crest nicholson holdings annual report (2005)

8/9/2019 Crest Nicholson Holdings Annual Report (2005)

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www.crestnicholson.com

ANNUAL REPORT 2005

BUILDING HOMESCREATING COMMUNITIES


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Crest Nicholson Annual Report 05

Contents

Financial Highlights 1

Annual Review 4

Sustainable Development 16Directors and Advisers 22

Directors' Report 24Statement of Directors' Responsibilities 27

Independent Auditors' Report 30

Consolidated Profit & Loss Account 32Group and Company Balance Sheets 33

Consolidated Cash Flow Statement 34Accounting Policies 35

Notes to the Accounts 36

Corporate Governance 48Remuneration Report 51

Five Year Record 57

Group Directory 58Shareholder Information 59

CREST NICHOLSON IS A RESIDENTIAL AND

MIXED-USE DEVELOPMENT COMPANY

WITH EMPHASIS ON CREATING

SUSTAINABLE COMMUNITIES


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1

2005 2004

Turnover 714.3m + 11% 643.2m(Including joint ventures)

Operating profit 97.0m + 2% 94.9m(Including joint ventures and before exceptional costs)Pre-tax profit 81.3m - 1% 82.1m(before exceptional costs)

Earnings per share 48.9p - 1% 49.4p(before exceptional costs)

Dividends per share 12.9p + 5% 12.3p2005 2004

Exceptional costs 2.1m -Pre-tax profit 79.2m 82.1mEarnings per share 47.0p 49.4p

100

20052001 2002 2003 2004

81.3m

80

60

40

20

0

63.0m

82.1m

Five years pre-tax profit(before exceptional costs)

50.5m

74.6m


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2 Crest Nicholson Annual Report 2005


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3

AT PORT MARINE, IMAGINATIVE

ARCHITECTURAL SOLUTIONS COMBINED

WITH A HIGH QUALITY LANDSCAPE

AND PUBLIC REALM HAS CREATED

A THRIVING NEW COMMUNITY.

Richard Dowding Project Director,North Somerset Council

IMAGE: Port Marine, Portishead


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4 Annual Review

Results

We are delighted to report another strong set

of results for Crest Nicholson PLC which was

achieved in challenging market conditions.Our mix of business combined with the

strength of our land bank enabled us to

perform resiliently throughout the year.

Turnover was up 11% to 714.3m

(2004: 643.2m). 2005 was a record year for

Crest's operating profit which was

up 2% before exceptional costs to 97.0m

(2004: 94.9m).

Profit before tax and exceptional costs was

down 1% to 81.3m (2004: 82.1m).

The exceptional costs of 2.1m relate

to professional fees in connection with the

abortive approach from Heron Corporation

incurred in the first half of 2005. Profit before

tax after exceptional items was 79.2m

(2004: 82.1m).

Trading

Housing

Against a background of more challenging

market conditions, open market housingcompletions were up 3% to 1,865

(2004: 1,812), slightly higher than we

predicted at the interim stage.

As expected, completions of affordable

units sold to housing associations were

lower at 621 (2004: 712) because of a

temporary dip in the contracted

programme. However, this comfortably

exceeded our expectation at the interim

stage of around 550 units because of

improved rates of production in the

second half.

Open market and affordable housing

completions in total were down 1.5% at 2,486

units (2004: 2,524 units).

The average selling price rose by 5% to 220k

(2004: 210k) due to sales mix changes.

The open market average selling price was

virtually unchanged at 245k (2004: 244k)

while the average selling price of affordable

units increased by 15% to 142k

(2004: 123k).

Annual Review

1 John Matthews, Chairman2 Stephen Stone, Chief Executive

3 Port Marine, Portishead

21

3


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6 Annual Review

Looking forward to 2006, we expect to finish

Riverside, Hemel Hempstead and to bring

through the first revenues from our urban

regeneration scheme in Camberley.Overall commercial property sales in 2006

are likely to be similar to 2005.

Margins

Gross margins were down 1.7% to 20.7%

(2004: 22.4%) for 3 reasons. First, mixed use

commercial sales, which carry a lower gross

margin than housing, grew strongly and

formed a larger proportion of total sales in

2005 than in 2004. Second, we increased the

use of sales incentives to maintain volume.

Third, modest levels of build cost inflation

reduced margin.

The overhead percentage of sales improved

to 7.1% (2004: 7.6%) due to turnover gains

and strong overhead control.

Operating margins (before exceptional costs)

were therefore 13.6% (2004: 14.8%).

Housing and Commercial Portfolios

Our strong land bank and agreed pipeline of

urban regeneration projects enabled us to

adopt a more selective land buying stance in2005 and we secured short term land with a

projected development value of 750m

(2004: 883m).

The short term housing portfolio remains

strong at 14,945 plots (2004: 15,060 plots)

with a projected development value of

2.76bn (2004: 2.89bn). At the current level

of turnover the short term housing portfolio

represents 5 years' supply.

Our housing strategic land bank consists of

12,181 plots (2004: 13,182 plots). In 2005 we

converted 495 plots from the strategic to the

short term portfolio and the prospects for

bringing more through in 2006 remain good.

The current mixed-use commercial land

portfolio amounts to 1.62m square feet

(2004: 1.83m square feet) with a development

value of 450m (2004: 418m). The majorityof this relates to the mixed-use schemes at

Bristol Harbourside, Farnham, Camberley

and Chertsey North.

These housing and commercial statistics

now include urban regeneration projects

contracted in the year at Bath Western

Riverside (Phase 1) and Camberley.

1 Kings Warren, Newmarket2 Park Central, Birmingham

1 2


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Crest Nicholson Annual Report 2005 7


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WORKING IN A TRUE PARTNERSHIP WITH

BIRMINGHAM CITY COUNCIL,

OPTIMA COMMUNITY ASSOCIATION AND

EXISTING RESIDENTS, CREST NICHOLSON

HAS DEMONSTRATED THE VISION AND

COMMITMENT REQUIRED TO INSPIRE

AND DELIVER THIS NEW AND EXCITING

MIXED-USE QUARTER IN THE HEART

OF BIRMINGHAM.

Albert Bore Former Leader,Birmingham City Council.

IMAGE: Park Central, Birmingham


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9


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IMAGE: thehub:mk, Milton Keynes(Computer Generated Illustration)


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Annual Review 11

In addition to the contracted housing and

commercial land bank shown above, there is a

pipeline of agreed but not contracted

regeneration projects at Oakgrove Milton

Keynes, Penarth Heights and later phases of

Bath Western Riverside. The agreed pipeline

at October 2005 represents a further 540m of

future development value. Since the 2005 year

end, Oakgrove Milton Keynes has contracted

and our 50% share of this 2,000 unit projecthas moved to the short term housing portfolio.

Financial Position

Shareholders funds increased by 39m or

12% to 367.4m. The net assets attributable

to the ordinary shares are equivalent to 294p

per share compared with 260p at October

2004, an increase of 13%.

The Group's capital employed of 527.4m has

increased by 20.6m and the return on

average capital employed is 18.4% compared

to 21.7% in 2004.

The Group has negotiated a 33% reduction

in the margins paid on its five year Revolving

Credit Facility and increased it by 30m to

255m. This, together with the 120m US

Private Placement and overdraft facilities,

means that the Group now has total

borrowing facilities available of 380m

(2004: 352m).

On 2 November 2005, the 5.5% Cumulative

Redeemable Preference Shares of 38m

were repaid at par. The repayment of thepreference shares has converted non tax

deductible preference dividends into tax

deductible interest charges. While this

reduces profit before tax by around 2m,

earnings per share are enhanced.

Board Changes

In September 2005, we announced the

retirement of John Callcutt as Chief

Executive Officer (CEO) and his appointment

as Non-Executive Deputy Chairman with

effect from 1 November 2005. In this role,

John will continue to promote the Company's

expertise in sustainable development and to

develop our urban regeneration strategy.

Stephen Stone was promoted to CEO with

effect from 1 November 2005.

Changes of Accounting Policy and

adoption of IFRS

As noted above, with effect from 2006,

revenue on housing units will be recognised

upon legal completion rather than on build

completion as in 2005. If this change had

been adopted in 2005, profits before tax

would have been 11.2m higher because of

the unusually high numbers of apartments

which were exchanged and build completeat the 2004 year end but were not legally

completed until 2005.

Crest is also implementing International

Financial Reporting Standards (IFRS) for

the 2006 financial year.

The impact of these changes of accounting

policy will be finalised and reported in full

in February.

Their anticipated effect is summarised

below:

Dividend

We are recommending a final dividend of

8.7p per share. This will give a total for

the year of 12.9p, up 5% (2004: 12.3p).

