved
Achieved
Partially achieved
Placing and rights issue and put in place a long
term capital structure for the Group
Lead on the cost agenda for the Group to
continue to bring down the cost base
Fit for purpose financials and KPIs:
• Clear view of business unit profitability
• Clear view of the cost base and costs by
function and for Group HO
• Service line profitability
• One set of financials and KPI’s per business unit
Establish, develop and engage the Executive
Committee to set strategic direction and lead the
organisation through the turnaround
Partially achieved
0%
Total award
Based on the underlying financial performance targets not being met, no bonus is payable under either element.
Vesting of scheme interests in respect of the year ended 31 December 2018 (audited)
Awards granted under the LTIP to Paul Creffield in March 2016 would be due to vest on the third anniversary of grant in 2019
based upon adjusted EPS and relative TSR performance as follows:
Adjusted EPS for the three years ended 31 December 2018
Relative TSR (vs FTSE 250 ex financial services) for the three years
ended 31 December 2018
Threshold target
0% vesting at
or below
Maximum target
100% vesting at
or above
37.3p
Median
48.9p
Upper
quartile
Actual
performance
0.6p
Below
median
Vesting %
0%
0%
Based on the above, none of the outstanding 2016 LTIP awards held by Paul Creffield will vest.
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Directors’ remuneration report continued
PART A: annual report on remuneration continued
Scheme interests awarded during the year (audited)
LTIP awards
The following LTIP awards, structured as nil-cost options, were granted to executive directors during 2018:
Executive
Date of grant
Basis of award
granted
Share price at
date of grant
(pence)
Number
of shares
Face value
of award
at grant 1
% of face
value that
would vest at
threshold
performance
Himanshu Raja 26/03/18 200% of salary
89p
922,385 £820,000
25%
Paul Creffield
26/03/18 200% of salary
89p
708,661 £630,000
25%
1. Based on the share price at grant multiplied by the number of shares awarded.
Performance targets for these awards are as follows:
Vesting determined
by performance over
Normal vesting
(exercise) date
Three-year
period ending
31 December 2020
Three-year
period ending
31 December 2020
26 March 2021
(26 March 2028)
26 March 2021
(26 March 2028)
• adjusted EPS growth (37.5% of award) – 25% of this part of an award will vest for achieving a minimum of 5% compound
growth per annum in adjusted EPS increasing pro-rata to 100% vesting for achieving 15% compound growth per annum
in adjusted EPS for the three-year period ending 31 December 2020;
• relative TSR (37.5% of award) – the Company’s TSR measured against the constituents of the FTSE 250 (excluding financial
services companies and investment trusts). 25% of this part of an award will vest for performance at median of comparator
group, increasing pro-rata to 100% vesting at upper quartile; and
• operating cash flow conversion (25% of award) – 25% of this part of an award will vest at a conversion rate of 80% increasing
pro-rata to 100% vesting at a conversion rate of 100%. In addition, no element of this portion of the award will vest unless
the Committee is satisfied that the Company’s underlying performance warrants such vesting.
As noted in last year’s report, the Remuneration Committee thought carefully about increasing the face value of Himanshu
Raja’s share award under the long term incentive plan in 2018 from 130% of salary to 200% of salary, particularly in light
of Countrywide’s share price performance over the last year. In making the decision to do so, the Committee considered
that Mr Raja has a critical role to play in the turnaround of the business both in the short term and in the longer term and it
is in shareholders’ interests for him to be highly motivated and for the Committee to reward him well for executing the new
three-year business plan. An increased award also took into account the automatic increase in responsibilities for Mr Raja as
a result of the chief executive officer position being vacant. This was permitted under the approved policy. Mr Raja also bought
shares in Countrywide in the open market. Mr Raja will only benefit from the enhanced award if he and Countrywide outperform.
Options/
awards
granted
during
the year
Options/
awards
lapsed during
the year
Options/
awards
exercised
during
the year
Adjusted for
capital raising2
Interest at
31 December
2018
Exercise
price pence
Expected exercise/vested to
expiry date (if appropriate)
Outstanding share awards
Date of grant
Interest at
1 January
2018
16/03/15
163,507
22/03/16 279,960
27,010
05/05/16
508,100
02/05/17
Alison Platt1
LTIP
LTIP
Deferred bonus
LTIP
Paul Creffield
–
–
–
–
(163,507)
–
–
–
LTIP
16/03/15
Deferred bonus 22/05/15
22/03/16
LTIP
05/05/16
Deferred bonus
02/05/17
LTIP
LTIP
26/03/18
Himanshu Raja
44,550
10,880
81,148
11,450
110,457
–
–
–
–
–
–
708,661
(44,550)
–
–
–
–
–
LTIP
LTIP
14/06/17
26/03/18
344,984
–
– 922,385
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
214,331
20,678
388,991
–
494,291
47,688
897,091
–
8,330
62,123
8,765
84,564
542,536
–
19,210
143,271
20,215
195,021
1,251,197
–
16/03/18 (16/03/25)
– 22/03/19 (22/03/26)
–
05/05/19
– 02/05/20 (02/05/27)
16/03/18 (16/03/25)
–
–
22/05/18
– 22/03/19 (22/03/26)
–
05/05/19
– 02/05/20 (02/05/27)
– 26/03/21 (26/03/28
609,096
264,112
706,159 1,628,544
–
14/06/20 (14/06/27)
– 26/03/21 (26/03/28)
1. Following her resignation all outstanding LTIP awards for Alison Platt will lapse on the date of her ceasing employment in line with the plan rules.
Alison Platt’s 2016 deferred bonus award vested in full on the date of her ceasing employment.
2. Awards were adjusted to take into account the impact of the capital raising. This technical adjustment is permitted by the plan rules and is in line
with the treatment approved by HMRC for other all-employee share plans as a result of a placing and open offer. This is designed to ensure that
the economic value of the award is substantially the same before and after the transaction.
68
| Countrywide plc Annual report 2018
The executive directors’ interests in ordinary shares of the Company under the SIP as at 31 December 2018 are shown
in the table below. The shares are held under a SIP trust and will vest based on service conditions of continued employment
and have a vesting date of a minimum holding period of three years from each rolling monthly award date.
Alison Platt1
Paul Creffield
Total SIP shares at
1 January
2018
Partnership shares
purchased
Matching shares
awarded
2,846
4,283
277
728
184
486
Total SIP shares
at 31 December
2018
3,307
5,497
1. Ms Platt was treated in line with the rules of the scheme following her resignation.
Mr Raja had completed less than twelve months’ service when the SIP was closed in April 2018.
Up to April 2018 when the plan was closed, matching shares were awarded each month in the ratio of two matching shares for
every three partnership shares purchased at the prevailing market price on the date of the award.
Statement of directors’ shareholding and share interests (audited)
The interests of the directors who served during 2018 have been subject to audit and are set out in the table below:
Legally owned
LTIP awards
DSBP options
Paul Creffield
Himanshu Raja1
Alison Platt
Peter Long
David Watson1
Cathy Turner
Richard Adam
Rupert Gavin
Jane Lighting
Caleb Kramer
Natalie Ceeney
Mark Shuttleworth
31 December
2018
2,519,016
1,700,723
43,689
3,436,985
149,946
56,638
28,254
20,900
70,304
–
125,368
–
31 December
2017
Unvested
Vested
SIP matching
share awards
(unvested)
–
1,589,489
222,841 2,237,640
1,391,382
–
–
–
–
–
43,412
371,429
22,070
10,722
12,843
9,500
10,629
–
23,067
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,063
–
1,318
–
–
–
–
–
–
–
–
–
Unvested
20,215
–
47,688
–
–
–
–
–
–
–
–
–
Vested
19,210
Total
31 December
2018
4,149,993
– 3,938,363
1,484,077
–
– 3,436,985
149,946
–
56,638
–
28,254
–
20,900
–
–
–
–
–
70,304
–
125,368
–
Shareholding
guideline
(200% of salary) 2
47%
35%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Includes jointly controlled shares held by close family members.
1.
2. For the purposes of the above table, compliance with the share ownership guidelines has been calculated by using the share price of 8.40 pence
on 31 December 2018 and excludes unvested share awards for these calculations.
Peter Long, Paul Creffield and Himanshu Raja all bought additional shares in the Company as part of the capital raising and
therefore the number of shares legally owned has increased. Formal share ownership guidelines do not apply to Peter Long
in his role as executive chairman. For Paul Creffield and Himanshu Raja, the lower current share price means that the value
of their holding (as a percentage of salary) is lower than the shareholding guideline requires. Progress against the guideline
will be monitored. The Committee has considered the issue of post-cessation shareholding requirements in light of the new
UK Corporate Governance Code. The Committee has formalised its policy, whereby the default approach will be for deferred
bonuses and outstanding LTIP awards to continue to vest on their normal vesting date for those treated as “good leavers”.
Holding periods attached to the LTIP awards will also continue to apply post-cessation. This approach is considered to provide
executive directors with a direct alignment with the Company performance up to three years after employment ceases.
There have been no changes in the interests of any director between 1 January 2019 and the date of this report.
Payments to past directors and payments for loss of office (audited)
Alison Platt stepped down from the Board on 24 January 2018, and was paid in lieu of notice until 23 January 2019 as
was stipulated in her service contract. The main provisions relating to her departure (which comply with the Company’s
remuneration policy) are as follows:
• Base salary, benefits and pension continued to be paid up to the end of her notice period on 23 January 2019.
• No bonus payment was payable for 2018.
• SIP awards were treated in accordance with the plan rules.
• Outstanding 2016 DSBP awards vested in full on cessation of employment and will remain exercisable until 23 January 2020.
• Outstanding LTIP awards lapsed on the date of cessation.
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements
Directors’ remuneration report continued
PART A: annual report on remuneration continued
Total shareholder return
200
150
)
£
(
l
e
u
a
V
100
50
0
20
March
2013
31
December
2013
31
December
2014
31
December
2015
31
December
2016
31
December
2017
31
December
2018
Countrywide
FTSE 250 (excluding Investment Trusts)
Source: Thomson Reuters Datastream
The graph shows the value, by 31 December 2018, of £100 invested in Countrywide plc in March 2013 (IPO) compared with
the value of £100 invested in the FTSE 250 Index (excluding investment trusts).
In the opinion of the directors, this index (excluding investment trusts) is the most appropriate peer group and also closely
aligns with the comparator group used for the LTIPs, which comprises the FTSE 250 Index excluding investment trusts
and financial services companies.
The table below sets out the details for the director undertaking the role of chief executive officer:
Year
2018
2018
2017
2016
2015
2014
2014
2013
2012
2011
2010
2009
Paul Creffield3
Alison Platt1
Alison Platt
Alison Platt
Alison Platt
Alison Platt1
Grenville Turner2
Grenville Turner
Grenville Turner
Grenville Turner
Grenville Turner
Grenville Turner
Chief executive officer
single figure of total
remuneration £’000
Annual bonus payout
against maximum
%
Long term incentive
vesting rates against
maximum opportunity
%
221
56
676
676
964
555
7,744
1,015
914
689
892
972
0
0
0
0
42
n/a
67
83
83
46
79
100
0
0
0
0
n/a
n/a
83
n/a
n/a
n/a
n/a
n/a
1. Alison Platt was appointed chief executive officer from 1 September 2014 and stepped down on 24 January 2018.
2. Grenville Turner stepped down as chief executive officer with effect from 1 September 2014.
3. Paul Creffield is the group managing director. The Committee considers this is currently the role most commensurate with the role of a full-time
chief executive officer.
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| Countrywide plc Annual report 2018
Percentage change in remuneration of director undertaking the role of chief executive officer
The table below shows the percentage change in remuneration of the director undertaking the role of chief executive
officer and the Company’s employees as a whole between the years 2017 and 2018:
Salary and fees
All taxable benefits
Annual bonuses/variable pay
Percentage increase in remuneration in
2018 compared with remuneration in 2017
Chief executive
officer
Average pay based
on all Countrywide
employees
(22)
(33)
0
0
(1)
6
Given the Board changes in the year and operating without a full time CEO, the Committee did not think a pay ratio calculation
for 2018 would provide a meaningful comparison to other employees. However, we will produce an appropriate number for
2019 in line with the new reporting regulations.
Relative importance of spend on pay
The following table shows the Company’s actual spend on pay (for all employees) relative to dividends, tax and retained profits:
Employee costs
Dividends
Tax credit
Retained losses
2018
£’000
390,262
0
(34,518)
218,155
2017
£’000
389,694
0
(3,816)
207,343
Change
%
(0)
n/a
805
(5)
Implementation of the remuneration policy for the year ending 31 December 2019
Details of how the Committee intends to operate the remuneration policy for directors for the year ending 31 December 2019
are set out below.
Base salary
Base salaries for the executive directors are reviewed annually by the Committee, taking account of the director’s performance,
experience and responsibilities. When determining base salaries, the Committee also has regard to economic factors,
remuneration trends and the general level of salary increases awarded throughout the Group. As can be seen in the
table below, neither Paul Creffield nor Himanshu Raja will be awarded a base salary increase in 20191:
Himanshu Raja
Paul Creffield
1 January 2018
£’000
410
450
1 January 2019
£’000
410
450
1. Peter Long will continue to receive an additional annual £180,000 fee in recognition of his role as executive chairman. He receives no other
remuneration for the role.
Benefits in kind and pension
Paul Creffield and Himanshu Raja will continue to receive benefits including a company car allowance, life assurance,
private medical insurance, permanent health insurance and a salary supplement in lieu of pension entitlement of up to
15% of base salary. Peter Long is not eligible for any employment benefits, nor any pension allowance. All executives will be
reimbursed reasonable business-related expenses (including any tax thereon) in line with the Countrywide expenses policy.
Annual report 2018 Countrywide plc
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Directors’ remuneration report continued
PART A: annual report on remuneration continued
Annual bonus
For 2019, the maximum bonus potential will continue to be 120% of salary for Paul Creffield and Himanshu Raja, with one-third
of any bonus payable to be deferred into Company shares for a period of three years. Peter Long will not participate in the
annual bonus.
The metrics used in 2019 will be as follows:
• 70% – Group adjusted EBITDA targets
• 30% – Personal/strategic metrics
In addition, any bonuses accruing will only be payable if the Committee is satisfied that underlying performance warrants
such payments.
The Committee does not believe it to be in shareholders’ interests to disclose the performance targets in advance for 2019
as these include items which the Committee considers commercially sensitive. However, retrospective disclosure of the
targets and performance against them will be presented in the 2019 annual report on remuneration.
Malus and clawback provisions will continue to operate in respect of deferred bonus awards.
Long term incentives
The LTIP awards for 2019 will be 65% of salary for Paul Creffield and 50% for Himanshu Raja, which is a significant reduction
compared with prior years. This is in recognition of the current low share price (awards to other participants will likewise be
scaled back). A limit on the value which can be delivered to any individual will also be applied for this award (set at £1m) to
avoid excessive outcomes.
The performance conditions that will apply to the long-term incentive grant policy, whereby nil-cost awards are granted
annually, will for 2019 be adjusted earnings per share (two-thirds weighting) and relative total shareholder return (one-third
weighting). Our immediate focus as part of the business reset is to grow earnings leading to value creation. We have therefore
simplified the awards by focusing on two measures only for the 2019 awards.
The award will be assessed over the three-year performance period from 1 January 2019 to 31 December 2021 and will be
subject to the following targets:
• Adjusted EPS (two-thirds weighting) – 25% of this part of an award will vest if adjusted EPS reaches 0.80 pence increasing
pro-rata to 100% vesting for EPS of 3.00 pence; and
• Relative TSR (one-third weighting) – measured against the FTSE Small Cap Index (excluding investment trusts) with 25%
of this part of an award vesting for median ranking performance, increasing pro-rata to 100% vesting for an upper quartile
ranking position or better.
Note that in assessing the achievement of the relative TSR measure, the Committee will need to be satisfied that the outcome
is reflective of underlying financial and operational performance as well as absolute returns to shareholders. We take the
view that the measures and targets will provide a strong alignment between the senior executive team and shareholders.
Our malus and clawback provisions give the Committee wide powers, should they need them, to make unvested awards
forfeit and to reclaim already vested and paid amounts in exceptional circumstances including but not limited to a material
misstatement of the accounts, an error in assessing performance, misconduct, reckless, negligent or wilful actions or
inappropriate values or behaviours.
In addition, awards made to executive directors from 2016 onwards are subject to a two-year post-vesting holding period.
Shareholding guidelines will continue to operate. Executive directors will be required to retain no less than 50% of net of
tax shares from vesting of share options or awards until such time as a shareholding equivalent in value to 200% of base
salary has been achieved.
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| Countrywide plc Annual report 2018
Non-executive directors
Non-executive director fee levels for 2019 are as follows:
Director
Peter Long1
David Watson2
Cathy Turner3
Rupert Gavin
Jane Lighting
Caleb Kramer
Natalie Ceeney4
Mark Shuttleworth5
Committee chair role
Chairman, Nomination
Deputy Chairman and senior independent director
Remuneration
–
–
–
–
Audit and Risk
2019
£’000
360
95
55
45
45
40
55
55
2018
£’000
360
102
55
45
45
40
55
11
1. Peter Long received an increased annual fee of £360,000 from 24 January 2018 in recognition of his role as executive chairman of Countrywide.
If he reverts to a non-executive role, his annual fee will decrease to £180,000.
2. David Watson receives an annual non-executive director fee of £95,000, and received an additional (pro-rata) annual fee of £10,000 from 25 April
2018 until 31 December 2018 in recognition of his role as Chair of the Group Audit and Risk Committee.
3. Cathy Turner receives an annual non-executive director fee of £45,000 and receives an additional annual fee of £10,000 in recognition of her role
as Chair of the Remuneration Committee.
4. Natalie Ceeney receives an annual non-executive director fee of £45,000 and an additional annual fee of £10,000 in recognition of her role on the
Countrywide Principal Services Board within the Financial Services division.
5. Mark Shuttleworth receives an annual non-executive director fee of £45,000 and, from 1 January 2019, receives an additional annual fee of £10,000
in recognition of his role as Chair of the Group Audit and Risk Committee.
The Remuneration Committee and its composition
The Committee’s composition, responsibilities and operation comply with the principles of good governance (as set out in
the UK Corporate Governance Code). The full terms of reference of the Committee are available on request to shareholders
and on the Company’s website at www.countrywide.co.uk. The terms of reference are reviewed annually by the Board and,
if necessary, updated. The membership of the Committee, together with appointment date, is set out below:
Member
Cathy Turner (chair)
Rupert Gavin
Jane Lighting
David Watson
Natalie Ceeney
Mark Shuttleworth
Remuneration Committee
member since
31 July 2013
25 June 2014
9 June 2014
2 September 2013
28 April 2017
1 October 2018
Attendance by members at the meetings is shown on page 49. All members of the Committee are considered independent
non-executive directors.
The chair of the Committee reports on the Committee’s activities to the Board at the meeting immediately following the
Committee meeting.
Consideration by the directors of matters relating to directors’ remuneration
Membership of Board Committees that considered remuneration (both the Remuneration Committee and the Nomination
Committee (when directors are appointed)) are disclosed within the corporate governance section of the annual report.
Invitations to attend are also extended to executive management where appropriate.
During the year the Committee received advice on remuneration from FIT Remuneration Consultants LLP (FIT). FIT is not
connected to the Group, is a member of the Remuneration Consultants Group and is a signatory to its Code of Conduct,
and is therefore considered to be objective and independent. In 2018 FIT received fees of £135,367 (2017: £50,672) in
connection with its work for the Committee, which it provided pursuant to its standard terms of business. Of these fees,
£80,124 related to supporting the capital financing, with the remaining £55,243 representing normal fees.
Shareholder voting and engagement
The remuneration policy was approved at the Annual General Meeting held in April 2017. The last remuneration report
was approved at the Annual General Meeting held in April 2018. The voting in respect of the resolutions was as follows:
AGM
Resolution
For
Votes
Against
26 April 2018
27 April 2017
2 Directors’ remuneration report
3 Directors’ remuneration policy
186,239,889
202,605,093
94.18% 11,511,829
99.71% 580,400
5.82%
0.29%
Withheld
3,184
300
Total
197,751,718
203,185,793
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements
Directors’ remuneration report continued
PART B: remuneration policy report continued
For ease of reference, set out below is a summary of the remuneration policy (the “policy”) which was approved by
shareholders at the Company AGM on 27 April 2017. This policy report sets out the framework that shapes the Company’s
remuneration strategy for an anticipated period of three years. The full report is available on the Company’s website at https://
www.countrywide.co.uk/corporate/investor-relations/reports-presentations/2017/countrywide-annual-report-2017.pdf/
Summary remuneration policy
The Committee remains of the view that the remuneration policy, approved by shareholders at the 2017 AGM, continues
to be appropriate and therefore there has been no change to the policy from the prior year. The key components of the
remuneration packages offered to our directors are as follows:
Future policy table
Purpose/link to strategy
Salary and fees
Operation
Opportunity
Applicable performance measure
To aid the recruitment,
retention and motivation
of high performing people
Fixed annual sum normally
payable monthly and
reviewed annually
To reflect their experience and
importance to the business
Review reflects changes
in scope of role and
responsibility, personal
and Group performance
and increases throughout
the rest of business
Salary of newly appointed
directors may be phased to
take account of experience
n/a
During the life of this policy,
no executive director’s base
salary shall increase by an
average of more than
10% p.a. (save following
recruitment – see below)
The Committee is guided by
the general increase for the
broader employee population
but may decide to award a
higher increase for executive
directors to recognise, for
example, an increase in the
scale, scope or responsibility
of the role, to apply salary
progression for a newly
appointed director and/or
to take account of relevant
market movements
Benefits
To provide support and
protection and the ability to
focus on effective delivery
Benefits currently include
company car allowance,
private medical insurance
and life assurance. Other
benefits may be provided
where appropriate
No executive director will
receive benefits of a total
aggregate value exceeding
£50,000 per annum
n/a
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| Countrywide plc Annual report 2018
Purpose/link to strategy
Annual bonuses
To incentivise the delivery of
stretching short term business
targets and strategic and/or
personal objectives
To recognise performance
through variable remuneration,
allowing flexible control of the
cost base and response to
market conditions
Operation
Opportunity
Applicable performance measure
All measures and targets are
120% of salary per annum
reviewed and set by the
Committee as soon as is
practicable following the
beginning of the year and
payments are determined
after the year end based on
performance against targets
One-third of any bonus
payable will normally be
deferred into options/awards
over ordinary shares with a
three-year vesting period
Dividend equivalent payments
(cash and/or shares) may
be payable on awards
to the extent they vest
Non-pensionable
The performance measures
applied may be financial or
non-financial, corporate,
divisional or individual
and in such proportions
as the Committee
considers appropriate
When determining the portion
of bonus that is payable for
achieving any threshold and
target level of performance for
any measure, the Committee
will take account of a number
of factors such as (i) the stretch
inherent in the threshold/target
performance level, (ii) how
that threshold/target level
compares with internal and
external forecasts, (iii) bonus
outturns and associated
performance in the prior year
and (iv) the general financial
and market conditions that
apply when the targets are set
Malus and clawback
provisions operate for
deferred bonuses
Long Term Share Incentive Plans
To incentivise value creation
over the long term and reward
execution of our strategy
To align the long term interest
of directors and shareholders
To promote retention
Annual grant of awards
Normal grant limit
The Committee may set
Structured as nil-cost options/
conditional awards
Up to 150% of salary per
annum
Non-pensionable
Maximum limit
Dividend equivalent payments
(cash and/or shares) may be
payable on awards to the
extent they vest
200% of salary per annum
Exceptional limit
300% of salary per annum
Awards made to executive
directors from 2016 are
subject to a two-year
post-vesting holding period
such performance conditions
on awards as it considers
appropriate, whether financial
or non-financial and whether
corporate, divisional or
individual
Performance periods may
be over such periods as the
Committee selects at grant,
which will not be less than,
but may be longer than,
three years
No more than 25% of
awards vest for attaining
the threshold level of
performance conditions
Malus and clawback
provisions operate
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements Directors’ remuneration report continued
PART B: remuneration policy report continued
Purpose/link to strategy
Pensions
To help recruit and retain high
performing executives
To reward continued
contribution to the business by
enabling executive directors
to build long term savings
All Employee Share Plans
To encourage all employees
to make a long term
investment in the
Company’s shares in
a tax-efficient manner
Share ownership guidelines
To provide close alignment
between the longer term
interests of directors and
shareholders in terms of
the Company’s growth
and performance
Non-executive directors
To provide fees reflecting
time commitments and
responsibilities of each role,
in line with those provided
by similarly sized companies
Operation
Opportunity
Applicable performance measure
Participation into a money
purchase pension scheme
and/or cash equivalent
n/a
Directors will receive
a pension contribution
appropriate to their role
either as a formal pension
and/or cash equivalent
Pension contributions will
not exceed 20% of salary
per annum
Share Incentive Plan and/or
Save As You Earn Plan as
per HMRC approved rules
Consistent with prevailing
n/a
HMRC limits
Executive directors to retain
n/a
n/a
no less than 50% of net of tax
shares from vesting of share
options/awards until such time
as a shareholding equivalent
in value to 200% of base
salary has been achieved
Cash fee paid on
a monthly basis
Fees are reviewed annually
Non-executive directors do
not participate in any cash or
share incentive arrangements
Non-executive directors may
receive benefits (including
travel and office support,
together with any associated
tax liability that may arise)
n/a
The maximum aggregate fees
payable to the non-executive
directors is as set out in
the Company’s Articles
of Association (currently
£2 million)
The Committee is guided
by market rates, time
commitments and
responsibility levels
No additional fees are payable
for membership of Board
Committees, though additional
fees may be paid for specific
additional responsibilities
such as chair of Audit and
Risk Committee, chair of
Remuneration Committee and
senior independent director
or to reflect a substantially
greater time commitment
than normal in any year
76
| Countrywide plc Annual report 2018
Notes to summary policy table
1. A description of how the Company intends to implement the remuneration policy for 2019 is set out in the Annual Report on Remuneration.
2. The performance-related elements of remuneration take into account the Group’s risk policies and systems, and are designed to align the senior
executives’ interests with those of shareholders. The Committee reviews and sets the metrics and targets applying to awards to the executives every
year, in order to ensure that they are aligned with the Group’s strategy. All financial targets will (where appropriate) be set on a sliding scale.
Non-financial targets are set based on individual and management team responsibilities and strategic objectives. A summary of the targets to
be used in 2019 under the annual bonus and LTIP can be found on page 72. Appropriate levels of reward are available for achieving threshold
performance with maximum rewards requiring substantial out-performance of challenging strategic plans. The Committee retains discretion to set
different targets and introduce additional metrics in line with the Company’s strategy for future awards providing that, in the opinion of the Committee,
the new targets are no less challenging in light of the prevailing circumstances than those set previously. If substantially different targets to those
used previously are proposed, major shareholders will be consulted. Furthermore, the Committee reserves the right to adjust any bonus outturn and/
or LTIP vesting that is based on a formulaic assessment of performance against the targets if such outturn/vesting does not reflect shareholders’
experience and/or underlying performance.
3. The Committee operates incentive arrangements for executive directors in accordance with their respective rules and the Listing Rules and HMRC
rules where relevant. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and
administration of the plan rules. These include (but are not limited to) the following:
• who participates;
•
•
•
• discretion relating to the measurement of performance in the event of a change of control or reconstruction;
• determination of a good leaver (in addition to any specified categories) for incentive plan purposes;
• adjustments required in certain circumstances (e.g. rights issues, corporate restructuring and special dividends); and
•
the timing of grant of award and/or payment;
the size of an award (up to plan/policy limits) and/or a payment;
the result indicated by the performance conditions;
the ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose.
4. For the avoidance of doubt, in approving this directors’ remuneration policy, authority is given to the Company to honour any commitments
entered into with current or former directors (such as the payment of a pension or the vesting or exercise of past share awards).
5. 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.
6. The regulations and related investor guidance encourage companies to disclose a cap within which each element of the policy will operate.
Where maximum amounts for elements of remuneration have been set within the policy, these will operate simply as caps and are not
indicative of any aspiration.
7. While the Committee does not consider it to form part of benefits in the normal usage of that term, it has been advised that corporate hospitality,
whether paid for by the Company or another, and business travel for directors and in exceptional circumstances their families may technically come
within the applicable rules and so the Committee expressly reserves the right for the Committee to authorise such activities within its agreed policies.
8. While the appropriate benchmarks vary by role, the Company seeks to apply the philosophy behind this policy across the Company as a whole.
Where the Group’s pay policy for directors differs from its pay policies for groups of staff, this reflects the appropriate market rate position and/or
typical practice for the relevant roles. The Company takes into account pay levels, bonus opportunity and share awards applied across the
Group as a whole when setting the executive directors’ policy.
The full policy approved by shareholders at the 2017 AGM is set out in the 2017 directors’ remuneration report and includes
further information on:
• Statement of employment conditions elsewhere in the Company
• Statement of consideration of shareholder views
• Illustration of the application of the remuneration policy
• Recruitment of executive directors and promotions
• Service agreements and letter of appointment
• Policy on payment for loss of office
• External appointment of executive directors
Approval
This report was approved by the Board of directors on 7 March 2019 and signed on its behalf by:
Cathy Turner
Chair of the Remuneration Committee
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Strategic reportCorporate governanceFinancial statements Directors’ report
Group directors’ report for the year ended 31 December 2018
The directors present their report and the audited consolidated financial statements for the year ended 31 December 2018.
The review of the business, future developments and outlook, as well as specific disclosures in relation to employee policies,
are contained within the strategic report and are incorporated into the directors’ report by cross-reference.
Information about the use of financial instruments by the Company and its subsidiaries, and financial risk management
policies are given in notes 31 and 32 to the financial statements.
