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Crest Nicholson Hdgs (CRST)

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Monday 12 February, 2018

Crest Nicholson Hdgs

Annual Integrated Report and Notice of AGM

RNS Number : 6290E
Crest Nicholson Holdings PLC
12 February 2018
 

 

 

 

Crest Nicholson Holdings plc ("the Company")

 

2017 ANNUAL INTEGRATED REPORT & NOTICE OF ANNUAL GENERAL MEETING

 

The Company released its preliminary results announcement for the year ended 31 October 2017 on 24 January 2018 and today published its 2017 Annual Integrated Report for the same period, and the Notice of the 2018 Annual General Meeting, which is to be held on 22 March 2018.

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/agm.

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 2017, 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

 

12 February 2018

 

 

 

 

 

 

 

 

 

 

 

 

Appendix

Principal Risks (definition and impact)

Risk Mitigation and Related Opportunities

1. Political and legislative uncertainty and change

Macro-economic downturn caused by uncertainty following the UK's vote to leave the European Union, or political uncertainties over policy and overall stability could reduce the scope for earnings growth.

We are focused on the evaluation of land opportunities against the economic backdrop, control of build starts and build rates, cash generation and the control of our cost base.

Adverse changes to the planning system leading to policy and regulations that could result in delayed planning consents and operational commencements on site.

We engage actively in dialogue with central Government through lobbying and consultations, and participate in key industry bodies (such as the Home Builders Federation) to ensure that potential changes to the planning system are appropriate and achievable.

2. Operational efficiency

Supply of materials fails to match desired production levels, or economic factors significantly impact the costs of materials, affecting business performance and causing delays.

We make plans Group-wide to ensure that we have sufficient material sources to help offset the risk of adverse price movements and ensure the call-off of materials as they are needed by our Divisions

Supply of labour fails to match desired production levels, with inefficient builds affecting costs and delivery times, as sites suffer from inadequate and erratic labour supply.

We provide advance notice of our site plans and build programmes to sub-contractors. This helps them to plan and builds confidence to expand the workforce to meet the requirements of our projects.

Costs not adequately controlled and managed can lead to unforeseen cost increases and erode margins, increasing pressure to contain costs and potentially reduce quality.

We regularly review our cost forecasts and seek to improve reporting and control

Rising complexity of projects increases risks to delivery and cost, with inadequate project appraisal and evaluation leading to inefficiencies in the build and potentially difficult and costly remediation work required.

We have improved our project management controls and have introduced a new hurdle rate matrix that requires higher returns as project complexity/risk increases. We use a consultant panel approach to provide more rigour into the evolution of designs.

Joint venture risk arising from consortia arrangements that are complex and capital intensive - creating strain through operational obligations not being met and incurring significant financial losses or additional capital deployment.

Joint venture obligations, milestones and reporting are formalised and implemented once a joint venture is approved - then monitored and reviewed by the Executive Management Team.

3. Land availability and cost

Adverse changes to the planning system leading to delayed planning consents and operational commencements on site. Land may become unviable due to increased costs.

In addition to actively engaging with central government and industry bodies on potential changes, we regularly review and assess our strategic land portfolio to accurately forecast planning consents and commencement dates.

Inability to acquire land at a price that maintains margins and is located in areas where customers want to live.

Our strategic land pipeline is continually replenished through a dedicated division within the organisation with expertise in bringing new developments through the planning process.

4. Well-built, high-quality homes and customer satisfaction

Supply of labour fails to match desired production levels, leading to adverse customer experiences, as build completions are not delivered as expected.

We run an award-winning Apprenticeship Scheme that brings in and helps us to retain our own talent. We seek to sustain supply chain relationships and encourage subcontractors to expand their own workforces. In the longer term, we are also developing alternative production techniques, such as off-site manufacture, that reduce reliance on specific trades.

Customer service and quality falls significantly below our targeted standard, leading to additional (and potentially escalating) costs of remediation in time and money.