The dividend will be covered 3.6 times

(2004: 4.0 times). The final dividend will be

paid on 12 April 2006 to shareholders on the

register at 24 March 2006.

AwardsThe Company's significant contribution to

urban regeneration was recognised at the

annual Building Regeneration Awards in

December 2005 where Crest received the

awards for the Regeneration Developer of

the Year, the Regeneration Partnership of the

Year and Regeneration Housebuilder of the

Year. This triple success further underpins

Crest's reputation for excellence in the urban

regeneration field and should help create

further opportunities for the Group in this

important market.

In addition, Crest will bring its accounting policy for recognising land stock and land creditors

into line with the peer group. This change has no impact on net asset value.

The combined effect of accounting policy changes on the profit before tax is:

m

Profit before tax after exceptional costs per UK GAAP 79.2

Net increase in cost of sales arising principally from expensing

sales and marketing (4.7)

Preference dividend reclassified as finance cost (2.1)

Net impact of discounting deferred payments (principally land creditors) (2.7)

Other (2.0)

Profit before tax restated for IFRS 67.7Housing gain arising from change to legal completion 11.2

Profit before tax restated for IFRS and change to legal completion 78.9

The combined effect of accounting policy changes on capital and reserves is:

m

Capital and reserves per UK GAAP 367.4

Preference capital (repaid on 2 November 2005) (38.0)

Equity and reserves 329.4

Pension fund deficit (26.1)

Reduction in stock (principally sales and marketing costs expensed) (12.0)

Final dividend not accrued 9.8

Other revenue recognition deferrals (7.8)

Deferred payments and currency swaps (4.2)

Equity and reserves restated to IFRS 289.1

Deferred profit on change to legal completion (23.0)

Equity and reserves restated for IFRS and change to legal completion 266.1


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12 Annual Review

1 2

Business Development and Improvement

Crest is now recognised as a market leader

in urban regeneration and we intend to

build on this base. We have the capability to

design and manage large scale sustainable

developments in an urban environment andhave established a reputation for

successful delivery.

Establishing our leading position in urban

regeneration has required significant

investment both in product and overhead.

We have tested a wide range of designs and

built up skills to deliver solutions which meet

local and national planning and design

objectives. We are now working to extract

maximum benefit from this investment and

to eliminate cost through the simplificationof our product range and by focusing on

proven designs and construction methods.

Our aim is to drive up operating margins

through a range of cost reduction initiatives,

both in relation to urban regeneration

projects and elsewhere in the business.

To this end, business improvement

workgroups have been set up for each

function of our business, and these are

chaired by an operating unit managing

director. The role of these workgroups is to

deliver bottom line gains through targetedsavings.

We are targeting annualised reductions in

our product and overhead cost base of 10m

by 2008. We expect this process to enhance

future shareholder returns by improving cost

effectiveness whilst maintaining the

excellence of our product.

Bringing large scale regeneration projects

into production is a lengthy process, but the

Group will begin to see an increasing

contribution from these schemes in 2007

and later years.

Outlook

Our strong performance in 2005

demonstrates the resilience and flexibility of

our business mix in challenging market

conditions. We are particularly excited by ourprogress in mixed use and urban

regeneration which we expect to be key

components in the Group's future earnings

growth. In addition, we have initiated a

business improvement programme in order

to maximise returns and we expect to deliver

10m of cost savings per annum by 2008.

Our strong current forward order position

and legal completions to date represent over

50% of our targeted housing sales for 2006.

While it is too early to predict the outcome

for 2006, early signs of an improving market,

particularly in the South East, make uscautiously optimistic.

John Matthews

Chairman

Stephen Stone

Chief Executive

1 Park Central, Birmingham2 The Arboretum,

near St Albans


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CREST NICHOLSON RETAINS BOTH

RESIDENTIAL AND COMMERCIAL

EXPERTISE AND IS ONE OF THE FEW

DEVELOPERS ABLE TO CONCEIVE

AND DELIVER COMPREHENSIVE

SOLUTIONS ON LARGE SCALE

MIXED-USE DEVELOPMENTS.

Colin Molton Director of Operationsand Development, SWRDA

IMAGE: Harbourside,Bristol(Computer Generated Illustration)


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15


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16 Sustainable Development

Corporate Social Responsibility

Over the last four years Crest Nicholson has

responded to social and environmental

development opportunities and risks byadjusting its business strategy to meet

market conditions. Crest has differentiated

itself as a market leader by establishing a

track record of delivering innovative, inspiring

developments, with genuine attention to

detail and first rate customer service. These

core values have provided Crest with a firm

base from which to deliver and create large

scale urban regeneration schemes and truly

sustainable communities.

Since 2002 the Committee for Social

Responsibility has monitored the Groups

Sustainable Development policy,

management systems and annual

performance reporting. The sustainable

development policies and procedures are

integrated with those of Human Resources,

Sales and Marketing and Health and Safety.

To assess progress in all of these areas Crest

participated in the Business in the

Community benchmarking index for 2004

and was ranked as the only house builder in

the Top 100 "Companies That Count" index.

The Group performed well in the areas of

social and environmental strategy and

integration of corporate responsibility.

Market place and work place managementperformance was also outstanding.

Crests position was also benchmarked

against the UKs leading house builders by

Insight Investment, the asset manager for

HBOS, and the WWFs One Million

Sustainable Homes Campaign. In 2005, the

Group achieved joint first position, an

improvement from fifth position in 2003,

when the data was last measured.

Crests performance was attributed by

Insight Investment to an increasingly

comprehensive, strategic and systematic

approach in responding to Government policy

and market imperatives to deliver

sustainable homes and communities.

Sustainable

Development


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Sustainable Development

Significant progress has been made in

establishing a reputation as a sustainable

developer, in partnership with localplanning authorities, housing associations

and other agencies. The provision of high

quality built environments, combined with

good public services and infrastructure,

contribute to a better standard of living.

By investing in human resources,

providing outstanding customer service

and responding to the demand for

urban renewal shareholder value will

be increased.

Crests strategy to develop high quality

mixed-use residential and commercial

communities is beginning to deliver social,

economic and environmental benefits. This,

together with innovation and the

introduction of modern methods of

construction, will help Crest meet its key

environmental commitments. These are to

reduce greenhouse gas emissions, help

develop markets for renewable energy

supply, reduce construction waste, re-use

and recycle materials, and introduce

domestic water saving devices.

Partnering with innovative contractors and

suppliers also enables Crest to increase the

quality, speed and efficiency of its production

whilst protecting the environment.

The Company is committed to help meet the

demand for affordable homes for a much

wider section of society. It has become a

partner of choice to the public and private

sectors through product differentiation. In

November 2005, SixtyK, a consortium

comprising Crest as developer, Kingspan as

supplier and Sheppard Robson as architect,

was announced as one of the first winning

consortia in the Office of the Deputy Prime

Ministers Design for Manufacture competition

for affordable and sustainable homes.

The Consortiums winning design is inspired

by the need to maximise environmental

performance with the minimum

consumption of resources. The proposal to

build 60,000 homes incorporates major

efficiencies in off-site manufacture and on-

site waste reduction. EcoHome ratings are

estimated to be in the Very Good range.

Other examples of sustainable developments

and related key performance data are

included in the Corporate Responsibilityreport due for publication in Spring 2006.

1 2 4

3

1 Port Marine, Portishead2 Ingress Park, Greenhithe3 Port Marine, Portishead4 Ingress Park, Greenhithe


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18 Sustainable development

1 Urban 7, London N72 Whitelands,London SW183 Port Marine, Portishead

1 2

3

Performance Summary

In many aspects of the business the Company has met and exceeded its corporate

responsibility key performance targets as listed in the tables below.

Employment

Key Performance Indicators 2003 2004 2005

Net employment creation 5% 5% -

Permanent staff turnover 21% 21% 17%

Average hours of training per employee No data 15 15

Annual Injury Incident Rate No data 1266 1294

Community


Number of homes sold 1,936 2,524 2,486

Social housing as percentage of total homes sold 16% 28% 25%

Average house sale price 239,000 210,000 220,000

Customer satisfaction service* (out of 10) 7.2 7.4 Awaited

Customer satisfaction product* (out of 10) 7.2 7.4 7.1

* DTI Construction Excellence Key Performance Indicators.

Environment


Homes built on brownfield land* 75% 73% 84%

Cost of land remediation 2.3m 5.4m Awaited

Average home energy efficiency (out of 120) 95 100 95

Estimated build waste - cubic metres per home 26.2 19.8 19.6

Environmental prosecutions 1 - -

New build certified by EcoHomes No data 8% 26%

* Building on brownfield land exceeds the UKs 60% target and protects the green belt.


