## Building ## better ## futures ### Annual Integrated Report 2022 ## Building ## better ## places Wycke Place, Maldon ### New science-based sustainability targets We have stepped up our ambition to reduce the Group’s carbon ## We build great places for our footprint by setting out new science-based targets. The targets ## customers, communities and are designed to achieve net zero by 2045 and have been validated by the Science Based Targets initiative. Our new ## the environment. Our focus targets are to reduce absolute scope 1 and 2 greenhouse gas (GHG) emissions 60% by 2030 from a 2019 base year, reduce ## onplacemaking means that we scope 3 GHG emissions by 55% per sq. m completed floor area ## createsustainable communities within the same timeframe and reach net zero GHG emissions across the value chain (scopes 1, 2 and 3) by 2045. ## where people and nature Read more on pages 26–29 ## canthrive. Front cover images Top: Highlands Park, Henley-on-Thames Bottom: Nichola Careless, Technical Manager andWilliam Hope, Technical Trainee at Westwood Park, Coventry Highlands Park, Henley-on-Thames ### More homes in more areas We continue to operate across a broad spectrum of the market, creating homes for private sale, aordable homes and private rental properties. Our divisions are predominantly based in theSouth of England, and during the year we have expanded into Yorkshire and East Anglia. Learn more online www.crestnicholson.com/investors/strategy Cautionary statement The Annual Integrated Report for the financial year ended 31 October 2022 as Trainees on site at Manor View, contained in this document (Annual Integrated Report), contains information which Milton Keynes readers might consider to be forward looking statements relating to or in respect of the financial condition, results, operations or businesses of Crest Nicholson Holdings plc (Company). Any such statements involve risk and uncertainty because they relate to future events and circumstances. There are many factors that could ### Better careers cause actual results or developments to dier materially from those expressed or People are the key to our success. We have increased our implied by any such forward looking statements. Nothing inthis Annual Integrated investment in vocational and leadership training programmes, Report should beconstrued as a profit forecast. as well as in schemes promoting employee development, Approval The Strategic Report for the financial year ended 31 October 2022 as presented engagement and recognition. During the year we welcomed onpages 1-65 was approved by the Board of Directors on 17 January 2023 46 trainees across all disciplines within the Group. andsigned on its behalf by: Learn more online www.crestnicholson.com/careers Kevin Maguire Company Secretary Strategic Report Governance and Directors' Report Financial Statements Crest Nicholson Annual Integrated Report 2022 1 In this year's report Strategic Report 1 Our year in review 2 We are Crest Nicholson 3 We have a clear purpose 4 What makes us Crest Nicholson 5 Chairman's statement 6 Chief Executive's statement 7 Our strategy in action 8 Market overview 9 Business model 10 Stakeholder relations 11 Our sustainability review 12 TCFD-related Financial Disclosures 13 Protect the environment 14 Make a positive impact on communities 15 Operate our business responsibly 16 People 17 Safety, Health & Environment 18 Key performance indicators 19 Financial review 20 Non-financial information statement 21 Principal risks and uncertainties 22 Our principal risks 23 Viability statement Governance and Directors' Report 1 Corporate Governance Report 2 Nomination Committee Report 3 Audit and Risk Committee Report 4 Directors' Remuneration Report 5 Directors' Report Financial Statements 1 Statement of Directors' Responsibilities 2 Independent auditors' report 3 Consolidated income statement 4 Consolidated statement of comprehensive income 5 Consolidated statement of changes in equity 6 Consolidated statement of financial position 7 Consolidated cash flow statement 8 Notes to the consolidated financial statements 9 Company statement of financial position 10 Company statement of changes in equity 11 Notes to the Company financial statements 12 Alternative performance measures (unaudited) 13 Historical summary (unaudited) 14 Shareholder services 15 Group directory # Our year in review We have made good progress in delivering the first part of our growth strategy, and continued to deliver strong financial and operational performances in the year. Sales¹ £955.8m FY21: £813.6m Revenue £913.6m FY21: £786.6m Adjusted profit before tax¹ £137.8m FY21: £107.2m Profit before tax £32.8m FY21: £86.9m Adjusted operating profit margin¹ 15.4% FY21: 14.6% Operating profit margin 4.2% FY21: 11.9% Return on capital employed¹ 22.4% FY21: 17.2% Net cash¹ £276.5m FY21: £252.8m Customer satisfaction 5 star FY21: 5 star Employees' engagement score 83% FY21: 75% ¹ Sales, adjusted profit before tax, adjusted operating profit margin, return on capital employed and net cash are non-statutory alternative performance measures (APMs) used by the Directors to manage the business which they believe should be shared for a greater understanding of the performance of the Group. The definitions of these APMs and the reconciliation to the statutory numbers are included on pages 188–189. Crest Nicholson ## 2 Annual Integrated Report 2022 ## We are ## How we are building ## Crest Nicholson ## better futures. ## Led by our purpose Proud of our culture ## Building great places for our customers, We aspire to have an open and ## communities and the environment. welcoming culture, creating a positive ## We invest in placemaking, delivering andcollaborative working environment, ## attractive homes, amenities and open where allcolleagues are empowered ## green space to improve the quality of todeliverour success. ## lifefor customers andlife for customers and communities. Lyewood, Maidstone | | Read more in the Chief Executive’s Statement | | Read more in our People section | | --- | --- | --- | --- | | | on pages 8–10 | | on pages 44–47 | | Defined by our values | | Integrating sustainability | | | Our values underpin how we implement | | We recognise the importance placed | | | ourGroup strategy, defining who we | | onourenvironmental, social and | | | areand how we operate. | | governance (ESG) responsibilities | | | Our values | | by ourstakeholders and we aim | | Working together ## to integrate sustainability into all ## 1 We are one Crest. We value our diverse and inclusive workplace and support each other. We collaborate closely to build fair and ## aspectsofourbusiness. rewarding relationships. Being the best we can be ## 2 We improve and inspire each other to get things done. We have passion for what we do and pride in how we accomplish it. Doing the right thing ## 3 The safety and wellbeing of our employees, partners and communities is our number one priority. Everything we do is built on a foundation ofintegrity, quality and care. Championing our people ## 4 We invest in the wellbeing and development of our people. We provide them with the tools and support to be the best they can be. Leaving a positive legacy ## 5 We care passionately about the natural environment. We create beautiful homes and places that deliver lasting benefits to our Morton Park, Milton Keynes customersand communities. Read more in our Strategy in action Read more in our Sustainability review on pages 11–15 on pages 26–43 Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 3 ## We have a ## Building great places ## clear purpose ## for our customers, ## communitiesand ## the environment. ## Better customer service Better communities Achieving a five-star customer satisfaction rating is one of We strive to create distinctive new communities for our ourstrategic priorities. We are preparing for the introduction customers to live in and enjoy. We place a strong emphasis of the New Homes Quality Code by investing in new technology on placemaking including careful consideration of the local and recruiting additional roles to ensure we comply with its environment, wildlife and biodiversity. Through our activities requirements. We always want a ‘right first time’ culture and and operations we are committed to mitigating our impact are focused on the smooth delivery of homes to customers on the climate, reducing both our waste and our carbon andproviding high quality after-sales service. emissions. This approach ensures we create a long-term positivelegacyfor communities. Highlands Park, Henley-on-Thames ## Better skills and capabilities Better homes In an industry with declining availability of skilled resources, We continuously seek to improve and innovate how our homes having our own pipeline of future talent is critical to our success. are designed and built to ensure they meet our customers’ We have established the Crest Academy which oversees requirements and aspirations. The Crest Nicholson brand threetalent programmes. This investment will ensure we issynonymous with providing a high quality specification can equip thenext generation with the skills and capabilities andfinish. New Building Regulations are being introduced we willneedto deliver our strategy and ensure our teams toimprove the energy eciency of new homes and reduce understand the latest regulatory changes. their impact on the climate and we are incorporating these intoour designs. Crest Nicholson ## 4 Annual Integrated Report 2022 ## We have five established housebuilding divisions ## What makes us ## and in the year opened a further two in Yorkshire and ## Crest Nicholson ## EastAnglia. We also operate a dedicated Partnerships ## and Strategic Land division which provides expertise ## in working with our key partners and managing ## theacquisition of strategic land. ### Our divisions Divisional highlights ### 1 South West Case study Highbrook View Highbrook View, Stoke Giord, is a highly sought-after village on the outskirts of Bristol. The first phase of 144 homes was launched in September 2022. It will be part of the new Harry Stoke Community where we have five phases and will deliver approximately 1,250 homes, commercial and education facilities, and local amenities. It is located just seven miles from Bristol city centre, and is wellconnected to the main motorways, making travel into key cities and to London more convenient. ### 6 ### 2 South ### 5 Case study Curbridge Meadows ### 7 Curbridge Meadows is located in Curbridge village, Hampshire andis part of the wider Whiteley Meadows development. It will provide two,three and four bedroom homes with green open space across half the development. ### 3 This scheme willbenefit from associated new facilities, including twonew primary schools which arelocated on the ### 4 development, a secondary school and two neighbourhood centres with space forshops and community amenities. ### 1 ### 2 Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 5 ### Employees Plots added to our short-term Divisions ### land portfolio ## 797 3,094 7 | 3 | Chiltern | 5 | Midlands | 7 | East Anglia | | --- | --- | --- | --- | --- | --- | | Case study Highlands Park | | Case study Monksmoor Park | | Case study A new division | | | Highlands Park is located on the | | Monksmoor Park, Daventry, comprises | | Our East Anglia division will | | | edge of Henley-on-Thames, close to | | just over 1,000 thoughtfully designed | | operate across Norfolk, Suolk and | | | local amenities such as shops, cafes, | | homes, a primary school and nursery, | | Cambridgeshire. We have recruited | | | restaurants and schools. It is surrounded | | community building, health facilities, | | anexperienced leader who isfamiliar | | | by countryside and within an Area of | | retail and oce space, as well as | | with the region and will now establish | | | Outstanding Natural Beauty. The location | | anextensive network of cycle paths. | | a team and start to acquire sites. | | | is suited for families and commuters, | | The site has two phases of the | | We remain confident that East Anglia | | | being well connected to the main | | development left to sell: Union Place, | | isahighly attractive new geography | | | motorways and train network to London. | | whichhas a total of 114 homes with 26% | | forus to expand into given its population | | | The development has 191 homes with | | ofthese being section 106 aordable | | growth and increasing accessibility | | | abroad mix of homes from two bedroom | | homes and Central Point, asmaller | | tomajor towns and cities. | | | apartments to five bedroom houses. | | scheme consisting of 37 homes with | | | | 35%of these aordable. ### Partnerships and Strategic Land ### 4 Eastern 6 Yorkshire The PSL division have established a strong reputation to work in conjunction Case study Henley Gate Case study A new division with partners to deliver Crest Nicholson homes across a range of tenure types. Henley Gate, Ipswich, forms part of Our Yorkshire oce opened in Leeds They aim to maximise value for both parties theIpswich Garden Village sustainable earlier this year. We have recruited through scheme design and placemaking urban extension that will deliver a total asmall, experienced leadership team principles and demonstrating sector-wide of 3,500homes, alongside schools, a with local expertise to oversee our plans knowledge across all housing, land and localcentre and associated infrastructure. in this region. Areas we are targeting planning matters. The Henley Gate development, which include East Riding, North, South and Working with the public sector, PRS is north of therailway, comprises 1,100 West Yorkshire. We have acquired andRegistered Providers, theteam have homes and aprimary school along with a sitein Sprotborough, an attractive successfully delivered multiple transactions a large country park. The country park villagenear several main towns with with valued partners for the Group’s will be a key attraction which will enable access to good schools. We have also housebuilding divisions during the year. | ecological habitats to thrive along with | approved the purchase of several further | | | --- | --- | --- | | providing an open space for residents | sites andthese purchases should be | Their Strategic Land team have secured | | and visitors to enjoy. | completed early in FY23. | land deals on several promising sites in a | challenging market. The existing strategic land portfolio continues to be promoted witha number of sites progressing through key planning stages in the year, including new Local Plan allocations and draft allocations in emerging plans. The team hasalso played a leading role in responding to regional and national planning challenges such as emerging environmental legislation and proposed changes to the planning system. Crest Nicholson ## 6 Annual Integrated Report 2022 ## I am pleased to present another year of strong ## Chairman’s ## performance and strategic progress. Our robust ## statement ## financialposition underpins our ability to deliver ## ourmedium-term growth strategy. ### Performance overview I am pleased to report that the Group continues to deliver good progress implementing its strategy and has delivered ## Prepared a financial performance in line with its expectations. We have built more homes, increased our adjusted operating margin ## for the future and maintained a robust balance sheet. Despite the various challenges impacting the housing market over the past year, ourstrategy has supported us in navigating through these conditions and delivering ## I am always impressed by the these outcomes. ## enthusiasm and commitment Our plans for geographical expansion areprogressing well. In Yorkshire we are ## ofeveryone that I meet across in the process of acquiring several sites in excellent locations and have established a ## theGroup.” high-calibre leadership team with regional expertise and knowledge. We have recently Iain Ferguson CBE recruited a senior business leader in Chairman EastAnglia and we plan to make a similar start in this region as well. The Group can look forward with confidence and optimism about its longer-term growth ambitions, while remaining cognisant of the current economic environment. We have made significant progress in the past three years and have both the operating platform, the necessary financial resources and the resilience required to execute these plans. On behalf of the Board I would like to thank all of our colleagues for their dedication andcommitment in delivering thisyear’s results. Read more in our Chief Executive’s statement on pages 8–10 Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 7 | Political and | Building safety | Engagement with our people | | --- | --- | --- | | economicenvironment | In April 2022 the Group signed the | The Board is always keen to understand | | The long-term fundamentals of the | Government’s voluntary Building Safety | andrespond to our employees’ views, | | UK housing market remain attractive. | Pledge committing to remediate life- | concerns, and challenges. Communication | | The shortage of available housing stock | critical fire-safety issues on all buildings | and feedback are achieved through a | | and low levels of unemployment will both | over 11 metres developed by the Group | varietyof channels, including employee | | underpin future demand. In recent years | in the last30 years. We are pleased to | surveys and the Employee Voice | | mortgage availability has been good and | have reached an outcome that we hope | programme. The latter is hosted by | | the cost of borrowing has also been at | provides comfort and assurance to aected | LouiseHardy, Non-Executive Director | | historically low levels. It was against this | residents and stakeholders. It also allows | responsible for employee engagement. | | backdrop, supported by our excellent | the Group to move forward in remediating | This programme provides an open, | | financial position, that we announced | the aectedbuildings directly or through | independent and inclusive forum for our | | our plans to expand Crest Nicholson into | another party as soon as possible. | employees to interactwith aBoard member. | | newregions across the UK at our Capital | | The Board has spent time during the year | ### Sustainability and social value Markets Day in October 2021. reflecting on the feedback received. As a Board we recognise our responsibility The economic situation in the UK has During the year the Board has visited inensuring that our business operations limit undoubtedly deteriorated during 2022. severalof our developments enabling us to or reduce their impact on the climate and The war in Ukraine and the consequences meet our colleagues. I am always impressed planet. Sustainability and social value is one ofdecisions taken to deal with COVID-19 by the enthusiasm andcommitment of of the Group’s four foundations upon which have caused higher levels of inflation across everyone that I meet across the Group. our strategy is anchored and we are always all developed economies. We have also We are very conscious of the challenges looking for ways in which we can operate hadto contend with adjusting to life outside thatmany of our colleagues are facing more sustainably in everything thatwe do. of the European Union and experienced because of the cost-of-living crisis and We continue to make strong progress political leadership changes which have wehave considered ways of supporting against our medium-term targets to reduce added to the general economic and them throughout the year. In July 2022, greenhouse gas (GHG) emissions intensity politicaluncertainty for all businesses. theGroup made a one-o payment as a by 25%, waste intensity by 15% and increase As a housebuilder, our sector’s performance cost-of-living supplement to all employees renewable electricity procurement to 100%. is heavily dependent on confidence and below the Executive Leadership Team. Last year we stepped up our ambitions market sentiment. The Bank of England’s We will continue tomonitor the economic toreduce the Group’s carbon footprint and actions to combat rising inflation, by backdrop and consider any further measures established new science-based targets. increasing interest rates and providing that are deemed appropriate. Further detail These are designed to achieve net zero forward guidance of more action to come about how the Remuneration Committee by2045 and I am pleased to announce in2023, have started to have an impact hasconsidered Director and employee pay these targets have been validated by on the availability and cost of mortgage can be foundon pages 100–122. the Science Based Targets initiative, borrowing. The general economic ### bringing usa step closer in combating Capital allocation and dividend uncertainty also encourages customers climate change. The Group maintains its dividend policy to be more cautious and delay house oftwo and a half times cover, and the Board purchasing decisions if they believe prices ### Board changes is recommending a final dividend of11.5 areabouttofall. In May 2022, the Board and Tom Nicholson, pence per share (FY21: 9.5p), and subject We will navigate and adapt our strategy in Chief Operating Ocer, agreed that it was to shareholder approval, this will be paid response to trading conditions. Reassuringly, the appropriate time for Tom to leave the on5 April 2023, which will make the total the Group is equipped with the necessary Group. The Board and I would like to thank dividend 17.0 pence (FY21: 13.6 pence) financial resources and leadership Tom for his hard work and dedication in for FY22. experience to successfully achieve this helping develop and oversee the changes and remains confident in the long-term that nowposition Crest Nicholson todeliver ### Summary and outlook prospects of the UK housing market. its future growth ambitions. This has been another year of significant | The Executive Leadership Team has been | progress for Crest Nicholson. The strategy | | --- | --- | | augmented as we welcome the promotion | we set out in 2019, coupled with the hard | | ofAlex Stark and David Brown to be | work and eorts of our people across | | Executive Managing Directors. Alex and | the Group, is translating into improved | | David both bring significant industry | financial performance. The Board remains | | expertise and will have responsibility for | convinced that growing the Crest Nicholson | | both their existing divisions and oversight | footprint inthe UK remains the best way | | of another division as we develop our | of generating value for shareholders. | | organisation to deliver our growth ambitions. | The current economic uncertainty inevitably | challenges our original assumptions for how quickly that growth can and should bedelivered. Maintaining a robust financial position will always be our key priority in times such as these and we will remain disciplined and selective in relation to futureland investment. ## “ Maintaining a robust financial position will I remain confident in the skill and commitment of our people and the Board ## always be our main priority in times such considers that we have highly experienced ## as these and we will remain disciplined and leadership, central and divisional teams. The long-term prospects for Crest Nicholson ## selective in the acquisition of any new land.” remain attractive and exciting. Iain Ferguson CBE Chairman Crest Nicholson ## 8 Annual Integrated Report 2022 ## I am delighted to report another year of improved ## Chief Executive’s ## financial performance and we continue to make good ## statement ## progress with the implementation of our strategy, ## despite a challenging economic backdrop. ### FY22 performance review This year has been characterised by significant uncertainty in the external environment. At the start of the year our sector was starting ## Building to recover from the operational disruption created by COVID-19. The economic backdrop pointed to rising inflation and increasing ## better interest rates, however the housing market continued to demonstrate its resilience, as it had done throughout the pandemic, and we traded well during this time. ## futures The tragic conflict in Ukraine acted as an accelerant to these pressures, creating energy supply concerns, adding further commodity supply issues, and increasing global geopolitical uncertainty. In housebuilding, cost ## The hard work inflation started to grow with raw material price ## in the past three increases and labour inflation driving up the cost of construction. The housing market has ## years has put the mitigated the impact of these increased costs through comparable levels of house price ## Group in a strong inflation. Trading conditions started to become tougher over the summer, culminating in ## financial position, significant political and economic turbulence ## which gives us in the UK in early autumn. A year that had started so positively for all housebuilders ## confidence to became increasingly challenging as we closedour year at the end of October. ## trade eectively Despite this uncertainty I am delighted to report another year of improved financial ## in allmarket performance as we continue to make good ## scenarios.” progress implementing our strategy. We have delivered revenue growth, expanded Peter Truscott adjusted operating margins, increased Chief Executive return on capital employed and generated strong levels of cash throughout the year. We closed the year with net cash of £276.5m and completed a new £250m Sustainability Linked Revolving Credit Facility. In combination they underline the strength of the Group’s balance sheet which provides resilience in tougher market conditions, funds our growth ambitions and covers our legacy combustible materials responsibilities. You can read more detail on both our trading performance and eorts inenhancing our financial position in the Finance Review on pages 52–56. That we have managed to deliver such a strong performance in the year, set against this backdrop of uncertainty and external pressures, reflects the hard work and eorts of all Crest Nicholson employees. I would like to personally thank each of them for theircommitment, tenacity and resilience. Over the past three years we have needed to make some dicult decisions in our ambition to restore Crest Nicholson as one of the UK’s leading housebuilders. Our people have dedicated themselves to this goal and can rightly be proud of what we have achieved this year. Strategic^{}[] Report Governance and^{}[] Directors' Report Financial^{}[] Statements Crest Nicholson^{}[] Annual Integrated Report 2022 9 ## Political and economic environment The UK is facing the same global headwinds on inflation and energy supply as other developed nations. The impact of COVID-19 necessitated significant financial intervention from the Government to protect the economy and jobs. These actions are undoubtedly contributing to some of the current economic fragility. However, the political uncertainty experienced over the late summer of 2022 was undeniably self-inflicted and avoidable. The short tenure of the Prime Minister and Chancellor of the Exchequer, following the rejection of their Mini Budget in September, created additional volatility. Financial markets became instantly concerned by tax cuts that were not clearly funded. In addition, the overall affordability of the UK's projected national debt led to a rapid drop in the value of the British pound and speculation on the requirement for a succession of steep increases in interest rates into 2023. Mortgage rates responded in kind with lenders increasing their rates across all products and in many instances withdrawing products for those buyers with the lowest levels of equity. Media speculation at the time inevitably focused on the pressure this would exert on the housing market, pointing to falling volumes and prices as a major correction was underway. Rising mortgage costs were accompanying a general cost of living crisis as increasing energy bills and food prices were being absorbed against a call for wage inflation restraint in the public sector to help curb overall levels of inflation. The appointment of another Prime Minister and Chancellor in October, complemented by a new Budget in November calmed the financial markets. Focusing on delivering efficiencies in public spending and increasing taxes across a variety of income streams has already started to lower predictions of peak future interest rates. Evidence that inflation is starting to recede is also supporting this narrative. No one can definitively predict how the housing market will perform in 2023. The UK consumer will undoubtedly be in possession of lower levels of disposable income, however mortgage availability will likely still remain good, albeit more expensively priced than in 2022. This is a key differentiator to the last housing market downturn in 2008, when stress in the banks was the principal cause of the weakness. Ultimately the significant commitment and decision that comes with buying a home is heavily linked down to sentiment and confidence. The UK housing stock remains structurally challenged with demand outstripping supply. We are confident in our ability to operate and trade in whatever economic conditions we face next year. The political volatility in the UK has also hindered the necessary change and progress we need in how we operate. The land market is highly competitive with multiple bidders for new schemes. The strong sales market of the past two years has seen outlet numbers fall across all major developers and there is not enough new land being released to replenish this capacity and help support the Government's previously stated aspiration to build 300,000 homes a year. The UK's antiquated planning system needs fundamental reform if we are to build the homes we need for our growing population. Given this backdrop, and cognisant of our strong financial position, we have continued to be active in the land market in FY22 and will remain disciplined and selective in doing so in FY23. Once sites have been identified and secured the process for obtaining planning approvals and satisfying any necessary conditions has also become increasingly inefficient. Planning teams are often under-resourced and trying to catch up after the pandemic disruption. Fresh environmental challenges emerged during the year including ground nutrient levels and water neutrality. While we are wholly committed to operating in harmony with our natural habitat and to ensure we leave a sustainable legacy on all our developments, these challenges again impact our ability to get on site and start building. Although these challenges are significant we have a strong heritage and capability in procuring land and utilising our placemaking experience to navigate the approval process as swiftly as possible. In 2023 we would like to see the Government tackle the constraints in the UK's planning environment. ## Progress on strategy We set out an update to our strategy at our Capital Markets Day in October 2021. Having completed the first phase of this strategy and delivered a strong financial and operational turnaround, the Board outlined to shareholders why it believed growing Crest Nicholson's footprint in the UK and expanding into new geographies was the best way to create value over the medium term. We have made a strong start with these ambitions in FY22. In Yorkshire we have opened an office, establishing a small team which has been active in the land market, acquiring its first site and with terms agreed on several others. We have been able to attract high quality talent with expertise in the region and have been pleased by the local reception to the Crest Nicholson brand. In East Anglia we have recruited an experienced leader who has recently joined us and will implement a similar approach in that region. Given the uncertain economic backdrop and challenges outlined above we have decided to defer the planned opening of a third new division in FY23. We will also remain disciplined and selective in acquiring new sites and incurring incremental overheads across the whole Group and will look to accelerate the growth plan in the new divisions when market conditions stabilise. Part of rebuilding operating margins in Crest Nicholson in line with sector peers lies in our ability to divest of those legacy schemes held at weaker margins. On 6 May 2022 we sold our 50% share in our joint venture with Clarion Housing Group containing the London Chest Hospital development in East London. We recorded a £2.3m net impairment loss on financial assets because of this disposal but will receive £16.0m in consideration and foreign significant working capital utilisation in the development of that scheme in future years. Delivering excellent customer service is a major focus for all Crest Nicholson employees, reflected by our inclusion of attaining a five-star rating in the Home Builders Federation (HBF) customer satisfaction survey as one of our five strategic priorities. In addition, our industry is undergoing significant change in this area. The New Homes Quality Code (Code) was introduced in October 2022, and we have been preparing to align our business operations and processes to comply with the requirements of the Code. We welcome its objectives which will support the delivery of high standards from housebuilders and see customers being more actively involved during the construction process through to completion. During the year we have recruited a dedicated Quality Assurance team to support and train our site teams to deliver the new requirements to take photographic evidence throughout the quality assurance process. We have also started to roll out COINS, an enterprise resource planning (ERP) platform specifically designed for the construction industry and specifically its customer service module, which will provide better oversight of the snagging and resolution process. As outlined above, this year has seen the housebuilding sector impacted by disruption to labour and supply chains through a combination of adjusting to life outside of the European Union, the aftermath of COVID-19 and the conflict in Ukraine. Against this backdrop we have experienced operational challenges and disruption in one of our divisions that has delayed the handover of some properties to customers. This has disproportionately impacted our overall 2022 satisfaction score which is now expected to be marginally below the threshold required to retain five-star when awarded in February 2023. We are naturally disappointed with this outcome as it falls short of the standard we have embedded into one of our strategic priorities. However, we are confident that the actions and investments we have made during the year will return Crest Nicholson to five-star status next year. ## Building Safety Pledge In April 2022 we signed the Government's Building Safety Pledge (Pledge), which we believe is in the best interests of the Group, taking further steps to support those living in affected buildings. The Pledge sets out our commitment to address life-critical fire safety issues on all buildings of 11 metres and above in England developed by the Group in the 30 years prior to 5 April 2022. In addition, the Group agreed that the Government's Building Safety Fund will not be used to remediate those buildings and that it will reimburse any amounts already paid by the Building Safety Fund. There is now greater clarity around the Government's requirements of us and the wider sector concerning historic building safety issues, and the costs related to remediate these. Crest Nicholson ## 10 Annual Integrated Report 2022 ## Chief Executive’s ## statement continued | In FY22 we recorded an exceptional | We signed up to the UN-backed Race | We enter FY23 with a strong forward order | | --- | --- | --- | | before tax charge of £105.0m in respect of | toZero in FY21 and have since established | book, a portfolio of excellent land assets | | signing the Pledge, which reflects our best | new science-based targets. Our targets | andan operating platform with multiple | | estimate of the extent and future cost of | include near-term scope 1, 2 and 3 GHG | channels to market. | | work required. The Group, along with the | emissions targets and a commitment | | We are convinced that the fundamentals rest of the industry, continues to work with toachieve net zero emissions across of the housing market in the long term Government to transfer the principles of ourvalue chain by 2045. I am pleased to remain attractive. The lack of land which the Pledge into a longer-form agreement. confirm that our targets have been approved can be immediately developed, and the We will continue to update stakeholders by the Science Based Targets initiative. skill and experience required to navigate onthe progress ofthese discussions. The Sustainability Committee, which I our planning system, will eventually require Our internal team responsible for managing chair, has oversight of matters relating reforms if we are to significantly boost our the remediation programme continues to to sustainability throughout the Group nation’s housing supply. Our strategy to work at pace and we expect this work to be and isresponsible for overseeing grow Crest Nicholson into new geographies completed in approximately three years. thedevelopment and delivery of remains undiminished. We will remain strategic aims. disciplined and selective in the way we ### Sustainability and social value allocate capital and will look to accelerate ### We recognise our responsibility to Outlook our growth plans when calmer market mitigate, where possible, the impact that The outlook for the housing market is conditions return. our business operations have on the climate clearlyuncertain. There are many political and environment. We are continually striving andeconomic factors, some global in to improve the energy eciency and nature,which we cannot hope to influence Peter Truscott sustainability of our homes and are adapting orchange. Our focus in times like this Chief Executive our home designs in response to Building mustbe on those things we can control. Regulations and the changes contained The hard work of the past three years has withinthe Future Homes Standard. put the Group in a strong financial position. | During the year we made good progress | Our balance sheet is robust and gives us | | --- | --- | | in reducing scope 1 and 2 greenhouse | confidence to trade eectively in all market | | gas GHG emissions and have exceeded | scenarios. We also want to remain active in | | our target to reduce emissions intensity | the land market, recognising the competition | | by 25% by2025 compared to a 2019 base | for new sites, and ensuring we emerge | | year. We understand that scope 3 emissions | from any downturn in market conditions in | | account for most of our carbon footprint and | the strongest possible condition. We have | | having calculated these emissions for the | an experienced leadership team who | | first time in FY21, we are also taking steps | have extensive experience of operating | | toaddress this area of our footprint. | intougher market conditions. | Our strategy is well-embedded and Our goal is to deliver sustainable growth ### Our strategic priorities delivering operational improvements for all our stakeholders. Our strategic ### andour foundations andstronger financial performance. priorities are underpinned by our four foundations. Our Strategic Priorities Our Foundations F o u n d a t i o Placemaking & Quality Safety, Health u r n s O & Environment Read more on page 11 Read more on pages 48–49 t s e r g P Land Portfolio Sustainability a a t e g i c P r i e t r o r T r S i t i o l u e s p & Social Value i a O l e c n Read more on page 12 Read more on pages 26–43 a i n Placemaking F & Quality Operational Eciency People Multi Land Read more on page 13 Read more on pages 44–47 Channel Portfolio Approach Five-Star Customer Financial Targets Service S | | | | | Read more on page 14 | Read more on pages 52–56 | | --- | --- | --- | --- | --- | --- | | a | | | e | | | | f | Five-Star | | u | | | | e | | Operational | l | | | | t | Customer | | a | | | y , Eciency V H Service l Multi Channel Approach i a e a c l o t S h | & | | | | | | | | | & | Read more on page 15 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | E | | | | | | | t | y | | | | n | | | | | | | l i | | | | | v | | | | | | | i | | | | | | i r | | | | | b | | | | | | | o | | | | | a | | | | | | | | n | | | | i n | | | | | | | | m | | | t a | | | | | | | | | | e n | u | s | | | | | | | | | | t | S | | | | | | Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 11 ## Our strategy ## inaction ## Building ## better ## communities Fernhurst, Surrey ### Placemaking & Quality ## Our land portfolio will continue to provide opportunities ## for the Group to demonstrate itsmaster planning and ## placemaking expertise. We aim to create aspirational ## developments that we know our customers are proud to ## call home and deliver high quality, well-specified homes. ### We are committed to improving the energy Progress in the year ### Future priorities for FY23 eciency and sustainability of our homes. We want to build developments that people We are adapting our homes in response wish to live in and call home. We do this by Continue to focus our investments tothe Future Homes Standard ensuring creating attractive and vibrant communities ondesirable locations that meet thatwe continue to reduce the impact with a focus on sustainability. An example ourcriteria for placemaking thatthe construction and usage of our of this is our development Fernhurst in homes has on the climate. Committed to mitigating and Camberley, Surrey. Within the development managingclimate change risks wehave provided a wildflower meadow See page 26 for our and increasing biodiversity on with mown footpaths, an informal wetland Sustainability review our developments basin area and it will also containequipped play areas. The site has been designed To create a positive legacy to attract a range of wildlife such as bats, forour customers. butterflies and distinctive birdssurrounded byleafy woodlands. The site is adjacent to Hawley Park Farm Country Park which provides 15 acres of open meadow with tree and hedgerow planting. The space provides opportunities for dog walking and informal recreation including a play area, picnic area and natural play trail. The site has been created as a Suitable Alternative Natural Greenspace (SANG) which helps to reduce recreational pressure on the nearby Thames Basin heathland habitats. Crest Nicholson ## 12 Annual Integrated Report 2022 ## Our strategy in action ## continued ## Building ## better ## opportunities Kinver, Staordshire ### Land Portfolio ## We have a well-located land portfolio which provides us with ## flexibility in how we choose to develop it. Our short-term land ## portfolio represents approximately five years’ worth of supply ## which we consider to be appropriate for our needs. Most of ## these sites can be delivered by utilising our standard housetype ## range and some are well suited to development for partners ## who we work closely with to realise valuefor both parties. Our strategic land portfolio generally oers While the land market remains highly ### Future priorities for FY23 longer-term opportunities to create value, competitive, the Group’s standard house often at superior margins to short-term land type range and ecient operating platform We will be disciplinedand selective and enables us to utilise our strengths in have supported our ability to procure inour acquisition of new land promotion and placemaking. These sites landon compelling economic terms. are predominantly controlled under option, We will retain our higher hurdle rates Occasionally the Group believes it can representing good capital eciency. forland approvals in FY23 and ensure bestrealise value for stakeholders by that the Group’s standard house disposing of land interests. In May 2022 ### Progress in the year typerange remains competitive theGroup disposed of its 50% share in We remain disciplined and selective on the thejoint venture containing the London We have sucient short-term land procurement of land and new acquisitions Chest Hospital site in East London to forFY23. Our land buying focus is must meet our elevated hurdle rates to its jointventure partner receiving nowfor FY24 and beyond. reflect the current economic uncertainty. £16.0m cash. During the year we have been able to add high quality sites to our land portfolio across the Group. This included the purchase of 143 plots inKinver, Staordshire – a high quality location in ourMidlands division. Our team’s expertise in sourcing land opportunities and managing relationships with landowners was pivotal tosecuring this scheme. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 13 ### Operational Eciency ## Central to every part of our strategy is a desire to do things ## eciently and right first time. Using our standard house types ## andspecifications we can build with greater consistency which ## inturn leads to higher quality. These house types are ecient ## to plot and use development space eectively. As the Group ## expands into new regions, wewill maintain strong oversight ## onincremental overheads. ### Progress in the year Build costs ### Future priorities for FY23 | Our standard house types accounted for the | During the year global inflationary pressures | | | --- | --- | --- | | majority of completions in FY22. Our house | and supply chain constraints, as a result | Maintain a disciplined approach | | types have the benefit of contemporary | of the war in Ukraine and the aftermath | tocentral overheads | | thinking with respect to the requirements | ofCOVID-19 disruption, both contributed | | Continue to focus on plotting of the Future Homes Standard andenergy to asteep rise in building material costs. eciencyto ensure maximum eciency. They also have flexibility when In the labour market, a shortage of skilled valuefrom our sites replanning sites. Plotting eciency is an workers also led to high wage inflation ongoing process to maintain flexibility in our which added to the cost to construct new Continue to regularly tender product oerings and to optimise the value homes. While inflation has moderated in works toachievecompetitive of the developments. Replans and replotting both of these areas, for those materials that pricing inatougher market. will continue to bring positive benefits in have a highenergy cost to produce such as coverage while also enhancing the returns concrete and steel, pricing has remained from our schemes. dynamic. Our operational eciency programme has helped to mitigate the During the year we began rolling out a impact of these cost increases in FY22. newERP system. Construction Industry Solutions (COINS) is the most commonly used software system in the construction industry and provides users with a fully integrated experience across commercial, technical and financial activities. The introduction of this system will provide greater control and oversight of our build programmes andgenerate a richer level ofinsight downto plot-level data. ## Building ## better ## operations Crest Nicholson ## 14 Annual Integrated Report 2022 ## Our strategy in action ## continued ### Five-Star CustomerService ## Giving great customer service is at the heart of everything ## we do. We have a ‘rightfirst time’ culture and are focused ## on the smooth delivery of homes to customers and ## providing a high quality after-sales service. ## Building ## better ## experiences ### We are committed to delivering high Progress in the year ### Future priorities for FY23 qualityhomes and excellent customer In October 2022 the New Homes service to our customers. During the QualityBoard (NHQB) was established Additional training and controls yearwehave made further investment for the purposes of developing a new acrossthe Group to ensure in training, we have recruited a framework to oversee reforms in the compliancewith theCode Quality Assurance team to support build quality of new homes and the further our siteteams and introduced New Customer Relations Manager customer service provided by developers. COINSforcustomer service, which roles to drive consistency and The NHQBintroduced the New Homes will provide better oversight on snag sharebest practice Quality Code (Code) and the New Homes resolution process. Ombudsman Service to ensure best practice Introduce improved processes in the housebuilding sector. We welcome to trackand respond to snags Pictured above: Mr Coyles and the objectives and purpose of the Code, and complaints. MrPratt who used Deposit Unlock which covers the period frominitial enquiry tobuy their home at Monksmoor through to completion, and then two years Park, Daventry and credited the post-occupation. We are making good process as “speedy and smooth”. progress in preparing for the Code and howwe will deliver the high standards ofquality and service the Code requires. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 15 ## Building ## better ## partnerships Walton Court Gardens, Surrey ### Multi Channel Approach ## The Partnerships and Strategic Land (PSL) division is ## responsible for both sourcing land and developing ## partnership arrangements. Their Strategic Land team ## are experienced in managing and promoting strategic ## land to bring these sites through to our short-term land ## portfolio. The other responsibility of this division is to ## develop strategic relationships with the public sector, ## Private Rented Sector(PRS) and Registered Providers. ### By working closely with partners to identify Progress in the year ### Future priorities for FY23 which sites and product types align with PSL continues to develop strong strategic their business models we can forward sell relationships with institutional investors Continue to invest in our PSL significant volumes at a relatively small and local authorities and has successfully platform,focusing on mixed discount to private open market prices and negotiated and delivered significant tenuredelivery, specialist land optimise margins. These transactions often transactions in FY22. procurement and key relationships benefit from earlier cash receipts which de- During the year the Group announced its risk build programme commitments and can PRS investors’ appetite remains biggest PRS deal, worth £120m, with funds deliver ahigher return on capital employed. strongand we will continue to managed by leading global investment Our strategy envisages that approximately focusonbuildinga sales pipeline management firm, Oaktree Capital 20% of total Group revenue each year inthis market Management, L.P. and CompassRock will come from alternative channels to International. The transaction involves Maintain strong relationships with theprivate market. | the sale of 403 homes across three key | strategic partners, improve contract | | --- | --- | | developments in Southern England, | terms and optimise discounts to | | oering high quality private rental units | openmarket sales prices. | tolocal residents. The investment encompasses homes located at Brightwells Yard, Farnham, TheTower atCentenary Quay, Southampton, and WaltonCourt Gardens,Walton-on-Thames. Crest Nicholson ## 16 Annual Integrated Report 2022 ## Despite the current economic and political uncertainty, ## Market overview ## the long-term fundamentals of the UK housing market ## remain strong. ### UK economy ### Overview pressure resulted in the departure of the The appointment of another new Prime Prime Minister. The newly appointed Prime Minister and Chancellor, coupled with The UK economy continues to be impacted Minister and Chancellor of the Exchequer the delivery of a more prudent economic by a variety of factors and theoutlook announced a Mini Budget in September plan has provided some stability and remains uncertain. 