Annual Financial Report

RNS Number : 7393W

Crest Nicholson Holdings PLC

13 February 2017

 

Crest Nicholson Holdings plc

LEI: 213800ROIFXRRRKVQD25

Crest Nicholson Holdings plc ("the Company")

2016 ANNUAL INTEGRATED REPORT & NOTICE OF ANNUAL GENERAL MEETING

The Company released its preliminary results announcement for the year ended 31 October 2016 on 24 January 2017 and has today published its 2016 Annual Integrated Report for the same period, and Notice of the 2017 Annual General Meeting which is to be held on 23 March 2017.

These documents will shortly be available for inspection at the National Storage Mechanism which is located at http://www.morningstar.co.uk/uk/NSM. Hard copy versions have been posted to shareholders who have elected to receive them in paper form.

The Notice of Annual General Meeting and Annual Integrated Report are also available to view or download in pdf format from the Company's website at www.crestnicholson.com/investor-relations.

The Company's financial statements and extracts of the Strategic Report were included in the Company's preliminary results announcement. That information together with the Appendix to this announcement, which contains additional information that has been extracted from the Annual Integrated Report for the year ended 31 October 2016, constitute the material required to be communicated in unedited full text for the purposes of compliance with Disclosure Guidance and Transparency Rule 6.3.5. Page numbers and cross references in the extracted information refer to page numbers and cross references in the Annual Integrated Report.

For further information, please contact:

Kevin Maguire

Company Secretary

Crest Nicholson Holdings plc

[phone]

