crest nicholson holdings annual report (2011)

8/9/2019 Crest Nicholson Holdings Annual Report (2011)

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CREST NICHOLSON

DIRECTORSREPORT ANDACCOUNTS31stOCTOBER 2011


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KEY PERFORMANCE INDICATORS

82%Homes built on Brownfield land(2010: 78%)

38%Homes delivered to Code

for Sustainable Homeslevel 3 and above(2010: 15%)

89%Waste diverted from landfill(2010: 84%)

63%Reduction in Annual InjuryIncidence rate since 2008(2010: 33%)

5-starCustomer serviceindependent rating(2010: 5-star)

9/10Independently surveyedpeople would recommendCrest to a friend(2010: 9/10)

FINANCIAL AND BUSINESS SUSTAINABILITY

56.4mOperating profit(2010: 47.3m)

28.6%Gross profit margin

(2010: 27.5%)

40.5mNet profit/(loss)(2010: (27.6)m)

42.8mNet debt(2010: 303.9m)

14,722Short-term land bank units(2010: 13,615)

14,259Strategic land bank units(2010: 16,726)

6,256mLand bank gross developmentvalue (GDV)(2010: 6,381m)

The Group selects KPIsagainst which to measuredelivery of its strategy andboth financial and non-financial targets.

Operating profit is a key indicator ofthe health of the business operationand together with gross operatingmargin reflects both the scale andquality of profits in the business.

Net profit after tax measures theamount of profit (or loss) in the yearattributable to equity shareholders.Net debt represents interest-bearingloans and borrowings, net of cash and when compared with other amountsand balances provides an indicationof the scale and serviceability ofloan obligations.

The future health of the businessdepends on the value createdthrough the development of land.Land bank measures show both the

amount of consented land controlledby the business to secure near-term production and the pipeline ofstrategic land opportunities fromwhich the business expects to derivesignificant future benefit.

A sustainable business is underpinnedby delivering on non-financial as wellas financial measures. Health andsafety performance is a measure bothof risk reduction and investment inbest practice. Our environmentalKPIs represent Crest Nicholsonsfocus on carbon reduction andresource management.

COVER IMAGE: Kaleidoscope, CambridgeABOVE IMAGE: Elements, Epsom

Registered no. 6800600


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1 CREST NICHOLSON HOLDINGS LIMITED DIRECTORS REPORT AND ACCOUNTS 2011

BUSINESS REVIEW

Chairmans Statement 3

Chief Executives Review 4

Financial Review 9

Risks and Uncertainties 12

Sustainability Review 14

GOVERNANCE Board of Directors 21

Directors Report 23

Corporate Governance 25

Statement of DirectorsResponsibilities 28

FINANCIALS

Independent Auditors Report 30Consolidated IncomeStatement 31

Consolidated Statementof Comprehensive Income 32

Consolidated Statementof Changes in Equity 32

Consolidated Statementof Financial Position 33

Consolidated Cash FlowStatement 35

Notes to the Consolidated

Financial Statements 36Company Balance Sheet 61

Notes to the CompanyFinancial Statements 62

WELCOMECrest Nicholson is a leading developer of sustainable housingand mixed-use communities. We aim to improve the quality oflife for individuals and communities by providing better homes,workplaces, retail and leisure spaces in which people aspire to live,work and play now and in the future.

WHO WE ARE AND WHAT WE DOWe operate within the southern half of the UK, with an outstanding consented landbank delivering high quality design-led developments generating strong returns andoffering the prospect of significant equity growth.

On a day-to-day basis we operate through four geographically regional divisionsand a Regeneration business each with their own management boards which areaccountable to the Operating Board of Crest Nicholson PLC.

We are a privately owned Company, with almost 50 years of heritage and experience.

This and other financial and non-financial reports, including our full SustainabilityReport, can be downloaded from www.crestnicholson.com/reports

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BUSINESS REVIEW

Chairmans Statement 3

Chief Executives Review 4

Financial Review 9

Risks and Uncertainties 12

Sustainability Review 14

BUSINESSREVIEW

IMAGE: Port Marine, Portishead

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CHAIRMANS STATEMENT2011 has been an exciting and fulfilling year for Crest Nicholson.Not only has the Group continued to trade strongly, but it has alsoachieved a consensual financial restructuring, leaving the Groupwith sound finances, a strong balance sheet and a firm base uponwhich to develop and grow the business.

Home-buyer confidence and mortgage availability are critically important factors indetermining the health of the housing market. Whilst the former appears to be robustin the southern half of the UK where Crest Nicholson operates, the macro-economicenvironment is still uncertain and mortgage availability remains constrained.However, the Government has recognised the importance of house building to theeconomy and has taken steps both to stimulate housing delivery and to make financeavailable, particularly to first time buyers.

The new Government has also committed to reducing the regulatory burden and inparticular to simplifying the planning process. However, little progress has been seenon deregulation and the much needed new National Planning Policy Framework facesconsiderable obstacles to being enacted.

Nevertheless, Crest Nicholsons commitment to constructive dialogue with allstakeholders places it in a good position to embrace localism and this continuousengagement with our stakeholders remains a key focus for the business.

Our continued focus on excellence in design, customer satisfaction and sustainabilityall underpin our delivery of desirable places and our ability to deliver industry-leadingvalue for our shareholders.

The contribution of an outstandingly resilient workforce, who have taken the Groupforward despite the challenges of the economic downturn, has been an importantfactor both in delivering results and in encouraging investors into the business. TheBoard recognises the contribution of our employees and openly thanks them for this.

I would like to thank my predecessor, Alan Goldman, and Non-Executive DirectorAndrew Coppel for the significant contributions that they have made to the Group overthe period of their stewardship, in particular for the part they played in securing aconsensual debt restructuring and thereby positioning the Group for future success.Special thanks must go to Malcolm McCaig who continues to serve following theGroups debt restructure. I also welcome Pam Alexander to the Board and believethat the qualities and experience that she brings firmly underpin the Groupsbusiness strategy.

Crest Nicholson is now well positioned to capitalise on the recovery in the UK housebuilding sector. It has an established heritage, strong short-term and strategicland banks and an experienced management team, focused on continuing todeliver margin and profit growth. Although a time of opportunity, it is also a time ofcaution against an uncertain macro-economic outlook and we must face into these

challenges. However, trading conditions remain positive for the Group and I amdelighted to be Chairman of Crest Nicholson in this period.

William RuckerChairman

Our continued focus onexcellence in design, customersatisfaction and sustainability allunderpin our delivery of desirableplaces and our ability to deliverindustry-leading value forour shareholders.

William Rucker,Chairman

The contribution of anoutstandingly resilient workforce,who have taken the Group forwarddespite the challenges of theeconomic downturn, has been an

important factor both in deliveringresults and in encouraginginvestors into the business.

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CHIEF EXECUTIVES REVIEW

OUR FINANCIAL RESULTS

2011 was a year in which we continued to deliver strong operational results andwhich culminated with a successful financial restructuring, leaving us with a strongbalance sheet and renewed borrowing facilities.

Our results show the business is performing strongly with higher average houseprices, continued growth in profit and turnover albeit on slightly lower volumesreflecting the change in mix from apartments to houses. Sales in the summer

period were strong and reservations in the last financial quarter were significantlyahead of the equivalent period last year.

We are implementing our medium-term growth strategy with a continuing focus ondelivering well-designed, sustainable homes and mixed-use communities withinthe southern half of the UK. This operational focus on the southern half of thecountry has helped to support a higher than average sales price, improvements inmargin and steady demand.

We have been successful in replenishing our land bank, with plots acquired andcontracted more than covering legal completions in the year. Coupled with a strongstrategic land bank we now have resources in place to drive volume growth in 2012and beyond.

THE MARKETThe housing market has been relatively stable in our areas of operation; there isa housing shortage year-on-year and the country is building new homes at halfthe rate it needs. Crest Nicholsons focus on design and placemaking deliversenvironments that attract strong demand and good margins. Our open marketaverage selling prices are moving strongly ahead, driven by an increasing proportionof family homes in the unit mix and some price appreciation.