In accordance with the UK Financial Conduct Authority’s Listing Rules (LR 9.8.4C), the information to be included in the annual
report and accounts, where applicable, under LR 9.8.4, is set out in this directors’ report, with the exception of the information
set out in the table below, which can be found at the location specified.
Listing Rule
Information
LR 9.8.4(4)
LR 9.8.4(11)
LR 9.8.4(14)
Details of long term incentive schemes as required by LR 9.4.3,
regarding information about the recruitment of a director
Details of contracts for the provision of services to the Company
by a controlling shareholder
Details of transactions with controlling shareholders
Location
Page 68 of the directors’
remuneration report
Page 65 of the directors’
remuneration report (note 11)
Page 145 (note 33 to the
financial statements)
General information
Countrywide plc is a public limited company, listed on the London Stock Exchange, incorporated and domiciled in the UK.
The registered address of the Company is included in note 1 to the financial statements.
Directors
The names of the directors who held office during the year are set out on pages 44 and 45, with the exceptions of Alison Platt,
who retired from the Board on 24 January 2018, and Richard Adam, who retired from the Board on 25 April 2018.
Dividends
The directors do not recommend the payment of a final dividend and no interim dividend was paid (2017: nil).
Capital structure
Details of the issued share capital are shown in note 26 to the Group financial statements of this annual report. The Company
has one class of ordinary shares which carries the right to one vote at a general meeting of the Company and has no right to
fixed income.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between
holders of the Company’s shares that may result in restrictions on the transfer of shares or on voting rights.
Details of employee share schemes are provided in note 27 to the Group financial statements. Any shares held by the Group
Employee Benefit Trust abstain from voting.
Firm placing and placing and open offer of share capital
On 2 August 2018 the Company announced a firm placing of 1,114,419,569 firm placing shares at 10 pence each, and a placing
and open offer of 285,580,431 open offer shares at 10 pence each, which were approved at a General Meeting held on
28 August 2018 and subsequently admitted for trading on the London Stock Exchange on 30 August 2018. The proceeds
were used to deliver the Group’s objectives of accelerating the deleveraging of the Group’s balance sheet; providing the
Group with greater long term certainty, flexibility and balance sheet strength, together with improved liquidity and covenant
headroom; and reducing the Group’s interest payments as a result of the reduction of indebtedness.
Authority for the Company to purchase its own shares
At the end of the year, the directors had authority, under a shareholder resolution approved at the AGM on 25 April 2018,
to make one or more market purchases of its ordinary shares, limited to: a maximum number of 23,793,146 ordinary shares;
a minimum price (exclusive of expenses) of the nominal value; and a maximum price of 5% above the average market value
for the preceding five business days or the higher of the price of the last independent trade and highest current independent
bid on the trading venues where the purchase is carried out at the relevant time. This authority expires at the conclusion
of the forthcoming AGM.
As a routine matter, the Company will be seeking to have this authority renewed at the 2019 AGM.
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Substantial shareholdings
At 6 March 2019, being the latest practicable date prior to the publication of this annual report, the Company had been notified
of the following interests amounting to 3% or more of the voting rights in the issued share capital of the Company.
Shareholder
Oaktree Capital Mgt
Brandes Investment Partners
Investec Asset Mgt
Jupiter Asset Mgt
Hosking Partners
Schroder Investment Mgt
Fidelity Mgt & Research
Aberdeen Standard Investments (Standard Life)
Harris Associates
Aberforth Partners
Number of shares
% holding
299,536,321
255,133,013
245,678,227
128,275,422
117,546,197
91,000,000
86,140,597
67,377,130
61,291,845
53,575,107
18.3
15.6
15.0
7.8
7.2
5.6
5.3
4.1
3.7
3.3
Relationship agreement with major shareholders
Any person who exercises or controls on their own, or together with any person with whom they are acting in concert,
30% or more of the votes able to be cast on all or substantially all matters at general meetings of a company is known
as a ‘controlling shareholder’. The Financial Conduct Authority’s Listing Rules require companies with controlling
shareholders to enter into a written and legally binding agreement which is intended to ensure that the controlling
shareholder complies with certain independence provisions. The agreement must contain undertakings that:
a. transactions and arrangements with the controlling shareholder (and/or any of its associates) will be conducted
at arm’s length and on normal commercial terms;
b. neither the controlling shareholder nor any of its associates will take any action that would have the effect
of preventing the listed company from complying with its obligations under the Listing Rules; and
c. neither the controlling shareholder nor any of its associates will propose or procure the proposal of a shareholder
resolution which is intended or appears to be intended to circumvent the proper application of the Listing Rules.
The Board confirms that, in accordance with the Listing Rules, on 19 March 2013, the Company entered into such an agreement
(‘the Relationship Agreement’) with, among others, OCM Luxembourg Castle Holdings S.Á R.L. and OCM Luxembourg EPF III
Castle Holdings S.Á R.L. (together, ‘the Oaktree Shareholders’) which currently have a combined total holding of approximately
18% of the Company’s voting rights. Although the Relationship Agreement is no longer required by the Listing Rules (as the
Oaktree Shareholders do not currently constitute a ‘controlling shareholder’ of the Company), the provisions of the Relationship
Agreement will continue to apply for so long as the Oaktree Shareholders hold in aggregate 10% or more of the voting rights
of the Company. Under the terms of the Relationship Agreement, the Oaktree Shareholders have agreed to comply with the
independence undertakings described above.
The Board confirms that, since the entry into the Relationship Agreement on 19 March 2013 until 6 March 2019,
being the latest practicable date prior to the publication of this annual report:
i. the Company has complied with the independence provisions included in the Relationship Agreement; and
ii. so far as the Company is aware, the independence provisions included in the Relationship Agreement have
been complied with by Oaktree and its associates.
As there are no controlling shareholders of the Company there is no need for the Relationship Agreement to require
the Oaktree Shareholders to procure compliance by any third parties with the independence provisions of the
Relationship Agreement.
Appointment and removal of directors
Directors may be appointed by the Company by ordinary resolution or by the Board. The Company may, by special resolution,
remove any director before the expiration of their period of office.
Powers of the directors
Subject to the Articles, the Companies Act and any directions given by the Company by special resolution, the business of the
Company will be managed by the Board which may exercise all the powers of the Company.
Amendment of Articles
The Articles may be altered by special resolution, in accordance with the Companies Act.
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Strategic reportCorporate governanceFinancial statements Directors’ report continued
Directors and directors’ interests
The directors of the Company who were in office during the year and up to the date of signing the financial statements
are disclosed on pages 44 to 45 and their interests in the shares of the Company are disclosed on page 69.
Directors’ conflicts of interest
All directors have a duty under the Companies Act 2006 to avoid a situation in which they have, or could have, a direct
or indirect conflict of interest or possible conflict with the Company. The Articles provide a general power for the Board to
authorise such conflicts. Directors are not counted in the quorum for the authorisation of their own actual or potential conflicts.
On an ongoing basis, the directors are responsible for informing the company secretary of any new, actual or potential conflicts
that may arise or if there are any changes in circumstances that may affect an authorisation previously given. Even when
provided with authorisation, a director is not absolved from his or her statutory duty to promote the success of the Company.
If an actual conflict arises post-authorisation, the Board may choose to exclude the director from receipt of the relevant
information and participation in the debate, or suspend the director.
Directors’ indemnities
The Company has made qualifying third party indemnity provisions (as defined in the Companies Act 2006) for the benefit of its
directors during the year; these provisions were in force during the financial year and remain in force at the date of this report.
Change of control
We do not have contracts or other arrangements which individually are fundamental to the ability of the business to operate
effectively, nor is the Company party to any material agreements that would take effect, be altered, or terminate upon a change
of control following a takeover bid. We do not have agreements with any director that would provide compensation for loss of
office or employment resulting from a takeover, except that provisions of the Company’s share plans may cause options and
awards granted under such plans to vest on a takeover.
Auditors and disclosure of information to auditors
All directors at the date of approval of this annual report confirm that:
• so far as the directors are aware, there is no relevant information of which the Company’s auditors are unaware; and
• the directors have taken all reasonable steps that they ought to have taken as directors in order to make themselves aware
of any relevant audit information and to establish that the Company’s auditors are aware of any such information.
The auditors, PricewaterhouseCoopers LLP, have expressed their willingness to continue in office as auditors and a resolution
to reappoint PricewaterhouseCoopers LLP will be proposed at the forthcoming AGM.
Corporate governance
The Company’s statement on corporate governance can be found in the corporate governance statement on pages 48 to 51
of this annual report. The corporate governance statement forms part of this directors’ report and is incorporated into it by
cross-reference.
Going concern and viability
The Group’s going concern and viability statements can be found in note 2 and on page 43 respectively and are incorporated
into this directors’ report by cross-reference.
Political donations
No political donations or contributions were made or expenditure incurred by the Company or its subsidiaries during the year
and there is no intention to make or incur any in the current year.
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Greenhouse gas (GHG) emissions
GHG emissions data for the period 1 January to 31 December 2018
Scope 1
Controlled vehicle fleet
Scope 2
Electricity and heat purchased for own use
Tonnes of CO2e*/£m revenue
Tonnes of CO2e*
2018
2017
3,887
3,767
6,446
16.5
10,427
21.1
* CO2e is a universal unit of measurement used to indicate the global warming of GHG expressed in terms of the global warming potential of one
unit of carbon dioxide.
We have reported on all of the emission sources required under The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 as amended in August 2013. We have used the operational control consolidation
method. These sources fall within our consolidated financial statements, but exclude non-wholly owned subsidiaries and
joint ventures.
We have used the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) and emission factors
from the UK Government’s GHG Conversion Factors for Company Reporting 2016 to calculate the above disclosures.
Post-balance sheet events
Particulars of important post-balance sheet events of the Company are set out in note 34 to the Group financial statements
on page 148 of this annual report and are incorporated into this directors’ report by cross-reference.
AGM notice
Accompanying this report is the notice of the AGM which sets out the resolutions for the meeting, together with an
explanation of them.
The financial statements on pages 92 to 162 were approved by the Board of directors on 7 March 2019 and
signed on its behalf.
By order of the Board
Gareth Williams
Company secretary
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Statement of directors’ responsibilities in
respect of the financial statements
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable
law and regulation.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors
have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). Under company law the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit
or loss of the Group and Company for that period. In preparing the financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements,
subject to any material departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group
and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and
Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with
the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group and Company’s performance, business model
and strategy.
Each of the directors, whose names and functions are listed in the corporate governance statement confirm that,
to the best of their knowledge:
• the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”,
and applicable law), give a true and fair view of the assets, liabilities, financial position and loss of the Company;
• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European
Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and
• the directors’ report includes a fair review of the development and performance of the business and the position
of the Group and Company, together with a description of the principal risks and uncertainties that it faces.
In the case of each director in office at the date the directors’ report is approved:
• so far as the director is aware, there is no relevant audit information of which the Group and Company’s auditors
are unaware; and
• they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any
relevant audit information and to establish that the Group and Company’s auditors are aware of that information.
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Financial statements
Independent auditors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated balance sheet
Consolidated cash flow statement
Notes to the financial statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Appendix
Company information
Forward-looking statements
84
92
93
94
95
96
97
148
149
150
156
163
164
Independent auditors’ report to the members of
Countrywide plc
Report on the audit of the financial statements
Opinion
In our opinion:
• Countrywide plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 31 December 2018 and of the Group’s loss and cash flows for
the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report 2018 (“the Annual Report”), which comprise: the
Consolidated and Company balance sheets as at 31 December 2018; the Consolidated income statement and Consolidated
statement of comprehensive income, the Consolidated cash flow statement, and the Consolidated and Company statements
of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the
significant accounting policies.
Our opinion is consistent with our reporting to the Group Audit and Risk Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group or the Company.
Other than those disclosed in note 7 to the financial statements, we have provided no non-audit services to the Group or the
Company in the period from 1 January 2018 to 31 December 2018.
Our audit approach
Overview
Materiality
Audit scope
• Overall Group materiality: £2.2 million (2017: £1.8 million), based on 0.36% of the Group’s
revenue (2017: 5% of 3-year average of the Group’s profit before tax adjusted for
exceptional items).
• Overall Company materiality: £1.6 million (2017: £1.6 million), based on 1% of total assets.
• The Group has three operating segments (Sales and Lettings, Financial Services and B2B)
alongside a head office function. Each of the operating segments is broken down into a
number of legal entities, which are consolidated into the Group financial statements along
with head office legal entities.
• We performed full scope audits on 9 legal entities (6 of which are financially significant) in
order to obtain appropriate audit coverage.
• Presentation and disclosure of exceptional items (Group).
• Accounting estimates and judgements in relation to professional indemnity and related litigation
Areas of focus
costs (Group).
• Valuation and completeness of onerous lease provisions (Group).
• Impairment of goodwill and other intangible assets (Group).
• Impairment of the Company’s investment in subsidiary and intercompany balances
(Company).
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The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
The Group has three operating segments (Sales and Lettings, Financial Services and B2B) alongside a head office function. Each of
the operating segments is broken down into a number of legal entities, which are consolidated into the Group financial statements
along with head office legal entities.
We performed full scope audits on 9 legal entities (6 of which are financially significant) in order to obtain appropriate audit coverage.
The entities where we performed full scope audits accounted for approximately 93% (2017: 92%) of the Group’s revenue and 86%
(2017: 89%) of the Group’s absolute profit before tax and exceptional items (i.e. the sum of the numerical values without regard to
whether they were profits or losses of each of the legal entities within the Group).
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risk of non-compliance with laws and
regulations was in respect of the restitution of trust funds under the Royal Institute of Chartered Surveyors guidelines and
company law (see pages 59 and 117 of the Annual Report). We considered the extent to which non-compliance might have
a material effect on the financial statements and the Group has disclosed a prior year error in relation to the treatment of such
funds in the past. We also considered those laws and regulations that have a direct impact on the preparation of the financial
statements such as the Companies Act 2006 and the Listing Rules, Pensions legislation and UK tax and HMRC legislation. We
evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk
of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to achieve
desired financial results and the manipulation of exceptional items and management bias in accounting estimates. Audit
procedures performed by the Group engagement team included:
• enquiries with management and the Group’s legal counsel, including consideration of known or suspected instances of fraud
and non-compliance with laws and regulations and examining supporting calculations where adjustments have been made
in respect of these;
• reading key correspondence with external legal counsel in relation to compliance with certain laws and guidelines; and
• challenging the assumptions and judgements made by management in their significant accounting estimates, in particular
in relation to Professional Indemnity provisions, impairment of goodwill and other intangible assets, the valuation of onerous
lease provisions and the classification of exceptional items (see related key audit matters below).
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws
and regulations are from the events and transactions reflected in the financial statements, the less likely we would become
aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion.
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Independent auditors’ report to the members of
Countrywide plc continued
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, 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, and any comments we
make on the results of our procedures thereon, 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. This is not a complete
list of all risks identified by our audit.
Key audit matter
Presentation and disclosure of exceptional items
Group
Refer to Note 3 to the financial statements for the Directors’
disclosures of the critical accounting estimates and judgements
and page 57 for the views of the Audit and Risk Committee.
The Group has separately disclosed net exceptional items of
£245.4 million (Note 10) comprising the following:
• Professional indemnity exceptional income (£3.2 million);
• Strategic and restructuring costs (£12.8 million);
How our audit addressed the key audit matter
We assessed the rationale behind management’s classification
and the appropriateness of the transactions recognised as
exceptional items using our knowledge of the business,
inquiries of management, examination of documents
supporting the reorganisation of the Group and rationalisation
of branches, and through consideration of expenses that are
typically connected with restructuring activities. We also
assessed the completeness of exceptional items through
identifying other large or unusual items in underlying profit,
considering their potential disclosure where significant.
• Impairment charges (£218.0 million);
• Onerous lease provisions (£6.1 million);
• Restitution of trust funds (£5.2 million); and
• Financing costs (£6.5 million).
Separately identifying and disclosing items as exceptional on
the face of the income statement requires judgement as such
presentation could be misleading to investors. We focused on
this judgement, the potential for management bias, as well as
the consistency and accuracy of the amounts disclosed within
exceptional items.
We agreed a sample of expenses to calculations and
invoices, and verified payments made to bank statements to
conclude on the consistency and accuracy of classification.
We challenged management on the presentation of the items
as exceptional in the financial statements and suggested
areas of enhanced disclosure which have been reflected in
the Annual Report. From our work, we have concluded that
the exceptional items are classified appropriately.
Accounting estimates and judgements in relation to
professional indemnity and related litigation costs
Group
Refer to Note 3 to the financial statements for the Directors’
disclosures of the critical accounting estimates and judgements
and page 57 for the views of the Audit and Risk Committee.
Professional indemnity (PI) provisions principally relate to the
Surveyors and Lambert Smith Hampton businesses within the
B2B operating segment.
In common with other valuers, the Group is subject to
significant claims in relation to incorrect mortgage valuation
reports. The Group holds professional indemnity insurance for
such matters, but management uses judgement to estimate
the net costs that will be incurred by the Group. All the claims
received are listed and analysed through the Bordereaux
third party legal report and the provisions held are based on
experience of settling past claims, discussions with the
Group’s insurers and advice from legal counsel.
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Claims already received
We checked that the amounts in the Bordereaux report were
appropriately reflected in the books and records, and tested
the mathematical accuracy of the report and the input data.
We verified the Bordereaux report was complete by obtaining
confirmations from third party legal providers.
With respect to the input data, we agreed a sample of claims
received and provisions made to the advice from lawyers.
We also agreed a sample of settlements on closed claims to
supporting information and bank payments.
Open large legal claims were discussed with Group Legal,
and appropriate documentation considered to understand the
legal position and the basis of material risk positions. We also
compared a sample of historical provisions to the actual
amounts settled, determining that management’s estimation
techniques were satisfactory.
Claims yet to be received
For claims not yet received but incurred, we evaluated the
model and approach used by management by testing the
mathematical accuracy of the underlying calculations and
satisfied ourselves that the input data used reflected the latest
observed trend of claims of losses and average loss incurred.
From the evidence obtained, we consider the level of
provisioning at the balance sheet date is reasonable.
Key audit matter
Valuation and completeness of onerous lease provisions
Group
Refer to Note 3 to the financial statements for the Directors’
disclosures of the critical accounting estimates and
judgements and page 57 for the views of the Audit and
Risk Committee.
The Group has performed an assessment to identify
all loss making branches. An onerous lease provision
of £3.6 million, together with forecast dilapidation payments,
has been recognised at 31 December 2018.
The provision is based on the future cost of rent and rates of loss
making branches, offset by any forecast recovery in profitability
over the life of the lease. This has been discounted to a net
present value at an appropriate discount rate. A dilapidation
provision has also been included based on the size of the
branch.
This is an area of focus because the assessment of loss
making branches involves judgements associated with the
forecast trading results of the business.
How our audit addressed the key audit matter
We obtained management’s assessment of loss making
branches and agreed the cash flow forecast used in the
assessment to the forecast used in the assessment of
goodwill and other intangible assets for consistency.
We challenged the Directors’ key assumptions through
discussions with branch managers, especially for branches
where improvements are forecast to understand
management’s plan to deliver these.
We agreed future rent and rate costs to underlying contracts
and considered the use of an appropriate rate to be used to
discount the provision to a net present value.
We compared the assessment of dilapidations to a third party
valuation to assess the reliability of the estimate.
We concluded that these onerous lease provisions are
reasonable and supported by the available evidence. We
considered the related disclosures in the financial statements
to check compliance with IFRS. The disclosure appropriately
describes the inherent degree of subjectivity in the estimates,
including the impact of changes in the key assumptions.
Impairment of goodwill and other intangible assets
Group
Refer to Note 3 to the financial statements for the
Directors’ disclosures of the critical accounting estimates
and judgements and page 56 for the views of the Audit
and Risk Committee.
We assessed management’s impairment methodology, as
required under IAS 36 – Impairment of assets. We evaluated
management’s cash flow forecasts, and the process by which
they were drawn up, comparing them to the latest Board
approved budget and forecasts for consistency. We also
tested the underlying spreadsheet model.
The Group has goodwill and other intangible assets,
principally brand names and customer contracts.
We have focused on this area due to the size of the balances
and the risk of impairment arising due to deterioration of
business performance.
Management’s annual impairment testing concluded that the
adverse trading conditions have triggered an impairment in
the UK, London and B2B Commercial Cash Generating Units
(CGUs), where an aggregate impairment charge of £45.8
million against goodwill has been recorded. This impairment
was recorded alongside impairment charges of £156.3 million
in respect of brands and customer contracts.
We challenged the Directors’ key assumptions and
calculation of the discount rates and compared them to
a comparator Group to confirm they are in line with other
industry competitors.
We performed sensitivity analysis around the key drivers
of the cash flow forecasts. Our tests included applying a:
• 10% reduction to adjusted EBITDA from operating cash flows;
• 10% increase in the WACC rate; and
• Terminal growth rate of 0% into perpetuity (1% in the base case).
We concluded that the impairment charge booked against
goodwill associated with the UK, London and B2B –
Commercial CGUs was reasonable and supported by the
available evidence.
We concluded that no impairment was required in the other
CGUs. We considered the related disclosures in note 14 to
the financial statements to check compliance with IFRS.
The disclosure appropriately describes the inherent degree
of subjectivity in the estimates, including specific disclosures
on the key assumptions most sensitive to change.
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Independent auditors’ report to the members of
Countrywide plc continued
Key audit matter
Impairment of the Company’s investment in subsidiary and
intercompany balances
Company
Refer to Note 2 to the Company’s financial statements for
the Directors’ disclosures of the critical accounting estimates
and judgements.
How our audit addressed the key audit matter
We reviewed management’s assessment under IFRS 9
‘Financial Instruments’ of the estimated discounting in
respect of the likely timing of future receipts against the
intercompany receivable balance. We also reviewed
management’s impairment assessment of the carrying
value of the investments.
The Company holds investments in its subsidiaries
(£386.4m before impairment) and intercompany receivables
(£238.7m before impairment).
We agreed the cash flows used in the assessment to the
forecasts used in the assessment of impairment of goodwill
and other intangible assets.
Following the conclusion of our procedures above, we
agree with management’s calculation of the impairment
in the carrying value of the investments in subsidiaries and
intercompany balances held by the Company.
Following Group impairment charges recorded in the UK,
London and B2B – Commercial CGUs noted above, we have
focused on this area due to the size of the investment and
intercompany receivable balances and the risk of impairment
arising due to the deterioration of business performance.
Management performed an assessment of the carrying
value of the investments and intercompany receivables and
compared this to the recoverable value, cash flow forecasts
used in the impairment test of intangible assets described
above. This resulted in impairment charges against both
investments in subsidiaries (£179.8m) and intercompany
receivables (£43.4m), the latter using an expected credit
loss methodology.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and
controls, and the industry in which they operate.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect
of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
How we determined it
Rationale for benchmark
applied
Group financial statements
£2.2 million (2017: £1.8 million).
Company financial statements
£1.6 million (2017: £1.6 million).
1% of total assets, restricted to a threshold
lower than Group materiality.
We believe total assets to be the key
performance benchmark of the Company
as it is a holding company for the Group
and does not trade.
0.36% of the Group’s revenue (2017: 5% of 3-year
average of the Group’s profit before tax adjusted
for exceptional items).
In light of the Group’s turnaround status, and the
expectation that a return to previous levels of
profitability will take time, we have changed our
materiality assessment to a Revenue benchmark
for 2018. We believe continuing to use a 3-year
average of the Group’s profit before tax adjusted
for exceptional items), as an accounting
benchmark would derive an unrealistically low
materiality for a business of this size. 0.36% is the
average agreed materiality over the last three
years as a percentage of revenue in those years.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £14,000 and £1.6 million. Certain components were
audited to a local statutory audit materiality that was also less than our overall Group materiality.
We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above
£150,000 (Group audit) (2017: £150,000) and £78,000 (Company audit) (2017: £78,000) as well as misstatements below those
amounts that, in our view, warranted reporting for qualitative reasons.
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Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add
or draw attention to in respect of the directors’ statement in the
financial statements about whether the directors considered
it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the directors’
identification of any material uncertainties to the Group’s and
the Company’s ability to continue as a going concern over
a period of at least twelve months from the date of approval
of the financial statements.
We are required to report if the directors’ statement relating
to Going Concern in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can
be predicted, this statement is not a guarantee as to the
Group’s and Company’s ability to continue as a going
concern. For example, the terms on which the United
Kingdom may withdraw from the European Union, which
is currently due to occur on 29 March 2019, are not clear,
and it is difficult to evaluate all of the potential implications
on the Group’s and Company’s trade, customers, suppliers
and the wider economy.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The directors are responsible for 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 to the extent otherwise explicitly stated
in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 31 December 2018 is consistent with the financial statements and has been prepared
in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course
of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
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Independent auditors’ report to the members of
Countrywide plc continued
Reporting on other information continued
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance
Statement (in the Corporate Governance report) about internal controls and risk management systems in relation to financial
reporting processes and about share capital structures in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and
Transparency Rules sourcebook of the FCA (“DTR”) is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the
audit, we did not identify any material misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement
with respect to the Company’s corporate governance code and practices and about its administrative, management and supervisory
bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared
by the Company. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on pages 38 to 43 of the Annual Report 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
or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 43 of the Annual Report as to how they have assessed the prospects of the Group,
over what period they have done so and why they consider 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.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust
assessment of the principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our
review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’
process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK
Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and
understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 82, that they consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary for the members to assess the Group’s and Company’s
position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and
Company obtained in the course of performing our audit.
• The section of the Annual Report on page 54 describing the work of the Audit and Risk Committee does not appropriately
address matters communicated by us to the Audit and Risk Committee.
• The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from
a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
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Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors’ responsibilities in respect of the financial statements, the directors are
responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied
that they give a true and fair view. The directors 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.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
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 an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit and Risk Committee, we were appointed by the directors on 25 March 2013
to audit the financial statements for the year ended 31 March 2013 and subsequent financial periods. The period of total
uninterrupted engagement is 6 years, covering the years ended 31 March 2013 to 31 December 2018.
Christopher Burns (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 March 2019
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Consolidated income statement
For the year ended 31 December 2018
2018
Pre-exceptional
items,
amortisation,
contingent
consideration
and share-based
payments
£’000
Exceptional
items,
amortisation,
contingent
consideration
and share-based
payments
£’000
Pre-exceptional
items,
amortisation,
contingent
consideration
and share-based
payments
£’000
2017 (Restated)2
Exceptional
items,
amortisation,
contingent
consideration
and share-based
payments
£’000
Total
£’000
619,119
7,952
627,071
–
–
–
619,119
662,188
7,952
10,590
627,071
672,778
–
–
–
Total
£’000
662,188
10,590
672,778
(382,477)
(7,785)
(390,262)
(384,142)
(5,552)
(389,694)
(211,911)
32,683
(17,516)
–
(211,911)
(223,049)
–
(223,049)
65,587
(4,946)
(22,462)
(27,683)
(5,807)
(33,490)
Revenue
Other income
Employee benefit costs
Other operating costs
Adjusted EBITDA1
Note
5
4
6
7
4
Depreciation and amortisation
14, 15
Share of (loss)/profit from
joint venture
Group operating profit/(loss)
before exceptional items
Employee benefit costs
Other operating costs
Impairment of non-current assets
Exceptional items (net):
Operating profit/(loss)
Finance costs
Finance income
Net finance costs
16(b)
(1,518)
–
(1,518)
690
–
690
13,649
–
–
–
–
(12,731)
(4,234)
(4,234)
918
38,594
(16,595)
(16,595)
(218,041)
(218,041)
(238,870)
(238,870)
(11,359)
(4,405)
(6,978)
27,235
(4,405)
(6,978)
(214,486)
(214,486)
(225,869)
(225,869)
–
–
–
–
13,649
(251,601)
(237,952)
38,594
(237,228)
(198,634)
(8,432)
(6,489)
(14,921)
(12,607)
200
–
200
82
(8,232)
(6,489)
(14,721)
(12,525)
–
–
–
10
4
8, 10
9
Profit/(loss) before taxation
5,417
(258,090)
(252,673)
26,069
(237,228)
Taxation (charge)/credit
Profit/(loss) for the year
Loss per share attributable to
owners of the parent
Basic and diluted loss per
share
11
(950)
35,468
34,518
(5,863)
9,679
4,467
(222,622)
(218,155)
20,206
(227,549)
(207,343)
13
(30.83)p
(89.25)p
(12,607)
82
(12,525)
(211,159)
3,816
1. Adjusted EBITDA is a non-GAAP measure of earnings before interest, tax, depreciation, amortisation, exceptional items, contingent consideration,
share-based payments and share of profits/(losses) from joint venture.
2. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
The notes on pages 97 to 147 form an integral part of these consolidated financial statements.
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Consolidated statement of comprehensive income
For the year ended 31 December 2018
Loss for the year
Other comprehensive (expense)/income
Items that will not be reclassified to profit or loss
Actuarial loss arising in the pension scheme
Deferred tax arising on the pension scheme
Items that may be subsequently reclassified to profit or loss
Foreign exchange rate gain/(loss)
Cash flow hedge gain/(loss):
– Gains arising during the year
– Less reclassification adjustments for gains included in the profit and loss
Deferred tax arising on cash flow hedge
Available-for-sale financial assets:
– Gains arising during the year
Other comprehensive income for the year
Total comprehensive expense for the year
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
The notes on pages 97 to 147 form an integral part of these consolidated financial statements.