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21

AT INGRESS PARK, CREST NICHOLSONHAS REALISED THE STEP CHANGE

OF AMBITION AND DESIGN QUALITYREQUIRED TO UNDERPIN

THE SUCCESSFUL REGENERATIONOF KENT THAMESIDE.

Rob Scott Director of Planning,Dartford Borough Council

IMAGE: Ingress Park, Greenhithe, Kent


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22 Directors and Advisors

1. J W Matthews

Chairman and Chairman

of the Nomination Committee

Age 61

John Matthews, a chartered accountant, was

appointed Chairman in 1996. He is chairman

of Regus Group Plc and a non-executive

director of Center Parcs (UK) Plc, Rotork Plc,

SDL Plc and Diploma Plc. He has previously

been a managing director of County NatWest

and deputy chairman/deputy chief executive

of Beazer Plc.

2. S Stone

Chief Executive

Age 52

Stephen Stone joined the Group in 1995 and

was appointed to the Board in 1999,

becoming Chief Executive on 1st November

2005. He is a chartered architect with over

30 years experience in the construction and

house building industry.

SECRETARY

N I Hughes

AUDITORS

KPMG Audit Plc

SOLICITORS

Linklaters

BROKERS

Dresdner Kleinwort Wasserstein Limited

MERCHANT BANKERS

UBS Warburg

BANKERS

The Royal Bank of Scotland Group

Lloyds TSB Bank Plc

HSBC Bank PLC

Barclays Bank PLC

Allied Irish Banks, p.l.c.

Bank of Scotland

National Bank of Egypt International Limited

Directors andAdvisers

1 2


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3. J Callcutt

Deputy Chairman

Age 59

John Callcutt, a solicitor, joined the Group in

1974. He was appointed to the Board in 1985

and became Chief Executive in 1991 and

Deputy Chairman on 1st November 2005.

He is a trustee of the BRE Trust, a director of

the Housing Forum, a member of the

Sustainable Buildings Task Group and a

regular contributor to Building Magazine on

regeneration issues.

6. R S Lidgate

Independent Non-Executive Director andChairman of the Remuneration Committee

Age 60

Stephen Lidgate was appointed to the Board

in April 2003. He is past president of the

House Builders Federation and a board

member of the Construction Industry

Training Board. He was formerly chairman of

John Laing Homes Plc and W L Homes LLC

in the USA and a director of John Laing Plc.

He has been involved in housebuilding for

35 years and is a fellow of the Chartered

Institute of Marketing.

4. P Callcutt

Executive Director

Age 56

Paul Callcutt joined the Group in 1982.

He was appointed to the Board in 2000

and is Group Land Director. He is a solicitor

who practised in property and planning law

prior to taking up a commercial role with

Crest Nicholson.

7. R T Scholes

Independent Non-Executive Director andChairman of the Audit Committee

Age 60

Richard Scholes was appointed to the Board

in July 2003. He is a Non-Executive Director

and chairman of the audit committee of

Bodycote International plc, Chaucer Holdings

PLC and Marshalls PLC. He is also a

non-executive director of Keller Group PLC

and is a chartered accountant.

5. D P Darby

Finance Director

Age 55

Peter Darby, a chartered accountant, was

appointed to the Board in August 2003.

He had previously served with the Group for

9 years in a range of finance and general

management roles, rejoining the Group in

2001. He was formerly group finance director

of The Berkeley Group Plc and divisional

finance director of Wimpey Homes.

8. L J Wigglesworth

Senior Independent Non-ExecutiveDirector

Age 46

Lloyd Wigglesworth was appointed to the

Board in 2000. He is a director of Woolworths

Group plc, where he is Managing Director of

Entertainment UK. He was formerly a

director of WHSmith PLC.

5

6 87

3 4


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24 Directors Report

The Directors present their annual report

with the consolidated accounts of the

Company and its subsidiaries for the year

to 31st October 2005.

Principal activities and business review

The principal activities of the Group are

residential housing and property

development. The Annual Review on pages

4 to 12 deals with the development of the

Group's business and its activities during

the year.

Going Concern Assumption

The Directors have considered, as part of

their annual budget process, the adequacy of

the Groups banking and other facilities in

relation to its profit and cash flow

projections. The Directors have reasonable

expectations that the Group has adequate

resources to continue trading for the

foreseeable future. For this reason they

continue to adopt the going concern basis in

preparing the financial statements.

Results and dividend

The profit for the financial year after taxation

was 54.7m (2004 57.0m). The Directors

propose that a final dividend of 8.7p pershare be paid to holders of ordinary shares

which together with the interim dividend of

4.2p makes a total for the year of 12.9p.

Share capital

Details of shares issued during the year are

set out in Note 15 to the accounts.

Information regarding substantial

shareholdings in the Company is contained

in the Shareholder Information section on

page 59.

Donations

During the year the Group made

contributions to charities of 48,000 (2004

36,000). There were no political donations

made in either year.

Employment policies

Arrangements exist to keep all employees

informed on matters of concern to them

through a variety of media includingconferences, newsletters and meetings.

It is the policy of the Group that disabled

persons shall be considered for employment,

training, career development and promotion

on the basis of their aptitudes and abilities,

in common with all employees. The services

of any existing employee who becomes

disabled are retained wherever possible.

Training

The Group recognises that its reputation is

very dependent on the quality, effectiveness

and skill base of its employees. There is a

commitment at Board level to ensure that its

employees and management are properly

inducted into the Company and given

necessary training to fulfil their roles.

With ever increasing customer demands,

particular emphasis is placed on customer

service and build quality skills training.

DirectorsReport

1Ingress Park, Greenhithe, Kent2 The Chase at Braydon Mead, Swindon

3 Park Central, Birmingham4 The Arboretum, near St Albans

1

2

3

4


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Directors

The Directors of the Company at the date of

this report are shown on pages 22 and 23.

Mr J Callcutt and Mr S Stone will retire in

accordance with the Articles of Association at

the forthcoming Annual General Meeting

and, being eligible, will offer themselves for

re-election. Mr J Callcutt does not have a

service agreement with the Company but

Mr S Stone has a service agreement

determinable on twelve months notice.

A statement of the Directors' share interests

is set out in the Remuneration Report on

pages 51 to 56.

Environmental policy

It is the Company's policy to assess

environmental issues which may be

applicable to its business, customers and the

general public and to take such measures

consistent with being a responsible property

development group.

Creditor payment policy

The Group's policy concerning the payment

of its trade creditors is as follows:

to agree the terms of payment at the start

of business with the supplier;

to ensure that suppliers are aware of the

terms of payment;

to pay in accordance with its contractual

and other legal obligations; and

not to alter payment terms without prior

agreement of the supplier.

The Company does not have trade creditors.

Creditor days for the Companys subsidiary

undertakings are shown in the financialstatements of those undertakings.

International Financial Reporting

Standards

The application of International Financial

Reporting Standards (IFRS) will be requiredfor listed companies for accounting periods

commencing on or after 1st January 2005.

Crest Nicholson will therefore publish full

IFRS compliant financial statements for the

year to 31st October 2006. The impact of the

transition to IFRS is set out in the Annual

Review on pages 4 to 12.

Auditors

A resolution for the re-appointment of KPMG

Audit Plc as auditors of the Company is to

be proposed at the forthcoming Annual

General Meeting.

Annual General Meeting

The resolutions to be proposed at the Annual

General Meeting to be held on 7th April 2006,

together with explanatory notes, appear in

the separate Notice of Meeting to be sent

to all shareholders.

By Order of the Board

N I Hughes, Secretary

25th January 2006


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Statement of directors responsibilities 27

1 Park Central, Birmingham2 Woodsome Grange,

Weybridge, Surrey3 Bolnore Village,

Haywards Heath, Sussex4 Bournville, Birmingham

2

3

4

1

Statement ofDirectors'Responsibilities

Company law requires the Directors to

prepare accounts for each financial year

which give a true and fair view of the state of

affairs of the Company and the Group and of

the profit or loss for that period. In preparing

those accounts, the Directors are required to:

select suitable accounting policies and

then apply them consistently;

make judgements and estimates that are

reasonable and prudent;

state whether applicable accounting

standards have been followed, subject to

any material departures disclosed and

explained in the accounts;

prepare the accounts on the going

concern basis unless it is inappropriate

to presume that the Group will continue

in business.

The Directors are responsible for keeping

proper accounting records which disclose

with reasonable accuracy at any time the

financial position of the Company and to

enable them to ensure that the accounts

comply with the Companies Act 1985.

They have general responsibility for taking

such steps as are reasonably open to

them to safeguard the assets of theGroup and to prevent and detect fraud

and other irregularities.


