REG - Crest Nicholson Hdgs - Final Results
19/01/2022 07:05
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RNS Number : 8820Y Crest Nicholson Holdings PLC 19 January 2022
Crest Nicholson Holdings plc
STRONG FINANCIAL PERFORMANCE WITH TURNAROUND NOW COMPLETE
EXCELLENT STRATEGIC PROGRESS SETS PLATFORM FOR EXPANSION
ROBUST BALANCE SHEET TO SUPPORT FUTURE GROWTH
Crest Nicholson Holdings plc ('Crest Nicholson' or 'Group') today announces
its Preliminary Results for the year ended 31 October 2021:
Financial highlights
· Revenue at £786.6m (FY20: £677.9m), reflecting strategic progress and
underlying strength of the housing market
· Strong sales momentum with sales per outlet week(1) (SPOW) of 0.80 (FY20:
0.59) with average outlets at 59 (FY20: 63)
· Forward sales(1) as at 14 January 2022 of 2,702 units and £719.0m Gross
Development Value (GDV) (15 January 2021: 2,435 units and £564.5m GDV) with
c.63% of FY22 revenue covered
· 2,407 (FY20: 2,247) home completions(1), comprising open market completions
(including bulk deals) of 1,924 (FY20: 1,741) and affordable completions of
483 (FY20: 506)
· Adjusted profit before tax(2) at £107.2m (FY20: £45.9m) including £16.0m
contribution from the sale of Longcross Film Studio. Adjusted operating
margin(2) at 14.6% (FY20: 8.4%)
· Exceptional inventory impairment provision credit of £8.0m (FY20: £43.2m
exceptional charge)
· Net exceptional charge for combustible materials of £28.8m (FY20: £0.6m),
with £42.6m (FY20: £14.8m) remaining provision
· Profit after tax increased to £70.9m (FY20: £10.7m loss after tax)
· Increased participation in the land market in the year with 4,332 plots
approved for purchase at a forecast gross margin of 26.7% (after sales and
marketing costs)
· Transformed balance sheet with resources to support future growth ambitions
o Net cash(3) at £252.8m (FY20: £142.2m) and average net cash of £78.4m
(FY20: £99.6m average net debt)
o Return on capital employed increased to 17.2% (FY20: 7.6%)
· Medium-term financial guidance reinstated to accompany growth strategy
· Proposed final dividend of 9.5 pence per share. Total dividend for the year of
13.6 pence per share, in line with dividend policy and reflecting confidence
in outlook
1.FY21 includes joint venture units at full unit count (FY20: Crests share of
joint venture units), and FY21 is on an equivalent unit basis which allocates
a proportion of the unit count for a deal to the land sale element where the
deal contains a land sale (FY20: no equivalent unit allocation to land sale
element). This approach reflects the Group's actual production output and also
removes the distortive impact on ASPs of land sales.
2.Adjusted items represent the FY21 and FY20 statutory figures adjusted for
exceptional items as disclosed in note 4 to the consolidated financial
statements Adjusted performance metrics are disclosed below. These alternative
(non-statutory) performance measures, which are not necessarily better than
statutory measures, have been disclosed as the Directors believe this assists
in better understanding the performance of the Group, which is how the
Directors internally manage the business.
3.Net cash is defined as cash and cash equivalents less bank loans, senior
loan notes and other loans. See note 20 to the consolidated financial
statements for a reconciliation.
Strategic highlights
The Group has delivered a successful turnaround of its financial and
operational performance. It has an efficient operating platform, a
well-resourced balance sheet and an experienced leadership team to execute its
future growth plans:
· Successful roll out of new house types with over 6,800 units now plotted in
the short-term land portfolio (FY20: 5,500). We expect 80% of our private open
market houses will be delivered using this range in FY22
· Over 1,500 plots added to the short-term land portfolio in FY22 YTD
· Achieved another year of five-star customer satisfaction in HBF survey
· Crest Nicholson Partnerships and Strategic Land (CNPSL) established new
relationships and delivered a strong pipeline of bulk deals, including for
several low margin legacy sites
· Ambitious growth strategy outlined at Capital Markets Day on 20 October 2021:
o Plan to open divisions in East Anglia, Yorkshire and one other region by FY24
o New divisional leader for Yorkshire joined Group in January 2022
· Medium-term financial guidance reinstated to accompany growth strategy:
o Phase one: gross margin rate accretion and volume growth from existing
divisions (FY22-FY24)
o Phase two: volume growth from the three new divisions (FY24-FY26)
o Expect FY22 gross margin rate to be similar or slightly ahead of FY21
Medium term targets FY24 FY26
Home completions (units) In excess of 3,000 In excess of 4,200
Divisions 5+ 8
Operating profit margins 18-20%
Return on capital employed 22-25%
Land creditors (% of net assets) Less than 30%
Dividend policy(cover) 2.5x
Sustainability
In FY20 the Group set new sustainability targets and has made strong progress
against these in the year:
Measure Sustainability target by 2025 Achieved in FY21 v FY19 equivalent
Carbon emission intensity reduction 25% 21%
(scope 1 and 2)
Waste intensity reduction 15% 4%
% Renewable electricity (absolute basis) 100% 62%
In FY21 the Group also pledged to reduce its scope 3 emissions and joined the
United Nations-backed Race to Zero, committing to net zero emissions by 2050
at the very latest. This will see the Group develop science-based targets,
validated by the Science Based Targets initiative (SBTi), which will be
announced in FY22. Finally, the Group is also committed to improving
biodiversity on its developments in line with the requirements set out in the
Environment Act 2021.
Combustible materials
On 10 January 2022, the Secretary of State communicated the Government's
latest policy position with respect to building safety concerns arising from
cladding and combustible materials. The Board is carefully considering the
impact of this update and is representing its views in response through the
Home Builders Federation (HBF), who have sought to establish a dialogue with
the Government in this area. The Group recognises the distress caused to
homeowners from living in a property that they rightfully expect is safe and
has been built to a standard that is compliant with all the necessary building
regulations.
The Board and Executive Leadership Team of Crest Nicholson take their
responsibilities in this area very seriously. Following the Grenfell Tower
tragedy, the Group has actively worked to identify buildings where it has an
obligation as legal owner, to remedy defects or meet the requirements of newly
published Government guidance. In addition, it has considered situations
where it is no longer the owner of the building but there are design or
workmanship defects because of the Group, its subcontractors, product
suppliers or designers falling short of their obligations at the time of
construction. In these instances, the Group is taking action to ensure these
issues are remedied as quickly as possible.
In conducting this assessment, and in estimating the provisions made to date,
the Group has not discriminated between buildings based on their height and
has instead considered all buildings where a risk may exist. The Group is
working with a wide range of stakeholders to implement any identified and
agreed remediation works as swiftly as possible and will shortly be paying the
cladding levy announced in the last Budget.
Key financial metrics
£m (unless otherwise stated) FY21 FY20 % change
Home completions(1) 2,407 2,247 7.1
Revenue 786.6 677.9 16.0
Adjusted gross profit(2) 166.7 107.7 54.8
Adjusted gross profit margin(2) 21.2% 15.9% 530bps
Administrative expenses(2) (51.1) (50.3) 1.6
Net impairment losses on financial assets(2) (1.0) (0.3) 233.3
Adjusted operating profit(2) 114.6 57.1 100.7
Adjusted operating profit margin(2) 14.6% 8.4% 620bps
Adjusted net finance expenses(2) (9.1) (10.7) (15.0)
Share of joint venture results 1.7 (0.5) (440.0)
Adjusted profit before tax(2) 107.2 45.9 133.6
Adjusted income tax(2) (19.9) (8.5) 134.1
Adjusted profit after tax(2) 87.3 37.4 133.4
Exceptional items net of income tax (16.4) (48.1) (65.9)
Gross profit 145.9 63.9 128.3
Gross profit margin 18.5% 9.4% 910bps
Net impairment losses on financial assets (1.0) (7.9) (87.3)
Operating profit/(loss) 93.8 (1.8) (5,311.1)
Operating profit/(loss) margin 11.9% (0.3)% 1,220bps
Profit/(loss) before tax 86.9 (13.5) (743.7)
Profit/(loss) after tax 70.9 (10.7) (762.6)
Adjusted basic earnings per share(p)(2) 34.0 14.6 132.9
Basic earnings/(loss) per share (p) 27.6 (4.2) (757.1)
Dividend per share (p) 13.6 - -
1.FY21 includes joint venture units at full unit count (FY20: Crests share of
joint venture units), and, FY21 is on an equivalent unit basis which allocates
a proportion of the unit count for a deal to the land sale element where the
deal contains a land sale (FY20: no equivalent unit allocation to land sale
element). This approach reflects the Group's actual production output and also
removes the distortive impact on ASPs of land sales.
2.Adjusted items represent the FY21 and FY20 statutory figures adjusted for
exceptional items as disclosed in note 4 to the consolidated financial
statements. Adjusted performance metrics are disclosed on below. These
alternative (non- statutory) performance measures have been disclosed as the
Directors believe this assists in better understanding the performance of the
Group.
Peter Truscott, Chief Executive, commented:
'It was a clear objective of the new leadership team to restore Crest
Nicholson to being one of the UK's leading housebuilders. That challenge was
undoubtedly heightened by the arrival of the pandemic. However, we can say
with confidence that we have delivered the turnaround that we wanted. Our
operating platform is now efficient and scalable, our balance sheet is
transformed and equips us with the resources to grow the Group's footprint in
the UK and we have assembled an experienced leadership team to drive the Group
forward.
A strong improvement in financial performance has followed which also reflects
the ongoing underlying strength of the market. We were delighted to increase
profit expectations twice in the year and we have started 2022 with a strong
forward order book and everyone in Crest Nicholson is excited about our plans
for expansion. I would like to thank all colleagues for their dedication and
hard work this year in delivering these results.
It is right that we remain aware of the broader macroeconomic uncertainty, but
the fundamentals of our sector remain strong. I am confident that our strategy
is the right one to navigate this environment and ensure we deliver maximum
value for all of our stakeholders.'
Analyst and investor conference call and webcast
There will be an analyst and investor presentation via webcast, hosted by
Peter Truscott, Chief Executive and Duncan Cooper, Group Finance Director, at
9.00 a.m. today. To join the presentation, please click on the following link:
Crest Preliminary Results FY21 webcast
(https://www.investis-live.com/crest-nicholson/61d5b1377498f50c00d6b3b8/djhuy)
or go to the Crest Nicholson website,
https://www.crestnicholson.com/investor-relations
(https://www.crestnicholson.com/investor-relations) for further details
There is also a facility to join the presentation and Q&A session via a
conference call. Participants should dial +44 203 936 3000 and use
confirmation code 017802. A playback facility will be available shortly after
the presentation has finished. For further information, please contact:
Crest Nicholson
Jenny Matthews, Head of Investor Relations
+44 (0) 7557 842720
Tulchan Communications
+44 (0) 20 7353 4200
James Macey White/Giles Kernick/Martin Pengelley
19 January 2022
Chief Executive's Review
Ready for growth
The Group continued to perform strongly in FY21 and made significant progress
against its strategic priorities despite the impact of the COVID-19 pandemic.
During this financial year the pandemic continued to affect operations,
however the market remained open throughout, and the sales environment was
largely favourable. Disruption associated with the relaxation of restrictions
and the rapid restart of building activities was largely felt in our supply
chains and did result in some difficulties in sourcing materials towards
the end of the year.
Given the backdrop of a favourable sales environment and our success in
navigating these supply chain issues, we have once again delivered a very
pleasing performance against our financial targets and wider strategic
objectives.
It is now apparent that the changes we have introduced to our operational
platform over the past two years are helping us deliver a more consistent
product and customer experience, and this in turn is also flowing through to
our financial performance and cash generation. Accordingly, we are now able to
plan with confidence, and have the necessary balance sheet resources, for a
growth strategy that will see the Group expand into new geographies.
Improving profitability and cash flows
Building more attractive homes in the places where people wish to live and
continuing to offer customers a five-star experience has enabled us to sell
more homes this year.
We achieved 2,407 home completions in the period (2020: 2,247), up 7.1% on the
prior year. We also finished the year with a strong forward order book.
Forward sales as at 12 November 2021 were 2,502 units and £623.9m Gross
Development Value which will enable the delivery of a strong performance in
the coming year.
This volume growth was achieved despite some of the disruption we experienced
to our supply chains. Both materials and labour availability have been
impacted throughout the year by Brexit, the ongoing impacts of COVID-19
restrictions and then towards the end of the financial year, the rapid
increase in global construction output as restrictions started to lift,
outstripping the ability for supply chains to react quickly enough.
We have managed to weather these headwinds by virtue of our strong
relationships with our subcontractors, careful forward planning of purchasing
and delivery of materials, and where appropriate sourcing alternative options,
such as concrete bricks, to ensure continuity of our operations. I am always
impressed by our industry's ability to find solutions to these types of
problems, and I want to pay tribute to all my colleagues in Crest Nicholson
for their outstanding efforts in overcoming these challenges this year,
ensuring we still delivered our customers their homes on time and met our
financial targets as well.
Adjusted profit before tax (APBT) of £107.2m (2020: £45.9m) was up strongly
against prior year, ahead of our expectations. The combination of volume
growth, moderate levels of house price inflation and a retained discipline on
our overhead structure supported the expansion of earnings. Within APBT the
Group recognised £16.0m in respect of the disposal of our share in the
Longcross Film Studio to our joint venture partner Aviva. This divestment of a
non-core asset also delivered a cash contribution of £46.0m during the year,
which can now be reinvested into our core housebuilding activities.
Within profit before tax of £86.9m (2020: £13.5m loss before tax) for the
year the Group also recognised two items relating to the reversal of a
previously recorded exceptional net realisable value provision and a further
charge for combustible materials. At HY20, and at the peak of COVID-19
uncertainty, the Group responded to market consensus that residential and
commercial asset values would fall, because of economic uncertainty stemming
from the pandemic. An exceptional inventory impairment charge of £43.2m was
taken at this time. Given the robust performance of the housing market since
HY20, the Group has decided to release the unutilised element of this
provision, resulting in an exceptional credit for the year of £8.0m.
In addition, the Group continues to carefully review any potential remediation
obligations to legacy buildings arising from the latest Building Regulations
and Fire Safety Regulations. This review remains complex and judgemental in
nature and often involves multiple stakeholders in developing agreed
solutions. As our review has progressed, we have started to receive more
detailed reports on the remedies required, primarily from those schemes that
have been more complex and time consuming to investigate. Given the
specialist nature of this work and the scarcity of qualified resource to
conduct reviews, we have also seen inflation in our costs to complete for both
labour and materials. To reflect our latest expectation of the overall
remediation costs the Group has also recorded a further exceptional net
combustible materials charge in the year of £28.8m.
More detail on both items can be found in the Financial Review below.
Our strategy has delivered a transformational effect on the balance sheet.
Further progress in divesting poorer legacy schemes, coupled with better
work-in-progress management, disciplined capital allocation and the cash
contribution from the Longcross Film Studio sale have all contributed to us
finishing the year with £252.8m of net cash (2020: £142.2m).
Investment in land
Following a year of reduced land purchasing activity because of the COVID-19
uncertainty, the Group was far more active in acquiring land in the year. The
land market remains competitive, but our operational efficiency programme has
ensured that we can now appraise land on robust assumptions and strong
margins. Accordingly, we approved 4,332 plots for purchase during the year at
a forecast gross margin (after sales and marketing costs) of 26.7%.
Operational excellence
The enhancements we made to our operational platform in FY20, driving
standardisation and consistency across multiple facets of the business, have
continued to positively impact our performance.
Benefits delivered the previous year in overhead efficiency and more
productive sales and marketing costs have been consolidated. Notwithstanding
the external inflation pressures on build costs, these have also reduced due
to the continued roll out of our new house type range and our high quality
standardised specification. In FY21 30% of our private open market house
completions utilised the new house type range and over 6,800 units of our open
market housing in our short-term land portfolio is now plotted with one of
these products. By FY22 we expect 80% of our private open market house
completions will utilise this range.
Our operational efficiency improvements also extend their reach to our
customer service and satisfaction scores. We were delighted to be awarded
another five-star customer satisfaction score from the Home Builders
Federation (HBF). This is a testament to the hard work of all our teams who
are committed to ensuring every Crest Nicholson customer is happy and
satisfied with the homes we hand over.
Crest Nicholson Partnerships and Strategic Land (CNPSL)
Our CNPSL team delivered a strong performance in the year providing support to
our trading divisions. Many sales were negotiated with registered providers
for affordable homes at enhanced values. Significant numbers of sales were
agreed for homes for the private rented sector (PRS) also. These sales,
increasingly with long-term strategic partners, offer support and visibility
to our order book and have also enabled us to exit from some of our more
challenging legacy projects earlier than might otherwise have been the case.
Increasing competition in the PRS sector is driving stronger pricing, initial
offers and leading to lower discounts to private sale margin levels. Progress
was made across a multitude of our strategic land projects in the period with
new assets also being added. These will provide sites with enhanced margins
for our trading divisions in the coming years.
Sustainability - committed to action on climate change
We understand the urgent challenge around climate change and are increasing
our efforts to do more in this respect. In FY20 we set out targets to 2025 to
reduce our scope 1 and 2 emissions and the waste we generate on our sites. We
also committed to utilise 100% renewable electricity over the same period.
Strong progress was made against these measures in FY21, but we recognise that
we must go further. Accordingly, we have pledged to reduce our scope 3
emissions and joined the United Nations-backed Race to Zero, committing to net
zero emissions by 2050 at the very latest. We are also committed to improving
biodiversity on our developments in line with the requirements set out in the
Environment Act 2021.
Our team
It has been another challenging year for our teams as they have sought to
balance their personal lives, often impacted by the ongoing difficulties
around the pandemic, with our business needs. Their commitment and performance
has been outstanding and once again I would like to thank everyone for their
considerable efforts.
The business has continued to utilise an agile working approach for most
roles, enabling a combination of office and home working. It is recognised
though that the benefits of some office working remain very important in
supporting our sites, enhancing teamwork, and providing training and guidance
for our less experienced team members.
Our comprehensive employee engagement survey showed an overall score of 75%,
up by 5% in FY21 which reflects the ongoing initiatives and progress our
employees are seeing. Alongside other sectors however, we continue to see
higher employee turnover rates than we would like, predominantly driven by a
shortage of people for specific roles across the industry. The Board and
Executive Leadership Team regularly discuss this topic and I am confident that
the measures we are taking to make Crest Nicholson a great place to work will
see this pressure start to subside.
Geographical expansion
On 20 October 2021 the Group held a Capital Markets Day at our development
Wycke Place, Maldon, Essex. The event was a great opportunity to communicate
key messages about Crest Nicholson's future and showcase our new house type
range.
We were able to outline that our turnaround is now complete. We have an
efficient operating platform that can be scaled in other parts of the UK and a
strong balance sheet that can finance this growth or return additional capital
to shareholders. The Board considered the strategic choices for the Group
carefully over the summer of 2021 and concluded that a growth strategy was the
best way to maximise value for shareholders.
The housing market backdrop remains attractive. There is an under-supply of
homes in the areas of most demand. These areas in Southern England and parts
of the Midlands coincide with our current operations and our extensive land
portfolio. This positions us strongly to grow volumes of home completions over
the medium term as we mature towards a capacity of around 3,250 homes per year
from our five existing trading divisions. Our profitability will also improve
as the legacy poorer margin schemes fall away and the new house types
represent the mainstay of our earnings instead.
However, notwithstanding the favourable market environment and capability in
our existing geographies, the Group now has a platform which can be rolled out
into new regions in the UK. We also have an experienced leadership team in
place who have operated in other areas and understand those local markets.
Finally, we also have financial resources to acquire the new land needed in
these areas and can do so while maintaining a robust balance sheet.
Therefore, in FY22 we will start to set up new divisions in Yorkshire and East
Anglia. These divisions will take time to establish and will start to make a
material contribution to earnings from FY24. The Government is committed
to 'levelling up' the UK economy and we see this leading to more housing
growth in Northern England and to more limited opportunities for land release
in the South.
As such, we see strong alignment with our locations and timings for expansion.
Yorkshire has a strong economy, a growing population and excellent transport
networks. The East Anglia market functions similarly to our existing Southern
and Midlands environments. It is expected to have strong population growth but
also has a more visible pipeline of land releases coming forward. By FY24 we
will identify a third division for expansion with contribution expected from
FY26. We will provide further detail of these plans nearer the time.
Outlook - our focus for FY22
As we move into FY22 and beyond our focus remains on enhancing our
profitability through both margin rate accretion and volume growth. We will
continue to invest in land in our existing divisions and in the new geographic
areas already referred to.
Our consistent operating model, experienced leadership team and strong balance
sheet will enable us to achieve this growth in a disciplined manner ensuring
that we also maintain our focus upon quality, customer service and the climate
change agenda.
Peter Truscott
Chief Executive
Financial Review
Introduction
The Group has delivered a strong rebound in financial performance this year.
Trading was robust across all divisions allowing us to increase our financial
expectations as the year unfolded. We made great progress in divesting our
poorer legacy sites while at the same time remaining active in the land
market, approving new acquisitions at our desired hurdle rates. The sale of
the Longcross Film Studio, coupled with a sustained and disciplined focus on
capital allocation, means the Group's financial position has been transformed,
and provides us with the platform to grow the Crest Nicholson brand in new
geographies in the UK.
As in previous years, the business continues to report alternative performance
measures relating to sales, return on capital employed and 'adjusted'
performance metrics because of the exceptional items as detailed in note 4
within the financial statements. The exceptional items have a material impact
to reported performance and arise from recent, unforeseen events. As such, the
Directors consider these adjusted performance metrics reflect a more accurate
view of its core operations and underlying business performance. All
alternative performance measures are detailed below.
FY21 trading performance
The UK housing market performed strongly during the year. Although COVID-19
restrictions continued in some form until July 2021, housebuilders received
strong encouragement from the Government to keep building and remain open for
business. Further economic support remained in place through the extension of
the temporary reduction in Stamp Duty Land Tax (SDLT) which helped support
changing confidence levels. The effect of national lockdowns and work from
home guidance advice challenged well established traditional living and
working patterns. Extra space at home and more outdoor space became
increasingly desirable for home buyers looking to adapt to their changing
working practices. In the second half of the year, we started to see shortages
of both labour and materials, as the global economy rapidly reopened when
COVID-19 restrictions started being lifted, following the successful rollout
of vaccines. In the UK the full impact of Brexit, especially on labour
availability, was also clearly a feature. The Group was able to navigate its
way through these challenges successfully and is confident it is already
seeing signs that these pressures have stabilised, and in some areas, have
started to reduce.
Sales, including joint ventures, increased by 17.4% on prior year at £813.6m
(2020: £693.1m). This comprised £786.6m of statutory revenue (2020:
£677.9m) and £27.0m of the Group's share of revenue through joint ventures
(2020: £15.2m).
The Group delivered 2,407 (2020: 2,247) home completions during the year, up
7.1% on prior year. This comprised open market completions (including bulk
deals) of 1,924 (2020: 1,741), up 10.5% on prior year and affordable
completions of 483 (2020: 506), down 4.5%, due to a change in sales mix and
unit reporting. At HY21 the Group announced a change to the way it reports
units of home completions to bring it line with more commonly adopted
reporting protocols for UK housebuilders. The 2,407 units reported in the year
includes joint venture units at full unit count. In addition, the unit count
has an allocation for any land sale element that is present in any relevant
completed transaction and is referred to as being on an equivalent unit
basis. This approach reflects the Group's actual production output and also
removes the distortive impact on average selling prices (ASP) of land sales.
Prior period home completions were reported using the Group's share of joint
venture units and no equivalent unit allocation to any land sale element of a
relevant completed transaction.
Open market (private) ASPs increased to £359,000 (2020: £336,000) during the
year as the Group responded to the inflationary environment in the UK housing
market. In addition, the discount to open market selling price for bulk deals
continues to narrow as deals are now being conceived on a longer-term basis
and with a growing set of trusted strategic partners. The Group continued to
sell through the legacy central London portfolio, at higher ASPs than the rest
of its divisions and was left holding only one unit (excluding London Chest
Hospital) for private sale at the end of the year.
Adjusted gross profit was £166.7m (2020: £107.7m), up 54.8% on prior year.
The stronger trading performance year-on-year was the major driver of this
improvement but contained within this year's balance was a £16.0m one-off
contribution arising from the sale of the Longcross Film Studio to our joint
venture partner on that scheme, Aviva. Adjusted gross margin rate was ahead of
our expectations at 21.2% (2020: 15.9%), up strongly on prior year reflecting
the stronger underlying trading performance, the Longcross Film Studio
contribution, and the delayed recognition of the final stages of two low
margin, rate diluting, legacy schemes at Sherborne Wharf, Birmingham and Old
Vinyl Factory, Hayes, which will now complete in FY22. The Longcross
transaction is reflected in the increase in land and commercial sales for the
year at £49.2m (2020: £17.8m). Gross profit margin was £145.9m (2020:
£63.9m), up 128.3% on prior year. In FY22 the Group expects the gross margin
rate to be similar or slightly ahead of FY21.
Administrative expenses for the year were £51.1m (2020: adjusted
administrative expenses £50.3m), overhead efficiency is 6.5% (2020: adjusted
overhead efficiency 7.4%) reflecting an ongoing discipline in managing the
Group's central overheads. This charge contained the voluntary repayment in
the year of £2.5m of Government Job Retention Scheme financial support which
was received and recognised in the prior year. Given the Group's improved
financial performance a higher bonus charge has also been recognised
year-on-year and offsetting this has been the reclassification of management
fee income from joint ventures of £1.5m to administrative expenses from cost
of sales.
