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1
8
4th Floor
100 Holdenhurst Road
Bournemouth
Dorset
BH8 8AQ
Tel: 01202 292 480
Website: www.mccarthyandstonegroup.co.uk
Email: investor-relations@mccarthyandstone.co.uk
Twitter: twitter.com/mccarthystone
Facebook: facebook.com/mccarthystone
Annual Report 2018
Operational Highlights
Financial Highlights
Legal completions1
Units
Average selling price
£k
Revenue
£m
Underlying operating profit margin1, 3
%
2,134
FY18
FY17
FY16
FY15
£300k
£671.6m
2,134
2,302
2,299
1,923
FY18
FY17
FY16
FY15
300
273
264
245
671.6
660.9
635.9
485.7
10%
10
16
Land bank
Units
First occupations
Number of developments
Profit before tax
£m
Return on capital employed 1, 3
%
9,797
FY18
FY17
FY16
FY15
Build cycle time
Months
13.9
FY18
FY17
FY16
FY15
68
9,797
9,967
10,186
10,087
FY18
FY17
FY16
FY15
68
69
49
44
£58.1m
58.1
92.1
92.9
80.9
10%
10
16
Customer satisfaction2
%
93.5%
13.9
14.4
15.3
16.0
FY18
FY17
FY16
FY15
93.5
91.2
92.7
91.8
Year end net cash/(debt)2, 3
£m
Earnings per share
Pence
£4.0m
8.6p
8.6
4.0
30.7
FY18
FY17
FY16
52.8
(44.4)
FY15
3.4
FY18
FY17
FY16
FY15
FY18
FY17
FY16
FY15
FY18
FY17
FY16
FY15
FY18
FY17
FY16
FY15
FY18
FY17
FY16
FY15
20
20
20
20
13.8
13.9
1 Excluding commercial units
2 Survey of new homeowners by the NHBC and HBF 2018
1 Underlying operating profit margin and return on capital employed have been reconciled within note 5 to the consolidated financial statements
2 Net cash/(debt) has been reconciled within note 22 to the consolidated financial statement
3 This metric is a non-GAAP Alternative Performance Measure (‘APM’) presented to provide additional useful information - see further detail on
the relevance of APMs within note 1 to the financial statements
Designed and printed by Cedar Group: 01794 525 034
Operational Highlights
Financial Highlights
Legal completions1
Units
Average selling price
£k
Revenue
£m
Underlying operating profit margin1, 3
%
2,134
£300k
£671.6m
10%
2,134
2,302
2,299
1,923
FY18
FY17
FY16
FY15
300
273
264
245
FY18
FY17
FY16
FY15
671.6
660.9
635.9
FY18
FY17
FY16
FY15
485.7
10
16
Land bank
Units
First occupations
Number of developments
Profit before tax
£m
Return on capital employed 1, 3
%
9,797
68
£58.1m
10%
9,797
9,967
10,186
10,087
FY18
FY17
FY16
FY15
68
69
49
44
FY18
FY17
FY16
FY15
58.1
92.1
92.9
80.9
FY18
FY17
FY16
FY15
10
16
20
20
20
20
Build cycle time
Months
13.9
Customer satisfaction2
%
93.5%
Year end net cash/(debt)2, 3
£m
Earnings per share
Pence
£4.0m
8.6p
13.9
14.4
15.3
16.0
FY18
FY17
FY16
FY15
93.5
91.2
92.7
91.8
FY18
FY17
FY16
FY15
4.0
30.7
FY18
FY17
FY16
52.8
(44.4)
FY15
3.4
8.6
13.8
13.9
FY18
FY17
FY16
FY15
FY18
FY17
FY16
FY15
FY18
FY17
FY16
FY15
1 Excluding commercial units
2 Survey of new homeowners by the NHBC and HBF 2018
1 Underlying operating profit margin and return on capital employed have been reconciled within note 5 to the consolidated financial statements
2 Net cash/(debt) has been reconciled within note 22 to the consolidated financial statement
3 This metric is a non-GAAP Alternative Performance Measure (‘APM’) presented to provide additional useful information - see further detail on
the relevance of APMs within note 1 to the financial statements
Designed and printed by Cedar Group: 01794 525 034
FRONT COVER 210mm
195mm
Creating retirement communities
that enrich the quality of life for our
customers and their families
Contents
STRATEGIC REPORT
Our Strategy
Chairman’s Statement
Chief Executive’s Statement
Our Market
Our People
Our Products and Services
Our Business Model
Financial Review
Risk Management
CORPORATE GOVERNANCE
Board of Directors
Corporate Governance Statement
Nomination Committee Report
Risk and Audit Committee Report
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
FINANCIAL STATEMENTS
Independent Auditor’s Report to the Members of McCarthy & Stone plc
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Warning to Shareholders
Historical Statistics
General Information
Glossary
Front cover
External images, left to right:
Plas Glanrafon, Anglesey and Burrstone Grange, Thornton-Cleveleys
4
16
20
26
30
34
46
68
72
80
84
92
96
102
126
132
136
148
149
150
151
152
181
182
183
188
189
190
192
1
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 2
McCarthy & Stone plc Strategic Report
1 Customers of Wingfield Court, Sherborne with pupils
from Sherborne Abbey Primary School
2 Celebrating the visit of HRH Prince Charles at
Bowes Lyon Court, Poundbury
3
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Purpose
1 Barnacre Road Primary School with a homeowner from Burley Court, Preston
4
McCarthy & Stone plc
To create retirement communities that enrich the quality
of life for our customers and their families.
Retirement living involves much more than simply deciding
to move to a new home that’s better suited to our customers’
needs, it’s an opportunity to embrace a new way of life: to have
the freedom to live a lifestyle with more choices and more time
to do the things they enjoy.
At McCarthy & Stone, we create retirement communities that
enrich the quality of life for our customers and their families,
and believe that life is for living, whatever your age.
As the industry leader with unique expertise in planning,
design and construction, we predominantly turn brownfield
sites into retirement communities with our two core products:
Retirement Living and Retirement Living PLUS, which are
aimed at those aged 60+ and 70+ respectively.
These communities are more than just places to live.
They help our customers maintain their independence while
providing peace of mind that assistance is on hand if needed.
We also offer a wide range of on-site social activities, helping
our customers to create new friendships and experiences to
enhance their quality of life.
For those who need additional help, we provide 24-hour
on-site assistance and specialist care packages, tailored
to our customers’ needs.
We build beautiful homes in stunning locations, but we are
more than just a housebuilder. Our communities are managed
by our dedicated teams, with House and Estate Managers
who support our customers every step of the way. By taking
care of daily chores, our customers can enjoy more time for
themselves and with their loved ones.
With more than 40 years’ experience providing high quality
homes to exacting specifications, we have sold over 56,000
homes in the UK, across more than 1,200 developments.
There are currently 4.1 million1 adults aged 65 and over who
are considering downsizing. With only 733,0004 retirement
properties across all tenure types that have ever been built
for older customers, we are well-placed to continue to benefit
from the high demand for our retirement communities.
We have an unparalleled understanding of the needs of our
customers and are proud winners of the HBF Five Star award
for customer satisfaction for the past 13 years, which is every
year since the survey started.
That’s our purpose - creating retirement communities that
enrich the quality of life for our customers and their families.
47%
47% increase in
over 65s by 20372
c.7/10
customers have
made new friends
and socialise more3
c.8/10
customers take part in
organised events within
our developments3
1 YouGov for McCarthy & Stone (2018)
2 ONS, Population projections: 2016-based (2018)
3 Voluntas, Homeowner Survey for McCarthy & Stone (2017)
4 EAC, Specialist housing (2018)
5
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Vision
1 David Harper of Antiques Roadshow at Devonshire Grange, Leeds
6
McCarthy & Stone plc
To be the leading developer, manager
and owner of retirement communities
To create even deeper and longer relationships
with our customers by transitioning the business from
a housebuilder to the UK’s leading developer, manager
and owner of retirement communities
This new vision is underpinned by the following three principles:
1. Flexibility: We want to respond better to our customers’
evolving needs by providing flexible care and ways to pay
for our services
2. Choice: We want to provide our customers with more options
in order to move into one of our properties: ownership, shared
ownership or rental
3. Affordability: We want to ensure our products and services
are affordable for our customers
Our Customer Research1
Customer research was instrumental in helping us formulate
our new vision and strategic plan, with the following customer
values being at the heart of our decision making:
Independence:
Proximity to transport, privacy and own outdoor space.
• 91% of our customers value good access to local
amenities and facilities
Support:
Social activities and healthcare.
• 92% of our customers feel their House and Estate Manager
is approachable and listens to their issues. They are also
provided with 24-hour support
Convenience:
Having features that are easy to use and enhance our
customers’ lifestyle and safety.
• 94% of our customers now feel their new property is
easy to maintain
• 52% of our customers move into our properties
because of concerns about home maintenance in
their previous property
Community:
Not feeling isolated and being part of a community are vital.
• c.7/10 customers have made new friends and socialise more
• c.8/10 customers take part in organised events within our
developments
Affordability:
Value for money is a key deciding factor.
• 1 in 5 list price as a primary reason for not purchasing
• 1 in 10 are concerned about service costs and half of
them would consider renting
91%
of customers said they
have good access
to local amenities1
92%
of customers feel that their
House and Estate Managers
listen to their needs1
94%
of customers said
that their new home
is easier to maintain1
52%
of customers move into our
properties because of concerns
about home maintenance
in previous properties1
O P E N
1 Voluntas, Homeowner Survey for McCarthy & Stone (2017)
7
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Customer Satisfaction
Case study
From world traveller to home bird: former
professional dancer Sheila Groves relaxes
in style at The Clockhouse.
Former professional dancer, Sheila, who has a love of ballroom,
tap and ballet, has been on quite a journey. Having performed
across the UK in places such as Plymouth and Blackpool, and
travelled the world, Sheila has lived in America, Greece and
Paris. She eventually settled back in the UK, before making
the move to McCarthy & Stone’s Retirement Living PLUS
Development in Guildford to enjoy her retirement.
Despite having lived at the development for just a short
time, Sheila is making the most of the thriving social scene
at The Clockhouse and has forged great friendships with
other homeowners.
Talking about her new-found social life at the development,
Sheila said: “I can honestly say that moving to The Clockhouse
has completely changed my life - I’ve made fantastic new
friends and I haven’t once felt lonely since moving in.
Everyone at the development has been so warm and
welcoming, and there’s always someone to chat to in the
homeowners’ lounge - often over a nice bottle of wine!”
1 Sheila Groves, The Clockhouse, Guildford
8
McCarthy & Stone plc
More than 93% of our customers
would recommend us to a friend
In 2018 we again received the
full Five Star award for customer
satisfaction for our products and
services in the independent
survey by the HBF and NHBC.
We are the only housebuilder of any size or type to have achieved this accolade for a
record thirteenth consecutive year - every year since the survey started. The HBF yearly
questionnaire is one of the largest customer surveys of its type. We were awarded the
Five Star rating in March 2018, in which more than 93% of the 1,457 McCarthy & Stone
customers who responded to the survey would recommend us to a friend.
This compared favourably with the industry average of 86%.
We are also pleased that almost nine out of ten of our customers feel that moving
to one of our developments has improved their quality of life. As well as the general
lifestyle we provide, this is testament to our sales approach and our management
services expertise that ensures customers and their families are supported and guided
through the purchasing process and receive all the support they need while living with us.
c. 9/10
of our customers said their
new property improved
their quality of life1
93.5%
of our customers
would recommend
us to a friend1
83%
of our customers
said they experienced
a sense of community
in their new property2
96%
of our customers
said they feel safe
and secure in their
new property3
c. . 33,500
social events were held
in our managed properties
over the last 12 months
(FY17: c.27,600)
1 Survey of new homeowners by the NHBC and HBF (2018)
2 Homeowner survey (2017) and research by Demos (2016)
3 Voluntas, Homeowner Survey for McCarthy & Stone (2017)
9
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Strategy
Strategic targets at a glance
On 25 September 2018 the Group announced a business transformation strategy. The strategy is directly aligned with our
vision to create even deeper and longer relationships with our customers by transitioning the business from a housebuilder to
the UK’s leading developer, manager and owner of retirement communities. This transformation will be delivered in two phases:
Phase 1: by FY21
Optimising our operations for strong financial performance
Operating
profit margin
>15%
Return on
capital employed
>15%
Cost
savings
Cash
savings
>£40m
>£90m
10
McCarthy & Stone plc Phase 2: by FY23
Leveraging our strategic opportunities
Flexibility of care
Flexibility
and ways to pay
of care and
ways to pay
>5%
5%
Grow Management
Services to >5%
of Group revenue
Choice of
Flexibility
ownership
of care and
ways to pay
>20%
5%
Rental or shared ownership
to represent up to 20%
of annual transactions
Affordability of
Flexibility
products and services
of care and
ways to pay
c.15%
5%
Lower cost product
to represent c.15%
of land bank
11
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Strategy continued
Paul Lester, CBE Group Non-Executive Chairman
Introducing our business transformation strategy
As Chairman of McCarthy & Stone since 24 January 2018 I strongly
believe in our operational capabilities and our unique potential to
help respond to a structural undersupply of retirement communities
for our rapidly ageing population.
>£40m
>15%
Cost saving between
FY18 and FY21
ROCE
by FY21
>£90m
Cash saving between
FY18 and FY21
£
£
£
12
McCarthy & Stone plc
Transformation Strategy
Projected UK population growth1, million
2016
2037
11.8
17.3
1.6
3.0
Aged 65+
Aged 85+
Specialist retirement housing2, thousand
For
rent
For
sale
For shared
ownership
17
554
162
We have a great business with strong
operational capabilities
We are the UK’s leading developer and manager of retirement
communities with a significant market share. The Group has
built and sold more than 56,000 properties across more than
1,200 retirement developments since 1977 and we are
renowned for our widely recognised and well respected brand.
All developments built since 2010 are managed by our
established in-house management services team and during
FY18 achieved 98% “Good” Care Quality Commission (‘CQC’)
ratings for our registered Retirement Living PLUS developments.
Our commitment to quality and customer service continues
to be recognised by customers. In March 2018 we received
the full Five Star rating for customer satisfaction from the
Home Builders Federation for the thirteenth consecutive
year - making us the only UK housebuilder, of any size or
type, to achieve this accolade.
Market environment
I am acutely aware that the last two years have been
challenging for the business, which is evidenced in the
financial results contained in this report.
1 ONS, Population projections: 2016-based (2018)
2 EAC, Specialist housing (2018)
3 GFK for consumer confidence index
4 ONS for housing volumes per month
Since the Company’s IPO in November 2015, the business
has faced a number of market headwinds including political
and economic uncertainty following the outcome of the
vote to leave the European Union. These headwinds have
resulted in a challenging economic backdrop, lower consumer
confidence and reduced volumes in the secondary housing
market with UK housing transactions showing a decline of
c.40% since 2015.
In hindsight, the business should have responded sooner
to the deteriorating market conditions and adopted a more
modest medium-term business trajectory and consequently
a reduced cost base.
The Board announced earlier this year that it would be
undertaking a strategic review under my leadership.
On 25 September 2018 we announced the results of that
review which will position the business to succeed in this
more challenging market environment.
3
10
5
0
-5
-10
-15
Jul-2015
Jan-2016
Jul-2016
Jan-2017
Jul-2017
Jan-2018
Jul-2018
IPO
Brexit vote
General Election
UK housing volumes4, number of transactions per month
120,000
110,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
-39%
Jul-2015
Jan-2016
Jul-2016
Jan-2017
Jul-2017
Jan-2018
Jul-2018
IPO
Brexit vote
General Election
13
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Strategy continued
Below are the key operational and financial highlights of the transformation
Key operational highlights of the three year
transformation programme
Key financial highlights of the transformation
• Shift in business mindset from growth to increasing
• ROCE improvement to more than 15% by FY21,
ROCE and margins
increasing to over 20% by FY23
• Realigning the workflow and rightsizing the operational
cost base to deliver steady state volumes of c.2,100
• Improvement in operating margins to more than 15%
by FY21
• Focus on build cost reduction and developing a more
• Total cost savings of more than £40m per annum by FY21
efficient sales and marketing model
• Improved offering through increasing affordability,
flexibility and choice for our customers
• Total cumulative cash savings in excess of c.£90m between
FY19 - FY21
• The Group will focus on reducing its capital employed by
• Focus on two core products, Retirement Living and
at least £70m between FY18 and FY21
Retirement Living PLUS
• Change of year end to 31 October 2019 to decouple
from peak holiday season
How we are going to deliver our business transformation
There are two stages to our business transformation strategy: 1) optimising our operations to deliver strong financial performance,
and 2) leveraging our strategic opportunities.
Stage 1: Optimising operations to deliver strong
financial performance
Firstly, we are focusing on optimising our operations for
strong financial performance over the next three years. By FY21,
we intend to deliver cost savings of more than £40 million per
annum, ROCE improvement to more than 15% an improvement
in operating margin to more than 15% and total cumulative cash
savings of in excess of c.£90m between FY19 and FY21.
There are four parts to this plan:
Workflow realignment
• Workflow realignment is the backbone of the plan, working
on a much more stable flow of land exchanges, build starts
and first occupations
Rightsizing the business
• We will rightsize our organisation and its cost base in line with
the new steady state production and sales volumes of c.2,100
units per annum. As part of this plan we have made a
decision to move from nine to seven operating regions and
flex the resources in those regions in line with their production
requirements over three years. We will also align our support
functions in line with the new steady state volumes and
strengthen Group oversight, making sure regional operational
models are more consistent, moving away from a
decentralised housebuilding model
Efficient sales and marketing model
• We will drive significant improvements to our sales
and marketing functions. The sales process will be
standardised through the introduction of the Salesforce
Customer Relationship Management system that will
enhance the customer sales experience to be more
personalised and tailored to their needs. Marketing will be
centralised and benefit from a new website and content
management system that will improve the effectiveness
of the function and reduce the cost per lead
• With the introduction of these new sales and marketing
systems, we will be able to further leverage insight from
our customers and provide analytics which we will use
to further develop our business model and offering
to the customer
14
McCarthy & Stone plc Build cost reduction
The build cost reduction programme includes:
• Design efficiency through standard designs and specifications
guidelines and the introduction of compact design solutions
• Value engineering - preliminary construction costs
standardisation and optimising of technical specifications
• Procurement initiatives through increased framework
agreements and stronger competitive tendering processes
The initiatives are also tackling the affordability of our properties
and will provide the opportunity to really change the way we
build, both in terms of products we are fabricating and their
method of construction.
Stage 2: Leveraging our strategic opportunities
Stage two of our business transformation is about unlocking our
strategic opportunities. Here we will look beyond the three-year
plan to a five-year vision for the business with returns on capital
employed of more than 20%, fundamentally increasing the way
we broaden and access our marketplace, delivering new
revenue streams for the business and reducing some of the
cyclicality that the business is exposed to as we stand today.
The long-term aim will be to create retirement communities that
enrich the quality of life for our customers and their families and
to become the UK’s leading developer, manager and owner of
retirement communities.
Our proposition is underpinned by three key principles:
Flexibility
• We will increase flexibility within our services to respond
to evolving customer needs and increase revenue. This will
include the introduction of a new tiered service for new and
existing customers, expanding our care offering, opening up
new developments for wider community use and integrating
technology enabled services (e.g. motion monitoring,
medication control sensors and home automation)
Choice
• Moving forward, we believe there is a big opportunity to
introduce a multi-tenure offering, including much more rental
and shared ownership. As our customer research reveals,
50% of customers would be interested in a rental proposition.
Importantly, as we enter the rental market, we will retain a
part share in this whilst exploring opportunities to bring
institutional investment, Real Estate Investment Trust (‘REIT’)
funds and various other vehicles into this industry
Affordability
• The business will seek to maintain its mass market appeal
by increasing the affordability of its products. This will be
achieved by reducing build costs, increasing efficiencies and
introducing new contemporary and optimised apartment
designs, incorporating, where appropriate, open plan living.
We are going to go back to first principles and redesign our
offering. We will achieve this through standardised designs
that we will fabricate in a different way, ultimately reducing
the average selling price and increasing the depth and size
of our addressable market
Moving forward, we think there is a way of creating signature
designs in this new space. It is an important part of the
initiatives in the build cost reduction programme mentioned
above, developing high-quality, attractive developments
using modern methods of construction (‘MMC’), to really
accelerate both our build programmes and the roll out of
these new initiatives.
Summary
We are building on our unique capabilities and positioning
the business to succeed in the current challenging market
environment. We await the Government’s confirmation that
the retirement sector will be exempt from the proposed cap
on ground rents and look forward to the new planning policy
on housing for older people.
Over the next three years we will be focusing on increasing
returns for all our stakeholders by optimising our operations to
deliver strong financial performance. In parallel, we will also aim
to leverage our longer term strategic opportunities to increase
our customer appeal, diversify our revenue streams and reduce
our exposure the market cyclicality.
We believe that our new Group strategy will further build
upon the strong fundamentals already present within our
business, which include our significant share of the owner-
occupied retirement market, our industry-leading levels of
customer satisfaction and build quality and an expected
c.87.5%1 increase in the number of people aged 85 and
over by 2037.
Our new Group strategy is aimed at improving our standard
ways of working and providing greater clarity for our staff,
suppliers, sub-contractors and other stakeholders, as well
as improving our financial results.
1 ONS, Population projections: 2016-based (2018)
15
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Chairman’s Statement
Paul Lester, CBE Group Non-Executive Chairman
£672m
Revenue
(FY17: £661m)
£58m
Profit before tax
(FY17: £92m)
5.4p
Dividend per share
(FY17: £5.4p)
£
£
16
McCarthy & Stone plc
Overview
The last financial year has been challenging for McCarthy
& Stone with the current market environment continuing
to have an impact on the business. A sluggish secondary
housing market and lower consumer confidence following
the outcome of the 2016 EU referendum have all contributed
to this more difficult market backdrop. In light of these
continuing headwinds, the Group began a strategic review
of the business in April 2018 and announced its new
transformation strategy on 25 September 2018.
Despite these external challenges, the Group delivered a 2%
increase in revenue to £672m (FY17: £661m) as it continued
to capitalise on the attractive underlying demographic
opportunity and structural shortage of supply of retirement
communities in the UK. This was driven by a 10% increase
in average selling prices to £300k (FY17: £273k) offset by a
lower volume of legal completions at 2,134 units (FY17: 2,302).
Underlying operating profit decreased to £68m (FY17: £96m)
in the year while profit before tax decreased to £58m (FY17:
£92m). This reduction in profitability was mainly driven by the
slowdown in sales, reduced margins, build cost increases,
increased usage of part-exchange to counteract subdued
market conditions, additional marketing activity and an increase
in operating costs in support of our previous growth strategy.
The Group remains the UK’s leading developer and manager
of retirement communities, with a significant market share of
the private owner-occupied retirement market. Our strength of
brand and continual striving for operational excellence ensures
that we can continue to deliver reasonable results even when
operating in a challenging market. We are building a strong and
experienced management team that is focused on delivering
the Group’s new strategic objectives.
In addition, McCarthy & Stone continues to lead the sector
on customer satisfaction. We are the only developer of any
size or type to have received the full Five Star rating in the
Home Builders Federation (‘HBF’) customer satisfaction
survey for 13 consecutive years, in which more than 93% of
our customers would recommend us to a friend.
Post year end, we were pleased to note that the Ministry of
Housing, Communities and Local Government (‘MHCLG’)
announced that it is proposing to allow the retirement
community sector to continue to charge ground rents after
they are capped elsewhere, subject to potential buyers having
the choice to either pay a higher sale price at a ground rent of
£10 per annum or a lower sale price with a specified economic
ground rent. This proposal recognises the unique way the
sector uses ground rents compared to the mainstream
housebuilding industry. Whilst we are mindful that this
proposal still remains at the consultation stage, we see this as
a positive step for our customers and a strong indication from
Government that our industry has a valuable contribution to
make in providing much needed specialist housing for the older
generation. We will continue to work closely with Government
throughout the consultation period and are pleased with its
initial findings in this area.
Economic and political environment
Since the Group’s IPO in November 2015, the business
has faced several market headwinds including political
uncertainty following the outcome of the vote to leave the EU.
These headwinds have resulted in a challenging economic
backdrop, lowering consumer confidence and consequently
reducing volumes in the secondary housing market with UK
housing transactions showing a decline of c.40% since 2015.
Despite this backdrop, the market for retirement communities
remains highly attractive, underpinned by strong demand.
New research by the Office of National Statistics (‘ONS’)
recognises that around 88% of household growth in the UK
to 2041 is expected to come from those aged 65 and over1
and McCarthy & Stone remains uniquely placed to capitalise
on this unprecedented demographic opportunity.
1 ONS household projections: 2016-based (2018)
17
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Chairman’s Statement continued
24 January 2018
Paul Lester appointed Chairman
17 May 2018
Arun Nagwaney joined as a Non-Executive Director
31 Aug 2018
Clive Fenton retired as Chief Executive Officer
25 September 2018
John Tonkiss appointed as Chief Executive Officer
(John was previously Chief Operating Officer)
I would like to welcome John as the new Chief Executive Officer
of McCarthy & Stone. John has served on the Board since
the Group’s IPO in November 2015, became Chief Operating
Officer in June 2017 and was previously chief operating officer
at Unite Student Housing Group for ten years and before that,
chief executive officer of Human Recognition Systems.
He has been instrumental in leading the development of our
new strategic plan since April 2018 and is therefore well-placed
to lead the Executive Board in the delivery of its new strategy
‘creating retirement communities that enrich the quality of life
for our customers and their families’.
We have continued to strengthen our management team
and now have a strong platform from which to take the Group
through its transformation from a retirement housebuilder to
an efficient developer and manager of retirement communities
and to deliver enhanced returns for our shareholders, suppliers,
employees and other stakeholders.
Paul Lester
Non-Executive Chairman
12 November 2018
New Business Transformation strategy
On 25 September 2018, the Group announced its new
business transformation strategy ‘creating retirement
communities that enrich the quality of life of our customers
and their families’ with a strong focus on increasing ROCE,
margins and cash generation.
The key highlights of the transformation are:
• Shift in business mindset from growth to increasing
ROCE and margins
• Realigning the workflow and rightsizing the operational
cost base to deliver steady state volumes
• Focus on build cost reduction and developing a more
efficient sales and marketing model
• Improved offering through increasing affordability,
flexibility and choice for our customers
• Focus on two core products, Retirement Living and
Retirement Living PLUS
• Change of year end to 31 October 2019 to decouple
from peak holiday season
Dividend
We continued our focus on careful cash management
throughout the year and this has enabled the Directors to
propose a final dividend of 3.5p per share, making the total
dividend for the year 5.4p per share. This payment is in line
with the dividend paid in the prior year (FY17: 5.4p per share)
despite the Group’s lower profits and signals the Board’s
confidence in its new strategy.
Board changes
There were a number of Board changes during the year:
1 October 2017
John Carter joined as a Non-Executive Director
3 January 2018
Paul Lester joined the Board as Chairman designate
24 January 2018
John White stood down as Chairman at the end of the
Annual General Meeting
18
McCarthy & Stone plc 1 Lock House, Taunton
19
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Chief Executive’s Statement
John Tonkiss, Chief Executive Officer
20
£300k
Average selling price
(FY17: £273k)
9,797units
Land bank
(FY17: 9,967 units)
93.5%
Customer satisfaction
(FY17: 91.2%)
£
McCarthy & Stone plc
Our results
Against a backdrop of a particularly challenging market, the
Group delivered full year revenue of £672m (FY17: £661m),
supported by a 10% improvement in average selling price,
which increased during the year to £300k (FY17: £273k)
reflecting improvements in the quality and locations of our
developments.
The Group achieved 2,134 legal completions during the year
(FY17: 2,302), with volumes constrained, as expected, by the
heavy H2 weighting of first occupations, continuing economic
uncertainty coupled with a slower secondary market and a
softening of pricing, particularly in the South East, during the
second half of the year.
Market demand
The structural imbalance between supply and demand within
the housing market continues to provide us with an exceptional
market opportunity. Despite the recent growth in housebuilding
activity, there remains a significant and growing shortage of
housing supply in the UK. This imbalance is particularly acute
in the market for retirement housing where the demand is
estimated at 30,000 retirement units per annum and supply
in 2018 is likely to be in the region of just 6,000 units across
all tenures1 McCarthy & Stone stands alone among the national
housebuilders as the only one that focuses entirely on this
market.
During four decades as the retirement housing market leader,
the Group has formulated a tailored approach to sales, site
acquisition, design, securing detailed planning consents and
construction that mainstream housebuilders have been unable
to replicate. We also ensure that our customers receive the
highest standards of ongoing support through our management
services offering which now provides services for c.16,900
homeowners within 379 developments - one of the largest
operations of its kind in the UK. These high barriers to entry
in our market ensure that we maintain a unique position as
the only developer capable of meeting the nationwide need
for high-quality specialist communities for the growing number
of older people who are looking to move to properties more
suited to their needs and lifestyle.
Strategic initiatives
Over the last three years our continued efforts on achieving
operational excellence to support our growth objectives by
accelerating our working capital cycle have been focused
on our three key strategic initiatives: improving sales rates,
1 Knight Frank, Retirement Housing (2018)
reducing time taken between securing land and starting build
and implementing build programme efficiencies. We made
good progress across all three areas during FY18 and our
strategic transformation plan announced in September 2018
builds on these previous initiatives.
Sales initiative
The sales initiative sets out to deliver off-plan reservations
of 50% or more by the date of first occupation, and then to
reserve out all remaining apartments within an average
12-month period.
We have consistently delivered our 50% off-plan reservation
target over the last few years but delivered a slightly lower result
this year at 49% (FY17: 53%). While this is marginally lower than
our previous three-year average of 51%, it has been influenced
by the increased mix of larger Retirement Living PLUS sites and
remains a good performance in the context of the weaker
market backdrop - Retirement Living 60% (FY17: 76%),
Retirement Living PLUS 28% (FY17: 16%) and Lifestyle Living
12% (FY17: 8%).
FY18 was a year of integration for our sales initiative, as our
National Training Academy became fully operational, running
50 courses over 120 days, training more than 420 delegates.
Our outsourced call handling was also fully embedded.
Furthermore, we were able to build our brand awareness
with the introduction of our nationwide multi-channel marketing
campaign, ‘Retirement Living to the Full’ which we launched
in January 2018.
Our average time to sell out continued to fall behind our
12 month target but was in line with the last two years at
18 months (FY17: 19). Again, a good performance in light
of the current challenging market backdrop.
FY18 saw an increase in part-exchange transactions to 35%
(FY17: 27%) of total legal completions reflecting the ongoing
subdued secondary market and a full year national roll-out of
our in-house part-exchange scheme. Our in-house part-
exchange scheme has proved to be a valuable tool for the
business and delivered a saving of c.£7m (FY17: c.£1m)
when compared to the costs associated with using third-party
part-exchange providers. As at 31 August 2018, we held 147
properties (FY17: 114 properties) on the balance sheet at a
net carrying value of £42m (FY17: £32m). Our in-house part-
exchange properties resold on average c.13.1 weeks after
buy-in (FY17: c.8.5 weeks), with the slightly longer selling time
in line with our 13 week target and a reflection of the full year
national roll-out.
21
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Chief Executive’s Statement continued
Strategic initiatives continued
Development initiative
Our development initiative was established to reduce the
development cycle time by reducing the time taken between
land exchange and the build start process. This involved the
implementation of a number of process improvements with
particular focus on ‘ways of working’, the planning process and
increased standardisation. This has enabled the business to
bring forward profitable developments more quickly, accelerate
growth plans and improve capital turn. The initiative is now
embedded in all regions and is beginning to produce positive
results.
A number of changes designed to accelerate this cycle were
implemented during the year. In particular, we focused on
embedding our FUSION process and improving our
development capacity and responsiveness. FUSION is a
development initiative which aims to reduce the time taken
between securing land and starting build. Progress on this
initiative has translated into a similar development cycle time
as last year of 18.3 months (FY17: 18.1 months) for standard
sites achieving first-time detailed planning consent. In future
years, we will be focusing on the elements within our
development initiative that align with our new strategy, ensuring
that we are optimising margin on all sites at the design stage.
A consequence of this may be that we achieve fewer first time
planning consents, but the returns generated should be higher.
Build initiative
The build initiative continued to drive improvements to the build
process during the year, to accelerate build timescales, reduce
build costs and enhance margins. This resulted in build cycle
time reduction from 14.4 months in FY17 to 13.9 months in
FY18. Specific focus has been placed on improving our
material procurement practices through increased framework
agreements and we have plans to introduce stronger
competitive tendering processes, particularly for our sub-
contractors. In addition, we introduced DATUM, our industry
leading product management platform with technical
specification libraries fully established to improve the value
engineering around such areas as foundations, balconies,
wall structures etc. This will create a strong foundation for our
build cost reduction workstream within our new strategy.
New strategic direction
Faced with the continued challenging economic backdrop,
the Board undertook a strategic review of the business and
in September 2018 we announced our new strategy ‘creating
retirement communities to enrich the quality of life for our
customers and their families’.
This new strategy represents a shift in the business mindset
from growth to increasing our return on capital employed
and margins. We are positioning the business to succeed in
the current challenging market environment and, over the
next three years, we will be focusing on increasing returns by
optimising our operations to deliver strong financial
performance across four fundamental pillars, for the benefit
of all our shareholders:
• Workflow realignment is aimed at generating a stable
monthly flow of land exchanges, build starts, sales
releases and first occupations, all of which are
fundamental to our operational efficiency
We have already completed the necessary planning
actions within our Group three year plan, while continuing
to maintain land bank optionality
• Rightsizing the business seeks to align the operational
cost base to reflect steady state volumes, while retaining
the ability to respond if market conditions improve
We have now completed the formal collective consultation
process for reducing our footprint from nine to seven
regions with the total headcount reduction resulting in an
annualised cash saving of c.£10m
• Efficient sales and marketing model involves a
reorganisation of our sales teams and a centralised
approach to Group marketing
We have now set up the operating model and intend
to complete roll out by the end of December. Our new
Salesforce CRM system will be piloted in December
with full rollout in February 2019. This will allow us to
standardise sales processes, leverage customer insights
and analytics resulting in improved marketing effectiveness
and reduced cost per lead, while allowing us to enhance
personalised customer experience
• Build cost reduction programme involves increasing
standardisation, more efficient designs and optimising
subcontract procurement practices
Design efficiency reviews are currently being undertaken
on all FY20 developments and we expect the majority of
savings to come through the income statement in FY21
22
McCarthy & Stone plc In parallel, we will also aim to leverage our longer term strategic
opportunities within our services and product offering. We will
aim to create even deeper and longer relationships with
customers to increase our customer appeal, diversify our
revenue streams and reduce our exposure to market cyclicality.
The long-term aim will be to create retirement communities that
enrich the quality of life for our customers and their families and
to become the UK’s leading developer, manager and owner of
retirement communities.
The Group’s proposition is underpinned by three key principles:
• Flexibility within our services to respond to evolving
customer needs and increase revenue. This will include
the introduction of a new tiered service for new and existing
homeowners, expanding our care offering, opening up new
developments for wider community use and integrating
technology enabled services (e.g. motion monitoring,
medication control sensors and home automation)
• Choice of ownership through multi-tenure options,
including outright ownership, shared ownership and rental.
Moving forward, we believe there is a big opportunity to have
a multi tenure offering and our customer research indicated
that 50% of customers are interested in a rental proposition.
Importantly, as we enter the rental market, we intend to sell
our rental properties on to investors whilst retaining an
interest. Over time, there is likely to be an opportunity to
bring institutional investment, Real Estate Investment Trust
(‘REIT’) funds and various other vehicles into this space
• Affordability - to maximise the mass market appeal by
increasing the affordability of our products. This will be
achieved by reducing build costs, increasing efficiencies
and introducing new contemporary and compact designs
New strategic targets:
• Steady state volume of c.2,100 units per annum
• ROCE improvement of greater than 15% by FY21,
increasing to over 20% by FY23
• Improvement in operating margins to more than 15% by FY21
• Total cost savings of more than £40m per annum by FY21
• Total cumulative cash savings in excess of £90m between
FY19-FY21
• The Group will focus on reduction in capital employed by at
least £70m between FY18 and FY21
Land bank
During the year, we invested £112m (FY17: £156m) in land and
our land bank now stands at 9,797 units, which equates to over
4.6 years’ supply based on current unit sales volumes. 54 high
quality sites with attractive embedded margins were added to
the land bank during the year (FY17: 75) in line with our new
strategy focusing on a more measured trajectory and smoother
workflow objectives.
Our product ranges
We sold three products during the year. Our two core products,
Retirement Living and Retirement Living PLUS (which will be the
focus of our business going forward post our strategy update),
alongside our Lifestyle Living offering.
During the year we brought to market 41 (FY17: 37) Retirement
Living developments and 19 (FY17: 8) Retirement Living PLUS
developments, including 72 (FY17: 0) bungalow units. There is
a growing need for modern, low-maintenance and well-
connected bungalows among the older population and the
appropriateness of this form of housing in later life is well-
proven. The particular shortage of bungalows and other houses
for older people means they are likely to attract a high level of
demand. In response to this demand, we are intending to
provide more bungalows and cottages on larger schemes,
opening up exciting new possibilities for maximising
development potential on certain sites, as well as providing for
completely new land opportunities. As of 31 August 2018, we
had 364 (FY17: 222) bungalow units within our land bank.
Going forward we will focus on our two core product lines,
Retirement Living and Retirement Living PLUS, that best fit our
new strategy and enable us to provide customers flexibility and
choice through product innovations. Our Lifestyle Living offering
will be phased out over time and our bungalow range will be
incorporated into our core product offerings.
Our Management Services business
The rapid growth of our Management Services business
continued during the year, adding 68 new developments to
its portfolio, which as of 31 August 2018 totals 379 (FY17: 312)
managed developments. Providing our own management
services allows us to establish a unique relationship with our
customers, ensuring that they receive the highest standards of
ongoing support, providing personal and efficient services that
not only help them, but also support the point of sale, and
allowing us to deliver industry-leading standards of customer
satisfaction.
23
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Chief Executive’s Statement continued
Our Management Services business continued
We now have c.16,900 (FY17: c.14,600) homeowners to whom
we provide c.31,000 (FY17: c.24,000) hours of care and support
and c.60,900 (FY17: c.60,500) meals per month.
In line with our new strategy, we see a Management Services
offering that responds to evolving customer needs combined
with flexible payment options as the key to delivering an
enhanced customer experience.
Our customers
We are delighted to report that, once again, we achieved the
full Five Star rating in the Home Builders Federation (‘HBF’)
customer satisfaction survey for 2018. This marks the thirteenth
consecutive year in which we have achieved a Five Star rating
and this year 93.5% of our customers have said that they would
recommend us to a friend. We are the only housebuilder of any
size or type to win this award every year since it was introduced
in 2005. This sustained recognition by our customers of the
quality of product and service we deliver is a strong
endorsement of our continued desire to design, build, sell and
manage the very best retirement developments.
Our employees
Our performance this year would not have been possible
without the dedication, enthusiasm and expertise of our people.
They are critical to the continued evolution of the business.
We are in the process of building a culture of excellence that
provides further opportunities for development and recognises
achievements by regularly celebrating those employees who go
the extra mile for a customer or colleague, through our instant,
quarterly and annual PRIDE awards for Passion, Responsibility,
Innovation, Determination and Excellence. The Board is mindful
that 2018 has been a particularly challenging year for the Group
and its employees and would like to place on record their
appreciation of the huge efforts undertaken by all employees
across the Group, particularly against the backdrop of a difficult
market.
At the beginning of FY18, we launched our new management
development programme which has seen nearly 400 attendees.
We also launched our inaugural Future Leaders programme,
which is designed to equip our future sector leaders to lead
strategy execution and transformational changes.
We have also launched an apprenticeship scheme for site
management and quantity surveying.
Health and safety
I am pleased to report that we have continued to make good
progress with developing a culture of excellence in health and
safety across the Group. Our vision is not just to achieve
health and safety compliance but to lead our sector with a
robust and consistent safety culture across our organisation.
Our internal monitoring regime is supported by a rigorous,
independent site inspection programme including regular
reporting updates to the Board.
During FY18 we received 3 BSG Health and Safety awards,
including one award for Best Use of Technology for our
pioneering work using drones for roof inspection to reduce
the need for work at height.
Government consultation on ground rents
In June 2017, the Government launched a consultation on
tackling unfair practices in the leasehold market with
particular reference to leasehold housing and unfair
escalation clauses for ground rents. We understand and
support the need for action in this area and welcome the
Government’s recent announcement, post the year end, to
propose allowing an exemption for the retirement community
sector to continue to charge ground rents after they are
capped elsewhere. Our ground rents are on fair and stable
terms as they are fixed for 15 years and increases are linked
to the higher of 2% or RPI. There have undoubtedly been
cases where the system has been abused by some, including
with ground rents that double every ten years and the sale of
leasehold houses, and we understand why the MHCLG is
taking action to protect homebuyers.
We were therefore pleased that on 15 October 2018,
Government announced that it is proposing to allow the
retirement community sector to continue charging ground
rents after they are capped elsewhere, subject to offering
customers a choice between paying a higher sale price or a
ground rent. While the proposal remains at the consultation
stage, this is a positive step for our customers and we will
continue to work closely with Government for the remainder
of the consultation period.
24
McCarthy & Stone plc Outlook and current trading
We are seeing continued resilience within our lead indicators,
which are currently running moderately ahead of the prior
year on a per outlet basis, but the secondary market remains
challenging, especially in the South East, where customers
continue to exercise caution due to economic uncertainty.
Our forward order book as at 9 November 2018 (week 10) is
in line with management expectations and currently stands
c.4% behind the prior year at c.267m (10 November 2017:
£277m) reflecting 4 sales releases since 1 September 2018
(FY18: 17 sales releases). Recent trading has also been
impacted as expected by organisational changes within
our sales function across the last 6 weeks.
We have a 14 month accounting period in FY19, with a new
year end date of 31 October 2019. Our expected FY19 out-turn
assumes that FY19 FRI sales go ahead as planned and remains
in line with the Board’s expectations. The Group reiterates the
FY19 savings range announced as part of our new strategy (c.
20-30% of the FY21 target P&L saving of c.£40m). Our build
programmes are currently all on track to deliver more than
40 first occupations in FY19.
We will continue to apply a measured approach to land
acquisitions at attractive margins to add to our existing quality
land bank, in line with the new strategy.
Our main focus for FY19 will be on rolling out our new strategy,
achieving key milestones and delivering savings in accordance
with our new strategic plan.
John Tonkiss
Chief Executive Officer
12 November 2018
25
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Market
1 Open day for customers of Langton House, Warlington
2 Customers of Wingfield Court, Sherborne with pupils from
Sherborne Abbey Primary School
3 The Rt Hon Theresa May MP, Prime Minister, meeting McCarthy & Stone’s
Management Services team at Swift House, Maidenhead, on 13 October 2017
26
McCarthy & Stone plc There is an undersupply of suitable
housing options for older people in the UK
The UK population is ageing rapidly and
there has been a long-term undersupply of
suitable housing options for older people.
These two factors mean there is growing
demand for new retirement communities
across the country.
We remain the sector leader in the retirement living market with an offering that
is built around creating high-quality retirement communities that improve the
quality of life for our customers and their families. This means we are well-placed
to benefit from the UK’s ageing population and the structural shortage of specialist
properties for older people.
Undersupply
In 2018, just 6,000 new retirement units will come to the market in the UK across
all tenures and while there is understandable interest in the retirement sector from
new operators, unit delivery remains low when set against potential demand of up
to 30,000 units a year1. The sector has significant barriers to entry and developers
need to have an in-depth knowledge and understanding of all aspects of this market
to deliver successful products and services to older people.
This shortage of retirement properties is one part of the wider housing crisis.
It is estimated that England alone needs c.300,000 new homes a year2 to match
demand, but there were just c.217,000 net additions in 2016/173. This creates a
significant annual shortfall and pent up demand.
An ageing population
The number of older people living in the UK far exceeds the supply of suitable
retirement housing. The number of people aged 65 or over stands at 11.8 million -
rising to 17.3 million over the next 20 years, while those aged 85 or over will rise
from 1.6 million to 3.0 million4. These figures suggest that demand for retirement
communities will increase rapidly.
1 Knight Frank, Retirement Housing (2018)
2 HM Treasury (2017)
3 ONS, Housing supply; net additional dwellings, England: 2016-17, (2017)
4 ONS, Population projections: 2016-based (2018)
27
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Market continued
1 Waterman House, Broadstone
28
McCarthy & Stone plc
Strong demand to downsize
A significant proportion of older people are also looking to
downsize. Our yearly opinion survey with YouGov in 2018
found that 35% of people aged 65 or over are considering
downsizing, equating to 4.1 million people. The survey also
found that 22%, or 2.7 million, would consider moving to a
retirement community, providing confidence in the long-term
potential of this market1.