2022 which proposed significant unfunded confidence. GDP growth is still expected At the start of 2022 COVID-19 restrictions taxcuts across a range of areas which to be negative for the latter part of 2022 remained a concern and this has further caused thepound to rapidly fall in value, and the UK is forecast to be in recession aected global supply chains and reaching a37-year low against the US dollar. in 2023. The depth and duration of that increased labour supply challenges. economic downturn remains unclear Forward forecasts for interest rates Against this backdrop the UK started to andwill be subject to the influences of startedto climb even higher as the see significant inflation in the economy. thegeopolitical factors outlined above. BankofEngland rearmed its objective In February 2022 Russia invaded Ukraine to keeping inflation under control and which created further geopolitical and raisedthe base interest rate further. economic uncertainty, given Russia’s | contribution to the world’s energy | Consumer confidence started todecline, | | --- | --- | | resources and Ukraine’s provision of | weakening the economic backdrop even | | rawmaterials and foodstus. In May | further. The economic uncertainty was | | 2022 the Bank of England increased | so acute that it resulted in the Chancellor | | the base interest rate by 25bps to 1%. | beingreplaced, before the Prime Minister | | Over the summer mounting political | herself chose to resign. | | Key risks | | Our response | | Link to principal risks | | | --- | --- | --- | --- | --- | --- | | | — Continued volatility in the economic | | — Continue to maintain our robust | 1 | Market conditions | | | and political backdrop will have | | financial position | | | | | | | | 3 | Access to site labour and materials | | | negative impact on growth | | — Focus on margin performance | | | | | | | | 5 | Build cost management | | | — Potential increase in the rate | | aheadofvolume growth | | | | | ofunemployment has implications | | — Adjust the pace of planned growth | | | Our principal risks pages 58–64 oncustomers’ confidence and inournew and existing divisions. abilitytobuy homes — Negative sentiment towards investment. Nine Acres, Tiptree Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 17 ### Housing market fundamentals ### Overview In addition, it has created the Department The pandemic has also triggered achange of Levelling Up, Housing and Communities in housing demand as people re-evaluated The housing market has demonstrated (DLUHC) with the specific objective of their working patterns and housing needs. its relative resilience to recent economic ensuring that investment, regeneration In particular the growth in demand for shocks, such as COVID-19, however its andhousing are considered across the single family homes has been strongest performance remains heavily sentiment- wholeof the UK. where there is provision for home working driven and mortgage costs have historically options and excellent transport links. remained low for a long time. The number of new homes being With energy supply uncertainty, customers constructed in the UK is closer to 200,000 The biggest underpin to this robust are also carefully examining the energy per year and this is expected to reduce in performance is the imbalance of housing eciency performance of any new home, 2023. To reach its target, the Government supply to meet buyer demand. This situation and new build properties perform strongly will have to stimulate the conditions for has developed over generations as the in this respect. regeneration and economic investment, UK has not built enough homes to keep including housebuilding. pace with population growth and changing household sizes. The Government recognises the importance of increasing the number of homes being built and has communicated an annual target of300,000 new homes per year. | Key risks | | Our response | | Link to principal risks | | | | --- | --- | --- | --- | --- | --- | --- | | | — Rising interest rates will have | | — Strong land portfolio in Southern | 1 | Market conditions | | | | animpact on mortgage pricing | | Englandwith limited supply | | | | | | andconsumer confidence | | — Expansion into Yorkshire and | | | Our principal risks pages 58–64 | | | — The long-term structural | | EastAngliawhere we see long-term | | | | | | imbalance of supply and demand | | strongdemand and future growth | | | | | | remains unaddressed | | — Remain selective and disciplined | | | | | | — Undersupply of housing continues | | intheacquisition of new sites. | | | | tounderpin house price inflation and aordability challenges for buyers. ### Government legislation – fire and building safety ### Overview life-critical fire-safety works in buildings over in aected buildings how they will 11 metres that they developed or refurbished be meeting their commitments. In January 2022 the Secretary of State over the last 30years in England. Developers The housebuilding sector is working for DLUHC announced the Government’s making thiscommitment have also agreed with the Home Builders Federation (HBF) intention to widen and lengthen the to reimburse any funding granted to and the DLUHC to agree the necessary definition of legal obligation on developers building owners from Government legal documentation. to fund the remediation of buildings remediation programmes. aected by fire safety issues. Each developer will be expected shortly As of 9 August 2022, 49 developers, tosign a legally binding contract reflecting including Crest Nicholson, have signed these pledges and inform leaseholders apledge committing to remediate | Key risks | | Our response | | Link to principal risks | | | --- | --- | --- | --- | --- | --- | | | — Costs for fire remediation may | | — Signed the Government’s Building | 2 | Safety, Health & Environment | | | bedicult toestimate due to the | | SafetyPledge in April 2022 | | | | | | | | 9 | Laws, policies and regulations | | | complex nature of the process | | — Recorded an additional £105.0m | | | | | | | | 12 | Combustible materials | | | — Build cost inflation increases the total | | combustible material related charge. | | | | | amount required for the remediation | | Closing combustible materials provision | | | Our principal risks pages 58–64 — Scope of building safety issues is£140.8m at31 October 2022 increase,leading to additional cost. — The Group is working as swiftly aspossible with all stakeholders tocomplete these works. Crest Nicholson ## 18 Annual Integrated Report 2022 ## Market overview continued ### Aordability and lending environment ### Overview the Government has demonstrated through The additional burden of increasing its actions during times like COVID-19, mortgage repayments on household Housing aordability is becoming thatit is committed tomaintaining a strong finances comes at a time of rising morechallenging across the UK housing housing market as an underpin to general energybills, food prices and modest market. The UK house price to earnings economic health. wageinflation. The combination ratios reached a peak in Q3 2022 at of thesefactors will weigh on 7times, above the 2009 peak at 6.3 times, However, rising interest rates have already housing aordability. | which preceded the collapse in pricing | led to some higher mortgage costs. | | | --- | --- | --- | | associated with the Global Financial | Recent pricing has been as high as 5.5% | The Government has sought to provide | | Crisis (GFC). All economic downturns are | (Nationwide two-year fixed rate) with further | some assistance to home buyers, | | dierent and there are several factors that | interest rate impact expected. The increase | recentlyincreasing the threshold to | | suggest the next onemay not be as severe. | in mortgage rates sees a prospective first- | pay stamp duty to £425,000 for first- | | Firstly, lending banks are more strongly | time buyer’s monthly mortgage payment | time buyers, and£250,000 otherwise. | | regulated, stress-tested and capitalised | rise from approximately 34% of take-home | The Help-to-Buy scheme will end | | since the GFC. Secondly, employment | pay to approximately 45% (based on a | on 31 March 2023. Participation in | | levels in the UK remain strong and thirdly | 5.5% mortgage rate)*. Mortgage approvals | thescheme continues to reduce with | | | have also started to fall, down 26% year- | buyers now seeking alternative methods | | | on-year in FY22, reflecting the increased | offinance support such asDeposit | * Source: Nationwide Housing Index. ** Source: Bank of England. economic uncertainty**. UnlockandFirst Homes. | Key risks | | Our response | | Link to principal risks | | | --- | --- | --- | --- | --- | --- | | | — Economic volatility and rising | | — Actively promoting Deposit Unlock as | | | | | | | | 1 | Market conditions | | | unemployment may force people | | analternative to Help to Buy to help | | | | | | | | 8 | Solvency and liquidity | | | tosellhomes and reduce prices | | ourcustomers with the aordability | | | | | | | | 11 | Land availability and planning | | | — Prospective buyers may be unable to | | ofanew home | | | | | finance a house move given the other | | — Adjust the pace of our build programmes | | | Our principal risks pages 58–64 impacts on their household finances and land acquisitions toreflect tougher — Banks become more risk averse market conditions andwithdraw aordable financing — A strong balance sheet that will enable oers toprospective buyers. usto prioritise our returns overvolume during any downturn. ### Climate change ### Overview The Future Homes Standard (FHS): Biodiversity net gain: The legislation Updatesto Part L of the Building will require all developments to deliver The Climate Change Act 2008 Regulationswill require a 31% reduction in a biodiversity net gain of 10% which commitstheUK Government to carbon emissions over current regulations means developments will need to reducinggreenhouse gas emissions starting from June2022. From 2025 the create a 10% measurable improvement byatleast100% of 1990 levels (netzero) FHS will require at least a 75% reduction in the biodiversity of the site developed by2050. It is setting an ambitious in carbon emissions compared to current relative to the site if development had agendato decarbonise the standards, together with the prohibition not occurred. UK economy. offossil fuel heating, including gas boilers. Task Force for Climate-related Financial Several upcoming climate change Disclosure (TCFD): It is a mandatory regulations and disclosures with requirement for companies to disclose whichwehave to comply include: climate-related financial information withinthe annual report. (See pages 30–38 formore information.) | Key risks | | Our response | | Link to principal risks | | | | --- | --- | --- | --- | --- | --- | --- | | | — Emerging regulations to reduce | | — Continue to improve awareness | 9 | Laws, policies and regulations | | | | emissions associated with | | andknowledge of climate change | | | | | | | | | 10 | Climate change | | | | our homes | | acrossthe Group | | | | | | — Carbon tax and other pricing | | — Conduct further embodied carbon | | | Our principal risks pages 58–64 | | | mechanisms could increase the | | analysis to reduce upstream scope | | | | | | costoffuel, energy and materials | | 3 emissions, and to trial and monitor | | | | | | — An inability to transition to lower | | technologies to support delivery | | | | | | emissions technology. | | oftheFuture Homes Standard | | | | — Established a biodiversity framework to help deliver biodiversity net gains onour developments. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 19 ### Land and planning ### Overview impetus and a backlog of applications The Government has repeatedly received during COVID-19 are leading to communicated its intention to reform The land market remains highly delays in obtaining consents and slowing the UK’s planning system. Central to competitive, driven by a lack of supply down the speed at which builders can get thismessage is a desire to ‘level up’ and housebuilders’ need to replenish their on site. This backdrop has been present theUK, by encouraging investment pipelines of new sites following a strong forsome time but has deteriorated further andnew home building in areas market in recent years. Opportunities are inthe past year. awayfrom the South East. generally more plentiful on larger sites and schemes, but given the economic In addition, several environmental agenda uncertainty, many developers are now items have also emerged in the past year, communicating caution in their approach contributing to planning delays. Nutrient issues to purchasing new land which may be and water neutrality challenges have been acquired at the peak of this market cycle. highlighted in several parts of the country by Natural England. The Government has Acquiring sites is only the first challenge acknowledged that these concerns require thatdevelopers currently face in clear policy making and guidelines to building new homes. The planning ensurethe planning system can proceed system is currently highly inecient. withgranting approvals. Resourcing issues, a lack of political | Key risks | | Our response | | Link to principal risks | | | | --- | --- | --- | --- | --- | --- | --- | | | — More complexity and change created | | — Approximately five years’ worth | 9 | Laws, policies and regulations | | | | bynew legislation and proposed | | ofshort-term land – the right level | | | | | | | | | 11 | Land availability and planning | | | | reforms of planning | | forthesize of our business | | | | | | — Insucient land in the market for | | — Standard house type range and | | | Our principal risks pages 58–64 | | | futureexpected output and for growth | | placemaking capabilities have | | | | | | — Competition on pricing and payment | | supportedability to procure land | | | | | | terms for land and associated | | oncompelling economic terms | | | | | | house prices. | | — A strategic land portfolio which will | | | | continue to provide a supply of high quality sites at superior margins. Morton Park, Milton Keynes Crest Nicholson ## 20 Annual Integrated Report 2022 ## Our business model is centred on our purpose to ## Business model ## buildgreat places for our customers, communities ## andthe environment. Guided by our strategy, ## wecarefully select resources and partners to ## create value for all stakeholders bybuilding ## qualityhomesindesirable locations. ## through our activitiesCreating value ### What we doOur resources and relationships — Experienced, dedicated — Regional housebuilding operations ### People Focused anddiverse workforce with local expertise and relationships, ### divisional enabling eective and ecient delivery — Robust Safety, Health & Environment processes to keep everyone safe. ofnew homes ### businesses — A dedicated Partnerships and Strategic Land — High quality building materials division developing multiple channels to ### Natural and market and promoting strategic land. — Commitment to reducing waste ### manufactured and carbonemissions throughout ourvalue chain. — House type range with interior andexterior ### resources Design, flexibility, to cater to a range of customers ### planning and and adaptable to local design policies — Carefully selected business partners ### Partnerships ### placemaking — Placemaking expertise to create a strong and projects legacy of vibrant communities with a — Close relationships with regulatory mixture ofhomes and tenures. andindustry bodies to help shape thefuture of housing — Operational eciency programme and ### — Relationships with landowners Land reputation for placemaking supports and engagement throughout the landacquisition at appropriate margins development process. — Strategic land capability allows us topromote sites through to approval — Commitment to delivering ### Customers andearnsuperior returns five-star customer service — Partnerships developed with land owners — Focus on customers’ needs to and local authorities to secure planning ensurefirstclass service is provided permission in a timely manner. atevery stage of the buying process. — Championing best practice in build, choice ### — Attractive and flexible design of Construction ### Design and of materials and waste management, our house type range to improve with Functional Forums embedding and ### innovation qualityandoperational eciency sharing best practice including safety, — Investment in innovative sales quality and energy eciency. andmarketing tools — Modern technology to support — Highly trained, passionate sales executives ### Selling our safety,quality and service. delivering high quality service, supported ### homes by focused marketing channels to reach — Supportive shareholders ### Financial customers in the most targeted way — Diverse capital structure and — Our Partnerships and Strategic Land ### resources aprudentapproach to risk. division bring forward a range of ownership tenures including aordable, shared ownership and private rented sector. — Aiming to provide the best customer ### Quality and experience throughout the home-buying ### customer process, with a ‘right first time’ approach ## Value for society to the quality of homes, sales support ### service andafter care. ## We are committed to creating ## a positive legacy and long-term ## value for society by building quality ## homes in desirable locations. Read more in our Sustainability review on pages 26–43 Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 21 ## Our investment case ## We have an ambition to deliver earnings ## growth through geographical expansion ## while oering a competitive dividend. ## for our stakeholders ### Strong fundamentals for ### The value we create ## 1 UK housing market — Market demand underpinned by growing population and limited ### Investors housing supply — Compelling investment proposition — Complex planning system favours experienced housebuilders settingouthow we realise value from withbroad range of capabilities and knowledge of local market ourhigh quality portfolio of assets. — The lending environment remains supportive with competitive supplyof mortgages. ### Customers ### — Five-star customer service experience Attractive land portfolio withquality products in desirable locations. ## 2 — High quality and desirable land portfolio, primarily concentrated inSouthern England, with new sites being added innew regions ### Our people ofthe UK — Extensive strategic land portfolio is predominantly held under — Investing in people to develop the optionand represents excellent capital eciency skillsthatwe need and enhancing our reputation as an employer of choice. — Strong financial position enables us to remain active in acquiring landin competitive environments. ### Suppliers ### — Being a long-term and trusted partner Brand synonymous with quality tosuppliers and subcontractors. ## 3 and placemaking — Established brand name with strong heritage associated ### Communities and with quality and customer service ### the environment — Strong reputation for placemaking and for creating attractive, sustainable communities — Creating a positive environmental and — Opportunity to oer more customers the chance to own social legacy through strong community aCrestNicholson home across the UK. relationships and investment in social infrastructure. ### Diversified sources of income ### Government and other bodies ## 4 — Our Multi Channel Approach provides resilience by delivering — Regular engagement with Government to incomefrom a variety of sources and capital understand its priorities and to shareour — Private Rented Sector (PRS) is a well-capitalised, growing asset expertise to support eective regulation. classproviding dependable yields — Dedicated Partnerships and Strategic Land division maintaining strongrelationships with Registered Providers and PRS partners. ### Clear responsibilities to society and the planet ## 5 — Committed to net zero emissions by 2045 and established interim science-based targets covering scope 1, 2 and 3 emissions — Reducing our waste and minimising our impact on natural resources — Increasing procurement of renewable electricity to 100% by 2025. ### Robust balance sheet with margin recovery ## 6 planon track — Strong balance sheet with year end net cash position of £276.5m anda renewed £250m revolving credit facility — Disciplined and selective approach to land acquisition and Read about how we are creating capital allocation stakeholder value on pages 22–25 — Sustainable dividend cover on two andahalf times cover basis. Crest Nicholson ## 22 Annual Integrated Report 2022 ## To achieve our strategy, we need to understand ## Stakeholder ## ourstakeholders. This will help us create long-term ## relations ## value for all our stakeholders. ### Section 172(1) Statement Stakeholder engagement to their influence on the success of our business model, strategy and because Considering all our stakeholders in key The following pages set out the they represent the key resources and business decisions enables us to make engagementthat has taken place with relationships that support the generation balanced decisions which deliver value thosestakeholders considered as being andpreservation ofvalue in the Group. overthe long term. keyto the Group. The Board has identified each of them as a key stakeholder due Our Board of Directorspromote the success of the Company for the benefit of our members as awhole, in accordance ### with the Companies Act 2006 (Act). Stakeholder engagement and decision making The Board is responsible for ensuring that ### How we consider stakeholders it fulfils its obligations to those impacted by ourbusiness, in its stakeholder consideration and engagement. By direct engagement, and via the Executive Leadership Team, our Board is fully appraised of the matters of importance Risk reviews to our stakeholders. The Board, Executive considered at the Leadership Team and senior management Annual strategy Board and throughout actively engage in communication and budget review the organisation andinvolvement initiatives. The following pages comprise our Section 172(1) statement, setting out howthe Board has, in performing its duties over the course Regular updates A Safety, Health and of the year, had regard to the matters set from senior Environment Committee out in Section 172(1) (a) to (f) of the Act, management and Sustainability alongside examples of how each of our ## on their areas Board Committee providing key stakeholders have been considered of expertise updates to the Board ## andengaged. Further information can also decision be found throughout the Strategic Report ## making and in the Governance Report. Further details on the Board and its | decision-making process in relation | | | Board | | --- | --- | --- | --- | | to stakeholders is included within the | External assurance | committees with | | | Governance report on pages 76–79 | from brokers and | | | key focus areas advisors Board oversight of the Group’s purpose, values and culture and alignment with our strategy Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 23 ## Investors Customers ### Both individual and institutional investors The people who purchase our homes. These can ### who invest their capital in Crest Nicholson. beindividual private purchasers or larger institutions ### who we work in partnership with. ### What matters to our investors What matters to our customers Our investors expect an eective relationship with senior Our customers expect quality homes in beautiful places management and the Board. They expect a clear and appropriate that aresafe, delivered on time, and which oer good value Group strategy which delivers long-term sustainable returns for money. Excellent customer service and after care are and is appropriately adapted to the prevailing macro-economic akeypart of how we understand our customers’ needs environment. The Group has arrangements in place which enable it to andhowwe respond. communicate eectivelywith shareholders in respect of matters such as business strategy, governance and remuneration. ### How we have engaged in FY22 How we have engaged in FY22 Board engagement Board engagement — The Chief Executive, Group Finance Director and Head of — During FY22 the UK construction environment has Investor Relations meet regularly with investors and analysts experienced disruptionto materials availability which, coupled to convey an understanding of the market and the Group’s with the longer-term challenge of skilled labour availability, operations and strategic priorities. These meetings take place has sometimes led to delays in completing and handing over throughout the year, but particularly after the annual and homes to our customers. The Board has closely monitored interim results announcements. During FY22 they attended thissituation and mitigating actions taken during the year 93 meetings through virtual platform or in person. In addition — At each Board meeting the National Housebuilding Council they have attended two industry conferences duringthe year (NHBC) customer satisfaction survey scores are considered. — The Chairman and other Non-Executive Directors also have The Board also receives feedback from the Executive the opportunity to attend meetings with major shareholders. Managing Director, Partnerships and Strategic Land on Our Chairman led a shareholder governance engagement relationships withour partners programme and our Chair of the Remuneration Committee — The Board receives regular feedback on any Group led a shareholder engagement consultation on the new dialogue with the Department for Levelling Up, Housing Remuneration Policy that will be subject to shareholder andCommunities (DLUHC) and in April 2022 the Board approval at the 2023 AGM agreed to sign the Building Safety Pledge (Pledge), taking — The Board receives regular updates in relation to themarket, further stepsto support those living in aected buildings housebuilding sector and investor activities, including — The Board considers initiatives undertaken by the Group feedback from shareholder roadshows todeliver high levels of customer service, enhance — All Directors attend the AGM and are available to answer placemaking and create sustainable developments. shareholder questions. Group engagement Group engagement — Participation in the Home Builders Federation (HBF) — Meetings with shareholders to provide insight on our customersatisfaction survey and aim to consistently responseto the impacts of climate change, progress against achieveafive-star performance oursustainability targets and our Remuneration Policy — Site teams responsible for after care with direct responsibility thatwillbe subject to shareholder vote at the 2023 AGM for quality — Responses to voting agencies, including IVIS, ISS, — Partnerships and Strategic Land division focused on promoting Glass Lewis and PIRC. placemaking and design both directly and with trusted partners — Working at pace to implement the New Homes Quality Code — Closely monitoring build schedules to enable customers tobeupdated on progress of the delivery of their new home. ### Key outcomes Key outcomes — Shareholders are kept informed of the Group’s performance — Responded to supply chain and labour shortages — Enhanced understanding of ESG issues which are by adjusting timescales as required anincreasinginvestor focus — Signed the Pledge and continue toworkwithaected parties — A constituent member of the FTSE4Good and achieved — Listened to changing customer needs, adapting where a B rating in the CDP climate change disclosures necessary our proposed site plans and making them — Engagement with prospective investors to develop increasingly energy ecient. their understanding of our strategy. Link to — Return on capital employed Link to — Unit completions KPIs — Earnings before interest and tax margin KPIs — Customer satisfaction — Unit completions — PRS/Aordable unit completions. — Cash generation — Land creditors as a % of net assets — Greenhouse gas emissions intensity — Waste intensity. Crest Nicholson ## 24 Annual Integrated Report 2022 ## Stakeholder ## relations continued ## Our people Suppliers ### Individuals who are directly employed by us. Our suppliers of raw materials, plant and equipment ### and the wide range of tradespersons whowe ### What matters to our people subcontract our construction activities to. Our employees require a safe and healthy working environment ### which is complemented by a supportive, diverse and inclusive What matters to our suppliers culture. Our employees value challenging and rewarding Our suppliers expect projects to be delivered safely, work that is supported by professional development and on timeandin line with their and our financial targets. career opportunities. We have responded to employees who Mutually beneficial working relationships that share increasingly require flexible and agile working environments. risk andreward alongside operational eciency are Reward and benefits need to be fair and competitive to respond important for eective relationships. Suppliers expect us to both increased costs of living and a market where there are to maintainarobustfinancial position and to pay them shortages of skilled resource. toagreed timescales. ### How we have engaged in FY22 How we have engaged in FY22 Board engagement Board engagement — The Board receives updates on employee matters — The Board regularly discusses the Group’s responsibility ateachBoard meeting and regularly discusses employee to its suppliers and subcontractors and its impact on the turnover, engagement, succession planning and development localhousebuilding and construction industry — Our Chief Executive has attended dierent employee forums — Regular updates are provided to the Board on the Group’s toprovide employees with strategic andtrading updates supply chain, including payment practices, theprevention — Our Non-Executive Director responsible for employee engagement ofmodern slavery and recent industry disruption has attended a number of events with our employees. — The Chief Executive and Group Operations Director Further details on this activity are outlined on pages 78–79 maintainrelationships with Directors of the Group’s key suppliers — Our Chair of the Remuneration Committee and Non-Executive with a focus on Safety, Health & Environment (SHE) matters. Director responsible for employee engagement held several Group engagement meetings with employees across our divisions to consult — Feedback on supplier performance shared at divisional on the revised Remuneration Policy which will be subject Board meetings toshareholder approval at the 2023 AGM — Account review meetings held with key suppliers — Employees are encouraged to participate in the Group’s onaregular basis Sharesave scheme — Regular communications on our Supply Chain — The Board held two site visits during the year, with further Code ofConduct including anti-slavery and human details outlined on page 83. tracking policies Group engagement — Distributed an engagement survey to our suppliers, — While voluntary employee turnover has declined, the coveringareas such as safety, sustainability, supply Executive Leadership Team regularly considers employee chainandmanufacturing, diversity and inclusion, training, turnover data and insights, and actions to reduce this product andmaterials, quality and service levels — Focused regular engagement activities including pulse surveys, — Member of the Supply Chain Sustainability School team-building activities and the Group-wide charity challenge hike asapartner, and encourage our supply chain to engage — Continued visits and focus from the Executive Leadership with them Team throughout the business — Held meetings to discuss climate change and the transition — Partnering with a third-party provider, to develop to net zero with suppliers deemed to contribute significantly opportunities for entry-level and high-potential employees towards our scope 3 emissions — Health and wellbeing training and ability for employees — Confirmed with our subcontractors our aim to become toenhance their mental health fitness a LivingWage accredited employer, requesting them tocomplete relevant questionnaires — Continue to operate Sharesave schemes to employees, tosave andpurchase shares in the Company. — Trialled JCB new all-electric telehandler forklift. ### Key outcomes Key outcomes — Reflective of the rising living costs, a one-o payment of — Greater focus on sourcing from Group-approved suppliers £1,000 was made to all employees below the Executive — Reinforcing the focus of anti-slavery in our supply chain Leadership Team — 18% of our Group suppliers are actively engaging with — We partnered with a third-party provider to conduct our theSupply Chain Sustainability School employee engagement surveys, with engagement rated at 83% — 36 days, being the average time taken to pay suppliers — 49% participation rate across all Sharesave schemes (FY21: 37). — Over 100 employees participated in the Group-wide charity hike raising over £42,000 for Cancer Research UK. Link to — Voluntary employee turnover Link to — AIIR KPIs — Annual Injury Incidence Rate (AIIR). KPIs — Unit completions — Greenhouse gas emissions intensity — Waste intensity. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 25 ## Communities and environment Government and other bodies ### The communities and environment local The Government, regulatory and industry bodies ### to our developments. shape the legislative environment in which ### weoperate and local planning departments. ### What matters to the communities and What matters to the Government and other bodies ### environment local to our developments The Government is focused on the delivery of high quality, Our neighbours want engaged two-way communication with attractive homes and communities which are designed to be us. We seek to provide designed quality homes with character energy ecient. Therefore, it is critical that ourdevelopments that are competitively priced for local residents. Investment in support biodiversity and climate change priorities. infrastructure including transport, school and health facilities isimportant. We also seek to protect the environment, reduce emissions and waste and help support sustainable lifestyles. ### How we have engaged in FY22 How we have engaged in FY22 Board engagement Board engagement — The Board reviewed the progress against the sustainability — The Board monitors and participates in regulatory and strategy and the Group’s proposed science-based targets industry bodies that shape the legislative environment — The Board, supported by our Sustainability Committee, andlocal planning departments considers sustainability and environmental impacts in — During the year regular active dialogue and debate was relationto the development of sites. heldby the Board on industry developments, including theFuture Homes Standard, Consumer Code for Group engagement NewHomes,market trends, stamp duty changes, — The Group actively seeks the views of local communities in disruption to the supply chain and the labour market. developing a tailored planning and community engagement strategy for each development Group engagement — More houses built using our standard house type range, — Divisional attendance at HBF and NHBC events whichemphasises build and design quality — Divisional local planning meetings and engagement — Engagement with communities through public meetings, withHomes England and Housing Associations consultations and publicly available documentation, — Participation in the Future Homes Hub and working seekingto meet local needs toimplement the New Homes Quality Code — Working with our trusted partners to provide aordable — Regular engagement with local authorities, the homesto individuals who are supporting local communities EnvironmentAgency and local water authorities — Providing green space and the provision of sports and — Responding to the consultation on biodiversity net gain. educational facilities, play areas, allotments, public art, community buildings, transport improvements and environmental protection and enhancement measures. | Key outcomes | | | Key outcomes | | | | --- | --- | --- | --- | --- | --- | | | — Delivering attractive developments that are valued | | | — Engagement with the DLUHC and dialogue prior | | | | byourcustomers and communities | | | to becoming signatories to the Pledge | | | | — The Science Based Targets initiative approved our | | | — Engagement with Government enables us | | | | near-term and net zero targets | | | to understand their priorities for housing | | | | — 47% reduction in scope 1 and 2 emissions compared to FY19 | | | — We are continually improving our understanding | | | | — Development of a new charitable giving strategy | | | of what ourpartners expect from us | | | | tosupportlocal charities and organisations | | | — Awards received from the NHBC to our people | | | | — Receipt of the Silver Award for the Armed Forces | | | — Progress with our partners across a multitude | | | | CovenantEmployer Recognition Scheme. | | | of our strategicland projects. | | | Link to | | — Unit completions | Link to | | — Unit completions | | KPIs | | — Greenhouse gas emissions intensity | KPIs | | — Greenhouse gas emissions intensity | | | | — Waste intensity | | | — Waste intensity | | | | — PRS/Aordable unit completions. | | | — PRS/Aordable unit completions. | Crest Nicholson ## 26 Annual Integrated Report 2022 ## As one of the leading housebuilders in the UK, ## Our sustainability ## werecognise that we have a responsibility and ## review ## anabilitytomake a positive impact in addressing ## someofthe long-term challenges society faces. Sustainability continues to be of fundamental ### importance to our Group and stakeholders. Sustainability strategy The global challenges we face are Our sustainability strategy is linked to our The strategy is informed by continuous significant and societal expectations to purpose (see page 2 for further information) engagement with our stakeholders address the issues of climate change and and is integral to our strategic priorities and (seepages 22–25 for further information) biodiversity loss are increasing. We aim to is one of our strategic foundations. as well as external frameworks such as integrate responsible practices throughout the UN Sustainable Development Goals all aspects of our business, allowing us to The strategy’s three priority areas guide our (SDGs) andNatural, Social and Human contribute positively to society and create commitment to drive positive action across Capital Protocols. long-term value for our stakeholders. our business and value chain. They also help shape our sustainability objectives and the The following pages provide further Our strategy is split into three priority areas: targets we select to measure success. detail on our sustainability strategy protect the environment, make a positive andperformance during the year. impact on communities and operate our business responsibly. We continue to take action to reduce our greenhouse gas (GHG) emissions and this year achieved our scope 1 and 2 intensity reduction target ahead of our FY25 target date. Having signed up to the UN-backed Race to Zero in FY21, we developed new science-based targets, which include a commitment to reach net zero across our value chain by 2045. We were proud to seeour progress recognised by the Financial Times in their European Climate Leaders list in 2022. We are also committed to delivering positive social value for our employees, customers, communities, partners and people throughout our supply chain. By creating great homes and developments, respecting human rights and providing a safe, diverse and inclusive workplace we can build a better future for all our stakeholders. Learn more online www.crestnicholson.com/sustainability l t h B  i o d e y i v H e t e  f r s s i t d y n  ### RCF In October 2022 the Group announced the completion of a £250m Sustainability y C i t e Linked Revolving Credit Facility (RCF). i l l y l l i b  i m b s P c p n r Under the terms of the facility, the  o o t  o p t i p s e o t e c e  Group is incentivised to deliver annual e t n P c r t s h performance improvement in four key s e d n e e areas that align with our sustainability n n  i s v priorities. The targets include: u i r b o — Reduction in absolute scope 1 & 2 r n m u GHG emissions in line withour o e s n e R science-based targets e t t c ### e Governance r  p s — Increasing the number of r u e p e t r Our commitment to responsible operations o To support our strategy, we link  oursuppliers engaging with the p s o s c  n O starts at the top with Board oversight and e sustainability-related targets to our t SupplyChain Sustainability School r w i s l c | | i | | | ownership of the sustainability strategy | | | remuneration packages (see pages 100–122 | | --- | --- | --- | --- | --- | --- | --- | --- | | e | b | — Reduction in carbon emissions | | |  | d | | | | l | | | | r | n | | | | e | | M | and objectives. | u | | for further information). In FY22 we also | | | | associated with the use of | | | t |  | | s  e  finalised a new Sustainability Linked RCF. our homes k Our Sustainability Committee has delegated i i t N e n  authority from the Board and Executive u — Increasing the number of our p m o employees in trainee positions s m Committee to integrate sustainable practices i t o i v c s e i o n m p  c t into the business. The Committee met e andontraining programmes. m | c | T | | | | | | fourtimes in FY22 and is chaired by our | | | | | o | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | The Group will ensure that its performance o | | h | | | | | | | | | | h | | | m | r | | | | | | | | | | e | | | | i | | | | | Chief Executive. Page 31 has further detail | | | | t y | c | | | | v | | | | | | | | | i | i | | against all these metrics will be reported | m | | i | | | | | | | | l | v | | | | | n | | | | | | |  | | r | | | | u | g | | | | onourgovernance structure. | | | u | e | | | in future Annual Integrated Reports. | | n | | | | | | | q | | s | | | | | | i t | | | | | h | | | | | | | | | i e | | | | | g | | d | | | | | | | s | | | | | i | | n | | | | | | | | | | | H | |  | | | | | | | | | S o | c i |  l | | | | | | | | | | | | v |  l u | e | | | | | | | Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 27 ### Protect the environment Make a positive Operate our business ### impact on communities responsibly Key highlights Key highlights Key highlights | Climate | | Thriving | | Responsible | | | --- | --- | --- | --- | --- | --- | | action | 47% | communities | 88% | practice | 10% | | | Target 60% reduction by 2030 | | FY21: 88% | | FY21: 7% | | | 47% reduction in scope | | 88% of developments | | 10% of our workforce | | | 1and 2 emissions compared | | within 1km of a public | | aretrainees | | | to FY19 | | transport link | | | People Social Biodiversity and value capability | | 70% | | 522 | | 18 | | --- | --- | --- | --- | --- | --- | | | Target 100% by 2025 | | FY21: 483 | | FY21: 13 | | Natural | | High quality | | | | | | 70% of electricity procured | | 522 aordable | | 18 trained mental health | | resources | | homes | | Health | | | | from renewable taris | | homes delivered | | firstaiders across our | | and waste | | and service | | and safety | | divisions ### Supporting the UN Sustainable Development Goals The UN Sustainable Development Goals (SDGs) are a collection of 17 global goalsdesigned to be a blueprint for achieving abetter and more sustainable future forall. We have identified eight — Supporting the health and — Promoting an inclusive and of these goals where we can make wellbeing ofourpeople, customers diverse workplace and providing apositive dierence: and communities. equal opportunities. — Living wage for direct employees — Collaborating with the supply chain to — Commitment to placemaking — Supporting mental health review and trial innovative technologies and quality and wellbeing and materials — Provision of social infrastructure — Investing in training and development — Implementing infrastructure to support — Multi channel approach provides for our workforce sustainable developments. rangeof tenures including aordable — Providing work for local suppliers housing and shared ownership. andsubcontractors. — Supply chain engagement and — Science-based GHG emissions — Supporting biodiversity on site partners of the Supply Chain reduction targets — Procuring sustainable timber. Sustainability School — Procuring renewable electricity — Committed to improving — Climate adaptation on developments resource eciency. — Supporting customers to reduce theircarbon footprint. We have used the SDG icons throughout the following pages to demonstrate where our strategy aligns with the goals. ### External validation We participate in several sustainability benchmarks and indices: In FY22 we received | In FY22 we | | an AA rating (on a | | --- | --- | --- | | received a B score | Listed as a | scale of AAA-CCC) | | in the CDP climate | constituent of the | in the MSCI ESG | | change disclosure | FTSE4Good Index | Ratings assessment | MSCI disclaimer: www.crestnicholson.com/pdf/media/ reports/sustainability/2022/135-reports-media-item.pdf Crest Nicholson ## 28 Annual Integrated Report 2022 ## Our sustainability review ## We strive to reduce our impact on the natural ## continued ## environment by reducing our greenhouse gas emissions, ## using our resources eciently and protecting and ## Protect the ## enhancing biodiversity in and around our developments. ## environment ### Climate action footprint and we are taking steps to address ### SDG alignment: this area of our footprint. In FY22 we We are committed to minimising our developed new science-based targets that impact on climate change and helping have been approved by the Science Based our customers to reduce their carbon Targets initiative (SBTi). Our new targets footprint. We also understand the eects are to reduce absolute scope 1 and 2 GHG climate change may have on our business 2 emissions by 60% by 2030 and scope 3 and supply chain. Our disclosure against GHG emissions by 55% per sq. m completed the recommendations of the Task Force floor area by 2030, both from a 2019 base on Climate-related Financial Disclosures year. We are also committed to achieving (TCFD) sets out how we are managing net zero emissions across our value climate-related risk (see pages 30–38 chainby 2045. forfurther information). The action we are taking to reduce During the year we made good progress ### Link to strategicpriorities: emissions is set out within this section. in reducing scope 1 and 2 GHG emissions Further information on our climate- and have exceeded our target to reduce Placemaking & Quality related metrics and compliance with the emissions intensity by 25% by 2025, Operational Eciency Streamlined Energy and Carbon Reporting compared to a 2019 base year. Scope 3 (SECR) requirements is on pages 37–38. emissions account for most of our carbon ### Link to foundations: ### Scope 1 and 2 emissions 1 2 Our scope 1 and 2 emissions arise predominantly from fuel used in plant and equipment on site, electricity and gas for our oces and sites and our Group-operated vehicle fleet. In FY22 our absolute scope 1 and 2 emissions were 4,449 tCO 2 e, a 47% reduction compared ### FY22 highlights to the FY19 equivalent. On an intensity basis, this represents a reduction of43% compared 1 — Science-based targets set toFY19 (FY22: 1.82 tCO e/100 sq. m, FY19: 3.20 tCO e/100 sq. m). 2 2 to 2030 and net zero by 2045 FY22 Scope 1 and 2 Scope 1 and 2 GHG emissions performance — Reduced absolute scope 1 and 2 emissions breakdown emissions by 47% compared to 2019 base year (43% reduction 1 inemissions intensity) — Developed a new toolkit to supportbiodiversity net gain — Rolled out the Group’s new 2 Waste Policy. ### Priorities for FY23 — Conduct embodied carbon assessments on a selection 1 Scope 1 69% of our standard house types 2 Scope 2 31% Scope 1 and 2 emissions tCO 2 e FY30 target (3,383) — Continue to engage with our supply chain on key sustainability ### issues and introduce minimum Scope 3 emissions requirements Scope 3 emissions account for 99% of our total carbon footprint and predominantly comprise — Awareness campaign to embed emissions relating to our supply chain (upstream) and the use of our homes (downstream). resource-ecient processes Our scope 3 emissions intensity in FY22 was 2.42 tCO e/sq. m, a decrease of 4% compared 2 acrossour sites to the FY21 equivalent and a reduction of 6% against our 2019 base year. — Increase the procurement of FY22 Scope 3 Scope 3 GHG emissions performance renewable electricity taris emissions breakdown — Develop guidance and embed biodiversity approach 1 across divisions. 3 2 FY19 FY19 8,458 2.57 1 Supply chain* 32% FY20 FY20*** 2 Use of sold product** 66% 6,004 3 Other scope 3 1% Scope 3 emissions intensity tCO 2 e/sq.m FY30 target (1.16) 1 Approved by the SBTi in December 2022. | FY21 FY21 | 2 The target boundary includes biogenic land-related | | | *Upstream emissions. | ***No calculation in FY20. | | --- | --- | --- | --- | --- | --- | | | | emissions and removals from bioenergy feedstocks. | | **Regulated and unregulated energy. | | | | | | 5,356 2.53 | | | | FY22 FY22 | | | | | | | | | | 4,449 2.42 | | | Strategic Report Governance and Directors' Report Financial Statements Crest Nicholson Annual Integrated Report 2022 29 # Value chain emissions ![img-0.jpeg](img-0.jpeg) # Action taken to reduce scope 1 and 2 emissions # Site fuel Site fuel consumption increased by 41% in FY22, partly as a result of business growth. Overall scope 1 GHG emissions associated with site fuel are 13% lower and our use of hydrotreated vegetable oil (HVO) as a substitute for white diesel is a significant factor in driving this reduction. In FY22 HVO accounted for 49% of our site diesel, an increase from 17% in FY21. # Efficient plant and equipment We have successfully introduced a number of new technologies and initiatives to reduce emissions from plant and equipment. We prioritise early connection to the grid to avoid the use of generators. Where generators are required, they are correctly sized and HVO compatible. 98% of our telehandler fleet now have the most efficient Tier 5 engines³ and we continue to utilise telemetry reports to identify potential fuel savings. We continue to consider new and alternative technologies across our sites to reduce fuel consumption. In FY22 we trialled technologies such as hybrid generators and an electric telehandler. # Business travel To minimise business travel emissions we continue to provide incentives to our employees to choose low emission vehicles and provide a good selection of electric-only and hybrid vehicles at different price points on our Company Car Scheme. As at 31 October 2022 40% of our Group fleet was hybrid or electric. Our Agile Working Policy also ensures employees have the flexibility to choose where they can work which supports a reduction in unnecessary business mileage. # Renewable electricity We continue to target 100% renewable electricity usage across the Group by FY25. In FY22 we procured 70% of our electricity from renewable electricity tariffs backed by Renewable Energy Guarantees of Origin certificates (FY21: 62%). All our homes are handed over benefiting from renewable electricity tariffs. # Action taken to reduce scope 3 emissions # Our materials and supply chain Achieving net zero emissions throughout our value chain by 2045 will be a significant challenge. Upstream emissions accounted for 32% of our scope 3 emissions in FY22. Substantial emission reductions will require effective collaboration and coordinated action across our supply chain and the wider industry. During the year we have engaged with key suppliers to understand their decarbonisation objectives and how they can contribute to our net zero target. We are also members of the Future Homes Hub's Embodied and Whole Life Carbon Workgroup, which is developing guidance, tools and an implementation plan to support an industry-wide reduction in whole life carbon. Our standard house types are being constructed in traditional and timber frame formats. We expect greater use of offsite manufacture to be utilised in future to reduce the embodied carbon associated with our homes and to address the long-term challenge of skilled labour in the industry. We continue to review the design of our homes and evaluate Environmental Product Declarations when assessing products and materials. "The homebuilding industry is rapidly reducing the in-use carbon emissions of new homes and there is now increasing focus on reducing emissions throughout the home's lifecycle, including embodied carbon. Success depends on full participation from the homebuilding sector, supply chain and other partners and we are grateful for Crest Nicholson's contribution to the Embodied and Whole Life Carbon Workgroup." Ed Lockhart CEO, Future Homes Hub # Decarbonising our homes The Future Homes Standard (FHS) will play a crucial role in reducing the emissions of our homes in use. The regulation will require a 75% reduction in carbon emissions while traditional gas heating systems will be prohibited from 2025 and replaced with electric alternatives. Electric heating solutions, such as air source heat pumps (ASHPs), will mean that homes are effectively zero carbon ready as the UK has committed to decarbonising the electricity grid by 2035⁴. While the environmental benefits are clear, it is essential to consider the running cost implications for homeowners. We will pilot electric heating solutions, including installing ASHPs on certain developments in FY23. We will engage and gather feedback from our customers and suppliers to help refine the designs and technologies used as we strive to ensure our homes are comfortable, easy to use and affordable to run. ![img-1.jpeg](img-1.jpeg) 3 Tier 5 engines in plant are the final stage of a gradual engine efficiency improvement plan introduced across the UK, EU, and EEA states. This has improved the efficiency of these machines by reducing fuel cost, GHG emissions and particulates from the exhaust of machinery. At the time of publication, 100% of our telehandlers are Tier 5. 