REG - Crest Nicholson Hdgs - Final Results <Origin Href="QuoteRef">CRST.L</Origin> - Part 2
24/01/2017 07:06
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Share-based payments
Assumptions are made in determining the fair value of employee services received in exchange for the grant of options under
share-based payments awards at the date of grant, and of the likely outcome of non-market conditions.
Standards and interpretations effective for the first time
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to
other standards, with a date of initial application of 1st November 2015, none of which has had a significant effect on the
Group's financial statements:
· Amendment to IAS 19 Employee Benefits. Effective for the period beginning on 1st November 2015.
· Annual improvements 2012. Effective for the period beginning on 1st November 2015.
Standards and interpretations in issue but not yet effective, or yet to be endorsed by the European Union
The below standards and amendments have not been applied in these financial statements:
· IFRS 2 Share-based payments. Effective for the period beginning 1st November 2018.
· IFRS 9 Financial instruments and the amendment on general hedge accounting. Effective for the period beginning 1st
November 2018.
· IFRS 14 Regulatory deferral accounts. Effective for the period beginning 1st November 2016.
· IFRS 15 Revenue from Contracts with Customers and the amendment. Effective for the period beginning 1st November 2018.
· IFRS 16 Leases. Effective for the period beginning 1st November 2019.
· Amendment to IFRS 10 Consolidated Financial Statements. Effective for the period beginning 1st November 2016.
· Amendment to IFRS 11 Joint Arrangements. Effective for the period beginning 1st November 2016.
· Amendment to IAS 1 Presentation of Financial Statements. Effective for the period beginning on 1st November 2016.
· Amendment to IAS 7 Statement of Cash Flows. Effective for the period beginning on 1st November 2017.
· Amendment to IAS 12 Income Taxes. Effective for the period beginning on 1st November 2017.
· Amendment to IAS 16 Property, Plant and Equipment. Effective for the period beginning on 1st November 2016.
· Amendment to IAS 27 Separate Financial Statements. Effective for the period beginning on 1st November 2016.
· Amendment to IAS 28 Investments in Associates and Joint Ventures. Effective for the period beginning on 1st November
2016.
· Amendment to IAS 38 Intangible Assets. Effective for the period beginning on 1st November 2016.
· Annual improvements 2014. Effective for the period beginning on 1st November 2016.
· Annual improvements 2015-2016. Effective for the period beginning on 1st November 2017 and 1st November 2018.
The above standards and the amendments will be adopted in the financial statements in the year they become effective and
have not been adopted early.
With the exception of IFRS 16 Leases and IFRS 15 Revenue from Contracts with Customers, their adoption is not expected to
have a significant effect on the Group's financial statements.
IFRS 16 requires lessees to recognise a lease liability and asset for virtually all lease assets; certain short-term leases
and leases of low-value assets can apply an optional exemption. The Group has not yet completed its assessment of the
impact of the standard on the Group's consolidated income statement and statement of financial position. The Group expects
that most of the Group's lease commitments will be brought onto the statement of financial position along with an
associated asset. This change will affect the timing of recognition of lease costs within the income statement. Cash flows
will be unaffected. An assessment of the full effect of IFRS 16 is expected to be completed during the year ending 31st
October 2017.
IFRS 15 sets out revenue recognition conditions, and may have an impact on Group revenue recognition and disclosures. Cash
flows will be unaffected. The Group has not yet completed its assessment of the impact of the standard. The full effect of
IFRS 15 is expected to be completed during the year ending 31st October 2017.
2 SEGMENTAL ANALYSIS
The Executive Management Team, which is accountable to the Board, has been identified as the chief operating decision maker
for the purposes of determining the Group's operating segments. The Executive Management Team approves investment
decisions, allocates Group resources and performs divisional performance reviews. The Group operating segments are
considered to be its divisions (including the regional divisions, as well as the Major Projects and Strategic Land
divisions), each of which has its own management board. All divisions are engaged in residential-led, mixed use
developments in the United Kingdom and therefore, having regard to the aggregation criteria in IFRS 8, the Group has one
reportable operating segment.