Tapping into the broader retirement
housing market
As part of our new Group strategy and to leverage the
undersupply and ever increasing demand for retirement
living accommodation, we will provide greater choice
for customers by offering multi-tenure solutions including:
• Outright ownership
• Shared ownership
• Rental
In July 2017, we surveyed potential customers on our
database. c.50% of these said that they would consider
renting. Assuming this can be applied to the 579,000
projected retirement homes demanded by 2028, it could
create a potential market of c.289,500 rental retirement
homes over the next decade1.
Political support
There have been several positive political developments
relating to retirement communities in the year. National
Planning Practice Guidance2 was updated in September
2018 and contained several positive changes, noting that:
• “The need to provide housing for older people is critical
as people are living longer lives and the proportion of
older people in the population is increasing… Supporting
independent living can help to reduce the costs to health and
social services, and providing more options for older people
to move could also free up houses that are under-occupied.”
• “Local planning authorities should ensure that the policies
in their Local Plan recognise the diverse types of housing
needed in their area and, where appropriate, identify specific
sites for all types of housing to meet their anticipated housing
requirement. This could include sites for older people’s
housing including accessible mainstream housing such as
bungalows and step-free apartments, sheltered or extra care
housing, retirement housing and residential care homes.”
Parliament’s Communities and Local Government Select
Committee also published a report on Housing for Older
People3 in February 2018 calling for:
• A national strategy to improve Government policy on housing
for older people
• The National Planning Policy Framework to be amended to
emphasise the key importance of the provision of housing
for older people
• Specialist housing to be designated as a sub-category of the
C2 planning classification or have a new use class to lower
its planning contributions
• Councils to publish a strategy explaining how they intend
to meet the housing needs of older people in their area
and identify a target for new housing for older people
While not Government policy, the report provides a useful
route map to increasing delivery in this sector.
We also note the Government’s consultation paper on
ground rent reform, which was published in October
2018. We are pleased with the proposal to exempt the
retirement sector from the proposed cap on ground
rents. The proposal recognises the unique way the
sector uses ground rents compared to the mainstream
housebuilding industry. However, we note that this
remains a proposal and is subject to further consultation
and passage through Parliament.
We also await the Government’s proposed new planning
guidance on housing for older people and the Green
Paper on Social Care, which are both expected to be
published by the end of 2018.
1 YouGov for McCarthy & Stone (2018)
2 MHCLG, National Planning Practice Guidance, para 020 (2018)
3 Parliament, Housing for Older People (2018)
29
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our People
1 Housebuilder Awards 2018
2 RVS fund raising, South East
3 Head Office Choir at the ‘Sing Your Heart Out’ concert for RVS
4 RVS fund raising, West Midlands
5 RVS fund raising, West Midlands
6 PRIDE Award Winner, Piers Cullis
30
McCarthy & Stone plc Equal opportunities for all
Our people are vital to the performance of our business and will be pivotal
in supporting the delivery of the new strategy. The Group recognises that
attracting and retaining employees is only possible if we provide the right
working environment, appropriate reward and recognition schemes and
opportunities for personal development and training.
17,646
Online and
face to face
training
courses
completed
(FY17: 13,500)
At the end of FY18, the Group employed a total of 2,512
people (FY17: 2,264). This figure excludes subcontractors
and agency workers.
The table below shows our total employees excluding
Non-Executive Directors by age group.
Employees by age analysis
Equal opportunities for all our employees
The charts below show that we currently have a higher
proportion of men working in senior management positions
than female. The charts also show that females represent
69% of our workforce. This is primarily because our
Management Services and Care division employs significantly
more females than males. Also shown is the split between
men and women on the Board. We have published our
gender pay gap information which can be found within
the Directors’ Remuneration Report on pages 102 to 125.
The full gender pay gap report is published on our website:
www.mccarthyandstonegroup.co.uk
Employees in senior management positions
(including Directors of related undertakings)
Female (FY18)
Male (FY18)
29 (22%)
103 (78%)
Female (FY17)
Male (FY17)
27 (20%)
103 (79%)
Total employees of the Group
(excluding Non Executive Directors)
Total employees of the Group 25 and under
Total employees of the Group 26-49
Total employees of the Group 50 and over
189
1,227
1,096
Our standards of working
We are committed to achieving the highest legal and ethical
standards and it is our policy to conduct business in a fair,
honest and open way, without the use of bribery or corrupt
practices in order to obtain an unfair advantage.
The Group has policies in relation to whistleblowing, anti-bribery
and corruption, fraud and anti-money laundering and all staff
are required to undertake training on these matters.
The Group’s policy and statement in relation to slavery and
human trafficking as required under the Modern Slavery Act
2015 are available to view on our website:
www.mccarthyandstonegroup.co.uk
Employee split by business area
FY18
Management and Care Services
1,418
Female (FY18)
Male (FY18)
Housebuilding
1,094
1,736 (69%)
776 (31%)
FY17
Female (FY17)
Male (FY17)
Management and Care Services
1,209
1,508 (66%)
756 (33%)
Housebuilding
1,055
31
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our People continued
Recognition of achievements
Our values, which were chosen by our employees, are
the standards to which we hold ourselves accountable
and reflect the way we work, the way we communicate
and the way we act. Our values are:
Passion
Responsibility
Innovation
Determination
Excellence
681
PRIDE
Awards
FY18
(FY17: 674)
We celebrate and recognise employees who go the extra
mile for a customer or colleague through our quarterly and
annual PRIDE awards.
Any staff member can nominate a colleague for an instant
PRIDE award which is judged by our regional PRIDE
champions. Each quarter, instant PRIDE winners are then
put forward for quarterly awards with overall winners being
judged on an annual basis. During FY18, 681 PRIDE awards
were presented (FY17: 674).
As always our thanks go to our workers - the drivers, the
managers, the Directors, our site teams, the sales teams
and all the hard working people at McCarthy & Stone
up and down the country.
Apprentices and trainees
We have partnered with apprenticeship training providers to
deliver a range of qualifications within the business. We have
aspiring Site Managers, Surveyors and Team Leaders on the
programme, with agreements in place with providers to deliver
a range of other apprenticeships including, but not limited to,
project management, finance and customer services. We
also participate in a Shared Trade Apprentice Scheme, which
places apprentices within our supply chain and provides work
experience to help them achieve their qualification. We hope
that, once qualified, the apprentices will continue working for
the Group, thus helping to alleviate national shortages in
skilled labour the industry is currently experiencing.
We also offer trainee contracts in other departments such
as sales, finance and legal services.
Student placement scheme
The Group has continued its work on developing the next
generation of housebuilders in FY18 through a student
placement scheme run in conjunction with Northumbria
University. As part of the scheme, which has been running
since 1991, students studying for the BSc Hons in Construction
Project Management have the opportunity to spend a year
working at McCarthy & Stone. This works well for both the
students, who gain on-site experience, and for McCarthy
& Stone, with many students competing for placements.
In total, over 130 people have completed the scheme with us
since it was launched. Several scheme participants continued
to work for us after completing their degrees. Some of these
have risen to senior roles within the organisation.
Opportunities for development
We have an ongoing commitment to training and personal
development. Performance against objectives is formally
reviewed on an annual basis, and, as well as setting objectives,
identifies learning and development opportunities that will
increase employees’ effectiveness in their current role, or
prepare individuals for a future role.
All employees have access to a range of both internal and
external training and development and professional qualification
courses. The key management and leadership development
programmes we delivered during FY18 and will continue in
FY19, were:
Management Development Programme (MDP), which
provides new and existing managers the opportunity to
develop their skills in a number of areas including: leadership,
performance coaching, performance management and team
effectiveness. We are pleased to have seen high attendance
levels at MDP events in FY18 of c.400 attendees; 43% of
which were female.
Our Future Leaders Programme, which is aimed at our
existing Director level employees, with the objective of
developing them to take on more senior leadership roles in
the future. This programme has been recognised as a finalist
in the best training category in the HBF annual awards 2018.
We are an approved CMI Centre (enabling us to deliver
Chartered Management Institute qualifications). People
attending many of the Management Development workshops
have the opportunity to continue their development and
progress to Level 3 or Level 5 CMI Certificate or Diploma
in Leadership and Management.
Our new sales academy opened in FY17. Since its opening at
the end of August 2018 55 sales courses have been run with
408 delegates attending.
32
McCarthy & Stone plc Awards
NHBC Pride in the Job Awards
We are extremely pleased that our high standards are
recognised externally. In 2018, 20 (FY17: 15) of the Group’s
Site Managers were awarded NHBC Pride in the Job Awards.
The result was unprecedented for McCarthy & Stone as it is
the largest number of awards we have ever received and marks
a 33% (FY17: 50%) increase from last year.
In addition to the 20 Pride in the Job awards, five of the winners
went on to win Seals of Excellence and one Regional Award for
the South West which now goes through to the National
Awards which are to be presented in January 2019.
These awards are the industry’s most prestigious awards
programme and recognise Site Managers who achieve
the highest standards of housebuilding and who demonstrate
the highest qualities of workmanship, leadership, technical
expertise and health and safety awareness.
ARMA ACE Awards
In July 2018, we were pleased to win two awards at the ARMA
(Association of Residential Managing Agents) national awards.
The awards were for ARMA’s On-site Staff Member of the year
and Service Charge Accountant of the year. We were also one
of the finalists for ARMA’s National Managing Agent of the year.
The Awards celebrate excellence and exceptional achievement
by the UK’s leading managing agents and suppliers and the
work of their people in improving the lives of thousands of
customers.
The only housebuilder to receive
the full Five Star rating from the
HBF for 13 years
HBF/Housebuilder Awards -
Best Retirement Scheme for
Horizons, Poole
2018 ARMA ACE Awards - Winner
of Onsite Staff Member of the year
and winner of Service Charge
Accountant of the year, as well as
finalist for National Managing Agent
of the year
WhatHouse Awards - Bronze in the
Best Retirement Scheme category
for Bowes Lyon Court, Poundbury
Pride in the Job - 20 site managers
won the coveted Pride in the Job
Award from the NHBC, five site
managers won Seals of Excellence
and one Regional Winner
33
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Products and Services
1 Lonsdale Park, Oakham
2 The Wickets, Settle
34
McCarthy & Stone plc Creating retirement communities
Two retirement accommodation products, incorporating
highly desirable apartments and bungalows at selected
sites, catering exclusively for older people
We offer well-designed properties in stunning locations,
where every detail has been carefully thought through with
our customers’ needs in mind, from access to local amenities
to internal layouts and combined with just the right level of
service and support.
Our offer to our customers extends beyond just the built
environment. Through our in-house management services
teams, we have long term relationships with our customers.
This enables us to provide flexible services and support,
throughout the whole time that they live with us.
Whilst our products and services offer genuine benefits to our
customers, as part of our strategy, we have responded with
a new long-term customer centric vision for the business to
broaden our services, product and multi-tenure offering to
better cater for our customers’ needs.
As well as undertaking the day-to-day running of developments,
a key part of the role for our House and Estate Management
teams is fostering and developing the community. All new
developments receive an initial community fund to help support
social events and activities - based on the interests of residents.
C.33,500 social events were held in our managed properties
over the last 12 months. The impact of this on the lives of
residents is clear from our last customers’ survey - 83% of our
customers said that they experienced a sense of community in
their new property, compared to 51% of older people in general.
We also have a number of sites currently under development
that offer bungalows alongside apartment living. Adding the
availability of on-site services enhances the enduring appeal
of owning a bungalow for our target age group.
c.60,900
c.16,900
Meals served
per month
(FY17: 60,500)
Number of
residents
(FY17: 14,600)
379
Developments
under management
(FY17: 312)
c.31,000
Hours of care and domestic
support per month
(FY17: c.24,000)
35
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Products and Services continued
Providing flexibility, choice and affordable options
Our homes and communities meet a range of needs of our
customers and we provide them with a variety of properties
and differing levels of flexible care and services.
Multi tenure options will also create choice for our customers,
ranging from outright ownership to rental and shared
ownership solutions.
Peace of mind and a sense of community is created through
our well-established management and care services teams
providing social activities and services for our existing
customers.
Whilst our homes provide customers with the independence
and convenience that they require, they also have call support
on all sites and 24-hour on site staffing at our Retirement Living
PLUS developments.
To further develop our offering, we will be piloting and
introducing new services as part of our ongoing business
transformation which will build on our current Management
Services proposition and demonstrate that we are evolving
with our customers’ needs and values. These may include:
Quality of life
• Expanding our care offering into our Retirement Living
developments
• New partnerships with local fitness centres
• Sleep quality sensors with remote monitoring
• Activity detection sensors
• A greater role for technology and artificial intelligence
Convenience
• New tiered levels of services and support
• New partnerships with the NHS
• Home automation control such as lighting,
heating and home appliances
• Medication control sensors
• Change of charging model into an all-inclusive
management fee model
• New, flexible ways to pay for services including
pay as you go, deferred and hybrid options
Community
• Opening our new developments for wider
community use
• Video communication
• Community challenges
Safety
• Fall awareness sensors
• Security cameras
1 Lido Grange, Prestatyn
36
McCarthy & Stone plc Retirement Living
Retirement Living PLUS
The perfect blend for many buyers - their own
apartment, maintenance taken care of and the
chance to socialise
All the benefits of Retirement Living with
support and on-site catering for those
wanting a little more help
• Minimum age of 60 and a current average buyers’
• Minimum age 70 and a current average buyers’ age of 83
age of 79
• Typical number of homes per site: 50-70 with 1, 2 or 3
• Typical number of homes per site: 30-50 with 1, 2
bedroom options
or 3 bedroom options
• FY18 completions: 1,412 (FY17: 1,722)
• House Manager and shared facilities, including
customers’ lounge, guest suite1 and communal gardens
• FY18 completions: 583, (FY17: 479)
• Similar services to Retirement Living, with the added
benefit of a restaurant or bistro, domestic support and
flexible care packages, among other facilities and services1
• 24-hour staffing
For more information see pages 38 to 41
For more information see pages 42 to 45
Bungalows
Within our Retirement Living and Retirement Living PLUS developments,
we will be providing the option of bungalow homes at selected sites
• Typically 1, 2 or 3 bedroom options
• FY18 completions: 21, (FY17: 0)
• Offers similar services to Retirement Living
and Retirement Living PLUS at selected sites
1 Facilities and services may vary by site
37
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Products and Services continued
38
McCarthy & Stone plc Retirement Living
Key features
For those aged 60+
On-site House Manager
Customers’ lounge
Guest suite
Extensive landscaped grounds
Typically 30-50 homes per site
Bungalows as an option at selected sites1
Homes feature one, two or three bedrooms, spacious lounges,
fitted kitchens, level access, extra storage, en-suite bathrooms for
our classic designs and, typically, private outside space in the form of
balconies, terraces or patios. Every aspect is specifically designed with
our customers in mind, from the slip-resistant flooring in the bathrooms,
and the lever taps for easier operation, to the electric plug sockets at
a more convenient height.
Our apartment developments have camera-door entry and a 24-hour
emergency call system with pendant alarms.
They also feature a large amount of communal space to help build
a sense of community, including a shared lounge, guest suite to
accommodate visiting family and friends, and landscaped grounds.
Bungalows are also an option for our customers within several
Retirement Living developments.
Each of our Retirement Living developments has a dedicated House
Manager working five days a week during office hours, managing the
day-to-day running of the development while also helping to facilitate
various social activities.
1 Facilities and services may vary by site
44
New Retirement Living
developments sales released
in FY18 (FY17: 36)
1,412
Units sold in FY18
(FY17: 1,722)
SOLD
39
1 Applegate House, Trowbridge
2 Chesterton Court, Ilkley
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Products and Services continued
1 Brueton Place, Solihull
2 Apartment interior
40
McCarthy & Stone plc
Retirement Living
Case study
Age is just a number for one seasoned traveller
and Solihull retiree
Solihull retiree, Betty Chinnock (82), is proving age is just a
number when it comes to enjoying retirement to the full. Having
made the decision to downsize to McCarthy & Stone’s Brueton
Place development on Blossomfield Road, Solihull, Betty is
making the most of the opportunity to do more of what she
loves - to travel the world.
Known for her adventurous spirit and having lived by the
motto, “if you don’t ask you don’t get”, Betty has been on
many fantastic overseas expeditions throughout her life.
From an on-going love affair with Italy to a Canadian road trip
in her 70s, it is difficult to find a place Betty hasn’t travelled to.
Having moved to an age exclusive apartment, Betty is now
gearing up for more exciting adventures both home and away.
Betty explained what prompted her recent move: “I first heard
about the McCarthy & Stone development in Solihull when a
friend of mine suggested going to an Open Day.
“I was immediately impressed, I left the event with a spring in
my step and proceeded with the exchange process which only
took 10 days!”
According to Betty, she has had the support of her nearest and
dearest throughout her move. “My family have been incredibly
supportive throughout the whole process,” Betty said. “There
was an incredibly fast turnaround, as I sold my property and
bought at Brueton Place in just over a week. Without the
superb assistance I received from McCarthy & Stone and
the unparalleled backing of my family, none of this would have
been possible.”
McCarthy & Stone’s age exclusive developments are designed
to offer customers the very best in independent living within a
safe and secure environment, with the opportunity to benefit
from companionship when they want it and privacy and
assistance when they need it.
“My one-bedroom apartment is perfect, it has a Juliet balcony
which looks over an abundance of trees and the beautifully
landscaped gardens which I adore waking up to every morning.
“There are lots of events here at Brueton Place that I love
attending”, Betty continued. “We have a weekly coffee
morning on Wednesday, and it’s great to socialise with other
homeowners. The community aspect of life at McCarthy &
Stone was very appealing to me, all of the fellow homeowners
at Brueton Place are very friendly and happy to chat. I have the
perfect balance of a private life and a social life, and I’ve made
lots of fantastic new friends here.”
Betty Chinnock
Brueton Place
Solihull
41
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Products and Services continued
42
McCarthy & Stone plc Retirement Living PLUS
Key features
For those aged 70+
Estate Manager and on-site team
Customers’ lounge
Restaurant/bistro
Well-being suite
Built to Wheelchair Accessibility Standards
Mobility scooter store
CQC registered, 24-hour support
Typically 50-70 homes in each development
Bungalows as an option for Retirement Living PLUS
developments and available at selected sites1
Our Retirement Living PLUS developments offer retirement properties
with management services, domestic assistance and personal care on
site. They are an attractive alternative for people seeking additional
support whilst maintaining their independence.
Developments are similar to Retirement Living but have a number of
additional features, including a full table service restaurant or bistro
with meals freshly prepared on-site, a function room, laundry, and
secure mobility scooter store room.
As with Retirement Living schemes, bungalows are also an option
within Retirement Living PLUS developments at selected sites1.
There is also a dedicated estate management team on-site 24-hours a
day, 365 days a year, which is led by the Estate Manager. They provide
extra support if and when it is needed, whether it is shopping, cleaning
or care services. Tailored and flexible care and support packages mean
customers only pay for the additional help they use.
1 Facilities and services may vary by site
18
New Retirement Living PLUS
developments sales released
in FY18 (FY17: 12)
583
Units sold in FY18
(FY17: 479)
SOLD
43
1 Augustus House, Virginia Water
2 Albert Court, Henley
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Products and Services continued
1 Apartment interior
2 Tudor Rose Court, Southsea
44
McCarthy & Stone plc Retirement Living PLUS
Case study
The magic of the Savoy Ballroom lives on 63 years’ later
Having raised a family and lived in the United States of
America and Holland, Pieter (84) and Monica (82) Peursum
have returned to Southsea - to the very spot where their life
together began, more than 63 years ago.
The couple first met at the iconic Southsea Ballroom in 1953 -
a building which is now enjoying a new lease of life, having
being transformed into a McCarthy & Stone Retirement Living
PLUS development, Tudor Rose Court.
Having met when Pieter was stationed to the area to complete
his national service in the Dutch Navy, the couple had a
whirlwind romance and decided to get married so they could
stay in the country together.
Pieter said: “I would go to the Savoy Ballroom every Friday
and Saturday evening and one night I had the pleasure of
dancing with Monica.”
Mr and Mrs Peursum decided to move back to Southsea,
which is when they heard about McCarthy & Stone’s Tudor
Rose Court, situated on the seafront. Designed for the over
70s, the Retirement Living PLUS development is perfect
for those who want to own their property, with the added
advantage of access to a little extra support when required
and all the benefits of living in a community of like-minded
individuals.
Mr and Mrs Peursum are making the most of the thriving social
community that has formed at Tudor Rose Court. “The staff
and homeowners at the development are all wonderful and
we enjoy being part of an active community,” Pieter explained.
“We like to get involved in as many activities as possible,
including gala evenings, the Valentine’s Day tea dance and
weekly organised walks to the pier.”
“We’re so happy to now be settled into our stunning apartment
and we feel truly blessed with the life that we’ve had together.
We have enjoyed every minute - which is why it feels extra
special as we are back to the exact place where it all began
for us!”
Mr & Mrs Peursum
Tudor Rose Court
Southsea
45
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Business Model
Core elements of our business model
By ensuring that our customers are at the heart of our business we will continue to build our business model
on five important principles - each designed to provide the very best product, service and on-going support.
Creating retirement
communities that enrich
the quality of life for
our customers and
their families
1. Targeted land buying
2. Effective planning and design
3. High quality construction
4. Specialist sales and marketing
5. Supportive management and care services
How we fund our business
Our business is funded from cash generated by selling retirement properties, freehold reversions and providing management and
care services. From time to time we also issue promissory notes to fund the acquisition of selected land sites. Additionally, we have
in place a Revolving Credit Facility (‘RCF’) which has been extended during the year from £200m to £250m for a period of 12 months
from February 2018 and matures in May 2021.
The levels of drawdown fluctuate during the year reflecting the Group seasonality in revenue and working capital requirements to
fund our investment in land, build and sales and marketing expenditure.
1 Cranberry Court, Peterborough
46
McCarthy & Stone plc
1. Targeted land buying
We target different land:
• Centrally located brownfield sites
• Close to amenities
• Fragmented competitive landscape
2. Effective planning and design
We have significant planning and design expertise:
• Specialist in-house planning team
• Strong reputation with local authorities
•
• Limited on-site affordable housing requirements
Increased government recognition of benefits of our products
3. High quality construction
We deliver high-quality construction:
Industry-leading quality and performance
•
• Experienced subcontractors and established supply chain
• Repeatable build process
4. Specialist sales and marketing
An industry-leading trusted brand:
• Specialist trained sales force
• Trusted brand - 40 years’ experience
• Dedicated customer service teams
5. Supportive management and care services
Well-established management and catering services:
• Dedicated in-house management services team
• House and Estate Management teams undertake
day-to-day running of developments
• Provides added peace of mind for customers
• Ongoing service quality underpins McCarthy & Stone brand
48
52
56
60
64
47
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Business Model continued
1 Beaumaris Court, Sheringham, Norfolk
48
McCarthy & Stone plc Targeted land buying
Overview
We identify and secure high-quality land to create retirement
communities that are located within towns and cities, close
to amenities, which meet the needs of our customers and
their families.
The market for land remains relatively benign and competition
for our typical brownfield sites is still highly fragmented.
However, the business continues to maintain operational
focus and discipline in the assessment of its land purchases
to ensure that returns continue to flow to shareholders.
There are four key elements that differentiate our land
acquisition model:
1. Strict site purchase criteria:
• Sites are typically small (c.1-2 acres), centrally located
within towns and cities, close to amenities
• Optimised development density through reduced
on-site parking and amenity space requirements
• Limited on-site affordable housing requirements and
mitigated impact of Section 106 and Community
Infrastructure Levy (‘CIL’) payments
2. Conditionality of our purchase agreements
3. Less competition for our sites from traditional
housebuilders, who tend to be focused on larger,
usually greenfield locations
4. Significant planning and design expertise
Highlights in the year
Our investment model for our Retirement Living and Retirement
Living PLUS products incorporates the ability of the site to
generate ground rent income to fund the provision of the
extensive non-saleable communal spaces that are an essential
ingredient to the lifestyle that we offer to our customers.
As a result of the Government’s announcement on 21 December
2017 of its intention to abolish ground rents, we adopted a more
cautious approach towards our land buying activity, with all sites
secured after the Government’s announcement making no
allowance for ground rents in the financial appraisals.
Following our extensive discussions with government officials
and politicians, in October 2018 the government issued a further
consultation document on leasehold reform and ground rents,
proposing that retirement housing be exempt from the intention
to restrict ground rents to a peppercorn. This is good news, but
until the proposed exemption has been re-confirmed following
the outcome of that consultation, and consequently taken
through parliament and embedded in legislation, we will
continue to adopt a cautious approach to our financial
appraisals at the point of land acquisition.
54 high quality sites with attractive embedded margins
were added to the land bank in FY18 (FY17: 75). The 54
sites secured in the year accord with the more measured
trajectory and smoother workflow objectives in line with our
Group’s new strategy.
Of the 54 land exchanges, only two sites were secured on
an unconditional contract basis; twelve sites were secured by
means of Option Agreements; and 40 sites were secured
under conditional contracts (the principal condition being
obtaining a satisfactory planning consent) with 19 of these
having a non-viability clause and/or other flexibility in the
contract terms enabling termination at our discretion.
54
Number of
land exchanges
(FY17: 75)
9,797
£112m
Number of
land bank units
(FY17: 9,967)
Investment in land
during the year
(FY17: £156m)
49
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Business Model continued
1 Riverside Court, Abergavenny
2 Brownfield site, Honeylands House, Exeter
50
McCarthy & Stone plc Targeted land buying
Strategic focus
Targeting land that meets our customers’ needs
and ROCE targets
To identify and secure land bank that meets our customers’
needs as well as a return on capital employed of more than
15% by FY21 and more than 20% by FY23.
Strategic objectives
Operational efficiency and rightsizing the business
Improve operational efficiency by providing a stable monthly
flow of land exchanges to support the steady state volumes
required under the new Group strategy.
Financial hurdle rates will be strictly in line with strategic
objectives for both return on capital employed and margin.
How will we achieve this
Deliver our new strategic objectives:
• Shift away from volume towards buying quality land
with margin enhancing potential as opposed to being
focused on quantity of sites
• Actively manage our land bank to less than 4 years
supply to meet our new steady state volume targets
of c.2,100 units per annum
• Introduce our new incentive scheme designed to
deliver the smoothed workflow objective
• Expand the membership of the Group Investment
Committee to include Divisional Finance Directors in
order to provide greater link and challenge of regional
investment proposals
Build on our existing strengths and initiatives:
• Significant local knowledge
• Comprehensive understanding of our customers’
needs in terms of locality and amenities
• A well-established and tailored approach to land
buying with clear criteria for land acquisitions including
a comprehensive review and approval process prior to
any acquisition
• Expertise in securing optionality in conditional land
purchase contracts
Manage our risks, challenges and uncertainties
Economic conditions Workflow Government legislation
Employees Carrying of land value Land acquisition and planning
Delivery of new strategy
See pages 74-77
51
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Business Model continued
1 Limwood, Hayling Island
2 Bowes Lyon Court, Poundbury
3 William Bradford Court, Doncaster
52
McCarthy & Stone plc Effective planning and design
Overview
We operate an efficient and effective planning process and
design high quality homes that meet our customers’ evolving
needs, improving their quality of life.
The Group’s in house specialist planning team deals with all
aspects of the planning process including informing, preparing
and executing its planning applications and the monitoring and
influencing of emerging relevant national and local planning
policies. Our Planners become involved in a site from the
initial high level suitability appraisal and then work with our
design team to develop beautiful homes for our customers.
Government is increasingly recognising the role of older person’s
housing in addressing the national housing shortfall through
efficiently and effectively providing more housing and in recycling
the housing market. There is also increasing understanding of
the health and social benefits that come with it and in turn the
savings that this presents to the public purse, particularly in
savings to the NHS. For these reasons, revised National
Planning Policy Guidance continues to refer to housing for
older people as being “critical” and it is the only this form of
housing that is referred to in this way. It also now refers to the
need to realise those social and health benefits. Through our
Public Affairs initiatives and direct lobbying, the Group continues
to work closely with Government to progress even greater
appreciation of the social and economic benefits of retirement
housing and to reduce some of the barriers that can hamper
our ability to deliver.
Changes at the national level to planning policy aimed at
ensuring Local Plans play a greater role in decision making
means an increasing importance in involvement in the
formulation of those plans. This includes greater scrutiny
of their detail particularly in matters of viability. The Group
is taking the unusual step of joint working with some of our
competitors, pooling expertise and resources to present a
combined response to emerging policies on behalf of the
industry. This should enhance our ability and resource
to make representations and ensure a
stronger hearing and influence.
An example of this is making comprehensive representations
on the Mayor of London’s Draft Plan and ensuring that
we have the right support in place to present these to the
appointed Inspectors who will examine the Plan.
Achieving planning permissions continues to present challenges
and has contributed to a drop in planning permissions being
granted in FY18. The ground rent issue has also impacted
on our timely achievement of planning permissions where we
have had to review submitted schemes and request reduced
contributions or more apartments to ensure financial viability
of our schemes.
Highlights in the year
During FY18 37 detailed planning consents were granted,
compared with 64 in FY17.
The development cycle time increased slightly from 18.1
months for FY17 to 18.3 months for FY18, primarily as a result
of delays by the planning authorities, in the planning process.
2017 What House Awards
In November 2017, we were pleased that our new development
at Bowes Lyon Court in Poundbury picked up Bronze award for
Best Retirement Development at the 2017 What House Awards.
37
Detailed planning
consents
(FY17: 64)
Five Star
Retained customer
satisfaction rating
(FY17: Five Star)
18.3
Development cycle
time in months
(FY17: 18.1)
53
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Business Model continued
1 Apartment at Crocus Court, Poulton-le-Fylde
2 William Bradford Court, Doncaster
3 Crocus Court, Poulton-le-Fylde
54
McCarthy & Stone plc Effective planning and design
• We will ensure a stable monthly flow of build starts
and first occupations. These will be supported by
conditional land acquisitions and subject to planning
and commercial viability.
• We will drive value engineering preliminary through
standardisation and optimising technical specifications
especially focused on foundations, balconies and wall
structures
• In addition, we will move away from the mindset of first
time consents at whatever cost, and ensure appropriate
balance between our workflow and margin objectives.
The new incentive scheme will be rolled out across the
business which will be specifically designed to smooth
out the work flow across the development and build
cycles and support margin and ROCE key objectives
Building on our strengths and initiatives:
• Specialist in-house planning team
• Strong reputation with local authorities
• Comprehensive local knowledge
• Limited on-site affordable housing requirements
• Increased government recognition of the social
and economic benefits of our products
• Increasing national and local planning presumption in
favour of high density development on centrally located
brownfield sites and greater recognition of the social
and economic benefits of our products
Strategic focus
Achieve more standardised and efficient designs and
continue our planning efforts to deliver new steady
state volume targets of c.2,100 units per annum.
Strategic objectives
Workflow realignment, build cost reduction and
affordable product offering
Workflow management is fundamental to our operational
efficiency. We will create a monthly flow of quality land
acquistion and planning application submissions to facilitate
stabilised build starts throughout the year and steady state
sales volumes moving forward.
How will we achieve this
Deliver our new strategic objectives:
• We will operate an efficient and effective planning process
whereby we achieve the best possible planning consents
as quickly as we can, providing for efficient, high quality and
affordable retirement developments
• We will adopt a systemised development approach across
both the planning and design functions and design new,
affordable, standardised, streamlined, contemporary and
compact solutions - the McCarthy & Stone signature designs
• Our designs will be simplified, while meeting planning policy
requirements which will support our build cost reduction
strategic objective and achieve our return on capital employed
target of more than 15% by FY21 and more than 20% by FY23
• Our new designs will promote open plan living and provide full
depth daylight with a higher quality finish
• We will broaden our market appeal by designing our products
to be more affordable to the mass market and adopt different
building types with a modular approach which can also be
extended to our bungalow designs and we will continue to
optimise development density through reduced on-site car
parking and amenity space requirements
• The designs will be able to utilise standard components which
can be bolted to modules extending to additional rooms or
storage and create customer options which are easy to
manage such as walk in wardrobes
Manage our risks, challenges and uncertainties
Economic conditions Workflow Government legislation
Employees Carrying of land value Land acquisition and planning
Delivery of new strategy
See pages 74-77
55
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Business Model continued
1 The Wickets, Settle
56
McCarthy & Stone plc High quality construction
Overview
We deliver exceptional build quality whilst maintaining
robust health and safety standards.
Highlights in the year
The high quality of our construction services is one of the
driving forces behind us being the only housebuilder of any
type that has achieved a Five Star rating in the HBF Customer
Service Surveys for the last 13 years since its inception.
During FY18 construction commenced on 53 sites compared
to 66 for FY17, reflecting our reduced volume requirements.
Last year our continued focus on improving our operating
efficiency resulted in further improvements in our build cycle
with a reduction from 14.4 to 13.9 months between FY17 and
FY18. This has been delivered through a continued focus on
improving the critical path for our developments together with
improvements to the quality and depth of our supply chain.
The gross profit margin saw a decrease from 20% in FY17 to
16% in FY18 as a result of geographical sales mix, increasing
build costs and increased usage of part exchange schemes to
counteract subdued market conditions. Additional marketing
activity to support 69 (FY17: 52) sales releases also contributed
towards the margin deterioration.
Awards
2018 NHBC Health & Safety awards
In June 2018, we were pleased to receive three NHBC Health &
Safety Awards. The awards recognise and reward the very best
in health and safety in the housebuilding sector, and three site
managers, Rick Egerton, Mick Walters and Tony Barrowclough,
were commended. The awards are testament to the continued
care and attention we put into all of our developments.
Health and Safety
Health and safety continues to be one of our top priorities with
the Health and Safety committee meeting on a quarterly basis.
On our sites we emphasise a proactive approach to health
and safety as well as reinforcing the individual responsibility
that every site worker has for their own and their colleagues’
wellbeing. All staff (both employees and contractors)
are required to have adequate health and safety qualifications
before starting work on our sites and all contractors are required
to hold valid Construction Skills Certification Scheme cards.
The Board receives regular updates on Health and Safety
including our Annual Injury Incidence Rate (AIIR).
The AIIR is a commonly used metric for calculating reportable
accident rates amongst House Builders Federation members
and the wider construction industry.
McCarthy & Stone’s AIIR was 643 for the year until 31 March
2018, which is a 35% improvement on the period ending
31 March 2017.
In August 2018, we appointed NHBC to carry out monthly
independent health and safety inspections on all our live
construction sites. The data these reports produce will allow us
to compare our sites against a 60% benchmark score NHBC
have set as compliant, and also to compare ourselves directly
against other housebuilders through their system of All Advisor
Average comparison.
Reducing injuries in the workplace
To continue to drive down our current AIIR we have introduced
a new housekeeping document which has improved both the
standards and culture on our sites over the past 12 months.
Annual Injury Incidence Rate
McCarthy & Stone
UK Construction Industry1
Home Builder Peer Group2
2018
643
397
2017
993
398
334 335
NHBC Pride in The Job awards
In May 2018, 20 site managers received
a coveted Pride in the Job Quality Award
from the National House Builders’ Council
(‘NHBC’). Of these five went on to win
Seals of Excellence and one to win a
Regional Award. This year’s result is
unprecedented for McCarthy & Stone
as it is the largest number of awards
ever received by the Group.
1 Health and Safety Executive
2 Home Builders Federation
53
Build starts in the year
(FY17: 66)
13.9
Build cycle in months
(FY17: 14.4)
16%
Gross profit margin
(FY17: 20%)
£
57
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Business Model continued
1 Benllech, Anglesey
2 Rogerson Court, Pocklington
58
McCarthy & Stone plc High quality construction
How will we achieve this
• We will reduce the number of units in development and
in finished stock over the next three years. We will also
match production levels with sales rates and create a
stable monthly flow of build starts and first occupations
• Staff will be incentivised to deliver a smoothed workflow
and will focus on optimising subcontractor procurement
practices which facilitate further build cost reductions and
margin improvements
• We have introduced improved tools to allow further
development of our supply chain through enhanced
tendering processes, particularly on the subcontract
elements.
• Various value engineering opportunities have been
identified, the move towards additional modern methods
of construction and proposals to streamline our preliminary
costs will give us the ability to not only mitigate inflationary
pressures but to reduce our base costs
• We will aim to reduce our finished stock to c.1,100
units by FY21
We will build on our existing strengths and initiatives:
• Full capability to deliver on steady volumes
• Experienced subcontractors
• Established supply chain
• Repeatable build process
• Customer-focused build
• DATUM - industry leading product management platform
with technical specification libraries fully established
• Bidcon - construction estimating tool now fully
operational across the business
Minimising our impact on the environment
Environmental Policy
The Group has implemented an Environmental Policy designed
to minimise our impact on the environment and promote a
sustainable and ethical approach to managing its business
activities.
There are clear environmental and business benefits to
designing energy efficient homes, using responsibly sourced
and efficient materials, and with the minimum of waste sent
to landfill. Having a clear understanding of where our money
is being spent and how much waste we create during the
construction and operation of our developments allows us to
make better informed business decisions while ensuring we
minimise our environmental impact.
We are committed to minimising as far as possible levels of
waste generated by our construction sites as this brings both
financial and environmental benefits. Of the 26,655 tonnes of
waste generated on our construction sites in FY18, only 1.8%
(being 485 tonnes) went to landfill, the rest being recycled. We
continue to work with our waste management companies to try
and further improve this figure, as well as with our suppliers to
reduce waste further up the supply chain.
Strategic focus
Redesigning and re-engineering the way we build
We will deploy more cost-effective building solutions and
streamline procurement practices by redesigning and
re-engineering the way we build. In order to achieve this we
will further develop our value engineering and procurement
initiatives.
Strategic objectives
Operational efficiency through rightsizing our business
and build cost reduction
As part of the new Group strategy, our primary objectives are to
optimise our balance sheet and right size our operational cost
base to deliver build cost saving.
We will also to aim to reduce the pressure on our suppliers and
employees to deliver during peak periods.
Manage our risks, challenges and uncertainties
Reputation and customer satisfaction Workflow
Government legislation Build programmes and cost
Employees Health and Safety Delivery of new strategy
See pages 74-77
59
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Business Model continued
1 & 2 Coralie Court Marketing Suite, Norwich
60
McCarthy & Stone plc Specialist sales and marketing
Overview
We make our sales process as easy as possible for our
customers and their families ensuring that they are fully
supported from the initial enquiry right through to legal
completion.
Highlights in the year
Investing in our sales staff is vital. As such we have set up
our national training academy which is now operational and
offers high quality and consistent training for all our sales staff.
Increased brand awareness has been achieved through
our nationwide “Retirement living to the full” multi-channel
marketing campaign, with TV bursts in January to March
2018 and September to October 2018.
The Group delivered full year revenue of £672m (FY17: £661m),
supported by a 10% improvement in average selling price,
which increased during the year to £300k (FY17: £273k).
This reflected substantial improvements in the quality and
location of our developments.
The Group achieved total legal completions of 2,134 units
(FY17: 2,302) during the year, with volumes constrained,
as expected and by the heavy weighting of first occupations,
continuing economic uncertainty coupled with a slower
secondary housing market and a softening of pricing,
particularly in the South, during the second half of the year.
This also had an adverse impact on our off-plan reservation
rates which reduced from 53% in FY17 to 49% in FY18.
Our volumes included the sale of 25 units (FY17: 126 units)
across 9 developments to PfP Capital. Additionally, 43 units
(FY17: nil) across 23 developments were sold to heylo housing
as part of their Homereach product range which provides
customers with a shared ownership tenure option. Our in-house
shared ownership pilot delivered the first three units (FY17: nil)
under this initiative in Q4 FY18.
Views on YouTube:
c. 1,600,679
Web calls attributed
to the TV ad:
c.2,482
Web sessions during
the TV campaign:
up 16%
year on year
2,134
Legal completions (units)
(FY17: 2,302)
£300k
Average selling price
(FY17: £273k)
49%
Off-plan reservation rate
(FY17: 53%)
£
61
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Business Model continued
62
McCarthy & Stone plc Specialist sales and marketing
Strategic focus
Leveraging customers’ insight to provide an enhanced
customer experience
Listening to our customer feedback and learning about their
purchasing experience with McCarthy & Stone will help us to
develop a better customer focused and efficient sales and
marketing solution that supports our strategic objectives
going forward.
Build on our existing strengths and initiatives:
• Significant local knowledge and a trusted brand
with over 40 years experience
• Dedicated customer service teams
• National training academy fully set up and
operational
Strategic objectives
Create an efficient and effective sales and
marketing model
Enhanced sales efficiency and effectiveness with a streamlined
approach to delivering a stable flow of first occupations and
will support the delivery of ROCE of more than 15% by FY21
and more than 20% by FY23.
How will we achieve this
Deliver our new strategic objectives:
• Salesforce technology
Implementation of the new Salesforce Customer Relationship
Management platform will standardise the sales process and
provide an enhanced personalised customer experience.
The Salesforce technology is due to be launched in the North
West region in December 2018, with all regions going live in
early 2019. Standardised sales and marketing processes will
be implemented alongside the new technology.
• Benefits of the new system include:
– Improved customer insight
– Enhanced personalised customer experience
– Improved marketing effectiveness
– Optimised sales operating model creating streamlined
sales staffing and the development of an improved
sales website and content management system
• Centralise the marketing function:
– Marketing will be centralised to promote a consistent
message, improved effectiveness and reduction in
the cost per lead
• We will also strengthen Group oversight and
control in key areas of sales and marketing
Manage our risks, challenges and uncertainties
Economic conditions Reputation and customer satisfaction
Sales performance Workflow Government legislation
Employees Cyber/data
See pages 74-77
63
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Our Business Model continued
■■
Case study
Nick Twigger is a shining example of what our Estate Managers do on a daily basis. Nick has made
it his primary objective to ensure that everyone at Wilton Court, Kenilworth feels welcome, whether
that be the team of 13 staff he manages or the 70 customers who live there. Customers describe
living at Wilton Court as being part of one big happy family.
Nick manages a varied and stimulating range of entertainments and activities at Wilton Court, all
tailored to the different interests and the health and mobility needs of our customers. Wilton Court
is recognised in the local community for its charity fund-raising exploits and Nick is at the helm of
this, with many charities and local organisations benefiting from events and activities at Wilton Court.
Nick Twigger
Estate Manager, Wilton Court, Kenilworth
64
McCarthy & Stone plc ■■
Supportive management and care services
Overview
Through our in-house Management and Care Services team,
we develop a long term relationship with our customers. This
enables us to provide flexible services and support, throughout
the whole time they spend in our development. Almost nine out
of ten of our customers say that their quality of life has actually
improved after living with us for nine months.
Our customers have peace on mind safe in the knowledge that
our dedicated in-house teams are on hand to assist should they
need it. This is key to ensuring that our customers can relax and
enjoy their retirement to the full.
Our management, catering and care teams support
a wide range of services including:
• c.60,900 meals served each month1
• c.31,000 hours of care and support each month1
• c.33,500 social activities held during FY181
Highlights in the year
98%2 of our Retirement Living PLUS registered developments
inspected have been rated “Good” by the CQC.
As well as undertaking the day-to-day running of developments,
a key part of the role for our management and care services
teams is fostering and developing the community. All new
developments receive an initial community fund to help support
social events and activities. Based on the interests of customers
c.33,500 (FY17: c.27,600)1 social events were held in our
managed properties over the last 12 months. The impact of
this upon the lives of customers is clear from our last customer
survey - 83% of our customers said that they experienced a
sense of community in their new property, compared to 51%1
of older people in general.
Awards
At this year’s Association of Residential Managing Agents
Awards we were delighted to win two awards and be shortlisted
in the headline category:
• ARMA Onsite Staff Member of the year:
Nick Twigger, Estate Manager, Wilton Court
• ARMA Service Charge Accountant of the year:
Julija Bizna, Management Services Head Office
• Finalist - ARMA National Managing Agent of the year
379
Developments
under management
(FY17: 312)
c.16,900
Number of
customers
(FY17: c.14,600)
98%
CQC score
rated “Good”
(FY17: 98%)
1 Homeowner survey (2017)
and research by Demos (2016)
2 CQC
65
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Our Business Model continued
1 Building maintenance
2 Dedicated to looking after our customers
3 Keeping the development looking its best all year round
66
McCarthy & Stone plc Supportive management and care services
Strategic focus
How will we achieve this
Service offering that responds to evolving customer
needs and creates retirement communities
Having run focus groups with current customers, prospective
customers and their family members, we are looking to expand
our offering to provide greater flexibility around the payment
of service charges, provide more choice of additional lifestyle
support and activities and increase opportunities to open up
our developments to wider community use.
Delivery of our new strategic objectives:
Leveraging customer involvement, insights and
analytics at every stage of our business development.
Enhance the personalised customer experience by
introducing more flexibility, choice and affordability.
The key initiatives to create the enhanced customer
experience include:
Strategic objectives
Evolving our business
Develop our service proposition to align with our long-term
vision and purpose of creating even deeper and longer
relationships with our customers and create retirement
communities that enrich the quality of life for our customers
and their families.
We are seeking to develop our management and care services
so that they are well placed to develop our business model
which can be flexible and future proofed and evolve with the
actual needs of our customers, offering what our customers
are seeking from within their communities including:
• Independence and proximity to transportation, privacy
and their own outdoor space
• Management and care services will be more
customer facing
• Introduction of differing options for levels of service
• Introduction of flexible payment options and charging
model into an all-inclusive management fee model.