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29

CREST NICHOLSON IS COMMITTED TO

SUSTAINABLE URBAN RENEWAL. IT SEEKS

TO PLAY A LEADING ROLE IN CREATING

WELL-BALANCED AND ECONOMICALLY

VIABLE COMMUNITIES THAT HAVE THE

ABILITY TO EXIST, CHANGE AND ADAPT

IN PERPETUITY. BY CREATING BETTER

BALANCED, MORE STABLE LOCAL

COMMUNITIES IN THIS WAY, THE COMPANY

BELIEVES IT CAN CONTRIBUTE TO GLOBAL

SUSTAINABILITY AND A BETTER

STANDARD OF LIFE.

John Callcutt Deputy Chairman,Crest Nicholson PLC

IMAGE: The Arboretum, near St Albans


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30 Independent Auditors Report

Independent auditors report to the

members of Crest Nicholson PLC

We have audited the financial statements

on pages 32 to 47. We have also auditedthe information in the Directors'

remuneration report that is described

as having been audited.

This report is made solely to the Company's

members, as a body, in accordance with

section 235 of the Companies Act 1985.

Our audit work has been undertaken so that

we might state to the Company's members

those matters we are required to state to

them in an auditor's report and for no other

purpose. To the fullest extent permitted by

law, we do not accept or assume

responsibility to anyone other than the

Company and the Company's members as

a body, for our audit work, for this report,

or for the opinions we have formed.

Respective responsibilities of Directors

and Auditors

The Directors are responsible for preparing

the Annual Report and the Directors'remuneration report. As described on page

27 this includes responsibility for preparing

the financial statements in accordance with

applicable United Kingdom law and

accounting standards. Our responsibilities,

as independent auditors, are established in

the United Kingdom by statute, the Auditing

Practices Board, the Listing Rules of the

Financial Services Authority, and by our

profession's ethical guidance.

We report to you our opinion as to whether

the financial statements give a true and fair

view and whether the financial statements

and the part of the Directors' remuneration

report to be audited have been properly

prepared in accordance with the Companies

Act 1985. We also report to you if, in our

opinion, the Directors' report is not consistent

with the financial statements, if the Company

has not kept proper accounting records, if we

have not received all the information and

explanations we require for our audit, or if

information specified by law regarding

Directors' remuneration and transactionswith the Group is not disclosed.

We review whether the corporate governance

statement on pages 48 to 50 reflects the

Company's compliance with the nine

provisions of the 2003 FRC Code specified forour review by the Listing Rules, and we report

if it does not. We are not required to consider

whether the Board's statements on internal

control cover all risks and controls, or form

an opinion on the effectiveness of the Group's

corporate governance procedures or its risk

and control procedures.

We read the other information contained in

the Annual Report, including the corporate

governance statement and the unaudited

part of the Directors' remuneration report,

and consider whether it is consistent with

the audited financial statements.

We consider the implications for our report

if we become aware of any apparent

mis-statements or material inconsistencies

with the financial statements.

IndependentAuditors

Report


33/64


Basis of audit opinion

We conducted our audit in accordance with

Auditing Standards issued by the Auditing

Practices Board. An audit includesexamination, on a test basis, of evidence

relevant to the amounts and disclosures in

the financial statements and the part of the

Directors' remuneration report to be audited.

It also includes an assessment of the

significant estimates and judgements made

by the Directors in the preparation of the

financial statements, and of whether the

accounting policies are appropriate to the

Group's circumstances, consistently applied

and adequately disclosed.

We planned and performed our audit so as

to obtain all the information and explanations

which we considered necessary in order to

provide us with sufficient evidence to give

reasonable assurance that the financial

statements and the part of the Directors'

remuneration report to be audited are free

from material mis-statement, whether

caused by fraud or other irregularity or error.

In forming our opinion we also evaluated the

overall adequacy of the presentation of

information in the financial statements and

the part of the Directors' remunerationreport to be audited.

Opinion

In our opinion:

the financial statements give a true andfair view of the state of affairs of the

Company and the Group as at 31st

October 2005 and of the profit of the

Group for the year then ended; and

the financial statements and the part of

the Directors' remuneration report to be

audited have been properly prepared in

accordance with the Companies Act 1985.

KPMG Audit Plc

Chartered AccountantsRegistered Auditor

London

25th January 2006

1 The Forum, Bath2 Kings Warren, Newmarket

3 Westhill Park, Birmingham4 Port Marine, Portishead

2

31

4


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Consolidated profit & loss accountFor the year ended 31st October 2005

2005 2004

Note m m m m

Turnover including joint ventures 1 714.3 643.2

Less: attributable to joint ventures (12.6) (12.0)

Group turnover 701.7 631.2

Cost of sales (555.3) (489.3)

Gross profit 146.4 141.9

Operating costs

Exceptional costs 2 (2.1) -

Other costs (51.0) (53.1) (49.0) (49.0)

Group operating profit 93.3 92.9

Operating profit of joint ventures 1.6 2.0

Operating profit including joint ventures 94.9 94.9

Net interest payable 3 (15.7) (12.8)

Profit on ordinary activities before taxation 4 79.2 82.1

Taxation 5 (24.5) (25.1)

Profit for the financial year 54.7 57.0

Preference dividends paid (2.1) (2.1)

Profit attributable to ordinary shareholders 52.6 54.9

Ordinary dividends 6 (14.5) (13.7)

Retained profit for the year 16 38.1 41.2

Earnings per 10p ordinary share 7

Basic 47.0p 49.4p

Basic before exceptional costs 48.9p 49.4p

Diluted 46.7p 49.0p

There is no material difference between the profit for the year as shown above and that based on historic costs.

There are no recognised gains or losses during the current or previous year other than those shown above.

The turnover and operating profit of the Group in the year and preceding year arose solely from continuing operations.


35/64


Group and company balance sheetsAt 31st October 2005

Group Company

2005 2004 2005 2004

Note m m m m

Fixed assetsTangible assets 8 2.5 2.5 2.5 2.5

Investments in joint ventures

Share of gross assets 52.2 57.2 - -

Share of gross liabilities (50.4) (56.5) - -

Loans 39.4 20.5 - -

9 41.2 21.2 - -

Other investments 9 - - 5.4 5.4

41.2 21.2 5.4 5.4

43.7 23.7 7.9 7.9

Current assets

Stocks 10 640.1 771.9 - -

Debtors 11 223.2 239.4 347.4 334.9

Cash at bank and in hand 57.0 10.9 65.4 22.8

920.3 1,022.2 412.8 357.7

Creditors: amounts falling due within one year

Borrowings 12 (12.9) (3.2) - -

Creditors 13 (282.7) (301.2) (25.3) (31.8)

(295.6) (304.4) (25.3) (31.8)

Net current assets 624.7 717.8 387.5 325.9

Total assets less current liabilities 668.4 741.5 395.4 333.8

Creditors: amounts falling due after more than one year

Borrowings 12 (204.1) (186.1) (204.1) (186.1)

Creditors 13 (93.7) (225.3) - -

(297.8) (411.4) (204.1) (186.1)

Provisions for liabilities and charges 14 (3.2) (1.7) - -

Net assets 367.4 328.4 191.3 147.7

Capital and reserves

Equity share capital 15 11.2 11.2 11.2 11.2

Non-equity share capital 15 38.0 38.0 38.0 38.0

Called up share capital 49.2 49.2 49.2 49.2

Share premium account 16 57.7 56.9 57.7 56.9

Profit and loss account 16 260.5 222.3 84.4 41.6

Shareholders' funds 17 367.4 328.4 191.3 147.7

Approved by the Board of Directors on 25th January 2006 and signed on its behalf by:

S Stone

D P Darby

Directors


36/64


Consolidated cash flow statementFor the year ended 31st October 2005

2005 2004

Note m m m m

Net cash inflow/(outflow) from operating activities 18 93.1 (41.6)

Dividend received from joint venture 0.1 1.4

Returns on investments and servicing of finance

Interest received 0.4 0.4

Interest paid (15.9) (12.8)

Preference dividends paid (2.1) (2.1)

Net cash outflow from returns on investments and servicing of finance (17.6) (14.5)

Taxation

Corporation tax paid (24.1) (24.9)

Capital expenditure and financial investment

Tangible fixed assets acquired (1.0) (1.3)

Other fixed asset investment loan advances (24.5) (8.8)

Other fixed asset investment loan repayments 5.6 3.1

Net cash outflow from capital expenditure and financial investment (19.9) (7.0)

Acquisitions and disposals

Disposal of subsidiary companies - 2.3

Equity dividends paid (14.0) (12.8)

Net cash inflow/(outflow) before financing 17.6 (97.1)

Financing

Proceeds from equity share issues 0.8 1.0

Acquisition of own shares by ESOP Trust - (0.4)

Increase in bank loans and loan notes 18.0 51.0Net cash inflow from financing 18.8 51.6

Increase/(decrease) in cash in year 36.4 (45.5)

Reconciliation of net cash flow to movement in net debt 19

Increase/(decrease) in cash in year 36.4 (45.5)

Increase in bank loans due after more than one year (18.0) (51.0)

Decrease/(increase) in net debt in year 18.4 (96.5)

Opening net debt (178.4) (81.9)

Closing net debt (160.0) (178.4)


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Accounting policies(a) Basis of preparation of accounts

The accounts have been prepared under the historical cost accounting

rules and in accordance with applicable Accounting Standards.

