REG - Crest Nicholson Hdgs - Final Results
17/01/2023 07:00
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RNS Number : 9044M Crest Nicholson Holdings PLC 17 January 2023
Crest Nicholson Holdings plc
ADJUSTED PROFIT BEFORE TAX(1) IN LINE WITH GUIDANCE
GOOD PROGRESS IMPLEMENTING OUR STRATEGY
STRONG BALANCE SHEET FOR RESILIENCE AND FUTURE GROWTH
Crest Nicholson Holdings plc ('Crest Nicholson' or 'Group') today announces
its Preliminary Results for the year ended 31 October 2022:
Financial highlights
· Revenue up 16.1% at £913.6m (FY21: £786.6m), reflecting good operating
performance and strength of the housing market
· Home completions increased 13.6% to 2,734 (FY21: 2,407), comprising open
market completions (including bulk deals) of 2,212 (FY21: 1,924) and
affordable completions of 522 (FY21: 483)
· Sales per outlet week (SPOW) of 0.60 (FY21: 0.80) with average outlets at 54
(FY21: 59). Eleven-week SPOW since 1 November 2022 at 0.35
· Forward sales as at 13 January 2023 were 2,018 units and £510.8m Gross
Development Value (GDV) (14 January 2022: 2,702 units and £719.0m GDV)
· Adjusted operating profit margin(1) increased by 80bps to 15.4% (FY21: 14.6%),
demonstrating continued good progress in our profit margin recovery in a more
challenging operating environment
· Adjusted profit before tax(1) at £137.8m (FY21: £107.2m) in line with
guidance
· Combustible materials related total exceptional charge in line with HY22 at
£105.0m (FY21: £28.8m), predominantly in response to signing the Building
Safety Pledge
· Profit after tax at £26.4m (FY21: £70.9m)
· Strong balance sheet provides resilience, flexibility and resources to deliver
our growth agenda
o Net cash(1) at £276.5m (FY21: £252.8m) and average net cash of £102.0m
(FY21: £78.4m)
o New £250m Sustainability Linked Revolving Credit Facility completed in
October 2022, replacing existing facility
· Return on capital employed increased to 22.4% (FY21: 17.2%)
· Proposed final dividend of 11.5 pence per share. Total dividend for the year
of 17.0 pence per share, in line with dividend policy.
1. Adjusted items represent the FY22 and FY21 statutory figures adjusted for
exceptional items as disclosed in note 4. Adjusted performance metrics, return
on capital employed and net cash are non-statutory alternative performance
measures (APMs) used by the Directors to manage the business which they
believe should be shared for a greater understanding of the performance of the
Group. The definitions of these APMs and the reconciliation to the statutory
numbers are included at the end of this announcement.
Operational highlights
Another year of progress implementing our strategy and positioning the Group
for medium-term growth
· Good progress with divisional expansion plans:
o Yorkshire office is now open in Leeds with several team appointments made. One
site acquired with heads of terms agreed at several more high quality sites
o Appointed business leader in East Anglia who is identifying an appropriate
office location and recruiting a small team to commence operations in this
region
o As previously announced, given the current macroeconomic uncertainty the Group
has decided to defer the planned opening of a third new division in FY23 until
further notice and will adjust the pace of expansion across the Group
· Continued investment in land in a competitive land market with 2,771 plots
approved for purchase at a forecast gross margin of 25.5% (after sales and
marketing costs). We will continue to be selective and disciplined in our
acquisition of new land
· Administrative expenses at £51.1m (FY21: £51.1m) primarily reflecting
ongoing discipline in managing costs
o FY23 administrative expenses expected to increase by over 10.0%, reflecting
investment in new divisions, enhanced quality processes and compliance and
assumed lower vacancy rate
· Continued optimisation of the Group's land portfolio by disposing of its 50%
interest in the joint venture with Clarion Housing Group containing the London
Chest Hospital site in East London in May 2022.
o The transaction will realise £16.0m of consideration and has resulted in a
£2.3m net impairment charge in the year
o The scheme was forecast to be unprofitable for the Group and would have
accrued significant work-in-progress during its construction phase
· Increased utilisation of new house type range which delivers operational
efficiencies and optimises build rates
· Operational disruption to the supply chain and labour availability issues
delayed handover of properties in one division during the year. The Group
expects its 2022 customer satisfaction rating to be marginally below the
threshold for five-star
o Five-star action plan being implemented for 2023 including the recruitment of
Customer Relationship Managers for each division.
Peter Truscott, Chief Executive, commented:
'We are delighted to report a strong financial performance for the year, in
line with our guidance upgraded at the half year. Demand for housing remained
resilient for much of the trading period, while we had to navigate operational
disruption throughout the year and faced increased economic uncertainty in our
final quarter. Despite these headwinds we have delivered revenue growth,
adjusted operating margin expansion, an increase in return on capital employed
and excellent cash generation throughout the year. I would like to thank all
Crest Nicholson colleagues for their efforts in helping to deliver these
results.'
Sustainability
Existing sustainability targets
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 FY22 v FY19 equivalent
GHG carbon emission intensity reduction 25% 43%
(scope 1 and 2)
Waste intensity reduction 15% 10%
% Renewable electricity (absolute basis) 100% 70%
New science-based sustainability targets
We are accelerating our ambitions to reduce the Group's GHG emissions and
during the year we set out our new science-based targets. We are committed to
reaching net zero by 2045 and are pleased to announce these targets have now
been validated by the Science Based Targets initiative. The targets are:
· Reduce absolute scope 1 and 2 GHG emissions by 60% by 2030 from a
2019 base year
· Reduce scope 3 GHG emissions intensity by 55% per square metre
completed floor area by 2030 from a 2019 base year
· Reach net zero GHG emissions across the value chain (scopes 1, 2
and 3) by 2045.
£250m Revolving Credit Facility
The Group's existing £250m revolving credit facility was due to expire in
June 2024. We are pleased to announce that the Group completed a new
Sustainability Linked Revolving Credit Facility on 13 October 2022.
This £250m facility provides the Group with strong levels of liquidity to
complement the year end net cash position of £276.5m and expires in October
2026. It is also linked to the Group's sustainability strategy with a lower
interest payable to apply if certain targets are achieved. These targets
include:
· Reduction in absolute scope 1 & 2 emissions in line with our
science-based targets
· Increasing the number of our suppliers engaging with the Supply
Chain Sustainability School
· Reduction in carbon emissions associated with the use of our
homes
· Increasing the number of our employees in trainee positions and
on training programmes.
Building safety
In April 2022 the Group announced that it had signed the Government's Building
Safety Pledge (the Pledge). This sets out our commitment to address
life‐critical fire‐safety issues on all buildings of 11 metres and above
in England developed by the Group in the 30 years prior to 5 April 2022. In
addition, the Group agreed that the Government's Building Safety Fund (the
Fund) will not be used to remediate those buildings and to reimburse any
amounts already paid by the Fund. Predominantly as a consequence of signing
the Building Safety Pledge, the Group has recorded a further £105.0m
exceptional charge in the year. More detail on this is provided in the
Financial Review below.
The Group hopes this now provides comfort and assurance to affected residents
and stakeholders. It also allows the Group to move forward in remediating the
affected buildings directly or through another party.
Since signing the Pledge, the Group has worked closely with the Department for
Levelling Up, Housing and Communities (DLUHC) to transfer the principles of
the Pledge into a longer-form agreement. This interaction has been coordinated
by the Home Builders Federation (HBF) on behalf of all major developers and
the Group thanks the HBF for its support in this regard. The Group will
provide a further update on this when it is appropriate to do so.
The Government is also currently conducting a consultation on its proposed
Building Safety Levy to obtain economic redress for 'orphaned' buildings that
also need remediating. The Group has taken full financial responsibility for
the buildings with which it had involvement and maintains its position that it
is not reasonable to ask it to contribute to the remediation of buildings for
which it has never had any responsibility or involvement in constructing.
Outlook
The UK is clearly facing a challenging macroeconomic outlook in the near term.
The Board is cognisant of the uncertainty and headwinds the sector is
currently facing, including rising interest rates and the declining mortgage
availability. Accordingly, our immediate focus will be to deliver our strong
forward order book and maintain a strong financial position.
As we start 2023, there are signs of the resilience that has characterised the
housing market through recent years. The cost of borrowing is starting to
reduce and availability remains good for those with higher levels of equity.
Demand for new homes is still strong as evidenced by our sales indicators and
web traffic. Finally, inflation is forecast to have peaked and it is hoped
will start to recede during 2023. We remain confident in the long-term
fundamentals of the housing market.
Our strong balance sheet equips us to navigate most economic scenarios and we
will continue to be disciplined and selective in acquiring land at this point
in the cycle. When market conditions improve we will accelerate our growth
ambitions as they represent the most effective way to create shareholder value
in the longer term.
Key financial metrics
£m (unless otherwise stated) FY22 FY21 % Change
Key Financial Results
Home completions 2,734 2,407 13.6
Revenue 913.6 786.6 16.1
Adjusted gross profit(1) 194.3 166.7 16.6
Adjusted gross profit margin(1) 21.3% 21.2% 10bps
Adjusted operating profit(1) 140.9 114.6 22.9
Adjusted operating profit margin(1) 15.4% 14.6% 80bps
Adjusted profit before tax(1) 137.8 107.2 28.5
Adjusted profit after tax(1) 109.0 87.3 24.9
Exceptional items net of income tax (82.6) (16.4) (403.7)
Net cash(1) 276.5 252.8 9.4
Reported Results
Gross profit 91.8 145.9 (37.1)
Gross profit margin 10.0% 18.5% (850bps)
Operating profit 38.4 93.8 (59.1)
Operating profit margin 4.2% 11.9% (770bps)
Profit before tax 32.8 86.9 (62.3)
Profit after tax 26.4 70.9 (62.8)
Adjusted basic earnings per share (p)(1) 42.5 34.0 25.0
Basic earnings per share (p) 10.3 27.6 (62.7)
Dividend per share (p) 17.0 13.6 25.0
(1) Adjusted items represent the FY22 and FY21 statutory figures adjusted for
exceptional items as disclosed in note 4. Adjusted performance metrics and net
cash are non-statutory alternative performance measures (APMs) used by the
Directors to manage the business which they believe should be shared for a
greater understanding of the performance of the Group. The definitions of
these APMs and the reconciliation to the statutory numbers are included at the
end of this announcement.
Analyst and investor conference call and webcast
There will be a meeting for analysts at 9:00 am at Norton Rose Fulbright, 3
More London Riverside, London, SE1 2AQ hosted by Peter Truscott, Chief
Executive and Duncan Cooper, Group Finance Director.
A webcast will accompany the meeting starting at 9:00 am To join the webcast
presentation, go to the Crest Nicholson website,
https://www.crestnicholson.com/investors
(https://www.crestnicholson.com/investors) . There is also a facility to join
the presentation and Q&A session via a conference call. Participants
should dial +44 203 936 2999 and use confirmation code 361155. 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
17 January 2023
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.
Chief Executive's Review
FY22 performance review
This year has been characterised by significant uncertainty in the external
environment. At the start of the year our sector was starting to recover from
the operational disruption created by COVID-19. The economic backdrop pointed
to rising inflation and increasing interest rates, however the housing market
continued to demonstrate its resilience, as it had done throughout the
pandemic, and we traded well during this time.
The tragic conflict in Ukraine acted as an accelerant to these pressures,
creating energy supply concerns, adding further commodity supply issues, and
increasing global geopolitical uncertainty. In housebuilding, cost inflation
started to grow with raw material price increases and labour inflation driving
up the cost of construction. The housing market has mitigated the impact of
these increased costs through comparable levels of house price inflation.
Trading conditions started to become tougher over the summer, culminating in
significant political and economic turbulence in the UK in early autumn. A
year that had started so positively for all housebuilders became increasingly
challenging as we closed our year at the end of October.
Despite this uncertainty I am delighted to report another year of improved
financial performance as we continue to make good progress implementing our
strategy. We have delivered revenue growth, expanded adjusted operating
margins, increased return on capital employed and generated strong levels of
cash throughout the year. We closed the year with net cash of £276.5m and
completed a new £250m Sustainability Linked Revolving Credit Facility. In
combination they underline the strength of the Group's balance sheet which
provides resilience in tougher market conditions, funds our growth ambitions
and covers our legacy combustible materials responsibilities. You can read
more detail on both our trading performance and efforts in enhancing our
financial position in the Finance Review below.
That we have managed to deliver such a strong performance in the year, set
against this backdrop of uncertainty and external pressures, reflects the hard
work and efforts of all Crest Nicholson employees. I would like to personally
thank each of them for their commitment, tenacity and resilience. Over the
past three years we have needed to make some difficult decisions in our
ambition to restore Crest Nicholson as one of the UK's leading housebuilders.
Our people have dedicated themselves to this goal and can rightly be proud of
what we have achieved this year.
Political and economic environment
The UK is facing the same global headwinds on inflation and energy supply as
other developed nations. The impact of COVID-19 necessitated significant
financial intervention from the Government to protect the economy and jobs.
These actions are undoubtedly contributing to some of the current economic
fragility.
However, the political uncertainty experienced over the late summer of 2022
was undeniably self-inflicted and avoidable. The short tenure of the Prime
Minister and Chancellor of the Exchequer, following the rejection of their
Mini Budget in September, created additional volatility. Financial markets
became instantly concerned by tax cuts that were not clearly funded. In
addition, the overall affordability of the UK's projected national debt led to
a rapid drop in the value of the British pound and speculation on the
requirement for a succession of steep increases in interest rates into 2023.
Mortgage rates responded in kind with lenders increasing their rates across
all products and in many instances withdrawing products for those buyers with
the lowest levels of equity. Media speculation at the time inevitably focused
on the pressure this would exert on the housing market, pointing to falling
volumes and prices as a major correction was underway. Rising mortgage costs
were accompanying a general cost of living crisis as increasing energy bills
and food prices were being absorbed against a call for wage inflation
restraint in the public sector to help curb overall levels of inflation.
The appointment of another Prime Minister and Chancellor in October,
complemented by a new Budget in November calmed the financial markets.
Focusing on delivering efficiencies in public spending and increasing taxes
across a variety of income streams has already started to lower predictions of
peak future interest rates. Evidence that inflation is starting to recede is
also supporting this narrative.
No one can definitively predict how the housing market will perform in 2023.
The UK consumer will undoubtedly be in possession of lower levels of
disposable income, however mortgage availability will likely still remain
good, albeit more expensively priced than in 2022. This is a key
differentiator to the last housing market downturn in 2008, when stress in the
banks was the principal cause of the weakness. Ultimately the significant
commitment and decision that comes with buying a home is heavily linked down
to sentiment and confidence. The UK housing stock remains structurally
challenged with demand outstripping supply. We are confident in our ability to
operate and trade in whatever economic conditions we face next year.
The political volatility in the UK has also hindered the necessary change and
progress we need in how we operate. The land market is highly competitive with
multiple bidders for new schemes. The strong sales market of the past two
years has seen outlet numbers fall across all major developers and there is
not enough new land being released to replenish this capacity and help support
the Government's previously stated aspiration to build 300,000 homes a year.
The UK's antiquated planning system needs fundamental reform if we are to
build the homes we need for our growing population. Given this backdrop, and
cognisant of our strong financial position, we have continued to be active in
the land market in FY22 and will remain disciplined and selective in doing so
in FY23.
Once sites have been identified and secured the process for obtaining planning
approvals and satisfying any necessary conditions has also become increasingly
inefficient. Planning teams are often under-resourced and trying to catch up
after the pandemic disruption. Fresh environmental challenges emerged during
the year including ground nutrient levels and water neutrality. While we are
wholly committed to operating in harmony with our natural habitat and to
ensure we leave a sustainable legacy on all our developments, these challenges
again impact our ability to get on site and start building. Although these
challenges are significant we have a strong heritage and capability in
procuring land and utilising our placemaking experience to navigate the
approval process as swiftly as possible.
In 2023 we would like to see the Government tackle the constraints in the UK's
planning environment.
Progress on strategy
We set out an update to our strategy at our Capital Markets Day in October
2021. Having completed the first phase of this strategy and delivered a strong
financial and operational turnaround, the Board outlined to shareholders why
it believed growing Crest Nicholson's footprint in the UK and expanding into
new geographies was the best way to create value over the medium term.
We have made a strong start with these ambitions in FY22. In Yorkshire we have
opened an office, establishing a small team which has been active in the land
market, acquiring its first site and with terms agreed on several others. We
have been able to attract high quality talent with expertise in the region and
have been pleased by the local reception to the Crest Nicholson brand. In East
Anglia we have recruited an experienced leader who has recently joined us and
will implement a similar approach in that region.
Given the uncertain economic backdrop and challenges outlined above we have
decided to defer the planned opening of a third new division in FY23. We will
also remain disciplined and selective in acquiring new sites and incurring
incremental overheads across the whole Group and will look to accelerate the
growth plan in the new divisions when market conditions stabilise.
Part of rebuilding operating margins in Crest Nicholson in line with sector
peers lies in our ability to divest of those legacy schemes held at weaker
margins. On 6 May 2022 we sold our 50% share in our joint venture with Clarion
Housing Group containing the London Chest Hospital development in East London.
We recorded a £2.3m net impairment loss on financial assets because of this
disposal but will receive £16.0m in consideration and forego significant
working capital utilisation in the development of that scheme in future years.