Note
25
25
21
16(c)
2018
£’000
2017
(Restated)1
£’000
(218,155)
(207,343)
(168)
32
(136)
(3,633)
690
(2,943)
10
(30)
–
337
(63)
–
284
148
2,030
–
(410)
1,627
3,217
274
(218,007)
(207,069)
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Strategic reportCorporate governanceFinancial statements
Consolidated statement of changes in equity
For the year ended 31 December 2018
Audited balance at 1 January 2017 as originally presented
2,197
211,838
(17,941) 283,454
479,548
Change in accounting policy and correction of prior year error
2
–
–
–
(3,436)
(3,436)
Restated total equity at the beginning of the financial year1
2,197
211,838
(17,941) 280,018
476,112
Share
capital
£’000
Share
premium
£’000
Other
reserves
£’000
Note
Retained
(losses)/
earnings
£’000
Total
£’000
Loss for the year (restated)1
Other comprehensive income/(expense)
Currency translation differences
Movement in fair value of available-for-sale financial assets
16(c)
Cash flow hedge: fair value gain
Cash flow hedge: deferred tax on gain
Actuarial loss on the pension fund
Deferred tax movement relating to pension
Total other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners
Issue of share capital
Transfer of reserves
Share-based payment transactions
Deferred tax on share-based payments
Purchase of treasury shares
Transactions with owners
Audited balance at 31 December 2017 as originally
presented
Restated total equity at 31 December 20171
Change in accounting policy
Restated total equity at 1 January 20182
Loss for the year
Other comprehensive income/(expense)
Currency translation differences
Cash flow hedge: fair value on termination
Cash flow hedge: deferred tax on termination
Actuarial loss on the pension fund
Deferred tax movement relating to pension
Total other comprehensive income/(expense)
Total comprehensive income/(expense)
Transactions with owners
Issue of share capital
Transactional costs of shares issued
Share-based payment transactions
Deferred tax on share-based payments
Purchase of treasury shares
Utilisation of treasury shares for DSBP options
Transactions with owners
Balance at 31 December 2018
25
25
28
27
28
2
21
25
25
26
26
27
28
28
–
–
–
–
–
–
–
–
–
216
–
–
–
–
216
2,413
2,413
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(207,343)
(207,343)
(30)
1,627
2,030
(410)
–
–
–
–
–
–
(30)
1,627
2,030
(410)
(3,633)
(3,633)
690
3,217
(2,943)
690
274
3,217
(210,286)
(207,069)
36,634
–
36,850
(36,634)
36,634
–
–
–
(1,397)
1,944
1,944
(10)
–
(10)
(1,397)
(1,397)
38,568
37,387
211,838
211,838
(16,121)
111,007
309,137
(16,121)
108,300
306,430
–
(1,967)
993
(974)
2,413
211,838
(18,088)
109,293 305,456
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14,000
126,000
–
–
–
–
–
(8,481)
–
–
–
–
14,000
117,519
–
(218,155)
(218,155)
10
337
(63)
–
–
284
284
–
–
–
–
(499)
49
(450)
–
–
–
(168)
32
(136)
10
337
(63)
(168)
32
148
(218,291)
(218,007)
–
–
1,888
(90)
–
(49)
140,000
(8,481)
1,888
(90)
(499)
–
1,749
132,818
16,413 329,357
(18,254)
(107,249) 220,267
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
2. Restated from prior year following the adoption of IFRS 9 and IFRS 15 and correction of a prior year error (see note 2).
The notes on pages 97 to 147 form an integral part of these consolidated financial statements.
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Consolidated balance sheet
As at 31 December 2018
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments accounted for using the equity method:
Investments in joint venture
Available-for-sale financial assets
Financial assets at fair value through profit or loss
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Share capital
Share premium
Other reserves
Retained (losses)/earnings
Total equity
Liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Net defined benefit scheme liabilities
Provisions
Deferred income
Trade and other payables
Deferred tax liability
Total non-current liabilities
Current liabilities
Borrowings
Trade and other payables
Deferred income
Provisions
Total current liabilities
Total liabilities
Total equity and liabilities
Note
2018
£’000
2017
(Restated)1
£’000
1 January 2017
(Restated)1
£’000
14(a)
14(b)
15
16(b)
16(c)
16(d)
24
17
18
233,820
279,496
74,191
7,403
220,658
41,798
471,749
250,310
49,445
1,464
–
153
2,982
17,085
–
18,389
10,751
335,420
572,770
88,817
17,426
106,243
441,663
105,782
22,533
128,315
2,292
16,058
–
10,262
800,116
122,127
45,326
167,453
701,085
967,569
26
26
28
16,413
2,413
329,357
211,838
(18,254)
(16,121)
2,197
211,838
(17,941)
(107,249)
108,300
280,018
220,267
306,430
476,112
20
21
25
23
22
19
24
20
19
22
23
–
4,634
10,916
239
9,931
7,756
117,908
3,663
81,146
2,143
16,536
84,432
213,489
292,505
337
5,626
11,985
663
8,295
2,367
3,663
12,503
2,563
13,659
33,522
273,917
38,694
365,954
1,011
99,720
2,554
17,453
721
99,774
5,056
19,952
125,503
491,457
103,488
120,738
221,396
394,655
441,663
701,085
967,569
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
The notes on pages 97 to 147 form an integral part of these consolidated financial statements.
The financial statements on pages 92 to 147 were approved by the Board of directors and signed on its behalf by:
Himanshu Raja
Chief financial officer
7 March 2019
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Consolidated cash flow statement
For the year ended 31 December 2018
Cash flows from operating activities
Loss before taxation
Adjustments for:
Depreciation
Amortisation of intangible assets
Share-based payments
Impairment of intangible assets
Impairment of tangible assets
Impairment of available-for-sale financial assets
Impairment of financial assets at fair value through profit or loss
Profit on disposal of fixed assets
Loss/(profit) from joint venture
Finance costs
Finance income
Changes in working capital (excluding effects of acquisitions and disposals of Group
undertakings):
Decrease in trade and other receivables
Decrease in trade and other payables3
Decrease in provisions
Net cash (used in)/generated from operating activities2
Pension paid
Interest paid
Income tax received/(paid)
Note
2018
£’000
2017
(Restated)1
£’000
(252,673)
(211,159)
15
14
27
10,162
12,300
1,888
17,180
16,310
1,944
14(a), 14(b)
186,494
213,071
15
16(c)
16(d)
16(b)
8
9
27,826
–
2,379
(9)
1,518
14,921
(200)
4,606
14,865
(20,271)
(1,986)
(2,786)
(2,000)
(7,702)
2,037
850
565
–
(22)
(690)
12,607
(82)
50,574
18,367
(7,802)
(3,017)
58,122
(2,000)
(9,834)
(2,980)
Net cash (outflow)/inflow from operating activities
(10,451)
43,308
Cash flows from investing activities
Acquisitions net of cash acquired
Deferred consideration paid in relation to prior year acquisitions
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant and equipment
Purchase of investments
Proceeds from disposal of financial assets at fair value through profit or loss
Interest received
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Transactional costs of shares issued
Purchase of own shares
Term and revolving facility loan repaid
Financing fees paid
Capital repayment of finance lease liabilities
Net cash inflow/(outflow) from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
(160)
(997)
(3,400)
(5,930)
46
(1,300)
15,980
200
4,439
–
(3,354)
(6,940)
(7,577)
657
–
–
82
(17,132)
140,000
36,850
(8,481)
(499)
—
(1,397)
(125,000)
(80,000)
(3,028)
(2,087)
905
(5,107)
22,533
17,426
(724)
(3,698)
(48,969)
(22,793)
45,326
22,533
15
14(b)
16(d)
16(d)
26
26
28
20
20
20
18
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
2. Net cash generated from operating activities includes £18,392,000 (2017: £6,060,000) of net cash expended on exceptional items. Cash flows from
financing activities included £647,000 (2017: £Nil) of net cash expended on exceptional items, as discussed in note 10.
3. Includes £10,094,000 of cash payments in respect of the restitution of trust funds (see notes 2 and 10).
The notes on pages 97 to 147 form an integral part of these consolidated financial statements.
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Notes to the financial statements
1. General information
Countrywide plc (‘the Company’), and its subsidiaries (together, ‘the Group’), is the leading integrated, full service residential
estate agency and property services group in the UK, measured by both revenue and transaction volumes in 2018. It offers
estate agency and lettings services, together with a range of complementary services, and has a significant presence in key
areas and property types which are promoted through locally respected brands.
The Company is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in
the UK (registered number: 08340090). The address of its registered office is Greenwood House, 1st Floor, 91-99 New London
Road, Chelmsford, Essex, CM2 0PP.
2. Accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
These policies have been consistently applied to the years presented.
(a) Basis of preparation
The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation
of available-for-sale financial assets and financial liabilities at fair value through profit or loss (from 2018), and in accordance with
International Financial Reporting Standards (IFRSs) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by
the European Union and the Companies Act 2006 applicable to companies reporting under IFRS.
The preparation of the consolidated financial information in conformity with IFRS requires the use of certain critical accounting
estimates and requires management to exercise judgement in the process of applying the Group’s accounting policies. The
areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements, are disclosed in note 3.
(b) Going concern
These financial statements have been prepared on a going concern basis, which assumes that the Group will be able to meet
its liabilities when they fall due.
In assessing the Group’s ability to continue as a going concern, the Board has reviewed the Group’s cash flow and profit
forecasts which have been stress tested with various assumptions regarding future housing market volumes. The Group’s
performance is dependent on a number of market and macroeconomic factors including the impact on customer confidence
and transactional volumes in the UK housing market from interest rate changes and government policies which are inherently
difficult to predict. Specifically, a range of assumptions underpin the profit and cash flow forecasts for the period to
31 December 2020, including: the continued build back of the Group’s register of properties available for sale and the pipeline;
mitigation of the potential impact of new government legislation banning lettings tenancy fees; and successful realisation of
internal corporate cost saving initiatives currently underway.
The directors have confirmed that, after due consideration, they have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue
to adopt the going concern basis in preparing the financial statements.
(c) New standards, amendments and interpretations
Standards, amendments and interpretations effective and adopted by the Group
The following new standards effective for the first time for the financial year beginning on or after 1 January 2018 have had
a material impact on the Group.
IFRS 9 ‘Financial instruments’
IFRS 9 ‘Financial instruments’ addresses the classification, measurement and recognition of financial assets and financial
liabilities.
Classification and measurement
The Group has applied the requirements of IFRS 9 to instruments owned at 1 January 2018 and has not applied the
requirements to instruments that had already been derecognised prior to 1 January 2018. Comparative amounts have not
been restated.
As at the date of initial application of IFRS 9, the Group has elected to apply the fair value through profit or loss option for all of its
non-controlling equity interests that were classified as available-for-sale under IAS 39. There is no impact on the classification and
measurement of the other financial assets, and no change in the accounting for financial liabilities, held by the Group.
On transition, £1,967,000 of gains previously recorded within ‘Other reserves’ in relation to the Group’s holding in the investment
property fund have been reclassified to retained earnings. The asset was subsequently disposed of during the year.
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Notes to the financial statements continued
2. Accounting policies continued
Impairment
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39.
Under the impairment approach under IFRS 9, it is not necessary for a credit event to have occurred before credit losses
are recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses,
which will be updated at each reporting date.
As at 1 January 2018, the Group reviewed and assessed existing financial assets, amounts due from customers, for
impairment using reasonable and supportable information that is available without undue cost or effort in accordance with
the requirements of IFRS 9 to determine the credit risk. An additional credit allowance of £1,202,000 has been recognised
against retained earnings net of its related deferred tax impact, at £974,000 (see note 2(d)).
At 31 December 2017 calculated under IAS 39
Amounts restated through retained earnings
Opening loss allowance at 1 January 2018 under IFRS 9
Provision against
trade and other
receivables
£’000
(4,211)
(1,202)
(5,413)
The additional loss allowance recognised upon the initial application of IFRS 9 as disclosed above resulted entirely from
a change in the measurement attribute of the loss allowance relating to the financial assets.
In determining the expected credit losses for these assets, the Group has taken into account the historical default experience
and the financial position of the counterparties in estimating the likelihood of default of each of these financial assets occurring
within their loss assessment time horizon.
IFRS 15 ‘Revenue from contracts with customers’
IFRS 15 ‘Revenue from contracts with customers’ establishes principles for determining when and how revenue arising from
contracts with customers should be recognised. An entity should recognise revenue when it transfers goods or services to
a customer based on the amount of consideration to which the entity expects to be entitled from a customer in exchange for
fulfilling its performance obligations.
Management has undertaken a detailed assessment of all contracts and revenue streams across all business units using the
five-step approach specified by IFRS 15: identify the contract(s) with the customer; identify the performance obligations in the
contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and
recognise revenue when (or as) a performance obligation is satisfied.
The Group generates revenue and other income from external customers mainly in the UK from three main types of business:
Sales and Lettings, Financial Services and Business to Business (B2B). Management is required to take all relevant factors and
circumstances into account when determining the revenue recognition methods that appropriately depict the transfer of control
of goods or services to the customer for each performance obligation. This requires management to make certain judgements,
including: the determination of the performance obligations in the contract; whether the Group is acting as principal or agent; the
estimation of any variable consideration in determining the contract price; the allocation of the price to the performance obligations
inherent in the contract; and an appropriate method of recognising revenue. Other key considerations comprise the appropriate
accounting treatment of any costs incurred to obtain the contract and the treatment of any costs incurred to fulfil a contract.
In determining the appropriate method of recognising revenue, management is required to make judgements as to whether
performance obligations are satisfied over a period of time or at a point in time. For performance obligations that are satisfied
over a period of time, judgements are made as to whether the output method or the input method is more appropriate to
measure progress towards complete satisfaction of the performance obligation. If performance obligations are not satisfied
over time, the Group recognises revenue at a point in time.
The adoption of IFRS 15 has impacted the financial statements as follows:
• B2B: Within the B2B business unit, Lambert Smith Hampton generates revenue from commercial property consultancy
and advisory services, property management and valuation services. Work-in-progress (WIP) was previously recognised on
specific types of contracts. Under IFRS 15, the performance obligations of certain contracts are deemed to be satisfied at a
point in time. As a result, the Group no longer recognises WIP against these contracts. We continue to recognise WIP against
other contracts where the performance obligations are satisfied over a period of time.
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2. Accounting policies continued
IFRS 15 ‘Revenue from contracts with customers’ continued
• Sales and Lettings: A proportion of revenue from lettings rent collection was previously recognised at the outset of the
rent collection agreement, together with an appropriate clawback provision, based on historical experience. Under IFRS 15,
revenue is now recognised over the life of the rent collection agreement in accordance with the satisfaction of the
performance obligations. Subsequent to the Group’s 2018 interim results for the period ended 30 June 2018, further
information has identified that a proportion of revenue earned from tenant introduction (or tenant renewal) was recognised
over the life of the tenancy agreement. This revenue is now recognised when the underlying tenancy agreement
commences (or is renewed) in accordance with the satisfaction of the performance obligations, together with a liability
for future refunds, and has resulted in the amendment of the Group’s opening transition adjustment.
The Group adopted IFRS 15 on 1 January 2018 and has elected to restate comparative information from prior periods
(see note 2(d)). The Group has applied the practical expedients under which contracts that began or ended in 2017, or
contracts that were completed prior to 1 January 2017, have not been restated.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018
reporting periods and have not been early adopted by the Group. None of these new standards or interpretations are
expected to have a material impact on the consolidated financial statements of the Group, with the exception of the following:
IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ deals with the definition of a lease and recognition and measurement of leases and establishes principles
for disclosures. The standard is effective for accounting periods beginning on or after 1 January 2019. The Group will adopt
IFRS 16 for the year ending 31 December 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an asset is controlled by a customer. Distinctions
of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and are
replaced by a model where a right of use asset and a corresponding liability have to be recognised for all leases by lessees
(i.e. all are on balance sheet), except for short term leases and leases of low value assets.
The right of use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and
impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present
value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease
payments, as well as the impact of lease modifications, amongst others. The classification of cash flows will also be impacted
as operating lease payments under IAS 17 are presented in operating cash flows; whereas under the IFRS 16 model, the lease
payments are split into a principal and an interest portion which will be presented as financing and operating cash flows
respectively. In addition, extensive disclosures are required by IFRS 16.
As at 31 December 2018, the Group has non-cancellable operating lease commitments of £105,690,000. IAS 17 does not
require the recognition of any right of use asset or liability for future payments for these leases; instead, certain information is
disclosed as operating lease commitments in note 29. A preliminary assessment indicates that these arrangements will meet
the definition of a lease under IFRS 16, and hence the Group will recognise a right of use asset and a corresponding liability
in respect of these leases unless they qualify for low value or short term leases upon the application of IFRS 16.
The new requirement to recognise a right of use asset and a related lease liability is expected to have a significant impact
on the amounts recognised in the Group’s consolidated balance sheet. Whilst the IFRS 16 assessment is ongoing it is not
practicable to quantify the impact. It is likely the Group will follow a modified transition approach.
In contrast, for finance leases where the Group is a lessee, as the Group has already recognised an asset and a related finance
lease liability, and in cases where the Group is a lessor (for the sub-let of properties), the directors do not anticipate that the
application of IFRS 16 will have a significant impact on the amounts recognised in the Group’s consolidated financial statements.
(d) Prior year error correction in respect of the restitution of trust funds
The Group holds money on behalf of parties to property transactions. For example, the Group holds deposits made by lessees
of properties. Generally, the Group does not recognise client money on its consolidated balance sheet. However, the Group
deposits client money in interest-bearing accounts and recognises the interest component as finance income in the Group’s
consolidated income statement.
The Group takes all practical and reasonable measures to identify the ownership of the funds and to trace and return funds
in a timely manner. Historically, funds that remained untraceable and were more than six years old were recognised in the
Group’s consolidated income statement as other income and an indemnity was put in place by Countrywide Group plc to the
underlying subsidiary entities to ensure that any claims arising subsequently on these funds would be met by Countrywide
Group plc. In practice, less than 1% of the funds released have ever been claimed and paid out.
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Notes to the financial statements continued
2. Accounting policies continued
(d) Prior year error correction in respect of the restitution of trust funds continued
At the half year, following a management review of client accounting, and having received legal advice on the treatment of
funds, the Group understood that some of these historical and untraceable funds arising from the Lettings business for the
period from 2008 to 2017 should be held in trust under a separate client account. A liability of £4,681,000 in respect of certain
untraceable funds for such period was therefore recognised in the Group’s balance sheet in the 2018 condensed consolidated
interim report, £4,456,000 of which was recognised as a prior year error correction, along with a related reduction in retained
earnings net of deferred tax. These funds were transferred into a separate client account in August 2018. Additional
investigation and further legal guidance during the second half of 2018 resulted in a revision to the accounting estimate.
Accordingly, a further charge of £5,185,000 has been recognised as an exceptional cost in H2 2018. As a result, management
has transferred an additional £5,185,000 into a separate client account in December 2018 in full restitution of these client funds.
The tables below show the impact of the adoption of IFRS 15 and the impact of the prior year error correction on the balance
sheets as at 1 January 2017 and 31 December 2017, and on the income statement and cash flow statement for the year ended
31 December 2017. The impact of the adoption of IFRS 9 is shown on the balance sheet as at 1 January 2018.
Consolidated balance sheet (extract)
Non-current assets
Deferred tax assets
Current assets
Trade and other receivables
Impact on total assets
Equity and liabilities
Retained earnings
Current liabilities
Trade and other payables
Deferred income
Provisions
Impact on current liabilities
Impact on total equity and liabilities
Consolidated balance sheet (extract)
Non-current assets
Deferred tax assets
Current assets
Trade and other receivables
Impact on total assets
Equity and liabilities
Other reserves
Retained earnings
Impact on equity
Current liabilities
Trade and other payables
Deferred income
Provisions
Impact on current liabilities
Impact on total equity and liabilities
31 December
2016
As previously
reported
£’000
Impact of
IFRS 15
(B2B)
£’000
Impact of
IFRS 15
(Sales and Lettings)
£’000
Correction
of prior
year error
£’000
1 January
2017
Restated
£’000
9,250
211
—
801
10,262
120,355
129,605
(1,111)
(900)
2,883
2,883
—
801
122,127
132,389
283,454
(900)
880
(3,416)
280,018
95,072
3,890
19,600
118,562
402,016
—
—
—
—
(900)
485
1,166
352
2,003
2,883
4,217
—
—
4,217
801
99,774
5,056
19,952
124,782
404,800
31 December
2017
As previously
reported
£’000
Impact of
IFRS 15
(B2B)
£’000
Impact of
IFRS 15
(Sales and
Lettings)
£’000
Correction of
prior year
error
£’000
31 December
2017
Restated
£’000
Impact
of IFRS 9
£’000
1 January
2018
Restated
£’000
9,676
229
—
846
10,751
147
10,898
103,111
112,787
(1,201)
(972)
3,872
3,872
—
105,782
(1,121)
104,661
846
116,533
(974)
115,559
(16,121)
111,007
94,886
94,779
1,379
17,116
113,274
208,160
—
(972)
(972)
—
—
—
—
(972)
—
1,875
1,875
485
1,175
337
1,997
3,872
—
(16,121)
(1,967)
(18,088)
(3,610)
108,300
993
109,293
(3,610)
92,179
(974)
91,205
4,456
99,720
—
—
2,554
17,453
4,456
119,727
—
—
—
—
99,720
2,554
17,453
119,727
846
211,906
(974) 210,932
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2. Accounting policies continued
(d) Prior year error correction in respect of the restitution of trust funds continued
Consolidated income statement (extract)
Revenue
Other income
Total income
Adjusted EBITDA
(Loss)/profit before taxation
Taxation credit/(charge)
(Loss)/profit for the period
Consolidated cash flow statement (extract)
(Loss)/profit before taxation
Changes in working capital (excluding effects
of acquisitions and disposals of Group
undertakings):
Decrease/(increase) in trade and other
receivables
(Decrease)/increase in trade and other payables
Decrease in provisions
Impact on cash and cash equivalents
Year ended
31 December 2017
As previously
reported
£’000
661,049
10,829
671,878
64,687
(212,059)
3,987
(208,072)
Year ended
31 December 2017
As previously
reported
£’000
Impact of IFRS 15
(B2B)
£’000
Impact of IFRS 15
(Sales and Lettings)
£’000
Correction of prior
year error
£’000
Year ended
31 December 2017
Restated
£’000
(89)
–
(89)
(89)
(89)
17
(72)
1,228
–
1,228
1,228
1,228
(233)
995
–
(239)
(239)
(239)
(239)
45
(194)
662,188
10,590
672,778
65,587
(211,159)
3,816
(207,343)
Impact of IFRS 15
(B2B)
£’000
Impact of IFRS 15
(Sales and Lettings)
£’000
Correction of prior
year error
£’000
Year ended
31 December 2017
Restated
£’000
(212,059)
(89)
1,228
(239)
(211,159)
19,500
(8,050)
(3,002)
(203,611)
89
–
–
–
(1,222)
9
(15)
–
–
239
–
–
18,367
(7,802)
(3,017)
(203,611)
(e) Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group 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. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
The purchase method of accounting is used to account for acquisitions and the cost of acquisition is measured as the fair value
of assets given, equity instruments issued and liabilities incurred. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured at their fair value at the acquisition date. Acquisition costs are
written off to the income statement. The accounting policies of subsidiaries acquired are changed, where necessary, to ensure
consistency with policies operated by the Group.
Goodwill is recorded as the excess of the aggregate of the consideration transferred and fair value of non-controlling interest
over the fair value of the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value
of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
Joint ventures
Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to
recognise the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When
the Group’s share of losses in a joint venture equals or exceeds its interests in the joint venture, the Group does not recognise
further losses except to the extent that it has incurred obligations or made payments on behalf of the joint venture. Accounting
policies of the joint venture are aligned where applicable.
Transactions eliminated on consolidation
Intra-group balances, and any gains and losses or income and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial information. Gains arising from transactions with jointly controlled entities are eliminated to
the extent of the Group’s interest in the entity. Losses are eliminated in the same way as gains, but only to the extent that there
is no evidence of impairment.
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Notes to the financial statements continued
2. Accounting policies continued
(f) Foreign currency translation
The functional currency of the Company is Pounds Sterling because that is the currency of the primary economic environment
in which the Group operates. The Group’s presentational currency is Pounds Sterling.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement.
Group companies
The results and financial position of all the Group entities (none of which have the currency of a hyperinflationary economy) that
have a functional currency different from the presentation currency are translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
• income and expenses for each income statement presented are translated at average exchange rates (unless this average
is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case
income and expenses are translated at the rate on the dates of the transactions); and
• all resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate. Exchange differences arising are recognised in equity.
The following exchange rates were applied for £1 Sterling at 31 December:
Euros
Hong Kong Dollars
2018
1.11
10.00
2017
1.13
10.56
(g) Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment
losses. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working
condition for its intended use. When parts of an item of property, plant and equipment have different useful lives, those
components are accounted for as separate items of property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised
in the income statement.
Leased assets
Leases under which the Group assumes substantially all the risks and rewards of ownership of an asset are classified as
finance leases. Property, plant and equipment acquired under finance leases is recorded at fair value or, if lower, the present
value of minimum lease payments at inception of the lease, less accumulated depreciation and any impairment losses.
Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance
charges, are included within borrowings. The interest element of the finance cost is charged to the income statement over the lease
period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property,
plant and equipment under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.
Depreciation
Depreciation is charged to profit or loss on a straight line basis over the estimated useful lives of each part of an item of
property, plant and equipment. The property, plant and equipment acquired under finance leases is depreciated over the
shorter of the useful life of the asset and the lease term. Freehold land and assets in the course of construction are not
depreciated. The estimated useful lives are as follows:
• freehold buildings – 50 years
• leasehold improvements – over the period of the lease
• furniture and equipment – three to five years
• motor vehicles – three to five years
The residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
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2. Accounting policies continued
(h) Intangible assets
Goodwill
Goodwill has been recognised on acquisitions of subsidiaries and joint ventures. Goodwill represents the excess of the cost of an
acquisition over the fair value of the Group’s share of the net identifiable assets of the acquiree at the date of acquisition and the value
of the non-controlling interest in the acquiree. Acquisition costs are written off to the income statement.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units and is not amortised
but is tested annually for impairment or more frequently if events or changes in circumstances indicate potential impairment. The
allocation is made to those cash generating units or groups of units that are expected to benefit from the business combination in
which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal
management purposes.
In respect of joint ventures, the carrying amount of goodwill is included in the carrying amount of the investment in the joint venture.
Excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost
arising on an acquisition is recognised in the income statement.
Intangible assets other than goodwill that are acquired by the Group, principally acquired brand names, customer contracts and
relationships, computer software, pipeline and other intangibles, are stated at cost less accumulated amortisation, where charged,
and impairment losses.
Acquired computer software is capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
Amortisation
Amortisation is charged to profit or loss on a straight line basis over the estimated useful lives of intangible assets unless such
lives are indefinite. The estimated useful lives are as follows:
• computer software – one to five years
• brand names – 15 years
Brand names, which previously were assigned an indefinite life, have been subject to review following impairments in prior
years and during the six months ended 30 June 2018. We disclosed our intent to undertake this review within the 2017 annual
report and have concluded a change in accounting estimate effective from 1 July 2018. Brand names have been assigned
useful economic lives of 15 years and amortisation has commenced from that date.
• customer contracts and relationships – five to ten years
• pipeline (agreed but unexchanged house sales at date of acquisition) – three months
• other intangibles – six to 20 years
(i) Impairment of non-financial assets
The carrying amounts of the Group’s non-current assets are reviewed for impairment annually or whenever events and
changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, the asset’s
recoverable amount is estimated.
In respect of goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for
use, the recoverable amount is estimated at each balance sheet date. The recoverable amount is the higher of fair value less
costs to sell and value in use.
Impairment losses represent the amount by which the carrying value exceeds the recoverable amount; they are recognised
in profit or loss. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the cash generating unit and then to reduce the carrying amount of the other assets in the
unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment loss is reversed if there has
been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(j) Financial assets
Classification
The Group classifies its financial assets as financial assets at amortised cost and financial assets at fair value through profit
or loss. The classification depends on the purpose and business model for which the financial assets were acquired.
Management determines the classification of its financial assets at initial recognition.
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Notes to the financial statements continued
2. Accounting policies continued
(j) Financial assets continued
Financial assets at amortised cost
Financial assets at amortised cost are non-derivative financial assets with fixed or determinable payments that arise principally
through the provision of services to customers. They are initially recognised at fair value and are subsequently stated at amortised
cost using the effective interest method. They are included in current assets, except for maturities greater than twelve months
after the end of the reporting period. Financial assets at amortised cost comprise mainly cash and cash equivalents and trade and
other receivables.
Recognition and measurement
Regular purchases and sales of financial assets are recognised on the trade date: the date on which the Group commits to
purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the investments have
expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Financial assets at amortised cost are initially recognised at fair value and are subsequently carried at amortised cost using the
effective interest method.
Impairment of financial assets
The Group applies the IFRS 9 simplified approach to measuring expected credit losses. In determining the expected credit
losses for these assets, the Group has taken into account the historical default experience and the financial position of the
counterparties, in estimating the likelihood of default of each of these financial assets occurring within their loss assessment
time horizon.
Trade receivables are written off when there is no reasonable expectation of recovery. Impairment losses on trade receivables
and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts
previously written off are credited against the same line item.
Previous accounting policy for impairment of trade receivables:
In the prior year, impairment provisions were recognised when there was objective evidence (such as significant financial
difficulties on the part of the counterparty or default or significant delay in payment) that the Group would be unable to collect
all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net
carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade
receivables, which are reported net of provisions, such provisions are recorded in a separate provision account with the loss
being recognised within other operating costs in the income statement. On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written off against the associated provision.
(k) Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost less an
impairment provision. A provision for impairment of trade receivables is established in line with the provisioning policy
noted above.
(l) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank overdrafts
that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and
cash equivalents for the purpose of the statement of cash flows and are presented in current liabilities.
(m) Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost.
(n) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Such interest-bearing liabilities are subsequently
measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to
repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes
initial transaction costs and premiums payable on redemption, as well as any interest payable while the liability is outstanding.