The accounting policies have been applied consistently in dealing with

items which are considered material in relation to the Group's financialstatements.

(b) ConsolidationThe consolidated accounts include the accounts of Crest Nicholson PLC

and its subsidiaries made up to 31st October in each year. The profits

and losses of subsidiaries acquired or sold during the year are included

as from or up to their effective date of acquisition or disposal.

The subsidiary undertakings currently trading and which are significant

to the Group are set out in Note 9.

No profit and loss account is presented for the Company as provided by

S.230 of the Companies Act 1985.

(c) TurnoverTurnover represents amounts received and receivable (excluding VAT) inrespect of housing, land and commercial property sold. Turnover

excludes the sale of properties taken in part exchange.

(d) Income recognitionIncome is recognised on house sales at the later of exchange of

contract and completion of build. Income is recognised on land sales

when contracts are exchanged and all material conditions are met.

Income is recognised on commercial property sales on unconditional

exchange of contract; the amount recognised depends on progress

achieved in build and in securing occupiers.

(e) Joint ventures

A joint venture is an undertaking in which the Group has a participatinginterest and which is jointly controlled under a contractual

arrangement. The appropriate share of results of joint venture

undertakings is included in the consolidated profit and loss account.

Investments in joint venture undertakings are shown in the consolidated

balance sheet using the gross equity method.

(f) StocksStocks are valued at the lower of cost and net realisable value.

Cost includes, where appropriate, a proportion of overhead expenses.

(g) Finance costsInterest on the Group's bank and other borrowings is written off as

incurred.

(h) DepreciationFreehold land and ground rents are not depreciated. Freehold buildings

are depreciated at 2% on cost less residual value. Leasehold land and

premises are depreciated over the life of the lease.

Plant, vehicles and equipment are depreciated on cost less residual

value on a straight line basis at rates varying between 10% and 33%

determined by the expected life of the assets.

(i) TaxationThe charge for taxation is based on the profit for the year and takes into

account taxation deferred because of timing differences between the

treatment of certain items for taxation and accounting purposes.

Deferred tax is recognised, without discounting, in respect of all such

timing differences which have arisen but not reversed by the balancesheet date, except as otherwise required by FRS19.

(j) Leased assetsAssets acquired under finance leases are capitalised and the

outstanding future lease obligations are shown in creditors. Operating

lease rentals are charged to the profit and loss account on a straight

line basis over the period of the lease.

(k) PensionsThe amount charged to the profit and loss account in respect of the

defined contribution pension scheme represents the contributions

payable in respect of the accounting period. The expected cost to the

Group of pensions in respect of the defined benefit pension scheme is

charged to the profit and loss account so as to spread the cost ofpensions over the service lives of employees in the scheme.

(l) Financial instrumentsThe Group uses currency swaps to manage financial risk. These

instruments are treated as hedges and the net interest payable or

receivable is reflected in the profit and loss account. Borrowings are

stated on the balance sheet after taking account of the effect of these

swaps.

(m) Employee share schemesThe cost of awards to employees under the Long Term Share Incentive

Plan of conditional rights to shares are recognised over the period to

which the related performance criteria are applied. No cost is

recognised in respect of Executive or SAYE share option schemes.

Further details on the share schemes can be found in the

Remuneration report on pages 51 to 56.


38/64

1 TurnoverThere is no Group turnover in geographical markets outside the United Kingdom.

No segmental information has been presented as the Directors consider that there is only one business and geographical segment.

2 Exceptional Costs

The exceptional costs consist of professional fees incurred in connection with the approach the Company received from Heron Corporation.

3 Net Interest Payable2005 2004

m m

Interest payable:

On bank loans and overdrafts 6.4 3.5

On loan notes 9.7 9.7

16.1 13.2

Interest receivable (0.4) (0.4)

15.7 12.8

4 Profit on ordinary activities before Taxation 2005 2004m m

Profit on ordinary activities before taxation is stated after charging the items set out below:

Depreciation 1.0 0.9

Operating lease rentals:

Hire of plant and machinery 0.3 0.3

Other - including land and buildings 4.9 4.2

Auditors' remuneration: 000 000

Audit fee (The Company 5,000 - 2004 5,000) 209 179

Audit related fees 21 6

Taxation and other advisory fees 64 71

5 Taxation2005 2004

m m

Current tax

UK Corporation tax on profits for the year at 30% 24.5 24.6

Adjustments in respect of prior years (0.5) -

Joint venture undertakings 0.5 0.6

24.5 25.2

Deferred tax - Origination and reversal of timing differences - (0.1)

24.5 25.1

The current tax charge for the year is higher than the standard rate of UK corporation tax

of 30% (2004 30%). The differences are explained below:

m m

Profit on ordinary activities before tax 79.2 82.1

Tax on profit on ordinary activities at 30% 23.8 24.6

Effects of:

Adjustments in respect of prior years (0.5) -

Expenses not deductible for tax purposes 1.2 0.6

24.5 25.2


Notes to the accounts


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Notes to the accounts6 Ordinary Dividends

2005 2004

m m

Interim dividend paid of 4.2p per share (2004 4.0p) 4.7 4.4

Final dividend proposed of 8.7p per share (2004 8.3p) 9.8 9.3

Total dividend of 12.9p per share (2004 12.3p) 14.5 13.7

7 Earnings per shareBasic earnings per share are calculated on the profit attributable to ordinary shareholders of 52.6m (2004 54.9m) on a weighted average of 111,852,392

(2004 111,043,698) ordinary shares in issue during the year.

Adjusted earnings per share are calculated on the profit attributable to ordinary shareholders before exceptional costs of 54.7m (2004 54.9m) on a

weighted average of 111,852,392 (2004 111,043,698) ordinary shares in issue during the year.

Diluted earnings per share are calculated on the profit attributable to ordinary shareholders of 52.6m (2004 54.9m) on a weighted average of

112,700,749 (2004 112,042,818) ordinary shares, on the basis that 2,282,232 (2004 2,555,643) share options had been exercised.

8 Tangible Fixed AssetsPlant, Vehicles

& Equipment

Group and Company m

Cost

At 31st October 2004 5.4

Additions 1.0

Disposals (0.9)


Accumulated depreciation


Charge for year 1.0

On disposals (0.9)


Net book value




40/64


Notes to the accounts9 Fixed Asset Investments

Share of Post

Cost of Acquisition

Investment Loans Reserves Total

Group m m m m

Joint Ventures

At 31st October 2004 0.5 20.5 0.2 21.2

Additions - 24.5 1.1 25.6

Repayments - (5.6) - (5.6)

At 31st October 2005 0.5 39.4 1.3 41.2

The Group owns 500 ordinary shares of 1 each representing 50% of the issued share capital of Brentford Lock Limited, a company registered in

England, which has been set up to redevelop a site in West London. At 31st October 2005 Brentford Lock Limited had capital employed of 22.7m

(2004 31.3m), consisting of shareholders' capital of 22.8m (2004 31.9m) and cash in hand of 0.1m (2004 0.6m). It made a profit after taxation in the

year to 31st October 2005 of 2.3m (2004 2.8m). At 31st October 2005 the Group had advanced 9.5m (2004 15.1m) to this company as funding towards

the development expenditure.

The Company has advanced 29.1m (2004 4.6m) to an unincorporated joint venture in which it has a 50% interest. The joint venture has been formedwith Morley Fund Management to develop a site at Chertsey. The proposed business park is programmed to be marketed in 2006.

Company

Shares in subsidiary undertakings

Cost less amounts written off m

At 31st October 2004 and 31st October 2005 5.4

Shares in subsidiary undertakings are stated net of provisions for impairment in value of 5.0m (2004 5.0m).

The subsidiary undertakings which 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 which is wholly owned and all the subsidiary undertakings are incorporated in Great Britain. They are directly owned by the Company

unless indicated by an asterisk.