However we need to be alert in the face of a potentially fragile and uncertaineconomic environment. Sluggish GDP growth (or reductions), the as-yet unresolvedEuro debt crisis and rising unemployment remain of concern. Despite ongoing lowinterest rates, mortgage availability and affordability remain as key constraints.

The Government recognises that in stimulating the housing market and creating

new homes, it is also stimulating job creation. Crest Nicholson welcomesGovernment initiatives such as FirstBuy, Get Britain Building and the newmortgage indemnity product NewBuy, which underpin and support purchasers.

We have a track record of

outstanding design andcommitment to sustainabilityin its widest sense.

Stephen Stone,Chief Executive

New London division created,to capitalise on marketopportunities

IMAGE: Blenheim Square, North Weald

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With first time buyers accounting for around a quarter of our transactions, theseschemes remain fundamental to ensuring that those at the lower end of thehousing ladder are not excluded from the market.

The Government remains committed to requiring that all homes submitted forplanning in 2016 will be zero carbon. However, some realism is emerging in

recognising the importance of cost per tonne of carbon in delivery and the rate atwhich the industry, and its supply chain, can deliver design change while ensuringcustomer acceptability.

One key to maintaining growth in the sector will be the successful implementationof the proposed National Planning Policy Framework which will release resourcesfrom dealing with unnecessarily complex and costly regulations to concentratetime in the planning process where it matters delivering a sustainable builtenvironment that meets the needs and desires of local communities and helpsto address the national housing shortage.

Despite the challenging economic conditions, Crest Nicholson continues toperform well. We have a track record of outstanding design and commitment tosustainability in its widest sense. This continuing and long-term understanding

of the issues equips us to take a leading role in the localism agenda and achieveconsensual planning outcomes with community focus.

OUR BUSINESS STRATEGY

A Sound Business Poised for Growth

Throughout the economic downturn Crest Nicholson maintained solid short- andlong-term land banks, a robust business operation and our sales rates remainedamongst the highest in the sector.

As the financial restructuring drew to a conclusion, the senior management team,which had ensured the strong underlying health of the business, was able to turnattention to medium- and long-term strategies for growth. Our medium-term

strategy is to grow the business steadily and by 2016 reach a level of delivery similarto that achieved before the economic downturn, thereby materially increasing thenumber of homes made available.

Reaffirming Core Values

We have interrogated, challenged and reinforced our core values which webelieve maximise benefit for all our stakeholders customers, communities,local authorities, government, investors and our employees:

Long-

termvalue

creation

Success

The CrestDifference

Custom

ers

Sustainab

ility

Des

ign

Our

focus

Ou

rcontinuingjour

ney

Ou

rexp

ertise

Customers

Providing an outstanding customerexperience from start to finish,delivering quality homes and realisinghigh levels of customer satisfaction.

Design

Reinforcing an aspirational design-ledapproach and creating vibrant, mixed-use communities where people wantto live, work, learn and play.

Sustainability

Integrating the three pillars ofsocial, economic and environmental

sustainability to deliver a legacy ofenduring value to communities andto the business.

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Design

We believe that outstanding design is essential to creating the legacy of a successfulsustainable community. We have created the role of Group Design Director to ensurewe maintain and evolve our standards of design and placemaking. We remain proudto hold eight Gold Building for Life Standards more than any other developer and

exemplified at our ICON development in Somerset.

We are maintaining our commitment that all new sites will be evaluated against theCABE Building for Life approach with a view to achieving Silver Standard. We regretthe hiatus caused by the reshaping of CABE by the Government and we are reviewingthe Building for Life criteria with the help of independent experts to make thiscommitment come to life.

As we progress along the zero carbon agenda, it becomes even more essential thatwe maintain this focus on design technological advance alone does not deliverenduring places and we are introducing a wider range of customer satisfactioncriteria into our technical design and product selection processes.

Customers

Delivering an outstanding customer experience means we must ensure that ourpeople have the skills to take the strain of the purchase process. We are continuingwith our Award-winning training for our sales teams to ensure they maintain currentknowledge and confidence in guiding our customers through a successful andsmooth transaction. We will also seek to develop innovative mortgage products withthe financial community, reflecting the substantially reduced running costs of a newbuild home.

Our research into how customers interact with their homes, particularly theinnovative low carbon homes of the future, will ensure we deliver homes whereit is our customers who get the full benefits of low running costs and a modernlifestyle. That is what placing the customer at the heart of our journey means andis one reason why, for the second year running, we achieved the highest 5-star

rating in the Home Builders Federation (HBF) independent Customer Satisfactionsurvey reflecting the accolade that 92% of our purchasers would recommendCrest Nicholson to a friend.

Sustainability

Crest Nicholsons track record of embedding sustainability in the roundinto its operations has been a major part of delivering strong underlyingbusiness fundamentals.

Our commitment to innovation in business processes and in designing the homesof the future underpins the delivery of our strategy and this year we delivered38% of our homes to Code for Sustainable Homes level 3 and above (2010: 15%).We have maintained our commitment to the ground breaking AIMC4 Consortium

working with two other developers, external experts and our supply chain toresearch, develop and deliver design-led, affordable low carbon homes of thefuture. In 2012 these homes will be completed at our Noble Park site in Epsomand working with the homeowners we will carry out a comprehensive programmeof post-occupancy evaluation.

We remain committed to the fundamentals of environmental sustainability withstrong risk management processes, targets to reduce our carbon footprint and asystematic programme of resource management to eliminate waste at all stages ofthe production process. This year we further increased the amount of waste divertedfrom landfill to 89% (2010: 84%).

8Gold Building forLife Standards

92%of our purchasers wouldrecommend CrestNicholson to a friend

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The health, safety and wellbeing of employees, contractors and everyone who comesinto contact with Crest Nicholson is of paramount importance. Last year we decidedto raise the bar again in working towards exceptional safety performance. This focushas resulted in a 44% reduction in Annual Injury Incidence Rate over the year areduction of 63% since 2008. We have now reinforced our health and safety teamwith two new members to ensure we continue this step change in risk reduction.These new roles have been widened to encompass environmental matters thusdeveloping the synergies of combined safety and environmental risk managementand continuous improvement.

Partnering

Partnerships remain crucial to the way in which we work and over the last 12 monthswe have further developed strong links with our customers, contractors, suppliersand even our competitors through a series of collaborations into developing new, lowcarbon homes.

Crest Nicholson welcomes the localism agenda and we have a talented skillbase withunrivalled experience and a serious commitment to community engagement. Goodpartnerships with the public sector are also essential for taking on challenging siteswhich successfully leave a legacy of job creation and new sustainable communities.We thrive on this challenge, including difficult brownfield sites (circa 70% of ourportfolio is brownfield) to promote regeneration and bring life back to communities.Park Central, Birmingham, has been part of our Regeneration Portfolio for over tenyears and has recently had its 1,000th occupation.

The Crest Nicholson Operational Board Director for Production is leading a changeprogramme so that The Crest Difference is reflected at every stage of delivery. Thezero carbon agenda and the continuing growth and complexity of regulation meanthat the early incorporation of intelligent and, above all, flexible technical and designsolutions is essential.

Key to this change is the way we interact with our supply chain. We have introducedlong-term Group-wide partnering with all core suppliers with shared risk and rewardas the basis of our business model from consultants and architects, to technicaldesigners, product suppliers and all sub-contractors.

We are transforming the way we work to deliver a modern professional productionprocess where excellence is designed in and error designed out.

Investing in People

An essential part of ensuring the underlying good health of the business was theretention of core skills and expertise while downsizing and we are now in the processof growing our skill base across management, central support services, operationsand site. For our people, its been a very disruptive four years through which theymaintained enthusiasm and pride in Crest Nicholson and we, the Operating Board,are proud of their commitment. Part of examining our core values has been a

reaffirmation of our strong commitment to our employees and re-igniting involvementand information sharing. We have also refreshed our performance review processwith an emphasis on growing talent from within.

