REG - Crest Nicholson Hdgs - Annual Integrated Report and Notice of AGM

Crest Nicholson HoldingsAnnouncement

18/02/2019 12:40

RNS Number : 3831Q
Crest Nicholson Holdings PLC
18 February 2019
 


 
 
 
Crest Nicholson Holdings plc ("the Company")
 
2018 ANNUAL INTEGRATED REPORT & NOTICE OF ANNUAL GENERAL MEETING
 
The Company released its preliminary results announcement for the year ended 31 October 2018 on 29 January 2019 and today published its 2018 Annual Integrated Report for the same period, and the Notice of the 2019 Annual General Meeting, which is to be held on 26 March 2019.
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 2018, 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
 
18 February 2019
 
 
 
 
 
 
 
Appendix




Principal Risk


Impact


Key Mitigating Actions






The Macro-economic Environment
 
The ongoing challenging macro-economic environment, including risks from:
•    Uncertainty following UK vote to leave EU
•    General economic slowdown
•    Reduced prominence for elements of financial services
•    Wider global growth issues.


Pressure on sales volumes and prices from:
•    Consumer confidence and affordability due to:
Ø Higher unemployment or fear of unemployment
Ø Ongoing economic uncertainty
Ø Weak real wage growth and reduced disposable income
Ø Higher taxes.
•    Business uncertainty due to policy changes
•    Inflation due to foreign exchange.


Monitoring impact of Brexit discussions and potential outcomes. New business strategy focuses on responding effectively to this and contractions in the market through:
•    Focus on cash generation
•    Management of overheads
•    Land buying strategy focused on securing land in areas of job security, infrastructure, affordability and growth
•    Exploiting opportunities for operational efficiency and cost reduction.




Health, Safety and the Environment
 
A significant health and safety event resulting in a fatality, serious injury or a dangerous situation.
 
Significant environmental damage could be caused by operations on site or in our offices (for example, water contamination from pollution).


In addition to immediate personal injury suffered or damage to property and the environment, there may be:
•    Reputational damage and our ability to secure public contracts
•    Prosecution, leading to imprisonment, significant fines or the loss of a directorship
•    Remediation and/or legal costs
•    Production delays and our ability to achieve financial forecasts and targets.


Effective management system and procedures in place.
 
Dedicated divisional Health, Safety and Environmental (HSE) Advisors that undertake site inspections and follow-up visits, regular Director-level site safety tours.
 
Independent inspections from the NHBC.
 
Construction Environment Risk Assessments and Environmental Management Plans created for all sites.
 
Use of external specialist consultants and/ or contractors where specific health and safety requirements demand.




Access to Site Labour and Materials
 
Rising production levels across the industry put pressure on our materials supply chain, while the impact of potential changes to EU labour in the UK remains high.
 
Increased use of more modern methods of construction could result in a labour market unable to meet the skills and knowledge required and a material supply chain lacking the scope and capacity.


An inefficient, unstable and stretched labour and materials supply chain could impact business performance and shareholder confidence through:
•    Lower levels of production output
•    More challenging forecasting for commercial and procurement teams
•    Build cost inflation.


Encouraging longer-term relationships with our supply chain through Group Trading Agreements and five-year sub-contractor Framework Agreements. These agreements also seek to contain price increases.
 
Maintaining broad supply chain options to spread risk and meet contingency requirements.
 
Engaging in ongoing dialogue with major suppliers to understand critical supply chain risks.
 
Trialling off-site manufacturing and standardisation in our operations and monitoring any positive and negative impacts on our supply chain management.




Demand for Housing
 
Heavily influenced by macro-economic factors as outlined in the first risk on page 64.
 
Changes to regulations and taxes, for example, stamp duty on Buy to Let purchases and the impact of government schemes like Help to Buy.


In addition to decreased sales volumes that would occur from a drop in the demand for housing, the business could also see:
•    An increasing number of units held as unreserved stock and part exchange stock with potential cash loss on final sales
•    The business becoming overly reliant on Help to Buy and other government-backed ownership schemes to boost sales volumes and rates.


Regular sales forecasts and cost reviews to manage potential impact on sales volumes.
 
Strategic purchase of sites, continued development of shared ownership models and engagement with a variety of incentive schemes.
 
Political and industry lobbying.




Customer Service, Quality and Product Safety
 
Customer service and/or build quality falls below our required standards.
 
Unforeseen product safety or quality issues, or latent defects emerge as a result of new construction methods.


A significant drop in our customer service standard, quality or product safety would impact our reputation as a quality housebuilder with a potential knock-on impact on our sales rates and volumes. In addition, there may be:
•    Loss of staff morale as pride in the job suffers and a lack of focus on other strategic business objectives
•    Impact on margins due to increased costs from remediation for both immediate issues and site legacy issues.


Customer service and quality is an Executive remuneration measure.
 
Customer Service Inspections and Build Stage Inspections to monitor adherence to our quality standards.