Delivering excellent customer service is a major focus for all Crest Nicholson
employees, reflected by our inclusion of attaining a five-star rating in the
Home Builders Federation (HBF) customer satisfaction survey as one of our five
strategic priorities. In addition, our industry is undergoing significant
change in this area. The New Homes Quality Code (Code) was introduced in
October 2022, and we have been preparing to align our business operations and
processes to comply with the requirements of the Code. We welcome its
objectives which will support the delivery of high standards from
housebuilders and see customers being more actively involved during the
construction process through to completion.
During the year we have recruited a dedicated Quality Assurance team to
support and train our site teams to deliver the new requirements to take
photographic evidence throughout the quality assurance process. We have also
started to roll out COINS, an enterprise resource planning (ERP) platform
specifically designed for the construction industry and specifically its
customer service module, which will provide better oversight of the snagging
and resolution process.
As outlined above, this year has seen the housebuilding sector impacted by
disruption to labour and supply chains through a combination of adjusting to
life outside of the European Union, the aftermath of COVID-19 and the conflict
in Ukraine. Against this backdrop we have experienced operational challenges
and disruption in one of our divisions that has delayed the handover of some
properties to customers. This has disproportionately impacted our overall 2022
satisfaction score which is now expected to be marginally below the threshold
required to retain five-star when awarded in February 2023. We are naturally
disappointed with this outcome as it falls short of the standard we have
embedded into one of our strategic priorities. However, we are confident that
the actions and investments we have made during the year will return Crest
Nicholson to five-star status next year.
Building Safety Pledge
In April 2022 we signed the Government's Building Safety Pledge (Pledge),
which we believe is in the best interests of the Group, taking further steps
to support those living in affected buildings. The Pledge sets out our
commitment to address life-critical fire safety issues on all buildings of 11
metres and above in England developed by the Group in the 30 years prior to 5
April 2022. In addition, the Group agreed that the Government's Building
Safety Fund will not be used to remediate those buildings and that it will
reimburse any amounts already paid by the Building Safety Fund. There is now
greater clarity around the Government's requirements of us and the wider
sector concerning historic building safety issues, and the costs related to
remediate these.
In FY22 we recorded an exceptional before tax charge of £105.0m in respect of
signing the Pledge, which reflects our best estimate of the extent and future
cost of work required. The Group, along with the rest of the industry,
continues to work with Government to transfer the principles of the Pledge
into a longer-form agreement. We will continue to update stakeholders on the
progress of these discussions. Our internal team responsible for managing the
remediation programme continues to work at pace and we expect this work to be
completed in approximately three years.
Sustainability and social value
We recognise our responsibility to mitigate, where possible, the impact that
our business operations have on the climate and environment. We are
continually striving to improve the energy efficiency and sustainability of
our homes and are adapting our home designs in response to Building
Regulations and the changes contained within the Future Homes Standard.
During the year we made good progress in reducing scope 1 and 2 greenhouse gas
GHG emissions and have exceeded our target to reduce emissions intensity by
25% by 2025 compared to a 2019 base year. We understand that scope 3
emissions account for most of our carbon footprint and having calculated these
emissions for the first time in FY21, we are also taking steps to address
this area of our footprint.
We signed up to the UN-backed Race to Zero in FY21 and have since established
new science-based targets. Our targets include near-term scope 1, 2 and 3 GHG
emissions targets and a commitment to achieve net zero emissions across
our value chain by 2045. I am pleased to confirm that our targets have been
approved by the Science Based Targets initiative. The Sustainability
Committee, which I chair, has oversight of matters relating to sustainability
throughout the Group and is responsible for overseeing the development and
delivery of strategic aims.
Outlook
The outlook for the housing market is clearly uncertain. There are many
political and economic factors, some global in nature, which we cannot hope
to influence or change. Our focus in times like this must be on those things
we can control.
The hard work of the past three years has put the Group in a strong financial
position. Our balance sheet is robust and gives us confidence to trade
effectively in all market scenarios. We also want to remain active in the land
market, recognising the competition for new sites, and ensuring we emerge from
any downturn in market conditions in the strongest possible condition. We have
an experienced leadership team who have extensive experience of operating in
tougher market conditions.
We enter FY23 with a strong forward order book, a portfolio of excellent land
assets and an operating platform with multiple channels to market,
We are convinced that the fundamentals of the housing market in the long term
remain attractive. The lack of land which can be immediately developed, and
the skill and experience required to navigate our planning system, will
eventually require reforms if we are to significantly boost our nation's
housing supply. Our strategy to grow Crest Nicholson into new geographies
remains undiminished. We will remain disciplined and selective in the way we
allocate capital and will look to accelerate our growth plans when calmer
market conditions return.
Peter Truscott
Chief Executive
Financial Review
Introduction
As in previous years, the Group 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.
The exceptional items have a material impact on reported performance and arise
from recent, unforeseen events. As such, the Directors consider these adjusted
performance metrics reflect a more accurate view of the core operations and
business performance. All alternative performance measures are detailed at
the end of this announcement.
FY22 trading performance
The trading year started strongly with good levels of demand for new homes.
Construction activity and operating conditions were beginning to normalise
after the supply chain disruption caused by COVID-19. Although labour
inflation and rising prices of raw materials were starting to drive increasing
levels of build cost inflation, housebuilders were managing to successfully
offset this through house prices. As FY22 started to unfold the global
geopolitical environment became increasingly uncertain. The conflict in
Ukraine led to further supply chain disruption and created significant energy
supply insecurity, both of which contributed to an acceleration in build cost
inflation. Later in the summer domestic political uncertainty added further
economic headwinds, resulting in a backdrop of rising interest rates across
the course of the year, an increase in the cost of mortgage borrowing and
speculation that this would result in much tougher trading conditions for
housebuilders in FY23. Despite this external volatility the Group has traded
strongly in the year, delivering an improvement across all key financial
metrics.
Sales, including joint ventures, grew 17.5% on prior year at £955.8m (FY21:
£813.6m). This comprised £913.6m of statutory revenue (FY21: £786.6m) and
£42.2m of the Group's share of revenue through joint ventures (FY21:
£27.0m), reflecting a strong trading performance and a growing contribution
from existing joint venture schemes reaching maturity.
The Group delivered 2,734 (FY21: 2,407) home completions during the year, up
13.6% on prior year. 2,212 of these were open market completions (including
bulk deals) (FY21: 1,924), up 15.0% on prior year, with the balance derived
from affordable completions at 522 (FY21: 483), up 8.1% on prior year. Current
and prior year comparative values both state joint ventures at full unit count
and include an allocation for any land sale element that is present in any
relevant completed transaction, referring to this as being on an equivalent
unit basis. The Group started to report on this basis at HY21 to align to the
methodology commonly adopted by other UK housebuilders.
Open market (including bulk) average selling prices increased to £388,000
(FY21: £359,000) during the year. Since the Group announced an updated
strategy in January 2020 it has focused on rolling out its standard house type
range across new developments. These houses are typically more efficient to
build and are offered to customers at lower price points than the Group's
legacy house types. In addition, the Group has experienced a shift in the
regional composition of its sales as it has moved away from selling in London
and delivers a greater proportion of sales from other, lower priced
geographies. These factors continue to support a reduction in average selling
prices which has been more than offset by house price inflation in the year.
Adjusted gross profit was £194.3m (FY21: £166.7m), up 16.6% on prior year,
principally reflecting the stronger sales performance. Adjusted gross margin
was slightly up on prior year at 21.3% (FY21: 21.2%). Gross profit margin
progression was expected to be flat this year as the prior year comparative
included the contribution from the Longcross Film Studio sale. This was
reflected in lower land and commercial sale revenue at £32.0m (FY21:
£49.2m). In addition, the Group continued to recognise several zero margin
schemes including units at Brightwell's Yard, Farnham and the completion of
Old Vinyl Factory, Hayes and Sherborne Wharf, Birmingham. Approximately
one-third of the Group's remaining NRV provision is expected to be used in
FY23 and predominantly relates to the scheme at Brightwell's Yard, Farnham.
Gross profit was £91.8m (FY21: £145.9m), down 37.1% on prior year due to the
impact of exceptional items.
Administrative expenses for the year were £51.1m (FY21: £51.1m). The prior
year comparative is inflated through the one-off voluntary repayment of the
Government's Job Retention Scheme for COVID-19 of £2.5m, which was received
in FY20. The Group has continued to maintain a strong discipline on overheads,
but the underlying increase reflects the backdrop of rising wage inflation
and the competition for talent within the construction sector during the past
year. Given the tougher economic outlook, we expect to operate with far fewer
vacancies for roles in FY23. In addition, we are investing in the
establishment of two new divisions, recruiting new roles focused on quality
and customer service and are seeing other regulatory changes which will
require more resources. These factors will all contribute to an increase in
the Group's headcount in FY23 and accordingly we expect administrative
expenses to increase by over 10% compared to FY22.
On 6 May 2022, the Group disposed of its 50% share in the joint venture
containing the London Chest Hospital to its joint venture partner for a total
consideration of £16.0m. £8.0m of this was received in FY22 with the balance
due in FY23. Accordingly, the Group recorded a £2.3m net impairment loss on
financial assets for the year (FY21: £1.0m). This site had been the subject
of planning objections and delays and is a complex build programme with
significant levels of peak capital investment. By disposing of it for a small
loss the Group has been able to forego the future recognition of a margin
dilutive scheme and realise a strong cash inflow to invest into schemes that
are consistent with its current strategy.
Adjusted operating profit (or Earnings Before Interest and Tax - EBIT)
increased in the year to £140.9m (FY21: £114.6m) with EBIT rate increasing
from 14.6% to 15.4%. Excluding the effect of the London Chest Hospital sale,
EBIT rate would have been 15.7% for FY22, reflecting strong progress towards
the 18-20% range currently being delivered by other housebuilding peers. The
Group has outlined a margin recovery plan to bring margins in line with
industry peers by FY24. Finally, adjusted profit before tax (APBT) for the
year was £137.8m (FY21: £107.2m), up 28.5% on prior year and profit before
tax after exceptional items for the year was £32.8m (FY21: £86.9m),
reflecting the impact of the stronger year-on-year operating profit
contribution offset by the exceptional charge outlined below. Operating profit
was £38.4m (FY21: £93.8m), down 59.1% on prior year due to the impact of
exceptional items.
The Group has delivered another year of strong progress implementing its
strategy, realising tangible progress in its financial performance. While the
market outlook for FY23 has undeniably become more challenging. The Group is
now realising the benefits of exiting those previously identified low margin
legacy schemes. Opening new divisions in Yorkshire and East Anglia will
provide volume growth in the future to accompany the Group's ongoing margin
recovery.
Exceptional items
Since the Grenfell Tower tragedy in 2017, the Government and construction
sector have been carefully trying to identify any other buildings which may be
exposed to potential fire safety risks. At the outset of this review process,
the Group sought to identify which buildings needed remediating and if
necessary, where temporary risk mitigation solutions were required until this
work could be completed. The Group's stated position was that it would work as
swiftly as possible to remediate those buildings where it had a legal or
constructive obligation to do so.
The first exceptional charge taken in this respect was in FY19 for £18.4m and
by the end of FY21 the Group had cumulatively recorded £47.8m of net
exceptional charges and had an unutilised balance sheet provision of £42.6m.
In January 2022, the Secretary of State for the Department for Levelling Up,
Housing and Communities (DLUHC) announced the Government's intention to change
the regulatory and legislative framework for fire remediation.
These changes culminated in a request to housebuilders to sign the
Government's Building Safety Pledge which the Group did on 19 April 2022. As a
consequence of signing the Building Safety Pledge the Group informed the
capital markets on 5 April 2022 that it considered a further exceptional
charge of £80-120m represented its best estimate of the range of these
incremental costs.
At FY22 the Group recorded an exceptional charge of £105.0m (FY21: £20.3m)
in respect of its further obligations upon signing the Pledge. Tax credit on
exceptional items is £22.4m (FY21: £3.9m). Further detail of these items
can be found in note 4.
In January 2023, the Group received a £10.0m cash settlement from a third
party relating to buildings included within the combustible materials
provision. As this was not contracted in the current financial year, it has
not been recognised in the FY22 consolidated financial statements. The receipt
will be reflected in the FY23 consolidated financial statements as an
exceptional credit.
Finance expense and taxation
Adjusted net finance expense of £7.1m (FY21: £9.1m) is £2.0m lower year on
year, and the Group Revolving Credit Facility (RCF) remained undrawn for the
duration of the year. Net finance expense was £8.1m (FY21: £8.6m). Income
tax charge in the year of £6.4m (FY21: £16.0m) represented an effective tax
rate of 19.5% (FY21: 18.4%). This increase is due to the impact of changes in
UK tax rates and the introduction of the Residential Property Developer Tax
(RPDT). Further detail can be found in note 8.
£250m Revolving Credit Facility
The Group's previous £250m RCF was due to expire in June 2024. During the
year we completed a new Sustainability Linked Revolving Credit Facility on 13
October 2022. This £250m facility provides the Group with strong levels of
liquidity and headroom to complement the year end net cash position and
expires in October 2026. It is also linked to the Group's sustainability
strategy with a lower interest payable if certain targets are achieved.
These targets include:
Reduction in absolute scope 1 and 2 emissions in line with our science-based
targets
Increasing the number of our suppliers engaging with the Supply Chain
Sustainability School
Reduction in carbon emissions associated with the use of our homes
Increasing the number of our employees in trainee positions and on training
programmes.
The Group will provide an annual progress update against these targets in
future issues of its Annual Integrated Report.
Dividend
The Board proposes to pay a final dividend of 11.5 pence per share for the
financial year ended 31 October 2022 which, subject to shareholder approval,
is expected to be paid on 5 April 2023 to shareholders on the Register of
Members on 17 March 2023. This is in addition to the 5.5 pence per share
interim dividend that was paid in October 2022.
A strong financial position
The Group had net cash of £276.5m at 31 October 2022 (FY21: £252.8m) and was
ungeared (FY21: ungeared). Net cash and land creditors were £77.8m (FY21:
£29.9m). Average net cash during the period was £102.0m (FY21: £78.4m).
The Group has made significant progress over the past two years in
strengthening the balance sheet through improved working capital management
and the disposal of non-core assets. In combination with the renewed RCF this
gives the Group ample liquidity to remain resilient in tougher trading
conditions, fund its combustible materials obligations and enables it to
fund its growth ambitions.
Inventories at 31 October 2022 were £990.1m (FY21: £1,037.5m), down 4.8%
year-on-year. Included within this balance is an NRV provision of £12.6m
(FY21: £20.7m) which principally relates to the Group's scheme at
Brightwell's Yard, Farnham. Completed units at 31 October 2022 were £30.1m
(FY21: £57.7m). Approximately one-sixth (FY21: one-sixth) of the stock of
completed units were show homes. Further detail on inventory can be found
in note 19.
Net cash inflow from operating activities was £51.7m (FY21: £126.5m) and
return on capital employed (ROCE) increased strongly for the second successive
year to 22.4% (FY21: 17.2%), reflecting the increase in earnings and further
progress on strengthening the balance sheet. Net assets at 31 October 2022
were £883.1m (FY21: £901.6m), a decrease of 2.1% on prior year.
Land portfolio
The land market remains highly competitive. Strong sales rates across all
major developers over the past two years, coupled with lack of availability of
fresh land supply and delays in approving land in the planning process, has
seen the number of industry outlets fall. The uncertain market outlook is
discouraging some developers from completing planned acquisitions. Given this
structural lack of supply, our strong financial position, and the opportunity
to participate when others are temporarily withdrawn, the Group intends to
remain active in the land market in FY23. We will be selective and disciplined
in identifying and acquiring sites. We have increased our hurdle rates and are
focused on low-risk schemes in high quality locations. FY22 average outlets
were 54 and we expect FY23 average outlets to be slightly lower, reflecting
the backdrop outlined above. 2,771 plots have been approved in FY22 for
purchase at a gross margin of 25.5% (after sales and marketing costs).
The Group's short-term land portfolio at 31 October 2022 comprised 14,250
(FY21: 14,677) plots, representing approximately five years of supply based
approximately on FY22 completion volumes (FY21: five years supply based on
FY21 completion volumes). In addition, the Group's strategic land portfolio
comprised 22,450 plots (FY21: 22,308), resulting in a total land portfolio at
31 October 2022 of 36,700 (FY21: 36,985) plots with a Gross Development
Value (GDV) of £12.1bn (FY21: £11.8bn).
During the year, the Group added 3,094 units to the short-term land portfolio
and delivered 2,734 home completions. Additions were made in all divisions
including the new Yorkshire division. The Group also added 415 units to
the strategic land portfolio.
FY22 FY21
Units(1) GDV(2) - £m Units(1) GDV(2) - £m
Short-term housing 14,250 4,661 14,677 4,482
Short-term commercial - 41 - 44
Total short term 14,250 4,702 14,667 4,526
Strategic land 22,450 7,409 22,308 7,308
Total land pipeline 36,700 12,111 36,985 11,834
(1) Units based on management estimates of site capacity. Includes joint
venture units at full unit count and 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.
(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
Principal risks
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
are not fully defined, or are principal risks, which are particularly
elevated or increasing in velocity.