Subsidiary Nature of business

Crest Nicholson Operations Limited Residential and commercial property development

Crest Nicholson Residential (London) Limited Holding company

Landscape Estates Limited * Residential and commercial property development

10 Stocks2005 2004

Group m m

Work in progress: land, building and development 545.4 706.0

Completed buildings including show houses 94.7 65.9

640.1 771.9


41/64


Notes to the accounts11 Debtors

Group Company

2005 2004 2005 2004

m m m m

Amounts falling due within one yearTrade debtors 193.4 224.3 - -

Recoverable on contracts 15.0 - - -

Amounts owed by subsidiary undertakings - - 337.7 331.6

Amounts owed by joint venture undertakings 0.2 0.1 - -

Group relief receivable - - 7.2 -

Other debtors 4.2 6.0 0.4 1.5

Prepayments and accrued income 2.7 2.4 2.1 1.8

215.5 232.8 347.4 334.9

Amounts falling due after more than one year

Trade debtors 5.8 4.5 - -

Pension prepayments 1.9 2.1 - -

223.2 239.4 347.4 334.9

12 BorrowingsGroup Company

2005 2004 2005 2004

m m m m

Amounts falling due within one year

Bank overdraft 12.9 3.2 - -


Revolving credit facility drawings 84.0 66.0 84.0 66.0

Senior secured loan notes 120.1 120.1 120.1 120.1

204.1 186.1 204.1 186.1

Repayable:

Between one and two years 20.7 - 20.7 -

Between two and five years 108.8 111.5 108.8 111.5

Over five years 74.6 74.6 74.6 74.6

The revolving credit facility drawings and loan notes are secured by floating charges over the assets of certain subsidiary companies.

The revolving credit facility amounts to 255m which is repayable in 2010. Interest is based on rates ruling from time to time in the London Inter Bank Market.

The senior secured loan notes were issued by way of US dollar and sterling private placements at fixed rates as follows:

Repayable in 2006 US$35.0m 8.07%




Repayable in 2011 10.0m 7.68%

The Group entered into currency swap agreements to eliminate all exchange risks arising from these transactions.


42/64


Notes to the accounts13 Creditors

Group Company

2005 2004 2005 2004

m m m m

Amounts falling due within one yearLand creditors on contractual terms 116.9 146.8 - -

Other trade creditors 28.6 24.5 - -

Payments on account 3.6 2.3 - -

Amounts owed to subsidiary undertakings - - 6.2 -

Corporation tax 12.6 12.8 - 12.3

Other taxes and social security costs 1.4 1.9 1.0 1.0

Other creditors 15.2 12.8 1.3 0.3

Accruals 94.6 90.8 7.0 8.9

Proposed dividend 9.8 9.3 9.8 9.3

282.7 301.2 25.3 31.8


Land creditors on contractual terms 93.7 225.3 - -

14 Provisions for Liabilities and ChargesRental Deferred

provisions taxation Total

Group m m m

At 31st October 2004 1.1 0.6 1.7

Charge to the profit and loss account 1.5 - 1.5

At 31st October 2005 2.6 0.6 3.2

Rental provisions are made in respect of vacant properties in accordance with FRS12 and are expected to be utilised within eighteen months.

Deferred taxation in respect of capital allowances and other timing differences is fully provided as follows:

2005 2004

m m

Accelerated capital allowances (0.1) (0.1)

Pension prepayment 0.7 0.7

0.6 0.6


43/64


Notes to the accounts15 Called up Share Capital

2005 2004

m m

Authorised

136,000,000 Ordinary shares of 10p each 13.6 13.641,717,565 51/2% Cumulative Redeemable Preference shares of 1 each 41.7 41.7

55.3 55.3

Allotted and fully paid

112,407,182 Ordinary shares of 10p each (2004 111,916,511) 11.2 11.2

38,036,097 51/2% Cumulative Redeemable Preference shares of 1 each (2004 38,036,097) 38.0 38.0

49.2 49.2

During the year 319,745 ordinary shares were issued under the exercise provisions of the 1994 Executive share option scheme at prices between

112p and 211p. A further 170,926 shares were issued under the exercise provisions of the Company's 1998 SAYE share option scheme at prices

between 100p and 283p.

The preference shares are no longer convertible and have been redeemed at par on 2nd November 2005.

At 31st October 2005 there were options outstanding to subscribe for ordinary shares as follows:

Number Period Option

of shares Exercisable Price

SAYE share option scheme

1998 Scheme 15,600 2001/2006 100p

21,140 2003/2006 105p

111,758 2004/2007 170p

269,142 2006/2009 186p

168,021 2007/2010 283p

148,586 2008/2011 306p

734,247

Executive share option schemes

1994 Scheme 70,000 2000/2007 91p

20,000 2001/2008 112p

142,620 2002/2009 129p

38,250 2003/2010 138p

38,520 2004/2011 194p

53,380 2005/2012 211p

200,000 2006/2013 202p

320,000 2007/2014 323p

2004 Scheme 559,426 2008/2015 383p

1,442,196


44/64


Notes to the accounts16 Reserves

Group CompanyShare Premium Profit and Share Premium Profit and

Account Loss Account Account Loss Accountm m m m

At 31st October 2004 56.9 222.3 56.9 41.6

Share issues 0.8 - 0.8 -

Cost of employee share schemes - 0.1 - 0.1

Retained profit for the year - 38.1 - 42.7

At 31st October 2005 57.7 260.5 57.7 84.4

At 31st October 2005 the Group's Employee Share Ownership Trust (ESOT) held 278,544 shares (2004 520,949 shares) with a market value of 1.1m

(2004 1.7m) which had not yet vested unconditionally in employees. The shares were purchased in the open market and are held in trust for employees

participating in the Group's Deferred Share Bonus Scheme and Long Term Share Incentive Plan. Abacus Corporate Trustee Limited, as Trustees for the

ESOT, has waived its dividend entitlement.

There have been no purchases of Crest Nicholson shares during the year (2004 0.4m).

17 Reconciliation of Movements in Shareholders FundsGroup Company

2005 2004 2005 2004m m m m

Profit for the financial year 54.7 57.0 59.3 29.1

Dividends (16.6) (15.8) (16.6) (15.8)

Retained profit for the year 38.1 41.2 42.7 13.3

Proceeds from share issues 0.8 1.0 0.8 1.0

Purchase of shares for ESOT - (0.4) - (0.4)

Cost of employee share schemes 0.1 0.8 0.1 0.8

Net increase in shareholders' funds 39.0 42.6 43.6 14.7

Opening shareholders' funds 328.4 285.8 147.7 133.0

Closing shareholders' funds 367.4 328.4 191.3 147.7

Equity shareholders' funds 329.4 290.4 153.3 109.7

Non-equity shareholders' funds 38.0 38.0 38.0 38.0

367.4 328.4 191.3 147.7

18 Reconciliation of Operating Profit to Net Cash Flow from Operating Activities2005 2004m m

Operating profit - excluding joint ventures 93.3 92.9

Depreciation 1.0 0.9

Cost of employee share schemes 0.1 0.8

Decrease/(increase) in stocks 131.8 (124.7)Decrease/(increase) in debtors 14.0 (114.4)

(Decrease)/increase in creditors (147.1) 102.9

Net cash inflow/(outflow) from operating activities 93.1 (41.6)

19 Analysis of Net DebtOpening Debt Cash Flow Closing Debt

m m m

Cash at bank and in hand 10.9 46.1 57.0

Bank overdrafts (3.2) (9.7) (12.9)

7.7 36.4 44.1

Bank loans due after more than one year (66.0) (18.0) (84.0)

Loan notes (120.1) - (120.1)

(178.4) 18.4 (160.0)


45/64


Notes to the accounts20 Financial Instruments

Group operations are financed through a combination of shareholders' funds and net borrowings, comprising bank and loan facilities. The core element

of the Group's borrowing requirement is provided by long term fixed interest loan notes. The Group has limited its use of financial instruments to

derivatives designed to protect the Group from fluctuations in interest and exchange rates. The remaining borrowing requirement is funded principally

through a revolving credit facility with variable interest rates. This policy has remained in force during the year ended 31st October 2005.

All debtors and creditors due within one year have, as permitted, been excluded from the disclosure requirements of FRS13.

Financial liabilities

The interest rate profile of the financial liabilities of the Group was:

Financial

Floating rate Fixed rate liabilities

financial financial carrying no

liabilities liabilities interest Total

Sterling m m m m

At 31st October 2005

Bank borrowings, loan notes and long term creditors 96.9 120.1 93.7 310.7

Preference shares - 38.0 - 38.0

96.9 158.1 93.7 348.7

At 31st October 2004

Bank borrowings, loan notes and long term creditors 69.2 120.1 225.3 414.6

Preference shares - 38.0 - 38.0

69.2 158.1 225.3 452.6

Fixed rate financial liabilities are stated after cross currency swaps which had the effect of reclassifying $166m (2004 $166m) US dollar borrowings into

110.1m (2004 110.1m) sterling borrowings. The fixed rate financial liabilities are at a weighted average of 7.43% (2004 7.43%) fixed for an average of 3.3

years (2004 4.8 years).