3 OPERATING PROFIT
Operating profit from continuing activities is stated after charging
2016 2015
£m £m
Staff costs (Note 4) 65.3 57.3
Depreciation (Note 10) 1.2 1.2
Operating lease rentals
Land and buildings 3.0 3.0
Other operating lease rentals 1.4 1.2
Auditors' remuneration £000 £000
Audit of these consolidated financial statements 50 43
Audit of financial statements of subsidiaries pursuant to legislation 165 125
Non-audit fees
Review of half year results 32 30
In addition to the above, PricewaterhouseCoopers LLP provide audit services to the Crest Nicholson Group Pension and Life
Assurance Scheme. The fees associated with these services £21,845 (2015: £15,775) are met by the assets of the scheme.
4 STAFF NUMBERS AND COSTS
(a) Average monthly number of persons employed by the Group 2016 2015
Number Number
Development 849 792
The Directors consider all employees of the Group to be employed within the same category of Development.
(b) Staff costs (including Directors and key management) 2016 2015
£m £m
Wages and salaries 51.2 44.5
Social security costs 7.3 5.4
Other pension costs 2.4 2.4
Share-based payments (Note 21) 4.4 5.0
65.3 57.3
(c) Key management remuneration 2016 2015
£m £m
Salaries and short-term employee benefits 4.0 3.9
Other pension costs 0.1 0.1
Share-based payments 2.2 2.2
6.3 6.2
Key management comprises the Executive Management Team (which includes the Executive Directors of the Board) and
Non-Executive Directors as they are considered to have the authority and responsibility for planning, directing and
controlling the activities of the Group.
(d) Directors' remuneration 2016 2015
£m £m
Salaries and short-term employee benefits 1.9 1.9
Other pension costs 0.1 0.1
Share-based payments 1.3 1.2
3.3 3.2
Further information relating to Directors' remuneration, incentive plans, share options and pension entitlement appears in
the Directors' remuneration report.
5 FINANCE INCOME AND EXPENSE
2016 2015
Finance income £m £m
Interest income 2.3 1.1
Imputed interest on other financial assets (Note 12) 3.5 3.9
5.8 5.0
Finance expense
Interest on bank loans 8.7 8.9
Revolving credit facility issue costs 0.7 0.7
Imputed interest on deferred land payables 3.9 3.6
Net interest on defined benefit pension plan obligations (Note 21) 0.6 1.3
13.9 14.5
Net finance expense 8.1 9.5
6 INCOME TAX EXPENSE
2016 2015
£m £m
Current tax
UK Corporation tax on profits for the year 31.7 12.2
Adjustments in respect of prior periods 0.8 -
Total current tax 32.5 12.2
Deferred tax
Origination and reversal of temporary differences in the current year 4.7 17.6
Adjustments in respect of prior periods 1.0 0.1
Total deferred tax (Note 13) 5.7 17.7
Total tax in income statement 38.2 29.9
The effective tax rate for the year is 19.6% (2015: 19.4%) which is lower (2015: lower) than the standard rate of UK
corporation tax of 20.0% (2015: 20.42%). The effective tax rate benefits from the effect of enhanced tax deductions in
excess of other items which are not deductible for tax purposes, and the Group expects this profile to continue in future
years. The differences are explained below:
2016 2015
£m £m
Profit before tax 195.0 154.0
Tax on profit at 20.0% (2015: 20.42%) 39.0 31.4
Effects of:
Expenses not deductible for tax purposes 0.5 0.1
Enhanced tax deductions (3.3) (2.4)
Deferred tax change in rate 0.2 0.7
Adjustments in respect of prior periods 1.8 0.1
Total tax in income statement 38.2 29.9
Expenses not deductible for tax purposes include business entertaining and other permanent disallowable expenses. Enhanced
tax deductions include items for which, under tax law, a corporation tax deduction is available in excess of the amount
shown in the income statement, examples are share schemes, defined benefit pension payments and land remediation enhanced
allowances. The increase on prior period is attributable to the timing of share scheme maturities and higher land
remediation costs relieved in the current year. The deferred tax change in rate was the impact of the lower corporation tax
rates being enacted in the current year on the prior period deferred tax balances. Adjustments in respect of prior periods
reflect the difference between the estimated income statement tax charge in the prior year and that of the actual tax
outcome.