A net impairment loss on financial assets of £1.0m (2020: exceptional charge
of £7.6m) was recognised in the year in respect of the London Chest Hospital
development. This asset is held in a joint venture with an interest-bearing
intercompany loan between the Group and the joint venture. The proposed
development was subject to a judicial review in the year, challenging the
consent that had been given to develop the site. The review was upheld, and
the Group is in the process of appealing against the ruling. To reflect the
latest timing now expected for works to commence and sales to then be
recognised, and in consideration of the loan arrangement in the shared joint
venture vehicle, the Group has recorded a further £1.0m charge for the
expected credit loss on the loan associated with this scheme.
Adjusted operating profit rose strongly to £114.6m (2020: £57.1m) reflecting
the significantly enhanced gross margin performance and ongoing focus on
tightly controlling overheads. This translated into an adjusted profit before
tax (APBT) for the year of £107.2m (2020: £45.9m), up 133.6% on prior year.
Profit before tax after exceptional items for the year was £86.9m (2020:
£13.5m loss), reflecting the combined impact of the stronger year-on-year
operating profit contribution and the lower exceptional charge comparative.
Operating profit was £93.8m (2020: loss of £1.8m).
The Group has made good progress this year in implementing its strategy and
its turnaround is now complete. The divestment of the Longcross Film Studio
has provided a significant one-off contribution to profitability in the year,
but also significantly strengthened a rapidly improved balance sheet. Given
these financial resources and the Group's positive outlook for the UK housing
market, and clear visibility to improving gross margins in future years, the
Group was pleased to announce an ambitious growth strategy at its Capital
Markets Day on 20 October 2021 - see further detail above (Strategic
highlights).
Exceptional items
As we came out of the first lockdown in May 2020, the overwhelming consensus
amongst market commentators was that house prices would fall sharply given the
expected economic consequences of the pandemic. At this time, Crest Nicholson
had some zero or low margin sites which would require impairing if this
scenario was to be realised. This was the context for the exceptional net
realisable value (NRV) provision that the Group made at HY20, as we applied an
assumed 7.5% reduction in residential selling prices and a 32.0% reduction in
commercial values across our whole portfolio.
In contrast to this outlook the housing market has performed strongly during
the year. The Government acted decisively in the face of COVID-19 by
temporarily reducing the rate of stamp duty and encouraging housebuilders to
remain operational with the appropriate safety protocols in place. In
addition, the way in which COVID-19 has challenged traditional working
patterns has encouraged homeowners to assess the suitability of their current
property for home working and driven a desire for more outdoor space. All
these factors have helped underpin strong demand for new homes and
resulted in house price inflation.
Accordingly, the Group took the decision at HY21 to reassess its NRV provision
without a forecast 7.5% residential sales price fall. It has also retained the
32.0% commercial sales price fall assumption relating to commercial property,
where market conditions remain challenging. Although a large proportion of
this provision has, or will be utilised to trade out of complex, mostly
apartment-based legacy schemes, releasing the remaining balance has created an
exceptional credit to the income statement of £8.0m.
In the year ended 31 October 2019, following the latest Government guidance
notes in respect of combustible materials, fire risk and protection, and
regulatory compliance on completed developments, the Group recorded an
exceptional charge of £18.4m.
In the year ended 31 October 2020, the Group reassessed the adequacy of the
provision held, resulting in a net combustible materials charge of £0.6m,
comprising a charge of £2.6m and a credit of £2.0m from settlement of
claims against architects and subcontractors for incorrect building design or
workmanship. These costs were previously included within the combustible
materials exceptional expense.
In the current year, the Group again reassessed the adequacy of the provision
held, resulting in a net charge of £28.8m, comprising a charge of £31.2m and
a credit of £2.4m from settlements of claims against architects and
subcontractors. The main driver for the increase in the charge has been the
September 2021 deadline for freeholders and managing agents to apply for the
Government's Building Safety Fund and so during the year the Group received
new claims predominantly where it is no longer the freeholder of the building
and following the results of intrusive surveys where fire related defects have
been identified. The Group spent £3.4m in the year across several buildings
requiring further investigative costs, including balcony and cladding related
works. See notes 23 and 26 for additional information. Total exceptional items
before tax are £20.3m (2020: £59.4m).
Finance expense and taxation
An adjusted net finance expense of £9.1m (2020: £10.7m) was £1.6m lower, as
the Group's revolving credit facility remained undrawn for the duration of the
year. An adjusted income tax charge in the year of £19.9m (2020: £8.5m)
represented an effective tax rate of 18.6% (2020: 18.5%). The forthcoming
impact of the Residential Property Developer Tax (RPDT) on the Group is
detailed in note 8 to the financial statements.
Dividend
The Board proposes to pay a final dividend of 9.5 pence per share for the
financial year end 31 October 2021 which, subject to shareholder approval, is
expected to be paid on 8 April 2022 to shareholders on the register at the
close of business on 18 March 2022. This is in addition to the 4.1 pence per
share interim dividend that was paid in October 2021.
A transformed balance sheet
At 31 October 2021, the Group had net cash of £252.8m (2020: £142.2m) and
was ungeared (2020: ungeared). Net cash and land creditors were £29.9m (2020:
(£63.5m) net cash and land creditors). Return on capital employed increased
strongly in the year to 17.2% (2020: 7.6%). The Group's balance sheet has been
transformed over the past two years. A strong focus on more disciplined
capital allocation and tightly aligning build stages, and associated
work-in-progress, to sales rates has underpinned this progress and enabled the
Group to run on an average net cash basis throughout the year. Average net
cash during the period was £78.4m (2020: £99.6m average net debt). The Group
has also successfully divested several poorer legacy schemes, transacting at a
lower level of expected profitability over time for cash now, where it has
been economically sensible to do so. During the year this review also extended
to any non-core assets held on the balance sheet and resulted in the
successful divestment of the Longcross Film Studio. This provided a one-off
cash receipt of £46.0m, received in September 2021.
Inventories at 31 October 2021 were £1,037.5m (2020 restated to reflect the
change in accounting policy on land options per note 23 to the financial
statements: £1,017.7m), up 1.9% year-on-year. This balance is net of the NRV
provision referred to above of £20.7m (2020: £37.1m) which now predominantly
relates to the Group's schemes at Brightwells Yard, Farnham and Old Vinyl
Factory, Hayes. A detailed reconciliation of this year's charge and the
provision is made in note 19. Completed units at 31 October 2021 fell to
£57.7m (2020: £107.0m). Approximately one-sixth (2020: one-fifth) of the
stock of completed units was represented by show homes.
There has been a material improvement in the Group's defined benefit pension
scheme, recognising a retirement benefit surplus in the year of £16.7m (2020:
deficit £13.8m), driven mainly by improved asset returns and funding
contributions in the year.
Net cash inflow from operating activities was £126.5m (2020: £114.2m) and
return on capital employed improved strongly in the year to 17.2% (2020:
7.6%), reflecting the effect of both the increase in earnings and
significantly enhanced balance sheet position. Net assets at 31 October 2021
were £901.6m (2020 restated: £825.3m), an increase of 9.2% on the previous
year.
Land portfolio
The Group continues to benefit from a well-located land portfolio and has a
clear strategy of how it intends to generate future value from these assets.
The improvements delivered through the Group's operational efficiency
programme are now being reflected in appraisals for new land, and this coupled
with the significantly enhanced balance sheet position, has enabled the Group
to step up its activity in the land market during the year. 4,332 plots have
been approved for purchase at a forecast gross margin of 26.7% (after sales
and marketing costs).
The Group's short-term land portfolio at 31 October 2021 contained 14,677
(2020: 14,991) plots, representing circa five years of supply. The associated
forecast gross margin of this portfolio increased in the year to £1,145.7m
(2020: £829.8m), primarily because of the NRV reversal referenced above. At
the year end the Group held 22,308 (2020: 22,724) plots in the strategic land
portfolio, resulting in a total land portfolio of 36,985 (2020: 37,715) plots.
During the year the Group added 1,510 units to the short-term land portfolio
and delivered 2,407 home completions. The ASP of units within the short-term
portfolio, including affordable units and units being sold for private rental,
increased to £325,000 (2020: £295,000), up 10.2% reflecting the effect of
the reversal of the NRV provision referenced above, an element of house price
inflation embedded in the portfolio and the change to equivalent unit basis.
2021 2020
Units(1) GDV(2) - £m Units(1) GDV(2) - £m
Short-term housing 14,677 4,482 14,991 4,424
Short-term commercial - 44 - 73
Total short-term 14,667 4,526 14,991 4,497
Strategic land 22,308 7,308 22,724 6,863
Total land pipeline 36,985 11,834 37,715 11,360
(1) Units based on management estimates of site capacity. FY21 includes
joint venture units at full unit count (2020: Group's share of joint venture
units). FY21 is presented on an equivalent unit basis which allocates a
proportion of the unit count for a deal to the land sale element where the
deal contains a land sale (2020: no equivalent unit allocation to land sale
element).
(2) Gross development value (GDV) is a management estimate calculated on
the basis of a number of assumptions, for example, assumed sale price, number
of units within the assumed development and the split between open market and
affordable housing units, and the obtaining of planning permission. These are
management's estimates and do not provide assurance as to the valuation of the
Group's portfolio. Units based on management estimates of site capacity.
Duncan Cooper
Group Finance Director
Cautionary statement regarding forward-looking statements
This release may include statements that are, or may be deemed to be,
'forward-looking statements'. These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
'believes', 'estimates', 'plans', 'projects', 'anticipates', 'expects',
'intends', 'may', 'will' or 'should' or, in each case, their negative or other
variations or comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These forward-looking
statements include all matters that are not historical facts. They appear in a
number of places throughout this release and include, but are not limited to,
statements regarding the Group's intentions, beliefs or current expectations
concerning, among other things, the Group's results of operations, financial
position, liquidity, prospects, growth, strategies and expectations of the
industry.
By their nature, forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances. Forward-looking
statements are not guarantees of future performance and the development of the
markets and the industry in which the Group operates may differ materially
from those described in, or suggested by, any forward-looking statements
contained in this release. In addition, even if the development of the markets
and the industry in which the Group operates are consistent with the
forward-looking statements contained in this release, those developments may
not be indicative of developments in subsequent periods. A number of factors
could cause developments to differ materially from those expressed or implied
by the forward-looking statements including, without limitation, general
economic and business conditions, industry trends, competition, commodity
prices, changes in law or regulation, changes in its business strategy,
political and economic uncertainty. Save as required by the Listing and
Disclosure Guidance and Transparency Rules, the Company is under no obligation
to update the information contained in this release. Past performance cannot
be relied on as a guide to future performance.
Principal Risks and Uncertainties
The Group's emerging and principal risks are outlined below. They are
monitored by the Executive Leadership Team, the Audit and Risk Committee and
the Board.
Emerging risks
Emerging risks have the potential to impact our Group strategy but currently
do not have the ability to be fully defined, or are our principal risks which
are particularly elevated or increasing in velocity.
Our emerging risks are identified through horizon-scanning by the Executive
Leadership Team and Board in relation to industry and macroeconomic trends.
This is supported by our divisional risk review process.
Examples of emerging risks which were considered during the year are:
COVID-19 pandemic
Given the rising case numbers and variants in the UK over the winter period
we continue to monitor the situation carefully and have the appropriate
plans in place if there are further Government restrictions imposed, including
the ability to work in a COVID-19-secure environment.
Regulatory change
This risk continues to evolve and has several dimensions. It reflects the
proposed changes in regulations concerning energy efficiency and
sustainability, the introduction of the New Homes Ombudsman alongside legacy
matters, such as combustible materials and building safety. Possible changes
to the planning systems have also been tabled by the Government and may
impact our future land acquisitions and new home delivery. In addition, there
is an outstanding consultation by BEIS in relation to audit and corporate
governance.
Site labour and materials
Material shortages and labour availability have challenged our industry and
created inflationary pressures in some areas. We have continually monitored
the impact of these risks throughout the year and maintained effective
relationships with our supply chain partners through comprehensive trade
agreements. Where appropriate, we have forward ordered materials to secure
supply and utilised available product alternatives, ensuring quality standards
are maintained.
Reputational impact
Several legacy matters have impacted the perception of the housebuilding
sector. If matters continue to negatively impact the industry's earlier home
buyers and other stakeholders, there is a potential that this could create a
further principal risk.
Changes to our principal risks
As part of the Group's risk review processes, some risks have evolved or been
added to the Group's principal risks:
Access to site labour and materials - increasing trend
Attracting and retaining our skilled people - increasing trend
Solvency and liquidity - decreasing trend
Laws, policies and regulations - increasing trend
Climate change - new risk.
Please see further details in Principal risks below.
Principal risks
1. Epidemic or pandemic from infectious diseases
Risk description Actions/mitigations
An epidemic or pandemic of an infectious disease may lead to the imposition of Maintenance of a strong balance sheet able to withstand a sustained period of
Government controls on the movement of people, including social distancing, complete or partial cessation of business activity.
with the cessation of large parts of the economy for a significant period
of time. This could lead to: Maintenance and regular testing of business continuity and disaster recovery
plans supported by investment in IT to enable robust homeworking facilities.
Short to medium-term impact to consumer confidence
Engagement with industry bodies to enable construction and home moving
Lack of liquidity and/or mortgage availability in the mortgage market activities to continue.
Disruption to our ability to deliver services to customers in the event of
supply shortages and/or widespread loss of key people (both employees and
subcontractors), with adverse impacts on customer volumes and experience.
Development in the year
The UK Government has removed COVID-19 social distancing measures following
the implementation of its vaccination programme enabling us to return
to normalised construction and home moving activities.
With infection rates fluctuating, the divisions are managing productivity in
response to this.
The Board and Executive Committee are aware that there is also a potential
emerging risk around developing variants and continue to monitor the situation
carefully.
We have robust procedures and capabilities to operate through restrictions
that may be reintroduced, developed from the learnt experiences of the
pandemic so far.
2. Demand for housing
Risk description Actions/mitigations
A decline in macroeconomic conditions in the UK, which negatively impacts the We focus on strategic purchasing of sites, continued development of shared
UK residential property market and reduces the ability for people to buy ownership models and provision of a variety of incentive schemes.
homes, either through unemployment or low employment, constraints on mortgage
availability, or higher costs of mortgage funding. Forward sales, cash flow and work-in-progress are carefully monitored to give
the Group time to react to changing market conditions.
Changes to regulations and taxes, for example stamp duty land tax (SDLT) and
the impact of Government schemes like Help to Buy; Equity Loan (HtB). Regular sales forecasts and cost reviews to manage potential impact on sales
volumes.
Decreased sales volumes occurring from a drop in housing demand, could see an
increasing number of units held as unreserved stock and part exchange stock We have an agile and appropriately structured organisation to meet
with a potential loss realised on final sales. the changing demands within the housebuilding sector.
An over-reliance on HtB, which has now been restricted, and other Our Multi Channel Approach gives us access to a range of tenure options in
Government-backed ownership schemes to boost sales volumes and rates. changing market conditions.
Limited land availability restricting our ability to meet housing demand and
allow us to grow successfully.
Development in the year
Although demand for housing remains strong, there are economic headwinds
arising from the aftermath of COVID-19. Rising inflation and increasing energy
costs could lead to reduced disposable income that may impact the housing
market.
The economic recovery is taking longer to materialise than initially forecast
and the Government's HtB scheme is now restricted to first-time buyers
with regional price caps.
Our operational efficiency programme is enabling us to acquire land more
competitively and build more efficiently.
We continue to strengthen our balance sheet giving us the resources to be
competitive in all market scenarios.
3. Safety, Health & Environment (SHE)
Risk description Actions/mitigations
A significant health and safety event could result in a fatality, We have strengthened the safety leadership culture and alignment of safety and
serious injury or a dangerous situation to an individual. operational performance.
Significant environmental damage could be caused by operations on site or in Focus on strengthening management systems with increased authority for
our offices (for example, water contamination from pollution). divisional build managers and Group SHE advisors to undertake incident
investigations and implement follow up actions.
Lack of recognition of the importance of the wellbeing of employees.
Appointment of an external independent safety auditor to conduct regular site
These incidents or situations could have an adverse effect on our reputation safety reviews as appropriate and without warning.
and ability to secure public contracts and/or, if illegal, prosecution
or significant financial losses. Use of Construction Environment Risk Assessments and Environmental Management
Plans.
Use of external specialist consultants and/or contractors where specific
health and safety requirements demand.
Development of health and wellbeing roadshows for employees and implementing
flexible or agile working arrangements to enable employees to meet both their
professional and/or personal needs.
Operational focus at site, sales and office locations in response to the
Government's COVID-19 guidance.
SHE performance is a bonus metric target used across the Group, including for
Executive Directors.
Development in the year
Safety performance continues to be our number one priority and performance
remains stable.
Our new house type range is reducing build complexity and related risks.
We continue to have a rigorous safety monitoring regime with safety
inspections at divisional levels, including an independent safety advisory
firm to assist in monitoring site performance.
Safety is embedded in our performance reviews, and we continue to enhance and
develop our SHE policies and procedures.
4. Access to site labour and materials
Risk description Actions/mitigations
Rising production levels across the industry put pressure on our materials We encourage longer-term relationships with our supply chain partners through
supply chain. Group trading agreements and multi-year subcontractor framework agreements.
These agreements also seek to mitigate price increases.
The industry is struggling to attract the next generation of talent into
skilled trade professions. We maintain broad supply chain options to spread risk and meet contingency
requirements.
There is also a potential reduction in labour availability from the EU market.
We engage in dialogue with major suppliers to understand critical supply chain
Increased use of more modern methods of construction could result in a labour risks and respond effectively.
market that no longer has the knowledge and skills required to deliver these
types of construction projects. It is also possible that the supply chain We have developed effective procurement schedules to mitigate supply
struggles to maintain capacity for new types of materials. challenges.
Given the current UK economic climate and uncertainty there is an enhanced We consider different construction methods such as timber frame or using
likelihood of suppliers and subcontractors facing insolvency. alternative materials such as concrete bricks.
Development in the year
Material shortages and labour availability challenges continue to impact the
housebuilding industry and this has led to inflationary pressures in the
year.
We continue to work with our supply chain partners to maximise our use of
trade agreements and supply of available labour.
Where possible and appropriate we forward order materials to secure supply
and also utilise alternative products if they are available and it is
appropriate to do so.
5. Customer service and quality
Risk description Actions/mitigations
Customer service and build quality falls below our required standards, The updated strategy focuses on enhancing build quality, maintaining a
resulting in a reduction of reputation and trust, which could impact sales five-star customer satisfaction rating and a retained commitment to excellent
rates and volumes. placemaking.
Unforeseen product safety, quality issues or latent defects emerge due to new We have enhanced our quality and build stage inspections to monitor adherence
construction methods. to our quality standards.
Failure to effectively implement new regulations on build quality and respond We have a clear strategy and action plan for addressing legacy combustible
to emerging technologies. materials risk and have made a further provision in our FY21 financial
statements.
We have a new house type range that reduces complexity and drives improvements
in quality.
Customer satisfaction and quality performance is a bonus metric target used
across the Group, including for Executive Directors.
Development in the year
Excellent customer service is one of our strategic priorities, embedding a
'right first time' culture that focuses on the delivery of our homes and
after sales services. We have a strong brand and continue to be rated as
a five-star housebuilder by the Home Builders Federation (HBF).
6. Build cost management
Risk description Actions/mitigations
Build cost inflation and unforeseen cost increases driven by demands in the We benchmark our costs against existing sites to ensure our rates remain
supply chain or failure to implement adequate cost control systems. competitive. We build and maintain strong relationships with our suppliers and
seek to obtain volume purchasing benefits.
Lack of awareness and understanding of external factors that may impact build
costs including complex planning permissions and emerging sustainability and We operate a fair and competitive tender for works process and we are
environmental regulations. committed to paying our suppliers and subcontractors promptly.
A lack of quality in the build process could expose the Group to increased There are rigorous and regular divisional build cost review processes and
costs, reduced selling prices and volumes, and impact our reputation. site-based quality reviews.
We continue to monitor alternative sources of supply where possible and
utilise alternative production methods or materials where it is appropriate to
do so.
Development in the year
Operational Efficiency is one of the Group's strategic priorities and the
Executive Leadership Team routinely reviews build cost movements at both a
Group and divisional level.
The implementation of COINS as our new ERP platform will enhance the reporting
of build costs across the Group.
7. Information security and business continuity
Risk description Actions/mitigations
Cyber security risks such as data breaches and hacking leading to the loss We employ network security measures and intrusion detection monitoring,
of operational systems, market-sensitive information or other critical data including virus protection on all computers and servers, and carry out annual
which compromises compliance with data privacy requirements. security-breach tests. We utilise customer relationship management systems for
storing sensitive data to prevent negligent misuse by employees.
This could result in a higher risk of fraud, financial penalties and an
impact to reputation. This is complemented by:
Employee training on data protection and internet security
Data classification, retention policies and toolsets with appropriate and
responsive procedures embedded to respond to data privacy matters
IT disaster recovery and business continuity plans.
Development in the year
The threat of external cyber security risk is ever present, and we routinely
experience phishing attempts on our IT systems.
We continue to utilise a Security Operations Centre (SOC) to monitor our
networks and have enhanced our security policies and procedures with further
training for employees.
We regularly perform phishing training and mock exercises to highlight the
risks across the Group.
The established Data and Cyber Security Sub-Board, chaired by the Group
Finance Director, continues to monitor threats and develops appropriate
policies and procedures.
8. Attracting and retaining our skilled people
Risk description Actions/mitigations
An increasing skills gap in the industry at all levels resulting in difficulty Employee engagement survey, supported by pulse surveys, to enable the
with recruiting the right and diverse mix of people for vacant positions. Executive Leadership Team to understand and support concerns raised by our
people.
Employee turnover and requirement to induct and embed new employees, alongside
the cost of wages increasing as a result of inflated offers in the market. Continual focus on improving flexible and agile working arrangements
to support employees.
Loss of knowledge within the Group which could result in inefficiencies,
productivity loss, delays to business operations, increasing costs, and an Programmes of work to develop robust succession plans and improve diversity
overuse or reliance on consultants and the supply chain. across the business.
Providing quality training and professional development opportunities through
our entry-level training programmes.
We monitor pay structures and market trends to ensure we remain competitive.
Development in the year
Our industry continues to face a skills shortage and there is an increased
demand for employees.
To address this, we provide competitive salary packages, reflecting market
rates and offer a wide range of career development opportunities. We continue
to monitor employee turnover and review employee feedback through engagement
surveys.
During the year we launched a new employee induction programme and have made
further improvements to our learning and development programme across the
Group.
We engage with our employees through a variety of communications and forums.
We have doubled our trainees and we have increased resourcing to address
specific legacy issues.
9. Solvency and liquidity
Risk description Actions/mitigations
Cash generation for the Group is a key part of our updated strategy, and our Cash generation is a key focus for the Executive Leadership Team. Cash
cash headroom could be affected by economic pressures that result in delayed performance is measured against forecast with a variance analysis issued
receipts and potentially lower sales in the short to medium term. weekly by the Group Treasurer. Cash performance is also considered at
divisional board level.
Commitments to significant land and build obligations that are made ahead of
revenue certainty. We scrutinise the cash terms of land transactions. Private Rented Sector (PRS)
and bulk sales also offer us the potential for early cash inflow.
Fall in sales during economic slowdown and lack of available debt finance.
The Group has available the use of a £250m revolving credit facility (RCF)
Reductions in margins as average selling price falls, inability to restructure which was unused throughout FY21.
appropriately and unsustainable levels of work-in-progress.
We generally control strategic land rather than own it and have limited
To reflect the cyclical nature of housebuilding and following the Global capital tied up on the balance sheet. These sites are subject to regular
Financial Crisis, equity investors in housebuilders now expect a lower-risk review and appraisal before being drawn down.
investment proposition by way of a more capitalised and robust
balance sheet. Cash management is a bonus metric target used across the Group, including for
Executive Directors.
Development in the year
The balance sheet has been transformed, aided significantly by the divestment
of our interest in the Longcross Film Studio for £46m.
Diverse sources of finance are in place with £100m of senior notes maturing
2024-29 and a £250m RCF expiring in 2024.
We have maintained operational capital discipline and effective management of
cash, margin and return on capital employed.
10. Laws, policies and regulations
Risk description Actions/mitigations
This risk is two-fold, both changes to upcoming regulations and combustible We engage with the Government directly and through the HBF, via various
materials. memberships of industry groups and build relationships in key local authority
areas.
Upcoming regulations and guidance
We continue to assess and plan for emerging regulation and developments in
Future regulatory changes could impact our ability to make medium readiness for potential regulatory change.
and longer-term decisions.
Combustible materials
The planning environment continues to evolve. The interpretation of the
National Planning Policy Framework continues to develop in an environment During 2019 the Group established robust controls and processes in respect of
where local authorities and public sector resources are constrained. combustible materials. Since that time these have been overseen by a regular
review meeting which is attended by the Chief Executive, Group Finance
Failure to effectively implement new environmental regulations including the Director and the internal project team responsible for this area. The forum
Future Homes Standard (FHS) and the Environment Act 2021, New Homes Ombudsman, reviews a detailed risk register of all schemes under review including any
BEIS consultation on audit reform and corporate governance and the recent customer, or other affected stakeholder, correspondence and considers
developments from the new Building Safety Act. how the Group may choose to respond. In addition, the forum assesses whether
faulty workmanship or design was a factor in the potential remedial works, and
Combustible materials if appropriate seeks to recover these costs directly from the subcontractor or
consultant involved, or through engagement of external legal counsel.
Failure to plan and implement the guidance notes issued by the Government in
respect of combustible materials and fire safety.