(o) Pensions
The Group operates various post-employment schemes, including both defined benefit and defined contribution pension plans.
Defined contribution plans
The Group pays fixed contributions to separately administered pension insurance plans. The Group has no further obligations
once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due.
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by
independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the
currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension obligation.
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2. Accounting policies continued
(o) Pensions continued
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited
to equity in other comprehensive income in the period in which they arise.
Past service costs are recognised immediately in income.
(p) Share-based payments
The Group operates a number of equity-settled share-based schemes under which the Group receives services from employees as
consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant
of the options is recognised as an expense. Where the share awards have non-market-related performance criteria the Group has
used the Binomial Lattice and Black Scholes option valuation models to establish the relevant fair values. Where the share awards
have TSR market-related performance criteria the Group has used the Monte Carlo simulation valuation model to establish the
relevant fair values (see note 27). The resulting values are amortised through the income statement over the vesting period of the
options and other grants.
At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based
on the non-market conditions and recognises the impact of the revision to original estimates, if any, in the income statement, with
a corresponding adjustment to equity.
The social security contributions payable in connection with the grant of the share options are considered an integral part of the grant
itself, and the charge will be treated as a cash-settled transaction.
(q) Provisions
A provision is recognised in the balance sheet 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. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
when appropriate, the risks specific to the liability. The increase in the provision due to passage of time is recognised in finance costs.
(r) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in share
premium as a deduction from the proceeds. Where the employee benefit trust purchases the Company’s equity share capital
(treasury shares), the consideration paid, including any directly attributable incremental costs, is deducted from equity
attributable to the Company’s equity holders until the shares are cancelled or reissued.
(s) Revenue
Services rendered
A five-step approach is taken for recognising revenue from contracts with customers, namely to: identify the contract(s) with the
customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to
the performance obligations in the contract; and recognise revenue when (or as) a performance obligation has been satisfied.
The Group generates revenue from external customers mainly in the UK from three main types of business: Sales and Lettings,
Financial Services and Business to Business (B2B). All relevant factors and circumstances are taken into account when
determining the revenue recognition methods that appropriately depict the transfer of control of goods or services to
customers for each performance obligation.
Commission earned on sales of residential and commercial property is recognised at a point in time, upon the exchange
of contracts for such sales.
The Group offers the following residential lettings services to customers: Tenant Introduction, Tenant Renewal, Standard
Lettings (often referred to as Rent Collection), Full Property Management, and a Leasehold Property Management service.
Commissions and fees earned for Tenant Introduction and Tenant Renewal in respect of securing or extending the letting
are recognised in full at a point in time upon delivery of the service, when the underlying tenancy agreement commences.
A liability for future refunds is recognised for contracts that contain a break clause and which may require a refund if
broken early. Fees for standard lettings (rent collection) and property management services, including leasehold property
management services, are recognised on a straight line basis over the life of the contract in line with the satisfaction of the
performance obligations.
Fees earned from surveying, valuation and conveyancing services are recognised at a point in time when we have fully
provided the service to the customer.
The Group acts as principal in the majority of contracts with customers, with the exception of commission earned on the sale
of third party financial services products and revenue generated from surveying panel management contracts, where we act as
an agent. Revenue from the sale of third party financial services products is recognised at a point in time when the policies go
on risk or the mortgage is exchanged. Revenue from surveying panel management contracts is recognised at a point in time,
net of any fees payable to other parties in the arrangement.
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Notes to the financial statements continued
2. Accounting policies continued
(s) Revenue continued
Revenue in respect of consultancy services performed by our commercial business, Lambert Smith Hampton, is recognised
either: at a point in time when we have fully provided the service; or over a period of time as activity progresses, reflecting the
Group’s partial performance of its contractual obligations.
Management is required to make certain judgements, including: the determination of the performance obligations in the
contract; whether the Group is acting as principal or agent; the estimation of any variable consideration in determining the
contract price; the allocation of the price to the performance obligations inherent in the contract; and an appropriate method
of recognising revenue, including judging whether the performance obligations have been satisfied over a period of time
or at a point in time. For performance obligations that are satisfied over a period of time, judgements are made as to whether
the output method or the input method is more appropriate to measure progress towards complete satisfaction of the
performance obligation.
Activity performance in excess of invoices raised is included within ‘amounts due from customers for contract work’.
Where amounts have been invoiced in excess of work performed, the excess is included within ‘amounts due to customers
for contract work’. If the right to consideration is conditional or contingent on a specified future event or outcome, the outcome
of which is outside the control of the Group, revenue is not recognised until that critical event occurs.
Under certain service contracts, the Group manages client expenditure and is obliged to purchase goods and services from
suppliers and recharge them on to the customer at cost. The amounts charged by suppliers and recharged to clients are
excluded from revenue and administrative expenses. Receivables, payables and cash relating to these transactions are
included in the balance sheet.
Deferred income
Where the Group receives an amount upfront in respect of future income streams, the value of the receipt is amortised over the
period of the contract as the services are delivered and the unexpired element is disclosed in liabilities as deferred income.
(t) Other income
Other income is recognised when its receipt is assured and the Group has no further obligations to any other party in respect of
that income. Rental income from sub-let properties is recognised in profit or loss on a straight line basis over the term of the lease.
Lease incentives granted are recognised as an integral part of the total rental income. Dividend income is recognised when the
right to receive payment is established.
(u) Operating lease payments
Payments 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 in profit or loss as an integral part of the total lease expense.
(v) Net finance costs
Finance costs
Finance costs comprise interest payable on borrowings (including finance lease commitments), net interest costs on the
pension scheme liabilities, the unwinding of the discount rates in respect of financial liabilities and provisions, premiums
payable on settlement or redemption and direct issue costs. Interest costs accrue using the effective interest method. Fees
paid on the establishment of loan facilities are recognised as transaction costs of the loan and amortised over the period to
which the facility relates.
Finance income
Finance income comprises interest receivable on funds invested. Interest income is recognised in profit or loss as it accrues
using the effective interest method.
(w) Adjusting items
As permitted by IAS 1 ‘Presentation and disclosure’ certain items are presented separately in the income statement as exceptional
where, in the judgement of the directors, they need to be disclosed separately by virtue of their nature, size or incidence in order to
obtain a clear and consistent presentation of the Group’s underlying business performance. Examples of material and non-recurring
items which may give rise to disclosure as exceptional items include costs of restructuring existing businesses, integration of newly
acquired businesses, asset impairments, costs associated with acquiring new businesses and profit on sale of available-for-sale
financial assets.
The columnar presentation of our income statement separates exceptional items as well as adjusting items, specifically amortisation
of intangibles arising on business acquisitions, contingent consideration and share-based payments, to illustrate consistently the
Group’s underlying business performance.
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2. Accounting policies continued
(w) Adjusting items continued
The Board believes that excluding each of the adjusted items, considered to be exceptional or non-operational in nature, in arriving
at adjusted EBITDA is necessary to provide a more consistent indication of the trading performance of the Group. This alternative
performance measure provides additional useful information to shareholders on the underlying trends and comparable performance
of the Group over time. We seek to present a consistent measure of trading performance which is not impacted by the volatility in
profile of:
• exceptional items (costs or income): these are specific items which are material by their nature, size or incidence and are
highlighted, with further descriptions, in note 10 to the financial statements;
• amortisation of intangibles arising on acquisitions (excluding software): charges can vary significantly dependent on the level
and size of acquisitions undertaken in each period, and the related customer relationships and contracts recognised (brands not
being subject to amortisation). In addition, we do not believe the amortisation charge provides insight into the costs of running our
business as these assets are supported and maintained by marketing costs which are reflected within our operating costs. The
directors note that the intangibles acquired in business combinations are used in the business to generate revenue, but that there
is no equivalent adjustment made to eliminate this revenue;
• contingent consideration: charges can vary significantly dependent on the level and size of acquisitions undertaken and the
associated performance criteria linked to the ongoing service requirement. We reassess the fair value of the resulting liabilities
across these arrangements at each reporting period end, reflecting our best estimates of future performance. However, these
estimates are inherently judgemental as we are required to look beyond our normal three-year budgeting and planning cycle for
the five-year agreements in place. Remeasurement could cause material volatility in our reported results over the earn out periods
which would not be reflective of the business’ performance in the period; and
• share-based payments: the income statement has been subject to significant charges in respect of the IPO options up to and
including 2016. As the Group is now in a turnaround situation, it is anticipated that the incentivisation of performance will be driven
by award of future LTIPs which, provided Group performance meets these targets, will see the share-based payment charge
continue to increase and reintroduce material volatility into the income statement and distortion to underlying trading results.
The use of an adjusted EBITDA profit measure, as a consistent measure of underlying performance, is also aligned with
management’s internal financial reporting (including monthly management information reports reviewed by the Board, and the
Executive Committee as the chief operating decision maker) and executive director remuneration (being a factor of both the
LTIP scheme and annual bonus disclosed in the Remuneration Committee report) and senior management incentive targets.
Reconciliation of adjusted EBITDA to statutory profit measures is provided in note 4 of the financial statements.
(x) Income tax
Income tax comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to
items recognised in other comprehensive income or directly in equity, in which case it is recognised in other comprehensive
income or directly in equity respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted
at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of other
assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries
to the extent that they are unlikely to reverse in the foreseeable future. The amount of deferred tax provided is based on
the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and joint ventures, except for
deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is
probable that the temporary difference will not reverse in the foreseeable future.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend.
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Notes to the financial statements continued
2. Accounting policies continued
(y) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting to the Board which has been identified as
the chief operating decision maker.
(z) Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period
in which the dividends are approved by the Company’s shareholders. Interim dividends are recognised when paid.
3. Critical accounting judgements and key sources of estimation uncertainty
In application of the Group’s accounting policies, which are described in note 2, the directors are required to make judgements
(other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities and the disclosure of contingent assets and liabilities. These
estimates and associated assumptions are based on historical experience and other factors including expectations of future
events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates, given the
uncertainty surrounding the assumptions and conditions upon which the estimates are based.
The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if
the revision affects both the current and future periods.
Critical judgements in applying the Group’s accounting policies
The following are critical judgements, apart from those involving estimations (which are dealt with separately below), that the
directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the
amounts recognised in the financial statements.
Exceptional items
Certain items are presented separately in the income statement as exceptional where, in the judgement of the directors, they
need to be disclosed separately by virtue of their nature, size or incidence in order to obtain a clear and consistent
presentation of the Group’s underlying business performance. Further details of material, non-recurring items the directors
have disclosed as exceptional items, including the costs of restructuring the business, are provided in note 10.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year, are discussed below.
Impairment of goodwill and indefinite life intangible assets
Determining whether goodwill and indefinite life intangible assets are impaired requires an estimation of the value in use of
the cash generating units to which the assets have been allocated. Calculating the cash flows requires the use of judgements
and estimates that have been included in our strategic plans and long range forecasts. In addition, judgement is required to
estimate the appropriate interest rate to be used to discount the future cash flows. The data necessary for the execution of the
impairment tests is based on management estimates of future cash flows, which require estimating revenue growth rates and
profit margins. Further details of impairment reviews are set out in note 14.
Certain items are presented separately in the income statement as exceptional where, in the judgement of the directors,
they need to be disclosed separately by virtue of their nature, size or incidence in order to obtain a clear and consistent
presentation of the Group’s underlying business performance. Further details of material, non-recurring items the directors
have disclosed as exceptional items, including the costs of restructuring the business, are provided in note 10.
Professional indemnity provisions
When evaluating the impact of potential liabilities arising from claims against the Group, the Group takes legal and professional
advice to assist it in arriving at its estimation of the liability, taking into account the probability of the success of any claims and
also the likely development of claims based on recent trends.
The Group has made provision for claims received under its professional indemnity insurance arrangements. The provision can
be broken down into three categories:
• Reserves for known claims: These losses are recommended by our professional claims handlers and approved panel law
firms who take into account all the information available on the claims and recorded on our insurance bordereaux. Where
there is insufficient information on which to assess the potential losses, initial reserves may be set at an initial level to cover
investigative costs or nil. Further provisions are also made for specific large claims which may be subject to litigation and the
directors assess the level of these provisions based on legal advice and the likelihood of success.
• Provision for the losses on known claims to increase: It can take one to two years for claims to develop after they are initially
notified to the Group. For this reason, the Group creates a provision based on historical loss rates for closed claims and
average losses for closed claims.
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3. Critical accounting judgements and key sources of estimation uncertainty continued
Key sources of estimation uncertainty continued
• Provision for incurred but not reported (IBNR claims): The Group also provides for future liabilities arising from claims IBNR
for mortgage valuation reports and home buyer reports performed by Surveying Services. This provision is estimated on a
future projection of historical data for all claims received based on the number of surveys undertaken to date. This projection
takes into account the historic claim rate, the claim liability rate and the average loss per claim. In view of the very low
number of claims received for surveys conducted over eight years ago and the volatility that can impact on the size of the
provision, the data set has been limited to surveys conducted within eight years. Since the data set is now limited to claims
for surveys beyond the 2004 to 2008 period prior to the financial crisis, we no longer hold a sub-set of data for surveys
conducted during that period, which is now more than ten years ago.
The estimate of these provisions by their nature is judgemental. The three key inputs, claim rate, claim liability rate and average
loss, are very sensitive to any change in trends.
Claim rate – the number of claims received compared to the number of surveys performed
The number of valuation claims continued to decline significantly throughout 2018 to historically low levels. There is a possible
risk that a significant rise in mortgage interest rates could lead to an increase in repossessions and potential losses being
incurred by the lenders. While there is uncertainty around the future of the UK economy as the Government deals with Brexit,
there are no macroeconomic indicators that this is a reasonable likelihood in the short term and the directors do not consider it
appropriate to provide for additional claims due to macroeconomic changes. During 2018 we experienced a modest decrease
in the rate of claims received. It should be noted that a 10% increase in the valuation claim rate applied to all surveys could lead
to a £0.4 million increase in the provision for future claims.
Claim liability rate – the number of claims closed with a loss compared to the number of closed claims
Our claim handlers and panel lawyers robustly defend all our claims and as a result they have achieved a number of successes
throughout 2017 and 2018 where clients have withdrawn their claim. In 2018 we did see a modest increase to the claim liability
rate but owing to the low volumes of claims this has not had a material impact on the overall provision.
The liability rate is sensitive to changes in experience and therefore we have used the average liability rate for claims closed
over three years as the most appropriate claim liability rate to estimate the provision for those claims already received. A 10%
increase in the average liability rate applied to open claims at the end of the year and unreported claims anticipated would
impact the provision for claims already received by £0.4 million.
Average loss – the average of total incurred losses for closed claims.
Average losses on claims settled have reduced by 7% in 2018 versus prior year (based on weighted average across the
various claim populations). Applying a 10% increase in the average loss to the open claims received would increase the total
provision required for this population (the IBNER) by £0.1 million.
Onerous lease provisions
Onerous lease provisions with a present value of £6.1 million were recognised in relation to economic outflows arising from
onerous contracts in respect of loss making branches (at the direct contribution level), unwinding over periods up to 2026
(comprising £4.2 million in respect of onerous lease provisions and £1.9 million in respect of dilapidations provisions – see note
23). The economic outflows in relation to these loss making branches will continue to be monitored to ensure that provisions
are unwound in line with the losses being reported within operating results, or released in full when a branch is forecast to be
profitable on turnaround, or ceases to become an onerous contract due to other circumstances, for example if a branch is
sublet or a lease is renegotiated so that cash flows become positive.
The liability is dependent on the status of each lease and there is no correlation between lease and poor performance.
Since the liability is based on the lower of the future anticipated operating losses and the contractual commitment to the end
of the lease there is the possibility for the losses for some of those branches to deteriorate and therefore the provision would
increase up to the level of the lease commitment. This would add an additional £1.4 million to the provision.
Restitution of trust funds
As described in note 2(d), a liability of £4,681,000 in respect of certain untraceable funds for prior years was recognised in the
Group’s balance sheet in the 2018 condensed consolidated interim report, £4,456,000 of which was recognised as a prior year
error correction, along with a related reduction in retained earnings net of deferred tax. These funds were transferred into a
separate client account in August 2018. Having received further legal advice in the second half of 2018, the Group now
understands that all of these historical and untraceable funds arising from the Lettings business for the period from 2008-2017
should be held in trust under a separate client account. As a result, management has transferred an additional £5,185,000 into
a separate client account in December 2018 in full restitution of these client funds. This change in advice during the latter part
of 2018 has caused a change in the accounting estimate taken at 30 June 2018, and been treated as an exceptional cost. The
estimate is therefore based on full restitution of all such funds.
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Notes to the financial statements continued
4. Segmental reporting
Management has determined the operating segments based on the operating reports reviewed by the Board that are used
to assess both performance and strategic decisions. Management has identified that the Board is the chief operating decision
maker in accordance with the requirements of IFRS 8 ‘Operating segments’.
The change to the Group’s segmental presentation in 2018 is aligned with management’s current internal financial reporting
framework (including monthly management information reports reviewed by the directors, and the Board as the chief
operating decision maker) and the basis on which decisions for allocation of resources and assessing performance of
segments is undertaken.
The Board considers the business to be split into three main types of business generating revenue: Sales and Lettings,
Financial Services and Business to Business (B2B), and ‘all other segments’ comprising central head office functions.
The Sales and Lettings network combines estate agency and lettings operations. Estate agency generates commission earned
on sales of residential property and Lettings earns fees from the letting and management of residential properties and fees for the
management of leasehold properties. The Financial Services division receives commission from the sale of insurance policies,
mortgages and related products under contracts with financial service providers. Business to Business (B2B) services comprise all
lines of business which are delivered to corporate clients, including Surveying Services, Conveyancing Services and revenue from
Lambert Smith Hampton. Surveying Services generates surveying and valuation fees which are received primarily under contracts
with financial institutions with some survey fees being earned from home buyers. Conveyancing Services generates revenue from
conveyancing work undertaken from customers buying or selling houses through our network. Lambert Smith Hampton’s revenue
is earned from commercial property consultancy and advisory services, property management and valuation services. Other income
generated by head office functions relates primarily to sub-let rental income or other sundry fees.
The Board assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement
basis excludes the effects of exceptional items, share-based payment charges and related National Insurance contributions,
employment-linked contingent consideration and income from joint ventures. Finance income and costs are not allocated to
the segments, as this type of activity is driven by the central treasury function which manages the cash and debt position
of the Group.
The revenue from external parties reported to the Board is measured in a manner consistent with that in the income statement.
Revenue and other income from external customers arising from activities in the UK was £624,810,000 (2017: £670,407,000)
and that arising from activities overseas was £2,261,000 (2017: £2,371,000).
The assets and liabilities for each operating segment represent those assets and liabilities arising directly from the operating
activities of each business unit. Pension assets and liabilities, and liabilities arising from the revolving credit facility and related
derivative financial instrument, are not allocated to operating segments but allocated in full to ‘All other segments’ within the
segmental analysis as they are managed by central Group functions. Non-current assets attributable to the UK of £334,595,000
(2017: £571,848,000) are included in the total assets in the tables on the following pages. Non-current assets of £825,000
(2017: £922,000) are attributable to the overseas operations. The equity investment in joint venture is disclosed within ‘All other
segments’ and is £1,464,000 (2017: £2,982,000).
The financial assets at fair value through profit or loss are disclosed within ‘All other segments’ (£153,000 (2017: £17,085,000
available-for-sale financial assets)).
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4. Segmental reporting continued
Revenue
Other income
Total income
Inter-segment revenue
Total income from external customers
Adjusted EBITDA
Contingent consideration
Share-based payments
Depreciation and amortisation
Share of loss from joint venture
Exceptional income
Exceptional costs
Segment operating (loss)/profit
Finance costs
Finance income
Loss before tax
Total assets
Total liabilities
Additions in the year
Goodwill
Intangible assets
Property, plant and equipment
Sales and
Lettings
£’000
309,131
5,832
314,963
14,207
329,170
1,191
57
(691)
(7,448)
–
–
(216,315)
(223,206)
2018
Financial
Services
£’000
B2B
£’000
All other
segments
£’000
80,199
229,317
1,009
922
81,208
230,239
2,704
(16,911)
83,912
213,328
472
189
661
–
661
Total
£’000
619,119
7,952
627,071
–
627,071
16,613
(1,830)
(225)
(2,493)
–
–
(3,131)
8,934
27,931
(13,052)
32,683
(409)
(569)
(3,907)
(211)
(6,089)
(1,696)
(7,586)
(4,935)
(22,462)
–
2,663
(1,890)
(1,518)
504
(1,518)
3,167
(20,701)
(242,037)
20,140
(43,820)
(237,952)
(14,921)
200
(252,673)
83,858
115,597
219,880
22,328
441,663
536,907
193,844
181,453
(690,808)
221,396
–
859
1,927
–
892
127
160
2,676
1,042
–
2,087
508
160
6,514
3,604
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Notes to the financial statements continued
4. Segmental reporting continued
Revenue
Other income
Total income
Inter-segment revenue
Total income from external customers
Adjusted EBITDA
Contingent consideration
Share-based payments
Depreciation and amortisation
Share of profit from joint venture
Exceptional costs
Segment operating (loss)/profit
Finance costs
Finance income
Loss before tax
Total assets
Total liabilities
Additions in the year
Intangible assets
Property, plant and equipment
Sales and
Lettings
(Restated)1 2
£’000
340,941
4,972
345,913
15,566
361,479
27,424
(397)
(652)
2017
B2B
(Restated)2
£’000
238,517
958
239,475
(18,819)
Financial
Services
£’000
82,124
1,947
84,071
3,253
All other
segments
£’000
606
2,713
3,319
–
Total
(Restated)1 2
£’000
662,188
10,590
672,778
–
87,324
220,656
3,319
672,778
19,660
35,487
(16,984)
65,587
(969)
(271)
(62)
(457)
(2,501)
(243)
(3,929)
(1,623)
(20,130)
(2,770)
(7,583)
(3,007)
(33,490)
–
(217,063)
(210,818)
–
(1,304)
14,346
–
690
690
(3,844)
23,541
(3,658)
(225,869)
(25,703)
(198,634)
(12,607)
82
(211,159)
287,086
120,575
233,925
59,499
701,085
539,873
204,793
219,711
(569,722)
394,655
2,291
4,330
1,786
371
2,916
1,270
584
5,047
7,577
11,018
1. Restated from prior year following the aggregation of previous operating segments (UK and London).
2. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
Disaggregation of total segment revenue
2018
Major service lines
Sales
Lettings
Financial Services
Surveying
Commercial
B2B other
Other
Timing of revenue recognition
Services transferred at a point in time
Services transferred over a period of time
Sales and
Lettings
£’000
Financial
Services
£’000
B2B
£’000
All other
segments
£’000
Total
revenue
£’000
149,919
165,536
–
327
–
7,556
–
539
–
79,579
74
–
2,711
–
14,604
12,112
–
71,654
100,373
13,663
–
323,338
82,903
212,406
163,219
160,119
54,076
28,827
150,778
61,628
323,338
82,903
212,406
–
165,062
428
178,076
–
–
–
–
44
472
44
428
472
79,579
72,055
100,373
23,930
44
619,119
368,117
251,002
619,119
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4. Segmental reporting continued
2017
Major service lines
Sales
Lettings
Financial Services
Surveying
Commercial
B2B other
Other
Timing of revenue recognition
Services transferred at a point in time
Services transferred over a period of time
1. Restated from prior year following the adoption of IFRS 15 (see note 2).
5. Other income
Rent receivable
Other operating income
Sales and
Lettings1
£’000
Financial
Services
£’000
B2B
£’000
All other
segments
£’000
Total
revenue1
£’000
179,312
168,807
–
614
–
7,774
–
547
–
81,355
211
–
3,264
–
19,069
11,421
–
70,635
104,579
13,994
–
356,507
85,377
219,698
192,506
164,001
356,507
54,486
30,891
85,377
156,542
63,156
219,698
–
546
–
–
–
–
60
606
60
546
606
2018
£’000
599
7,353
7,952
198,928
180,774
81,355
71,460
104,579
25,032
60
662,188
403,594
258,594
662,188
2017
(Restated)1
£’000
582
10,008
10,590
1. Restated from prior year following the correction of a prior year error (see note 2).
Other operating income comprises a number of individually immaterial items aggregated across the Group.
6. Employees and directors
(a) Employee costs for the Group during the year
Wages and salaries
Contingent consideration deemed remuneration (note 32)1
Share options granted to directors and employees (note 27)1
Defined contribution pension costs (note 25)
Defined benefit scheme costs (note 25)
Social security costs
2018
£’000
2017
£’000
335,245
337,727
6,089
1,897
9,761
325
36,945
3,929
1,828
8,182
257
37,771
390,262
389,694
1. The columnar approach of our income statement separates £7,785,000 in respect of employee benefit costs comprising: £6,089,000 contingent
consideration from the table above; and £1,696,000 of share-based payment costs (see note 4). The share-based payment costs are detailed in note 27
and comprise: £1,897,000 of charges (as detailed above) net of £201,000 credit in relation to National Insurance (reported within social security costs in
the table above).
Average monthly number of people (including executive directors) employed:
By business segment
Sales and Lettings
Financial Services
B2B
Head office
1. Restated from prior year following the aggregation of previous operating segments (UK and London).
2018
Number
5,467
976
2,540
283
9,266
2017
Number
(Restated)1
5,558
1,000
2,573
332
9,463
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Notes to the financial statements continued
6. Employees and directors continued
(b) Key management compensation
The following table details the aggregate compensation paid in respect of the members of the Board including the executive
directors, and all non-executive directors.
Wages and salaries
Short term non-monetary benefits
Share-based payments
Termination costs
2018
£’000
2,778
12
(54)
754
2017
£’000
3,442
17
364
202
3,490
4,025
Details of the highest paid director’s aggregate emoluments, amounts receivable under long term incentive schemes and
payments in lieu of pension entitlements are disclosed within the directors’ remuneration report on page 65.
7. Other operating costs
Rent
Advertising and marketing expenditure
Vehicles, plant and equipment hire
Other motoring costs
Repairs and maintenance
Trade receivables impairment (excluding exceptional charge in 2017 (note 10))
Other
Total operating costs
2018
£’000
27,244
15,031
13,252
16,172
16,016
2,905
2017
£’000
26,783
19,590
14,754
16,050
15,651
38
121,291
130,183
211,911
223,049
Services provided by the Company’s external auditors and network firms
During the year the Company (including its overseas subsidiaries) obtained the following services from the Company’s external
auditors at costs as detailed below:
Fees payable to the Company’s external auditors and its associates for the audit of the
consolidated financial statements
Fees payable to the Company’s external auditors and its associates for other services:
• the audit of the Company’s subsidiaries
• audit-related assurance services
• other non-audit services (2018 amounts relate to work undertaken on capital refinancing plan)
• tax advisory services
8. Finance costs
Interest costs:
Interest payable on revolving credit facility
Interest arising from finance leases
Other interest paid
Cash payable interest
Amortisation of loan facility fee (including £2,220,000 of exceptional items in 2018 (note 10))
Net interest costs arising on the pension scheme (note 25)
Other finance costs
Non-cash payable interest
Capital refinancing costs (note 10)
Finance costs
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2018
£’000
135
423
58
992
–
1,608
2018
£’000
2017
£’000
135
407
50
49
2
643
2017
£’000
7,272
10,359
163
225
7,660
2,764
115
113
2,992
4,269
14,921
257
240
10,856
1,525
73
153
1,751
–
12,607
9. Finance income
Interest income
10. Exceptional items
The following items have been included in arriving at loss before taxation:
Exceptional income
Professional indemnity
Exceptional costs
Strategic and restructuring costs:
People-related restructuring costs
Transformation project consultancy costs
Property closure costs
Total strategic and restructuring costs, excluding impairment
Impairment of goodwill (note 14(a))
Impairment of brands (note 14(b))
Impairment of customer contracts (note 14(b))
Impairment of non-current assets (note 14(b), 15, 16(c))
Impairment of trade receivables (note 17)
Total impairment charge
Onerous lease provision
Restitution of trust funds
Financing costs1
Professional indemnity provisions
Total exceptional costs
Net exceptional costs
1. Reported within finance costs (see note 8).
2018
£’000
200
2017
£’000
82
2018
£’000
2017
£’000
3,167
–
(4,234)
(7,069)
(1,453)
(12,756)
(4,405)
(1,655)
(1,861)
(7,921)
(45,836)
(192,253)
(126,192)
(9,605)
(36,408)
–
(12,871)
(5,278)
(4,084)
(1,641)
(218,041)
(216,127)
(6,055)
(5,185)
(6,489)
–
–
–
–
(1,821)
(248,526)
(225,869)
(245,359)
(225,869)
2018
Net exceptional costs comprise items that have resulted in cash charges of £19,039,000 (2017: £6,060,000) and £226,320,000
(2017: £219,809,000) of net non-cash charges as follows:
Exceptional income
Professional indemnity
A claim was settled in the Group’s favour resulting in the recognition of £2,064,000 of exceptional income.
Estimating the liability for professional indemnity claims is highly judgemental and we updated our financial models to reflect
the latest inputs and trends and took advice from our panel of lawyers in respect of open claims. Despite the judgemental
nature of the provision, the progress made during the year on individually significant claims, aligned with the low level of claims
made, resulted in the assessment of a £1,103,000 release in the provision.