Customer feedback shows the peace of mind given
by a fixed fee model is highly valued and preferred
to a variable model
• Introduce technology enabled services to help improve
the quality of life, community, safety and convenience
for the customer
• Provision of new offerings to give support and inclusion
of the community which will include new partnerships,
opening our developments to the public and expanded
care options
• Support during life transitions, including social activities
• Build management and care services into a fully-fledged
and healthcare
profit generating segment of our business
• Convenience as customers value features that are easy
to use and enhance their lifestyle and safety
• Community as our customers don’t want to be isolated
• Affordability as our customers want different options of
service and payment methods
Build on our existing strengths and initiatives:
• Dedicated in-house Management and Care Services
team and a strong service platform
• House and Estate Management teams undertake
day-to-day running of developments
• Providing added peace of mind for customers, including
social events, care support services, safety and security
• Ongoing service quality underpins the McCarthy & Stone
brand by achieving ‘Good’ CQC ratings in 98%1 of
registered Retirement Living PLUS developments in FY18
1 CQC
Manage our risks, challenges and uncertainties
Government legislation Employees Health and Safety
Cyber/data Delivery of new strategy
See pages 74-77
67
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Financial Review
Rowan Baker Chief Financial Officer
Our performance
During the last financial year, the business continued to face
considerable market headwinds including continuing political and
economic uncertainty following the outcome of the vote to leave
the EU. These headwinds have resulted in a lowering of consumer
confidence, a challenging secondary housing market and some
softening of pricing in the South East. The above external factors,
together with our continued investment in operating costs in support
of our previous growth strategy, have resulted in a 30% reduction in
underlying operating profit and a 33% reduction in operating profit
compared to the prior year.
68
McCarthy & Stone plc Revenue
The Group delivered full year revenue of £672m (FY17: £661m),
supported by a 10% improvement in average selling price,
which increased during the period to £300k (FY17: £273k).
This reflected substantial improvements in the quality and
location of our developments. Our revenue for the year
included FRI revenue of £29m (FY17: £29m).
The Group achieved total legal completions of 2,134 units
(FY17: 2,302) during the year, with volumes constrained,
as expected, by the heavy H2 weighting of first occupations,
continuing economic uncertainty coupled with a slower
secondary market, especially in the South East, during the
second half of the year.
Our volumes included the sale of 25 units (FY17: 126 units)
across 9 developments to PfP Capital as we continued to
leverage the opportunity to access the growing rental market.
Additionally, 43 units (FY17: nil) across 23 developments were
sold to heylo housing as part of their Homereach product range
as a means by which to provide customers with a shared
ownership tenure option.
Profit
Consistent with guidance given in June, underlying
operating profit decreased to £68m (FY17: £96m) in the
year, whilst operating profit decreased to £64m (FY17: £94m).
Our underlying operating profit margin decreased to 10% (FY17:
15%) and our operating profit margin decreased to 9% (FY17:
14%). This reduction in profitability and margin percentage
was mainly driven by build cost increases, increased usage of
part-exchange and incentives to counteract subdued market
conditions, additional marketing activity to promote the higher
level of current year sales releases (FY18: 69, FY17: 52) and
our continued investment in operating costs in support of
our previous growth strategy.
During the year, we saw an increase in the volume of part-
exchange transactions reaching 753, 35% of legal completions
(FY17: 627, 27% of legal completions), as a reflection of the
ongoing subdued secondary market. 335 of these transactions
were on balance sheet PX (FY17: 163) resulting from the
national roll-out of in-house part-exchange solutions with tight
controls in place to ensure regions do not exceed their capital
allocation. This translated into a saving of c.£7m (FY17: c.£1m)
compared to use of third-party PX with average capital
employed of £27m (FY17: £10m) over the year. 335 properties
(FY17: 163 properties) were purchased during the year at
an average of 96% (FY17: 96%) of market value with 302
(FY17: 49) properties re-sold within the year. The average
time taken to resell these properties was c.13.1 weeks
(FY17: c.8.5 weeks).
Total administrative expenses for the year amounted to £40m
(FY17: £37m), excluding exceptional items and amortisation of
brand and remained at the same proportion of revenue as last
year of 6% (FY17: 6%).
Underlying profit before tax decreased to £62m (FY17: £94m)
during the year with statutory profit before tax of £58m
(FY17: £92m). This was impacted by a net £1m revaluation loss
(FY17: net £2m revaluation gain) of our shared equity portfolio
which contributed to an increase in net finance expenses to
£5m (FY17: £2m) reflecting an adverse change in the forward
looking HPI assumptions. Statutory profit before tax has been
further impacted by £2m (FY17: £nil) of exceptional costs
incurred in FY18 as we commenced our business
transformation programme.
£672m
Revenue
(FY17: £661m)
£64m
Operating profit
(FY17: £94m)
10%
ROCE
(FY17: 16%)
£
£
£
69
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Financial Review continued
Capital structure and interest
The Group saw its tangible gross asset value increase to
£692m (FY17: £646m) and its tangible net asset value increase
to £696m (FY17: £676m) during the year. This was primarily
driven by a £147m increase in finished stock excluding in-house
part-exchange properties reflecting 52 first occupations
delivered in the second half of FY18 (FY17: 30 first occupations
delivered in the second half of FY17).
An increase in trade and other receivables due in less than
1 year from £10m in FY17 to £22m in FY18 primarily reflects
balances due from heylo housing for the bulk sale transaction.
Trade and other payables have increased from £85m in FY17
to £115m in FY18 due to higher deferred income balances
reflecting the FRI transaction in August 2018 and high level
of accruals due to August build activity.
During the year we continued to maintain a robust financial
position with net cash of £4m (FY17: £31m) as at 31 August
2018. This resulted in a negative gearing of 2% (FY17: 4%),
reflecting management’s ongoing focus on disciplined land
acquisition in response to continuing economic uncertainty
and was achieved notwithstanding the negative cash impact
of increased build spend and our in-house part-exchange tool
which resulted in £42m part-exchange assets being held on
the balance sheet at the year end (FY17: £32m).
We maintained appropriate headroom against our revolving
credit facility (‘RCF’) throughout the year. This facility was
increased from £200m to £250m for 12 months from February
2018. The level of drawdown fluctuated during the year with the
maximum draw down of £195m in June 2018 (FY17: £166m in
July 2017) reflecting the Group’s revenue peak in August and
working capital requirements to fund our investment in land,
build and sales and marketing expenditure. The average draw
down during the year was £137m (FY17: £100m).
The Group incurred net finance expenses of £5m during the
year (FY17: £2m), impacted by a net £1m revaluation loss
(FY17: net £2m revaluation gain) of our shared equity portfolio
which resulted in an increase in finance expenses to £6m
(FY17: £4m) reflecting an adverse change in the forward looking
HPI assumptions.
Exceptional costs
Exceptional costs of £2m (FY17: £nil) were recognised within the
Consolidated Statement of Comprehensive Income during FY18.
These costs related to advisory fees and redundancies incurred
on commencement of the Group’s strategic review in the year.
Taxation
The effective tax rate was close to the statutory rate during
the current financial year. The total tax charge for the year was
£12m (FY17: £18m) which represents an effective tax rate of
20% (FY17: 19%) based on a profit before tax of £58m (FY17:
£92m). The rate of corporation tax was lowered to 19% from
1 April 2017 and will be at 17% with effect from 1 April 2020.
Earnings per share and dividend
Underlying basic earnings per share decreased by 35% to
9.2p (FY17: 14.2p) reflecting the reduction in underlying profit
before tax from £94m in FY17 to £62m in FY18. Basic earnings
per share for FY18 were 8.6p (FY17: 13.8p). Details of the
calculation of underlying earnings per share can be found
in note 5 to the financial statements. Details of the calculation
of earnings per share can be found in note 11 to the
financial statements.
The Directors are proposing a final dividend of 3.5p per share.
This follows the interim dividend of 1.9p per share, giving a total
dividend for the year of 5.4p per share (FY17: 5.4p per share).
This maintains our dividend at the same level as the prior year
despite the lower level of profitability and reflects the Board’s
confidence in its new strategy. The proposed total annual
dividend is covered 1.6x times by FY18 earnings. Subject to
shareholder approval at the Annual General Meeting (‘AGM’),
the dividend will be paid on 1 February 2019 to shareholders
on the register at 4 January 2019.
The total cost of the final dividend is £19m, resulting in a total
dividend cost relating to the year of £29m (FY17: £29m).
Target returns
Our investment in build to deliver our previous growth strategy
resulted in a £157m increase in finished stock (including on
balance sheet part exchange properties). This increase,
together with a £29m reduction in underlying operating profit,
led to a decrease in ROCE by 6 ppts to 10% (FY17: 16%) and a
reduction in capital turn to 1.0x (FY17: 1.1x). Our new strategy,
however, focuses on increasing ROCE, margin and cash
generation with the target of delivering a greater than 15%
ROCE by FY21 and a further 5pp improvement to greater than
20% ROCE by FY23.
Our new strategic targets reported on 25 September are as
follows:
• ROCE improvement of greater than 15% by FY21, increasing
to over 20% by FY23
70
McCarthy & Stone plc • Improvement in operating margins to more than 15% by FY21
• Total cost savings of more than £40m per annum by FY21
• Total cumulative cash savings in excess of £90m between
FY19-FY21
• The Group will focus on a reduction of its capital employed
by at least £70m between FY18 and FY21
Change of auditors and financial year end
In June 2018 the Board completed the external audit tender
process in line with the ten year statutory requirement and
appointed Ernst & Young LLP as the Group’s statutory auditors
for the period ending 31 October 2019. This appointment
remains subject to approval by shareholders of the Group at
the Annual General Meeting to be held on 23 January 2019.
As part of the business transformation strategy announced on
25 September 2018, the Directors decided to change the
Group’s financial year end from 31 August to 31 October.
This will allow us to decouple our year end activities from
the peak August holiday season and will serve to accelerate
the process of rebalancing workflow and sales volumes
throughout the year. FY19 will be the first financial year
reported to 31 October and therefore will be a 14 month period
of account. Our first half reporting will cover the six months to
28 February 2019 and our second half, the eight months from
1 March to 31 October 2019.
Post balance sheet event
On 25 September 2018 the Group announced its new business
strategy aimed at improving margins, rightsizing the operational
cost base and evolving the business model to meet the
changing needs of our customers. Total exceptional costs
of c.£25m are expected across the life of the business
transformation programme, with £2m already incurred in FY18.
The majority of the exceptional costs are expected to come
through in the first half of FY19, representing the cost of land
that will no longer be developed, redundancy costs and further
consultants’ fees. There were no events after the reporting
period that required adjustment in the FY18 financial statements.
Risk management
The Group maintains a robust risk management framework,
providing a clear link between its strategy and the strategic,
operational and financial risks faced by the business.
The approach to risk is set by the Board, which maintains a
close involvement in identifying and mitigating risk and monitors
certain key risk indicators at Board meetings on a regular basis.
As part of managing the financial risk in the business, the
potential impact of a downturn in the housing market or the
broader UK economic environment is regularly evaluated and
we have a number of key risk indicators that are used at Board
level in order to assess this. Our geographic coverage and
diversified portfolio of land ensures that we are not overly
dependent on particular local markets or individual
developments. In addition, our distinct business model helps
to insulate our business from a downturn, with land acquisition
normally contracted subject to planning and also often subject
to commercial viability or by way of option, enabling us to review
land acquisition decisions in light of planning outcomes and
latest market conditions prior to committing significant capital.
The following risks have been identified by the Board with
respect to delivering the new Group strategy:
• Unit completion pattern continues to be lumpy with a
significant proportion delivered towards the year end
• Land buying and build programmes are not successfully
calibrated to deliver a steady state production
• Failure to deliver required cost savings through changes to
the organisational design
• The build cost reduction programme is not fully achieved
• Failure to streamline the sales model and centralise the
marketing function
Liquidity risk is the risk the Group will encounter difficulty
in meeting obligations associated with financial liabilities.
The Group’s strategy in relation to managing liquidity risk is to
ensure that the Group has sufficient liquid funds to meet all its
potential liabilities as they fall due. The liquidity of the Group is
dependant on achieving the level of sales volumes, prices in line
with current forecasts and strategic objectives as announced
on the 25 September 2018. Liquidity risks are managed through
the regular review of detailed short term and long term cash
flow forecasts to monitor the expected requirements of the
Group against the available facilities, principally the revolving
credit facility in place, and by maintaining adequate committed
banking facilities to ensure appropriate headroom.
Rowan Baker
Chief Financial Officer
12 November 2018
71
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Risk Management
How we manage the risks to our business
Effective management of risk is integral to the successful delivery of our strategy
and could have an adverse impact on shareholder value and the Group reputation
Risk is managed through a five-step risk management process, led by the Board
1. Identify risk
2. Determine
risk appetite
3. Treat,
tolerate or
transfer risk
4. Monitor risk
5. Review risk
Board assessment
Risk heat map
and score cards
Key controls
framework
Key risk indicators
Assurance
programme
The maintenance of formal risk dashboards, risk scorecards,
the management of key control frameworks, the monitoring of
risk indicators for the principal risks and the pursuit of a broad
assurance programme provide all levels of management with
a clear framework within which to operate.
The Directors have carried out a robust assessment of the
principal risks facing the Group, including those that would
threaten our business model, achievement of strategic
objectives, solvency or liquidity.
Principal risks and uncertainties are formally identified, reviewed
and updated by the Executive Board every six months using a
risk scoring methodology. Each risk is categorised based on
likelihood and potential impact. Once agreed with the Executive
Board, the risks are plotted on a risk heat map and submitted
to the Risk and Audit Committee for approval and subsequently
to the Board.
The risk appetite for each risk is established through a bi-annual
review of the risk heat map. This review confirms whether the
relative position of each risk is acceptable and if not, what
actions are needed to reduce the likelihood and/or impact of
them crystallising.
In addition, risk indicators have been identified for each principal
risk by the Executive Board with associated risk parameters.
This allows the Executive Board to identify whether any principal
risks are beginning to crystallise beyond the pre-determined
risk appetite and if so whether any actions are required to
address this.
Assurance is provided over the effective design and operation
of the risk framework through a formal programme of assurance
activity. This is structured around three lines of defence:
1. Management assurance, through operational controls,
reporting and oversight
2. Functional oversight
3. Programme of assurance activity, including internal audit
Monitoring principal risks
The following risks have been identified by the Board with
respect to delivering the new Group strategy:
• Unit completion pattern continues to be lumpy with a
significant proportion delivered towards the year end.
• Land buying and build programmes are not successfully
calibrated to deliver a steady state production
• Failure to deliver required cost savings through changes to
the organisational design
• The build cost reduction programme is not fully achieved
• Failure to streamline the sales model and centralise the
marketing function
Liquidity risk is the risk that the Group will encounter when it
has difficulty in meeting obligations associated with financial
liabilities. The Group’s strategy in relation to managing liquidity
risk is to ensure that the Group has sufficient liquid funds to
meet all its potential liabilities as they fall due. The liquidity of
the Group is dependant on achieving the level of sales volumes,
prices in line with current forecasts and strategic objectives as
announced on the 25 September 2018. Liquidity risks are
managed through the regular review of detailed short term
and long term cash flow forecasts to monitor the expected
requirements of the Group against the available facilities,
principally the revolving credit facility in place, and by
maintaining adequate committed banking facilities to ensure
appropriate headroom.
The risks attributed to each land acquisition opportunity
are assessed by regional management using predetermined
criteria and form part of the regional submission to the Group
Investment Committee, which approves each land purchase.
Following land acquisition, the construction and commercial
risks and opportunities are recorded in a development risk
register. A range of worst to best-case potential out-turn costs
are monitored and managed throughout the construction
phase, allowing risks to be formally managed and opportunities
realised.
72
McCarthy & Stone plc Principal risks crystallisation in FY18:
• The risks to build costs experienced in previous years were
largely kept under control in FY18
encourage a culture that promotes teamwork, involvement
and empowerment at all levels of the Group. These values
play a key role in recruitment across the business.
• The risk that did crystallise in FY18 was the sales risk
Group strategy
resulting in the profit warning in June 2018. The business
failed to achieve the growth rates expected in the IPO
strategy due to a number of factors, not least the softening
in the secondary housing market due to ongoing economic
uncertainty caused by Brexit
The principal sales risk indicators highlighted to management
that this risk was crystallising beyond the risk appetite but
despite management attempts to address this, the risk
fully crystallised.
Internal audit assurance
During FY18 internal audits focused on the following key areas
of the business which related to the principal risks identified
and assessed compliance with core policies and procedures:
• Marketing, forecasting, health and safety
• Regional key controls framework certification
• Robustness of the forward sales order book
• Southern, South East and East Midlands Regional audits
to assess compliance with core policies
• Commercial audits of developments under construction
and three regions’ commercial processes.
Overall oversight is provided by the Board, with individual
members of the Board and the Executive Board owning
each of the principal risks.
Internal control environment
The core elements of the Group-wide internal control
environment are organisational structure, culture and
values, Group strategy and a key controls framework:
Organisational structure
The Group’s organisational structure is established around
clear divisions of responsibilities between the Board and the
Executive Board. The Board is responsible for the operational
control of the Group, including all strategic, financial,
organisational, legal and regulatory matters.
The Executive Board is responsible for the day-to-day
management of the operational activities of the Group. Each
member of the Executive Board has a ‘leadership team’ of
direct reports, who are responsible for the system of internal
controls across their business area.
Culture and values
The Group has developed a values framework which consists
of five cornerstone principles: passion, responsibility, innovation,
determination and excellence (PRIDE). These are used as a
guide to conducting business from key decisions to day-to-day
activities.
These values are widely communicated across the business
to ensure alignment with strategic objectives and to actively
The Group strategy, which was reviewed during FY18,
has increased focus on profitability. The strategy has been well
documented and communicated both internally and externally
and was the subject of a strategy review day on 25 September
2018. To support this strategy the Board has identified our
strategic objectives, as discussed on pages 10 and 11.
Key controls framework
The key controls framework defines the Group’s most
important internal controls on which it places reliance
in the management of its core business and reporting on
its performance and progress towards achieving strategic
objectives. The Group operates consistent processes and
controls across the business. The key controls framework
is reviewed and tested annually with the results presented
to the Board and is also subject to internal audit review.
Viability statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code 2016, The Directors have to assess the
prospects and viability of the Group.
In response to that, the Directors have assessed the prospects
and financial viability of the Group, taking into account both its
current position and principal risks. The Directors consider a
three-year period is appropriate for this assessment as our
capital cycle from land completion to final sell-out of a
development, for FY18 build starts, is approximately three
years. Our land pipeline also provides us with sufficient land
under control to meet sales targets for the next three years.
Accordingly, we consider it appropriate that our viability review
period is broadly aligned with the expected longevity of our
owned land supply.
The Group is subject to a number of principal risks (as set out
in more detail overleaf) and the Directors’ viability statement
review considered the impact that these risks might have on the
Group’s ability to meet its targets. This was undertaken through
the modelling of a combined set of sensitivities, by applying a
reasonably possible downside to sales completion volumes,
selling prices, FRI income and expected build cost savings.
This sensitivity analysis reflects a severe but plausible impact,
assuming that the appropriate steps are taken to mitigate the
impact of the downside and continuing availability of the RCF
throughout the assessment period, which is due for renewal in
May 2021. The Directors will continue to review the Group’s
external funding requirement following the announcement of the
Group’s new strategy on 25 September 2018 and do not
anticipate any issues in securing a renewal of the facility beyond
May 2021. Further detail as to how the facility is used, the level
of reliance placed, and how the Group’s liquidity risk is
managed can be found on page 70.
Based on this review, 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 assessment period.
73
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Principal Risks and Uncertainties
facing the Group
Risk area
Risk description
Mitigating actions
Economic
conditions
Government
legislation
Housebuilding is cyclical and reliant on the broader
economy. A deterioration in the economic outlook,
including economic growth, inflation, interest rates and
buyer confidence, could have a significant impact on
the Group’s financial performance and ability to sell
both retirement apartments and the properties acquired
as part of the in-house part-exchange scheme.
The Group closely monitors industry indicators and assesses
the potential impact of different economic scenarios.
Decisions to allocate new capital to land and build are
managed centrally through the Group Investment Committee.
The Group aims to maintain a geographical and product
spread of developments to ensure that it is not reliant on
one locality or product type.
The uncertainty in the economy and specifically the
secondary housebuilding market following the EU
referendum is likely to continue in the short to medium-
term as the UK exits the EU in March 2019.
The operation of an in-house part-exchange scheme is
subject to strict controls and regional and divisional limits.
The development of new tenure types, including the rental and
shared ownership offerings will help to offset any potential
impact of a downturn in the secondary housing market.
Business area impacted
Land Buying
48
Planning & Design
52
Sales & Marketing
60
Like any other business, the Group is affected by
changes in Government legislation. The Government
consultation on unfair leasehold practices in FY18 had
an adverse impact on the Group’s business model.
We welcome the Government’s consultation paper on ground
rent reform which was published in October 2018 and are
pleased with the proposal to exempt the retirement sector
from the proposed cap on ground rents. However, the Group
notes that this remains a proposal and is subject to further
consultation and passage through Parliament. The Group
has recently carried out an impact assessment of lower and
no ground rents and reviewed its land appraisal process
accordingly and is seeking alternative solutions to mitigate
the adverse impact on the business model should an
exemption not be granted.
Business area impacted
Land Buying
Construction
48
56
Planning & Design
Sales & Marketing
52
00
60
Management Services
64
00
Prolonged business disruption and/or failure to achieve
the targeted savings could result in adverse financial
deterioration and the level of funding required to
support working capital, which may negatively impact
the viability of the Group.
Clear and concise objectives have been developed to
deliver the targets as defined in the new Group strategy.
A Transformation and change office to oversee and closely
monitor progress against the objectives has been created.
Delivery of
new strategy
Business area impacted
Land Buying
Construction
48
56
Planning & Design
Sales & Marketing
52
00
60
Management Services
64
00
Change from previous year
Increased risk
No change
Decreased risk
New risk
74
McCarthy & Stone plc
Risk area
Risk description
Mitigating actions
Poor-quality land and/or location could result in
programme/cost over-runs and difficulty in selling.
Failure to obtain timely planning consents will
adversely affect workflow, resulting in failure to meet
targeted sales and/or cash flow.
Regional land buying teams are in place across all regions
providing local knowledge and expertise. These teams are
targeted on land exchange and completion as part of their
reward structure.
We acquire land with a high degree of conditionality.
Regional planning teams have the support and oversight
of the Group Investment Committee.
Business area impacted
Land Buying
48
Planning & Design
52
The Group’s financial performance is dependent
on its ability to deliver build programmes on time and
on budget. Build programme or cost over-runs could
result in slower sales or reduced margins.
As part of the strategic review the Board have identified
significant potential for cost reductions through
standardisation, design efficiencies and procurement
practices. Achievement of this build cost reduction
programme will be critical to the Group delivering its
new strategy.
Build progress and costs are reviewed regularly by
dedicated regional commercial teams, as well as being
reported to regional, divisional and Group management.
Independent assurance is provided by the internal audit
team who perform commercial internal audits of developments
under construction in order to mitigate the risk. Framework
agreements have been established with key subcontractors
and suppliers to provide greater certainty of price and supply.
In addition, the Group has implemented a tighter control
framework over higher risk more complex developments.
Land
acquisition
and planning
Build
programmes
and cost
Business area impacted
Construction
56
The Group has historically suffered from a bias towards
achieving the majority of its completions and profits in
the second half of the financial year. Hence, any political
uncertainty or adverse market conditions during this
period could adversely impact the Group’s annual
performance. This was evidenced by the EU
Referendum result in 2016 and to a lesser extent the
General Election outcome in 2017.
Workflow
As part of the new strategy, the Group is re-aligning
workflow towards a steady state production through
the following actions:
• Reducing the number of sites in development
• Ensuring stable monthly flow of build starts and
first occupations
• Introducing an incentive scheme designed to deliver
smoothened workflow
• Changing the year end away from the peak holiday
season to 31 October
Workflow is closely monitored by regional and divisional
management and by the Board.
Business area impacted
Land Buying
48
Planning & Design
52
Construction
56
Sales & Marketing
60
75
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Principal Risks and Uncertainties
facing the Group Continued
Risk area
Risk description
Mitigating actions
The Group’s business plan assumes selling and
charging of its products and services at attractive
prices. Any volume shortfall or pricing weakness
could have a significant impact on the Group’s
financial performance.
Sales
performance
Business area impacted
Sales & Marketing
60
00
Detailed reporting enables the Group to monitor sales
and pricing at a site and unit level and regularly review
performance against expectation with regional and
divisional management.
A strict approval process exists for awarding discounts
and incentives in excess of certain thresholds.
The Group’s employees are central to the achievement
of the Group’s objectives. Failure to recruit and retain
sufficient staff resource of the right quality could
adversely impact the business.
The Group has put in place attractive reward
mechanisms and provides extensive opportunities for
personal development and training, both of which are
regularly reviewed against peer housebuilders and other
employers in local markets. Resource requirements
are assessed against annual budgets and recruitment
processes are designed to ensure talent attraction and
retention to deliver the Group’s strategy.
Employees
Business area impacted
Land Buying
Construction
48
56
Planning & Design
Sales & Marketing
52
00
60
Management Services
64
00
The Group builds, sells and rents a quality product to
an ageing and sometimes frail customer base and
provides ongoing management and care services.
Any issues with the products or services the Group
provides could impact on reputation or customer
satisfaction to the detriment of the Group.
Adverse national publicity with respect to resales,
especially older non-managed properties and those
sold just prior to the housing market crash in 2008, can
result in lower resale values, which in turn can adversely
impact our ability to sell new retirement apartments.
The Group enforces strict procedures over the handover of
developments for occupation and the handover of specific
apartments to individual customers. Ongoing management
and care services are provided within a robust framework
of controls which is closely monitored. The business has
a dedicated customer services team and tracks customer
satisfaction through NHBC, HBF and internal surveys.
An in-house estate agency supports the resales process
for customers in our managed developments on the general
housing market, with the aim of speeding up the sales process
and maximising value on resale.
Reputation
and customer
sa tisfaction
Business area impacted
Construction
56
Sales & Marketing
60
76
McCarthy & Stone plc Risk area
Risk description
Mitigating actions
Carrying
value of land
Health and
Safety
Cyber/data
The net realisable value of land owned by the Group
may decline due to changes in the property market or
other conditions, or the Group being unable to secure
detailed planning consent on land purchased
unconditionally.
Whenever possible, contracts to purchase land are via option
agreement or are conditional on the Group obtaining detailed
planning consent and contain a commercial viability clause.
The Group performs impairment reviews in line with
International Financial Reporting Standards (‘IFRS’)
requirements, on a half yearly basis.
Business area impacted
Land Buying
48
Planning & Design
52
Construction sites are inherently risky, and could
expose employees/contractors to the risk of serious
injury/fatality.
Customers in the developments the Group
manages are ageing and sometimes frail, with the
risk that they can be more susceptible to injury.
Business area impacted
Construction
56
Management Services
00
64
Failure of any of the Group’s IT systems, in particular
those relating to customer data, surveying and
valuation, could adversely impact the performance
and reputation of the Group.
Business area impacted
Sales & Marketing
60
Management Services
64
00
The Group strives for excellence in health and safety and
considers it to be a top priority. This is supported by a
rigorous, independent site inspection process which
routinely assesses and reports on standards.
The Group maintains central IT systems and has in
place a fully tested disaster recovery programme. This is
supplemented by regular reviews to seek to reduce the risk
of successful cyber-attacks and a General Data Protection
Regulation (‘GDPR’) programme to ensure compliance with
GDPR legislation.
The Salesforce CRM platform due to be rolled out during
FY19 will deliver enhanced compliance with GDPR
requirements.
Change from previous year
Increased risk
No change
Decreased risk
New risk
77
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 78
McCarthy & Stone plc Corporate Governance
1 Cardinal Court, Bishophill, York
2 CGI of Cardinal Court
Cardinal Court
Bishophill, York
Located in the heart of York is our stunning new development
at Bishophill, a Retirement Living development of 34 two
bedroom apartments for the over 60s. The development is
located within the historic city walls and is a level walk from
the town centre, the Shambles, York Minster and everything
the city has to offer.
Known for its festivals and cultural events throughout the year,
York’s attractions cover everything from history and music, to
sport and food.
79
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Board of Directors
Paul joined the Board in January 2018 and
succeeded John White as Chairman following
the Company’s Annual General Meeting on
24 January 2018.
Paul is currently chairman of Essentra plc and Forterra plc
and was formerly a director of Invensys plc. Paul is also
the chairman of Knight Square Ltd. Previously, he was
group managing director of Balfour Beatty plc before
becoming chief executive of VT Group plc in 2002.
Paul was also chairman of John Laing Infrastructure
Fund until September 2017.
Paul brings a wealth of experience in leading companies.
Since his appointment, Paul has demonstrated strong
and decisive leadership and he has been instrumental in
working with the Executive Board in setting the Group’s
new strategy.
Paul Lester, CBE
Group Non-Executive Chairman
Committees
Chairman of the Nomination Committee
and a member of the Remuneration Committee.
John Tonkiss became Chief Executive Officer
in September 2018, having previously been
the Group’s Chief Operating Officer. He joined
McCarthy & Stone in February 2014 and
joined the Board in October 2015.
Prior to joining McCarthy & Stone, John worked for ten
years at the Unite Group, the UK’s largest provider of
purpose-built student accommodation, becoming chief
operating officer in 2008. While at Unite, John helped
to introduce new models of investment and construction
for student housing that transformed the sector, including
pioneering a full Modern Methods of Construction
approach, and he will be using this experience in the
retirement communities sector.
John was also the chief executive of Human Recognition
Systems, the UK’s leading biometric solutions provider,
between 2012 and 2014.
John is responsible for executing the new transformation
strategy that was announced in September 2018, having
helped formulate it while he was Chief Operating Officer.
The new strategy will establish a strong financial platform
for the business and leverage the strategic opportunities
in its services and product offering. The long-term vision
is to create even deeper and longer relationships with our
customers by transitioning the business away from being
seen as a housebuilder to become the UK’s leading
developer, owner and manager of retirement communities.
Committees
Member of the Nomination and Disclosure Committees.
John Tonkiss
Chief Executive Officer
80
McCarthy & Stone plc Rowan joined McCarthy & Stone in January
2012 and was appointed Chief Financial
Officer on 6 January 2017 having previously
held the role of Group Financial Controller.
Before joining McCarthy & Stone, Rowan held various
roles in industry and private practice, most notably at
Barclays Bank plc and PricewaterhouseCoopers. Rowan
is a Chartered Accountant and a Chartered Tax Adviser
and has an M.A. from the University of Cambridge.
Rowan played a lead role in the Group’s successful IPO
in November 2015. Rowan has been working extensively
with John on formulating the Group’s new strategy. She has
a wealth of financial experience and technical expertise and
a deep and comprehensive understanding of the business.
Rowan Baker
Chief Financial Officer
Committees
Member of the Disclosure Committee.
Frank joined the Board in November 2013
and is the Senior Independent Director and
Chairman of the Risk and Audit Committee.
Frank is a qualified accountant with over 30 years’
experience in the housebuilding, infrastructure and energy
sectors. Frank was finance director of Galliford Try plc from
2000 until 2012 and was also responsible for its Private
Finance Initiatives and Public Private Partnership activities.
Frank was previously finance director of Try Group plc from
1987, leading the company through its flotation in 1989 and
subsequent merger with Galliford. Frank is currently the
senior independent director of HICL Infrastructure Company
Limited, and Eurocell plc. Frank is also chairman of a private
construction company and also acts as an adviser to certain
private businesses.
Frank has significant housebuilding and financial knowledge
which makes him an effective member of the Board and a
strong chairman for the Risk and Audit Committee. Frank is
always prepared to challenge financial performance and to
promote good risk management and financial practice.
Committees
Chairman of the Risk and Audit Committee,
and a member of the Remuneration and
Nomination Committees.
81
Frank Nelson
Senior Independent Director
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Board of Directors continued
Mike Parsons
Independent Non-Executive Director
Geeta Nanda, OBE
Independent Non-Executive Director
82
Mike joined the Board in November 2013
as a Non-Executive Director and is Chairman
of the Remuneration Committee.
Mike founded Barchester Healthcare 23 years ago,
following a successful career in advertising. Barchester
is one of the largest independent healthcare providers
in the UK.
Mike is chairman of Breezie and Oomph, vice chair of
Care England, the care sector trade association, and a
non-executive director of Connect Physiotherapy. Mike also
chairs Albion Care Communities, who are developing the
next generation of care homes, and is a director of Martha
Flora, the Dutch dementia specialist.
Mike’s extensive knowledge of the healthcare sector and
his experience of sales and marketing through his previous
advertising career are valuable skills in respect of the
customer facing management services side of our business.
Committees
Chairman of the Remuneration Committee,
and a member of the Risk and Audit and
Nomination Committees.
Geeta joined the Board in April 2015
as a Non-Executive Director.
Geeta has more than 28 years’ experience in the property
sector and over ten years as a chief executive officer. Having
joined Thames Valley Housing Association Limited (‘TVH’) in
2008 she created the brand leading market rent company
Fizzy Living in 2012 and in 2013 was awarded an OBE for
her contributions to social housing. In 2017 she joined
Metropolitan Housing Association as chief executive officer
which then merged with TVH in 2018 to create a 57,000
home organisation delivering 1,500 new homes a year
across all tenures.
Geeta has 23 years’ experience in non-executive roles
and has served on the boards of two housing organisations
and national and local charities. Geeta has extensive
management expertise and experience of strategy
development. She has brought in institutional investment
and bonds through the capital markets to fund the
development of new products and tenures. She has
led organisations through market fluctuations and through
turnaround periods.
Committees
Member of the Remuneration,
Risk and Audit and Nomination Committees.
McCarthy & Stone plc John Carter
Independent Non-Executive Director
John was appointed to the Board as a
Non-Executive Director in September 2017.
John is currently the chief executive officer of Travis
Perkins plc, a position he has held since January 2014.
Having joined Travis Perkins in 1978, he was appointed
to the Board in 2001. John has been the driving force
behind the growth of the Travis Perkins Group, the No.1
supplier of building materials in the UK, and responsible
for the growth of its UK and European business brands
serving retail and B2B customers with international global
sourcing operations.
John has managed and integrated a number of key
strategic acquisitions over the past 20 years, including
Keyline in 1999, Wickes in 2005 and the BSS Group
in 2010. John was previously a Trustee of the British
Research Establishment for three years from 2013 to 2016.
John’s commercial and sector related experience brings
valuable insight to the Board, particularly in the areas of
health and safety and equality and diversity which he
champions across the Travis Perkins Group.
Committees
Member of the Remuneration Committee.
Arun was appointed to the Board in May
2018 as the Nominee Director under the
terms of a Relationship Agreement with
Anchorage Capital Group.
Prior to joining Anchorage in 2012, Arun was an executive
director and co-founding shareholder at Papierwerke Lenk
AG and director and co-founding shareholder at Plastics
Capital plc. Arun began his career at McKinsey & Company.
Arun received a Ph.D. in Mechanical Engineering from
Imperial College at the University of London and a B.A.
from the University of Cambridge. Currently, he serves as a
board director of some of Anchorage’s portfolio companies
including PHS Group, Ideal Standard, IVG Immobilien,
and Eir.
Arun has a deep understanding of the business and brings
additional strategic insight to the Board.
Arun Nagwaney
Non-Executive Director
Committees
Member of the Nomination Committee.
83
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance Statement
Paul Lester, CBE Group Non-Executive Chairman
Dear Shareholder,
As Chairman my principal role is to lead the
Board and ensure that it continues to operate
effectively to help deliver shareholder value
and promote the success of the Group.
The Board recognises the importance of ensuring that high
standards of governance and business practice are upheld
throughout the Group and are continually reviewed to ensure
that they remain relevant to the Group’s business values and
strategy. The Board has established a corporate governance
framework and will continue to focus on improving the framework
during FY19 to support the delivery of the Group’s new strategy.
Corporate governance requirements continue to evolve, with the
announcement of a revised UK Corporate Governance Code
(‘revised Code’) which will first apply to the Group in FY20.
The revised Code will bring about significant changes in the
requirements for listed companies and the Board are already
considering the steps it will be required to take to comply with
its provisions.
In this section of the Report we explain how the business
is structured and managed to promote high standards of
governance across the Group.
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McCarthy & Stone plc Corporate Governance Framework
The Board of Directors
Chairman: Paul Lester, CBE
The Board is ultimately responsible for all activities of the Group. It has adopted a schedule of matters reserved for its
approval and has delegated some of its responsibilities to the Committees of the Board. In addition, certain Executive
Committees have been established to oversee some of the operational activities of the Group, including the Executive
Board which meets on a monthly basis to discharge its responsibilities.
Disclosure Committee
Chair: John Tonkiss
Responsible for timely and accurate
disclosure of all information required to
be disclosed to meet the Group’s legal
and regulatory obligations.
Risk and Audit Committee
Chair: Frank Nelson
Responsible for monitoring the integrity
of the Group’s financial statements and
the effectiveness of the internal audit
function, internal controls, risk
management, whistleblowing and
fraud systems in place within the Group.
It also reviews the effectiveness of the
external auditor and the Group’s
procedures for the identification,
assessment and reporting of risks.
See pages 96 to 101 for the Risk and
Audit Committee report.
Remuneration Committee
Chair: Mike Parsons
Responsible for designing and
implementing the Group’s overall
remuneration strategy and policy and
for determining the levels of remuneration
of the members of the Board and other
senior management of the Group.
See pages 102 to 125 for the
Remuneration Committee report.
The Board
Chief Executive
Executive Board
Chair: John Tonkiss
The Executive Board supports the CEO
in implementing Group Strategy and in
the management of the day-to-day
activities of the Group.
Transformation Committee
Chair: John Tonkiss
Responsible for the transformation of
the business from a housebuilder to
a developer, manager and owner of
retirement communities, with a new,
immediate focus on ROCE rather than
growth and focus on three pillars of
flexibility, affordability and choice for our
customers. For further details about the
new Group strategy and transformation
approach and timeline, please refer to
pages 10 to 15.
Nomination Committee
Chair: Paul Lester, CBE
Assists the Board in reviewing the
structure, size and composition of the
Board and has responsibility for making
recommendations to the Board in
respect of appointments to the Board
and to the Committees of the Board.
It is also responsible for reviewing
succession plans for the Board and
senior management of the Group.
See pages 92 to 95 for the Nomination
Committee report.
Group Investment Committee
Chair: Gary Day
Responsible for reviewing and approving
all land acquisitions. Major investment
decisions and acquisitions not in the
ordinary course of business, or above a
certain value, are referred to the Board in
accordance with the schedule of matters
reserved for determination by the Board.
Health and Safety Committee
Chair: Darren Humphreys
Develops the health and safety strategy
and ensures that health and safety
policies and procedures are adequately
implemented and adhered to throughout
the Group. Monitors the effectiveness of
the Group’s health and safety systems
and keeps abreast of changes in
legislation surrounding health and safety.
Corporate and Social
Responsibility Committee
Chair: Gary Day
Responsible for making recommendations
regarding the Group’s employees,
environmental and community
engagement responsibilities and its
sustainability activities. It also reviews
health and safety arrangements and
makes any recommendations necessary
to the Health and Safety Committee.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance Statement continued
Compliance statement
Throughout FY18 and to the date of this report the Company has applied the principles and complied with the provisions set out
in the UK Corporate Governance Code as revised in April 2016 (the ‘Code’). The Code is issued by the FRC and is available for
review on the FRC website: www.frc.org.uk
The Board considers that this Annual Report, notably this section and the Board committee sections, provides the information
shareholders need to evaluate how we have complied with our current obligations under the Code.
The information required by paragraph 13(a), (c), (d), (g), (h) and (i) of schedule 7 to the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) is contained in the Directors’ Report and included in this statement
for cross reference.
Leadership roles and division of responsibilities
Chairman
• Leadership of the Board
Chief Executive Officer
• Overall responsibility for management of the operational
• Leading the Board in setting the strategic direction and
activities of the Group
objectives of the Group
• Leading constructive challenge of the Executive Directors
• Ensuring the Board determines the nature and extent of
the Group risk appetite
• Promoting high standards of corporate governance
• Setting the Board agenda
• Facilitates constructive relations between Executive and
Non-Executive Directors
Chief Financial Officer
• Provides strategic and financial guidance to ensure the
Group’s financial commitments are met
• Responsible for the Group’s financial, accounting and
operational records and systems
• Development and innovation of the Group’s strategy
• Implements the strategies and objectives agreed by the
Board to deliver operational performance and success
• Ensures effective communication with shareholders,
employees and other stakeholders, in order to understand
their issues and concerns, and communicate issues to the
Board
Non-Executive Directors
• Review proposals put forward by the Executive Board
• Bring external perspective and independent challenge
to the Board
• Monitor Group performance and delivery of the Group
strategy
• Devises the financial and tax strategies of the Group in line
with the agreed risk appetite
Executive Board
• Supports the CEO in implementing Group strategy
• Responsible for producing and delivering the Group budget
• Supports the CEO in management of the operational
activities and performance of the Group
• Oversees employee communication and development
of talent
Senior Independent Director
• Leads the appraisal of the Chairman’s performance
• Supports and deputises for the Chairman and is available to
communicate with shareholders in the Chairman’s absence
Group General Counsel and Company Secretary
• Advises the Board on matters of corporate governance
• Responsible for ensuring that Board procedures are followed
• Responsible for ensuring that applicable rules and regulations
are complied with
• The principal point of contact for investors on matters of
corporate governance
In line with the Code there is a clear division of responsibilities between the Chairman and the Chief Executive Officer, which is set
out in writing and has been agreed by the Board.
86
McCarthy & Stone plc
Corporate Governance Statement continued
Patrick Hole Group General Counsel and Company Secretary
Patrick joined McCarthy & Stone in July 2014. Patrick is responsible
for the legal and company secretarial functions of the Group. He is
a qualified solicitor with more than 20 years’ post-qualification
experience. Patrick was a partner in private practice for many
years and also has a broad range of legal and company secretarial
in-house experience.
Committees
Member of the Disclosure Committee.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Corporate Governance Statement continued
The Board’s Role
The Board is responsible for operational control of the Group,
including all strategic, financial, organisational, legal and
regulatory matters. Some of the principal responsibilities set
out in the schedule of matters reserved for determination by
the Board include:
• Approval of the Group’s objectives, values and standards
• Approval of the business model and strategy
• Oversight of the Group's operations to ensure sound,
competent and prudent management
• Approval of major changes to the Group's structure
• Approval of major land acquisitions
• Ensuring that a robust risk and control framework
is maintained
• Approval of shareholder communications
The types of decisions delegated to management relate to
the day-to-day running of the business and execution of the
Group strategy. During the year a comprehensive review of
the Group’s delegated authorities was undertaken designed
to ensure clear lines of delegated authority to management
and that management act within the appropriate control
framework. These delegations of authority will be kept under
review to reflect any changes arising from the implementation
of the Group’s new strategy.
Summary of Board activities and priorities in FY18
The Board provides clear, entrepreneurial and responsible leadership to the Group in order to promote its long-term success whilst
ensuring that the Group has an appropriate risk and control framework, adequate resources and appropriate values and standards
to deliver its strategy. Specifically, the agenda cycle makes provision for updates on the key areas of the Group’s business, including
sales and marketing, management services, land and planning, health and safety, IT and HR. The majority of the Board’s time in the
second half of the year has been focussed on the formulation of the new Group strategy announced to the market on
25 September 2018. Set out below is a summary of key activities covered during the course of the FY18 annual Board cycle:
Strategy
• Formulation of the Group’s new strategy
• Determining the Group’s approach to the proposed
government reform of leasehold and ground rents
• Oversight and approval of strategic land acquisitions
Governance and risk management
• Review of health and safety compliance
• Approval of Modern Slavery Act statement
• Review of Board evaluation outputs
• Review of principal risks
Appointments, succession planning and remuneration
• Chairman, CEO and Non-Executive
• Review of effectiveness of the external auditor and
approval of new external auditor for FY19
Director appointments
• Exit terms for Clive Fenton
• Board succession planning
• Salary and incentives for the Board
and senior management
Financial performance
• Review and approval of the half year and year end results
• Review and approval of the annual budget
• Approval of the Annual Report
• Review of going concern and viability status
• Approval of interim dividend and recommendation of
final dividend
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McCarthy & Stone plc Corporate Governance Statement continued
Meetings and attendance
During FY18 there were nine formal Board meetings. There were also a number of additional meetings as part of the development
of the Group’s new strategy. All Directors who were eligible to attend attended those meetings. The Directors' attendance at
the Board meetings, as well as the meetings of the three main Board Committees are shown in the table below:
Director
Board meeting attendance1
Paul Lester, CBE2
John White3
Clive Fenton4
John Tonkiss
Rowan Baker
Geeta Nanda, OBE
Frank Nelson
Mike Parsons
John Carter5
Arun Nagwaney6
Board
Risk and Audit
Committee
Remuneration
Committee
Nomination
Committee
9
7/7
3/3
9/9
9/9
9/9
9/9
9/9
9/9
7/8
4/4
4
n/a
n/a
n/a
n/a
n/a
4/4
4/4
4/4
n/a
n/a
4
3/3
1/1
n/a
n/a
n/a
4/4
4/4
4/4
3/3
n/a
4
2/2
2/2
4/4
n/a
n/a
4/4
4/4
4/4
n/a
1/1
Notes:
1 Meetings attended/total number of meetings eligible to attend. Only attendance of formal members of the meetings is included.