13 February 2017

Appendix

Risk area	Impact	Controls and mitigation
Adverse macro-economic climate, caused by uncertainty following the UK vote to leave the EU General economic slowdown with wider global growth issues (especially China and the Eurozone)	Uncertainty arising from policy, law or tax changes after the EU vote and government changes could affect both consumer demand and regulations in the market Higher unemployment or fear of unemployment could undermine consumer confidence and reduce enthusiasm for purchasing a new home or the ability to secure a mortgage	Maintain review of economic and political environment and consider potential responses to changes in trading conditions Consider exposure to specific areas (e.g. London) and broaden portfolio in more affordable areas
Loss of income at housing associations due to budget changes to rents	Returns on our strategic land holdings could be undermined; site starts could be delayed	Cascade s106 mechanisms to restore viability and continue to develop a balanced portfolio
Pressure on cash headroom and generation due to: potential for delayed receipts in short term due to uncertainty over the UK leaving the EU; commitments to land and build obligations made ahead of certainty in revenue; high work-in-progress costs for new sites	Cash resources may be over-committed, leading to business disruption, reputational issues, covenant breaches, dividend loss and stakeholder dissatisfaction	Robust cash management and borrowing/spending controls Access to funding and use of alternative payment mechanisms PRS offering potential for early cash generation
Build cost inflation	Increased build costs absorb or exceed higher sales prices Margin squeeze disappoints Investors Delivery uncertainty, as suppliers seek to 'price in' sales price inflation	Use alternative suppliers and production methods Robust contract arrangements to control costs Leverage volume through long-term partnerships with strategic suppliers
Rapid and extensive changes to planning system and changes in political priorities combined with under resourcing in planning departments produce uncertainty, delays and potential challenges to viable development	Delays in obtaining planning consents and operational starts Land becomes unviable due to increased planning cost burden	Work closely with key regulators and national/local decision makers Regularly review the Strategic Land Portfolio to accurately forecast operational starts Seek prior planning approval on significant projects Influence new CIL viability testing and appraise costs
Costs not adequately controlled and managed; unforeseen cost increases	Unreliable forecasting and sudden cost changes can erode margins Pressure to maintain margins and control costs can impact on product quality	Regular cost forecast reviews and increased standardisation in cost reporting Early budget uploads and greater adherence to Agresso procedures Quality standards set, met and reviewed
Cyber security breach	Theft of personal and/or business data Subject to external financial crime Disruption to IT services, affecting business operation	Robust virus protection and internet security Web checking of internet traffic Robust server set-up and annual cyber security breach tests Education of employees on cyber security vulnerabilities and encryption of data
The Government's new Starter Homes policy (as currently drafted)	Planning delays are likely as local authorities balance affordable provision and viability Distortions in sales activity as purchasers seek to secure windfalls resulting from policy Cash flow and ROCE implications of reduced upfront affordable housing funding; increased macroeconomic risk	Identify and prioritise most complex aspects of current draft and seek further amendment or clarity Seek to move back towards original provisions, i.e. use of previously unallocated brownfield and 100% starter home offers Work with HBF to establish a common understanding and set of proposals with other HBF members
Help to Buy incentive scheme	A reduction in size or eligibility criteria could reduce overall mortgage access impacting demand, sales values and rates of sale, which could undermine confidence in the market	There are alternative incentives but these are less compelling Maintain policy-maker awareness of construction sector economic contribution and need for first-time buyer incentives High quality sales training to increase resilience and prepare for a tougher market
Rising complexity of projects	Cost over-runs on complex projects can affect margins Latent defects can generate extra costs and reputational damage, where new materials and systems have been deployed Heightened expectations can result in rushed projects and subsequent problems	Project Committee oversight and risk-based review by the Group Technical Director Consultative and partnership approach at planning/ designing stage Robust Crest Nicholson project management New hurdle rate matrix addressing complexity and other risks Increased focus on re-use of house types
Customer service falls significantly below targeted Crest Nicholson standard	Cost of remediation in time and money Loss of focus on more strategic activity and a lack of staff morale as pride in job is affected	Robust inspection process and use of Priority 1 monitoring to ensure an efficient approach Penalties for sub-contractors in cases of poor workmanship Launch of Making Customers Feel Special and Valued learning programme
Employee retention and succession management Experience gaps lead to poor outcomes	Shortages of key staff in critical business areas can introduce cost, delays in bringing developments forward or quality issues, which can undermine shareholder confidence and erode customer satisfaction Increased employee turnover can create instability and uncertainty Skills and experience lost, including through retirement, are difficult to replace and loss of knowledge within the business can affect overall efficiency	Ensure competitive pay, benefits, incentives and bonuses Improved succession planning in place, with formal succession plans drawn up Maintaining strong apprentice and graduate programmes Executive management and coaching creating more internal candidates
Reputational damage from a major product failure or significant environmental, health or safety issue	Injury or potential loss of life Remediation costs Loss of projects and associated revenues Damage to Crest Nicholson brand Potential civil or criminal prosecution	Board leadership and scrutiny of health, safety and environment Raising profile of health and safety across the Group and setting objectives annually New approaches trialled prior to wider roll-out and product quality guidelines agreed and monitored Training for all employees and awareness of industry product debates
Supply and quality of materials and/or labour fails to match desired production levels, affecting lead times, efficiency and cost	Supply chain issues constrain output and impact on business performance Adverse customer experience as build completion forecasting is difficult and subject to variation, which could mean mortgage offers expire and further delays to legal completions	Dialogue with major suppliers to help with advance planning and call-off by divisions Spread risk across suppliers, e.g. kitchen supply-and-fit contracts Examine alternative production approaches, e.g. timber frame as opposed to blocks, and offsite manufacture Maintain strong apprenticeship programme and encourage suppliers to do the same

The Directors are responsible for preparing the Annual integrated report, 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. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, and the parent Company financial statements in accordance with Financial Reporting Standard 101 'Reduced Disclosure Framework', in accordance with the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these 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 IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent Company financial statements respectively

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions 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 and the Directors' remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. 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 Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the annual integrated report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Each of the Directors, whose names and functions are listed on page 52, confirm that, to the best of their knowledge:

·      the Group financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

·      the Strategic report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

Having assessed the principal risks and the other matters discussed in connection with the Viability statement, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

 

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