Shaping Communities Reshaping Our Business
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SHAPING COMMUNITIES RESHAPING OUR BUSINESS Annual Integrated Report 2019 We aim to create quality homes for our customers where people and communities can thrive. Changing customer needs and the requirement for affordable and sustainable homes are reshaping our business. Highlights1 Contents Strategic Report 2 Headlines from the year £121.1m 38.0p 3 Chairman’s introduction 4 We are Crest Nicholson Adjusted profit Adjusted basic earnings 6 Our business model 2 before tax per share3 8 Chairman’s statement 10 Chief Executive’s review 2018 £168.7m 2018 53.3p 12 An updated strategy 18 Case studies 28 Market overview 30 Stakeholder relationships 32 Measuring our performance £102.7m 32.1p 34 Financial review 38 Sustainability & Social Value Profit before tax Basic earnings per share 49 Our approach to risk management 2018 £168.7m 2018 53.3p Governance and Directors’ Report 56 Governance overview 58 Chairman’s introduction 63 Corporate Governance Report 71 Nomination Committee Report 75 Audit and Risk Committee Report Approval 81 Directors’ Remuneration Report The Strategic Report for the financial year ended 31 October 102 Compliance and other disclosures 104 Greenhouse Gas Emissions Report 2019 as presented on pages 1 to 55 was approved by the Board of Directors on 28 January 2020 and signed on its behalf by: Financial Statements 106 Statement of Directors’ responsibilities 107 Independent Auditors’ Report Kevin Maguire 113 Consolidated income statement 113 Consolidated statement Company Secretary of comprehensive income 114 Consolidated statement of changes in equity 115 Consolidated statement of financial position 116 Consolidated cash flow statement 117 Notes to the consolidated financial statements 156 Company statement of 1 Comparator figures have been restated to reflect the adoption of IFRS 15 ‘Revenue from Contracts with Customers’. See note 29 for the impact of this change. financial position 157 Company statement of 2 Adjusted profit before tax is an alternative performance measure consisting of statutory profit before tax adjusted for the exceptional item relating to the combustible materials changes in equity provision. See page 123 for further details. 158 Notes to the Company 3 Adjusted basic earnings per share is an alternative performance measure consisting of financial statements statutory basic earnings per share adjusted for the impact of the exceptional item relating 161 Historical summary (unaudited) to the combustible materials provision. See page 123 for further details. 162 Group Directory STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 1 Finberry, Kent 2 STRATEGIC REPORT HEADLINES FROM THE YEAR Against a challenging backdrop in 2019 we are fully committed to improving our performance Highlights Financial highlights Recruitment of a new Executive £1,094.9m Leadership Team and Chairman Sales1 2018 £1,122.0m Challenging market backdrop £1,086.4m Launch of an updated strategy Revenue 2018 £1,121.0m Significant improvement to customer service and satisfaction ratings 33.0p Dividend per share Read more on 2018 33.0p pages 10–17 New Values Environmental highlight – Work as One Crest 3% – Committed to success Reduction in construction waste volume (yd3/1,000 sq ft) since last year – Considered decision making – Investing in our people Social highlights – A positive legacy for our customers and communities. 372 Annual Injury Incidence Rate Read more on page 45 2018 342 £1.3m Investment in training 2018 £1.5m 1 Sales is an alternative performance measure consisting of statutory revenue as per the consolidated income statement and the Group’s share of sales revenue earned by joint ventures. See page 36 for further details. CREST NICHOLSON | ANNUAL INTEGRATED REPORT 2019 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 3 CHAIRMAN’S INTRODUCTION It is a privilege to welcome you to my first report as Chairman of the Crest Nicholson Board I joined the Board in September following The macro-economic environment has a year of change and challenge for the been challenging for us. Brexit-related Group. The Board had to make some uncertainty has weighed heavily on tough decisions during the year and as our customers’ minds and we have a result we reached the end of the year had to navigate our way through with a new Executive Leadership Team that while the new leadership team and Chairman in place. conducted its review and developed its recommendations. The new team has acted quickly and the Board welcomed their updated strategy I would like to thank every Crest proposals in November. We are confident Nicholson employee for their hard that we have a talented and highly work and commitment during the past motivated leadership team who have year. I am confident