2 Paul Lester, CBE was appointed to the Board with effect from 3 January 2018.
3 John White resigned from the Board with effect from 24 January 2018.
4 Clive Fenton resigned from the Board with effect from 31 August 2018.
5 John Carter was appointed to the Board with effect from 1 October 2017.
6 Arun Nagwaney was appointed to the Board with effect from 17 May 2018.
Board Committees
In accordance with the Code, the Board has established three formal Board Committees: Risk and Audit, Remuneration and
Nomination. The membership of each of the Committees complies with the requirements of the Code and the terms of reference of
the Committees are included on our corporate website: www.mccarthyandstonegroup.co.uk/about-us/corporate-governance.
Details of the Committees and their activities during the year are set out in the separate Committee reports on pages 92 to 125,
which are incorporated into the Corporate Governance Statement by reference.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Corporate Governance Statement continued
Other Boards and Committees
Group Investment Committee
Executive Board
The role of the Executive Board is to support the CEO
in implementing the Group’s strategy and to manage the
day-to-day operations of the business. As part of the on-going
governance improvements within the Group, the membership
of the Executive Board has been expanded to include the Chief
Information Officer, the Managing Director for Management
Services, the Group Production Director and the Divisional
Managing Directors. These additional appointments are
intended to improve accountability and responsibility across
the business, ensuring it is well-placed to deliver the new
Group strategy. The Executive Board now consists of
the following members:
• Chief Executive Officer
• Chief Financial Officer
• Group Marketing and Customer Experience Director
• Land and Planning Director
• Group General Counsel and Company Secretary
• Human Resources Director
• Director of Communications
• Chief Information Officer
• Divisional Managing Director, South
• Divisional Managing Director, North
• Managing Director for Management Services
• Group Production Director
Decisions on investments and development activities are made
by the Group Investment Committee (‘GIC’) which meets
weekly and is chaired by the Land and Planning Director, with
major investment decisions being referred to the Board for final
approval, in line with the matters reserved for determination
by the Board. Given the importance of this Committee to the
Group’s business activities, the GIC membership was
enhanced during the year to include the Group Sales and
Marketing Director, Group Production Director and Divisional
Managing Directors.
Health and Safety Committee
Responsible for all aspects of health and safety across the
Group including relevant policies and procedures and
regulatory compliance. Members of the Committee include
representatives from Health and Safety, Production, Legal, HR,
Marketing and Management Services and is chaired by the
Group Production Director.
Disclosure Committee
The Board has established a Disclosure Committee with its
principal responsibility being the control and management of
inside information within the Group. The Disclosure Committee
meets as required and met once during the year to discuss
entering into a Relationship Agreement on 16 May 2018 with
Anchorage Capital Group, LLC (“Anchorage Capital Group”)
and certain funds managed and advised by Anchorage Capital
Group (collectively the “Anchorage Funds”, and together with
Anchorage Capital Group, “Anchorage”) and the appointment
of Arun Nagwaney under the terms of that Relationship
Agreement. The members of the Disclosure Committee are:
• Chief Executive Officer
• Chief Financial Officer
• Group General Counsel and Company Secretary
• Director of Communications
Board Composition and appointments
The Company considers there to be an appropriate combination of Executive and Non-Executive Directors, with independent
Non-Executive Directors comprising at least half of the Board (excluding the Chairman). The Board currently comprises a
Non-Executive Chairman (who was independent on appointment), two Executive Directors, four independent Non-Executive
Directors and one other Non-Executive Director who is not independent. The Board has delegated responsibility to the Nomination
Committee, to lead the process of selecting new Directors before making recommendations to the Board. The Nomination
Committee report can be found on pages 92 to 95. The Directors’ service contracts and letters of appointment set out the time
commitment expected to fulfil their role. The Board is satisfied that each of the Directors has committed sufficient time and input
during the year to enable them to fulfil their duties as evidenced by the high attendance at Board and Committee meetings
throughout the year.
Board Diversity
Board Composition
Board Tenure
1
2
6
5
4
3
2
1
0
s
r
o
t
c
e
r
i
D
Independent Non-Executive
Executive Director
Nominee Director
0-3
4-6
7+
Length of tenure (years)
2
Male
Female
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McCarthy & Stone plc Corporate Governance Statement continued
Board evaluation
An evaluation of the performance of the Board, its members
and Committees was externally facilitated in FY18. The
Nomination Committee led the process and the findings are
included in the Nomination Committee report on pages 92
to 95.
Risk management and internal controls
The Board is responsible for the Group’s system of internal
controls, which are designed to manage the business risks
faced by the Group, and for reviewing the effectiveness of those
controls. The Risk and Audit Committee, together with the
internal audit function, has identified the principal risks facing
the Group and has established a framework and systems for
evaluating and managing those risks. The framework and
systems have been in place for the whole of the year under
review and up to the date of this report. Details of risk
management and the principal risks facing the Group are set
out on pages 72 to 77. Further information can also be found
in the Risk and Audit Committee report on pages 95 to 101.
Relations with shareholders
The Chairman and the Board are committed to open and
transparent dialogue with shareholders. Shareholder contact
facilitated by the Executive Directors is communicated back
to the other Directors primarily through CFO reports to the
Board and copies of analysts' research reports. The Chairman,
CEO and CFO play an active role in relations with shareholders
and have held discussions with a number of the Group’s
shareholders during the year. In addition, a number of
meetings and presentations were held with the Group’s largest
shareholders as part of discussions surrounding the Group’s
new strategy.
The AGM provides an opportunity for the Chairman to explain
the Group’s progress and, along with other members of the
Board, to answer any questions raised by shareholders. All of
the Directors, who were members of the Board at that time,
attended the AGM on 24 January 2018.
On behalf of the Board
Paul Lester, CBE
Non-Executive Chairman
12 November 2018
Conflicts of interest and independence
No individual or group of individuals dominates the Board’s
decision-making process. The Board has established a process
to review and, if appropriate, authorise any conflict of interest.
Directors are excluded from voting on any matters in which
they have an interest. During the year the Board authorised the
situational conflict of Arun Nagwaney as the Nominee Director
under the Relationship Agreement. Under the provisions of
the UK Corporate Governance Code, Arun Nagwaney is not
considered to be an Independent Non-Executive Director.
Any transactional conflicts are reviewed as they arise and
there is a standing item at all meetings to review any potential
conflict of interest.
At its meeting in November 2017, the Nomination Committee
considered the independence and potential conflicts of interest
regarding John Carter in his role as chief executive officer of
Travis Perkins plc and Paul Lester in his role as chairman of
Forterra plc. On recommendation from the Nomination
Committee, the Board concluded that both John Carter and
Paul Lester are independent notwithstanding their directorships
of Travis Perkins and Forterra, both suppliers to the Group, as
the level of business between the Group and those companies
was not deemed to be material. Relevant safeguards have been
put in place to ensure that neither of them will influence any
consideration of such business. Paul Lester has confirmed that
he will be retiring from the Board of Forterra following its AGM
in May 2019.
For the purposes of the Code, the Board considers Frank
Nelson, Mike Parsons, Geeta Nanda and John Carter
all to be Independent Non-Executive Directors.
Induction, development and support
On joining the Board, each Director is provided with a
personalised induction to the business, in order to provide
a broader understanding of the business, including meetings
with senior management and visits to some of the Group’s
developments. To assist the Directors in their ongoing
understanding of the Group, Board meetings are held at
different regional offices throughout the year to provide an
opportunity for the Directors to meet local management. They
are also provided with access to a detailed information pack
covering Group policies, directors’ duties and responsibilities
as well as other key governance documents, which they can
access through an online Board reporting portal. John Carter,
Paul Lester and Arun Nagwaney, who were all appointed during
the year, have received an induction to the business in line with
the above.
All Directors are encouraged to undertake additional training
where it is considered appropriate for them to do so. Papers
are circulated in a timely manner to enable the Directors to
undertake full and detailed consideration of agenda items in
advance of meetings. Each of the Directors has access to
the services of the Group General Counsel and Company
Secretary and independent external legal and professional
advice can also be taken when it is necessary to do so.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Nomination Committee Report
Paul Lester, CBE Nomination Committee Chairman
“I am pleased to present the report of
the Nomination Committee for the year
describing the principal activities of the
Committee during the period.”
Maintaining the right balance of skills and knowledge is key
to achieving the Group’s strategic objectives. During the year
the main focus of the Committee was securing the appointment
of a new Chairman and a new Chief Executive Officer for the
Group following the departures of John White and Clive Fenton.
The Committee also facilitated an external evaluation of the
performance of the Board and its Committees and each of
the Directors as required by the provisions of the UK Corporate
Governance Code.
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McCarthy & Stone plc Membership and attendance
FY18 has been a busy period for the Committee with four
formal meetings held. The members of the Committee and
their attendance during FY18 are shown below.
Director
Nomination Committee Attendance
Paul Lester, CBE1
John White2
Clive Fenton3
Frank Nelson
Geeta Nanda, OBE
Mike Parsons
Arun Nagwaney4
2/2
2/2
4/4
4/4
4/4
4/4
1/1
The Senior Independent Director, Frank Nelson, is a member
of the Committee as are Geeta Nanda and Mike Parsons,
both independent Non-Executive Directors. Arun Nagwaney,
the Nominee Director under the terms of the Relationship
Agreement with Anchorage, is also a member of the
Committee. After John White stepped down from the Board
and Committee, Paul Lester was appointed as Chairman of
the Committee. Career profiles of the current Committee
members can be found in the Board of Directors section
on pages 80 to 83.
Summary of key activities during FY18
• Securing the appointment of Paul Lester as the
new Chairman of the Group following the departure
of John White
• Facilitating the external evaluation of the performance
of the Board and the Board Committees and the Directors
• Securing the appointment of John Tonkiss as the new
Chief Executive Officer of the Group following the departure
of Clive Fenton
• Recruitment of John Carter as an additional
Non-Executive Director
1 Paul Lester, CBE was appointed to the Nomination Committee
with effect from 26 February 2018
2 John White resigned from the Board and Nomination Committee
with effect from 24 January 2018
3 Clive Fenton resigned from the Board and Nomination Committee
with effect from 31 August 2018
4 Arun Nagwaney was appointed to the Nomination Committee
with effect from 17 May 2018
Responsibilities
The key responsibilities of the Committee are set out in
its written terms of reference which are available under the
Corporate Governance section on the Company’s corporate
website: www.mccarthyandstonegroup.co.uk/about-us/
corporate-governance and include:
• Reviewing the structure, size and composition of the
Board and its Committees
• Ensuring that the skills and experience of the Board
remain appropriate and balanced
• Recommending appointments and re-elections to the
Board and Committees
• Succession planning for the Directors and the Group’s
senior leadership team
• Responsibility for the annual Board evaluation process
Succession planning
Succession planning for a new Chairman, CEO and
Non-Executive Director was the principal focus of the
Committee’s four formal meetings. Disclosures on the
recruitment process for John Carter’s appointment can
be found in the FY17 Annual Report. The Committee has
also overseen some of the on-going work in relation to
developing the pipeline of talent and ensuring that effective
succession plans are in place for those in leadership roles
below Executive Director level, including the development
of the ‘Future Leaders Programme’ for potential future
senior leaders of the business.
Chairman succession
The Company announced in November 2017 that, having
served as Non-Executive Chairman since 2013, John White
would step down from the Board following the conclusion
of the Company’s AGM on 24 January 2018. Korn Ferry, an
independent external search firm, were retained to conduct
the search process to find a successor. To assist with the
process, a detailed role profile for the position of Chairman was
produced, taking into account the knowledge, experience, skills
and time commitment required for the role. Both internal and
external candidates were considered as part of the process.
Shortlisted candidates were interviewed by John White and
Mike Parsons and the Committee held two formal meetings
in September and November 2017 to discuss the recruitment
process. At the November meeting the Committee considered
the suitability of each of the candidates in detail, taking into
account their experience and bandwidth for the role and the
balance of skills, experience and knowledge that they would
bring to the role.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Nomination Committee Report continued
Chairman succession continued
The Committee concluded that Paul Lester was the
most compelling candidate for the role. The Committee
carefully considered Paul’s other commitments and
external appointments when making their recommendation.
Paul has confirmed that he will be stepping down from the
board of Forterra plc at the conclusion of its next AGM in
May 2019. The Board formally approved Paul’s appointment
at its meeting held on 8 November 2017 and he assumed
the role of Chairman following the conclusion of the
Company’s AGM on 24 January 2018.
Chief Executive Officer succession
In June 2018, Clive Fenton indicated his wish to retire from
the Board and his role as CEO with effect from the end of
FY18. While a search was carried out for a successor,
John Tonkiss was appointed interim CEO. The Chairman
also undertook a more active role with the Executive Board
to develop the new strategy for the Group during the interim
period.
The Committee engaged Korn Ferry to conduct the search
process with a remit to identify both internal and external
candidates for the role.
After an extensive search process, Korn Ferry presented
a longlist of candidates for consideration by the Committee.
A shortlist of candidates was identified by the Committee and
Korn Ferry were asked to approach them and assess their
suitability and interest for the role. Relevant candidates,
which included John Tonkiss, were then interviewed by the
Chairman and Arun Nagwaney, who then provided feedback
to the Committee. After careful consideration, the Committee
recommended that John Tonkiss be appointed to the role.
In making their recommendation, the Committee considered
John Tonkiss’ performance as interim CEO to be an important
factor. The Board met on 24 September 2018 to review the
recommendation of the Committee and unanimously approved
the appointment and internal and external announcements
were subsequently made on 25 September 2018.
Diversity
It is in the best interests of the Group and shareholders to
establish a cohesive and representative Board with differing
backgrounds, viewpoints and approaches. The Board
recognises the importance of diversity and the benefits
this can bring.
Accordingly, the Committee considers carefully in relation to
all appointments to the Board and Committees, the benefits
of greater diversity, whilst also ensuring that it fulfils its
obligations to shareholders and the Company to recruit the
best candidate for the role, on merit. To this end, appointments
are not prescriptive to any criteria which do not relate directly to
the ability to perform the role.
Taking account of the changes in Board membership during the
year, the female representation on the Board at the date of this
report is 25% with one independent Non-Executive Director and
one Executive Director being female. Diversity is also monitored
across the Group including in relation to gender and age, details
of which can be found on page 31.
The female representation on the Board
at the date of this report is 25% with one
independent Non-Executive Director and
one Executive Director being female.
Board evaluation process and results
An annual evaluation of performance and effectiveness of
the Board and the Board Committees and the Directors is
undertaken each year. In line with the requirement of the UK
Corporate Governance Code for an external evaluation to take
place every three years, the performance evaluation for FY18
was facilitated by an external independent facilitator, MWM
Consulting, with input from the Chairman and the Group
General Counsel and Company Secretary. The review process
involved completion of a questionnaire which focused on
the effectiveness of the Board and the Board Committees
in terms of structure, organisation, reporting, strategy and
communications as well as individual discussions between
each Board member and representatives from MWM
Consulting. A report on the findings from the evaluation of the
Board and its Committees was prepared by MWM Consulting
and shared with each of the members of the Board for review
and discussion respectively.
The Chairman will also meet with each of the members of
the Board to discuss the results.
The Senior Independent Director was responsible for
appraising the Chairman’s performance.
The findings from the evaluation demonstrate that overall,
the Board is an aligned and well-managed team with good
dynamics, that provides effective governance of the business.
The overall calibre of the Board is seen as adequate with
the core capabilities of financial and business expertise,
understanding investors’ needs and business leadership.
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McCarthy & Stone plc Nomination Committee Report continued
The evaluation highlighted the need for continued review and
challenge of the Group’s financial performance and
implementation of the Group’s new strategy.
The findings from the survey demonstrate
that overall, the Board is an aligned,
well-managed team with good dynamics,
that provides effective governance of
the business.
The quality and timely reporting of information to the Board
was also identified as an area for improvement and the Group
has engaged an external consultant to assist in improving the
governance around meeting support, including the quality of
reports to the Board, which will be monitored and progressed
during FY19.
FY17 Evaluation
One of the areas highlighted from last year’s evaluation
results was improvement in communication between regional
management and the Board. As a result, it was agreed that
there should be more Board meetings held in the Group’s
offices and the Board undertook to hold four such meetings,
three in regional offices and one at the Group’s head office in
Bournemouth. Three meetings were held outside of London
during the year. Due to the work of the Board during the year,
the remainder of meetings were held in London.
Retirement and re-election of Directors
The Committee considers the performance of each of
the Directors standing for re-election at this year’s AGM to
be fully satisfactory and is of the opinion that they continue
to provide invaluable experience, challenge and contribution
to the leadership of the Group. Therefore, the Chairman strongly
supports their re-election and recommends that shareholders
vote in favour of their re-election at the AGM.
Paul Lester, CBE
Nomination Committee Chairman
12 November 2018
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Frank Nelson Risk and Audit Committee Chairman
“I am pleased to present the FY18 Risk and
Audit Committee report. This report describes
the Committee’s ongoing responsibilities and
key activities during the year.”
During the year the Risk and Audit Committee has continued to
focus significant time and attention on the Group’s systems of risk
management and internal control, the integrity of financial reporting
and the process for the re-tender of the Group’s external audit.
In this report I describe how the Committee has carried out its
responsibilities during the year to ensure we continue to comply
with related parts of the UK Corporate Governance Code
(the ‘Code’), the Listing Rules and other applicable legislation.
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Membership and attendance
The members of the Committee and their attendance during
FY18 are shown below:
Director
Risk and Audit Committee Attendance
Frank Nelson
Geeta Nanda, OBE
Mike Parsons
4/4
4/4
4/4
There has not been any change to the members of the
Committee during the financial year and up to the date of
this report. All members of the Committee are Independent
Non-Executive Directors and the Board is satisfied that the
collective skills and experience of the Committee continue
to provide sufficient financial, commercial and sector-related
expertise to meet the needs of the Group and requirements
of the Code.
Profiles of the Committee members can be found in the
Board of Directors section on pages 80 to 83.
In accordance with the Committee’s terms of reference,
meetings can also be attended by other Directors and
members of the internal audit and external audit teams,
when deemed appropriate. The Chairman, CEO and CFO
attended all four meetings during the year. The Director of Risk
and Internal Audit, the Group Financial Controller and the
external audit partner attended three meetings during the year.
The members of the Committee met with the external auditor
without Executive Directors or management present at its
November 2017 and April 2018 meetings.
Key responsibilities
The key responsibilities of the Committee are set out in the
Committee’s written terms of reference which can be found
under the Corporate Governance section of the corporate
website: www.mccarthyandstonegroup.co.uk/about-us/
corporate-governance. These include:
• Monitoring the integrity of the financial statements and
any other formal announcements relating to the Group’s
financial position and performance
• Assessing whether management has made appropriate
estimates and judgements and providing advice to the
Board on whether the Annual Report is fair, balanced
and understandable
• Keeping under review, and monitoring the effectiveness of,
the Group’s internal management and risk controls systems
• Ensuring compliance with the policy on the supply of
non-audit services by the external auditor
• Monitoring and reviewing the effectiveness of the risk
and internal audit function
• Monitoring and reviewing the effectiveness of the services
of the external auditor, including negotiation of the audit fee
• Reviewing the adequacy and security of the Group’s
procedures on whistleblowing, anti-bribery and corruption
and anti-money laundering
The Committee reviewed its terms of reference at each of
its meetings during the year and concluded that no changes
were required.
Summary of key activities during FY18
There were four Committee meetings during the financial
year, organised to coincide with the annual audit cycle and
the external audit tender timetable.
Summary of key activities during FY18 included:
• Review of the independence and objectivity of the
external auditors
• Review of the integrity of the financial statements and
associated disclosures at half year and full year
• Assessment of whether the Annual Report, taken as a whole,
is fair, balanced and understandable. The resulting Directors’
Responsibilities Statement can be found on pages 132
and 133
• Conducted a formal competitive tendering process for the
Group’s statutory audit and agreed the external audit fee
• Review of the results of the internal and external audits
and continued to monitor the timely implementation of any
recommended actions
• Responding to a letter from the conduct committee of the
Financial Reporting Council relating to certain disclosures
made in the Group’s FY17 Annual Report
• Assessment of the Group’s goodwill for impairment,
going concern status and medium to longer-term viability
following the launch of the Group’s new strategy.
The Viability statement can be found on page 73
• Review of reports on the internal audit programme and
findings of internal audits carried out during the year
• Monitoring the General Data Protection Regulation
(‘GDPR’) implementation plan to ensure compliance
with GDPR in time for May 2018
• Review of and approval of the annual internal audit plan
• Undertaking the annual review of the effectiveness of
the Group’s systems of internal controls
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Risk and Audit Committee Report continued
Evaluation of the Committee
An external evaluation led by MWM Consulting was used during
the year to assess the Committee’s performance, taking into
account its collective skills and experience, the work of the
Committee during the year and the effectiveness of its actions
in maintaining the Group’s risk management process. The
Board has reviewed the evaluation findings and concluded
that the Committee has operated effectively.
Whistleblowing, fraud and anti-bribery
and corruption
During the year, the Committee received regular updates
from the Group General Counsel and Company Secretary on
compliance with the Group’s policies relating to whistleblowing,
anti-bribery and corruption, fraud and anti-money laundering.
In addition, the Committee reviewed and approved the Group’s
revised Conflicts of Interest Policy.
During FY19 the Committee will remain focused on the areas of
activity outlined as its key responsibilities with particular focus
on monitoring the Group’s principal risks, including, amongst
others, those relating to the delivery of the Group’s new strategy,
and the effectiveness of the external audit with the new auditors.
Significant financial reporting issues
The Committee is responsible for reviewing whether
suitable accounting policies have been adopted and whether
management has made appropriate estimates and judgements
in the preparation of the financial statements. The table below
sets out the significant financial reporting issues, judgements
and areas of estimation uncertainty that the Committee has
reviewed during the year and how these were addressed. The
associated accounting policies are set out on pages 152 to 157.
Carrying value
of goodwill
The Committee considered the basis for goodwill impairment review which was performed by
management at 31 August 2018. The review compared the value in use of the business with the
carrying value of the tangible and intangible assets and goodwill included a number of judgements
around the estimation of future cash flows and the determination of a suitable discount rate to calculate
the present value of these cash flows. The value in use was determined by discounting the future cash
flows based on the new Group strategy launched in September 2018. These cash flows have been
overlaid with several reasonably possible downside scenarios reflecting sensitivities on pricing, volumes,
discount rate, delivery of the new Group strategy and the outcome of ground rents legislation. The
discount rate used was based on the capital structure of the business, current market assessments of
the time value of money and risks attributable to the Group’s sector. The Committee agreed with the
estimates made by management and concluded that the carrying value of goodwill remains appropriate.
Shared equity
receivables
The Committee reviewed the accounting treatment of future receivables under the shared equity
schemes that have been used over the years by the Group. The assumptions used in estimating the
value of the future receivables are reviewed half yearly and relate to the date of the anticipated future
receipt, house price inflation, the discount rate and the new build premium.
Cost capitalisation
of overheads
The Committee received a proposal from management analysing the split of overhead costs relating
to design, planning, commercial, construction, procurement and health and safety between those
that could be attributed to the cost of the developments to inventory and those that relate to general
business overheads to expenses. The assumptions are reviewed annually with the function heads
before being proposed to the Committee.
FRC review of FY17 Annual Report
and Accounts
In June 2018 the Conduct Committee of the Financial Reporting
Council wrote to the Group’s Chairman requesting additional
information in relation to our FY17 Annual Report.
Prior year comparatives have been restated whereby the
repayment of £11.3m of promissory notes, which are classified
as borrowings in the balance sheet, has been reclassified.
Previously the repayment was classified as an operating cash
flow. The restatement arose following an enquiry by the Financial
Reporting Council as a result of which the Group concluded
that, in order to comply with IAS 7 ‘Statement of Cash Flows’,
these movement should be classified as financing activities.
The Group is pleased to report that the Conduct Committee of
the Financial Reporting Council were satisfied with the provided
responses and confirmed that their review has been closed
satisfactorily.
The Group note the inherent limitations of the FRC review. The
review conducted by the FRC was based solely on the Group’s
published Annual Report and does not provide any assurance
that the Annual Report is correct in all material respects.
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McCarthy & Stone plc
Risk and Audit Committee Report continued
Risk management and internal controls
The Board of Directors recognises its overall responsibility
for the Group’s system of internal controls and for monitoring
its effectiveness. There is an ongoing process for identifying,
evaluating and managing principal risks. The controls and
procedures contained within the process are designed to
manage, to the extent possible, the risk of failure of the
Group to meet its business objectives and, as such, provide
reasonable but not absolute assurance against material
misstatement or loss. Details of how the Group manages
its principal risks are set out on pages 72 and 77.
The Board, on the recommendation of the Committee,
have remained satisfied that the system of internal controls
continued to be effective in identifying, assessing and ranking
the various risks facing the Group, and in monitoring and
reporting progress in mitigating the potential impact on the
business. Systems have been in place for the year under
review and up to the date of approval of the Annual Report.
The Board has approved the statement of the Principal
Risks and Uncertainties set out on pages 74 to 77 of this
Annual Report.
Internal audit
The risk and internal audit function within the Group is
responsible for:
• The design and implementation of a robust system of internal
controls across the Group to identify, monitor and manage
principal risks and to establish a risk appetite for each
principal risk beyond which corrective action is required
• The development of an assurance programme to ascertain
whether the controls around our principal risks are designed
and operating effectively
The principal risks to the business are formally agreed with
the Executive Board twice a year and are approved by the
Committee. The principal risks form the basis of the annual
internal audit plan.
The Director of Risk and Internal Audit attended three
Committee meetings during the year and reported on any
changes to the risks faced by the business and any areas
for improvement. He also regularly met separately with the
Risk and Audit Committee Chairman. Other members of the
Committee and the Board also met with the Director of Risk
and Internal Audit periodically during the year. At each meeting
the Director of Risk and Internal Audit also provided an update
covering the internal audit activity and the status of, and time
to close, management actions, to support the Committee to
form a view on internal audit effectiveness.
The Committee, supported by the Director of Risk and
Internal Audit, has continued to make progress during the
year in assisting the Board in improving risk management.
Key activities undertaken were as follows:
• Agreeing the weighting on the new principal risk relating
to the expected govenment decision on banning ground
rents and delivering the Group’s new strategy
• Updating the weighting on principal risks relating to land
acquisition and planning
• Updating the Group’s Conflicts of Interest Policy and
subsequent roll-out of an e-learning module on the revised
policy across the business
• Developing an e-learning module on the General Data
Protection Regulation
Based on the activities outlined above the Committee is
satisfied that the quality, resources, experience and expertise
of the internal audit function are appropriate for the Group.
External auditor
The Committee is responsible for the appointment of the
external auditor, its fee and the scope of the annual audit.
In the FY17 Annual Report the Committee announced that
a competitive tender process for the Group’s statutory auditor
would be initiated prior to the end of 2018. In February 2018
the Committee invited four firms, including the Group’s
incumbent statutory auditor, Deloitte LLP, to compete for the
provision of external audit services. The tender process was
planned in a way that ensured all firms had fair and equal access
to information to allow them to fully understand the requirements
of the audit tender. Once each firm had confirmed their
independence and their acceptance to participate in the tender
process they were invited to attend meetings with the Risk and
Audit Committee Chairman, CEO, CFO, and other relevant
members of the senior management team. Following these
initial meetings, the firms then met with Committee members.
Subsequently, the Committee made the recommendation to the
Board that Ernst & Young LLP, led by the firm’s audit partner,
Peter McIver, should be appointed as the Group’s statutory
auditor for the period ending 31 October 2019.
The Committee made the
recommendation to the Board
that Ernst & Young LLP, led by
the firms audit partner, Peter McIver,
should be appointed as the Group’s
statutory auditor.
In making their recommendation to the Board the Committee
considered Ernst & Young LLP to offer the most professional
and competitively priced services, as well as the most detailed
and pragmatic approach to transition from the incumbent
auditor. The Committee’s recommendation to the Board was
made objectively free from the influence of any third party and
no contractual term of the kind referred to in Article 16(6) of
Regulation (537/2014) has been imposed. At its meeting in June
2018 the Board approved the appointment of Ernst & Young
LLP as the Group’s statutory auditor with effect from FY19.
Following the tender of the external audit, as detailed above,
Ernst & Young LLP will be put forward for appointment at the
AGM on 23 January 2019.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Risk and Audit Committee Report continued
Auditor independence and performance
The performance and effectiveness of the auditor and the
work it performs are reviewed annually following completion
of the external audit. Deloitte LLP is required to disclose any
significant facts and matters that may reasonably impact on
their independence or on the objectivity of the lead partner
and the audit team.
The Committee assessed the performance of the external
auditor and the effectiveness of the external audit for FY18.
In coming to its conclusion, the Committee reviewed amongst
other matters:
Policy on non-audit services
The Committee is aware of the need to ensure that the external
auditors remain independent of the Group and the Committee
carries out an annual review on the independence of the
external auditor. The external auditor is appointed to provide
audit and audit-related services, including the annual audit of
the Group, the Company and the non-dormant subsidiary
financial statements as well as the half year review. It is the
Group’s practice, whenever possible, to put non-audit work
out to tender. The Board only appoint the external auditor to
provide non-audit services if they are satisfied that the auditor’s
objectivity and independence have not been compromised.
• Feedback on the effectiveness and performance of the
external audit from the Group, regional management and
the Director of Risk and Internal Audit who were closely
involved in both the half year and full year reporting process
A policy on non-audit services has been approved by the
Committee and incorporates the requirements of the EU Audit
Directive (2014/56/EU) and Audit Regulation (537/2014) which
came into force in the UK on 17 June 2016.
The external auditor may be selected to provide any other
services that do not fall within audit and audit-related services
or that are not prohibited, subject to a competitive selection
process. In addition, the Committee considers and approves
all the fees that the Group pays for non-audit services from
the external auditor.
Audit fees were payable to Deloitte in FY18 in respect of the
year end audit and statutory audit of subsidiaries. Audit-related
assurance fees were payable to Deloitte in FY18 in respect of
the interim review. There were no other non-audit fees payable
to Deloitte during the year.
A summary of all fees is detailed in note 5 to the financial
statements.
Frank Nelson
Risk and Audit Committee Chairman
12 November 2018
• Deloitte LLP’s fulfilment of the agreed audit plan for FY18
• Reports highlighting the material issues and accounting
judgements that arose during the conduct of the audit
• Deloitte LLP’s objectivity and independence during the
process
The Committee concluded that the audit process as a whole
had been conducted robustly and that the team selected to
undertake the audit had done so thoroughly, professionally
and independently. Deloitte LLP’s performance as auditor
to the Group during FY18 was therefore considered to
be satisfactory.
The Committee concluded that the
audit process as a whole had been
conducted robustly and that the team
selected to undertake the audit had
done so thoroughly, professionally
and independently.
The Group has complied throughout the reporting
year 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.
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Risk and Audit Committee Report continued
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report
Remuneration Committee Chairman’s Annual Statement
Mike Parsons Remuneration Committee Chairman
Dear Shareholder,
Year of change for McCarthy & Stone
Adapting the business in the challenging market environment
Since the Company’s IPO in November 2015, the business has
faced a number of market headwinds including political uncertainty
following the outcome of the vote to leave the European Union and
a lack of Government support for the retirement housebuilding
sector. These headwinds have resulted in a challenging economic
backdrop, lowering consumer confidence and consequently
reducing volumes in the secondary housing market with UK
housing transactions showing a decline of c.40% since 2015.
Contents
Annual statement
At a glance
pages 102 to 105
pages 106 to 114
Annual Report on Remuneration
pages 115 to 125
102
McCarthy & Stone plc The Board announced earlier this year that it would
be undertaking a strategic review and announced on
25 September 2018 the results of that review which will
position the business to succeed in this more challenging
market environment.
Key highlights of the transformation
• Shift in business mindset from growth to increasing
ROCE and margins
• Realigning the workflow and rightsizing the operational
cost base to deliver steady state volumes of c.2,100
• Change of year end to 31 October to decouple from
peak holiday season
• Focus on two core products, Retirement Living and
Retirement Living PLUS
• Improved offering through increasing affordability,
flexibility and choice for our customers
Optimising the Company’s operations for strong
financial performance across four fundamental pillars:
• Workflow realignment - generating a stable monthly flow
of land exchanges, build starts, sales releases and first
occupations - fundamental to operational efficiency
• Rightsizing the business - rightsizing the operational cost
base to reflect steady state volumes
• Efficient sales and marketing model - a reorganisation of
the sales teams and a centralised approach to the Group’s
marketing function
• Build cost reduction - utilising standard, more efficient
designs and optimising subcontract procurement practices
We believe the Group is operating in a market with significant
demographic opportunities and our strong operational
capability coupled with achieving efficiency in the areas
outlined above will lead to generating value for our
shareholders.
Board changes
During FY18, the Board has undergone several changes.
The Group Chairman, John White, stepped down from the
Board following our AGM on 24 January 2018 and was
replaced by Paul Lester. The Board would like to thank John
for his contributions in overseeing a transformational period
for the Company culminating in its successful IPO in 2015.
We welcome and look forward to working with Paul who
brings with him a wealth of experience in order to support
the Executive Board in delivering the Group’s new strategy
over the coming years.
Paul’s fee for chairmanship of the Company is £230,000,
in line with that of his predecessor.
The Group CEO, Clive Fenton, retired from the Company on
31 August 2018, stepping down from the Board at the same
time. I have worked with Clive since he joined McCarthy &
Stone as Group CEO in 2014. Clive successfully steered the
Company through its IPO in 2015 and I would like to take this
opportunity to thank Clive for his tremendous contribution.
Details of Clive’s remuneration arrangements on departure
are on pages 120 and 121.
It was announced on 25 September 2018 that John Tonkiss
was appointed to the role of Group CEO as successor to Clive.
John joined McCarthy & Stone in February 2014 as Director
of Business Transformation and joined the Board in November
2015. The Board endorses John’s appointment as Group CEO
and will support him and his team in delivering the new
Group strategy.
Major remuneration events during FY18
Determination of the FY18 annual bonus outcome
The FY18 annual bonus was based on profit before tax
(70%), cash flow (10%), land exchanges (10%) and customer
satisfaction (10%). The Company missed the profit before tax
target, therefore this element of the annual bonus will not result
in a pay out.
The maximum customer satisfaction element target was met
which is a testament to the continued focus on customers
throughout the business and to the strength of our brand.
We exceeded the bonus target relating to the cash flow
element, narrowly missing out on the maximum and the
Group missed the land exchanges target.
Based on this performance in the year, the formulaic outcome
of the annual bonuses would have delivered bonuses of 29.7%
of salary split two-thirds in cash and one-third in shares for
John Tonkiss and Rowan Baker (£98.0k and £84.6k
respectively). The Committee has, after careful consideration,
agreed with John and Rowan that their bonuses will be paid
entirely in shares deferred for three years. The rationale for
this is:
• As the Company issued a profit warning in June 2018 and
the threshold target for the profit before tax element was
missed, the Committee felt it was not appropriate to pay
cash bonuses
• Awarding the bonus in deferred shares provides further
motivation to the Executive Directors to ensure that delivery
of the Group’s new strategy in the coming years flows
through to the Company’s share price performance
FY16 LTIP vesting
The performance period for the FY16 LTIP, which was granted
in November 2015, ends in November 2018. EPS and ROCE
were measured at the financial year end and the threshold
target for both of these measures was missed. The TSR
performance period concludes in November 2018 and it is
anticipated that due to the recent fall in share price, the
Company’s TSR will be below that of the housebuilder index
and therefore we expect nil vesting of the LTIP overall.
In light of the challenges faced by the Company since the grant
of the LTIP and the subsequent impact on our share price,
the Committee believes it is fair that the LTIP awards do not
pay out.
NED and Chairman fees
Having considered the matter carefully, it has been determined
that fees for the NEDs and Chairman will remain unchanged
for FY19.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued
Remuneration approach for FY19
FY19 LTIP
Base salaries for FY19
John’s salary has been increased from £330,000 to £475,000
to reflect his significant promotion from Chief Operating Officer
and the associated increase in scope and accountability.
The Committee believes this level of salary reflects the breadth
and complexity of his new role as well as John’s significant
experience. This has also been set below the level of his
predecessor’s salary of £500,000.
As stated in the 2017 Directors’ Remuneration Report, when
Rowan Baker was appointed to the Board her salary was set
significantly below the market. This was with the intention, that
the Committee would keep her package under review and,
subject to performance, would award increases in the next few
years above that of the all employee population. Rowan has
grown to become a fully established and critical member of the
management team with an extended remit that now also covers
IT, Legal Services and Communication departments. It is on this
basis that the Committee has decided to increase her salary
from £285,000 to £325,000.
The Committee is mindful of the sensitivity to large increases in
base pay levels and considered its proposed approach carefully
in the current remuneration environment. The average salary
increases across the Group are expected to be 3%, however
the Committee believes the FY19 levels are appropriate for the
reasons described above. Both Executive Directors have been
instrumental in the formulation of the revised Group strategy
and are crucial to its delivery and the Committee therefore
believes the salary levels are appropriate and in the best
interests of the Group.
FY19 annual bonus objectives
In order to ensure alignment to the Group’s new strategy,
the annual bonus measures and weightings have changed
for FY19 and will now be:
Alongside the review of the annual bonus, the Committee
reviewed the effectiveness of the LTIP and was satisfied with
the overall structure, particularly following the introduction of
the 2 year post-vesting holding period last year.
The Committee also remains of the view that the LTIP should
form part of an effective and motivational incentive approach
which links the interests of the investors and our Executives.
We have therefore reviewed the targets and measures to
ensure alignment with the Group’s new strategy.
Following consultation with our major shareholders, the
Committee decided to remove relative TSR as a LTIP condition
and measure EPS and ROCE with equal weighting (50% each)
for the FY19 LTIP.
Furthermore, the Committee decided that as a result of the
share price performance over the year it was appropriate to
reduce the number shares granted under the LTIP to ensure
that the Executive Directors do not benefit from the fall in share
price. Therefore, rather than receiving the maximum opportunity
of 150% of salary, the Executive Directors will receive a reduced
number of shares equal to the number of shares granted for the
FY18 LTIP adjusted for base salary increases.
Details and the full rationale of the changes to the LTIP can be
found on pages 110 and 111.
Pension contributions
The new UK Corporate Governance Code highlighted the
importance of Executive pension provision being in line with
the wider workforce. With this in mind, pension contributions
for the Executive Directors have been reduced from 20% to
15% of salary to reflect emerging best practice.
This represents a reduction in the level of pension benefit
for both of the Executive Directors and further reflects the
Committee’s desire to embrace the Code provisions.
• ROCE (25%)
• Operating profit margin (25%)
• Site margin (25%)
• Cash flow (25%)
Whilst operating profit and customer satisfaction have been
removed as discrete measures, they will continue to be tested
as underpins for any bonus payment to take place. Pay-outs
will be subject to a threshold operating profit level below which
no bonuses will be paid. Furthermore, bonus pay-outs may
be adjusted downwards (but not upwards) in the event
of affordability constraints. In addition, the Committee has
discretion to pay no bonuses where a customer satisfaction
underpin is not met, or where it considers that safety standards
have not been adequately satisfied.
Further details of the changes to the annual bonus and the
rationale can be found on page 109.
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McCarthy & Stone plc Directors’ Remuneration Report continued
New UK Corporate Governance Code
The Committee recognises the significance of the new UK
Corporate Governance Code and - whilst the Code does not
apply for the Company until FY20 - has taken the following
steps to be prepared for the Code and adopt early where
possible.
The Company has considered the Code provision for the Board
to understand the views of other stakeholders including the
workforce. The Company has decided to appoint a designated
NED to gather the views of the workforce.
The Committee is working closely with the Company to decide
the types of information on which to engage the workforce,
how this information will be used in Board discussions and
how details of this will be fed back to the workforce.
Our goal has been to be thoughtful and clear in the layout of
this report and I look forward to your support on the resolution.
I welcome any feedback from the Company’s Shareholders.
Mike Parsons
Remuneration Committee Chairman
12 November 2018
Engagement with our shareholders
The Committee recognises the importance of ongoing dialogue
with shareholders on matters of remuneration and consulted
with our largest shareholders as well as the main shareholder
representative bodies on the implementation of the policy.
Overall, shareholders responded positively to the proposed
changes with overwhelming support of the decision to remove
TSR as a performance condition from the LTIP. Shareholders
recognised that ROCE is the key metric for measuring the
success of the Group’s new strategy and agreed that the
increased weighting of 50% for the FY19 LTIP was appropriate.
In addition, shareholders appreciated the Committee exercising
its discretion to reduce the number of shares awarded under
the FY19 LTIP, as well as the decision to pay the FY18 bonus
entirely in deferred shares for John Tonkiss and Rowan Baker
rather than paying a portion in cash. Both decisions were made
to ensure that executive pay better reflected the shareholder
experience over the year and we are happy that shareholders
agreed with this.
A minority of shareholders raised concerns regarding Rowan’s
base salary increase, given her increase last year. Whilst the
Committee is aware of the pressure on executive salary
increases in excess of the average employee increase, the
Committee balanced this against the focus on gender equality
and that after having demonstrated her competence in the
role there is no justification for paying her less than her male
predecessor. Future rises for Executive Directors and
Non-Executive Directors over the policy period will be in line
with general employee increases.
The Committee is grateful for the time taken by shareholders
to review the proposals and provide meaningful feedback
and I would like to thank those who engaged.
Notes
This Report has been prepared in accordance with Schedule 8 to The Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008
as amended in 2013, the provisions of the UK Corporate Governance Code and
the Listing Rules. The Report consists of two sections:
• The Annual Statement by the Remuneration Committee Chairman and
associated ‘At a glance’ section
• The Annual Report on Remuneration which sets out payments made to the
Directors and details the link between Group performance and remuneration
for FY18
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued
At a glance
Introduction
In this section, we report on the remuneration outcomes for FY18, which have been implemented in accordance with our
remuneration policy.
Our remuneration policy was designed to align remuneration of our Executive Directors with Group strategy and to drive
continued success within a remuneration framework that meets the shareholder and governance expectations of a listed company.
The Remuneration Policy was approved by shareholders at the AGM in January 2017 and is set out in full on pages 63 to 74 of our
FY16 Annual Report, which can be found on the Group’s website: www.mccarthyandstonegroup.co.uk
Our core principles of remuneration are:
• To ensure top executives are attracted, retained and motivated to drive the Company forward
• To incentivise management in creating an efficient business by delivering a smooth workflow, increasing ROCE and margins
• To deliver long-term sustainable value to shareholders
Strategic priorities
The Group has reviewed its strategy in 2018 and made key changes to the bonus and LTIP metrics for FY19. The key elements
of the Group’s strategy and how it is linked to the Executive Directors’ remuneration are set out in the following table.
Strategic priorities
Success measurement
ABP
LTIP
Link to incentives
Aligning our workflow allows us to improve
operational efficiency
Rightsizing our business allows us to flex
resources and align our support functions
Reorganisation of our sales and marketing
functions allows us to achieve a more efficient
sales and marketing model
Reducing our build costs allows us to tackle the
affordability of our properties
Improved ROCE
Improved margins
Cost savings
Cash savings
Reducing capital employed
P
P
P
P
P
P
P
P
P
P
Remuneration priorities
SIP and SAYE
Minimum shareholding
ABP
LTIP
To ensure top executives are attracted, retained
and motivated to deliver the strategy
To deliver long-term sustainable value to
shareholders
P
P
P
P
P
P
P
106
McCarthy & Stone plc FY18 outcomes
The outcomes outlined in this section reflect the remuneration and performance measures and targets in place during
FY18 and their level of satisfaction. These were in line with the Remuneration Policy approved in January 2017.
The table below shows the total remuneration paid or payable to each of the Executive Directors in respect of FY18.
These include the bonus amounts payable as detailed in the following table.
Total remuneration for our Executive Directors
FY181
FY17
Clive Fenton - CEO
John Tonkiss - COO
Rowan Baker - CFO
£804,275
£509,897
£449,096
£753,169
£462,231
£223,5942
1 John Tonkiss’ and Rowan Baker’s FY18 bonus will be paid entirely in deferred shares. Clive Fenton’s FY18 bonus will be paid two-thirds in cash and one-third
in deferred shares
2 Rowan Baker became an Executive Director on 6 January 2017 and amounts shown are in respect of her time as an Executive Director
Annual bonus outcomes
The strategy and KPIs of the Group are primary factors in ensuring that there is alignment between performance and reward.
