Crest Nicholson : Annual Integrated Report and Notice of AGM

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Crest Nicholson Holdings PLC - CRST Annual Integrated Report and Notice of AGM Released 11:16 17-Feb-2020

RNS Number : 2142D

Crest Nicholson Holdings PLC

17 February 2020

Crest Nicholson Holdings plc (the 'Company')

2019 Annual Integrated Report and Notice of Annual General Meeting

The Company released its preliminary results announcement for the year ended 31 October 2019 on 28 January 2020 and today published its 2019 Annual Integrated Report for the same period, and the Notice of the 2020 Annual General Meeting, which is to be held on 24 March 2020.

In accordance with Listing Rule 9.6.1, these documents will shortly be available for inspection at the National Storage Mechanism, which is located athttp://www.morningstar.co.uk/uk/NSM. Hard copy versions have been posted to shareholders who have elected to receive them in paper form.

The Notice of Annual General Meeting and Annual Integrated Report are also available to view or download in pdf format from the Company's website atwww.crestnicholson.com/investor-relations/agm.

The Company's financial statements and extracts of the Strategic Report were included in the Company's preliminary results announcement. That information, together with the Appendix to this announcement, which contains additional information that has been extracted from the Annual Integrated Report for the year ended 31 October 2019, constitute the material required to be communicated in unedited full text for the purposes of compliance with Disclosure Guidance and Transparency Rule 6.3.5. Page numbers and cross references in the extracted information refer to page numbers and cross references in the Annual Integrated Report.

For further information, please contact:

Kevin Maguire

Company Secretary

Crest Nicholson Holdings plc

[phone]