Our emerging risks are identified through horizon-scanning by the Board and
Executive Leadership Team including in relation to industry and macro-economic
trends. This is supported by our divisional risk review process.
Examples of emerging risks which were considered during the year are:
Economic outlook
We continue to monitor the developing uncertainties surrounding the political
and economic outlook, rising interest rates and mortgage availability. This is
against the backdrop of the rising cost of living and higher energy prices in
the UK, all of which are reducing disposable income levels which may
significantly impact the housing market.
Regulatory change
This risk has continued to evolve during the year and impacts us in several
ways.
We signed the Government's Building Safety Pledge to address life critical
fire safety issues. Amounts have been provided in the financial statements
based on best estimates of the work required. However, as work progresses
these estimates are clearly subject to variability and could change as
Government legislation or regulation develops.
Given the significance of this area, the Board has agreed this should be
a principal risk.
The acquisition of land remains very competitive and any proposed changes to
the planning and approval process could impact our ability to deliver our
growth ambitions.
Corporate governance requirements are evolving following the BEIS consultation
on audit reform and corporate governance. Some of the detailed requirements
which may impact us are still unknown and developing.
Build costs
Material shortages and labour availability have continued to challenge our
industry due to rising input costs, energy prices and supply chain dislocation
through the year. This has resulted in inflationary pressures, having an
impact on build costs.
We have managed to mitigate the impact of the majority of these risks during
the year through our operational efficiency programme and have maintained
close working relationships with our supply chain partners through
comprehensive trade agreements.
We are enhancing our build cost controls and reporting through the
introduction of our new ERP system across the divisions.
Reputational impact
There are many internal and external factors which could impact our
reputation. Several legacy matters have impacted the perception of the
housebuilding sector. If matters continue to negatively impact the industry's
home buyers and other stakeholders there is a potential that this could
create a further principal risk.
ESG and climate change
Assessing the impacts and mitigations of both physical and transitional risks
related to climate change are embedded in our risk management process at a
Group and divisional level. Climate change continues to be a principal risk
and the Group has disclosed its response to the recommendations of the Task
Force for Climate-related Financial Disclosures which can be found in our 2022
Annual Integrated Report to be published in February 2023.
Key updates and briefings on ESG matters, including regulatory developments
and climate-related risks, are provided on a regular basis to the Board.
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:
· Market conditions - increasing trend
· Customer service and quality - increasing trend
· Build cost management - increasing trend
· Attracting and retaining our skilled people - reducing trend
· Solvency and liquidity - reducing trend
· Laws, policies and regulations - reducing trend
· Land availability and planning - new risk
· Combustible materials - new risk.
The Board no longer views the risk associated with a pandemic to be a
principal risk although continues to monitor and manage any localised impacts
arising from COVID-19.
Please see further details in principal risks below.
Principal risks
1. Market Conditions
Risk description Actions/mitigations Development in the year
A decline in macro-economic conditions in the UK, which negatively impacts the We continually evaluate our strategy which we can flex and adjust as Demand for housing has remained strong during the year, however there have
UK residential property market and reduces the ability for people to buy demand profiles change. been significant economic headwinds and political uncertainty in the latter
homes, either through unemployment or low employment, constraints on mortgage
part of the year which is likely to impact demand for housing in the near
availability, or higher costs of mortgage funding. Regular sales forecasts and cost reviews to manage potential impact on sales future. Rising inflation, interest rates and increasing energy costs are
volumes. leading to reduced levels of disposable income.
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, Forward sales, land expenditure and work-in-progress are all carefully The Board and Executive Leadership Team continue to monitor market conditions
with a potential loss realised on final sales. monitored to ensure they are aligned to current levels of demand. and are adjusting our strategy and pace of growth to adapt to prevailing
market conditions.
Changes to regulations and taxes, for example Stamp Duty Land Tax (SDLT) Our Multi Channel Approach gives us access to a range of tenure options and
and the impact of Government schemes like Help to Buy; Equity Loan (HtB). earnings resilience in changing market conditions. We continue to build our pipeline of trusted partners and completed several
large transactions in the year.
An over-reliance on HtB, which is being withdrawn, and other Government-backed We focus on strategic purchasing of sites, continued development of shared
ownership schemes to boost sales volumes and rates. ownership models and provision of a variety of incentive schemes. The Group renewed its £250m Revolving Credit Facility to 2026. When allied
to the strong cash profile exhibited throughout the year, the Group has
Actively promoting First Homes and Deposit Unlock as an alternative to HtB. adequate liquidity to deal with all reasonable downward market scenarios.
We continually assess whether our organisational structures are appropriate to
meet the changing demands within the housebuilding sector.
2. Safety, Health & Environment (SHE)
Risk description Actions/mitigations Developments in the year
A significant health and safety event could result in a fatality, serious We have a strong safety leadership culture which is embedded in our Safety performance continues to be our number one priority and performance
injury or a dangerous situation to an individual. operational processes and execution. remains stable.
Significant environmental damage could be caused by operations on site or in We have effective SHE management systems in place with increased authority Our standard house type range is reducing build complexity and related risks.
our offices (for example, water contamination from pollution). for divisional build managers and Group SHE advisors to undertake incident
investigations and implement follow up actions. We continue to have a rigorous safety monitoring regime with safety
Lack of recognition of the importance of the wellbeing of employees.
inspections at divisional levels, including an independent safety advisory
We use external independent safety auditors to conduct regular site safety firm to assist in monitoring site performance.
These incidents or situations could have an adverse effect on people affected reviews as appropriate and without warning.
by our actions, our reputation and ability to secure public contracts and/or,
Safety performance is always discussed and challenged in our divisional
if illegal, prosecution or significant financial losses. Use of external specialist consultants reviews and we have enhanced and developed our SHE policies and procedures.
and/or contractors where specific health and safety requirements demand.
We have launched new training materials and communications across our build
We have a network of mental health first aiders and a dedicated Employee teams and continue to provide safety bulletins and guidance updates.
Assistance Programme.
We have expanded our network of mental health first aiders across our
We have a dedicated central team and strong governance processes to deliver on divisions. We have also launched the FIKA mental health platform to support
our safety pledge commitments. employees' wellbeing.
SHE performance is a bonus metric target used across the Group, Delivering on our commitments contained in the Building Safety Pledge, the
including for Executive Directors. Group has continued to identify and risk assess any buildings impacted by
possible safety issues.
Where appropriate, interim risk mitigation solutions have been deployed in
buildings where fire safety concerns have been identified.
3. Access to site labour and materials
Risk description Actions/mitigations Developments in the year
Rising production levels across the industry put pressure on our materials We encourage longer-term relationships with our supply chain partners through Material shortages and labour availability challenges continue to impact the
supply chain. Group trading agreements and multi-year subcontractor framework agreements. housebuilding industry across various product ranges and there have been
These agreements also seek to mitigate price increases. continued inflationary pressures in the year. This has been exacerbated by
The built environment struggles to attract the next generation of talent into
the energy crisis and the Ukraine conflict which has impacted some supply
skilled trade professions. We have standardised the supply chain to ensure critical supply of chains.
materials.
There is also a potential reduction in labour availability from the EU market.
We continue to work with our supply chain partners through detailed demand
We engage in dialogue with major suppliers to understand critical supply chain planning to maximise our use of trade agreements and supply of available
Increased use of more modern methods of construction could result in a labour risks and respond effectively. labour on key timelines.
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 Where possible and appropriate we forward order materials to secure supply and
struggles to maintain capacity for new types of materials. challenges. also utilise alternative products if they are available and
it is appropriate to do so.
Materials availability can be impacted by changes in demand, rising energy We consider different construction methods such as timber frame or using
prices and dislocation in supply chains due to external events. alternative materials such as concrete bricks.
Given the current UK economic climate and uncertainty there is an enhanced
likelihood of suppliers and subcontractors facing insolvency.
4. Customer service and quality
Risk description Actions/mitigations Developments in the year
Customer service and build quality falls below our required standards, We continue to focus on enhancing build quality, achieving high customer We have continued to enhance our quality processes, training and performance
resulting in a reduction of reputation and trust, which could impact sales satisfaction ratings and a retained commitment to excellent placemaking. measurement during the year and have recruited additional resources to
rates and volumes.
support the drive to quality improvement.
We have enhanced our quality and build stage inspections to monitor adherence
Unforeseen product safety, quality issues or latent defects emerge due to new to our quality standards. We have developed processes to support new regulatory requirements for the
construction methods.
New Homes Quality Code and The Future Homes Standard.
We have a standardised house type range that reduces complexity and
Failure to effectively implement new regulations on build quality and respond drives improvements in quality.
to emerging technologies.
Customer satisfaction and quality performance is a bonus metric target used
across the Group, including for Executive Directors.
5. Build cost management
Risk description Actions/mitigations Developments in the year
Build cost inflation and unforeseen cost increases driven by demands in the We benchmark our costs against existing sites to ensure our rates remain We have continued to see inflationary pressures during the year on build
supply chain or failure to implement adequate cost control systems. competitive. We build and maintain strong relationships with our suppliers and costs due to higher energy prices, supply shortages and geopolitical impacts
seek to obtain volume purchasing benefits. due to the war in Ukraine. We have mitigated some of these impacts through our
Lack of awareness and understanding of external factors that may impact build
operational efficiency programme. Build cost inflation has been offset
costs including complex planning permissions and emerging sustainability and We operate a fair and competitive tender process and we are committed to by increases in selling prices.
environmental regulations. paying our suppliers and subcontractors promptly.
The implementation of COINS as our new ERP platform has enhanced the reporting
A lack of quality in the build process could expose the Group to increased There are rigorous and regular divisional build cost review processes of build costs for the divisions implemented in FY22, and we will continue
costs, reduced selling prices and and site-based quality reviews. this roll out across the Group in FY23.
volumes, and impact our reputation.
We continue to monitor alternative sources of supply where possible and
utilise alternative production methods or materials where it is appropriate
to do so.
6. Information security and business continuity
Risk description Actions/mitigations Developments in the year
Cyber security risks such as data breaches, ransomware or phishing attacks We employ network security measures and intrusion detection monitoring, The threat of external cyber security risk is ever present and remains high.
leading to the loss of operational systems, market-sensitive information or including virus protection on all computers and systems, and carry out annual We routinely experience phishing attempts on our IT systems.
other critical data which compromises compliance with data privacy security-breach tests. We utilise customer relationship management systems for
requirements. storing sensitive data to prevent negligent misuse by employees. We operate We continue to utilise a Security Operations Centre (SOC) to monitor our
in a cloud environment with resilient IT providers, reducing centralised networks and have enhanced our security policies and procedures with further
This could result in a higher risk of fraud, financial penalties and an and physical risk exposure. training for employees.
impact to reputation.
This is complemented by: We regularly perform phishing training and mock exercises to highlight the
risks across the Group.
· Employee training on data protection and internet security
We have passed Cyber Essentials certification and moving forward with Cyber
· Data classification, retention policies and toolsets with Essentials Plus certification.
appropriate and responsive procedures embedded to respond to data privacy
matters We have performed audits over our cyber risks and control environment.
· IT disaster recovery and business continuity plans
· IT Cyber Security and Data Sub-Board Committee, chaired by the
Group Finance Director, that meets through the year to address cyber security
matters, assess threat levels and to develop appropriate policies and
procedures.
7. Attracting and retaining our skilled people
Risk description Actions/mitigations Developments in the year
An increasing skills gap in the industry at all levels resulting in difficulty Employee engagement surveys to enable the Board and Executive Leadership We are committed to providing competitive salary packages, reflecting market
with recruiting a qualified and diverse mix of people for vacant positions. Team to understand employee feedback. rates and offer a wide range of career development opportunities.
Employee turnover and requirement to induct and embed new employees, alongside Continual focus on improving flexible and agile working arrangements to During the year we launched a new people strategy and employee induction
the cost of wages increasing as a result of inflation. support employees. programme and have made further improvements to our learning and development
training across the Group.
Loss of knowledge within the Group which could result in inefficiencies, Programmes of work to develop robust succession plans and improve diversity
productivity loss, delays to business operations, increasing costs, and an and inclusion across the business. We engage with our employees through a variety of communications, forums and
overuse or reliance on consultants and the supply chain.
surveys. Our engagement scores increased year-on-year.
Providing quality training and professional development opportunities through
our We became Silver Accredited through The 5% Club in respect to our recruitment
Crest Nicholson Academy programmes. and development of trainees.
We monitor pay structures and market trends to ensure we remain competitive We continue to develop our diversity and inclusion policies and initiatives
against our competitors. and have launched our Affinity Groups.
We monitor employee turnover, absence statistics and feedback from exit We have started a programme to implement a new enterprise-wide
interviews. talent management, recruitment, HR and payroll system next year.
8. Solvency and liquidity
Risk description Actions/mitigations Developments in the year
Cash generation for the Group is a key part of our strategy, and our cash Cash generation is a key focus for the Executive Leadership Team. Cash The Group continues to benefit from a strong balance sheet with diverse
headroom could be affected by economic pressures that result in delayed performance is measured against forecast with a variance analysis issued sources of funding. The Group operated with net cash throughout the year and
receipts and potentially lower sales in the short to medium term. weekly by the Group Treasurer. Cash performance is also considered signed a new £250m Sustainability Linked RCF which expires in October 2026.
at divisional board level.
Commitments to significant land and build obligations that are made ahead
We continue to stress test the Group's financial resilience for various
of revenue certainty. We scrutinise the cash terms of land transactions. Private Rented Sector scenarios and are satisfied that adequate funding is in place. We have
(PRS) and bulk sales also offer us the potential for early cash inflow. maintained a disciplined focus on capital allocation throughout the year.
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 prices fall, inability to restructure which was unused throughout FY22.
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 GFC, equity capital tied up on the balance sheet. These sites are subject to regular
investors in housebuilders now expect a lower risk investment proposition by review and appraisal before being drawn down.
way of a more capitalised and robust balance sheet.
Cash management is a bonus metric target used across the Group, including
for Executive Directors.
9. Laws, policies and regulations
Risk description Actions/mitigations Development in the year
This risk has continued to evolve during the year with developing regulations We engage with the Government directly and through the HBF, via various The pace of regulatory reform has continued to increase. Plans for
and progressing combustible materials works. memberships of industry groups and build relationships in key local the requirements arising from
authority areas. the Future Homes Standard and the New Homes Quality Code have significantly
Future regulatory changes could impact our ability to make medium and
advanced.
longer-term decisions. We continue to assess and plan for emerging regulation and developments in
readiness for potential regulatory change. We are developing our operating framework to support developing requirements
Failure to effectively implement new regulations including the Future Homes from the BEIS consultation on audit reform and corporate governance.
Standard and the Environment Act 2021, New Homes Quality Code, the Building
Safety Act 2022 and the BEIS consultation on audit reform and corporate We undertake close consultation with the Government, through the HBF on
governance. evolving and developing
regulation.
10. Climate change
Risk description Actions/mitigations Development in the year
The Group will need to enhance its sustainable practices and processes as we Our Sustainability Committee, chaired by our Chief Executive, oversees our We continue to collaborate with our supply chain and consultants to find
transition to a carbon 'net zero' business by 2045 and continue to meet sustainability strategy, including our approach to climate change. The effective solutions to comply with the Future Homes Standard.
evolving Government regulations and growing investor expectations. Committee monitors performance against our climate targets and keeps abreast
of climate-related risks and opportunities. We are committed to reducing our GHG emissions and in FY22 developed
Climate change could impact our business through transition and physical
new science-based targets. Our targets include near-term scope 1, 2 and 3
risks. Transition risks relate to the shift to a low carbon economy and We plan to transition to exclusive use of renewable electricity by 2025. emissions and a long-term ambition to reach net zero GHG emissions across our
include current and emerging regulations, technological change and shifts in
value chain by 2045. The targets have been approved by the Science Based
stakeholder preferences. We are members of the Future Homes Hub, an industry-wide initiative to support Targets initiative.
the implementation of the Future Homes Delivery Plan to meet climate and
Physical risks are direct impacts from a changing climate, including rising environmental targets. We also have internal workstreams to plan for We agreed a new £250m Sustainability Linked RCF, which incorporates targets
temperatures, changing weather patterns increasing risk of droughts new regulations, including the Future Homes Standard. to reduce GHG emissions associated with our operations and the use of our
and flooding and more frequent and severe weather events.
homes.
GHG emission reduction targets is a bonus metric used across the Group.
Failure to manage climate-related risks could lead to additional costs, Our Executive Directors have GHG emission reduction targets within We established a climate risk working group to review our climate-related
build programme delays and damage to our reputation. their Long-Term Incentive Plan. risks and opportunities. External consultants facilitated a review of risks
and opportunities under a range of climate scenarios. Our divisions have
now incorporated a climate risk assessment within their risk register.
11. Land availability and planning
Risk description Actions/mitigations Developments in the year
There is a risk that we may not be able to source enough suitable strategic We have strategic and local market expertise within our Land teams to ensure Our strategy continues to focus on acquiring new sites and developing
and consented land at the right economic terms to support our growth we acquire sites in the best locations and that allow us to demonstrate our long-term strategic land options.
ambitions. placemaking credentials.
Our investment decisions consider the economic outlook and uncertainties as
There are further risks that acquired land is delayed in the planning process We have formal relationships with key land suppliers, landowners and agents well as the complexities in the planning process.
where local authorities and public sector resources are constrained. and local authorities.