The performance measures used during FY18 were (a) profit before tax (70%); (b) cash flow (10%); (c) land exchanges (10%);
and (d) customer satisfaction (10%).
The table below shows the total bonus payable to each of the Executive Directors in respect of FY18 outcomes.
Annual bonus outcomes for our Executive Directors
FY181
FY17
Clive Fenton - CEO
John Tonkiss - COO
Rowan Baker - CFO
£148,500
£98,010
£84,645
£143,412
£88,800
£29,6312
1 John Tonkiss’ and Rowan Baker’s FY18 bonus will be paid entirely in deferred shares. Clive Fenton’s FY18 bonus will be paid two-thirds in cash and one-third
in deferred shares
2 Rowan Baker became an Executive Director on 6 January 2017 and amounts shown are in respect of her time as an Executive Director
Equity exposure of the Board
The Executive Directors are required to build up over a five year period, and then subsequently hold, a shareholding equivalent to
200% of their base salary. As a result of the IPO in November 2015, John Tonkiss has significant shareholdings in the Company,
providing him with a material stake in the business. Rowan Baker, who was appointed to the Board on 6 January 2017, has not
yet met her shareholding requirement. During FY18, Clive Fenton met the 200% shareholding requirement. The table below shows
their interest in the Company as a percentage of their salary as at 31 August 2018.
Shareholding requirement
Value of beneficially owned shares
Value of/gain on interests over shares (i.e. unvested/unexercised awards)
Clive Fenton
John Tonkiss
Rowan Baker
200%
375%
275%
200%
199%
263%
200%
7%
172%
The table on page 120 shows the interests of each Executive Director in the shares of the Company at year end.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Directors’ Remuneration Report continued
Implementation of the remuneration policy in FY19
For FY19, the proposed remuneration will be as set out below. This is in accordance with our Remuneration Policy.
Base salary
For FY19, the base salaries for the Executive Directors will be:
John Tonkiss £475,000 (44% increase with effect from 25 September 2018)
Rowan Baker £325,000 (14% increase with effect from 1 November 2018)
On 25 September 2018 it was announced that John Tonkiss was appointed to the role of Chief Executive
Officer. His salary was increased from £330,000 to £475,000 to reflect this significant promotion from Chief
Operating Officer and the associated increase in scope and accountability. The Committee believes the
proposed salary reflects the breadth and complexity of his new role as well as John’s significant experience.
This has also been set below the level of his predecessor’s salary of £500,000.
As stated in the Remuneration Committee Chairman’s annual statement, Rowan Baker’s salary was set
below the market on her appointment to the Board with the intention of reviewing her salary on an ongoing
basis to ensure that it reflects her performance and growth in the role. Rowan has grown to become a fully
established and critical member of the management team with an extended remit that now also covers
IT, Legal Services and Communication departments. It is on this basis that the Committee has decided to
increase her salary from £285,000 to £325,000.
The Committee is mindful of the sensitivity to increases in base pay levels and considered its proposed
approach carefully in the current remuneration environment. Both Executives Directors have been
instrumental in the formulation of the Group’s new strategy and are crucial to its delivery and the Committee
therefore believes that the salary levels are appropriate and in the best interests of the business.
Clive Fenton retired from the Board on 31 August 2018. Full details of Clive’s leaving terms are set out
on pages 120 and 121.
The maximum contribution into the defined contribution plan or a salary supplement in lieu of pension will
be 15% of gross base salary, reduced from 20% of gross base salary in previous years.
Standard benefits will be provided including private medical insurance, life insurance and a car or
car allowance.
Pension
Benefits
108
McCarthy & Stone plc Annual bonus plan
(‘ABP’)
Cash and deferred shares
For FY19 the maximum bonus opportunity is 150% of salary.
A number of changes have been made for the FY19 annual bonus in order to create greater alignment
with and support delivery of the Group’s new strategy. The changes are centred on driving efficiency in the
business and adapting to adverse market conditions which are not expected to change in the short-term.
Below we explain these changes and the supporting rationale.
The performance conditions and their weightings for the FY19 annual bonus are as follows:
• ROCE (25%)
• Operating profit margin (25%)
• Site margin (25%)
• Cash flow (25%)
1. Introduction of ROCE
– Improved efficiency is at the core of the Group’s new strategy
– The Group’s new strategy is focused on improving the ROCE through the efficient use of
limited capital resources
– The use of ROCE in the annual bonus will help ensure that the business is successful in
implementing the strategy in the short-term
2. Introduction of operating profit margin and site margin
– Both of these measures are aimed at improving our competitiveness and efficiency, including
progress towards cost reductions which, as previously explained, are a key part of the
Group’s new strategy
– These measures also support the imperative need to drive future profits in a targeted manner
3. Changing how we reward customer satisfaction
– Customer satisfaction has been a measure against which performance has been strong since
the IPO
– The Committee recognised the continued strategic importance of customer satisfaction, but
determined that operating the customer satisfaction metric as an underpin to the bonus was
more appropriate at the present time
4. Removal of operating profit as a discrete measure
– Recognising the continued importance of strong profits, the proposed FY19 annual bonus
contains a threshold profit level below which no bonus will be paid and the ability to adjust
downward (but not upward) the bonus outcomes if insufficient profit is generated by the
business. This ensures that any bonuses will be affordable and self-funding
5. Increased Cash flow weighting
– Cash flow remains central to our plans and in the short-term we are proposing to increase
the weighting on this element from 10% to 25%
The Committee also has the discretion not to pay bonuses where it considers that safety standards
have not been adequately satisfied.
Our view is that these changes create an annual bonus structure which more effectively supports the
key elements of our Group’s new strategy.
One-third of any bonus earned will be in the form of deferred shares, which will be deferred for three years.
The precise details of the targets themselves are deemed to be commercially sensitive as they relate to the
current financial year. The Committee therefore does not consider it is appropriate to disclose annual bonus
targets during the year. However, details of the performance targets will be disclosed on a retrospective
basis in next year’s Remuneration Report.
The ABP contains clawback and malus provisions.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Directors’ Remuneration Report continued
Long Term
Incentive Plan (‘LTIP’)
The FY19 LTIP awards are assessed over a three-year performance period. Any vested awards will be
subject to a two-year holding period during which Executives cannot sell vested shares other than for
tax purposes.
Under the terms of the FY19 LTIP, 25% of the award will vest for achieving threshold performance,
50% will vest for achieving target performance, increasing to 100% for achieving maximum performance.
Achievements between these points are calculated on a straight line basis. The LTIP contains clawback
and malus provisions. Please see the full Remuneration Policy as set out on pages 63 to 74 in our FY16
Annual Report for further details.
In addition to the changes to the LTIP performance metrics (outlined below), the Committee has considered
the impact on our shareholders of the share price performance during the year. As a result, the Committee
has determined that the number of shares to be awarded to Executives should be reduced to reflect the
share price performance since November 2017 when the previous (FY18) LTIP awards were made.
The objective of this exercise of discretion is to avoid Executives benefitting from a fall in the share price by
receiving a larger than anticipated number of shares under the LTIP. As such, the number of shares awarded
will be in line with those awarded in FY17, adjusted to take account of the base pay levels of the
two Executive Directors when the FY19 LTIP awards are made.
The final number of shares will be determined with reference to the share price at grant and the share price
when the FY18 awards were granted (£1.635). As an illustration, based on the current share price of £1.400
when this Annual Report was written (7 November 2018), the LTIP awards would be 128.4% of salary rather
than 150%.
The FY19 LTIP proposed performance measures, weightings and targets are outlined in the table below
alongside those operated in respect of the previous LTIP award in FY18.
Performance measures
FY18 weightings and targets
FY19 weightings and targets
Earnings per Share (‘EPS’) Weighting: 37.5%
FY20 EPS
Threshold: 21.8p
Max: 27.8p
Return on Capital Employed
(‘ROCE’)
Weighting: 37.5%
Threshold: 20.0%
Max: 25.0%
Weighting: 50%
FY21 EPS
Threshold: 11.9p
Target: 14.2p
Max: 16.6p
Weighting: 50%
Threshold: 14%
Target: 17%
Max: 20%
Relative Total Shareholder
Return (‘TSR’)
Weighting: 25.0%
Measured against two groups (equally weighted):
housebuilder peer index and FTSE 250 constituents
Threshold: equal to index / median of FTSE 250
Max: index + 7.5% / upper quartile of FTSE 250
Removed from the FY19 LTIP
On 25 September 2018, the Group announced it was targeting ROCE of more than 15% in FY21 and more than 20% by FY23.
These figures were on the basis that the Group would no longer benefit from ground rents. The government’s proposal to award
an exemption for retirement housebuilders was welcome, however there is still a degree of uncertainty surrounding the implications
of this and the financial impact it could have on the Group.
In this context, the Committee believes that the targets set out above are appropriately calibrated to the Group’s new strategy and
are sufficiently stretching.
Furthermore, the Committee has chosen to set ‘target’ ROCE at 17% which is more stretching than the ‘straight line’ basis
calculation ensuring that management are not excessively rewarded for external factors such as the positive impact of the decision
on ground rents. The level of stretch in the EPS target range reflects the stretch in the ROCE targets and the Committee considered
analyst forecasts as well as the business plan in determining that these targets are appropriate.
110
McCarthy & Stone plc Changes to FY19 performance measures and rationale for change:
1. Removal of TSR from the LTIP
– Following a thorough review, the Committee believes that relative TSR is no longer an
appropriate metric for the LTIP
– A key challenge for the Company was selecting a relevant peer group against which to measure
TSR. For the first two LTIP awards (FY16 and FY17) granted since IPO, TSR was measured
against a housebuilder index, and for FY18 awards the FTSE 250 was introduced as a second
comparator group
– The introduction of the FTSE 250 peer group sought to recognise that we are not well aligned
to the broader housebuilding sector. While the FTSE 250 peer group presented the opportunity
to measure against a broader set of companies, the Committee believes that this is not the
optimal approach
– The unique business model which we operate differentiates us from other housebuilders in
several areas. Our strategy, including offering customers a choice of tenure approach will,
we believe, increase this underlying difference. In addition, whilst Brexit had an impact on
all housebuilders’ performance, others were in a better position to recover as a result of the
Government’s Help to Buy scheme which does not benefit the Company
– As a result of this analysis, the Committee concluded that continuing to operate a relative
TSR performance measure significantly reduces the incentive effect of the LTIP and dilutes
the linkage to delivery of the revised Group strategy. This approach will apply to the next two
LTIP grants and will be reviewed after that
– As a result of the removal of relative TSR, the remaining metrics (EPS and ROCE) will each
receive a 50% weighting in the FY19 LTIP award
2. EPS weighting is now 50% of the LTIP
– EPS remains important to the Company as a measure of its profitability
– EPS as a performance measure is motivational for management as they have strong
‘line of sight’ and a greater influence over the outcome
– The EPS targets can be derived directly from our business plans over the medium-term
3. ROCE weighting is now 50% of the LTIP
– As previously described in the context of the annual bonus, improved capital efficiency is
a key pillar of the new Group strategy and including this in the LTIP will help drive performance
over the long term
– Coupling ROCE with EPS is an effective way to test the quality of the long-term earnings of
the Company
– Similarly to EPS, the ROCE targets can be derived from our business plans over the
medium-term
NED fees
The fees for FY19 for the Non-Executive Director roles are unchanged:
• Chairman: £230,000
• Board fee: £54,600
• SID additional fee: £10,000
• Committee Chairman fee (per committee): £10,000
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Directors’ Remuneration Report continued
Fairness, diversity and wider workforce considerations
McCarthy & Stone is committed to creating an inclusive working environment and to rewarding our employees throughout the
organisation in a fair manner. Although the new UK Corporate Governance Code does not apply to the Company until FY20,
the Remuneration Committee is already taking initial steps to become compliant with the Code.
In making decisions on executive pay, the Remuneration Committee considers wider workforce remuneration and conditions.
We believe that employees throughout the Company should be able to share in the success of the Company. We have, since
our IPO, operated a Sharesave scheme (‘SAYE’) and a Share Incentive Plan (‘SIP’). Our intention is to continue this and to
investigate additional opportunities for employee share ownership going forwards.
As part of our commitment to fairness, we have introduced this section into our remuneration reporting which sets out
more information on our wider workforce pay conditions, our change in CEO pay compared with employees’ pay changes,
our Gender Pay statistics, and our Equality and Diversity policy. Whilst we recognise there is much work still to do, we believe
that transparency is an important first step towards making improvements in relation to these important issues.
Area
Considerations
Competitive pay
and cascade of
incentives
The Committee ensures that pay is fair throughout the Company and makes decisions in relation to the structure of
executive pay in the context of the cascade of incentives throughout the business. The Committee’s remit extends
down to senior executives and senior management for which it recommends and monitors the level and structure of
remuneration.
Level
Annual bonus participation
Sharesave / SIP participation
LTIP participation
Executive Directors
Senior executives
Senior managers
Managers
Employees
P
P
P
P
P
P
P
P
P
P
P
P
Statement of considerations of employment conditions elsewhere in the Company
The Remuneration Policy for all employees is determined in line with best practice and aims to ensure that
the Company is able to attract and retain the best people. This principle is followed in the development of our
Remuneration Policy. The Company’s remuneration strategy has been designed to ensure that all employees
share in its success through performance-related remuneration and the potential for share ownership. Awards
under both the Annual and Deferred Bonus Plan and the Long-Term Incentive Plan will provide alignment between
senior leaders and our shareholders based on overall performance of the business.
For all employees, the Company has in place a SAYE and SIP. Currently, under these plans all employees have
the opportunity to purchase shares in the Company subject to certain restrictions.
The Company uses a number of remuneration comparison measurements to assess fairness of pay structures
across the Group. In setting the remuneration policy for Directors, the pay and conditions of other employees of the
Company are taken into account to ensure consistency of approach throughout the Group, including data on the
remuneration structure for management level tiers below the Executive Directors, average base salary increases
awarded to the overall employee population and the cascade of pay structures throughout the business.
112
McCarthy & Stone plc Pay comparisons Comparison of overall performance and pay
The graph below shows the value of £100 invested in the Company’s shares since listing compared with the
FTSE 250 index. The graph shows the Total Shareholder Return generated by both the movement in share value
and reinvestment over the same period of dividend income.
As the Company was a constituent of the FTSE 250 during the financial year, the Committee considers this is
an appropriate index. The comparison is from the date of listing on 11 November 2015 to 31 August 2018.
180
160
140
120
100
80
60
40
Nov 2015
Aug 2016
Aug 2017
Aug 2018
McCarthy & Stone
FTSE 250
Chief Executive Officer’s historic remuneration
The following table shows the total single figure for the role of Chief Executive Officer as well as the annual bonus
and LTIP vesting level achieved for each of the periods covered by the graph above.
CEO total single figure
Annual bonus payment level achieved (% of maximum
opportunity)
FY18
FY17
FY16
£804,275
19.8%
£753,169
19.7%
£628,024
10.0%
LTIP vesting level achieved (% of maximum opportunity)1
0%
-
-
1 The performance period for the LTIP granted in November 2015 is due to conclude in November 2018. The EPS and ROCE targets were
missed resulting in nil vesting for these elements and the estimated vesting of the TSR element is nil. Therefore, the overall vesting is £nil
Change in Chief Executive Officer’s remuneration compared with employees
The following table illustrates the change in CEO salary, benefits and bonus between FY17 and FY18 compared with
other employees in the Group taken as a whole.
Chief Executive Officer
Other Group employees
% change FY17 to FY18
Base salary
Benefits
Annual bonus
3%
4%
9%
7%
4%
34%
The annual bonus increase shown for the CEO is largely as a result of the increase in base salary in the year of 3.2%.
The increase to the average employee bonus reflects the retentive nature of the bonuses paid to motivate employees
as the business implements the new strategy.
113
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued
Gender pay
The gender pay gap legislation requires all companies with more than 250 employees to report annually on
their pay. The McCarthy & Stone Group has three employing entities with more than 250 employees, namely
McCarthy & Stone Retirement Lifestyles Limited, McCarthy & Stone Management Services Limited and YourLife
Management Services Limited. Our 2017 gender pay gap report is available on our corporate website:
www.mccarthyandstonegroup.co.uk
As well as the statutory disclosures required for the above three companies, we also published aggregated data
across all the Group companies (except YourLife Management Services Limited, which is administered by our joint
venture partner, Somerset Care Limited).
The following table shows the mean and median hourly pay gaps as at 5 April 2017 as well as our mean and median
bonus gaps (based on bonus and commission rates for the period 6 April 2016 to 5 April 2017). Our mean hourly
pay gap of 34.3% and our median hourly pay gap of 37.6% reflects the fact that we have a higher proportion of
males in more senior roles, where the pay is higher. However, if each gender were reported equally by job level,
our mean hourly pay gap would reduce to 4.6% and our mean bonus gap would become 3.9% in favour of our
female employees.
Unlike most of the major housebuilders, the majority of our site-based workers (who are predominantly male)
are sub-contractors and are therefore not included in this analysis.
Gender pay gap data
Hourly pay
Bonus
Mean
34.3%
19.8%
Element due to
gender mix1
Remaining (excluding
elements due to
gender mix)
29.7%
23.7%
4.6%
(3.9%)2
Median
37.6%
73.5%
1 This is the amount of gender pay gap which is due to there being higher numbers of men or women in a particular job role or job level.
2 This means that if gender mix is removed, women earned more mean bonus and commission than men.
Proportion of male and female employees in each pay quartile
Lower quartile
Lower middle quartile
Upper middle quartile
Upper quartile
Proportion of male and female employees receiving a bonus
Employees who received a bonus or commission
in the 12 month period
Percent of male
employees
Percent of female
employees
30.0
40.1
58.2
74.2
70.0
59.9
41.8
25.8
Percent of male
employees
Percent of female
employees
81.1
77.7
We are confident that our pay and bonus gaps, where they occur, are based on the distribution of men and women
across our business and not because of our pay policies, which are robust, fair and consistent. We have an even
balance of male and female employees across the business and are taking action to increase the representation
of women at senior levels. In the period from January 2016 to February 2018 the proportion of women at Director
level increased from 15.3% to 19.8%. Over the same period the proportion of women in senior management roles
increased from 17.8% to 21.1%.
We continue to work with the Home Builders Federation and other housebuilders to improve the image of the
construction industry in order to attract a more diverse range of candidates.
Diversity
Please refer to the Directors’ report on page 129 for details of our Equality and Diversity Policy.
114
McCarthy & Stone plc Annual Report on Remuneration
Executive Directors’ remuneration (audited)
Single total figure of remuneration (audited)
The table below sets out the single total figure of remuneration for each Executive Director in respect of FY18 and FY17. Further
explanation of each of the elements are set out below and in the following sections of this report:
Name
Clive Fenton
John Tonkiss
Rowan Baker1
Period
FY18
FY17
FY18
FY17
FY18
FY17
Base
salary
Taxable
benefits
Annual
Bonus2
£497,417
£482,917
£325,000
£296,667
£285,000
£151,641
£32,913
£148,500
£30,257
£143,412
£29,769
£24,626
£22,451
£6,183
£98,010
£88,800
£84,645
£29,631
LTIP3
£0
None
£0
None
£0
None
Pension4
Other5
Total
£99,483
£96,583
£57,118
£52,138
£57,000
£36,139
£25,962
£804,275
0
0
0
0
0
£753,169
£509,897
£462,231
£449,096
£223,594
1 Rowan Baker was appointed to the Board with effect from 6 January 2017. The amounts for FY17 relate only to the period since she joined the Board and do not
cover the period from 1 September 2016 to 5 January 2017
2 One-third of the FY17 annual bonus for Clive Fenton and John Tonkiss was in the form of deferred shares. Rowan Baker’s bonus for FY17 was all in cash with
no deferred shares. For FY18, the annual bonus for John Tonkiss and Rowan Baker will be paid entirely in deferred shares. Clive Fenton’s FY18 bonus will be
paid two-thirds in cash and one-third in deferred shares. The deferred shares included in the annual bonus figures above are deferred for three years and
are not subject to any performance conditions
3 The performance period for the LTIP granted in November 2015 is due to conclude in November 2018. The EPS and ROCE targets were missed resulting
in nil vesting for these elements and the estimated vesting of the TSR element is nil. Therefore, the overall estimate vesting is £nil
4 Comprises the value of Group Personal Pension scheme contributions and salary supplements in lieu of pension
5 Other relates to accrued annual holiday which Clive Fenton did not take prior to retiring from the Company
Base salary
As reported in the FY17 Annual Report, the base salary for the CEO and the COO were increased with effect from 1 November
2017 (Rowan Baker’s base salary was increased with effect from 1 September 2017). The table below shows the base salary for
each of the Executive Directors during the year.
Executive Director
Position
Clive Fenton
Chief Executive Officer
John Tonkiss
Chief Operating Officer
Rowan Baker
Chief Financial Officer
Period
1.9.17 - 31.10.17
1.11.17 - 31.8.18
1.9.17 - 31.10.17
1.10.17 - 31.8.18
1.9.17 - 31.8.18
Salary
£484,500
£500,000
£300,000
£330,000
£285,000
Benefits (audited)
The Executive Directors typically receive private medical insurance, life insurance, company car or cash in lieu of the company
car, although the Committee retains the flexibility to provide other benefits. The amounts shown in the table above are the gross
(before tax) amounts.
115
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued
Annual bonus (audited)
The strategy and the KPIs of the Group are primary factors in ensuring that there is alignment between performance and reward.
For FY18, the performance conditions and their weightings for awards under the ABP were:
• Profit before tax (70%)
• Full year cash flow (10%)
• Land exchanges (10%)
• Customer satisfaction (10%)
Under the terms of the FY18 annual bonus, 25% for each element is payable for achieving the threshold performance, 50%
is payable for achieving target performance, increasing to 100% for achieving maximum performance. Achievements between
these points are calculated on a straight-line basis. The maximum opportunity for each Executive Director was 150% of base
salary and one-third of any bonus earned was in the form of deferred shares, which is deferred for three years.
The bonus awards payable to the Executive Directors in respect of FY18 were agreed by the Remuneration Committee,
having reviewed the Group’s results and the extent to which the performance conditions were met. The results are shown in
the following table:
Performance Targets
Annual bonus value achieved
Performance
conditions
Weighting
of each
condition
Performance
targets required
Profit before
tax
Threshold
70%
Target
Maximum
Threshold
Cash flow
10%
Target
Land
exchanges
Customer
satisfaction
Maximum
Threshold
10%
Target
Maximum
Threshold
10%
Target
Maximum
£107.0m
£114.5m
£123.0m
£0m
£14.5m
£29.0m
2,680
3,000
3,320
90%
93%
95%
Actual
Performance
Percentage
of maximum
performance
achieved
Maximum
weighting per
target
17.5%
Clive Fenton
John Tonkiss
Rowan Baker
£62.1m
0%
-
-
-
£28.3m
98%
£73,500
£48,510
£41,895
2,413
0%
-
-
-
95.5%
100%
£75,000
£49,500
£42,750
35%
70%
2.5%
5%
10%
2.5%
5%
10%
2.5%
5%
10%
Total
100%
19.8%
£148,500
£98,010
£84,645
The formulaic outcome of the annual bonuses would have delivered bonuses of 29.7% of salary split two-thirds in cash and
one-third in shares for John Tonkiss and Rowan Baker (£98.0k and £84.6k respectively). As explained in the annual statement,
the Committee decided to pay the bonus entirely in shares. The rationale for this decision is:
• As the Company issued a profit warning in June 2018 and the threshold target for the profit before tax element was missed, the
Committee felt it was not appropriate to pay cash bonuses
• Awarding the bonus in deferred shares provides further motivation to the Executive Directors to ensure that delivery of the revised
strategy in the coming years flows through to the Company’s share price performance
As previously communicated in the Section 430(2B) statement made on 25 July 2018, Clive Fenton’s bonus will be paid two-thirds
in cash and one-third in deferred shares.
116
McCarthy & Stone plc LTIP awards vesting
The FY16 LTIP granted on 25 November 2015 is due to vest on 25 November 2018. The performance period for the EPS and
ROCE metrics concluded at the year end and the threshold targets were not met. The TSR performance period concludes
on 25 November 2018, however, based on performance to date we estimate that there will be no vesting under this element.
Hence, the values reported in the single figure table for the award are nil.
The table below summarises the targets and outcomes:
Measure
Cumulative EPS
FY18 ROCE
TSR vs householder index
Total
Weighting
30%
30%
40%
100%
Threshold
performance
Maximum
performance
Actual
performance
61.4p
22%
69.8p
25%
36.3p
10%
Equal to index
Index + 7.5% p.a.
Below Index
Vesting
0%
0%
0%
0%
LTIP awards (audited)
During FY18, LTIP awards of 150% of salary were granted to the Executive Directors. The awards were made as nil-cost options
and the number of shares over which each nil-cost option was awarded was calculated by reference to the closing price of the
shares as derived from the Daily Official List of the London Stock Exchange on the day before the date of the award.
These nil-cost options will vest depending on performance against a challenging sliding scale of Earnings per Share (‘EPS’); Return
on Capital Employed (‘ROCE’); and relative Total Shareholder Return (‘TSR’) measured against two groups (equally weighted) - the
unweighted average TSR of a housebuilder peer index (comprising Barratt, Bovis, Bellway, Crest Nicholson, Persimmon, Redrow
and Taylor Wimpey); and constituents of the FTSE 250 Index (excl. Financial Services and investment trusts). All three measures
are assessed over a three year performance period. Vested awards are subject to a two year post vesting holding period. The LTIP
contains clawback and malus provisions.
The performance conditions and targets for the FY18 LTIP awards are set out below. For the achievement of threshold
performance, 25% of the element will vest with straight line vesting in between to maximum performance.
Measure
FY20 EPS
FY20 ROCE
Relative TSR
Weighting
37.5%
37.5%
25.0%
Threshold performance
Maximum performance
21.8 pence
20.0%
27.8 pence
25.0%
Equal to housebuilder index /
median of FTSE 250
Housebuilder index + 7.5% p.a. /
Upper quartile of FTSE 250
The following LTIP awards were made during FY18:
Executive Director
Clive Fenton
John Tonkiss
Rowan Baker
Date
Number
of shares awarded
Basis of
award granted
(% of basic salary)
17.11.17
17.11.17
17.11.17
458,716
302,752
261,468
150%
150%
150%
Face value
of award1
£750,000
£495,000
£427,500
% of award
vesting at
threshold
Maximum
percentage of
the face value
that could vest
25%
25%
25%
100%
100%
100%
Performance
Period2
3 years
3 years
3 years
1 The face value is calculated using the closing share price on 16 November 2017 (£1.635)
2 The performance period runs for three years from the date of grant. Relative TSR will be measured from 17 November 2017 over a three year period.
EPS and ROCE will be measured based on financial year end figures as at the end of the FY20 financial year
As at 12 November 2018, no awards have been granted in respect of FY19.
Pension entitlements (audited)
During FY18 the Group operated a Group personal pension scheme under which Executive Directors were entitled to receive
contributions of up to 20% of salary. The Group does not currently operate a defined benefit scheme.
Non-Executive Directors’ Remuneration
The Company’s Articles of Association restrict the annual fees that may be paid to the Non-Executive Directors in aggregate
to £1.0m. This amount may only be increased by ordinary resolution of the shareholders.
117
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued
Single total figure of remuneration (audited)
The table below sets out the single total figure of remuneration and breakdown for each Non-Executive Director.
Non-Executive
Directors
Paul Lester2, CBE
Frank Nelson
John Carter3
Arun Nagwaney4
Geeta Nanda, OBE
Mike Parsons
John White5
Period
FY18
FY18
FY17
FY18
FY18
FY18
FY17
FY18
FY17
FY18
FY17
£141,950
£74,333
£73,000
£50,050
-
£54,333
£53,000
£64,333
£63,000
£92,590
Fees
Benefits1
Total
Role
-
£141,950
Non-Executive Chairman
£147
£107
-
-
-
-
-
£617
£74,480
£73,107
£50,050
-
£54,333
£53,000
£64,333
£63,000
£93,207
Senior Independent Director
Independent Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Former Non-Executive Chairman
£230,000
£2,670
£232,670
1 Benefits relate to taxable travel expenditure
2 Paul Lester was appointed to the Board on 3 January 2018 and became Chairman at the conclusion of the 2018 AGM on 24 January 2018
3 John Carter was appointed to the Board on 1 October 2017
4 Arun Nagwaney was appointed to the Board on 17 May 2018 as a representative of Anchorage Capital Group, our largest shareholder.
He does not receive a fee for his role
5 John White stepped down from the Board at the conclusion of the 2018 AGM on 24 January 2018
Non-Executive Directors’ fees
The Non-Executive Directors’ fees, which applied during FY18 were:
Role
Chairman
Non-Executive Director’s Board fee
Senior Independent Director’s additional fee
Committee Chairman’s additional fee (per committee)
The Non-Executive Directors are not entitled to participate in the Group’s Pension Scheme, ABP, LTIP or Sharesave.
Fees
£230,000
£54,600
£10,000
£10,000
118
McCarthy & Stone plc Executive Directors’ shareholdings and share interests (audited)
Directors’ interests in share awards (audited)
The outstanding interests in share awards for the Executive Directors as at 31 August 2018 are shown in the table below.
The Non-Executive Directors are not permitted to participate in any of the Group’s share plans or incentive arrangements.
Director/
Plan
Clive Fenton
LTIP
LTIP
LTIP
Sharesave
ABP
John Tonkiss
LTIP
LTIP
LTIP
Sharesave
ABP
Rowan Baker
LTIP
LTIP
LTIP
LTIP
Sharesave
Date of grant
Number
of share awards
Vested during
the year
Lapsed during
the year
Exercise
Price (£)
Vesting
date
Expiry date
25.11.15
22.12.16
17.11.17
10.12.15
20.11.17
25.11.15
22.12.16
17.11.17
10.12.15
20.11.17
25.11.15
22.12.16
27.01.17
17.11.17
10.12.15
263,888
471,916
458,716
10,752
28,741
155,555
292,208
302,752
10,752
17,796
22,222
40,584
105,520
261,468
10,752
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
nil
nil
nil
1.674
nil
nil
nil
nil
1.674
nil
nil
nil
nil
nil
1.674
25.11.18
22.12.19
17.11.20
28.01.19
20.11.20
25.11.18
22.12.19
17.11.20
28.01.19
20.11.20
25.11.18
22.12.19
27.01.20
17.11.20
28.01.19
25.11.25
22.12.26
17.11.27
28.07.19
20.11.27
25.11.25
22.12.26
17.11.27
28.07.19
20.11.27
25.11.25
22.12.26
27.01.27
17.11.27
28.07.19
119
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued
Directors’ shareholdings (audited)
The Executive Directors are required to build up over a five year period, and then subsequently hold, a shareholding equivalent to
200% of their base salary. At the end of FY18, John Tonkiss met his shareholding requirement. Rowan Baker, who was appointed
to the Board on 6 January 2017, has not yet met her shareholding requirement, but she is aware she will need to increase her
shareholding to meet this requirement by 6 January 2022. Non-Executive Directors are not subject to shareholding requirements.
The table below shows the interests in shares in the Company, including unvested awards, for each of the Directors as at 31 August
2018. No options were exercised during the year. There has not been any change since the year end.
Shares
beneficially
owned
Shares
subject to
performance
conditions
Shares
not subject to
performance
conditions
Options
vested but
unexercised
Options
unvested
(LTIPs)
Options
unvested
(Sharesave)
Options
unvested
(ABP)
Shares
beneficially
owned as
% of salary1
Shareholding
requirement
met?
Directors
Executive Directors
Clive Fenton
John Tonkiss
Rowan Baker
1,681,389
588,763
17,768
Non-Executive Directors
Paul Lester
John Carter
Arun Nagwaney
Geeta Nanda
Frank Nelson
Mike Parsons
John White2
66,500
Nil
Nil
Nil
173,270
173,270
1,750,192
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1,194,520
750,515
429,794
10,752
10,752
10,752
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
28,741
17,796
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
375%
199%
7%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Yes
Yes
No
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1 This is based on a closing share price of £1.114 and the year end salaries of the Executive Directors. Shares used for the above calculation exclude unvested and
unexercised options. They include shares where the Executive Director has beneficial ownership, shares independently acquired in the market and those held by a
spouse or civil partner or dependent child under the age of 18 years
2 John White stepped down from the Board at the conclusion of the 2018 AGM on 24 January 2018
Payments to past Directors (audited)
There were no payments in the financial year.
Payments for loss of office (audited)
In line with the shareholder approved Remuneration Policy, Clive Fenton’s cessation of employment qualifies for good leaver
status due to his retirement with the consent of the Company. The Remuneration Committee has, therefore, made the following
determinations consistent with this status:
Ongoing remuneration
Fixed
The announcement on 19 June 2018 explained that Clive would be retiring from the Company at the end of the financial year
on 31 August 2018 with his 12 month notice period starting on 30 June 2018. He remained an employee of the Company until
31 August 2018. During this period he continued to receive his current salary, benefits and pension contribution. The annual rates
for these fixed elements of the remuneration package are set out in the table below.
Element
Salary
Pension allowance
Estimated value of benefits (variable based on benefits taken up)
Pay in lieu of notice
Annual Rate (£)
£500,000
£100,000
£23,000
Following his retirement on 31 August 2018, for the 10 month balance of his notice period, Clive will receive monthly payments
in respect of the above salary and pension amounts until 30 June 2019. He will also continue to receive his contractual benefits
(private medical insurance, life insurance and company car or cash allowance) during this period. Clive will receive outplacement
for 12 months following his retirement date on 31 August 2018.
120
McCarthy & Stone plc FY18 bonus
Clive Fenton has been employed for the full financial year and therefore qualifies for a bonus based on the level of satisfaction of
the performance conditions (see page 116 for full details of the performance conditions, targets, their level of satisfaction and the
resulting bonus earned for the year). The maximum bonus opportunity for Clive for the financial year was 150% of salary of which
29.7% was earned, resulting in a total bonus of £148,500. The Committee applied its normal procedure in determining bonuses,
with bonuses payable to all participants, including Clive, following the end of the financial year in November 2018. Two-thirds of
the bonus earned will be paid in cash and one-third paid in shares subject to a three year vesting period.
FY19 bonus
Clive Fenton will not be eligible to receive a bonus for FY19.
FY19 LTIP
There will be no award to Clive Fenton in respect of FY19 to reflect his retirement during the year. Details of the treatment of
existing share awards are set out below.
Existing share awards
Clive Fenton holds a number of existing awards under the following Company share plans:
• The Annual and Deferred Bonus Plan (‘ABP’)
• The Long-Term Incentive Plan (‘LTIP’)
FY17 ABP deferred share awards
The performance conditions for the deferred share award were satisfied at the date of grant with the only ongoing condition
being continued employment at the vesting date. Dividend equivalents will be provided on vesting on the number of shares
vested. In line with the policy for good leavers, the FY17 deferred share award did not lapse on Clive’s cessation of employment
but will vest on the original vesting date. The following table sets out details of the award:
Date of grant
20.11.2017
FY16, FY17 and FY18 LTIP awards
Number of shares
28,741
In line with the policy, the Committee has determined that the following treatment will apply to these awards:
• The maximum number of shares capable of vesting will be pro-rated by the number of whole months of the performance
period completed on the date of Clive’s cessation of employment, being 31 August 2018
• The number of shares vesting will be calculated based on the level of satisfaction of the performance conditions at the end
of the original performance period
• For the FY18 LTIP, a two year holding period will apply to shares post vesting
• Dividend equivalents will be provided on vested shares on the vesting date
The following table sets out details of the LTIP awards:
LTIP Award
Date of grant
Vesting date
Number of shares granted
FY16
FY17
FY18
SAYE
25.11.15
22.12.16
17.11.17
25.11.18
22.12.19
17.11.20
263,888
471,916
458,716
Pro-rated number of shares
capable of vesting
(subject to performance
conditions)
241,897
262,175
114,679
Clive holds 10,752 options in the 2015 SAYE plan with an exercise price of £1.674, which he is entitled to exercise within six months
of cessation of employment in line with the good leaver treatment outlined in the rules of the plan.
There were no payments for loss of office made to the Directors in the financial year other than those in relation to Clive Fenton
described above.
121
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued
External directorships
Executive Directors may hold positions in other companies as Non-Executive Directors and retain their fees. Clive Fenton,
John Tonkiss and Rowan Baker do not hold any external directorships.
Performance graph and CEO single total figure table
The TSR performance graph and history of single figure for the Chief Executive Officer are contained in the section headed
Fairness, diversity and wider workforce considerations on page 113.
Percentage change in remuneration of Director undertaking the role of Chief Executive Officer
This information is set out in the section headed Fairness, diversity and wider workforce considerations on page 113.
Relative importance of spend on pay
The table below shows the relative importance of spend on pay in comparison to profit distributed by way of dividends:
Overall spend on pay including Executive Directors1
Profit distributed by way of dividends
FY18
£79.8m
£29.0m
FY17
% change
£76.2m
£29.0m
5%
0%
1 The FY17 overall spend on pay including Executive Directors’ figure has been updated to present the correct amount following the identification of an error reflecting
a double counting of an adjustment in the prior year
There were no distributions by way of share buybacks during the year.
Consideration by the Directors of matters relating to Directors’ remuneration
The Board has delegated to the Committee, under agreed terms of reference, responsibility for the Policy and for determining
specific packages for the Executive Directors and other selected members of the senior management team. The Company consults
with key shareholders in respect of the policy and the introduction of new incentive arrangements.
The members of the Committee during FY18 and up to the date of this Report are:
Mike Parsons (chair of the Committee)
Frank Nelson
Geeta Nanda, OBE
Paul Lester, CBE (appointed to the Committee on 26 February 2018)
John Carter (appointed to the Committee on 26 February 2018)
John White (stepped down from the Committee on 24 January 2018)
The terms of reference for the Committee are available on the Company’s website: www.mccarthyandstonegroup.co.uk/
about-us/corporate-governance, and from the Company Secretary at the registered office.
Our main responsibilities are to:
• Determine and agree with the Board the broad policy for the Executive Directors and other selected members of the senior
management team
• Undertake periodic reviews to assess the appropriateness and relevance of the policy ensuring alignment with best practice
principles of the UK Corporate Governance Code
• Consider the relative importance of the Group’s expenditure on pay compared to the Group’s profits, dividends and tax paid
• Review any major changes in employee benefit structures throughout the Company or Group and to administer all aspects of
any share scheme
The Committee receives assistance from the Group HR Director and the Group General Counsel and Company Secretary,
who will attend meetings by invitation, except when issues relating to their own remuneration are being discussed. The Chief
Executive Officer and Chief Financial Officer will attend by invitation on occasion.
122
McCarthy & Stone plc Advisers to the Remuneration Committee
Following a selection process carried out by the Board prior to and then following the IPO of the Company, the Committee
has engaged the services of PricewaterhouseCoopers LLP (‘PwC’) as independent remuneration adviser.
During FY18 PwC has provided advice, primarily in respect of the remuneration policy and LTIP awards.
PwC also provides certain other non-audit services in respect of tax and internal audit to the Group. The Committee is satisfied
that no conflict of interest exists or existed in the provision of these services and that the advice received from PwC is objective
and independent. PwC is a member of the Remuneration Consultants Group and is a signatory to its voluntary code of conduct
which is designed to ensure objective and independent advice is given to remuneration committees.
Fixed fees of £40,000 (FY17: £36,000) were paid to PwC during the year in respect of remuneration advice given to the Committee.
Shareholder engagement and statement of voting at the AGM
The Committee believes it is very important to maintain an open dialogue with shareholders on remuneration matters.
Shareholders’ views were sought and considered when we set the remuneration policy in 2016 as well as consulting with our
major shareholders in respect of any changes to the remuneration policy and any material changes to incentive arrangements.
The Directors’ Remuneration Policy was put to a binding vote and approved at the Annual General Meeting on 24 January 2017.
We put a resolution to approve the FY17 Annual Remuneration Report to our members at our Annual General Meeting in January
2018. The voting outcomes are set out below:
Resolution
Votes For
Votes Against
Directors’ Remuneration Policy
Number of votes cast
Percent of votes cast
Annual Report on Remuneration:
Number of votes cast
Percent of votes cast
320,184,871
92.8%
404,575,261
>99.99%
24,713,722
7.2%
1,388,234
<0.01%
Total votes cast
(excluding withheld)
Votes withheld
344,898,593
3,773,564
405,963,495
12,245
123
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Remuneration Report continued
Executive Directors’ contracts and letters of appointment for Chairman
and Non-Executive Directors
Executive Directors
Name
Date of
Service contract
Clive Fenton
30 January 2014
John Tonkiss
15 October 2018
Rowan Baker
15 October 2018
Nature of
contract
Rolling
Rolling
Rolling
Non-Executive Directors
Name
Paul Lester, CBE
Frank Nelson
John Carter
Arun Nagwaney
Geeta Nanda, OBE
Mike Parsons
Notice periods
From company
From director
Compensation provisions
for early termination
12 months
12 months
12 months
12 months
12 months
12 months
At the discretion
of the Company
Date of letter of appointment
8 November 2013
11 November 2013
18 September 2017
16 May 2018
4 March 2015
28 October 2013
The Committee’s policy for setting notice periods is that a 12 month period will apply for Executive Directors.
The Non-Executive Directors of the Company (including the Chairman) do not have service contracts: they are appointed by
letters of appointment. Each Non-Executive Director’s term of office runs for a three year period which can be renewed for two
further three year terms. The terms of the Directors’ positions are subject to their re-election by the Company’s shareholders
at each AGM.
In accordance with the UK Corporate Governance Code, all Directors seek annual re-election by shareholders.
The service contracts and letters of appointment of the Directors are available for inspection at the Company’s registered office
during normal business hours and at the AGM.
124
McCarthy & Stone plc Illustrations of the application of the Remuneration Policy
The charts below illustrate the remuneration that would be paid to each of the Executive Directors, based on salaries at the start of
FY19, under three different performance scenarios: (i) minimum; (ii) on-target; and (iii) maximum. The table below these charts sets
out the assumptions used to calculate the elements of remuneration for each of these scenarios. The elements of remuneration
have been categorised into three components: (i) fixed; (ii) annual bonus (deferred bonus); and (iii) LTIP. In line with the new
regulations on policy scenarios, we have also included an additional reference point to show the maximum remuneration receivable
assuming a share price appreciation of 50%. For the purposes of comparison, we have included the actual single figure of
remuneration for the Executive Directors for FY18.
Chief Executive Officer (John Tonkiss)
Maximum with 50%
share price increase
Maximum
On-target
Minimum
Actual
25%
28%
44%
100%
81%
Fixed
Bonus
LTIP
Chief Financial Officer (Rowan Baker)
Maximum with 50%
share price increase
Maximum
On-target
Minimum
Actual
25%
28%
44%
100%
81%
Fixed
Bonus
LTIP
30%
36%
28%
19%
30%
36%
28%
19%
45%
36%
28%
45%
36%
28%
Element
Description
Minimum
Target
Fixed
Annual bonus
LTIP
Salary, benefits1
and pension
Annual bonus
(including deferred
shares)2
Maximum opportunity
of 150% of salary
Award under the LTIP2
Maximum annual
award of 150%
of salary
Included
Included
Maximum
Included
Maximum
(with share price growth)
Included
No annual variable
50% of
maximum bonus
100% of
maximum bonus
100% of
maximum bonus
No multiple year
variable
50% of the
maximum award
100% of the
maximum award
100% of the
maximum award
assuming 50% share
price appreciation
1 Based on FY18 benefits payments as per the single figure table. The actual benefits paid for FY19 will only be known at the end of the financial year.
See page 115 for the single figure table and the accompanying notes
2 Dividend equivalents have not been added to the deferred shares and LTIP awards
Mike Parsons
Remuneration Committee Chairman
12 November 2018
125
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Report
Introduction
The Directors present their report and audited financial
statements for the year ended 31 August 2018 in
accordance with section 415 of the Companies Act
2006 (‘Directors’ Report’).
The information that fulfils the requirements of the corporate
governance statement for the purposes of the Disclosure
Guidance and Transparency Rules of the Financial Conduct
Authority (‘DTRs’) can be found on pages 84 to 125 (all of which
form part of this Directors’ Report) and in this Directors’ Report.
Certain disclosure requirements for inclusion in the Directors’
Report have been incorporated elsewhere within the Annual
Report. In addition, this Report should be read in conjunction
with likely future developments set out on pages 74 and 77.
The Directors’ Report, together with the Strategic Report
on pages 2 to 77, forms the Management Report for the
purposes of DTR 4.1.5R requirements.
Dividends
An interim dividend of 1.9p (FY17: 1.8p) per ordinary share was
paid on 8 June 2018 to those shareholders on the register on
4 May 2018. Subject to shareholder approval at the 2019 AGM,
the Directors are proposing a final dividend for the financial year
ended 31 August 2018 of 3.5p (FY17: 3.6p) per ordinary share.
This brings the total dividend for the year to 5.4p (FY17: 5.4p)
per ordinary share, in line with the prior year.
