CREST NICHOLSON OUR PERSPECTIVE ANNUAL INTEGRATED REPORT 2018 Crest Nicholson Annual Integrated Repor t 2018 03 PERFORMANCE HIGHLIGHTS CONTENTS Strategic Report 12 Chairman’s statement £1,136.6m 14 Chief Executive’s strategic update sales1 21 Our regional focus (2017: £1,065.6m) 22 Our business model 24 Measuring our performance 26 Financial review £176.4m 36 Social review 54 profit before tax Environmental review 61 Non-financial information (2017: £207.0m) 63 Key risks and material issues Governance 3,020 69 Governance overview homes legally completed 70 Introduction from the Chairman 72 Corporate Governance Report (2017: 2,935) 82 Nomination Committee Report 86 Audit & Risk Committee Report 91 Technical Committee Report 23.0% 92 Directors’ Remuneration Report return on average 113 Compliance and other disclosures capital employed 115 Greenhouse Gas Emissions (2017: 29.7%) Report Financial Statements 117 Statement of Directors’ 55.7p responsibilities basic earnings per share 118 Independent Auditor’s Report (2017: 66.1p) 123 Consolidated income statement 123 Consolidated statement of comprehensive income 124 Consolidated statement of THIS IS OUR 33.0p changes in equity dividend per share 125 Consolidated statement of PERSPECTIVE (2017: 33.0p) financial position 126 Consolidated cash flow statement 127 Notes to the consolidated Our mission is to design and deliver high-quality 9% financial statements homes, workplaces and retail and leisure spaces reduction in total carbon 161 Company statement of where people aspire to live, work and play. We emissions from our offices financial position compared to 2017 162 Company statement of aim to create a lasting legacy in the communities changes in equity 163 Notes to the company where we build. We’re committed to considering 115 financial statements our longer-term impacts, environmentally, 166 Historical summary (unaudited) socially and economically. These ambitions trainee site managers and 167 Group Directory apprentices in our workforce underpin our approach to business. Our high (2017: 125) standards for design and clear commitment to APPROVAL quality and effective working relationships with 342 The strategic report for the partners and our supply chain help us to earn the Annual Injury Incidence financial year 2018 as presented on trust of customers, landowners, local authorities Rate (AIIR) pages 12 to 67 was approved by the Board of Directors on 29th January (2017: 416) and communities. 2019 and signed on its behalf by: 1 Sales is a combination of statutory Kevin Maguire FINBERRY, ASHFORD revenue as per the consolidated income statement (£1,136.1m) and the Group’s Group Company Secretary share earned by joint ventures (£0.5m). See page 29 for more information. 04 Crest Nicholson Annual Integrated Repor t 2018 Crest Nicholson Annual Integrated Repor t 2018 05 WE’RE BUILDING HOMES MORE EFFICIENTLY We provided 3,020 homes this year, across a broad range of tenures. We are working to improve our operational and build efficiency through a number of 3,020 measures, including the introduction of new house type homes delivered designs, which will help us to better balance quality in 2018 and costs. We are also exploring the value that modern construction methods, including off-site manufacturing 74 (OSM), can have on our productivity. Our trials suggest new house type these methods improve quality, reduce waste and designs created shorten build programmes and the supply chain bottlenecks that can arise from labour shortages. 90% In 2019, we aim to build 300 homes using cold-rolled faster to make prototype OSM steel off-site manufactured components. homes weathertight than traditional PAINTWORKS, BRISTOL masonry build 06 Crest Nicholson Annual Integrated Repor t 2018 Crest Nicholson Annual Integrated Repor t 2018 07 WE’RE SUPPORTING NEW COMMUNITIES 412 homes built in We design our homes and developments with the future in mind. garden villages We want to leave a positive legacy for the people and communities where we build. We do this by combining the strongest features of town and country living to create well-planned, healthy and 23% of homes have vibrant communities. Our Tadpole Garden Village is one such sustainable development in North Swindon, Wiltshire. It will feature new shops, transport initiatives a school, a public house and a 40-hectare nature park, as well as tree-lined avenues with a mix of traditional and contemporary £215m quality new homes. It was recently named Best Housing Scheme committed combined (500 homes or more) at The Planning Awards 2018. Section 106 and Community Infrastructure TADPOLE GARDEN VILLAGE, SWINDON Levy payments 08 Crest Nicholson Annual Integrated Repor t 2018 Crest Nicholson Annual Integrated Repor t 2018 09 WE’RE CREATING NEW OPPORTUNITIES £1.5m total investment We’re tackling the industry-wide shortage of skilled labour and in training creating opportunities within our business for talented people to thrive. Through training programmes and mentoring, we invest in our people to strengthen an already skilled, diverse and passionate 52 trainee site workforce, and create a strong talent pipeline for the future. This is managers supported by our Apprenticeship Scheme, award-winning Graduate Programme and Site Management Academy. In 2018, participants 63 in these programmes made up 14% of our workforce. We’re proud apprentices to have been awarded the Princess Royal Training Award for our commitment to tackling the skills gap in our industry. 