17 February 2020

Appendix

Principal Risk	Impact	Key Mitigating Actions
The macro-economic environment The ongoing challenging macro-economic environment including risks from: uncertainty following the UK's vote to leave the EU; general economic slowdown; affordability of homes; climate change; and wider global growth issues.	Pressure on sales volumes and prices from: - Consumer confidence and affordability: • Ongoing economic uncertainty • Weak real wage growth and reduced disposable income • Higher taxes - Business uncertainty due to policy changes - Inflation due to foreign exchange - Business becomes over-dependent on Help to Buy and other Government-backed ownership schemes - Increased demand for social housing - Increased units held as unreserved stock.	Monitoring impact of Brexit discussions and potential outcomes. Updated business strategy focused on: - Reducing ongoing sales related and overhead costs - Further development of schemes of differing tenure type - A gradual repositioning of our average selling price (ASP) and moving to lower priced regions.
Safety, health and environment A significant health and safety event resulting in a fatality, serious injury or a dangerous situation. Significant environmental damage could be caused by operations on site or in our offices (for example, water contamination from pollution). Lack of recognition of the importance of the well-being of employees.	- Immediate personal injury suffered or damage to property and the environment - Reputational damage and our ability to secure public contracts - Prosecution, leading to imprisonment, significant fines or the loss of a directorship - Remediation and/or legal costs - Production delays and our ability to achieve financial forecasts and targets - Poor employee well-being impacting on their productivity, increased employee turnover and the associated costs.	- Strengthening the safety leadership culture and alignment of safety and operational performance - Focus on strengthening management systems with increased authority for SHE advisors to undertake incident investigations and implement follow up actions - Appointment of an independent auditor to conduct safety reviews as appropriate and without warning, while maintaining inspections from the NHBC - Use of Construction Environment Risk Assessments and Environmental Management Plans - Use of external specialist consultants and/or contractors where specific health and safety requirements demand -Development of well-being roadshows for employees and implementing flexible working arrangements to enable employees to meet both their professional and personal needs.
Business strategy and change management The Board adopting the wrong business strategy. Failure to embed and retain the new Executive Leadership Team into the organisation to effectively deliver the revised strategy. The risk of failure to effectively implement change programmes and cost control mechanisms that are essential for delivery of the strategy. Failure to communicate the benefits of the strategy to major investors and senior management.	- Failure to meet anticipated returns, lack of confidence from investors and fall in share demand - Change programmes managed ineffectively leading to ineffective operational performance and unexpected costs -Failing to seek buy in from senior management and employees and increased employee turnover.	-The progress against strategic programmes is regularly reviewed by the Board -Major investors have been briefed on the business strategy and a Head of Investor Relations has been appointed to strengthen engagement -The Executive Leadership Team is focused on standardised Group reporting to easily identify negative performance -The Chief Executive regularly updates and engages employees, in person, on strategic progress and actively seeks feedback from them
Access to site labour and materials Rising production levels across the industry put pressure on our materials supply chain. Industry failing to attract the next generation of talent into skilled trade professions coupled with impact of reduction in availability to the EU labour market. Increased use of more modern methods of construction could result in a labour market unwilling and unable to meet the skills and knowledge required and a material supply chain lacking the scope and capacity. Increasing occurrences of severe weather could result in an impact to the supply chain.	An inefficient, unstable and stretched labour and materials supply chain could impact business performance and shareholder confidence through: - Lower levels of production output -More challenging forecasting for commercial and procurement teams -Build cost inflation.	-Encouraging longer-term relationships with our supply chain through Group Trading Agreements and five-year sub-contractor Framework Agreements. These agreements also seek to mitigate price increases -Maintaining broad supply chain options to spread risk and meet contingency requirements -Engaging in ongoing dialogue with major suppliers to understand critical supply chain risks -Trialling off-site manufacturing and standardisation in our operations and monitoring positive and negative impacts on our supply chain management.
Demand for housing Heavily influenced by macro- economic factors as outlined in the first risk on page 51. Lack of suitable land availability and failure to develop suitable homes for the required demand. Changes to regulations and taxes, for example Stamp Duty Land Tax (SDLT), taxes on additional home purchases and the impact of government schemes like Help to Buy.	In addition to decreased sales volumes that would occur from a drop in housing demand, the business could also see: - An increasing number of units held as unreserved stock and part-exchange stock with potential cash loss on final sales - An over-reliance on Help to Buy and other government-backed ownership schemes to boost sales volumes and rates.	- Regular sales forecasts and cost reviews to manage potential impact on sales volumes -Strategic purchase of sites, continued development of shared ownership models and engagement with a variety of incentive schemes -Political and industry lobbying.
Customer service, quality and product safety Customer service and/or build quality falls below our required standards. Unforeseen product safety or quality issues, or latent defects emerge as a result of new construction methods. Our ability to respond to new building regulations and new technologies.	A significant drop in our customer service standard, quality or product safety would impact our reputation as a quality housebuilder with a potential knock-on impact on our sales rates and volumes. In addition, there may be: - Loss of staff morale as pride in the job suffers and a lack of focus on other strategic business objectives - Impact on margins due to increased costs from remediation for both immediate issues and site legacy issues.	-The updated strategy focuses on strengthening quality of build, becoming a five-star rated house builder and maintaining our excellence in placemaking -Customer service and quality is an Executive remuneration measure -Quality inspections and build stage inspections to monitor adherence to our quality standards.
Build cost management Build cost inflation and unforeseen cost increases driven by demands in the supply chain and failure to implement core cost control systems. Lack of awareness and understanding of external factors that may impact build costs including complex planning permissions and emerging sustainability and environmental regulations.	-Build cost inflation absorbs or exceeds benefits from sales price uplift - Investor disappointment with margin progression as margins are suppressed -Inflationary environment adds to delivery uncertainty and long lead-in times for materials as supply chain chases best price opportunities -Pressure to contain costs results in poor quality developments and/or product.	-Investigate alternative sources of supply and/ or alternative production methods. Benchmark against existing sites to ensure rates remain competitive -Ongoing communication with supply chain to mitigate price increase where possible -Build relationships and seek to leverage volume, certainty and prompt payment with sub-contractors and suppliers.