The creation of our new London Division and our investment in senior central coreskills in planning, design, technical and production will underpin our growth. We havealso reinforced our Strategic Land and Regeneration teams.

We take great pride in helping young people to gain the experience and on-the-jobknowledge they need to develop in our industry. There are a huge number of talentedyoung people out there and it is a real priority for us to nurture that talent and investin developing these individuals alongside our own business growth prospects.

We are extremely proud to be developing 44 apprentices just under 10% of

our headcount.

63%reduction inAnnual Injury Incidence

rate since 2008

44apprentices developing justunder 10% of our workforce

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AWARD-WINNING CREDENTIALS

The breadth of our experience and the skill base of our employees are continuallyreflected in an increasing portfolio of awards, which not only represent the qualityof our end product but also the high standards we endeavour to achieve throughoutthe business.

Our focus on high standards of governance, sustainable delivery and transparentreporting to GRI standards has ensured that we remain a consistent top performer inthe Next Generation industry benchmark. We were delighted to be named SustainableHousebuilder of the Year 2011 at the Housebuilder Awards and that our highlysustainable scheme Icon, Somerset, was highly commended in the category Bestlow or zero carbon initiative. These accolades firmly underpin the design quality andsustainable ethos which Crest Nicholson is striving to replicate across its portfolio.

We remain privileged to be one of only two developers to hold the Queens Award forEnterprise in Sustainable Development.

Once again our people have excelled in their roles and eleven Site Managers receivedNHBC Quality Awards, four went on to achieve the award of Seal of Excellence and

one Regional Award was gained. The continued priority given to achieving the higheststandards of health and safety was once again recognised in the NHBC Healthand Safety awards, with Port Marine being for the second year running a RegionalWinner. As part of our community focus, all Crest Nicholson sites participate in theConsiderate Constructors Scheme and our Port Marine development, The Moorings,achieved runner up as Most Considerate Site at the Schemes first national awardsin 2011.

OUTLOOK

The volume of housing completions in 2012 is forecast to grow as more sales outletscome on-stream and the new London Division becomes fully operational. We willcontinue to make land acquisitions that meet our criteria, but have a strong short-term land bank and can therefore be judicious in selecting sites to develop.

In the short term, the business will continue to face challenges with subduedprices and difficulties in customers obtaining finance. Over the longer term, thefundamentals of the housing market remain strong, underpinned by a structuralimbalance between supply and demand.

The successful restructuring of the business means that we have committedinvestors and a sound balance sheet. Along with our strengthened managementteam, a focus on partnering and continued commitment to excel in design, customerfocus and sustainability we have a solid platform for future profitability.

We are excited by the opportunities and challenges that lie ahead.

Stephen StoneChief Executive

Consistent Top Performer

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RESULTS

Results for the financial year ended 31stOctober 2011 reflect a good tradingperformance in a market that has proved to be pleasingly resilient in spite of anincreasingly difficult economic outlook.

Sales revenues are up 12.2% on 2010, with both housing and commercial revenuesimproving over the prior year.

Gross margins improved by 1.1% in the year, to 28.6% (2010: 27.5%) on the backof favourable house price movements along with good cost controls.

Group operating profits were 56.4m (2010: 47.3m), at a margin of 17.7%

(2010: 16.6%).

Bank finance costs include a 63.6m amortisation of bank debt fair value discount(2010: 61.5m). Following the financial restructuring of the Group described below,finance costs in the forthcoming year are expected to be comprised only of bankinterest charges and other financial expenses.

A deferred tax asset has also been recognised in the year on the grounds that thefinancial restructuring of the Group makes realisation of the related tax benefitthrough future taxable profits probable.

After financing costs and taxation, the Group recorded a profit of 40.5m(2010: loss of 27.6m).

The business has continued to exert strong controls over working capital, generatingcash from operations of 8.9m (2010: 38.1m) while continuing to invest in businessgrowth. At the end of the year, cash and cash equivalents held amounted to121.9m (2010: 129.8m).

FINANCIAL REVIEW

12.2%increase in sales revenues

IMAGE: Centenary Quay, Southampton

40.5mGroup profit after financingcosts and taxation

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FINANCIAL POSITION

During the year, a major financial restructuring of the Crest Nicholson Group wassuccessfully concluded, which has resulted in a significantly strengthened balancesheet at 31stOctober 2011.

In all, 368m of debt and accrued interest was converted to equity, comprising200m of senior debt, plus 150m of subordinated PIK debt and 18m of accruedor capitalised interest. As a result of this restructuring, the strong operatingperformance in the year and other changes as set out in the Consolidated Statementof Changes in Equity on page 32, the Consolidated Statement of Financial Position at31stOctober 2011 shows net assets of 287.0m (2010: net liabilities of 99.0m).

As part of the restructuring process, senior banking facilities were put in place to fundthe working capital requirements of the Group, extending to September 2015. Detailsof the revised facility are set out in Note 20.

The restructuring of the Group balance sheet has put the Group on a moresustainable financial footing and will create a strong platform for business growth.

HOUSINGTotal Crest Nicholson housing completions in 2011 were 1,520 units, down 5.5% onthe 1,609 completions achieved in 2010. The reduction in unit volumes reflected achange in unit mix, with 2011 including a higher proportion of houses, which typicallysell at a higher average selling price but at a slower rate. Unit volumes were alsoadversely impacted by a weaker selling environment in the autumn of 2010, whichmeant that the Group entered the year with a lower level of forward sales.

Average selling prices for open market units in 2011 were 224,000 compared to198,000 in 2010. This 13.1% increase reflected both the change in unit mix towards agreater proportion of housing and sales price appreciation.

Forward sales at 31stOctober 2011 for 2012 and later years amounted to 142.2m(2010: 99.1m), which includes 23% of forecast 2012 open market housing sales(2010: 19%).

MIXED-USE COMMERCIAL

The Group has a portfolio of commercial development opportunities, principallyon mixed-use sites, which are delivered as part of a master plan for the overalldevelopment. As a result, revenues from commercial can vary significantly from yearto year. Revenues in 2011 of 30.6m (2010: 2.4m) primarily reflect the final account inrespect of the town centre re-development at Camberley, Surrey.

MARGINS

Group gross profit margin for the period was 28.6% (2010: 27.5%), after sales andmarketing costs. The Group secured modest increases in open market prices during

the year, while maintaining controls over build costs to ensure that pricing benefitsflowed through to margin improvement.

368mof debt and accrued interestwas converted to equity

287mnet assets

224,000average selling price for openmarket units in 2011

28.6%Group gross profit margin

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LAND BANK

The Groups contracted land bank is summarised in terms of units and grossdevelopment value (GDV) as follows:

The short-term housing land bank has increased by 1,157 plots during 2011, assite acquisitions and conversions from the strategic land bank exceeded legalcompletions and other revisions in the year. The GDV of the short-term land bank hasincreased by 14.2%.

At the 2011 level of Crest Nicholson turnover, the short-term housing portfoliorepresents over nine years supply, although the growth intentions for the businesswould result in a lower figure. The Group is much focused on ensuring that thebusiness has an appropriate number of sites open for sales at any one time. At theend of October 2011, the Group was selling from 41 active outlets (2010: 34), anincrease of 20%.

The increase in length of the short-term land bank reflects the conversion of over

2,200 plots from the strategic land bank, which has resulted in a correspondingreduction in the latter at 31stOctober 2011.

Our strategic land bank continues to provide a source of longer-term developmentvalue as sites are converted to short-term portfolio at the prevailing market price orat agreed discounts to reflect the promotional investment of the Group. The Groupcontinues to promote a number of sites for future development and also to engagewith landowners to maintain a strong pipeline of strategic options.

IMAGE: Merchant Quay, Gloucester Docks

2011 2010

Units GDV m Units GDV m

Short-term housing 14,772 3,011 13,615 2,605

Short-term commercial - 285 - 281

Total short term 14,772 3,296 13,615 2,886

Strategic land 14,259 2,960 16,726 3,495

Total under contract 29,031 6,256 30,341 6,381

41active outlets, anincrease of 20%

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Managing risk is a core element of executive management; arisk management framework must be proactive and dovetail withnormal business processes, to drive business benefits. Making itpart of normal business therefore means:

having a hierarchy of risk assessments

focusing on key risks

linking the assessment of risks to consequential actions monitoring controls developing mitigating actions

establishing ownership.