7 DIVIDENDS
2016 2015
Dividends recognised as distributions to equity shareholders in the year: £m £m
Prior year final dividend per share of 13.3p (2015: 10.2p) 33.5 25.6
Current year interim dividend per share of 9.1p (2015: 6.4p) 23.1 16.1
56.6 41.7
2016 2015
Dividends declared as distributions to equity shareholders in the year: £m £m
Final dividend for the year ended 31st October 2016 of 18.5p (2015: 13.3p) 46.6 33.5
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 23rd March 2017, and in
accordance with IAS 10 'Events after the Reporting Period', has not been included as a liability in these financial
statements.
8 EARNINGS PER ORDINARY SHARE
Basic earnings per share is calculated by dividing profit attributable to equity shareholders by the weighted average
number of ordinary shares in issue during the year.
For diluted earnings per share, the weighted average number of shares is increased by the average number of potential
ordinary shares held under option during the year. This reflects the number of ordinary shares which would be purchased
using the difference in value between the market value of shares and the share option exercise price. The market value of
shares has been calculated using the average ordinary share price during the year. Only share options which have met their
cumulative performance criteria have been included in the dilution calculation.
The earnings and weighted average number of shares used in the calculations are set out below.
Earnings Weighted average number of Ordinary shares Per share amount
£m Number Pence
Year ended 31st October 2016
Basic earnings per share 156.8 252,848,299 62.0
Dilutive effect of share options - 4,820,986
Diluted earnings per share 156.8 257,669,285 60.9
Year ended 31st October 2015
Basic earnings per share 124.1 251,530,176 49.3
Dilutive effect of share options - 4,985,822
Diluted earnings per share 124.1 256,515,998 48.4
9 INTANGIBLE ASSETS
Goodwill 2016 2015
£m £m
Cost at beginning and end of the year 47.7 47.7
Impairment at beginning and end of the year (18.7) (18.7)
At beginning and end of the year 29.0 29.0
Goodwill arose on the acquisition of Castle Bidco Limited on 24th March 2009. Goodwill is allocated to acquired strategic
land holdings (cash-generating units) within the Group. The recoverable amount is equal to the higher of value in use and
fair value less costs of disposal. The Directors have therefore assessed value in use, being the present value of the
forecast cash flows from the expected development and sale of properties on the strategic land. The forecast looks at the
likelihood and scale of permitted development, forecast build costs and forecast selling prices, using a discount rate of
9.05% (2015: 9.05%), covering a period of 22 years from 2009 (being the minimum period that management expects to benefit
from the acquired strategic land holdings) and based on current market conditions. The recoverable value of the
cash-generating units is substantially in excess of the carrying value of goodwill. Sensitivity analysis has been
undertaken by changing discount rates, profit margins and other variables applicable to the cash-generating units. None of
the sensitivities, either individually or combined, resulted in the fair value of the goodwill being reduced to below its
current book value amount.