This is a complex area where it is often difficult to identify and implement
remedies quickly. The rapidly changing landscape of regulatory guidance and
need to engage with multiple stakeholders contribute to this complexity as
does the limited availability of qualified resource to oversee
work performed.
Development in the year
The pace of regulatory reform is increasing. We are well developed in planning
for the requirements arising from the FHS and other new and emerging
regulations such as the BEIS consultation on audit reform and corporate
governance.
We undertake close Government consultation regarding the New Homes Ombudsman
and have developed plans for potential changes.
We were also in close consultation regarding the new Residential Property
Developer Tax which will be introduced in April 2022.
We continue to monitor and review our combustible materials provisioning.
11. Climate change
Risk description Actions/mitigations
The Group will need to further enhance its sustainable practices and processes Through our Sustainability Committee, chaired by our Chief Executive, we
as we transition to a carbon 'net zero' business by 2050 at the very latest assess climate-related risks and opportunities, on an ongoing basis.
and continue to meet evolving Government regulations.
We have existing targets to reduce our scope 1 and 2 greenhouse gas emissions
We will need to adapt to physical climate changes and the risks that this intensity by 25% by 2025 (2019 base year).
presents to the Group and our operational sites.
We have signed up to the Business Ambition for 1.5°C, which aims to limit
We will also need to consider any potential climate-related risk in our land global temperature rise to 1.5°C above pre-industrial levels.
acquisitions.
We also commit to achieving net zero emissions across our value chain by no
Failure to mitigate these risks from climate change could impact our later than 2050.
reputation with key stakeholders.
We plan to transition to exclusive use of renewable electricity which will
lead to a significant reduction of emissions through our day-to-day
operations.
We are members of the Future Homes Hub, an industry-wide initiative to support
the implementation of the Future Homes Delivery Plan to meet climate and
environmental targets. We also have internal workstreams to plan for new
regulations, including theFHS.
Development in the year
During the year we have continued to plan for the FHS and are an active member
of the Future Homes Hub. Potential costs of the FHS are embedded in our
divisional plans.
We have reduced scope 1 and 2 carbon emissions intensity by 21% compared to
our base year of 2019. We have increased the use of renewable electricity
to 62% (2020: 56%).
We became a signatory of the Business Ambition for 1.5°C and joined the
United Nations-backed Race to Zero.
We made a commitment to set new targets that will be validated by the Science
Based Targets initiative.
We continue to assess our progress against the Task Force for Climate-related
Financial Disclosures (TCFD) recommendations and achieved a CDP rating of B.
CREST NICHOLSON HOLDINGS PLC
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 regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group and the
Company financial statements in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006.
Additionally, the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules require the Directors to prepare the Group financial
statements in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union.
Under company law, 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 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 international accounting standards in
conformity with the requirements of the Companies Act 2006 and international
financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union have been followed for the Group financial
statements and international accounting standards in conformity with the
requirements of the Companies Act 2006 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 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 also responsible for keeping adequate accounting records
that are sufficient to show and explain the Group's 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.
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.
Directors' confirmations
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 Group's and Company's position and
performance, business model and strategy.
· Each of the Directors, whose names and functions are listed on
pages 74-75 of our Annual Integrated Report 2021 confirm that, to the best of
their knowledge:
· The Group financial statements, which have been prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, give a true and fair view of the assets, liabilities,
financial position and profit of the Group
· The Company financial statements, which have been prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006, give a true and fair view of the
assets, liabilities and financial position of the company, and
· The Strategic 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.
In the case of each Director in office at the date the Directors' Report is
approved:
· So far as the Director is aware, there is no relevant audit
information of which the Group's and Company's auditors are unaware, and
· They have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit information
and to establish that the Group's and Company's auditors are aware of that
information.
On behalf of the Board
Peter Truscott
Director
19 January 2022
audited financial information
The consolidated financial statements and notes 1 to 30 for the year ended 31
October 2021 are derived from the Group's annual financial statements which
have been audited by PricewaterhouseCoopers LLP. The unmodified audit report
is available for inspection at the Group's registered office.
CREST NICHOLSON HOLDINGS PLC
Consolidated Income Statement
For the year ended 31 October 2021
2021 2021 2021 2020 2020 2020
Pre- exceptional items Exceptional items Total Pre- exceptional items Exceptional items Total
(note 4) (note 4)
Note £m £m £m £m £m £m
Revenue 3 786.6 - 786.6 677.9 - 677.9
Cost of sales (619.9) (20.8) (640.7) (570.2) (43.8) (614.0)
Gross profit/(loss) 166.7 (20.8) 145.9 107.7 (43.8) 63.9
Administrative expenses (51.1) - (51.1) (50.3) (7.5) (57.8)
Net impairment losses on financial assets 18 (1.0) - (1.0) (0.3) (7.6) (7.9)
Operating profit/(loss) 5 114.6 (20.8) 93.8 57.1 (58.9) (1.8)
Finance income 7 3.4 - 3.4 3.4 - 3.4
Finance expense 7 (12.5) 0.5 (12.0) (14.1) (0.5) (14.6)
Net finance expense (9.1) 0.5 (8.6) (10.7) (0.5) (11.2)
Share of post-tax profits/(losses) of joint ventures using the equity method 14 1.7 - 1.7 (0.5) - (0.5)
Profit/(loss) before tax 107.2 (20.3) 86.9 45.9 (59.4) (13.5)
Income tax (expense)/credit 8 (19.9) 3.9 (16.0) (8.5) 11.3 2.8
Profit/(loss) for the year attributable to equity shareholders 87.3 (16.4) 70.9 37.4 (48.1) (10.7)
Earnings/(loss) per ordinary share
Basic 10 34.0p 27.6p 14.6p (4.2)p
Diluted 10 33.9p 27.5p 14.5p (4.2)p
The notes below form part of these financial statements.
CREST NICHOLSON HOLDINGS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 October 2021
2021 2020
Note £m £m
Profit/(loss) for the year attributable to equity shareholders 70.9 (10.7)
Other comprehensive income/(expense):
Items that will not be reclassified to the consolidated income statement:
Actuarial gains/(losses) of defined benefit schemes 17 20.2 (13.8)
Change in deferred tax on actuarial gains/(losses) of defined benefit schemes 16 (4.8) 2.7
Other comprehensive income/(expense) for the year net of income tax 15.4 (11.1)
Total comprehensive income/(expense) attributable to equity shareholders 86.3 (21.8)
The notes below form part of these financial statements.
CREST NICHOLSON HOLDINGS PLC
Consolidated Statement of Changes in Equity
For the year ended 31 October 2021
Share capital Share premium account Retained earnings Total equity
Note £m £m £m £m
Full year ended 31 October 2020
Balance at 1 November 2019 - originally reported 12.8 74.2 766.9 853.9
Change in accounting policy - land options 29 - - (5.9) (5.9)
Balance at 1 November 2019 - restated(1) 12.8 74.2 761.0 848.0
Loss for the year attributable to equity shareholders - - (10.7) (10.7)
Actuarial losses of defined benefit schemes 17 - - (13.8) (13.8)
Change in deferred tax on actuarial losses of defined benefit schemes 16 - - 2.7 2.7
Total comprehensive expense for the year - - (21.8) (21.8)
Transactions with shareholders:
Equity-settled share-based payments 17 - - 0.5 0.5
Purchase of own shares 24 - - (1.8) (1.8)
Transfers in respect of share options - - 0.4 0.4
Balance at 31 October 2020 12.8 74.2 738.3 825.3
Full year ended 31 October 2021
Balance at 1 November 2020 - originally reported 12.8 74.2 744.2 831.2
Change in accounting policy - land options 29 - - (5.9) (5.9)
Balance at 1 November 2020 - restated(1) 12.8 74.2 738.3 825.3
Profit for the year attributable to equity shareholders - - 70.9 70.9
Actuarial gains of defined benefit schemes 17 - - 20.2 20.2
Change in deferred tax on actuarial gains of defined benefit schemes 16 - - (4.8) (4.8)
Total comprehensive income for the year - - 86.3 86.3
Transactions with shareholders:
Equity-settled share-based payments 17 - - 1.8 1.8
Deferred tax on equity-settled share-based payments 16 - - 0.1 0.1
Purchase of own shares 24 - - (1.6) (1.6)
Transfers in respect of share options - - 0.2 0.2
Dividends paid 9 - - (10.5) (10.5)
Balance at 31 October 2021 12.8 74.2 814.6 901.6
(1 )Restated to reflect the change in accounting policy on land options. See
note 29.
The notes below form part of these financial statements.
CREST NICHOLSON HOLDINGS PLC
Consolidated Statement of Financial Position
As at 31 October 2021
Restated(1)
2021 2020
ASSETS Note £m £m
Non-current assets
Intangible assets 11 29.0 29.0
Property, plant and equipment 12 1.2 2.0
Right-of-use assets 13 3.7 6.0
Investments in joint ventures 14 6.8 3.7
Financial assets at fair value through profit and loss 15 4.2 4.6
Deferred tax assets 16 4.8 9.8
Retirement benefit surplus 17 16.7 -
Trade and other receivables 18 44.5 55.6
110.9 110.7
Current assets
Inventories 19 1,037.5 1,017.7
Financial assets at fair value through profit and loss 15 1.1 0.8
Trade and other receivables 18 102.4 95.2
Current income tax receivable 5.8 3.4
Cash and cash equivalents 20 350.7 239.4
1,497.5 1,356.5
Total assets 1,608.4 1,467.2
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 21 (97.9) (97.2)
Trade and other payables 22 (107.6) (151.7)
Lease liabilities 13 (2.7) (4.7)
Deferred tax liabilities 16 (4.1) -
Retirement benefit obligations 17 - (13.8)
Provisions 23 (28.4) (3.4)
(240.7) (270.8)
Current liabilities
Trade and other payables 22 (449.5) (357.0)
Lease liabilities 13 (1.9) (2.3)
Provisions 23 (14.7) (11.8)
(466.1) (371.1)
Total liabilities (706.8) (641.9)
Net assets 901.6 825.3
EQUITY
Share capital 24 12.8 12.8
Share premium account 24 74.2 74.2
Retained earnings 814.6 738.3
Total equity 901.6 825.3
(1 )Restated to reflect the change in accounting policy on land options. See
note 29.
The notes below form part of these financial statements.
These financial statements were approved by the Board of Directors on 19
January 2022.
On behalf of the Board
PETER TRUSCOTT DUNCAN
COOPER
Director
Director
CREST NICHOLSON HOLDINGS PLC
Consolidated Cash Flow STATEMENT
For the year ended 31 October 2021
2021 2020
Note £m £m
Cash flows from operating activities
Profit/(loss) for the year attributable to equity shareholders 70.9 (10.7)
Adjustments for:
Depreciation on property, plant and equipment 12 1.0 4.4
Depreciation on right-of-use assets 13 2.4 2.7
Net finance expense 7 8.6 11.2
Share-based payment expense 17 1.8 0.5
Share of post-tax (profits)/losses of joint ventures using the equity method 14 (1.7) 0.5
Impairment of inventories movement 19 (16.4) 29.3
Net impairment of financial assets 18 1.0 7.9
Income tax expense/(credit) 8 16.0 (2.8)
Operating profit before changes in working capital, provisions and 83.6 43.0
contributions to retirement benefit obligations
Decrease in trade and other receivables 4.8 45.8
(Increase)/decrease in inventories (3.4) 96.8
Increase/(decrease) in trade and other payables 73.5 (52.9)
Contribution to retirement benefit obligations 17 (11.2) (6.7)
Cash generated from operations 147.3 126.0
Finance expense paid (6.9) (8.7)
Income tax paid (13.9) (3.1)
Net cash inflow from operating activities 126.5 114.2
Cash flows from investing activities
Purchases of property, plant and equipment 12 (0.2) (0.3)
Disposal of financial assets at fair value through profit and loss 15 1.0 1.3
Funding to joint ventures (13.0) (15.6)
Repayment of funding from joint ventures 11.5 10.1
Finance income received 0.1 0.3
Net cash outflow from investing activities (0.6) (4.2)
Cash flows from financing activities
Repayment of bank and other borrowings - (36.9)
Principal elements of lease payments 13 (2.7) (2.9)
Dividends paid 9 (10.5) -
Purchase of own shares 24 (1.6) (1.8)
Proceeds from share option transfers 0.2 0.4
Net cash outflow from financing activities (14.6) (41.2)
Net increase in cash and cash equivalents 111.3 68.8
Cash and cash equivalents at the beginning of the year 239.4 170.6
Cash and cash equivalents at end of the year 20 350.7 239.4
The notes below form part of these financial statements.
CREST NICHOLSON HOLDINGS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
Basis of preparation
Crest Nicholson Holdings plc (Company) is a public limited company
incorporated, listed and domiciled in the UK. The address of the registered
office is Crest Nicholson Holdings plc, Crest House, Pyrcroft Road, Chertsey,
Surrey, KT16 9GN. The Group financial statements consolidate those of the
Company and its subsidiaries (together referred to as the Group) and include
the Group's interest in jointly controlled entities. The parent company
financial statements present information about the Company as a separate
entity and not about its Group.
The financial statements are presented in pounds sterling and amounts stated
are denominated in millions (£m).
The Group financial statements have been prepared and approved by the
Directors in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, and international financial
reporting standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as
it applies in the European Union, and have been prepared on the historical
cost basis except for financial assets at fair value through profit and loss,
which are as otherwise stated. In future periods the financial statements will
be prepared in accordance with UK-adopted international accounting standards.
There is no difference currently to the Group preparing the consolidated
financial statements on either basis. The parent company financial statements
are presented below, after Notes to Consolidated Financial Statements.
The preparation of financial statements in conformity with IFRS requires the
Directors to make assumptions and judgements that affect the application of
policies and reported amounts within the financial statements. Assumptions and
judgements are based on experience and other factors that the Directors
consider reasonable under the circumstances. Actual results may differ from
these estimates.
Judgements made by the Directors, in the application of these accounting
policies that have significant effect on the financial statements and
estimates with a significant risk of material adjustment in the next year are
discussed below.
Going concern
The Directors have adopted the going concern basis in preparing the financial
statements and have concluded that there are no material uncertainties leading
to significant doubt about the Group's going concern status.
Assessment of principal risks
The Directors assessed the Group's principal risks as detailed above
(Principle Risks) and considered three overarching risks when developing the
stress testing for this assessment.
Risk Mitigation and other considerations Link to principal risks
Will the volume of home completions fall?
· Will COVID-19 or other unforeseen economic shocks disrupt future · The Group has successfully demonstrated its ability to build safely · Epidemic or pandemic from infectious diseases
operations and our ability to build and sell properties? throughout the pandemic and in line with Government-issued protocols
· Access to site labour and materials
· Will material and labour availability shortages worsen and impact project · The UK Government has shown consistently strong support for construction
timelines? projects during pandemic restrictions
· The Group benefits from strong supplier and subcontractor relationships
that help mitigate availability issues.
Will UK house prices fall?
· Will economic confidence drop because of post-pandemic economic policies · The Group has a strong forward order book of reservations and exchanges · Demand for housing
- for example higher taxation to repay Government debt or rising interest at prevailing prices
rates to combat inflation?
· There is strong appetite for institutional capital investment into the UK
· Will the recent rises in UK house prices result in an affordability gap property market that helps mitigate any cyclical drop in confidence in the
that is now so high that a pricing correction will follow? private market
· The Group participates in affordability schemes such as Deposit Unlock.
Will build cost inflation remain high and sustained?
· Access to site labour and materials
· Will the availability of materials and labour remain scarce because of the · The Group benefits from well-negotiated central contracts with suppliers · Build cost management
unpredictable nature of the post-pandemic recovery and the UK's exit from the which help mitigate cost increases
European Union?
· The Group is including the cost of the Future Homes Standard (FHS) into its
· Will the move to more sustainable building practices and materials lead to land acquisition appraisals.
an increase in construction costs
Applying these risks against future forecasts
The Directors have considered prior years' trading performance and the
completed weeks of trading since 31 October 2021. The Group has performed in
line with expectations and retains a strong level of working capital and
liquidity to execute its strategy. The Group benefits from a £250.0m
revolving credit facility (RCF) and £100.0m of senior loan notes which are
both subject to three financial covenant tests. The Group does not disclose
the terms of these covenants as it considers them to be commercially
confidential. Given the Group's strong liquidity position the Directors
consider the impact of breaching one of these covenants as being the first
sign that the Group could be in distress and should be the basis of assessing
its going concern basis in this year's financial statements.
The Directors have then considered three scenarios that stress test how the
Group would perform against the risks outlined above.
1. 'Base case'. The Directors have considered the forecast for FY22. This
forecast remains in line with the FY22 budget considered and approved by the
Board in November 2021.
The base case scenario assumes house price inflation and build cost inflation
continue at current levels. The Group has already secured a significant
proportion of sales for FY22 by way of its strong forward order book. Under
this scenario the Group maintains a strong level of liquidity and financial
headroom throughout FY22 and beyond and remains compliant with all three
covenants with comfortable headroom.
2. 'Severe but plausible downside case'. The Directors have then applied
the three risks outlined above to the base case scenario. Effective from
November 2021, an immediate 15.0% reduction in forecast home completions has
been applied, a 7.5% reduction in forecast average selling prices and a 5.0%
increase in forecast build costs. Each of these risks has been applied
individually to the base case scenario and the Group remains compliant with
all three covenants with comfortable headroom. The Directors have then applied
all three risks together, in conjunction, to reflect what they consider to be
a 'severe but plausible downside case' outcome and trading environment. This
inevitably places a higher stress onto the base case scenario, but again the
Group remains compliant with all three covenants with comfortable headroom.
In all three 'downside' individual scenarios and in the combined scenario, the
Group has not calculated or applied the benefit of any mitigation efforts to
offset the deterioration in financial performance. Faced with this trading
environment, mitigations would be developed and implemented by the Directors
depending on the nature of the risk and scenario in place.
3. 'Test to failure'. The assumptions have then individually, and again in
combination, been applied to each of the risks above to a level beyond that
which is considered to be a plausible 'downside' scenario. This informs the
Directors as to what level of stress would be needed to realise a breach in
any of the covenants. The results of these tests are not disclosed as they are
considered commercially confidential.
Mitigation options and considerations
Based on the assessment methodology outlined above the Directors have not
quantified the impact of any mitigations that could be applied in a
deteriorating trading environment. Such mitigations, some of which were
applied in the prior year, could include:
· The impact of any immediate reduction in home reservations or
achieved average selling prices would be mitigated by the Group's significant
forward order book of reservations and exchanges
· A reduction in Group overheads to reflect the lower build and selling
activity in a weaker trading environment
· Renegotiation of supplier arrangements as the amount of build
activity contracts and materials suppliers and subcontractors are required to
be more competitive
· Mothballing unproductive and/or capital-intensive schemes
· Repaying interest-bearing products to reduce the net interest charge,
recognising the Group's strong liquidity position.
Conclusion on going concern
In reviewing the assessment outlined above the Directors are confident that
the Group has the necessary resources and mitigations available to continue
trading for at least 12 months from the date of signing of the financial
statements. Accordingly, the financial statements continue to be prepared on a
going concern basis.
Critical accounting estimates and judgements
The preparation of the consolidated financial statements under IFRS requires
the Directors to make estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, income and expenses
and related disclosures. In applying the Group's accounting policies, the key
judgements that have a significant impact on the financial statements, include
those involving estimates, which are described below, the judgement to present
certain items as exceptional (see note 4), certain revenue policies relating
to part exchange sales, the identification of performance obligations where a
revenue transaction involves the sale of both land and residential units and
revenue on the units is then subsequently recognised over time, and the
recognition of the defined benefit pension scheme surplus (see note 17).
Estimates and associated assumptions affecting the financial statements are
based on historical experience and various other factors that are believed to
be reasonable under the circumstances. The estimates and underlying
assumptions are reviewed on an ongoing basis. Changes in accounting estimates
may be necessary if there are changes in the circumstances on which the
estimate was based or as a result of new information.
Revisions to accounting estimates are recognised in the year in which the
estimate is revised if the revision affects only that year, or in the year of
revision and future years if the revision affects both current and future
years.
The Directors have made estimates and assumptions in reviewing the going
concern assumption as detailed above. The Directors consider the key sources
of estimation uncertainty that have a risk of causing a material adjustment to
the carrying value of assets and liabilities as described below:
Carrying value of inventories
Inventories of work-in-progress, completed buildings including show homes and
part exchange inventories are stated in the consolidated statement of
financial position at the lower of cost or net realisable value (NRV). On a
monthly basis management update estimates of future revenue and expenditure
for each development. Future revenue and expenditure may differ from estimates
which could lead to an impairment of inventory if there are adverse changes.
Where forecast revenues are lower than forecast expenditure an inventory
provision is made. This provision may be reversed in subsequent periods if
there is evidence of improved revenue or reduced expenditure forecast on a
development. If forecast revenue was 10% lower on sites within the short-term
portfolio as at 31 October 2021, the impact on profit before tax and
inventories would have been £10.9m lower (2020: £27.7m).
Estimation of development profitability
Due to the nature of development activity and, in particular, the length of
the development cycle, the Group has to make estimates of the costs to
complete developments, in particular those which are multi-phase and/or may
have significant infrastructure costs. These estimates are reflected in the
margin recognised on developments in relation to sales recognised in the
current and future years. There is a degree of inherent uncertainty in making
such estimates. The Group has established internal controls that are designed
to ensure an effective assessment of estimates is made of the costs to
complete developments. The Group considers estimates of the costs to complete
on longer-term sites, which typically have higher up front shared
infrastructure costs to have greater estimation uncertainty than sites of
shorter duration with less infrastructure requirements. If forecast costs were
10% higher on sites which contributed to the year ended 31 October 2021 and
which are forecast to still be in production beyond the year ending 31 October
2023 (2020: beyond the year ending 31 October 2022), profit before tax in the
current year would have been £12.8m lower (2020: £19.0m lower).
The Group has considered the potential financial impacts associated with
transitional and physical climate-related risks and opportunities. The primary
known impact is the Future Homes Standard (FHS), due to be implemented from
2025, which is expected to increase build cost for individual units. The
anticipated additional build cost has been included in new project acquisition
appraisals since the FHS was announced. Projects already underway will be
substantially built out before the new regulations commence. It is not
expected that the additional build cost will have a material impact on the
carrying value of inventories or their associated project margins. Further
information on climate-related risks and opportunities is provided on page 61
of the Annual Integrated Report 2021.
Valuation of the pension scheme assets and liabilities
In determining the valuation of the pension scheme assets and liabilities, the
Directors utilise the services of an actuary. The actuary uses key assumptions
being inflation rate, life expectancy, discount rate, pension growth rates and
Guaranteed Minimum Pensions, which are dependent on factors outside the
control of the Group. To the extent that such assumptions differ to that
expected, the pension liability would change. See note 17 for additional
details.
Combustible materials
The combustible materials provision requires a number of key estimates and
judgements in its calculation. If it is deemed that the costs are probable and
can be reliably measured then, as per IAS 37, a provision is recorded. If
costs are considered possible or cannot be reliably estimated then they are
recorded as contingent liabilities (see note 26). The key judgements include
but are not limited to identification of the properties impacted through the
period of construction considered, the time period to consider and which
properties should then be included. The key estimates then applied to these
properties include the potential costs of investigation, replacement
materials, works to complete and disruption to customers, along with the
timing of forecast expenditure. During the year, the combustible materials
provision has been increased to reflect the most contemporaneous assessment of
these costs. If forecast remediation costs on buildings currently provided for
are 20% higher than provided, the exceptional items charge in the consolidated
income statement would be £8.6m higher. If further buildings are identified
this could also increase the required provision, but the potential quantity of
this change cannot be readily determined without further claims or
investigative work. See notes 4 and 23 for additional details.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these Group financial
statements except in respect of the impact on inventories of options purchased
in respect of land as detailed within the policies below.
Adoption of new and revised standards
The following new standards, amendments to standards and interpretations are
applicable to the Group and are mandatory for the first time for the financial
year beginning 1 November 2020:
· Amendments to IFRS 3: Definition of a business
· Amendments to IAS 1 and IAS 8: Definition of material
· Amendments to IFRS 9, IAS 39 and IFRS 7: Interest rate benchmark
reform
· Amendment to IFRS 16: COVID-19 related rent concessions.
The adoption of the amendments in the year did not have a material impact on
the financial statements.
Impact of standards and interpretations in issue but not yet effective
There are a number of standards, amendments and interpretations that have been
published that are not mandatory for the 31 October 2021 reporting period and
have not been adopted early by the Group. The Group does not expect that the
adoption of these standards, amendments and interpretations will have a
material impact on the financial statements of the Group in future years.
Alternative performance measures
The Group has adopted various Alternative Performance Measures (APMs), as
presented below after Notes to the Company Financial Statements. These
measures are not defined by IFRS and therefore may not be directly comparable
with other companies' APMs, and should be considered in addition to, and are
not intended to be a substitute for, or superior to, IFRS measurements.
Consolidation
The consolidated financial statements include the financial statements of
Crest Nicholson Holdings plc, its subsidiary undertakings and the Group's
share of the results of joint ventures and joint operations. Inter-company
transactions, balances and unrealised gains on transactions between group
companies are eliminated on consolidation.
(a) Subsidiaries
Subsidiaries are entities in which the Group has control. The Group controls
an entity when the Group is exposed to, or has rights to, variable returns
through its power over the entity. In assessing control, potential voting
rights that are currently exercisable or convertible are taken into account.
The profits and losses of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that
control ceases.