Information Security and Business Continuity
 
Cyber security risks, such as data breaches and hacking leading to the loss of operational systems, market-sensitive, competitive information or other critical data.
 
Risk of non-compliance with new GDPR requirements.
 
Component failure of our IT systems.


Financial penalties and sanctions, reputational impact.
 
Loss of personal and/ or business information (including share-price sensitive and business critical information).
 
Ransom demands and phishing attacks.
 
Outage of internet services and IT leading to operational disruptions.


We employ network security measures and intrusion detection monitoring, including virus protection on all computers and servers, and annual security-breach tests. This is backed by:
•    Staff training on data protection and internet security
•    Data classification, retention policies and toolsets with appropriate and responsive procedures embedded to respond to GDPR
•    Disaster Recovery and Business Continuity Plans established and tested annually.




Attracting and Retaining Employees
 
Increasing skills gap in the industry at all levels.
 
Difficulty to recruit the right people for vacant positions.
 
Staff turnover and the cost of wages increase as a result of inflated offers in the market.
 
Longer-term succession affected.


Inefficiencies, productivity loss, delays to business operations and increasing costs.
Over-use or reliance on consultants and the supply chain.
 
Pressured workloads where teams are under-resourced.


A dedicated recruitment team that monitors pay structures and market trends to ensure we remain competitive.
 
Consulting with employees regularly, e.g. through the Employee Engagement Survey.
 
Programmes of work to develop robust succession plans and improve diversity across the business.
 
Providing quality training and professional development opportunities, including through our Apprenticeship Scheme and Graduate Programme, and reviewing our recruitment and induction of site managers.




Solvency and Liquidity
 
Cash generation for the Group is central to our new business strategy, and our cash headroom could be affected by:
•    Economic pressures that result in delayed receipts in the near term and potentially lower sales rate in the medium term
•    Commitments to significant land and build obligations that are made ahead of revenue certainty.


Pressure on margins and decreasing working capital leading to:
•    Business disruptions, delays in delivering contracts with third parties and loss of credibility with shareholders, lenders, suppliers, customers and partners
•    Inability to fund dividends, an adverse impact on share price and stakeholder dissatisfaction.


We set borrowing facility limits for our divisions and we apply bonus penalties to breaches. We scrutinise the cash terms of deals and any proposed sites:
•    PRS and bulk sales offer us the potential for early cash generation and we have the ability to use promissory notes to help fund high value purchases
•    We control strategic land with ongoing reviews of development strategies and forecast assumptions, with all major land and build spend reviewed and approved at key points.




Law, Policies and Regulations
 
Future potential regulatory changes due to Brexit increase uncertainty within the business and impact our ability to make medium- and longer-term decisions.
 
Potential for inappropriate business practices, fraudulent activity relating to existing laws, for example modern slavery.
 
New National Planning Policy Framework continues to embed with lack of clarity in an environment where local authorities and public sector resources are constrained.


Where solutions remain uncertain and there is a lack of clarity on forthcoming/recently implemented laws and regulations, productivity may be lost. This could also lead to:
•    Uncertainty around design solutions, delays in obtaining consents
•    Programmes and commencements on site disrupted
•    Increased costs due to excessive planning conditions (CIL and Section 106), increasing environmental and other taxes
•    Non-compliance leading to reputational damage, fines, costs and delays.


We lobby the Government directly and through the HBF and build political relationships in key local authority areas.
 
Supply Chain Code of Conduct is in place to ensure adherence to existing requirements.
 
Regularly review prospects of the Strategic Land Portfolio, with processes and appraisals in place to minimise disruption.
 
Clear policies, guidance and training for staff on bribery and corruption, backed up by formal whistleblowing procedures and anti-money laundering processes.




Supply of permissioned and viable land
 
An inadequate supply of suitable land.
 
Inability to convert conditional land purchases and strategic land into timely viable planning permissions.
 
Slower conversions of planning permissions due to Local Planning Authority capacity.


Portfolio depletion.
 
Operational start dates delayed.
 
Fewer backbone and longer-term sites to replenish the portfolio at good margins.
 
Slower conversion of strategic land into consents.


We maintain good relationships with agents and landowners, and work with the Government and the HBF to ensure there is a policy base to deliver an adequate supply of permissioned and viable land.
 
We have a targeted approach to land acquisitions through our dedicated strategic land division.
 
We maintain sufficient skills and experience within the organisation to negotiate timely and viable consents.




 
 
Statement of Directors' responsibilities in respect of the financial statements
 
The Directors are responsible for preparing the Annual Integrated 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 Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising Financial Reporting Standard 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:
Ø select suitable accounting policies and then apply them consistently;
Ø state whether applicable IFRS as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising Financial Reporting Standard 101 Reduced Disclosure Framework ('FRS 101'), have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;
Ø make judgements and accounting estimates that are reasonable and prudent; and
Ø 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 72, confirm that, to the best of their knowledge:
Ø 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;
Ø 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
Ø the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.
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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