Exceptional costs
Strategic and restructuring costs
During 2018 the Group has progressed a strategic transformation agenda for the fundamental turnaround of the business,
which is expected to take place over a period of around three years, resulting in a number of exceptional costs in relation to
the project and related restructuring costs. The principal elements are:
• £4,234,000 relating to redundancy costs, principally arising from the restructuring of head office functions undertaken
following our announcement on 8 March 2018, and changes to the leadership structure that occurred during the year to
progress the achievement of the appropriate organisational structure;
• £7,069,000 in respect of restructuring costs, including the write-down of assets related to curtailed projects, third party
consultancy costs arising from a number of different projects undertaken to tackle cost optimisation targets, including IT
transformation consultancy, and related strategic initiatives which are being project managed centrally and routinely
reporting progress to the Group Executive Committee; and
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Notes to the financial statements continued
10. Exceptional items continued
• £1,453,000 of property closure costs, all relating to closed property provisions in respect of the London office that was
identified for closure and communicated to impacted individuals prior to the 30 June period end. The closed property
provision covers the onerous commitment for the costs from the period from the office vacation date at 31 October 2018
until the end of the lease term.
Impairment charges
Significant progress has been made with the strategy and turnaround plan during the year. However, the continued subdued
external environment and the deterioration in trading, which became apparent after conclusion of the 2018 business planning
process that underpinned the 2017 impairment review, resulted in impairment charges taken at the half year to 30 June 2018.
Cash flows driving the current impairment review align to the latest three-year strategy and turnaround plan that has been
scrutinised and endorsed by the Board.
The Group incurred the following impairment charges, deemed to be exceptional given their size, arising from the impairment
review of goodwill and indefinite-life intangible assets and the associated review of other intangible and tangible fixed assets
impacted by the impairment review:
• £45,836,000 in respect of goodwill associated with: the UK cash generating unit of £14,045,000, the London cash
generating unit of £30,770,000 and the B2B-Commercial cash generating unit of £1,021,000 following an assessment of the
recoverable value against the carrying value (see note 14);
• £126,192,000 in respect of brand names associated with: the UK cash generating unit of £58,270,000 (reflecting full
impairments of all brand names held) and the London cash generating unit of £67,922,000 (reflecting partial impairments
of all brand names held) following an assessment of the recoverable value against the carrying value (see note 14);
• £9,605,000 in respect of customer contracts associated with: the UK cash generating unit of £6,377,000 and the London
cash generating unit of £3,228,000 following an assessment of the recoverable value against the carrying value (see note
14); and
• £36,408,000 in respect of other non-current assets (see notes 14, 15 and 16):
• £2,379,000 intangible fixed assets (computer software) and £17,779,000 tangible fixed assets (related computer hardware
and other assets) associated with the UK cash generating unit;
• £2,482,000 intangible fixed assets (computer software) and £9,330,000 tangible fixed assets (related computer hardware
and other assets) associated with Head Office assets following an assessment of the recoverable value against the
carrying value. The Head Office write-down arising as a result of impairments identified exceeding the intangible asset
carrying values within the UK cash generating unit, triggering an impairment of £6,741,000 against the assets within Head
Office supporting the UK cash generating unit, and £2,589,000 in respect of IT hardware identified as obsolete;
• £717,000 of tangible fixed assets associated with the office in London that was identified for closure; and
• £3,721,000 in respect of write-off in full of three investments into the property technology sector which, following trading
and structural changes, are deemed to have no economic value. The costs relate to the impairment of the three equity
investments amounting to £2,379,000 (see note 16(d)), the associated loan outstanding with Dynamo of £1,200,000, and
£142,000 associated legal costs for the wind up of the venture.
Onerous lease provision
Onerous lease provisions with a present value of £6,055,000 were recognised in relation to the economic outflows arising
from onerous contracts in respect of loss making branches (at the direct contribution level), unwinding over periods up to 2026
(comprising £4,204,000 in respect of onerous lease provisions and £1,851,000 in respect of dilapidations provisions – see note
23). The economic outflows in relation to these loss making branches will continue to be monitored to ensure that provisions
are unwound in line with the losses being reported within operating results, or released in full when a branch is forecast to be
profitable on turnaround, or ceases to become an onerous contract due to other circumstances, for example if a branch is
sublet or a lease is renegotiated so that cash flows become positive.
During the year, provisions of £651,000 unwound as a credit to adjusted EBITDA, in line with the losses being reported within
operating results.
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10. Exceptional items continued
Restitution of trust funds
In note 4.3 of our 2018 condensed consolidated interim report, we noted a prior year error correction in respect of the
restitution of trust funds.
The Group holds deposits made by lessees of properties. Generally, the Group does not recognise client money on its
consolidated balance sheet. However, the Group deposits client money in interest-bearing accounts and recognises the
interest component as finance income in the Group’s consolidated income statement. The Group takes all practical and
reasonable measures to identify the ownership of the funds and to trace and return funds in a timely manner. Historically,
balances that remained untraceable and were more than six years old were recognised in the Group’s consolidated income
statement as other income and an indemnity was put in place by Countrywide Group plc to the underlying subsidiary entities
to ensure that any claims arising subsequently on these funds would be met by the Countrywide Group plc. In practice, less
than 1% of the funds released have ever been claimed and paid out.
At the half year, following a management review of client accounting, and having received legal advice on the treatment of
such funds, the Group understood that some of these historical and untraceable funds arising from the Lettings business for
the period from 2008-2017 should be held in trust under a separate client account. A liability of £4,681,000 in respect of certain
untraceable funds for such period was therefore recognised in the Group’s balance sheet in the 2018 condensed consolidated
interim report, £4,456,000 of which was recognised as a prior year error correction, along with a related reduction in retained
earnings net of deferred tax. These funds were transferred into a separate client account in August 2018.
Having received further legal advice in the second half of 2018, the Group now understands that all of these historical and
untraceable funds arising from the Lettings business for the period from 2008-2017 should be held in trust under a separate
client account. As a result, management has transferred an additional £5,185,000 into a separate client account in December
2018 in full restitution of these client funds. This further advice during the latter part of 2018 has caused a change in the
accounting estimate taken at 30 June 2018, and given the magnitude of the increase in charge, this has been treated as an
exceptional cost.
Financing costs
Following the revolving credit facility amendment undertaken on 2 February 2018, previously capitalised financing fees (net of
amortisation to date) of £1,573,000 were written off. Fees relating to this amendment were simultaneously capitalised. As part
of the wider balance sheet refinancing, a subsequent amendment was made to the revolving credit facility and therefore in
August 2018, fees capitalised in February 2018 (net of amortisation charged in the six months) amounting to £647,000 were
also written off. (Fees incurred in relation to the August 2018 amendment of the revolving credit facility, amounting to
£2,145,000 have been capitalised and will be amortised over the period to September 2022).
In addition, costs of £4,269,000 were also incurred in relation to professional fees provided in respect of work undertaken to
restructure the Group’s borrowing and raise equity finance. Costs of £8,481,000 which were directly attributable to the equity
raise have been offset against share premium (see note 26). Other costs incurred as part of the wider refinancing project, and
specifically in relation to restructuring of borrowing, including professional fees provided in respect of work undertaken to
potentially restructure the Group’s borrowing which were then expensed as abortive fees, amounting to £4,269,000 have
been treated as exceptional financing costs.
These financing costs have been treated as exceptional due to the size of the fees, but also in relation to the non-recurrent
costs which have been incurred in relation to refinancing the business to facilitate the financial flexibility to undertake the
turnaround transformation.
2017
Exceptional costs
Strategic and restructuring costs
During 2017 the Group commenced a strategic transformation agenda for the fundamental turnaround of the business, which is
expected to take place over a period of three years, resulting in a number of exceptional costs in relation to the project and
related restructuring costs. The principal elements are:
• £4,405,000 relating to redundancy costs and changes to the leadership structure that occurred during the year to progress
the achievement of the appropriate organisational structure;
• £1,655,000 in respect of third party consultancy costs, for a number of different projects scoped to tackle cost optimisation
targets and related strategic initiatives which are being project managed centrally and routinely reporting progress to the
Group Executive Committee; and
• £1,861,000 of property closure costs, comprising: £1,515,000 of property provisions costs, in respect of dilapidations and
onerous contract costs in respect of additional premises identified and closed during the period arising from further review,
along with £346,000 of associated property closure costs.
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Notes to the financial statements continued
10. Exceptional items continued
Impairment charges
In addition, the Group incurred the following impairment charges, deemed to be exceptional given their size, arising from the
annual impairment review of goodwill and indefinite life intangible assets, and the associated review of other intangible and
tangible fixed assets impacted by the impairment review:
• £192,253,000 in respect of goodwill associated with: the UK cash generating unit of £151,295,000 and the London cash
generating unit of £40,958,000 following an assessment of the recoverable value against the carrying value (see note 14(a));
• £12,871,000 in respect of brand names associated with: the UK cash generating unit of £8,425,000 (reflecting partial
impairments of Slater Hogg & Howison and Blundell Property Services) and the London cash generating unit of £4,446,000
following an assessment of the recoverable value against the carrying value (see note 14(b));
• £5,278,000 in respect of customer contracts associated with: the UK cash generating unit of £4,075,000; the London cash
generating unit of £1,103,000; and the Professional Services (B2B) cash generating unit of £100,000 following an assessment
of the recoverable value against the carrying value (see note 14(b)); and
• £4,084,000 in respect of other non-current assets: £2,669,000 intangible fixed assets (computer software) and £116,000
tangible fixed assets (related computer hardware) associated with the UK cash generating unit, and £734,000 tangible fixed
assets associated with the London cash generating unit following an assessment of the recoverable value against the
carrying value (the London write-down arising as a result of impairments identified exceeding the intangible asset carrying
values); and £565,000 write-off of an available-for-sale investment following the commencement of administration
proceedings against the available-for-sale investment (see notes 14(b), 15 and 16(c)).
In addition, impairment charges of £1,641,000 have been made against the carrying value of trade receivables. These impairments
relate to assets recognised in prior periods, dating back as far as 2013, where circumstances in relation to collectability have
changed during the year and principally relate to a portfolio of debts within a business acquired during 2015, now operating as
part of Countrywide Residential Development Solutions (B2B). This cost has been treated as exceptional due to the age of the
debt and materiality of the impairment.
Professional indemnity provisions
During 2017 the Group received reduced numbers of professional indemnity valuation claims, in line with expectations, and
achieved closure of a number of challenging cases. Estimating the liability for PI claims is highly judgemental and we updated
our financial models to reflect the latest inputs and trends and took advice from our panel of lawyers in respect of open claims.
The judgemental nature of the provision, and progress made during the year on some individually significant claims, aligned
with the low level of claims made, would have provided progress on unwinding the provision. However, an individually
significant claim has resulted in the need to increase the provision by £1,821,000. This has been treated as an exceptional
cost due to the materiality of the item.
11. Taxation
Analysis of (credit)/charge in year
Current tax on profits for the year
Adjustments in respect of prior years
Total current tax
Deferred tax on profits for the year
Origination and reversal of temporary differences
Adjustments in respect of prior years
Total deferred tax (note 24)
Income tax credit
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
Tax on items charged to equity
Deferred tax adjustment arising on share-based payments
Tax on items credited/(charged) to other comprehensive income
Deferred tax adjustment arising on pension scheme assets and liabilities
Deferred tax adjustment arising on cash flow hedge
2018
£’000
–
(1,140)
(1,140)
2017
(Restated)1
£’000
1,605
(30)
1,575
(34,353)
(6,293)
975
(33,378)
(34,518)
902
(5,391)
(3,816)
2018
£’000
2017
£’000
(90)
(10)
32
(63)
690
(410)
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Countrywide plc
11. Taxation continued
The tax charge for the year differs (2017: differs) from the standard rate of corporation tax in the UK of 19% (2017: 19.26%).
The differences are explained below:
Loss before taxation
Loss multiplied by the rate of corporation tax in the UK of 19% (2017: 19.26%)
Effects of:
Losses/(profits) from joint venture
Tax relief on contingent consideration
Other expenses not deductible
Permanent difference relating to depreciation not deductible
Tax relief on purchased goodwill
Tax relief on share-based payments charged to equity
Losses not provided/(unprovided losses utilised)
Adjustments in respect of prior years
Overseas losses
Total taxation credit
2018
£’000
2017
(Restated)1
£’000
(252,673)
(211,159)
(48,008)
(40,669)
288
1,156
1,594
448
9,199
151
765
(165)
54
(133)
1,028
278
218
34,839
168
(430)
872
13
(34,518)
(3,816)
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
The tax rate for the current year is lower than the prior year due to changes in the UK corporation tax rate, which decreased
from 20% to 19% from 1 April 2017.
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2016 (on 6 September 2016).
These include reductions to the main rate, to reduce the rate to 17% from 1 April 2020. Deferred taxes at the balance sheet
date have been measured using these enacted rates and reflected in these financial statements.
The relevant deferred tax balances have been remeasured using rates applicable to when the balances are expected to
unwind. There are no material uncertain tax positions.
12. Dividends
Dividends (interim and final)
2018
£’000
–
2017
£’000
–
The directors do not recommend the payment of a final dividend in respect of the year ended 31 December 2018.
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Notes to the financial statements continued
13. Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss attributable to equity holders of the Company by the
weighted average number of ordinary shares of Countrywide plc.
Loss for the year attributable to owners of the parent
Weighted average number of ordinary shares in issue
Basic and diluted loss per share (in pence per share)
2018
£’000
2017
(Restated)1
£’000
(218,155)
(207,343)
707,628,836 232,317,964
(30.83)p
(89.25)p
For diluted earnings per share, the weighted average number of ordinary shares in existence is adjusted to include all dilutive
potential ordinary shares arising from share options.
Adjusted earnings
Loss for the year attributable to owners of the parent
Adjusted for the following items, net of taxation:
Amortisation arising on intangibles recognised through business combinations
Contingent consideration
Share-based payments charge
Exceptional income
Exceptional costs
Adjusted earnings, net of taxation
Adjusted basic and diluted earnings per share (in pence per share)
2018
£’000
2017
(Restated)1
£’000
(218,155)
(207,343)
4,006
6,181
1,380
(135)
211,190
4,467
0.63p
4,127
4,202
1,465
–
217,755
20,206
8.70p
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
As there is a loss in 2018 and in the comparative year, the diluted EPS is not presented on the basis that this is equal to the
basic loss per share.
14. Intangible assets
(a) Goodwill
Cost
At 1 January
Arising on acquisitions
At 31 December
Accumulated impairment (note 14(c))
At 1 January
Impairment (note 10)
At 31 December
Net book amount
At 31 December
2018
£’000
2017
£’000
908,669
908,669
160
–
908,829
908,669
629,173
45,836
675,009
436,920
192,253
629,173
233,820
279,496
Goodwill impairment charges of £14,045,000 (2017: £151,295,000), £30,770,000 (2017: £40,958,000) and £1,021,000 (2017: £Nil)
have been made in relation to the UK, London and B2B-Commercial cash generating units respectively following an
assessment of the recoverable value against the carrying value. These charges have been included within exceptional items
(note 10).
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14. Intangible assets continued
(b) Other intangible assets
Cost
At 1 January
Additions
Disposals
At 31 December
Accumulated amortisation and impairment losses
(note 14(c))
At 1 January
Charge for the year
Impairment (note 10)
On disposals
At 31 December
Net book amount
At 31 December
Computer
software
£’000
Brand
names
£’000
2018
Customer
contracts and
relationships
£’000
Other
intangibles
£’000
Total
£’000
72,964
232,015
131,232
403
436,614
6,514
(5,215)
–
–
–
–
–
–
6,514
(5,215)
74,263
232,015
131,232
403
437,913
56,524
54,199
105,142
7,354
4,861
(5,192)
63,547
1,7201
126,192
–
3,1751
9,605
–
91
511
–
–
215,956
12,300
140,658
(5,192)
182,111
117,922
142
363,722
10,716
49,904
13,310
261
74,191
1. The columnar approach of our income statement separates £4,946,000 from total depreciation and amortisation. This is in respect of amortisation of
acquired intangibles as detailed in the table above.
Computer software includes the following amounts where the Group is a lessee under a finance lease:
Cost – capitalised finance lease
Accumulated amortisation and impairment
Net book amount
Cost
At 1 January
Additions
Disposals
At 31 December
Accumulated amortisation and impairment losses
(note 14(c))
At 1 January
Charge for the year
Impairment (note 10)
On disposals
At 31 December
Net book amount
At 31 December
2018
£’000
6,969
(6,494)
475
2017
£’000
6,381
(4,360)
2,021
Computer
software
£’000
Brand
names
£’000
2017
Customer
contracts and
relationships
£’000
Other
intangibles
£’000
Total
£’000
66,860
232,015
131,232
403
430,510
7,577
(1,473)
–
–
–
–
–
–
7,577
(1,473)
72,964
232,015
131,232
403
436,614
44,724
10,503
2,669
(1,372)
41,328
–
12,871
–
94,108
5,7561
5,278
–
56,524
54,199
105,142
40
511
–
–
91
180,200
16,310
20,818
(1,372)
215,956
16,440
177,816
26,090
312
220,658
1. The columnar approach of our income statement separates £5,807,000 from total depreciation and amortisation. This is in respect of amortisation of
acquired intangibles as detailed in the table above.
All amortisation and impairment charges are treated as an expense in the income statement.
In our 2017 annual report we noted that, in light of the impairment charges triggered against brand names in the previous two
years, as part of our wider turnaround plan, we would undertake an assessment in 2018 to reassess our brand strategy and the
related impact on the useful economic life of our brand names currently held as indefinite.
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Notes to the financial statements continued
14. Intangible assets continued
(b) Other intangible assets continued
During 2018 management concluded its review of our brand portfolio and, as a result of the changing competitive landscape
and the Group’s internal strategy, undertook a brand name impairment review as at 30 June 2018 which resulted in impairment
charges against brand names associated with the UK and London cash generating units. Finite lives of 15 years have been
assigned to each of the remaining brand names held on the balance sheet at 30 June 2018. Amortisation commenced
from 1 July 2018.
The assessment of recoverable value against carrying value resulted in the following impairment charges at 30 June 2018:
£126,192,000 against brand names associated with the UK (£58,270,000) and London (£67,922,000) cash generating units;
£9,605,000 against customer contracts and relationships associated with the UK (£6,377,000) and London (£3,228,000) cash
generating units; £4,861,000 against computer software associated with the UK cash generating unit (£2,379,000) and Head Office
(£2,482,000); and a further £24,520,000 against other tangible assets (UK: £17,779,000; Head Office: £6,741,000) (the Head Office
write-downs as a result of impairments identified exceeding the intangible and tangible asset carrying values within the UK cash
generating unit, triggering an impairment of the assets within Head Office supporting the UK cash generating unit). Tangible fixed
assets of £717,000 associated with the office in London that had been identified for closure (noted above) were impaired during the
year. These charges have been included within exceptional items (note 10).
The carrying amounts of various brand names owned by the Group are disclosed below:
Brand names
Lambert Smith Hampton
Hamptons International
John D Wood
Bairstow Eves
Taylors Estate Agents
Mann & Co
Blundell Property Services
Slater Hogg & Howison
Other brands
Net book value
2018
£’000
2017
£’000
27,431
11,194
3,265
2,054
–
–
–
–
43,944
5,960
49,904
28,377
58,774
14,464
17,173
10,071
5,462
4,654
3,652
142,627
35,189
177,816
(c) Impairment
Cash generating units (CGUs) represent the smallest identifiable group of assets that generate cash flows that are largely
independent of cash flows from other groups of assets. In accordance with internal management structures, the group of CGUs
against which goodwill is monitored comprise UK, London and Financial Services, with the B2B business unit being split further
into Professional Services, Countrywide Residential Development Solutions and Commercial. In many cases the operations of
the acquired businesses have been fully integrated with existing businesses and consequently the economic flows are not
monitored at a lower level than the CGUs identified for goodwill impairment review. Where necessary, assets have been
reallocated to the goodwill-level CGUs that are expected to benefit from the business combination in which the goodwill arose
as follows:
2018
Goodwill
UK
£’000
–
London
£’000
Financial
Services
£’000
Professional
Services
£’000
B2B CGUs
Countrywide
Residential
Development
Solutions
£’000
Commercial
£’000
Total
£’000
–
89,885
133,050
2,111
8,774
233,820
2017
Goodwill
Indefinite life intangible assets
UK
£’000
14,045
58,270
72,315
London
£’000
30,770
85,815
116,585
Financial
Services
£’000
Professional
Services
£’000
89,885
132,890
4,343
–
94,228
132,890
B2B CGUs
Countrywide
Residential
Development
Solutions
£’000
2,111
1,011
3,122
Commercial
£’000
9,795
28,377
38,172
Total
£’000
279,496
177,816
457,312
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14. Intangible assets continued
(c) Impairment continued
Under IAS 36 ‘Impairment of assets’, the Group is required to:
• review its intangible assets in the event of a significant change in circumstances that would indicate potential impairment;
and
• review and test its goodwill and indefinite life intangible assets annually or in the event of a significant change in
circumstances.
June 2018 impairment review
Management performed an impairment review in June 2018 in accordance with IAS 36 ‘Impairment of assets’ by comparing
the carrying value of each CGU against its recoverable amount.
Recoverable amount
The recoverable amount of each CGU is based on its value in use which is calculated by discounting pre-tax cash flow
projections derived from formally approved strategic budgets and forecasts. For each of the CGUs with significant amounts
of goodwill, the key assumptions used in the value in use calculation are set out below.
Cash flows
Cash flow projections for each CGU were based on the latest 2018 forecast and three-year plan covering the period from
2018 to 2021 that had been endorsed by the Board. Growth rates and other assumptions applied within the strategic plan
were based on past experience, market data and expectation of future market outlook and development. UK housing market
volumes were assumed to remain flat over the period from 2018 to 2021. UK mortgage market volumes were assumed to grow
by 4.2% in 2019, followed by 2% in each of 2020 and 2021. UK survey market volumes were assumed to remain flat over the
period from 2018 to 2021.
Terminal growth rate
For the purpose of the impairment review, cash flows beyond the period of the plan ending 2021 were extrapolated using
a terminal value which included a growth rate of 1% into perpetuity.
Discount rate
Cash flows were discounted using pre-tax discount rates of between 12.0% and 12.3%, reflecting the weighted average cost
of capital assigned to each CGU.
Outcome of impairment review
Whilst significant progress had been made with the strategy and turnaround plan during the six months ended 30 June 2018,
the review resulted in further impairment charges. This impairment was a function of the reset of the strategy and the
fundamental review of the Sales and Lettings business since the conclusion of the 2018 business planning process that
underpinned the 2017 impairment review.
Goodwill
The goodwill impairment review concluded that impairment charges of £44,815,000 were appropriate against goodwill held
by the UK (£14,045,000) and London (£30,770,000) CGUs respectively (see note 10), resulting in goodwill held by both of the
CGUs being impaired in full.
The review further concluded that the recoverable amount for all other CGUs to which goodwill was allocated exceeded their
respective carrying values, resulting in no further indication of impairment.
Indefinite-life intangible assets
An impairment review was performed on indefinite-life intangible assets at 30 June 2018 using assumptions that were
consistent with the goodwill impairment review. The combined goodwill and indefinite-life intangible assets impairment
reviews identified impairment charges of £126,192,000 against brand names held within the UK (£58,270,000) and London
(£67,922,000) cash generating units (see note 10).
Other intangible and tangible assets
The goodwill impairment review resulted in further impairment charges of £9,605,000 against customer contracts and
relationships held against the UK (£6,377,000) and London (£3,228,000) cash generating units respectively. In addition,
impairment charges of £4,861,000 were made against computer software associated with the UK cash generating unit
(£2,379,000) and Head Office (£2,482,000), and a further impairment charge of £24,520,000 was taken against other tangible
assets (UK: £17,779,000; Head Office: £6,741,000) (the Head Office write-downs as a result of impairments identified exceeding
the intangible and tangible asset carrying values within the UK cash generating unit, triggering an impairment of the assets
within Head Office supporting the UK cash generating unit). Tangible fixed assets of £717,000 associated with the central
functions head office in London that had been identified for closure were impaired during the period. These charges have
been included within exceptional items (note 10).
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Notes to the financial statements continued
14. Intangible assets continued
December 2018 impairment review
The annual 2018 impairment review was performed in accordance with IAS 36 ‘Impairment of assets’ by comparing the carrying
amount of each CGU against its recoverable amount.
Recoverable amount
The recoverable amount of each CGU is based on its value in use which is calculated by discounting pre-tax cash flow
projections derived from formally approved strategic budgets and forecasts. For each of the CGUs with significant amounts
of goodwill, the key assumptions used in the value in use calculation are set out below.
Cash flows
Cash flow projections for each CGU are based on the three-year plan covering the period from 2019 to 2021 that has been
endorsed by the Board. Growth rates and other assumptions applied within the strategic plan are based on past experience,
market data and expectation of future market outlook and development. UK housing market volumes are to remain flat over
the period from 2019 to 2021 with average house price increases of 2% per annum. Average lettings fees are assumed to
remain flat over the same period. UK mortgage market volumes are assumed to grow by 4.2% in 2019, followed by 2% in each
of 2020 and 2021. UK survey market volumes are assumed to remain flat over the period from 2019 to 2021.
The 2017 impairment review was based on cash flows from the strategic budget covering the period from 2018 to 2020.
Growth rate
For the purpose of the impairment review, cash flows beyond the period of the plan ending 2021 are extrapolated using a
terminal value which includes a growth rate of 1% into perpetuity. The 2017 impairment review assumed nil growth for 2021, with
cash flows extending beyond this date extrapolated using a terminal value that included a growth rate of 0% into perpetuity.
Discount rate
Cash flows have been discounted using pre-tax discount rates of between 11.8% and 12.4%, reflecting the weighted average
cost of capital assigned to each CGU.
The 2017 impairment review used discount rates of between 10.3% and 10.5%.
Outcome of impairment review
Goodwill
The December 2018 goodwill impairment review concluded that an impairment charge of £1,021,000 was appropriate against
goodwill held by the B2B – Commercial CGU (see note 10). The recoverable amounts for all other CGUs to which goodwill is
allocated exceeded their respective carrying values, resulting in no further indication of impairment in addition to the charges
taken in June 2018 (December 2017: £192.3m).
Cumulative impairments, including the goodwill, brand names, customer contracts and relationships, and computer software
impairments identified during the current year, combined with previous impairments, amount to the following:
Brand
names
£’000
Customer
contracts &
relationships
£’000
Computer
software
£’000
Total
£’000
Goodwill
£’000
388,441
131,160
114,387
40,000
1,021
101,897
78,494
–
–
–
10,452
4,331
–
100
–
675,009
180,391
14,883
–
–
–
675,009
180,391
14,883
5,053
505,843
1
–
10,500
–
15,554
2,482
18,036
213,986
114,387
50,600
1,021
885,837
2,482
888,319
Cash generating unit
UK
London
Financial Services
B2B – Professional Services
B2B – Commercial
Total cash generating units
All other segments
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Countrywide plc
14. Intangible assets continued
Sensitivity analysis
A range of assumptions with varying significance drive the 2018 value in use models used for the impairment reviews.
CGU recoverable amounts are most sensitive to the following key assumptions:
• Delivery of the turnaround strategy;
• Continued growth in B2B and Financial Services; and
• Delivery of overhead reduction and cost efficiency.
A change in the above assumptions, for example, non-delivery of the turnaround strategy, lack of growth in B2B and
Financial Services, or non-delivery of overhead reduction and cost efficiency, would result in lower CGU adjusted EBITDA.
In order to quantify the impact of the above risks on the goodwill impairment review, management modelled three
separate scenarios:
• 10% reduction to adjusted EBITDA from operating cash flows, but keeping all other cash flows such as capital investment
in line with the strategic plan;
• 10% increase in pre-tax discount rate; and
• terminal growth rate of 0% into perpetuity (1% in the base case)
The following table sets out the sensitivity of all CGUs that hold goodwill to possible changes in key assumptions:
Goodwill
10% reduction to adjusted EBITDA
10% increase in pre-tax discount rate
Terminal growth rate of 0% into perpetuity
Financial Services
CGU
£’000
Reduction in discounted cash flows
B2B-Professional
Services
CGU
£’000
B2B- Countrywide
Residential Development
Solutions CGU
£’000
B2B-Commercial
CGU
£’000
(21,910)
(15,869)
(14,307)
(44,493)
(35,848)
(32,260)
(2,450)
(1,348)
(1,202)
(11,111)
(4,742)
(4,275)
The above scenarios indicate further impairment in the B2B – Commercial CGU, but mitigating actions are available should any
of the scenarios arise. The sensitivity analysis does not indicate impairment in any other CGU.
In 2017 management modelled sensitivity analyses, including a 10% reduction to adjusted EBITDA from operating cash flows, an
increase of 10% in the discount rate of 10.3-10.5% and incorporating a terminal growth rate of 1% into perpetuity. The sensitivity
analyses concluded that the first two scenarios would result in additional impairment charges against both goodwill and other
intangible assets with indefinite lives in each of the UK and London CGUs.
15. Property, plant and equipment
Cost
At 1 January
Additions at cost
Disposals
At 31 December
Accumulated depreciation
At 1 January
Charge for the year
Impairment (note 10)
Disposals
At 31 December
Net book amount
At 31 December
2018
Freehold
Land and
buildings
£’000
Leasehold
improvements
£’000
Motor
vehicles
£’000
1,922
34,738
–
–
1,834
(208)
1,922
36,364
367
10
1,467
–
1,844
16,558
3,460
14,211
(208)
34,021
197
2
(56)
143
2
39
139
(41)
139
Furniture
and
equipment
£’000
55,805
1,772
(16,253)
41,324
33,937
6,653
12,009
(16,253)
36,346
Total
£’000
92,662
3,608
(16,517)
79,753
50,864
10,162
27,826
(16,502)
72,350
78
2,343
4
4,978
7,403
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Notes to the financial statements continued
15. Property, plant and equipment continued
Cost
At 1 January
Additions at cost
Disposals
Reclassification1
Transfers
At 31 December
Accumulated depreciation
At 1 January
Charge for the year
Impairment (note 10)
Disposals
Reclassification1
At 31 December
Net book amount
At 31 December
Freehold
Land and
buildings
£’000
Leasehold
improvements
£’000
Motor
vehicles
£’000
Furniture
and
equipment
£’000
Assets in the
course of
construction
£’000
2017
1,922
34,251
–
–
–
–
962
(210)
(4,271)
4,006
937
6
(746)
–
–
43,792
7,859
(256)
4,271
139
1,954
2,191
–
–
(4,145)
1,922
34,738
197
55,805
351
16
–
–
–
367
14,652
6,186
18
(27)
(4,271)
16,558
330
150
–
(478)
–
2
18,078
10,828
832
(72)
4,271
33,937
1,555
18,180
195
21,868
–
–
–
–
–
–
–
–
Total
£’000
82,856
11,018
(1,212)
–
–
92,662
33,411
17,180
850
(577)
–
50,864
41,798
1. Assets with a £nil net book value were reclassified during the year following a review of the fixed asset registers of legacy acquisitions to align with the
accounting policy classifications within the Group.