126
Directors
The names of the Directors who were Directors at the end
of FY18 are set out on pages 80 and 83. John White stepped
down from the Board on 24 January 2018 and Clive Fenton
stepped down from the Board on 31 August 2018. Both John
and Clive served for the entire financial year up to the date of
their cessation of office. Paul Lester, John Carter and Arun
Nagwaney were all appointed during the course of FY18
as follows:
Director
John Carter
Paul Lester, CBE
Arun Nagwaney
Date of appointment
1 October 2017
3 January 2018
17 May 2018
Directors’ Interests
Details of the Directors’ interests in the share capital of the
Company are set out in the Directors’ Remuneration report
on page 120. No Director had any dealings in the shares of the
Company between 31 August 2018 and the date of this Report.
Directors’ Powers
Subject to the Company’s Articles of Association, the
Companies Act 2006, any directions given by the Company
by special resolution and any relevant statutes and regulations,
the business of the Company, including in relation to the
allotment and issuance of ordinary shares, is managed by
the Board which may exercise all the powers of the Company.
Matters reserved for determination by the Board are set out
on page 88 of the Corporate Governance Report.
Directors’ insurance and indemnities
During FY18 and to the date of this Report qualifying third party
indemnity provisions governed by the Companies Act 2006
were in place, under which the Group has agreed to indemnify
the Directors, former Directors and the Group General Counsel
and Company Secretary, together with those who have held
or hold these positions as officers of other Group companies
or of associate or affiliated companies, to the extent permitted
by law and the Articles, against all liability arising in respect of
any act or omission in the course of performing their duties.
The Group maintains at its expense a directors’ and officers’
liability insurance policy to provide cover for legal action brought
against the Directors. The policy does not provide cover where
the Director or officer has acted fraudulently or dishonestly.
A review is carried out on an annual basis to ensure that the
Board remains satisfied that an appropriate level of cover is
in place. The Group has also granted indemnities to each of
the current Directors of the Company and its main trading
subsidiary to the extent permitted by law. In general terms,
the indemnities protect Directors to the extent permissible by
law from all costs and expenses incurred in the defence of any
civil or criminal proceedings in which judgment is given in their
favour or the proceedings are otherwise disposed of without
finding fault or where there is a successful application to court
for relief from liability.
McCarthy & Stone plc Directors’ Report
The right of Anchorage to appoint a Nominee Director and
a Board Observer will fall away if Anchorage’s shareholding
falls below 15 per cent.
While the Relationship Agreement is in place, Anchorage
has agreed that it will not acquire any shares in the Company
which would result in it (and its concert parties) being interested
in excess of 29.9 per cent of the total voting rights of the
Company. In addition, Anchorage will not solicit any proxies or
votes from any other shareholders or actively co-operate with
others to obtain, or consolidate control of the Company.
As Anchorage’s interest in the voting rights of the Company is
less than 30 per cent, it is not a controlling shareholder.
Resolutions to allot, issue and buy back shares
Shareholder authority will be sought each year to authorise
the Directors to allot new shares and to disapply pre-emption
rights and to make market purchases of the Company’s
ordinary shares.
The Group intends to renew the Directors’ powers to issue
and buy back shares at each AGM. At the Group’s AGM
on 24 January 2018 the Directors were authorised to issue
shares up to a maximum nominal amount of £14,328,783
and empowered to issue shares on a non pre-emptive basis
up to a maximum nominal amount of £2,149,317 for general
use and a further £2,149,317 for use in connection with an
acquisition or other capital investment.
The Directors were also authorised to buy back up to
53,732,943 shares representing 10% of the Company’s issued
share capital. No purchases have been made pursuant to this
authority and a resolution will be put to shareholders at the
2019 AGM to renew the authority, in accordance with relevant
institutional guidelines. The Directors will only purchase the
Company’s shares in the market if they believe it is in the best
interests of shareholders generally.
Articles of Association
The Company’s Articles of Association contain regulations
which deal with matters such as the appointment and removal
of Directors, Directors’ interests and proceedings at general
and Board meetings.
The Articles of Association may be amended in accordance
with the provisions of the Companies Act 2006 by way of a
special resolution of the Company’s shareholders.
Share capital and control
At 31 August 2018 and at 31 August 2017 there were
537,329,434 ordinary shares of 8p nominal value in issue.
No shares have been issued or bought back and cancelled
during the year. There are no shares held in treasury.
The Company has one class of share: ordinary shares of 8p
nominal value, each of which carries the right to one vote at
general meetings of the Company and to an equal proportion
of any dividends declared and paid. The rights and obligations
attached to the ordinary shares are governed by UK law and
the Company’s Articles of Association.
Ordinary shareholders are entitled to receive notice of, and to
attend and speak at, general meetings. On a show of hands,
every shareholder present in person or by proxy (or a duly
authorised corporate representative) shall have one vote and,
on a poll, every member who is present in person or by proxy
(or a duly authorised corporate representative) shall have one
vote for every share held by that member.
There are no restrictions on the transfer of the Company’s
ordinary shares and there are no shares carrying special
rights with regards to control of the Company. The Company
is not aware of any agreements between shareholders that may
result in restrictions on the transfer of shares or on voting rights.
Apart from the Relationship Agreement described below, there
are no specific restrictions on the size of a holding or on the
exercise of voting rights which are governed by the Articles
of Association and prevailing legislation. No person has any
special rights of control over the Company’s share capital
and all issued shares are fully paid.
Details of the Company’s share capital are set out on
page 170 in note 23 to the consolidated financial statements.
Relationship Agreement with Anchorage
Capital Group
On 16 May 2018 the Company entered into a Relationship
Agreement with Anchorage. Under the terms of the Relationship
Agreement, for as long as its shareholding in the Company is
more than 15 per cent, Anchorage is entitled to nominate one
Non-Executive Director (the ‘Nominee Director’) to the Board of
the Company and to nominate one Board observer. On 17 May
2018 Arun Nagwaney was appointed as the Nominee Director.
In accordance with the terms of the Relationship Agreement,
Arun Nagwaney has also been appointed to the Nomination
Committee. Arun Nagwaney is not entitled to payment of
any fees in connection with his directorship.
127
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Directors’ Report continued
Substantial shareholdings
As at 31 August 2018 and as at 12 November 2018, the Company had received formal notification of the following holdings in its
shares under the DTRs1.
Number of % interest in
voting rights
as at 31
August 2018
shares disclosed
as at 31
August 2018
Number of % interest in
voting rights
as at 12
November
shares
disclosed as at
12 November
2018
Name of notifying
entity/nature of holding1
Anchorage Capital Master
Offshore Limited (indirect)2
156,023,665
29.04
156,023,665
Prudential plc group of companies (indirect)3
The Goldman Sachs Group, Inc (indirect)
51,812,848
49,829,5324
Royal London Asset Management Limited (direct)
43,063,863
Investec Asset Management Limited
27,684,132
9.64
9.27
8.01
5.15
51,812,848
47,001,0965
42,394,191
27,684,132
2018
29.04
9.64
8.75
7.88
5.15
Information provided to the Company under the DTRs is publicly available via the regulatory information service and on the
Company’s website.
Note:
1 Notification is only required when the next applicable percentage threshold is crossed, meaning these holdings may have changed since notification was last required
2 Includes contracts for difference (‘CfDs’) representing 48,785,237 voting rights
3 Includes right to recall 2,000,000 loaned shares
4 Includes open stock loan of 2,922,975 shares and Swaps/CfDs representing 36,004,050 voting rights
5 Includes open stock loan of 2,327,187 shares and swaps/CfDs representing 34,952,726 voting rights.
Significant agreements with change of
control provisions
The Company has in place a revolving credit facility dated
19 December 2014 (as amended by an amendment letter
dated 10 February 2015, a supplemental agreement dated
23 May 2016 and further amended by a supplemental
agreement dated 21 February 2018). Agreements for the
revolving credit facility and the Group’s joint venture with
Somerset Care relating to YLMS both contain termination
provisions that could be triggered in certain circumstances,
including if any person or group of persons acting in concert
gain control of the Company.
In the event of a takeover or change of control (excluding
an internal reorganisation) outstanding awards under the
Group’s LTIP, ABP and Sharesave plans may, subject to
any performance conditions, vest and become exercisable.
There are no agreements between the Group and its Directors
and employees providing for compensation for loss of office
or employment (whether through resignation, purported
redundancy or otherwise) in the event of a takeover bid.
Political donations
By way of a special resolution approved at the AGM on
24 January 2018, shareholders authorised the Company to
make political donations and political expenditure up to a
maximum of £100,000. During the year the Group did not
make any political donations or incur any potential expenditure.
Although the Group has no intention of making any political
donations or incuring any potential expenditure it is possible
that certain routine activities may unintentionally fall within the
broad scope of the Companies Act 2006 provisions relating
to political donations and expenditure. As in previous years,
the Directors are therefore seeking renewal of the authority at
the forthcoming AGM, in accordance with relevant institutional
guidelines.
Human Rights
The Group supports the United Nations’ Universal Declaration
of Human Rights and has policies and processes in place
to ensure that the Group acts in accordance with principles
in relation to areas such as anti-corruption, diversity,
whistleblowing and the requirements of the Modern Slavery Act
2015. All suppliers are required to confirm compliance with the
Group’s Modern Slavery Policy which was implemented in FY17.
The Group’s slavery and human trafficking statement required
under the Modern Slavery Act 2015 is available to view on our
website: www.mccarthyandstonegroup.co.uk
128
McCarthy & Stone plc
Directors’ Report continued
Equal opportunities and diversity
The Group regards equality and fairness as a fundamental
right of all of its employees regardless of status, religious belief,
gender, sex, sexual orientation, age, colour, race or ethnic
origin. The Group believes that employees should be treated
with dignity and respect and everyone is given an equal
opportunity to reach their potential. It is the Group’s firm
intention to create a climate free from bullying and harassment
and in which all employees feel confident in raising concerns
of this kind and have them dealt with quickly, sensitively and
effectively. Every employee is required to support the Group
to meet its commitment to provide equal opportunities in
employment and avoid unlawful discrimination. The Group
does not tolerate any acts of discrimination at any level and
has an Equality and Diversity Policy underpinned by an Equality
and Diversity Statement to reflect this. The policy and statement
are communicated to all employees and are available on the
Group’s intranet.
It is also the Group’s policy that people with disabilities have
full and fair consideration for all vacancies and disability is not
seen to be an inhibitor to employment or career development.
Appropriate arrangements are made for the continued
employment and training, career development and promotion
of disabled persons employed by the Group. In the event
of any employee becoming disabled while with the Group,
their needs and abilities would be assessed and, where
possible, we would work to retain them and seek to offer
alternative employment to them if they were no longer able
to continue in their current role.
Employee engagement
The Group currently operates two share schemes which
are open to all employees, a Sharesave plan and a Share
Incentive Plan, both of which are designed to provide
employees with the opportunity to participate in the
performance and success of the Group. Neither scheme
is subject to performance conditions.
Throughout the year the Group continued to provide
employees with regular updates through an all-employee
quarterly newsletter. The Group also held a number of
business updates during the year, led by the CEO, where
employees were made aware of financial and economic
factors affecting the performance of the Group and were
provided with the opportunity to feed back to senior
management.
Following the announcement of the Group’s new strategy
on 25 September 2018, the CEO and CFO visited each of
the Group’s regional offices to present the new strategy
to the business and seek direct feedback from employees.
The Group is also intending to conduct an employee survey
to canvass views from the workforce in 2019. The survey
will enable the Group to assess employee engagement and
identify any issues that need to be addressed.
In light of the new UK Corporate Governance Code which
will apply to the Group in FY20, the Board are already
considering ways to ensure effective engagement with the
workforce including the possibility of establishing a more
formal employee forum to canvass views and the designation
of a specific Non-Executive Director to be responsible for
stakeholder engagement.
Financial Risk Management
Details of the Group’s financial instruments and its exposure
to price risk, credit risk. liquidity risk and cash flow risk are set
out in note 27 to the financial statements on pages 172 to 176.
Going concern
The Directors have assessed the Group’s business activities
and the factors likely to affect future performance in light
of current and anticipated economic conditions. In making
their assessment the Directors have reviewed the Group’s
latest budget and forecasts and considered reasonably
possible downside sensitivities in performance and mitigating
actions. The Directors are confident that they are satisfied
that the Group has adequate resources in place to continue
in operational existence for a period of at least 12 months from
the date of approval of the financial statements. For this reason,
they have continued to adopt the going concern basis in
preparing the Annual Report. Further information on the going
concern judgement can be found in note 1 to the financial
statements on page 152.
In making the Going Concern Statement and the Viability
Statement, the Directors have taken into account the ‘Guidance
on Risk Management, Internal Controls and Related Financial
and Business Reporting’ issued by the Financial Reporting
Council in September 2014.
Disclosure of information to the auditor
Each Director confirms that:
(a) so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
(b) the Director has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself aware of
any relevant audit information and to establish that the
Company’s auditor is aware of that information.
The confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the
Companies Act 2006.
129
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Methodology
The Group quantifies and reports its organisational GHG
emissions according to the methodology set out in the
Greenhouse Gas Protocol Corporate Accounting and
Reporting Standard published by the World Resources
Institute. The Group works with its sustainability consultant,
Carbon Credentials, to convert its activity data to tonnes
of carbon dioxide equivalent using the UK Government 2018
Conversion Factors for Company Reporting.
This report has been prepared in accordance with the
amendment to the GHG Protocol’s Scope 2 Guidance;
the Group has therefore reported both a location-based
and market-based Scope 2 emissions figure. The Scope 2
market-based figure reflects emissions from electricity
purchasing decisions that the Group has made during the
reporting period.
When quantifying emissions using the market-based approach
the Group has used a supplier specific emission factor where
possible. If these factors were unavailable, a residual mix
emission factor was used. This approach is in line with the
GHG Protocol Scope 2 Data Hierarchy.
The Group has also chosen to report its emissions in relation
to the number of managed developments (379).
Greenhouse gas
emissions (tCO2e)
Location-based Market-based
approach
FY18
approach
FY18
Total Scope 1 and 2
17,678
Total Scope 1, 2 and 3
18,919
13,019
14,260
tCO2e per
Managed Development
46.6
34.4
The emissions intensity calculation is based on total scope 1 and 2 emissions
and a figure of 379 managed developments for the period 1 September 2017
to 31 August 2018
Directors’ Report continued
Greenhouse gas
emission reporting
This section has been prepared in accordance with the
Group’s regulatory obligation to report greenhouse gas (‘GHG’)
emissions pursuant to Section 7 of the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013.
During the period from 1 September 2017 to 31 August 2018,
the Group’s total Scope 1 and 2 (location-based) emissions
from the combustion of fuels and the purchase of electricity
purchased were 17,678 tCO2e. Scope 3 emissions totalled
1,241 tCO2e.
The Group’s Scope 1 and 2 (location-based) emissions
increased by 8% in the year, as a result of improved data
availability, meaning the scope of reporting increased to now
include YourLife Management Services. This is the first year
the Group has disclosed its Scope 3 emissions from business
travel and waste disposal.
The table below shows the Group’s GHG emissions for the
year ended 31 August 2018.
Greenhouse gas emissions in tCO2e
Combustion of fuels (Scope 1)
Electricity purchased for our own use
(Scope 2: location-based)
Electricity purchased for our own use
(Scope 2: market-based)
Business travel (Indirect scope 3)
Waste (Indirect scope 3)
FY18
10,006
7,672
3,013
1,157
85
Scope 2 emissions calculated using the market-based approach use supplier
specific emission factors and are calculated and reported in tCO2.
Total Emissions 2017-2018 (tCO2e)
10,006
tCO2e
7,672
tCO2e
Scope 1
Scope 2 (location-based)
130
McCarthy & Stone plc
Directors’ Report continued
Post balance sheet events
There were no events after the reporting period that required
adjustment in the FY18 financial statements.
On 25 September 2018 the Group announced its new strategy
aimed at improving margins, rightsizing the operational cost
base and evolving the business model to meet the changing
needs of our customers. Total exceptional costs or c.£25m
are expected across the life of the business transformation
programme.
For further information please refer to the Strategy section
of this Report and to note 31 within notes to the financial
statements on page 180.
Annual General Meeting
The 2019 AGM will be held on Wednesday 23 January
2019. Details of the Company’s AGM and the resolutions
to be proposed will be set out in a separate Notice of
Meeting sent to shareholders and available on the
Group’s corporate website:
www.mccarthyandstonegroup.co.uk/investors/
shareholder-centre
The Directors’ Report was approved by the Board of
Directors on 6 November 2018.
Signed on behalf of the Board
Patrick Hole
Group General Counsel and Company Secretary
12 November 2018
Reporting boundaries and limitations
The Group consolidates its organisational boundary
according to the operational control approach. Emissions
for all significant sites have been disclosed, which includes
the Group’s offices, construction sites and developments.
The GHG sources that constitute the Group’s operational
boundary for FY18 are:
• Scope 1: Natural gas combustion within boilers, diesel
combustion within generators and road fuel combustion
within vehicles
• Scope 2: Purchased electricity consumption for the
Group’s use
• Scope 3: Emissions from transport in vehicles not
owned or operated by the Group and the disposal of
the Group’s waste
The Group has been unable to gather sufficient information
on refrigerant consumption across the organisation and
business travel from YLMS, therefore these are excluded
from the disclosure.
Assumptions and estimations
Improving the Group’s data collection processes has been
a key priority this year, however several assumptions have
been applied where activity data is missing or not currently
collected.
Accurate records of diesel combustion in generators at
construction sites were not available in time for reporting.
Therefore, an estimation was used based on average
diesel consumption at each site as well as available
records from procurement.
Mileage information for the Group’s business travel
(indirect scope 3) was also not available at the time of
reporting. An estimation was made using cost data.
In some cases, missing data has been estimated using
extrapolation of available data from the reporting period.
Improving performance
The Group monitors energy consumption at its MSMS
and YLMS sites in detail to identify opportunities to improve
energy performance. The Group has begun a process of
collecting more accurate data for construction sites and
offices. This will help the Group to understand more about
consumption and energy use, and to reduce emissions
going forward. FY18 was the first year the Group has
reported on YLMS. The Group are engaged with ESOS
phase 2 and are building on the outcomes of its
involvement in ESOS Phase 1.
131
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Statement of
Directors’ Responsibilities
Directors are also required to:
• Properly select and apply accounting policies
• Present information, including accounting policies,
in a manner that provides relevant, reliable, comparable
and understandable information
• Provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance
• Make an assessment of the Company’s and the Group’s
(as the case may be) ability to continue as a going concern
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
and the Group’s transactions on an individual and consolidated
basis and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable
them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and the Group
and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Group’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Fair, balanced and understandable
The Board considers, on the advice of the Risk and Audit
Committee, that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s and the
Group’s position, performance, business model and strategy.
Financial statements and accounting records
The Directors are responsible for preparing the Annual Report
including the Directors’ Remuneration Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. The Directors are
required by the IAS Regulation to prepare the Group
financial statements under IFRS as adopted by the European
Union and have elected to prepare the Company financial
statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards), including FRS 102, the Financial Reporting
Standard applicable in the United Kingdom and Republic
of Ireland, and applicable law.
The financial statements are also required by law to be properly
prepared in accordance with the Companies Act 2006 and
Article 4 of the IAS Regulation. 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 Company and the Group and of the profit
or loss of the Company and the Group for that period.
In preparing the Company financial statements,
the Directors are required to:
• Select suitable accounting policies and then apply
them consistently
• Make judgements and accounting estimates that are
reasonable and prudent
• State whether applicable UK Accounting Standards
have been followed, subject to any material departures
disclosed and explained in the financial statements
• Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business
International Accounting Standard 1 requires that financial
statements present fairly for each financial year the relevant
entity’s financial position, financial performance and cash
flows. This requires the faithful representation of the effects
of transactions, other events and conditions in accordance
with the definitions and recognition criteria for assets, liabilities,
income and expenses set out in the International Accounting
Standards Board’s ‘Framework for the preparation and
presentation of financial statements’. In virtually all
circumstances, a fair presentation will be achieved by
compliance with all applicable IFRS.
132
McCarthy & Stone plc Directors’ responsibility statement
Each Director confirms that, to the best of his or her knowledge:
a) the Group and Company financial statements in this
Annual Report, which have been prepared in accordance
with the applicable financial reporting framework, give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company and of the Group taken as a
whole; and
b) the Annual Report includes a fair review of the development
and performance of the business and the position of the
Company and the Group taken as a whole, together with a
description of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board of
Directors on 6 November 2018 and is signed on its behalf by:
John Tonkiss
Chief Executive Officer
12 November 2018
Rowan Baker
Chief Financial Officer
12 November 2018
133
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS 134
McCarthy & Stone plc Financial Statements
1 Fairway View, Brough, East Yorkshire
2 CGI of Fairway View
Fairway View
Brough, East Yorkshire
Located in the lovely town of Brough, Fairway Court consists
of 35 one and two bedroom apartments designed exclusively
for the over 60’s. The development is located within easy level
walking distance of local shops and amenities.
There are frequent buses to the nearby village of Elloughton
and regular train services to Hull, Doncaster, Leeds and York.
135
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Independent Auditor’s Report to the
Members of McCarthy & Stone plc
Report on the audit of the financial statements
Opinion
In our opinion:
• The financial statements of McCarthy & Stone plc (the ‘Company’) and its subsidiaries (the ‘Group’) give a true and fair view
of the state of the Group’s and of the Company’s affairs as at 31 August 2018 and of the Group’s profit 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, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK
and Republic of Ireland’
• 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 which comprise
• The consolidated statement of comprehensive income
• The consolidated and Company statements of financial position
• The consolidated and Company statements of changes in equity
• The consolidated cash flow statement
• The related notes 1 to 31 of the consolidated financial statements and notes 1 to 10 of the Company financial statements
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law
and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the
Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 102 ‘The Financial
Reporting Standard applicable in the UK and Republic of Ireland’ (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our Report.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm
that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
136
McCarthy & Stone plc Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Cost capitalisation of overheads
• Valuation of shared equity receivables
• Carrying value of goodwill
Cost capitalisation of overheads and valuation of shared equity receivables were also identified as
key audit matters in the prior year.
Carrying value of goodwill was identified as a key audit matter in the current year due to the
heightened risk of impairment arising from the ongoing difficult trading conditions and the strategic
review announced on 25 September 2018 which moves away from a growth strategy and instead
targets a greater return to respond to the current challenging market environment.
Materiality
We determined materiality for the Group financial statements at £3.0m (FY17: £4.6m) representing
5% of profit before tax and exceptional administrative expenses (FY17: 5% of profit before tax).
In the current year, we excluded exceptional administrative expenses when determining the basis
for materiality because the costs, principally costs of the strategic review, do not form part of the
underlying trading performance of the business.
Scoping
We performed full scope audits on the four largest group entities:
• McCarthy & Stone plc
• McCarthy & Stone (Developments) Limited
• McCarthy & Stone Retirement Lifestyles Limited
• McCarthy & Stone (Extra Care Living) Limited
These are the principal entities within the Group and account for 100% of the Group’s revenue,
100% of the Group’s profit before tax and 98% of the Group’s net assets.
Significant
changes in
our approach
Apart from the addition of a key audit matter relating to carrying value of goodwill and change in
basis for materiality as described above, there were no other significant changes in our approach
during the year.
137
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Independent Auditor’s Report
to the Members of McCarthy & Stone plc continued
Conclusions relating to principal risks, going concern and viability statement
Going concern
We have reviewed the Directors’ statement in note 1 to the financial statements about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the
Group’s and Company’s ability to continue to do so over a period of at least 12 months from the date of approval of the
financial statements.
We are required to state whether we have anything material to add or draw attention to in relation to that statement required by
Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.
Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were consistent with the knowledge we obtained
in the course of the audit, including the knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and the
Company’s ability to continue as a going concern, we are required to state whether we have anything material to add or draw
attention to in relation to:
• The disclosures on pages 74-77 that describe the principal risks and explain how they are being managed or mitigated
• The Directors’ confirmation on page 73 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 Directors’ explanation on page 73 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 are also required to report whether the Directors’ statement relating to the prospects of the Group required by Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.
138
McCarthy & Stone plc Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our 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) that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
The results of our
audit work were
satisfactory and
we concurred with
the valuation of
overheads capitalised
into inventory.
Cost capitalisation of overheads
Refer to page 98 (Report of the Risk and Audit
Committee) and note 3 (Critical accounting
judgements and key sources of estimation
uncertainty).
Inventory comprises land held for development,
sites in the course of construction and finished
stock. The value of inventory as at 31 August 2018
is £817.5m (FY17: £760.4m) which represents the
most significant item in the Consolidated Statement
of Financial Position. During the year overheads
totalling £23.6m (FY17: £23.2m) were capitalised,
representing 4.7% (FY17: 5.1%) of inventory
additions (excluding part-exchange properties).
Amounts released to cost of sales totalled £20.6m
(FY17: £20.7m).
On an annual basis management perform a
detailed exercise to determine the proportion of
departmental costs which relate directly to site
developments versus general business overheads.
We consider the allocation and recognition of
overhead costs within inventory to represent an
area of risk on account of the level of judgement
involved in:
• Identifying which costs are capable of being
capitalised versus expensed in accordance
with the criteria set out in IAS 2 ‘Inventories’
• Determining the proportion of Planning, Design,
Commercial, Construction and Health & Safety
costs incurred in bringing inventories to their
present location and condition
Specifically this judgement set out above impacts
the valuation of inventory in the Consolidated
Statement of Financial Position and the gross
margin recognised on each unit sale. Given the
level of judgement applied and the potential for
manipulation, we consider this to represent a
fraud risk.
Our procedures to address this key audit
matter involved:
• Assessing the design and implementation of
relevant controls regarding the determination of
the capitalisation rates applied by management
• Liaising with senior departmental management
to understand the structure and nature of their
department and the process deployed in
determining the allocation of cost
• Performing a review of all departments within the
business and assessing the nature of the related
costs against the criteria for capitalisation of
overheads under IAS 2 ‘Inventories’
• Testing a sample of personnel included within the
capitalisation rate calculations to validate whether
the capitalisation rates were appropriate and
consistent with job roles
• Reviewing personnel data to identify any
individuals or roles omitted from the capitalisation
rate calculations
• Analysing spend by department in the year based
on changes in headcount and department profile
• Checking the mechanical accuracy of the
calculations to identify anomalies and performing
a recalculation of the total costs capitalised by
department
• Performing sensitivity analysis over the
capitalisation rates applied by management
• Assessing the completeness and accuracy of
disclosures within the financial statements and
in accordance with IFRS
139
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Independent Auditor’s Report
to the Members of McCarthy & Stone plc continued
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
The results of our
audit work were
satisfactory and we
concurred with the
valuation of the shared
equity receivables.
Our procedures to address this key audit
matter involved:
• Assessing the design and implementation of
relevant controls regarding the determination
of assumptions applied and the calculation and
review of the fair value adjustment recorded
• Consulting with internal real estate specialists
to identify applicable trends within the housing
market and obtaining relevant independent
sector data (e.g. Office for National Statistics)
on which to benchmark the assumptions and
methodology applied by management
• Comparing the cash received on a sample of
redemptions within the year to the carrying
value of the receivable (as an indicator of
whether carrying value reflects fair value)
• Checking the mechanical accuracy of the fair
value adjustment calculation
• Performing sensitivity analysis over the future
house price inflation and discount rate applied
by management
• Assessing the completeness and accuracy of
disclosures within the financial statements and
in accordance with IFRS
Valuation of shared equity receivables
Refer to page 98 (Report of the Risk and Audit
Committee), note 3 (Critical accounting
judgements and key sources of estimation
uncertainty) and note 27 (Financial risk
management).
The Group has historically offered shared equity
based arrangements via a number of different
schemes to its customers. While all remaining
schemes were closed to new additions in FY17,
a receivable totalling £25.0m (FY17: £28.9m),
representing the net present value of the Group’s
interest, is held on the Consolidated Statement
of Financial Position. Of this amount, £17.7m
(FY17: £19.3m) was held within the New Shared
Equity Scheme.
The Group’s assessment and supporting
calculation of the valuation of the receivable
is dependent on a number of assumptions,
which are inherently judgemental due to their
forward-looking nature. Assumptions include:
• Future house price inflation
• Discount rate
• Expected maturity date
• Adjustments to reflect new build premiums
Of these assumptions, we consider future house
price inflation and the discount rate applied by
management to represent significant areas of
judgement whereby marginal movements could
result in a material change in the valuation of the
receivable recognised within the Consolidated
Statement of Financial Position and the
associated movements recorded in the
Consolidated Statement of Comprehensive
Income. Given the level of judgement applied and
the potential for manipulation, we consider this to
represent a fraud risk.
140
McCarthy & Stone plc Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
The results of our
audit work were
satisfactory and we
concluded that the
assumptions applied
in the model were
within an acceptable
range.
We concurred with
management that
there is sufficient
headroom such that
no impairment to
goodwill is required.
Carrying value of goodwill
Refer to page 98 (Report of the Risk and Audit
Committee), note 3 (Critical accounting judgements
and key sources of estimation uncertainty), note 12
(Goodwill) and note 15 (Impairment Testing).
As at 31 August 2018 the Group held a goodwill
balance of £41.7m (FY17: £41.7m) which could be
at risk of impairment due to the ongoing difficult
trading conditions and the strategic review
announced on 25 September 2018 which moves
away from a growth strategy and instead targets
a greater return to respond to the current
challenging market environment.
For the purpose of goodwill allocation and
impairment testing, management has identified
a single group of all cash-generating units (known
collectively as the CGU). The valuation of these
assets is considered biannually with the recoverable
amount determined via a discounted cash flow
(value in use) model. The model includes a number
of assumptions, which are inherently judgemental
due to their forward-looking nature. Assumptions
include:
• Forecast cash flows
• Discount rate
• Long-term growth rate
Of these assumptions, we determined that certain
aspects of the forecast cash flows assumptions
(specifically the reduction in build spend, the
consistent sales volume and the consistent unit
sales price) represented the key assumptions
within the model and an area of potential fraud
due to the level of sensitivity.
Our procedures to address this key audit
matter involved:
• Assessing the design and implementation of
relevant controls in regards to the determination
of the recoverable amount of the CGU
• Challenging management on the existence of
external impairment indicators including the
market capitalisation at 31 August 2018 against
net assets
• Involving internal valuation specialists to identify
an acceptable range of discount rates using
market comparable information
• Inquiring of internal and external parties involved
in the strategic review process to understand the
rationale for the forecast cash flows, including
the key cash savings that drive future
performance
• Comparing long-term forecast performance to
industry data to challenge the feasibility of
management’s forecasts
• Checking the arithmetical accuracy of the
recoverable amount calculations
• Reviewing the sensitivity analysis prepared by
management and the impact on the recoverable
amount of the CGU, including challenging the
reasonably possible scenarios on which the
analysis was based
• Assessing the completeness and accuracy of
disclosures within the financial statements and
in accordance with IFRS
141
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
0%
Independent Auditor’s Report
to the Members of McCarthy & Stone plc continued
1%1%
0%
Revenue
Profit
before tax
Net
assets
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
100%0
scope of our audit work and in evaluating the results of our work.
100%0
98%
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Full audit scope
Specified audit procedures
Materiality
Review at Group level
Group financial statements
£3.0m (FY17: £4.6m)
Full audit scope
Specified audit procedures
Review at Group level
Full audit scope
Company financial statements
Specified audit procedures
£2.4m (FY17: £3.7m)
Review at Group level
Basis for
determining
materiality
Materiality
Rationale for
the benchmark
applied
5% of profit before tax and exceptional administrative
expenses (FY17: 5% of profit before tax). Details of the
exceptional administrative expenses are disclosed in
note 5 to the financial statements.
0.5% (FY17: 0.7%) of net assets
of the Company, capped at 80%
(FY17: 80%) of Group materiality.
Profit before tax and exceptional administrative expenses was
selected as the basis for materiality as this is the measure by
which stakeholders and the market assess the performance
of the Group.
In the current year, we excluded exceptional administrative
expenses when determining the basis for materiality because
the costs, principally costs of the strategic review, do not form
part of the underlying trading performance of the business.
The Company is non-trading and
contains the investment in all of the
trading components in the Group.
Company materiality was capped at a
percentage of group materiality to reflect
the overall risks associated with the Group.
Profit before tax
and exceptional
administrative
expenses - £60.1m
Group materiality - £3.0m
Component materiality - 1.5m - 2.5m
Risk and Audit Committee reporting threshold - £0.2m
Profit before tax and exceptional
administrative expenses
Group materiality
We determined performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was
set at £2.1m (FY17: £3.2m), representing 70% (FY17: 70%) of Group materiality.
We agreed with the Risk and Audit Committee that we would report to the Committee all audit differences in excess of £0.2m
(FY17: £0.3m), as well as differences below that threshold that, which in our view, warranted reporting on qualitative grounds.
We also report to the Risk and Audit Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
142
McCarthy & Stone plc An overview of the scope of our audit
The Group has operations across the United Kingdom, split between three geographic divisions and nine regional offices.
All subsidiaries of the Group are managed from the head office in Bournemouth and are subject to a common control
environment. We scoped the audit by obtaining an understanding of the Group and its environment, including group-
wide controls, and assessing the risks of material misstatement at the Group level.
Based on that assessment, the scope of our audit was focused on the four largest entities within the Group:
• McCarthy & Stone plc
• McCarthy & Stone (Developments) Limited
• McCarthy & Stone Retirement Lifestyles Limited
• McCarthy & Stone (Extra Care Living) Limited
These are the principal entities within the Group and account for 100% (FY17: 100%) of the Group’s revenue, 100%
(FY17: 98%) of the Group’s profit before tax and 98% (FY17: 98%) of the Group’s net assets. They were also selected to
provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above.
0%
0%
1%1%
Revenue
100%0
Profit
before tax
100%0
Net
assets
98%
Full audit scope
Specified audit procedures
Review at Group level
Full audit scope
Specified audit procedures
Review at Group level
Full audit scope
Specified audit procedures
Review at Group level
Our audit procedures were performed to levels of materiality ranging from £1.5m to £2.5m (FY17: £3.5m to £4.1m).
We performed audit procedures on specified account balances within:
• McCarthy & Stone (Home Equity Interests) Limited
• McCarthy & Stone (Equity Interests) Limited
In addition, we performed desktop review procedures over all highly immaterial entities not included in the above. Our audit of
the Company included procedures to test the consolidation process, including carrying out analytical procedures to confirm our
conclusion that there were no significant risks of material misstatement of the aggregated financial information of these components.
The Group audit is performed centrally and includes coverage of all nine regional offices within the Group. As part of the audit we
visit three regional offices on a rotational basis with reference to size and complexity amongst other factors. The purpose of these
visits is to conduct procedures over selected controls that are in place at each regional office.
Profit before tax
and exceptional
administrative
expenses - £60.1m
Group materiality - £3.0m
Component materiality - 1.5m - 2.5m
Risk and Audit Committee reporting threshold - £0.2m
143
Profit before tax and exceptional
Group materiality
administrative expenses
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Independent Auditor’s Report
to the Members of McCarthy & Stone plc continued
Other information
The Directors are responsible for the other information. The other information comprises the information included in the Annual
Report other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion 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 such material inconsistencies or apparent material misstatements, we are required to determine whether there is
a material misstatement in 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.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other
information include where we conclude that:
• Fair, balanced and understandable - the statement given by the Directors that they consider the Annual Report taken as a whole
is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and
performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit
• Risk and Audit Committee reporting - the section describing the work of the Risk and Audit Committee does not appropriately
address matters communicated by us to the Risk and Audit Committee
• Directors’ statement of compliance with the UK Corporate Governance Code - the parts of the Directors’ statement required
under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions
specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code
We have nothing to report in respect of these matters.
Responsibilities of directors
As explained more fully in the Directors’ Responsibility Statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors 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 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.
Auditor’s 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 auditor’s 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
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 auditor’s report.
144
McCarthy & Stone plc Extent to which the audit was considered capable of detecting irregularities,
including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then
design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, our procedures included the following:
• Enquiring of central and regional management, Internal Audit and the Risk and Audit Committee, including obtaining and
reviewing supporting documentation, concerning the Group’s policies and procedures relating to:
– Identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance
– Detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud
– The internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations
• Discussing amongst the engagement team and involving relevant internal specialists, including real estate, tax, valuations
and IT specialists, regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
As part of this discussion, we identified potential for fraud in the following areas:
– The judgement made in determining of the capitalisation rates in calculating the proportion of overheads to be capitalised
into inventory
– The derivation of the house price inflation and discount rates used in the calculation of the fair value of the New Shared Equity
Scheme shared equity receivable
– The reduction in build spend, consistent sales volume and consistent unit sales price assumptions within the cash flow
forecasts used in calculating the recoverable amount of the CGU
• Obtaining an understanding of the legal and regulatory framework that the Group operates in, focusing on those laws and
regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group
The key laws and regulations we considered in this context included:
– The Companies Act 2006
– The Listing Rules
– UK tax legislation
145
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Independent Auditor’s Report
to the Members of McCarthy & Stone plc continued
Extent to which the audit was considered capable of detecting irregularities,
including fraud continued
Audit response to risks identified
As a result of performing the above, we identified cost capitalisation of overheads, valuation of shared equity receivables and
carrying value of goodwill as key audit matters. The key audit matters section of our report explains the matters in more detail
and also describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
• Reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant
laws and regulations discussed above
• Enquiring of central and regional management, the Risk and Audit Committee, in-house legal counsel and external legal
firms concerning actual and potential litigation and claims
• Performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud
• Inspecting minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with tax authorities
• Engaging specialists with specific knowledge on the residential housing market and market risk to provide insight on the
assumptions used in valuing shared equity receivables and calculating the recoverable amount of the CGU respectively
• In addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• The information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements
• The Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements
In the light of the knowledge and understanding of the Group and of the Company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the strategic report or the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
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
• 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
• The Company financial statements are not in agreement with the accounting records and returns
We have nothing to report in respect of these matters.
146
McCarthy & Stone plc Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration
have not been made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
Other matters
Auditor tenure
Following the recommendation of the Risk and Audit Committee, we were appointed by the shareholders on 24 January 2018
to audit the financial statements for the year ending 31 August 2018. The period of total uninterrupted engagement including
previous renewals and reappointments of the firm is 10 years, covering the years ending 31 August 2009 to 31 August 2018.
Consistency of the audit report with the additional report to the Risk and Audit Committee
Our audit opinion is consistent with the additional report to the Risk and Audit Committee we are required to provide in
accordance with ISAs (UK).
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Jacqueline Holden FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
12 November 2018
147
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Consolidated Statement
of Comprehensive Income
For the year ended 31 August 2018
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating income
Administrative expenses
Other operating expenses
Operating profit
Amortisation of brand
Exceptional administrative expenses
Underlying operating profit
Finance income
Finance expense
Profit before tax
Income tax expense
Notes
4
7
5
5
8
9
5
10
Profit for the year from continuing operations and total comprehensive income
Profit attributable to
Owners of the Company
Non-controlling interests
Notes 1 to 31 form part of the financial statements shown above. All trading derives from continuing operations.
Earnings per share
Basic (p per share)
Diluted (p per share)
Adjusted measures
Underlying operating profit
Underlying profit before tax
11
11
5
5
2018
£m
671.6
(567.0)
104.6
11.3
(44.0)
(8.4)
63.5
(2.0)
(2.0)
67.5
0.4
(5.8)
58.1
(11.6)
46.5
46.2
0.3
46.5
8.6
8.6
67.5
62.1
2017
£m
660.9)
(530.2)
130.7)
8.9)
(38.8)
(6.6)
94.2)
(2.0)
-)
96.2
)
1.6)
(3.7)
92.1
(17.7)
74.4
74.2)
0.2)
74.4
13.8
13.8
96.2)
94.1))
148
McCarthy & Stone plc
Consolidated Statement
of Financial Position
As at 31 August 2018
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Investments in joint ventures
Investment properties
Trade and other receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Capital and reserves
Share capital
Share premium
Retained earnings
Equity attributable to owners of the Company
Non-controlling interests
Total equity
Current liabilities
Trade and other payables
UK corporation tax
Land payables
Total current liabilities
Non-current liabilities
Long-term borrowings
Deferred tax liability
Total liabilities
Total equity and liabilities
Notes
12
13
14
17
16
17
25
23
19
20
21
18
2018
£m
41.7)
26.1
2.1
0.4)
0.2)
27.8)
98.3)
817.5
22.4)
57.0)
896.9)
995.2)
43.0)
101.6)
617.5)
762.1)
1.3)
763.4)
114.9
6.5)
56.9)
178.3)
51.4)
2.1)
231.8)
995.2)
Notes 1 to 31 form part of the financial statements shown above.
These financial statements were approved by the Board on 12 November 2018 and signed on its behalf by:
John Tonkiss
Chief Executive Officer
Rowan Baker
Chief Financial Officer
2017
£m
41.7)
27.6)
2.4
0.4
0.2)
32.1
104.4
760.4
9.5)
40.7)
810.6)
915.0)
43.0)
101.6)
600.1
744.7)
1.0)
745.7)
85.4
6.7
67.4
159.5)
8.0)
1.8)
169.3)
915.0)
149
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Consolidated Statement
of Changes in Equity
For the year ended 31 August 2018
Balance at 1 September 2016
Profit for the year
Total comprehensive income for the year
Transactions with owners of the Company:
Share-based payments
Dividends
Share issue related costs - tax credit
Balance at 31 August 2017
Profit for the year
Total comprehensive income for the year
Transactions with owners of the Company:
Share-based payments
Dividends
Share
capital
£m
Share
premium
£m
Retained
earnings
£m
Notes
Total
£m
43.0
100.8
553.5
697.3
-
-
-
-
-
-
-
-
-
0.8
74.2
74.2
74.2
74.2
0.9
(28.5)
-
0.9
(28.5)
0.8
43.0
101.6
600.1
744.7
-
-
-
-
-
-
-
-
46.2
46.2
46.2
46.2
0.8
(29.6)
0.8
(29.6)
28
23
28
23
Non-
controlling
interests
£m
0.8
0.2
0.2
-
-
-
1.0
0.3
0.3
-
-
Total
equity
£m
698.1
74.4
74.4
0.9
(28.5)
0.8
745.7
46.5
46.5
0.8
(29.6)
Balance at 31 August 2018
43.0
101.6
617.5
762.1
1.3
763.4
Notes 1 to 31 form part of the financial statements shown above.
150
McCarthy & Stone plc
Consolidated
Cash Flow Statement
For the year ended 31 August 2018
Net cash flow from operating activities
Investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Financing activities
Issue of long-term borrowings
Repayment of long-term borrowings
Dividends paid
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
25
14
13
2018
£m
14.8)
(0.8)
(1.1)
-)
(1.9)
250.0)
(217.0)
(29.6)
3.4)
16.3)
40.7)
57.0)
Restated
2017
£m
7.5)
(0.7)
(0.4)
0.1)
(1.0)
202.0
(258.3)
(28.5)
(84.8)
(78.3)
119.0)
40.7)
Prior year comparatives have been restated whereby the repayment of £11.3m of promissory notes, which are classified as
borrowings in the Statement of Financial Position, has been reclassified. Further details can be seen in note 25.
Notes 1 to 31 form part of the financial statements shown above.
151
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated
Financial Statements
1. Significant 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 all the years presented, unless otherwise stated.
Basis of preparation
McCarthy & Stone plc is a public Company limited by shares incorporated in England and Wales under the Companies Act 2006.
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the ‘Group’) and
include the Group’s interest in certain joint ventures where the Group has power over the relevant activities of the entity through
its power to appoint the majority of Directors. The Company financial statements present information about the Company as a
separate entity and not about the Group.
The Group financial statements have been prepared and approved by the Directors in accordance with International Financial
Reporting Standards as adopted by the European Union (‘EU IFRS’) and have been prepared under the historical cost convention.
Going concern
The Directors consider that the Group is well placed to manage business and financial risks in the current economic environment
and have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable
future, a period not less than 12 months from the date of this report. In February 2018 the Group extended its Revolving Credit
Facility from £200m to £250m for a period of 12 months (existing facility of £200m ends in May 2021). As at the year end date a
total of £43.0m (2017: £10.0m) has been drawn down with a further £57.0m (2017: £40.7m) held on the Consolidated Statement of
Financial Position in cash, offset by promissory notes of £10.0m (2017: £nil), resulting in net cash of £4.0m (2017: £30.7m). The level
of drawdown on the RCF fluctuates during the year however the Group operates within a minimum headroom requirement of
£50.0m throughout the year. If headroom were at risk, management can take mitigating action by aborting uncommitted land
purchases and related build costs.
In making our assessment as to the Group’s ability to continue as a going concern and managing the related funding risk, we have
considered forecast net debt levels reflecting on interest cover, gearing and tangible net asset value covenants with no breaches
identified. Accordingly, the Directors continue to adopt the going concern basis in preparing these Consolidated Financial
Statements. Further information on the Group’s borrowings is given in note 21.
Basis of consolidation
The consolidated financial statements incorporate the results of the Company and its subsidiaries. For the purposes of
consolidation, subsidiaries are entities which are controlled by the Group. The Group controls an entity when:
• It has power over the entity through existing rights that give the ability to direct the relevant activities of the entity
• It is exposed to, or has rights to, variable returns from its involvement with the entity
• It has the ability to use its power over the entity to affect the amount of the investor’s returns
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line
with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interests of non-controlling
shareholders may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the
acquiree’s identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Subsequent to
acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-
controlling interests’ share of subsequent changes in equity.