The acquisition method of accounting is used by the Group to account for the
acquisition of subsidiaries that are a business under IFRS 3. On acquisition
of a subsidiary, all of the subsidiary's separable, identifiable assets and
liabilities existing at the date of acquisition are recorded at their fair
values reflecting their condition at that date. All changes to those assets
and liabilities and the resulting gains and losses that arise after the Group
has gained control of the subsidiary are charged to the post-acquisition
consolidated income statement or consolidated statement of comprehensive
income. Accounting policies of acquired subsidiaries are changed where
necessary, to ensure consistency with policies adopted by the Group.
Acquisitions of subsidiaries which do not qualify as a business under IFRS 3
are accounted for as an asset acquisition rather than a business combination.
Under such circumstances the fair value of the consideration paid for the
subsidiary is allocated to the assets and liabilities purchased based on their
relative fair value at the date of purchase. No goodwill is recognised on such
transactions.
(b) Joint ventures
A joint venture is a contractual arrangement in which the Group and other
parties undertake an economic activity that is subject to joint control and
these parties have rights to the net assets of the arrangement. The Group
reports its interests in joint ventures using the equity method of accounting.
Under this method, interests in joint ventures are initially recognised at
cost and adjusted thereafter to recognise the Group's share of the
post-acquisition profits or losses and movements in other comprehensive
income. The Group's share of results of the joint venture after tax is
included in a single line in the consolidated income statement. Where the
share of losses exceeds the Group's interest in the entity and there is no
obligation to fund these losses, the carrying amount is reduced to nil and
recognition of further losses is discontinued, unless there is a long-term
receivable due from the joint venture in which case, if appropriate, the loss
is recognised against the receivable. Unrealised gains on transactions between
the Group and its joint ventures are eliminated on consolidation. Accounting
policies of joint ventures have been changed where necessary, to ensure
consistency with policies adopted by the Group.
(c) Joint operations
A joint operation is a joint arrangement that the Group undertakes with other
parties, in which those parties have rights to the assets and obligations of
the arrangement. The Group accounts for joint operations by recognising its
share of the jointly controlled assets and liabilities and income and
expenditure on a line-by-line basis in the consolidated statement of financial
position and consolidated income statement.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of the acquired entity at the date of the acquisition.
Goodwill arising on acquisition of subsidiaries and businesses is capitalised
as an asset. The goodwill balance has been allocated to the strategic land
holdings within the Group. The Group expects to benefit from the strategic
land holdings for a further period of 14 years to 2035. The period used in the
assessment represents the estimated time it will take to obtain planning and
build out on the remaining acquired strategic land holdings. Goodwill is
assessed for impairment at each reporting date. The sites acquired are
considered as a singular cash-generating unit and the value in use is
calculated on a discounted cash flow basis with more speculative strategic
sites given a lower probability of reaching development. The calculated
discounted cash flow value is compared to the goodwill balance to assess if it
is impaired. Any impairment loss is recognised immediately in the consolidated
income statement.
Revenue and profit recognition
Revenue comprises the fair value of the consideration received or receivable,
net of value added tax, rebates and discounts.
The Group does not recognise revenue on the proceeds received on the disposal
of properties taken in part exchange against a new property as they are
incidental to the main revenue generating activities of the Group. Surpluses
or deficits on the disposal of part exchange properties, which are bought in
at their forecast recoverable amount, are recognised directly within cost of
sales and are not material to the results of the Group. Proceeds received on
the disposal of part exchange properties, which is not included in revenue,
are £48.6m (2020: £40.6m).
Revenue is recognised on house and apartment sales at legal completion. For
affordable and other sales in bulk, revenue recognition is dependent on
freehold legal title being passed to the customer as it is considered that
upon transfer of freehold title that the customer controls the
work-in-progress. Where freehold legal title and control is passed to the
customer, revenue is recognised on any upfront sale of land (where applicable)
and then on the housing units as the build of the related units progresses,
using the input method based on costs incurred. Where freehold legal title is
not passed to the customer, revenue is not recognised on any upfront sale of
land and the revenue on the housing units and sale of land is recognised at
handover of completed units to the customer. The transaction price for all
housing units is derived from contractual negotiations and does not include
any material variable consideration.
Revenue is predominantly recognised on land sales when legal title passes to
the customer. If the Group has remaining performance obligations such as the
provision of services to the land an element of revenue is allocated to these
performance obligations and recognised as the obligations are performed, which
can be when the works are finished if the work in progress is controlled by
the Group or over the performance of the works if they are controlled by the
customer.
Revenue recognition on commercial property sales is dependent on freehold
legal title being passed to the customer, as it is considered that upon
transfer of freehold title that the customer controls the work in progress.
Where freehold legal title is passed to the customer, revenue is recognised on
any upfront sale of land (where applicable) and then on the development
revenue over time as the build of the related commercial units progress. Where
freehold legal title is not passed to the customer revenue is not recognised
on any upfront sale of land and the revenue on the commercial property is
recognised at handover of the completed commercial unit to the customer.
The transaction price for commercial property revenue may include an element
of variable consideration based on the commercial occupancy of the units when
they are completed, though this is not expected to be material. If this is the
case, the Directors take the view that unless the lettings not yet contracted
are highly probable they should not be included in the calculation of the
transaction price. The transaction price is regularly updated to reflect any
changes in the accounting period.
Revenue is recognised on freehold reversion sales when the customer is
contractually entitled to the ground rent revenue stream associated with the
units purchased.
Revenue on specification upgrades paid for by the customer or on the cost of
specification upgrades offered to the customer as part of the purchase price
is recognised as revenue when legal title passes to the customer.
Profit is recognised on a plot-by-plot basis, by reference to the margin
forecast across the related development site. Due to the development cycle
often exceeding one financial year, plot margins are forecast, taking into
account the allocation of site-wide development costs such as infrastructure,
and estimates required for the cost to complete such developments.
Government grants
Unconditional Government grants are recognised against the line item to which
they relate in the consolidated income statement. Conditional Government
grants received are presented in the consolidated statement of financial
position as accruals and deferred income. As conditions are satisfied the
Government grants are recognised against the line item to which they relate.
Exceptional items
Exceptional items are those which, in the opinion of the Directors, are
material by size and/or non-recurring in nature such significant costs
associated with combustible materials, significant costs associated with
acquiring another business and significant inventory impairments. The
Directors believe that these items require separate disclosure within the
consolidated income statement in order to assist the users of the financial
statements in understanding what the Directors consider to be the underlying
business performance of the Group, which is how the Directors internally
manage the business. Where appropriate, the material reversal of any of these
amounts will also be reflected through exceptional items. Additional
charges/credits to items classified as exceptional items in prior years will
be classified as exceptional in the current year, unless immaterial to the
financial statements. As these exceptional items can vary significantly
year-on-year, they may introduce volatility into the reported earnings.
Net finance expense
Interest income is recognised on a time apportioned basis by reference to the
principal outstanding and the effective interest rate. Interest costs are
recognised in the consolidated income statement on an accruals basis in the
period in which they are incurred.
Income and deferred tax
Income tax comprises current tax and deferred tax. Income tax is recognised in
the consolidated income statement except to the extent that it relates to
items recognised in other comprehensive income, in which case it is recognised
in other comprehensive income. Current tax is the expected tax payable on
taxable profit for the year and any adjustment to tax payable in respect of
previous years. Taxable profit is profit before tax per the consolidated
income statement after adjusting for income and expenditure that is not
subject to tax, and for items that are subject to tax in other accounting
periods. The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the consolidated statement
of financial position date. Current tax assets are recognised to the extent
that it is probable the asset is recoverable.
Deferred tax is provided in full on temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profits.
Deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. Deferred tax liabilities are recognised for all
temporary differences. Deferred tax is calculated using tax rates that have
been substantively enacted by the consolidated statement of financial position
date.
Dividends
Final and interim dividend distributions to the Company's shareholders are
recorded in the Group's financial statements in the earlier of the period in
which they are approved by the Company's shareholders, or paid.
Employee benefits
(a) Pensions
The Group operates a defined benefit (DB) scheme (closed to new employees
since October 2001 and to future service accrual since April 2010) and also
makes payments into a defined contribution scheme for employees.
In respect of the DB scheme, the retirement benefit deficit or surplus is
calculated by estimating the amount of future benefit that employees have
earned in return for their service in the current and prior periods, such
benefits measured at discounted present value, less the fair value of the
scheme assets. The rate used to discount the benefits accrued is the yield at
the consolidated statement of financial position date on AA credit rated bonds
that have maturity dates approximating to the terms of the Group's
obligations. The calculation is performed by a qualified actuary using the
projected unit method. The operating and financing costs of such plans are
recognised separately in the consolidated income statement; past service costs
and financing costs are recognised in the periods in which they arise. The
Group recognises expected scheme gains and losses via the consolidated income
statement and actuarial gains and losses are recognised in the period they
occur directly in other comprehensive income, with associated deferred tax.
The retirement benefit deficit or surplus recognised in the consolidated
statement of financial position represents the deficit or surplus of the fair
value of the scheme's assets over the present value of scheme liabilities,
with any net surplus recognised to the extent that the employer can gain
economic benefit as set out in the requirements of IFRIC 14.
Payments to the defined contribution scheme are accounted for on an accruals
basis.
(b) Share-based payments
The fair value of equity-settled, share-based compensation plans is recognised
as an employee expense with a corresponding increase in equity. The fair value
is measured as at the date the options are granted and the charge amended if
vesting does not take place due to non-market conditions (such as service or
performance) not being met. The fair value is spread over the period during
which the employees become unconditionally entitled to the shares and is
adjusted to reflect the actual number of options that vest. At the
consolidated statement of financial position date, if it is expected that
non-market conditions will not be satisfied, the cumulative expense recognised
in relation to the relevant options is reversed. The proceeds received are
credited to share capital (nominal value) and share premium when the options
are exercised if new shares are issued. If treasury shares are used the
proceeds are credited to retained reserves. There are no cash-settled
share-based compensation plans.
Own shares held by Employee Share Ownership Plan trust (ESOP)
Transactions of the Company-sponsored ESOP are included in both the Group
financial statements and the Company's own financial statements. The purchase
of shares in the Company by the trust are charged directly to equity.
Software as a Service (SaaS) arrangements
Implementation costs including costs to configure or customise a cloud
provider's application software are recognised as administrative expenses when
the services are received, and the Group determines that there is no control
over the asset in development.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation.
Cost includes the original purchase price of the asset and the costs
attributable to bringing the asset to its working condition. Depreciation is
calculated to write off the cost of the assets on a straight-line basis to
their estimated residual value over its expected useful life at the following
rates:
Fixtures and fittings
10%
Computer equipment and non-SaaS
software 20% to 33%
The asset residual values, carrying values and useful lives are reviewed on an
annual basis and adjusted if appropriate at each consolidated statement of
financial position date.
Right-of-use assets and lease liabilities
The Group assesses at lease inception whether a contract is, or contains, a
lease. The Group recognises a right-of-use asset and a lease liability at
lease commencement.
The right-of-use asset is initially recorded at the present value of future
lease payments and subsequently measured net of depreciation, which is charged
to the consolidated income statement as an administrative expense over the
shorter of its useful economic life or its lease term on a straight-line
basis.
The Group recognises lease liabilities at the present value of future lease
payments, lease payments being discounted at the rate implicit in the lease or
the Group's incremental borrowing rate as determined with reference to the
most recently issued financial liabilities carrying interest. The discount is
subsequently unwound and recorded in the consolidated income statement over
the lease term as a finance expense. The lease term comprises the
non-cancellable period of the contract, together with periods covered by an
option to extend the lease where the Group is reasonably certain to exercise
that option.
The Group has elected not to recognise right-of-use assets and lease
liabilities for short-term leases that have a lease term of 12 months or less
and leases of low value assets. The Group recognises the lease payments
associated with these leases as an expense on a straight-line basis over the
lease term.
Inventories
Inventories are stated at the lower of cost and net realisable value (NRV).
Work-in-progress and completed buildings including show homes comprise land
under development, undeveloped land, land option payments, direct materials,
sub-contract work, labour costs, site overheads, associated professional fees
and other attributable overheads, but excludes interest costs.
Part exchange inventories are held at the lower of cost and net realisable
value, which includes an assessment of costs of management and resale. Any
profit or loss on the disposal of part exchange properties is recognised
within cost of sales in the consolidated income statement.
Land inventories and the associated land payables are recognised in the
consolidated statement of financial position from the date of unconditional
exchange of contracts. Land payables are recognised as part of trade and other
payables.
Options purchased in respect of land are recognised initially as a prepayment
within inventories and written down on a straight-line basis over the life of
the option. If planning permission is granted and the option exercised, the
option is not written down during that year and its carrying value is included
within the cost of land purchased. The accounting policy for options purchased
in respect of land was changed during the year, see note 29 for further
information.
Provisions are established to write down inventories where the estimated net
sales proceeds less costs to complete exceed the current carrying value.
Adjustments to the provisions will be required where selling prices or costs
to complete change. Net realisable value for inventories is assessed by
estimating selling prices and costs, taking into account current market
conditions.
Financial assets
Financial assets are initially recognised at fair value and subsequently
classified into one of the following measurement categories:
· Measured at amortised cost
· Measured subsequently at fair value through profit and loss (FVTPL)
· Measured subsequently at fair value through other comprehensive
income (FVOCI)
The classification of financial assets depends on the Group's business model
for managing the asset and the contractual terms of the cash flows. Assets
that are held for the collection of contractual cash flows that represent
solely payments of principal and interest are measured at amortised cost, with
any interest income recognised in the consolidated income statement using the
effective interest rate method.
Financial assets that do not meet the criteria to be measured at amortised
cost are classified by the Group as measured
at FVTPL. Fair value gains and losses on financial assets measured at FVTPL
are recognised in the consolidated income statement and presented within
administrative expenses. The Group currently has no financial assets measured
at FVOCI.
Financial assets at fair value through profit and loss
Financial assets at fair value through profit and loss (which comprise shared
equity receivables) are classified as being held to collect and initially
recognised at fair value. Changes in fair value relating to the expected
recoverable amount are recognised in the consolidated income statement as a
finance income or expense. These assets are held as current or non-current
based on their contractual repayment dates.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost, using the effective interest method,
less provision for impairment. A provision for impairment of trade and other
receivables is established based on an expected credit loss model applying the
simplified approach, which uses a lifetime expected loss allowance for all
trade and other receivables. The amount of the loss is recognised separately
in the consolidated income statement. Current trade and other receivables do
not carry any interest and are stated at their amortised cost, as reduced by
appropriate allowances for estimated irrecoverable amounts. Non-current trade
and other receivables are discounted to present value when the impact of
discounting is deemed to be material, with any discount to nominal value being
recognised in the consolidated income statement as interest income over the
duration of the deferred payment.
Contract assets
Contract assets represent unbilled work-in-progress on affordable and other
sales in bulk on contracts in which revenue is recognised over time. Contract
assets are recognised initially at fair value and subsequently measured at
amortised cost, using the effective interest method, less provision for
impairment. Contract assets do not carry any interest and are stated at their
amortised cost, as reduced by appropriate allowances for estimated
irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents are cash balances in hand and in the bank and are
carried in the consolidated statement of financial position at nominal value.
Interest-bearing loans and borrowings
Borrowings are recognised initially at fair value, net of direct transaction
costs, and subsequently measured at amortised cost. Finance charges are
accounted for on an accruals basis in the consolidated income statement using
the effective interest method and are added to the carrying amount of the
instrument to the extent that they are not settled in the period in which they
arise or included within interest accruals.
Financial liabilities
Financial liabilities are initially recognised at fair value and subsequently
classified into one of the following measurement categories:
· Measured at amortised cost
· Measured subsequently at FVTPL.
Non-derivative financial liabilities are measured at FVTPL when they are
considered held for trading or designated as such on initial recognition. The
Group has no non-derivative financial liabilities measured at FVTPL.
Land payables
Land payables are recognised in the consolidated statement of financial
position from the date of unconditional exchange of contracts. Where land is
purchased on deferred settlement terms then the land and the land payable are
discounted to their fair value using the effective interest method in
accordance with IFRS 9. The difference between the fair value and the nominal
value is amortised over the deferment period, with the financing element being
charged as an interest expense through the consolidated income statement.
Trade and other payables
Trade and other payables are recognised initially at their fair value and
subsequently measured at amortised cost using the effective interest method.
Trade and other payables on deferred terms are initially recorded at their
fair value, with the discount to nominal value being charged to the
consolidated income statement as an interest expense over the duration of the
deferred period.
Contract liabilities
Contract liabilities represent payments on account, received from customers,
in excess of billable work-in-progress on affordable and other sales in bulk
on contracts. Contract liabilities are recognised initially at their fair
value and subsequently measured at amortised cost using the effective interest
method.
Provisions
A provision is recognised in the consolidated statement of financial position
when the Group has a present legal or constructive obligation as a result of a
past event and it is probable that an outflow of economic benefits will be
required to settle the obligation, and the amount can be reliably estimated.
Seasonality
In common with the rest of the UK housebuilding industry, activity occurs
throughout the year, with peaks in sales completions in spring and autumn.
This creates seasonality in the Group's trading results and working capital.
2 SEGMENTAL REPORTING
The Executive Leadership Team (comprising Peter Truscott (Chief Executive),
Tom Nicholson (Chief Operating Officer), Duncan Cooper (Group Finance
Director), David Marchant (Group Production Director), Kieran Daya (Managing
Director, Crest Nicholson Partnerships and Strategic Land), Jane Cookson
(Group HR Director) and Kevin Maguire (General Counsel and Company
Secretary)), 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 Leadership Team approves investment
decisions, allocates group resources and performs divisional performance
reviews. The Group operating segments are considered to be its 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
with consideration of relevant economic indicators such as the nature of the
products sold and customer base, and, having regard to the aggregation
criteria in IFRS 8, the Group identifies that it has one reportable operating
segment.
3 REVENUE
2021 2020
Revenue type £m £m
Open market housing including specification upgrades 654.7 581.8
Affordable housing 78.7 76.6
Total housing 733.4 658.4
Land and commercial sales 49.2 17.8
Freehold reversions 4.0 1.7
Total revenue 786.6 677.9
Land and commercial sales include revenue of £42.3m from the sale of the
Longcross Film Studio to our joint unincorporated arrangement partner on that
scheme. Commercial sales are immaterial in each year.
2021 2020
Timing of revenue recognition £m £m
Revenue recognised at a point in time 687.7 551.2
Revenue recognised over time 98.9 126.7
Total revenue 786.6 677.9
Proceeds received on the disposal of part exchange properties, which is not
included in revenue, were £48.6m (2020: £40.6m). These have been included
within cost of sales.
2021 2020
Assets and liabilities related to contracts with customers £m £m
Contract assets (note 18) 56.4 53.6
Contract liabilities (note 22) (25.0) (32.8)
Contract assets have increased to £56.4m from £53.6m in 2020, reflecting
more unbilled work-in-progress on affordable and other sales in bulk at the
year end. This increase is not significant and is in line with the trading of
the Group.
Contract liabilities have reduced to £25.0m from £32.8m in 2020, reflecting
a lower amount of payments on account received from customers in excess of
billable work-in-progress on affordable and other sales in bulk on contracts
on which revenue is recognised over time. This fall was driven primarily by a
reduction in a number of sites where revenue was recognised at a point in time
in the current year but the Group had received progress payments from the
customer in the prior year.
Based on historical trends, the Directors expect a significant proportion of
the contract liabilities total to be recognised as revenue in the next
reporting period.
Included in revenue during the year was £21.3m (2020: £18.1m) that was
included in contract liabilities at the beginning of the year.
During the year £nil (2020: £nil) of revenue was recognised from performance
obligations satisfied or partially satisfied in previous years.
At 31 October 2021 there was £358.5m (2020: £260.8m) of transaction price
allocated to performance obligations that are unsatisfied or partially
unsatisfied on contracts exchanged with customers. We are forecasting to
recognise £261.7m (2020: £162.2m) of transaction prices allocated to
performance obligations that are unsatisfied on contracts exchanged with
customers within one year, £96.8m (2020: £98.6m) within two to five years,
and £nil (2020: £nil) over five years.
4 EXCEPTIONAL ITEMS
Exceptional items are those which, in the opinion of the Directors, are
material by size and/or non-recurring in nature and therefore require separate
disclosure within the consolidated income statement in order to assist the
users of the financial statements in understanding what the Directors consider
to be the underlying business performance of the Group. This is consistent
with how the Directors internally manage the business. Where appropriate, a
material reversal of these amounts will be reflected through exceptional
items. Exceptional items for the year relate to the same category of items
booked in previous financial years.
2021 2020
Cost of sales £m £m
Combustible materials charge 31.2 2.6
Combustible materials credit (2.4) (2.0)
Net combustible materials charge 28.8 0.6
Inventory impairment (credit)/charge (8.0) 43.2
Total cost of sales exceptional charge 20.8 43.8
Administrative expenses
Restructuring costs - 7.5
Net impairment losses on financial assets - 7.6
Net finance expense
Finance expense (credit)/charge (0.5) 0.5
Total exceptional charge 20.3 59.4
Tax credit on exceptional charge (3.9) (11.3)
Total exceptional charge after tax credit 16.4 48.1
Net combustible materials charge
In the year ended 31 October 2019, following the latest Government guidance
notes in respect of combustible materials, fire risk and protection, and
regulatory compliance on completed developments, the Group recorded an
exceptional charge of £18.4m.
In the year ended 31 October 2020, the Group reassessed the adequacy of the
provision held, resulting in a net combustible materials charge of £0.6m,
comprising a charge of £2.6m and a credit of £2.0m from settlement of claims
against architects and subcontractors for incorrect building design or
workmanship, which is recognised when virtually certain. These costs were
previously included within the combustible materials exceptional expense. As
the recognition of the initial charge related to the settlement received was
an exceptional expense, the settlement is therefore recognised as an
exceptional income.
In the current year, the Group reassessed the adequacy of the provision held
to reflect a contemporaneous assessment of expected remediation costs
including additional claims received in the year. This has resulted in a net
charge of £28.8m, comprising a charge of £31.2m and a credit of £2.4m from
settlements of claims against architects and subcontractors. Due to the
material nature of the charge, it has been recognised as an exceptional item.
See note 23 for additional information.
Inventory impairment
Reflecting the anticipated deterioration to the housing sector and future
economic uncertainty caused by COVID-19, along with uncertainty caused by
Brexit and other market factors at the time, the Group recorded a £43.2m
exceptional inventory impairment charge in the year to 31 October 2020,
comprising £33.9m NRV charge on current operational developments and £9.3m
on abortive work-in-progress. The £33.9m NRV charge was based on a consensus
of external market commentary estimates from which the Directors derived key
assumptions.
Sales price reductions of 7.5% and 32.0% for unexchanged residential and
commercial units were applied to the entire inventory portfolio respectively.
In addition, site specific provisions were also applied to schemes where the
Directors anticipated that further price action would be needed in a
challenging market. These schemes share common characteristics of being
complex, urban-located and predominantly comprise apartment accommodation.
Three of these complex legacy developments comprised the majority of the write
down.
In the year ended 31 October 2021, the Group has not experienced the
residential sales price reductions previously anticipated. Since recording the
NRV charge the Government has acted decisively to support the housing market,
allowing it to remain open during COVID-19 restrictions, and extending the
deadline for the initial stamp duty holiday to 30 September 2021. The
propensity to move home has also been boosted by expected changes to future
remote working expectations. Accordingly, the Group has considered whether it
remains appropriate to hold the remaining, unutilised residential 7.5% sales
price provision and has concluded it should be released. Therefore, an
exceptional inventory impairment credit of £8.0m has been recognised in the
year. The sales price provision of 32.0% for unexchanged commercial units has
been maintained due to continued uncertainty in this segment of the market.
The remaining NRV provision of £20.7m (of which £16.6m was recorded as
exceptional in 2020) held by the Group as presented in note 19, mainly
represents site specific provisions on two complex legacy developments which
are unaffected by the removal of the residential 7.5% sales price reductions,
and have agreed fixed prices in place.
Administrative expenses and net impairment losses on financial assets
In the prior year the Group recorded restructuring costs of £7.5m within
administrative expenses and net impairment losses on financial assets of
£7.6m as detailed in the Annual Integrated Report 2020. A further £1.0m net
impairment loss on financial assets was recorded in the current year and is
not presented as an exceptional item due to materiality and nature.
Finance expense
Financial assets at fair value through profit and loss comprise shared equity
loans secured by way of a second charge on the property. The prior year charge
of £0.5m reflects the application of the 7.5% sales price reduction, and in
line with the removal of this assumption as noted above, this results in a
reduced exceptional finance expense of £0.5m in the current year.
Taxation
An income tax credit of £3.9m (2020: £11.3m) has been recognised in relation
to the above exceptional items.
5 OPERATING PROFIT/(LOSS)
Operating profit of £93.8m (2020: loss of £1.8m) from continuing activities
is stated after charging/(crediting):
Note 2021 2020
£m £m
Inventories expensed in the year 603.5 535.7
Inventories impairment movement in the year 19 (16.4) 29.3
Staff costs 6 53.4 60.3
Depreciation on property, plant and equipment 12 1.0 4.4
Depreciation on right-of-use assets 13 2.4 2.7
Joint venture project management fees received 28 (1.5) (1.4)
Government grants repaid/(received) 2.5 (2.5)
Government grants repaid/(received)
During the year ended 31 October 2020 the Group recognised £2.5m credit
within administrative expenses relating to the Government's Job Retention
Scheme (JRS). On 14 December 2020, the Group voluntarily repaid the JRS grant,
representing a charge within administrative expenses in the current year.
2021 2020
Auditors' remuneration £000 £000
Audit of these consolidated financial statements 125 95
Audit of financial statements of subsidiaries pursuant to legislation 665 790
Other non-audit services 90 153
The audit fees payable in 2021 included £70,000 in relation to additional
costs for the 2020 audit (2020: included £335,000 in relation to additional
costs for the 2019 audit).