The planning process continues to be highly complex and time consuming with
The regulatory planning and environmental landscape continues to evolve. Land acquisitions are subject to formal appraisal and viability assessment ongoing demands relating to affordable housing, section 106 obligations and
There are further environmental requirements such as nutrients and through our approval process prior to bid submission and exchange of the Community Infrastructure Levy. There has been a particular challenge in
water neutrality and increasing biodiversity obligations. This increases the contracts. some of our divisions regarding nutrients and water neutrality which has
challenge of providing quality and affordable homes in the locations required.
impacted the speed of planning approvals. These complexities increase the cost
The planning status of all our sites are formally reviewed at our divisional of development and the time taken to move land through the planning process,
boards on a monthly basis. which is also impacted by resource constraints in local authority planning
departments.
We undertake close consultation with the Government on planning reform.
12. Combustible materials
Risk description Actions/mitigations Developments in the year
Failure to plan and implement the changes required by the Government in We have a dedicated specialist team in place with robust controls and The Group has continued to review the risk register of legacy buildings in
respect of combustible materials and fire safety in a timely manner, which processes in respect of combustible materials. There is a regular review scope, assessing the latest guidelines against each affected building, advice
could significantly impact our reputation. process in place which is overseen by the Chief Executive, Group Finance from technical or legal advisors along with relevant notifications from a
Director and the internal project team responsible for this area. variety of stakeholders. Management has considered the progress of any
This is a complex area where it is often difficult to identify and implement
remedial works and adjusted the financial provision to reflect the Group's
remedies quickly. The rapidly changing landscape of regulatory guidance and The forum reviews a detailed risk register of all schemes under review best estimate of any future costs. We continue to review the appropriateness
need to engage with multiple stakeholders contribute to this complexity as including any safety considerations, recent customer or stakeholder of our combustible materials provision.
does the limited availability of qualified resource to oversee work correspondence and considers how the Group may choose to respond. In addition,
performed. Given this, costs can be difficult to estimate and could be subject the central team assesses whether faulty workmanship or design was a factor in The Group has maintained an active dialogue with DLUHC, coordinated by the
to considerable variability and Government legislation, or regulation could the potential remedial works, and if appropriate seeks to recover these costs HBF, to ensure the principles of the Building Safety Pledge are transferred
further change, increasing the scope of legacy buildings and required remedial directly from the subcontractor or consultant involved, or through engagement into a long-form agreement, and represent the contractual basis for the
works. of external legal counsel. Group's obligations in this area.
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 financial
statements in accordance with UK-adopted international accounting standards
and the Company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101'Reduced Disclosure Framework', and applicable law).
Under company law, 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 UK-adopted international accounting
standards have been followed for the Group financial statements and United
Kingdom Accounting Standards, comprising FRS 101 have been followed for the
Company financial statements, subject to any material departures disclosed
and explained in the financial statements
· Make judgements and accounting estimates that are reasonable and
prudent, and
· Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company will
continue in business.
The Directors are responsible for 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 financial
statements, 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 70-71 of
our 2022 Annual Integrated Report to be published in February 2023 confirm
that, to the best of their knowledge:
· The Group financial statements, which have been prepared in
accordance with UK-adopted international accounting standards, 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 United Kingdom Accounting Standards, comprising FRS 101, 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
17 January 2023
audited financial information
The consolidated financial statements and notes 1 to 29 for the year ended 31
October 2022 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 2022
2022 2022 2022 2021 2021 2021
Pre- exceptional items Exceptional items Total Pre- exceptional items Exceptional items Total
(note 4) (note 4)
Note £m £m £m £m £m £m
Revenue 3 913.6 - 913.6 786.6 - 786.6
Cost of sales (719.3) (102.5) (821.8) (619.9) (20.8) (640.7)
Gross profit/(loss) 194.3 (102.5) 91.8 166.7 (20.8) 145.9
Administrative expenses (51.1) - (51.1) (51.1) - (51.1)
Net impairment losses on financial assets 18 (2.3) - (2.3) (1.0) - (1.0)
Operating profit/(loss) 5 140.9 (102.5) 38.4 114.6 (20.8) 93.8
Finance income 7 3.1 - 3.1 3.4 - 3.4
Finance expense 7 (10.2) (1.0) (11.2) (12.5) 0.5 (12.0)
Net finance expense (7.1) (1.0) (8.1) (9.1) 0.5 (8.6)
Share of post-tax profits/(losses) of joint ventures using the equity method 14 4.0 (1.5) 2.5 1.7 - 1.7
Profit/(loss) before tax 137.8 (105.0) 32.8 107.2 (20.3) 86.9
Income tax (expense)/credit 8 (28.8) 22.4 (6.4) (19.9) 3.9 (16.0)
Profit/(loss) for the year attributable to equity shareholders 109.0 (82.6) 26.4 87.3 (16.4) 70.9
Earnings per ordinary share
Basic 10 42.5p 10.3p 34.0p 27.6p
Diluted 10 42.3p 10.2p 33.9p 27.5p
The notes below form part of these financial statements.
CREST NICHOLSON HOLDINGS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 October 2022
2022 2021
Note £m £m
Profit for the year attributable to equity shareholders 26.4 70.9
Other comprehensive (expense)/income:
Items that will not be reclassified to the consolidated income statement:
Actuarial (losses)/gains of defined benefit schemes 17 (8.4) 20.2
Change in deferred tax on actuarial (losses)/gains of defined benefit schemes 16 1.6 (4.8)
Other comprehensive (expense)/income for the year net of income tax (6.8) 15.4
Total comprehensive income attributable to equity shareholders 19.6 86.3
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 2022
Share capital Share premium account Retained earnings Total equity
Note £m £m £m £m
Balance at 1 November 2020 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
Profit for the year attributable to equity shareholders - - 26.4 26.4
Actuarial losses of defined benefit schemes 17 - - (8.4) (8.4)
Change in deferred tax on actuarial losses of defined benefit schemes 16 - - 1.6 1.6
Total comprehensive income for the year - - 19.6 19.6
Transactions with shareholders:
Equity-settled share-based payments 17 - - 1.9 1.9
Deferred tax on equity-settled share-based payments 16 - - (0.4) (0.4)
Purchase of own shares 24 - - (1.1) (1.1)
Dividends paid 9 - - (38.5) (38.5)
Balance at 31 October 2022 12.8 74.2 796.1 883.1
The notes on below form part of these financial statements.
CREST NICHOLSON HOLDINGS PLC
Consolidated Statement of Financial Position
As at 31 October 2022
2022 2021
ASSETS Note £m £m
Non-current assets
Intangible assets 11 29.0 29.0
Property, plant and equipment 12 0.9 1.2
Right-of-use assets 13 3.7 3.7
Investments in joint ventures 14 9.0 6.8
Financial assets at fair value through profit and loss 15 3.3 4.2
Deferred tax assets 16 4.8 4.8
Retirement benefit surplus 17 11.1 16.7
Trade and other receivables 18 35.0 44.5
96.8 110.9
Current assets
Inventories 19 990.1 1,037.5
Financial assets at fair value through profit and loss 15 1.3 1.1
Trade and other receivables 18 116.3 102.4
Current income tax receivable 1.1 5.8
Cash and cash equivalents 20 373.6 350.7
1,482.4 1,497.5
Total assets 1,579.2 1,608.4
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings 21 (97.1) (97.9)
Trade and other payables 22 (41.8) (107.6)
Lease liabilities 13 (2.3) (2.7)
Deferred tax liabilities 16 (3.2) (4.1)
Provisions 23 (70.8) (28.4)
(215.2) (240.7)
Current liabilities
Trade and other payables 22 (407.1) (449.5)
Lease liabilities 13 (1.6) (1.9)
Provisions 23 (72.2) (14.7)
(480.9) (466.1)
Total liabilities (696.1) (706.8)
Net assets 883.1 901.6
EQUITY
Share capital 24 12.8 12.8
Share premium account 24 74.2 74.2
Retained earnings 796.1 814.6
Total equity 883.1 901.6
The notes below form part of these financial statements.
These financial statements were approved by the Board of Directors on 17
January 2023.
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 2022
2022 2021
Note £m £m
Cash flows from operating activities
Profit for the year attributable to equity shareholders 26.4 70.9
Adjustments for:
Depreciation on property, plant and equipment 12 0.4 1.0
Depreciation on right-of-use assets 13 1.9 2.4
Retirement benefit obligation administrative expenses 17 0.9 -
Net finance expense 7 8.1 8.6
Share-based payment expense 17 1.9 1.8
Share of post-tax profits of joint ventures using the equity method 14 (2.5) (1.7)
Impairment of inventories movement 19 (8.1) (16.4)
Net impairment of financial assets 18 2.3 1.0
Income tax expense 8 6.4 16.0
Operating profit before changes in working capital, provisions and 37.7 83.6
contributions to retirement benefit obligations
(Increase)/decrease in trade and other receivables (17.0) 4.8
Decrease/(increase) in inventories 55.5 (3.4)
(Decrease)/increase in trade and other payables and provisions (13.4) 73.5
Contribution to retirement benefit obligations 17 (3.4) (11.2)
Cash generated from operations 59.4 147.3
Finance expense paid (6.3) (6.9)
Income tax paid (1.4) (13.9)
Net cash inflow from operating activities 51.7 126.5
Cash flows from investing activities
Purchases of property, plant and equipment 12 (0.1) (0.2)
Disposal of financial assets at fair value through profit and loss 15 0.7 1.0
Funding to joint ventures (7.5) (13.0)
Repayment of funding from joint ventures 18.8 11.5
Dividends received from joint ventures 2.4 -
Finance income received 0.1 0.1
Net cash inflow/(outflow) from investing activities 14.4 (0.6)
Cash flows from financing activities
Principal elements of lease payments 13 (2.1) (2.7)
Dividends paid 9 (38.5) (10.5)
Purchase of own shares 24 (1.1) (1.6)
Debt arrangement and facility fees (1.5) -
Proceeds from share option transfers - 0.2
Net cash outflow from financing activities (43.2) (14.6)
Net increase in cash and cash equivalents 22.9 111.3
Cash and cash equivalents at the beginning of the year 350.7 239.4
Cash and cash equivalents at end of the year 20 373.6 350.7
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), unless otherwise stated.
The Group financial statements have been prepared and approved by the
Directors in accordance with UK-adopted international accounting standards,
and with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. On 31 December 2020, IFRS as adopted by the
European Union at that date were brought into UK law and became UK-adopted
international accounting standards, with future changes being subject to
endorsement by the UK Endorsement Board. The Group's consolidated and Company
financial statements have, therefore, been prepared in accordance with
UK-adopted international accounting standards 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. The parent company financial
statements are presented on towards the end of this announcement.
The preparation of financial statements in conformity with UK-adopted
international accounting standards 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 a 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 and
considered three overarching risks when developing the stress testing for this
assessment. These risks were selected due to the potential impact over the
period assessed for going concern, which is a shorter than the period used for
the principal risk assessment.
Risk Mitigation and other considerations Link to principal risks
Will the volume of home completions fall?
· Will the current economic activity disrupt future operations and our · The Group has successfully demonstrated its ability to trade effectively in · Market conditions
ability to build and sell properties? previous downturns in the housing cycle and benefits from a strong balance
sheet and forward order book · Access to site labour and materials
· Will material and labour availability shortages worsen and impact project
timelines? · The UK Government has consistently demonstrated its recent support for the
housing market through lowering Stamp Duty and encouraging lenders to maintain
good levels of mortgage availability
· The Group benefits from strong supplier and subcontractor relationships
that help mitigate availability issues.
Will UK house prices fall?
· Will the current or further decline in macro economic conditions result · The Group has a strong forward order book of reservations and exchanges · Market conditions
in lower prices for UK property due to reduced demand through unemployment or at prevailing prices
mortgage availability?
· There is strong appetite for institutional capital investment into the UK
· Will the higher cost of mortgages persist and create an affordability property market that helps mitigate any cyclical drop in confidence in the
gap? 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
war in Ukraine and the UK's exit from the European Union? which help mitigate cost increases
· Will the move to more sustainable building practices and materials lead to · The Group's implementation of COINS as its new ERP platform has enhanced
an increase in construction costs? the reporting of build costs for the divisions implemented in FY22, and will
continue to be deployed across the rest of the Group in FY23.
Applying these risks against future forecasts
The Directors have considered prior years' trading performance and the
completed weeks of trading since 31 October 2022. The Group has performed in
line with expectations and retains a strong level of working capital and
liquidity to execute its strategy. During the year the Group completed a
£250.0m Sustainability Linked Revolving Credit Facility (RCF) which expires
in October 2026. The Group also benefits from £100.0m of senior loan notes.
Both of these sources of financing are subject to three financial covenant
tests. The Group does not disclose the terms of these covenants as it
considers them to be commercially confidential. The RCF is also subject to
sustainability targets which are aligned to the Group's sustainability
strategy with a lower interest payable if these are achieved. See Principal
risks above for more information. Given the Group's strong liquidity position
the Directors consider the possibility of breaching one of the financial
covenants as being the first sign that the Group could be in distress and
should be the basis of its going concern assessment 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 FY23 to
FY25. The forecasts include the Directors current assessment of the potential
impact of the economic uncertainty currently being experienced in the UK.
These impacts include sales price and sales volume reductions, but are not
disclosed as the Group considers them to be commercially sensitive.
The Group has already secured a significant proportion of sales for FY23 by
way of its strong forward order book. Under this scenario the Group maintains
a strong level of liquidity and financial headroom throughout FY23 and beyond
and remains compliant with all three covenants with comfortable headroom.
2. 'Severe but plausible downside case'. The Directors have applied the
three risks outlined above to the base case scenario without double counting
the sales price and volume assumptions implicit in that base case. These risks
are considered effective from 1 November 2022 and include a 0.37 SPOW rate
(FY22 SPOW was 0.60), a 12.0% reduction in forecast average selling prices and
a 10.0% increase in forecast build costs. Build costs include the Group's
stated commitment under the Building Safety Pledge to remediate legacy
buildings and therefore any assumed increase in build costs also increases the
size of this commitment. Each of these risks has been applied individually and
the Group remains compliant with all three covenants with comfortable
headroom. The Directors have then applied the 12.0% sales price reduction
together with the 0.37 SPOW rate, to reflect what they consider to be a
'severe but plausible downside case' outcome and trading environment. The
build cost inflation risk was not included in this severe but plausible
downside case, as during a downturn as severe as that considered, the Group
has historically seen build cost deflation as suppliers and subcontractors
swiftly recalibrate their pricing to compete for work in shrinking forward
order books. As such, applying all three risks in aggregate was not considered
plausible. This combined scenario inevitably places a higher stress than 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 used appropriate mitigations available to enable it to offset
the deterioration in financial performance. These mitigations are within the
control of the Group and can be enacted in good time, and are outlined below.
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
considered some of the mitigations that could be applied in a deteriorating
trading environment. The Group has experience of applying such mitigations in
the past, which include but are not limited to:
· 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
· A reduction in sales and marketing costs to reflect a fall in sales
volumes.
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 UK-adopted
international accounting standards 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 (see note 3), 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 (see
note 3), 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 total costs an inventory
provision is made. This provision may be reversed in subsequent periods if
there is evidence of sustained improved revenue or reduced expenditure
forecast on a development. If forecast revenue was 10.0% lower on sites within
the short-term portfolio as at 31 October 2022, the impact on profit before
tax would have been £7.0m lower (2021: £10.9m lower).
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 upfront shared
infrastructure costs to have greater estimation uncertainty than sites of
shorter duration with less infrastructure requirements. A change in estimated
margins on sites, for example due to changes in estimates of build cost
inflation or a reduction in house prices, could alter future profitability. If
forecast costs were 10.0% higher on sites which contributed to the year ended
31 October 2022 and which are forecast to still be in production beyond the
year ending 31 October 2024 (2021: beyond the year ending 31 October 2023),
profit before tax in the current year would have been £25.3m lower (2021:
£12.8m 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 or the value
of goodwill. The longer term costs associated with climate-related risks are
considered to be beyond the timescale of the projects the Group is currently
contracted to and as such do not impact the carrying value of inventories or
their associated project margins. Further information on climate-related risks
and opportunities is provided on pages 34-35 of our 2022 Annual Integrated
Report to be published in February 2023, and this represents an area of
estimation rather than a critical accounting estimate.
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
assumptions 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 assumptions include
but are not limited to identification of the properties impacted through the
period of construction considered. 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 and to reflect the impact of signing the Government's Building
Safety Pledge (the Pledge). As a result of signing the Pledge the Group has
committed to funding the remediation of life-critical fire safety issues on
buildings over 11 metres in which the Group was involved going back 30 years.
The Directors have used Building Safety Fund (BSF) cost information, other
external information and internal assessments as a basis for the estimated
remedial costs. These estimates are inherently uncertain due to the highly
complex and bespoke nature of the buildings, actual costs may differ to the
amounts notified by the BSF costed projects, and fire safety reports in
progress may require different levels of remediation and associated costs than
those currently estimated. If forecast remediation costs on buildings
currently provided for are 20.0% higher than provided, the pre-tax exceptional
items charge in the consolidated income statement would be £28.2m 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.