Goodwill
Goodwill arising from a business combination is recognised as an asset at the date that control is attained (the acquisition date).
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the
acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition date
amounts of the identifiable assets acquired and the liabilities assumed.
For the purpose of impairment testing, goodwill is allocated to McCarthy & Stone (Developments) Limited, which consolidates all
cash-generating units (‘CGUs’) of the Group. This is the lowest level at which goodwill is monitored internally. Goodwill arose on
acquisition in 2009 of the assets and liabilities of Monarch Realisations 1 plc and therefore management consider it appropriate
to allocate goodwill across the business in aggregate. The CGU is tested for impairment annually, or more frequently when there is
an indication that the CGU may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the CGU, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of
the unit pro-rata on the basis of the carrying amount of each asset in the CGU.
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McCarthy & Stone plc 1. Significant accounting policies continued
Revenue recognition
Revenue is measured at fair value of the consideration received or receivable and represents amounts receivable for goods
supplied stated net of discounts, rebates, VAT and other sales taxes.
Revenue recognised in the Consolidated Statement of Comprehensive Income but not yet invoiced is held on the Statement of
Financial Position within ‘Trade and other receivables’. Revenue invoiced but not yet recognised in the Consolidated Statement
of Comprehensive Income is held on the Consolidated Statement of Financial Position within ‘Trade and other payables’.
Revenue is classified as follows:
Unit sales
Revenue represents the consideration received from the sale of leasehold interests in retirement apartments and freehold
interests in houses and bungalows and is recognised on legal completion, being the point at which the transfer of risks and
rewards of ownership has substantially occurred. Where the Group commits on completion to provide an additional cash
amount above an offer given by a third-party part-exchange provider, this additional cash amount is recognised as a
deduction from revenue. Cash incentives are considered to be a discount from the purchase price offered to the acquirer
and are therefore accounted for as a reduction of revenue.
Freehold reversionary interests (‘FRIs’) revenue
FRIs in respect of developed sites are periodically sold to third parties. Revenue arising from these sales is recognised only
to the extent that the underlying leasehold interest in the retirement apartment has been contractually sold.
Segmental analysis
IFRS 8 ‘Operating Segments’ establishes standards for reporting information about operating segments and related disclosures,
products and services, geographical areas and major customers. The Group conducts its activities through a single operating
segment, consequently, no detailed segment information has been presented.
None of the Group’s customers represented more than 10% of the Group’s revenue generated from the building of retirement
developments for any reporting period presented herein.
Other operating income
Other operating income includes management services income, net rental income, customer extras, income from insurance claims,
profits arising from the disposal of undeveloped land sites and profits arising from the realisation of shared equity receivables.
Management services income relates to the management of service charge trusts, estate management and the provision of
care and domestic assistance to residents within our developments. Income is recognised as these services are provided.
Finance income
Income is recognised as interest accrues, using the effective interest rate method, being the rate used to discount the estimated
future cash receipts over the expected life of the financial instrument.
Cost of sales
Costs directly attributable to the unit sales are included within cost of sales. This includes the cost of bringing the inventory into
use and regional marketing costs that are directly attributable to sales, including show flat running costs and estate agent referral
fees. Cost of sales are recognised on a unit-by-unit basis, by reference to the forecast future margin across the development.
The gain or loss arising on the sale of part-exchange properties are not included in revenue and are recorded as a reduction to
cost of sales as they are seen as a sales incentive.
Build-related rebates are recorded as a reduction to cost of sales.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
1. Significant accounting policies continued
Exceptional items
Exceptional items are defined as items of income or expenditure which, in the opinion of the Directors, are material, non-recurring
and unusual in nature or of such significance that they require separate disclosure. Exclusion of these balances, in addition to
exclusion of amortisation of brand, allows review of the underlying trading position of the Group through the Alternative
Performance Measures. Exceptional items are detailed further in note 5.
Leases
The Group enters into a number of lease arrangements for buildings and vehicles, none of which transfer substantially all the risks and
rewards of ownership, nor control, to the lessee. Accordingly, all such leases are classified as operating leases.
Rentals payable under operating leases are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis
over the term of the relevant lease.
Retirement benefit costs
The Group operates a stakeholder retirement benefit scheme.
A retirement benefit scheme is a post-employment benefit plan under which the Group pays fixed contributions into a separate
entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to benefit schemes are
recognised as an expense in the Consolidated Statement of Comprehensive Income in the years during which services are
rendered by employees.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
Tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated
Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using
tax rates that have been enacted or substantively enacted by the year end.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted
for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax assets are reviewed at the end of each reporting period and maintained to the extent that there are probable
sufficient future taxable profits available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted by the year end. Deferred tax is charged or credited in the
Consolidated Statement of Comprehensive Income, except when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
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McCarthy & Stone plc Notes to the Consolidated Financial Statements continued
1. Significant accounting policies continued
Tangible and intangible assets
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is recognised so as to write off the cost of assets less their residual value over their useful lives, using the straight-
line method, on the following basis:
Fixtures, fittings and equipment
3-10 years
The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in income on the transfer of the risks and rewards of ownership. The Group has no class
of tangible fixed asset that has been revalued.
Intangible assets - brand
Separately acquired brands are shown at historical cost. Brands have a finite useful life and are carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method to allocate the cost over their useful lives, estimated at
20 years.
Intangible assets - software
Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled
by the Group are recognised as intangible assets.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs
and an appropriate portion of relevant overheads. Other development expenditures that do not meet the criteria are recognised
as an expense as incurred.
Computer software development costs recognised as assets are amortised over their estimated useful lives using the straight-
line method, which do not exceed ten years. Development expenditure relating to software has been capitalised and is detailed
in note 13 to the financial statements.
Impairment of tangible and intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable amount of the CGU.
Recoverable amount is the higher of: (i) fair value less costs to sell and (ii) value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss is recognised immediately in the Consolidated Statement of
Comprehensive Income.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
1. Significant accounting policies continued
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. The
cost of sites in the course of construction and finished stock comprises the cost of land purchases, which are accounted for from
the date of contract exchange, when the Group obtains the effective control of the site, building costs and attributable construction
overheads. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be
incurred in marketing, selling and distribution, completion and disposal.
Part-exchange properties are initially recognised at the fair value on the acquisition date, as established by independent surveyors,
less a provision for costs to sell.
Land inventories and the associated land payables are recognised in the Consolidated Statement of Financial Position from the
date of unconditional exchange of contracts.
Expenditure on land without the benefit of detailed planning consent, either through purchase of freehold land or non-refundable
deposits paid on land purchase contracts subject to detailed planning consent, are capitalised initially at cost. Regular reviews
are completed for impairment in the value of these investments, and a provision is made to reflect any irrecoverable element. The
impairment reviews consider the existing value of the land and assess the likelihood of achieving detailed planning consent and
the value thereof.
Provisions are established to write down land where the forecast net sales proceeds, less costs to complete, exceed the carrying
value of the land. These provisions are adjusted as selling prices and costs to complete change over time.
Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less, net of
outstanding bank overdrafts.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s Consolidated Statement of Financial Position when the
Group becomes a party to the contractual provisions of the instrument.
Financial assets
All financial assets are normally recognised and derecognised on the date that an agreement has been entered into where the purchase
or sale of a financial asset is under a contract. They are initially measured at fair value plus transaction costs, except for those financial
assets classified as at fair value through profit or loss, which are initially measured at fair value.
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The
Group only held shared equity receivables (measured at ‘fair value through profit or loss’ (‘FVTPL’)), secured mortgages (measured at
‘amortised cost’) and ‘loans and receivables’.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and
points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts)
through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss.
The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included
in the other operating income line item in the Consolidated Statement of Comprehensive Income. Fair value is determined in the
manner described in note 27.
Shared equity receivables
Shared equity interests arise from sales incentive schemes under which the Group acquires a contractual entitlement to receive a
proportion of the proceeds on sale of an apartment. These interests are normally protected by a legal charge over the relevant
apartment and/or a restriction on title.
The value of the shared equity receivables changes in response to an underlying variable due to them being held at fair value. The
shared equity receivables are initially recognised at fair value, being the estimated future amount receivable by the Group, discounted to
present value. The fair value of future anticipated cash receipts takes into account the Directors’ views of an appropriate discount rate,
a new build premium, future house price movements and the expected timing of receipts. The Directors revisit the future anticipated
cash receipts from the assets at each reporting date and the difference between the anticipated future receipt and the initial fair value
is credited to finance income/expense.
156
McCarthy & Stone plc Notes to the Consolidated Financial Statements continued
1. Significant accounting policies continued
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market
are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method,
less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when
the recognition of interest would be immaterial.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Group are recognised as the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as ‘other financial liabilities’.
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected
life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Land-related promissory notes
Land-related promissory notes are treated as financial liabilities and are classified as borrowings due to the substance of the
contractual arrangements.
Share-based payment schemes
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted
and is recognised as an expense over the vesting period. In valuing equity-settled transactions, no account is taken of any non-market
based vesting conditions and no expense is recognised for awards that do not ultimately vest as a result of a failure to satisfy a non-
market based vesting condition.
Further details regarding the schemes are set out in note 28.
Alternative Performance Measures (‘APMs’)
Within the Annual Report, the Directors have adopted various APMs. These measures are not defined by International Financial
Reporting Standards (‘IFRS’).
The Directors are of the opinion that the separate presentation of these items provides helpful information about the Group’s
underlying business performance.
The APMs that the Group has used are as follows:
• Underlying operating profit
• Net cash
• Underlying earnings per share
• Underlying profit before tax
• Underlying operating profit margin
• Return On Capital Employed (‘ROCE’)
All ‘underlying’ items refer to the adjusted measure being reported before ‘exceptional’ and ‘adjusted cost’ items. Specifically, the
exceptional items are one-off, and their inclusion does not present consistent and comparable results. The amortisation of brand is
a non-trading factor and its inclusion is not useful in determining the trading profits of the Group. ROCE is used as a metric to ensure
efficient and effective use of capital and is a key metric for determining Director remuneration (including LTIP targets). ROCE is also a
comparable metric used by our peer housebuilder group.
A full reconciliation between the statutory results and the underlying measures and a ROCE calculation can be seen within note 5.
Net cash has been defined and calculated within note 22. Adjusted cost and exceptional items have been defined within note 5.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
2. Outlook for adoption of future standards (new and amended)
The following new standards, amendments to standards and interpretations (‘Standards’) are applicable to the Group and are
mandatory for the first time for the financial year which began on 1 September 2017: Amendments to IAS 7 ‘Statement of Cash Flows -
Changes in Liabilities arising from Financing Activities’ and Amendment to IAS 12 ‘Recognition of Deferred Tax Assets for Unrealised
Losses’. These Standards have not had a material impact on the results of the Company for the year ended 31 August 2018.
At the date of approval of the financial statements, the following standards, interpretations and amendments to standards have been
issued, but are not yet effective for the year ended 31 August 2018:
• IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’ and is effective for the
Group from 1 September 2018. The Group does not presently hold any complex financial instruments. The principal area of
consideration for IFRS 9 is applying the new “expected credit loss” model introduced for bad debt provisions. However, as the
Group’s accounting policy is not to recognise revenue until legal completion and trade receivables are not held as part of normal
trade, no material bad debt provisions are anticipated. The Group continues to assess the impact and application of the new
standard however we do not anticipate the new standard will have a material impact on the Group’s reported results and
financial position.
• IFRS 15 ‘Revenue from Contracts with Customers’ is effective for the Group from 1 September 2018. This standard sets out
requirements for revenue recognition from contracts with customers under a five-step model to apportion revenue against
performance obligations within a contract based upon the transfer of control. Revenue and profit on the sale of units is recognised
when substantially all the risks and rewards of ownership have transferred to the customer, which is deemed to occur at legal
completion. There is no change to this accounting treatment under the recognition criteria within IFRS 15.
Part-exchange properties - Currently the income and costs associated with part-exchange properties are recognised on
a net basis within cost of sales. Under IFRS 15 the requirement will be to present the non-cash consideration received from
a customer within revenue. The subsequent sale of the property will be accounted for as a separate contract, with the income
and associated costs being recognised within other operating income and expenditure. The impact on the Group for FY18 if IFRS
15 was adopted would be a decrease to cost of sales of £1.8m, but an increase to other expenditure of £1.8m. This change is
presentational only and has no impact on profit.
The full impact of this change on the Group will be re-stated using the full retrospective transition method.
The above items will have no impact on the Group’s cash flows.
• IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ and is effective for the Group from 1 November 2019. This standard brings significant
changes to the accounting of leases by lessees. IFRS 16 requires the recognition of a ‘right-of-use’ asset and a corresponding lease
liability on the Statement of Financial Position of the lessee. In the Statement of Comprehensive Income the existing operating lease
charges, the majority of which is currently recognised within operating profit, will be replaced by a depreciation charge against the
‘right-of-use’ asset. Additionally, there will be an interest cost in relation to the lease liability which will be recognised within finance
expenses. The IASB has included an optional exemption, for lessees, for certain short-term leases and leases of low-value assets,
however, this exemption can only be applied by lessees.
It is expected that the implementation of the standard will increase both the assets and liabilities of the Group. The impact of the
standard continues to be assessed but is not expected to be material to the net assets or profit of the Group.
Amendment to IFRS 2 ‘Share-based Payments’, Amendment to IFRS 4 ‘Insurance Contracts’ regarding the implementation
of IFRS 9 ‘Financial Instruments’, and Annual Improvements 2014-2016, all effective from 1 January 2018, do not have
a significant impact on the Group’s financial statements.
Annual Improvements 2015-2017, Amendment to IAS 28 ‘Investments in Associates and Joint Ventures’, IFRIC 23 ‘Uncertainty
over Income Tax Treatments’, and Amendments to IAS 19 ‘Employee Benefits on Plan Amendment, Curtailment or Settlement’,
all effective from 1 January 2019, are not expected to have a significant impact on the Group’s financial statements.
The potential impact of the above standards and interpretations is still being assessed by the Group.
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, the Directors are required to make judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from
these estimates.
The estimates and underlying 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 the revision and future periods if
the revision affects both current and future periods.
158
McCarthy & Stone plc Notes to the Consolidated Financial Statements continued
3. Critical accounting judgements and key sources of estimation uncertainty continued
Critical judgements in applying the Group’s accounting policies
In applying the Group’s accounting policies, one critical judgement has been made in relation to exceptional items. A judgement
has been made that the items in FY18 are of significant cost, non-recurring and unusual to the normal activity of the Group
and therefore a decision was made to reclassify these items separately on the face of the Consolidated Statement of
Comprehensive Income.
No other critical judgements are deemed to have been made that have a material effect on the amounts recognised in the
financial statements.
Assumptions and other sources of estimation uncertainty
The following are assumptions the Group makes about the future, and other sources of estimation uncertainty at the end of the
reporting period.
Critical assumptions and major sources of estimation uncertainty
The Group does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in 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.
Other assumptions and sources of estimation uncertainty
These assumptions and sources of estimation uncertainty carry risk of resulting in a material adjustment to the carrying amounts
of assets and liabilities over the longer-term.
Impairment of goodwill
Goodwill is tested to determine whether the estimation of the value in use of the CGU is greater than the carrying value of the
asset. The value in use calculation includes an estimate of the future forecast cash flows and requires the determination of a
suitable discount rate in order to calculate the present value of the cash flows. Details of the impairment review calculation
and sensitivity analysis performed are included in note 15.
Fair value of shared equity receivables
Shared equity receivables are recognised at the fair value of future anticipated cash receipts that takes into account the
Directors’ view of an appropriate discount rate, a new build premium, future house price movements and the expected timing
of receipts. Shared equity receivables are reviewed at each reporting date using a variety of estimates that anticipate future cash
flow from assets. Further information regarding the assumptions and sensitivity effects of a reasonable possible change across
all schemes can be seen within note 27. The significant risk is specifically pinpointed to the Group’s substantially largest shared
equity scheme which was offered between FY12 and FY17 of which the revaluation is driven by changes in discount rates and
house price inflation. Should both of these assumptions be impacted by a reasonably possible change of a 1% increase or
decrease, the effect has been illustrated below:
Increase
assumptions by 1%
£m
Decrease
assumptions by 1%
£m
Discount rate
House price inflation
(1.7))
1.9)
1.9)
(1.7)
Cost capitalisation of overheads
Within inventory there are a number of areas of estimation uncertainty, including determination of site margin, of which
cost capitalisation of overheads is the most significant. Inventory includes a proportion of design, procurement, construction,
health & safety, commercial and planning costs. Costs associated with these functions are reviewed by management to
attribute those costs relating directly to the cost of the developments to inventory and those that relate to general business
overheads to expenses. The assumptions used are reviewed annually by the function heads before being proposed to the
Risk and Audit Committee.
Cost capitalisation involves estimates of the proportion of costs that are directly attributable to sites. The key source of
estimation uncertainty in this area relates to the percentage of time spent by our regions on directly attributable site activities.
The percentage of their time which is capitalised ranges between 69-85% (2017: 77-93%) for the various functions. Overhead
costs capitalised at 31 August 2018 amount to £23.7m (2017: £23.2m). If the prior year cost capitalisation rates were to be used,
the value of the overhead costs capitalised would have increased by £0.2m.
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
4. Revenue
Unit sales
FRI revenue
2018
£m
642.8)
28.8)
671.6)
2017
£m
631.8)
29.1)
660.9)
All unit sales revenue arose from the sale of properties. All revenue was generated within the UK. No individual customer is
significant to the Group’s revenue in any period.
Proceeds received from the disposal of part-exchange properties, which are not included in revenue were £88.1m (2017: £11.6m).
These are recognised on a net basis within cost of sales on the basis that they are incidental to the main revenue-generating
activities of the Group. The net loss on disposal of these properties was £1.0m (2017: profit of £0.1m).
5. Profit before tax
Profit before tax has been arrived at after charging:
Amortisation of intangibles
Depreciation of property, plant and equipment
Operating lease arrangements
Land and buildings
Plant and machinery
Cost of inventories recognised as an expense
Staff costs
Share-based payments charge to profit or loss
Movement in inventory provision (including part-exchange properties)
Notes
13
14
24
6
28
2018
£m
2.6)
1.1)
1.7)
2.6)
480.0)
94.0
0.8)
1.5)
2017
£m
2.4)
1.1)
1.4)
2.5)
457.1)
88.4)
0.9)
1.2)
160
McCarthy & Stone plc Notes to the Consolidated Financial Statements continued
5. Profit before tax continued
Reconciliation to underlying operating profit and profit before tax
The following tables present a reconciliation between the statutory profit measures disclosed on the Consolidated Statement of
Comprehensive Income and the underlying measures used by the Board to appraise performance.
Exceptional items are items which, due to their one-off, non-trading and non-recurring nature, have been separately classified by
the Directors in order to draw them to the attention of the reader.
Adjusted cost items are items which are quantitively or qualitatively material and are presented separately within the Consolidated
Statement of Comprehensive Income. The Directors are of the opinion that the separate presentation of these items provides
helpful information about the Group’s underlying business performance. Amortisation of brand has been adjusted in order to
reconcile to underlying operating profit and underlying profit before tax given the Directors do not believe this cost reflects the
underlying trading of the business.
Exceptionals
Year ended 31 August 2018
Operating profit
Finance income
Finance expense
Profit before tax
Income tax expense
Profit for the year
Attributable to non-controlling interest
Attributable to owners of the Company
Earnings per share
Basic (p per share)
Diluted (p per share)
Notes
8
9
Exceptional
Adjusted cost
Statutory
£m
Administrative
costs
£m
Amortisation
of brand
£m
Underlying
£m
63.5)
0.4
(5.8)
58.1
(11.6)
46.5
0.3)
46.2)
8.6
8.6
2.0)
-)
-)
2.0)
(0.4)
1.6
-)
1.6
0.3
0.3
2.0
-
-
2.0
(0.4)
1.6
-
1.6)
0.3
0.3
67.5)
0.4)
(5.8)
62.1
(12.4)
49.7
0.3)
49.4)
9.2
9.2
The exceptional administrative costs in 2018 represent third-party advisory fees and redundancy costs incurred in relation to the
strategic review. Total costs for the strategic review are expected to be c.£25.0m and therefore deemed to be a material exceptional
item (see note 31).
The net cash outflow from exceptional administrative expenses described above was £0.4m (2017: £nil).
Year ended 31 August 2017
Operating profit
Finance income
Finance expense
Profit before tax
Income tax expense
Profit for the year
Attributable to non-controlling interests
Attributable to owners of the Company
Earnings per share
Basic (p per share)
Diluted (p per share)
Notes
8
9
Exceptional
Adjusted cost
Statutory
£m
Administrative
costs
£m
Amortisation
of brand
£m
Underlying
£m
94.2)
1.6
(3.7)
92.1
(17.7)
74.4
0.2)
74.2)
13.8
13.8
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
2.0
-
-
2.0
(0.4)
1.6
-
1.6)
0.4
0.4
96.2)
1.6)
(3.7)
94.1
(18.1)
76.0
0.2)
75.8)
14.2
14.2
161
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
5. Profit before tax continued
Key profit related metrics, underlying operating profit margin and return on capital employed (‘ROCE’), have been reconciled below:
Underlying operating profit margin: calculated as underlying operating profit (being operating profit adding back amortisation of
brand and exceptional administrative expenses) divided by revenue.
ROCE: calculated by dividing underlying operating profit by the average of opening and closing tangible gross asset value (‘TGAV’
- calculated as tangible net asset value less net cash) in the year.
Revenue
Operating profit
Operating profit margin
Amortisation of brand
Exceptional administrative expenses
Underlying operating profit
Underlying operating profit margin
Opening net assets
Opening goodwill (note 12)
Opening intangible assets (note 13)
Opening tangible net asset value
Opening net cash (note 22)
Opening tangible gross asset value
Closing net assets
Closing goodwill (note 12)
Closing intangible assets (note 13)
Closing tangible net asset value
Closing net cash (note 22)
Closing tangible gross asset value
Average tangible gross asset value
Underlying operating profit
ROCE
Auditor’s remuneration
Fees payable to the Group’s auditor
Audit of the Company and Consolidated Financial Statements
Audit of the Company’s subsidiaries
Audit-related assurance services
Other services
2018
£m
671.6
63.5
9%
2.0
2.0
67.5
10%
745.7
(41.7)
(27.6)
676.4
(30.7)
645.7
763.4
(41.7)
(26.1)
695.6
(4.0)
691.6
668.7
67.5
10%
2018
£m
0.2)
-)
-)
-)
0.2)
2017
£m
660.9
94.2
14%
2.0
-
96.2
15%
64
698.1
(41.7)
(29.6)
626.8
(52.8)
574.0
745.7
(41.7)
(27.6)
676.4
(30.7)
645.7
609.9
96.2
16%
2017
£m
0.2)
-)
-)
-)
0.2)
Audit of the Company’s subsidiaries amounted to £30,000 (2017: £30,000). Audit-related assurance services amounted to £37,500
(2017: £35,000) in respect of a review of the half year results. Other services amounted to £1,600 (2017: £nil) in respect of room hire
at the Deloitte Academy. There were no other fees payable to the Group auditor in the year.
162
McCarthy & Stone plc
Notes to the Consolidated Financial Statements continued
6. Staff costs
Staff costs for the year include Directors’ emoluments, which are detailed within this note:
Wages and salaries1
Social security costs
Other pension costs
Share-based payments
Termination payments
2018
£m
79.8
8.4
4.1
0.8
0.9
94.0
2017
£m
76.2
8.0
2.6
0.9
0.7
88.4)
1 The 2017 wages and salaries figure has been updated in the table above following the identification of an error reflecting
a double counting of an adjustment in the preparation of this note in the prior year.
The average monthly number of persons, including Executive Directors, employed by the Group during the year was as follows:
Office management and staff
House managers
Construction staff
2018
Number
995)
1,166)
241)
2,402)
2017
Number
902)
1,024)
219)
2,145)
Staff costs include an average of 942 persons employed during the year from YourLife Management Services Limited (2017: 823),
a 50% subsidiary held by the Group.
At 31 August 2018 the Group employed 2,512 people (2017: 2,264).
Directors’ emoluments
Amounts recognised in respect of Board Directors’ emoluments:
Wages and salaries
Social security costs
Share-based payments
Other pension costs1
Termination payments
2018
£m
1.9)
0.3)
-)
0.2)
0.5)
2.9)
1 Includes salary supplements in lieu of pension
The emoluments of the highest paid Director was £1.3m (2017: £1.0m), including pension contributions of nil (2017: nil).
The number of Directors in the Company pension plan was one (2017: two).
7. Other operating income
Net rental income
Other income
Non-core business revenue
2018
£m
0.3)
9.5)
1.5)
11.3)
Other income arises on the services provided by Group subsidiaries to manage certain developments. Non-core business
revenue relates to income such as customer extras. Within net rental income, there are gross ground rents received and paid
of £5.6m (2017: £4.4m).
2017
£m
1.7
0.2
0.3
0.2
..-
)2.4
2017
£m
0.3)
7.7
0.9
8.9)
163
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
8. Finance income
Gain in fair value of shared equity receivables
Interest income received
9. Finance expense
Loan interest and overdraft fees
Promissory note interest and fees
Refinancing issue costs
Loss in fair value of shared equity receivables
2018
£m
0.3)
0.1)
0.4)
2018
£m
3.6)
0.1
0.6)
1.5)
5.8)
The total interest expense, determined using the effective interest method, for financial liabilities that are not classified as at fair
value through profit of loss was £3.0m (2017: £2.3m).
10. Income tax expense
Corporation tax charges
Current year
Adjustments in respect of prior years
Deferred tax charges
Current year
Notes
18
2018
£m
11.3
-
0.3
11.6)
2017
£m
1.5
0.1
1.6
2017
£m
3.1
0.1
0.5
-
3.7)
2017
£m
17.7)
(0.3)
0.3)
17.7)
The tax charge for each year can be reconciled to the profit before tax per the Consolidated Statement of Comprehensive Income
as follows:
Profit before tax
Tax charge at the UK corporation tax rate of 19.00% (2017: 19.58%)
Tax effect of
Expenses that are not deductible in determining taxable profit
Income not taxable in determining taxable profit
Adjustments in respect of previous periods
Share options timing difference
Other reconciling items
Tax charge for the year
2018
£m
58.1)
11.0
0.3
-
-
0.3
-
11.6)
2017
£m
92.1
18.0)
0.1
(0.1)
(0.3)
0.2
(0.2)
17.7)
The rate of corporation tax was lowered to 19% from 1 April 2017 and to 17% with effect from 1 April 2020. The UK deferred tax
liabilities at 31 August 2018 have been calculated based on the appropriate rate at which the liability will unwind.
164
McCarthy & Stone plc Notes to the Consolidated Financial Statements continued
11. Earnings per share
Basic earnings per share is calculated as the profit for the financial period attributable to owners of the Company divided by the
weighted average number of shares in issue during the period. The actual weighted average number of ordinary shares during the
full year ended 31 August 2018 was 537.3m for the basic and 538.6m for the diluted calculations, giving a statutory earnings
per share for the year ended 31 August 2018 of 8.6p for basic and 8.6p for diluted.
Profit attributable to owners of the Company (£m)
Weighted average no. of shares (m)
Basic earnings per share (p)
2018
46.2)
537.3)
8.6)
2017
74.2)
537.3)
13.8
For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume the conversion of all
potentially dilutive ordinary shares. At 31 August 2018, the Company had two categories of potentially dilutive ordinary shares:
5.8m nil cost share options under the LTIP and 4.1m 167.4p share options under the SAYE.
A calculation is done to determine the number of shares that could have been acquired at fair value based on the aggregate of
the exercise price of each share option and the fair value of future services to be supplied to the Group, which is the unamortised
share-based payments charge. The difference between the number of shares that could have been acquired at fair value and the
total number of options is used in the diluted earnings per share calculation.
Profit used to determine diluted EPS (£m)
Weighted average number of shares (m)
Adjustments for
Share options - LTIP (m)
Shares used to determine diluted EPS (m)
Diluted earnings per share (p)
12. Goodwill
Cost
At 1 September 2016 and 31 August 2017 and 2018
Carrying amount
At 1 September 2016 and 31 August 2017 and 2018
2018
46.2)
537.3)
1.3)
538.6)
8.6
2017
74.2
537.3
0.3
537.6
13.8
£m
41.7
41.7
No impairment losses have been recognised in any of the reporting periods presented herein.
Goodwill arose as a result of an acquisition in 2009 of the assets and liabilities of Monarch Realisations 1 plc. As the goodwill relates
to the business as a whole, it is allocated to the single CGU as defined in note 1. For key assumptions in determining recoverable
amounts in goodwill impairment testing, refer to note 15.
165
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
13. Intangible assets
Cost
At 1 September 2016
Additions
At 31 August 2017
Additions
At 31 August 2018
Amortisation
At 1 September 2016
Charge for the year
At 31 August 2017
Charge for the year
At 31 August 2018
Carrying amount
At 31 August 2017
At 31 August 2018
Brand
£m
41.4)
-)
41.4)
-)
41.4)
(15.3)
(2.0)
(17.3)
(2.0)
(19.3)
24.1
22.1
Software
£m
4.3)
0.4
4.7
1.1
5.8)
(0.8)
(0.4)
(1.2)
(0.6)
(1.8)
3.5)
4.0)
Total
£m
45.7
0.4
46.1
1.1
47.2)
(16.1)
(2.4)
(18.5)
(2.6)
(21.1)
27.6)
26.1
Brand assets represent the McCarthy & Stone brand name purchased as part of the business combination in 2009. Brand assets
have 10 years and 7 months of useful life remaining.
All amortisation charged is recognised in administrative expenses in the Consolidated Statement of Comprehensive Income.
14. Property, plant and equipment
Cost
At 1 September 2016
Additions
Disposals
At 31 August 2017
Additions
Disposals
At 31 August 2018
Accumulated depreciation and impairment
At 1 September 2016
Charge for the year
Eliminated on disposals
At 31 August 2017
Charge for the year
Eliminated on disposals
At 31 August 2018
Carrying amount
At 31 August 2017
At 31 August 2018
166
)
)
£m
7.2
0.7
(0.1)
7.8)
0.8)
(2.4)
6.2)
(4.3)
(1.1)
-)
(5.4)
(1.1)
2.4)
(4.1)
2.4)
2.1)
McCarthy & Stone plc
Notes to the Consolidated Financial Statements continued
15. Impairment testing
During the periods reported in the financial statements, no impairments have been recognised against the Group’s assets.
For each reported period, management have performed an impairment review of goodwill, being an indefinitely lived asset.
The Group only has one CGU, as defined in note 1.
The recoverable amount (value in use) was determined by discounting the forecast future cash flows of the CGU. Three years of
net operating cash flows were calculated using the Group’s three year business plan for FY19-21. The cash flows for FY22 reflected
additional investment in land and build compared to FY21 and were extrapolated in perpetuity assuming no growth rate in line with
the new steady state business strategy. The key assumptions for the value in use calculation were:
• Discount rate: this is a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the
business. Accordingly, the rate of 10.0% (FY17: 11.3%) is considered by the Directors to be the appropriate pre-tax risk adjusted
discount rate, being the Group’s estimated long-term pre-tax weighted average cost of capital
• Sales completion volumes: these are calculated on a site-by-site basis for the first three years dependent upon regional market
conditions, taking into account historic sales curves and expected reservation rates
• Expected changes in selling prices: these are calculated on a site-by-site basis for the first three years dependent upon regional
market conditions, pricing for existing pipeline sites and product type. Consistent with FY18, no house price inflation has been
assumed
• FRI income: this is based on the assumption that the Group will continue selling FRI during FY19-21
• Expected build costs: these are calculated on a site-by-site basis for the first three years dependent upon the expected costs of
completing all aspects of each individual development and management best estimate to deliver build cost reductions as part of
the new strategy. Build cost inflation is expected to continue at 3-4%
These assumptions are reviewed and revised annually in light of current economic conditions and the future outlook for the business.
The result of the value in use exercise concluded that the recoverable amount of the CGU exceeded its carrying value by £407.8m
and there has been no impairment to goodwill.
Management has modelled two scenarios by applying reasonably possible downsides to each of the key assumptions applied in
the value in use calculations.
Scenario 1: Management have performed a sensitivity analysis based on an increase in the pre-tax discount rate by 1% reflecting
a potential change in the market assessments of the time value of money. This sensitivity analysis showed that no goodwill
impairment would arise under this scenario.
Scenario 2: Management have performed a sensitivity analysis by combining several downsides assuming that the appropriate
steps are taken to mitigate the impact of the downsides. These were as follows:
• Based on continuing subdued secondary housing market and current reservation rates, management have applied 10.3%
volume downside in FY19 and 5.4% downside in FY20-21
• Management have applied a 7.5% downside on pricing in the South East and North London region from March 2019, reflecting
pressures in the market in these geographical regions and a 2.5% downside in all other regions in FY20 and FY21
• Additionally, management have modelled the removal of FRI income in FY20 and FY21 given the uncertainty over the long-term
sustainability of this revenue stream
• All build cost savings targeted as part of the strategic review have been removed from the model
• Management have assumed that this scenario will be mitigated by aborting uncommitted land purchases and related build costs
This sensitivity analysis showed that no goodwill impairment would arise under this scenario.
No impairment charges were recorded on items of property, plant and equipment throughout the current or prior year.
16. Inventories
Land held for development
Sites in the course of construction
Finished stock
Part-exchange properties
2018
£m
99.6)
290.3)
385.9)
41.7)
817.5
2017
£m
148.6
341.2
238.7
31.9
760.4
Days in inventory amounted to 590 days in 2018 (2017: 582 days).
Inventory days are calculated by taking year end inventory (excluding part-exchange properties) divided by cost of inventories
recognised as an expense.
167
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
17. Trade and other receivables
Trade and other receivables due in less than one year
Trade receivables
Other debtors and prepayments
Trade and other receivables due in greater than one year
Secured mortgages
Shared equity receivables
2018
£m
11.9)
10.5)
22.4)
2018
£m
2.8)
25.0)
27.8)
2017
£m
)
2.1
7.4
9.5
2017
£m
)
3.2
28.9
32.1
Secured mortgages disclosed above are classified as loans and receivables and are measured at amortised cost. Shared equity
receivables are classified as financial assets measured at fair value through profit or loss.
The Directors consider that the carrying amounts of trade and other receivables and non-current receivables approximates their
fair value.
18. Deferred tax
The following are the major deferred tax liabilities recognised by the Group:
At 1 September 2016
Statement of Comprehensive Income charge
At 31 August 2017
Statement of Comprehensive Income charge
At 31 August 2018
Other
temporary
differences
£m
(1.5)
(0.3)
(1.8)
(0.3)
(2.1)
Total
£m
(1.5)
(0.3)
(1.8)
(0.3)
(2.1)
The movement in other temporary differences mostly relate to tax and accounting differences in the treatment of share-based
payments.
Deferred tax assets of £0.1m (2017: £0.1m) in relation to capital losses carried forward of £0.3m (2017: £0.3m) were not recognised
as, despite there being no expiry date for these losses, there is insufficient evidence that they will ever be utilised.
19. Trade and other payables
Trade payables
Other taxes and social security costs
Accrued expenses
Other creditors and deferred income
2018
£m
25.9
2.1
58.0
28.9
114.9)
2017
£m
22 22.7)
1.9)
42.6)
18.2)
85.4)
Trade payables and accrued expenses principally comprise amounts outstanding for trade purchases and ongoing costs.
The average credit period taken for trade purchases was 18 days during 2018 (2017: 20 days).
No material interest costs have been incurred in relation to such payables. The Group policy is to ensure that payables are paid
within the pre-agreed credit terms and to avoid incurring penalties and/or interest on late payments. Other creditors include sales
taxes, property taxes and customer deposits. The Directors consider that the carrying amount of trade payables approximates their
fair value.
No trade payables are purchased on extended payment terms.
168
McCarthy & Stone plc
Notes to the Consolidated Financial Statements continued
20. Land payables
Land payables
2018
£m
56.9)
2017
£m
)67.4)
Land payables relate to payments due in respect of land which has been purchased under an unconditional contract.
21. Borrowings
Long-term borrowings
Loans (Revolving Credit Facility)
Unamortised issue costs
Promissory notes
Revolving Credit Facility
2018
£m
43.0)
(1.6)
10.0)
51.4)
2017
£m
22 10.0)
(2.0)
-)
8.0)
Outstanding at 31 August
2018
£m
43.0)
2017
£m
10.0)
Maturity
May 2021
The Group has in place a Revolving Credit Facility (‘RCF’) which during the year has been extended from £200m to £250m for a
period of 12 months from February 2018 and matures in May 2021.
The RCF imposes financial covenants which test the Group’s ‘interest cover’, ‘net tangible assets’ and ‘gearing’ all of which the
Group is compliant with.
The nominal interest rate of the £250m RCF is 1, 3 or 6 month LIBOR + 1.6% (2017: 1, 3 or 6 month LIBOR + 1.6%) depending on
the length of the drawdown. As at 31 August 2018, £43.0m (2017: £10.0m) was drawn. The RCF is secured by a floating charge
over the assets of McCarthy & Stone plc, McCarthy & Stone Retirement Lifestyles Limited, McCarthy & Stone (Developments)
Limited, McCarthy & Stone (Extra Care Living) Limited and McCarthy & Stone Total Care Management Limited.
A reconciliation of liabilities arising from financing activities has been detailed below:
Long-term borrowings
Loans
Unamortised issue costs
Short-term borrowings
Promissory notes
Total liabilities from
financing activities
2017
£m
Cash flow
Non-cash changes
At 1 September 2016
Net cash flow
issue costs
promissory notes
At 31 August 2017
Amortisation of
Issue of
55.0
(2.5)
11.3
63.8)
(45.0)
-
(11.3)
(56.3)
-
0.5
-
0.5
2018
£m
-
-
-
-
10.0)
(2.0)
-)
8.0
Cash flow
Non-cash changes
At 1 September 2017
Net cash flow
issue costs
promissory notes
At 31 August 2018
Amortisation of
Issue of
Long-term borrowings
Loans
Unamortised issue costs
Promissory notes
Total liabilities from
financing activities
10.0
(2.0)
-
8.0
33.0
-
-
33.0
-
0.4
-
0.4
-
-
10.0
10.0
43.0)
(1.6)
10.0)
51.4)
169
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
22. Net cash
Loans and borrowings
Add back unamortised issue costs
Cash and cash equivalents
Net cash
Add back land-related promissory notes
Net cash excluding land-related promissory notes
2018
£m
51.4)
1.6)
(57.0)
(4.0)
(10.0)
(14.0)
2017
£m
22 8.0)
2.0)
(40.7)
22 (30.7)
-)
22 (30.7)
Net cash is a non-GAAP measure and is calculated as cash and cash equivalents less long-term and short-term borrowings
(excluding unamortised debt issue costs and land-related promissory notes).
23. Share capital
The Company has one class of ordinary shares which carry no right to fixed income. There is no limit to authorised share capital.
Allotted and issued ordinary shares
8p each fully paid: 537,329,434 ordinary shares (2017: 537,329,434)
Allotment of shares during the year
At 1 September
Issuance to satisfy early exercises under the SAYE
At 31 August
Dividends on equity shares
2018
£m
43.0)
2018
Number
’000
2017
£m
22 43.0)
2017
Number
’000
537,329)
-)
22 537,314)
15)
537,329)
22 537,329)
The interim dividend of 1.9p (2017: 1.8p) was approved by the Board on 10 April 2018 and paid on 8 June 2018 to all ordinary
shareholders on the register of members at the close of business on Friday 4 May 2018. The ex-dividend date was 3 May 2018.
The final dividend proposed by the Board is 3.5p (2017: 3.6p) per share resulting in a total ordinary dividend for the year of 5.4p
(2017: 5.4p). It will be paid on 1 February 2019 to those shareholders who are on the register at 4 January 2019 subject to approval
at the Company’s Annual General Meeting. The ex-dividend date is 3 January 2019. These financial statements do not reflect the
final dividend payment.
The cost of the dividends paid within the financial year amounted to £29.6m (2017: £28.5m).
24. Operating lease arrangements
Minimum lease payments under operating leases recognised as an expense during the year
2018
£m
4.3)
2017
£m
22 3.9)
At year end the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases,
which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
Outstanding commitments for future minimum lease payments
2018
£m
4.2
5.5
1.0
10.7
2017
£m
22 4.3
6.9
1.1
22 12.3
Operating lease payments typically represent rentals payable by the Group for its office properties and cars. Rent reviews and
break clauses apply to leased property agreements.
170
McCarthy & Stone plc
Notes to the Consolidated Financial Statements continued
25. Notes to the cash flow statement
Profit for the financial year
Adjustments for
Income tax expense
Amortisation of intangible assets
Share-based payments charge
Depreciation of property, plant and equipment
Finance expense
Finance income
Operating cash flows before movements in working capital
(Increase)/decrease in trade and other receivables
Increase in inventories
Increase in trade and other payables
Cash generated by operations
Interest received
Interest paid
Income taxes paid
Net cash flow from operating activities
Cash and cash equivalents
Cash and bank balances
Notes
10
13
28
14
9
8
2018
£m
46.5)
11.6)
2.6)
0.8)
1.1)
5.8)
(0.4)
68.0
(9.8)
(47.1)
19.1)
30.2
0.1)
(4.0)
(11.5)
14.8
Restated
2017
£m
74.4)
17.7)
2.4)
0.9)
1.1)
3.7)
(1.6)
98.6)
0.1)
(74.6)
5.4)
29.5)
0.1)
(2.9)
(19.2)
7.5)
57.0
40.7)
Prior year comparatives have been restated whereby the repayment of £11.3m of promissory notes, which are classified as
borrowings in the balance sheet, has been reclassified. Previously the repayment was classified as an operating cash flow.
The restatement arose following an enquiry by the Financial Reporting Council as a result of which the Group concluded that,
in order to comply with IAS 7 ‘Statement of Cash Flows’, these movement should be classified as financing activities.
The review conducted by the FRC was based solely on the Group’s published Annual Report and does not provide any assurance
that the report and financial statements are correct in all material respects.
Cash and cash equivalents comprise cash and bank balances and short-term bank deposits with an original maturity of three
months or less, net of outstanding bank overdrafts.
The increase in trade and other payables includes the movement in land payables.
26. Retirement benefit schemes
The Group operates a defined contribution retirement benefit scheme which is open to all employees.
Other than amounts that are deducted from employees’ remuneration and accrued pending payment to the benefit scheme, no
further obligations fall on the Group as the assets of these arrangements are held and managed by third parties entirely separate
from the Group.
The benefit scheme charge for the period represents contributions payable to the benefit scheme and amounted to £4.1m for
the year ended 31 August 2018 (2017: £2.6m). Unpaid contributions amounted to £0.4m as at 31 August 2018 (2017: £0.3m).
171
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
27. Financial risk management
The Group’s financial instruments comprise cash, bank loans and overdrafts, trade receivables, other financial assets and trade and
other payables.
Categories of financial instruments
Financial assets
Fair value through profit or loss
Shared equity receivables
Loans and receivables
Cash and cash equivalents
Trade and other receivables
Secured mortgages
Financial liabilities
Other financial liabilities
Trade and other payables
Land payables
Loans
Land-related promissory notes
Capital risk management
2018
£m
25.0
57.0
13.3
2.8
98.1
89.5
56.9
41.4
10.0
197.8
2017
£m
28.9
40.7
2.7
3.2
75.5
77.2
67.4
8.0
-
152.6
The Group manages its capital (being debt, cash and cash equivalents and equity) to ensure entities within the Group have a strong
capital base in order to continue as going concerns, to maintain investor and creditor confidence and to provide a basis for the
future development of the business while maximising the return to stakeholders.
The RCF imposes financial covenants, which is normal for such agreements, all of which the Group is compliant with. The Group
manages a robust internal forecasting and review process to ensure it operates within these capital requirements.
The Group does not routinely make additional issues of capital, other than for the purpose of raising finance for the management
of the cost of capital of the Group or to fund significant developments designed to grow value in future.
Share-based payment schemes allow senior employees of the Group to participate in the ownership of the Group in order to
ensure the senior employees are focused on growing the value of the Group to achieve the aims of all shareholders.
Financial risk management
The Group’s finance function is responsible for all aspects of corporate treasury. It co-ordinates access to financial markets and
monitors and manages the financial risks relating to the operations of the Group through internal reports which analyse exposures
by degree and magnitude. The risks reviewed include market risk (including currency risk, fair value interest rate risk and price risk),
credit risk, liquidity risk and cash flow interest rate risk.
Housing market risk management
The Group’s activities expose it primarily to macroeconomic risks such as deflation and the cyclical nature of UK property prices.