Fees payable to the Group's auditors for non-audit services included £90,000
(2020: £153,000) in respect of an independent review of the half-year
results.
In addition to the above, PricewaterhouseCoopers LLP provide audit services to
the Crest Nicholson Group Pension and Life Assurance Scheme and Group joint
ventures. The fees associated with the services to the Crest Nicholson Group
Pension and Life Assurance Scheme are £24,000 (2020: £22,000) and are met by
the assets of the scheme, and the fees associated with services to Group joint
ventures are £28,000 (2020: £25,000).
6 STAFF NUMBERS AND COSTS
(a) Average monthly number of persons employed by the Group 2021 2020
Number Number
Development 661 796
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) 2021 2020
£m £m
Wages and salaries 43.8 50.6
Social security costs 5.4 6.3
Other pension costs 2.4 2.9
Share-based payments (note 17) 1.8 0.5
53.4 60.3
(c) Key management remuneration 2021 2020
£m £m
Salaries and short-term employee benefits 4.3 2.9
Share-based payments 0.9 0.3
5.2 3.2
Key management comprises the Executive Leadership 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 2021 2020
£m £m
Salaries and short-term employee benefits 2.9 1.8
Share-based payments 0.7 0.3
3.6 2.1
During the year £nil (2020: £0.1m) of accrued payments to Directors for loss
of office were written back as the amount was no longer required.
Further information relating to Directors' remuneration, incentive plans,
share options, pension entitlement and the highest paid Director, appears in
the Directors' Remuneration Report, which is presented on pages 104 to 125 of
the Annual Integrated Report 2021.
7 FINANCE INCOME AND EXPENSE
2021 2020
Finance income £m £m
Interest income 0.2 0.7
Interest on amounts due from joint ventures (note 28) 2.8 2.7
Interest on financial assets at fair value through profit and loss (note 15) 0.4 -
3.4 3.4
Finance expense
Interest on bank loans (7.9) (9.7)
Revolving credit facility issue costs (0.7) (0.7)
Imputed interest on deferred land payables (2.8) (3.0)
Interest on lease liabilities (note 13) (0.2) (0.2)
Interest on financial assets at fair value through profit and lo-s - 0.5 (0.5)
exceptional (note 15)
Net interest on defined benefit pension plan obligations (note 17) (0.9) (0.5)
(12.0) (14.6)
Net finance expense (8.6) (11.2)
8 INCOME TAX (EXPENSE)/CREDIT
2021 2020
£m £m
Current tax
UK corporation tax (expense)/credit on profit/(loss) for the year (11.4) 3.6
Adjustments in respect of prior periods (0.2) (0.1)
Total current tax (expense)/credit (11.6) 3.5
Deferred tax
Origination and reversal of temporary differences in the year (4.9) (0.7)
Adjustment in respect of prior periods 0.5 -
Total deferred tax charge (note 16) (4.4) (0.7)
Total income tax (expense)/credit in consolidated income statement (16.0) 2.8
The effective tax rate for the year is 18.4% (2020: 20.7%), which is lower
than (2020: higher than) the standard rate of UK corporation tax of 19.0%
(2020: 19.0%) due to the impact of the changes in UK tax rates on deferred
tax. The Group expects the effective tax rate to be higher that the standard
rate of corporation tax in future years, adjusted for the impact of effect of
change in rate of tax.
2021 2020
Reconciliation of tax (expense)/credit in the year £m £m
Profit/(loss) before tax 86.9 (13.5)
Tax on profit/(loss) at 19.0% (2020: 19.0%) (16.5) 2.6
Effects of:
Expenses not deductible for tax purposes (0.7) (0.5)
Enhanced tax deductions 0.2 0.2
Adjustments in respect of prior periods 0.3 (0.1)
Effect of change in rate of tax 0.7 0.6
Total tax (expense)/credit in consolidated income statement (16.0) 2.8
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 consolidated income statement. Examples are share
schemes, defined benefit pension payments and land remediation enhanced
allowances. Adjustments in respect of prior periods reflect the difference
between the estimated consolidated income statement tax charge in the prior
year and that of the actual tax outcome. Effect of change in rate of tax
reflects the adjustment in respect of the change in future tax rate from 19.0%
to 25.0% with effect from 1 April 2023 on deferred tax balances, as changed by
the 2021 Budget. As a result, the deferred tax balances on the consolidated
statement of financial position have been measured using these revised rates.
The Residential Property Developer Tax (RPDT) tax rate of 4.0% has been
confirmed which will be effective from 1 April 2022, and be applicable to the
Group. As this change was not substantively enacted by the consolidated
statement of financial position date, the impact is not reflected in these
financial statements.
9 DIVIDENDS
2021 2020
Dividends recognised as distributions to equity shareholders in the year: £m £m
Current year interim dividend of 4.1 pence per share (2020: nil pence per 10.5 -
share)
2021 2020
Dividends proposed as distributions to equity shareholders in the year: £m £m
Final dividend for the year ended 31 October 2021 of 9.5 pence per share 24.4 -
(2020: nil pence per share)
Due to the impact of COVID-19, and associated business and economic
uncertainty, no dividends were paid during the year ended 31 October 2020. The
final 2019 dividend of 21.8 pence per share was cancelled, which would have
been due on 9 April 2020. The proposed final dividend was approved by the
Board on 19 January 2022 and, in accordance with IAS 10: Events after the
Reporting Period, has not been included as a liability in this financial year.
The final dividend will be paid on 8 April 2022 to all ordinary shareholders
on the Register of Members on 18 March 2022.
10 EARNINGS/(LOSS) PER ORDINARY SHARE
Basic earnings/(loss) per share is calculated by dividing profit/(loss)
attributable to equity shareholders by the weighted average number of ordinary
shares in issue during the year. For diluted earnings/(loss) 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 / (loss) Weighted average number of ordinary shares Per share amount
£m Number Pence
Year ended 31 October 2021
Basic earnings per share 70.9 256,786,983 27.6
Dilutive effect of share options - 1,049,680
Diluted earnings per share 70.9 257,836,663 27.5
Year ended 31 October 2021 - Pre-exceptional items
Adjusted basic earnings per share 87.3 256,786,983 34.0
Dilutive effect of share options - 1,049,680
Adjusted diluted earnings per share 87.3 257,836,663 33.9
Year ended 31 October 2020
Basic loss per share (10.7) 256,821,245 (4.2)
Dilutive effect of share options(1) - -
Diluted loss per share (10.7) 256,821,245 (4.2)
Year ended 31 October 2020 - Pre-exceptional items
Adjusted basic earnings per share 37.4 256,821,245 14.6
Dilutive effect of share options - 257,953
Adjusted diluted earnings per share 37.4 257,079,198 14.5
(1) Share options are not shown to be dilutive as they cannot further increase
a loss per share.
11 INTANGIBLE ASSETS
Goodwill 2021 2020
£m £m
Cost at beginning and end of the year 47.7 47.7
Accumulated impairment (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 24 March 2009.
The goodwill relating to items other than the holding of strategic land was
fully impaired in prior periods. The remaining goodwill was allocated to
acquired strategic land holdings (the cash-generating unit) within the Group
and has not previously been impaired. The goodwill is assessed for impairment
annually. 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. These cash flows are
the key estimates in the value in use assessment. The forecast looks at the
likelihood and scale of permitted development, forecast build costs and
forecast selling prices, using a pre-tax discount rate of 8.5% (2020: 8.5%),
covering a further period of 14 years to 2035, and based on current market
conditions. The period used in this assessment represents the estimated time
it will take to obtain planning and build out on the remaining acquired
strategic land holdings. The recoverable value of the cash-generating unit is
substantially in excess of the carrying value of goodwill. Sensitivity
analysis has been undertaken by changing the discount rates and the forecast
profit margins applicable to the site within the cash-generating unit. None of
the sensitivities, either individually or in aggregate, resulted in the fair
value of the goodwill being reduced to below its current book value amount.
12 PROPERTY, PLANT AND EQUIPMENT
Fixtures and fittings Computer equipment and software Total
£m £m £m
Cost
At 1 November 2019 2.2 13.1 15.3
Additions - 0.3 0.3
Disposals (0.2) (1.4) (1.6)
At 31 October 2020 2.0 12.0 14.0
Additions - 0.2 0.2
Disposals (0.2) (9.0) (9.2)
At 31 October 2021 1.8 3.2 5.0
Accumulated depreciation
At 1 November 2019 1.0 8.2 9.2
Charge for the year 0.2 4.2 4.4
Disposals (0.2) (1.4) (1.6)
At 31 October 2020 1.0 11.0 12.0
Charge for the year 0.2 0.8 1.0
Disposals (0.2) (9.0) (9.2)
At 31 October 2021 1.0 2.8 3.8
Net book value
At 31 October 2021 0.8 0.4 1.2
At 31 October 2020 1.0 1.0 2.0
At 1 November 2019 1.2 4.9 6.1
In line with IAS 16, a review of the fixed asset register was carried out
during the year resulting in removal of computer assets that were no longer
used by the business with a cost of £9.0m and net book value of £nil.
In the prior year the Group reassessed the IT infrastructure's useful life in
the business, resulting in an accelerated depreciation charge in that year of
£2.5m within computer equipment and software.
The Group has contractual commitments for the acquisition of property, plant
and equipment of £nil (2020: £nil).
13 RIGHT-OF-USE ASSETS AND LIABILITIES
Right-of-use assets included in the consolidated statement of financial
position
Office buildings Motor vehicles Photocopiers Total
£m £m £m £m
Cost
At 1 November 2020 13.3 6.7 0.6 20.6
Additions - 0.1 - 0.1
Disposals (0.2) (2.6) (0.6) (3.4)
At 31 October 2021 13.1 4.2 - 17.3
Accumulated depreciation
At 1 November 2020 9.5 4.6 0.5 14.6
Charge for the year 1.4 0.9 0.1 2.4
Released on disposal (0.2) (2.6) (0.6) (3.4)
At 31 October 2021 10.7 2.9 - 13.6
Net book value
At 31 October 2021 2.4 1.3 - 3.7
At 1 November 2020 3.8 2.1 0.1 6.0
Lease liabilities included in the consolidated statement of financial position
2021 2020
£m £m
Non-current 2.7 4.7
Current 1.9 2.3
Total lease liabilities 4.6 7.0
Amounts recognised in the consolidated income statement
2021 2020
£m £m
Depreciation on right-of-use assets 2.4 2.7
Interest on lease liabilities 0.2 0.2
Amounts recognised in the consolidated cash flow statement
2021 2020
£m £m
Principal elements of lease payments 2.7 2.9
Maturity of undiscounted contracted lease cash flows
2021 2020
£m £m
Less than one year 2.1 2.4
One to five years 2.9 4.6
More than five years - 0.3
Total 5.0 7.3
14 INVESTMENTS
Investments in joint ventures
Below are the joint ventures that the Directors consider to be material to the
Group:
· Crest Sovereign (Brooklands) LLP: In April 2019 the Group entered
into a partnership agreement with Sovereign Housing Association Limited to
develop a site in Bristol. The LLP commenced construction in 2019, with sales
completion forecast for 2027. The LLP will be equally funded by both parties,
who will receive interest on loaned sums. The Group performs the role of
project manager, for which it receives a project management fee.
· 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.
Planning permission for this development is being sought, but has not yet been
obtained. The LLP is forecast to start construction in 2023, with sales
completion forecast for 2030. The LLP will be equally funded by both parties,
who will receive interest on loaned sums. The Group performs the role of
project manager, for which it receives a project management fee.
· Crest A2D (Walton Court) LLP: In January 2016 the Group entered into
a partnership agreement with A2 Dominion Developments Limited to procure and
develop a site in Surrey. The LLP commenced construction in 2019, with sales
completion forecast for 2026. The development will be equally funded by both
parties by way of interest free loans. The Group performs the role of project
manager, for which it receives a project management fee.
· Elmsbrook (Crest A2D) LLP: In July 2017 the Group entered into a
partnership agreement with A2 Dominion Developments Limited to procure and
develop a site in Oxfordshire. The LLP commenced construction in 2018, with
sales completion forecast for 2023. The development will be equally funded by
both parties by way of interest free loans. The Group performs the role of
project manager, for which it receives a project management fee.
2021 2020
Total investments in joint ventures £m £m
Crest Sovereign (Brooklands) LLP - -
Bonner Road LLP - -
Crest A2D (Walton Court) LLP 2.2 1.0
Elmsbrook (Crest A2D) LLP 4.5 2.6
Other non-material joint ventures 0.1 0.1
Total investments in joint ventures 6.8 3.7
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. See note 30 for further details.
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.
2021 Crest Sovereign (Brooklands) LLP Bonner Road LLP Crest A2D (Walton Court) LLP Elmsbrook (Crest A2D) LLP Other non-material joint ventures Total
£m £m £m £m £m £m
Summarised statement of financial position
Current assets
Cash and cash equivalents 0.8 0.1 - 6.6 0.2 7.7
Inventories 42.8 59.9 45.8 7.2 - 155.7
Other current assets 4.8 - 0.6 0.6 0.2 6.2
Current liabilities
Financial liabilities (22.4) - (7.8) (2.2) - (32.4)
Other current liabilities (6.2) (0.2) (3.7) (3.3) (0.2) (13.6)
Non-current liabilities
Financial liabilities (20.8) (73.5) (30.6) - - (124.9)
Net (liabilities)/assets (1.0) (13.7) 4.3 8.9 0.2 (1.3)
Reconciliation to carrying amounts
Opening net (liabilities)/assets at 1 November 2020 (2.4) (11.5) 2.0 5.2 0.2 (6.5)
Profit/(loss) for the year 1.4 (2.2) 0.7 3.7 - 3.6
Capital contribution reserve - - 1.6 - - 1.6
Closing net (liabilities)/assets at 31 October 2021 (1.0) (13.7) 4.3 8.9 0.2 (1.3)
Group's share in closing net (liabilities)/assets at 31 October 2021 (0.5) (6.9) 2.2 4.5 0.1 (0.6)
Losses recognised against receivable from joint venture (note 18) 0.5 6.9 - - - 7.4
Group's share in joint venture - - 2.2 4.5 0.1 6.8
Amount due to the Group (note 18) 21.2 18.2* 15.5* 1.1 - 56.0
Amount due from the Group (note 22) - - - - 0.1 0.1
Summarised income statement
Revenue 22.0 - 15.5 16.6 - 54.1
Expenditure (18.4) - (13.7) (12.9) - (45.0)
Operating profit before finance expense 3.6 - 1.8 3.7 - 9.1
Finance expense (2.2) (2.2) (1.1) - - (5.5)
Pre-tax and post-tax profit/(loss) for the year 1.4 (2.2) 0.7 3.7 - 3.6
Group's share in joint venture profit/(loss) for the year 0.7 (1.1) 0.3 1.8 - 1.7
* £18.2m stated after expected credit loss of £11.8m, and £15.5m stated
after expected credit loss of £0.1m.
The Group is committed to provide such funding to joint ventures as may be
required by the joint venture in order to carry out the project if called. No
funding of this nature is currently expected to be required. The Group has
recognised its share of the accumulated losses of its joint ventures against
the carrying value of investments or loans in the joint venture where
appropriate, in line with IAS 28.
2020 Crest Sovereign (Brooklands) LLP Bonner Road LLP Crest A2D (Walton Court) LLP Elmsbrook (Crest A2D) LLP Other non-material joint ventures Total
£m £m £m £m £m £m
Summarised statement of financial position
Current assets
Cash and cash equivalents 3.0 0.1 0.7 4.2 0.2 8.2
Inventories 39.2 59.0 39.8 8.0 - 146.0
Other current assets 2.9 - 0.3 1.6 0.2 5.0
Current liabilities
Financial liabilities (7.8) - (14.8) (4.4) - (27.0)
Other current liabilities (2.3) - (3.6) (4.2) (0.2) (10.3)
Non-current liabilities
Financial liabilities (37.4) (70.6) (20.4) - - (128.4)
Net (liabilities)/assets (2.4) (11.5) 2.0 5.2 0.2 (6.5)
Reconciliation to carrying amounts
Opening net (liabilities)/assets at 1 November 2019 (1.0) (9.1) 1.6 2.1 0.2 (6.2)
(Loss)/profit for the year (1.4) (2.4) (0.2) 3.1 - (0.9)
Capital contribution reserve - - 0.6 - - 0.6
Closing net (liabilities)/assets at 31 October 2020 (2.4) (11.5) 2.0 5.2 0.2 (6.5)
Group's share in closing net (liabilities)/assets at 31 October 2020 (1.2) (5.8) 1.0 2.6 0.1 (3.3)
Losses recognised against receivable from joint venture (note 18) 1.2 5.8 - - - 7.0
Group's share in joint venture - - 1.0 2.6 0.1 3.7
Amount due to the Group (note 18) 21.4 18.8* 12.0* 2.3 - 54.5
Amount due from the Group (note 22) - - - - 0.1 0.1
Summarised income statement
Revenue 7.3 - 7.7 15.4 - 30.4
Expenditure (6.7) - (6.9) (12.3) - (25.9)
Operating profit before finance expense 0.6 - 0.8 3.1 - 4.5
Finance expense (2.0) (2.4) (1.0) - - (5.4)
Pre-tax and post-tax (loss)/profit for the year (1.4) (2.4) (0.2) 3.1 - (0.9)
Group's share in joint venture (loss)/profit for the year (0.7) (1.2) (0.1) 1.5 - (0.5)
* £18.8m stated after expected credit loss of £10.8m, and £12.0m stated
after expected credit loss of £0.1m.
The Group is committed to provide such funding to joint ventures as may be
required by the joint venture in order to carry out the project if called.
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
plc
Holding company (including group financing)
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 30.
15 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
2021 2020
£m £m
At beginning of the year 5.4 7.2
Disposals (1.0) (1.3)
Imputed interest 0.9 (0.5)
At end of the year 5.3 5.4
Of which:
Non-current assets 4.2 4.6
Current assets 1.1 0.8
5.3 5.4
Financial assets at FVTPL are carried at fair value and categorised as level 3
(inputs not based on observable market data) within the hierarchical
classification of IFRS 13: Revised.
FVTPL 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:
Assumptions 2021 2020
Discount rate, incorporating default rate 10.5% 10.5%
House price inflation for the next three years 3.0% 0.0%
Timing of receipt 8 to 17 years 8 to 16 years
2021 2021
Increase assumptions by 1 %/year Decrease assumptions by 1 %/year
£m £m
Sensitivity - effect on value of FVTPL (less)/more
Discount rate, incorporating default rate (0.1) 0.1
House price inflation for the next three years 0.1 (0.1)
Timing of receipt (0.2) 0.2
In the prior year the Directors reassessed the key assumptions due to the
market impact of COVID-19 and as a result removed all future house price
growth and reduced the anticipated net receipt by 7.5%. This reduced the fair
value of the remaining portfolio by £0.5m in the prior year. As disclosed in
note 4, the 7.5% reduction in sales prices assumption has been removed in the
current year and resulted in an increase in the fair value of the remaining
portfolio by £0.5m, which is included within the £0.9m imputed interest in
the table above. House price inflation is now modelled at being 3% for the
next three years.
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 finance income credited to financing for
the year ended 31 October 2021 was £0.9m (2020: finance charge £0.5m).
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 consolidated
income statement.
16 DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets Inventories fair value Share-based payments Pension deficit Other temporary differences Total
£m £m £m £m £m
At 1 November 2019 - originally reported 3.6 0.2 1.1 1.5 6.4
Change in accounting policy(1) - - - 1.4 1.4
At 1 November 2019 - restated 3.6 0.2 1.1 2.9 7.8
Consolidated income statement movements (0.6) (0.1) (1.2) 1.2 (0.7)
Equity movements - - 2.7 - 2.7
At 31 October 2020 - restated 3.0 0.1 2.6 4.1 9.8
At 1 November 2020 - originally reported 3.0 0.1 2.6 2.7 8.4
Change in accounting policy(1) - - - 1.4 1.4
At 1 November 2020 - restated 3.0 0.1 2.6 4.1 9.8
Consolidated income statement movements (1.5) 0.2 (1.9) (1.2) (4.4)
Equity movements - 0.1 (0.7) - (0.6)
At 31 October 2021 1.5 0.4 - 2.9 4.8
(1 )Restated to reflect the change in accounting policy on land options. See
note 29.
Deferred tax liabilities Pension surplus Total
£m £m
At 1 November 2019 and 31 October 2020 - -
Equity movements (4.1) (4.1)
At 31 October 2021 (4.1) (4.1)
Total deferred tax charged to equity in the year is £4.7m (2020: credited to
equity £2.7m). Deferred tax assets expected to be recovered in less than 12
months is £0.7m (2020: £3.7m), and in more than 12 months is £4.1m (2020:
£4.7m). Deferred tax liabilities are expected to be settled in more than 12
months.
At the consolidated statement of financial position date the substantively
enacted future corporation tax rate up to 31 March 2023 is 19.0% and from 1
April 2023 is 25.0%. Deferred tax assets and liabilities have been evaluated
using the applicable tax rates when the asset is forecast to be realised and
the liability is forecast to be settled. The Group has no material
unrecognised deferred tax assets.
The RPDT tax rate of 4.0% has been confirmed which will be effective from 1
April 2022, and be applicable to the Group. As this change was not
substantively enacted by the consolidated statement of financial position
date, the impact, which would not be material, is not reflected in the
deferred tax balances.
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.
17 EMPLOYEE BENEFITS
(a) Retirement benefit obligations
Defined contribution scheme
The Group operates a defined contribution scheme for new employees. The assets
of the scheme are held separately from those of the Group in an independently
administered fund. The contributions to this scheme for the year were £2.0m
(2020: £2.7m). At the consolidated statement of financial position date there
were no outstanding or prepaid contributions (2020: £nil).
Defined benefit scheme
The Company sponsors the Crest Nicholson Group Pension and Life Assurance
Scheme (the Scheme), a funded defined benefit pension scheme in the UK. The
Scheme is administered within a trust that is legally separate from the
Company. Trustees are appointed by both the Company and the Scheme's members
and act in the interest of the Scheme and all relevant stakeholders, including
the members and the Company. The Trustees are also responsible for the
investment of the Scheme's assets.
The Scheme closed to future accrual from 30 April 2010. Accrued pensions in
relation to deferred members are revalued at statutory revaluation in the
period before retirement. Benefits also increase either at a fixed rate or in
line with inflation while in payment. The Scheme provides pensions to members
on retirement and to their dependants on death.
The Company pays contributions to improve the Scheme's funding position as
determined by regular actuarial valuations. The Trustees are required to use
prudent assumptions to value the liabilities and costs of the Scheme whereas
the accounting assumptions must be best estimates.
Responsibility for meeting any deficit within the Scheme lies with the Company
and this introduces a number of risks for the Company. The major risks are:
interest rate risk, inflation risk, investment risk and longevity risk. The
Company and Trustees are aware of these risks and manage them through
appropriate investment and funding strategies.
The Scheme is subject to regular actuarial valuations, which are usually
carried out every three years. The last actuarial valuation was carried out
with an effective date of 31 January 2018 and the actuarial valuation as at 31
January 2021 is currently being finalised. These actuarial valuations are
carried out in accordance with the requirements of the Pensions Act 2004 and
so includes deliberate margins for prudence. This contrasts with these
accounting disclosures, which are determined using best estimate assumptions.
The preliminary results of the actuarial valuation as at 31 January 2021 have
been projected to 31 October 2021 by a qualified independent actuary. The
figures in the following disclosure were measured using the Projected Unit
Method.
The investment strategy in place for the Scheme is to invest in a mix of
return seeking, index linked and fixed interest investments. At 31 October
2021, the allocation of the Scheme's invested assets was 44% in return seeking
investments, 17% in corporate bonds, 37% in liability-driven investing and 2%
in cash. Details of the investment strategy can be found in the Scheme's
Statement of Investment Principles, which the Trustees update as their policy
evolves.
It should also be noted that liabilities relating to insured members of the
Scheme have been included as both an asset and a liability.
Following the High Court judgement in the Lloyds case, overall pension
benefits now need to be equalised to eliminate inequalities between males and
females in Guaranteed Minimum Pensions (GMP). The Company has always allowed
for this in its accounts by adding a 2% reserve reflecting an approximate
estimate of the additional liability. Although this does not explicitly allow
for the judgement in the prior year on allowing for GMP equalisation for past
transfer values as it is too early to quantify, it is likely that the current
allowance would be sufficient to cover this as well. The real cost will be
known once the relevant calculations have been carried out, which is expected
to be during 2022. Once the true cost is known, any difference from the
estimated 2% is expected to flow through total comprehensive income.
2021 2020 2019
£m £m £m
The amounts recognised in the consolidated statement of financial position are
as follows:
Present value of scheme liabilities (225.2) (228.3) (216.5)
Fair value of scheme assets 241.9 214.5 210.3
Net surplus/(deficit) amount recognised at year end 16.7 (13.8) (6.2)
Deferred tax asset recognised at year end within non-current assets - 2.6 1.1
Deferred tax liability recognised at year end within non-current liabilities (4.1) - -
The retirement benefit surplus/(deficit) recognised in the consolidated
statement of financial position represents the surplus/(deficit) of the fair
value of the Scheme's assets over the present value of Scheme liabilities.
There has been a material improvement in the position going from a deficit of
£13.8m at 31 October 2020 to a surplus of £16.7m at 31 October 2021. This
was mainly driven by improved asset returns, the contributions paid by the
Company to improve the Scheme's funding position and changes in financial
assumptions which have reduced the value placed on the liabilities.