Crest Nicholson operates a risk management process with a key risks matrix atGroup Board, Divisional Boards and Business Improvement Workgroup (functional)levels. The risk matrices generated are reviewed and updated at least annually and atany time when significant new risks emerge.

The business has a business assurance function which reports to the AuditCommittee. The Audit Committee reports to the Board and the external Auditorsperform controls work as part of the annual audit.

RISKS AND UNCERTAINTIES

IMAGE: Harbourside, Bristol

Crest Nicholson operates a riskmanagement process with a keyrisks matrix at Group Board,Divisional Boards and BusinessImprovement Workgroup(functional) levels.

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The principal risks facing Crest Nicholson in 2012 include, but are not limited to,those set out in the table below:

AREA RISK MITIGATION

Macro-economic climate Consumer confidence is underminedby a worsening of current economicconditions, leading to a rise inunemployment and/or pessimismabout employment prospects.

Keep economic environment underreview, to ensure the business canrespond appropriately to changes intrading conditions.

Mortgage lending Mortgage availability will continue tobe constrained, particularly for firsttime buyers requiring higher loan-to-value products.

Monitor lending product availability,work to increase finance availabilityfor developments and seek to assistpurchasers through the use ofschemes such as the GovernmentsHomeBuy Direct and emergingMortgage Indemnity scheme.Manage cash flow by matchingproduction to finance availability.

Planning uncertainty The introduction of the principlesof localism to planning mattersand the ongoing debate in relationto the National Planning PolicyFramework (NPPF), are likely tocause uncertainty and delay, as localauthorities weigh the benefits ofhousing development against otherpressures.

Develop understanding of the newapproach to planning, workingclosely with key regulators anddecision makers and incorporatingplanning environment uncertaintiesinto assessment of landopportunities.

Recruitment and retention Ability to recruit and retain staff withthe requisite skills to secure anddeliver sustainable developmentsthat generate appropriate returns.

Ensure Company is a desirableemployer, with competitivepackages, clear career progression,good communication, training andreview processes.

Regulation Changes to Government Policyon housing and planning gain,increasing regulation, cost anddelay will render schemes andland buying unviable.

Monitor closely changes/proposedchanges in regulatory environmentand make representations asnecessary.

Ensure financial appraisals includenew regulatory cost assessments.

Health, safety and environmental Injury to persons, potential loss oflife, serious damage to sites and

environment. Reputational damageand costs.

Executive Board leadership andscrutiny of health, safety and

environment. Dedicated teamsin place, with comprehensiveprocedures and controls.

Social and environmental risk are analysed in more detail in our comprehensive 2011 Sustainability Report.

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14 CREST NICHOLSON HOLDINGS LIMITED DIRECTORS REPORT AND ACCOUNTS 2011 IMAGE: Grosvenor Place, Swindon

Our approach to sustainability is an integral part of CrestNicholsons business strategy, driving value through innovation,high quality design and excellence in customer service. Thisapproach, which on every scheme carefully balances economicprosperity with social progress and environmental stewardship,underpins business success.

In 2010 we undertook a materiality assessment to identify the most significantissues for our business, from which emerged the four key themes of oursustainability strategy:

Keeping the customer as the focus of the business

Partnering to deliver sustainable communities

Where good design meets low carbon

A responsible and ethical business

Crest Nicholsons sustainability strategy is driven by the Operational Board, whichregularly reviews performance. The Sustainability Business Improvement Workgroupcomprising of two board members and appropriate members of the seniormanagement team is responsible for thought leadership, development of policies,goals and targets and supporting the Operational Business Improvement Workgroupsto put strategy into practice. Embedding sustainability thinking into the everydaybusiness processes remains a priority and a continuing challenge, given

the rate of change facing the industry.

Crest Nicholsons sustainabilitygoals relate directly to ourbusiness strategy andpriorities.

Chris Tinker,Regeneration Chairman,Board Director responsiblefor Sustainability

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Our commitment to improve the quality of life for those living in our new homes andcommunities remains central to everything we do. Building a community starts witha thorough understanding of the particular needs and desires of the local peopleand other local stakeholders. We do this through a continuous programme of honestcommunication and engagement, building trusting relationships with a wide range ofstakeholders localism in practice.

In the short and medium term, our focus will remain on developing cost-effective,design-led low carbon homes where people want to live and driving resourceefficiency through our business and supply chain. Our commitment to the uniquecollaborative R&D project, AIMC4 will in 2012 see the delivery on our Noble Parkdevelopment at Epsom of the first Code 4 homes using fabric and building servicesonly. The diverse learning from this work has resulted in new products being broughtto market which address the technical elements of the low carbon agenda whilstensuring quality and reliability for our customers. In 2012 we expect the technicalinnovations to cascade through the business, along with resource management andbuild efficiencies based on Lean delivery.

Whilst efficient energy utilisation and carbon emission reduction are crucialelements, the environmental dimension of a sustainable community must alsoaddress waste reduction, water consumption, materials selection and the impact onlocal ecology. The natural resources upon which we are heavily reliant are in decline,energy and commodity costs are predicted to rise and we must find new ways todesign and build homes within our environmental limits. For example, through ourwork with the WWF Forest & Trade Network, we can assure our customers that over99% of our timber is satisfactorily audited to source and that we intend to increaseprogressively the proportion of FSC certificated product.

Looking ahead, it is critical that we understand the future needs of our customersas we deliver the homes of the future in a rapidly changing legislative environment.The specification requirements of the 2016 zero carbon timeline mean that inaddition to a variety of novel energy solutions, the design of new homes is graduallyevolving, becoming more airtight and requiring mechanical ventilation systems.

This, in turn, places increasing demands upon the homeowner who will require agood understanding of the new products and systems in order that they can fullyrealise lower energy costs.

We are the first major developer to have carried out a research programme of post-occupancy evaluation with our homeowners living in low carbon homes at our Avantedevelopment near Maidstone. This work, together with further similar studies, willunderpin our understanding of customer needs and desires and their reaction toliving in low carbon homes. We are delighted to report that feedback at Avante wasextremely positive. We will carry out further post-occupancy research in particularto understand how customers respond to the different energy solutions (micro-renewables, district heating etc) deployed to deliver low carbon developments.

These studies provide much needed evidence to help inform future building

regulations and we are working with government and other stakeholders to setpractical and deliverable standards for the future.

To maintain a sustainable business requires a longer-term view and the successfulfinancial restructuring in 2011 leaves the Group with a solid platform upon whichto develop and grow. Looking ahead, in 2012 our Executive Board and seniormanagement team will challenge themselves to look beyond 2016 to identifythe risks and opportunities on the horizon up to 2020. This will build upon ourexisting foundations and develop a long-term sustainability strategy to lever futurecommercial advantage.

We publish an annual Sustainability Report in which we present our progressincluding an open discussion of our forward strategy and the challenges we faceand last year we were once more a leader in the Next Generation Corporate

Responsibility Benchmark.

We welcome feedback and comments. www.crestnicholson.com/aboutus/reports

99%of our timber is satisfactorilyaudited to source

In the short and mediumterm, our focus will remain ondeveloping cost-effective, design-led low carbon homes wherepeople want to live and drivingresource efficiency through ourbusiness and supply chain.

Looking ahead, it is criticalthat we understand the futureneeds of our customers as wedeliver the homes of the futurein a rapidly changing legislativeenvironment.

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KEEPING THE CUSTOMER AT THE HEART OF THE BUSINESS

Customers are increasingly looking for better value for money and have higherexpectations of both the design quality of new homes and the service they receive.

Over the past two years, we have been working hard to realign our processes and

foster a culture centred on delivering excellence for our customers. High levelsof customer satisfaction rely upon excellent design, sound construction, qualitymaterials and a professional, courteous service. This focus on the customer startsfrom the very outset at land acquisition stage through to long after legal completionand remains central to every element of the development process.