that we can look the necessary skills and capabilities to forward to a brighter future in 2020 as restore Crest Nicholson as one of the we deliver improved financial performance UK’s leading house builders. and create value for customers and shareholders. Significant change, especially involving senior personnel who have been with an organisation for a long time, can Iain Ferguson CBE be unsettling to any business. We have also experienced change outside of Chairman our control. CREST NICHOLSON | ANNUAL INTEGRATED REPORT 2019 4 STRATEGIC REPORT WE ARE CREST NICHOLSON Our mission is to improve the quality of life for individuals and communities, both now and in the future, by providing attractive homes, workplaces, retail and leisure spaces. Most importantly, we place our customers at the heart of everything we do. Our operations Our regional focus Our divisional structure enables us to develop local insight and relationships. Our updated strategy is focused on blending this regional experience with a more disciplined approach to design and specification and consistent execution across the Group. Our updated strategy Following the appointment of a new 1 Tadpole Garden Village, p19 During FY2019 our strategy was focused Executive Leadership Team during Wiltshire on three priorities: FY2019 a detailed strategy review was conducted. The updated strategy for – Prioritising cash flow and dividends FY2020 and beyond builds on many by increasing partnerships and of our existing strengths and as such more forward sales to Registered we consider that our business model Providers (RPs) and the Private remains appropriate to support Rented Sector (PRS); its delivery. We have also reviewed – Maximising value in the land our KPIs and consider these to portfolio; and remain relevant but have taken the opportunity to replace our Strategic – Driving operational efficiencies Land metric for a Net Cash measure. especially through investment in A greater focus on cash generation off-site construction. carries a greater importance to the majority of our stakeholders than 66% Our business model reflects how our the longer-term and less certain business is structured and managed Of Tadpole Garden Village, value of Strategic Land. to support the delivery of our strategy. Wiltshire is dedicated to open Our KPIs illustrate how we measure Our updated strategy is outlined in detail green space our success in delivering against our in our Chief Executive’s review on pages strategic priorities. 10 to 17. We will continue to review the impact of our updated strategy on both our business model and KPIs in our next Annual Integrated Report. CREST NICHOLSON | ANNUAL INTEGRATED REPORT 2019 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 5 3 Midlands Eastern 4 Chiltern 1 5 2 South West South Developments 2 Longcross, p21 4 Morton Park, p25 Surrey Buckinghamshire In 2019, Crest Nicholson retained its place in the FTSE4Good Index, scoring particularly highly for Corporate Governance, Anti-Corruption, Climate Change and Labour Standards. 3 St. Laurence View, p23 5 Waterman’s Reach at p27 Shropshire Arborfield Green, Berkshire CREST NICHOLSON | ANNUAL INTEGRATED REPORT 2019 6 STRATEGIC REPORT OUR BUSINESS MODEL How we create value for our stakeholders Our resources and relationships What we do to create value Our people We design and deliver sustainable homes Having experienced, and mixed-use communities, from small dedicated and motivated employees enables us housing-led residential developments to deliver our vision. to larger urban regeneration schemes Natural and manufactured and Garden Villages. resources We build homes that are high quality and energy efficient and Five regional house building divisions in 2019 we aim to procure our materials Our five house building divisions: from sustainable sources. Partnerships 1 South West Our business works with carefully selected partners. 2 Midlands 2 We also maintain close 3 South relationships with regulatory 5 and industry bodies to keep 4 Chiltern 4 abreast of policy issues that 5 Eastern might affect us. 1 Customers 3 We are committed to delivering a five-star customer service experience. Innovation and Technology We encourage innovation to improve the quality and efficiency Areas of business expertise of our business and develop We provide major project skills and experience modern construction techniques. and have a strong track record in delivering partnerships: Financial resources We maintain a robust capital structure, with a prudent approach to risk. We invest in land and development using cash generated from our operations, as well as employing different types of debt financing and accessing government and partnership funding, such as the Housing Infrastructure Fund. 1 Strategic Projects 2 Large scale projects Our Strategic Projects team source