Adoption of new and revised standards
During the year, the Group has adopted the following new and revised standards
and interpretations that have had no impact on the financial statements:
· Amendments to IFRS 4: Insurance Contracts - deferral of IFRS 9
· Amendments to IFRS 7, IFRS 4, and IFRS 16: Interest rate benchmark
reform - Phase 2.
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 2022 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.
Other accounting policies
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 revenue policy relating to recognised over
time housing units as detailed below.
The Group reviewed the application of its revenue policy relating to
recognised over time housing units. From 1 November 2021 revenue is now
recognised on over time units by reference to the stage of completion, via
surveys of work performed on contract activity. The Group considers this
policy more closely aligns with the benefits transferred to the customer.
Previously revenue was recognised on housing units as the build of the related
units progressed, using the input method based on costs incurred. This is
considered a change in accounting estimate and so has been implemented
prospectively.
Alternative performance measures
The Group has adopted various Alternative Performance Measures (APMs), as
presented at the end of this announcement. 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. If an obligation to fund losses exists
the further losses and a provision are recognised. Unrealised gains on
transactions between the Group and its joint ventures are eliminated on
consolidation. Accounting policies of joint ventures are 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
and is not amortised. 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 2036. 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 has made a judgement to 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 £48.9m (2021: £48.6m).
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,
via surveys of work performed on contract activity. 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 or consolidated statement of
financial position. 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 as significant costs and
settlements associated with combustible materials, significant costs
associated with acquiring another business and significant inventory
impairments. Where appropriate, the Directors consider that items should be
considered as categories or classes of items, such as any credits/costs
impacting the consolidated income statement which relate to combustible
materials, notwithstanding where an item may be individually immaterial. The
Directors believe that these items require separate disclosure within the
consolidated income statement in order to assist the users of the financial
statements to better understand the performance of the Group, which is also
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. The income tax impacts of exceptional
items are reflected at the actual tax rate related to these items.
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. Imputed interest expense on deferred land
creditors and combustible materials discounting is recognised over the life of
associated cash flows.
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 NRV, 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.
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. NRV 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
Interest-bearing loans and 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.
Provisions are discounted to present value on a discounted cash flow basis
using an interest rate appropriate to the class of the provision, where the
effect is material.
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) until 27 May 2022, Duncan Cooper
(Group Finance Director), David Marchant (Group Operations 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
2022 2021
Revenue type £m £m
Open market housing including specification upgrades 803.7 654.7
Affordable housing 76.9 78.7
Total housing 880.6 733.4
Land and commercial sales 32.0 49.2
Freehold reversions 1.0 4.0
Total revenue 913.6 786.6
In the prior year 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.
2022 2021
Timing of revenue recognition £m £m
Revenue recognised at a point in time 842.6 687.7
Revenue recognised over time 71.0 98.9
Total revenue 913.6 786.6
Proceeds received on the disposal of part exchange properties, which is not
included in revenue, were £48.9m (2021: £48.6m). These have been included
within cost of sales.
2022 2021
Assets and liabilities related to contracts with customers £m £m
Contract assets (note 18) 25.1 56.4
Contract liabilities (note 22) (19.0) (25.0)
Contract assets have decreased to £25.1m from £56.4m in 2021, reflecting
less unbilled work-in-progress on affordable and other sales in bulk at the
year end. This is in line with the trading of the Group and the contractual
arrangements in the Group's contracts. Contract liabilities have reduced to
£19.0m from £25.0m in 2021, 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 £19.6m (2021: £21.3m) that was
included in contract liabilities at the beginning of the year.
During the year £nil (2021: £nil) of revenue was recognised from performance
obligations satisfied or partially satisfied in previous years.
At 31 October 2022 there was £322.4m (2021: £358.5m) of transaction price
allocated to performance obligations that are unsatisfied or partially
unsatisfied on contracts exchanged with customers. We are forecasting to
recognise £257.4m (2021: £261.7m) of transaction prices allocated to
performance obligations that are unsatisfied on contracts exchanged with
customers within one year, £65.0m (2021: £96.8m) within two to five years,
and £nil (2021: £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 to better understand the performance of the
Group, which is also how the Directors internally manage the business. Where
appropriate, the Directors consider that items should be considered as
categories or classes of items, such as any credits/costs impacting the
consolidated income statement which relate to combustible materials,
notwithstanding where an item may be individually immaterial. 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 recognised in previous financial years.
2022 2021
Cost of sales £m £m
Combustible materials charge 102.5 31.2
Combustible materials credit - (2.4)
Net combustible materials charge 102.5 28.8
Inventory impairment credit - (8.0)
Total cost of sales exceptional charge 102.5 20.8
Net finance expense
Finance expense credit - (0.5)
Combustible materials imputed interest 1.0 -
Share of post-tax loss of joint ventures
Combustible materials charge of joint ventures 1.5 -
Total exceptional charge 105.0 20.3
Tax credit on exceptional charge (22.4) (3.9)
Total exceptional charge after tax credit 82.6 16.4
Combustible materials related charges
Following the fire at Grenfell Tower in 2017, and the subsequent review of
building design, construction methods and materials used, the Group has acted
swiftly to identify and remediate any legacy buildings where it has a
constructive or legal obligation to do so. The Group recognises the
significant distress caused to residents and as such has always sought to
engage constructively with residents, building owners, Government and other
affected stakeholders.
Accordingly, the Group had cumulatively recorded £47.8m of net charges in
respect of these obligations between the year ended 31 October 2019 to 31
October 2021.
On 19 April 2022, the Group signed the Government's Building Safety Pledge,
which has a wider parameter of potential buildings and has thus contributed to
a further combustible material related total exceptional charge of £105.0m
for the year ended 31 October 2022. Due to the material nature of the charge,
it has been recognised as an exceptional item. See note 23 for additional
information.
The combustible materials charge of joint ventures represents the Group's
share of exceptional combustibles materials charge in its joint venture Crest
Nicholson Bioregional Quintain LLP. The joint venture completed a development
in Brighton in 2011 and recognised a provision following an independent fire
engineers report recommending remedial works.
In January 2023, the Group received a £10.0m cash settlement from a third
party relating to buildings included within the combustible materials
provision. As this was not contracted in the current financial year, it has
not been recognised in the FY22 consolidated financial statements. The receipt
will be reflected in the FY23 consolidated financial statements as an
exceptional credit.
Inventory impairment credit and finance expense credit
In the year ended 31 October 2021 the Group released unused inventory
impairment and reversed a finance expense charge which were previously
recognised as exceptional, resulting in a credit in those periods. For further
details see note 4 within the Group's consolidated financial statements for
the year ended 31 October 2021.
Taxation
An exceptional income tax credit of £22.4m (2021: £3.9m) has been recognised
in relation to the above exceptional items using the actual tax rate
applicable to these items.
5 OPERATING PROFIT
Operating profit of £38.4m (2021: £93.8m) from continuing activities is
stated after charging/(crediting):
Note 2022 2021
£m £m
Inventories expensed in the year 705.3 603.5
Inventories impairment movement in the year 19 (8.1) (16.4)
Employee costs 6 58.4 53.4
Depreciation on property, plant and equipment 12 0.4 1.0
Depreciation on right-of-use assets 13 1.9 2.4
Joint venture project management fees received 28 (2.0) (1.5)
Government grants repaid - 2.5
Government grants repaid
During the year ended 31 October 2020 the Group recognised a £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 prior year.
2022 2021
Auditors' remuneration £000 £000
Audit of these consolidated financial statements 137 125
Audit of financial statements of subsidiaries pursuant to legislation 783 665
Other non-audit services 95 90
The audit fees payable in 2022 included £30,000 in relation to additional
costs for the 2021 audit (2021: included £70,000 in relation to additional
costs for the 2020 audit).
Fees payable to the Group's auditors for non-audit services included £95,000
(2021: £90,000) 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 £25,400 (2021: £24,000) and are met by
the assets of the scheme, and the fees associated with services to Group joint
ventures are £22,000 (2021: £28,000).
6 EMPLOYEE NUMBERS AND COSTS
(a) Average monthly number of persons employed by the Group 2022 2021
Number Number
Development 727 661
The Directors consider all employees of the Group to be employed within the
same category of Development.
(b) Employee costs (including Directors and key management) 2022 2021
£m £m
Wages and salaries 48.0 43.8
Social security costs 6.0 5.4
Other pension costs 2.5 2.4
Share-based payments (note 17) 1.9 1.8
58.4 53.4
(c) Key management remuneration 2022 2021
£m £m
Salaries and short-term employee benefits 4.0 4.3
Directors' remuneration for loss of office 0.5 -
Share-based payments 1.0 0.9
5.5 5.2
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 2022 2021
£m £m
Salaries and short-term employee benefits 2.6 2.9
Directors' remuneration for loss of office 0.5 -
Share-based payments 0.7 0.7
3.8 3.6
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 100-122 of our
2022 Annual Integrated Report to be published in February 2023.
7 FINANCE INCOME AND EXPENSE
2022 2021
Finance income £m £m
Interest income 0.7 0.2
Interest on amounts due from joint ventures (note 28) 2.1 2.8
Interest on financial assets at fair value through profit and loss (note 15) - 0.4
Net interest on defined benefit pension scheme (note 17) 0.3 -
3.1 3.4
Finance expense
Interest on bank loans (6.6) (7.9)
Revolving credit facility issue costs (0.7) (0.7)
Imputed interest on deferred land payables (2.8) (2.8)
Interest on lease liabilities (note 13) (0.1) (0.2)
Interest on financial assets at fair value through profit and loss - - 0.5
exceptional (note 15)
Net interest on defined benefit pension scheme (note 17) - (0.9)
Imputed interest on combustible materials provision - exceptional (note 23) (1.0) -
(11.2) (12.0)
Net finance expense (8.1) (8.6)
8 INCOME TAX EXPENSE
2022 2021
£m £m
Current tax
UK corporation tax expense on profit for the year (6.1) (11.4)
Adjustments in respect of prior periods - (0.2)
Total current tax expense (6.1) (11.6)
Deferred tax
Origination and reversal of temporary differences in the year (0.3) (4.9)
Adjustment in respect of prior periods - 0.5
Total deferred tax charge (note 16) (0.3) (4.4)
Total income tax expense in consolidated income statement (6.4) (16.0)
Corporation tax is calculated at 19.0% (2021: 19.0%) of the profit chargeable
to tax for the year, and, from 1 April 2022 the Group is subject to the
Residential Property Developer Tax (RPDT) at a rate of 4.0%. This results in a
weighted statutory rate of corporation tax of 21.3% for the year. The
effective tax rate for the year is 19.5% (2021: 18.4%), which is lower than
(2021: lower than) the weighted standard rate of UK corporation tax due to the
impact of the changes in UK tax rates on deferred tax and the RPDT annual
allowance and adjustments. The Group expects the effective tax rate to be more
aligned to the standard rate of corporation tax in future years, adjusted for
the impact of changes in the rate of tax.
2022 2021
Reconciliation of tax expense in the year £m £m
Profit before tax 32.8 86.9
Tax on profit at 21.3% (inclusive of RPDT) (2021: 19.0%) (7.0) (16.5)
Effects of:
Expenses not deductible for tax purposes (0.7) (0.7)
Enhanced tax deductions 0.2 0.2
Adjustments in respect of prior periods - 0.3
Effect of change in rate of tax 0.6 0.7
Impact of RPDT annual allowance and adjustments 0.5 -
Total income tax expense in consolidated income statement (6.4) (16.0)
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 impact on deferred tax balances
in respect of the RPDT tax rate of 4.0% which was effective from 1 April 2022.
As a result, the deferred tax balances on the consolidated statement of
financial position have been measured using these revised rates.
RPDT was introduced by HM Treasury to obtain a contribution from the UK's
largest residential property developers towards the cost of remediating
defective cladding in the UK's high-rise housing stock and is expected to
remain in force for up to 10 years. RPDT is an additional tax on profits
generated from residential property development activity, in excess of an
annual threshold and adjusting for interest expense disallowable under RPDT.
The impact of RPDT annual allowance and adjustments reflects the net tax
benefit of the annual threshold and interest adjustment.
The UK corporation tax rate will increase from 19.0% to 25.0% with effect from
1 April 2023.
9 DIVIDENDS
2022 2021
Dividends recognised as distributions to equity shareholders in the year: £m £m
Current year interim dividend of 5.5 pence per share (2021: 4.1 pence per 14.1 10.5
share)
Prior year final dividend per share of 9.5 pence per share (2021: nil pence 24.4 -
per share)
38.5 10.5
2022 2021
Dividends proposed as distributions to equity shareholders in the year: £m £m
Final dividend for the year ended 31 October 2022 of 11.5 pence per share 29.5 24.4
(2021: 9.5 pence per share)
The proposed final dividend was approved by the Board on 17 January 2023 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 5 April 2023 to all ordinary shareholders on the Register of Members
on 17 March 2023.
10 EARNINGS PER ORDINARY SHARE
Basic earnings per share is calculated by dividing profit attributable to
equity shareholders by the weighted average number of ordinary shares in issue
during the year. For diluted earnings per share, the weighted average number
of shares is increased by the average number of potential ordinary shares held
under option during the year. This reflects the number of ordinary shares
which would be purchased using the difference in value between the market
value of shares and the share option exercise price. The market value of
shares has been calculated using the average ordinary share price during the
year. Only share options which have met their cumulative performance criteria
have been included in the dilution calculation. The earnings and weighted
average number of shares used in the calculations are set out below.
Earnings Weighted average number of ordinary shares Per share amount
£m Number Pence
Year ended 31 October 2022
Basic earnings per share 26.4 256,405,006 10.3
Dilutive effect of share options - 1,320,375
Diluted earnings per share 26.4 257,725,381 10.2
Year ended 31 October 2022 - Pre-exceptional items
Adjusted basic earnings per share 109.0 256,405,006 42.5
Dilutive effect of share options - 1,320,375
Adjusted diluted earnings per share 109.0 257,725,381 42.3
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
11 INTANGIBLE ASSETS
Goodwill 2022 2021
£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 CN Finance plc (formerly Castle Bidco
plc) 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% (2021: 8.5%), covering a further period of 14 years to
2036, and based on current market conditions. The discount rate is based on an
externally produced weighted average cost of capital range estimate. For both
2021 and 2022 8.5% falls within the respective range. The Future Homes
Standard will not impact the estimated development cash flows as sites in
production already incorporate the forecast extra costs, and for those under
option the extra costs will be adjusted in the land values payable. 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 by plus or minus 1.0% 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 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
Additions - 0.1 0.1
Disposals (0.1) (0.4) (0.5)
At 31 October 2022 1.7 2.9 4.6
Accumulated depreciation
At 1 November 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
Charge for the year 0.2 0.2 0.4
Disposals (0.1) (0.4) (0.5)
At 31 October 2022 1.1 2.6 3.7
Net book value
At 31 October 2022 0.6 0.3 0.9
At 31 October 2021 0.8 0.4 1.2
At 1 November 2020 1.0 1.0 2.0
The Group has contractual commitments for the acquisition of property, plant
and equipment of £nil (2021: £nil).
13 RIGHT-OF-USE ASSETS AND LIABILITIES
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
Additions - 1.3 - 1.3
Disposals - (1.0) - (1.0)
At 31 October 2022 13.1 4.5 - 17.6
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
Disposals (0.2) (2.6) (0.6) (3.4)
At 31 October 2021 10.7 2.9 - 13.6
Charge for the year 1.0 0.9 - 1.9
Disposals - (1.0) - (1.0)
Reclassification* (0.6) - - (0.6)
At 31 October 2022 11.1 2.8 - 13.9
Net book value
At 31 October 2022 2.0 1.7 - 3.7
At 31 October 2021 2.4 1.3 - 3.7
At 1 November 2020 3.8 2.1 0.1 6.0
* Relates to the brought forward balance of dilapidations on Group offices,
now presented in provisions (see note 23).
Lease liabilities included in the consolidated statement of financial position
2022 2021
£m £m
Non-current 2.3 2.7
Current 1.6 1.9
Total lease liabilities 3.9 4.6
Amounts recognised in the consolidated income statement
2022 2021
£m £m
Depreciation on right-of-use assets 1.9 2.4
Interest on lease liabilities 0.1 0.2
Amounts recognised in the consolidated cash flow statement
2022 2021
£m £m
Principal element of lease payments 2.1 2.7
Maturity of undiscounted contracted lease cash flows
2022 2021
£m £m
Less than one year 1.7 2.1
One to five years 2.4 2.9
More than five years - -
Total 4.1 5.0
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.
· 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.
Disposal of joint venture 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. This site has been
the subject of planning objections and delays and is a complex build programme
with significant levels of peak capital investment. On 6 May 2022 the Group
disposed of its 50% interest in Bonner Road LLP to its joint venture partner
for consideration of £16.0m, of which £8.0m was received in the year and
£8.0m is receivable in the next financial year. The carrying value of the
amounts due from the joint venture was further impaired recording a £2.3m net
impairment loss on financial assets in the year as presented below and
represents the final value to be realised upon the disposal:
£m
Proceeds from disposal of interest in Bonner Road LLP 16.0
Amounts due from the joint venture at 6 May 2022 (37.6)
Expected credit loss charged to the consolidated income statement to 31 11.8
October 2021
Cumulative loss recognised in the consolidated income statement to 31 October 6.9
2021
Loss recognised in the consolidated income statement from 1 November 2021 to 6 0.6
May 2022
Expected credit loss charged to the consolidated income statement in the year 2.3
Total expected credit loss utilised in the year £14.1m (see note 18).