We are investing more time and resources in understanding what our customers wantand we are starting to see this drive real change through our business. It is clear fromour studies that homeowners enjoy living in the new higher specification homes, but itis also clear that for them to realise the benefits fully, developers must enhance homeinduction and handover processes.

We are working with lenders and valuers to try and realise the value from theattributes of new low carbon homes in valuations and mortgage products.

FOCUS 2011 WHAT WE ACHIEVED

Delivering excellence in customer serviceand care

Achieved a 5-star rating in the HBF Customer Satisfaction Survey for thesecond year.

92% of our customers said they would recommend us to a friend.

Ensuring the sustainable homes of thefuture are customer focused

Began the long-term programme of post-occupancy feedback to drivecustomer focused innovation.

Trialled new induction and handover processes, improved ourhomeowner guides.

Continued to work with the Zero Carbon Hub on customer engagement for

Tomorrows new Homes.

Developing value for our customers Work with lenders resulted in a first mortgage product for low carbon homes,branded AIMC4.

Continued engagement with RICS on valuation of new low carbon homes.

The needs and desires of ourcustomers must remain the focusof our decisions. We want peopleto enjoy living in their new homeand for the benefits of sustainableliving to become reality.

IMAGE: Customer service visit toour customers

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Responding to local needs In-depth consultation, along with detailed planning and design, ensurewe offer housing choice and a suitable mix of tenure which will createneighbourhoods that cater for a wide range of households and socio-economic groups.

A strategy to understand how our homesperform and embed new continuousimprovement cycles

Completed our first Building Performance Evaluation studies with OxfordBrookes University and funding from TSB at our Avante scheme in Kent andOne Brighton.

Introduced enhanced feedback learning processes into the design process.

Prepared further funding bids with University College, London to studyschemes with district heating.

Delivering responsibly and with careand consideration

An average score of 33 in the Considerate Constructors Scheme against theBest Practice level of 32.

Building for Life All new schemes will target silver standard as a minimum.

PARTNERING TO DELIVER SUSTAINABLE COMMUNITIES

A sustainable community is a place that adds to peoples quality of life, with a range ofdifferent homes at different prices, all of which have been designed to meet differentlifestyles. Importantly, it must also have been created with respect for the localenvironment and local heritage.

We are maintaining our commitment that all new schemes will target the silverstandard of the CABE Building for Life evaluation.

We also allocate significant time to support community initiatives in the areas inwhich we operate and ensure that we respect the communities as we deliver their

new built environment.

Building a community startswith a thorough understandingof the particular needs anddesires of the local people andother local stakeholders.

IMAGE: Kilnwood Vale Public Consultation Day

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WHERE GOOD DESIGN MEETS LOW CARBON

The UK Government has maintained the Zero Carbon Timeline, albeit reducing theamount of carbon offset required over and above emission reduction on-site. We havecontinued to invest in customer focused innovation to develop cost-effective delivery oflow carbon homes.

To deliver the Crest Difference we must achieve excellence in production. The goalis greater efficiency and an end-to-end production process that will deliver anexcellent product for our customers and give us a competitive advantage. Partneringwith panels of selected consultants and suppliers has been core to this approach,stimulating greater collaboration and innovation and is already yielding sharedbenefits in new products, delivery processes and resource management to eliminatewaste in all its forms. Price is not the driver shared realised value and excellencefor our customers is the goal.

We have continued to work openly with Government, the Zero Carbon Hub, theHouseBuilders Federation and the UK Green Building Council to share knowledge andassist in informing the development of the next generation of building regulations.


Delivery 535 (34%) of homes delivered were to Code for Sustainable Homes level 3,58 (4%) to Code 4 and a further 429 (27%) to EcoHomes standards.

Innovation Continued to drive innovation in cost-effective low carbon homes via theAIMC4 Consortium.

5 exemplar homes will be build complete in early 2012 at our Noble Parkdevelopment.

Developed partnering with suppliers to continue development of cost-effectiveinnovation in products and delivery processes.

Started the transfer of knowledge into design of low carbon schemes across

the Group.

Regulation Continued to contribute to the Zero Carbon Hub workgroups.

Shared knowledge from the AIMC4 project and the Building PerformanceEvaluation/Post-Occupancy Evaluation studies with Government to work inpartnership in developing the new building regulations.

Measurement and continuous improvement Set targets for reduction in carbon emissions through energy and water useand have a focus on resource management and elimination of waste.

In 2011, reduced our office energy use by 7.5%.

We report our carbon footprint annually according to The Greenhouse GasProtocol, our data is externally assured.

Responsible procurement We increased our requirements on suppliers in terms of environmental bestpractice for reduction in waste and environmental risk.

We continue to implement our Sustainable Procurement Policy, partneringwith our suppliers to provide quality and shared value.

Over 99% of our timber supply is audited as legally sourced and assuredthrough our membership of the World Wildlife Fund, Forest & Trade Network.

We will increase our procurement of FSC supply.

Technological advance alonedoes not deliver enduringplaces and we are introducinga wider range of customersatisfaction criteria into ourtechnical design and productselection processes.

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A RESPONSIBLE AND ETHICAL BUSINESS

In 2011 we significantly increased engagement with employees both to ensure thatour strategy and targets were fully communicated at all levels and to ensure weharnessed all of the talents in Crest Nicholson to drive success. We invested inskills development for our sales, customer service and management teams and

introduced a range of new incentives not simply performance related bonuses, butongoing recognition for those who make outstanding contributions Going the ExtraMile. We continue to encourage a culture of openness, creativity and continuousprofessional development that rewards their effectiveness and loyalty.

Crest Nicholson has continuously improved its health and safety performance andthis year saw further advances. Our employees, contractors and suppliers have allbeen engaged in our management of health and safety so that it remains focusedon risk reduction. Our aim is to promote a safety-first culture by raising awarenessand encouraging positive attitudes and behaviours. We have increased the healthscreening options available to all employees, as well as the specialist screening forforklift operatives.

We continue to publish an annual climate change report and set long- and medium-

term targets to reduce our carbon emissions. Eliminating waste, both material andtime, is a major contribution to resource conservation and further reduction in carbonemission and has formed a key part of our new partnering relationship with suppliers.


Employee engagement Much improved communication of business strategy and achievementsthrough roadshows and using a variety of media and cascade briefings.

Employee survey allowing us to respond with a range of improved workingconditions and welfare support and to improve engagement withcorporate objectives.

Developing expertise 8.5 hours of training per employee.

Number of apprentices increased from 26 to 44.

5 Graduate trainees.

98% audited Construction Skills carding for employees and sub-contractors.

Health and Safety for all 63% reduction in annual injury incidence rate since 2008.

44% improvement over the past year.

Reinforced the health and safety team with two new members and integratedenvironmental site management into the roles.

Zero complaints, prosecutions and fines and 200 days of training (2010: 194).

Continued development of risk assessments and health screening.

Reducing our carbon emissions Reduced office energy use by 7.5%.

Targeting a 25% reduction by 2020 over 2007 levels.

8% reduction in car fleet cap for CO2emissions.

Car allowance incentive for vehicles with


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GOVERNANCE

Board of Directors 21

Directors Report 23

Corporate Governance 25

Statement of DirectorsResponsibilities 28

GOVERNANCE

IMAGE: Avante, Coxheath

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BOARD OF DIRECTORSThe Crest Nicholson Group operates through its Holding Board withday-to-day executive operation conducted by the Operating Board.

The Holding Board is responsible for business strategy, risk and oversight of theOperating Board which has responsibility for the day-to-day operation of the business

and developing strategy for the Holding Boards input and approval. The HoldingBoard has three Non-Executive Directors and two Executive Directors.

William RuckerChairman

William Rucker was appointed as Chairman in September 2011. He is CEO of Lazardin the UK, Chairman of Quintain Estates & Development PLC and Non-ExecutiveDirector of Rentokil-Initial.