The June 2018 assessment of the recoverable values of cash generating units (CGUs) against their carrying values resulted
in an impairment of £24,520,000 against tangible fixed assets held within the UK CGU (£17,779,000) and against Head Office
tangible fixed assets (£6,741,000) (the Head Office write-down as a result of impairments identified exceeding the intangible
asset carrying values within the UK cash generating unit triggering an impairment of the assets within Head Office supporting
the UK CGU). Tangible fixed assets of £717,000 associated with the central functions head office in London that had been
identified for closure were also impaired.
Review of the recoverable amount of property, plant and equipment during the second half of the year resulted in a further
impairment charge of £2,589,000 against furniture and equipment. These charges have been included within exceptional
items (note 10).
In 2017, an assessment of the recoverable values of CGUs against their carrying values resulted in an impairment of £116,000
against tangible fixed assets held within the UK CGU and an impairment of £734,000 against tangible fixed assets held within
the London CGU (see note 10).
Furniture and equipment includes the following amounts in respect of computer hardware where the Group is a lessee under
a finance lease:
Cost – capitalised finance lease
Accumulated depreciation
Net book amount
2018
£’000
6,967
(6,192)
775
2017
£’000
16,497
(11,176)
5,321
The Group leases various assets, principally computer hardware and related costs, under finance lease agreements whose
terms are between two and three years.
Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred, relating to 2018 and the subsequent
year, is as follows:
Property, plant and equipment
Computer software
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Countrywide plc
2018
£’000
1,295
5,805
7,100
2017
£’000
1,962
–
1,962
16. Investments
(a) Principal subsidiary undertakings of the Group
The Company substantially owns directly or indirectly the whole of the issued and fully paid ordinary share capital of its
subsidiary undertakings, most of which are incorporated in Great Britain, and whose operations are conducted in the United
Kingdom. Principal subsidiary undertakings of the Group at 31 December 2018 are presented below:
Proportion of
ordinary shares
held by
parent
%
Proportion of
ordinary shares
held by
the Group
%
Country of
incorporation
Subsidiary
Countrywide Group plc
Balanus Limited
Sales and Lettings
Nature of business
Holding company
Holding company
Countrywide Estate Agents
Estate Agency and Lettings
B2B
Lambert Smith Hampton Limited
Holding company
Lambert Smith Hampton Group Limited
Property consultancy
Lambert Smith Hampton Limited (N Ireland)
Property consultancy
UK
UK
UK
UK
UK
UK
Lambert Smith Hampton Limited (Ireland)
Property consultancy
Ireland
Lambert Smith Hampton Investment Management
Limited
Investment brokerage
Countrywide Surveyors Limited
Surveying Services
Countrywide Property Lawyers Limited
Conveyancing Services
TitleAbsolute Limited
Financial Services
Countrywide Principal Services Limited
The Buy To Let Business Limited
Mortgage Bureau Limited
Slater Hogg Mortgages Limited
Mortgage Intelligence Limited
Mortgage Next Limited
Mortgage Next Network Limited
Capital Private Finance Limited
Life and Easy Limited
Conveyancing Services
Financial Services
Financial Services
Financial Services
Financial Services
Financial Services
Financial Services
Financial Services
Financial Services
Financial Services
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
A full list of subsidiary undertakings and their registered addresses at 31 December 2018 is included within the appendix.
The appendix on pages 156 to 162 forms part of these financial statements.
(b) Interests in joint venture
TM Group (UK) Limited
At 31 December 2018 the Group had a 33% (2017: 33%) interest in the ordinary share capital of TM Group (UK) Limited (TMG), a
UK company. TMG has share capital consisting solely of ordinary shares and is a private company with no quoted market price
available for its shares. TMG is one of the largest companies in the provision of searches to the property companies sector
(measured by completed searches). It delivers a range of property searches and data to land and property professionals in the
UK, arranges for property searches directly with specific suppliers on behalf of its own customers, and supplies IT applications
and products to UK mortgage lenders.
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Notes to the financial statements continued
16. Investments continued
(b) Interests in joint venture continued
There are no outstanding commitments or contingent liabilities relating to the Group’s interest in the joint venture.
During the year, TMG was a joint venture company.
At 1 January:
Net assets excluding goodwill
Goodwill
Share of (losses)/profits retained
At 31 December:
Net assets excluding goodwill
Goodwill
2018
£’000
2017
£’000
1,502
1,480
2,982
(1,518)
(16)
1,480
1,464
812
1,480
2,292
690
1,502
1,480
2,982
The summarised financial information of TM Group (UK) Limited, which is accounted for using the equity method, is presented below:
Cash and cash equivalents
Other current assets (excluding cash)
Total current assets
Non-current assets
Current liabilities
Net (liabilities)/assets
Net (liabilities)/assets adjusted for the percentage of ownership
Income
Depreciation
Expenses (excluding depreciation)
Interest income
Post-tax results
Share of post-tax results
There is no other comprehensive income arising in the joint venture in either year.
(c) Financial assets previously classified as available-for-sale financial assets
At 1 January
Movement in fair value
Impairment of unlisted equity
Amortisation
At 31 December
Available-for-sale financial assets, which are all Sterling denominated, include the following:
Unlisted residential property fund units
Unlisted equity
Debentures (acquired and amortised over the life of the debenture)
At 31 December
2018
£’000
1,157
5,109
6,266
4,730
2017
£’000
4,176
2,692
6,868
1,088
(11,044)
(3,450)
(48)
(16)
4,506
1,502
56,276
60,645
(341)
(372)
(60,507)
(58,219)
18
(4,554)
(1,518)
16
2,070
690
2018
£’000
–
–
–
–
–
2018
£’000
–
–
–
–
2017
£’000
16,058
1,627
(565)
(35)
17,085
2017
£’000
15,766
1,232
87
17,085
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16. Investments continued
d) Financial assets at fair value through profit or loss
At 1 January1
Disposal of unlisted residential property fund units
Acquisition of shares in unlisted equity
Impairment of unlisted equity
At 31 December
2018
£’000
16,998
(15,766)
1,300
(2,379)
153
1. Debentures (2017: £87,000) have been reclassified as prepayments in 2018.
Financial assets at fair value through profit or loss, which are all Sterling denominated, include the following:
Unlisted equity
At 31 December
2018
£’000
153
153
2017
£’000
–
–
–
–
–
2017
£’000
–
–
During the year, the Group disposed of its interest in unlisted residential property fund units (31 December 2017: £15,766,000)
for proceeds of £15.8 million and disposed of unlisted equity that had previously been fully impaired for proceeds of £141,000.
During the year, the Group acquired a 49% interest in the ordinary share capital of Dynamo Mortgages Limited, trading as
Dynamo, a direct to consumer digital mortgage offering that the Group recently developed and launched with its joint venture
partner Blenheim Chalcott. The key performance indicators in the business plan were not being achieved and as a result the
venture has been wound up, with the investment of £1,300,000 being fully impaired. In addition, two legacy property
technology investments which have continued to underperform have also been written off, resulting in an impairment of
£1,079,000. These impairments have been treated as exceptional items and are disclosed in note 10.
17. Trade and other receivables
Amounts falling due within one year
Trade receivables not past due
Trade receivables past due but not impaired
Trade receivables past due but impaired
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Amounts due from customers for contract work
Other receivables
Prepayments
Accrued income
Corporation tax asset
2018
£’000
2017
(Restated)1
£’000
45,510
14,514
5,157
65,181
(5,157)
60,024
776
4,036
16,192
7,329
460
43,018
25,900
4,211
73,129
(4,211)
68,918
2,155
5,311
19,540
8,628
1,230
88,817
105,782
1. Restated from prior year following the adoption of IFRS 15 (see note 2).
Trade and other receivables are all current and any fair value difference is not material. Trade receivables are considered past
due once they have passed their contracted due date. Trade receivables are reviewed for impairment by taking into account
the historical default experience and the financial position of the counterparties to estimate the likelihood of default. Trade
receivables are written off when there is no reasonable expectation of recovery. Further information in respect of financial
assets, including credit risk, is provided in note 31.
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Notes to the financial statements continued
17. Trade and other receivables continued
As at 31 December 2018, trade receivables of £14,514,000 (2017: £25,900,000) were past due but not impaired. These relate to a
number of customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
Less than three months
Over three months
2018
£’000
12,568
1,946
14,514
2017
£’000
12,579
13,321
25,900
Trade and other receivables are denominated in Pounds Sterling with the exception of £622,000 (2017: £944,000) which is
receivable in Euros (2017: Euros).
A summary of the movement in the provision for impairment of receivables is detailed below:
At 1 January
IFRS 9 opening transition provision (note 2)
Additional provisions (notes 7 and 10)
Amounts utilised
At 31 December
2018
£’000
4,211
1,202
2,905
(3,161)
5,157
2017
£’000
3,421
–
1,679
(889)
4,211
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above.
The Group does not hold any collateral as security.
18. Cash and cash equivalents
Cash and cash equivalents
Cash at bank and in hand
The following amounts were held in foreign currencies:
Hong Kong Dollars
Euros
19. Trade and other payables
Trade payables
Deferred consideration
Other tax and social security payable
Accruals and other payables (including contingent consideration)
Trade and other payables due within one year
Trade and other payables due after one year
2018
£’000
2017
£’000
17,426
22,533
2018
£’000
46
212
258
2018
£’000
14,620
2,721
17,341
23,581
50,155
91,077
81,146
9,931
91,077
2017
£’000
102
125
227
2017
(Restated)1
£’000
20,461
3,550
24,011
25,065
58,939
108,015
99,720
8,295
108,015
1. Restated from prior year following the correction of a prior year error (see note 2).
The principal components of trade and other payables due after one year are: deferred and contingent consideration payments
of £9,763,000 (2017: £7,921,000); and accrued National Insurance share-based payment charges of £168,000 (2017: £374,000).
Deferred consideration falls due: £1,450,000 within one year; and £1,271,000 after one year. Contingent consideration accrued
falls due: £3,748,000 within one year; and £8,492,000 after one year.
The fair value of financial liabilities approximates their carrying value due to short maturities. Financial liabilities are denominated in
Pounds Sterling with the exception of £37,000 (2017: £24,000) which is receivable in Euros (2017: Hong Kong Dollars and Euros).
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20. Borrowings
Non-current
Bank borrowings
Other loans
Capitalised banking fees
Finance lease liabilities
Current
Other loans
Finance lease liabilities
Total borrowings
Analysis of net debt
Cash and cash equivalents
Capitalised banking fees
Other loans
2018
£’000
2017
£’000
85,000
210,000
1,000
(1,966)
398
2,840
(1,700)
2,349
84,432
213,489
1,993
1,670
3,663
–
1,011
1,011
88,095
214,500
At
1 January
2018
£’000
22,533
1,700
(2,840)
Cash flow
£’000
(5,107)
3,028
–
Non-cash
changes
£’000
–
(2,762)
(153)
At
31 December
2018
£’000
17,426
1,966
(2,993)
Revolving credit facility due after one year
(210,000)
125,000
–
(85,000)
Finance leases due after one year
Finance leases due within one year
Total net debt, as previously reported
Restatement of debt arising from prior year correction (note 2)
Total
(2,349)
(1,011)
–
2,087
(191,967)
125,008
(4,456)
4,456
1,951
(2,746)
(3,710)
–
(398)
(1,670)
(70,669)
–
(196,423)
129,464
(3,710)
(70,669)
Borrowings and other loans
At the year end, the facility was a £125 million revolving credit facility, with any outstanding balance repayable in full on 30 September
2022. Interest was payable based on LIBOR plus a margin of 3.0%. The margin is linked to the leverage ratio of the Group and the
margin rate is reviewed twice a year (and can vary between 1.75% and 3.0%). The RCF is available for utilisation subject to satisfying
fixed charge, interest cover and leverage covenants and £125 million was repaid during the year (against a facility of up to £340 million
at 31 December 2017, revised to £275 million at 2 February 2018 and revised to £125 million at 2 August 2018).
On 2 August 2018 the Company agreed an amendment and extension relating to the RCF, originally dated 20 March 2013, which
was due to expire in March 2020. The RCF is now £125 million, with margin and covenants as disclosed in the Prospectus for our
equity placing in August 2018. Capitalised banking fees are being amortised over the duration of the RCF, until September 2022.
‘Other loans’ disclosed above comprise: £1 million of unsecured loan notes which are non-interest bearing, repayable in 2029,
which arose on the purchase of Mortgage Intelligence Holdings Limited; and loan notes payable to The Buy to Let Group Limited
joint shareholder (49%) and director of £1,590,000 capital and associated interest charges accruing at a rate of 8% per annum
repayable in 2019.
Finance lease liabilities
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.
Gross finance lease liabilities – minimum lease payments:
No later than one year
Later than one year and no later than five years
Greater than five years
Future finance charges on finance lease liabilities
Present value of finance lease liabilities
2018
£’000
1,683
413
–
2,096
(28)
2,068
2017
£’000
1,363
2,507
1
3,871
(511)
3,360
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Notes to the financial statements continued
20. Borrowings continued
Finance lease liabilities continued
The present value of finance lease liabilities is as follows:
No later than one year
Later than one year and no later than five years
21. Derivative financial instruments
Liabilities due after one year
Interest rate swaps – cash flow hedge
2018
£’000
1,670
398
2,068
2018
£’000
–
2017
£’000
1,011
2,349
3,360
2017
£’000
337
The interest rate swap became ineffective at the end of 2017, as forecast drawdowns would no longer be met as we sought to
deleverage the business. The hedge was subsequently terminated in the first half of the year.
22. Deferred income
Deferred income will unwind as follows:
Within one year
After one year:
Between one and two years
Between two and three years
Between three and four years
Between four and five years
2018
£’000
2,143
142
71
26
–
239
2,382
2017
(Restated)1
£’000
2,554
575
78
7
3
663
3,217
1. Restated from prior year following the adoption of IFRS 15 (see note 2).
The Group recognises deferred income as a result of cash received in advance in relation to certain sales distribution
contracts, standard lettings services and lease incentives relating to the Group’s operating leases. The cash received is
amortised over the life of the contracts to which they relate.
23. Provisions
At 1 January
Utilised in the year
Charged to income statement
Credited to income statement
Unwind of discount rate
At 31 December
Due within one year or less
Due after more than one year
1. See exceptional items in note 10.
Onerous contracts1
Closed
property
£’000
3,778
(2,202)
1,453
(82)
15
2,962
1,900
1,062
2,962
Loss making
branches
£’000
–
(651)
4,204
–
40
3,593
1,771
1,822
3,593
2018
Clawback
£’000
Claims and
litigation1
£’000
3,777
15,520
(3,528)
(2,686)
3,781
–
–
4,030
2,502
1,528
4,030
589
(3,926)
–
9,497
4,375
5,122
9,497
Property
repairs1
£’000
5,244
(1,149)
2,755
(99)
–
6,751
5,369
1,382
6,751
Other
£’000
1,119
(995)
495
–
–
619
619
–
619
Total
£’000
29,438
(11,211)
13,277
(4,107)
55
27,452
16,536
10,916
27,452
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23. Provisions continued
At 1 January
Utilised in the year
Charged to income statement
Credited to income statement
At 31 December
Due within one year or less
Due after more than one year
Onerous
contracts1
£’000
5,865
(3,177)
1,090
–
3,778
248
3,530
3,778
Property
repairs1
£’000
6,342
(1,440)
377
(35)
5,244
4,445
799
5,244
2017 (Restated)
Clawback2
£’000
3,933
(3,528)
3,372
–
3,777
2,624
1,153
3,777
Claims and
litigation1
£’000
14,401
(3,677)
6,326
(1,530)
15,520
9,107
6,413
15,520
Other
£’000
1,914
(1,012)
491
(274)
1,119
1,029
90
1,119
Total2
£’000
32,455
(12,834)
11,656
(1,839)
29,438
17,453
11,985
29,438
1. See exceptional items in note 10.
2. Restated from prior year following the adoption of IFRS 15 (see note 2).
The provision for onerous contracts relates to property leases and represents the estimated unavoidable costs of leasehold
properties which have become surplus to the Group’s requirements following the closure or relocation of operations, and
additionally in 2018 in respect of loss making branches. The provision is based on the present value of rentals and other
unavoidable costs payable during the remaining lease period after taking into account rents receivable or expected to be
receivable from sub-lessees, on a case-by-case basis. In relation to closed or relocated operations, these costs are typically
incurred over an average of a two-year period. Provisions are released when properties are assigned or sub-let. With regard
to the loss making branches, these costs unwind over periods up to 2026. Provisions will be unwound in line with the losses
being reported within operating results, or released in full when a branch reaches profitability on turnaround, or ceases to
become an onerous contract due to other circumstances, for example if a branch is sublet or a lease is renegotiated so that
cash flows become positive.
The provision for property repairs represents estimates of the cost to repair existing dilapidations under leasehold covenants
and dilapidation provisions in respect of loss making branches, in accordance with IAS 37 ‘Provisions, contingent liabilities and
contingent assets’. The average unexpired lease length of properties against which a provision has been made is three years.
Clawback provisions represent amounts provided to meet the estimated cost of repaying indemnity commission income
received on life assurance policies that may lapse in the two years following issue and estimated refunds due to customers
in respect of residential lettings services.
Claims and litigation provisions comprise the amounts set aside to meet claims by customers below the level of any professional
indemnity insurance excess, the estimation of IBNR claims and any amounts that might be payable as a result of any legal
disputes. The provisions represent the directors’ best estimate of the Group’s liability having taken professional advice.
In addition to the claims provisions recognised, the Group also provides for future liabilities arising from claims (IBNR) for
mortgage valuation reports and home buyer reports provided by the Surveying Services division. The basis for calculating
this provision is outlined further in note 3. While there are many factors which determine the settlement date of any claims,
the expected cash flows are estimated based on the average length of time it takes to settle claims in the past, which is
around two years.
Other provisions mainly comprise items relating to operational reorganisation including some business closure costs and
some IT transition expenses which are expected to be utilised over the next year.
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Notes to the financial statements continued
24. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17%–19%
(2017: 17%–19%).
The movement on the deferred tax account is shown below:
Net deferred tax liability at 1 January
Change in accounting policy2
Restated net deferred tax liability at 1 January
Credited to income statement
(Charged)/credited to other comprehensive income
Charged to equity
Net deferred tax asset/(liability) at 31 December
Deferred tax asset
Deferred tax liability
Net deferred tax asset/(liability) at 31 December
Deferred tax asset expected to unwind within one year
Deferred tax asset expected to unwind after one year
Deferred tax liability expected to unwind within one year
Deferred tax liability expected to unwind after one year
2018
£’000
2017
(Restated)1
£’000
(22,771)
(28,432)
147
–
(22,624)
(28,432)
33,378
(31)
(90)
10,633
18,389
5,391
280
(10)
(22,771)
10,751
(7,756)
(33,522)
10,633
2,056
16,333
18,389
(1,114)
(6,642)
(7,756)
(22,771)
1,530
9,221
10,751
(986)
(32,536)
(33,522)
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
2. Change in accounting policy following the adoption of IFRS 9 (see note 2).
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred
tax assets to the extent that it is probable that these assets will be recovered through future taxable profits.
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted
by IAS 12) during the year are shown below. Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset and there is an intention to settle the balances net.
2018
Credited/
(charged)
to income
£’000
Credited/
(charged) to other
comprehensive
income/equity
£’000
Asset/
(liability)
£’000
8,375
880
7,349
193
1,760
(221)
6,128
(16)
(6,702)
25,736
–
(887)
1,425
–
–
(9)
10,633
33,378
–
32
–
(90)
–
(63)
–
–
(121)
Origination and reversal of temporary differences
Capital allowances
Employee pension liabilities
Trading losses
Share-based payments
Intangible assets
Cash flow hedge
Gain deferred by roll-over relief
Other temporary and deductible differences
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24. Deferred tax continued
Origination and reversal of temporary differences
Capital allowances
Employee pension liabilities
Trading losses
Share-based payments
Intangible assets
Cash flow hedge
Gain deferred by roll-over relief
Other temporary and deductible differences
2017 (Restated)1
Credited/
(charged)
to income
£’000
Credited/
(charged) to other
comprehensive
income/equity
£’000
Asset/
(liability)
£’000
6,615
1,069
1,074
299
925
(317)
64
(26)
(32,438)
5,368
63
(887)
1,434
(22,771)
–
–
(623)
5,391
–
690
–
(10)
–
(410)
–
–
270
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
Deferred tax assets have not been recognised in respect of unused capital losses of £9,351,000 (2017: £9,374,000), non-
trading loan relationships of £596,000 (2017: £217,000) or trading losses of £14,000 (2017: £42,000). There is no expiry date
attributable to these unrecognised deferred tax assets, but no assets have been recognised as there are currently no
expectations of offsetting income streams arising.
25. Post-employment benefits
The Group offers membership of the Countrywide plc Pension Scheme (‘the Scheme’) to eligible employees, the only pension
arrangements operated by the Group. The Scheme has two sections of membership: defined contribution and defined benefit.
Defined contribution pension arrangements
The pensions cost for the defined contribution scheme in the year was £9,761,000 (2017: £8,182,000).
Defined benefit pension arrangements
In the past the Group offered a defined benefit pension arrangement; however, this was closed to new entrants in 1988 and
subsequently closed to further service accrual at the end of 2003. Members of the defined benefit arrangements earned
benefits linked to final pensionable salary and service at the date of retirement or date of leaving the Scheme if earlier.
The weighted average duration of the defined benefit pension scheme is 13 years.
The defined benefit pension arrangements provide pension benefits to members based on earnings at the date of leaving the
Scheme. Pensions in payment are updated in line with the minimum of 4% or UK Retail Price Index (RPI) inflation. The Scheme is
established and administered in the UK and ultimately overseen by the Pensions Regulator. The regulatory framework requires
the Group to fund the Scheme and every three years the Group needs to agree a valuation with the trustees. The funding
arrangements are being reviewed as part of the current valuation being carried out as at 5 April 2018. The Group (with the
trustees of the Scheme) are responsible for ensuring that pension arrangements are adequately funded and the directors
will need to agree a funding programme with the trustees to bring down the deficit in the defined benefit scheme over an
appropriate period. During the year, the Group paid £2.0 million (2017: £2.0 million) to the defined benefit scheme. During
the year which commenced on 1 January 2019, the Group is expected to pay contributions of £2.0 million (2018: £2.0 million).
Further contributions of £2.0 million will be made in each of the next two years, although this is subject to review as part of
the current valuation as at 5 April 2018 that is being carried out.
The Group’s obligations under the pension arrangements are subject to inherent estimation uncertainty. While the trustees
and actuary assess the value of the Scheme assets, and the extent of the liabilities, they are obliged to make a number of
assumptions, sensitivities to which are detailed later on. Furthermore, the Scheme assets under defined benefit pension
arrangements are exposed to risks in the equities and bond markets and similarly the liabilities can fluctuate according to
gilt or corporate bond rate.
The Scheme assets under defined benefit pension arrangements are held in a separate trustee-administered fund to meet
long term pension liabilities to past and present employees. The trustees are required to act in the best interests of the
Scheme’s beneficiaries and they take independent advice when deliberating matters relating to the Scheme.
The liabilities of the Scheme under defined pension arrangements are measured by discounting the best estimate of future
cash flows to be paid out by the Scheme using the projected unit method, which is an accrued benefits valuation method.
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Notes to the financial statements continued
25. Post-employment benefits continued
Defined benefit pension arrangements continued
The defined benefit liabilities set out in this note have been calculated by an independent actuary using the data being used
for the current valuation at 5 April 2018, updated to 31 December 2018. The results of the calculations and the assumptions
adopted are shown below.
The Group immediately recognises the actuarial gains and losses directly in other comprehensive income as shown in the
consolidated statement of comprehensive income.
The amounts recognised in the balance sheet are as follows:
Present value of funded obligations
Fair value of plan assets
Net liability recognised in the balance sheet
The movement in the defined benefit obligation over the year is as follows:
At 1 January 2018
Expected return on Scheme assets
Actuarial loss
Employer contributions
Past service cost – GMP equalisation
Administration cost
Interest cost
Actuarial gain from changes in financial assumptions
Benefits paid
Expenses
At 31 December 2018
At 1 January 2017
Expected return on Scheme assets
Actuarial loss
Employer contributions
Administration cost
Interest cost
Actuarial gain from changes in assumptions
Benefits paid
Expenses
At 31 December 2017
2018
£’000
2017
£’000
(50,140)
(52,905)
45,506
(4,634)
47,279
(5,626)
Present
value of
obligation
£’000
Fair value of
plan assets
£’000
Total
£’000
(52,905)
47,279
(5,626)
–
–
–
(400)
(325)
(1,235)
1,483
2,917
325
1,120
(1,651)
2,000
–
–
–
–
(2,917)
(325)
1,120
(1,651)
2,000
(400)
(325)
(1,235)
1,483
–
–
(50,140)
45,506
(4,634)
Present
value of
obligation
£’000
Fair value of
plan assets
£’000
(57,203)
53,540
–
–
–
(257)
(1,428)
1,114
4,612
257
1,355
(4,747)
2,000
–
–
–
(4,612)
(257)
Total
£’000
(3,663)
1,355
(4,747)
2,000
(257)
(1,428)
1,114
–
–
(52,905)
47,279
(5,626)
136
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25. Post-employment benefits continued
The major categories of scheme assets as a percentage of total scheme assets are:
Cash
UK equities
Overseas equities
Other – GARS
Other – insured pensioners
2018
%
4
7
7
1
81
100
2017
%
3
7
7
1
82
100
Insured pensioners and cash constitute unquoted investments. All other investments are managed funds either quoted directly
or comprising quoted investments. The Group does not have any of its own transferable instruments, property occupied or
other assets used held as plan assets.
The amounts recognised in the income statement are:
Past service cost – GMP equalisation
Administration cost
Net interest cost on pension scheme liabilities (within net finance costs)
Total charge to the income statement
The amounts recognised in the statement of comprehensive income are:
Actuarial loss on scheme assets
Actuarial gain on scheme liabilities:
Actuarial gain/(loss) from changes in financial assumptions
Actuarial gain from changes in demographic assumptions
Changes due to experience adjustments
Other comprehensive expense
Deferred tax adjustment arising on the pension scheme assets and liabilities
2018
£’000
400
325
115
840
2017
£’000
–
257
73
330
2018
£’000
2017
£’000
(1,651)
(4,747)
2,475
385
(1,377)
(168)
32
(136)
(1,384)
900
1,598
(3,633)
690
(2,943)
(11,346)
Cumulative actuarial loss recognised in the statement of comprehensive income (after tax)
(11,482)
The principal assumptions made by the actuaries were:
Rate of increase in pensions in payment and deferred pensions:
– on benefits earned prior to 1 December 1999
– on benefits earned after 1 December 1999
Discount rate
RPI inflation
CPI inflation
Expected net return on plan assets
Cash commutation
Life expectancy at age 65 (years):
– male pensioner member
– female pensioner member
– male pensioner non-member (age 45 now)
– female pensioner non-member (age 45 now)
2018
2017
4.25%
3.35%
2.75%
3.50%
2.15%
2.75%
20%
22.3
24.2
23.7
25.8
4.25%
3.35%
2.40%
2.90%
1.90%
2.40%
20%
22.5
24.3
23.9
25.8
To develop the expected long term rate of return on assets assumption, the Group considered the current level of expected
returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other
asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return
for each asset class was then weighted based on the target assets allocation to develop the expected long term rate of return
on assets assumption for the portfolio.
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Notes to the financial statements continued
25. Post-employment benefits continued
Sensitivity analysis
The results of the calculations are sensitive to the assumptions used. The defined benefit obligation position revealed by IAS 19
calculations must be expected to be volatile, principally because the market value of the assets is being compared with a
liability assessment derived from corporate bond yields. However, the Group has taken steps to mitigate these risks of asset
volatility, including insuring some of the pensioners (as illustrated by the asset portfolio).
The Trustees of the Scheme invest the assets in line with the statement of investment principles, which has been established
taking into consideration the liabilities of the Scheme and the investment risk that the Trustees are willing to take after
consideration of the strength of the employer covenant. There is no direct use of derivative strategies, although this may be
employed by the GARS Fund. The Scheme also has a number of annuity policies with insurance companies written in the name
of the Trustees that provide pension payments to some of the pensioner membership. The Scheme also invests in gilt and
corporate bond funds which provide some protection for the Scheme with regards to interest and inflation risk.
The sensitivity analyses (below) are based on a change in an assumption while holding all other assumptions constant.
In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.