The rules of the Scheme provide the Group with an unconditional right to a
refund of surplus assets on the gradual settlement of the Scheme's
liabilities. In the ordinary course of business the Scheme trustees have no
unilateral right to wind the Scheme up. Based on these rights and in
accordance with IFRIC 14, the Group has made the judgement that the net
surplus in the Scheme is recognised in full.
At the consolidated statement of financial position date the substantively
enacted future corporation tax rate up to 31 March 2023 is 19.0% and from 1
April 2023 is 25.0%. The deferred tax liability on the retirement benefit
surplus has been evaluated applying a 25.0% tax rate.
Amounts recognised in comprehensive
income:
The current and past service costs, settlements and curtailments, together
with the net interest expense for the year are included in the consolidated
statement of comprehensive income. Remeasurements of the net defined benefit
asset/(liability) are included in the consolidated statement of comprehensive
income.
2021 2020
£m £m
Service cost
Administrative expenses (0.8) (0.4)
Net interest expense (0.1) (0.1)
Expense recognised in the consolidated income statement (0.9) (0.5)
2021 2020
£m £m
Remeasurements of the net liability
Return on Scheme assets 19.5 1.3
Loss arising from changes in financial assumptions (2.8) (13.8)
Loss arising from changes in demographic assumptions (0.5) (3.7)
Experience gain 4.0 2.4
Actuarial gain/(loss) recorded in the consolidated statement of comprehensive 20.2 (13.8)
income
Total defined benefit scheme gain/(loss) 19.3 (14.3)
The principal actuarial assumptions used were: 2021 2020
% %
Liability discount rate 1.70 1.50
Inflation assumption - RPI 3.50 3.05
Inflation assumption - CPI 2.80 2.25
Revaluation of deferred pensions 2.80 2.25
Increases for pensions in payment
Benefits accrued in respect of GMP 3.00 3.00
Benefits accrued in excess of GMP pre-1997 3.00 3.00
Benefits accrued post-1997 3.30 2.95
Proportion of employees opting for early retirement 0.00 0.00
Proportion of employees commuting pension for cash 100.00 100.00
Mortality assumption - pre-retirement AC00 AC00
Mortality assumption - male post-retirement SAPS S3 PMA _LCMI_2020 core model with initial addition of 0.3% and 2020 SAPS S2 PMA _LCMI_2019 with initial addition of 0.5% p.a. ltr 1.25%
weighting of 0.0% ltr 1.25%
Mortality assumption - female post-retirement SAPS S3 PFA _LCMI_2020 core model with initial addition of 0.3% and 2020 SAPS S2 PFA_L CMI_2019 with initial addition of 0.5% p.a. ltr 1.25%
weighting of 0.0% ltr 1.25%
2021 2020
Years Years
Future expected lifetime of current pensioner at age 65
Male aged 65 at year end 23.4 23.3
Female aged 65 at year end 24.9 24.4
Future expected lifetime of future pensioner at age 65
Male aged 45 at year end 24.6 24.6
Female aged 45 at year end 26.3 25.9
Changes in the present value of assets over the year
2021 2020
£m £m
Fair value of assets at beginning of the year 214.5 210.3
Interest income 3.3 4.1
Return on assets (excluding amount included in net interest expense) 19.5 1.3
Contributions from the employer 11.2 6.7
Benefits paid (5.8) (7.5)
Administrative expenses (0.8) (0.4)
Fair value of assets at end of the year 241.9 214.5
Actual return on assets over the year 22.8 3.3
Changes in the present value of liabilities over the year
2021 2020
£m £m
Liabilities at beginning of the year (228.3) (216.5)
Interest cost (3.4) (4.2)
Remeasurement (losses)/gains
Loss arising from changes in financial assumptions (2.8) (13.8)
Loss arising from changes in demographic assumptions (0.5) (3.7)
Experience gain 4.0 2.4
Benefits paid 5.8 7.5
Liabilities at end of the year (225.2) (228.3)
Split of the Scheme's liabilities by category of membership 2021 2020
£m £m
Deferred pensioners (115.7) (135.4)
Pensions in payment (109.5) (92.9)
(225.2) (228.3)
2021 2020
Years Years
Average duration of the Scheme's liabilities at end of the year 17.0 17.0
This can be subdivided as follows:
Deferred pensioners 21.0 21.0
Pensions in payment 12.0 12.0
Major categories of scheme assets
2021 2020
£m £m
Return seeking
Overseas equities 19.6 14.5
Absolute return funds 58.8 54.1
Multi-strategy funds 15.0 26.7
Other (secured income, structured product) 9.9 19.8
103.3 115.1
Debt instruments
Corporates 41.2 38.8
Index linked - 48.2
Liability-driven investing 86.1 -
127.3 87.0
Other
Cash 4.9 5.1
Insured annuities 6.4 7.3
11.3 12.4
Total market value of assets 241.9 214.5
£17.8m (2020: £111.5m) of Scheme assets have a quoted market price in active
markets, £137.4m (2020: £63.2m) of Scheme assets have valuation inputs other
than quoted market prices, including quoted market prices for similar assets
in active markets, £75.4m (2020: £27.4m) of Scheme assets are instruments
that are valued based on quoted prices for similar instruments but for which
significant unobservable adjustments or assumptions are required to reflect
the differences between the instruments, and £11.3m (2020: £12.4m) of Scheme
assets are cash and insured pension annuities.
The Scheme has no investments in the Group or in property occupied by the
Group.
The Group's statutory funding obligation was met as at 31 January 2018 with
the Scheme achieving a 101% funding level on a technical provisions basis. The
Company will fund the Scheme with contributions of £0.75m per month (payable
in arrears), until the earlier of 30 June 2022 or the Scheme meeting its
funding objective on a self-sufficiency basis, with a further £0.25m being
due with the 30 June 2022 payment. The Group expects to contribute £7.0m to
scheme funding in the year ending 31 October 2022.
Sensitivity of the liability value to changes in the principal
assumptions
If the discount rate was 0.25% higher/(lower), the Scheme liabilities would
decrease by £9.1m (increase by £9.7m) if all the other assumptions remained
unchanged.
If the inflation assumption was 0.25% higher/(lower), the Scheme liabilities
would increase by £5.5m (decrease by £5.2m) if all the other assumptions
remained unchanged.
If life expectancies were to increase by one year, the scheme liabilities
would increase by £11.5m if all the other assumptions remained unchanged.
(b) Share-based payments
The Group operates a Long-Term Incentive Plan (LTIP), save as you earn (SAYE)
and a deferred bonus plan. Expected volatility for all plans/schemes for the
current and previous year (where applicable) is based on the historical share
price movements of Crest Nicholson Holdings plc since the Company listed in
February 2013.
Long-Term Incentive Plan
The Group's LTIP is open to the Executive Directors and senior management with
awards being made at the discretion of the Remuneration Committee. Options
granted under the plan are exercisable between three and 10 years after the
date of grant. Awards may be satisfied by shares held in the employee benefit
trust (EBT), the issue of new shares (directly or to the EBT) or the
acquisition of shares in the market. Awards made in prior periods vest over
three years and are subject to three years' service, and return on capital and
profit performance conditions.
Awards issued in the current year are subject to three years' service and
assessed against return on capital, profit performance conditions and relative
total shareholder returns (TSR). The non-market based return on capital and
profit performance conditions applies to 60% of the award and values the
options using a binomial option valuation model. The market based TSR
performance conditions applies to 40% of the award and values the options
using the Monte Carlo valuation model. The TSR based performance conditions
are split one-third FTSE 250 excluding investment funds and two-thirds sector
peer group. The fair value at measurement date of the different valuation
elements are £2.25 TSR (FTSE 250), £1.85 TSR (peer group), and £2.84 for
the non-market based return on capital and profit performance conditions. The
correlation of FTSE 250 and peer group calculated for each individual
comparator company relative to the Group is 30% and 67% respectively. The
average fair value at measurement date is £2.50 per option.
Date of grant 26 Feb 2016 28 Feb 2017 28 Feb 2018 16 Apr 2019 21 Jun 2019 20 Feb 2020 04 Aug 2020 08 Feb 2021
Options granted 1,075,943 1,266,364 1,112,762 1,140,962 278,558 1,125,531 7,298 1,328,192
Fair value at measurement date £5.07 £4.67 £3.89 £3.15 £3.15 £4.28 £1.53 £2.50
Share price on date of grant £5.62 £5.41 £4.76 £4.00 £3.55 £5.16 £1.85 £3.23
Exercise price £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Vesting period 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years
Expected dividend yield 3.50% 5.09% 6.93% 8.20% 8.20% 6.40% 6.40% 4.30%
Expected volatility 30.00% 45.00% 35.00% 35.00% 35.00% 30.00% 30.00% 40.00%
Risk free interest rate 0.43% 0.14% 0.84% 0.81% 0.81% 0.45% 0.45% 0.03%
Valuation model Binomial Binomial Binomial Binomial Binomial Binomial Binomial Binomial/ Monte Carlo
Contractual life from 26.02.16 28.02.17 28.02.18 16.04.19 21.06.19 20.02.20 04.08.20 08.02.21
Contractual life to 25.02.26 27.02.27 27.02.28 15.04.29 20.06.29 19.02.30 03.08.30 07.02.31
Number of options Number of options Number of options Number of options Number of options Number of options Number of options Number of options Total number of options
Movements in the year
Outstanding at 1 November 2019 1,518 719,847 756,965 1,061,249 278,558 - - - 2,818,137
Granted during the year - - - - - 1,125,531 7,298 - 1,132,829
Lapsed during the year - (719,847) (154,112) (242,773) - (62,613) - - (1,179,345)
Outstanding at 31 October 2020 1,518 - 602,853 818,476 278,558 1,062,918 7,298 - 2,771,621
Granted during the year - - - - - - - 1,328,192 1,328,192
Lapsed during the year - - (602,853) (125,542) - (108,787) - (51,755) (888,937)
Outstanding at 31 October 2021 1,518 - - 692,934 278,558 954,131 7,298 1,276,437 3,210,876
Exercisable at 31 October 2021 1,518 - - - - - - - 1,518
Exercisable at 31 October 2020 1,518 - - - - - - - 1,518
-
£m £m £m £m £m £m £m £m Total £m
Charge to income for the current year - - - - - 0.6 - 0.7 1.3
Charge to income for the prior year - - - - - - - - -
The weighted average exercise price of LTIP options was £nil (2020: £nil).
Save As You Earn
Executive Directors and eligible employees are invited to make regular monthly
contributions to a Sharesave scheme administered by Equiniti. On completion of
the three-year contract period employees are able to purchase ordinary shares
in the Company based on the market price at the date of invitation less a 20%
discount. There are no performance conditions.
Date of grant 01 Aug 03 Aug 26 Jul 30 Jul 07 Aug 03 Aug
2016 2017 2018 2019 2020 2021
Options granted 1,208,742 453,663 712,944 935,208 1,624,259 256,132
Fair value at measurement date £1.11 £1.06 £0.52 £0.54 £0.36 £1.15
Share price on date of grant £3.56 £5.41 £3.77 £3.68 £1.94 £4.14
Exercise price £2.86 £4.20 £3.15 £2.86 £1.70 £3.42
Vesting period 3 years 3 years 3 years 3 years 3 years 3 years
Expected dividend yield 4.80% 5.10% 8.76% 8.96% 5.20% 1.98%
Expected volatility 45.00% 35.00% 35.00% 35.00% 40.00% 45.30%
Risk free interest rate 0.19% 0.30% 0.85% 0.38% -0.08% 0.14%
Valuation model Binomial Binomial Binomial Binomial Binomial Binomial
Contractual life from 01.09.16 01.09.17 01.09.18 01.09.19 01.09.20 01.09.21
Contractual life to 01.03.20 01.03.21 01.03.22 01.03.23 01.03.24 01.03.25
Movements in the year Number of options Number of options Number of options Number of options Number of options Number of options Total number of options Weighted average exercise price
Outstanding at 1 November 2019 110,933 147,582 451,381 905,320 - - 1,615,216 £3.06
Granted during the year - - - - 1,624,259 - 1,624,259 £1.70
Exercised during the year (107,158) (3,985) (9,707) (1,134) - - (121,984) £2.93
Lapsed during the year (3,775) (50,019) (315,921) (606,550) (85,589) - (1,061,854) £2.92
Outstanding at 31 October 2020 - 93,578 125,753 297,636 1,538,670 - 2,055,637 £2.07
Granted during the year - - - - - 256,132 256,132 £3.42
Exercised during the year - - (37,133) (4,491) (3,528) - (45,152) £3.01
Lapsed during the year - (93,578) (47,778) (145,788) (411,054) (11,838) (710,036) £2.39
Outstanding at 31 October 2021 - - 40,842 147,357 1,124,088 244,294 1,556,581 £2.12
Exercisable at 31 October 2021 - - 40,842 - - - 40,842
Exercisable at 31 October 2020 - 93,578 - - - - 93,578
£m £m £m £m £m £m Total £m
Charge to income for the current year - - - - 0.1 - 0.1
Credit to income for the prior year - - (0.1) - - - (0.1)
Deferred bonus plan
Under the terms of certain bonus schemes, some parts of bonus payments must be
deferred into share options. The options carry no performance criteria and
vest over one or three years. Options granted under the plan are exercisable
between one and 10 years after the date of grant. Deferred bonus plan option
numbers are based on the share price on the date of grant.
Date of grant 28 Feb 2017 28 Feb 28 Feb 28 Feb 28 Feb 28 Feb 26 Feb 1 Mar
2018 2019 2020 2020 2020 2021 2021
Options granted 133,761 188,122 50,676 20,669 2,976 20,956 34,800 22,264
Fair value at measurement date £5.41 £4.89 £3.95 £4.52 £4.52 £4.52 £3.28 £3.89
Share price on date of grant £5.41 £4.89 £3.95 £4.52 £4.52 £4.52 £3.28 £3.42
Exercise price £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Vesting period 3 years 3 years 1 year 3 years 1 year 1 / 3 years 1 year N/A
Expected dividend yield and volatility N/A N/A N/A N/A N/A N/A N/A N/A
Risk free interest rate N/A N/A N/A N/A N/A N/A N/A N/A
Valuation model N/A N/A N/A N/A N/A N/A N/A N/A
Contractual life from 28.02.17 28.02.18 28.02.19 28.02.20 28.02.20 28.02.20 26.02.21 01.03.21
Contractual life to 27.02.27 27.02.28 27.02.29 27.02.30 27.02.30 27.02.30 25.02.31 27.02.28
Movements in the year Number of options Number of options Number of options Number of options Number of options Number of options Number of options Number of options Total number of options
Outstanding at 1 November 2019 84,104 135,822 31,860 - - - - - 251,786
Granted during the year - - - 20,669 2,976 20,956 - - 44,601
Exercised during the year (73,705) - (31,860) (20,669) (2,976) - - - (129,210)
Lapsed during the year (10,399) - - - - - - - (10,399)
Outstanding at 31 October 2020 - 135,822 - - - 20,956 - - 156,778
Granted during the year - - - - - - 34,800 22,264 57,064
Exercised during the year - (123,941) - - - (4,128) - (22,264) (150,333)
Lapsed during the year - (11,881) - - - (14,568) - - (26,449)
Outstanding at 31 October 2021 - - - - - 2,260 34,800 - 37,060
Exercisable at 31 October 2021 - - - - - - - - -
Exercisable at 31 October 2020 - - - - - - - - -
£m £m £m £m £m £m £m £m Total £m
Charge to income for the current year - - - - - - 0.3 0.1 0.4
Charge to income for the prior year - 0.1 - 0.1 - 0.1 - - 0.3
The weighted average exercise price of deferred bonus plan share options was
£nil (2020: £nil).
Total share incentive schemes 2021 2020
Movements in the year Number of options Number of options
Outstanding at beginning of the year 4,984,036 4,685,139
Granted during the year 1,641,388 2,801,689
Exercised during the year (195,485) (251,194)
Lapsed during the year (1,625,422) (2,251,598)
Outstanding at end of the year 4,804,517 4,984,036
Exercisable at end of the year 42,360 95,096
£m £m
Charge to income for share incentive schemes 1.8 0.2
Chief Executive buy-out arrangement(1) - 0.3
Charge to income for the year 1.8 0.5
(1)In 2019 as part of his terms of appointment, the Group made a commitment to
Peter Truscott to buy-out certain share-based awards from his previous
employment consisting of 143,713 shares in Crest Nicholson Holdings plc.
During the prior year, the commitment was satisfied in full resulting in a
charge to income for that year of £0.3m.
The weighted average share price at the date of exercise of share options
exercised during the year was £3.59 (2020: £4.76). The options outstanding
had a range of exercise prices of £nil to £3.42 (2020: £nil to £4.20) and
a weighted average remaining contractual life of 6.4 years (2020: 6.2 years).
The gain on shares exercised during the year was £0.6m (2020: £1.5m).
18 TRADE AND OTHER RECEIVABLES
Trade and other receivables before expected credit loss Expected credit loss Trade and other receivables after expected credit loss Trade and other receivables before expected credit loss Expected credit loss Trade and other receivables after expected credit loss
2021 2021 2021 2020 2020 2020
£m £m £m £m £m £m
Non-current
Trade receivables 2.1 - 2.1 5.5 - 5.5
Due from joint ventures 54.3 (11.9) 42.4 61.0 (10.9) 50.1
56.4 (11.9) 44.5 66.5 (10.9) 55.6
Current
Trade receivables 25.2 (0.1) 25.1 27.3 (0.1) 27.2
Contract assets 56.7 (0.3) 56.4 53.9 (0.3) 53.6
Due from joint ventures 13.6 - 13.6 4.4 - 4.4
Other receivables 6.0 - 6.0 7.9 - 7.9
Prepayments and accrued income 1.3 - 1.3 2.1 - 2.1
102.8 (0.4) 102.4 95.6 (0.4) 95.2
Non-current and Current 159.2 (12.3) 146.9 162.1 (11.3) 150.8
Trade and other receivables mainly comprise contractual amounts due from
housing associations, bulk sale purchasers and land sales to other
housebuilders. Current trade receivables of £11.6m have been collected as of
1 January 2022 (2020: £10.7m have been collected as of 1 January 2021). The
remaining balance is due according to contractual terms, and no material
amounts are past due. At the consolidated statement of financial position date
the difference between the fair value of amounts due from joint ventures and
nominal value is £19.4m (2020: £17.9m).
Amounts due from joint ventures comprises funding provided on four (2020:
four) joint venture developments which are being project managed by the Group
and are repayable according to contractual arrangements. Amounts due from
joint ventures are stated net of losses of £7.4m (2020: £7.0m). See note 14
for additional details on the Group's interests in joint ventures.
Amounts due from joint ventures are stated after a loss allowance of £11.9m
(2020: £10.9m) in respect of expected credit losses. This estimate is based
on a discounted cash flow analysis of the relevant joint ventures using
available cash flow projections for the remainder of the project. £1.0m
(2020: £7.7m) provision was made during the year, £nil (2020: £nil) was
utilised and £nil (2020: £nil) provision was released during the year. The
actual result depends on achieved sales values and delivery of the build to
forecast.
Current trade receivables and contract assets are stated after a loss
allowance of £0.4m (2020: £0.4m) in respect of expected credit losses,
assessed on an estimate of default rates. £nil (2020: £0.2m) provision was
made during the year, £nil (2020: £nil) was utilised and £nil (2020: £nil)
provision was released during the year.
Movements in total loss allowance for expected credit losses
2021 2020
£m £m
At beginning of the year 11.3 3.4
Movement in the year on joint venture balances 1.0 7.7
Movement in the year on other receivables - 0.2
At end of the year 12.3 11.3
The total loss allowance for the Bonner Road LLP expected credit loss is
£11.8m (2020: £10.8m) which represents management's best estimate based on
current project forecasts. In the prior year a £7.6m impairment loss was
recognised within exceptional items (see note 4).
Maturity of non-current receivables:
2021 2020
£m £m
Due between one and two years 5.6 9.9
Due between two and five years 20.7 32.8
Due after five years 18.2 12.9
44.5 55.6
19 INVENTORIES
Restated(1)
2021 2020
£m £m
Work-in-progress 965.7 889.8
Completed buildings including show homes 57.7 107.0
Part exchange inventories 14.1 20.9
1,037.5 1,017.7
(1 )Restated to reflect the change in accounting policy on land options. See
note 29.
Included within inventories is a fair value adjustment of £2.5m (2020:
£11.3m) which arose on the acquisition of Castle Bidco Limited in 2009 and
will continue to unwind to cost of sales in future years as the units against
which the original fair value provision was recognised are sold or otherwise
divested. The amount of fair value provision unwound in cost of sales in the
year was £8.8m (2020: £5.2m). Total inventories of £603.5m (2020: £535.7m)
were recognised as cost of sales in the year.
During the year and as detailed in note 4, the remaining unutilised
residential 7.5% sales price provision has been released creating an
exceptional inventory impairment credit of £8.0m (2020: £33.9m exceptional
charge).
Total inventories are stated net of a net realisable value provision of
£20.7m (2020: £37.1m), mainly relating to the impairments as disclosed in
note 4.
Of the £20.7m remaining NRV provision, it is currently forecast that over
three-quarters will be used in the next financial year.
Movements in the NRV provision in the current and prior year are shown below:
2021 2020
£m £m
At beginning of the year 37.1 7.8
Pre-exceptional NRV charged in the year 0.8 2.9
Pre-exceptional NRV used in the year (5.2) (2.1)
Exceptional NRV (credited)/charged in the year (note 4) (8.0) 33.9
Exceptional NRV used in the year (4.0) (5.4)
Total movement in NRV in the year (16.4) 29.3
At end of the year 20.7 37.1
During the prior year the Group wrote off as an exceptional item £9.3m of
work-in-progress and other associated costs on a project where the scheme is
no longer profitable and therefore aborted. The combination of this and the
exceptional NRV provided in the prior year of £33.9m is £43.2m, representing
the total exceptional inventory impairment charge per note 4 for that year.
20 MOVEMENT IN NET CASH
2021 Movement 2020
£m £m £m
Cash and cash equivalents 350.7 111.3 239.4
Bank loans and senior loan notes (97.9) (0.7) (97.2)
Net cash 252.8 110.6 142.2
21 INTEREST-BEARING LOANS AND BORROWINGS
2021 2020
£m £m
Non-current
Senior loan notes 100.0 100.0
Revolving credit and senior loan notes issue costs (2.1) (2.8)
97.9 97.2
There were undrawn amounts of £250.0m (2020: £250.0m) under the revolving
credit facility at the consolidated statement of financial position date. The
Group was undrawn throughout the financial year (2020: repaid £35.0m) under
the revolving credit facility. See note 25 for additional disclosures.
22 TRADE AND OTHER PAYABLES
2021 2020
£m £m
Non-current
Land payables on contractual terms 93.7 130.1
Other payables 3.4 4.0
Accruals and deferred income 10.5 17.6
107.6 151.7
Current
Land payables on contractual terms 129.2 75.6
Other trade payables 32.0 36.2
Contract liabilities 25.0 32.8
Due to joint ventures 0.1 0.1
Taxes and social security costs 1.8 2.4
Other payables 7.8 4.6
Accruals and deferred income 253.6 205.3
449.5 357.0
Land payables are recognised from the date of unconditional exchange of
contracts, and represent amounts due to land vendors for development sites
acquired. All land payables are due according to contractual terms. Where land
is purchased on deferred settlement terms then the land and the land payable
are discounted to their fair value using the effective interest method in
accordance with IFRS 9. The difference between the fair value and the nominal
value is amortised over the deferment period, with the financing element being
charged as an interest expense through the consolidated income statement. At
31 October 2021 the difference between the fair value and nominal value of
non-current land payables is £3.5m (2020: £4.6m).
Contract liabilities represent payments on account, received from customers,
in excess of billable work-in-progress on affordable and other sales in bulk
on contracts in which revenue is recognised over time. Based on historical
trends, the Directors expect a significant proportion of the contract
liabilities total to be recognised as revenue in the next reporting period.
Amounts due to joint ventures are interest free and repayable on demand. See
note 14 for additional details on the Group's interests in joint ventures.
Other trade payables mainly comprise amounts due to suppliers and
subcontractor retentions. Suppliers are settled according to agreed payment
terms and subcontractor retentions are released once the retention condition
has been satisfied.
Accruals are mainly work-in-progress related where work has been performed but
not yet invoiced.
23 PROVISIONS
Combustible materials Commercial properties Total Combustible materials Commercial properties Other provisions Total
2021 2021 2021 2020 2020 2020 2020
£m £m £m £m £m £m £m
At beginning of the year 14.8 0.4 15.2 14.6 0.8 0.8 16.2
Provided in the year 31.2 0.1 31.3 2.6 - - 2.6
Utilised in the year (3.4) - (3.4) (2.4) - (0.4) (2.8)
Released in the year - - - - (0.4) (0.4) (0.8)
At end of the year 42.6 0.5 43.1 14.8 0.4 - 15.2
Of which:
Non-current 28.4 - 28.4 3.4 - - 3.4
Current 14.2 0.5 14.7 11.4 0.4 - 11.8
42.6 0.5 43.1 14.8 0.4 - 15.2
Combustible materials
Following the Grenfell Tower tragedy in 2017 the Government commenced a review
of fire-related building regulations, notably those relating to external
walls, and issued new guidance for building owners which it continues to
revise.
On joining the Group in 2019, the new Executive Leadership Team quickly
established a dedicated internal team to oversee and govern the Group's
response to this changing regulatory backdrop as the interpretation of this
guidance often varies between professional advisors who are engaged to oversee
the identification and implementation of any remedies.
