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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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8 Crest Nicholson Annual Report 2005
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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10 Crest Nicholson Annual Report 2005
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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14 Crest Nicholson Annual Report 2005
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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Crest Nicholson Annual Report 2005 17
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
Key Performance Indicators 2003 2004 2005
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
Key Performance Indicators 2003 2004 2005
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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20 Crest Nicholson Annual Report 2005
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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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Crest Nicholson Annual Report 2005 23
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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Crest Nicholson Annual Report 2005 25
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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28 Crest Nicholson Annual Report 2005
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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
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Crest Nicholson Annual Report 2005 31
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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32 Crest Nicholson Annual Report 2005
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.
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Crest Nicholson Annual Report 2005 33
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
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34 Crest Nicholson Annual Report 2005
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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Crest Nicholson Annual Report 2005 35
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.
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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
36 Crest Nicholson Annual Report 2005
Notes to the accounts
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Crest Nicholson Annual Report 2005 37
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)
At 31st October 2005 5.5
Accumulated depreciation
At 31st October 2004 2.9
Charge for year 1.0
On disposals (0.9)
At 31st October 2005 3.0
Net book value
At 31st October 2005 2.5
At 31st October 2004 2.5
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38 Crest Nicholson Annual Report 2005
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
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Crest Nicholson Annual Report 2005 39
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 - -
Amounts falling due after more than one year
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 2008 US$15.0m 8.13%
Repayable in 2009 US$23.0m 7.97%
Repayable in 2011 US$93.0m 8.12%
Repayable in 2011 10.0m 7.68%
The Group entered into currency swap agreements to eliminate all exchange risks arising from these transactions.
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40 Crest Nicholson Annual Report 2005
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
Amounts falling due after more than one year
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
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Crest Nicholson Annual Report 2005 41
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
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42 Crest Nicholson Annual Report 2005
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)
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Crest Nicholson Annual Report 2005 43
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).
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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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Crest Nicholson Annual Report 2005 49
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
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