2022 2021
Total investments in joint ventures £m £m
Crest Sovereign (Brooklands) LLP 2.3 -
Crest A2D (Walton Court) LLP 3.4 2.2
Elmsbrook (Crest A2D) LLP 3.3 4.5
Other non-material joint ventures - 0.1
Total investments in joint ventures 9.0 6.8
All material 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 29 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, where
the Group retains an interest, and not the Group's share of those amounts.
2022 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 0.3 - 0.1 1.6 0.2 2.2
Inventories 28.8 - 40.4 7.8 - 77.0
Other current assets 2.3 - 0.1 0.1 0.2 2.7
Current liabilities
Financial liabilities (1.0) - (0.6) - - (1.6)
Other current liabilities (6.9) - (1.4) (3.0) (3.3) (14.6)
Non-current liabilities
Financial liabilities (18.9) - (31.9) - - (50.8)
Net assets/(liabilities) 4.6 - 6.7 6.5 (2.9) 14.9
Reconciliation to carrying amounts
Opening net (liabilities)/assets at 1 November 2021 (1.0) (13.7) 4.3 8.9 0.2 (1.3)
Profit/(loss) for the year 5.6 (1.2) 1.2 2.4 (3.1) 4.9
Capital contribution reserve - - 1.2 - - 1.2
Dividends paid - - - (4.8) - (4.8)
Disposal in the year - 14.9* - - - 14.9
Closing net assets/(liabilities) at 31 October 2022 4.6 - 6.7 6.5 (2.9) 14.9
Group's share of closing net assets/(liabilities) at 31 October 2022 2.3 - 3.4 3.3 (1.4) 7.6
Losses recognised against receivable from joint venture (note 18) - - - - 0.2 0.2
Fully provided in the Group financial statements (note 23) - - - - 1.2 1.2
Group's share in joint venture 2.3 - 3.4 3.3 - 9.0
Amount due to the Group (note 18) 10.4 - 15.9** 0.8 - 27.1
Amount due from the Group (note 22) - - - - 0.1 0.1
Summarised income statement for the twelve months ending 31 October 2022
Revenue 47.4 - 26.0 11.0 - 84.4
Expenditure (39.9) - (23.6) (8.6) (0.1) (72.2)
Expenditure - exceptional item (note 4) - - - - (3.0) (3.0)
Operating profit/(loss) before finance expense 7.5 - 2.4 2.4 (3.1) 9.2
Finance expense (1.9) (1.2) (1.2) - - (4.3)
Pre-tax and post-tax profit/(loss) for the year 5.6 (1.2) 1.2 2.4 (3.1) 4.9
Group's share in joint venture profit/(loss) for the year 2.8 (0.6) 0.6 1.2 (1.5) 2.5
* Group's share of the net liabilities comprises £7.5m made up of brought
forward net liabilities of £6.9m and current year loss of £0.6m.
** £15.9m 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.
Funding of this nature is currently expected to be £1.2m (2021: £nil). 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.
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 of 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 for the twelve months ending 31 October 2021
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.
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
CN Finance
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 29.
15 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
2022 2021
£m £m
At beginning of the year 5.3 5.4
Disposals (0.7) (1.0)
Imputed interest - 0.9
At end of the year 4.6 5.3
Of which:
Non-current assets 3.3 4.2
Current assets 1.3 1.1
4.6 5.3
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,
although short-term house prices may fall, 3% is considered to be a fair
medium-term assessment:
Assumptions 2022 2021
Discount rate, incorporating default rate 10.5% 10.5%
House price inflation for the next three years 3.0% 3.0%
Timing of receipt from loan issuance 8 to 17 years 8 to 17 years
2022 2022
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 (0.1) -
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 2022 was £nil (2021: £0.9m).
At initial recognition, the fair values of the assets are calculated using a
discount rate, appropriate to the class of assets, which reflects market
conditions at the date of entering into the transaction. The Directors
consider at the end of each reporting period whether the initial market
discount rate still reflects up-to-date market conditions. If a revision is
required, the fair values of the assets are remeasured at the present value of
the revised future cash flows using this revised discount rate. The difference
between these values and the carrying values of the assets is recorded against
the carrying value of the assets and recognised directly in the 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 2020 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
Consolidated income statement movements - 0.5 - (0.1) 0.4
Equity movements - (0.4) - - (0.4)
At 31 October 2022 1.5 0.5 - 2.8 4.8
Deferred tax liabilities Pension surplus Total
£m £m
At 1 November 2020 - -
Equity movements (4.1) (4.1)
At 31 October 2021 (4.1) (4.1)
Consolidated income statement movements (0.7) (0.7)
Equity movements 1.6 1.6
At 31 October 2022 (3.2) (3.2)
Total deferred tax credited to equity in the year is £1.2m (2021: charged
£4.7m). Deferred tax assets expected to be recovered in less than 12 months
is £1.5m (2021: £0.7m), and in more than 12 months is £3.3m (2021: £4.1m).
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%. A new residential property developer tax (RPDT) became
effective from 1 April 2022. RPDT is an additional tax at 4.0% of profits
generated from residential property development activity, in excess of an
annual threshold. 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.
Inventories fair value represents temporary differences on the carrying value
of inventory fair valued on the acquisition of CN Finance plc 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 £2.3m
(2021: £2.0m). At the consolidated statement of financial position date there
were no outstanding or prepaid contributions (2021: £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. A Trustee company (the Trustee) is appointed by the Company and the
Company and the Scheme's members appoint Trustee Directors. The Trustee is
appointed to act in the interest of the Scheme and all relevant stakeholders,
including the members and the Company. The Trustee is 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 Trustee is 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 Trustee 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 2021. These actuarial valuations are
carried out in accordance with the requirements of the Pensions Act 2004 and
so include deliberate margins for prudence. This contrasts with these
accounting disclosures, which are determined using best estimate assumptions.
The results of the actuarial valuation as at 31 January 2021 have been
projected to 31 October 2022 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
2022, the allocation of the Scheme's invested assets was 36% in return seeking
investments, 45% in liability-driven investing, 16% in cash and 3% in insured
annuities. Details of the investment strategy can be found in the Scheme's
Statement of Investment Principles, which the Trustee updates 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 allowed for this
in its accounts by adding a 1.3% (2021: 2.0%) reserve reflecting an
approximate estimate of the additional liability. During the year, the impact
of GMP on additional liabilities was recalculated to be 1.3% rather than 2.0%,
with the 0.7% financial impact reduction being adjusted through total
comprehensive income.
2022 2021 2020
£m £m £m
The amounts recognised in the consolidated statement of financial position are
as follows:
Present value of scheme liabilities (148.9) (225.2) (228.3)
Fair value of scheme assets 160.0 241.9 214.5
Net surplus/(deficit) amount recognised at year end 11.1 16.7 (13.8)
Deferred tax asset recognised at year end within non-current assets - - 2.6
Deferred tax liability recognised at year end within non-current liabilities (3.2) (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 the Scheme's
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 Trustee has 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 29.0% tax rate, made up of the
corporation tax rate 25.0% and 4.0% RPDT.
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 are included in the consolidated statement of comprehensive income.
2022 2021
£m £m
Service cost
Administrative expenses (0.9) (0.8)
Interest income/(expense) 0.3 (0.1)
Recognised in the consolidated income statement (0.6) (0.9)
2022 2021
£m £m
Remeasurements of the net liability
Return on Scheme assets (82.6) 19.5
Gains/(losses) arising from changes in financial assumptions 79.8 (2.8)
Loss arising from changes in demographic assumptions (0.1) (0.5)
Experience (losses)/gains (5.5) 4.0
Actuarial (losses)/gains recorded in the consolidated statement of (8.4) 20.2
comprehensive income
Total defined benefit scheme (losses)/gains (9.0) 19.3
The principal actuarial assumptions used were: 2022 2021
% %
Liability discount rate 4.80 1.70
Inflation assumption - RPI 3.20 3.50
Inflation assumption - CPI 2.60 2.80
Revaluation of deferred pensions 2.60 2.80
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 3.00 3.30
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 and female post-retirement S3PA light base tables SAPS S3 PMA _LCMI_2020 core model with initial addition of 0.3% and 2020
weighting of 0.0% ltr 1.25%
projected in line with CMI_2021
core model with core parameters (Sk =
7.0, an initial addition of 0.25%, w2020
and w2021 set to zero) and with a long-term rate of improvement of 1.25% p.a
2022 2021
Years Years
Future expected lifetime of current pensioner at age 65
Male aged 65 at year end 23.4 23.4
Female aged 65 at year end 25.0 24.9
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 26.3
Changes in the present value of assets over the year
2022 2021
£m £m
Fair value of assets at beginning of the year 241.9 214.5
Interest income 4.1 3.3
Return on assets (excluding amount included in net interest expense) (82.6) 19.5
Contributions from the employer 3.4 11.2
Benefits paid (5.9) (5.8)
Administrative expenses (0.9) (0.8)
Fair value of assets at end of the year 160.0 241.9
Actual return on assets over the year (78.5) 22.8
Changes in the present value of liabilities over the year
2022 2021
£m £m
Liabilities at beginning of the year (225.2) (228.3)
Interest cost (3.8) (3.4)
Remeasurement gains/(losses)
Gains/(losses) arising from changes in financial assumptions 79.8 (2.8)
Losses arising from changes in demographic assumptions (0.1) (0.5)
Experience (losses)/gains (5.5) 4.0
Benefits paid 5.9 5.8
Liabilities at end of the year (148.9) (225.2)
Split of the Scheme's liabilities by category of membership 2022 2021
£m £m
Deferred pensioners (71.5) (115.7)
Pensions in payment (77.4) (109.5)
(148.9) (225.2)
2022 2021
Years Years
Average duration of the Scheme's liabilities at end of the year 14.0 17.0
This can be subdivided as follows:
Deferred pensioners 18.0 21.0
Pensions in payment 10.0 12.0
Major categories of scheme assets
2022 2021
£m £m
Return seeking
Overseas equities 2.3 19.6
Other (hedge funds, multi asset strategy and absolute return funds) 55.9 83.7
58.2 103.3
Debt instruments
Corporates - 41.2
Liability-driven investing 71.6 86.1
71.6 127.3
Other
Cash 25.9 4.9
Insured annuities 4.3 6.4
30.2 11.3
Total market value of assets 160.0 241.9
The Scheme has implemented a liability-driven investment strategy designed to
closely align investment returns with movements in the Scheme's liabilities on
a Technical Provisions basis. The Scheme was able to maintain the interest
rate and inflation hedge through the recent gilt market volatility.
£nil (2021: £17.8m) of Scheme assets have a quoted market price in active
markets, £106.2m (2021: £137.4m) of Scheme assets have valuation inputs
other than quoted market prices, including quoted market prices for similar
assets in active markets, £42.4m (2021: £75.4m) 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 £11.4m (2021: £11.3m)
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 Scheme had a deficit as at the latest valuation date of 31 January 2021,
with a recovery plan agreed between the Group and the Trustee. The Scheme was
in surplus on the Technical Provisions basis, and so no further contributions
were payable in respect of the shortfall in funding in accordance with the
Recovery Plan dated 8 February 2022. In order to continue to move the Scheme
towards the Trustee's secondary funding objective, the Trustee and the Group
have agreed that the Company will fund the Scheme with contributions of £1.5m
per annum, payable monthly until 30 April 2025. When the Scheme is at least
95% funded on the Secondary Funding Basis for a period of three consecutive
months then the Group has the option to pay any remaining contributions to an
escrow account. The Group expects to contribute £1.5m to scheme funding in
the year ending 31 October 2023.
Sensitivity of the liability value to changes in the principal
assumptions
The sensitivities included are consistent with those shown in prior years and
show the change in the consolidated statement of financial position as at 31
October 2022 as a result of a change to the key assumptions. Please note that
financial markets have been volatile over the year to 31 October 2022, in
particular the discount rate assumption changed by much more than 0.25% p.a.
As the Scheme has implemented a liability driven investment strategy, the
changes in bond yields and inflation expectations had less impact on the net
consolidated statement of financial position.
If the discount rate was 0.25% higher/(lower), the Scheme liabilities would
decrease by £4.4m (increase by £4.3m) if all the other assumptions remained
unchanged.
If the inflation assumption was 0.25% higher/(lower), the Scheme liabilities
would increase by £2.6m (decrease by £2.9m) if all the other assumptions
remained unchanged.
If life expectancies were to increase by one year, the scheme liabilities
would increase by £6.4m 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.
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 prior to 31 October 2020 vest
over three years and are subject to three years' service, and return on
capital and profit performance conditions.
Awards issued in 2021 and 2022 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 value the
options using a binomial option valuation model. The market-based TSR
performance conditions apply 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. 961,765 of the options awarded in 2022 are subject to an additional
post-vesting holding period, where shares cannot be sold for two years after
vesting date.
The 2021 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.
The 28 January 2022 grant fair value at measurement date of the different
valuation elements of the unrestricted options are £1.68 TSR (FTSE 250),
£1.55 TSR (peer group), and £2.62 for the non-market-based return on capital
and profit performance conditions. The 2022 fair value at measurement date of
the different valuation elements of the restricted options are £1.51 TSR
(FTSE 250), £1.40 TSR (peer group), and £2.36 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 31% and 68% respectively. The average fair value at
measurement date is £2.10 per option. The average fair value at measurement
date of the 25 August 2022 grant is £1.59 per option.
Date of grant 26 Feb 2016 28 Feb 2018 16 Apr 2019 21 Jun 2019 20 Feb 2020 04 Aug 2020 08 Feb 2021 28 Jan 2022 25 Aug 2022
Options granted 1,075,943 1,112,762 1,140,962 278,558 1,125,531 7,298 1,328,192 1,341,918 23,955
Fair value at measurement date £5.07 £3.89 £3.15 £3.15 £4.28 £1.53 £2.50 £2.10 £1.59
Share price on date of grant £5.62 £4.76 £4.00 £3.55 £5.16 £1.85 £3.23 £3.07 £2.33
Exercise price £0.00 £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 3 years
Expected dividend yield 3.50% 6.93% 8.20% 8.20% 6.40% 6.40% 4.30% 5.30% 5.30%
Expected volatility 30.00% 35.00% 35.00% 35.00% 30.00% 30.00% 40.00% 40.00% 40.00%
Risk-free interest rate 0.43% 0.84% 0.81% 0.81% 0.45% 0.45% 0.03% 0.97% 0.97%
Valuation model Binomial Binomial Binomial Binomial Binomial Binomial Binomial/ Monte Carlo Binomial/ Monte Carlo Binomial/ Monte Carlo
Contractual life from 26.02.16 28.02.18 16.04.19 21.06.19 20.02.20 04.08.20 08.02.21 28.01.22 25.08.22
Contractual life to 25.02.26 27.02.28 15.04.29 20.06.29 19.02.30 03.08.30 07.02.31 27.02.32 27.02.32
Number of options 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 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
Granted during the year - - - - - - - 1,341,918 23,955 1,365,873
Exercised during the year (1,518) - - - - - - - - (1,518)
Lapsed during the year - - (692,934) (278,558) (62,161) - (78,761) (29,443) - (1,141,857)
Outstanding at 31 October 2022 - - - - 891,970 7,298 1,197,676 1,312,475 23,955 3,433,374
Exercisable at 31 October 2022 - - - - - - - - - -
Exercisable at 31 October 2021 1,518 - - - - - - - - 1,518
-
£m £m £m £m £m £m £m £m £m Total £m
Charge to income for the current year - - - - 1.1 - (0.1) 0.2 - 1.2
Charge to income for the prior year - - - - 0.6 - 0.7 - - 1.3
The weighted average exercise price of LTIP options was £nil (2021: £nil).