Defined benefit obligation
Discount rate less 0.25%
RPI and linked assumptions plus 0.25%
Members living one year longer than assumed
Defined benefit obligation trends:
Defined
benefit obligation
£’000
(50,140)
(51,816)
(50,296)
(52,889)
Fair value
of assets
£’000
45,506
46,576
45,554
47,647
Deficit
£’000
(4,634)
(5,240)
(4,742)
(5,242)
Increase in
disclosed deficit
£’000
–
606
108
608
Scheme assets
Scheme liabilities
Scheme deficit
Experience (loss)/gain on scheme liabilities
Gain from changes in the demographic assumptions for
value of scheme liabilities
Gain/(loss) from changes in the assumptions for value of
scheme liabilities
Experience (loss)/gain adjustments on assets
2018
£’000
2017
£’000
2016
£’000
2015
£’000
2014
£’000
45,506
47,279
53,540
47,435
45,524
(50,140)
(52,905)
(57,203)
(47,850)
(50,740)
(4,634)
(1,377)
(5,626)
1,598
385
900
(3,663)
–
–
2,475
(1,651)
(1,384)
(4,747)
(9,565)
4,782
(415)
(602)
1,029
1,700
1,121
(5,216)
–
–
(6,667)
4,252
Expected maturity analysis of undiscounted pension benefits at 31 December 2018:
Undiscounted pension benefits
Less than
one year
£’000
2,069
Between one
and two years
£’000
Between two
and five years
£’000
2,084
6,641
Over
five years
£’000
64,503
Total
£’000
75,297
26. Share capital
Called up issued and fully paid ordinary shares of 1 pence each
At 1 January 2018
Share capital issued
Transactional costs of shares issued
At 31 December 2018
Number of shares
Share Capital
£’000
Share Premium
£’000
Total
£’000
241,303,439
2,413
211,838
214,251
1,400,000,000
14,000
126,000
140,000
–
–
(8,481)
(8,481)
1,641,303,439
16,413
329,357
345,770
On 30 August 2018, the Company, through a firm placing and placing and open offer, issued 1,400,000,000 ordinary shares in
the capital of the Company, raising gross proceeds of £140 million. The proceeds, net of £8,481,000 transaction costs, are
shown in the statement of changes in equity.
138
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26. Share capital continued
At 31 December 2018, 3,273,590 (2017: 3,371,972) of the shares disclosed above have been subject to share buy-back and
were held in treasury.
Where the Employee Benefit Trust purchases the Company’s equity share capital (treasury shares), the consideration paid,
including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled or reissued. At the year end, 1,939,064 shares (2017: 1,811,951 shares),
costing £4,317,000 (2017: £5,103,000), were held in relation to matching shares of the SIP scheme.
27. Share-based payments
The Group operates a number of share-based payment schemes for executive directors and other employees. The Group has
no legal or constructive obligation to repurchase or settle any of the options in cash. The total cost recognised in the income
statement was £1,897,000 in the year ended 31 December 2018 (2017: £1,828,000), comprising £1,888,000 (2017: £1,944,000)
of equity-settled share-based payments, and £9,000 (2017: credit of £116,000) in respect of cash-settled share-based payments
for the dividend accrual associated with those options. Employer’s NI is being accrued, where applicable, at the rate of 13.8%,
which management expects to be the prevailing rate at the time the options are exercised, based on the share price at the
reporting date. The total NI credit for the year was £201,000 (2017: credit of £205,000).
On 30 August 2018, the Company, through a firm placing and placing and open offer, issued 1,400,000,000 ordinary shares
in the capital of the Company (note 26). As a result of the Capital Refinancing, the number of options outstanding under share-
based payment schemes has been subject to a theoretical ex-rights price (TERP) adjustment.
The following table analyses the total cost between each of the relevant schemes, together with the number of options (or
shares) outstanding:
Long term incentive plan
Deferred share bonus plan
Save As You Earn plan
Share incentive plan (shares)
Outstanding at 31 December
2018
2017
Number
of options/
shares
(thousands)
23,273
235
14,174
1,939
Charge
£’000
232
314
450
901
1,897
39,621
Number
of options/
shares
(thousands)
4,027
103
–
1,812
5,942
Charge
£’000
753
119
–
956
1,828
A summary of the main features of each scheme is given below. The schemes have been split into two categories: executive
schemes and other schemes. For further details on executive schemes, see the remuneration report on pages 62 to 77.
Executive schemes
Long term incentive plan (LTIP)
The LTIP is open to executive directors and designated senior management, and awards are made at the discretion of the
Remuneration Committee. Awards are subject to market and non-market performance criteria and generally vest over a three-
year period.
Deferred share bonus plan (DSBP)
The Group operates a DSBP for executive directors and other senior employees whose bonus awards are settled partly in
cash and partly in nil-cost share options at the discretion of the Remuneration Committee. The number of options that will vest
is subject to market performance criteria over a three-year period and continued service.
Other schemes
Save As You Earn plan (SAYE)
The Group implemented an HMRC approved Save As You Earn (SAYE) option scheme in May 2018 after cessation of the
SIP scheme. Employees were invited to acquire options over ordinary shares at a discount of 20% to their market price.
The scheme started in May 2018 and will vest in May 2021. Options granted under the scheme can be exercised during a six
month period starting on the third anniversary of the scheme. The SAYE scheme is not subject to any performance measures.
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Notes to the financial statements continued
27. Share-based payments continued
Share incentive plan (SIP)
An HMRC approved share incentive plan was introduced in October 2013. Under the SIP, eligible employees were invited to
make regular monthly contributions into a scheme operated by Link Asset Services. Ordinary shares in the Company were
purchased at the current market price and since May 2016 an award of two matching shares had been made for every three
shares acquired by an employee, subject to a vesting period of three years from the date of each monthly grant. Prior to May
2016, the award comprised one matching share for every two shares acquired by an employee. The SIP scheme ended in
April 2018.
The aggregate number of share awards outstanding for the Group is shown below:
2018
2017
Executive schemes1
Other schemes
Executive schemes1
At 1 January
Award true-up
Granted
Exercised
Lapsed
Number of share awards before TERP
adjustment
Theoretical Ex-Rights Price adjustment
Adjusted number of share awards
Exercised (post TERP adjustment)
Lapsed (post TERP adjustment)
At 31 December
LTIP
number
of options
(thousands)
DSBP
number
of options
(thousands)
SAYE
number
of options
(thousands)
SIP1
number
of shares
(thousands)
4,027
–
5,865
–
(851)
9,041
15,140
24,181
–
(908)
103
60
–
(52)
–
111
170
281
(46)
–
–
4,989
–
–
4,989
10,720
15,709
–
–
(1,535)
23,273
235
14,174
1,812
(93)
552
(98)
(234)
1,939
–
1,939
–
–
1,939
LTIP
number
of options
(thousands)
3,225
–
2,700
–
(1,898)
4,027
–
4,027
–
–
DSBP
number
of options
(thousands)
123
–
–
–
(20)
103
–
103
–
–
Other
schemes
SIP1
number
of shares
(thousands)
909
–
1,062
(36)
(123)
1,812
–
1,812
–
–
4,027
103
1,812
1. Executive schemes are granted at £Nil consideration and SIP matching shares are granted at £Nil consideration.
The LTIP awards that were granted on 16 March 2015 and on 21 September 2015 lapsed during the year, as minimum threshold
levels set out in the performance conditions were not met.
Share options outstanding at the end of the year have the following expiry date (and all have £Nil exercise prices):
Grant – vest
LTIP grants
16 March 2015–16 March 2018
21 September 2015–21 September 2018
22 March 2016–22 March 2019
26 September 2016–22 March 2019
Expiry date
16 March 2025
21 September 2025
22 March 2026
22 March 2026
26 September 2016–26 September 2019
26 September 2026
2 May 2017 – 2 May 2020
14 June 2017 – 14 June 2020
29 September 2017 – 2 May 2020
26 March 2018 – 26 March 2021
DSBP
22 May 2015–22 May 2018
5 May 2016–5 May 2019
SAYE
14 May 2018-14 May 2021
SIP
2 May 2027
14 June 2027
2 May 2027
26 March 2028
22 May 2025
5 May 2026
Share options / shares (thousands)
Exercise price
pence
2018
2017
–
–
–
–
–
–
–
–
–
–
–
–
–
2,825
225
71
3,782
609
19
15,742
79
156
491
77
1,171
138
23
1,751
345
31
–
41
62
–
14 November 2021
24p
14,174
Monthly rolling grants and vesting three years later
–
1,939
39,621
1,812
5,942
140
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27. Share-based payments continued
The following information is relevant to the determination of the fair value of the awards granted during the year under the schemes:
Option pricing model
LTIP
(TSR condition)
LTIP
(EPS condition)
Monte Carlo/
Stochastic
Black
Scholes
DSBP
Fair
value at
grant date
Save As
You Earn
Share
incentive plan
Black
Scholes
Fair
value at
grant date
Share price at grant date
89p–387p
89p–387p 352p–576p
114p
89p-384p
Weighted average fair value of options granted during
the year
Exercise price (adjusted)
Weighted average share price at date of exercise
43p
0p
n/a
89p
0p
n/a
n/a
0p
50p
114p
24p
n/a
103p
0p
57p
Weighted average contractual life
2.99 years
2.99 years
3 years
3 years
3 years
Expected dividend yield
Risk-free interest rate
Volatility
0–6.94%
0–6.94% 2.6–4.26%
0.07–0.95%
30.54–41.9%
n/a 0.43–0.8%
n/a
n/a
0%
0.85%
37.8%
n/a
n/a
n/a
28. Other reserves
The following table provides a breakdown of ‘other reserves’ shown on the consolidated statement of changes in equity:
Balance at 1 January 2017
Currency translation differences
Share placing
Transfer of reserves
Movement in fair value of
available-for-sale financial assets
Cash flow hedge: fair value gain
Cash flow hedge: deferred tax on gain
Purchase of treasury shares
Balance at 31 December 2017
Change in accounting policy1
Balance at 1 January 2018
Currency translation differences
Cash flow hedge: fair value gain
Cash flow hedge: deferred tax on gain
Purchase of treasury shares
Utilisation of treasury shares for DSBP options
Balance at 31 December 2018
Merger
reserve
£’000
–
–
36,634
(36,634)
–
–
–
–
–
–
–
–
–
–
–
–
–
Hedging
reserve
£’000
(1,894)
–
–
–
–
2,030
(410)
–
(274)
–
(274)
–
337
(63)
–
–
–
Foreign
exchange
reserve
£’000
Available-for-
sale
financial assets
reserve
£’000
Treasury
share
reserve
£’000
Total
£’000
(292)
(30)
–
–
–
–
–
–
(322)
–
(322)
10
–
–
–
–
340
(16,095)
(17,941)
–
–
–
1,627
–
–
–
1,967
(1,967)
–
–
–
–
–
–
–
–
–
–
–
–
(1,397)
(17,492)
–
(30)
36,634
(36,634)
1,627
2,030
(410)
(1,397)
(16,121)
(1,967)
(17,492)
(18,088)
–
–
–
(499)
49
10
337
(63)
(499)
49
(312)
–
(17,942)
(18,254)
1. Restated from prior year following the adoption of IFRS 9 (see note 2).
The following describes the nature and purpose of each reserve within shareholders’ equity:
Hedging reserve
The hedging reserve represents the fair value movements on the interest swap to hedge the interest cash flows on the first
proportion of the revolving credit facility in alignment with forecast drawdowns. The hedge was terminated during the year
(note 21).
Foreign exchange reserve
The foreign exchange reserve represents the difference arising from the changes to foreign exchange rates upon assets and
liabilities of overseas subsidiaries.
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Notes to the financial statements continued
28. Other reserves continued
Treasury share reserve
The treasury share reserve represents the consideration paid when the Company acquires its own shares and holds them as
treasury shares, as well as when the Employee Benefit Trust purchases the Company’s equity share capital, until the shares are
reissued. See note 26 for full details of treasury shares held.
Retained earnings
Cumulative net gains and losses recognised in the Group income statement, and pension scheme gains and losses and
deferred tax on share-based payments recognised in the statement of comprehensive income.
29. Operating lease commitments – minimum lease payments
Commitments under non-cancellable operating leases due are as follows:
Within one year
Later than one year and less than five years
After five years
2018
2017
Property
£’000
23,079
56,612
11,730
91,421
Vehicles,
plant and
equipment
£’000
8,293
5,976
–
14,269
Property
£’000
24,310
51,192
16,367
91,869
Vehicles,
plant and
equipment
£’000
12,215
10,465
53
22,733
At 31 December 2018, the Group had sub-leased a number of surplus premises and was entitled to receive rents under non-
cancellable leases as follows:
Sub-leases
Within one year
Later than one year and less than five years
After five years
30. Financial instruments
Financial instruments by category
Financial assets as per balance sheet
Financial assets at fair value through profit or loss
Trade and other receivables excluding prepayments
Cash and cash equivalents
Financial liabilities at amortised cost:
Financial liabilities as per balance sheet
Borrowings (excluding finance lease liabilities)
Finance lease liabilities
Trade and other payables excluding non-financial liabilities
2018
£’000
430
653
38
1,121
2017
£’000
472
743
21
1,236
Financial assets
at amortised cost
£’000
31 December 2018
Financial assets
at FV through
profit or loss
£’000
–
72,165
17,426
89,591
153
–
–
153
Total
£’000
153
72,165
17,426
89,744
31 December
2018
£’000
86,027
2,068
65,268
153,363
142
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30. Financial instruments continued
Financial assets as per balance sheet
Available-for-sale financial assets
Trade and other receivables excluding prepayments
Cash and cash equivalents
1. Restated from prior year following the adoption of IFRS 15 (see note 2).
Financial liabilities as per balance sheet
Borrowings (excluding finance lease liabilities)
Finance lease liabilities
Derivative financial instruments
Trade and other payables excluding non-financial liabilities
31 December 2017 (Restated)1
Loans and
receivables1
£’000
–
85,012
22,533
107,545
Available
for sale
£’000
17,085
–
–
Total
£’000
17,085
85,012
22,533
17,085
124,630
31 December 2017 (Restated)1
Derivatives
used for
hedging
£’000
Other financial
liabilities at
amortised cost1
£’000
–
–
337
–
337
211,140
3,360
–
81,823
Total
£’000
211,140
3,360
337
81,823
296,323
296,660
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
31. Financial risk management
Financial risk factors
The Group is exposed through its operations to one or more of the following financial risks:
• cash flow and fair value interest rate risk;
• liquidity risk;
• counterparty credit risk; and
• price risk.
The policy for managing these risks is set by the Board following recommendations from the chief financial officer. Certain risks
are managed centrally, while others are managed locally following guidelines communicated from the centre. The policy for
each of the above risks is described in more detail below.
Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow
interest rate risk which is partially offset by cash held at variable rates. Borrowings issued at fixed rates expose the Group to
fair value interest rate risk.
In prior years (2016 and 2017), the Group managed its cash flow interest rate risk on the first proportion of the revolving credit
facility by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting
borrowings from floating rates to fixed rates. Under the interest rate swaps the Group agrees with other parties to exchange,
monthly, the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed
notional amounts. The revolving credit facility had therefore been classified as a fixed rate liability in the table below in 2017 as
it was underpinned by the fixed interest rate swap. Following termination of the swap during 2018, (see note 21), the interest
payable on the revolving credit facility is at variable rates.
The interest profile of the Group’s financial assets and liabilities is as follows:
Floating rate assets
Fixed rate assets
Interest-free assets
Total financial assets
Floating rate liabilities
Fixed rate liabilities
Interest-free liabilities
Total financial liabilities
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
2018
£’000
17,426
348
71,970
89,744
83,034
2017
(Restated)1
£’000
22,564
609
101,457
124,630
337
4,061
213,500
66,268
82,823
153,363
296,660
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Notes to the financial statements continued
31. Financial risk management continued
The average rate at which the fixed rate liabilities were fixed in 2018 was 4.15% (2017: 3.56%) and the average period for which
the liabilities were fixed was 365 days (2017: 365 days).
There is no material difference between the book and the fair values of the financial assets and liabilities.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s liabilities secured on a
floating basis which are managed centrally. The following table demonstrates the sensitivity to a reasonably possible change in
interest rates on the portion of liabilities exposed to the floating rates.
Increase in basis points
Effect on profit before tax (£’000)
Decrease in basis points
Effect on profit before tax (£’000)
2018
£’000
100
(850)
(50)
425
2017
£’000
100
(3)
(50)
2
Liquidity risk
The liquidity risk of each Group entity is managed centrally by the Group treasury function which monitors rolling forecasts
of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs whilst maintaining sufficient
headroom on its undrawn committed borrowing facilities.
The Group aims to mitigate liquidity risk by managing cash generation of its operations and investment strategy. Investment
decisions are carefully selected with authorisation limits operating up to Group Board level and cash payback periods as applied as
part of the investment appraisal process. The Group is also cash generative as demonstrated by the cash from operations. The
requirement to pay creditors is managed through future cash generation and, if required, the revolving credit facility.
The Group monitors its risk of a shortage of funds by daily cash reporting. This reporting considers maturity of both its financial
investments and financial assets (e.g. trade receivables and other financial assets) and projected cash flows from operations.
The Group’s objective is to maintain a balance between continuity of funding and flexibility for investment.
All surplus cash held by the operating entities is transferred to Group treasury and managed centrally to maximise the returns
on deposits through economies of scale. The type of cash instrument used and its maturity date will depend on the Group’s
forecast cash requirements. The Group maintains an overdraft facility with a major banking corporation to manage any
unexpected short term cash shortfalls.
The Group has a £125 million revolving credit facility which incurs interest payments on defined one, three or six-month periods.
The Group’s discounted financial liabilities at the year end were as follows:
Trade payables
Deferred consideration
Borrowings
Finance lease liabilities
Derivative financial instruments
Accruals and other payables
2018
£’000
14,620
2,721
86,027
2,068
–
47,927
2017
(Restated)1
£’000
20,461
3,550
211,140
3,360
337
57,812
153,363
296,660
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the
balance sheet date to the contractual maturity date. The amounts disclosed in the table are contractual undiscounted cash flows.
In less than one year
In more than one year but not more than two years
In more than two years but less than three years
In more than three years but not more than four years
In more than four years but less than five years
Over five years
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
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2018
£’000
56,918
888
2017
(Restated)1
£’000
73,565
7,573
8,358
210,959
85,000
–
2,231
4,280
–
1,001
153,395
297,378
31. Financial risk management continued
Counterparty credit risk
The Group’s financial assets at the year end were as follows:
Cash and cash equivalents
Trade receivables
Amounts due from customers for contract work
Other receivables and accrued income
2018
£’000
17,426
60,024
776
11,365
89,591
2017
(Restated)1
£’000
22,533
68,918
2,155
13,939
107,545
1. Restated from prior year following the adoption of IFRS 15 (see note 2).
As stated in note 17, trade and other receivables are current assets and are expected to convert to cash over the next
twelve months.
There are no significant concentrations of credit risk within the Group. The Group is exposed to credit risk from sales. It is
Group policy, implemented locally, to assess the credit risk of major new customers before entering contracts. The majority of
customers use the Group’s services as part of a housing transaction and consequently the sales are paid from the proceeds
of the house sale. The majority of the commercial customers, and the major lenders and customers of the surveying and asset
management businesses, are large financial institutions and as such the credit risk is not significant. The maximum credit risk
exposure relating to financial assets is represented by the carrying value as at the balance sheet date. The following table
presents a breakdown of the gross trade receivables between the three main types of customer:
Individual customers
Major lenders
Other commercial customers
2018
£’000
16,884
9,992
38,305
65,181
2017
(Restated)1
£’000
15,130
10,607
47,392
73,129
1. Restated from prior year following the adoption of IFRS 15 (see note 2).
The Group treasury function manages the Group’s cash balances and seeks to achieve reasonable rates of interest, but
preservation of the capital is the overriding priority. A list of accepted deposit institutions is maintained and their credit ratings
are kept under review. The following table presents a breakdown of cash at bank and short term deposits:
Aa3
A1
A2
A3
Other
2018
£’000
5,654
10,446
352
761
213
17,426
2017
£’000
1,668
2,927
–
17,698
240
22,533
32. Capital management
The Group’s objectives when managing capital is to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of debt (subject to certain restrictions
under the revolving credit facility), adjust the amount of dividends paid to shareholders, return capital to shareholders, issue
new shares or sell assets to reduce debt. Please note the change in revolving credit facility items and related covenants, and
the suspension of dividend payments for 2018, in the chief financial officer’s review on pages 24 to 29.
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Notes to the financial statements continued
32. Capital management continued
The Group defines capital as the total of equity shareholders’ funds and long term borrowings net of available cash balances:
Borrowings (note 20)
Cash and cash equivalents (note 18)
Net debt, as previously reported
Restatement of debt arising from prior year correction
Net debt
Shareholders’ equity
Total capital
Gearing ratio
Adjusted EBITDA
Net debt to adjusted EBITDA ratio
2018
£’000
88,095
(17,426)
70,669
–
2017
(Restated)1
£’000
214,500
(22,533)
191,967
4,456
70,669
196,423
220,267
306,430
290,936
502,853
24%
39%
32,683
65,587
2.2x
3.0x
1. Restated from prior year following the adoption of IFRS 15 and correction of a prior year error (see note 2).
Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been
defined, in accordance with IFRS 13 ‘Fair value measurement’, as follows:
• inputs other than quoted prices (included in Level 1) that are observable for the asset or liability, either directly (that is,
as prices) or indirectly (that is, derived from prices) (Level 2); and
• inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2018:
Assets
Financial assets at fair value through profit or loss
Liabilities
Contingent consideration
Level 3
£’000
153
12,240
The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2017:
Assets
Available-for-sale financial assets
Liabilities
Derivative financial instrument – interest rate swap
Contingent consideration
Level 2
£’000
Level 3
£’000
Total
£’000
15,766
1,319
17,085
337
–
–
13,162
337
13,162
Fair value measurements using significant unobservable inputs (Level 3) and valuation processes
The following changes were made in Level 3 instruments for the years under review:
2018
2017
Financial assets
at fair value
through
profit or loss
£’000
Contingent
consideration
in a business
combination
£’000
Available-for-sale
financial assets
£’000
1,232
1,300
–
(2,379)
(13,162)
–
–
–
–
–
7,011
(6,089)
1,919
–
(35)
(565)
–
–
153
(12,240)
1,319
Contingent
consideration
in a business
combination
£’000
13,163
–
–
–
(3,930)
3,929
13,162
Opening balance at 1 January1
Acquisition
Amortisation
Impairment
Contingent consideration paid
Gains and losses recognised in profit or loss
Closing balance at 31 December
1. Debentures (2017: £87,000) have been reclassified as prepayments in 2018.
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The fair value of contingent consideration is undertaken using a discounted cash flow based on management’s expectation
of performance of the underlying entities, consistent with operating plans approved. This method continues to be based on
unobservable data, and therefore there have been no changes in valuation techniques adopted in the year and no changes
in fair value hierarchies in respect of these liabilities.
The contingent consideration relates to amounts payable in the future on six acquisitions undertaken in prior years, requiring
the Group to pay in cash a potential undiscounted maximum aggregate amount of £19.3 million. The amounts payable are
based on the amounts agreed in the contracts and based on the future profitability of each entity acquired. In valuing each
liability, estimates have been made as to the future profitability of each entity based on management’s expectation of
performance, consistent with operating plans approved.
Each of these contingent consideration arrangements require the vendors to remain in employment and as such have been
treated as a post-combination employment expense and are being accrued over the relevant periods of one to five years
specific to each of the agreements, with remaining periods of up to three years. Each contingent consideration arrangement
is also subject to performance conditions being satisfied. There are target adjusted EBITDA levels which must be achieved
in order to realise the full payment, with a reduced payment made if targets are not fully met. Accruals for contingent
consideration will be reviewed at each period end as future earn-out assumptions are revisited and any credits to the
income statement in respect of downward revisions to estimates will be treated in the same way. £3.7 million of this potential
contingent consideration is payable in less than one year and there is no material difference in out-turn anticipated. £17.8
million of the potential contingent consideration is payable on two material acquisitions between one to three and at five years
after the acquisition dates (with residual periods of less than one year and less than three years remaining), depending on the
profitability of those subsidiaries in the relevant years and the former owners being continuously employed over the earn-out
period. The fair value of the related contingent consideration liability, estimated by applying the income approach, was
revisited at the year end and accrued at £9.9 million, based on assumed profitability. If the future profitability of the entity
with less than a three year out-turn was to decline, with a 10% reduction in adjusted EBITDA, the size of the total contingent
consideration would decrease by approximately £1.6 million.
The Group’s finance department performs the valuations of financial instruments measured at fair value required for financial
reporting purposes, including Level 3 fair values. This team reports directly to the chief financial officer and the Audit and
Risk Committee.
The fair value of all other financial assets and liabilities approximates to their carrying value.
33. Related party transactions
Key management compensation is given in note 6(b). Other related party transactions are as follows:
Trading transactions
Related party relationship
Transaction type
Joint venture
Joint venture
Purchases by Group
Rebate received/receivable
The Buy To Let Group – Subsidiary
Loan payable
Oaktree Capital Management
Director’s fee paid
Transaction amount
Balance (owing)/owed
2018
£’000
(2,232)
3,279
153
40
2017
£’000
(2,057)
918
141
40
2018
£’000
(158)
1,968
1,993
10
2017
£’000
(156)
42
1,840
10
These transactions are trading relationships which are made at market value. There is a loan payable within The Buy To Let
Group Limited of £1,590,000 (and associated interest) that is payable to the joint shareholder and director in 2019 with interest
payable at 8% per annum. The Company has not made any provision for bad or doubtful debts in respect of related party
debtors nor has any guarantee been given during 2018 regarding related party transactions.
34. Events after the balance sheet date
After the balance sheet date and up to the date of signing the financial statements there were no events requiring disclosure.
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Company balance sheet
As at 31 December 2018
Fixed assets
Investments in subsidiaries
Current assets
Trade and other receivables
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium
Hedging reserve
Treasury share reserve
Profit and loss account
Total shareholders’ funds
Note
2018
£’000
2017
£’000
5
6
7
206,607
386,372
204,660
241,922
99
52
204,759
241,974
(387)
(634)
204,372
410,979
241,340
627,712
8
(83,034)
(208,637)
327,945
419,075
10
10
16,413
2,413
329,357
211,838
–
(274)
(17,942)
(17,492)
117
222,590
327,945
419,075
The notes on pages 150 to 155 form an integral part of the Company (registration number: 08340090) financial statements.
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not
presented its own statement of comprehensive income in these financial statements. The total comprehensive expense was
£209,098,000 (2017: £11,139,000).
These financial statements on pages 148 to 155 were approved by the Board of directors and signed on its behalf by:
Himanshu Raja
Chief financial officer
7 March 2019
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Company statement of changes in equity
For the year ended 31 December 2018
Note
Share
capital
£’000
Share
premium
£’000
2,197
211,838
Merger
reserve
£’000
Hedging
reserve
£’000
Treasury
share
reserve
£’000
Profit
and loss
account
£’000
Total
£’000
(1,894)
(16,095)
195,147
391,193
Balance at 1 January 2017
Loss for the year
Other comprehensive income/(expense)
Cash flow hedge: fair value gain
Cash flow hedge: deferred tax on gain
9
Total other comprehensive income
Total comprehensive income/(expense)
Transactions with owners
Issue of share capital
Transfer of reserves
Share-based payment transactions
Purchase of treasury shares
Transactions with owners
–
–
–
–
–
216
–
–
–
216
–
–
–
–
–
–
–
–
–
–
Audited balance at 31 December 2017
2,413
211,838
Change in accounting policy
1
–
–
Restated total equity at 1 January 2018¹
2,413
211,838
Loss for the year
Other comprehensive income/(expense)
Cash flow hedge: fair value gain
Cash flow hedge: deferred tax on gain
9
Total other comprehensive income
Total comprehensive income/(expense)
–
–
–
–
–
–
–
–
–
–
Transactions with owners
Issue of share capital
Transactional costs of shares issued
Share-based payment transactions
Purchase of treasury shares
Utilisation of treasury shares for DSBP
options
Transactions with owners
Balance at 31 December 2018
10
10
14,000
126,000
–
–
–
–
(8,481)
–
–
–
14,000
117,519
16,413 329,357
1. Restated from prior year following the adoption of IFRS 9 (see note 1).
–
–
–
–
–
–
36,634
(36,634)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,030
(410)
1,620
1,620
–
–
–
–
–
(11,139)
(11,139)
–
–
–
2,030
(410)
1,620
(11,139)
(9,519)
–
36,850
–
–
–
–
–
–
–
–
36,634
1,948
–
1,948
(1,397)
(1,397)
–
(1,397)
38,582
37,401
(274)
(17,492) 222,590
419,075
–
–
(15,214)
(15,214)
(274)
(17,492) 207,376
403,861
–
– (209,098) (209,098)
337
(63)
274
274
–
–
–
–
–
–
–
–
–
–
–
–
–
337
(63)
274
– (209,098) (208,824)
–
–
–
(499)
–
–
1,888
–
140,000
(8,481)
1,888
(499)
49
(49)
–
(450)
1,839
132,908
(17,942)
117 327,945
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Notes to the Company financial statements
1. General information and accounting policies
Countrywide plc (‘the Company’) is a holding company of subsidiaries of the Group. The Company is a public limited company,
which is listed on the London Stock Exchange and incorporated and domiciled in the UK (registered number 08340090).
The address of its registered office is Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP.
(a) Basis of preparation
The separate financial statements of Countrywide plc (‘the Company’) have been prepared in accordance with the Companies Act
2006 as applicable to companies using Financial Reporting Standard 101, ‘Reduced Disclosure Framework’ (FRS 101). The financial
statements have been prepared under the historical cost convention, as modified by the revaluation of derivative financial assets and
liabilities measured at fair value through profit or loss, and in accordance with the Companies Act 2006 (‘the Act’).
The preparation of the financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are
disclosed in note 2. The principal accounting policies are set out below and have been applied consistently throughout the year.
As permitted under section 408 of the Act, the Company has elected not to present its own income statement for the year.
The loss for the financial year was £209,098,000 (2017: £11,139,000).