26 LANCASTER GRANGE, BRICKET WOOD graduates 10 Crest Nicholson Annual Integrated Repor t 2018 Crest Nicholson Annual Integrated Repor t 2018 11 WE’RE USING OUR KEY STRENGTHS TO BUILD A RESILIENT BUSINESS We’re proud of our brand reputation, ambitious for the future and well-placed to take full advantage of the opportunities that lie ahead. We continue to focus on providing a great customer experience and £1,136.6m responding to home owners’ needs and the trends sales1 in our marketplace. Our commitment to operational efficiency and quality is matched by our focus on 4* building effective partnerships to deliver more customer homes. We also continue to engage with employees satisfaction rating and wider stakeholders to ensure that the fundamentals of our business remain resilient. 3,174 plots in our portfolio BATH RIVERSIDE, BATH under a partnership 1 Sales is a combination of statutory revenue as per the consolidated income statement (£1,136.1m) and the Group’s share earned by joint ventures (£0.5m). 12 Crest Nicholson Annual Integrated Repor t 2018 Chairman’s statement QUALITY, OPERATIONAL EFFICIENCY AND A NEW BUSINESS STRATEGY Although the housing industry’s fundamentals remain strong, growing market uncertainty created a challenging “ While we are disappointed with our sales environment during the year. The ‘Brexit effect’ has introduced caution financial results this year, we retain an to the housing market, particularly in excellent development pipeline and the southern part of the country where we focus our operations. It has also maintain a strong reputation for the quality consumed considerable amounts of of our product, combined with the design Government time. and place-making that makes us a However, housing has remained the developer and employer of choice.” number one issue on the domestic political agenda. This year’s White Paper on housing set out the Government’s STEPHEN STONE, EXECUTIVE CHAIRMAN plan to reform the market and brought some improvements in the planning regime, and the recent Letwin Review analysed the causes for the gap between housing completions and the amount of land allocated to building homes. At Crest Nicholson, we have experienced pressure on margins from flat pricing and rising build costs and we know that affordability for home buyers is stretched. Despite this backdrop, we continue to demonstrate our underlying resilience as a business, increasing turnover compared to last year as well as increasing our units delivered by 3%. Since I became Executive Chairman in March 2018, we have continued to engage with our shareholders, holding a number of meetings to address their legitimate concerns about business performance in a tougher market. We have made clear to our shareholders and other stakeholders that our focus remains on quality, operational efficiency and a business strategy that responds to the challenges we face. This includes increased levels of partnering, rolling out our new range of house designs, increasing our focus on operational efficiencies and maintaining our commitment to cash generation. We are also committed to being a developer and employer of choice in the industry, and to maintaining our reputation as a design-led quality housebuilder that believes in good place-making. Crest Nicholson Annual Integrated Repor t 2018 Strategic Report Governance Financial Statements 13 Our aim to regain our status as a five-star September 2011 until he stepped down housebuilder has not changed and I was at the Annual General Meeting in March Results and dividends pleased to see our customer satisfaction 2018. Jim Pettigrew and Pam Alexander rating edging ever closer to achieving the also left the Board this year. 90% level required. £142.8m Unfortunately, not all of our succession The Group’s consolidated profit Health and safety remain a priority, planning has worked as intended. after taxation for the financial year and this is supported by a dedicated On 16th October 2018, Robert Allen ended 31st October 2018 (2017: Health & Safety Committee. The stepped down as Group Finance £168.6m). tragedy at Grenfell Tower in 2017 led Director. Recruitment for a successor to an independent review of Building is underway. Regulations and Fire Safety being 21.8p announced by the Government. Crest Proposed final dividend for the Nicholson has welcomed this review OUTCOMES OF BOARD financial year ended 31st October and the Board will take full account of EVALUATION PROCESS 2018 (2017: 21.8p). its findings. Our Technical Committee This year the Board’s performance is focused on fire safety initiatives for evaluation was externally facilitated.