This team meets regularly and is chaired by the Chief Executive with
attendance from the Group Finance Director, Group Production Director and
Special Projects Director responsible for this area. In 2019 the team
conducted a full review into all legacy schemes it believed may be at risk
from guidance at that time, any relevant regulations and considered any
notification of claims. Accordingly, the Group created a combustible materials
provision. In 2020 and 2021 this provision was subsequently increased to
reflect any changes to the Government guidance and how it may be interpreted
over the Group's legacy portfolio, along with any new notifications received
if it was considered that they represent a liability.
In addition, as time has passed the Group has also been able to apply the
benefit of learned experience to develop a more accurate assessment and
forecast of its potential liability. As such the Group now has a detailed risk
register of all legacy buildings in scope which it regularly reviews. The team
considers the application of the latest guidelines against each affected
building, advice from its technical or legal advisors along with relevant
updates or notifications from a variety of stakeholders. Such sources can
include residents, management companies, freeholders, subcontractors,
architects, mortgage lenders, building control bodies and independent fire
engineers.
The review team consider the progress of any identified remediation works and
adjusts the provision to reflect the Group's best estimate of any future
remediation works. As such the financial statements are prepared on the
Group's current best estimate of these future costs and this may evolve in the
future based on the result of ongoing inspections, further advice, the
progress and cost to complete of in-flight remediation works and whether
Government legislation and regulation becomes more or less stringent in this
area. See note 26 for disclosures relating to further potential liabilities
and recoveries relating to the combustible materials provision.
In this year's assessment of whether any further remedial works are required
to be performed on legacy buildings, the Directors have carefully considered
whether the Group has a legal or constructive obligation at the consolidated
statement of financial position date. A legal obligation exists where the
Group owns the freehold of the building or is the Responsible Person under The
Regulatory Reform (Fire Safety) Order and taking into account the impact of
other advice notes issued by the Government since December 2018, or, where the
Group no longer owns the freehold and it is made aware of buildings with
defects or non-compliance with safety related building regulations at the
time.
A constructive obligation is present if the Group has communicated to the
involved parties (such as residents and building owners) that it will
undertake the remedial works. If the Group has identified that it has a legal
or constructive obligation then a provision has been recognised for the latest
estimated cost of the remedial works. The calculation of any charge is
complex, considering many different inputs including the height and square
footage of the impacted buildings, costs of interrogation, estimated costs of
replacement materials and labour, the extent of the works to be complete and
potential disruption to customers.
Accordingly, the Group recorded a further net combustible materials charge of
£31.2m in the year ended 31 October 2021. This charge comprises workmanship
related defects £12.5m, design related defects £17.7m and other costs
£1.0m. The further charge is in addition to the £18.4m combustible materials
charge made in 2019 and the £0.6m net combustible materials charge made in
2020. The main driver for the further charge in 2021 is the increase in claims
that have been made since the September 2021 deadline for freeholders and
managing agents to apply for the Government's Building Safety Fund.
During the year the Group has received new claims predominantly where it is no
longer the freeholder of the building and following the results of intrusive
surveys where fire related defects have been identified. Approximately a third
of this increase is due to revisions of forecasts on previously assessed
buildings arising as a result of a change in scope from intrusive surveys, and
two thirds on newly identified buildings requiring fire-related remedial
works. These newly identified buildings could not have been provided for
previously as no claims had been made that required the recognition of a
liability. The outflow of cash or other economic benefit was therefore not
previously considered as probable.
The Group spent £3.4m in the year across several buildings requiring further
investigative costs, including balcony and cladding related works.
The provision of £42.6m represents the Group's best estimate of costs at 31
October 2021. The Group will continue to assess the magnitude and utilisation
of this provision in future financial reporting periods. The Group recognises
that Government guidance in this area is evolving over time and that
assumptions may require revising. In addition, required remediation works
could be subject to further inflationary pressures and cash outflows on
currently unprovided sites may also become probable in the future.
The Group expects to have completed any required remedies within a five-year
period, using £14.2m of the remaining provision within one year, and the
balance within two to five years.
The Group is continuing to review the recoverability of costs incurred from
third parties where it has a contractual right of recourse. In the year £2.4m
was recovered from third parties, which has been recorded as an exceptional
credit in the consolidated income statement. See note 4 for income statement
disclosure.
Commercial properties
Commercial properties are dilapidation provisions on commercial properties
where the Group previously held the head lease. All leases are now expired and
the provision represents forecast costs to be incurred in bringing the
buildings back to their original condition.
24 SHARE CAPITAL
Shares Nominal value Share capital Share premium account
issued
Number Pence £ £
Ordinary shares as at 1 November 2019, 31 October 2020 and 31 October 2021 256,920,539 5 12,846,027 74,227,216
Ordinary shares are issued and fully paid. Authorised ordinary shares of five
pence each are 342,560,719 (2020: 342,560,719).
For details of outstanding share options at 31 October 2021 see note 17.
Own shares held
The Group and Company holds shares within the Crest Nicholson Employee Share
Ownership Trust (Trust) for participants of certain share-based payment
schemes. These are held within retained earnings. During the year 400,000
shares were purchased by the Trust for £1.6m (2020: 435,500 shares were
purchased by the Trust for £1.8m) and the Trust transferred 195,485 (2020:
394,913) shares to employees and Directors to satisfy options as detailed in
note 17. The number of shares held within the Trust (Treasury shares), and on
which dividends have been waived, at 31 October 2021 was 389,512 (2020:
184,997). These shares are held within the financial statements in equity at a
cost of £1.5m (2020: £0.5m). The market value of these shares at 31 October
2021 was £1.4m (2020: £0.4m).
25 FINANCIAL RISK MANAGEMENT
The Group's financial instruments comprise cash, bank loans, senior loan
notes, trade and other receivables, financial assets at fair value through
profit and loss and trade payables. The main objective of the Group's policy
towards financial instruments is to maximise returns on the Group's cash
balances, manage the Group's working capital requirements and finance the
Group's ongoing operations.
Capital management
The Group's policies seek to match long-term assets with long-term finance and
ensure that there is sufficient working capital to meet the Group's
commitments as they fall due, comply with the loan covenants and continue to
sustain trading.
The Group's capital comprises shareholders' funds and net borrowings. A
five-year summary of this can be found in the unaudited historical summary,
below, in addition to its return on average capital employed.
The Group seeks to manage its capital through control of expenditure, dividend
payments and through its banking facilities. The revolving credit facility and
senior loan notes impose certain minimum capital requirements on the Group.
These requirements are integrated into the Group's internal forecasting
process and are regularly reviewed. The Group has, and is forecasting, to
operate within these capital requirements.
There were undrawn amounts of £250.0m (2020: £250.0m) under the revolving
credit facility at the consolidated statement of financial position date. The
revolving credit facility carries interest at three-month LIBOR plus 1.85% and
ends in 2024.
On 15 November 2021 the Group signed an amendment to the revolving credit
facility to change the interest rate calculation from LIBOR to SONIA. This was
necessary due to the cessation of LIBOR rate calculations. The amendment was
done on a no gain/loss basis to either the lender or borrower. All other key
terms and conditions remain unchanged.
Financial risk
As virtually all of the operations of the Group are in sterling, there is no
direct currency risk, and thus the Group's main financial risks are credit
risk, liquidity risk and market interest rate risk. The Board is responsible
for managing these risks and the policies adopted are as set out below:
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or other
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group's cash deposits, as most
receivables are secured on land and buildings.
The Group has cash deposits of £350.7m (2020: £239.4m) which are held by the
providers of its banking facilities. These are primarily provided by HSBC Bank
Plc, Barclays Bank Plc, Lloyds Bank Plc and Natwest Group Plc, being four of
the UK's leading financial institutions. The security and suitability of these
banks is monitored by the treasury function on a regular basis. The Group has
bank facilities of £250.0m expiring in June 2024, with £250.0m remaining
available for drawdown under such facilities at 31 October 2021.
Financial assets at fair value through profit and loss, as described in note
15, of £5.3m (2020: £5.4m) are receivables on extended terms granted as part
of a sales transaction and are secured by way of a legal charge on the
relevant property and therefore credit risk is considered low.
The carrying value of trade and other receivables is mainly amounts due from
housing association sales, land sales and commercial sales and equates to the
Group's exposure to credit risk which is set out in note 18. Amounts due from
joint ventures of £56.0m (2020: £54.5m) is funding provided on four (2020:
four) joint venture developments which are being project managed by the Group
and are subject to contractual arrangements. The Group has assessed the
expected credit loss impact on the carrying value of trade and other
receivables as set out in note 18. Within trade receivables the other
largest single amount outstanding at the year end is £3.8m (2020: £5.5m)
which is within agreed terms.
The Group considers the credit quality of financial assets that are neither
past due nor impaired as good. In managing risk the Group assesses the credit
risk of its counterparties before entering into a transaction. No credit
limits were exceeded during the reporting year, and the Directors do not
expect any material losses from non-performance of any counterparties,
including in respect of receivables not yet due. No material financial assets
are past due, or are considered to be impaired as at the consolidated
statement of financial position date (2020: none).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due.
Cash flow forecasts are produced to monitor the expected cash flow
requirements of the Group against the available facilities. The principal
risks within these cash flows relate to achieving the level of sales volume
and prices in line with current forecasts.
The following are the contractual maturities of the financial liabilities of
the Group at 31 October 2021:
2021 Carrying value Contractual cash flows Within 1 year 1-2 years 2-3 years More than 3 years
£m £m £m £m £m £m
Senior loan notes 100.0 119.6 3.5 3.5 15.8 96.8
Financial liabilities carrying interest 65.0 66.1 36.0 30.1 - -
Financial liabilities carrying no interest 469.9 473.6 392.5 58.6 17.6 4.9
At 31 October 2021 634.9 659.3 432.0 92.2 33.4 101.7
2020 Carrying value Contractual cash flows Within 1 year 1-2 years 2-3 years More than 3 years
£m £m £m £m £m £m
Senior loan notes 100.0 123.1 3.5 3.5 3.5 112.6
Financial liabilities carrying interest 101.9 104.5 38.2 36.1 30.2 -
Financial liabilities carrying no interest 378.6 383.6 290.3 41.0 29.5 22.8
At 31 October 2020 580.5 611.2 332.0 80.6 63.2 135.4
Other financial liabilities carrying interest are land acquisitions using
promissory notes. The timing and amount of future cash flows given in the
table above is based on the Directors' best estimate of the likely outcome.
Market interest rate risk
Market interest rate risk reflects the Group's exposure to fluctuations to
interest rates in the market. The risk arises because the Group's revolving
credit facility is subject to floating interest rates based on LIBOR up until
15 November 2021 and then SONIA thereafter. The Group accepts a degree of
interest rate risk, and monitors rate changes to ensure they are within
acceptable limits and in line with banking covenants. The Group has partially
mitigated this risk by placing £100m of senior loan notes which are at fixed
interest rates. For the year ended 31 October 2021 it is estimated that an
increase of 1% in interest rates applying for the full year would decrease the
Group's profit before tax by £nil (2020: £0.8m).
At 31 October 2021, the interest rate profile of the financial liabilities of
the Group was:
2021 2020
£m £m
Sterling bank borrowings, loan notes and long-term creditors
Financial liabilities carrying interest 165.0 201.9
Financial liabilities carrying no interest 469.9 378.6
634.9 580.5
For financial liabilities that have no interest payable but for which imputed
interest is charged, consisting of land payables, the weighted average period
to maturity is 24 months (2020: 35 months).
2021 2020
£m £m
The maturity of the financial liabilities is:
Repayable within one year 424.8 324.1
Repayable between one and two years 87.7 74.4
Repayable between two and five years 56.2 115.4
Repayable after five years 66.2 66.6
634.9 580.5
Fair values
Financial assets
The Group's financial assets comprise cash and cash equivalents, financial
assets at fair value through profit and loss, trade and other receivables and
contract assets. The carrying value of cash and cash equivalents, trade and
other receivables and contract assets is a reasonable approximation of fair
value which would be measured under a level 3 hierarchy. At 31 October 2021
financial assets consisted of sterling cash deposits of £350.7m (2020:
£239.4m), both with solicitors and on current account, £5.3m (2020: £5.4m)
of financial assets at fair value through profit and loss, £33.2m (2020:
£40.6m) of trade and other receivables, and £56.0m (2020: £54.5m) of
amounts due from joint ventures. Financial assets at fair value through profit
and loss are carried at fair value and categorised as level 3 (inputs not
based on observable market data) within the hierarchical classification of
IFRS 13: Revised.
Financial liabilities
The Group's financial liabilities comprise the revolving credit facility, loan
notes, trade payables, loans from joint ventures, lease liabilities and
accruals, the carrying amounts of which are deemed to be a reasonable
approximation to their fair value. The fair values of the revolving credit
facility, other loans and loan notes are calculated based on the present value
of future principal and interest cash flows, discounted at the market rate of
interest at the consolidated statement of financial position date.
The fair values of the facilities determined on this basis are:
2021 Nominal interest rate Face Carrying value Fair Maturity
value value
£m £m £m
Senior loan notes 3.15% - 3.87% 100.0 100.0 100.0 2024-2029
Total non-current interest-bearing loans 100.0 100.0 100.0
2020 Nominal interest rate Face Carrying value Fair Maturity
value value
£m £m £m
Senior loan notes 3.15% - 3.87% 100.0 100.0 100.0 2024-2029
Total non-current interest-bearing loans 100.0 100.0 100.0
Financial assets and liabilities by category
2021 2020
Financial assets £m £m
Sterling cash deposits 350.7 239.4
Trade receivables 27.2 32.7
Amounts due from joint ventures 56.0 54.5
Other receivables 6.0 7.9
Total financial assets at amortised cost 439.9 334.5
Financial assets at fair value through profit and loss 5.3 5.4
Total financial assets 445.2 339.9
2021 2020
Financial liabilities £m £m
Senior loan notes 100.0 100.0
Land payables on contractual terms carrying interest 65.0 101.9
Land payables on contractual terms carrying no interest 157.9 103.8
Amounts due to joint ventures 0.1 0.1
Lease liabilities 4.6 7.0
Other trade payables 32.0 36.2
Other payables 11.2 8.6
Accruals 264.1 222.9
Total financial liabilities at amortised cost 634.9 580.5
26 CONTINGENCIES AND COMMITMENTS
There are performance bonds and other engagements, including those in respect
of joint venture partners, undertaken in the ordinary course of business. It
is impractical to quantify the financial effect of performance bonds and other
arrangements. The Directors consider the possibility of a cash outflow in
settlement of performance bonds and other arrangements to be remote and
therefore this does not represent a contingent liability for the Group.
In the ordinary course of business the Group enters into certain land purchase
contracts with vendors on a conditional exchange basis. The conditions must be
satisfied for the Group to recognise the land asset and corresponding
provisions within the consolidated statement of financial position. No land
payable in respect of conditional land acquisitions has been recognised.
The Group provides for all known material legal actions, where having taken
appropriate legal advice as to the likelihood of success of the actions, it is
considered probable that an outflow of economic resource will be required, and
the amount can be reliably measured. No material contingent liability in
respect of such claims has been recognised since there are no known claims of
this nature.
In 2019, the Group created a combustible materials provision, which was
subsequently increased in 2020 and 2021, see note 23 for further information.
This provision is subject to the Directors' estimates on costs and timing, and
the identification of legacy developments where the Group may have an
obligation to remediate or upgrade to meet new Government guidance where it is
responsible to do so. The Group recognises that the retrospective review of
building materials continues to evolve and as such the financial statements
have been prepared based on currently available information. The provision
reflects the current best estimate of future costs of work required based on
the reviews and physical inspections undertaken. However, the provision may be
updated as further inspections are completed, the outcome of which may result
in the outflow of economic benefit becoming probable or if Government
legislation and regulation becomes more or less stringent in this area. It is
particularly difficult to reliably estimate expected future costs where the
Group is no longer the freehold owner. As such the Group has not disclosed a
range of expected future costs.
In July 2021, the Government proposed that the Building Safety Bill will
extend the current 6-year limitation period under The Defective Premises Act
to a 15-year limitation period, during which legal claims can be brought
against developers and that this will be applied retrospectively when the Bill
becomes law, which is expected in 2022. The provision recognised reflects the
Group's review of buildings within all currently applicable liability periods,
which in some circumstances exceeds the six-year limitation period. However,
the extension to 15 years may result in additional liabilities for the Group
which currently cannot be quantified as the buildings are not homogenous and
reliable estimates are impracticable without an intrusive survey being
performed
In July 2021, the Government announced that External Wall Survey (EWS)
certificates should not be required by mortgagors on buildings below 18
metres. If this is accepted by the relevant stakeholders, being banks,
leaseholders and surveyors, it would potentially reduce the scope of
remediation works that are required to the EWS on lower-rise buildings. This
guidance is yet to be finalised and therefore any potential reduction to the
provision cannot be currently quantified.
On 10 January 2022, the Secretary of State communicated the Government's
latest policy position with respect to building safety concerns arising from
cladding and combustible materials. The Group is carefully considering the
impacts of this update, however, the guidance is yet to be finalised therefore
any potential impact on the combustible materials provision cannot currently
be quantified.
The Group is reviewing the recoverability of costs incurred from third parties
where it has a contractual right of recourse. As reflected in the prior year
financial statements the Group has a track record of successfully obtaining
such recoveries, however no contingent assets have been recognised in this
year's financial statements for such items.
27 NET CASH AND LAND CREDITORS
2021 2020
£m £m
Cash and cash equivalents 350.7 239.4
Non-current interest-bearing loans and borrowings (97.9) (97.2)
Net cash 252.8 142.2
Land payables on contractual terms carrying interest (65.0) (101.9)
Land payables on contractual terms carrying no interest (157.9) (103.8)
Net cash and land creditors 29.9 (63.5)
28 RELATED PARTY TRANSACTIONS
Transactions between fellow subsidiaries, which are related parties, are
eliminated on consolidation, as well as transactions between the Company and
its subsidiaries during the current and prior year.
Transactions between the Group and key management personnel mainly comprise
remuneration which is given in note 6. Detailed disclosure for Board members
is given within the Directors' Remuneration Report. There were no other
transactions between the Group and key management personnel in the year.
The Company's Directors and Non-Executive Directors have associations other
than with the Company. From time to time the Group may buy products or
services from organisations with which a Director or Non-Executive Director
has an association. Where this occurs, it is on normal commercial terms and
without the direct involvement of the Director or Non-Executive Director.
The Group had the following transactions with its joint ventures in the year:
2021 2020
£m £m
Interest income on joint venture funding 2.8 2.7
Project management fees received 1.5 1.4
Amounts due from joint ventures, net of expected credit losses 56.0 54.5
Amounts due to joint ventures 0.1 0.1
Funding to joint ventures (13.0) (15.6)
Repayment of funding from joint ventures 11.5 10.1
29 CHANGE IN ACCOUNTING POLICIES
Inventories
In previous financial statements options purchased in respect of land were
initially recognised as a prepayment within inventories at cost and subject to
annual impairment reviews, with provisions made to reflect loss of value. When
a land contract was subsequently secured from an option subject to impairment,
the previously impaired costs were written back to the income statement and
capitalised within work-in-progress. Upon development of the land, this
capitalised cost is charged to cost of sales as housing units are sold.
The Group has changed this policy to be more in line with common industry
practice and to provide more reliable and relevant information, which it
believes improves the understanding of the performance of the business. Land
options are now written down on a straight-line basis over the life of the
option, with no subsequent write back to the consolidated income statement
when a land contract is secured. The updated policy is disclosed within note
1.
This change in policy will result in the derecognition of £7.3m of land
options previously written back to the income statement, and create an
associated deferred tax asset of £1.4m. The previous income statement write
backs did not occur in the periods ended 31 October 2019 or 31 October 2020,
thus the consolidated income statement for these periods does not require
restatement. The impact on previously reported consolidated statement of
financial position is presented overleaf.
As at As at
1 November 31 October
2019 2020
£m £m
Deferred tax assets
As previously reported 6.4 8.4
Change in accounting policy 1.4 1.4
As reported 7.8 9.8
Inventories
As previously reported 1,151.1 1,025.0
Change in accounting policy (7.3) (7.3)
As reported 1,143.8 1,017.7
Total assets
As previously reported 1,576.2 1,473.1
Change in accounting policy (5.9) (5.9)
As reported 1,570.3 1,467.2
Net assets
As previously reported 853.9 831.2
Change in accounting policy (5.9) (5.9)
As reported 848.0 825.3
Retained earnings
As previously reported 766.9 744.2
Change in accounting policy (5.9) (5.9)
As reported 761.0 738.3
Total equity
As previously reported 853.9 831.2
Change in accounting policy (5.9) (5.9)
As reported 848.0 825.3
30 GROUP UNDERTAKINGS
In accordance with s409 Companies Act 2006, the following is a list of all the
Group's undertakings at 31 October 2021.
Subsidiary undertakings
At 31 October 2021 the Group had an interest in the below subsidiary
undertakings, which are included in the consolidated financial statements. All
subsidiaries were incorporated in England and Wales.
Entity name Registered office Active / dormant Year end date Voting rights and shareholding (direct or indirect)
Bartley Wood Management Services No.2 Limited 1 8 31 March 100%
Bath Riverside Estate Management Company Limited 2 9 31 October 100%
Bath Riverside Liberty Management Company Limited 2 9 31 October 100%
Castle Bidco Home Loans Limited 1 8 31 October 100%
Brightwells Residential 1 Company Limited 1 9 31 October 100%
Bristol Parkway North Limited 1 9 31 October 100%
Building 7 Harbourside Management Company Limited 2 8 31 December 58.33%
Buildings 3A, 3B & 4 Harbourside Management Company Limited 2 9 31 December 83.33%
Castle Bidco plc* 1 8 31 October 100%
Clevedon Developments Limited 1 9 31 October 100%
Clevedon Investment Limited 1 8 31 October 100%
CN Nominees Limited 1 9 31 October 100%
CN Properties Limited 1 9 31 October 100%
CN Secretarial Limited 1 9 31 October 100%
CN Shelf 1 LLP 1 9 30 June 100%
CN Shelf 2 LLP 1 9 30 June 100%
CN Shelf 3 LLP 1 9 30 June 100%
Crest (Claybury) Limited 1 9 31 October 100%
Crest Developments Limited 1 9 31 October 100%
Crest Estates Limited 1 9 31 October 100%
Crest Homes (Eastern) Limited 1 9 31 October 100%
Crest Homes (Midlands) Limited 1 9 31 October 100%
Crest Homes (Nominees) Limited 1 9 31 October 100%
Crest Homes (Nominees No. 2) Limited 1 8 31 October 100%
Crest Homes (Northern) Limited 1 9 31 October 100%
Crest Homes (South East) Limited 1 9 31 October 100%
Crest Homes (South West) Limited 1 9 31 October 100%
Crest Homes (South) Limited 1 9 31 October 100%
Crest Homes (Wessex) Limited 1 9 31 October 100%
Crest Homes (Westerham) Limited 1 9 31 October 100%
Crest Homes Limited 1 9 31 October 100%
Crest Manhattan Limited 1 9 31 October 100%
Crest Nicholson (Bath) Holdings Limited 1 9 31 October 100%
Crest Nicholson (Chiltern) Limited 1 9 31 October 100%
Crest Nicholson (Eastern) Limited 1 9 31 October 100%
Crest Nicholson (Epsom) Limited 1 9 31 October 100%
Crest Nicholson (Henley-on-Thames) Limited 1 8 31 October 100%
Crest Nicholson (Highlands Farm) Limited 1 9 31 October 100%
Crest Nicholson (Londinium) Limited 1 9 31 October 100%
Crest Nicholson (Midlands) Limited 1 9 31 October 100%
Crest Nicholson (Peckham) Limited 1 8 31 October 100%
Crest Nicholson (South East) Limited 1 9 31 October 100%
Crest Nicholson (South West) Limited 1 9 31 October 100%
Crest Nicholson (South) Limited 1 9 31 October 100%
Crest Nicholson (Stotfold) Limited 1 8 31 October 100%
Crest Nicholson Developments (Chertsey) Limited 1 8 31 October 100%
Crest Nicholson Operations Limited 1 8 31 October 100%
Crest Nicholson Pension Trustee Limited 1 9 31 January 100%
Crest Nicholson plc 1 8 31 October 100%
Crest Nicholson Projects Limited 1 9 31 October 100%
Crest Nicholson Properties Limited 1 9 31 October 100%
Crest Nicholson Regeneration Limited 1 9 31 October 100%
Crest Nicholson Residential (London) Limited 1 9 31 October 100%
Crest Nicholson Residential (Midlands) Limited 1 9 31 October 100%
Crest Nicholson Residential (South East) Limited 1 9 31 October 100%
Crest Nicholson Residential (South) Limited 1 9 31 October 100%
Crest Nicholson Residential Limited 1 9 31 October 100%
Crest Partnership Homes Limited 1 9 31 October 100%
Crest Strategic Projects Limited 1 9 31 October 100%
Eastern Perspective Management Company Limited 1 9 31 October 100%
Essex Brewery (Walthamstow) LLP 1 9 31 October 100%
Harbourside Leisure Management Company Limited 1 8 30 December 71.43%
Landscape Estates Limited 1 9 31 October 100%
Mertonplace Limited 1 9 31 October 100%
Nicholson Estates (Century House) Limited 1 9 31 October 100%
Park Central Management (Central Plaza) Limited 1 9 31 October 100%
Ellis Mews (Park Central) Management Limited 1 8 31 October 100%
Park Central Management (Zone 11) Limited 1 9 31 October 100%
Park Central Management (Zone 12) Limited 1 9 31 October 100%
Park Central Management (Zone 1A North) Limited 1 9 31 October 100%
Park Central Management (Zone 1A South) Limited 1 9 31 October 100%
Park Central Management (Zone 1B) Limited 1 9 31 October 100%
Park Central Management (Zone 3/1) Limited 1 9 31 October 100%
Park Central Management (Zone 3/2) Limited 1 9 31 October 100%
Park Central Management (Zone 3/3) Limited 1 9 31 October 100%
Park Central Management (Zone 3/4) Limited 1 9 31 October 100%
Park Central Management (Zone 4/41 & 42) Limited 1 9 31 October 100%
Park Central Management (Zone 4/43/44) Limited 1 9 31 October 100%
Park Central Management (Zone 5/53) Limited 1 9 31 October 100%
Park Central Management (Zone 5/54) Limited 1 9 31 October 100%
Park Central Management (Zone 5/55) Limited 1 9 31 October 100%
Park Central Management (Zone 6/61-64) Limited 1 9 31 October 100%
Park Central Management (Zone 7/9) Limited 1 9 31 October 100%
Park Central Management (Zone 8) Limited 1 8 31 October 100%
Park Central Management (Zone 9/91) Limited 1 9 31 January 100%
Park West Management Services Limited 1 8 31 March 62.00%
*Castle Bidco plc is the only direct holding of Crest Nicholson Holdings plc.