We have strengthened our Customer Service Inspections and Build Stage Inspections to support our focus on quality, while our 'Making Customers Feel Special and Valued' programme sets out clearly our standards for customer service. Our customer satisfaction scores are also linked to remuneration in the form of bonuses.

Rising complexity of projects increases risks to delivery and cost, with complex refurbishments and untested methodologies sometimes leading to less than optimal outcomes and latent defects that could affect customers.

We have strict procedures and governance oversight through which we scrutinise projects and seek to address complexity and risks. We are also introducing a new range of core house types that offer greater standardisation.

Supply of materials fails to match desired production levels, resulting in increasing pressures on our build programmes on site and potential delays to customers moving into their new homes.

We sustain key supply chain relationships and manage Group-wide agreements with a variety of suppliers to ensure that we have sufficient high-quality resources that our Divisions can access as needed.

5. Housing affordability

Macro-economic downturn caused by a general economic slowdown or the UK vote to leave the EU, leading to higher unemployment or the fear of unemployment and/or reduced disposable income. Ongoing uncertainty reduces willingness to purchase homes.

Our business and strategic plans are developed using our long-term experience of the UK housing market. They include KPIs and established responses to a contraction in the housing market.

Impact of the Help to Buy scheme on the business, including changes in the scheme and overdependence on it for sales volumes.

We lobby the Government to ensure that the need for first-time buyers' assistance is understood, and would explore alternative funding offers if Help to Buy were to be phased out. We also continue to develop other volume development models, such as PRS, to expand our business breadth.

6. Product design and development

Rising complexity of projects increases risks to delivery and cost, with complex refurbishments and untested methodologies affecting our designs and their implementation.

Our core house types offer greater customisation as well as new flexible features for increased customer choice. There is also greater scrutiny when deciding whether to undertake a project, with involvement from the Group Technical & Quality Director, who conducts a buildability risk assessment.

Supply of materials fails to match the requirements of our designs, affecting business performance and potential delays to customers moving into their new home.

We engage actively with our supply chain to better understand their risks and overcome production challenges that may impact the critical supply of materials.

Supply of labour fails to match desired production levels or design requirements, with shortages of labour in key trades and office-based functions.

We seek to sustain existing and develop new supply chain relationships that will ensure sufficient quality labour to meet our production levels and our new house designs. We also contract with more than one sub-contractor in key trades to spread supplier risk.

7. Industry skills and capacity

Supply of labour fails to match desired production and quality levels, with shortages of labour in key trades and office-based functions (e.g. plumbing, M&E, Technical) as the rates of retirement exceed new entrants into industry.

We seek out longer-term supply chain relationships, while ensuring contingency plans are in place. We maintain industry-leading Apprenticeship and Graduate Schemes to help us bring in and retain talent across a range of trades and office-based functions.

Staff retention and succession is critical to sustain our growth, but in a buoyant market there is a lack of suitably qualified people to take up senior positions and other important roles in key business areas.

Succession planning is underway across our Divisions, including personal coaching and training. Our bonus schemes are also reviewed annually to support retaining the best people.

8. Reputation and trust

Health and safety events that lead to actual injury or a serious near miss results in adverse publicity and/or reputational damage.

Health and safety is a key focus area throughout the organisation. Our health and safety team carry out inspections and follow-up visits, as do independent inspectors from NHBC, with issues escalated as appropriate, including through the Executive Health and Safety Sub-Committee.

Customer service and quality falls significantly below our targeted standard leading to reputation damage, dissatisfied customers and a loss in staff morale as pride in the job suffers

We have strengthened build quality inspections and monitoring to ensure we maintain our standards and we encourage sub-contractors to meet these standards as well through toolbox talks and contra charging for poor workmanship where necessary. Detailed product quality guidelines are agreed and monitored.