Malcolm McCaigNon-Executive Director

Malcolm McCaig joined the Board in April 2009. He is Chairman of Kent RelianceProvident Society. He also holds a number of other independent Director roles,including London Capital Group, Unum, Renaissance Capital, Jubilee and The Houseof Lords. He is a former partner with Deloitte as well as Ernst & Young and is atechnical specialist in risk management, finance, corporate governance, regulatorycompliance, IT and change management.

Pam Alexander, OBE

Non-Executive DirectorPam Alexander, the former Chief Executive of the South East England DevelopmentAgency (SEEDA), joined the Board of Crest Nicholson on 5 thDecember 2011. Pamhas more than 35 years of experience in the public, private and not-for-profit sectors,having worked closely with boards and government ministers on strategic policy anddirection across numerous areas including regeneration and housing, innovation,growth and economic development. Pam is also a Non-Executive Director of theDesign Council, the Academy of Urbanism and Brighton Dome and Festival Ltd.


Stephen Stone joined the Group in 1995 and was appointed to the Board in 1999becoming Chief Executive on 1stNovember 2005. Stephen is the Board member

responsible for health and safety. He is a Chartered Architect with over 30 yearsexperience in the construction and house building industry and in 2011 he joined theHome Builders Federation (HBF) Board.

Patrick BerginGroup Finance Director

Patrick Bergin joined the Group in 2006 and became Group Finance Director in 2011.He is a Chartered Accountant with 17 years experience and has worked in a range ofindustries and companies including Touche Ross (now Deloitte), Reed Elsevier andThe BOC Group, in various finance roles.

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Stephen Stone joined the Group in 1995 and was appointed to the Board in 1999becoming Chief Executive on 1stNovember 2005. Stephen is the Board memberresponsible for health and safety. He is a Chartered Architect with over 30 yearsexperience in the construction and house building industry and in 2011 he joined theHome Builders Federation (HBF) Board.

Patrick BerginGroup Finance Director

Patrick Bergin joined the Group in 2006 and became Group Finance Director in 2011.He is a Chartered Accountant with 17 years experience and has worked in a range ofindustries and companies including Touche Ross (now Deloitte), Reed Elsevier andThe BOC Group, in various finance roles.

Chris TinkerRegeneration Chairman

Chris Tinker, a Chartered Builder, joined Crest Estates in 1988. Through the 90s hewas instrumental in the acquisition and master planning of several of the Groupsmajor residential projects, leading to his appointment in 2002 as Managing Directorof Crest Nicholson Developments. Chris joined the Group Board in 2007 and is nowRegeneration Chairman and the Board member responsible for sustainability.

Steve EvansGroup Production Director

Steve Evans was appointed to the Board in January 2011. He had previously servedwith the Group from 1995 for nine years, being appointed to Production Director andthen Managing Director of the Eastern Region. Prior to rejoining the Group in 2009 hewas Chief Executive of the Anderson Group.

Robin HoylesGroup Land and Planning Director

Robin Hoyles joined the Group in May 2011 and was appointed to the Board inDecember 2011. He was previously with Countryside Properties for more than17 years as Managing Director of their Special Projects division. He is a solicitor

and prior to joining Countryside was in private practice in London.

Kevin MaguireCompany Secretary

Kevin Maguire joined the Group in March 2008 and became Company Secretary inJanuary 2009. Having a legal background, he is a Chartered Secretary and previouslyheld roles in retail, pensions and technology.

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DIRECTORS REPORTThe Directors present their annual report with the consolidatedaccounts of the Company for the year ended 31stOctober 2011.

PRINCIPAL ACTIVITY AND BUSINESS REVIEW

During the year to 31st

October 2011, the principal activity of the Group was the designand delivery of sustainable housing and mixed-use communities. The Chairmansstatement, the Chief Executive review and the Financial Review discuss theperformance and position of the Group.

RESULTS AND DIVIDEND

The Groups consolidated profit after taxation for the financial year ending31stOctober 2011 was 40.5m (2010: loss 27.6m).

No dividends were declared or paid in the financial year and the Directors do notpropose a dividend.

SHARE CAPITAL

The Company has 10,000,000 ordinary shares, 70,000 A shares, 1,300 B shares,6,957 C shares, 30,000 D shares and 18,000 deferred shares in issue at31stOctober 2011. A further 4,450 B shares were issued on 15thNovember 2011.

Movements in the share capital of the Company are shown in Note 19.

DIRECTORS

The Directors during the year were:

Non-Executive Directors

Mr AM Coppel CBE (Resigned 13thSeptember 2011)

Mr MG McCaig

Ms PE Alexander OBE (Appointed 5thDecember 2011)

Executive Directors

Mr S Stone

Mr DP Darby (Resigned 19thJanuary 2011)

Mr NC Tinker (Resigned 13thSeptember 2011)

Mr SP Evans (Appointed 1stJanuary 2011;Resigned 13thSeptember 2011)

Mr PJ Bergin (Appointed 1stOctober 2011)

Chairman

Mr AI Goldman (Resigned 13thSeptember 2011)

Mr WJ Rucker (Appointed 14th

September 2011)

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DONATIONS

During the year the Group made donations to charities of 2,000 (2010: 2,000).Employees have continued to support the Groups nominated charity, The VarietyClub, and have raised 57,000 (2010: 11,000) to support this cause during the year.There were no political donations made.

EMPLOYMENT POLICY

The Group maintains and operates an Equal Opportunities Policy. The Group aimsto ensure at all times that all employees and prospective employees and individualsreceive equal and proper treatment regardless of age, gender, creed, medicalconditions, sexual orientation or disability.

SUSTAINABILITY

The Group publishes a Sustainability Report, which it submits to externalbenchmarking. The Groups Sustainability Report can be found earlier in thisAnnual Report and Accounts and on the Groups website.

HEALTH AND SAFETY

The Group believes and acknowledges that health and safety is a critical part ofmanaging our business and staff. Policy management, inspection and training arecarried out by the Groups health and safety team under Stephen Stone, who is theDirector responsible for health and safety.

ESSENTIAL CONTRACTS

The Group does not have any contracts that are considered alone to be essential tothe business of Crest Nicholson.

DISCLOSURE OF INFORMATION TO AUDITORS

The Directors who held office at the date of approval of this Directors Reportconfirm that, so far as they are each aware, there is no relevant audit information of

which the Companys Auditors are unaware; and each Director has taken all the stepsthat he ought to have taken as a Director to make himself aware of any relevantaudit information and to establish that the Companys Auditors are aware ofthat information.

AUDITORS

Pursuant to section 487 of the Companies Act 2006, the Auditors will be deemed to bereappointed and KPMG Audit Plc will therefore continue in office.

By Order of the Board

KM MaguireSecretary

Crest HousePyrcroft RoadChertseySurreyKT16 9GN

28thFebruary 2012

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CORPORATE GOVERNANCE

BOARD OF DIRECTORS

Structure of the Board

The composition of the Board is designed to ensure effective management andcontrol of the Group, taking account of the devolved operating structure and ensuring

that the shareholders interests are properly represented. It was restructured on13thSeptember 2011 and now consists of the Group Chief Executive and GroupFinance Director and three Non-Executive Directors (including an independentChairman). The Non-Executive Directors demonstrate a range of experience andprofessional backgrounds that enables them to make a valuable contribution to theGroup and to provide independent judgement and challenge to the Board.

Following the restructure of the Group, the Board of the Company reflects the HoldingCompany nature, focussing on the overall oversight of the Group with day-to-dayrunning of the Group conducted by the Operating Board of Crest Nicholson PLC.

Biographies of the members of the Board and the Operating Board are set out onpages 21 and 22.

Board effectiveness

The Board is responsible for setting and monitoring Group strategy, reviewingperformance, ensuring adequate funding, formulating policy on key issues andreporting to the shareholders.

The Chairman is primarily responsible for overseeing the working of the Board. TheChief Executive is responsible for the implementation of the strategy and policies setby the Board and the day-to-day management of the Group in conjunction with theOperating Board.