Save As You Earn
Executive Directors and eligible employees are invited to make regular monthly
contributions to a Sharesave scheme administered by EQ (formally 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 03 Aug 26 Jul 30 Jul 07 Aug 03 Aug 02 Aug
2017 2018 2019 2020 2021 2022
Options granted 453,663 712,944 935,208 1,624,259 256,132 975,549
Fair value at measurement date £1.06 £0.52 £0.54 £0.36 £1.15 £0.66
Share price on date of grant £5.41 £3.77 £3.68 £1.94 £4.14 £2.67
Exercise price £4.20 £3.15 £2.86 £1.70 £3.42 £1.94
Vesting period 3 years 3 years 3 years 3 years 3 years 3 years
Expected dividend yield 5.10% 8.76% 8.96% 5.20% 1.98% 5.63%
Expected volatility 35.00% 35.00% 35.00% 40.00% 45.30% 42.20%
Risk-free interest rate 0.30% 0.85% 0.38% -0.08% 0.14% 1.62%
Valuation model Binomial Binomial Binomial Binomial Binomial Binomial
Contractual life from 01.09.17 01.09.18 01.09.19 01.09.20 01.09.21 01.09.22
Contractual life to 01.03.21 01.03.22 01.03.23 01.03.24 01.03.25 01.03.26
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 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
Granted during the year - - - - - 975,549 975,549 £1.94
Exercised during the year - (8,854) - (5,764) - - (14,618) £2.58
Lapsed during the year - (31,988) (50,525) (210,555) (160,163) (62,992) (516,223) £2.47
Outstanding at 31 October 2022 - - 96,832 907,769 84,131 912,557 2,001,289 £1.94
Exercisable at 31 October 2022 - - 96,832 - - - 96,832
Exercisable at 31 October 2021 - 40,842 - - - - 40,842
£m £m £m £m £m £m Total £m
Charge to income for the current year - - - 0.1 0.1 0.1 0.3
Charge 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 28 Feb 26 Feb 01 Mar 01 Mar 28 Jan 09 Feb
2018 2020 2021 2021 2022 2022 2022
Options granted 188,122 20,956 34,800 22,264 251 230,605 58,848
Fair value at measurement date £4.89 £4.52 £3.28 £3.89 £4.06 £2.76 £2.76
Share price on date of grant £4.89 £4.52 £3.28 £3.42 £2.70 £3.06 £3.27
Exercise price £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Vesting period 3 years 3 years 1 year N/A N/A 3 years 1 year
Expected dividend yield and volatility 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
Valuation model N/A N/A N/A N/A N/A N/A N/A
Contractual life from 28.02.18 28.02.20 26.02.21 01.03.21 02.03.22 28.01.22 09.02.22
Contractual life to 27.02.28 27.02.30 25.02.31 27.02.28 25.02.31 27.01.25 08.02.23
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 Total number of options
Outstanding at 1 November 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
Granted during the year - - - - 251 230,605 58,848 289,704
Exercised during the year - - (24,985) - (251) - - (25,236)
Lapsed during the year - - (9,815) - - - - (9,815)
Outstanding at 31 October 2022 - 2,260 - - - 230,605 58,848 291,713
Exercisable at 31 October 2022 - - - - - - - -
Exercisable at 31 October 2021 - - - - - - - -
£m £m £m £m £m £m £m Total £m
Charge to income for the current year - - - - - 0.4 - 0.4
Charge to income for the prior year - - 0.3 0.1 - - - 0.4
The weighted average exercise price of deferred bonus plan share options was
£nil (2021: £nil).
Total share incentive schemes 2022 2021
Movements in the year Number of options Number of options
Outstanding at beginning of the year 4,804,517 4,984,036
Granted during the year 2,631,126 1,641,388
Exercised during the year (41,372) (195,485)
Lapsed during the year (1,667,895) (1,625,422)
Outstanding at end of the year 5,726,376 4,804,517
Exercisable at end of the year 96,832 42,360
£m £m
Charge to income for share incentive schemes 1.9 1.8
The weighted average share price at the date of exercise of share options
exercised during the year was £2.77 (2021: £3.59). The options outstanding
had a range of exercise prices of £nil to £3.42 (2021: £nil to £3.42) and
a weighted average remaining contractual life of 6.2 years (2021: 6.4 years).
The gain on shares exercised during the year was £0.1m (2021: £0.6m).
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
2022 2022 2022 2021 2021 2021
£m £m £m £m £m £m
Non-current
Trade receivables 9.7 - 9.7 2.1 - 2.1
Due from joint ventures 25.4 (0.1) 25.3 54.3 (11.9) 42.4
35.1 (0.1) 35.0 56.4 (11.9) 44.5
Current
Trade receivables 49.7 (0.3) 49.4 25.2 (0.1) 25.1
Contract assets 25.2 (0.1) 25.1 56.7 (0.3) 56.4
Due from joint ventures 1.8 - 1.8 13.6 - 13.6
Other receivables 38.1 - 38.1 6.0 - 6.0
Prepayments and accrued income 1.9 - 1.9 1.3 - 1.3
116.7 (0.4) 116.3 102.8 (0.4) 102.4
Non-current and current 151.8 (0.5) 151.3 159.2 (12.3) 146.9
Trade receivables and contract assets mainly comprise contractual amounts due
from housing associations, bulk sale purchasers and land sales to other
housebuilders. Other receivables mainly comprise two development agreements
where the Group is entitled to recovery of costs incurred under the agreement.
In the prior year these agreements were presented in inventories and accruals,
with balances of £67.2m and £31.2m respectively. Current trade receivables
of £21.2m have been collected as of 1 January 2023 (2021: £11.6m have been
collected as of 1 January 2022). 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 £0.4m (2021: £19.4m).
Amounts due from joint ventures comprises funding provided on three (2021:
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 £0.2m (2021: £7.4m). 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 £0.1m
(2021: £11.9m) 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. £2.3m
(2021: £1.0m) provision was made during the year, £14.1m (2021: £nil) was
utilised and £nil (2021: £nil) provision was released during the year. The
actual credit loss depends on achieved sales values and actual build costs.
Current trade receivables and contract assets are stated after a loss
allowance of £0.4m (2021: £0.4m) in respect of expected credit losses,
assessed on an estimate of default rates. £nil (2021: £nil) provision was
made during the year, £nil (2021: £nil) was utilised and £nil (2021: £nil)
provision was released during the year.
Movements in total loss allowance for expected credit losses
2022 2021
£m £m
At beginning of the year 12.3 11.3
Charged in the year on joint venture balances (note 14) 2.3 1.0
Utilised in the year on joint venture balances (note 14) (14.1) -
At end of the year 0.5 12.3
Maturity of non-current receivables:
2022 2021
£m £m
Due between one and two years 34.2 5.6
Due between two and five years 0.8 20.7
Due after five years - 18.2
35.0 44.5
19 INVENTORIES
2022 2021
£m £m
Work-in-progress 942.8 965.7
Completed buildings including show homes 30.1 57.7
Part exchange inventories 17.2 14.1
990.1 1,037.5
Included within inventories is a fair value adjustment of £2.0m (2021:
£2.5m) which arose on the acquisition of CN Finance plc 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 £0.5m (2021: £8.8m). Total inventories of £705.3m (2021: £603.5m)
were recognised as cost of sales in the year.
During the year £9.6m additional NRV was charged, mainly on three legacy
developments already held at zero margin. Two of the developments were
completed in the year.
Total inventories are stated after an NRV provision of £12.6m (2021:
£20.7m), which it is currently forecast that over a third will be used in the
next financial year.
Movements in the NRV provision in the current and prior year are shown below:
2022 2021
£m £m
At beginning of the year 20.7 37.1
Pre-exceptional NRV charged in the year 9.6 0.8
Pre-exceptional NRV used in the year (7.2) (5.2)
Exceptional NRV credited in the year (note 4) - (8.0)
Exceptional NRV used in the year (10.5) (4.0)
Total movement in NRV in the year (8.1) (16.4)
At end of the year 12.6 20.7
20 MOVEMENT IN NET CASH
2022 Movement 2021
£m £m £m
Cash and cash equivalents 373.6 22.9 350.7
Bank loans and senior loan notes (97.1) 0.8 (97.9)
Net cash 276.5 23.7 252.8
21 INTEREST-BEARING LOANS AND BORROWINGS
2022 2021
£m £m
Non-current
Senior loan notes 100.0 100.0
Revolving credit and senior loan notes issue costs (2.9) (2.1)
97.1 97.9
There were undrawn amounts of £250.0m (2021: £250.0m) under the revolving
credit facility at the consolidated statement of financial position date. The
Group was undrawn throughout the financial year (2021: undrawn) under the
revolving credit facility. See note 25 for additional disclosures.
22 TRADE AND OTHER PAYABLES
2022 2021
£m £m
Non-current
Land payables on contractual terms 32.9 93.7
Other payables 2.3 3.4
Contract liabilities 0.3 -
Accruals and deferred income 6.3 10.5
41.8 107.6
Current
Land payables on contractual terms 165.8 129.2
Other trade payables 41.1 32.0
Contract liabilities 19.0 25.0
Due to joint ventures 0.1 0.1
Taxes and social security costs 1.8 1.8
Other payables 3.2 7.8
Accruals and deferred income 176.1 253.6
407.1 449.5
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 2022 the difference between the fair value and nominal value of
land payables is £2.4m (2021: £3.5m).
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 Joint ventures Other provisions Total
£m £m £m £m
At 1 November 2020 14.8 - 0.4 15.2
Provided in the year 31.2 - 0.1 31.3
Utilised in the year (3.4) - - (3.4)
At 31 October 2021 42.6 - 0.5 43.1
Provided in the year 102.5 - 0.3 102.8
Imputed interest 1.0 - - 1.0
Utilised in the year (5.3) - - (5.3)
Released in the year - - (0.4) (0.4)
Funding commitment recognised - 1.2 - 1.2
Reclassification - - 0.6 0.6
At 31 October 2022 140.8 1.2 1.0 143.0
At 31 October 2022
Non-current 70.5 - 0.3 70.8
Current 70.3 1.2 0.7 72.2
140.8 1.2 1.0 143.0
At 31 October 2021
Non-current 28.4 - - 28.4
Current 14.2 - 0.5 14.7
42.6 - 0.5 43.1
Combustible materials
Following the fire at Grenfell Tower in 2017, the Government announced a
public inquiry surrounding the circumstances leading up to and surrounding the
fire, including a review of fire-related building regulations, notably those
relating to external walls, and issued a new regulatory framework for building
owners.
On joining the Group in 2019, the new Executive Leadership Team (ELT) quickly
established a dedicated internal team, headed by a Special Projects Director,
to implement the Group's response to fire safety matters. Against a changing
regulatory backdrop, the Group has found that the interpretation of Government
and industry guidance often varies between professional advisors who are
engaged to identify and implement remediation required.
In order to oversee and govern the Group's response to fire safety matters,
the ELT meets regularly, chaired by the Chief Executive with attendance from
the Group Finance Director, Group Operations Director and Special Projects
Director. In 2019 the team conducted a full review into all legacy buildings
it believed may be at risk based on guidance at that time, any relevant
regulations, and considered any notification of claims. Accordingly, the Group
recognised a combustible materials provision. With ongoing regulatory changes,
this provision was subsequently increased in financial years 2020 and 2021 to
reflect the Group's interpretation of the legacy portfolio following those
changes to the Government regulatory framework, along with any new
notifications received if it was considered that they represented an expected
liability.
In addition, as time has passed the Group has also been able to apply the
benefit of 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 risk register considers 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 consolidated full year 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-progress 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.
On 19 April 2022 the Group signed the Government's Building Safety Pledge
which commits the Group to remediate life critical fire safety issues to
PAS9980 standards on buildings over 11 metres in which the Group was involved
going back 30 years. As a result of this the number of buildings in scope for
which the Group has an obligation to remediate significantly increased. The
combustible materials provision reflects the estimated costs to complete the
remediation of life-critical fire safety issues on identified buildings. The
Directors have used a combination of Buildings Safety Fund (BSF) costed
information, other external information and internal assessments as a basis
for the provision.
Accordingly, the Group recorded a cost of sales net combustible materials
charge of £102.5m in the year. This charge comprises £79.0m specifically for
buildings where BSF funding had been applied for, which the Group have now
agreed to cover under the Building Safety Pledge, and £23.5m for movements in
previous cost estimates, extending the liability period to 30 years, build
cost inflation and discounting.
The further charge is in addition to the £18.4m net amount charged in 2019,
£0.6m charged in 2020 and £28.8m charged in 2021.
Forecast build cost inflation over the duration of remediation has been
allowed for within the charge. The charge is stated after a related discount
of £5.1m, which unwinds to the consolidated income statement as finance
expense over the life of the cash expenditure.
The provision of £140.8m represents the Group's best estimate of costs at 31
October 2022. The Group will continue to assess the magnitude and utilisation
of this provision in future reporting periods. The Group recognises that
required remediation works could be subject to further inflationary pressures
and cash outflows (sensitivity disclosures in note 1).
The Group spent £5.3m in the year across several buildings requiring further
investigative costs, including balcony and cladding related works. The Group
expects to have completed any required remediation within a five-year period,
using £70.3m of the remaining provision within one year, and the balance
within one to five years. The timing of the expenditure is based on the
Directors best estimates of the timing of remediating buildings and repaying
the BSF incurred costs. Actual timing may differ due to delays in agreeing
scope of works, obtaining licences, tendering works contracts and the BSF
payment schedule differing to our forecast.
The Group is continuing to review the recoverability of costs incurred from
third parties where it has a contractual right of recourse. In the prior year
£2.4m was recovered from third parties, which was recorded as an exceptional
credit in the consolidated income statement. See note 4 for income statement
disclosure.
Joint ventures
Joint ventures represents the Group's legal or constructive obligation to fund
losses on joint ventures. The loss is a result of the combustible materials
charge as described in note 4.
Other provisions
Other provisions comprise dilapidation provisions on Group offices and
dilapidation provisions on commercial properties where the Group previously
held the head lease. In the year the Group reclassified the brought forward
balance of dilapidations on Group offices which were previously offset against
right of use assets.
24 SHARE CAPITAL
Shares Nominal value Share capital Share premium account
issued
Number Pence £ £
Ordinary shares as at 1 November 2020, 31 October 2021 and 31 October 2022 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 (2021: 342,560,719).
For details of outstanding share options at 31 October 2022 see note 17.
Own shares held
The Group and Company holds shares within the Crest Nicholson Employee Share
Ownership Trust (the Trust) for participants of certain share-based payment
schemes. These are held within retained earnings. During the year 440,000
shares were purchased by the Trust for £1.1m (2021: 400,000 shares were
purchased by the Trust for £1.6m) and the Trust transferred 41,372 (2021:
195,485) 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 2022 was 788,140 (2021:
389,512). These shares are held within the financial statements in equity at a
cost of £2.5m (2021: £1.5m). The market value of these shares at 31 October
2022 was £1.6m (2021: £1.4m).
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 at
the end of this announcement, 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 (2021: £250.0m) under the revolving
credit facility at the consolidated statement of financial position date. The
revolving credit facility carries interest at SONIA plus 1.85% and ends in
2026.
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.
On 12 October 2022 the Group signed an amendment to the revolving credit
facility. This amendment extended the facility to run through to October 2026
and changed the facility into a Sustainability Linked Revolving Credit
Facility.
Under this amended facility the margin applicable can vary by plus or minus
0.05% depending on the Group's progress against four targets. These targets
include:
· Reduction in absolute scope 1 and 2 emissions in line with our
science-based targets
· Increasing the number of our suppliers engaging with the Supply
Chain Sustainability School
· Reduction in carbon emissions associated with the use of our
homes
· Increasing the number of our employees in trainee positions and
on training programmes.
Progress against these targets is measured once per year and the resulting
margin increase/decrease is applied to the facility until the next measurement
date. The first measurement date is on the Group's results for financial year
ending 31 October 2023, due January 2024.
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 £373.6m (2021: £350.7m) 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 October 2026, with £250.0m remaining
available for drawdown under such facilities at 31 October 2022.
Financial assets at fair value through profit and loss, as described in note
15, of £4.6m (2021: £5.3m) 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 contractual
amounts due from housing associations, bulk sale purchasers, land sales to
other housebuilders and a development agreement where the Group is entitled to
recovery of costs incurred under the agreement, and equates to the Group's
exposure to credit risk which is set out in note 18. Amounts due from joint
ventures of £27.1m (2021: £56.0m) is funding provided on three (2021: 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 31 October 2022 is £11.5m (2021: £3.8m) 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 (2021: 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 2022:
2022 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 100.0 116.1 3.5 18.5 23.1 71.0
Financial liabilities carrying interest 29.8 30.1 30.1 - - -
Financial liabilities carrying no interest 395.2 397.8 357.6 37.5 1.1 1.6
At 31 October 2022 525.0 544.0 391.2 56.0 24.2 72.6
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
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 was 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 2022 it is estimated that an
increase of 1.0% in interest rates applying for the full year would decrease
the Group's profit before tax and equity by £nil (2021: £nil). The Group
currently does not have any interest carrying liabilities with floating
interest rates.
The interest rate profile of the financial liabilities of the Group was:
2022 2021
£m £m
Sterling bank borrowings, loan notes and long-term creditors
Financial liabilities carrying interest 129.8 165.0
Financial liabilities carrying no interest 395.2 469.9
525.0 634.9
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 14 months (2021: 24 months).
2022 2021
£m £m
The maturity of the financial liabilities is:
Repayable within one year 385.2 424.8
Repayable between one and two years 52.1 87.7
Repayable between two and five years 72.1 56.2
Repayable after five years 15.6 66.2
525.0 634.9
Fair values
Financial assets
The Group's financial assets comprise cash and cash equivalents, financial
assets at fair value through profit and loss and trade and other receivables.