10 PROPERTY, PLANT AND EQUIPMENT
Fixtures and fittings Computer equipment Total
£m £m £m
Cost
At 1st November 2014 1.6 7.6 9.2
Additions 0.1 1.5 1.6
Disposals (0.2) (0.2) (0.4)
At 31st October 2015 1.5 8.9 10.4
Additions 0.7 1.1 1.8
Disposals - (0.3) (0.3)
At 31st October 2016 2.2 9.7 11.9
Accumulated depreciation
At 1st November 2014 0.7 6.3 7.0
Charge for the year 0.2 1.0 1.2
Disposals (0.2) (0.2) (0.4)
At 31st October 2015 0.7 7.1 7.8
Charge for the year 0.2 1.0 1.2
Disposals - (0.3) (0.3)
At 31st October 2016 0.9 7.8 8.7
Net book value
At 31st October 2016 1.3 1.9 3.2
At 31st October 2015 0.8 1.8 2.6
At 1st November 2014 0.9 1.3 2.2
The Group has contractual commitments for the acquisition of property, plant and equipment of £nil (2015: £nil).
11 INVESTMENTS
Interests in joint ventures
Below are the joint ventures that the Directors consider are material to the Group. All joint ventures have their place of
business in Great Britain, are 50% owned and are accounted for using the equity method, in line with the prior year.
2016 2015
Entity £m £m
Kitewood (Cossall) Limited 0.6 0.3
Bonner Road LLP - -
Crest A2D (Walton Court) LLP - -
Other non-material joint ventures 0.1 0.2
0.7 0.5
· Kitewood (Cossall) Limited: in April 2015 the Group acquired a 50% interest in the ordinary share capital of Kitewood
(Cossall) Limited, which was set up to develop a site in London. The building works are underway for 123 apartments which are
currently forecast to be completed in 2017. The Group performs the role of project manager, for which it receives a project
management fee from the company. In addition the Group provides funding to the company to facilitate construction, the balance
of which is expected to be repaid to the Group following completion of the construction works in 2017.
· Bonner Road LLP: in August 2015 the Group entered into a partnership agreement with Your LifeSpace Limited to procure and
develop a site in London. Pending a successful residential planning application, the LLP is forecast to start construction in
2017. The LLP will be equally funded by both parties, who will receive interest on loaned sums. The Group will receive a project
management fee.
· Crest A2D (Walton Court) LLP: in January 2016 the Group entered into a partnership agreement with A2 Dominion Limited to
procure and develop a site in Surrey. The LLP will submit a residential planning application in early 2017, with construction
forecast to start once planning is achieved. The development will be equally funded by both parties by way of interest-free
loans. The Group will receive a project management fee.
Summarised financial information for joint ventures
The tables below provide financial information for joint ventures that are material to the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant joint ventures and not Crest Nicholson Holdings plc's share of those amounts.
Kitewood (Cossall) Limited Bonner Road LLP Crest A2D (Walton Court) LLP Other non-material joint ventures Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
£m £m £m £m £m £m £m £m £m £m
Summarised statement of financial position
Current assets
Cash and cash equivalents - - 0.3 - - - - 0.3 0.3 0.3
Other current assets 20.1 12.3 53.4 52.0 24.5 - 0.1 0.7 98.1 65.0
Non-current assets - - - - - - 0.1 0.1 0.1 0.1
Current liabilities
Financial liabilities - - - - - - - (13.7) - (13.7)
Other current liabilities (3.5) (0.6) - (0.2) (0.1) - (0.1) (2.2) (3.7) (3.0)
Non-current liabilities
Financial liabilities (15.4) (11.1) (55.9) (52.0) (24.4) - - - (95.7) (63.1)
Net assets/(liabilities) 1.2 0.6 (2.2) (0.2) - - 0.1 (14.8) (0.9) (14.4)
Reconciliation to carrying amounts
Opening net assets/(liabilities) at 1st November 2015 0.6 - (0.2) - - - (14.8) (14.8) (14.4) (14.8)
Profit/(loss) for the year 0.6 0.6 (2.0) (0.2) - - 15.1 - 13.7 0.4
Dividends paid - - - - - - (0.2) - (0.2) -
Closing net assets/(liabilities) at 31st October 2016 1.2 0.6 (2.2) (0.2) - - 0.1 (14.8) (0.9) (14.4)