To enable the Board to discharge its duties, all Directors receive appropriate andtimely information, including briefing papers distributed in advance of Board meetings.The Directors have access to the Company Secretary and may, at the Companys

expense, take independent professional advice and receive additional training as theysee fit. All new Directors participate in an induction training programme.

The Board evaluates its own performance from time to time.

The Board held ten meetings during the year, with the following attendanceby Directors:

Nov2010

Dec2010

Jan2011

Mar2011

Apr2011

May2011

Jun2011

Jul2011

Aug2011

Sept2011

Number of Directorsattending

6 of 6 6 of 6 6 of 6 6 of 6 6 of 6 5 of 6 6 of 6 6 of 6 6 of 6 3 of 3

Alan Goldman (Chairman) resigned and William Rucker joined the Committee.

COMMITTEES OF THE BOARD

Audit Committee

The Audit Committee comprises:

Audit Committee

Malcolm McCaig (Chairman)

William Rucker

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The Audit Committee is responsible for reviewing a wide range of financial matters,including the annual financial statements and accompanying reports, Group internaland external audit arrangements, accounting policies, internal control and theactions and procedures involved in the management of risk throughout the Group.The Audit Committee reviews annually the scope of the external Auditors work andtheir fees. It also considers the Auditors independence which is ensured through avariety of procedures including regular rotation of audit partners. Any non-audit feesreceived by the Auditors in excess of 50% of the audit fee are pre-approved by theAudit Committee.

The Audit Committee meets at least three times a year with the Auditors and isattended, by invitation, by the Group Chief Executive, Group Finance Director andother senior personnel as appropriate. The Company Secretary attends eachmeeting. The Audit Committee met 3 times during the year, with full attendanceat all meetings.

Nominations Committee

The Group Nomination Committee comprises:

Nominations Committee


William Rucker

Stephen Stone

Remuneration Committee


William Rucker

Stephen Stone

Andrew Coppel (Chairman) and Alan Goldman resigned and Malcolm McCaig andWilliam Rucker joined the Committee.

The Nominations Committee meets when necessary and is attended, by invitation, byother senior personnel as appropriate. The Company Secretary attends each meeting.

It is responsible for reviewing the structure of the Board, giving consideration tosuccession planning and for making recommendations to the Board with regard toany changes. It is also responsible for identifying and nominating, for the approval ofthe Board, candidates to fill Board vacancies as and when they arise.

Remuneration Committee

The Group Remuneration Committee comprises:

Andrew Coppel (Chairman) and Alan Goldman resigned and Malcolm McCaig andWilliam Rucker joined the Committee.

The Remuneration Committee is responsible for reviewing recommendations andapproving proposals in relation to annual salary increases, bonuses and incentiveprogrammes to be awarded to staff generally. The Committee also has discretion andauthority in respect of the remuneration of senior employees.

The Remuneration Committee meets at least once a year and is attended by theCompany Secretary. The Chief Executive, Company Secretary or other attendees arenot present when their own remuneration is discussed.

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The Groups remuneration strategy recognises the importance of attracting, retainingand motivating executives of the appropriate calibre and experience to enhance theperformance and reputation of the Group. The size and complexity, as well as thelong-term nature of the business, are all important factors. The policy is to providecompetitive potential levels of compensation, benefits and incentive opportunitieswithin appropriate local markets.

INTERNAL CONTROL

The Board is responsible for the Groups system of internal control and for reviewingits effectiveness. This is designed to manage, rather than eliminate, the risk of notachieving business objectives and can provide only reasonable and not absoluteassurance against material misstatement or loss.

The Board considers that there is a continuous process for identifying, evaluating andmanaging significant risks faced by the Group in the course of its business, whichhas been in place throughout the year and up to the date of approval of the AnnualReport and Accounts. This process is regularly reviewed by the Audit Committee andthe Board and is consistent with the internal control guidance for Directors in theCombined Code.

A key part of the system of internal control is the delegation of managementresponsibility for the Groups land and property investment, development andoperating activities, together with supporting functions, to Divisional managementteams as appropriate. The Groups Divisions have local operational managementboards, which oversee their operations with direct input and oversight from theOperating Board. These operational management boards form an integral part of theoverall internal control process.

Each Regional Division, Crest Nicholson Regeneration and the Holding Companyhas management structures in place to enable effective decision making, supportedby documented procedures and a regular review of financial performance, includingcomparisons against budget and forecasts.

Risk management is a regular agenda item for all parts of the business with theemphasis on continuous improvement. Each Regional Divisional board undertakes aregular assessment of its exposure to financial, operational and strategic risks andthe measures that have been put in place to manage those risks. Significant risksarising from Divisional assessments are monitored by the Group Operating Board,the Audit Committee and the Board.

The Board carried out its annual assessment of internal control for the year 2011 atits meeting in October 2011 by considering reports from management and the AuditCommittee and taking account of events since 31stOctober 2010.

The Group has a Business Assurance function, which carries out reviews and reportsdirect to the Audit Committee.

RELATIONSHIPS WITH SHAREHOLDERS AND LENDERSGiven the private ownership of the Group, the requirements of the Combined Codeto communicate with institutional shareholders are not relevant. All lenders andshareholders receive monthly management information which includes key financialperformance information and narrative from the Chief Executive and the GroupFinance Director. The Annual Report and Accounts and non-financial reporting arewidely distributed through a variety of delivery channels and the Groups policy isto maintain close contact during each financial year with shareholdersand stakeholders.

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STATEMENT OF DIRECTORS

RESPONSIBILITIES IN RESPECT

OF THE DIRECTORS REPORT AND

THE FINANCIAL STATEMENTSThe Directors are responsible for preparing the Directors Reportand the Group and parent Company financial statements inaccordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent Company financialstatements for each financial year. Under that law they have elected to prepare theGroup financial statements in accordance with International Financial ReportingStandards (IFRSs) as adopted by the EU and applicable law and have elected toprepare the parent Company financial statements in accordance with UK AccountingStandards and applicable law (UK Generally Accepted Accounting Practice).

Under Company law the Directors must not approve the financial statements unlessthey are satisfied that they give a true and fair view of the state of affairs of the Groupand parent Company and of their profit or loss for that period. In preparing each of theGroup and parent Company financial statements, the Directors are required to:

select suitable accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and prudent;

for the Group financial statements, state whether they have been prepared inaccordance with IFRSs as adopted by the EU;

for the parent Company financial statements, state whether applicable UKAccounting Standards have been followed, subject to any material departuresdisclosed and explained in the financial statements; and

prepare the financial statements on the going concern basis unless it isinappropriate to presume that the Group and the parent Company will continuein business.

The Directors are responsible for keeping adequate accounting records that aresufficient to show and explain the parent Companys transactions and disclose withreasonable accuracy at any time the financial position of the parent Company andenable them to ensure that its financial statements comply with the Companies Act2006. They have general responsibility for taking such steps as are reasonably opento them to safeguard the assets of the Group and to prevent and detect fraud andother irregularities.

The Directors are responsible for the maintenance and integrity of the corporateand financial information included on the Companys website. Legislation in the UKgoverning the preparation and dissemination of financial statements may differ fromlegislation in other jurisdictions.

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FINANCIALS

Independent Auditors Report 30

Consolidated IncomeStatement 31

Consolidated Statementof Comprehensive Income 32

Consolidated Statementof Changes in Equity 32

Consolidated Statementof Financial Position 33

Consolidated Cash FlowStatement 35

Notes to the ConsolidatedFinancial Statements 36

Company Balance Sheet 61

Notes to the CompanyFinancial Statements 62

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IMAGE: Noble Park, Epsom

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INDEPENDENT AUDITORS REPORT TO

THE MEMBERS OF CREST NICHOLSON

HOLDINGS LIMITED

We have audited the financial statements of Crest Nicholson Holdings Limited for the year ended 31st

October 2011 set out onpages 31 to 65. The financial reporting framework that has been applied in the preparation of the Group financial statements isapplicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting frameworkthat has been applied in the preparation of the parent Company financial statements is applicable law and UK AccountingStandards (UK Generally Accepted Accounting Practice).