Reputational damage arising from a major product failure or latent defect undermining our business values of design, sustainability and customer service, with damage to our brand value and potential criminal prosecution.

Major product innovations, such as OSM, are overseen by the Board and its Technical Committee. We also put clear escalation procedures in place in the event of an incident with a supporting public relations strategy for stakeholders.

Information security risks leading to major business disruption, due to cyber-attack, critical data loss, internet service outages and inadequate identification and protection of critical data.

We have virus protection installed on all corporate computers and servers, using a 'demilitarised zone' where servers connect to the outside world, and conduct annual security-breach tests. We also control and monitor the movement of all critical data within and outside of the organisation.

9. Health, safety and well-being

Health and safety events that lead to actual injury or a serious near miss results in costs of compensation, closure of sites, risk of prosecution, fines and imprisonment.

We continue to raise the profile of health and safety, with Executive and Director site visits, and discussions at all divisional board and Executive Management Team meetings. Health and safety monthly reports are sent to the Executive Management Team.

Staff retention and succession is a risk when staff's well-being is not adequately considered and supported. Potential disruptions to business productivity and loss of knowledge due to staff taking extended sick leave or being 'poached' by other organisations.

 

 

We offer a number of programmes to support employees' well-being, including a mandatory biennial health-check for Executives, a free-to-use Employee Assistance Programme and optional purchasing of additional annual leave.

10. Corporate responsibility and business ethics

Reputational damage from major product failure or poor employment and labour practices result in adverse publicity and poorer supply chain and partner relationships.

New approaches to construction are trialled prior to wider roll-out and we obtain NHBC, CML and CSI certification of products prior to occupation. Our corporate governance and human resources policies are reviewed annually to ensure they are effective, fair and aligned to stakeholder expectations.

Bribery, corruption and fraud arising from fraudulent activity or employees not having a clear understanding of their legal requirements and company policies and procedures.

We have clear policies in place, available freely on our Intranet. All employees must participate in our bribery and corruption training prior to passing probation and they receive refresher training periodically.

11. Stakeholder relationships

Build cost inflation absorbs or exceeds benefits from sales price uplifts and affects our partners, as margins are squeezed.

We provide volume, certainty and prompt payment to our supply chain partners alongside mutual benefits of long-term partnership agreements.

Adverse changes to the planning system due to a lack of planning department resource or a change in political priorities could result in delays in obtaining planning consents at our developments.

We build relationships with the local authorities where we build as well as with Government through lobby groups like the HBF or directly.

Bribery, corruption and fraud events result in strained relationships with landowners and agents leading to ineffective land procurement or putting the business at a perceived disadvantage.

We have issued specific guidance on what behaviour is acceptable for land purchases and require all new staff to successfully complete bribery and corruption training prior to passing their probation. Regular refresher training is also provided.

Joint venture risk arising from misaligned expectations or objectives, and limited governance of a joint venture leading to financial or commercial disputes with partners.

Formal governance mechanisms for managing joint venture relationships are established and followed. Any issues are identified and agreed resolutions are documented and approved formally to limit disputes.

12. Sustainable procurement of materials

Supply of materials fails to match desired production levels, where we are unable to source the material we need sustainably or the suppliers we have are unable to meet our requirements and ration output rather than lay on additional capacity.

We maintain trading agreements with key suppliers to guarantee a steady supply of quality materials and engage in dialogue with them to understand any issues that may have an impact on critical supply deliveries, or result in materials supplied not meeting our standards.

 

The Directors are responsible for preparing the Annual Integrated Report and the financial statements in accordance with applicable law and regulation.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      state whether applicable IFRS as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;

·      make judgements and accounting estimates that are reasonable and prudent; and

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

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

 

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The Directors consider that the Annual Integrated Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.

 

Each of the Directors, whose names and functions are listed on page 54, confirm that, to the best of their knowledge:

·      the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;

·      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 Directors' Report (including cross references made therein) includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

 

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.


This information is provided by RNS
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