4 Plans unveiled to decarbonise UK power system by 2035 – GOV.UK (www.gov.uk). Crest Nicholson ## 30 Annual Integrated Report 2022 ## Our sustainability We are focused on reducing our emissions while ## reviewcontinued adapting our homes and developments to the impacts ## of climate change. ## Task Force on ## Climate-related ## Financial Disclosures This section details our disclosures against In assessing consistency, we considered ### FY22 progress the recommendations of the Task Force on a voluntary basis the document titled on Climate-related Financial Disclosures Brackets indicate the TCFD pillar ‘Implementing the Recommendations of (TCFD), building on the voluntary disclosure relevant to the action. G = Governance, the Task Force on Climate-related Financial in our FY21 Annual Integrated Report. S = Strategy, R = Risk management Disclosures’ published in October 2021 and M = Metrics and targets. In accordance with Listing Rule 9.8.6R, bythe TCFD. we set out our consistency with the 11 TCFD — Developed science-based targets that We will continue to adapt our response recommendations in the table below. have been approved by the SBTi (M) to climate change as the scientific and The table also sets out the page numbers economic understanding of the impacts — Established Climate Risk Working where further information can be found. grow and the methodologies and tools to Group to review climate-related assess and manage risk evolve. The box to risksand opportunities (G, S, R) For strategy disclosure (b and c) we carried | out climate scenario analysis for the first | the right details the progress we have made | — Completed first stage of climate | | --- | --- | --- | | time in FY22. We plan to evolve our climate | during the year to improve our management | scenario analysis (S, R) | | scenario analysis in FY23 to further support | of climate risk and sets out the action we | | — Agreed new Sustainability our risk and opportunity assessment and will take in FY23 to enhance our approach. Linked Revolving Credit Facility | quantification of the potential impacts. | Further information on the TCFD is | (RCF), including carbon emission | | --- | --- | --- | | For metrics disclosure (a) we have noted the | availableon the Financial Stability | reductiontarget (G) | | links to our risks and opportunities identified | Board’s website fsb-tcfd.org | — Included carbon emission reduction | | on page 37. We will continue to assess | | target in Executive Director’s Long | | further metrics for inclusion in our climate- | | Term Incentive Plan (LTIP) (G) | related disclosures in FY23. — Integrated climate-related risk andopportunity assessment The table below provides the location for content related to the TCFD recommendations: intodivisional processes (R). TCFD pillar Recommended disclosure Page(s) Governance a) Board oversight 31 ### FY23 areas of focus Disclose the — Implement opportunities to organisation’s b) Management’s role 31 improve awareness of climate governance around change across the business(G) climate-related risks — Evolve our climate scenario analysis andopportunities. and quantification of potential risksand opportunities (S, R) Strategy a) Risks and opportunities 32–35 — Continued engagement Disclose the actual withoursupply chain to: | andpotential impacts | b) Impact on organisation | 32–35 | | | --- | --- | --- | --- | | of climate-related | | | — Continuously improve our | | risksand opportunities | | | understanding of climate- | | | c) Resilience of strategy considering | 32–35 | | | on the organisation’s | | | related risks and opportunities | climate scenario analysis businesses, strategy, for key suppliers and materials and financial planning — Share knowledge and help where such information upskillthe industry (S, R) ismaterial. — Conduct further embodied carbonanalysis on our homes Risk management a) Risk identification and 36 to reduce our upstream scope 3 assessment process Disclose how the emissions (S, R) organisation identifies, b) Risk management processes 36 — Trial technologies to support assesses and manages delivery of the Future Homes climate-related risks. c) Integration into overall 36 Standard (S, R). risk management Metrics and targets a) Climate-related metrics 37–38 Disclose the metrics andtargets used to b) Scope 1, 2, 3 GHG emissions 37–38 assess and manage relevant climate-related c) Climate-related targets 37–38 risks and opportunities where such information is material. Consistency with TCFD recommendations: Not consistent Partially consistent Consistent Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 31 ### Governance around climate-related We have linked GHG emissions on performance against our climate- performanceto the Executive Directors’ related targets and outlines any ### risks and opportunities LTIP. Further detail on thesetargets upcomingregulatory changes. Board oversight isonpage121. The Group Operations function has in-depth The Board has overall responsibility for The Nomination Committee remains mindful knowledge of climate-related matters riskmanagement, including climate-related of the importance of broadening diversity including current and emerging policy. risks and opportunities, reviewing this twice and experience within the Board. As part Members of the team sit on external working a year and updating the Group’s principal of its succession planning processes the groups, including the Future Homes Hub risks. Climate change is one of the Group’s Nomination Committee considers a broad and Supply Chain Sustainability School, principal risks and is governed in line with range of skills and experiences the Board todevelop knowledge and engage with our Risk Management Framework detailed will need and climate change is considered thewider industry. on page 58. as part of this process. Detail of the Board’s Our divisions are responsible for considering The Sustainability Committee has delegated skills and experience can be found on how climate-related risks and opportunities responsibility from the Board and Executive pages71 and 91. may impact their developments. The Committee to oversee the development divisions report climate-related risks and Management’s role and delivery of strategic aims and initiatives opportunities within their divisional risk to improve sustainability performance. Our Group Operations Director has registers, which are reviewed and updated Chaired by our Chief Executive, it met executive responsibility for sustainability twice a year, as part of the Group’s risk four times during FY22 andprovides and climate-related risk and sits on both management framework. regular updates to the Board and the Executive Committee and Sustainability Divisions also consider climate-related Executive Committee. Committee. The Group Operations Director matters at a project level such as flood manages the Group disciplines that support During the year the Board agreed the science- riskassessments when reviewing the delivery of climate-related outputs based GHG emission reduction targets, which site selection. and ensures that climate-related risks and were subsequently approved by the SBTi. opportunities are assessed and managed, The diagram below provides an overview Further detail on our science-based targets and business opportunities are realised. ofour governance framework and how is on page 28. The Board also approved the climate-related issues are considered new RCF which includes climate-related A Group Operations report is provided throughout the Group. targets. Further detail on the RCF targets monthly to the Board and Executive isonpages26 and 76. Committee, which includes an update Governance framework and climate touch points Board and The Board management Oversight of the Group’s sustainability strategy and its performance. oversight Overall responsibility for risk management, including climate-related risks and opportunities. | Audit and Risk Committee | | Remuneration Committee | | Nomination Committee | | | --- | --- | --- | --- | --- | --- | | | — Met four times in FY22 | | — Met five times in FY22 | | — Met three times in FY22 | | | — Monitors risk management | | — Responsible for including | | — Oversees the selection and | | | processes, including climate- | | climate-related targets | | appointment of new Directors | | | related risks. | | within executive | | to the Board and reviews the | | | | | remuneration package. | | balance, skills, diversity and | eectiveness of the Board. Executive Committee Oversees the principal and divisional risks. The Executive Committee, with support from functional representatives, considers the Group’s principal risks and oversees the divisional risk process. | Sustainability Committee | | SHE Committee | | Divisional boards | | | --- | --- | --- | --- | --- | --- | | | — Met four times in FY22 | | — Met five times in FY22 | | — Meet monthly and responsible | | | — Oversees the development | | — Oversees the management | | for key risks, including | | | and delivery of strategic aims | | of the Group’s SHE risks | | climate change, within the | | | and initiatives to improve | | and SHE strategy, including | | division. Review and update | | | sustainability performance. | | environmental risk | | the divisional risk register | | | | | management on site. | | twicea year. | Management Climate Risk Working Group Climate Risk Working Group Group Operations Team Group Operations Team Functional Forums Functional Forums oversight Responsible for assessing Responsible for assessing Subject matter experts Subject matter experts on Meet quarterly and are Meet quarterly and are climate-related risks and climate-related risks and on sustainability sustainability and climate change. responsible for delivering responsible for delivering opportunities. Team composition opportunities. Team composition and climate change. Responsible for developing the initiatives, achieving targets and initiatives, achieving targets includes representatives from includes representatives from Responsible for developing the Group’s sustainability strategy embedding procedures within and embedding procedures the Finance, Procurement, the Finance, Procurement, Group’s sustainability strategy and supports the divisions in the Group. Functional Forums within the Group. Functional Sustainability, Technical and Sustainability, Technical and and supports the divisions driving its implementation. include SHE & Build, Technical, Forums include SHE & Build, Internal Audit teams. Internal Audit teams. in driving its implementation Commercial, Sales & Marketing, Technical, Commercial, Sales management on site. Land & Planning and & Marketing, Land & Planning Customer Service. and Customer Service. Crest Nicholson ## 32 Annual Integrated Report 2022 ## Our sustainability reviewcontinued ## Task Force on Climate-related Financial Disclosures ### Strategy The risk management section on page 36 Scenario analysis details our processes for identifying In FY21 we signed up to the UN-backed Scenario analysis supports the Group’s climate-related risks and opportunities. Race to Zero and in FY22 we developed understanding of potential climate change The table on pages 34–35 describes science-based targets that have been impacts on our business. Climate scenarios the primary climate-related risks and approved by the SBTi. Pages28–29 provide are hypothetical future states and are not opportunities we have identified and further information on the steps we are intended to be forecasts. They are designed setsout our management response taking to reduce emissions, including using tobe plausible, improving our understanding toeach one. low carbon fuels across our developments, of possible climate outcomes and their increasing renewable electricity usage, potential impact on ourbusiness. This in Time horizons and evolving our homes tobe more energy turninforms our strategy and business In accordance with the TCFD ecient and lower in carbon. planning toincrease our resilienceto recommendations, we assess climate- climate change. While we are taking action to reduce GHG related risks and opportunities over emissions across our value chain, climate We engaged with external consultants threetime horizons: change presents a range of risks and (Verco Advisory Services) to identify three — Short term (0–3 years), opportunities to our business. The extent climate scenarios to test the resilience — Medium term (3–10 years) | and severity of risks will vary depending | | oftheGroup against a range ofclimate- | | --- | --- | --- | | on the actions taken at both a UK and | — Long term (10 years plus). | related risks and opportunities. | | international level. Climate-related risks are | The time horizons have been selected | | Orderly Transition: Well-coordinated classified into transition and physical risks. toallow the Group to consider multiple earlyaction to achieve a net zero | Transition risks: transitioning to a low | risks and opportunities, including | economyby 2050 with limited warming | | --- | --- | --- | | carbon economy to avoid the worst physical | instances where physical and transition | of1.5°C. | | impacts of climate change. Examples of | risks are moredominant. The table below | | Disorderly Transition: Late and disruptive transition risks include regulatory changes, providesfurther detail on why these action to limit warming to below 2°C. carbon taxation, new technology and timehorizons were selected. Hot House Earth: Late action leads to a shifting stakeholder expectations. warming of around 4°C by 2100 bringing Physical risks: physical risks resulting from increased exposure to physical risks. a changing climate are broken down by The scenarios provide a combination acute risk (event-driven, including increased offuture climate states with a wide severity of storms and floods) and chronic range oftransition and physical impacts. risk (longer-term shifts in climate patterns, An overview of each scenario together including higher temperatures, rising sea withhow they impact our business is levels, chronic heatwaves and droughts). detailed in the table on the next page. Moving forward, we will continue to refine our approach to scenario analysis to include more quantitative data, particularly forphysical risks. This will further support the Group to test the resilience of our business model. We will also continue to engage with our supply chain and wider industry on climate risk. Time Time Description horizon period Short term 0–3 years This covers the current operating climate and aligns with our business planning cycle. Existing legislation is likely to be in place for most of this time horizon. Medium term 3–10 years This covers the period where legislation currently under consideration is more likely totakeeect and have an impact on the business. It also aligns with the time period forour2030 science-based targets. Long term 10 years plus This period is challenging to predict. While it is clear the climate has already changed, andthis is going to continue, the physical risks relating to climate change are likely tohavea more significant impact in the long term. Considering risks out to 2050 prompted exploratory discussions on the likelihood andimpact of a range of risks and opportunities that are dierent or more severe thanthose experienced today. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 33 Climate scenarios summary Scenario 1: Scenario 2: Scenario 3: Orderly Transition Disorderly Transition Hot House Earth 1 | Scenario source | SSP1/RCP1.9-2.6 SSP1/2/RCP2.6 SSP5/RCP8.5 | | | | --- | --- | --- | --- | | Scenario description Well-coordinated and eective | | The global response to | The global response to climate | | | global response to climate | climate change is disorderly | change is poorly coordinated and | | | change. Rapid progress in the | and annual emissions do not | ineective, resulting in warming | | | 2020s limits warming to around | decrease until 2030. The pace | of over 4°C by 2100. Physical risks | | | 1.5°C by 2050. The worst physical | of regulatory change is more | are high. More frequent droughts | | | impacts of climate change are | manageable in the short term | and heatwaves in the UK increase | | | avoided but there are milder | but it results in faster, stronger | water supply stress and lead to | | | winters and hotter, drier summers. | changes to limit warming to | a significant risk of overheating. | | | Higher temperatures increase | below 2°C. Supply constraints | Flood risk increases and | | | the likelihood of overheating | on technologies to reduce and | storm intensity and frequency | | | in buildings and storm events | remove carbon lead to significant | become routinely disruptive. | | | increase in intensity. | increases in carbon prices. | Transition risks materialise later in | response to the physical impacts. Estimated warming compared to pre-industrial era: 2040–2060 1.6°C 1.7°C 2.4°C 2081–2100 1.4°C 1.8°C 4.4°C Transition impact Low/moderate High Low Physical impact Low Low/moderate High Business impact Products and services: Climate-related risks and opportunities influence the development of our products. Scenarios 1 and 2 will likely see greater regulatory requirements to reduce emissions associated with the construction and use of our homes. We have already observed this with the introduction of the Future Homes Standard. Fewer regulatory requirements likely under scenario 3 in the short to medium term. Supply chain: Our supply chain accounts for around a third of our carbon footprint. The transition to net zero is likely to see an increase in carbon taxes and other pricing mechanisms. Scenarios 1 and 2 will likely witness greater carbon prices resulting in higher material costs. A disorderly transition may see a steeper and higher rise in carbon prices. While all three scenarios will encounter physical impacts within the supply chain, scenario 3 will see the most severe impacts. The supply chain will be more susceptible to acute events such as storms closing manufacturing plants or disrupting transport. Chronic changes may mean suppliers are forced to relocate due to rising sea levels, reductions in productivity due to adverse working conditions and some materials such as timber may be prone to disease or wildfires. Operations: Energy and fuel costs are likely to increase under scenarios 1 and 2. Carbon prices are likely to rise and a greater demand for lower carbon energy and fuel may result in price increases. Scenario 3 will likely see greater disruption on our sites due to an increased risk of severe events including heatwaves and more frequent and severe storms. Flood risk will increase and may reduce the land available to develop. Access to capital: Under scenarios 1 and 2 in particular, it could become more challenging to access aordable capital without demonstrating how we are eectively managing climate risk. Customers and markets: There could be greater demand for lower carbon products under scenarios 1 and 2, and we are responding to this by reducing the emissions associated with our homes. With the addition of new technologies, high levels of customer engagement will be required to successfully transition to new low carbon homes. Customers are more likely to be aected by the physical impacts of climate change under scenario 3. For example, overheating is more likely, impacting comfort and requiring modifications to homes. 1 Shared Socioeconomic Pathways (SSPs) describe possible socioeconomic futures in the absence of climate policy intervention, providing a basis for possible emission scenarios. Representative Concentration Pathways (RCPs) are trajectories of greenhouse gas concentrations that provide a broad range of climate outcomes. The combination of SSP scenarios and RCP climate projections provides a framework to consider potential future climate impacts. Business resilience There is also significant uncertainty as to The anticipated costs relating to the delivery theextent and impact these risks will have of the Future Homes Standard are included We have considered the potential for on the business and we will continue to in new project acquisition appraisals. thefinancial statements to be impacted by assess the risk. Further information on our climate-related climate change. Our assessment indicates risks and opportunities is provided overleaf. | that there is no material financial risk to our | We believe that transition risks represent | | | --- | --- | --- | | business in the short term. Our strategy, | the largest threat in the medium term, | There has been no material impact on | | which includes research and development | mostnotably the potential for an increasing | the financial reporting judgements and | | of lower carbon homes, remains relevant | price of carbon. Carbon taxes are likely to | estimates applied in the preparation of | | considering changing climate risks. | increase under scenarios 1 and 2 and we are | the FY22 Annual Report and Accounts. | | | engaging with our suppliers to gain further | Please see further information in our | Physical risks associated with climate insight in this area. We acknowledge that we accounting policies on pages 142–148. change will increase, particularly under are exposed to some climate-related risks in We will continue to evolve our assessment the high carbon Hot House Earth scenario. the short term, most notably transition risks and quantification of climate-related risks While physical risks such as flooding, including emerging regulation, however the and opportunities over time, including overheating and disruption to site and impact is not considered material based undertaking more quantitative modelling supply chain activities are expected to on the mitigations the Group has in place. ofrisks in the next year. increase over time, they are more likely tohave a greater impact in the longer term. Crest Nicholson ## 34 Annual Integrated Report 2022 ## Our sustainability reviewcontinued ## Task Force on Climate-related Financial Disclosures Risks Opportunities Risk category Transition Transition Transition Physical Physical Physical Opportunity Opportunity Risk type Policy and legal Policy and legal Technology Chronic Chronic Chronic and acute Products and services Markets Driver Carbon pricing Emerging regulations Transitioning to lower Rising Changing precipitation More frequent and Greater demand for Green financing and mechanisms emissions technology mean temperatures patterns severe weather sustainable homes partnership opportunities Description Carbon taxes or other Emerging regulations Lower carbon Higher temperatures Changing precipitation Severe weather events Recent analysis highlights a Greater ability to attract green pricing mechanisms to reduce emissions technologies will could increase the patternsleading to more causing disruption to our growing demand for energy finance, such as sustainability provide a policy tool to could impact our increasingly be used risk of overheating frequent droughts and sites, supplier facilities and ecient and lower carbon linked loans as investors limit carbon emissions. home specification, within our homes, which within our homes. flooding.This could impact transportation. This could homes. Together with the and lenders increasingly As governments such as the Future may be unfamiliar to Greater mitigation planning requirements disrupt material availability availability of green home consider climate-related risks, intervene to limit climate Homes Standard. ourcustomers. There is requirements and leadto greater flood andbuild programmes. mortgages, this may lead opportunities and progress change, increasing Further regulations a risk that increasing mayimpact the mitigation and water toagreater demand for in reducing emissions when carbon prices could could come into demand could lead to specification of eciency requirements. lowercarbon homes. reviewing portfolios. impact the cost of our force, for example constraints on supply our homes. direct fuel and energy reporting and reducing and a lack ofskilled and those associated embodied carbon. labour to install with our supply chain. Reporting requirements and maintain. are also likely to increase. Financial driver Increased cost Increased cost of sales Increased cost of sales. Increased cost Increased cost ofsales to Increased cost of sales. Increased revenue Increased access to finance of sales. to deliver against of sales to model deliver mitigation requirements. through demand for lower atlower cost. new regulations. overheating risk emissions products. and implement solutions to mitigate. Time horizon Medium to long term Medium term Medium term Medium to long term Medium to long term Medium to long term Short to long term Short to long term Likelihood Likely Likely About as likely as not About as likely as not About as likely as not About as likely as not About as likely as not Likely Scenario with Scenario 2 Scenario 1 Scenario 1 Scenario 3 Scenario 3 Scenario 3 Scenario 1 Scenario 1 highest impact | Management response We are committed | | Potential regulatory | We engage with our | All homes are subject | Flood risk assessments are | Our SHE team monitor | We are progressively reducing | We maintain open and | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | to reducing our GHG | changes and | supply chain to review | to an overheating | completed on all developments | forecasts for severe weather | the emissions associated with | transparent communication with | | | emissions across all | consultations are | low carbon technologies | risk assessment at | during the land acquisition | and issue advisory notes | the operational use of our | investors, informing them about | | | scopes in line with | reviewed closely by | for our homes and will | the design stage. | process ensuring the Group | across the Group to reduce | homes while increasing energy | our strategy and performance. | | | our 2030 science- | the Group Operations | be testing low carbon | The assessment | understands what action is | the risks involved in these | eciency. Green mortgages | In FY22 we successfully agreed | | | based targets. We are | team. We engage with | heating solutions in | identifies the level of | necessary to mitigate flood | events. In the past year these | that oer lower interest rates | a £250m Sustainability Linked | | | engaging with supply | Government and are | FY23 and FY24 prior to | risk and the potential | risk on any given project. | have included strong wind | are available for energy | RCF, which links sustainability | | | chain partners toreduce | members of the Home | the implementation of | mitigation measures. | To mitigate the risk of water | and high temperature events. | ecient homes. | commitments withour | | | upstream scope 3 | Builders’ Federation | the FHS. We also have | Undertaking the | stress and impacts from | We engage regularly with | | finance strategy. | | | emissions, reducing | (HBF) and Future Homes | an internal workstream | assessment early | planning, our homes are | our supply chain partners | | | | | the impact of potential | Hub to support our | focused onthe customer | in the development | designed to use less than | to mitigate risks relating to | | | | | carbon taxes and other | understanding and | aspect of delivering | process allows cost | 105litres per person per day, | material availability and to | | | | | pricing mechanisms. | delivery of potential | the FHS. | eective solutions | less than Building Regulations | assess their management | | | | | | future policy. We also | | tobe implemented. | require. Our Land teams | of climate risk and wider | | | | | | partner with planning | | | work closely with our Group | sustainability performance. | | | | | | authorities and expert | | | Technical team to assess | | | | | | | consultants to achieve | | | planning requirements and | | | | | | | consensual cost- | | | ensure projects are deliverable. | | | | eective outcomes. Anticipated costs relating to the FHS are included in new project acquisition appraisals. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 35 Risks Opportunities Risk category Transition Transition Transition Physical Physical Physical Opportunity Opportunity Risk type Policy and legal Policy and legal Technology Chronic Chronic Chronic and acute Products and services Markets Driver Carbon pricing Emerging regulations Transitioning to lower Rising Changing precipitation More frequent and Greater demand for Green financing and mechanisms emissions technology mean temperatures patterns severe weather sustainable homes partnership opportunities Description Carbon taxes or other Emerging regulations Lower carbon Higher temperatures Changing precipitation Severe weather events Recent analysis highlights a Greater ability to attract green pricing mechanisms to reduce emissions technologies will could increase the patternsleading to more causing disruption to our growing demand for energy finance, such as sustainability provide a policy tool to could impact our increasingly be used risk of overheating frequent droughts and sites, supplier facilities and ecient and lower carbon linked loans as investors limit carbon emissions. home specification, within our homes, which within our homes. flooding.This could impact transportation. This could homes. Together with the and lenders increasingly As governments such as the Future may be unfamiliar to Greater mitigation planning requirements disrupt material availability availability of green home consider climate-related risks, intervene to limit climate Homes Standard. ourcustomers. There is requirements and leadto greater flood andbuild programmes. mortgages, this may lead opportunities and progress change, increasing Further regulations a risk that increasing mayimpact the mitigation and water toagreater demand for in reducing emissions when carbon prices could could come into demand could lead to specification of eciency requirements. lowercarbon homes. reviewing portfolios. impact the cost of our force, for example constraints on supply our homes. direct fuel and energy reporting and reducing and a lack ofskilled and those associated embodied carbon. labour to install with our supply chain. Reporting requirements and maintain. are also likely to increase. Financial driver Increased cost Increased cost of sales Increased cost of sales. Increased cost Increased cost ofsales to Increased cost of sales. Increased revenue Increased access to finance of sales. to deliver against of sales to model deliver mitigation requirements. through demand for lower atlower cost. new regulations. overheating risk emissions products. and implement solutions to mitigate. Time horizon Medium to long term Medium term Medium term Medium to long term Medium to long term Medium to long term Short to long term Short to long term Likelihood Likely Likely About as likely as not About as likely as not About as likely as not About as likely as not About as likely as not Likely Scenario with Scenario 2 Scenario 1 Scenario 1 Scenario 3 Scenario 3 Scenario 3 Scenario 1 Scenario 1 highest impact | Management response We are committed | | Potential regulatory | We engage with our | All homes are subject | Flood risk assessments are | Our SHE team monitor | We are progressively reducing | We maintain open and | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | to reducing our GHG | changes and | supply chain to review | to an overheating | completed on all developments | forecasts for severe weather | the emissions associated with | transparent communication with | | | emissions across all | consultations are | low carbon technologies | risk assessment at | during the land acquisition | and issue advisory notes | the operational use of our | investors, informing them about | | | scopes in line with | reviewed closely by | for our homes and will | the design stage. | process ensuring the Group | across the Group to reduce | homes while increasing energy | our strategy and performance. | | | our 2030 science- | the Group Operations | be testing low carbon | The assessment | understands what action is | the risks involved in these | eciency. Green mortgages | In FY22 we successfully agreed | | | based targets. We are | team. We engage with | heating solutions in | identifies the level of | necessary to mitigate flood | events. In the past year these | that oer lower interest rates | a £250m Sustainability Linked | | | engaging with supply | Government and are | FY23 and FY24 prior to | risk and the potential | risk on any given project. | have included strong wind | are available for energy | RCF, which links sustainability | | | chain partners toreduce | members of the Home | the implementation of | mitigation measures. | To mitigate the risk of water | and high temperature events. | ecient homes. | commitments withour | | | upstream scope 3 | Builders’ Federation | the FHS. We also have | Undertaking the | stress and impacts from | We engage regularly with | | finance strategy. | | | emissions, reducing | (HBF) and Future Homes | an internal workstream | assessment early | planning, our homes are | our supply chain partners | | | | | the impact of potential | Hub to support our | focused onthe customer | in the development | designed to use less than | to mitigate risks relating to | | | | | carbon taxes and other | understanding and | aspect of delivering | process allows cost | 105litres per person per day, | material availability and to | | | | | pricing mechanisms. | delivery of potential | the FHS. | eective solutions | less than Building Regulations | assess their management | | | | | | future policy. We also | | tobe implemented. | require. Our Land teams | of climate risk and wider | | | | | | partner with planning | | | work closely with our Group | sustainability performance. | | | | | | authorities and expert | | | Technical team to assess | | | | | | | consultants to achieve | | | planning requirements and | | | | | | | consensual cost- | | | ensure projects are deliverable. | | | | eective outcomes. Anticipated costs relating to the FHS are included in new project acquisition appraisals. Crest Nicholson ## 36 Annual Integrated Report 2022 ## Our sustainability reviewcontinued ## Task Force on Climate-related Financial Disclosures ### Risk management The Working Group developed an extensive At a project level, risks and opportunities list of risks and opportunities based on a are identified and assessed throughout Climate change is identified as one of the peer review, internal expertise and external the project lifecycle and feature regularly Group’s principal risks. The risks relating consultant support. The likelihood, potential in project review and build cost meetings. to climate change are identified, assessed, impact to the Group and the timeframe for Risks such as flooding, overheating and managed and monitored in line with our each risk was reviewed. local authority requirements are reviewed Group-wide Risk Management Framework. with our consultants, and mitigation Our Board, Executive Committee and The assessment included a review of measures are implemented. divisional boards formally assess risk current and emerging regulation, trends in twicea year. consumer preferences, reports on physical climate change impacts and current and The principal risks are considered by potential future carbon pricing mechanisms. management in connection with the Following this exercise, a short list of risks viabilityassessment of the business, and opportunities was developed (see table informing the viability statement on on pages 34–35) and information gathered page65. Further detail on our principal to quantify potential financial impacts. risksis provided on pages 58–64. Climate scenario analysis was conducted In FY22 we established a Climate Risk to gain an understanding of potential Working Group (Working Group) to review future impacts and test business resilience. our existing list of climate-related risks We will continue to evolve our assessment and opportunities in greater detail and and quantification of climate-related risks support our disclosure against the TCFD and opportunities. recommendations. The Working Group includes colleagues from disciplines across the business, including Finance, Production, Procurement, Technical, Sustainability andInternal Audit. FY22 Group climate risk review | Step 1 | Step 2 | Step 3 | Step 4 | | --- | --- | --- | --- | | Identified climate-related | Assessed materiality | Identified and defined | Evaluated business | | risks | ofclimate-related risks | climate scenarios | impacts | Identified climate- Assessed climate- Developed Evaluated the potential related risks and related risks and climate scenarios. impacts on our strategy opportunities based on opportunities based Reviewed short-listed and financial position. internal stakeholders’ on likelihood and risks and opportunities Reviewed management working experience impact. Carried out against the scenarios. methods to mitigate risk. and knowledge, peer quantification exercise review and external to understand potential consultant support. financial impacts. Outcome Outcome Outcome Outcome Developed a long list of Developed a prioritised Developed understanding Improved understanding climate-related risks and shortlist of climate-related of how climate scenarios of how we are managing opportunities, broken risks and opportunities. can impact our strategy climate-related risks and down by: andfinancial planning. opportunities and identified Developed understanding areas for improvement. — Transition risk of potential financial — Physical risk implications and where datagaps are missing. — Opportunities. More information about our climate change risk can be found in the Principal risks section on page 63 Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 37 ### Metrics and targets We monitor and disclose a range of metricsand targets to help us assess and manage our climate-related risks and opportunities. The metrics have been chosen because they address our climate-related risks and opportunities identified on pages 34–35. Link to climate-related Target/metric Performance risks and opportunities Climate action GHG emissions Reduce absolute scope 47% reduction in absolute scope 1 and 2 GHG emissions — Carbon pricing mechanisms 1 and 2 GHG emissions compared to FY19. — Emerging regulations 1 by 60% by 2030 — Greater demand for (FY19base year) sustainable homes — Green financing and Reduce scope 3 GHG 6% reduction in scope 3 GHG emissions per sq. m completed partnership opportunities. emissions intensity floorarea compared to FY19. by 55%by 2030 (FY19base year) | Achieve net zero | Reduction in GHG emissions as detailed above. | | --- | --- | | acrossthe value chain | Continued supply chain engagement and investigating | | by 2045 | furthercarbon reduction opportunities. | Energy Procure 100% renewable 70% of scope 2 electricity is procured from renewable taris. — Carbon pricing mechanisms electricity by 2025 — Greater demand for sustainable homes — Green financing and partnership opportunities. Natural resources and waste Waste | Reduce waste intensity | 10% reduction in waste intensity compared to FY19. — Carbon pricing mechanisms | | | --- | --- | --- | | (t/100 sq. m) by 15% by | | — Greater demand for | | 2025 (FY19 base year) | | sustainable homes | — Green financing and Divert at least 95% Diverted 96% of waste from landfill. partnership opportunities. ofwaste from landfill Water | Homes designed to use | Standard house type specification is 105 lpppd. — Changing precipitation patterns | | | --- | --- | --- | | 105 litres per person | | — Greater demand for | | perday (lpppd) | | sustainable homes. | 1 Target linked to RCF and Executive Director’s LTIP. Crest Nicholson ## 38 Annual Integrated Report 2022 ## Our sustainability reviewcontinued ## Task Force on Climate-related Financial Disclosures ### Metrics and targets Greenhouse gas emissions and energy consumption statement | | | | | | FY22 | | FY22 | | FY21 | | FY21 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | GHG scope 1 and 2 emissions data | | | | Location based | | Market based | | Location based | | Market based | | | Scope 1 (tCO | 2 e) 3,070 3,070 3,638 3,638 | | | | | | | | | | | | Scope 2 (tCO | 2 e) 1,379 234 1,718 263 | | | | | | | | | | | | Total scope 1 and 2 (tCO | | 2 e) 4,449 3,304 5,356 3,901 | | | | | | | | | | | Scope 1 and 2 intensity (tCO | | | 2 e/100 sq. m) 1.82 1.35 2.52 1.84 | | | | | | | | | | | | | FY22 | | FY21 | | --- | --- | --- | --- | --- | --- | | GHG scope 3 emissions data | | Location based | | Location based | | | Scope 3 (tCO | 2 e) 593,055 536,846 | | | | | Purchased goods and services and capital goods 185,898 169,707 Use of sold products 393,328 361,127 1 Other scope 3 13,829 6,012 Scope 3 intensity (tCO 2 e/sq. m) 2.42 2.53 Energy consumption data FY22 FY21 Scope 1 and 2 Group-wide energy use (kWh) 26,162,348 25,331,829 Scope 1 and 2 energy use intensity (kWh/100 sq. m) 10,683 11,927 ### Greenhouse gas emissions Scope 3 emissions are reviewed in Streamlined Energy and Carbon accordance with the GHG protocol and ### calculation methodology Reporting (SECR) disclosure include nine categories relevant to our We have reported on the emission sources Our SECR disclosure includes greenhouse business operations. The most significant required under the Companies Act 2006 gas emissions data in line with our categories are category 1 ‘purchased goods (Strategic Report and Directors’ Reports) methodology above. Our annual energy and services’, category 2 ‘capital goods’ Regulations 2013. These sources fall within consumption data covers scope 1 and 2 and category 11 ‘use of sold products’. our operational control. GHG emissions are components and includes our site and Category 1 includes emissions associated also referred to as carbon emissions within oce electricity, gas, diesel and LPG used with our supply chain that are not accounted the report. on our sites and business travel with our for in our standard house type material bill Group-operated fleet. All figures relate to In accordance with the GHG Protocol’s of quantities. They are calculated using emissions and energy consumed in the UK. Corporate Standard, we have reported a spend-based approach. Category 2 Information onenergy eciency measures both location and market-based scope 2 includes all material included in our bill of carried out during the year is provided emissions. Location-based emissions are quantities and emissions are calculated onpages 28–29. calculated using the UK Government’s GHG using the OneClick LCA tool. Category 11 Conversion Factors for company reporting. includes emissions related to regulated ### Verification statement by Market-based emissions are calculated and unregulated energy. Emissions from ### VercoAdvisory Services using tari specific factors from our energy regulated energy are calculated using Verco Advisory Services Ltd has reviewed suppliers, which may be more or less carbon the dwelling emission rate, which is Crest Nicholson’s GHG calculations using intensive than the location-based factor. calculated inline with Building Regulations. the World Resources Institute (WRI) and All electricity and gas data from sites and Emissions from unregulated energy are World Business Council for Sustainable oces under our control is supplied by our based on guidance given by the RICS Development (WBCSD) GHG Protocol: utilities management partner. For non-plot professional statement for whole life carbon A Corporate Accounting and Reporting supplies, they visit sites on a quarterly assessment for the built environment and Standard. Verco has provided limited basis to obtain meter readings. Plot data adapted to estimate for residential energy assurance for all emission scopes and is obtained at the point of handover to the consumption inthe absence of primary data. operational energy consumption data customer. Shared oce data is obtained For operational joint ventures we have against ISO 14064. Based on its review of from the relevant management company included GHG emissions from our own Crest Nicholson’s GHG emissions inventory for responsible for the oce utilities and is site compounds for the parts of the 1 November 2021 to 31 October 2022, Verco apportioned based on the floor area we sites we are developing, and the homes has determined that there is no evidence occupy. Site diesel and LPG data is obtained delivered by ourselves. We use the GHG that the GHG assertion is not materially directly from suppliers. Business travel Protocol Corporate Accounting and correct. Furthermore, Verco finds no evidence datais obtained from both fuel-card data Reporting Standard (revised edition) and that Crest Nicholson’s assertion is not a and ourexpense claim system. emission factors from UK Government’s fair and accurate representation of Crest GHG Conversion Factors for Company Nicholson’s actual emissions. Verco finds Reporting 2022. that the information submitted by Crest Nicholson is consistent with the WRI/WBCSD GHG Protocol’s methodology and reporting guidance, and conforms to generally accepted GHG accounting standards. 1 Other scope 3 emissions are relatively small and have been grouped together within the table. The categories included are: 3. Fuel and energy related activities; 4. Upstream transportation and distribution; 5. Waste generated inoperations; 6. Business travel; 7. Employee commuting; 12. End of life treatment of sold products. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 39 ## We care passionately about our habitat and plan ## Protect the ## our developments to minimise our impact on the ## environment ## environment and natural resources. ### Natural resources andwaste Recycling (CWR). CWR are a social enterprise that collects timber for reuse Reducing natural resource consumption, andrecycling while also providing training ## 8.72 waste and the risk of pollution incidents and job opportunities for disadvantaged is a key area of our sustainability strategy Waste intensity (tonnes/100 sq. m) people. During FY22 our work with CWR and central to our operational eciency (FY21: 9.25) created seven jobs andeight training places. strategic priority. We implemented a new Waste Policy ### Reducing and recycling across the Group in FY22. The policy aims ### construction waste to drive consistent waste management In FY22 our construction waste intensity practices across our sites, including waste ## 96% reduced to 8.72 tonnes/100 sq. m segregation and eective use of supplier compared to FY21 (9.25 tonnes/100 sq. m). take-back schemes. We completed a waste Waste diverted from landfill This represents a reduction of 10% against audit that detailed how eectively the (FY21: 96%) our 2019 base year and 6% against the policy has been implemented. The audit prior year. identified several actions for FY23, including improvements to waste reporting, greater We increased the proportion of standard engagement between our site teams and house types delivered in FY22, which we waste providers, and a drive to increase ## >15,000 expect to reduce material consumption thetake-up of our supplier return schemes. and waste over time. The standard Pallets returned through our pallet house type designs were carefully FY22 has been a challenging year for return scheme | considered, with dimensions aligned with | material procurement due to the geopolitical | | --- | --- | | typical material sizes and fewer steps and | and macro-economic environment. | | staggers toreduce ocuts and improve | To safeguard material availability, we have | | thermal eciency. As our site teams and | stored greater volumes of material on site, | | subcontractors become increasingly | which increases the risk of damage and | | familiar with our designs, we expect to | therefore waste. FY23 will be a key year for | | deliver considerable eciency, quality | us to intensify our waste reduction eorts | | andenvironmental benefits. | against this challenging backdrop. | We continue to reuse and recycle timber through our pallet return scheme and partnership with Community Wood Case study ## Closing the loop with ## Returnable Packaging ## Services (RPS) FY22 saw the highest number of pallets returned sincethelaunch ofour pallet return scheme. In FY22 15,052 pallets were collected by our repatriation partner RPS, representing a 30% increase compared to the prioryear(FY21: 11,581 pallets). “RPS Pallets are extremely proud to partner with CrestNicholson to manage their pallet return scheme. Applying circular economy principles, we returned 7,276pallets for reuse in the supply chain while the remaining 7,776pallets were recycled. We lookforward to strengthening ourpartnership inthe future.” Tom Hudson Commercial Director, RPS Crest Nicholson ## 40 Annual Integrated Report 2022 ## Our sustainability reviewcontinued ## Protect the environment | We continue to segregate waste on site | We engage with ecologists across | | --- | --- | | to reduce the amount sent to landfill. | all developments at an early stage | | In FY22 our landfill diversion rate was | to consider eective protection and | | 96% (FY21: 96%), exceeding our target of | enhancement measures. In FY23 | | 95%. Diverting waste from landfill prevents | we willrollout a biodiversity toolkit | | pollution, reduces GHG emissions, keeps | for ourLandteams tosupport their | | the materials in use topreserve natural | assessmentofthebiodiversity value | | resources and supports jobs in the reuse | ofnew projects. | and recycling sector. By considering at the outset how our developments can enhance biodiversity, ### Water eciency theneed to provide new homes and Several areas of the UK are already at improvesocial infrastructure can be highrisk from water supply stress. With the balanced with environmental concerns, population growing and climate change ensuring both people and nature increasing the likelihood of droughts, can thrive. water eciency in the home is becoming increasingly important. While household water use will vary depending on household habits, our homes are designed to use a Case study maximum of 105 litres per person per day, which is 16% lower than Building Regulations require. To reduce water consumption ## Monksmoor Park andimprove resilience to water scarcity, weinstall aerated taps andshowers, Monksmoor Park is a thriving dual flush toilet cisterns andwater- community surrounded by sensitive ecient appliances. ecological habitats. Our Midlands division worked in partnership with ### Biodiversity landscape architects and ecologists Biodiversity, which describes the variety to expand and integrate Daventry ofliving species on our planet, is declining Country Park into the development at an unprecedented rate. Since 1970 through a series of lakes, native populations of UK priority species have tree and shrubbery planting and declined by 60%. the addition ofopen spaces and We are committed to achieving a play areas. biodiversity net gain (BNG) of at least Highlights include the creation of A series of allotments were provided 10% ondevelopments submitted for anotter island within the country park in FY22, giving residents the planning from November 2023, in line extension, allowing a safe space for opportunity to grow fruit and with the timeline and threshold set local wildlife to flourish. The link to vegetables. Walkways and cycleways, intheEnvironment Act 2021. | theDaventry Reservoir Country Park | including awalking route through the | | --- | --- | | to the south of the development, and | 25 acres ofopengreen space and | | the Grand Union Canal to the north, | mature trees, have been established | | has allowed the wider community to | to provide attractive amenity space | | enjoy the space. Furthermore, bee | and connect the community with | | and bug hotels have been installed | thesurrounding landscapes. | throughout the development to attractand support wildlife. Our biodiversity aims are shown in the table below: Aim Detail Key objectives 1. Protect and Protect and enhance biodiversity to support — Achieve a 10% BNG on new developments enhance biodiversity healthy ecosystems and priority species. submitted for planning from November 2023 — Protect and provide habitats for priority species. | 2. Integrate | | Mitigate and adapt to the eects of climate change | — Utilise nature-based climate solutions where | | --- | --- | --- | --- | | | nature-based | by integrating nature-based solutions to support | possible. For example, sustainable drainage | | | climate solutions | carbon sequestration and reduce heat, drought | systems and climate-resilient planting. | andflood risk. | 3. Connect people | | Connect our communities with the natural world | — Consider accessibility to nature in | | --- | --- | --- | --- | | | and nature | to promote awareness and understanding of | development designs | | | | biodiversity while maximising the wellbeing | — Improve engagement with customers and the | | | | benefitsthat nature provides. | localcommunity on biodiversity in the area | — Collaborate with wildlife organisations to supportaction that benefits nature — Increase environmental awareness among our employees. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 41 ## We are committed to providing attractive and high ## Make a positive ## quality new homes and investing in initiatives and ## impact on ## infrastructure that bring lasting benefits to communities. ## communities ### Thriving communities Charitable giving and supporting ### SDG alignment: | and social value | the local community | | --- | --- | | Creating thriving communities and | In FY22 we donated £76,470 to charities, | | delivering social value is at the heart of | including Variety, the Children’s Charity, | | our Group’s purpose. The homes and | and Cancer Research UK. The Group also | | developments we build today will shape our | oers a payroll giving scheme allowing | | landscape and communities for generations | employees to make tax-free donations to | | to come. Through a considered approach | their chosen charities directly from their | | to placemaking, collaborative planning | salary. We continue to support local charities | | and stakeholder engagement, we strive to | and organisations through donations | | deliver high quality homes with good access | andsponsorship, helping to deliver a | | to local amenities. We also aim to promote | positive impact in the communities in | | the relationship our customers have with | which we operate. The Group will confirm | ### Link to strategic priorities: nature by providing accessible green space a new charity partner in early FY23. wherever possible. See our ‘People’ section on pages 44–47 Placemaking & Quality formoreinformation on charitable giving. Placemaking goes hand in hand with Five-Star Customer Service delivering social value to the local community. Multi Channel Approach Infrastructure such as public transport links, community centres, education facilities ### Link to foundations: and play areas contribute to social value across our developments. In addition, 2 socio-economic benefits are delivered through employment opportunities for local contractors, apprentices and trainees. We also ### FY22 highlights: support employment in our supply chain — 522 aordable homes delivered through material and labour procurement. — 88% of developments within 1km ofapublic transport link — Over £42,000 raised for Cancer Case study Research UK in charity event — Significant increase in customer ## Supporting health and wellbeing andquality roles. ## at More Park School ### Priorities for FY23 The Group sponsored the installation of class can use the space for anoutdoor — Implement and embed the outdoor exercise equipment at More Park fitness lesson. The equipment will also NewHomes Quality Code Catholic Primary School in West Malling be used in activities for children with — Embed new Quality forthe students to use and enjoy. a variety of needs, meaning all students Assurance processes across the school can make themost The new additions included cardio — Implement new photographic of the new installations. and resistance apparatus accessible evidence process for Part L to children aged five to 12 years old. “ This donation has allowed us to not only of the Building Regulations The equipment will be used in PE lessons purchase new apparatus, but choose — Establish new customer to support the students’ understanding equipment that will both excite and service processes. of health and fitness and will also be inspire children for many years to come available to use at break and lunch on their sports and health journey.” times. The equipment is designed in a Paul Greenwood horseshoe configuration so that a whole PE Lead at More Park School Crest Nicholson ## 42 Annual Integrated Report 2022 ## Our sustainability reviewcontinued ## Make a positive impact on communities ### High quality homes During FY22, the housebuilding sector was ### Customer service management impacted by disruption to labour and supply ### and customer service chains through a combination of adjusting We have started to recruit a team We are committed to delivering high quality to life outside of the European Union, the ofCustomer Relations Managers homes and excellent customer service to aftermath of COVID-19 and the conflict in that willprovide additional focus and our customers. Achieving a five-star rating Ukraine. Against this backdrop the Group expertise to support customers prior for customer satisfaction from the HBF has has experienced operational challenges tomoving in and during the early been one of our five strategic priorities since and disruption in one of its divisions that weeksof occupation. the Group updated its overall strategy in has delayed the handover of some of its ### early 2020. We have made a strong start Quality assurance properties. This has disproportionately in this ambition and have proudly been impacted our overall 2022 satisfaction score We have recruited a Quality Assurance awarded five-star status for the past two which is now expected to be marginally team to support and train our site teams years. This has been delivered by ensuring: below the threshold required to retain to deliver improved quality. Our homes — We build and handover a high quality are individually built by tradespeople five-star when awarded in February 2023. product that is well designed and finished and this team will provide an extra layer Given the importance of providing five- — We provide professional and responsive of assurance that we consistently deliver star customer service, and in advance of customer service and promptly address high quality. In 2023 this team will also further industry-level changes that will any concerns or complaints our support the introduction of the new soon be introduced to protect customers customers have PartLBuilding Regulations requirement buying a new home, the Group is already totake photographic evidence — We provide our customers with implementing an action plan to improve throughout the quality assurance anaccurate forecast of when we will itsperformance next year. The box to process. Photographic evidence will be handover their home so they can manage theright details the actions. required to demonstrate that new homes their purchase process eciently. are builtto high thermal standards and give the additional peace of mind that customers will be receiving a highly energy ecient new home. ### Case study New Homes Quality Code The New Homes Quality Code is a newcode of practice for home builders ## Moving into Hygge Park designed to achieve high levels of quality and strengthen protections When Saeed Mazinani and Ameneh We noticed some notable dierences forcustomers. We have enhanced our Bahrami decided to start a family, they with our energy bills in our new build processes to meet the requirements knew they would need a bigger home to in a short space of time. In our flat, we of this new Code and we are strongly accommodate their soon-to-be growing were paying around £110 a month, which committed to its principles and the household. Not only was a larger home has nearlyhalved in ournew home elevated levels of consumer protection a priority but having a sustainable and toaround £67. Things like the double- it provides. We will formally implement energy-ecient property was equally as glazed windows and the design of the our new processes and be bound by important. Following recommendations house have madea real dierence theCode inFebruary 2023. from friends who had bought with in retaining heat. Because of these Crest Nicholson, the first-time buyers enhancements, we can really see our We are confident that these actions decided to purchase a three bedroom house being our homefor the long run.” and additional resources will enhance ‘Hatfield’ at Crest Nicholson’s Hygge the experience for a customer buying Saeed Mazinani and Ameneh Bahrami Park development. aCrestNicholson home. Customers at Hygge Park, Keynsham “ We previously lived in a small two bedroom flat in Bath for four and a halfyears, so we knew having more space was essential for when our little one came along. We now have plenty of indoor living space downstairs as well as an extra bedroom upstairs, sothe floorplan gives us all the space and flexibility we need as agrowing family. Having an energy ecient and eco-friendly home was really importantto me, and something wewere specifically looking out forduring ourhouse hunt. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 43 ## Our people and supply chain partners are ## Operate our ## key to the successful delivery of our strategy ## business ## and overall performance. ## responsibly ### Responsible practice ### SDG alignment: We are committed to operating our businessin a responsible manner, creating a supportive and inclusive workplace for our people, and engaging ### Sustainable timber withour supply chain to deliver positive Our Sustainable Timber Policy commits outcomes for our stakeholders. ustoprocure sustainable certified timber – either FSC (Forest Stewardship Council) ### Sustainable supply chain orPEFC (Programme for the Endorsement Our supply chain partners play a pivotal ofForest Certification) certified. Our last rolein supporting our business to eectively reported timber audit confirmed 100% of our manage our strategy and sustainability timber procured from suppliers was FSC or performance. Our Sustainable Procurement PEFC certified. Purchasing FSC and PEFC ### Link to strategic priorities: Policy sets out our commitment to accredited timber promotes sustainable responsible procurement and is available forest management and helps reduce the Operational Eciency onour website. risk ofillegal deforestation. Supply chain collaboration is critical in | | tackling major environmental and social | Human rights and modern slavery | | --- | --- | --- | | | issues. In FY22 we met several material | The Group takes a zero-tolerance approach | | Link to foundations: | suppliers that have a high carbon footprint, | | to any form of modern slavery, including including brick, block and plasterboard forced labour and child labour. Our Supply 1 2 3 manufacturers to understand their eorts Chain Code of Conduct sets out our to reduce emissions. Our supply chain expectations relating to environmental is responsible for around a third of our and social matters within our supply chain. ### FY22 highlights: carbon footprint and actions they take All supply chain partners are contractually — Increased engagement with our todecarbonise will be critical to achieving required to abide by our Supply Chain supply chain on sustainability- ournet zero target. Codeof Conduct. related issues | | Supplier meetings covered a range of other | All direct employees are paid at or above | | | --- | --- | --- | --- | | — Achieved The 5% Club Silver | | | 1 | | | sustainability topics including modern | the voluntary Real Living Wage | and we | Awardforour commitment to slavery, social value and risk management. aim to achieve Living Wage Foundation recruiting trainees, apprentices In addition, we issued a questionnaire to all accreditation in FY23. Our Human Rights and graduates Group suppliers that focused on material Policy is available on our website. We support — 10% of our employees were sustainability issues. The responses will the principles set out in the UN Guiding traineesin FY22 | | improve our understanding of supplier | Principles on Business and Human Rights, | | --- | --- | --- | | — Employee engagement | actions taken to mitigate risk and how our | the Universal Declaration of Human Rights | | increasedto83% | supply chain can support us to deliver | and the International Labour Organization’s | | — SHE compliance increased | asustainable future. | (ILO) Fundamental Conventions. | to 88%. | We continue to partner with the Supply | In FY22 we updated our modern slavery | | --- | --- | | Chain Sustainability School (School). | escalation process and delivered training | | The School is a collaborative learning | to relevant teams. Our modern slavery | ### Priorities for FY23 environment designed to upskill those e-learning module is compulsory on — Achieve the Living Wage working within, or aspiring to work induction for relevant new employees Foundation accreditation within, the built environment sector. and isrenewed annually. In FY22 97% of — Increase the number of our Membership is free for our supply chain targeted colleagues completed the training suppliers actively engaging andprovides access to thousands of module. We also communicate updates with the Supply Chain learning resources and CPD-accredited on modern slavery to our employees via Sustainability School content including webinars, e-learning our intranet. Our Anti-slavery and human — Strengthen diversity and modules and guidance documents. tracking statement is updated annually inclusion initiatives In FY22 we promoted the School to and published on our website. — Enhanced focus on material oursupply chain partners to encourage We have a whistleblowing helpline management and site learning and improve knowledge. We also managed by a third party that allows our maintenance. | established a new target to increase the | colleagues, subcontractors, suppliers and | | --- | --- | | number of our suppliers with Group Supply | the local community to report concerns. | | Agreements (GSA) actively engaging with | Our whistleblowing policy Speaking Up | | the School. In FY22 18% of our suppliers with | provides further information and isavailable | | a GSA were at bronze, silver or gold status | on our website. During FY22 there were | | within the School (target: 90% by FY26). | zero substantiated grievances relating | tohuman rights and zero reported cases ofmodern slavery. 1 Apprentices are subject to a dierent pay scale in line with regulatory requirements. Crest Nicholson ## 44 Annual Integrated Report 2022 ## Our people are at the core of our business. ## People ## Wecontinueto focus on promoting diversity and ## inclusion. Werecognise the importance of our ## people’swellbeing and nurturing and developing ## peopleto fulfil their ambitions and potential. ### Attracting and developing talent Case study People are one of our strategic foundations. The quality of our people and the decisions ### they make are fundamental to the successful Trainees Our Trainee Programme implementation of our strategy. Georgina joined Crest Nicholson in 2021 as a We aspire to be an employer of choice TraineeLand Buyer, as part of our Trainee Programme. that attracts, develops and retains high ## 9.6% The programme has enabled her to rotate around quality talent and expertise. We collaborate dierent departments within her division to learn and work inclusively, focusing on shared Workforce who about how her role fits intothe bigger picture. goals, welcoming new ideas and fostering are trainees Georgina is also part of our Future Talent Programme, acultureof continuous improvement. which focuses on personal and professional | We want to ensure we have the availability of | | development for trainees and allows trainees | | --- | --- | --- | | talent in every part of our organisation and at all | | fromallareas of the business anddivisions | | levels. Our workforce should beappropriately | | tocometogether to learn and network. | | diverse, embracing a full range of views, | 46 | | “ I have completed rotations in the Technical, experiences and backgrounds and benefiting Trainees recruited Commercial, Build, Sales, and Finance teams. from the enhanced performance that we know in the year I reallyenjoyed getting the chance to work with this brings. We have reflected this aspiration dierent teams in the Company to learn about inour approach to recruitment and are seeing whateach department does and how they each an increasingly diverse range ofcandidates contribute to the overall housebuilding process. for all vacancies. In my current role, I assist with the initial review of a During the year we have focused on ## 76 site, looking into factors such as planning status, enhancing our talent pool by expanding siteconstraints, design requirements and sales ourTrainee Programme. Total number values. I have also accompanied the team on of trainees Following several open days across our sitevisits, and more recently have got involved division we have recruited 46 trainees for withproject management of current sites. roles across the Group, exceeding our initial I have thoroughly enjoyed my first year at target of 25. Candidates represented a CrestNicholson working within the Land team, range of backgrounds and age groups and and Iamlooking forward to building my career were able to demonstrate their individual andthefuture opportunities that the Company skills and capabilities, while learning to hasto oer.” work as part of a team. This initiative has also been open to existing employees seeking a career change. We have 76 trainees in total, which includes our new intake, those moving into their second year and existing employees transitioning onto theTrainee Programme. In September we held our annual traineeevent. Attendees who took part acrosstwo days, gained valuable insight into key areas of ourbusiness via a series of educational talksand practical sessions. Finally this year we applied for and received Silver Award for The 5% Club. The 5% Club is a movement of employers we have joined who are committed to have 5% of their workforce in earn and learn positions. We want to promote ourselves as an employer who aims to address the lack of opportunities for people to start a career or develop themselves in their current career. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 45 | Investing in our people | Wellbeing | | --- | --- | | Following our launch of our Talent | Our people are at their best when they | | Programmes in FY21, we have continued | feel happy and settled at work. As a major | | toinvest inthese programmes: | employer we have a responsibility for the | wellbeing of our workforce and we invest — Future Talent in activities that support their mental ### Throughout FY22 the following — Emerging Talent andphysical health. ### development programmes — Future Leaders. We have 18 trained mental health first aiders ### were launched so that We nominated 116 people for our Talent across our divisions. The mental health ### our talent can realise its Programmes and 38 employees have been first aiders are now equipped toidentify, promoted in their job role during the year: | full potential. | | understand and help support aperson at | | --- | --- | --- | | | — 13 Future Talent | work who may need it. They will support | | | — 18 Emerging Talent | employees when mental health issues arise. | | | — 7 Future Leaders. | This is particularly important in our industry | where employees do not always feel able The programmes have provided us with tobe open about their mental health. valuable insight and feedback from the current participants and those developing During this year we have launched Fika, thecourse content. This will allow us to amental fitness platform. Fika supports ### Future Talent refine and enhance the oering to future our employees by training them to deal ### Focus: Equipping trainees with the big and small challenges weall attendees as we continue to evolve our ### with new skills and identifying approach to developing our talent. experience every day and help them buildpersonal resilience. ### future leaders Talented people are often aware of their | | own value and are understandably targets | Exercise plays a significant part in physical | | --- | --- | --- | | | of interest from competitors. We want to | and mental wellbeing. Our GymFlex | | | ensure that our best people feel valued | scheme provides us with an opportunity | | | and recognised and that we articulate a | to engage with employees and encourage | | | clear case for why their development and | them to be active and healthy. In January | | Emerging Talent | | 2022 we promoted #WellnessWednesday. | career progression is best served with CrestNicholson. We do this in a variety Whether they arealready very active or ### Focus: Creating and developing of ways: just startingout, #WellnessWednesday is ### inspiring leadersat all levels aflexible programme that our employees — We aim to create a culture at work they can get involved in, regardless of time, wish to be part of and can be proud of placeandchoice of exercise. — We oer our employees competitive We provide benefits, services and support reward packages for the contribution toall our employees and these are promoted they make ### Future Leaders through a variety of sources with several — We have a comprehensive personal providers being open 24/7. This enables ### Focus: Identifying and developing development review and planning ouremployees to access these services process where employees receive ### individuals with aspirations to when they most needit. feedback and set their future objectives ### perform senior leadership roles and development activities We will continue to deliver further enhancements to our wellbeing strategy — We run a Group-wide talent review in FY23. andsuccession planning process whichaims to match our talent to the ### Talent development right role for now and in the future, ### at Crest Nicholson ensuring each individual identified hasapersonalised development plan. Case study “ From the moment I started with ### Emerging Talent CrestNicholson as a Trainee Site ### Programme ManagerI have never looked back. I haveworked with some fantastic Sam describes the Emerging Talent colleagues and completed some Programme as being hugely valuable, invaluable training schemes, having helped develop his skills, from gainingmy MCIOB status to enabling him to be ready forthe beingenrolledand completing the next step in his career and leading Emerging Talent Programme. It is him to secure a recent promotion. greatto be part ofa Company who Meeting up with colleagues from take pride indeveloping employees, acrossthe business while on training along withhaving the faith in them days hasalso been veryuseful for to promotefromwithin, and I am enhancing his network and seeing how gratefultobe part of that process.” his role aects the wider Company. Sam Chilvers Build Manager, Eastern Crest Nicholson ## 46 Annual Integrated Report 2022 ## People continued ### Employee engagement We have utilised a variety of employee Trained mental communication channels in FY22. ### Employee voice forums took place in the health first aiders These include regular Exchange yearwith Louise Hardy (Non-Executive (internalmagazine) updates, ad hoc Director for employee engagement) chairing Shoutouts (recognition) as well as these meetings. Representatives from usingSnapComms for instant updates. ## each division can give theirhonest and 18 We have also upgraded our intranet open feedback to Louise. Louise ensures toensure employees can easily keep Across the Group as appropriate, that this feedback trackof these news items. isdiscussedand actioned at the Board. ### For further information please see Employee turnover has been significantly Pulse Survey pages78–79. elevated in the past two years with our industry being particularly aected. During the year we conducted a shorter Strong construction output coupled with form (pulse) survey comprising eight ## along-term reduction in skilled people, 70% questions and a longer form (full) survey as wellas adapting to life outside of the of 60 questions. The pulse survey gave us Engagement score European Union, has meant qualified asnapshot of employee engagement prior peopleare in significant demand and in to the full survey, with anengagement score ### short supply. This has driven high levels Full Survey of 70%. The full surveythat was completed oflabour turnoverand wage inflation. in September 2022 showed an overall We have beenmitigating this impact by: engagement score of83%, an 8%increase from our FY21 scoreof 75%. — Recruiting in advance ## 83% ofvacancies arising Our next objective is to work with | ourpeople to ensure action plans are | — Focusing on retaining and | Engagement score | | --- | --- | --- | | embedded as a result of insights derived | attractingthebest people | with 72% participation | | from the surveys. We will also be issuing | — Launching the Induction Hub | | | further surveys to follow up on specific | onour intranet | | ### Employee turnover | areasof focus. | — Running a comprehensive talent | | | --- | --- | --- | | At half year and full year our Executive | development programme that | | | Leadership Team visits all divisions to discuss | links to our succession planning | | | our results, targets, future plans and strategy. | — Making103 internal promotions | 27% | | Employeessubmit questions in advance, | andassociated salary reviews | | Voluntary employee turnover anonymously if they wish, with all questions throughoutthe year (excluding those who left being answered by the Chief Executive on — Giving employees a one-o during probation) the day. payment of£1,000 in response The roadshows are a great opportunity for to the increasing cost of living. the Executive Leadership Team to meet with employees across the divisions and to thank them all for their hard work throughout the year. These roadshows are made accessible to everyone whether atthe oce or by virtual attendance at the meeting. Case study ### Crest Nicholson ### Charity Challenge ## >1 00 In September 2022 over 100 Crest Nicholson colleagues CrestNicholson colleagues, including theExecutive Leadership Team, took partinthe Crest Nicholson Charity Challenge. The challenge consisted of ## £42K three separate walking routes: Raised for Cancer — The Classic – 13.0km, Research UK taking around three hours — The Advanced – 26.6km, taking around six hours — The Expert – 35.5km, taking around eight hours. We set a fundraising target of £12,000 and surpassed this by raising over £42,000. All money raised wenttoCancerResearch UK. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 47 ### Our people | Gender split | | | Mean hourly pay gap | Ethnicity breakdown | | | | --- | --- | --- | --- | --- | --- | --- | | October 2022 | | | between men and women FY22 | October 2022 | | | | | 2 | 2 | | | | | | | | | | | 4 | 1 White British 635 79.7% | 3 2 5 2 White Other 47 5.9% ## £1 80p 1 3 Undisclosed 41 5.1% 4 Non-White 54 6.8% 1 | | | 1 | | | British | | | --- | --- | --- | --- | --- | --- | --- | | | | | 20% | 5 Non-White | | 20 2.5% | | All employees | Board | | | | | | Other FY21: 27% | 1 Male 489 61% | | 1 Male 4 57% | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2 Female 308 39% | | 2 Female 3 43% | | | | | | | | | | | | Median hourly pay gap | Age breakdown | | | | | | 2 | | 2 | between men and women FY22 | October 2022 | | | | | 1 | | | | | | 5 | 1 20 years | 8 1.0% | 4 6 or less ## £1 87p 1 2 21 to 30 years 191 24.0% 1 3 3 31 to 40 years 210 26.3% 4 41 to 50 years 176 22.1% 2 | Executive | Executive | | | | | --- | --- | --- | --- | --- | | | | | 13% | 5 51 to 60 years 161 20.2% | | Leadership | Leadership Team | | | | | | | 1 | | 6 Over 60 years 51 6.4% | | Team | and direct reports | | FY21: 22% | | | 1 Male 5 83% | 1 Male 27 66% | | | | | 2 Female 1 17% | 2 Female 14 34% | | | | 1 Based on the standard definition of leadership (seniormanagement) by FTSE Women Leaders. ### Diversity and inclusion Equal opportunities We encourage diversity and promote equality We aim to create an atmosphere that provides and respect throughout the organisation. equal opportunities for all. Selection for This supports our goal tobeaninclusive employment and promotion is based on merit, employer, where employees are empowered following an objective assessment of ability regardless of theirbackground, identity, and experience. We are also committed to age,gender, ethnicity or disability. ensuring that ourworkplaces are free from discrimination and that everyone is treated We continue to review and develop our fairly and withdignity and respect. policies that support diversity, inclusion andequality within the business to ensure Employment policy there are no barriers to recruitment, Our equality and diversity policy ensures performance and career development. “ We have a strong focus insupporting all employees and job applicants are a diverse and inclusive culture so that We also continue to celebrate our accorded equal opportunities for recruitment, we areseen as an employer ofchoice. calendarofinitiatives to acknowledge remuneration, access to benefits and notable datesandreligious festivals Our inclusive working environment training and promotion. We are committed toraiseawareness and respect for all enables us to attract talented people to ensuring that our workplaces are free faithsand important causes. to pursue a career within Crest from discrimination. We select and promote Nicholson. We operate on a flexible Further to the launch of our Company employees based on their aptitudes and and adaptive basis so that people find visionand values in 2020, we announced abilities, not their gender, sexual orientation, the right personal balance for them, ournew People Vision in March 2022, marital status, race, nationality, ethnic or that also benefits the business. whichhas been developed through the national origin, age or disability. Where an Diversity andInclusion Forum (D&I Forum). employee has, or develops, long-term health Our leadership sponsors the Group’s issues or a disability, the Group works initiatives in succession planning, Our values underpin how we implement with them to adapt their role, skills and talent development and diversity ourGroup strategy, defining who we development opportunities to remain suitable and inclusion.” areandhow we do business. Our values and appropriate for their circumstances Jane Cookson setout the principles we expect everyone sothat they can continue, and progress, Group HR Director inthe Group to follow. Together, these values intheir employment with the Group. strongly inform our culture and outline the type of organisation we aspire tobe. | We aim to create an inclusive | Our values | | | | | --- | --- | --- | --- | --- | | environmentwhere all colleagues are | | Working together | | Doing the right thing | | valued, included and empowered to | | We are one Crest. We value our diverse | | The safety and wellbeing of our employees, | | | 1 | | 3 | | | succeed. We launched new anity groups | | and inclusive workplace and support | | partners and communities is our number | | | | eachother. We collaborate closely to | | one priority. Everything we do is built on | which will playa vital role in helpingus buildfair and rewarding relationships. afoundation of integrity, quality and care. to achieve thisgoal. Employees were | encouraged to volunteer their participation | | Being the best we can be | | Championing our people | | --- | --- | --- | --- | --- | | within these groups, which will then | 2 | We improve and inspire each other | 4 | We invest in the wellbeing and | | | | to getthings done. We have passion | | development of our people. We provide | develops ideas to feed into the D&I Forum. for whatwe do and pride in how we themwith the tools and support to be These groups will then assess how to accomplish it. thebest they can be. bestimplement those ideas and initiatives Leaving a positive legacy thatthe D&I Forum wants to take forward. ## 5 We care passionately about the natural environment. We create beautiful homes and places that deliver lasting benefits toourcustomers and communities. Crest Nicholson ## 48 Annual Integrated Report 2022 ## The safety, health and welfare of everyone ## Safety, Health ## whocomesinto contact with our operations ## & Environment ## is our number one priority. It is important that employees and others We strive to continually improve the way ### FY22 highlights | | aectedby the work that we do remain | wework and while the Construction Design | | --- | --- | --- | | — Internal SHE compliance audit | healthy and go home safely to their family | and Management (CDM) Regulations are | | programme now fully embedded, | and friends every day. We can only achieve | well established, we undertook a review | | drivingimproved performance | this by establishing a relentless focus | of our procedures in FY22. As a result of | | — Introduced new incident and | for those working on site, and those who | this, we have added more opportunities | | claiminvestigation processes | support our operations away from it, on | forearly consideration of safety issues in | | — Enhanced reporting tools, generating | identifying those risks attached to how we | ourprocesses and provided additional | | insights from new audit programmes | work and taking responsibility to mitigate | training to key disciplines. | | and incident investigation processes | these through proactive decision making | | In February 2022 we introduced new and compliance. — Environmental and waste processes standards and protocols for environmental reviewed and updated protection and waste management. ### Compliance and leadership — Additional pre-construction We augmented this with an audit in the Following the introduction of a new design and management protocols summer to review how well they had been compliance and audit programme with introduced, supported by adopted and to assess the eectiveness supporting software in 2020, our performance appropriate training. oftheir impact. We will continue to apply continues to improve. Compliance has these learnings throughout FY23. increased to 87.9% in FY22 (FY21: 86.9%). Measuring compliance this way gives us a forward indicator of performance and enables us to focus our attention where ### SHE audit compliance we can make the biggest dierence beforeaccidents or incidents occur. ## 8 7. 9 % FY21: 86.9% ### Annual Injury Incidence ### Rate (AIIR) ## 468 FY21: 385 ### SHE training days ## 366 FY21: 278 ### Senior management ### safety tours ## 144 FY21: 152 ### SHE compliance ### inspections ## 685 FY21: 810 Wycke Place, Maldon Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 49 Our Annual Injury Incidence Rate (AIIR) ## Our new environmental and waste hasincreased in FY22 and is higher than we would like it to be. During the year there ## management protocols are a great step were 17 injury incidents that we reported ## to the Health and Safety Executive (HSE). forward. There issuch a strong link between We critically review every incident, whether ## RIDDOR reportable or not, to consider how safe working practices and protecting the it could have been avoided. In April 2022 ## environment andthis has provided us with we introduced a revised process for the management, investigation and reporting ## aclear focus onthis issue.” ofincidents which is now providing greater insights on the causes of incidents. Chris Epps Using the more structured and Group Head of SHE comprehensive data set from our new compliance audit and incident investigation processes, we have improved a number ofour on-site processes that will help ### Governance ### makethe working environments safer FY23 focus areas forallnext year. The Board considers SHE performance As well as further embedding the new critical to our eective operations. Examples of these improvements are: procedures and initiatives from FY22, Executive oversight is delegated to the we will introduce new procedures — Following a fire in a nearly complete SHECommittee, which is chaired by the and campaigns to drive performance plot, we introduced new fire prevention Group Operations Director and attended improvements in these areas: protocols to control the turning on of the bythe Chief Executive, General Counsel electrical supply by unauthorised trades — Following examples of implemented andCompany Secretary, Group HR — A contributory cause to incidents can strikes ofburied cables during FY22, Directorand Group Head of SHE. be the quality of subcontractors’ risk newprocedures will be implemented The SHE Committee provides general assessments and method statements. to enhance the pre-planning of this leadership and oversight including: In May 2022 we rolled outnew processes activity and to require a supervisor — Monitoring performance against to be present throughout the dig. for the checking of this documentation theGroup’s SHE strategy Additional precautions are being and aprocess to escalate this review forhigher risk activities — Setting associated policies, introduced to ensure that any proceduresand initiatives hand tools and road pins used — We have reviewed and adapted our — Overseeing the management inthegroundare insulated processes for risk assessing sites withpotential radon exposure. of the Group’s SHE risks. — Maintaining a clean and tidy working environment helps minimise the The Committee is advised on operational risk of slips, trips and falls. It also issues by the Group’s SHE function as sets the right culture and mindset wellas the Build Functional Forum – a for all those working on that site as regular meeting focused on the Group’s well-organised sites are generally build processes including health and safety, safer ones. Data from our insight which is chaired by a Divisional Managing reports indicates this is one of the Director and attended by all divisional areas in which we can improve. BuildDirectors and relevant heads of In FY23 we will place an enhanced Group functions. focus on goodhousekeeping and During the year the SHE Committee met site maintenance to reduce the sixtimes and approved the following: incidence of reportable and — Phased alteration of COVID protocols non-reportable events. — New incident reporting processes — Recommendations from incident investigations — Proposals for Environmental & Waste Management Audit — New policies for avoiding service strikes. To complement our own governance structures, we continued to work closely with colleagues from the wider housebuilding industry to support industry initiatives aimed at elevating health and safety standards across all developments. Crest Nicholson ## 50 Annual Integrated Report 2022 ## We use 12 key performance indicators to monitor ## Key performance ## our progress against our strategic objectives. ## indicators ## These are the key metrics that we use to measure ## theperformance and health of the business. Strategic foundations and priorities The numbers below relate to our principalrisks 1 Placemaking & Quality 6 People 1 2 3 4 5 6 69 | | | 1 | | 2 | 7 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Land Portfolio | Sustainability & Social Value | | | | | 5 | | 2 | | | | | | | | | | 3 Operational Eciency | 8 Safety, Health & Environment (SHE) | 7 8 9 10 11 | 12 | | | 4 | | 3 | | | | | | 8 7 | | | | 4 | 9 | | | | | | | | Five-Star Customer Service | Financial Targets | | | See pages 60–64 for 5 Multi Channel Approach our principal risks ### Financial KPI used in the KPI used in the annual bonus scheme Long-Term Incentive Plan Return on capital Earnings before Unit completions 1 employed (ROCE) interest and tax ## 22.4% 1 15.4% 2,734 (EBIT) margin | FY22 | 22.4% | FY22 | 15.4% | FY22 | 2,734 | | --- | --- | --- | --- | --- | --- | | FY21 | 17.2% | FY21 | 14.6% | FY21 | 2,407 | | FY20 | 7.6% | FY20 | 8.4% | FY20 | 2,247 | | Definition | | Definition | | Definition | | | Adjusted operating profit before | | EBIT margin (operating profit margin) | | Sales of homes recognised in the year | | | joint ventures divided by average | | reflectsthe adjusted profit before interest, | | including 100% of those held in joint | | | capital employed. | | joint ventures and tax achieved by the | | venturesand on an equivalent unit basis. | | | | | Group, divided by revenue. | | FY20 sales of homes recognised in the | | Why we measure yearincluding our proportion of those Illustrates how eective the Group’s Why we measure heldin joint ventures and not on an capitalallocation is in delivering returns. Assesses the financial eciency equivalent unit basis. of our business operations before any one-o cost. Why we measure Reflects overall business activity andoutputand enables the Group to forecast future capacity requirements. 1 3 5 9 1 3 5 1 9 1 3 5 9 1 Land creditors as Net cash Land portfolio 1 | a% of net assets | | | | | | | | gross margin | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 22.5% | | | | £276.5m | | | | 25.0% | | | FY22 | | 22.5% | | FY22 | | | £276.5m | FY22 | | 25.0% | | FY21 | | | 24.7% | FY21 | | £252.8m | | FY21 | | 23.4% | | FY20 | | | 24.9% | FY20 | | | £142.2m | FY20 | | 16.0% | | Definition | | | | Definition | | | | Definition | | | | Land creditors divided by net assets. | | | | Cash and cash-equivalents plus | | | | The expected gross margin after sales | | | | | | | | non-current and current interest-bearing | | | | andmarketing costs of land we hold | | | Why we measure loans and borrowings. inourshort-term land portfolio. Ensures that the Group is maintaining arobust financial position when entering Why we measure Why we measure into future land commitments. Illustrates the Group’s overall liquidity Indicates the earnings potential of position and general financial resilience. currentand future land development andthesale ofassociated homes. 1 3 5 2 9 1 3 5 3 1 3 5 2 Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 51 Our KPIs were revised during the year to performance does not compromise improve alignment between the measures the build quality, customer satisfaction we use to run the Group on a daily basis orsafetyofthose working on our sites. with the interests of all stakeholders and To align the focus of the Board and ourremuneration targets. Executive Leadership Team with the We strive to deliver sustainable growth interests of stakeholders, some KPIs in volumes while delivering shareholder are reflected in our senior management returns within a framework of a robust incentive schemes. Further information balance sheet. It is essential that financial onremuneration can be found on pages100–122. ### Non-financial targets | Greenhouse gas | | Waste intensity | | Voluntary employee | | | --- | --- | --- | --- | --- | --- | | (GHG) emissions | | | | turnover | | | | 1.82 | | 8.72 | | 27% | intensity | FY22 | | 1.82 | FY22 | 8.72 | | FY22 | 27% | | --- | --- | --- | --- | --- | --- | --- | --- | | FY21 | | 2.52 | FY21 | | 9.25 | FY21 | 35% | | FY20 | | 3.08 | FY20 | | 8.19 | FY20 | 26% | | Definition | | | Definition | | | Definition | | | The GHG emissions intensity reflects our | | | Waste intensity reflects tonnes of | | | The percentage of leavers during the year | | | scope 1 and 2 emissions (tCO | 2 e) per 100 | | construction waste per 100 sq. m of | | | by reason of resignation or retirement as | | | sq.m of completed floor area. It includes | | | completed floor area. | | | aproportion of total employees at the | | | business travel via company cars, fuel and | | | | | | end of the year. | | Why we measure energy used on sites and in oces. This is one of the key measures we use Why we measure Why we measure totrack our progress on reducing our The quality of our people and the This is one of the key measures we use to impacton the environment. There is decisions they make are fundamental track our progress on reducing our impact alsoabusiness benefit from the reduced to the successful implementation of our on the environment. There is also a business cost ofmaterials purchased and waste strategy. Low employee turnover supports benefit from increased operational eciency generated in the construction process. greater depth of experience, continuity and reduced cost of fuel used. anddevelopment of skills within our teams. 79 10 9 7 3 67 | Customer | | | Annual Injury Incidence | | | PRS/Aordable unit | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | satisfaction | | | Rate (AIIR) | | | completions | | | | | 5 star | | | 468 | | | 35.1% | | | FY22 | | 5 | FY22 | | 468 | FY22 | | 35.1% | | FY21 | | 5 | FY21 | | 385 | FY21 | | 37.1% | | FY20 | | 5 | FY20 | | 369 | FY20 | | 49.1% | | Definition | | | Definition | | | Definition | | | | The annual Home Builders Federation’s | | | AIIR represents the number of | | | Proportion of unit sales of homes | | | | customersatisfaction rating based on | | | accidentsinthe year normalised | | | recognisedin the year to the Private | | | | theNational House Building Council | | | per100,000people working on site. | | | Rented Sector (PRS) or aordable. | | | surveywhich newhome buyers receive. Why we measure Why we measure Why we measure The safety, health and welfare Selling homes through a range of Providing an excellent customer ofeveryonewho is part of our partnerships and tenures is one of experienceis one of the Group’s operationsisournumber theGroup’s five strategic priorities. fivestrategic priorities. one priority. 4 1 4 1 3 5 8 1 5 9 1 ROCE, EBIT margin, net cash and land creditors as a percentage of net assets are alternative performance measures. See pages 188–189 for further details. Crest Nicholson ## 52 Annual Integrated Report 2022 ## Adopting a standard housetype range and moving ## Financial review ## away from more complex schemes has simplified ## ouroperating model and delivered the eciencies ## weneeded to rebuild margins. ### Revenue ## £913.6m A strong (FY21: £786.6m) ## financial ### Net cash ## performance ## £276.5m (FY21: £252.8m) ## in the year ## The Group has made further good ## progress implementing its strategy ## which is reflected in our enhanced ## financial performance for the year. ## Increases in revenue, operating ## margin and return on capital employed ## demonstrate the underlying health ## of our operations. The balance sheet ## remains robust and will provide ## resilience in tougher market conditions ## and fuel our growth ambitions when ## more stable conditions return.” Duncan Cooper Group Finance Director Read more about our KPIs on pages 50–51 Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 53 As in previous years, the Group continues The Group delivered 2,734 (FY21: 2,407) ### Financial highlights | | to report alternative performance measures | home completions during the year, up | | --- | --- | --- | | — Revenue up to £913.6m, | relating to sales, return on capital employed | 13.6% on prior year. 2,212 of these were | | reflectingstrong trading in | and ‘adjusted’ performance metrics because | open market completions (including bulk | | uncertain macro environment | of the exceptional items as detailed in | deals) (FY21: 1,924), up 15.0% on prior year, | | — Adjusted profit before tax | note4. The exceptional items have a | with the balance derived from aordable | | at£137.8m,in line with | material impact on reported performance | completions at 522 (FY21: 483), up 8.1% | | our expectations | and arise from recent, unforeseen events. | on prior year. Current and prior year | | — Profit before tax at £32.8m, | As such, the Directors consider these | comparative values both state joint ventures | | afterrecording exceptional | adjusted performance metrics reflect a | at full unit count and include an allocation for | | items of£105.0m | more accurate view of the core operations | any land sale element that is present in any | | | and business performance. All alternative | relevant completed transaction, referring | — Adjusted operating profit margin performance measures aredetailed on to this as being on an equivalent unit basis. upto 15.4%, on track back to pages 188–189. The Group started to report on this basis at industryaverage level HY21 to align to the methodology commonly — Net cash at £276.5m, and ran ### FY22 trading performance adopted by other UK housebuilders. on average net cash basis The trading year started strongly with throughout FY22 Open market (including bulk) average good levels of demand for new homes. selling prices increased to £388,000 — Return on capital employed Construction activity and operating (FY21: £359,000) during the year. Since the increasedto 22.4% conditions were beginning to normalise Group announced an updated strategy in — £250m Sustainability Linked after the supply chain disruption caused January 2020 it has focused on rolling out Revolving Credit Facility by COVID-19. Although labour inflation and its standard house type range across new completedin year rising prices of raw materials were starting developments. These houses are typically — Final proposed dividend to drive increasing levels of build cost more ecient to build and are oered to of 11.5 pence per share. inflation, housebuilders were managing customers at lower price points than the to successfully oset this through house Group’s legacy house types. In addition, prices. As FY22 started to unfold the the Group has experienced a shift in the global geopolitical environment became regional composition of its sales as it has increasingly uncertain. The conflict moved away from selling in London and in Ukraine led to further supply chain delivers a greater proportion of sales disruption and created significant energy from other, lower priced geographies. supply insecurity, both of which contributed These factors continue to support a to an acceleration in build cost inflation. reduction in average selling prices which Later in the summer domestic political hasbeen more than oset by house price uncertainty added further economic inflation in the year. headwinds, resulting in a backdrop of rising Adjusted gross profit was £194.3m interest rates across the course of the (FY21: £166.7m), up 16.6% on prior year, year, an increase in the cost of mortgage principally reflecting the stronger sales borrowing and speculation that this would performance. Adjusted gross margin ### Adjusted profit before tax result in much tougher trading conditions for was slightly up on prior year at 21.3% housebuilders in FY23. Despite this external (FY21: 21.2%). Gross profit margin volatility the Group has traded strongly in progression was expected to be flat this the year, delivering an improvement across ## £ 1 3 7. 8 m year as the prior year comparative included all key financial metrics. the contribution from the Longcross Film (F Y21: £107.2m) Sales, including joint ventures, grew 17.5% Studio sale. This was reflected in lower land on prior year at £955.8m (FY21: £813.6m). and commercial sale revenue at £32.0m This comprised £913.6m of statutory ### Return on capital employed (FY21: £49.2m). In addition, the Group revenue (FY21: £786.6m) and £42.2m continued to recognise several zero margin ofthe Group’s share of revenue through schemes including units at Brightwell’s Yard, joint ventures (FY21: £27.0m), reflecting a Farnham and the completion of OldVinyl strong trading performance and a growing ## 22.4% Factory, Hayes and Sherborne Wharf, contribution from existing joint venture Birmingham. Approximately one-thirdof (FY21: 17.2%) schemes reaching maturity. the Group’s remaining NRV provision is expected to be used in FY23 and predominantly relates to the scheme at Brightwell’s Yard, Farnham. Gross profit was £91.8m (FY21: £145.9m), down 37.1% on prior year due to the impact ofexceptional items. ## “ The Group has outlined a margin ## recoveryplanto bring margins in line ## withindustry peers by FY24.” Duncan Cooper Group Finance Director Crest Nicholson ## 54 Annual Integrated Report 2022 ## Financial review continued Administrative expenses for the year were £51.1m (FY21: £51.1m). The prior year comparative is inflated through the one-o voluntary repayment of the Government’s Job Retention Scheme for COVID-19 of £2.5m, which was received in FY20. The Group has continued to maintain a strong discipline on overheads, but the underlying increase reflects the backdrop ofrising wage inflation and the competition for talent within the construction sector during the past year. Given the tougher economic outlook, we expect to operate with far fewer vacancies for roles in FY23. In addition, we are investing in the establishment of two new divisions, recruiting new roles focused on quality and customer service and are seeing other regulatory changes which will require more resources. These factors will all contribute to an increase in the Group’s headcount in FY23 and accordingly we expect administrative expenses to increasebyover10% compared to FY22. On 6 May 2022, the Group disposed of its50% share in the joint venture containing the London Chest Hospital to its joint venture partner for a total consideration of £16.0m. £8.0m of this was received in FY22 with the balance due in FY23. Accordingly, the Group recorded a £2.3m net impairment loss on financial assets for the year (FY21: £1.0m). This site had been thesubject of planning objections and Adjusted operating profit (or Earnings The Group has delivered another year of delays and is a complex build programme Before Interest and Tax – EBIT) increased strong progress implementing its strategy, with significant levels of peak capital in the year to £140.9m (FY21: £114.6m) with realising tangible progress in its financial investment. By disposing of it for a small EBIT rate increasing from 14.6% to 15.4%. performance. While the market outlook lossthe Group has been able to forego Excluding the eect of the London Chest for FY23 has undeniably become more the future recognition of a margin dilutive Hospital sale, EBIT rate would have been challenging. The Group is now realising scheme and realise a strong cash inflow 15.7% for FY22, reflecting strong progress the benefits of exiting those previously toinvest into schemes that are consistent towards the 18-20% range currently being identified low margin legacy schemes. with its current strategy. | delivered by other housebuilding peers. | Opening new divisions in Yorkshire and | | --- | --- | | The Group has outlined a margin recovery | EastAnglia will provide volume growth | | plan to bring margins in line with industry | inthe future to accompany the Group’s | | peers by FY24. Finally, adjusted profit | ongoing margin recovery. | before tax (APBT) for the year was £137.8m (FY21: £107.2m), up 28.5% on prior year and profit before tax after exceptional items for the year was £32.8m (FY21: £86.9m), reflecting the impact of the stronger year- on-year operating profit contribution oset by the exceptional charge outlined below. Operating profit was £38.4m (FY21: £93.8m), down 59.1% on prior year due to the impact of exceptional items. ## “ While the market outlook for FY23 has ## undeniably become more challenging ## theGroup is now realising the benefits ## ofexiting those previously identified ## lowmargin legacyschemes.” Duncan Cooper Group Finance Director Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 55 ### Finance expense and taxation Adjusted net finance expense of £7.1m (FY21: £9.1m) is £2.0m lower year on year, and the Group Revolving Credit Facility (RCF) remained undrawn for the duration of the year. Net finance expense was £8.1m (FY21: £8.6m). Income tax charge in the year of £6.4m (FY21: £16.0m) represented an eective tax rate of 19.5% (FY21: 18.4%). ### FY22 total dividend This increase is due to the impact of changesin UK tax rates and the introduction of the Residential Property Developer Tax (RPDT). Further detail can be found ## 17.0p innote 8. (FY21: 13.6p) ### £250m Revolving Credit Facility The Group’s previous £250m RCF was due ### Adjusted operating margin to expire in June 2024. During the year we completed a new Sustainability Linked Revolving Credit Facility on 13 October 2022. This £250m facility provides the ## 15.4% Group with strong levelsof liquidity and headroom tocomplement the year end (FY21: 14.6%) net cash position and expires in October 2026. It is also linked to the Group’s ### Adjusted basic EPS sustainability strategy with a lowerinterest payable if certain targets areachieved. These targets include: — Reduction in absolute scope 1 and 2 ## 42.5p emissions in line with our science- (FY21: 34.0p) based targets — Increasing the number of our suppliers engaging with the Supply Chain Sustainability School — Reduction in carbon emissions associatedwith the use of our homes — Increasing the number of our employees in trainee positions andontraining programmes. The Group will provide an annual progress update against these targets in future issuesof its Annual Integrated Report. ### Dividend ### Exceptional items These changes culminated in a request The Board proposes to pay a final tohousebuilders to sign the Government’s Since the Grenfell Tower tragedy in 2017, the dividendof 11.5 pence per share for the Building Safety Pledge which the Group Government and construction sector have financial year ended 31 October 2022 which, did on 19 April 2022. As a consequence been carefully trying to identify any other subject to shareholder approval, is expected of signing the Building Safety Pledge buildings which may be exposed to potential to be paid on 5 April 2023 to shareholders the Group informed the capital markets fire safety risks. At the outset of this review on the Register of Members on 17 March on 5 April 2022 that it considered a process, the Group sought to identify 2023. This is in addition to the 5.5 pence further exceptional charge of £80–120m which buildings needed remediating and if per share interim dividend that was paid represented its best estimate of the necessary, where temporary risk mitigation inOctober 2022. rangeofthese incremental costs. solutions were required until this work could | be completed. The Group’s stated position | At FY22 the Group recorded an exceptional | | --- | --- | | was that it would work as swiftly as possible | charge of £105.0m (FY21: £20.3m) in respect | | to remediate those buildings where it had a | of its further obligations upon signing the | | legal or constructive obligation to do so. | Pledge. Tax credit on exceptional items | is £22.4m (FY21: £3.9m). Further detail The first exceptional charge taken in this oftheseitems can be found in note 4. respect was in FY19 for £18.4m and by the | end of FY21 the Group had cumulatively | In January 2023, the Group received a | | --- | --- | | recorded £47.8m of net exceptional charges | £10.0m cash settlement from a third party | | and had an unutilised balance sheet | relating to buildings included within the | | provision of £42.6m. In January 2022, | combustible materials provision. As this | | theSecretary of State for the Department | was not contracted in the current financial | | for Levelling Up, Housing and Communities | year, it has not been recognised in the | | (DLUHC) announced the Government’s | FY22 consolidated financial statements. | | intention to change the regulatory and | The receipt will be reflected in the FY23 | | legislative framework for fire remediation. | consolidated financial statements as an | exceptional credit. 56 Crest Nicholson^{}[] Annual Integrated Report 2022 # Financial review continued # A strong financial position The Group had net cash of £276.5m at 31 October 2022 (FY21: £252.8m) and was ungeared (FY21: ungeared). Net cash and land creditors were £77.8m (FY21: £29.9m). Average net cash during the period was £102.0m (FY21: £78.4m). The Group has made significant progress over the past two years in strengthening the balance sheet through improved working capital management and the disposal of non-core assets. In combination with the renewed RCF this gives the Group ample liquidity to remain resilient in tougher trading conditions, fund its combustible materials obligations and enables it to fund its growth ambitions. Inventories at 31 October 2022 were £990.1m (FY21: £1,037.5m), down 4.8% year-on-year. Included within this balance is an NRV provision of £12.6m (FY21: £20.7m) which principally relates to the Group's scheme at Brightwell's Yard, Farnham. Completed units at 31 October 2022 were £30.1m (FY21: £57.7m). Approximately one-sixth (FY21: one-sixth) of the stock of completed units were show homes. Further detail on inventory can be found in note 19. Net cash inflow from operating activities was £51.7m (FY21: £126.5m) and return on capital employed (ROCE) increased strongly for the second successive year to 22.4% (FY21: 17.2%), reflecting the increase in earnings and further progress on strengthening the balance sheet. Net assets at 31 October 2022 were £883.1m (FY21: £901.6m), a decrease of 2.1% on prior year. # Land portfolio The land market remains highly competitive. Strong sales rates across all major developers over the past two years, coupled with lack of availability of fresh land supply and delays in approving land in the planning process, has seen the number of industry outlets fall. The uncertain market outlook is discouraging some developers from completing planned acquisitions. Given this structural lack of supply, our strong financial position, and the opportunity to participate when others are temporarily withdrawn, the Group intends to remain active in the land market in FY23. We will be selective and disciplined in identifying and acquiring sites. We have increased our hurdle rates and are focused on low-risk schemes in high quality locations. FY22 average outlets were 54 and we expect FY23 average outlets to be slightly lower, reflecting the backdrop outlined above. 