Group's share in closing net assets/(liabilities) at 31st October 2016 0.6 0.3 (1.1) (0.1) - - 0.1 (7.4) (0.4) (7.2)
Fully provided in the Group financial statements - - - - - - - 7.6 - 7.6
Recognised against receivable from joint venture - - 1.1 0.1 - - - - 1.1 0.1
Group's share in joint venture 0.6 0.3 - - - - 0.1 0.2 0.7 0.5
Amount due to Crest Nicholson group (Note 15) 15.4 8.0 27.0 25.9 12.4 - - - 54.8 33.9
Kitewood (Cossall) Limited Bonner Road LLP Crest A2D (Walton Court) LLP Other non-material joint ventures Total
Summarised income statement 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
£m £m £m £m £m £m £m £m £m £m
Revenue 6.1 3.2 - - - - 0.6 4.6 6.7 7.8
Expenditure (4.7) (2.1) - - - - (0.6) (4.6) (5.3) (6.7)
Operating profit before financing costs 1.4 1.1 - - - - - - 1.4 1.1
Member balances written off - - - - - - 15.1 - 15.1 -
Interest expense (0.6) (0.3) (2.0) (0.2) - - - - (2.6) (0.5)
Income tax expense (0.2) (0.2) - - - - - - (0.2) (0.2)
Profit/(loss) for the year 0.6 0.6 (2.0) (0.2) - - 15.1 - 13.7 0.4
Group's share in joint venture profit/(loss) for the year 0.3 0.3 (1.0) (0.1) - - 7.6 - 6.9 0.2
Provided in group accounts in prior years - - - - - - (7.6) - (7.6) -
Group's share in joint venture after group provision 0.3 0.3 (1.0) (0.1) - - - - (0.7) 0.2
Commitments and contingent liabilities in respect of joint ventures
Commitments - joint ventures - - - - - - - - - -
Commitment to provide funding 5.7 5.4 1.9 4.0 - - - - 7.6 9.4
Contingent liabilities - joint ventures - - - - - - - - - -
Subsidiary undertakings
The subsidiary undertakings that are significant to the Group and traded during the year are set out below. The Group's
interest is in respect of ordinary issued share capital that is wholly owned and all the subsidiary undertakings are
incorporated in Great Britain and included in the consolidated financial statements.
Subsidiary Nature of
business
Castle Bidco Limited Holding Company
Crest Nicholson plc Holding Company
Crest Nicholson Operations Limited Residential and commercial
property development
A full list of the Group's undertakings including subsidiaries and joint ventures is set out in Note 26.
12 OTHER FINANCIAL ASSETS
2016 2015
£m £m
At beginning of the year 24.2 28.4
Disposals (9.2) (8.1)
Imputed interest 3.5 3.9
At end of the year 18.5 24.2
Of which:
Non-current assets 16.3 23.0
Current assets 2.2 1.2
18.5 24.2
Other financial assets carried at fair value are categorised as level 3 (inputs not based on observable market data) within
the hierarchical classification of IFRS 13 Revised.
Other financial assets comprise shared equity loans secured by way of a second charge on the property. The loans can be
repaid at any time within the loan agreement, the amount of which is dependent on the market value of the asset at the date
of repayment. The 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 Directors' views of an appropriate discount rate
(incorporating purchaser default rate), future house price movements and the expected timing of receipts. These assumptions
are given below and are reviewed at each year end.
2016 2015
Assumptions
Discount rate, incorporating default rate 10.5% 10.5%
House price inflation for the next three years 3.0% 3.0%
Timing of receipt 8 to 15 years 10 to 15 years
2016 2016
Increase assumptions by 1 % / year Decrease assumptions by 1 % / year
£m £m
Sensitivity - effect on value of other financial assets (less)/more
Discount rate, incorporating default rate (0.5) 0.6
House price inflation for the next three years 0.3 (0.3)
Timing of receipt (0.9) 0.8
The difference between the anticipated future receipt and the initial fair value is charged over the estimated deferred
term to financing, with the financial asset increasing to its full expected cash settlement value on the anticipated
receipt date. The imputed interest credited to financing for the year ended 31st October 2016 was £3.5m (2015: £3.9m).