Information security and business continuity Cyber Security risks such as data breaches and hacking leading to the loss of operational systems, market-sensitive, competitive information or other critical data. Risk of non-compliance with new GDPR requirements. Component failure of our IT systems.	- Financial penalties and sanctions, reputational impact -Loss of personal and/ or business information (including share-price sensitive and business critical information) -Ransom demands and phishing attacks -Outage of internet services and IT leading to operational disruptions.	-We employ network security measures and intrusion detection monitoring, including virus protection on all computers and servers, and annual security-breach tests -This is backed by: • Staff training on data protection and internet security • Data classification,retention policies and toolsets with appropriate and responsive procedures embedded to respond to GDPR • Disaster Recovery and Business Continuity Plans established and tested annually.
Attracting and retaining employees Increasing skills gap in the industry at all levels. Difficulty recruiting the right people for vacant positions. Staff turnover and inducting and embedding new staff and the cost of wages increase as a result of inflated offers in the market. Longer-term succession affected. Recognition of the importance to attract diversity into the Group to enhance skill set and dynamics of thought.	- Inefficiencies, productivity loss, delays to business operations and increasing costs - Overuse or reliance on consultants and the supply chain - Pressurised workloads due to under-resourced teams - Threat of Group-think and lack of challenge across the organisation.	-Through our HR team, monitor pay structures and market trends to ensure we remain competitive -Consulting with employees regularly e.g. through the Employee Engagement Survey -Programmes of work to develop robust succession plans and improve diversity across the business -Increase in annual leave allowance in line with our industry peers and introduction of flexible working arrangements to support employees' personal arrangements throughout life changes - Providing quality training and professional development opportunities through our Apprenticeship Scheme and Graduate Programme - Reviewing our recruitment and induction of site managers.
Solvency and liquidity Cash generation for the Group is central to our new business strategy, and our cash headroom could be affected by economic pressures that result in delayed receipts in the near term and potentially lower sales in the medium term. Commitments to significant land and build obligations that are made ahead of revenue certainty.	Pressure on margins and decreasing working capital leading to: - Business disruptions, delays in delivering contracts with third parties and loss of credibility with shareholders, lenders, suppliers, customers and partners - Inability to fund dividends, an adverse impact on share price and stakeholder dissatisfaction.	- We set borrowing facility limits for our divisions and we apply bonus penalties to breaches - We scrutinise the cash terms of deals and any proposed sites - Private Rented Sector (PRS) and bulk sales offer us the potential for early cash generation and we have the ability to use promissory notes to help fund high-value purchases - Control strategic land with ongoing reviews of development strategies and forecast assumptions, with all major land and build spend reviewed and approved at key points.
Laws, policies and regulations Future potential regulatory changes due to Brexit and fire safety increase uncertainty within the business and impact our ability to make medium and longer term decisions. Potential for inappropriate business practices, fraudulent activity relating to existing laws, for example modern slavery. The National Planning Policy Framework continues to embed with lack of clarity in an environment where local authorities and public sector resources are constrained. Failure to effectively implement new environmental regulations including The Future Homes Standard and net biodiversity gain. Failure to effectively implement the guidance notes issued by the Government in respect of combustible materials and fire safety for residential dwellings.	Where solutions remain uncertain and there is a lack of clarity on forthcoming and recently implemented laws and regulations, productivity may be lost. This could also lead to: -Uncertainty around design solutions, delays in obtaining consents -Programmes and commencements on site disrupted -Increased costs due to excessive planning conditions (CIL and s106), regulatory requirements, increasing environmental and other taxes -Non-compliance leading to reputational damage, fines, costs and delays.	- We lobby the Government directly and through the Home Builders Federation (HBF) and build political relationships in key local authority areas - Supply Chain Code of Conduct is in place to ensure adherence to existing requirements - Regularly review prospects of the Strategic Land Portfolio, with processes and appraisals in place to minimise disruption - Clear policies, guidance and training for staff on modern slavery, bribery and corruption, backed up by formal whistleblowing procedures and anti-money laundering processes - Continuing to assess and implement the latest interpretations of fire safety alongside carefully reviewing any potential liabilities.
Supply of permissioned and viable land An inadequate supply of suitable land. Inability to convert conditional land purchases and strategic land into timely viable planning permissions. Slower conversions of planning permissions due to Local Planning Authority capacity.	- Portfolio depletion - Operational start dates delayed - Fewer backbone and longer-term sites to replenish the portfolio at good margins - Slower conversion of strategic land into consents.	- Maintain good relationships with agents and landowners and work with the Government and the HBF to ensure there is a policy base to deliver an adequate supply of permissioned and viable land - Targeted approach to land acquisitions through our dedicated strategic land division - Maintain sufficient skills and experience within the organisation to negotiate timely and viable consents.

Statement of directors' responsibilities in respect of the financial statements

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

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

- select suitable accounting policies and then apply them consistently;

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

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

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

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

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

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

Each of the Directors, whose names and functions are listed on pages 60 to 61 confirm that, to the best of their knowledge:

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

- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

- the Directors' Report 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 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 and Company's auditors are aware of that information.

Having assessed the principal risks and the other matters discussed in connection with the Viability Statement, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

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Annual Integrated Report and Notice of AGM - RNS