Subsidiary audit exemption
The following subsidiaries have taken advantage of an exemption from audit
under section 479A of the Companies Act 2006. The parent of the subsidiaries,
Crest Nicholson plc, has provided a statutory guarantee for any outstanding
liabilities of these subsidiaries. All subsidiary undertakings have been
included in the consolidated financial statements of Crest Nicholson Holdings
plc as at 31 October 2021.
Clevedon Investment Limited (00454327)
Crest Homes (Nominees No. 2) Limited (02213319)
Crest Nicholson (Henley-on-Thames) Limited (03828831)
Crest Nicholson (Peckham) Limited (07296143)
Crest Nicholson (Stotfold) Limited (08774274)
Crest Nicholson Developments (Chertsey) Limited (04707982)
Joint venture undertakings
At 31 October 2021 the Group had an interest in the following joint venture
undertakings which are equity accounted within the consolidated financial
statements. The principal activity of all undertakings is that of residential
development. All joint ventures were incorporated in England and Wales.
Entity name Registered office Active / dormant Year end date Voting rights and shareholding (direct or indirect)
Material joint ventures
Bonner Road LLP 6 8 31 March 50%
Crest A2D (Walton Court) LLP 1 8 31 March 50%
Crest Sovereign (Brooklands) LLP 5 8 31 October 50%
Elmsbrook (Crest A2D) LLP 7 8 31 March 50%
Other joint ventures not material to the Group
Brentford Lock Limited 3 8 31 December 50%
Crest/Vistry (Epsom) LLP 1 8 31 October 50%
Crest Nicholson Bioregional Quintain LLP 1 8 31 October 50%
English Land Banking Company Limited 1 8 31 October 50%
Haydon Development Company Limited 4 8 30 April 21.36%
North Swindon Development Company Limited 4 8 31 December 32.64%
Registered
office
Active / dormant
1 Crest House, Pyrcroft Road, Chertsey, Surrey KT16
9GN. 8 active
2 Unit 2 & 3 Beech Court, Wokingham Road, Hurst, Reading RG10 0RU. 9
dormant
3 Persimmon House, Fulford, York YO19 4FE.
4 6 Drakes Meadow, Penny Lane, Swindon, Wiltshire SN3 3LL.
5 Sovereign House, Basing View, Basingstoke RG21 4FA.
6 Level 6, 6 More London Place, Tooley Street, London SE1 2DA.
7 The Point, 37 North Wharf Road, London W2 1BD.
Joint operations
The Group is party to a joint unincorporated arrangement with Linden Homes
Limited, the purpose of which was to acquire, and develop, a site in Hemel
Hempstead, Hertfordshire. The two parties are jointly responsible for the
control and management of the site's development, with each party funding 50%
of the cost of the land acquisition and development of the site, in return for
50% of the returns. As such this arrangement was designated as a joint
operation.
The Group is party to a joint unincorporated arrangement with CGNU Life
Assurance Limited the purpose of which is to acquire, and develop, a site in
Chertsey, Surrey. The two parties are jointly responsible for the control and
management of the site's development, with each party funding 50% of the cost
of the land acquisition and development of the site, in return for 50% of the
returns. As such this arrangement has been designated as a joint operation.
The Group is party to a joint arrangement with Passion Property Group Limited,
the purpose of which was to develop a site in London. The development was
completed in 2014 and there are no material balances in the Group financial
statements relating to this joint arrangement as at 31 October 2021. The two
parties were jointly responsible for the control and management of the site's
development, with each party having prescribed funding obligations and
returns. As such this arrangement has been designated as a joint operation.
In line with the Group's accounting policies, the Group has recognised its
share of the jointly controlled assets and liabilities, and income and
expenditure, in relation to these joint arrangements on a line-by-line basis
in the consolidated statement of financial position and consolidated income
statement as there is no legal entity in place and the arrangements as
structured such that the Group has a direct interest in the underlying assets
and liabilities of each arrangement.
Crest Nicholson Employee Share Ownership Trust
The Group operates The Crest Nicholson Employee Share Ownership Trust, which
is used to satisfy awards granted under the Group's share incentive schemes,
shares are allotted to the Trust or the Trust is funded to acquire shares in
the open market. The Crest Nicholson Employee Share Ownership Trust falls
within the scope of IFRS 10 Consolidated statements, and is consolidated
within the Group financial statements, as the Group is considered to have
control over the Trust.
CREST NICHOLSON HOLDINGS PLC
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 October 2021
2021 2020
Note £m £m
ASSETS
Non-current assets
Investments 4 1.6 0.6
Current assets
Trade and other receivables 5 251.5 252.1
TOTAL ASSETS 253.1 252.7
NET ASSETS 253.1 252.7
SHAREHOLDERS' EQUITY
Share capital 6 12.8 12.8
Share premium account 6 74.2 74.2
Retained earnings:
At 1 November 165.7 155.9
Profit for the year 11.3 11.2
Other changes in retained earnings (10.9) (1.4)
At 31 October 166.1 165.7
TOTAL SHAREHOLDERS' EQUITY 253.1 252.7
The Company recorded a profit for the financial year of £11.3m (2020:
£11.2m).
The notes below form part of these financial statements.
The financial statements below were approved by the Board of Directors on 19
January 2022.
On behalf of the Board
PETER TRUSCOTT DUNCAN
COOPER
Director
Director
CREST NICHOLSON HOLDINGS PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 October 2021
Share capital Share premium account Retained earnings Total equity
Note £m £m £m £m
Balance at 1 November 2019 12.8 74.2 155.9 242.9
Profit for the financial year and total comprehensive income - - 11.2 11.2
Transactions with shareholders
Exercise of share options through employee benefit trust 3 - - (1.8) (1.8)
Net proceeds from the issue of shares and exercise of share options - - 0.4 0.4
Balance at 31 October 2020 12.8 74.2 165.7 252.7
Profit for the financial year and total comprehensive income - - 11.3 11.3
Transactions with shareholders
Dividends paid - - (10.5) (10.5)
Exercise of share options through employee benefit trust - - (0.6) (0.6)
Net proceeds from the issue of shares and exercise of share options - - 0.2 0.2
Balance at 31 October 2021 12.8 74.2 166.1 253.1
CREST NICHOLSON HOLDINGS PLC
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
Basis of preparation
Crest Nicholson Holdings plc (the Company) is a public company limited by
shares, incorporated, listed and domiciled in England and Wales. The address
of the registered office is Crest House, Pyrcroft Road, Chertsey, Surrey KT16
9GN. The Company financial statements have been prepared and approved by the
Directors in accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework (FRS 101), in accordance with the Companies Act 2006 as
applicable to companies using FRS 101, and have been prepared on the
historical cost basis. The preparation of financial statements in conformity
with FRS 101 requires the Directors to make assumptions and judgements that
affect the application of policies and reported amounts within the financial
statements. Assumptions and judgements are based on experience and other
factors that the Directors consider reasonable under the circumstances. Actual
results may differ from these estimates.
The financial statements are presented in pounds sterling and amounts stated
are denominated in millions (£m). The accounting policies have been applied
consistently in dealing with items which are considered material.
These financial statements present information about the Company as an
individual undertaking and not about its group. Under section 408 of the
Companies Act 2006 the Company is exempt from the requirement to present its
own profit and loss account.
As outlined in FRS 101 paragraph 8(a) the Company is exempt from the
requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based Payments.
This exemption has been taken in the preparation of these financial
statements.
As outlined in FRS 101 paragraph 8(d-e) the Company is exempt from the
requirements of IFRS 7 Financial Instruments: Disclosures, and from the
requirements of paragraphs 91 to 99 of IFRS 13 Fair Value Measurement. These
exemptions have been taken in the preparation of these financial statements.
As outlined in FRS 101 paragraph 8(h) the Company is exempt from the
requirement to prepare a cash flow statement on the grounds that a parent
undertaking includes the Company in its own published consolidated financial
statements. This exemption has been taken in the preparation of these
financial statements.
As outlined in FRS 101 paragraph 8(i) the Company is exempt from the
requirement to provide information about the impact of IFRSs that have been
issued but are not yet effective. This exemption has been taken in the
preparation of these financial statements.
Under FRS 101 paragraph 8(j) the Company is exempt from the requirement to
disclose related party transactions with its subsidiary undertakings on the
grounds that they are wholly owned subsidiary undertakings of Crest Nicholson
Holdings plc. This exemption has been taken in the preparation of these
financial statements.
Going concern
The Directors reviewed detailed cashflows and financial forecasts for the next
year and summary cashflows and financial forecasts for the following two
years. Throughout this review period the Company is forecast to be able to
meet its liabilities as they fall due. Therefore, having assessed the
principal risks and all other relevant matters, the Directors consider it
appropriate to adopt the going concern basis of accounting in preparing the
financial statements of the Company. The Group's going concern assessment can
be found in note 1 of the consolidated financial statements.
Adoption of new and revised standards
There were no new standards, amendments or interpretations that were adopted
by the Company and effective for the first time for the financial year
beginning 1 November 2020 that had a material impact on the Company.
The principal accounting policies set out below have, unless otherwise stated,
been applied consistently to all years presented in these financial
statements.
Share-based payments
The Company issues equity-settled share-based payments to certain employees of
its subsidiaries. Equity-settled share-based payments are measured at fair
value at the grant date, and charged to the income statement on a
straight-line basis over the vesting period, based on the estimate of shares
that will vest. The cost of equity-settled share-based payments granted to
employees of subsidiary companies is borne by the employing company.
Taxation
Income tax comprises current tax and deferred tax. Income tax is recognised in
the Company's income statement except to the extent that it relates to items
recognised in other comprehensive income, in which case it is also recognised
in other comprehensive income.
Current tax is the expected tax payable on taxable profit for the year and any
adjustment to tax payable in respect of previous years. Taxable profit is
profit before tax per the Company's income statement after adjusting for
income and expenditure that is not subject to tax, and for items that are
subject to tax in other accounting periods. The Company's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the statement of financial position date. Where
uncertain tax liabilities exist, the liability recognised is assessed as the
amount that is probable to be payable.
Deferred tax is provided in full on temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit. Deferred
tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can
be utilised. Deferred tax is calculated using tax rates that have been
substantively enacted by the statement of financial position date.
Dividends
Final and interim dividend distributions to the Company's shareholders are
recorded in the Company's financial statements in the earlier of the period in
which they are approved by the Company's shareholders, or paid.
Investments
Investments relate to Company contributions to the Crest Nicholson Employee
Share Ownership Trust (the Trust or ESOP). The Trust will use the contribution
to acquire Company ordinary shares in the market in order to satisfy share
options under the Company's share incentive schemes.
Financial assets
Financial assets are initially recognised at fair value and subsequently
classified into one of the following measurement categories:
· measured at amortised cost
· measured subsequently at fair value through profit or loss (FVTPL)
· measured subsequently at fair value through other comprehensive
income (FVOCI)
The classification of financial assets depends on the Company's business model
for managing the asset and the contractual terms of the cash flows. Assets
that are held for the collection of contractual cash flows that represent
solely payments of principal and interest are measured at amortised cost, with
any interest income recognised in the income statement using the effective
interest rate method. Financial assets that do not meet the criteria to be
measured at amortised cost are classified by the Company as measured at FVTPL.
Fair value gains and losses on financial assets measured at FVTPL are
recognised in the income statement and presented within administrative
expenses. The Company currently has no financial assets measured at FVOCI.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost, using the effective interest method,
less provision for impairment. A provision for impairment of trade receivables
is established based on an expected credit loss model applying the simplified
approach, which uses a lifetime expected loss allowance for all trade
receivables. The amount of the loss is recognised in the income statement.
Financial liabilities
Financial liabilities are initially recognised at fair value and subsequently
classified into one of the following measurement categories:
· measured at amortised cost
· measured subsequently at FVTPL
Non-derivative financial liabilities are measured at FVTPL when they are
considered held for trading or designated as such on initial recognition. The
Company has no non-derivative financial liabilities measured at FVTPL.
Own shares held by ESOP
Transactions of the Company sponsored ESOP are included in both the Group
financial statements and the Company's own financial statements. The purchase
of shares in the Company by the Trust are charged directly to equity.
Audit fee
Auditor's remuneration for audit of these financial statements of £25,000
(2020: £18,000) was met by Crest Nicholson plc. No disclosure of other
non-audit services has been made as this is included within note 5 of the
consolidated financial statements.
Critical accounting estimates and judgements
The preparation of the Company financial statements under FRS 101 requires the
Directors to make estimates and assumptions that affect the application of
policies and reported amounts of assets and liabilities, income and expenses
and related disclosures.
In applying the Company's accounting policies, the Directors have made no
individual judgements that have a significant impact on the financial
statements.
Estimates and associated assumptions affecting the financial statements are
based on historical experience and various other factors that are believed to
be reasonable under the circumstances. The estimates and underlying
assumptions are reviewed on an ongoing basis. Changes in accounting estimates
may be necessary if there are changes in the circumstances on which the
estimate was based or as a result of new information. Revisions to accounting
estimates are recognised in the year in which the estimate is revised if the
revision affects only that year, or in the year of revision and future years
if the revision affects both current and future years. The Directors do not
consider there are any significant sources of estimation uncertainty that have
a risk of causing a material adjustment to the carrying value of assets and
liabilities of the Company.
2 DIRECTORS AND EMPLOYEES
The Company had no employees during either year. Details of Directors'
emoluments, which were paid by another Group company, are set out in the
Directors' Remuneration Report on pages 104 to 125 of the Annual Integrated
Report 2021.
3 DIVIDENDS
Details of the dividends recognised as distributions to equity shareholders in
the year and those proposed after the statement of financial position date are
shown in note 9 of the consolidated financial statements.
4 INVESTMENTS
2021 2020
£m £m
Investments in shares of subsidiary undertaking at cost at beginning of the 0.6 0.6
year
Additions 1.6 1.8
Disposals (0.6) (1.8)
Investments in shares of subsidiary undertaking at cost at end of the year 1.6 0.6
Additions and disposals in the year relate to company
contributions/utilisation to/from the Trust.
The Directors believe that the carrying value of the investments is supported
by their underlying assets.
5 TRADE AND OTHER RECEIVABLES
2021 2020
£m £m
Amounts due from Group undertakings 251.5 252.1
Amounts due from Group undertakings are unsecured, repayable on demand and
carry an interest rate of 5.0% (2020: 5.0%).
Amounts due from Group undertakings are stated after an allowance of £nil has
been made (2020: £nil) in respect of expected credit losses. £nil (2020:
£nil) provision was made during the year, £nil (2020: £nil) was utilised,
and £nil (2020: £nil) provision was released during the year.
6 SHARE CAPITAL
The Company share capital is disclosed in note 24 of the consolidated
financial statements.
7 CONTINGENCIES AND COMMITMENTS
There are performance bonds and other arrangements, including those in respect
of joint venture partners, undertaken in the ordinary course of business. It
is impractical to quantify the financial effect of performance bonds and other
arrangements. The Directors consider the possibility of a cash outflow in
settlement of performance bonds and other arrangements to be remote and
therefore this does not represent a contingent liability for the Company.
In addition, the Company is required from time to time to act as guarantor for
the performance by subsidiary undertakings of contracts entered into in the
normal course of their business and typically provide that the Company will
ensure that the obligations of the subsidiary are carried out or met in the
unlikely event that any subsidiary default occurs. The Company considers the
likelihood of an outflow of cash under these arrangements to be remote and
therefore this does not represent a contingent liability for the Company.
8 GROUP UNDERTAKINGS
A list of all the Group's undertakings at 31 October 2021 is given in note 30
of the consolidated financial statements.
CREST NICHOLSON HOLDINGS PLC
ALTERNATIVE PERFORMANCE MEASURES (UNAUDITED)
The Group uses a number of alternative performance measures (APM) which are
not defined within IFRS. The Directors use the APMs, along with IFRS measures,
to assess the operational performance of the Group as detailed in the
Strategic Report on pages 1 to 69 of the Annual Integrated Report 2021, and
above. Definitions and reconciliations of the financial APMs used compared to
IFRS measures, are included below:
Sales
The Group uses sales as a core management measure to reflect the full extent
of its business operations and responsibilities. Sales is a combination of
statutory revenue as per the consolidated income statement and the Group's
share of revenue earned by joint ventures, as detailed in the below table:
2021 2020
£m £m
Revenue 786.6 677.9
Group's share of joint venture revenue (note 14) 27.0 15.2
Sales 813.6 693.1
Return on capital employed (ROCE)
The Group uses ROCE as a core management measure to reflect the profitability
and efficiency with which capital is employed. ROCE is calculated as adjusted
operating profit before joint ventures divided by average capital employed
(capital employed = equity plus net borrowing or less net cash), as presented
below. The Group has long-term performance measures linked to ROCE. ROCE
achieved by the Group in the year increased to 17.2% (2020: decreased to
7.6%).
2021 2020
Adjusted operating profit £m 114.6 57.1
Average of opening and closing capital employed £m 665.9 746.9
ROCE % 17.2 7.6
Capital employed 2021 2020 2019
Equity shareholders' funds - restated(1) £m 901.6 825.3 848.0
Net cash (note 20) £m (252.8) (142.2) (37.2)
Closing capital employed £m 648.8 683.1 810.8
(1 )2020 and 2019 restated to reflect the change in accounting policy on land
options. See note 29 of the consolidated financial statements.
Adjusted performance metrics
Adjusted performance metrics as shown below comprise statutory metrics
adjusted for the exceptional items as presented in note 4 of the consolidated
financial statements. The exceptional items have a material impact to reported
performance and arise from recent, unforeseen events. As such, the Directors
consider these adjusted performance metrics reflect a more accurate view of
its core operations and underlying business performance. EBIT margin for share
award performance conditions is equivalent to operating profit margin.
Administrative expenses/overhead efficiency is administrative expenses as a
percentage of revenue.
Year ended 31 October 2021 Statutory Exceptional items Adjusted
Gross profit £m 145.9 20.8 166.7
Gross profit margin % 18.5 2.7 21.2
Administrative expenses £m (51.1) - (51.1)
Administrative expenses/overhead efficiency % 6.5 - 6.5
Operating profit £m 93.8 20.8 114.6
Operating profit margin % 11.9 2.7 14.6
Net finance expense £m (8.6) (0.5) (9.1)
Profit before tax £m 86.9 20.3 107.2
Income tax expense £m (16.0) (3.9) (19.9)
Profit after tax £m 70.9 16.4 87.3
Basic earnings per share Pence 27.6 6.4 34.0
Diluted earnings per share Pence 27.5 6.4 33.9
Gross profit £m 63.9 43.8 107.7
Gross profit margin % 9.4 6.5 15.9
Administrative expenses £m (57.8) 7.5 (50.3)
Administrative expenses/overhead efficiency % 8.5 (1.1) 7.4
Net impairment losses on financial assets £m (7.9) 7.6 (0.3)
Operating (loss)/profit £m (1.8) 58.9 57.1
Operating (loss)/profit margin % (0.3) 8.7 8.4
Net finance expense £m (11.2) 0.5 (10.7)
(Loss)/profit before tax £m (13.5) 59.4 45.9
Income tax credit/(expense) £m 2.8 (11.3) (8.5)
(Loss)/profit after tax £m (10.7) 48.1 37.4
Basic (loss)/earnings per share Pence (4.2) 18.8 14.6
Diluted (loss)/earnings per share Pence (4.2) 18.7 14.5
Gearing including land creditors
Gearing including land creditors is net cash and land creditors divided by
equity shareholders' funds less net cash add land creditors.
2021 2020
Total net cash and land creditors (note 27) £m 29.9 (63.5)
Equity shareholders' funds - restated(1) £m (901.6) (825.3)
Total net cash and land creditors £m 29.9 (63.5)
£m (871.7) (888.8)
Gearing including land creditors % (3.4) 7.1
(1 )2020 restated to reflect the change in accounting policy on land options.
See note 29 of the consolidated financial statements.
CREST NICHOLSON HOLDINGS PLC
HISTORICAL SUMMARY (UNAUDITED)
For the year ended/as at 31 October 2021
Note 2021(1) 2020(1) 2019(2) 2018(3) 2017(4)
Consolidated income statement
Revenue £m 786.6 677.9 1,086.4 1,121.0 1,043.2
Gross profit £m 166.7 107.7 201.9 246.9 274.9
Gross profit margin % 21.2 15.9 18.6 22.0 26.4
Administrative expenses £m (51.1) (50.3) (65.5) (64.9) (63.3)
Net impairment losses on financial assets £m (1.0) (0.3) (3.4) - -
Operating profit before joint ventures £m 114.6 57.1 133.0 182.0 211.6
Operating profit before joint ventures margin % 14.6 8.4 12.2 16.2 20.3
Share of post-tax profit/(loss) of joint ventures £m 1.7 (0.5) (0.9) (1.3) 3.7
Operating profit after joint ventures £m 116.3 56.6 132.1 180.7 215.3
Operating profit after joint ventures margin % 14.8 8.3 12.2 16.1 20.6
Net finance expense £m (9.1) (10.7) (11.0) (12.0) (8.3)
Profit before taxation £m 107.2 45.9 121.1 168.7 207.0
Income tax expense £m (19.9) (8.5) (23.7) (32.1) (38.4)
Profit after taxation attributable to equity shareholders £m 87.3 37.4 97.4 136.6 168.6
Basic earnings per share Pence 34.0 14.6 38.0 53.3 66.1
Consolidated statement of financial position
Equity shareholders' funds 1 £m 901.6 825.3 854.4 872.7 817.8
Net cash 2 £m (252.8) (142.2) (37.2) (14.1) (33.2)
Capital employed closing £m 648.8 683.1 817.2 858.6 784.6
Gearing 3 % (39.0) (20.8) (4.6) (1.6) (4.1)
Land creditors £m 222.9 205.7 216.5 209.7 215.6
Net (cash)/debt and land creditors 4 £m (29.9) 63.5 179.3 195.6 182.4
Return on average capital employed 5 % 17.2 7.6 15.9 22.2 29.7
Return on average equity 6 % 10.1 4.5 11.3 16.6 21.9
Housing
Home completions 7 Units 2,407 2,247 2,912 3,048 2,935
Average selling price - open market 8 £000 359 336 388 396 388
Short-term land 9 Units 14,677 14,991 16,960 19,507 16,260
Strategic land 10 Units 22,308 22,724 20,169 16,837 18,174
Total short-term and strategic land Units 36,985 37,715 37,129 36,344 34,434
Land pipeline gross development value 11 £m 11,834 11,360 12,137 12,166 11,736
(1) Consolidated income statement statistics, return on average capital
employed and return on average equity is presented before exceptional items as
presented in note 4 of the consolidated financial statements. 2020 equity
shareholders' funds, capital employed closing, gearing and return on average
equity have been restated to reflect the change in accounting policy on land
options, see note 29 of the consolidated financial statements.
(2) Consolidated income statement statistics, return on average capital
employed and return on average equity are presented before £18.4m exceptional
item relating to combustible materials provision. Not restated to reflect the
change in accounting policy on land options from 1 November 2020.
(3) Restated to reflect the adoption of IFRS 15 with effect from 1 November
2018. Not restated to reflect the change in accounting policy on land options
from 1 November 2020.
(4) Historic figures, not restated to reflect the adoption of IFRS 15 in 2019
or the change in accounting policy on land options from 1 November 2020.
Note
1 Equity shareholders' funds = Group total equity (share capital plus
share premium plus retained earnings).
2 Net (cash)/borrowings = Cash and cash equivalents plus non-current and
current interest-bearing loans and borrowings.
3 Gearing = Net (cash)/borrowings divided by capital employed closing.
4 Net (cash)/debt and land creditors = land creditors less net cash or
add net borrowings
5 Return on capital employed = adjusted operating profit before joint
ventures divided by average capital employed (capital employed = equity
shareholders' funds plus net borrowing or less net cash).
6 Return on average equity = adjusted profit after taxation attributable
to equity shareholders divided by average equity shareholders' funds.
7 Units completed = Open market and housing association homes recognised
in the year. In 2021 units completed includes joint ventures units at full
unit count and is stated on an equivalent unit basis. This equivalent unit
basis allocates a proportion of the unit count for a deal to the land sale
element where the deal contains a land sale. 2017 to 2020 units completed
includes the Group's share of joint venture units and no equivalent unit
allocation to land sale elements.
8 Average selling price - open market = Revenue recognised in the year
on open market homes (including the Group's share of revenue recognised in the
year on open market homes by joint ventures), divided by open market home
completions (adjusted to reflect the Group's share of joint venture units).
9 Short-term land = Land controlled by the Group with a minimum
resolution to grant planning permission.
10 Strategic land = Longer-term land controlled by the Group without
planning permission.
11 Land pipeline gross development value = Forecast development revenue of
the land pipeline.
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