At initial recognition, the fair values of the assets are calculated using a discount rate, appropriate to the class of
assets, which reflects market conditions at the date of entering into the transaction. The Directors consider at the end of
each reporting period whether the initial market discount rate still reflects up-to-date market conditions. If a revision
is required, the fair values of the assets are remeasured at the present value of the revised future cash flows using this
revised discount rate. The difference between these values and the carrying values of the assets is recorded against the
carrying value of the assets and recognised directly in the statement of comprehensive income.
13 DEFERRED TAX ASSETS
Inventories fair value Share-based payments Pension deficit Tax Losses Other temporary differences Total
£m £m £m £m £m £m
At 1st November 2014 19.9 1.2 4.7 13.9 0.6 40.3
Income statement movements (5.6) 0.5 - (12.8) 0.2 (17.7)
Equity movements - 1.6 (3.3) - - (1.7)
At 31st October 2015 14.3 3.3 1.4 1.1 0.8 20.9
Income statement movements (4.2) (0.4) - (1.1) - (5.7)
Equity movements - (1.6) 1.7 - - 0.1
Subsidiary acquired in the year - - - - (0.1) (0.1)
At 31st October 2016 10.1 1.3 3.1 - 0.7 15.2
At the statement of financial position date the substantively enacted future corporation tax rates were 19% for FY17 to
FY19 and 17% beyond. The deferred tax assets have been evaluated at the rates at which they are expected to reverse based
on current forecasts (accounting period ends: 31st October 2017: 19.42%, 31st October 2018: 19%, 31st October 2019: 19%,
31st October 2020: 17.84% and 31st October 2021 and subsequent: 17%).
Inventories fair value represents temporary differences on the carrying value of inventory fair valued on the acquisition
of Castle Bidco Limited in 2009. These temporary differences are expected to be recoverable in full as it is considered
probable that taxable profits will be available against which the deductible temporary differences can be utilised, and are
therefore recognised as deferred tax assets in the above amounts.
During the year the Group acquired a subsidiary containing a deferred tax liability. The deferred tax liability has been
recognised as it is considered probable that the liability will unwind in the near future. Note 26 contains details of
subsidiaries acquired in the financial year.
14 INVENTORIES
2016 2015
£m £m
Land and work-in-progress 843.4 863.8
Completed buildings including show homes 92.4 40.7
935.8 904.5
Included within inventories is a fair value provision of £47.6m (2015: £66.9m) which arose on the acquisition of Castle
Bidco Limited in 2009 and will unwind to cost of sales in future years as the units against which the original fair value
provision was recognised are sold. The amount of fair value provision unwound in cost of sales in the year was £19.3m
(2015: £23.8m). Inventories of £368.4m (2015: £390.0m) is estimated to be recovered in more than 12 months. Inventories of
£717.7m (2015: £565.4m) were recognised as an expense in the year.
15 TRADE AND OTHER RECEIVABLES
2016 2015
£m £m
Non-current
Trade receivables 14.9 0.4
Due from joint ventures 39.4 33.9
54.3 34.3
Current
Trade receivables 29.2 25.2
Recoverable on contracts 21.0 13.6
Due from joint ventures 15.4 -
Other receivables 4.8 7.9
Prepayments and accrued income 4.0 2.3
74.4 49.0
Current trade receivables of £8.0m have been collected since year end (2015: £11.2m). The remaining balance is due
according to contractual terms. Receivables are stated after provision for doubtful debts of £nil (2015: £nil). Amounts due
from joint ventures are net of joint venture losses of £1.1m (2015: £0.1m).
16 INTEREST-BEARING LOANS AND BORROWINGS
2016 2015
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