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

+44 (0) 1932 580 555

 

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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