The preference shares have been redeemed on 2nd November 2005.

The floating rate financial liabilities are subject to interest rates referenced to LIBOR. These rates are for a period between one and twelve months.

For financial liabilities which have no interest payable, consisting of land creditors, the weighted average period to maturity is 20 months (2004 33

months). The fair value of these liabilities at 31st October 2005 is 84.0m (2004 192.2m). The discount rate applied is equivalent to the Group's current

incremental borrowing rate. There are no other material differences between book value and fair value of the Group's financial assets and liabilities.

The Company has a number of guarantees in place as described in Note 22 which are contingent liabilities and therefore have no book value and it is not

practical to estimate their fair value.

The maturity of the financial liabilities is:

2005 2004

m m

Repayable within one year 51.0 3.2

Repayable between one and two years 95.0 97.4

Repayable between two and five years 128.1 243.7

Repayable after five years 74.6 108.3

348.7 452.6

Financial assets

Financial assets of the Group at 31st October 2005 consisted of sterling cash deposits of 57.0m (2004 10.9m) placed overnight, with solicitors and on

current account.

Undrawn borrowing facilities

The Group had undrawn committed borrowing facilities of 176.1m (2004 164.9m) at 31st October 2005. The repayment terms of the facilities are set out

in Note 12. In addition there were undrawn guarantee and bonding facilities of 39.6m (2004 55.8m).


46/64


Notes to the accounts21 Pensions

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 service cost of this scheme for the year was 0.6m (2004 0.4m). At the balance sheet date there were no

outstanding or prepaid contributions (2004 Nil).

Defined benefit scheme

The Group operates contributory defined benefit pension schemes which are closed to new entrants. The assets of the schemes are held separately from

those of the Group, being invested in managed funds. Contributions to the schemes are charged to the profit and loss account so as to spread the cost of

pensions over employees' working lives with the Group. The contributions are determined by a qualified actuary on the basis of a market-based triennial

valuation using the attained age method.

The most recent funding valuation of the main scheme was carried out as at 1st February 2004 and the most significant assumptions adopted were:

Investment returns before retirement 6.75% per annum

Investment returns after retirement 6.00% per annum

Salary increases 4.00% per annum

Pensions increases in respect of benefits earned before 6th April 1997 3.00% per annum

Pensions increases in respect of benefits earned after 5th April 1997 2.40% per annum

After taking account of the above assumptions, the actuarial value of the scheme's assets represented 80% of the benefits that had accrued to members

after allowing for expected future increases in earnings. The market value of these assets was estimated at 49m (excluding pensions in payment

secured by purchasing annuities from an insurance company).

The assumptions used for SSAP24 purposes were the same as those shown above with the following exceptions:

Investment returns after retirement 6.75% per annum

Salary increases 3.75% per annum

The combined pension charge for the year was 4.1m (2004 2.8m). The actual contribution paid by the Company was 3.9m (2004 2.6m) which resulted

in a prepayment at the year end of 2.1m (2004 2.3m). The method used for spreading the deficit was the Level Percentage Method.

Additional disclosure required by FRS17

In accordance with the transitional provisions of FRS17, a full actuarial valuation update of the defined benefit schemes was carried out by a qualified

actuary as at 31st October 2005 using the projected unit method. The major assumptions used by the actuary were:

2005 2004 2003 2002

Discount rate 5.0% 5.4% 5.5% 5.6%

Inflation 2.9% 2.9% 2.7% 2.3%

Rate of increase in pensionable salaries 3.9% 3.9% 3.7% 3.3%

Rate of increase in pensions in payment:

Earned before 6th April 1997 3.0% 3.0% 3.0% 3.0%

Earned after 5th April 1997 2.6% 2.6% 2.4% 2.0%

As the scheme is closed to new members, under the projected unit method, the current service cost will increase as the members of the scheme

approach retirement.


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Notes to the accounts21 Pensions continued

The assets of the scheme and expected rate of return at 31st October 2005 were:

Long-term rate of return expected Value

2005 2004 2003 2002 2005 2004 2003 2002m m m m

Equities 7.40% 8.50% 8.00% 7.75% 50.7 43.1 40.9 31.2

Bonds 5.00% 5.90% 6.00% 5.75% 9.1 5.6 6.3 6.8

Cash 4.40% 5.00% 6.00% 5.00% 3.6 5.2 1.7 1.1

Property 7.40% 8.00% 8.00% 7.75% 2.2 1.4 1.9 1.9

Total managed funds 65.6 55.3 50.8 41.0

Secured annuities 5.00% 5.40% 5.50% 5.50% 10.8 10.4 10.7 10.0

76.4 65.7 61.5 51.0

The following amounts at 31st October 2005 were measured in accordance with the requirements of FRS17:

2005 2004 2003 2002

m m m m

Total market value of assets (including secured pensions) 76.4 65.7 61.5 51.0

Present value of liabilities (including secured pensions) (111.7) (96.1) (93.7) (74.2)

Deficit (see note below) (35.3) (30.4) (32.2) (23.2)

Deferred tax asset 10.6 9.1 9.7 7.0

Net deficit (24.7) (21.3) (22.5) (16.2)

Note

The difference between assets and liabilities is extremely volatile and can alter very significantly depending on the date at which the measurements are

carried out.

The movement in the deficit over the year is shown below:

2005 2004

m m

Deficit in the scheme at the beginning of the year (30.4) (32.2)

Employer's contributions 3.1 2.6

Analysis of amounts charged to operating profit

Current service cost (3.0) (2.6)

Analysis of amounts charged to finance costs

Expected return on scheme assets 5.0 4.5

Pension scheme expenses - (0.1)

Interest on pension scheme liabilities (5.2) (5.2)

(0.2) (0.8)

Analysis of amounts recognised in the statement of recognised gains and losses

Actual return less expected return on scheme assets 4.3 1.2

Experience (losses)/gains arising on scheme liabilities (0.3) 6.2

Change in financial assumptions used to calculate present value of liabilities (8.8) (4.7)

Change in demographic assumptions used to calculate present value of liabilities - (0.1)

Actuarial (loss)/gain (4.8) 2.6

Deficit in the scheme at the end of the year (35.3) (30.4)


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Notes to the accounts21 Pensions continued

Had FRS17 been fully adopted the current charge to operating profit of 3.3m for the defined benefit schemes would have been replaced by a net charge

of 3.0m as above. In addition the total pension prepayment of 2.1m would have been deducted from shareholders' funds.

Some of the above items expressed as a percentage of the assets or liabilities are as follows:

2005 2004 2003 2002

Actual return less expected return as a percentage of scheme assets 6% 2% 9% (17%)

Experience gains and losses as a percentage of scheme liabilities - 6% (2%) (2%)

Actuarial (loss)/gain as a percentage of scheme liabilities (4%) 3% (9%) (12%)

If the above amounts had been recognised in the financial statements, the Group's net assets and profit and loss reserve at 31st October 2005 would be

as follows:

2005 2004

m m

Net assets excluding pension deficit 367.4 328.4

Adjustment for pension prepayment (2.1) (2.3)

Pension deficit (24.7) (21.3)

Net assets including pension deficit 340.6 304.8

Profit and loss reserve excluding pension deficit 260.5 222.3

Adjustment for pension prepayment (2.1) (2.3)

Pension deficit (24.7) (21.3)

Profit and loss reserve including pension deficit 233.7 198.7

22 Contingent LiabilitiesThere are performance bonds and other engagements, including those in respect of joint venture partners, undertaken in the ordinary course of business

from which it is anticipated that no material liabilities will arise.

In addition, the Company is required from time to time to act as surety for the performance by subsidiary undertakings of contracts entered into in the

normal course of their business.

23 Leasing CommitmentsGroup Company

2005 2004 2005 2004

Operating lease annual commitments m m m m

Land and buildings

Expiring within one year 0.5 - 0.4 -

Expiring between two and five years 0.5 0.5 - 0.4

Expiring after five years 3.2 2.8 0.1 -

4.2 3.3 0.5 0.4

Other

Expiring within one year - 0.1 - -

Expiring between two and five years 1.2 1.3 1.0 1.2

1.2 1.4 1.0 1.2


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Notes to the accounts24 Employees and directors

2005 2004

Average number of persons employed by the Group Number Number

Development 846 873

Head office 14 14

860 887

Staff costs m m

Wages and salaries 35.7 34.6

Social security costs 4.4 4.1

Other pension costs 4.4 3.0

44.5 41.7

Details of Directors' remuneration, pension and share option arrangements are set out in the Remuneration Report on pages 51 to 56.