The carrying value of cash and cash equivalents and trade and other
receivables is a reasonable approximation of fair value which would be
measured under a level 3 hierarchy. At 31 October 2022 financial assets
consisted of sterling cash deposits of £373.6m (2021: £350.7m), both with
solicitors and on current account, £4.6m (2021: £5.3m) of financial assets
at fair value through profit and loss, £88.7m (2021: £33.2m) of trade and
other receivables, and £27.1m (2021: £56.0m) 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:
2022 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
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
Financial assets and liabilities by category
2022 2021
Financial assets £m £m
Sterling cash deposits 373.6 350.7
Trade receivables 59.1 27.2
Amounts due from joint ventures 27.1 56.0
Other receivables 29.6 6.0
Total financial assets at amortised cost 489.4 439.9
Financial assets at fair value through profit and loss 4.6 5.3
Total financial assets 494.0 445.2
2022 2021
Financial liabilities £m £m
Senior loan notes 100.0 100.0
Land payables on contractual terms carrying interest 29.8 65.0
Land payables on contractual terms carrying no interest 168.9 157.9
Amounts due to joint ventures 0.1 0.1
Lease liabilities 3.9 4.6
Other trade payables 41.1 32.0
Other payables 5.5 11.2
Accruals 175.7 264.1
Total financial liabilities at amortised cost 525.0 634.9
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 liabilities 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 financial years 2020 and 2021. 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. This provision has been difficult to reliably estimate
due to the changing nature of Government regulation in this area, and where
the Group is no longer the freehold owner and has no visibility over
remediation requirements. As such the Group has historically not disclosed a
range of possible future costs. As a consequence of signing the Government's
Building Safety Pledge on 19 April 2022, the Group has now become responsible
for the remediation of a larger number of buildings, constructed over a longer
historic time period. Accordingly, whilst the Group believes that most
significant liabilities will have been identified through the process of
building owners assessing buildings and applying for BSF funding, contingent
liabilities exist where additional buildings have not yet been identified
which require remediation. Due to the enduring challenges of developing a
reliable estimate of these possible costs, the Group continues to not disclose
an expected range.
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 these
consolidated financial statements for such items.
27 NET CASH AND LAND CREDITORS
2022 2021
£m £m
Cash and cash equivalents 373.6 350.7
Non-current interest-bearing loans and borrowings (97.1) (97.9)
Net cash 276.5 252.8
Land payables on contractual terms carrying interest (29.8) (65.0)
Land payables on contractual terms carrying no interest (168.9) (157.9)
Net cash and land creditors 77.8 29.9
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 on pages 100-122 of our
2022 Annual Integrated Report to be published in February 2023. There were no
other transactions between the Group and key management personnel in the year.
Transactions between the Group and the Crest Nicholson Group Pension and Life
Assurance Scheme is given in note 17.
The Company's Directors and Non-Executive Directors have associations other
than with the Company. From time to time the Group may trade with
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/balances with its joint ventures in
the year/at year end:
2022 2021
£m £m
Interest income on joint venture funding 2.1 2.8
Project management fees received 2.0 1.5
Amounts due from joint ventures, net of expected credit losses 27.1 56.0
Amounts due to joint ventures 0.1 0.1
Funding to joint ventures (7.5) (13.0)
Repayment of funding from joint ventures 18.8 11.5
Dividends received from joint ventures 2.4 -
29 GROUP UNDERTAKINGS
In accordance with s409 Companies Act 2006, the following is a list of all the
Group's undertakings at 31 October 2022.
Subsidiary undertakings
At 31 October 2022 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(1) Active / dormant Year end date Voting rights and shareholding (direct or indirect)
Bath Riverside Estate Management Company Limited 2 Dormant 31 October 100%
Bath Riverside Liberty Management Company Limited 2 Dormant 31 October 100%
Castle Bidco Home Loans Limited 1 Active 31 October 100%
Brightwells Residential 1 Company Limited 1 Dormant 31 October 100%
Bristol Parkway North Limited 1 Dormant 31 October 100%
Building 7 Harbourside Management Company Limited 2 Active 31 December 58.33%
Buildings 3A, 3B & 4 Harbourside Management Company Limited 2 Dormant 31 December 83.33%
CN Finance plc(2) 1 Active 31 October 100%
Clevedon Developments Limited 1 Dormant 31 October 100%
Clevedon Investment Limited 1 Active 31 October 100%
CN Nominees Limited 1 Dormant 31 October 100%
CN Properties Limited 1 Dormant 31 October 100%
CN Secretarial Limited 1 Dormant 31 October 100%
CN Shelf 1 LLP 1 Dormant 30 June 100%
CN Shelf 2 LLP 1 Dormant 30 June 100%
CN Shelf 3 LLP 1 Dormant 30 June 100%
Crest (Claybury) Limited 1 Dormant 31 October 100%
Crest Developments Limited 1 Dormant 31 October 100%
Crest Estates Limited 1 Dormant 31 October 100%
Crest Homes (Eastern) Limited 1 Dormant 31 October 100%
Crest Homes (Midlands) Limited 1 Dormant 31 October 100%
Crest Homes (Nominees) Limited 1 Dormant 31 October 100%
Crest Homes (Nominees No. 2) Limited 1 Active 31 October 100%
Crest Homes (Northern) Limited 1 Dormant 31 October 100%
Crest Homes (South East) Limited 1 Dormant 31 October 100%
Crest Homes (South West) Limited 1 Dormant 31 October 100%
Crest Homes (South) Limited 1 Dormant 31 October 100%
Crest Homes (Wessex) Limited 1 Dormant 31 October 100%
Crest Homes (Westerham) Limited 1 Dormant 31 October 100%
Crest Homes Limited 1 Dormant 31 October 100%
Crest Manhattan Limited 1 Dormant 31 October 100%
Crest Nicholson (Bath) Holdings Limited 1 Dormant 31 October 100%
Crest Nicholson (Chiltern) Limited 1 Dormant 31 October 100%
Crest Nicholson (Eastern) Limited 1 Dormant 31 October 100%
Crest Nicholson (Epsom) Limited 1 Dormant 31 October 100%
Crest Nicholson (Henley-on-Thames) Limited 1 Active 31 October 100%
Crest Nicholson (Highlands Farm) Limited 1 Dormant 31 October 100%
Crest Nicholson (Londinium) Limited 1 Dormant 31 October 100%
Crest Nicholson (Midlands) Limited 1 Dormant 31 October 100%
Crest Nicholson (Peckham) Limited 1 Active 31 October 100%
Crest Nicholson (South East) Limited 1 Dormant 31 October 100%
Crest Nicholson (South West) Limited 1 Dormant 31 October 100%
Crest Nicholson (South) Limited 1 Dormant 31 October 100%
Crest Nicholson (Stotfold) Limited 1 Active 31 October 100%
(1) 1: Crest House, Pyrcroft Road, Chertsey, Surrey KT16 9GN.
2: Unit 2 & 3 Beech Court, Wokingham Road, Hurst, Reading RG10 0RU.
(2) CN Finance plc (formerly Castle Bidco plc) is the only direct holding of
Crest Nicholson Holdings plc.
Entity name Registered office(1) Active / dormant Year end date Voting rights and shareholding (direct or indirect)
Crest Nicholson Developments (Chertsey) Limited 1 Active 31 October 100%
Crest Nicholson Operations Limited 1 Active 31 October 100%
Crest Nicholson Pension Trustee Limited 1 Dormant 31 January 100%
Crest Nicholson plc 1 Active 31 October 100%
Crest Nicholson Projects Limited 1 Dormant 31 October 100%
Crest Nicholson Properties Limited 1 Dormant 31 October 100%
Crest Nicholson Regeneration Limited 1 Dormant 31 October 100%
Crest Nicholson Residential (London) Limited 1 Dormant 31 October 100%
Crest Nicholson Residential (Midlands) Limited 1 Dormant 31 October 100%
Crest Nicholson Residential (South East) Limited 1 Dormant 31 October 100%
Crest Nicholson Residential (South) Limited 1 Dormant 31 October 100%
Crest Nicholson Residential Limited 1 Dormant 31 October 100%
Crest Partnership Homes Limited 1 Dormant 31 October 100%
Crest Strategic Projects Limited 1 Dormant 31 October 100%
Eastern Perspective Management Company Limited 1 Dormant 31 October 100%
Essex Brewery (Walthamstow) LLP 1 Dormant 31 October 100%
Harbourside Leisure Management Company Limited 1 Active 30 December 71.43%
Landscape Estates Limited 1 Dormant 31 October 100%
Mertonplace Limited 1 Dormant 31 October 100%
Nicholson Estates (Century House) Limited 1 Dormant 31 October 100%
Park Central Management (Central Plaza) Limited 1 Dormant 31 October 100%
Ellis Mews (Park Central) Management Limited 1 Active 31 October 100%
Park Central Management (Zone 11) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 12) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 1A North) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 1A South) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 1B) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 3/1) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 3/2) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 3/3) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 3/4) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 4/41 & 42) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 4/43/44) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 5/53) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 5/54) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 5/55) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 6/61-64) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 7/9) Limited 1 Dormant 31 October 100%
Park Central Management (Zone 8) Limited 1 Active 31 October 100%
Park Central Management (Zone 9/91) Limited 1 Dormant 31 January 100%
Park West Management Services Limited 1 Active 31 March 62.00%
(1) 1: Crest House, Pyrcroft Road, Chertsey, Surrey KT16 9GN.
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 2022.
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 (Bath) Holdings Limited (05235961)
Crest Nicholson Developments (Chertsey) Limited (04707982)
Joint venture undertakings
At 31 October 2022 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(1) Active / dormant Year end date Voting rights and shareholding (direct or indirect)
Material joint ventures
Crest A2D (Walton Court) LLP 1 Active 31 March 50%
Crest Sovereign (Brooklands) LLP 3 Active 31 October 50%
Elmsbrook (Crest A2D) LLP 4 Active 31 March 50%
Other joint ventures not material to the Group
Crest/Vistry (Epsom) LLP 1 Active 31 October 50%
Crest Nicholson Bioregional Quintain LLP 1 Active 31 October 50%
English Land Banking Company Limited 1 Active 31 October 50%
Haydon Development Company Limited 2 Active 30 April 21.36%
North Swindon Development Company Limited 2 Active 31 December 32.64%
(1) 1: Crest House, Pyrcroft Road, Chertsey, Surrey KT16
9GN.
2: 6 Drakes Meadow, Penny Lane, Swindon, Wiltshire SN3 3LL.
3: Sovereign House, Basing View, Basingstoke RG21 4FA.
4: 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 2022. 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 (the
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 Trust falls within the scope of IFRS
10: Consolidated Financial 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 2022
2022 2021
Note £m £m
ASSETS
Non-current assets
Investments 4 2.6 1.6
Current assets
Trade and other receivables 5 222.4 251.5
TOTAL ASSETS 225.0 253.1
NET ASSETS 225.0 253.1
SHAREHOLDERS' EQUITY
Share capital 6 12.8 12.8
Share premium account 6 74.2 74.2
Retained earnings:
At 1 November 166.1 165.7
Profit for the year 10.5 11.3
Other changes in retained earnings (38.6) (10.9)
At 31 October 138.0 166.1
TOTAL SHAREHOLDERS' EQUITY 225.0 253.1
The Company recorded a profit for the financial year of £10.5m (2021:
£11.3m).
The notes below form part of these financial statements.
These financial statements were approved by the Board of Directors on 17
January 2023.
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 2022
Share capital Share premium account Retained earnings Total equity
Note £m £m £m £m
Balance at 1 November 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 4 - - (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
Profit for the financial year and total comprehensive income - - 10.5 10.5
Transactions with shareholders
Dividends paid - - (38.5) (38.5)
Exercise of share options through employee benefit trust 4 - - (0.1) (0.1)
Balance at 31 October 2022 12.8 74.2 138.0 225.0
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), unless otherwise stated. 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 s408 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, as a result of the performance of the
underlying group. 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 2021 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 £27,500
(2021: £25,000) 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 100-122 of our 2022 Annual Integrated
Report to be published in February 2023.
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
2022 2021
£m £m
Investments in shares of subsidiary undertaking at cost at beginning of the 1.6 0.6
year
Additions 1.1 1.6
Disposals (0.1) (0.6)
Investments in shares of subsidiary undertaking at cost at end of the year 2.6 1.6
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
2022 2021
£m £m
Amounts due from Group undertakings 222.4 251.5
Amounts due from Group undertakings are unsecured, repayable on demand and
carry an interest rate of 5.0% (2021: 5.0%).
Amounts due from Group undertakings are stated after an allowance of £nil has
been made (2021: £nil) in respect of expected credit losses. £nil (2021:
£nil) provision was made during the year, £nil (2021: £nil) was utilised,
and £nil (2021: £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 2022 is given in note 29
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 1-65 of our 2022 Annual Integrated Report to be
published in February 2023, 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:
2022 2021
£m £m
Revenue 913.6 786.6
Group's share of joint venture revenue (note 14) 42.2 27.0
Sales 955.8 813.6
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 22.4% (2021: increased to
17.2%).
2022 2021
Adjusted operating profit £m 140.9 114.6
Average of opening and closing capital employed £m 627.7 665.9
ROCE % 22.4 17.2
Capital employed 2022 2021 2020
Equity shareholders' funds £m 883.1 901.6 825.3
Net cash (note 20) £m (276.5) (252.8) (142.2)
Closing capital employed £m 606.6 648.8 683.1
Land creditors as a percentage of net assets
The Group uses land creditors as a percentage of net assets as a core
management measure to ensure that the Group is maintaining a robust financial
position when entering into future land commitments. Land creditors as a
percentage of net assets is calculated as land creditors divided by net
assets, as presented below. Land creditors as a percentage of net assets has
reduced in the year to 22.5% (2021: reduced to 24.7%).
2022 2021
Land creditors £m 198.7 222.9
Net assets £m 883.1 901.6
Land creditors as a percentage of net assets % 22.5 24.7
Net cash
Net cash is cash and cash-equivalents plus non-current and current
interest-bearing loans and borrowings. Net cash Illustrates the Group's
overall liquidity position and general financial resilience. Net cash has
improved in the year to £276.5m from £252.8m in 2021.
2022 2021
£m £m
Cash and cash equivalents 373.6 350.7
Non-current interest-bearing loans and borrowings (97.1) (97.9)
Net cash 276.5 252.8
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 business performance. EBIT margin for share award
performance conditions is equivalent to operating profit margin.
Year ended 31 October 2022 Statutory Exceptional items Adjusted
Gross profit £m 91.8 102.5 194.3
Gross profit margin % 10.0 11.3 21.3
Operating profit £m 38.4 102.5 140.9
Operating profit margin % 4.2 11.2 15.4
Net finance expense £m (8.1) 1.0 (7.1)
Share of post-tax profit/(loss) of joint ventures using the equity method £m 2.5 1.5 4.0
Profit before tax £m 32.8 105.0 137.8
Income tax expense £m (6.4) (22.4) (28.8)
Profit after tax £m 26.4 82.6 109.0
Basic earnings per share Pence 10.3 32.2 42.5
Diluted earnings per share Pence 10.2 32.1 42.3
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
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
CREST NICHOLSON HOLDINGS PLC
HISTORICAL SUMMARY (UNAUDITED)
For the year ended/as at 31 October 2022
Note 2022(1) 2021(1) 2020(2) 2019(3) 2018(4)
Consolidated income statement
Revenue £m 913.6 786.6 677.9 1,086.4 1,121.0
Gross profit £m 194.3 166.7 107.7 201.9 246.9
Gross profit margin % 21.3 21.2 15.9 18.6 22.0
Administrative expenses £m (51.1) (51.1) (50.3) (65.5) (64.9)
Net impairment losses on financial assets £m (2.3) (1.0) (0.3) (3.4) -
Operating profit before joint ventures £m 140.9 114.6 57.1 133.0 182.0
Operating profit before joint ventures margin % 15.4 14.6 8.4 12.2 16.2
Share of post-tax profit/(loss) of joint ventures £m 4.0 1.7 (0.5) (0.9) (1.3)
Operating profit after joint ventures £m 144.9 116.3 56.6 132.1 180.7
Operating profit after joint ventures margin % 15.9 14.8 8.3 12.2 16.1
Net finance expense £m (7.1) (9.1) (10.7) (11.0) (12.0)
Profit before taxation £m 137.8 107.2 45.9 121.1 168.7
Income tax expense £m (28.8) (19.9) (8.5) (23.7) (32.1)
Profit after taxation attributable to equity shareholders £m 109.0 87.3 37.4 97.4 136.6
Basic earnings per share Pence 42.5 34.0 14.6 38.0 53.3
Consolidated statement of financial position
Equity shareholders' funds 1 £m 883.1 901.6 825.3 854.4 872.7
Net cash 2 £m (276.5) (252.8) (142.2) (37.2) (14.1)
Capital employed closing £m 606.6 648.8 683.1 817.2 858.6
Gearing 3 % (45.6) (39.0) (20.8) (4.6) (1.6)
Land creditors £m 198.7 222.9 205.7 216.5 209.7
Net (cash)/debt and land creditors 4 £m (77.8) (29.9) 63.5 179.3 195.6
Return on average capital employed 5 % 22.4 17.2 7.6 15.9 22.2
Return on average equity 6 % 12.2 10.1 4.5 11.3 16.6
Housing
Home completions 7 Units 2,734 2,407 2,247 2,912 3,048
Average selling price - open market 8 £000 388 359 336 388 396
Short-term land 9 Units 14,250 14,677 14,991 16,960 19,507
Strategic land 10 Units 22,450 22,308 22,724 20,169 16,837
Total short-term and strategic land Units 36,700 36,985 37,715 37,129 36,344
Land pipeline gross development value 11 £m 12,111 11,834 11,360 12,137 12,166
(1) Consolidated income statement statistics, return on average capital
employed and return on average equity are presented before exceptional items
as presented in note 4 of the 2022 consolidated financial statements.
(2) Consolidated income statement statistics, return on average capital
employed and return on average equity are presented before exceptional items
relating to combustible materials provision £0.6m, inventory impairment
£43.7m, restructuring costs £7.5m and impairment losses on financial assets
£7.6m. 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.
(3) 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.
(4) 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.
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 2022 and 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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. END FR SFLEFMEDSESFRecent news on Crest Nicholson Holdings
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