This report is made solely to the Companys members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act2006. Our audit work has been undertaken so that we might state to the Companys members those matters we are required tostate to them in an Auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company and the Companys members, as a body, for our audit work, for this report, or forthe opinions we have formed.

Respective Responsibilities of Directors and Auditors

As explained more fully in the Directors Responsibilities Statement set out on page 28, the Directors are responsible for thepreparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, andexpress an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK andIreland). Those standards require us to comply with the Auditing Practices Boards (APBs) Ethical Standards for Auditors.

Scope of the Audit of the Financial Statements

A description of the scope of an audit of financial statements is provided on the APBs website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on Financial Statements

In our opinion:

the financial statements give a true and fair view of the state of the Groups and of the parent Companys affairs as at

31stOctober 2011 and of the Groups profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

the parent Company financial statements have been properly prepared in accordance with UK Generally AcceptedAccounting Practice;

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other Matter Prescribed by the Companies Act 2006

In our opinion the information given in the Directors Report for the financial year for which the financial statements are preparedis consistent with the financial statements.

Matters on which we are Required to Report by Exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if,in our opinion:

adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not beenreceived from branches not visited by us; or

the parent Company financial statements are not in agreement with the accounting records and returns; or

certain disclosures of Directors remuneration specified by law are not made; or

we have not received all the information and explanations we require for our audit.

WEJ Holland (Senior Statutory Auditor)for and on behalf of KPMG Audit Plc, Statutory Auditor

Chartered Accountants

15 Canada SquareLondonE14 5GL28thFebruary 2012

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http://www.frc.org.uk/apb/scope/private.cfmhttp://www.frc.org.uk/apb/scope/private.cfmhttp://www.frc.org.uk/apb/scope/private.cfmhttp://www.frc.org.uk/apb/scope/private.cfmhttp://www.frc.org.uk/apb/scope/private.cfm


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CONSOLIDATED INCOME

STATEMENTFor year ended 31stOctober 2011

Note

2011

m

2010

m

Revenue continuing activities 2 319.1 284.4

Cost of sales (227.8) (206.3)

Gross profit 91.3 78.1

Administrative expenses: (35.1) (31.0)

Other operating income 0.2 0.2

Operating profit continuing activities 4 56.4 47.3

Financial income 6 8.9 8.2

Bank finance costs:

Nominal bank interest charges (19.0) (14.1)

Amortisation of bank debt fair value discount (63.6) (61.5)

6 (82.6) (75.6)

Other financial expenses 6 (8.3) (8.8)

Net financing expense (82.0) (76.2)

Share of (loss)/profit of associates and jointly controlled entities

using the equity accounting method, net of tax

11 (1.4) 1.5

Loss before tax (27.0) (27.4)

Income tax 7 67.5 (0.2)

Profit/(loss) for the year attributable to equity shareholders 40.5 (27.6)

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CONSOLIDATED STATEMENT

OF COMPREHENSIVE INCOMEFor year ended 31stOctober 2011


OF CHANGES IN EQUITYFor year ended 31stOctober 2011

2011

m

2010

m

Profit/(loss) for the year 40.5 (27.6)

Other comprehensive income:

Cash flow hedges: effective portion of changes in fair value - (0.2)

Actuarial (loss)/gain on defined benefit pension schemes (10.2) 6.2

Deferred tax recognised on actuarial loss 8.7 -

Change in fair value of available for sale assets 2.1 0.2

Other comprehensive income for the year net of income tax 0.6 6.2

Total comprehensive income attributable to equity shareholders 41.1 (21.4)

Sharecapital

m

Sharepremium

m

Cash flowhedgingreserve

m

Retainedearnings

m

Total

m

Balance at 31stOctober 2009 - - 0.2 (77.8) (77.6)

Loss for the year - - - (27.6) (27.6)

Actuarial gain on pension scheme - - - 6.2 6.2

Change in fair value of available for sale asset - - - 0.2 0.2

Cash flow hedges: effective portion of changes in fair value - - (0.2) - (0.2)

Balance at 31stOctober 2010 - - - (99.0) (99.0)

Profit for the year - - - 40.5 40.5

Actuarial loss on pension scheme - - - (10.2) (10.2)

Deferred tax on actuarial loss - - - 8.7 8.7

Change in fair value of available for sale asset - - - 2.1 2.1

Financial restructuring 10.0 240.3 - 94.6 344.9

Balance at 31stOctober 2011 10.0 240.3 - 36.7 287.0

The notes on pages 36 to 60 form part of these financial statements.



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OF FINANCIAL POSITIONat 31stOctober 2011

Note

2011

m

2010

m

ASSETS

Non-current assets

Intangible assets 9 29.0 29.0

Property, plant and equipment 10 2.9 4.0

Investments 11 2.3 3.7

Available for sale assets 12 26.8 21.1

Deferred tax assets 17 75.2 -

136.2 57.8

Current assets

Inventories 13 394.2 361.9

Trade and other receivables 14 46.7 39.6

Cash and cash equivalents 121.9 129.8

562.8 531.3

Total assets 699.0 589.1

LIABILITIES

Non-current liabilities

Interest bearing loans and borrowings 15 (162.7) (433.7)

Trade and other payables 16 (24.7) (25.0)

Retirement benefit obligations 21 (34.5) (36.1)

Provisions 18 (11.1) (12.8)

(233.0) (507.6)

Current liabilities

Interest bearing loans and borrowings 15 (2.0) -

Trade and other payables 16 (170.3) (174.0)Provisions 18 (6.7) (6.5)

(179.0) (180.5)

Total liabilities (412.0) (688.1)

Net assets/(liabilities) 287.0 (99.0)



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Note

2011

m

2010

m

SHAREHOLDERS EQUITY

Share capital 19 10.0 -

Share premium account 19 240.3 -

Retained earnings 36.7 (99.0)

287.0 (99.0)



OF FINANCIAL POSITION (continued)at 31stOctober 2011


These financial statements were approved by the Board of Directors on 28thFebruary 2012 and were signed on its behalf by:

S Stone

PJ BerginDirectors

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CONSOLIDATED CASH

FLOW STATEMENTFor year ended 31stOctober 2011

2011

m

2010

m

CASH FLOWS FROM OPERATING ACTIVITIES

Profit/(loss) for the year 40.5 (27.6)

Adjustments for:

Depreciation charge 1.2 1.2

Net finance charges 82.6 75.6

Share of loss/(profit) of joint ventures 1.4 (1.5)

Taxation (67.5) 0.2

Operating profit before changes in working capital and provisions 58.2 47.9

(Increase)/decrease in trade and other receivables (7.1) 1.9

(Increase)/decrease in inventories (32.3) 24.1

Decrease in trade and other payables (9.9) (35.8)

Cash generated from operations 8.9 38.1

Interest paid (9.8) (10.8)

Net cash (outflow)/inflow from operating activities (0.9) 27.3

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property, plant and equipment (0.1) (0.4)

Loans to joint ventures - 7.9

Increase in available for sale assets (3.8) (6.3)

Net cash (outflow)/inflow from investing activities (3.9) 1.2

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from the issue of share capital 0.3 -Debt arrangement and facility fees (3.4) (0.6)

Net cash flow from financing activities (3.1) (0.6)

Net (decrease)/increase in cash and cash equivalents (7.9) 27.9

Cash and cash equivalents at the beginning of the year 129.8 101.9

Cash and cash equivalents at end of the year 121.9 129.8



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NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

1 ACCOUNTING POLICIES

Crest Nicholson Holdings Limited (the Company) is a company incorporated in the UK.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group)and include the Groups interest in associates and jointly controlled entities. The parent company financial statements presentinformation about the Company as a separate entity and not about its Group.

The Group financial statements have been prepared and approved by the Directors in accordance with International FinancialReporting Standards as adopted by the EU (Adopted IFRSs). The Company has elected to prepare its parent company financialstatements in accordance with UK GAAP; these are presented on pages 61 to 65.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in theseGroup financial statements.

Judgements made by the Directors, in the application of these accounting policies, that have significant effect

crest nicholson holdings annual report (2011)

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