25 Related party transactionsThe Group has entered into the following related party transactions:(i) Transactions with joint ventures which are disclosed in Note 9.

(ii) On 7th September 2005 the daughter of Mr J Callcutt, a Director of the Company, purchased an apartment on an arms length basis from

Crest Nicholson (South) Limited for 397,000.


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Corporate governanceComplianceThe Company recognises the importance of and is committed to attaining the

highest standards of corporate governance. It is a requirement of the Listing

Rules of the UK Listing Authority that listed companies disclose in their

annual report and accounts how they have applied the principles set out in

Section 1 of the Combined Code on Corporate Governance published in July2003 (the Combined Code) and whether or not they have complied with its

detailed provisions throughout the financial year.

During the financial year ending 31st October 2005 the Company complied

fully with the principles and provisions set out in Section 1 of the Combined

Code except as follows:-

The Company does not comply with provision A.3.2 of the Combined Code

in that less than half the Board, excluding the Chairman, are independent

Non-Executive Directors. The current division of responsibilities and

structure of the business requires a Chairman, Deputy Chairman and an

executive team of three Executive Directors. It is the view of the Board

that the range and blend of skills of the Board match the needs of the

business and it is unnecessary to appoint another independent Non-

Executive Director at the present time.

Section 1 of the Combined Code contains fourteen main principles of good

governance which are divided into four main categories. These categories

and the means by which the Company has complied with them are explained

below.

DirectorsThe Board of Directors is the body responsible for corporate governance and

for establishing the policies and strategies of the Company. The Board

currently consists of the Chairman, Deputy Chairman, three Executive

Directors and three Non-Executive Directors. Biographies of the Directors

are set out on pages 22 and 23.

It is the opinion of the Board that all of the three Non-Executive Directors are

considered to be independent of management and have no business or other

relationship which could interfere materially with the exercise of their

judgement.

Each of the Executive Directors service contracts contains a notice period of

a maximum of one year. The maximum notice period under each Non-

Executive Directors letter of appointment is six months.

The Chairman, Deputy Chairman and the Non-Executive Directors each have

a letter of appointment expiring as follows:

Mr J W Matthews (Chairman) On 6 months notice

Mr J Callcutt (Deputy Chairman) On 3 months notice

Mr R S Lidgate 28th April 2006

Mr R T Scholes 30th June 2006

Mr L J Wigglesworth 31st October 2006

(Senior Independent Director)

It is a requirement of the Companys Articles of Association that each

Director should offer himself for re-election every three years. The Articles

similarly stipulate that any Director appointed by the Board is also required

to offer himself for re-election by the shareholders at the first Annual

General Meeting after such appointment.

All members of the Board are equally accountable under the law for the

proper stewardship of the Company's affairs. The Non-Executive Directors

are, however, independent of management and free from any material

business or other relationship with the Company, enabling them to bring an

independent judgement to bear on issues brought before the Board. There is

a clear division of responsibility between the Chairman, Mr J W Matthews,and the full time Chief Executive, Mr S Stone, to whom the Board has

delegated responsibility for running the Company. The Deputy Chairman,

Mr J Callcutt, reports to the Chairman and his responsibilities cover the

promotion of the Company's sustainable redevelopment strategy. He is

committed to devote on average three days a week in undertaking his duties.

The Deputy Chairman is also available to assist the Chief Executive if

requested and has been appointed in a non-executive capacity.

The Board meets regularly on a formal basis and has an agreed schedule of

matters reserved to it for collective decision. These include strategic policies,

corporate performance reviews and overall financial and organisational

control. In addition, the Board meets outside of its agreed schedule as and

when required. It is supplied in a timely manner with information in a form

and of a quality that is appropriate to enable it to discharge its duties.

The Board evaluated its performance in 2005 by the completion of an

evaluation questionnaire. The Chairman formally appraised the Chief

Executive in the year.

The Non-Executive Directors meet separately with the Chairman during the

course of the year. The Non-Executive Directors also meet (without the

Chairman) at least annually to appraise the Chairmans performance.

A formal procedure exists to allow Directors to take independent professional

advice and the Company will meet such reasonable expenses that arise in

taking such advice. All Directors have access to the Company Secretary for his

advice and services, and training is available for new and existing Directors, as

and when required. Each member of the Board also has the benefit of

appropriate insurance cover and the indemnity in Article 34 of the Company's

Articles of Association in respect of legal actions brought against him.

Board Committees

The Board has established the following Committees, the members of which

are set out below. Details of all the Directors experience and qualifications

are set out on pages 22 and 23 and their remuneration on pages 51 to 56.

Audit Committee

Mr R T Scholes (Chairman)

Mr R S Lidgate

Mr L J Wigglesworth

The Audit Committee meets four times each year and provides a link

between the Board and the Companys internal and external auditors on

matters coming within the scope of the Group audit. The main duties of the

Audit Committee are as follows:

To review all Preliminary and Interim statements before they are

presented to the Board

To review internal control procedures and risk management systems

To review the internal audit function

To oversee the Company's relations with the external auditor and to

approve the terms of engagement and the remuneration to be paid to the

external auditor in respect of audit services provided

To recommend to the Board a policy in respect of the provision of

non-audit services provided by the external auditors to ensure their

independence and objectivity is not impaired


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Corporate governanceDuring the year the Committee carried out its duties as noted above.

Particular attention was paid to the accounting standards and policies in the

review of the financial statements. Under internal control procedures and

risk management systems both financial and non-financial controls were

assessed, improvements were identified and are being implemented.

The internal auditor's reports and the internal audit programme were

reviewed together with management's response to the internal auditor's

findings and recommendations. The Committee recommended a policy to the

Board regarding the provision of non-audit services. The Board adopted the

recommendation, which is not to use the external auditors for non-audit

services with the exception of tax advice and matters where the fee will not

exceed 50,000 in aggregate per annum unless specifically approved by the

Committee.

Details of the fees paid to the external auditors for audit and non-audit

services are set out in Note 4 on page 36.

The Committee does not become involved in the day to day running of the

business, which remains the responsibility of the Executive Directors.

The terms of reference of the Committee are published on the Company'sweb site www.crestnicholson.com.

Remuneration Committee

Mr R S Lidgate (Chairman)

Mr R T Scholes

Mr L J Wigglesworth

The Remuneration Committee meets at least three times each year, to

establish and review, in consultation with the Chief Executive, the

remuneration and terms of employment of the Chairman, Deputy Chairman,

Executive Directors and certain senior executives. The fees for the Non-

Executive Directors are decided by a Committee of the Board comprising the

Chairman, Chief Executive and Finance Director.

The terms of reference of the Committee are published on the Companysweb site www.crestnicholson.com.

Nomination Committee

Mr J W Matthews (Chairman)

Mr J Callcutt (Resigned 31st October 2005)

Mr S Stone (Appointed 1st November 2005)

Mr R S Lidgate

Mr R T Scholes

Mr L J Wigglesworth

The Nomination Committee meets at least every six months and as

necessary to assess the suitability of persons for appointment as Directors

and, when appropriate, nominates new candidates for the approval of the

Board. Prior to their appointment, all Non-Executive Directors are advised ofthe time commitment considered necessary to enable them to fulfil their

responsibilities.

The terms of reference of the Committee are published on the Companys

web site www.crestnicholson.com.

Executive Committee

Mr J Callcutt (Chairman) (Resigned 31st October 2005)

Mr S Stone (Chairman from 1st November 2005)

Mr P Callcutt

Mr D P Darby

Mr N I Hughes (Company Secretary)

Mr S Usher (Appointed 1st November 2005)

The Committee meets regularly throughout the year and acts in an advisory

capacity in the creation and implementation of policy, trading strategies and

the taking of major decisions.

Committee for Social Responsibility

Mr J Callcutt (Chairman)

Mr R S Lidgate

Mr S Stone (Appointed 23rd January 2006)

Mr L J Wigglesworth (Resigned 23rd January 2006)

Mr N I Hughes (Company Secretary)

Mr P Donnelly (Environmental Manager)

The Committee for Social Responsibility is charged with managing the

Company's ethical, social and environmental policies so as to achieve

a balance between its commercial objectives and its obligations to society

at large.

Attendance at Board and Committee Meetings

The following table shows the number of meetings of the Board and each of

the Audit, Remuneration and Nomination Committees held during the year

ended 31st October 2005 and the attendance record of individual Directors.Audit Remuneration Nomination

Board Committee Committee Committee

Number of meetings 7 4 7 2

Mr J W Matthews 7 N/A N/A 1

Mr J Callcutt 6 N/A N/A 1

Mr P Callcutt 7 N/A N/A N/A

Mr

crest nicholson holdings annual report (2005)

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