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements,
in accordance with FRS 101:
• paragraphs 45(b) and 46 to 52 of IFRS 2 ‘Share-based payment’ (details of the number and weighted average exercise
prices of share options, and how the fair value of goods and services received was determined);
• IFRS 7 ‘Financial instruments: Disclosures’;
• paragraphs 91 to 99 of IFRS 13 ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair value
measurement of assets and liabilities);
• The following paragraphs of IAS 1 ‘Presentation of financial statements’:
• 10(d) (statement of cash flows);
• 16 (statement of compliance with all IFRS);
• 38A (requirement for minimum of two primary statements, including cash flow statements);
• 38B-D (additional comparative information);
• 111 (cash flow statement information); and
• 134-136 (capital management disclosures);
• IAS 7 ‘Statement of cash flows’;
• paragraph 30 and 31 of IAS 8 ‘Accounting policies, changes in accounting estimates and errors’ (requirement for the
disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective);
• paragraph 17 of IAS 24 ‘Related party disclosures’ (key management compensation); and
• the requirements in IAS 24 ‘Related party disclosures’ to disclose related party transactions entered into between two
or more members of a group.
New standards, amendments and interpretations
Standards, amendments and interpretations effective and adopted by the parent company
The following new standards effective for the first time for the financial year beginning on or after 1 January 2018 have
had a material impact on the parent Company.
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1. General information and accounting policies continued
IFRS 9 ‘Financial instruments’
IFRS 9 ‘Financial instruments’ addresses the classification, measurement and recognition of financial assets and financial
liabilities.
Classification and measurement
The Company has applied the requirements of IFRS 9 to instruments owned at 1 January 2018 and has not applied the
requirements to instruments that had already been derecognised prior to 1 January 2018. Comparative amounts have not
been restated.
Impairment
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39.
Under the impairment approach under IFRS 9, it is not necessary for a credit event to have occurred before credit losses are
recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses, which
will be updated at each reporting date.
As at 1 January 2018, the Group reviewed and assessed existing financial assets, amounts due from group undertakings, for
impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the
requirements of IFRS 9 to determine the credit risk. An additional credit allowance of £18,391,000 has been recognised against
retained earnings net of its related deferred tax impact at £15,214,000.
At 31 December 2017 calculated under IAS 39
Amounts restated through retained earnings
Opening loss allowance at 1 January 2018 under IFRS 9
Amounts owed
by Group
undertakings
£000
–
(18,391)
(18,391)
The additional loss allowance recognised upon the initial application of IFRS 9 as disclosed above resulted entirely from a
change in the measurement attribute of the loss allowance relating to the financial assets.
In determining the expected credit losses for these assets, the Company has taken into account the financial position of the
counterparties, and the likely timing of receipts against balances that are technically repayable on demand, in estimating the
discounting across these financial assets occurring within their repayment assessment time horizon.
(b) Going concern
Please refer to note 2 of the consolidated financial statements.
(c) Investments
Investments in subsidiaries are held at historical cost less provision for impairment. The carrying values of investments are
reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.
(d) Income tax
Income tax on the profit or loss for the year presented comprises current and deferred tax. Income tax is recognised in profit
or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted
at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
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Notes to the Company financial statements
continued
1. General information and accounting policies continued
(e) Share-based payments
The cost of granting share options and other share-based remuneration to employees and directors is recognised through the
income statement. These are equity settled and therefore the fair value is measured at the grant date. Where the share awards
have non-market-related performance criteria the Company has used the Binomial Lattice and Black Scholes option valuation
models to establish the relevant fair values. Where the share awards have TSR market-related performance criteria the
Company has used the Monte Carlo simulation valuation model to establish the relevant fair values. The resulting values are
amortised through the income statement over the vesting period of the options and other grants. For awards with non-market-
related criteria, the charge is reversed if it appears probable that the performance criteria will not be met.
The social security contributions payable in connection with the grant of the share options is considered an integral part of the
grant itself, and the charge will be treated as a cash-settled transaction.
(f) Dividend income
Dividend income from subsidiary undertakings is recognised at the point the dividend has been declared.
(g) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Such interest-bearing liabilities are
subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense
over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet.
(h) Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the
period in which the dividends are approved by the Company’s shareholders. Interim dividends are recognised when paid.
(i) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in share
premium as a deduction from the proceeds. Where the Employee Benefit Trust purchases the Company’s equity share capital
(treasury shares), the consideration paid, including any directly attributable incremental costs, is deducted from equity
attributable to the Company’s equity holders until the shares are cancelled or reissued.
2. Critical accounting judgements and estimates
The preparation of the financial statements requires the directors to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities. Estimates and judgements are
continually evaluated and are based on historical experience and other factors including expectation of future events that
are believed to be reasonable under the circumstances. Actual results may differ from these estimates, given the uncertainty
surrounding the assumptions and conditions upon which the estimates are based.
The directors consider that the following estimates and judgements are likely to have the most significant effect on the
amounts recognised in the Company’s financial statements.
Impairment of investments in subsidiaries and intercompany receivables
The directors periodically review investments in subsidiaries and intercompany receivables for possible impairment when
events or changes in circumstances indicate, in management’s judgement, that the carrying value of an asset may not be
recoverable. Such indicating events would include a significant change in market conditions or future operating cash flows.
The Company recorded impairment charges during the year ended 31 December 2018 against both investments in subsidiaries
and intercompany receivables, the latter using expected credit loss methodology (see notes 5 and 6 respectively).
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3. Employee costs
The only employees of Countrywide plc are the executive and non-executive directors. Details of the employee costs
associated with the directors are included in the directors’ remuneration report on page 65 and are summarised below.
Wages and salaries
Share-based payments
Social security costs
Post-employment benefits – salary supplement
2018
£’000
1,387
(95)
206
99
2017
£’000
1,694
236
240
150
1,597
2,320
The information disclosed in the Group’s consolidated financial statements under IFRS 2 ‘Share-based payment’ is within
note 27, providing further information regarding the Company’s equity-settled share-based payment arrangements.
Details of the highest paid director’s aggregate emoluments, amounts receivable under long term incentive schemes and
payments in lieu of pension entitlements are disclosed within the directors’ remuneration report on page 65.
4. Dividends
Dividends (interim and final)
2018
£’000
–
The directors do not recommend the payment of a final dividend in respect of the year ended 31 December 2018.
5. Investments in subsidiaries
Cost
At 1 January 2018 and 31 December 2018
Accumulated impairment
At 1 January 2018
Impairment charge during the year
At 31 December 2018
Net book amount
2017
£’000
–
2018
£’000
386,372
–
(179,765)
(179,765)
206,607
Impairments arising during the year align to the wider assessment of the Group discounted cash flows, resulting in impairments
undertaken at the half year against assets in the consolidated financial statements and revisited at the year end.
At 31 December 2018, the Company owned directly the whole of the issued and fully paid ordinary share capital of its
subsidiary undertaking, Countrywide Group plc, a company registered in the UK whose principal activity was that of investment
holding company.
Interests in Group undertakings, held indirectly by the Company, are detailed within the appendix of the consolidated financial
statements, which form part of these financial statements.
6. Trade and other receivables
Amounts falling due within one year
Amounts owed by Group undertakings
Group relief receivable
Deferred tax asset (note 9)
Prepayments and accrued income
Other debtors
2018
£’000
2017
£’000
195,299
238,729
1,464
7,589
31
277
2,892
220
66
15
204,660
241,922
Amounts owed by subsidiary undertakings are unsecured and payable on demand. Interest is received at base rate plus a
margin of 2.25% per annum.
Amounts owed by group undertakings are stated net of a £37,268,000 provision (2017: £nil) which reflects the estimated
discounting in respect of the likely timing of future receipts against balances that are technically repayable on demand.
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Notes to the Company financial statements
continued
7. Creditors: amounts falling due within one year
Trade creditors
Other creditors
8. Creditors: amounts falling due after more than one year
Bank borrowings
Derivative financial instruments
Capitalised banking fees
2018
£’000
35
352
387
2017
£’000
67
567
634
2018
£’000
2017
£’000
85,000
210,000
–
(1,966)
337
(1,700)
83,034
208,637
At the year end, the facility was a £125 million revolving credit facility, with any outstanding balance repayable in full on
30 September 2022. Interest was payable based on LIBOR plus a margin of 3.0%. The margin is linked to the leverage ratio
of the Group and the margin rate is reviewed twice a year (and can vary between 1.75% and 3.0%). The RCF is available for
utilisation subject to satisfying fixed charge, interest cover and leverage covenants and £125 million was repaid during the year
(against a facility of up to £340 million at 31 December 2017, revised to £275 million at 2 February 2018 and revised to £125
million at 2 August 2018). On 2 August 2018 the Company agreed an amendment and extension relating to the RCF, originally
dated 20 March 2013, which was due to expire in March 2020. The RCF is now £125 million, with margin and covenants as
disclosed in the Prospectus for our equity placing in August 2018. Capitalised banking fees are being amortised over the
duration of the RCF, until September 2022.
9. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17%–19% (2017: 17%–19%).
The movement on the deferred tax account is shown below:
Deferred tax asset at 1 January
Change in accounting policy¹
Restated deferred tax asset at 1 January
Credited/(charged) to income statement
Charged to comprehensive income
Deferred tax asset at 31 December
Deferred tax asset expected to unwind within one year
Deferred tax asset expected to unwind after one year
2018
£’000
220
3,177
3,397
4,255
(63)
7,589
455
7,134
7,589
2017
£’000
698
–
698
(68)
(410)
220
60
160
220
1. Change in accounting policy following the adoption of IFRS 9 (see note 1).
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred
tax assets to the extent that it is probable that these assets will be recovered through future taxable profits.
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted
by IAS 12) during the year are shown below. Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset and there is an intention to settle the balances net.
154
154
| Countrywide plc Annual report 2018
|
Annual report 2018
Countrywide plc
9. Deferred tax continued
Origination and reversal of temporary differences
Share-based payments
Cash flow hedge
Other timing differences
Origination and reversal of temporary differences
Share-based payments
Cash flow hedge
There are no unused tax losses.
10. Called up share capital
Called up issued and fully paid ordinary shares of 1 pence each
At 1 January 2018
Share capital issued
Transactional costs of shares issued
At 31 December 2018
2018
(Charged)/
credited
to income
£’000
Charged to other
comprehensive
income/equity
£’000
(72)
–
4,327
4,255
–
(63)
–
(63)
2017
Charged
to income
£’000
Charged to other
comprehensive
income/equity
£’000
(68)
–
(68)
–
(410)
(410)
Asset
£’000
85
–
7,504
7,589
Asset
£’000
157
63
220
Number of shares
Share capital
£’000
Share premium
£’000
Total
£’000
241,303,439
2,413
211,838
214,251
1,400,000,000
14,000
126,000
140,000
–
–
(8,481)
(8,481)
1,641,303,439
16,413
329,357
345,770
On 30 August 2018, the Company, through a firm placing and placing and open offer, issued 1,400,000,000 ordinary shares
in the capital of the Company, raising gross proceeds of £140 million. The proceeds, net of £8,481,000 transaction costs, are
shown in the statement of changes in equity.
At 31 December 2018, 3,273,590 (2017: 3,371,972) of the shares disclosed above have been subject to share buy-back and
were held in treasury.
Where the Employee Benefit Trust purchases the Company’s equity share capital (treasury shares), the consideration paid,
including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled or reissued. At the year end, 1,939,064 shares (2017: 1,811,951 shares),
costing £4,317,000 (2017: £5,103,000), were held in relation to matching shares of the SIP scheme.
11. Auditors’ remuneration
The auditors’ remuneration for the audit of the Company is disclosed in note 7 to the consolidated financial statements.
Fees paid to the auditors for non-audit services to the Company are not required to be disclosed in the Company’s financial
statements because consolidated financial statements are prepared which disclose such fees.
12. Events after the balance sheet date
After the balance sheet date and up to the date of signing the financial statements there were no events requiring disclosure.
Annual report 2018 Countrywide plc
Annual report 2018 Countrywide plc
| 155
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Strategic reportCorporate governanceFinancial statements
Appendix
Related undertakings of the Group as at 31 December 2018
Company name
Countrywide Group plc
A3 Countrywide Limited
Abbotts Estate Agents Ltd
Accord Properties Limited
Acornsrl Limited
Aeromind Limited
AgencyPro Limited
Alan de Maid Limited
Alan Harvey Property Services Limited
Anderson Estate Agents Limited
APW Holdings Limited
APW Management (Cobham) Limited
APW Management (Esher) Limited
APW Management (Sunninghill) Limited
APW Management (Weybridge) Limited
APW Management Services Limited
Ashton Burkinshaw (Franchising) Limited
Ashton Burkinshaw Limited
Associated Employers Limited
Austin & Wyatt Limited
Avon Property (Wilts) Limited
Bairstow Eves Countrywide Limited
Bairstow Eves Limited
Baker Harris Saunders Group Limited
Balanus Limited
Barrys (Surrey) Limited
Beresford Adams Limited
Berkeley Private Capital Ltd
Blundells Property Services Limited
Bridgfords Countrywide Limited
Bridgfords Limited
Buckell & Ballard Limited
Bullock and Lees (Christchurch) Limited
Bureau Properties Limited
Buy to Let Club Limited
CAG Overseas Investments Limited
Capital Fine Homes Limited
Capital Private Finance Limited
Cardinal Mortgage Service Limited (The)
Carol Whyte Property Management Limited
Carson & Company Estate Agents Limited
Castle Moat at Taunton Limited
Cathedral Lettings and Management Limited
CEA Holdings Limited
Chamberlains Lettings Limited
Chamberlains SGS Holdings Limited
156
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| Countrywide plc Annual report 2018
|
Annual report 2018
Countrywide plc
Registered address
(refer to note)
Country of
incorporation
% owned
1
2
2
2
2
2
4
2
2
2
2
2
2
2
2
2
2
2
3
2
2
2
2
2
1
2
2
2
2
2
2
2
2
1
2
2
2
5
2
6
2
2
2
2
2
2
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Direct/indirect
(Group interest)
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Related undertakings of the Group as at 31 December 2018 continued
Company name
Chappell & Matthews Limited
Chattings Limited
CHK (Cobham) Ltd
CHK (Esher) Limited
Cliftons International Ltd
Connell Wilson Limited
Copleys of York Limited
Cosec Management Services Limited
Countrywide Conveyancing Limited
Countrywide Corporate Property Services Limited
Countrywide Estate Agents
Countrywide Estate Agents (South) Limited
Countrywide Estate Agents FS Limited
Countrywide Estate Agents Nominees Limited
Countrywide Financial Services (South) Limited
Countrywide Home Movers Services Limited
Countrywide Mortgage Services Limited
Countrywide North Limited
Countrywide Part Exchange Solutions Limited
Countrywide Principal Services Limited
Countrywide Property Auctions Limited
Countrywide Property Care Solutions Limited
Countrywide Property Lawyers Limited
Countrywide Relocation Solutions Limited
Countrywide Repossession Solutions Limited
Countrywide Residential Investments Limited
Countrywide Residential Lettings Limited
Countrywide Surveyors Limited
Countrywide UK Limited
CRL Company Directors Limited
CRL Company Secretaries Limited
Curtis and Bains Limited
Dickinson Harrison Limited
Duck & Hedges Group Ltd
Duck & Hedges Limited
Edinburgh Property Letting Limited
Entwistle Green Limited
Executive Property Services Residential Ltd
Faron Sutaria & Company Limited
Finders Keepers Limited
Fitz-Gibbon Limited
Ford Property Services Limited
Frank Innes Countrywide Limited
Freeman Forman Letting Limited
Freeman Forman Limited
Fulfords Estate Agents Limited
Registered address
(refer to note)
Country of
incorporation
% owned
Direct/indirect
(Group interest)
2
2
2
2
2
2
2
7
2
8
1
1
2
2
2
2
2
2
2
5
1
2
9
2
2
2
1
1
2
7
7
2
2
2
2
6
2
2
2
2
2
2
2
2
2
2
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Annual report 2018 Countrywide plc
Annual report 2018 Countrywide plc
| 157
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Strategic reportCorporate governanceFinancial statements
Appendix continued
Related undertakings of the Group as at 31 December 2018 continued
Company name
Gascoigne Pees Estate Agents Limited
Gatlink Limited
Gertingpet Limited
Gilpro Management Limited
Greene & Co Maintenance Limited
Grosvenor Private Clients Limited
Hamptons Estates Limited
Hamptons Group Limited
Hamptons International (Hong Kong) Limited
Hamptons International (India) Private Limited
Hamptons International Mortgages Limited
Hamptons Professional Limited
Hamptons Property Consultancy Limited
Harecastle Limited
Harrisons Estate Agents Limited
Harvey Donaldson & Gibson Limited
HCW Estate Agents Limited
HCW Group Limited
HCW Insurance Services Limited
Herring Baker Harris East Anglia Ltd
Herring Baker Harris Europe Ltd
Herring Baker Harris Nominees Limited
Hetheringtons
Hetheringtons Estate Agents Limited
Holland Mitchell Limited
Holmes Pearman Limited
Home From Home Limited
Housemans Management Company Limited
Housemans Management Secretarial Limited
Howunalis Limited
Howuncea
Howunsay
Hurst Independent Financial Services Limited
Ian Peat Property Management Limited
Ikon Consultancy Limited
Interlet Property Management Limited
IPCS Group Services Limited
Isite.UK.Com Limited
JP & Brimelow (Lettings and Property Management) Limited
JAM Advisors Limited
JK Lettings Limited
John Curtis Lettings & Management Limited
John Curtis Limited
John D Wood & Co. (Residential & Agricultural) Limited
John D Wood & Co. Plc
John Frances Limited
158
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| Countrywide plc Annual report 2018
|
Annual report 2018
Countrywide plc
Registered address
(refer to note)
Country of
incorporation
% owned
Direct/indirect
(Group interest)
2
2
2
6
2
2
1
2
UK
UK
UK
UK
UK
UK
UK
UK
10
Hong Kong
11
2
2
20
7
2
12
2
2
2
2
2
2
2
1
2
2
2
7
7
2
2
2
2
2
2
2
2
2
2
13
2
2
2
21
2
2
India
UK
UK
Barbados
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Related undertakings of the Group as at 31 December 2018 continued
Company name
John Francis (Wales) Limited
Kean Kennedy Ltd
Kilroy Estate Agents Limited
King & Chasemore Limited
Knights of Bath Limited
Knightsbridge Estate Agents and Valuers Limited
Labyrinth Management Limited
Lambert Smith Hampton (City) Limited
Lambert Smith Hampton (NIreland) Limited
Lambert Smith Hampton Group (Overseas) Limited
Lambert Smith Hampton Group Limited
Lambert Smith Hampton Investment Management Limited
Lambert Smith Hampton Limited
Lambert Smith Hampton Limited (Ireland)
Lampons Residential Limited
Land and New Homes Countrywide Limited
Lanes Land Limited
Lanes Property Agents (Cheshunt) Limited
Leasehold Legal Services Limited
Leasemanco Limited
Let Lucas Rental Specialists Limited
Let Verde Limited
Letmore Group Ltd
Letmore Lettings Ltd
Letmore Management Ltd
Lets – Cover Limited
Letters of Distinction Limited
Life and Easy Limited
Lifestyle Management (York) Co. Limited
Lighthouse Property Services Ltd
London & Country Property Auctions Limited
LS1 Limited
Maitland Lettings Limited
Mann & Co. (Kent) Limited
Mann & Co. Limited
Mann Countrywide Limited
Merchant Executive Properties Limited
Merchant Lettings (Ayrshire) Limited
Merchant Lettings (Edinburgh) Limited
Merchant Lettings (Paisley) Limited
Merchant Lettings Limited
Merchant Maintenance Limited
Michael Rhodes Property Management Limited
Mid Cornwall Letting Limited
Miller Estate Agents Limited
Milton Ashbury (Property Agents) Limited
Registered address
(refer to note)
Country of
incorporation
% owned
Direct/indirect
(Group interest)
2
12
2
2
2
2
7
2
3
2
3
3
3
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
19
Ireland
2
2
2
2
2
7
2
2
2
2
2
2
2
14
2
2
1
2
2
2
2
2
6
6
6
6
6
6
2
2
2
2
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Annual report 2018 Countrywide plc
Annual report 2018 Countrywide plc
| 159
| 159
Strategic reportCorporate governanceFinancial statements
Appendix continued
Related undertakings of the Group as at 31 December 2018 continued
Company name
Modernmode Limited
Morris Dibben Limited
Mortgage Intelligence Holdings Limited
Mortgage Intelligence Limited
Mortgage Next Limited
Mortgage Next Network Limited
Mortgage Next Packaging Limited
Mountford Limited
Nest Lettings & Management Limited
New Homes Mortgage Solutions Limited
New Space (Derby) Limited
New Space Margate Ltd
Ohmes Limited
Palmer Snell Limited
Patterson Bowe Ltd
Pebble Property Management and Lettings Limited
Personal Homefinders Limited
Phillips Brown Limited
PKL Group Limited
PKL Limited
PKL Management Limited
Plaza Letting Agents Limited
Poolman Harlow Limited
Portfolio Letting Agents & Consultants Ltd
Potteries Property Services Limited
Preston Bennett Holdings Limited
Preston Bennett Limited
Project Second JG Limited
Property Management (North East) Limited
Propertywide Limited
PSP Lettings Ltd
R.A. Bennett & Partners Ltd
Realty Property Solutions Limited
Regal Lettings and Property Management Kent Limited
Relocation Solutions Countrywide Limited
Rentons Estate Agents Limited
Resi Capital Limited
Resi Capital Member Limited
Richard Dolton Limited
Richard Trowbridge Estate & Lettings Limited
RPT Management Services Plc
Russells Lettings Limited
Saville Home Management Limited
Securemove Property Services 2005 Limited
Securemove Property Services Limited
ServPro Limited
Registered address
(refer to note)
Country of
incorporation
% owned
Direct/indirect
(Group interest)
2
2
14
14
14
14
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
6
2
2
2
2
2
1
2
2
2
2
2
1
1
1
2
2
2
2
2
2
2
1
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
160
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| Countrywide plc Annual report 2018
|
Annual report 2018
Countrywide plc
Related undertakings of the Group as at 31 December 2018 continued
Company name
Slater Hogg & Howison Limited
Slater Hogg Mortgages Limited
Snape Lettings Ltd
Spencers Estate Agents Limited
Spencers Surveyors Limited
Sprint Property Acquisitions Ltd
Statehold Limited
Stoberry Lettings Ltd
Stratton Creber Limited
Sundale Properties Limited
SurveyingPro.co.uk Limited
Sutton Kersh Auctions & Sales Ltd
Sutton Kersh Holdings Ltd
Tablesign Limited
Taylors Estate Agents Ltd
The Butler Club Limited
The Buy To Let Business Limited
The Buy To Let Group Limited
The Flat Managers Limited
The Good Mortgage Company Ltd
The Greene Corporation Limited
The London Residential Agency Limited
Thomas James Lettings Limited
Thomson & Moulton Limited
Tingleys Lettings Limited
TitleAbsolute Limited
TLS Wilts. Limited
TM Group (UK) Limited
Town & County Residential Limited
Tucker Gardner Residential Limited
Umberman Limited
United Surveyors Limited
Vanet Property Asset Management Limited
Waferprime Limited
Wallhead Gray & Coates
Watson Bull & Porter Limited
Westcountry Property Auctions Limited
Wildabout Properties Limited
Wilson Peacock Estate Agents Limited
Woods Block Management Limited
WSB Property Management Limited
Wyse Lettings Limited
Young & Butt Limited
Young Lettings Limited
Registered address
(refer to note)
Country of
incorporation
% owned
Direct/indirect
(Group interest)
2
5
2
2
2
2
2
2
2
2
2
2
2
2
2
2
5
5
2
2
2
2
2
2
2
15
2
16
2
2
2
2
2
2
2
2
1
2
2
7
2
2
2
2
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
33%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements
Appendix continued
Registered offices:
1. Greenwood House, 1st Floor, 91-99 New London Road, Chelmsford, Essex, CM2 0PP
2. 3rd Floor, 1 Ashley Road, Altrincham, Cheshire, WA14 2DT, United Kingdom
3. 5th Floor, United Kingdom House, 180 Oxford Street, London, W1D 1NN, United Kingdom
4.
17 Duke Street, Chelmsford, Essex, CM1 1HP, United Kingdom
5. 6 Caldecotte Lake Business Park, Caldecotte Lake Drive, Caldecotte, Milton Keynes, Buckinghamshire, MK7 8JT,
United Kingdom
6. c/o Countrywide Lettings Ltd, 71 Candleriggs, Glasgow, Lanarkshire, G1 1NP, United Kingdom
7. North Point, Stafford Drive, Battlefield Enterprise Park, Shrewsbury, SY1 3BF, United Kingdom
8. The Capitol Building, Oldbury, Bracknell, RG12 8FZ, United Kingdom
9. Lee House, 90 Great Bridgewater Street, Manchester, M1 5RR, United Kingdom
10. Unit 1001B, 10th Floor, Kinwick Center, 32 Hollywood Road, Central, Hong Kong
11. F-509, 5th Floor, Ashish Corporate Tower, Plot No. 18, Karkardooma Community Centre, New Delhi, India
12. Suite 3.7, 3rd Floor, Standard Buildings, 94 Hope Street, Glasgow, G2 6PH, United Kingdom
13. Suite 2A, St Davids Court, Union Street, Wolverhampton, WV1 3JE, United Kingdom
14. Roddis House, 4th Floor, 4-12 Old Christchurch Road, Bournemouth, Dorset, BH1 1LG, United Kingdom
15. Churchgate House, 2nd Floor, 56 Oxford Street, Manchester, M1 6EU, United Kingdom
16.
1200 Delta Business Park, Swindon, Wiltshire, SN5 7XZ, United Kingdom
17. Sixth Floor, 150 Cheapside, London, EC2V 6ET, United Kingdom
18.
15 Atholl Crescent, Edinburgh, EH3 8HA, United Kingdom
19. 86-88 Leeson Street Lower, Dublin 2, DO2 A668, Ireland
20. Heritage House, Pinfold Street, Bridgetown, Barbados
21. 48 Elizabeth Street, London, SW1W 9PA, United Kingdom
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Annual report 2018
Countrywide plc
Company information
Corporate headquarters
Countrywide House
6 Caldecotte Lake Business Park
Caldecotte Lake Drive
Caldecotte
Milton Keynes
Buckinghamshire MK7 8JT
Registrar
Link Asset Services*
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Corporate advisors
Independent auditors
PricewaterhouseCoopers LLP
Bankers
Royal Bank of Scotland plc
HSBC Bank plc
Abbey National Treasury Services plc
Barclays Bank plc
AIB Group (UK) plc
Brokers
Jefferies Hoare Govett
Barclays Bank plc, acting through its
investment bank
Solicitors
Slaughter and May
Contacts
Executive chairman
Peter Long
Chief financial officer
Himanshu Raja
Company secretary
Gareth Williams
Website
www.countrywide.co.uk
Registered office
Greenwood House
1st Floor
91-99 New London Road
Chelmsford
Essex CM2 0PP
Registered in England
08340090
Financial calendar
AGM
30 April 2019
Interim results
July 2019
*Shareholder enquiries
The Company’s registrar is Link Asset Services. They will be pleased to deal with any questions regarding your shareholding
or dividends. Please notify them of your change of address or other personal information. Their address details are above.
Link Asset Services is a trading name of Link Market Services Limited.
Link shareholder helpline: 0871 664 0300 (calls cost 12 pence per minute plus network extras) (Overseas: +44 371 664 0300)
Email:
enquiries@linkgroup.co.uk
Share portal:
www.countrywide-shares.co.uk
Shareholders are able to manage their shareholding online and facilities include electronic communications, account enquiries,
amendment of address and dividend mandate instructions.
Annual report 2018 Countrywide plc
Annual report 2018 Countrywide plc
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Strategic reportCorporate governanceFinancial statements
Forward-looking statements
This report includes forward-looking statements, which involve risks and uncertainties. These forward-looking statements
can be identified by the use of forward-looking terminology, including the terms ‘believes’, ‘estimates’, ‘anticipates’, ‘expects’,
‘intends’, ‘may’, ‘will’ or ‘should’ or, in each case, their negative, or other variations or comparable terminology. These forward-
looking statements include all matters that are not historical facts. They appear in a number of places throughout this report
and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results
of operations, financial condition, liquidity, prospects, growth, strategies, the industry in which we operate and potential
acquisitions. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based
upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to
predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual
results. All forward-looking statements are based upon information available to us on the date of this report.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of
future performance and that our actual results of operations, financial condition and liquidity, the development of the industry in
which we operate and the effect of acquisitions on us may differ materially from those made in or suggested by the forward-
looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity and the
development of the industry in which we operate are consistent with the forward-looking statements contained in this report,
those results or developments may not be indicative of results or developments in subsequent periods. Important factors that
could cause those differences include, but are not limited to:
• a decline in the number of transactions, prices or commission levels in the UK residential property market, whether due to
the impact of macroeconomic factors or otherwise;
• increased or reduced competition in the industry in which we operate;
• changes in, or our failure or inability to comply with, Government laws or regulations;
• the loss of any of our important commercial relationships; and
• any increase in our professional liabilities or any adverse development in the litigation or other disputes to which we are
a party.
We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you.
We urge you to read the operating and financial review for a more complete discussion of the factors that could affect our
future performance and the industry in which we operate. In light of these risks, uncertainties and assumptions, the forward-
looking events described in this report may not occur.
We undertake no obligation, and do not expect, to publicly update or publicly revise any forward-looking statement, whether as
a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable
to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above
and contained elsewhere in this report.
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Annual report 2018
Countrywide plc
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Countrywide plc
Countrywide House
6 Caldecotte Lake Business Park
Caldecotte Lake Drive
Caldecotte
Milton Keynes
Buckinghamshire MK7 8JT
+44 (0)1908 961000
investor@countrywide.co.uk
www.countrywide.co.uk