A deterioration in the economic outlook could have a significant impact on the Group’s financial performance and the Group has
the following procedures which mitigate its market-related operational risk:
• The Group closely monitors industry indicators and assesses the potential impact of different economic scenarios
• Decisions to allocate new capital to land and build are managed centrally through the Group Investment Committee,
membership of which includes the Chief Executive Officer, the Chief Financial Officer and the Land & Planning Director
• The Group aims to maintain a geographical and product spread of developments to ensure that it is not reliant on one particular
location, development or product
• The Group undertakes a weekly review of sales, reservations and incentives at regional and Group level
172
McCarthy & Stone plc Notes to the Consolidated Financial Statements continued
27. Financial risk management continued
The value of the Group’s house price linked financial assets is sensitive to UK house prices since the amount repayable is
dependent upon the market price of the property to which the asset is linked. At 31 August 2018 if UK house prices were 1% lower
for a one-year period and all other variables were held constant, the Group’s house price linked financial assets would decrease in
value, excluding the effects of tax, by £1.7m (2017: £2.1m) with a corresponding reduction in both the result for the year and equity.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group has a low exposure to credit risk due to the nature and legal framework of the UK housing industry.
In certain circumstances the Group offers sales incentives resulting in a long-term debt being recognised under which the Group
will receive a proportion of the resale proceeds of an apartment. The Group’s equity share is protected by a registered entry on the
title and usually represents the first interest in the property. A reduction in property values leads to an increase in the credit risk of
the Group in respect of such sales.
The credit risk relating to shared equity receivables is deemed immaterial as the value is recovered though subsequent disposal of
the related asset. As a result, management consider the credit quality of these receivables to be good in respect of the amounts
outstanding, resulting in low credit risk. Exposure to house price sensitivity is built into the fair value calculation.
The Group does not have any significant credit risk exposure to any single counterparty or group of counterparties having similar
characteristics. The Group defines counterparties as having similar characteristics if they are related entities. There is no material
concentration of credit risk in respect of one individual customer.
The carrying amount recorded for financial assets in the financial statements is net of impairment losses and represents the
Group’s maximum exposure to credit risk. No guarantees have been given in respect to third parties.
Liquidity risk management
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. The Group’s
strategy in relation to managing liquidity risk is to ensure that the Group has sufficient cash flow liquid funds to meet all its potential
liabilities as they fall due. The Group produces cash flow forecasts to monitor the expected requirements of the Group against the
available facilities. The principal risks with these cash flows relate to achieving the level of sales volumes and prices in line with
current forecasts.
The maturity of the financial liabilities of the Group at 31 August 2017 and 2018 are as follows:
Loans (net of borrowing costs)
Financial liabilities carrying no interest
Total
Loans (net of borrowing costs)
Other financial liabilities carrying interest
Financial liabilities carrying no interest
Total
2017
Carrying
value £m
Contractual
cash flows £m
Within 1 year
£m
1-5 years
£m
8.0
144.6
152.6
15.2)
144.6)
159.8)
2018
1.4
144.6
146.0
13.8
-
13.8)
Carrying
value £m
Contractual
cash flows £m
Within 1 year
£m
1-5 years
£m
41.4
10.0
146.4
197.8
48.7)
10.3)
146.4)
205.4
2.2)
0.2
146.4
148.8
46.5
10.1
-
56.6
Other financial liabilities carrying interest are promissory notes, which attract avalisation and discount fees. Financial liabilities
carrying no interest are trade and other payables and land payables. The timing and amount of future cash flows given in the table
above is based on the year end position.
173
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
27. Financial risk management continued
Interest rate risk management
Interest rate risk reflects the Group’s exposure to fluctuations to interest rates in the market. The risk arises because the Group’s
RCF is subject to floating interest rates based on LIBOR.
In the year ended 31 August 2018, if UK interest rates had been 0.5% higher or lower, as this is a reasonably possible change, and
all other variances were held constant, the Group’s pre-tax profit would decrease/increase by £0.7m (2017: £0.5m). Calculations
have been based on borrowing values at each month end.
Fair value of financial instruments
Valuation techniques and assumptions applied for the purposes of measuring fair value
Fair value of financial instruments carried at amortised cost
The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the
financial statements approximate their fair values.
Bank and other loans
Fair value is calculated based on discounted expected future principal and interest flows.
174
McCarthy & Stone plc Notes to the Consolidated Financial Statements continued
27. Financial risk management continued
Fair value measurements recognised in the Consolidated Statement of Financial Position
All financial instruments are grouped into Levels 1 to 3 based on the degree to which their fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets
or liabilities
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs)
The financial instruments held by the Group that are measured at fair value are the shared equity receivables which are measured
at fair value through profit or loss using methods associated with Level 3. At the year ended 31 August 2018, these were valued at
£25.0m (2017: £28.9m).
Financial assets are recorded at fair value, being the estimated amount receivable by the Group, discounted to present day values.
The fair value of future anticipated cash receipts takes into account the Directors’ views of an appropriate discount rate, a new
build premium, future house price movements and the expected timing of receipts. These assumptions cover a variety of different
schemes and the range of assumptions used are stated below. The assumptions are reviewed at each period end.
Assumptions
Discount rate
New build premium
House price inflation
Timing of receipt
2018
2017
3.8 to 4.4%)
0 to 5%)
0 to 6%1)
5 to 11 yrs)
3.8 to 4.4%)
0 to 5%)
0 to 5.75%)
5 to 14 yrs)
1 We apply future HPI over the next five years based on industry forecasts. The 2019 HPI used in the calculation varies between
2.5 - 3.5% dependent upon geographical location.
Sensitivity-effect on value of other financial assets (less)/more
Discount rate
New build premium
House price inflation
Timing of receipt
2018
Increase
assumptions
by 1%/1 year
£m
2018
Decrease
assumptions
by 1%/1 year
£m
(2.0)
(0.2)
1.9
(0.4)
2.2
0.2
(1.7)
0.4
The fair value of the shared equity receivable is based on the external available data. The sensitivity-effect of a 1%/1 year change
is representative of our best estimate of a reasonably possible change based on management’s expectations of changes in
economic conditions.
The Directors review the anticipated future cash receipts from the assets at each reporting date and the difference between the
anticipated future receipt and the initial fair value is credited to finance income/expense.
175
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
27. Financial risk management continued
The following tables present the changes in Level 3 instruments for the years ended 31 August 2017 and 2018:
Opening balance
Additions
Disposals
Revaluation gains recognised in the statement of comprehensive income
Closing balance
Opening balance
Additions
Disposals
Revaluation gains and (losses) recognised in the statement of comprehensive income
Closing balance
2017
Shared
equity
receivables
£m
29.3)
0.8)
(2.7)
1.5)
28.9)
2018
Shared
equity
receivables
£m
28.9)
-)
(2.7)
(1.2)
25.0)
176
McCarthy & Stone plc Notes to the Consolidated Financial Statements continued
28. Share-based payments
Equity-settled share-based payment plans
The Group operates three share-based payment schemes as set out below:
Long Term Incentive Plan (‘LTIP’)
The Group’s LTIP is open to key management at the discretion of the Board. Awards under the scheme are granted in the form of
nil-priced share options. LTIP awards will normally vest, and LTIP options become exercisable, on the third anniversary of the date
of the grant of the LTIP award to the extent that any applicable performance conditions have been satisfied. LTIP options will remain
exercisable for ten years after the date of the grant. Awards are to be settled by the issue of new shares or acquisition of shares in
the market. The performance conditions for the LTIP grants are earnings per share (‘EPS’), comparative total shareholder return
(‘TSR’) and return on capital employed (‘ROCE’). The EPS and ROCE performance conditions are priced using the Black-Scholes
model. The TSR performance condition is a market-based condition. In order to value the TSR performance conditions against the
FTSE 250 and peer group, a Monte Carlo simulation model is required which can simulate correlation between companies.
LTIP
FY18 LTIP
FY17 LTIP
FY16 LTIP
Total
Date of grant
Options granted
Fair value at measurement date* (£)
Share price on date of grant (£)
Exercise price (£)
Vesting period
Expected dividend yield
Expected volatility
Risk free interest rate
Valuation model
Movements in the year:
Options at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Expired in the year
Options at the end of the year
Exercisable at end of the year
17 November 2017
1,916,777
1.49
1.65
-
3 years
n/a
40.00%
0.82% p.a.
Black-Scholes
and Monte Carlo
21 December 2016
1,933,352
1.32
1.56
-
3 years
n/a
29.21%
0.23% p.a.
Black-Scholes
and Monte Carlo
25 November 2015
1,930,524
2.12
2.32
-
3 years
n/a
26.07%
0.80% p.a.
Black-Scholes
and Monte Carlo
-
1,916,777
-
(43,232)
-
1,873,545
-
1,876,209
-
-
(153,449)
-
1,722,760
-
1,508,310
-
-
(183,330)
-
3,384,519)
1,916,777)
-)
(380,011)
-)
1,324,980
4,921,285)
-
-)
* This is the average fair value for the three tranches of the LTIP scheme
For the FY16 LTIP and FY17 LTIP, due to the fact that there was limited share price history for McCarthy & Stone, the Company’s
share price volatility was estimated as an average of the volatilities of the FTSE 250 over a historic period commensurate with the
expected life of each award immediately prior to the date of grant.
For the FY18 LTIP, there is now sufficient share price history for McCarthy & Stone and therefore the expected volatility uses the
Company’s share price volatility between the date of listing (5 November 2015) and the date of grant.
177
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Consolidated Financial Statements continued
28. Share-based payments continued
Sharesave Plan (‘SAYE’)
The SAYE Plan is an all-employee savings related share option plan. Employees are invited to make regular monthly contributions to
a SAYE scheme operated by Link Asset Services. On completion of the contract period (three or five years) employees are able to
purchase ordinary shares in the Company based on the average closing middle market price over the three days prior to the award,
less 20% discount. There are no performance conditions.
SAYE
Date of grant
Options granted
Fair value at measurement date (£)
Share price on date of grant (£)
Exercise price (£)
Vesting period
Expected dividend yield
Expected volatility
Risk free interest rate
Valuation model
Movements in the year:
Options at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Expired in the year
Options at the end of the year
Exercisable at end of the year
Total
10 December 2015
2,912,247
0.68
2.34
1.674
3 years
26.20%
26.07%
0.8% p.a.
Black-Scholes
10 December 2015
1,197,514
0.75
2.34
1.674
5 years
28.16%
26.07%
1.2% p.a.
Black-Scholes
1,897,215
-
-
(604,774)
-
1,292,441
-
926,846
-
-
(229,203)
-
2,824,061)
-)
-)
(833,977)
-)
697,643
1,990,084)
-
-)
Expected volatility was determined by calculating the average historical volatility over a period commensurate with the expected life
of the savings term for the SAYE options, based on the FTSE 250.
Share Incentive Plan (‘SIP’)
The SIP allows all employees to purchase shares each month from pre-tax pay, which are then held in trust. These shares can be
sold or taken from the SIP or be left within the trust for as long as the plan remains open. All plan shares and any other assets held
by the trustees will be held upon trust for the participants; there is therefore no impact to the Group’s financial statements in respect
of this plan.
Annual and Deferred Bonus Plan (‘ABP’)
The ABP incorporates the Company’s executive bonus scheme as well as a mechanism for the deferral of bonus into awards
over ordinary shares. The Committee can determine that part of the bonus under the ABP is provided as an award of deferred
shares, which takes the form of a £nil cost option. All employees (including the Executive Directors) of the Group are eligible to
participate in the ABP at the discretion of the Board. At 31 August 2018 three Executive Directors were participating in the scheme.
For the year ended 31 August 2018, one-third of the bonus earned by the previous CEO and 100% of the bonus earned by the
CFO and the newly appointed CEO in the financial year, totalling £0.2m (2017: £0.1m), will be deferred in the form of deferred shares
for three years, during which no performance conditions will apply. The amount deferred will be recognised over the three year
deferral period.
Total share-based payment schemes
Analysis of the income charge:
Equity-settled share-based payments
SAYE
LTIP
178
2018
£m
0.8)
-)
0.8)
2017
£m
0.5
0.4
0.9
McCarthy & Stone plc
Notes to the Consolidated Financial Statements continued
29. Related undertakings
The entities listed below are subsidiaries or joint ventures of the Company or Group in accordance with section 409 of the
Companies Act 2006. All entities, unless noted below, are registered in England and Wales with a registered address of:
4th Floor, 100 Holdenhurst Road, Bournemouth, Dorset, BH8 8AQ.
Name
Notes
Company
number
Principal activity
2018
% of shares
owned
2017
% of shares
owned
McCarthy & Stone (Developments) Limited
McCarthy & Stone Retirement Lifestyles Limited
McCarthy & Stone (Equity Interests) Limited
McCarthy & Stone (Home Equity Interests) Limited
McCarthy & Stone Investment Properties No. 23 Limited
McCarthy & Stone (Total Care Living) Limited
McCarthy & Stone (Alnwick) Limited
McCarthy & Stone (Extra Care Living) Limited
McCarthy & Stone Total Care Management Limited
McCarthy & Stone Rental Interests No. 1 Limited
McCarthy & Stone Management Services Limited
McCarthy & Stone Lifestyle Services Limited
McCarthy & Stone Financial Services Limited
Keyworker Properties Limited
McCarthy & Stone Estates Limited
YourLife Management Services Limited
McCarthy & Stone Properties Limited
The Planning Bureau Limited
Ortus Homes Limited
McCarthy & Stone Resales Limited
Linden Court Limited
Kindle Housing (Christchurch) Limited
Kindle Housing (Exeter) Limited
Kindle Housing (Worthing) Limited
Kindle Housing Limited
Advantage Apartments Limited
Advantage Housing Limited
Advantage Homes Limited
1
1
1
1
1
1
1
5
1, 2
1, 2
1, 2
1
4
3, 5
3, 5
3, 5
3, 5
2, 3, 5
2, 3, 5
2, 3, 5
06622183
06622231
05663330
05984851
06496130
06069509
07517819
06897363
06897301
06897272
07166051
07165986
07798214
04213618
07165952
07153519
01925738
02207050
08658235
10716544
04322139
04737739
05692813
04239574
04088162
03697251
03697230
03697079
Holding company
Developer
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Property investment
Development management
Holding company
Financial services
Dormant
Dormant
Development management
Dormant
Dormant
Dormant
Property resales
Dormant
Affordable housing rental
Affordable housing rental
Affordable housing rental
Affordable housing management
Dormant
Dormant
Dormant
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
n/a
50
50
50
50
50
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
100
100
100
100
100
50
50
50
50
50
50
50
1 These subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the
year ended 31 August 2018
2 These subsidiaries are considered dormant for the year ended 31 August 2018 and have taken advantage of the section
394A exemption from preparing individual financial statements
3 These subsidiaries are registered at Cosmopolitan House, Old Fore Street, Sidmouth, Devon, EX10 8LS
4 This subsidiary has been dissolved during the financial year
5 These entities are joint ventures
McCarthy & Stone (Developments) Limited is directly owned by the Company. All other subsidiaries and joint ventures are
indirectly owned by McCarthy & Stone plc.
Each of the shareholdings gives the immediate parent company 100% voting rights unless stated above. YourLife Management
Services Limited provides the parent with 50% of the voting rights, but also has the power to appoint the majority of the
Directors. Accordingly, this gives the Group power over the relevant activities of this entity.
All shares above are classified as ‘ordinary’.
179
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
30. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions between the Group and other related parties are disclosed below.
Remuneration of key management personnel
The key management personnel are the Board and the Executive Board, including Non-Executive Directors. The remuneration
that they have received during the year is set out below in aggregate for each of the categories specified in IAS 24 ‘Related
Party Disclosures’.
Short-term employee benefits
Social security costs
Share-based payments
Pension contributions
Termination payments
Aggregate emoluments of the highest paid director
2018
£m
2.8
0.4
-
0.4
0.5)
4.1)
1.3)
2017
£m
2.7
0.4
0.4
0.3
--
)3.8
1.0
31. Events after the balance sheet date
The following events after the reporting period required disclosure in the financial statements:
On 25 September 2018 the Group announced its new business strategy aimed at improving margins, rightsizing the operational
cost base and evolving the business model to meet the changing needs of our customers. Total exceptional costs of c.£25.0m
are expected across the life of the business transformation programme, with £2.0m already incurred in FY18. The majority of
the exceptional costs are expected to come through in the first half of FY19, representing the cost of land that will no longer be
developed, redundancy costs and further consultants’ fees.
There were no events after the reporting period that required adjustment in the FY18 financial statements.
180
McCarthy & Stone plc
Notes to the Consolidated Financial Statements continued
Company Statement
of Financial Position
As at 31 August 2018
Assets
Non-current assets
Investments in subsidiaries
Total non-current assets
Current assets
Trade and other receivables
UK corporation tax
Total current assets
Total assets
Equity and liabilities
Capital and reserves
Share capital
Share premium
Retained earnings
Equity attributable to owners of the Company
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2018
£m
2017
£m
4
5
6
439.4)
439.4)
50.0
-
50.0
489.4)
43.0)
101.6)
337.8)
482.4
7.0)
7.0)
7.0)
439.4)
439.4)
77.3)
0.6)
77.9)
517.3)
43.0)
101.6)
367.4)
512.0)
5.3)
5.3)
5.3)
489.4)
517.3)
Notes 1 to 10 form part of the financial statements shown above.
The Company has elected to take exemption s408 of the Companies Act 2006 not to present the Company Statement of
Comprehensive Income. The Company recorded a loss for the year of £0.8m (2017: profit of £0.7m).
These financial statements of McCarthy & Stone plc (06622199) were approved by the Board on 12 November 2018 and signed
on its behalf by:
John Tonkiss
Chief Executive Officer
Rowan Baker
Chief Financial Officer
181
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Company Statement
of Changes in Equity
For the year ended at 31 August 2018
Balance at 1 September 2016
Profit for the year
Total comprehensive income for the year
Transactions with owners of the Company:
Share based payments
Dividends
Share issue related costs - tax credit
Balance at 31 August 2017
Loss for the year
Total comprehensive loss for the year
Transactions with owners of the Company:
Share based payments
Dividends
Share
capital
£m
43.0
Share
premium
£m
100.8
Retained
earnings
£m
394.3)
-
-
-
-
-
-
-
-
-
0.8
43.0
101.6
-
-
-
-
-
-
-
-
Total
£m
538.1
0.7
0.7
0.9
(28.5)
0.8
512.0
(0.8)
(0.8)
0.8
(29.6)
482.4
0.7
0.7)
0.9)
(28.5)
-)
367.4
(0.8)
(0.8)
0.8
(29.6)
337.8
Balance at 31 August 2018
43.0
101.6
Notes 1 to 10 form part of the financial statements shown above.
182
McCarthy & Stone plc Notes to the Company
Financial Statements
1. Accounting policies
McCarthy & Stone plc is a public Company limited by shares incorporated in England and Wales. The Registered Office is 4th Floor,
100 Holdenhurst Road, Bournemouth, Dorset, BH8 8AQ. The following accounting policies have been applied consistently in
dealing with the items that are considered material in relation to the financial statements, on an ongoing basis and in accordance
with the Companies Act 2006.
Basis of preparation
The separate Company financial statements have been prepared under the historical cost accounting rules and in accordance
with FRS 102, The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland.
The Company is exempt from the requirement to present its own Statement of Comprehensive Income. The Company recorded
a loss for the year of £0.8m (2017: profit of £0.7m).
As permitted by FRS 102, the Company has taken advantage of the disclosure exemptions available in relation to presentation of
a Cash Flow Statement, standards not yet effective and related party transactions.
The principal accounting policies adopted are set out below.
Investments in subsidiaries
Investments in Group undertakings are included in the Statement of Financial Position at cost less any provision for impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less, net of
outstanding bank overdrafts.
Share-based payments
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are
granted and is recognised as an expense over the vesting period. In valuing equity-settled transactions, no account is taken of any
non-market-based vesting conditions and no expense is recognised for awards that do not ultimately vest as a result of a failure to
satisfy a non-market-based vesting condition.
Further details regarding the schemes are set out in note 28 to the consolidated financial statements.
Dividend distribution
Dividend distributions to McCarthy & Stone plc’s shareholders are recognised in the Company’s financial statements in the periods
in which the final dividends are approved at the Annual General Meeting, or when paid in the case of an interim dividend.
Financial instruments
Financial assets and financial liabilities are recognised in the Company’s Statement of Financial Position when the Company
becomes a party to the contractual provisions of the instrument.
Financial assets
All financial assets are normally recognised and derecognised on the date that an agreement has been entered into where
the purchase or sale of a financial asset is under a contract. They are initially measured at fair value, plus transaction costs,
except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
Financial assets are classified as ‘loans and receivables’. The classification depends on the nature and purpose of the financial
assets and is determined at the time of initial recognition.
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active
market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective
interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for
short-term receivables when the recognition of interest would be immaterial.
183
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Company Financial Statements continued
1. Accounting policies continued
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of
the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities are classified as ‘other financial liabilities’.
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense
over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Related parties
The Company discloses transactions with related parties which are not wholly owned within the same Group. Where appropriate,
transactions of a similar nature are aggregated unless, in the opinion of the Directors, separate disclosure is necessary to understand
the effect of the transactions on the financial statements.
2. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 1, the Directors are required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying 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 the revision and future
periods if the revision affects both current and future periods.
There are no specific critical judgements or key assumptions the Company makes about the future, or other major sources of
estimation uncertainty at the end of the reporting period, that are deemed to have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities at the year end and within the next financial period.
3. Staff costs
The Company had no employees during the period covered by these financial statements (2017: no employees). A management fee
relating to time incurred by Directors for Group activities is recharged to McCarthy & Stone plc.
184
McCarthy & Stone plc Notes to the Company Financial Statements continued
4. Investment in subsidiaries
Cost
Opening
Additions
Closing
Net book value
2018
£m
439.4)
-)
439.4)
439.4)
2017
£m
439.4)
-)
439.4)
439.4)
Investment in subsidiary undertakings relate to a 100% ownership interest in McCarthy & Stone (Developments) Limited.
The Group’s subsidiary undertakings are listed in note 29 to the consolidated financial statements.
5. Trade and other receivables
Amounts falling due within one year:
Amounts owed by subsidiary undertakings
2018
£m
50.0
50.0
Amounts repayable from McCarthy & Stone Retirement Lifestyles Limited are repayable on demand and carry interest of 2.2%
(2017: 2.2%) at the year end date.
6. Trade and other payables
Amounts falling due within one year:
Amounts owed to subsidiary undertakings
Other creditors and deferred income
2018
£m
5.9
1.1
7.0
2017
£m
)
77.3)
77.3)
2017
£m
)
5.3)
-)
5.3)
Amounts payable to McCarthy & Stone (Developments) Limited are repayable on demand and carry interest of 2.2% (2017: 2.2%)
at the year end date.
7. Share capital
The Company has one class of ordinary shares which carry no right to fixed income. There is no limit to authorised share capital.
Allotted and issued ordinary shares
8p each fully paid: 537,329,434 ordinary shares (2017: 537,329,434)
Allotment of shares during the year
At 1 September
Issuance to satisfy early exercises under Sharesave plan
At 31 August
Dividends on equity shares
2018
£m
43.0)
2018
Number
’000
2017
£m
22 43.0)
2017
Number
’000
537,329)
-))
22 537,314)
15)
537,329)
22 537,329)
The interim dividend of 1.9p (2017: 1.8p) was approved by the Board on 10 April 2018 and paid on 8 June 2018 to all ordinary
shareholders on the register of members at the close of business on Friday 4 May 2018. The ex-dividend date was 3 May 2018.
The final dividend proposed by the Board is 3.5p (2017: 3.6p) per share resulting in a total ordinary dividend for the year of 5.4p
(2017: 5.4p). It will be paid on 1 February 2019 to those shareholders who are on the register at 4 January 2019 subject to approval
at the Company’s Annual General Meeting. The ex-dividend date is 3 January 2019. These financial statements do not reflect the
final dividend payment.
185
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes to the Company Financial Statements continued
8. Financial instruments
The Company has the following financial instruments:
Financial assets
Loans and receivables measured at amortised cost:
Trade and other receivables
Cash and bank balances
Financial liabilities
Loans and payables measured at amortised cost:
Trade and other payables
2018
£m
50.0)
-)
50.0)
7.0)
7.0)
2017
£m
)
77.3)
-)
77.3)
)
5.3)
5.3)
The Company has no derivative financial instruments. The fair value of the financial instruments is equal to their carrying values.
9. Related party transactions
The Company is exempt from disclosing related party transactions with other companies that are wholly owned within the Group,
under FRS 102 33.1A. See note 30 to the consolidated financial statements.
Remuneration to key management personnel has been disclosed within note 30 to the consolidated financial statements.
10. Events after the balance sheet date
Events after the balance sheet date have been disclosed within note 31 to the consolidated financial statements.
186
McCarthy & Stone plc
Notes to the Company Financial Statements continued
187
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Warning to Shareholders
Share, bond and boiler room scams
The Financial Conduct Authority (‘FCA’) advises that share and
bond scams are often run from ‘boiler rooms’ where fraudsters
cold-call investors offering them worthless, overpriced or even
non-existent shares or bonds. Boiler rooms use increasingly
sophisticated tactics to approach investors, offering to buy or
sell shares in a way that will bring a huge return. But victims are
often left out of pocket - sometimes losing all of their savings
or even their family home. Even seasoned investors have been
caught out, with the biggest individual loss recorded by the
police being £6m.
How share and bond scams work
Share and bond fraud usually comes out of the blue,
with scammers cold-calling investors after taking their
phone number from publicly available shareholder lists.
The high-pressure sales tactics can also come by email,
post, word of mouth or at a seminar. These scams are
sometimes advertised in newspapers, magazines or online
as genuine investment opportunities. They may even offer
a free research report into a company, or a free gift or
discount on their dealing charges. You will often be told that
you need to make a quick decision or miss out on the deal.
The scammers might also try to sell you shares or bonds in
a company that doesn’t exist. If you already own shares in a
company, you may receive a call from someone offering to
buy them at a higher price than their market value. The scam
will request the money upfront as a bond or other form of
security, which they say they’ll pay back if the sale doesn’t
go ahead - but you’ll never hear from them again.
Beware of clone firms
Many bogus trading and brokerage firms will use the name,
‘firm registration number’ (‘FRN’) and address of firms and
individuals who are FCA authorised. This is called a ‘clone firm’.
The scammers then give their own phone number, address
and website details, sometimes claiming that a firm’s contact
details on the Register are out of date. Scammers might also
claim to be an overseas firm, which don’t always have their full
contact and website details listed on the Register. Scammers
may even copy the website of an authorised firm, making
subtle changes such as the phone number.
How to protect yourself
FCA-authorised firms are unlikely to contact you out of
the blue with an offer to buy or sell shares or bonds.
You should only deal with financial services firms that are
authorised by the FCA and check the FCA register to ensure
they are. You can also check the FCA Warning List of firms
to avoid at: www.scamsmart.fca.org.uk/warninglist/
You should check the firm isn’t a clone firm by asking for
their firm reference number (‘FRN’) and contact details and
then calling them back on the switchboard number on the
Register - never use a link in an email or website from the
firm offering you an investment. Always be wary if you’re
contacted out of the blue, pressured to invest quickly or
promised returns that sound too good to be true.
You should seriously consider seeking financial advice or
guidance before investing. You should make sure that any
firm you deal with is regulated by the FCA and never take
investment advice from the company that contacted you,
as this may be part of the scam. The Money Advice Service
has information on investing and about how to find a financial
adviser at: www.moneyadviceservice.org.uk/en/articles/
choosing-a-financial-adviser#how-to-find-a-financial-
adviser. Alternatively, you could get further information from
a group that represents advisers such as The Personal
Investment Management and Financial Advice Association
(‘PIMFA’). www.pimfa.co.uk/
Read more about how to find a financial adviser at:
www.thepfs.org/yourmoney/find-an-adviser/
If you have been scammed
You can report the firm or scam to the FCA by contacting the
FCA Consumer Helpline on: 0800 111 6768 or using the FCA
reporting form at: www.fca.org.uk/consumers/report-scam-
unauthorised-firm
If you have already invested in a scam, fraudsters are likely to
target you again or sell your details to other criminals. The
follow-up scam may be completely separate or related to the
previous fraud, such as an offer to get your money back or to
buy back the investment after you pay a fee.
If you have any concerns at all about a potential scam,
contact the FCA at: www.fca.org.uk
If you have already paid money to share fraudsters you should
contact Action Fraud on: 0300 123 2040 or report via: www.
actionfraud.police.uk/Report-a-fraud-including-online-
crime-questions
188
McCarthy & Stone plc Historical statistics
Legal completions2
Average selling price
Revenue
Profit before tax
Shareholders’ funds
ROCE
Tangible gross asset value
Tangible net asset value
Basic earnings per share
Dividends for the year3
Number of shares in issue
Number of shareholders
FY18
2,134
£300k
£671.6m
£58.1m
£762.1m
10%
£691.6m
£695.6m
8.6p
5.4p
FY17
2,302
£273k
£660.9m
£92.1m
£744.7m
16%
£645.7m
£676.4m
13.8p
5.4p
FY161
2,296
£264k
£635.9m
£92.9m
£697.3m
20%
£574.1m
£626.8m
13.9p
4.5p
537,329,434
537,329,434
537,314,069
747
863
705
FY151
1,923
£245k
£485.7m
£80.9m
£541.8m
20%
£513.5m
£469.1m
13.5p4
nil
n/a5
n/a6
FY141
1,677
£222k
£387.8m
£57.1m
£477.2m
17%
£451.2m
£402.3m
n/a4
nil
n/a5
n/a6
1 FY15 and FY14 financial statements were produced prior to our Stock Exchange listing which took place on 11 November 2015
2 Excludes commercial units
3 The dividends in respect of any financial year are the interim dividend which has been paid and the final dividend which has
been proposed
4 The figure for the FY15 EPS was recalculated in the FY16 Annual Report and adjusted to reflect the 4:1 consolidation of our
share capital that took place in FY16; prior years have not been adjusted
5 The Company’s share capital at 31 August 2015 and 31 August 2014 was 1,905,549,751 ordinary shares of 20p each. As part
of the preparation for listing, the nominal value of the shares was reduced to 2p; additional shares were allotted and the shares
were consolidated on a 4:1 basis becoming ordinary shares of 8p nominal value
6 The number of shareholders prior to our listing on 11 November 2015 has not been disclosed on the grounds of irrelevance
Cautionary statement regarding forward-looking statements
Some of the information in this document may contain projections or other forward-looking statements regarding future events
or the future financial performance of McCarthy & Stone plc and its subsidiaries (the Group). You can identify forward-looking
statements by terms such as ‘expect’, ‘believe’, ‘anticipate’, ‘estimate’, ‘intend’, ‘will’, ‘could’, ‘may’ or ‘might’, the negative of such
terms or other similar expressions. McCarthy & Stone plc (the Company) wishes to caution you that these statements are only
predictions and that actual events or results may differ materially. The Company does not intend to update these statements
to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many
factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the
Group, including among others, general economic conditions, the competitive environment as well as many other risks specifically
related to the Group and its operations. Past performance of the Group cannot be relied on as a guide to future performance.
189
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
General Information
McCarthy & Stone plc is a public Company limited
by shares and registered in England and Wales,
registered number 06622199.
Our registered and head office is situated at:
4th Floor
100 Holdenhurst Road
Bournemouth
Dorset
BH8 8AQ
Telephone: 01202 292480
Corporate website: www.mccarthyandstonegroup.co.uk
Consumer website: www.mccarthyandstone.co.uk
Email: investor-relations@mccarthyandstone.co.uk
Our ordinary shares are listed on the London Stock Exchange
(premium listing) and we are in the FTSE 250 Index.
Legal Entity Identifier (LEI):
213800CEJ4OQ5YPU8Z37
International Securities Identification Number (ISIN):
GB00BYNVD082
Ticker Symbol: MCS
Advisers
Financial adviser
Rothschild
Financial and corporate
communications
Powerscourt
Banker
HSBC Bank plc
Joint corporate brokers
Deutsche Bank
Peel Hunt
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Statutory auditor
Deloitte LLP
Contact details for our registrars, Link Asset Services:
Calls from the UK:
0871 664 0300 (calls cost 10p per
minute, plus any network extras;
lines are open Monday to Friday
from 9am to 5.30pm, excluding
UK public holidays).
Calls from outside the UK: +44 208 639 3399
Email:
enquiries@linkgroup.co.uk
190
McCarthy & Stone plc
2 Divisions
7 Regions
NORTH WEST
Unit 3, Edward Court
Altrincham Business Park
Altrincham WA14 5GL
Tel: 01619 416 255
WEST MIDLANDS
Ross House
Harry Weston Road
Binley Business Park
Coventry CV3 2TR
Tel: 02476 441 199
NORTH DIVISION
Ian Wilkins Divisional Managing Director
Ian.wilkins@mccarthyandstone.co.uk
SOUTH DIVISION
Brendon O’Neill Divisional Managing Director
Brendon.oneill@mccarthyandstone.co.uk
-
YORK
ALTRINCHAM
COVENTRY
KETTERING
HATFIELD
WOKING
RINGWOOD
BOURNEMOUTH
HEAD OFFICE
4th Floor, 100 Holdenhurst Road
Bournemouth, Dorset BH8 8AQ
Tel: 01202 292 480
NORTH EAST
Aspen House
Wykeham Road
Northminster Business Park
Upper Poppleton
York YO26 6QW
Tel: 01904 444 200
EAST MIDLANDS
Orion House, Orion Way
Kettering NN15 6PE
Tel: 01536 220 700
NORTH LONDON
Prospect Place
85 Great North Road
Hatfield AL9 5DA
Tel: 01707 446 000
SOUTH EAST
2 Genesis Business Park
Albert Drive
Woking GU21 5RW
Tel: 01483 908 600
SOUTHERN
Southern House
1 Embankment Way
Ringwood BH24 1EU
Tel: 01425 322 000
191
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Glossary
Glossary
‘ASP’
‘BSG’
average selling price - the average price
agreed for sales of apartments in the year
after deducting list price discounts and
part-exchange top-ups
the Building Safety Group is a not-for-profit
organisation which specialises in providing
Health, Safety and Environmental advice
for the construction industry
‘Capital turn’
calculated by dividing revenue by the
average opening and closing tangible
gross asset value in the year
‘CGU’
‘CIL’
cash generating unit
the Community Infrastructure Levy of
the Community Infrastructure Levy
Regulations 2010
‘Company’
McCarthy & Stone plc
‘CQC’
‘DCLG’
‘EPS’
‘FRI’
the Care Quality Commission is an
executive non-departmental public
body of the Department of Health which
regulates and inspects health and social
care services in England
the Department for Communities and
Local Government
profit attributable to ordinary shareholders
(excluding exceptional items) divided by
the weighted average number of ordinary
shares in issue during the financial year
freehold reversionary interest - the freehold
of each of the Group’s developments in
England and Wales which include the
future income stream of ground rents
which can be sold to third parties
‘FTSE’
the Financial Times Stock Exchange
‘Gearing’
‘Group’
gearing is calculated by dividing net debt
by net assets
the Company and its consolidated
subsidiaries and subsidiary undertakings
‘Interest cover’ calculated by dividing a underlying
operating profit before depreciation and
intangibles amortisation by the net interest
expenses (excluding revaluations) for the
same period
‘IPO’
Initial Public Offering
‘Land bank’
includes owned sites and exchanged sites
192
‘LIBOR’
‘MSMS’
the London interbank offered rate
McCarthy & Stone Management Services
Limited - a wholly-owned subsidiary of the
Company that provides management
services to homeowners in the Group’s
Retirement Living and Lifestyle
Living developments
‘Net assets’
net assets is calculated as total assets less
total liabilities
‘Net debt/cash’ cash and cash equivalents less long-term
and short-term borrowings (excluding
unamortised debt issue costs)
‘NHBC’
National House Building Council
‘PRS’
‘ROCE’
‘Section 106’
‘TGAV’
‘TNAV’
‘TSR’
Private Rented Sector
return on capital employed - calculated by
dividing underlying operating profit by the
average opening and closing tangible gross
asset value in the year
the legally-binding agreements or planning
obligations entered into between a
landowner and a local planning authority,
under section 106 of the Town and Country
Planning Act 1990
tangible gross asset value - calculated
as TNAV less net debt/cash
tangible net asset value - calculated as
net assets excluding goodwill and
intangible assets
total shareholder return - is a measurement
of the performance of the Group’s share
price since the IPO. It combines the share
price appreciation and dividends paid
to show the total return to the shareholders
expressed as a percentage
‘Underlying
profit before
tax’
calculated by adding amortisation of brand
and exceptional administrative expenses to
profit before tax
‘YLMS’
YourLife Management Services Limited
- a subsidiary of MSMS owned 50/50 by
MSMS and Somerset Care Group Limited,
that provides management services,
domestic assistance, personal care
and additional support to homeowners
in the Group’s Retirement Living PLUS
developments
McCarthy & Stone plc Financial KPI’s
Definition
‘Revenue’
‘Underlying
operating profit
margin %’
‘Underlying
operating profit’
Represents the consideration received from
the sale of leasehold interetst in retirement
apartments, freehold interests in houses and
bungalows and income from the sale of freehold
reversionary interests. Revenue is recognised
on legal completion
Calculated by dividing underlying operating
profit for the year by revenue
See note 5 to the consolidated financial
statements for reconciliation
Calculated by adding amortisation of brand and
exceptional administrative expenses to operating
profit for the year
See note 5 to the consolidated financial
statements for reconciliation
‘Profit before tax’
Profit before tax of the Group including
share of profits from joint ventures
‘Return on capital
employed %’
‘TGAV’
‘TNAV’
‘Year end net
cash/(debt)’
‘Earnings per share’
Calculated by dividing underlying operating profit
for the previous 12 months by the average TGAV
at the beginning and end of the 12 month period
See note 5 to the consolidated financial
statements for reconciliation
Tangible gross asset value, calculated
as TNAV less net debt
See note 5 to the consolidated financial
statements for reconciliation
Tangible net asset value, calculated as net
assets excluding goodwill and intangible assets
See note 5 to the consolidated financial
statements for reconciliation
Calculated as cash and cash equivalents less
total borrowings
See note 22 to the consolidated financial
statements for reconciliation
Calculated by dividing the profit for the year
attributable to ordinary shareholders by the
weighted average number of ordinary shares
in issue during the year
See note 5 to the consolidated financial
statements for reconciliation
Why we use
Key driver for the business.
Tracks progress on strategy
Details profitabilty of our business before
finance costs, tax and exceptional items.
Measures the efficiency of our business
operations
Details profitabilty of our business before
finance costs, tax and exceptional items.
Measures the efficiency of our business
operations
Measures the profitability of the business
after adminstrative costs and other operating
income and expenditure
Ensures efficient and effective use of capital
and is a key measure for assessing the
performance of the Executive Directors
Represents total amount of physical assets
owned by the Group
Represents total amount of physical assets
owned by the Group minus liabilities
To ensure effective liquidity and cash
management is a focus of the business to
fund its ongoing operational commitments
Shows profit attributable to each share and used
to calculate the amount of dividend per share.
Also used as a key measure for assessing
performance of the Executive Directors
‘Operating
profit margin’
Operating profit divided by total revenue,
expressed as a percentage
‘Cost saving’
Reduction in costs incurred on existing
operations compared to the previous period
‘Cash saving’
Reduction in cash spent on existing operations
compared to the previous period
Demonstrates profitability of our business
before finance costs and tax. Used to assess
the efficiency of our operations
Demonstrates whether we are on track to
optimise our operations for strong financial
performance
Demonstrates whether we are on track to
optimise our operations for strong financial
performance
193
McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Glossary continued
Non-Financial KPI’s
Definition
Why we use
‘Legal completions’
The Group recognises a legal completion at
the point of completion of a sale of a property
to a purchaser
Reflects sales activity and growth of the
business and also used as a method by
which the business capacity is monitored
‘Average
selling price’
Average list price less cash discounts
and part-exchange top-ups
‘Land bank’
Includes owned sites and exchanged sites
A driver of revenue, reflects competitive
position against other homebuilders and
change in regional and product mix
Drives the ownership of the optimum amount
of land to support the business and long term
prospects and sustainability
‘First occupation’
A milestone in a cycle of our development
being the date of the first legal completion
within a given development
Demonstrates the efficiency of the development
and build cycles of the business and effectively
increases stock turn
‘Build cycle time’
Defined as the length of time from the date
of build start to the date of first occupation
‘Customer
Satisfaction’
Customer satisfaction survey of new
homeowners by the National Housebuilder
Council and Home Builders Federation.
The percentage of homebuyers who would
recommend McCarthy & Stone to a friend
‘Growth of
Management and
Care services’
Revenue generated by the Management
and Care Services function as a percentage
of total Group revenue
The measure is used to determine the efficiency
and effectiveness of the build process and the
draw on working capital
Used as a benchmark against our peers in relation
to build quality, customer satisfaction and is also
used as a measure for Executive Remuneration.
Customer satisfaction is of the highest importance
to the Group
Management and Care Services is fundamental
to achieving our vision and purpose
‘Shared ownership
offering’
Number of properties sold on a shared
ownership basis as a percentage of total
completions during a given period
Shared ownership is part of the multi tenure
offering and strategic objective of capitalising
on wider market opportunities
‘Rental offering’
Number of McCarthy & Stone properties
occupied on a rental basis as a percentage
of total completions during a given period
Rental option is part of the multi tenure offering
and strategic objective of capitalising on wider
market opportunities
‘Lower cost product’
A product range reflecting streamlined,
contemporary and compact design at
mass market average prices
Lower cost product is part of our strategic
objective to improve product affordability
‘Meals served’
‘Number of
residents’
Number of meals served to our customers
at Retirement Living PLUS developments
to existing customers
Demonstrates the number and growth
of customers who are benefiting from
our Management and Care services
Number of customers currently residing
in the developments that are managed
by McCarthy & Stone
Demonstrates the number and growth
of customers that are living in one of
our developments
‘Developments
under management’
Number of developments which are managed
by our in-house Management and Care
Services function
Demonstrates the number and growth of
developments that are currently being managed
by our in-house Management and Care Services
‘Hours of care
and support’
Number of hours that have been provided
to customers for care and support within our
developments by our in-house Management
and Care Services function
The number and growth of hours that have been
provided to customers for care and support within
our developments by our in-house Management
and Care Services function
‘New Retirement
Living developments
sales releases’
Shows the number of new Retirement Living sites
that have become available for reservation by the
prospective customers during the given period
Demonstrates the capacity, efficiency and
effectiveness of our Development and Build
cycles and effective use of our working capital
for our Retirement Living sites
194
McCarthy & Stone plc Glossary continued
Non-Financial KPI’s
Definition
Why we use
‘Retirement Living
units sold’
Units legally completed during the given
period at our Retirement Living developments
Reflects sales activity and growth of the
business and also used as a method by which
the business capacity is monitored at Retirement
Living product level
‘New Retirement
Living PLUS
developments
sales releases’
Shows the number of new Retirement Living
PLUS sites that have become available for
reservation by the prospective customers
during the given period
Demonstrates the capacity, efficiency and
effectiveness of our Development and Build cycles
and effective use of our working capital for our
Retirement Living PLUS sites
‘Retirement Living
PLUS units sold’
Units legally completed during the given period
at our Retirement Living PLUS developments
‘Number of land
exchanges’
Number of land sites for which purchase
contracts have been exchanged but not
legally completed
Reflects sales activity and growth of the business
and also used as a method by which the business
capacity is monitored at Retirement Living PLUS
product level
Demonstrates the capacity and efficiency of
our land buying function
‘Investment in land’
Represents the amount of capital invested
in the purchase of land
Demonstrates how we use our capital and is
an indicator of the amount of investment in land
Demonstrates effectiveness of our planning
process and workflow
‘Detailed planning
consents’
Planning consent from local planning authorities
required in the UK in order to be allowed to build
on land or change the use of land or buildings.
Detailed planning consents grant permission for
all aspects of a proposed development, generally
subject to the local planning authorities conditions
(such as undertakings regarding environmental or
noise issues), as opposed to outline planning
consents which do not give permission to all
aspects of a proposed development and typically
represent an agreement in principle without a
determination of the particular form of design or
layout of the proposed development
‘Development
cycle time’
Time taken between land exchange and build
start for our developments
Demonstrates efficiency of our planning
and design process for our developments
and working capital draw
‘Build starts
in the year’
‘Off plan
reservations’
Defined as the number of sites where building
has commenced during the year
Indication of our workflow compared to
previous years
Number of properties that have been sold subject
to contract prior to first occupation
Indicator of effectiveness of our Sales and
Marketing function and an indicator of the
desirability and demand of our units
‘Customer Quality
Care (CQC) score’
Public body independent inspection of health
and social care standards of our Management
and Care function
Important regulatory score of our compliance with
Health and Social care standards used to ensure
we are compliant with applicable standards
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McCarthy & Stone plc Annual ReportSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Notes continued
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8
4th Floor
100 Holdenhurst Road
Bournemouth
Dorset
BH8 8AQ
Tel: 01202 292 480
Website: www.mccarthyandstonegroup.co.uk
Email: investor-relations@mccarthyandstone.co.uk
Twitter: twitter.com/mccarthystone
Facebook: facebook.com/mccarthystone
Annual Report 2018