2,771 plots have been approved in FY22 for purchase at a gross margin of 25.5% (after sales and marketing costs). The Group's short-term land portfolio at 31 October 2022 comprised 14,250 (FY21: 14,677) plots, representing approximately five years of supply based approximately on FY22 completion volumes (FY21: five years supply based on FY21 completion volumes). In addition, the Group's strategic land portfolio comprised 22,450 plots (FY21: 22,308), resulting in a total land portfolio at 31 October 2022 of 36,700 (FY21: 36,985) plots with a Gross Development Value (GDV) of £12.1bn (FY21: £11.8bn). During the year, the Group added 3,094 units to the short-term land portfolio and delivered 2,734 home-completions. Additions were made in all divisions including the new Yorkshire division. The Group also added 415 units to the strategic land portfolio. Group Finance Director | | FY22 | | FY21 | | | --- | --- | --- | --- | --- | | | Units^{1} | GDV^{2} – £m | Units^{1} | GDV^{2} – £m | | Short-term housing | 14,250 | 4,661 | 14,677 | 4,482 | | Short-term commercial | – | 41 | – | 44 | | Total short term | 14,250 | 4,702 | 14,667 | 4,526 | | Strategic land | 22,450 | 7,409 | 22,308 | 7,308 | | Total land pipeline | 36,700 | 12,111 | 36,985 | 11,834 | 1 Units based on management estimates of site capacity. Includes joint venture units at full unit count and an an equivalent unit basis which allocates a proportion of the unit count for a deal to the land sale element where the deal contains a land sale. 2 Gross development value (GDV) is a management estimate calculated on the basis of a number of assumptions, for example, assumed sale price, number of units within the assumed development and the split between open market and affordable housing units, and the obtaining of planning permission. These are management's estimates and do not provide assurance as to the valuation of the Group's portfolio. Units based on management estimates of site capacity. ![img-2.jpeg](img-2.jpeg) Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 57 ## Non-financial ## information statement The following table summarises the information required by sections 414CA and 414CB of the Companies Act 2006 and sets out where relevant information can be found throughout this report. Reporting Description of policies Related principal Relevant information to Page 1 requirement andstandards risks understand our impact, policy, due diligence andoutcomes — Sustainability 26–43 Environmental — Sustainability policy 2 Safety, Health & matters — Climate change policy Environment (SHE) — Carbon emissions 28–29, 38 — Sustainable procurement policy 9 Laws, policies and regulations — Waste 39–40 — Sustainable timber policy — Responsible procurement 43 — Supply Chain Code of Conduct. 10 Climate change — Task Force on Climate-related 30–38 Our policies are designed to help Financial Disclosures us pursue activities that protect and enhance the natural environment. — Risk 34–36, 60–64 — Stakeholder relations 22–25, Employees — Corporate health and safety policy 2 Safety, Health & 76–79 — Whistleblowing policy Environment (SHE) — People 44–47 — Equality and diversity policy. 7 Attracting and retaining our — Risk 60–64 Our policies set out our commitment skilled people — Board diversity 90–91 to developing our employees and to providing a safe and diverse — Gender pay gap 47, 120 working environment. — Stakeholder relations 22–25, Human rights — Anti-slavery and human 2 Safety, Health & 76–79 tracking statement Environment (SHE) — Whistleblowing policy — Responsible procurement 43 3 Access to site labour — Supply Chain Code of Conduct. and materials — Anti-slavery and 43 human tracking Our policies set out our commitment 7 Attracting and — Whistleblowing 43, 99 to human rights and the steps taken to retaining our reduce risk. skilled people — Sustainability 26–43 | Social matters — Sustainability policy | | 2 Safety, Health & | | | | --- | --- | --- | --- | --- | | | — Supply Chain Code of Conduct. | | Environment (SHE) | — People 44–47 | | | | 4 Customer service | | — Risk 60–64 | Our policies set out our commitment to high social standards and the and quality requirements for our supply chain. 12 Combustible materials — Anti-fraud and anti-bribery 99 Anti-bribery — Anti-bribery and corruption policy 9 Laws, policies and corruption — Whistleblowing policy and regulations — Whistleblowing 43, 99 — Supply Chain Code of Conduct. Our policies detail the expected conduct of our employees and supply chain. — How we create value 22–25, Business model forour stakeholders 76–79 — Key Performance Indicators 50–51 Non-financial KPIs — Sustainability 26–43 — Safety, Health & 48–49 Environment (SHE) — People 44–47 1 Policies and standards are published on our corporate website: www.crestnicholson.com ### Other ways we respond to material non-financial matters Customer Charter Through our Customer Charter we have made commitments to provide our customers with comprehensive information on their new home and to deal diligently with enquiries. Privacy policy We look after personal data that customers provide us with or that we may hold. We never sell this personal data. We have a range of technical and organisational measures to help ensure this data is used responsibly and to help keep it safe andsecure. We also take steps to ensure any third party that provides services to us – such as hosting personal data on servers – alsoprotects any data they process on our behalf. Crest Nicholson ## 58 Annual Integrated Report 2022 ## Eective risk management underpins the successful ## Principal risks ## delivery of our strategy and the longer-term ## anduncertainties ## performance of the business. Our risk culture ## isembedded in our decision making and central ## toourvalues. ### The Group’s financial, operational Risk culture ### Risk appetite andstrategic performance is subject Risk awareness exists through decision- Risk appetite at Crest Nicholson topotentialrisks and uncertainties making processes and is embedded in istheamount of risk that the Board inthepursuit of its objectives. systems, policies, leadership, governance is prepared to accept in return for These risks could, either separately orin and behaviours. Aligned to our values, achievingour purpose of building combination, have a material impact wemaintain a culture where our colleagues greatplaces for our customers, onthe Group’s performance, customers, are empowered to make decisions communities and the environment. employees, communities, the environment within agreed parameters in the delivery Our appetite for risk is based on our and shareholder returns. of our objectives. We ensure we have analysis of market context, our strategy the right accountabilities across the To continue to be a successful housebuilder and input from management and Group, maintaining eective risk-based in the long term, our decision making must advisors, and is reviewed throughout decision making. be informed by a clear understanding the year. of our business risks and opportunities. ### Emerging risks In order to achieve the Group’s strategy, These include potential likelihood, impact Emerging risks have the potential to and objectives, the Board takes a and outcomes that inform and define our impactour Group strategy but currently prudent view on risk and has an overall risk appetite. arenot fully defined, or are principal risk appetite across its portfolio of Our Risk Management Framework supports risks,which are particularly elevated risksthatreflects this. us in providing assurance that we have orincreasing in velocity. We seek to balance our risk identified and are addressing our principal Our emerging risks are identified through position between: and emerging risks. Risk management is horizon-scanning by the Board and — Maintaining a strong focus embedded throughout our strategy and Executive Leadership Team including in onhealth, safety and regulatory decision-making processes. relation to industry and macro-economic compliance matters Our divisional boards consider their trends. This is supported by our divisional — Ensuring financial strength divisional risk registers on a half-yearly riskreview process. bygenerating profits and cash basis. The divisional risk reviews, alongside through our operations the Group’s principal risks, are carefully — Having a balanced portfolio through considered by the Executive Leadership our Multi Channel Approach, and Team. The Board and Audit and Risk being selective in land acquisitions. Committee both have oversight of the This allows us to adapt to cyclical Group’s emerging and principal risks and markets and be flexible in our regularly assess these against the Group’s investment decisions risk appetite and its capacity to handle risk. — Being disciplined in our operational eciency and Group growth ### — Maintaining the right culture Risk governance framework andshared values. The Board ### Top down — Has overall responsibility for strategy, risk management Assessment and andinternal control mitigation of risks — Reviews the Group’s emerging and principal risks at a Group level — Sets the Group’s appetite for risk and strategy — Delegates risk oversight to the Audit and Risk Committee andto the Executive Committee and divisions. The Audit and Risk Committee — Responsible for monitoring our risk management processesand approving relevant disclosures — Monitoring financial reporting and internal and external audit activities — Providing assurance to the Board in relation to financial, operational and compliance controls. The Executive Committee — Oversees how we are managing the principal, emerging, andthedivisional risks within the Group’s risk appetite — Ensures risk management is embedded in the Group — Monitors divisional performances and development risks. ### Bottom up Divisional board and site management Assessment and — Responsible for control and risk management with mitigation of risk thedivisionor function across divisional — Monitors and assesses the divisional and operational risks andfunctional areas — Maintains an eective system of control and risk managementat a site level, including Safety, Health & Environment (SHE) and supplychain risks. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 59 We have managed to mitigate the impact ### Risk heat map of the majority of these risks during the The Board has identified 12 principal risks that it considers material to the Group’s year through our operational eciency performance which have been mapped on a residual risk basis considering likelihood programme and have maintained close and impact. working relationships with our supply chain partners through comprehensive trade agreements. We are enhancing our build cost controls and reporting through the introduction of our new ERP system across the divisions. Reputational impact There are many internal and external factors which could impact our reputation. 1 Several legacy matters have impacted theperception of the housebuilding 10 9 sector. If matters continue to negatively 6 12 411 5 impact theindustry’s home buyers and otherstakeholders there is a potential that thiscould create a further principal risk. 3 72 ESG and climate change Assessing the impacts and mitigations of both physical and transitional risks related to climate change are embedded in our risk management process at a Group and divisional level. Climate change 8 continues to be a principal risk and the Group has disclosed its response to the recommendations of the Task Force for Climate-related Financial Disclosures onpages 30–38. Key updates and briefings on ESG matters, including regulatory developments and climate-related risks, are provided on a regular basis to the Board. INCREASING IMPACT ### Changes to our principal risks As part of the Group’s risk review processes, INCREASING LIKELIHOOD some risks have evolved or been added 1 Market conditions 7 Attracting and retaining our skilled people tothe Group’s principal risks: 2 Safety, Health & Environment 8 Solvency and liquidity — Market conditions – increasing trend — Customer service and quality – 3 Access to site labour and materials 9 Laws, policies and regulations increasing trend 4 Customer service and quality 10 Climate change — Build cost management – increasing trend 5 Build cost management 11 Land availability and planning — Attracting and retaining our skilled 6 Information security and 12 Combustible materials people – reducing trend business continuity — Solvency and liquidity – reducing trend — Laws, policies and regulations – reducing trend Examples of emerging risks which Given the significance of this area, — Land availability and planning – new risk wereconsidered during the year are: the Boardhas agreed this should be — Combustible materials – new risk. aprincipal risk. Economic outlook The Board no longer views the risk The acquisition of land remains very associated with a pandemic to be a principal We continue to monitor the developing competitive and any proposed changes risk although continues to monitor and uncertainties surrounding the political and to the planning and approval process manage any localised impacts arising economic outlook, rising interest rates and could impact our ability to deliver our fromCOVID-19. mortgage availability. This is against the growth ambitions. backdrop of the rising cost of living and Please see further details about Corporate governance requirements are higher energy prices in the UK, all ofwhich Principal risks overleaf evolving following the BEIS consultation are reducing disposable income levels which on audit reform and corporate governance. ### may significantly impact the housing market. Board assessment Some of the detailed requirements The Board confirms that it has performed a Regulatory change which may impact us are still unknown robust assessment of the Group’s principal This risk has continued to evolve during and developing. and emerging risks, withconsideration of theyear and impacts us in several ways. the long term. Build costs We signed the Government’s Building Safety Material shortages and labour availability Overall, the Group has operated within Pledge to address life-critical fire safety issues. have continued to challenge our industry itsrisk tolerance. Actions are in place Amounts have been provided in the financial due to rising input costs, energy prices and overthe long term to address specific statements based on best estimates of the supply chain dislocation through the year. riskswhere necessary, reducing the work required. However, as work progresses This has resulted in inflationary pressures, levelofresidual risk. these estimates are clearly subject to having an impact on build costs. variability and could change as Government legislation or regulation develops. Crest Nicholson ## 60 Annual Integrated Report 2022 ## Our principal risks ### 1. Market conditions | Risk description | Actions/mitigations | Development in the year | Link to strategic priority | | | --- | --- | --- | --- | --- | | A decline in macro-economic conditions | We continually evaluate our strategy | Demand for housing has remained | | | | in the UK, which negatively impacts | which wecan flex and adjust as | strong during the year, however | 5 | 2 | | the UK residential property market and | demandprofiles change. | there have been significant economic | | | 3 reduces the ability for people to buy Regular sales forecasts and cost headwinds and political uncertainty in homes, either through unemployment reviews to manage potential impact the latter part of the year which is likely or low employment, constraints on to impact demand for housing in the Link to foundation onsales volumes. | mortgage availability, or higher costs | | nearfuture. Rising inflation, interest rates | | | | --- | --- | --- | --- | --- | | | Forward sales, land expenditure | | 3 | 4 | | ofmortgage funding. | | and increasing energy costs are leading | | | andwork-in-progress are all carefully to reduced levels ofdisposable income. Decreased sales volumes occurring monitored to ensure they are aligned Link to our stakeholders froma drop in housing demand could tocurrent levels of demand. The Board and Executive Leadership see an increasing number of units held Team continue to monitor market Our Multi Channel Approach gives asunreserved stock and partexchange conditions and are adjusting our usaccess to a range of tenure options stock, with a potential loss realised strategyand paceof growth to adapt Residual and earnings resilience in changing onfinal sales. toprevailing market conditions. High market conditions. Changes to regulations and taxes, for We focus on strategic purchasing We continue to build our pipeline example Stamp Duty Land Tax (SDLT) oftrusted partners and completed Appetite ofsites,continued development of Medium andthe impact of Government schemes sharedownership models and provision several large transactionsin the year. like Help to Buy; Equity Loan (HtB). ofavariety of incentive schemes. The Group renewed its £250m Movement inyear An over-reliance on HtB, which is being Actively promoting First Homes and RevolvingCredit Facility to 2026. Increasing withdrawn, and other Government-backed Deposit Unlock asanalternative to HtB. When allied to the strong cash profile ownership schemes to boost sales exhibited throughout the year, the We continually assess whether our volumes and rates. Grouphas adequate liquidity to organisational structures are appropriate deal with all reasonable downward to meet the changing demands within market scenarios. thehousebuilding sector. ### 2. Safety, Health & Environment (SHE) ### Risk description Actions/mitigations Developments in the year Link to strategic priority A significant health and safety event We have a strong safety leadership Safety performance continues to be our could result ina fatality, serious injury culturewhich is embedded in our number one priority and performance oradangerous situation to an individual. operational processes and execution. remains stable. 3 Significant environmental damage could We have eective SHE management Our standard house type range be caused by operations on site or in our systems inplace with increased authority is reducing build complexity and Link to foundation | oces (forexample, water contamination | for divisional build managers and Group | related risks. | | | | | --- | --- | --- | --- | --- | --- | | from pollution). | SHE advisors toundertake incident | | | | | | | | We continue to have a rigorous | 1 | 2 | 3 | investigations and implement follow Lack of recognition of the importance safety monitoring regime with safety up actions. ofthe wellbeing of employees. inspections at divisional levels, including Link to our stakeholders We use external independent safety an independent safety advisory firm These incidents or situations could have auditors toconduct regular site toassist in monitoring site performance. an adverse eect on people aected safety reviews as appropriate and byour actions, our reputation and ability Safety performance is always discussed without warning. Residual to secure public contracts and/or, if illegal, and challenged in our divisional reviews Medium prosecution or significant financial losses. Use of external specialist consultants and we have enhanced and developed and/or contractors where specific health our SHE policies and procedures. Appetite and safety requirements demand. We have launched new training materials Low We have a network ofmental health and communications across our build first aiders and a dedicated Employee teams and continue to provide safety Movement inyear Assistance Programme. bulletins and guidance updates. No change We have a dedicated central team and We have expanded our network of strong governance processes to deliver mental healthfirst aiders across our on our safety pledge commitments. divisions. We have also launched the FIKA mental health platform tosupport SHE performance is a bonus metric employees’ wellbeing. targetused across the Group, including forExecutive Directors. Delivering on our commitments contained in the Building Safety Pledge, Where appropriate, interim risk mitigation the Group has continued to identify solutions have been deployed in andrisk assess any buildings impacted buildings where fire safety concerns bypossible safety issues. havebeen identified. Link to strategic priorities Link to foundations Link to our stakeholders | | 1 | | 1 Placemaking & Quality | 1 Safety, Health & Environment (SHE) | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | Investors | Supply chain | | 5 | | 2 | | | | | | | | | 2 Land Portfolio | 2 Sustainability &Social Value | | | | | | | | | Customers | Communities and environment | | 4 | | 3 | | | | | | | | | 3 Operational Eciency | 3 People | | | | | | | | | Our people | Government and other bodies | | | | | 4 Five-Star Customer Service | 4 Financial Targets | | | | | | | 5 Multi Channel Approach | | | | Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 61 ### 3. Access to site labour and materials | Risk description | Actions/mitigations | Developments in the year | Link to strategic priority | | | --- | --- | --- | --- | --- | | Rising production levels across the industry | We encourage longer-term relationships | Material shortages and labour | | 1 | | putpressure on our materials supply chain. | with our supply chain partners through | availability challenges continue to | 5 | | | | Group trading agreements and multi-year | impact the housebuilding industry | | | | The built environment struggles to attract | | | 4 | 3 | | | subcontractor framework agreements. | across various product ranges and | | | the next generation of talent into skilled These agreements alsoseek to mitigate therehave been continued inflationary trade professions. price increases. pressures in the year. This has been Link to foundation There is also a potential reduction in exacerbated by the energy crisis and We have standardised the supply chain labour availability from the EU market. 1 3 theUkraine conflict which has impacted toensurecritical supply of materials. Increased use of more modern methods some supply chains. We engage in dialogue with major Link to our stakeholders of construction could result in a labour We continue to work with our supply suppliers to understand critical supply market that no longer has the knowledge chain partners through detailed demand chain risks and respond eectively. and skills required to deliver these types planning tomaximise our use of trade of construction projects. It isalso possible We have developed eective procurement agreements and supply of available Residual that the supply chain struggles to maintain schedules to mitigate supply challenges. labour on key timelines. Medium capacity for new types of materials. We consider dierent construction Where possible and appropriate we Materials availability can be impacted by methods suchas timber frame or forward order materials to secure supply Appetite changes in demand, rising energy prices using alternative materialssuch as Medium/Low and also utilise alternative products if and dislocation insupply chains due to concrete bricks. they are available and itisappropriate external events. Movement inyear to do so. Given the current UK economic climate No change and uncertainty there is an enhanced likelihood of suppliers and subcontractors facing insolvency. ### 4. Customer service and quality | Risk description | Actions/mitigations | Developments in the year | Link to strategic priority | | | --- | --- | --- | --- | --- | | Customer service and build quality | We continue to focus on enhancing | We have continued to enhance | | 1 | | falls below our required standards, | build quality, achieving high customer | our quality processes, training and | | | | resulting ina reduction of reputation | satisfaction ratings and aretained | performance measurement during | | | | | | | 4 | 3 | | and trust, which could impact sales | commitment to excellent placemaking. | the year and have recruitedadditional | | | | ratesand volumes. | | resources to support thedriveto | | | We have enhanced our quality and | | | quality improvement. | Link to foundation | | | | --- | --- | --- | --- | --- | --- | | Unforeseen product safety, quality issues | buildstage inspections to monitor | | | | | | or latentdefects emerge due to new | adherence toour quality standards. | We have developed processes to | | | | | | | | 1 | 2 | 3 | | construction methods. | | support new regulatory requirements | | | | We have a standardised house type forthe New Homes QualityCode Failure to eectively implement new range that reduces complexity and Link to our stakeholders andthe Future Homes Standard. regulations on build quality and respond drivesimprovements in quality. toemerging technologies. Customer satisfaction and quality performance is a bonus metric target Residual used across the Group, including High forExecutive Directors. Appetite Low Movement inyear Increasing ### 5. Build cost management ### Risk description Actions/mitigations Developments in the year Link to strategic priority Build cost inflation and unforeseen We benchmark our costs against We have continued to see costincreases driven by demands in existing sites toensure our rates inflationary pressures during the the supply chain or failure toimplement remaincompetitive. We build and year on build costsdue to higher 3 adequate cost control systems. maintain strong relationships with energy prices, supply shortages oursuppliers and seek to obtain and geopolitical impacts due to the Lack of awareness and understanding volumepurchasing benefits. war in Ukraine. We have mitigated Link to foundation of external factors that may impact some of these impacts through our build costs including complex planning We operate a fair and competitive 2 3 4 operational eciency programme. permissions and emerging sustainability tender processand we are committed Build costinflation has been oset and environmental regulations. to paying our suppliers and Link to our stakeholders byincreases inselling prices. subcontractors promptly. A lack of quality in the build process The implementation of COINS as couldexpose the Group to increased There are rigorous and regular our new ERP platform has enhanced | costs, reduced selling prices and | divisionalbuild costreview processes | | | | --- | --- | --- | --- | | | | the reporting of build costsfor the | Residual | | volumes, and impact our reputation. | andsite-based quality reviews. | | | | | | divisions implemented in FY22, and | High | We continue to monitor alternative we will continue this roll out across sources of supply where possible theGroupin FY23. Appetite andutilise alternative production Medium/Low methodsormaterials where it is appropriate todo so. Movement inyear Increasing Crest Nicholson ## 62 Annual Integrated Report 2022 ## Our principal risks continued ### 6. Information security and business continuity ### Risk description Actions/mitigations Developments in the year Link to strategic priority Cyber security risks such as data We employ network security measures The threat of external cyber security breaches, ransomware or phishing and intrusion detection monitoring, risk is ever present and remains high. attacks leading to thelossof including virus protection on all computers We routinely experience phishing 3 operational systems, market-sensitive and systems, and carry out annual attempts on our IT systems. information or other critical data which security-breach tests. We utilise customer We continue to utilise a Security compromises compliance with data relationship management systems for Link to foundation Operations Centre (SOC) to monitor privacy requirements. storing sensitive data to prevent negligent our networks and have enhanced 3 4 misuse by employees. We operate This could result in a higher risk offraud, oursecurity policies and procedures ina cloud environment with resilient financialpenalties and an impact with further training for employees. Link to our stakeholders IT providers, reducing centralised to reputation. We regularly perform phishing training andphysical risk exposure. and mock exercises to highlight the This is complemented by: risksacross the Group. — Employee training on data protection Residual We have passed Cyber Essentials andinternet security Medium certification and moving forward with — Data classification, retention policies Cyber Essentials Plus certification. Appetite and toolsets with appropriate and We have performed audits over our Low responsive procedures embedded cyber risks and control environment. torespond to data privacy matters Movement inyear — IT disaster recovery and business No change continuity plans — IT Cyber Security and Data Sub-Board Committee, chaired by the Group Finance Director, that meets through the year to address cyber security matters, assess threat levels and to develop appropriate policies and procedures. ### 7. Attracting and retaining ourskilled people ### Risk description Actions/mitigations Developments in the year Link to strategic priority An increasing skills gap in the industry Employee engagement surveys We are committed to providing at all levels resulting in diculty with toenabletheBoard and Executive competitive salary packages, reflecting recruiting a qualified anddiverse mix Leadership Team to understand market rates and oer a wide range 34 ofpeople for vacant positions. employee feedback. ofcareer development opportunities. Employee turnover and requirement Continual focus on improving flexible During the year we launched a new Link to foundation | to induct and embed new employees, | and agile working arrangements to | people strategy and employee induction | | | | | --- | --- | --- | --- | --- | --- | | alongside the costofwages increasing | support employees. | programme and have made further | | | | | | | | 1 | 2 | 3 | | asa result of inflation. | Programmes of work to develop robust | improvements to our learning and | | | | | | succession plans and improve diversity | development training across the Group. | | | | | Loss of knowledge within the Group | | | Link to our stakeholders | | | | which could result in ineciencies, | and inclusion across the business. | We engage with our employees through | | | | | productivity loss, delays to business | Providing quality training and professional | a variety of communications, forums | | | | | operations, increasing costs, and an | development opportunities through our | and surveys. Our engagement scores | | | | | overuse or reliance on consultants | Crest Nicholson Academy programmes. | increased year-on-year. | Residual | | | | andthesupply chain. | | | High/Medium | | | | | We monitor pay structures and market | We became Silver Accredited | | | | | | trends to ensure we remain competitive | through The 5% Club in respect to | | | | Appetite against our competitors. our recruitment and development Medium We monitor employee turnover, of trainees. absence statistics and feedback We continue to develop our diversity Movement inyear fromexit interviews. and inclusion policies and initiatives Reducing andhave launched our Anity Groups. We have started a programme to implement a new enterprise-wide talentmanagement, recruitment, HRandpayroll system next year. Link to strategic priorities Link to foundations Link to our stakeholders | | 1 | | 1 Placemaking & Quality | 1 Safety, Health & Environment (SHE) | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | Investors | Supply chain | | 5 | | 2 | | | | | | | | | 2 Land Portfolio | 2 Sustainability &Social Value | | | | | | | | | Customers | Communities and environment | | 4 | | 3 | | | | | | | | | 3 Operational Eciency | 3 People | | | | | | | | | Our people | Government and other bodies | | | | | 4 Five-Star Customer Service | 4 Financial Targets | | | | | | | 5 Multi Channel Approach | | | | Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 63 ### 8. Solvency and liquidity | Risk description | Actions/mitigations | Developments in the year | Link to strategic priority | | | --- | --- | --- | --- | --- | | Cash generation for the Group is a | Cash generation is a key focus | The Group continues to benefit from | | | | key part ofour strategy, and our cash | fortheExecutive Leadership Team. | a strong balance sheet with diverse | | 2 | | headroom could be aected by economic | Cash performance is measured against | sources of funding. The Group | | | 3 | pressures that result indelayed receipts | forecast with a variance analysis | operatedwith net cash throughout | | | --- | --- | --- | --- | | and potentially lower sales inthe short | issued weeklyby the Group Treasurer. | the year and signed a new £250m | | | tomedium term. | Cash performance is also considered | Sustainability Linked RCF which | Link to foundation | | | atdivisional board level. | expiresin October 2026. | | Commitments to significant land and We scrutinise the cash terms of land 4 build obligations that are made ahead We continue to stress test the Group’s transactions. Private Rented Sector ofrevenue certainty. financial resilience for various scenarios (PRS)andbulk sales also oer us the Link to our stakeholders and are satisfied that adequate funding Fall in sales during economic slowdown potential forearly cash inflow. is in place. We have maintained a and lack of available debt finance. The Group has available the use of a disciplined focus on capital allocation Reductions in margins as average £250m Revolving Credit Facility (RCF) throughout the year. selling prices fall, inability to restructure which was unused throughout FY22. Residual appropriately and unsustainable levels Low We generally control strategic land rather ofwork-in-progress. thanown it and have limited capital tied To reflect the cyclical nature of uponthe balance sheet. These sites Appetite aresubject to regular review and Low housebuilding and following the GFC, equity investors in housebuilders now appraisal beforebeing drawn down. Movement inyear expect a lower risk investment proposition Cash management is a bonus metric No change by way of a more capitalised and robust targetused across the Group, including balance sheet. forExecutive Directors. ### 9. Laws, policies andregulations ### Risk description Actions/mitigations Development in the year Link to strategic priority This risk has continued to evolve during We engage with the Government The pace of regulatory reform has 1 | the year with developing regulations and | directly andthrough the HBF, via various | continued to increase. Plans for | | | | --- | --- | --- | --- | --- | | progressing combustible materials works. | memberships ofindustry groups and build | therequirements arising from | | | | | | | 4 | 3 | | | relationships in keylocal authority areas. | the Future Homes Standard and | | | Future regulatory changes could impact the New Homes Quality Code ourabilityto make medium and longer- We continue to assess and plan for havesignificantly advanced. Link to foundation term decisions. emerging regulation and developments in readiness forpotential regulatory change. We are developing our operating Failure to eectively implement new 1 2 4 framework to support developing regulations including the Future requirements from the BEIS Homes Standard and the Environment Link to our stakeholders consultation on auditreform and Act2021, New Homes Quality Code, corporate governance. theBuilding Safety Act 2022 and the BEIS consultation on audit reform and We undertake close consultation corporate governance. withthe Government, through the Residual HBFon evolving and developing High regulation. Appetite Medium Movement inyear Reducing ### 10. Climate change ### Risk description Actions/mitigations Development in the year Link to strategic priority The Group will need to enhance its Our Sustainability Committee, chaired We continue to collaborate with our 1 | sustainable practices and processes | by our ChiefExecutive, oversees | supplychainand consultants to find | | | | --- | --- | --- | --- | --- | | as we transition to a carbon ‘net zero’ | our sustainability strategy, including | eective solutions tocomply with | | | | | | | 4 | 3 | | business by 2045 and continue to meet | our approach to climate change. | theFuture Homes Standard. | | | | evolving Government regulations and | The Committee monitors performance | We are committed to reducing our | | | | growing investor expectations. | against our climate targets and | GHG emissions and in FY22 developed | Link to foundation | | | | keeps abreast ofclimate-related | newscience-based targets. Our targets | | | Climate change could impact our risksand opportunities. include near-term scope 1, 2 and 3 1 2 3 4 business throughtransition and physical emissions and a long-term ambition to | risks. Transition risks relate to the shift | We plan to transition to exclusive | | | | --- | --- | --- | --- | | | | reach net zero GHG emissions across | Link to our stakeholders | | to a low carbon economy and include | useofrenewableelectricity by 2025. | | | ourvalue chain by 2045. The targets current and emerging regulations, We are members of the Future Homes havebeen approved by the Science technological change and shifts in Hub, an industry-wide initiative to BasedTargets initiative. stakeholder preferences. support the implementation of the | | | We agreed a new £250m Sustainability | Residual | | --- | --- | --- | --- | | Physical risks are direct impacts from | Future Homes Delivery Plan to meet | | | | | | Linked RCF, which incorporates targets | Medium | | a changing climate, including rising | climate and environmental targets. | | | toreduce GHG emissions associated temperatures, changing weather We also have internal workstreams withour operations and the use of Appetite patternsincreasing risk of droughts toplan for newregulations, including our homes. Medium andflooding andmore frequent theFutureHomes Standard. We established a climate risk working andsevere weather events. GHG emission reduction targets is Movement inyear group toreview our climate-related Failure to manage climate-related abonus metric used across the Group. No change risks and opportunities. External riskscould leadto additional costs, OurExecutive Directors have GHG consultants facilitated a review of build programme delaysand damage emission reduction targets within risks and opportunities under a range toour reputation. theirLong-Term Incentive Plan. of climate scenarios. Our divisions have nowincorporated aclimate risk assessmentwithin their risk register. Crest Nicholson ## 64 Annual Integrated Report 2022 ## Our principal risks continued ### 11. Land availability andplanning ### Risk description Actions/mitigations Developments in the year Link to strategic priority There is a risk that we may not be able We have strategic and local market Our strategy continues to focus on 1 to source enough suitable strategic and expertise within our Land teams to ensure acquiring new sites and developing 5 2 consented land at the right economic we acquire sites in the best locations long-term strategic land options. 3 terms to support our growth ambitions. and that allow us todemonstrate our Our investment decisions consider the placemaking credentials. | There are further risks that acquired | | economic outlook and uncertainties | | | | | --- | --- | --- | --- | --- | --- | | | We have formal relationships with key | | Link to foundation | | | | land is delayed in the planning process | | as well as the complexities in the | | | | | where local authorities and public | landsuppliers, landowners and agents | planning process. | | | | | | | | 1 | 2 | 4 | | sectorresources are constrained. | and local authorities. | | | | | The planning process continues The regulatory planning and Land acquisitions are subject to formal to behighly complex and time Link to our stakeholders | environmental landscape continues | appraisal and viability assessment | consuming with ongoing demands | | --- | --- | --- | | toevolve. There are further | through our approval process prior | relating to aordable housing, section | | environmental requirements such | tobidsubmission and exchange | 106 obligations and the Community | | asnutrients and waterneutrality and | of contracts. | Infrastructure Levy. There has been | Residual increasing biodiversity obligations. The planning status of all our sites are a particular challenge in some of our High This increases the challenge of providing formally reviewed at our divisional divisions regarding nutrients and quality and aordable homes in the boardson a monthly basis. water neutrality which has impacted Appetite locations required. the speed of planning approvals. Medium We undertake close consultation with theGovernment on planning reform. These complexities increase the cost of development and the time taken Movement inyear Reducing to move land through the planning process, which is also impacted by resource constraints inlocal authority planning departments. ### 12. Combustible materials ### Risk description Actions/mitigations Developments in the year Link to strategic priority Failure to plan and implement the We have a dedicated specialist team in The Group has continued to review 1 changesrequired by the Government in place with robust controls and processes the risk register of legacy buildings in respect of combustible materials and fire in respect of combustible materials. scope, assessing the latest guidelines 4 safety in a timely manner, which could There is a regular review process in place against each aected building, advice significantly impact our reputation. which is overseen by the Chief Executive, from technical or legal advisors along Group Finance Director and the internal with relevant notifications from a variety This is a complex area where it is often Link to foundation project team responsible for this area. of stakeholders. Management has dicult to identify and implement remedies The forum reviews a detailed risk register considered the progress of any remedial 2 4 quickly. The rapidly changing landscape of of all schemes under review including any works and adjusted the financial provision regulatory guidance and need to engage safety considerations, recent customer to reflect the Group’s best estimate of with multiple stakeholderscontribute Link to our stakeholders or stakeholder correspondence and any future costs. We continue to review to this complexity as does the limited considers how the Group may choose the appropriateness of our combustible availability of qualified resource to oversee to respond. In addition, the central team materials provision. work performed. Given this, costs can be dicult to estimate and could be subject to assesses whether faulty workmanship The Group has maintained an active Residual considerable variability and Government or design was a factor in the potential dialogue with DLUHC, coordinated Medium legislation, or regulation could further remedial works, and if appropriate seeks bythe HBF, to ensure the principles to recover these costs directly from the Appetite change, increasing the scope of legacy of the Building Safety Pledge are Low buildings and required remedial works. subcontractor or consultant involved, transferred into a long-form agreement, or through engagement of external and represent the contractual basis Movement inyear legal counsel. forthe Group’s obligations in this area. New risk Link to strategic priorities Link to foundations Link to our stakeholders | | 1 | | 1 Placemaking & Quality | 1 Safety, Health & Environment (SHE) | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | Investors | Supply chain | | 5 | | 2 | | | | | | | | | 2 Land Portfolio | 2 Sustainability &Social Value | | | | | | | | | Customers | Communities and environment | | 4 | | 3 | | | | | | | | | 3 Operational Eciency | 3 People | | | | | | | | | Our people | Government and other bodies | | | | | 4 Five-Star Customer Service | 4 Financial Targets | | | | | | | 5 Multi Channel Approach | | | | Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 65 ## In accordance with the UK Corporate Governance ## Viability ## Code, the Directors and the Executive Leadership ## statement ## Teamhave assessed the Group’s current position ## andits emerging andprincipal risks and uncertainties ## over alonger period than the 12 months required ## bythegoingconcern statement. The following statement is made in Stress testing viability In addition to applying the impact of accordance with the UK Corporate throughsimulated scenarios eachofthese stress tests, the Directors Governance Code. Despite the ongoing have also considered the impact of a While the Group’s base case forecast uncertainty arising from the current ‘plausible but severe’ downside case provides assurance that its financial geopolitical and economic instability, which includes the sales price and sales performance and position remains strong theBoard has concluded that a three-year volume falls detailed above applying forthe foreseeable future, the Directors periodcontinues to remain an appropriate together. In all scenarios, individually have then applied stress tests to this timeframe for this assessment. and in aggregate, the Group continues forecast (without double counting those toremain compliant with its debt already embedded in the base case), to How we assess our viability covenants without the need to fully satisfy themselves that this will remain While the nature of the material issues, implement the eectof all available truein more challenging market conditions. opportunities and risks faced by the Group mitigations to achieve this. The identification of these plausible adverse limits the Directors’ ability to reliably Finally, the Directors have then also trading conditions has been derived from predict the longer term, detailed trading exaggerated each of the three stress the Group’s principal risks set out on pages and cash flow forecasts are maintained and tests referred to above to find the point 60–64, and their impact on the solvency and regularly scrutinised over the three-year at which any of these stress tests would liquidity ofthe Group. The most likely source period. The Group owns or controls a high cause a covenant failure. More details of this challenge lies in the severity and proportion of the land required to meet unit of the assumptions used to model these duration of the recession forecast for the UK forecasts during this time and is therefore stress tests, and their calculated impacts, economy in 2023, and beyond. If inflation able to forecast future cash outflows with are set out in note 1 totheconsolidated cannot be tempered byrising interest rates areasonable degree of confidence. financial statements. then confidence in the housing market will The Group also benefits from a strong continue to weaken. Mortgage lending forward order book of sales which provides Conclusion will become tighter and more expensive, confidence in near-term revenue delivery. Based on the results of this assessment, compounding the aordability challenge, These inputs allow the Group to maintain the Directors have a reasonable particularly for first time buyers or those a rolling three-year forecast for the income expectation that the Group will be with lowlevels of equity. statement, balance sheet and key financial abletocontinue in operation and If consumers believe the housing market ratios for every periodic reporting date. meet itsliabilities as they fall due isabout to undergo a significant correction These forecasts are considered to be the over the period of their assessment they postpone their buying intentions until ‘base case’ for performance assessment. to31 October 2025. further clarity as to the market’s health In recognition of the deteriorating economic emerges. For those house sellers who backdrop throughout FY22, characterised have no choice about the timing of their by high inflation, rising interest rates and sale, either because of unaordable and reduced levels of disposable income, rising mortgage costs or the impact of life the Directors have already started to events, they have no option but to cut the downgrade their expectations for FY23 price of their property to achieve a sale. trading. Accordingly, lower volumes of This in turn leads to a more widespread homecompletions and achieved selling lack of confidence in the market as buyers prices have been forecast into the base seek bigger discounts and lenders protect casefor next year. themselves through reduced home During FY22 the Group completed a new valuations and increased stress testing Sustainability Linked Revolving Credit oftheir own. The Directors have therefore Facility (RCF) for £250.0m which expires modelled stress tests relating to further in October 2026, to replace the previous volume and prices declines than those facility for the same amount. Despite the assumed in thebase forecast. reductions in financial forecasts factored In addition, the construction sector has into the base case, the Group is forecast experienced high levels of build cost inflation to comfortably comply with all its RCF and throughout FY22. The rapid reopening of senior loan note debt covenants across the supply chains following COVID-19 and the viability period. The Directors have also impact of the war in Ukraine, both in the concluded that there is adequate financial availability of raw materials it produces and headroom, and appropriate mitigations the indirect eect of rising energy prices if needed, to manage through a much which impacts production of raw materials tougher market scenario while continuing globally, have contributed to this increase. to meet the Group’s combustible materials Although there are signs at the end of FY22 obligations and deliver the Group’s growth that these eects are starting to abate, it ambitions, albeit over a longer timeframe. is possible that high levels of build cost inflation are more enduring and therefore the Directors have also modelled a third stress test to reflectthis possibility. Crest Nicholson ## 66 Annual Integrated Report 2022 ## In this section ## Strong 67 Governance overview 68 Board leadership and company purpose ## governance 82 Division of responsibilities 86 Composition, succession and evaluation 92 Audit, risk and internal control ## for a better 100 Remuneration 123 Directors’ Report ## future ## We are committed to building better ## futures for our stakeholders through ## eective leadership and oversight ## andastrong governance framework. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 67 ## Governance overview ### Board leadership Composition, succession Remuneration Provides detail of the proposed ### andcompanypurpose andevaluation Remuneration Policy whichwillbe subject Outlines the leadership of Crest Nicholson, Overview of the Board’s evaluation process toshareholder approval at the 2023 the main Boardactivities and how the andoutcomes and thereport of the work AGM, an overview of the remuneration Board has considered its responsibilities oftheNomination Committee for the year. arrangements fortheDirectors, the toits stakeholders. For more information: workforce, and pay during the year. | For more information: | Board evaluation – pages 86–87 | | | | --- | --- | --- | --- | | | | . | For more information: | | Chairman’s introduction – | Nomination Committee Report – | | | Letter from the Remuneration pages 68–69 pages 88–91 Committee Chair – pages 100–102 Board of Directors – pages 70–71 Alignment with strategy – page 102 ### The Executive Leadership team – Audit, risk and Remuneration at a glance – page 72 ### internal control page 103 Purpose, values and culture – Describes the role of the Board and Directors’ Remuneration Policy – pages 73–75 Audit and Risk Committee in ensuring pages 104–110 Our stakeholders – page 76 the integrity of the financial statements, Annual Report on Remuneration – Shareholder and stakeholder how they monitor the eectiveness of pages 111–122 engagement – page 77 theGroup’s internal controls, andthe Employee engagement – pages 78–79 assessment oftheexternal auditor. Board activity – pages 80–81 For more information: Audit and Risk Committee Report – ### Division of responsibilities pages 92–99 Overview of the governance framework of theGroup, composition of the Board, roles of each Director, Board balance, delegation and Non-Executive Director independence. For more information: Board composition – page 82 Board site visits – page 83 Governance framework – pages 84–85 Crest Nicholson ## 68 Annual Integrated Report 2022 ## The Board takes seriously its responsibility ## Board leadership and ## for the long-term sustainable success ## company purpose ## oftheCompany, generating value for ## Chairman’s ## ourshareholders and contributing more ## widelytosociety. ## introduction As restrictions eased in respect of COVID-19, our Board and Committee meetings have returned to being in person. I know the ## As Chairman of Crest Nicholson, I am Board have appreciated the return of ## pleased to present this Governance meeting face-to-face to engage with each other and the Executive Leadership Team ## Report for FY22. The report sets out (ELT). During the uncertainties of COVID-19 weestablished monthly Board calls to ## the Board’s approach to governance receive updates from Peter Truscott and the ELT. Given the current political and ## and our ways of working. It also economic uncertainty we have chosen to retain these virtual Board updates in ## highlights our key areas of focus our calendar. The Board’s flexibility and ## during the year, the significant engagement has enabled us to maintain strong governance and make robust ## achievements made and the key decisions so that we have been able to respond to challenges as they arise and ## challenges we faced.” provide appropriate support to the ELT. Iain Ferguson CBE ### Board leadership and eectiveness Chairman This year we held an internal Board evaluation review which I led. I find these evaluations valuable as they reveal what isworking well and where we can improve our eectiveness as a Board. This year’s review concluded that the Board and its Committees continue to operate eectively. Full details of the process and the outcomes are set out on pages 86 and 87. All Directors will stand for re-election at theforthcoming Annual General Meeting (AGM). Further detail on the work of the Nomination Committee can be found on pages 88–91 Further detail on the work of the Audit and Risk Committee can also be found on pages 92–99 Further detail on the work of the Remuneration Committee can be found on pages 100–122 Our statement of compliance withtheCode can be found on page 69 Strategic Report Governance and directors' Report Financial Statements Crest Nicholson Annual Integrated Report 2022 69 # Stakeholder engagement We recognise that constructive stakeholder relations are critical for delivering our strategy and long-term success. We also have a responsibility to make a positive contribution to wider society that extends beyond delivering financial returns to shareholders. We carefully consider our responsibilities and duties to stakeholders under section 172 of the Companies Act 2006 and further detail can be found on pages 22–25. Our continued focus on operating sustainably has seen us commit to new science-based targets aimed at reducing the Group's carbon footprint. Some of these targets have also been incorporated into our new Sustainability Linked Revolving Credit Facility which was completed in October 2022. Delivering more sustainable operations is now not only beneficial to those stakeholders who are directly impacted but also provides the Group with a lower cost of financing. Further information on these topics is set out on pages 26–43. Louise Hardy, our Non-Executive Director responsible for employee engagement, has continued to work closely with Jane Cookson, our Group HR Director, to continue to develop the Board's understanding of the key issues affecting our people and their welfare at work. Further detail on what we have discussed and what actions we are taking in this area can be found on pages 78–79. # Nomination Committee activity The Nomination Committee has focused on strengthening the succession planning process to ensure that we have the right balance of skills and experience to lead the Group in the future. In May 2022 the Board and Tom Nicholson agreed that it was the appropriate time for Tom to leave the Group. Following his departure the Committee agreed to appoint two of our existing Managing Directors, David Brown and Alex Stark, to the ELT as Executive Managing Directors, with effect from 1 November 2022. In FY23 we will be continuing to focus on developing our diversity and inclusion initiatives as we work in partnership with our people to enable them to reach their full potential. Further detail on the work of the Nomination Committee can be found on pages 88–91. # Audit and Risk Committee activity With David Arnold having chaired the Audit and Risk Committee for a year, Committee operation, debate and meeting format has continued to develop and this has been welcomed by Committee members. Last year we reported that we had appointed an experienced Head of Internal Audit. During the year we recruited further resources in this area as we moved away from a wholly outsourced model, provided by Deloitte LLP. This change has worked well and we continue to retain Deloitte's capabilities for specialist items of focus in the agreed Internal Audit Plan. Further detail on the work of the Audit and Risk Committee can also be found on pages 92–99. # Remuneration Committee activity Following shareholder and employee engagement and in line with the three-yearly cycle, the Group's Remuneration Policy will be put forward for shareholder consideration at the 2023 AGM. The full Policy is found in the Directors' Remuneration Report on pages 104–110. # Annual General Meeting Our AGM will be held on 23 March 2023. We realise that attending the AGM is not practical for many of our shareholders so following positive feedback we will continue to provide a facility to enable shareholders to ask questions in advance, which will be answered via our website. Iain Ferguson CBE Chairman # Compliance with the UK # Corporate Governance Code The Group compiled in full with the UK Corporate Governance Code 2018 (Code) for the financial year ended 31 October 2022, other than provision 38 in respect of Chief Executive, Peter Truscott's pension contribution which is currently 10% of salary. Peter's pension provision was reduced to 6% of salary on 31 December 2022. At the time of the application of the new Code, the Company had already signed a contract with Peter that entitled him to a pension equal to 10% of his annual salary. This is higher than the workforce average, which is 6% of salary. Therefore, since the introduction of Provision 38, the Group has been non-compliant with that provision for the above reason. However, despite the contractual obligations, the Remuneration Committee agreed with Peter to reduce his pension provision to 6% of salary on 31 December 2022 and his pension will be aligned with employees by 1 January 2023. This report, together with the reports from the Nomination Committee, Audit and Risk Committee and Remuneration Committee provides detail of how the Group has applied the principles of the Code. The Code is publicly available at www.frc.org.uk If there are any changes to the AGM arrangements these will be communicated to shareholders through our website and, where appropriate, by regulatory announcement. www.crestnicholson.com/investors/shareholder-centre Crest Nicholson ## 70 Annual Integrated Report 2022 ## The Board is focused onembedding ## Board of ## the Group’s purposeand values through ## Directors ## leadingbyexample. From left to right Duncan Cooper (Group Finance Director) Louise Hardy (Non-Executive Director) Iain Ferguson CBE (Chairman) Lucinda Bell (Non-Executive Director) Peter Truscott (Chief Executive) Octavia Morley (Senior Independent Director) Kevin Maguire (General Counsel and Company Secretary) David Arnold (Non-Executive Director) Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 71 Iain Ferguson CBE Peter Truscott Duncan Cooper N E E Chairman Chief Executive Group Finance Director R | Appointed September 2019 | Appointed September 2019 | Appointed June 2019 | | --- | --- | --- | | Age 67 | Age 60 | Age 43 | | Experience: Iain was Chief Executive Ocer | Experience: Peter was formerly Chief | Experience: Duncan has a breadth of financial | | of Tate & Lyle plc, later chairing Berendsen | Executive of Galliford Try plc. Peter also | experience from across a range of industries. | | plc and Stobart Group Ltd. He was also Senior | worked at Taylor Wimpey plc for 30 years | He formerly worked at J. Sainsbury plc where | | Independent Director of Balfour Beatty plc | where he held various positions including | he held multiple roles since 2010, culminating | | and Non-Executive Director at Greggs plc. | divisional Chairman. He was also a member | in Director of Group Finance. Prior to that he | | Iain is currently Chairman of Genus plc and | ofits Group Management Team. Previously, | held finance roles at Sky plc, GlaxoSmithKline | | externally managed investment trust, Personal | heworked for CALA Homes. | plc and Deloitte LLP. Duncan is a chartered | | Assets Trust plc. In addition, Iain was Lead | | accountant. | What Peter brings to the Board: Peter has Independent Director at the Department for extensive experience in the housebuilding What Duncan brings to the Board: Duncan Environment, Food and Rural Aairs (DEFRA), industry across a range of models and provides financial reporting and investor Chair of Wilton Park (Agency of the Foreign tenures. He brings valuable operational and engagement experience which prove and Commonwealth Oce) and a Member of public company experience to lead the Group valuable to the Board and the Group when the PricewaterhouseCoopers LLP UK Advisory and ishighly experienced at delivering a broad communicating strategy and financial targets. Board. In 2003 Iain became a Commander range of housing needs to stakeholders. External appointments: None of the British Empire for his services to the External appointments: Non-Executive food industry. Director, Anchor Housing Group Lucinda Bell What Iain brings to the Board: Iain is a A Non-Executive Director highly experienced public company Chairman, N David Arnold Non-Executive Director and former FTSE 100 A Appointed May 2018 Non-Executive Director R CEO. He has extensive and diverse leadership N Age 58 experience and a sound and practical Appointed September 2021 R Experience: Lucinda was Chief Financial understanding of corporate governance. Age 57 Ocer at The British Land Company plc, Iain has a deep appreciation of capital markets Experience: David is Chief Financial Ocer oneof Europe’s largest real estate investment and investor sentiment which he brings to of Grafton Group plc, having joined Grafton trusts, from May 2011 to January 2018. She Board deliberations, in addition to financial in September 2013. He was previously Group has held a range of finance roles in the real expertise and construction experience. Finance Director of Enterprise plc, the UK estate industry. At British Land, Lucinda played External appointments: Chairman, Genus maintenance and support services business, aleading role in its sustainability initiatives. plc and Chairman at externally managed from 2010 to 2013 and Group Finance Director Lucinda currently chairs the Audit and Risk investment trust Personal Assets Trust plc, of Redrow plc, from 2003 to 2010. David has Committee at Man Group plc and Audit ProChancellor, Cranfield University, previously held senior finance positions with Committee at Derwent London plc. She is Non-Executive Director, Copenhagen Six Continents plc and Tarmac plc. achartered accountant. Topco Ltd What David brings to the Board: David is What Lucinda brings to the Board: Lucinda’s anestablished plc Board director, who brings background in capital markets, investor Octavia Morley A extensive finance, property and commercial engagement, tax and the financing of Senior Independent Director experience to the Group. corporate transactions provides valuable N insight to the Group. Appointed May 2017 External appointments: Chief Financial R Age 54 Ocerof Grafton Group plc External appointments: Non-Executive Director of Derwent London plc and Experience: After working in management ManGroup plc roles at companies including Asda Stores Ltd, Louise Hardy A Laura Ashley plc and Woolworths plc, Octavia Non-Executive Director N was Chief Executive then Chair at LighterLife Departures during the year Appointed January 2018 UK Ltd, Managing Director at Crew Clothing R Tom Nicholson Age 56 | Co. and Chief Executive at OKA Direct Ltd. | | Chief Operating Ocer | | --- | --- | --- | | Octavia also served as a Non-Executive | Experience: Louise was European | | | Director and Chair of the Remuneration | Project Excellence Director at Aecom and | Tom stepped down from the Board on | | Committee at John Menzies plc. | Infrastructure Director for CLM, which was | 27 May2022. A period of handover took place | | | the consortium partner for the London 2012 | until 31 August 2022, and his nine-month | What Octavia brings to the Board: Octavia Olympic Delivery Authority. Louise has been notice period is being conducted as garden has a variety of experience in senior a Non-Executive Director at the Defence leave until 26 February 2023. operational and non-executive roles in retail Infrastructure Organisation for the Ministry and multi-site companies, both privately ofDefence. Louise is a fellow of the Institution owned and publicly listed. She brings of Civil Engineers and of the Chartered customer experience insight to the Board, Management Institute. gleaned through her previous retail and consumer roles. What Louise brings to the Board: Louise’s engineering expertise across large and External appointments: Chair of Banner Ltd, complex projects has been particularly Senior Independent Director of the Card insightful in the standardisation of technical Factory plc andMarston’s plc and processes across the Group. Louise is the Non-Executive Director Ascensos Ltd Non-Executive Director responsible for employee engagement. External appointments: Non-Executive Key to Committee membership Director of Severfield plc, Balfour Beatty plc and Travis Perkins plc A Audit and Risk Committee N Nomination Committee R Remuneration Committee E Executive Committee Chair of Committee Crest Nicholson ## 72 Annual Integrated Report 2022 ## The Executive ## Leadership Team From left to right Duncan Cooper David Marchant David Brown Jane Cookson Kieran Daya Peter Truscott Kevin Maguire Alex Stark Peter Truscott Kieran Daya David Marchant Chief Executive Executive Managing Director – Partnerships Group Operations Director and Strategic Land and South West See biography on page 71 Joined ELT March 2019 Joined ELT January 2021 Age 58 Age 41 | Duncan Cooper | | David has over 36 years’ construction and | | --- | --- | --- | | Group Finance Director | Experience: Kieran leads our Partnerships | housebuilding industry experience in design | | | and Strategic Land (PSL) division aswell as | and leadership roles. He was previously | See biography on page 71 providing oversight to our South West division. a Group Director of Bellway plc where he Kieran is a qualified solicitor who has worked was responsible for group design, technical, David Brown with some of the country’s largest developers R&D, procurement, commercial and quality Executive Managing Director – and has a passion for the built environment. strategies. Prior to that David spent 25 South and Yorkshire Kieran joined Crest Nicholson in January 2020 years in engineering design practice as a to set up the PSL division to develop further structural engineer and at the National House Joined ELT November 2022 the multi channel and multi tenure capability Building Council (NHBC). At the NHBC he Age 43 | | which provide additional sales channels. | was a Director oftheir Approved Inspector | | --- | --- | --- | | Experience: David joined Crest Nicholson | Kieran has experience in significant land | business. David is a structural engineer | | in January 2020 and has been Managing | acquisitions, having taken a lead on some of | andchartered builder. | | Director, Chiltern since July 2020. | the larger transactions in the housebuilding | | | In November 2022 David was promoted to | industry within recent years. | | Alex Stark Executive Managing Director, transferring Executive Managing Director – his responsibilities to lead the South division Kevin Maguire Eastern and East Anglia while also overseeing the launch of the new General Counsel and Company Secretary Yorkshire division. David has over 20 years’ Joined ELT November 2022 experience in the housebuilding industry and Joined ELT January 2009 Age 39 held operational leadership roles including Age 38 Experience: Alex joined Crest Nicholson as Land & Planning Director, Technical Director Experience: Kevin joined the Group in Managing Director, Eastern in January 2020. and Managing Director at Taylor Wimpey plc March 2008 and became Group Company He was promoted to Executive Managing and Berkeley Group Holdings plc prior to Secretary in January 2009. Since joining Crest Director in November 2022, remaining joining Crest Nicholson. Nicholson, he has been involved in a range of responsible for the Eastern division while significant corporate transactions including also overseeing the launch of the new East Jane Cookson the initial public oering of the Group. With a Anglia division. Alex has worked for some Group HR Director legal background Kevin has a comprehensive of the largest UK developers including as understanding of the legal, compliance, Managing Director at Redrow plc and Sales Joined ELT January 2021 governance and risk considerations relevant Director at Barratt Developments plc, and Age 50 to the Group, and the regulatory environment holds over 15 years’ extensive experience in Experience: Jane joined Crest Nicholson in in which it operates. His responsibilities the industry. Alex has an in-depth knowledge June2002 as an HR Manager and became include providing Board support and advice of sales, selling across a range of channels, HR Director in January 2013. Jane has a deep on corporate governance and UK listing including registered providers and the understanding of the industry, the Group obligations. Kevin is a fellow of the Chartered privaterented sector. and its people. Jane has responsibility for all Governance Institute and previously held areasof HR including diversity and inclusion, rolesin retail, pensions and technology. talent and performance management. Jane is MCIPD qualified and has been in thehousebuilding industry for 20 years. She has also worked in HR functions acrossarange ofother industries. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 73 ## We strive to improve the quality of life for individuals ## Purpose, values ## andcommunities by building attractive homes in ## and culture ## desirable surroundings. Our focus on placemaking ## ensures wecreate sustainable communities ## wherepeople andnature can thrive. ### How the Board monitors culture ### Our purpose The Board monitors the culture of the Group Building great places for ourcustomers,communities andtheenvironment through a range of indicators including: The culture of Crest Nicholson is the One of the key focuses for theBoard — Safety, Health & Environment (SHE): outputof the Group’s purpose, behaviours andELT in FY23 is to embed further TheBoard wants all colleagues and and values. The Board sets the Group’s theGroup’s purpose and values to help others aected by the Group’s activities purpose and values and leads by example createa great culture where employees to be healthy and go home safely to in creating an honest and open culture. feel empowered to make good decisions their families every day. The Board This honest and open culture sets the that support the Group’s long-term is updated regularly on SHE matters tone for good governance. High employee successandstakeholders. andonnew or ongoing investigations turnover andchanges within the ELT and and their outcomes Further detail of these initiatives senior management has made maintaining canbe found in the People section — Employee engagement survey: aunifying culture challenging. onpages 44–47 Anannual engagement survey is conducted to assess how the Group is meeting the expectations of its employees. It includes several questions ### Our values that monitor and assess how colleagues The Board is focused on embedding theGroup’s purpose and values throughleading are feeling about our culture. The by example. This is also shown by actions taken within the Boardroom, as follows: results of the survey are reviewed by theELT and divisional boards with findings reported to the Board ### Working The Non-Executive Directors bring to the Board their — Non-Executive Director responsible own personal knowledge and experience and support ### together for employee engagement: the Executive Directors in finding solutions to support TheBoardcontinues to create thedelivery of the Group’s strategy. opportunities for the Non-Executive ## 1 Directors to meet employees. Louise Hardy, the Non-Executive Directorresponsible for employee engagement, attends Employee ### Being the Focus in Board meetings and in particular the Group Voiceand other forums to engage strategy day is spent on how the Group is performing withemployees and regularly shares ### best we considering not only financial returns but the impact employees’ views throughout ### canbe ontheGroup’s stakeholders. Board meetings ## 2 More details can befound onpages 78–79 — Employee policies: The Board and its Committees review key employee ### Doing the With economic and market uncertainty, the Board sometimes policies to ensure they appropriately needs tomake decisions at pace. The Chairman facilitates ### right thing capture and reflect theGroup’s an open dialogue where all members of the Boardhave valuesand culture theopportunity to contribute throughout meetings, ad hoc calls and one-to-one dialogue. — Employee retention: An employee-led ## 3 recruitment market continues todrive high levels of voluntary employee turnover. The Board regularly discusses strategies toreduce employee turnover ### Championing The Board sponsors a number of initiatives to support the — Customer satisfaction: This is development of the Group’s employees including the ### our people assessed using customer care survey CrestAcademy. Employees presenting at Boardmeetings responses. Recommendation scores always receive a warm welcome and aregiven time to are regularlyreported to the Board ## 4 askand respond to questions. and discussed — Supplier activity: The Board reviews how to support and manage subcontractor and supplychain shortages and the ### Leaving The Board considers financial and non-financial KPIs Group’spayment practices toassessperformance, celebrating successes while ### a positive — Business conduct: Reviewing business expecting high quality resultsso that the Group is ### legacy conduct including employee training, able to deliver itspromises togenerate long-term whistleblowing, SHE incidents and ## 5 sustainable performance. InternalAudit reviews to identify and address anyimprovement areas. Crest Nicholson ## 74 Annual Integrated Report 2022 ## Purpose, values ## and culture continued ### A conversation ### between Adefehintola ### Ajibola (known as FT), ### Technical Trainee ### andPeterTruscott, ### ChiefExecutive ### One of our trainees, FT spent ### timewith Peter to learn more ### aboutthe culture oftheGroup. ### What do you gain from How do you identify What key areas would ### FT FT FT ### engaging with employees futureleaders? youwork on as a mentor ### outside of scheduled Again, two to focus upon, one is about tosomeone aspiring to be ### meetings? performance, judging our future leaders inyour position someday onoutput and their achievements. ### When you are speaking to employees asaChief Executive? Some people are worried that because outside of scheduled meetings, you are able From personal experience, don’t set your they are not brilliant presenters they to speak with them more openly. While we goaltoo high and just take one step at won’t succeed, but it’s their output that encourage open dialogue, some people atime. Focus on being really good in willbe measured. are often afraid to ask an awkward question your current role before thinking about or to ask something they think is dierent, The second is around personal the next. If you start with “I want to be unusual, controversial or risky. In a one-to- characteristics, people have got to have theCEO”, itmight happen but that’s one conversation you can talk around the theability to lead and inspire others. not where it should start from. If you question and understand the finer detail. You have to step away from the mentality, aim toohigh, youwill miss all the really People are prepared to be a little more “I can do it better, I’ll just do it myself”. importantintermediate steps. challenging when engaging with me directly. Future leaders have the ability to deliver ### I really welcome employees being prepared results and inspire those around them. If I wanted to take the ### FT ### to stand up and constructively challenge nextstep in my job, how ### Do you think this is something ### ona topic they believe in, in either a group would I go about this? ### FT ### orprivate situation. that comes naturally to The good thing for employees in our ### individuals, orsomething industry looking to progress is that there ### What qualities do you ### FT thatrequirestraining? is a talent pool shortage so there are ### thinkare most important It’s both. While you need the drive and lotsof opportunities. ### forfuture leaders? ambition alongside training to succeed, What you need to be saying to yourline There are two important qualities I think you also need the ability to self-reflect manager is “if that role was to become arecritical for future leaders. and review. available, what would stop you giving The first one is making eective decisions. Ihave made the mistake myself in the ittome?” Review the gap analysis and There is always a risk you may be wrong pastofthinking ”I can do it better” but it focuson it. Sometimes you think you’re and, truthfully, you will be wrong sometimes, means people in your team do not mature notready for a promotion, but you’ll but it’s about making intelligent decisions. anddo not make their own mistakes; neverknow if you’re good at a job until It’s thinking about what is actually the youhave toletthem figure it out. youdo it. If you’re looking to progress, problem and coming to a wellthought-out, thereare always opportunities. decision. The second important quality is around people choices. It doesn’t matter what industry you’re in, we are only as good as the people we employ. Sometimes people choose weaker people as they think they will be easier to influence or won’t make them look bad and you couldn’t be more wrong. Whatever job you have, if you’ve got great people surrounding you, youwillall succeed. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 75 ### What do you think the ### FT ### housebuilding industry will Questions from PeterTruscott ChiefExecutive ### look like in five years’ time ### to FT, Technical Trainee ### and what do we need to ### dotomeet the challenge? What do you find most What could we be ### PT PT ### It’s going to be subtly dierent. Broadly rewarding about your doingbetter? speaking, change doesn’t happen as fast in ### roleatCrest Nicholson? I’d like to see some further training housebuilding as people may think itdoes. Coming here I had a set of goals and programmes that are more geared I think overthe next five years, homes will towardscommunication and targets, after studying Architecture at look slightly dierent but the core processes peopleskills. I think this would university. My line manager supports me willbe broadly the same as they are now. alleviatestress, particularly and gives me the freedom to succeed. The other thing is, I expect the sector to If I didn’t have as much accountability aroundyear end. be more consolidated. Ithink there will be as I have now it would have slowed me ### Although you have started ### more large housebuilders as the barriers down, I wouldn’t hit my targets and it PT ### inTechnical, what other to entry are so high, which is why growth would be less enjoyable for me. I speak ### isimportant for us. to my line manager about what I want to parts of the business ### learn, and I liaise with other departments interest you? ### There are some worrying to get exposure. I have started to really ### FT Definitely Land, I like the aspect ### headlines in news about understand how the whole business ofgoingout and securing deals. ### theeconomy. How doyou works and the trainee rotations have Another one would be Build. helped with this. I am always willing ### think this will aect me Ireallylikebeing out and about tosetmyself the next challenge. ### andmy team-mates over andinteractingwith new people. ### thecoming year? What do you think we do ### PT ### If you look at it over the medium to longer wellat Crest Nicholson? term, there is a massive shortage of housing Crest Nicholson provides high quality in the UK. Housebuilding has always been training programmes, which is supported a cyclical business with highs and lows. with fantastic rotations. I really enjoy We may have a bumpy ride over the next the employee roadshows that the ELT six to 12 months but we have built our cash do across the Group, the presentations position significantly in the last few years really help my understanding of the so that we are in the strongest financial widerbusiness andour goals. position we could possibly be in going intoany downturn. ### What advice would you ### FT ### giveto new joiners like me? The same advice I had when I joined the housebuilding industry, it is a great industry where something happens! This is where we produce something that will be around for 100 to200years, and without us, it wouldn’t happen. My advice is to enjoy coming to work, accept that it’s going to be frustrating at times, things don’t always go according to plan – but if itwas easy, they wouldn’t need us! Crest Nicholson ## 76 Annual Integrated Report 2022 ## Our stakeholders Investors Government and other Customers Our key stakeholders are an integral part ofour bodies ### business model. Crest ### Nicholson ### Principal activities and decisions ### Principal activities and decisions relatingtothe stakeholders Board in the year are detailedonpages 80–81. Outlined below are two examples ofprincipal decisions undertaken bytheBoard which have a significant Communities impact on the Group’s long-term success. and the Our people environment Our section 172 statement together with additional information about our key stakeholders and why theyare important to us are on pages 22–25. Suppliers ### Two decisions made by the Board in the year and impact on stakeholders £250m Revolving Credit Facility (RCF) Building Safety Pledge With the Group’s existing £250m RCF due to expire in June 2024, Since the Grenfell Tragedy in 2017, and the subsequent review of building carefulconsideration was given by the Board to its capital requirements design and the construction methods and materials used, the Group has andfuture financing arrangements. acted swiftly to identify and remedy any legacy buildings where it has Reflective of this, the Board negotiated and agreed a new £250m aconstructive or legal obligation to do so. Sustainability Linked RCF in October 2022. Alongside this, the Group has always sought to engage constructively This renewed the previous facility of the same size. The facility not only withresidents, building owners, Government and other aected stakeholders. provides the Group with appropriate flexible financing, it is also linked In April 2022 the Board agreed to sign the Department for Levelling Up, tosupporting our stakeholders and the Group’s sustainability strategy Housing and Communities (DLUHC) Building Safety Pledge (Pledge). witha lower interest paid if certain targets are achieved, being: This Pledge commits to supporting leaseholders by funding or remediating — Reduction in absolute scope 1 and 2 emissions in line with our life-critical fire safety works in buildings over 11 metres tall, which the Group science-based targets has developed over the last 30 years. The amounts that are provided in — Increasing the number of our suppliers engaging with the Supply the financial statements reflect the current best estimate of theextent and ChainSustainability School future costs of work required. However, these estimates may be updated as work progresses, or as Government legislation or regulations develop. — Reduction in carbon emissions associated with the use of our homes DLUHC made it clear that failing to sign the Pledge would carry further — Increasing the number of our employees in trainee positions consequences such as limiting our ability to trade. andontraining programmes. In making its decision, the Board carefully considered: The Board considers that for the Group’s long-term success it needs — The significant work already underway and that would be required to tohaveaccess to certain flexible debt to respond to a cyclical market. becompleted, relating to a large part ofthe commitments expected Having a sustainability linked loan is a further step in demonstrating under the Pledge theGroup’s commitment to a range of sustainability and ESG matters. — The significant distress caused to residents living in aected buildings This Board decision means that delivering more sustainable operations and the need to take the right approach to fixing the issues isnow not only beneficial to those stakeholders who are directly — The impact to the Group’s financial position and how agreement impactedbutalso provides the Group with a lower cost of financing. to the Pledge would be received by the Company’s investors. With a strong balance sheet and net cash position, the Board agreed thatentering into the Pledge was in the best interests of the Group andwould help aected residents. By signing the Pledge the Group alsohasthe ability to trade normally within the housing market. Investors Additional liquidity and financial stability. A reduction in interest carry cost if targets met. Customers The benefit of a lower carbon and more Investors Investors ultimately pay for the energyecient home. remediation costs. Investors generally prioritise ESG matters Our people In addition to current initiatives, a further andwishthe Group to take responsibility commitment to investing in training roles forsuch issues. andopportunities to develop. Customers Former customers and current owners of Suppliers Access to the Supply Chain Sustainability CrestNicholson homes require the peace School and encouragement to embrace the ofmind that theirhomes are safe. benefits thiswillprovide their own business. By working directly with aected freeholders | Communities and | Low carbon housing will protect the | | and leaseholder groups, appropriate action | | --- | --- | --- | --- | | the environment | environmentand natural habitats, as well | | can be takenas soon as possible to fix issues | | | asreducing air pollution. | | we identify. | | Government and | Our focus on Sustainability helps support | Government and | The DLUHC has encouraged house builders | | other bodies | theUK’splan to be net zero by 2050. | other bodies | toenterinto the Pledge. | Strategic Report Governance and Directors' Report Financial Statements Crest Nicholson Annual Integrated Report 2022 77 # Shareholder and stakeholder engagement ## Shareholder engagement The Board is committed to engaging proactively and constructively with the Group's shareholders. The Chairman and Senior Independent Director are available to shareholders to discuss governance and strategic matters. During the year the Chairman and Senior Independent Director consulted with the Group's major investors in respect to governance matters, including the Remuneration Policy that will be proposed to shareholders at the 2023 AGM. The output of this consultation is contained within the Directors' Remuneration Report on pages 104–105. Committee Chairs are available to engage with shareholders on significant matters related to their area of responsibility. ## AGM All Directors, including the Chairs of the Committees, attend the AGM and are available to answer shareholder questions. The notice of each AGM and related information are circulated to all shareholders at least 20 business days before the meeting. Directors are also invited to attend the results presentations following the announcement of full and half-year results. The AGM ordinarily enables the Directors to meet with some of the Group's individual shareholders. Following a closed AGM in FY21, we were able to hold the FY22 AGM in person. Shareholders who were unable to attend were also encouraged to submit questions in advance to the Board via email, and responses were replied to, and published on the Group's website. All resolutions were passed by shareholders. ## Engagement with lenders We meet with our lenders and keep them updated throughout the year about the financial health and operational progress of the Group. During the year time was spent discussing sustainability and governance matters and providing details of the Group's results as well as market feedback. ## Investor relations timetable | Event | Date | | --- | --- | | FY21 results announcement | 19 January 2022 | | FY21 investor roadshow | 19–25 January 2022 | | AGM | 22 March 2022 | | HY22 results announcement | 14 June 2022 | | HY22 investor roadshow | 14–27 June 2022 | | FY22 year end | 31 October 2022 | ## Stakeholder engagement Engagement with the Group's other stakeholders and consideration of their respective interests in the Group's strategy and decision making took place during the year as described overleaf and on pages 22–25. ## Investor relations The Head of Investor Relations is the principal contact for institutional shareholders, sell-side analysts and the financial media, and regularly updates the Board and ELI on investor relations matters. The Chief Executive, Group Finance Director and Head of Investor Relations manage and develop the Group's external relationships with shareholders. They follow a comprehensive programme of investor meetings and calls, particularly following the release of full and half-year results and other trading updates. These include formal events throughout the year, along with a regular series of one-to-one and group meetings. ## The Group's Investor Relations Programme The Chief Executive or Group Finance Director attended 93 investor meetings, engaging with over half of current shareholders (by shareholding value). Key themes discussed included the Group's strategy and the progress against its priorities, the housebuilding sector, capital allocation, dividend policy and other matters relevant to individual parties. Investor roadshows were organised in person or virtually, with investors primarily based in the UK. Utilised the Group's investor website, with analyst consensus forecasts published in Vuma, a specialist web-based system. Additional information was provided in results announcements and trading updates on the Group's updated strategy. Crest Nicholson ## 78 Annual Integrated Report 2022 ## Employee engagement is important to the understanding ## Employee ## of our culture. By listening to employees’ views the ## engagement ## Board can address their concerns. ### A conversation with ### LouiseHardy, Non-Executive ### Director responsible for ### employee engagement ### and Seb Skinner, Associate ### StrategicLand Director ### Our engagement forum, ### The Employee Voice, is chaired ### byLouise Hardy and made up ### ofseveral volunteers from each ### division. One of its members, ### SebSkinner, sat down with ### Louisetodiscuss employee ### engagementduring theyear. | What employee engagement | | As the Non-Executive Director | | What are the three main things you | | | --- | --- | --- | --- | --- | --- | | activities did you participate | | responsible for employee | | have taken away from engaging | | | induring the year? | | engagement, what benefits | | with employees during FY22? | | | | Employee Voice Forums have | doyoubelieve your role has | | | Number one is the war for talent; | | LH | | brought to theBoard? | | LH | | | | beenheld twice this year, involving | | | | finding skilled people with the right | | | employees from across the Group. | | Our people are our most important | | experience, thatwe can bring into | | There has been a good mix of new and | | LH | | Crest Nicholson to fill any vacant roles | | and valuable resource. We can’t pastattendees who have brought with operate without our people, and or where we need very specific skills themquestions from their colleagues theyhave the clearest understanding or experience – for example, our team toraise at the Forums. As well as having ofwhat is happening within the business. dedicated to remedying legacy buildings spoken with colleagues from the Head Itis therefore critical that we get their withcombustible materials. Oce and each division twice this year, perspective on how the Group is performing. We also need to consider the current there have been other activities, suchas We have such talented people in our cost-of-living and inflationary pressures. divisional site visits, thathave provided organisation, sowhen they share their Not just the impact that this has on the additional opportunities for us toobtain perspectives itenables theBoard’s eyes business but also how the cost-of-living feedback directly and understand tobe opened toissues thatneed to be crisis aects our employees. Personal furthertheissues concerning employees addressed, orthings that can be made challenges that individuals are going andwhether we areresolving them. moreecient and eective. throughday-to-day understandably have the potential to impact their welfare and ### How often do you report to the Has your role impacted any contribution at work. I was pleased to ### Board on employee engagement? decisions made by the Board? seethat we responded to this feedback At every Board meeting this year I Yes, it has. Two such examples are during the year by making a one-o ### LH LH have raised items that have been around remuneration and resourcing. payment of £1,000 toour people. discussed at one of the Forums. We strive to provide alignment of During the engagement sessions we The benefit of these Forums isn’t just remuneration to objectives across the havealso had discussions around culture providing a regular update to the Board organisation. It is therefore very important in the business, ways of working across ontheir activities but adding to dialogue that we understand how incentives aect theGroup, and the progress we have made onmatters raised within the Board meeting. each function. The incentives we oer must ondeveloping our people. While there For example, with the implementation of allow people to work together. These Forums has been some success, such as the COINS, thenew ERP system, I was able to allow us to hear directly how incentives CrestAcademy that has resulted with share with the Board how employees are workacross functions and we have made somehigh quality internal promotions responding to thischange programme. necessary adjustments to align them. overthe last year, we still have work Providing an employee perspective helps The views of our employees have also led todoinsome areas. theBoard shape its response. us to proactively support the recruitment of additional resource where weknow scarcity ofsuitably qualified people is anissue. We have also taken the opportunity torecruit more trainees. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 79 ### Have you found the Employee How has the Board engaged How do you think agile working ### Voice sessions eective? with, and monitored the Group’s willcontinue to aect the ### I am always pleasantly surprised approach towards support and workplace foremployees? ### LH | | when I meet people in these sessions | inclusivity for colleagues in FY22? | | | The first thing to say is that not | | --- | --- | --- | --- | --- | --- | | | with how open and honest they are. | | | LH | | | | | | We carefully look at the gender | | every role in our business can be | | They are at ease in expressing any problems | | LH | | | performed remotely so the design and | pay gap and the composition of our but also proactive and insightful in thinking implementation of any agile working policy workforce. Following the introduction about what the solutions could be. I find needs careful consideration. For those that of a Diversity andInclusion (D&I) Forum in the discussions very useful and eective can work in this way there is no doubt that 2020, some sessions of which I was able to inthatsense. It is also important to receive COVID-19 forced us all to think dierently. attend, we have decided to go further and a range of inputs from all divisions as there Some people loved working exclusively have introduced Anity Groups fora range are often common issues which can be remotely and some people desperately ofidentity characteristics. Reporting onthis seen from dierent angles. This breadth wanted to be back in the oce all the time. stream ofwork at Board level has enabled of feedback undoubtedly enriches What I have found in speaking to ourpeople the Board to monitor progress carefully and the discussions. is that the ‘dust has now settled’ and provide inputs from what we are seeing other organisations doin respect of D&I. people are now talking positively about how the agile working policy is supporting their work/life balance. They have even suggested it is something that enticed themto come and work for Crest Nicholson because they could achieve the balance they desired. I think we have moved into acompletely new era and it’s exciting for thefuture of Crest Nicholson. ### How we engaged during FY22 ### The Exchange Employee engagement surveys Quarterly July and September 2022 Our newsletter delivers all the latest news and updates from across We asked employees to let us know their thoughts by way of the business . Regular features include a business update from confidential short pulse surveys and a longer annual employee PeterTruscott, people news and a ‘day in the life’ of employees. survey. These surveys provide important insights into what employees are thinking and help identify areas where the Groupneeds to focus their attention to make the employee ### Board site visits experience more positive. May and September 2022 Read more on page 46 During the year the Board visited developments individually and as a group, interacting with employees on a collective and one-to-one basis, giving greater insight on what is important ### to employees. Employee Voice November 2021 | May, September and October 2022 Read more on page 83 The Employee Voice Forum is attended by volunteers from Head Oce and the divisions. The Forum facilitates meaningful, regular dialogue between the Board and employees from ### Diversity and inclusion acrossthe Group. Throughout the year To support the Diversity and Inclusion Forum, anity groups were launched during the year. These groups will explore the barriers people face within underrepresented groups and findpractical solutions to overcome them. Read more on page 47 ### Snapcomms Throughout the year We use timely, relevant and targeted messaging to communicate important news about benefits, policies, IT updates, employee recognition and other employee initiatives throughout the year using the IT tool Snapcomms. ### Employee roadshows May and September 2022 At key points in the year the ELT spent time with each division to thank employees for their hard work, discuss how we are progressing against our targets and outline our plans for thefuture. Employees are encouraged to ask questions inthesessions or submit them anonymously in advance. Crest Nicholson ## 80 Annual Integrated Report 2022 ## Board activity ### Meetings of the Board Meeting materials ### Board Strategy Day The Board held six scheduled meetings Finalisation of meeting content during the year. At each scheduled meeting, isacollaborative process involving Each year the Board spends a dedicated the Board receives updates on: theChairman, Chief Executive, Group day reflecting on the Group’s strategy. Finance Director and General Counsel — External market and It considers whether the strategy and Company Secretary who ensure operating environment remains appropriate for the economic adequate time is allocated to support and operating environment and what — SHE, sustainability (including eective and constructive discussion. progress is being made against its climate change), quality and Time is also scheduled for the targets and goals. It also considers customerservice performance Non-Executive Directors to meet arange of external inputs on how the — Group and divisional performance without theExecutive Directors present. Group’s strategy is being received. — Partnership and strategic Electronic Board packsareavailable This year the day opened with land opportunities to the Directors aheadof meetings a detailedinternal and external — Financial performance of the Group and Directors receive accurate, timely consideration of the macro-economic — People matters including employee andclearinformation on the matters environment. Richard Donnell, Executive engagement and diversity and inclusion tobeconsidered. Director from Zoopla, provided an — Corporate governance and external perspective on what trends legal matters. and insights Zoopla are seeing in house | During COVID-19 the Board introduced | purchasing and to provide their outlook | | --- | --- | | regular Board update calls between | on the housing market for next year. | | scheduled meetings. These calls received | The Group’s corporate brokers Barclays | | positive feedback from the Board and | and HSBC also provided their analysis | | have continued to take place. This enables | ofinvestor sentiment. | the Board toreceive both an update on Several regulatory changes impacting operational performance within the month the sector were then reflected upon, and also to consider and respond to inparticular the New Homes Quality anyexternal market developments. Code and the Future Homes Standard, and the impact this will have on the Group’s operations andkey stakeholders. ### Attendance at scheduled Board meetings The Board spent time reflecting on Audit and Risk Nomination Remuneration the drivers behind thehigh voluntary Director Board Committee Committee Committee employee turnover during the year Iain Ferguson 6/6 – 3/3 5/5 and to hear updates on how this is Peter Truscott 6/6 – – – being addressed, including inrespect to diversity and inclusion, talent Duncan Cooper 6/6 – – – management and succession planning. Octavia Morley 6/6 4/4 3/3 5/5 Another key priority for the day was David Arnold 6/6 4/4 3/3 5/5 inviting input from employees below the | Lucinda Bell 6/6 4/4 3/3 5/5 | | | ELT, providing these individuals with | | --- | --- | --- | --- | | Louise Hardy 6/6 4/4 3/3 5/5 | | | anopportunity to presentto the Board. | | Former Directors | | | The following day, the Board reconvened | | | 1 | | for its scheduled Board meeting and | | Tom Nicholson | | 3/3 – – – | | theDirectors shared their reflections 1 Tom Nicholson stepped down from the Board on 27 May 2022. onthe Strategy Day. It was agreed that the presentation materials and delivery were high quality and enabled constructive and open debate. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 81 ### Strategy, operations Governance and legal Leadership and people ### andfinance Matters considered Matters considered Matters considered — Continuously reviewed progress — Regular updates on major legal — Received regular updates in relation against theGroup’s strategy matters relating to the Group topeople, employee engagement — Monitored trading performance — Continual review of the Group’s anddiversity and inclusion activities throughout the year approach and remedial work in — Regular feedback from Employee — Reviewed SHE performance relation to building safety and Voice meetings and initiatives combustible materials matters — Regularly reviewed the Group’s — Monitored and received regular — A legal and governance update employee voluntary turnover updates on sector, market including upcoming developments rateandinitiatives to reduce this andregulatory landscape from incorporate reporting — Continued to focus on the theGroup’s corporate brokers — Reviewed the anti-slavery and composition, balance and — Considered the Group’s financing humantracking statement eectiveness of the Board arrangements, capital allocation for publication — Considered Group andtax strategy — Received reports on engagement succession planning. — Received regular reports from with investors and other stakeholders Outcomes management on customer service throughout the year — Carefully considered the Group’s andquality including preparations — Reviewed progress against the valueswhen making decisions forthe Future Homes Standard Board’scontinuous development plan andthe New HomesQuality Code — Agreed with Tom Nicholson, — Carried out an internally-facilitated ChiefOperating Ocer, that it — Reviewed major land purchases Board evaluation covering the was theappropriate time to leave — Considered operational progress, Board’seectiveness, processes the Company. including with respect to the new andways of working Yorkshire andEast Anglia divisions — Received regular updates from — Considered progress against the the Chairs of the Audit and Group’s sustainability targets. Risk Committee, Nomination Committee, Remuneration Outcomes Committee, SHE Committee — Approved the annual budget, andSustainability Committee business plan and KPIs — Regular feedback from, and ### Internal control and — Reviewed and approved the Group’s discussion with, the Non- ### risk management | FY21 and HY22 financial statements | Executive Director responsible | | | --- | --- | --- | | — Approved the Group’s FY21 | foremployee engagement. | | | Annual Integrated Report, | | Matters considered | Outcomes including a fair, balanced and — Debated the risk appetite and — Considered the impact on understandable assessment significantand emerging risks stakeholders inthe Board’s — Agreed the dividend policy of2.5x — Reviewed the Group’s risk decision making cover remained appropriate and management framework, — Approved the signing of the approved an FY21 final dividend principalrisks and uncertainties BuildingSafety Pledge andHY22 interim dividend — Provided oversight on the — Reviewed compliance with the Code — Approved the Group’s financial OperatingFramework Review through robust decision making targetsand communication to to be implemented within the market — Approved and published the the Group. anti-slavery and humantracking — Agreed to defer the planned statement for FY22 Outcomes openingof a third new division in | FY23 and adjusted the expected | — Progressed a range of agreed | — Considered and approved | | --- | --- | --- | | paceof growthacross the Group | actions arising from the FY21 | theGroup’s risk management | | | Board evaluation | framework including the removal | — Approved the completion of a — Concluded that the Board and its of‘epidemic or pandemic from newSustainability Linked RCF Committees continued to operate infectious diseases’ as a principal — Approved the Group’s tax strategy eectively during FY22, and set risk and added ‘land availability and — Agreed new science-based targets, actions for FY23. planning’ and ‘combustible materials’ which are designed to achieve — Confirmed the Group’s viability net zero by 2045. statement and going concern status. Crest Nicholson ## 82 Annual Integrated Report 2022 ## Division of responsibilities ## Board composition ### There is a clear and eective division of External appointments Board tenure responsibilities between Board members. The Board carefully considers each of as at 31 October 2022 The Chairman leads the Board and is itsDirectors’ existing commitments and responsible for its overall eectiveness Tenure (years) 0–1 1–2 2–3 3–4 4–5 5–6 time required to fulfil their obligations in directing the Group, demonstrating totheGroup including with respect to objective judgement and promoting a Iain Ferguson anychanges to external appointments culture of openness and debate. In addition, fromtime to time. Peter Truscott the Chairman facilitates constructive Board Iain Ferguson holds two Chair mandates relations and the eective contribution inFTSE 250 listed entities (Crest Duncan Cooper ofallDirectors. The Chief Executive leads Nicholson Holdings plc and Genus plc) and manages the day-to-day business Octavia Morley and a further Chair mandate at externally withintheparameters of the authorities managed investment trust Personal delegated to him by the Board. David Arnold Assets Trust plc. Taking into account the The Board includes an appropriate externally managed nature of the trust Lucinda Bell combination of Executive Directors and and the corresponding reduction in time Non-Executive Directors, with over half commitment required compared to FTSE Louise Hardy theBoard considered independent. No 250 appointments, theBoard is satisfied one individual or small group of individuals that the third appointment represents dominates the Board’s decision making. half the commitment of a FTSE 250 The Non-Executive Directors provide Chair appointment. Board composition constructive challenge, strategic guidance The Board remains satisfied that these and specialist advice and hold management One Chairman appointments do not result in overboarding to account. independent on appointment and do not count as conflicts of interest. The Chairman, supported by the General ### Professional development, Counsel and Company Secretary, ensures Two Executive ### that the Board has the policies, processes, supportand training Directors information, time and resources it needs During the year the Board received tofunction eectively and eciently. updates from management on the Future Homes Standard, upcoming corporate Four independent ### Conflicts of interest governance and sustainability reporting Non-Executive The Board has adopted a policy to requirements and the New Homes Quality Directors | identifyand manage Directors’ conflicts | Code. Time is always spent considering | | --- | --- | | or potential conflicts of interest. Directors’ | the matters within Section 172 of the | | interests andthose of their close family | Companies Act 2006 and the impact | | arereviewed by the Board at each meeting. | oftheBoard’s deliberations. | New conflicts arising between meetings are dealt with at the time between the Chairman and the General Counsel and Company Secretary. The Board confirms that there are no appointments or interests held by the Directors that are current conflicts of interest, or that the Board considers will beconflicts in the future. Should conflicts ofinterest arise in future, measures will beput in place accordingly. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 83 ## During the year the Board attended site visits at ## Board site visits ## Brooklands Park, Stoke Giord and Henley Gate, Ipswich. Site visit ## Brooklands Park Brooklands Park oers private and aordable housing with one and two bedroom apartments and three and four bedroom homes. Situated on the outskirts of Bristol with the city centre being just seven miles away. The Board met with the South West divisional and site team and received presentations on their current trading and future plans. Time was spent with the division understanding local community matters, with Brooklands Park being partof the newHarry Stoke Community which willdeliver 1,250 homes. The Board went on tours of the construction site, looking at various stages of build activity and the sales suite. The division highlighted how the homes atBrooklands Park had been well received by customers who liked the large areas ofgreen space and good location. Site visit ## Henley Gate Henley Gate is an exclusive development of two, three, four and five bedroom newbuild homes in Ipswich with a focusonthe garden city principles, withtree-lined streets, a country park, aprimary school, local centre and greenopen space. The Board spent the day with the Eastern division. The morning was spent understanding Eastern’s strategy, operationsand challenges and the development at Henley Gate which willdeliver 1,100 homes and is part oftheIpswich Garden Village. The Board enjoyed tours of the constructionsite and the sales suite includingtheSeaton and Winkfield showhomes. While construction had juststarted the division were excited abouttheopportunities atthis development. Crest Nicholson ## 84 Annual Integrated Report 2022 ## Division of responsibilities There is a clear corporate governance framework ## Board composition toenabledecision making atappropriate levels ## continued ## withintheGroup. Iain Ferguson CBE Peter Truscott Duncan Cooper Octavia Morley David Arnold, Lucinda Bell, Kevin Maguire Chairman Chief Executive Group Finance Senior Independent Louise Hardy and Octavia Morley General Counsel Director Director Independent Non-Executive Directors and Company Secretary The Board Roles and responsibilities The Board sets the Group’s strategy — Leads Board, governance, major shareholder — Responsible for the leadership of the Group — Provides leadership, direction — Acts as a sounding board — Bring an external perspective, sound — Provides advice and topromote the long-term sustainable andother stakeholder engagement andimplementing the Group’s strategy and management of Group forthe Chairman and a judgementand objectivity to the Board’s assistance to the — Supports the Chief Executive’s management — Maintains communication with the Chairman Finance, overseeing divisional trustedintermediary for deliberations and decision making Chairmanand other success of the Group. ofthe business inrelation to strategic considerations financial control functions other Directors — Scrutinise, measure and review Directors The Board provides leadership within — Applies independent and objective judgement — Manages the overall performance of the — Responsible for the — Available to discuss the performanceof the Executive — Develops agendas aframeworkof strong governance, risk business and provides eective leadership consolidation of the Group’s concerns with stakeholders Directors forBoard meetings management and eective controls. It oversees — Sets agendas that enable appropriate coverage tomembers of the ELT financial statements, financial that cannot be resolved — Constructively challenge and assist — Oversees processes the performance and progress of the Executive of all areas material to the Board and which control mechanisms and the through the normalchannels in the development of Group strategy forproviding information Committee against business plans, utilising support eective and balanced decision making — Proposes and leads the delivery of strategy Group’s tax strategy of the Chairman or the tothe Board KPIsto support it in its assessment. The Board — Ensures that the Board receives accurate and asagreed by the Board — Provide independent insight, support — Delivers investor relations Executive Directors isresponsible for monitoring the Group’s timely information to aid decision making — Leads the Executive Committee which and any specialist advice — Advises and keeps communications to — Responsible for theBoardupdated on purpose,values and culture. — Facilitates an environment for eective overseesoperational and financial performance — Monitor the implementation of the capital markets leading the Chairman’s corporate governance The Board has a schedule of matters reserved relationships between all Directors — Communicates and provides feedback Group’sstrategy within its risk and — Manages the Group’s risk performance evaluation. developments for its own decision which includes setting aboutthe implementation of Group policies, controlframework andconsider the — Drives a culture that supports constructive profile and establishes integrity of financial reporting. — Considers Board profit expectations and dividend policy discussion, challenge, debate and andtheir impact on behaviours and culture eective internal controls eectiveness and and approving major acquisitions, capital decision making — Leads and supports the Group’s divisions expenditureand financing. — Oversees the implementation Directors’training needs — Contributes to the Board’s succession andits support functions of the Group’s risk in conjunction with planning,induction and composition deliberations — Engages with institutional shareholders management actions the Chairman — Ensures the views of stakeholders are considered and keystakeholder groups including — Manages the Group’s relationship — Supports the Chairman on appropriately inBoard discussions the Government with the external auditor. shareholder governance — Responsible for the eectiveness of the — Responsible to the Board for sustainability engagement matters. Boardand its governance policies and practices of the Group. — Prioritises the development of the Group’s strategy. Board Committees Audit and Risk Committee Nomination Committee Remuneration Committee The Audit and Risk Committee oversees The Nomination Committee reviews the The Remuneration Committee sets the externalfinancial reporting and disclosures balance,diversity, independence and remuneration policy for the Board and andmonitors internal controls and eectivenessof theBoard. The Nomination ELT, with focus on aligning remuneration risk management. The Audit and Risk Committee oversees the selection and with the enhancement of shareholder Committee alsoreviews the eectiveness appointment of new Directors to the Board value and delivery of the Group’sstrategy. and independenceof the external and andmonitors succession planning for the The Remuneration Committee also considers internal auditors. Boardand the ELT, alongside talent management. employee pay, when setting remuneration forthe Executive Directors. Executive Committee Provides executive leadership to deliverthe Group’s strategy and Management committees managesthe operations of the Groupona day-to-day basis. Divisional boards Safety, Health & Sustainability Committee The Executive Committee: Environment Committee — Monitors SHE compliance and responses toincidents and near misses Each division is run by a divisional The SHE Committee monitors performance The Sustainability Committee monitors board comprising directors responsible againstthe Group’s SHE strategy and sets performanceagainst the Group’s — Continually focuses on customer service forspecific disciplines. associated policies, procedures and initiatives. sustainabilitystrategy and recommends andquality performance The divisional boards: It alsooversees the management of the associated targets, policies and initiatives — Leads operational and financial matters Group’sSHE risks. totheBoard. It also overseesthe management — Consider the operational matters — Develops and monitors the Group’s ofthe Group’ssustainability risks. andkeyrisks of the division sustainability strategy — Monitor and control costs at a — Considers legal matters, business ethics divisional level and culture and how this operates within the Group — Deliver high levels of customer service, quality and SHE performance. — Oversees the People strategyincluding, talent management, diversity and inclusion Further detail on our divisions can be initiatives andemployee engagement. foundonpages 4–5. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 85 Iain Ferguson CBE Peter Truscott Duncan Cooper Octavia Morley David Arnold, Lucinda Bell, Kevin Maguire Chairman Chief Executive Group Finance Senior Independent Louise Hardy and Octavia Morley General Counsel Director Director Independent Non-Executive Directors and Company Secretary The Board Roles and responsibilities The Board sets the Group’s strategy — Leads Board, governance, major shareholder — Responsible for the leadership of the Group — Provides leadership, direction — Acts as a sounding board — Bring an external perspective, sound — Provides advice and topromote the long-term sustainable andother stakeholder engagement andimplementing the Group’s strategy and management of Group forthe Chairman and a judgementand objectivity to the Board’s assistance to the — Supports the Chief Executive’s management — Maintains communication with the Chairman Finance, overseeing divisional trustedintermediary for deliberations and decision making Chairmanand other success of the Group. ofthe business inrelation to strategic considerations financial control functions other Directors — Scrutinise, measure and review Directors The Board provides leadership within — Applies independent and objective judgement — Manages the overall performance of the — Responsible for the — Available to discuss the performanceof the Executive — Develops agendas aframeworkof strong governance, risk business and provides eective leadership consolidation of the Group’s concerns with stakeholders Directors forBoard meetings management and eective controls. It oversees — Sets agendas that enable appropriate coverage tomembers of the ELT financial statements, financial that cannot be resolved — Constructively challenge and assist — Oversees processes the performance and progress of the Executive of all areas material to the Board and which control mechanisms and the through the normalchannels in the development of Group strategy forproviding information Committee against business plans, utilising support eective and balanced decision making — Proposes and leads the delivery of strategy Group’s tax strategy of the Chairman or the tothe Board KPIsto support it in its assessment. The Board — Ensures that the Board receives accurate and asagreed by the Board — Provide independent insight, support — Delivers investor relations Executive Directors isresponsible for monitoring the Group’s timely information to aid decision making — Leads the Executive Committee which and any specialist advice — Advises and keeps communications to — Responsible for theBoardupdated on purpose,values and culture. — Facilitates an environment for eective overseesoperational and financial performance — Monitor the implementation of the capital markets leading the Chairman’s corporate governance The Board has a schedule of matters reserved relationships between all Directors — Communicates and provides feedback Group’sstrategy within its risk and — Manages the Group’s risk performance evaluation. developments for its own decision which includes setting aboutthe implementation of Group policies, controlframework andconsider the — Drives a culture that supports constructive profile and establishes integrity of financial reporting. — Considers Board profit expectations and dividend policy discussion, challenge, debate and andtheir impact on behaviours and culture eective internal controls eectiveness and and approving major acquisitions, capital decision making — Leads and supports the Group’s divisions expenditureand financing. — Oversees the implementation Directors’training needs — Contributes to the Board’s succession andits support functions of the Group’s risk in conjunction with planning,induction and composition deliberations — Engages with institutional shareholders management actions the Chairman — Ensures the views of stakeholders are considered and keystakeholder groups including — Manages the Group’s relationship — Supports the Chairman on appropriately inBoard discussions the Government with the external auditor. shareholder governance — Responsible for the eectiveness of the — Responsible to the Board for sustainability engagement matters. Boardand its governance policies and practices of the Group. — Prioritises the development of the Group’s strategy. Board Committees Audit and Risk Committee Nomination Committee Remuneration Committee Further detail on the work of the | The Audit and Risk Committee oversees | The Nomination Committee reviews the | The Remuneration Committee sets the | Audit and Risk Committee can be | | --- | --- | --- | --- | | externalfinancial reporting and disclosures | balance,diversity, independence and | remuneration policy for the Board and | found on pages 92–99 | | andmonitors internal controls and | eectivenessof theBoard. The Nomination | ELT, with focus on aligning remuneration | | Further detail on the work of the risk management. The Audit and Risk Committee oversees the selection and with the enhancement of shareholder Nomination Committee can be Committee alsoreviews the eectiveness appointment of new Directors to the Board value and delivery of the Group’sstrategy. found on pages 88–91 and independenceof the external and andmonitors succession planning for the The Remuneration Committee also considers internal auditors. Boardand the ELT, alongside talent management. employee pay, when setting remuneration Further detail on the work of the forthe Executive Directors. Remuneration Committee can be foundon pages 100–122 Management committees Land acquisition process Divisional boards Safety, Health & Sustainability Committee There is a clear dedicated approval process foracquiring land. Environment Committee There are three key stages: Each division is run by a divisional The SHE Committee monitors performance The Sustainability Committee monitors — Assessment and feasibility stage board comprising directors responsible againstthe Group’s SHE strategy and sets performanceagainst the Group’s — Bid stage forspecific disciplines. associated policies, procedures and initiatives. sustainabilitystrategy and recommends — Contract stage. The divisional boards: It alsooversees the management of the associated targets, policies and initiatives An Investment Committee exists to provide Group’sSHE risks. totheBoard. It also overseesthe management — Consider the operational matters the relevant authority to acquire land prior ofthe Group’ssustainability risks. andkeyrisks of the division to exchange. — Monitor and control costs at a The land acquisition process enables the divisional level Groupto act quickly while ensuring an — Deliver high levels of customer service, appropriate level of diligence is applied quality and SHE performance. tosignificant capital allocation decisions. Further detail on our divisions can be foundonpages 4–5. Crest Nicholson ## 86 Annual Integrated Report 2022 ## Composition, succession ## and evaluation ## Board evaluation ### Board evaluation process Board evaluation cycle During the year, an internal evaluation oftheBoard was conducted by the ### FY20 Chairman. This review followed an Internally facilitated evaluation led by the Chairman externalevaluation in FY21 which wasconducted byGould Consulting. The FY22 review process took place ### fromSeptember to October 2022 FY21 Externally facilitated evaluation carried out byGould Consulting andwasconducted in the format (who have no connection with the Group or Directors) outlined below. ### Evaluation of Chairman’s ### FY22 ### performance Internally facilitated evaluation led by the Chairman Octavia Morley, Senior Independent Director, led a review of Iain Ferguson’s performance as Chairman. The review concluded that the Board was chaired eectively and Iain encouraged constructive dialogue. ### FY22 Board evaluation ### Stage 1 Stage 2 Stage 3 The Nomination Committee agreed The evaluation was conducted as follows: The Chairman presented the output thatGould Consulting had provided fromthe evaluation at a Board meeting. — All Directors completed a tailored goodquality engagement during their online questionnaire, addressing The Senior Independent Director external evaluation in the prior year keyBoard matters in addition presented the output oftheChairman’s andagreed that an internal evaluation, tofurtherquestions covering performance from themeeting with withthe useof atailored online eachoftheBoard Committees theNon-Executive Directors. questionnaire was appropriate — A shorter survey of around six The Board considered the key findings for FY22. questions was completed by and agreed a Board Continuous The Board agreed this year’s evaluation the ELT Improvement Plan. would be held as an internal evaluation — The results were analysed, Findings are outlined overleaf. ledby the Chairman. summarising the comments and It was agreed that review of the identifying key themes, which Chairman’s performance would be wereshared at a meeting with ledbyOctavia Morley in her capacity the Chairman asSenior Independent Director. — One-to-one meetings were held between each of the Directors — A Non-Executive Director meeting was led by the Senior Independent Director to consider theChairman’s performance. The review concluded that the Board continued to operate eectively. The Chairman, alongside the General Counsel andCompany Secretary, will support the implementation of agreed actions during FY23. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 87 ### Board meeting priorities Sector developments Board cohesion ### FY22 areas of ### The Board intends to develop and meeting material Building on achievements ### focus in response its approachto meeting In support of developing the in FY21, furthertime will be ### to the FY21 Board format and agenda-setting scheduled outside of meetings Board’s agenda and debate, ### evaluation to maximise opportunity anumber ofprocesschanges for informal opportunities for strategic debate at its will be made, such as: tomeet and discuss emerging principal meetings including: themes, and establish — More formalised provision relationships. This will also — Wider consultation of sectorandCompany include regular and appropriate identifying specialtopics news to providegreater time forthe Non-Executive and focus areas context ahead of meetings Directors to meetwithout the leadingto better targeted — A greater focus on pre- Executive Directors present. presentations as preparation reading materials before forBoard discussions ### Board presentations, Succession planning — Adapting interim virtual to focus meeting time This will continue to be an area meetings toconsider on debating keyissues of priorityfor the Board during specific focus areas in evengreater detail FY22, with a further focus on — Placing more emphasis on — Clearer identification of Board succession planning as feedback from Committee desired outcomes from well as succession planning Chairs and the Chairman focus sessions, atthe and talent development in relation to activities time of scheduling. throughout the Group. outside Board meetings. | | The Board evaluation, and that | One strength highlighted was | Succession planning continued | | --- | --- | --- | --- | | Implementing areas | of its Committees, concluded | the provision of high quality | to be a significant focus in FY22, | | of focus in FY22 | that the Board was operating | sector news and reading | particularly below Board level. | | | eectively and working | materials throughout the | While it was acknowledged | | | well towards its objectives. | year and not just ahead of | that eorts had been made in | | | The outcome of the evaluation | Board meetings. | improving succession planning, | | | highlighted that the Board had | | further work should continue | Greater collaboration ahead made good progress towards through FY23 including in of the Board’s Strategy a number of areas identified respect to compliance with the Day led to high quality last year, including in respect Parker Review and the Group’s focused discussions. to stakeholder relations and diversity targets. The review emphasised that developing Board relationships. The FY22 Board evaluation while significant progress has The evaluation highlighted process was seen positively been made in risk management, the strength in employee by all Board members and in a volatile and uncertain engagement but that greater gave a platform for continuous external environment, the Board focus was required in respect development in FY23. should continue to consider to formalising the reporting risk through ‘big picture’ ofculture and values. horizon scanning. | | Culture, values | Board meetings | Succession planning | | --- | --- | --- | --- | | FY23 areas | andemployees | Recognising the volatile and | The Board recognises that | | | The Board intends to develop | uncertain external environment | executive succession planning | ## of focus its approach to engagement to consider: will continue to be a key priority with senior management and in FY23: — Further reporting about the employees in relation to the land market and challenges — Continued focus on Group’s values and culture: to provide greatercontext succession planning — More dedicated ahead of meetings and for Board, ELT and discussionsabout culture in investment decisions divisional boards Board meetings, to enable — Additional time to be — Implement initiatives Non-Executive Directors spent ‘horizon scanning’ throughout the Group to further support senior for emerging risks facing toenable individuals to management in raising the Group develop their careers awareness and visibility — Continuing the use of — Action will be taken by ofthe Group’s values update calls between the Board and Nomination — Prioritise opportunities scheduled meetings Committee to meet the for the Non-Executive — With a larger ELT, Parker Review requirements. Directors to meet with ensure the appropriate members of the ELT outside rotation of attendees at of formal meetings Board meetings. — Enhancing the feedback and reporting of employee engagement activities. Crest Nicholson ## 88 Annual Integrated Report 2022 ## It is essential that the Board and Executive Leadership ## Nomination ## Team have the rightbalance of skills, experience and ## Committee ## diversity to eectively lead the Group. ## Report ### Committee overview Committee members Iain Ferguson CBE Octavia Morley David Arnold Lucinda Bell Louise Hardy Nomination Committee Senior Independent Non-Executive Non-Executive Non-Executive Chair Director Director Director Director | Committee role andmembership | Membership | External advice | | --- | --- | --- | | The Nomination Committee is responsible for | The Committee has been chaired by | The Committee is authorised to seek | | reviewing the structure, size and composition | IainFerguson, the Chairman of the Company, | externallegal or other independent | | of the Board to ensure that itremainseective, | since 2019. All other members of the | professionaladvice as it sees fit but | | balanced and qualifiedtodeliver the | Committee are Non-Executive Directors. | hasnotdone so during the year. | | Group’s strategy. | Individual meeting attendance is set out | | onpage80. More information on the To achieve this, the Committee is responsible for the skills andexperience of all Committee nomination, induction and evaluation ofDirectors. memberscanbe found on pages 70–71. The Committee is also responsiblefor succession planning for the Executive Directors, Executive Peter Truscott, Chief Executive, Jane Cookson, Leadership Team (ELT) and senior management. Group HR Director and Kevin Maguire, GeneralCounsel and Company Secretary The Committee leads the Board’s approach are invited to attend scheduled Committee todiversity and identifies and oversees its meetings, where they may contribute or initiatives in this area. providemanagement updates. I am pleased to present this year’s With the operational turnaround complete, While appointments will be made on Nomination Committee Report. It is the the Board, Committee and Tom recognised merit, we take seriously considerations Committee’s role to ensure the Group that it wasan appropriate time for him to suchasbackground and experience, has eective leadership oversight, with leave theGroup. The Committee are grateful age,ethnicity and gender in our reviews the rightbalance of skills, experience forTom’s contribution to the Company. ofthecomposition of the Board. anddiversity on the Board and ELT. Our progress on enhancing Board ELTchanges diversitycanbe found on pages 90–91. | Board changes | Following Tom Nicholson’s departure, | | | --- | --- | --- | | At the 2022 Annual General Meeting | twoexisting Managing Directors, David | Developing talent | | (AGM), the appointment of David Arnold | Brown and Alex Stark, were appointed to | In 2021 we launched the Crest Academy | | was approved by shareholders. David is | theELT as Executive Managing Directors, | withthree elements to the talent programme: | | a valuable addition to the Board who has | with eect from 1 November 2022. | Future Leaders, Emerging Talent and Future | | brought significant financial and commercial | These appointments will strengthen the | Talent. The Committee has received regular | | experience. The Audit and Risk Committee | ELT as both David and Alex bring wide- | reports on the programme’s performance | | benefits from his listed company and sector | ranging industry expertise. These internal | which has pleasingly started to generate | | experience through his role as Chair. | promotions reflect the recent progress that | positive results. Further detail can be found | | | has been made with the Group’s succession | onpage 45. | The year also saw the departure of Tom planning processes and development Nicholson as the Group’s Chief Operating programmes. In addition, these appointments Ocer. Tom was recruited in 2019 due will create further leadership opportunities Iain Ferguson CBE to his extensive industry experience and for key talent within the Group. Nomination Committee Chair record of improving operational eciency. While Tom was with us he made significant Diversity and inclusion progress in transforming the Group’s We continue to recognise and embrace operations and recruited an experienced the benefits of having a diverse Board. senior management team. People with dierent perspectives, backgrounds and experiences enhance Further detail on David Arnold’s Board discussion and decision making. recruitment and induction process canbe found in the Crest Nicholson FY21 Annual Integrated Report Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 89 ### Activity during the year Items of business considered by the Committee during the year: Activity during the year Outcomes ### Leadership Reflected on the Board, Committees and ELT composition. With the operational turnaround complete, the Board, Committee and TomNicholson recognised that it was an appropriate time for Tom to leave the Group. Following Tom Nicholson’s departure, two existing Managing Directors, DavidBrown and Alex Stark, were appointed to the Executive Leadership Team asExecutive Managing Directors, with eect from 1November 2022. Considered performance and eectiveness of the Recommended to shareholders the re-appointment of all Directors individual Directors and their contribution to the Board. for election or re-election at the 2022 AGM. ### Diversity and inclusion Received updates from management on the Group’s Supported and endorsed the Group’s diversity initiatives, including ongoing initiatives in respect to diversity and inclusion. theintroduction of Anity Groups. Further detail is available on page 47. Reviewed the Board and Leadership Diversity Policy Approved the Board and Leadership Diversity Policy and associated targets. andassociated targets. ### Succession planning Considered the Group’s succession planning outputs. Agreed and made recommendations to strengthen succession plans, including considering specific development and coaching needs. Reviewed current initiatives in respect of talent Noted the initiatives and positive feedback from participants, and agreed management across the Group at entry level, todevelop a talent programme that is specifically targeted at females. mid-tier andsenior management. ### Board evaluation Considered the approach of the 2022 Board Recommended to the Board the approach for the internal Board evaluation. evaluationprocess. Further details on the Board evaluation and output can be found on pages86–87. Reviewed the Committees’ composition. The Committee considered the Committees’ compositions, and agreed thatthey remained appropriate. ### Governance Reviewed the Committee’s terms of reference. Endorsed updated terms of reference and recommended to the Board theirapproval, which the Board approved. ### Succession planning The Committee considers succession Emergency succession planning plans for ELT members and divisional The Committee plays a vital role in ensuring The Committee also considered the board members. These succession plans the eectiveness of the Board and its Emergency Succession Plan for the ELT. are complemented by a performance ability to deliver the long-term success This is a high-level contingency plan to and development review (PDR) process. of the Group. This includes continually respond to an immediate and unexpected Over the past year, the Group has reviewing the balance of skills, experience, lack of availability of the Chief Executive, partnered with a specialist external independence and knowledge to ensure another member of the ELT, or a divisional advisor, to provide training and coaching theright individuals are in place to support Managing Director, where such absence programmes for the Group’s nominated the eective planning and implementation of would be reasonably expected to be talent. Through a structured approach to the Group’s strategy. Along with considering morethan two weeks. development opportunities, the Group is Board succession regularly, the Committee committed to focusing on retaining and also reviews the capability of the ELT developing its high-potential individuals and senior management roles, to ensure andemerging talent. The Committee there is a talented and diverse pipeline of acknowledges the barriers women face future leaders. when rising to senior management and has agreed to develop a talent programme specifically targeted for females. The full terms of reference for theCommittee can be found at www.crestnicholson.com/investors/ corporate-governance Crest Nicholson ## 90 Annual Integrated Report 2022 ## Nomination Committee The Directors are committed to having a balanced Board ## Report continued which recognises the benefits of diversity in its broadest ## sense and the value that this brings to the organisation ## Diversity within ## in terms of skills, knowledge andexperience. ## leadership ### Board and Leadership ### DiversityPolicy Board Executive Leadership Team The Group’s approach to diversity ### Gender diversity Gender diversity and inclusion is set out in the Board and Leadership Diversity Policy 2 2 which is reviewed annually by the Committee and applies inasimilar 1 waytosenior management. The Board and Leadership Diversity Policy was recently updated, to reflect therecommendations of the FTSE 1 Male 4 57% 1 Male 5 83% WomenLeaders Review. 1 2 Female 3 43% 2 Female 1 17% The Board and Leadership Diversity Policy reflects: ### — A recognition that a diverse At least 40% of the Board are female Ethnic diversity ## ✓ Board and leadership improves operational performance Senior Board positions – — Targets for at least: 1 genderdiversity — 40% of the Board to be female At least one of the Senior Board 1 White ## ✓ — At least one of the Senior Board positions (comprised of either background 5 83% positions (comprised of either Chairman, Chief Executive, Senior 2 Ethnic Chairman, Chief Executive, Senior Independent Director orGroup minority Independent Director orGroup Finance Director) is female. background 1 17% Finance Director) to be female | — One Director to be appointed to | Ethnic diversity | | | --- | --- | --- | | the Board from an ethnic minority | At least one member of the Board | | | background by end of 2024 | isfromaminority ethnic background | | | (in line with theParker Review) | | Senior management | byend of 2024. — 40% female representation across No Director currently appointed. ### Gender diversity senior management over time — A recruitment approach that aims toattract and encourage candidates fromdiverse backgrounds — A requirement that all search firms usedfor Board recruitment: — Are members of the Voluntary Code 1 of Conduct for ExecutiveSearch 1 Male 27 6% Firms,and 2 Female 14 34% — Commit to broadening theirsearch and ensuring that short listsreflect aclear range of ethnicity, gender ### Ethnic diversity andsocial characteristics. Crest Nicholson’s response The Committee is updated at each of its toappointing a Board 1 | meetings on actions being undertaken | member froman ethnic | | | --- | --- | --- | | bythe Group to develop female talent and | minoritybackground | | | from other under-represented groups. | | 1 White | The Board and Committee are | To support the Board and Committee, | focused on appointing a Director | background | 37 90.2% | | --- | --- | --- | --- | | Anity Groups were launched during | from anethnicminority background. | 2 Ethnic | | | the year where volunteers from across | | minority | | To meet this target it is the the Group discuss opportunities to background 4 9.8% Committee’sintention to recruit raiseawareness, develop ideas and anadditional independent Non- feedback concerns related to their area Executive Director tomeet the offocus. These Anity Groups report Parker Review requirements. to theDiversity and Inclusion Forum. The recruitment for this role will Further details of these initiativescan commenceduring FY23, with the befound on page 47. expectation that the individual selectedwill be appointed to theBoardahead of 31 December 2 2 2 2024 deadline. Data is at 31 October 2022 Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 91 ### The Board’s skills and experience Number of Directors Skills and experience Importance Direct experience Indirect experience Industry/sector Housebuilding High   Construction High   Engineering and infrastructure Medium   Governance UK listed companies High  – Company chair experience High  – ### Committees Remuneration Committee chair experience High  – ### Gender diversity Audit and Risk Committee chair experience High  – Nomination Committee Nomination Committee chair experience High  – 2 Senior Independent Director experience Medium  – Strategic and operational Strategy High  – Finance High   Management and leadership High   1 Male 2 40% Joint ventures and partnerships Medium  – 1 2 Female 3 60% Marketing Medium   Stakeholder experience Investors High  – Audit and Risk Committee ESG (including climate) High  – 2 Government and industry High   People High   Customer service High   1 Supply chain High   ### 1 Male 1 25% The Committee remains mindful of the Appointment process 2 Female 3 75% importance of broadening diversity within The Board has an established approach the Board, ELT and senior management for identifying and evaluating suitable teams. The Committee is aware that gender candidates. The Committee is responsible representation is not the only means by Remuneration Committee for conducting extensive searches for which a Board achieves diversity and each potential candidates while considering 2 Director’s skillsand experiences bring the Group’s strategy, purpose, values as dierent insights and contributions. well as the skills, experience and diversity. The Board skills and experience matrix Following the Committee’s review, a final highlights our Board’s diversity in these recommendation is put forward to the respects. The matrix was developed Boardfor approval. this year and will support the Group Upon appointment, each new Director | | 1 Male 2 40% | initssuccession planning processes. | | | --- | --- | --- | --- | | 1 | | | receives a comprehensive and tailored | | | 2 Female 3 60% | | induction. The induction programmes | ### Election and re-election are designed to help establish a broad ### ofDirectors knowledge and full understanding of the Following review, the Committee concluded Group’s strategy, operations, challenges, that each of the Directors make an eective objectives and culture. Induction meetings contribution to the Board. The Committee are held with the Directors and other considered the time commitments, and any seniormanagement as well as external other significant appointments of each of advisors relevant to that Director’s role the Non-Executive Directors including the andany specific Board responsibilities. Chairman, and concluded that each Director | continues to contribute eectively and | Committee evaluation | | --- | --- | | provides sucient time to the Company. | During the year the Committee’s | | In accordance with the Code, each of | performance was reviewed as part of | | the Directors will submit themselves for | theGroup’s internal Board evaluation. | | re-election at the 2023 AGM. Further | The review explored the composition | | detail on the Board evaluation process | of theCommittee, management scope, | | isoutlined on pages 86–87 and the | processand the support it receives | | Directors’ biographies are detailed on | andareas where improvements could | | pages70–71. | be made. | Following review, the Board agreed that theCommittee continues to operate eectively. Crest Nicholson ## 92 Annual Integrated Report 2022 ## The Committee protects the interests of shareholders ## Audit, risk and ## and stakeholders by providingcomprehensive oversight ## internal control ## to financial reporting, riskmanagement and internal ## Audit and Risk ## control processes. ## Committee Report ### Committee overview Committee members David Arnold Octavia Morley Lucinda Bell Louise Hardy Audit and Risk Committee Senior Independent Non-Executive Non-Executive Chair Director Director Director significant financial reporting judgements is satisfied that the Committee as a whole ### Committee role contained within the financial statements hascompetence relevant to the sector. ### andmembership and announcements. Further details can be found in the Directors’ The Audit and Risk Committee is responsible The Committee is responsible for monitoring biographies on pages 70–71. for reviewing the eectiveness of the Group’s andreviewing the eectiveness of the external Other regular attendees, at the invitation internal controls and risk management including auditor including in respect to the annual oftheCommittee, include the Chairman, the Group’s procedures for detecting fraud, consolidated financial statements and the theChief Executive, the Group Finance itsprocesses and controls for the prevention half-year review. The Committee advises on Director,the General Counsel and Company ofbribery and the eectiveness of the matters related to the external auditor including Secretary, the Group Financial Controller, Group’santi-money laundering systems. theirappointment and re-appointment, their theHead of Internal Audit, Group Tax A key function of the Committee is to monitor fees, and reviewing andmonitoring their Director and representatives fromPwC, and review the independence, objectivity and independence andobjectivity, which includes theexternal auditor. eectiveness of Internal Audit. The Committee theextent ofanynon-audit services provided. | evaluates and agrees the Group’s Internal | | External advice | | --- | --- | --- | | Auditplansand receives regular update | Membership | The Committee is authorised to seek outside | | reportsonInternal Audit’s findings. | The Committee has been chaired by | legalor other independent professional | | The Committee monitors the integrity of the | DavidArnold, since September 2021. | adviceasit sees fit but has notdone so | | Group’s financial statements and any significant | David Arnold and Lucinda Bell have recent | duringthe year. | | announcements relating to its financial | and relevant financial experience. The Board | | performance. This also includes assessing | I am pleased to present this year’s Audit | asHead of Internal Audit, and the recruitment | I am pleased to confirm the Committee | | --- | --- | --- | | and Risk Committee Report. The purpose of | of a strong Internal Audit team, have been | continues to meet the Financial Reporting | | this report is to outline how the Committee | successfully implemented and the Group | Council’s (FRC) Guidance on Audit Committees, | | discharged its responsibilities delegated | isnow benefiting from an enhanced level | issued in April 2016. We are committed to | | to it by the Board, predominantly in | ofinsight and challenge. | ensuring that the accountability principles | | respect to monitoring the integrity of | | set out within the UK Corporate Governance | This year we appointed Ryan Lee as financial reporting, the eectiveness Code (Code) are applied and that the interests Operational Framework Director. Ryan will of riskmanagement and internal control of shareholders and other stakeholders ensure our Group operating policies and processes, and governance and areproperly protected in these areas. suite of internal controls are reviewed and compliance matters. | | position us appropriately for the audit and | Finally, I would like to extend a thank you | | --- | --- | --- | | This was my first full year in position | corporate governance reforms proposed | tomy fellow Committee members who | | asChairof the Committee. While many | bythe Department for Business, Energy | have supported and provided constructive | | challenges arising from COVID-19 had | and Industrial Strategy (BEIS). This project | challenge at ourmeetings this year, and | | dominated the prior year, this year has been | will also support a more comprehensive | toDuncan Cooper and the Group Finance | | characterised by significant economic and | induction process for new starters. | and Internal Audit teams who have provided | | geopolitical uncertainty. Alongside this, | | valuable input toCommittee meetings. | PricewaterhouseCoopers LLP (PwC) remain TomNicholson left the Group as Chief our external auditor. During the year, Iheld Operating Ocer leading to changes in meetings with Darryl Phillips, the audit theway we deliver operational leadership David Arnold partner, todiscuss the audit process. and oversight. Accordingly, we moved Audit and Risk Following the Board’s decision to sign the swiftly to adapt our risk management Committee Chair Government’s Building Safety Pledge, time processes andinternal controls. was spent by the Committee on assessing The changes made by the Committee last the provision in respect to combustible year to enhance the Internal Audit function materials and this will continue until all including the appointment of Simon Rose, works have been completed. More detail isavailable on page94. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 93 ### Activity during the year Items of business considered by the Committee during the year: Activity during the year Outcomes ### Financial reporting Considered and reviewed the reports from the Group Finance Recommendations were made to the Board, supporting the approval teamon the financial statements, considered management’s of the half-year and full-year results, associated announcement and significant accounting judgements and the policies applied theFY21 Annual Integrated Report. forboththe half-year and full-year results. Reviewed the basis of preparation of the financial statements Recommendation made to the Board to support the going asagoing concern as set out in the accounting policies. concernstatement. Reviewed the long-term viability statement proposed by management, Recommendation made to the Board to support the long-term with focus on the judgements, estimates and testing. viabilitystatement. Reviewed whether the FY21 Annual Integrated Report was a fair, Recommendation made to the Board that the FY21 Annual Integrated balanced and understandable assessment of the Company’s Report was a fair, balanced and understandable assessment of the positionand prospects. Company’s position and prospects. ### External audit Assessed the eectiveness of the FY21 external audit. The Committee concluded that the audit was eective, and a recommendation was made to the Board on the re-appointment ofPwCas the external auditor at the 2022 AGM. Considered PwC’s Group audit plan for the FY22 financial results Noted and endorsed PwC’s Group audit plan and AQIs. andthe recommended Audit Quality Indicators (AQIs). Received PwC’s findings from the FY21 external audit and the Carefully considered PwC’s findings from the FY21 external audit HY22interim review. andthe HY22 interim review. Considered the letter of representations to PwC inrespect to the Recommendation made to the Board to approve the letter of half-year and full-year results. representations to PwC in respect to the half-year and full-year results. Reviewed the non-audit related services and fees provided Approved the services and fees for non-audit related services provided by by PwC for the financial year, alongside the PwC forthe financial year. It also agreed that the policy for the provision supporting policy. of non-audit services by the external auditor remained appropriate. Negotiated and agreed the statutory audit fee for the financial year. The statutory audit fee to be paid as agreed by the Committee. ### Risk management and control environment Considered the emerging and principal risks. Recommended to the Board the emerging and principal risks for inclusion in the half-year and full-year results, including changes tothese risks. Reviewed the eectiveness of the risk management activities Recommendation made to the Board that the risk management andtheGroup’s internal controls. activities and internal controls were eective. Noted the key risks andassociated mitigations. Received a presentation on the Operating Framework Review Agreed with the priorities outlined in the Operating Framework Review, tobeimplemented within the Group. challenging as necessary. Received focused reviews on the replacement of the Group’s Agreed with the priorities outlined in the presentations, challenging ERPsystem and cyber security updates. asnecessary. Agreed to a cyber security update report to be considered at each Committee meeting. ### Internal Audit Reviewed the proposed Group’s Internal Audit Charter. Approved the Group’s Internal Audit Charter. Considered the proposed Internal Audit plan for FY23. Agreed that the risk-based audit plan, and proposed audits were relevant and appropriate inthelight of the Group’s principal andemerging risks. Considered the Internal Audit reports, findings and agreed actions. The Committee was satisfied that management had resolved, or werein the process of resolving, any outstanding issues or concerns inrelation to matters scrutinised by the Internal Audit function. Reviewed the scope, quality and eectiveness of Internal Audit. Concluded that the Internal Audit function was eective and has implemented plans to evolve the Internal Audit function, moving fromafully outsourced model to a combination of in-house andexternal expertise. During the year this included recruiting a Senior Internal Audit Manager and a senior internal auditor. ### Governance Reviewed the Committee’s terms of reference. Terms of reference were considered and remained in line with bestpractice and compliance with the Code. Monitored employee training compliance in respect to data privacy, Supported management’s initiatives and received updates anti-money laundering, bribery and corruption, whistleblowing asappropriate. reports and investigations and other compliance matters. The full terms of reference for theCommittee can be found at www.crestnicholson.com/investors/ corporate-governance Crest Nicholson ## 94 Annual Integrated Report 2022 ## Audit and Risk ## Committee Report continued ### Key financial and internal control matters During FY22 the Committee considered the following key financial and internal control matters in relation to the Group’s financial statements and disclosures with input from management and the external auditor. Key financial and internal control matters How the Committee has addressed these matters Valuation of Inventory is the most significant balance on the consolidated statement of financial position and is held at the lower inventory of cost and net realisable value (NRV). A forecast is maintained for the NRV of each development and this contains several key assumptions. Due to the influence of external factors and the cyclical nature of the housing market, there is a risk that the calculation of the developments’ NRV may be subject to estimation error, leading to inventory being held at an incorrect value when an impairment charge to reduce its value would be appropriate. Management regularly review the selling prices and build costs of all the Group’s housing stock, including the impact on future forecasts for developments not yet under construction, considering latest market valuations. Where forecasts determine that a site may no longer generate a margin, NRV is recognised in the consolidated income statement. During FY22 £9.6m of NRVhas been charged, mainly on three legacy developments already held at zero margin, and, £17.7m of NRV has been used in the year on housing units sold, resulting in a net movement in the NRV provision of £8.1m in the year. The Committee understands the controls in place concerning NRV, including the minimum hurdle rates management require before projects are approved and how management monitors NRV on an ongoing basis. The Committee is satisfied that the internal controls in place ensure the eective assessment of inventory carrying values. Where any sites have low or negative margins, appropriate and sucient provisions are made. Where NRV has been recognised during FY22, the Committee challenged management to ensure that appropriate assumptions were in place, in particular around expected levels of sales prices and build costs. The Committee was satisfied that inventory carrying values, and associated NRV, was appropriate. Margin forecasting The Group’s margin recognition framework is based on the margin forecast for each phase of development. and inventory Thesemargins, which drive the recognition of costs as revenue is taken, reflect estimated selling prices and costs foreach development. This methodology then guides the allocation of total forecast costs, matching both land andbuild costs of a development, to each component of revenue. There is a risk that the margin forecast for the site andthe margin subsequently recognised on revenue is not appropriate and reflective of the actual final profit that will be recognised on a development. Sales prices and build costs are inherently uncertain as they are influenced bychanges in external market factors, such as the availability and aordability of mortgages, changes in customer demand due tomarket uncertainty and availability of labour and materials. The Committee continues to review management’s internal control processes, the main areas of estimation and challenges management where appropriate. The Committee is satisfied that controls in this area and margins recognised in the Group’s financial statements are appropriate. Combustible The Group has recognised an exceptional combustibles materials related charge of £105.0m in the year, in addition materials provision to that recognised in prior years. The year end provision balance is £140.8m. The charges relate to forecast costs associated with remedial works to be performed on legacy buildings with potential fire safety issues due to combustible materials and where the Group has a legal or constructive obligation to remediate. During the year, the combustible materials provision has been increased to reflect the most contemporaneous assessment of previous estimates and to reflect the impact of signing the Government’s Building Safety Pledge (thePledge). As a result of signing the Pledge the Group has committed to funding the remediation of life-critical firesafety issues on buildings over 11 metres in which the Group was involved in their development going back 30years.The Directors have used Building Safety Fund (BSF) cost information, other external information and internal assessments as a basis for the estimated remedial costs, as well as considering the impacts of build cost inflation. These estimates are inherently uncertain due to the highly complex and bespoke nature of the buildings, actual costsdiering to the amounts notified by the BSF costed projects, and that fire safety assessments in progress mayrequire dierent levels ofremediation and associated costs than those currently estimated. This is a highly complex area with judgements in respect of the extent of those properties within the scope of the Group’s combustible materials guidance and the provision could be extended as the interpretation of Government guidance continues to evolve or due to cost estimation changes. By contrast, the Group expects to recover costs fromarchitects and subcontractors involved in the construction of these schemes but does not recognise these benefits until they are received. The Committee reviewed and challenged the appropriateness, quantum, adequacy and completeness of the provision taking into account Government guidance in this area, experience gained since 2019 and potential exposure over the population of legacy developments. In particular, the Committee focused on the assessment of completeness performed by management given the significant expansion of potential scope of liabilities following the Group signing the Pledge. The Committee agreed that there was no certainty over the potential quantum ofthe contingent liability associated with sites not yet identified or provided for. The Committee was satisfied that the provision and related disclosures are appropriate. Due to the size and nature of the item, the Committee has agreed with management’s opinion to continue to treat thecombustible materials charge, and associated recoveries, as an exceptional item. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 95 Viability and going concern Fair, balanced and understandable Relations, Sustainability, HR and Marketing functions (AIR Group). This AIR Group The Committee reviewed management’s At the request of the Board, the Committee was responsible for regularly reviewing consideration in relation to the prospects has considered whether the FY22 Annual the process and ensuring balanced of the Group, as set out in key audit Integrated Report is fair, balanced and reporting with appropriate links between matters on the prior page. It also satisfied understandable and whether the information key messages and sections of the Annual itself that the going concern basis of provided is necessary for stakeholders to Integrated Report. A recommendation was preparation continues to be appropriate assess the Group’s strategy performance made from the AIR Group to the Committee and made recommendations to the Board and business model. confirming that they considered the Annual in this regard. The Company’s viability The FY22 Annual Integrated Report is Integrated Report was fair, balanced statement can be found on page 65. focused on the Group’s key strategic and understandable. Further information on the Group’s going messages and it is important that an concern assessment can be found in note 1 The Committee received a full draft of the assessment is undertaken to ensure these to the consolidated financial statements. Annual Integrated Report and provided messages are fairly summarised and provide feedback on it. The draft feedback was an accurate description of performance. incorporated into the report prior to final The fair, balanced and understandable Board approval. process was led by the Group Finance In particular, the Committee considered Director, supported by members of Group whether the following aspects of the report Finance, the Company Secretariat, Investor were fair, balanced and understandable: Fair Balanced Understandable Provided a comprehensive review of Provided a balanced view with Provided a clear and structured framework the Group’s activities and its strategy, emphasisonboth the key positive for the Annual Integrated Report with which was communicated clearly and andnegative points. key messages appropriately outlined wasconsistent throughout. throughout. Accurately described current operational Clearly outlined the key accounting Clearly and concisely presented the performance, including market trends judgements and estimates in the information, with key performance indicators surrounding customer service levels, Committee’s report, consistent with rationalised to those most relevant to our political uncertainty, employee retention, thoseoutlined in the financial statements, stakeholders’ assessment of the Group’s impact of industry supply and skills andhow these reflected the external performance. shortages and the principal risks including auditor’s key audit matters. regulatory change faced by the Group andthe actions taken to mitigate this. Highlighted key messages in the Reflected appropriate events over the Provided clear linkages and signposting narrativereport that were aligned with yearand acknowledged the material throughout the report. thefinancial results. issuesfaced by the Group. Following review, the Committee is satisfied that, taken as a whole, the Annual Integrated Report is fair, balanced and understandable. ### External audit These AQIs are designed to assess Independence and non-audit services the quality of the audit and have been The Committee keeps the independence External auditor developed by PwC alongside management. of the external auditor under regular PwC was appointed as external auditor These AQIs will assist the Committee review. It considers PwC’s independence for the year ended 31 October 2015, in measuring both management’s and at least once a year, receiving reports following a tender process carried out in PwC’s performance. from PwC on its internal quality controls 2014. Darryl Phillips, the Group’s lead audit The Committee meetings allow time for and independence. In assessing the partner, is in the third year of his tenure the Committee and the external auditor independence of the auditor from the in FY22. The Group is beginning to make to meet without management being Company, the Committee considers the preparatory arrangements for carrying present. PwC also meet with the Group information and assurances provided by outare-tender exercise in accordance Finance Director and the Group Finance the auditor confirming that all its partners with the EU Audit Regulation and Directive team at regular intervals during the and employees involved with the audit (as it forms part of UK law). The Group annualaudit process. areindependent of any links to the Group. will put the external audit contract out to PwC confirmed that all its partners and tender by 2024. The Group complies with External auditor eectiveness employees complied with their ethics and the requirements of the Statutory Audit An annual review of external audit eectiveness independence policies and procedures, Services for Large Companies Market is undertaken at the conclusion ofthe year which are fully consistent with the FRC’s Investigation (Mandatory Use of Competitive end audit. This uses a questionnaire-based Ethical Standard, including that none of Tender Processes and Audit Committee approach to seek insight and feedback its employees working on the Group’s Responsibilities) Order 2014 with respect from management onkey areas of the audit audit hold any shares in Crest Nicholson to both the approach to the tender of process, including the audit approach, the Holdings plc. theexternal audit and the provision of team, communications with the Committee non-audit services. The Committee carefully considers the andhow the external auditor brings non-audit services provided by PwC. challenge and provides insight. The external audit process Where non-audit services are to be The review concluded that the audit The Committee, on behalf of the Board, providedby PwC, both the Group and processand the audit team continue isresponsible for the relationship with the PwChave robust processes in place toperform well. external auditor. PwC presented the strategy to prevent auditorindependence and scope of the audit for the forthcoming The Committee also considered PwC’s being compromised. financial year alongside proposed AQIs. performance in respect to the FRC’s Audit Quality Review (AQR) results for the year. Crest Nicholson ## 96 Annual Integrated Report 2022 ## Audit and Risk ## Committee Report continued The Group operates a policy for the External auditor re-appointment During the year the Board, with support provision of non-audit services that is fromthe Committee, reviewed its risk The Committee considers that PwC was reviewed annually and is consistent with appetite, which was themed around market, objective and independent throughout FY22 theregulatory framework for statutory operational and governance matters. By the and is proposing that PwC be re-appointed audit.The policy sets out the types of Board regularly reviewing its risk appetite, as external auditor to the Company at non-audit service for which the use the Executive Committee and divisional the 2023 AGM. There are no contractual of the external auditor is prohibited boards are better placed intheirdecision obligations that restrict the Committee’s (including accounting and valuation making. More information about our choice of auditor and the recommendation services) and provides a list of activities approach to risk and our principalrisks isfree from third-party influence. that are‘Permitted Non-Audit Services’ isfound on pages 58–64. ### that require the specific pre-approval Risk management and To support the Board, the Committee ### ofthe Committee. controlenvironment reviews the Group’s control environment The Committee recognises that eective alongside the principal risks. Non-audit fees risk management is key to the long-term The Committee has pre-approved certain Eectiveness of risk management sustainable success of the Group and for permitted non-audit services below achieving the Group’s strategic priorities. andinternal controls a threshold as set out in the policy. The Group’s internal controls are designed The Group’s emerging and principal risks are The current threshold is £50,000 per year. to mitigate risks that may prevent the considered by the Board. The Committee Non-audit services were provided during achievement of the Group’s strategy. regularly reviews the eectiveness of the the year in respect of the interim review The Group’s internal controls are designed risk management process on behalf of the ofthe half-year results. Fees payable were toprovide reasonable assurance that Board. Both the Board and the Audit and £95,000 (FY21: £90,000). PwC also provides potential weaknesses can be identified Risk Committee undertook dedicated risk audit services to the Group’s defined benefit promptly, and appropriate remedial review sessions on the Group’s principal pension scheme and the associated fees are action taken. and emerging risks during FY22 and were met by the scheme. For further information satisfied that risk management and the The Group Finance Director has executive please see note 5 tothe consolidated control environment were robust in the responsibility for risk management and financial statements. financial year. thecontrol environment. He is supported FY22 FY21 inthis role by the Head of Internal Audit and Risk management approach General Counsel and Company Secretary. Audit fees (£’000)   Risk review sessions are held at divisional The Group’s internal controls are designed Non-audit fees (£’000)   board level and reviewed and consolidated to mitigate, rather than eliminate, the risk Ratio of non-audit fees into the Executive Committee’s Group risk ofnot achieving corporate objectives. to audit fees .: .: review. This then feeds into the information As such, they can only provide reasonable, and assurance processes of the Committee and not absolute, assurance against and into the Board’s assessment of risk materialmisstatement or loss. Further exposures and the strategies to manage detail of our internal control framework these risks. and assessment is overleaf. The Board (with input from the Committee) has carried out an assessment of the emerging and principal risks facing the Group and how those risks aect the prospects of the Group, alongside the mitigations in place. ### Operational Framework project During the year the Group commenced aproject to review and update its Operational and KeyFinancial Controls Framework. The recently appointed Operational Framework Director will be responsible forreviewing existing policies and procedures to ensure that they contain sucient and consistent governance andoperational information, andfor developing a more formalised framework to ensurethatfinancial controls acrossthebusinessaremore consistently documented andcan bemore regularly tested. Operational Framework summary plan The summary plan to complete the Operational Framework project is as follows: Scoping and risk Information Controls testing System assessment gaps closed and remediation go live Information Process mapping System design, gap analysis and control build and identification implementation Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 97 We have a well-established — Employees are aware of the — All major balance sheet and income ### Internal control governance framework which delegated authority limits set statement accounts are reconciled ### framework defines roles and responsibilities by the Board and confirm their as part of the monthly management The Group’s internal formanaging risks and operating understanding of relevant internal accounting process and reconciling controls are designed to internal controls atall levels policies which are held onthe items are identified and resolved mitigate risks that may ofthe Group: Group’s intranet in the month with detailed variance prevent the achievement — Approval levels and limits are — Employees have annual performance analysis to prior periods and governed by the Group’s Delegated development reviews with any budgetbeing performed of the Group’s strategy. Authority Manual and these are training requirements identified — Land for development is only acquired They are designed to built into our financial and operating and agreed after thorough due diligence of its provide reasonable systems, where necessary — The Group operates a whistleblowing commercial potential and risks and assurance that potential — Group Finance have identified policy which includes access to an viaappropriate approval limits weaknesses can be divisional key controls, which every independent helpline for anonymous — We use certain national supplier identified promptly, and division is required to adhere to reporting of concerns agreements and preferred supplier appropriate remedial — Monthly management reporting — Carbon emissions data is reviewed lists to maintain control of our action taken. majormaterials and labour spend and half-yearly financial reporting internally by the Group before being processes enable financial verified by a third-party assessor — Work by subcontractors is performance to be regularly — Waste data is provided by our appropriately tendered and reviewed against budget and wastemanagement partners and awarded with background forecasts at both divisional and the data is collated internally and vettingbeing performed Group levels. These controls have review processes are performed. — All sales discounts and incentives been improved during the year areapproved in line with approval The risks identified with respect to withthe implementation of a new limits, and amendments to financial fraud and error are mitigated finance system and an updated sales prices are restricted to through the following key controls: Group Finance policy manual authorised employees inthe — The Group’s stance on fraud is — We have a Cost and Value finance department implemented via several Group Reconciliation (CVR) process — All financial transactions are policies and procedures, including ensuring that operational recorded and, where required, anti-bribery and corruption, performance is regularly reviewed approved utilising finance systems anti-money laundering, gifts and against budget. The controls over orautomated workflows entertainment, whistleblowing, our commercial processes have expenses, cyber security, and — Role-based access is in place for been improved during the year with share dealing allfinancial solutions, and there the implementation of a new ERP — Financial systems have appropriate areappropriate controls in place. system and associated policy segregation of duties following — A three-year rolling forecast is predefined approval limits and maintained monthly and a five-year the ability to maintain vendors strategic plan is prepared annually. issegregated from purchasing, Scenario plans and sensitivity goods receipts, accounts payable analyses are regularly produced and process disbursements. andpresented to the Board Changes to supplier bank accounts — All major financing activities are are verified to independent sources operated by the Group Treasury — Stage-approval processes are in function in accordance with treasury place for invoices and transactions policies that are approved by and sucient support is required the Board bythe Group Finance team which — Tax compliance is managed by issubjectto validation before ourdedicated internal tax team, payments are made with support from external advisors. — Payroll is prepared by an experienced We maintain a positive and team with appropriate controls prior transparent relationship with HMRC topayment being made and have a‘low risk’ tax status Internal assurance activities — Divisional key control attestation: External assurance activities ### Key assurance the Managing Directors and Finance ### activities — Board, Board Committees and — As part of the annual external Directors of each division are management committees: monitor audit, PwC tested a number required to sign o compliance performance against strategy, ofinternal controls with the established divisional recommend policies, procedures — The carbon emissions data keycontrols everyyear and initiatives, and oversee the receivesthird party assurance management of risks and the — Safety, Health & Environment toISO 14064-3 standard operation ofinternal controls (SHE) function: drives continual — We engage external independent improvement in SHE performance — Internal Audit: the Internal Audit safety auditors to conduct across allour sites. It engages with Plan covers the specific key risks regularand unannounced site the business via SHE inspections, ofthe Group and is approved safety reviews the provision oftraining, information bytheCommittee annually — We utilise a Security Operations and advice toall employees, and by — Functional Forums: each divisional Centre (SOC) to monitor our reporting tothe SHE Committee with function of the Group meets on networks and have passed the Board considering appropriate aregular basis to review new CyberEssentials certification. SHE-related matters andemerging risks, including — Sustainability function: drives new regulations. They also review continual improvement in and update policies, procedures, sustainability performance across and recommend improvements the Group and is responsible for tointernal controls driving performance against targets. The Committee continues to believe that the Group’s risk management and internal control systems, including the control and compliance culture within the business, provides a reasonable level of assurance that the financial statements are free from material error andmisstatement. The Committee is satisfied that relevant systems and processes have been in place for theduration of the current year and up tothe date of approval of the Annual Integrated Report. Crest Nicholson ## 98 Annual Integrated Report 2022 ## Audit and Risk ## Committee Report continued ### Internal Audit During the year the Internal Audit team has ### Internal Audit in FY22 continued to build its internal capabilities The Committee’s role is to monitor and A risk-based Internal Audit plan with the recruitment of two new team provide oversight on the eectiveness is developed in consultation with members, one with industry experience from ofinternal controls and risk management. the Executive Committee and key the housebuilding sector. An internal audit It carries out this role in support of the stakeholders, assessing key risks and methodology has been developed against Board’s formal review of significant risks areas of strategic development, any the Institute of Internal Auditors Code of andmaterial controls. emerging themes from previous audit Practice and International Professional The Internal Audit team leads the internal work and evaluation against external Practice Framework (IPPF). This provides audit process. This team is supported by benchmarks. The plan is subject to aquality benchmark for the performance Deloitte LLP who provide specific input further review and ultimate approval ofinternal work. on more specialist audits. Deloitte have bythe Committee. The Executive Committee and management been engaged by the Groupsince 2016 The Internal Audit plan in FY22 focused responsible for the area reviewed, toperform this role. on specific key and emerging risk areas consider the reports on a regular basis. The Internal Audit function is a key element across the Group. Key examples during They are responsible for ensuring actions of the Group’s corporate governance the year included: are implemented as agreed. Follow up and framework. Its role is to provide independent escalation processes are in place to ensure — A review of the Group’s talent and objective assurance, advice and insight recommendations areimplemented and management strategy, succession ongovernance, risk management and fullyembedded inatimely manner. anddiversity and inclusion internal control to the Committee, the processesand conduct policies There are also a range of functions and Boardand theExecutive Committee. roles which are also an important source — A rolling audit programme The Internal Audit function reviews of assurance. These include the Company assessingthe eectiveness of theeectiveness and eciency of internal Secretariat, IT, Group Finance, SHE and monthly divisional build cost controls in place, providing assurance Quality Assurance. The Committee may reviewsandassociated controls thatinternal controls remain fit for purpose request assurance reports from these — An audit of the design and and are applied consistently throughout functions or exploration of specific risks operatingeectiveness of HR the Group. In addition to reviewing the andmitigations. Processes carried out controlscovering recruitment, eectiveness of these areas and reporting bythese functions are also subject to rewardand compensation, on aspects of the Group’s compliance with reviewfrom Internal Audit. master data, disciplinary and them, the Internal Audit function agrees grievance processes actions with management to address Internal Audit eectiveness — A focused review of cyber security any key issues and improve processes. The Committee continually reviews controls tested against the National Once anyactions are agreed with InternalAudit’s eectiveness considering Cyber Security Centre (NCSC) management, Internal Audit monitor their the quality, objectivity and expertise of frameworks using external cyber implementation and report regularly to the Internal Audit function. To support the security specialists theCommittee on progress made. Committee in evaluating the eectiveness — The eectiveness of Group and of the Internal Audit function, feedback Internal Audit plan divisional procurement processes isreceived by key stakeholders including The Group’s Internal Audit plan is — Agile programme audits and from the Board, Committee, divisional and approved by the Committee, including advisory controls support of the functional management and the Executive the scope ofindividual audits which are ERP implementation Leadership Team. Following an evaluation aligned to theprincipal risks faced by the — Continuous testing of the ofthe services provided in respect of Group. The plan is continually assessed operationaleectiveness of Internal Audit, the Committee confirms against progress and any emerging risks, divisionaloperational and thatboth theprocess for determining the reflecting any amendments to the plan financialkey controls Internal Audit plan and the plan itselfare where necessary. appropriateand eective. — A review of the eectiveness of The Committee considers the internal fraudcontrols across the Group control recommendations raised by the Internal Audit independence — A review of the design ofsite close external auditor during the external audit The Committee continually reviews the procedures and the eectiveness and incorporates these recommendations independence of the Internal Audit function. ofthe sales process. into the Internal Audit plan as appropriate. Through reporting lines to the Chair of theCommittee, the Head of Internal Audit can report any impairment to objectivity or independence. The Internal Audit function also liaises with PwC, the externalauditor, discussing relevant aspects of their respective activities which ultimately supports the assurance provided to theCommittee and the Board. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 99 ### Ethical behaviours ### Speaking Up – Whistleblowing ### and safeguarding The Board is responsible for the chainpartners are encouraged to The Board and Committee are committed Group’s arrangements with regard to reportanyconcerns of malpractice tothe highest standards of ethical behaviour, whistleblowing and receives updates on in anopen and honest way. honesty and integrity in the Group’s business anymatters raised at each of its meetings. The policy notonly provides details practices. Employees andsupply chain The Committee is responsible for reviewing of a free independent helpline that partners are made aware of the Group’s the adequacy and eectiveness of the can be usedtoreport concerns but strategy and how their behaviours impact Group’s whistleblowing arrangements. also confidential support services delivery and they are expected towork thatindividuals could useif theyneed inline with theGroup’s values. The Group’s Speaking Up (whistleblowing) assistance in making a report. policy has been written in an accessible Anti-fraud and anti-bribery language to support employees and The Committee has a zero tolerance subcontractors and is made available ofbribery, corruption or fraud. In the first at allsites. Employees and supply instance of an incident being reported, asummary of the allegation is passed to the Group HR Director and the General Counsel and Company Secretary to decide on the appropriate course of actionand investigation. The findings of theinvestigation are reported to the Committee. The Group has an anti-bribery and corruption policy which all employees mustfollow and is supported by mandatory online training that employees must complete annually. Supporting policies andprocesses exist to monitor compliance and prevent bribery being committed on the Group’s behalf. As part of this, employees are required to comply with the Group’s giftsand entertainment policy which only permits employees to accept or give proportionate and reasonable hospitality for legitimate business purposes. As part oftheir audit plan, during the year our Internal Audit function reviewed our suite of bribery and corruption polices and procedures. As a result, an opportunity was identified toenhance our gifts and entertainment register process by moving them to a web-based portal which the Groupis currently developing. The Group has in place robust anti-money laundering (AML) policies, processes and oversight, supported by AML guidance andtraining availableto all divisions. The Group operates and maintains several policies and procedures which set out what is expected of employees and supply chain partners to protect themselves as well as the Group’s reputation and assets. These policies and procedures are supported by online training which employees are required to complete on aregular basis. Supply chain partners are required to agree to the Group’s Supply Chain Code of Conduct. The Committee oversees the implementation of these policies, reviews any incidents arising andtraining progress. Crest Nicholson ## 100 Annual Integrated Report 2022 ## Providing fair and appropriate remuneration across ## Remuneration ## the Group is an important part of implementing the ## Directors’ ## Group’s strategy. Taking into account all stakeholders, ## Remuneration ## the Committee carefully formulates and applies the ## Remuneration Policy throughout each year. ## Report ### Committee overview Committee members Octavia Morley Iain Ferguson CBE David Arnold Lucinda Bell Louise Hardy Remuneration Committee Chairman Non-Executive Non-Executive Non-Executive Chair Director Director Director — Reviewed the pay of Executive ### Activity during the year Committee snapshot Directors and Chairman — Reviewed and consulted with — Octavia Morley has chaired the — Determined the bonus scheme shareholdersinrelation to the 2023 Committeesince October 2017 structure for FY23 Directors’Remuneration Policy — Members of the Committee are tobeconsidered at the 2023 AGM — Reviewed 2022 AGM outcomes independentNon-Executive Directors andfeedback from shareholders | — Engaged with employees as part | | andIain Ferguson (Chairman) | | --- | --- | --- | | of settingthe2023 Directors’ | — Determined leaver terms for an | wasindependent on appointment | | Remuneration Policy | Executive Director. | | — Attendance at Committee meetings — Reviewed employee pay and benefits, issetouton page 80 and the relevant ### Looking ahead including pension Directors’ biographies canbefound — Ongoing consideration of employee — Considered and approved a one-o onpages71 pay including the currentcost-of-living costofliving payment of £1,000 — Other regular attendees at meetings challenges per employeebelowthe Executive attheinvitation of the Committee — Monitor performance of in-flight incentive LeadershipTeam(ELT) includetheChief Executive, awards during the year andconsider — Considered LTIP measures and targets Group HRDirector and General FY23 outcomes for FY23 Counsel andCompany Secretary. — Consider annual bonus and LTIP — Considered FY22 bonus scheme measures and targets for FY24 outcomesand final vesting of — Review ESG measures link to remuneration LTIP awards in context ofthe Group’s strategy. ### Introduction As the 2020Policy reaches the end of its FY22 remuneration outcomes three-year cycle in FY23 theCommittee I am pleased to introduce this Directors’ Bonus scheme reviewed the 2020 Policytaking into account Remuneration Report for the year ended (among other things) the Group strategy, In respect of the annual bonus we were 31 October 2022 which consists of the corporate governance developments, pleased that FY22 saw strong performance Annual Report on Remuneration and the institutional investor viewsand market in our key financial measures of profit growth new Remuneration Policy being proposed practice.The review concluded that and cash generation, which accounted atour AGM on 23 March 2023 (2023 Policy). our 2020 Policy is working eectively for the majority of the bonus opportunity. The Report sets out how the Committee and asaresult, after consultation with This was oset by weaker performance in hasconsidered remuneration in the context stakeholders, weareonly proposing relation to Customer Service and Quality, of the performance of the Group and minorchanges, andtheseare set out where we fell below our target of 90%, prevailing market conditions in determining laterinthe report. thelevel required to achieve five-star remuneration outcomes, andinsetting in theHome Builders Federation (HBF) I would like to thank the members of targets for FY23. Customer Satisfaction Survey. theCommittee, major shareholders and Having considered the overall pay outcomes, employees with whom we have consulted, In addition, FY22 was the first year that the Committee is satisfied that the current fortheir timeand support. we incorporated a specific performance Director’s Remuneration Policy (2020 Policy) measure to reduce scope 1 and 2 combined operated as intended during the year and emissions intensity. We are particularly remuneration is appropriate, taking into pleased that we made strong progress account incentive outcomes across the against this new measure in its first year of Group, the relativities between employees measurement for remuneration purposes. and the Executive Directors andthe wider stakeholder experience. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 101 | This has led to an overall bonus outcome | in the future, for example, in management | The Committee has reviewed the LTIP | | --- | --- | --- | | of80.1% of maximum, for Executive | succession, where we may wish to have | measures as part of the 2020 Policy review | | Directors, which the Committee considers | alower proportion for fixed pay andhigher | and proposes a slight change to the mix | | isappropriate in view of the performance | proportion for incentive pay. | of measures such that Total Shareholder | | during the year. Employee bonus schemes | | Return (TSR) will be increased from 40% to | We have updated the wording for the 2023 across the Group operated with similar 50% and ROCE will increase from 30% to Policyin relation to Executive Director measures and opportunity. 35%. We have removed EBITmargin this year, pension provision to reflect theposition recognising the significant improvement in now where both Executive Directors LTIP recent years andthe element of crossover receive a pension contribution in line The 2020 LTIP award measured performance with return on capital employed (ROCE). with the contribution paidto the majority over the three financial years FY20-FY22, This is replaced by a long term ESG of the workforce (currently 6% of salary). assummarised below: measure (15%) that will incentivise further The ChiefExecutive’s pension reduced Target range reductions inscope1and 2 emissions from 10% to6%of base salary from (to be achieved by FY25. This directly relates to our 1 January 2023. in FY22) Performance Vesting sustainability strategy and Science Based We have also made minor changes in 1 Targets, as well as being a measure linked EPS 48.9–52.3 42.0 0.0% out relation to the structure of annual bonus pence pence of 40.0% to our Sustainability Linked Revolving deferral and Committee discretion in Credit Facility. ROCE 19.3%–23.3% 22.5% 34.1% out relationto the LTIP. Further details can be of 40.0% We intend to grant awards to Executive found in the Policy section of this report | | 2 | | | | Director at 150% of salary as in prior years, | | --- | --- | --- | --- | --- | --- | | EBIT | | 14.2%–15.2% 15.4% 20.0% out | | onpage 105. | | | | | | of 20.0% | | but the Committee will review this decision | | | | | | FY23 remuneration approach | inlight of the prevailing share priceat | Total 54.1% out of 100.0% the date of grant. Alternatively we would For FY23 we propose to make minimal consider a potential scale-back at the changes to the measures, and again 1 Adjusted Earnings per Share (EPS). time of vesting. ensuringthat all variable pay is subject 2 Adjusted EBIT margin. to stretching performance targets linked ### The Committee considers that this outturn Renewal of LTIP totheGroup strategy and outlook. | is an appropriate reflection of performance | | and SAYE Schemes | | --- | --- | --- | | over the three years and discretion has | Salary | Our existing Long Term Incentive Plan | | notbeen used to adjust the outcome. | In light of the cost of living challenges | (LTIP)and Save-As-You-Earn (Sharesave) | | In addition, it was noted that awards were | being faced byall employees, we have | Schemes have a 10 year cycle and expire | | granted in February 2020 at a higher share | considered wider employee pay through | inFebruary 2023. Accordingly, shareholder | | price than at vesting, and as such, there is | the year. Where appropriate, the Group has | approval isbeing sought to renew these | | no windfall gain. | supported employees with salary increases. | schemes for a further 10 years. In respect | | | This has led to an annual workforce average | of Executive Directors, both schemes will | Board changes increase of 6.4% and, following careful beoperated inline with the prevailing During the year, the Board and Tom consideration, we have applied a lower Directors’ Remuneration Policy. Nicholson agreed that it was the appropriate increase of 5% to the Executive Directors. ### time for Tom to leave the Group and Employee pay This remains below the current rate of Tom stepped down from the Board on A significant focus area for the Committee inflation and also reflects the increase in 27 May 2022. The Board recognises Tom’s during the year has been the operation responsibilities for both Executive Directors contribution tothe successful delivery of of employee pay across the Group and following the departure of Tom Nicholson. the Group’s turnaround and thanks him for specifically the increased cost of living In addition, the annual bonus and LTIP his hard work and dedication during this andthe levels of employee turnover. opportunities are below our assessment period. The Committee exercised discretion of midmarket levels, which results overall As part of our response to this, the to treat Tom as a good leaver. Details of in their packages remaining broadly in Committeeapproved a one-o payment his remuneration for FY22and treatment line with the market. An increase of 3% of£1,000 in July 2022 to all employees ofhisoutstanding incentive awards are has been agreed for the Chairman, and below the ELT. detailed later in this report onpage 115. the Board agreed a 3% increase for Non- In addition, the Group has looked closely Executive Directors. | New Remuneration Policy | | atbase salary levels through the year | | --- | --- | --- | | Our 2020 Policy reaches theend of its | Annual bonus | and atthe annual review to ensure that | | three year cycle at the 2023 AGM and we | | they remain appropriately benchmarked | The annual bonus opportunity will therefore seek shareholders’ approval for to ourdesired market positioning and remain unchanged, based again on 50% the 2023 Policy. The Committee undertook whererequired, salary levels were adjusted. forprofit and 20% for cash flow measures. | a thorough review, noting that the 2020 | Customer Service and Quality will remain | The Group pays salaries above thereal | | --- | --- | --- | | Policy has accommodated the significant | but increases to a 15% weighting. The ESG | Living Wage (otherthan for apprentices | | challenges faced by the Group through the | measures this year will consist of 7.5% | who are covered by other wage rates). | | COVID-19 pandemic, as well as management | for waste reduction and 7.5% for further | Inaddition, the Group is taking steps to | | changes over the period. Overall, taking | targeted reduction inemployee turnover. | become formally accredited by the real | | into account that there have been relatively | | Living Wage Foundation during FY23. | | few external drivers for change, we propose | LTIP | | We also reviewed our levels ofpension that the 2020 Policy, and its operation, We remain committed to our long term contribution where theworkforce average onlyneedminor adjustments. carbon emissions goals (that we discuss is 6% of salary. We considered whether more fully on pages 26–29) and such The principal change is to increase Policy any employer increase was appropriate a measure will now be part of our long headroom for annual bonus from 125% but concluded that, at the current time, term incentive for FY23. These combined to 150% of salary and LTIP awards from there should beaconcentration of the measures continue to aligntothe 150% of salary (or 200% in exceptional available budgetary spend toward base strategy ofthe Group aswell as meeting circumstances) to 200% of salary in all salary increases. the Committee’s priorityfor simplicity circumstances. While there is currently no The Group has made furthersalary and transparency. intention toincrease the current levels of increases in FY22 across the workforce annual bonus and LTIP opportunities beyond reflecting changes to market rates. 125%and 150% of salary respectively, these are below our assessment ofmarket levels. This additional headroom may be useful Crest Nicholson ## 102 Annual Integrated Report 2022 ## Directors’ Remuneration ## Report continued ### Combustible materials I continue to remain available to We hope that you will be able to shareholders to discuss remuneration supporttheresolutions approving With respect to the Group’s ongoing matters. thenew2023Policy, the advisory work to remediate buildings where fire voteonthe Directors’ Remuneration safety concerns have been identified, As part of the annual Board evaluation Reportas well asthe resolutions theCommittee has carefully monitored the whichwas internally facilitated the torenewour share schemes. operation of incentive schemes during the Committee’s performance was considered year. Specifically, the Committee focused and it was concluded that the Committee on ensuring that no measure acted as continues to work eectively. Octavia Morley any incentive not to progress all remedial Details of how we have applied the Remuneration Committee Chair solutions (as well as incurring associated relevant requirements of the UK costs) asquickly as possible. Corporate Governance Code 2018 The Committee was prepared to make (Code) can befoundthroughout this adjustments to outcomes should Remuneration Report. this havebeen necessary. No such ### Concluding remarks adjustmentswere required. I would like to thank our shareholders | Committee eectiveness | fortheir ongoing support on our | | --- | --- | | andengagement | approachto remuneration. | | We undertook engagement activity with | We believe that the minor changes | | ourinstitutional shareholders in FY22 | proposedtothe 2020 Policy provide | | withrespect to remuneration matters | someflexibility for future operation | | andour proposed 2023 Policy. | andareprudent in the circumstances. | | We received no negative feedback | We will continue to ensure that our | | about pay outcomes for FY22. | remuneration approach aligns to | | Shareholders provided feedback with | our strategy and that all measures | | respect to our draft 2023 Policy allof | will be subject to the achievement | | which has been carefully considered, | ofstretching targets. | andwhere appropriate, reflected in thefinal2023 Policy. The full terms of reference for theCommittee can be found at www.crestnicholson.com/investors/ corporate-governance ### Alignment with strategy – FY22 performance Link to strategy Performance Annual bonus Threshold Stretch | Adjusted profit before tax (50%) | 3 | 5 | 9 | | £137.8m | | | --- | --- | --- | --- | --- | --- | --- | | Net cash (20%) | 2 | 3 | 5 | 9 | £276.5.m | | | | 3 | 7 | | | | 1 | | Carbon reduction (10%) | | | | | 1.82 | | | Customer service and quality (10%) | 1 | 4 | | | 88.0% | | | Voluntary employee turnover (5%) | 6 | | | | 27.4% | | | Employee engagement (5%) | 6 | | | | 83% | | | SHE leadership (-10%) | 8 | | | | | | LTIP | Adjusted EPS (40%) | 3 | 5 | 9 | | 42 pence | | --- | --- | --- | --- | --- | --- | | ROCE – FY22 (40%) | 2 | 3 | 5 | 9 | 22.5% | | Adjusted EBIT Margin – FY22 (20%) | 3 | 5 | 9 | | 15.4% | Strategic foundations and priorities 69 | | | 1 | | 1 Placemaking & Quality | 4 Five-Star Customer Service | 7 Sustainability & Social Value | | --- | --- | --- | --- | --- | --- | --- | | | 5 | | 2 | | | | | | | | | 2 Land Portfolio | 5 Multi Channel Approach | 8 Safety, Health & Environment (SHE) | | | 4 | | 3 | | | | | 8 7 | | | | 3 Operational Eciency | 6 People | 9 Financial Targets | 1 tCO 2 e/100 sq.m of completed floor area. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 103 ## Remuneration ## at a glance Remuneration Peter Truscott Duncan Cooper in FY22 Total pay 1. Fixed £757,474 1. Fixed £419,026 (single figure) 2. Variable £998,621 2. Variable £514,633 Details on 3. Total pay £1,756,095 3. Total pay £933,659 page 111 1 1 FY22 outcomes FY22 Performance scenarios FY22 Performance scenarios vs performance scenarios £420,872 Fixed remuneration Bonus and LTIP £918,294 £1,454,735 £933,659 1 Each Directors’ Remuneration Report contains performance scenario graphs for the following year. The scenario graphs presented here are those previously published on page 113 of the Annual Integrated Report 2021. 2022 LTIP Awarded 150% salary Awarded 150% salary Details on Subject to the achievement of performance conditions Subject to the achievement of performance conditions page 113 FY22 annual £670,036 £376,251 bonus outcome 100.1% salary from a maximum 125% salary 100.1% salary from a maximum 125% salary Details on page 112 FY20 LTIP £328,586 £138,383 outcome 54.1% of the award vested 54.1% of the award vested Details on page 113 Shareholding Details on page 114 Progress towards holding requirement Balance to achieve 200% shareholding requirement Remuneration for FY23 | 2023 LTIP | Award of 150% salary Performance measures | | | --- | --- | --- | | Details on | | TSR 50% | | page 121 | | ROCE 35% | ESG 15% FY23 annual Peter Truscott 1 Financial 70% bonus Maximum 125% salary Details on Adjusted operating profit before tax 50% Duncan Cooper page 120 Net cash 20% Maximum 125% salary 2 Non-financial 30% 1 Customer service and quality 15% Waste reduction 7.5% Reduction in voluntary employee turnover 7.5% SHE Leadership up to -10% Our employees | | Details on | Sharesave participation across all plans | Employee engagement | | --- | --- | --- | --- | | | page 118 | | Louise Hardy, Non-Executive Director responsible | | Expected minimum performance Expected minimum performance | | | foremployeeengagement, and Committee Chair, | ## 49% | | | £760,635 | OctaviaMorley, discussed the proposed 2023 | | --- | --- | --- | --- | | | % of employees in a bonus plan | | Policyandtheapplication of remuneration across | | Expected on-target performance Expected on-target performance | | | | the Group at Employee Voice events during the year. 2 £1,681,198 The outcome of thesediscussions has been considered ## 97% bythe Committee aspart of its decisions in the year. Expected maximum performance Expected maximum performance £2,601,760 | FY22 Actual performance FY22 Actual performance | | --- | | Total pay (Single Figure) FY22 Total pay (Single Figure) FY22 | | 137.1% 62.9% 31.9% 168.1% | £1,756,095 104 Crest Nicholson Annual Integrated Report 2022 # Directors' Remuneration Policy ## 2023 Policy The Directors' Remuneration Policy in force from time to time, sets the overall framework for the remuneration of the Directors of the Group and is designed to attract, retain and incentivise our Executive Directors in such a way as to promote the long-term success of Crest Nicholson and be aligned with our shareholders' and other stakeholders' interests. Simplicity and transparency are also key. Subject to shareholder approval, the 2023 Policy which follows, will apply from the date of the 2023 AGM for a period of three years, unless changes to the 2023 Policy are required earlier. All remuneration payments and payments for loss of office must be consistent with the terms of the Policy in place at that time. If the Group wishes to make a payment which is not consistent with a policy, it must seek shareholder approval for an amendment to the prevailing policy before the payment can be made. ## Decision-making process for determination, review and implementation of the 2023 Policy The 2023 Policy was developed by the Committee taking into account: - clear alignment with financial and operational performance as well as the Group's strategy, purpose, values and KPIs - changes in institutional views and the broader corporate governance environment - alternative structures such as restricted shares - the remuneration arrangements, policies and practices for the workforce throughout the Group - promotion of high levels of Executive Director share ownership to align the interests of shareholders and Executive Directors - the importance of attracting, retaining and incentivising high-calibre Executives. The Committee communicated details of the revised 2023 Policy to major shareholders and employees in consultation exercises held during the financial year. The Committee also took into account the views of management and its independent remuneration consultants but no individual was involved in discussions about their own remuneration. In considering the use of restricted shares, the Committee concluded that the existing LTIP structure with specific performance conditions provided a stronger link to the strategy than alternative structures. The Committee will continue to consult with shareholders where there is a material change proposed in the way in which we operate our Policy throughout the Policy period to ensure their views are taken into account. The implementation of the Policy is considered annually by the Committee for the year ahead in light of the strategic priorities while incentive targets are also reviewed to check if they remain appropriate or need to be recalibrated. | Alignment of the proposed 2023 Policy with the UK Corporate Governance Code 2018 | | | --- | --- | | **Charity** Remuneration arrangements should be transparent and promote effective engagement with shareholders and workforce. | — The Policy is clear and is described in straightforward concise terms. | | **Simplicity** Remuneration structures should avoid complexity and their rationale and operation should be easy to understand. | — Remuneration structures are as simple as possible and market typical, while at the same time structured to ensure a strong alignment to performance, strategy and minimising the risk of rewarding failure. | | **Risk** Remuneration arrangements should minimise reputational and other risks from excessive rewards. Behavioural risks that can arise from target-based incentive plans, are identified and mitigated. | — The Policy has been designed to discourage inappropriate risk taking through: — A weighting of incentive pay towards long-term incentives — The balance between financial and non-financial measures — A significant portion of the annual bonus being paid in shares, the presence of recovery provisions, as well as in-employment and post-employment shareholding requirements. | | **Productability** The range of possible values of rewards to individual directors and any other limits or discretions should be identified and explained at the time of approving the policy. | — The annual bonus and LTIP awards are subject to caps and plan dilution limits. Examples of how remuneration varies depending on performance are set out in the scenario charts on page 110 — The Committee may exercise its discretion to adjust Executive Directors' remuneration if a formula-driven incentive pay-out is inappropriate in the circumstances — Outcomes will not reward poor performance. | | **Proportionality** The link between individual awards, the delivery of strategy and the long-term performance of the company should be clear. Outcomes should not reward poor performance. | — There is a broadly equal balance between fixed pay and variable pay at a target level of performance. | | **Alignment with culture** Incentive schemes should drive behaviours consistent with company purpose, values and strategy. | — The Committee considers the Group's culture alongside employee policies across the Group when developing and implementing Executive Director remuneration policies. There is a constant focus on the appropriateness and fairness of remuneration structure and outcomes throughout the Group and its workforce. | Strategic^{}[] Report Governance and^{}[] Directors' Report Financial^{}[] Statements Crest Nicholson^{}[] Annual Integrated Report 2022 105 The changes to the Policy approved in 2020 are set out below: | | Proposed change | Rationale | | --- | --- | --- | | **Variable pay** | Limit for annual bonus increased from 125% to 150% of salary. Maximum award for LTIP simplified from 150% of salary, or 200% of salary in exceptional circumstances to 200% of salary in all cases. | This will provide additional flexibility over the 2023 Policy period. There is no current intention to vary the limits for current Directors' annual bonus or LTIP (they will remain at 125% and 150% respectively for FY23). However, the flexibility may be required in the future, for example for management succession where we may wish to have a lower proportion for fixed pay and higher proportion for incentive pay. Any use of higher award limits will be disclosed and explained in the following Directors' Remuneration Report. | | **Bonus deferral** | Currently, one-third of a bonus earned by Executive Directors is deferred as share award under the Deferred Bonus Plan. Each award vests after three years subject to service and shares are delivered at the end of this period. Instead, one third of the total annual bonus net of tax, national insurance and other statutory deductions will be delivered in shares immediately, subject to a holding period of three years (Deferred Shares). Deferred Shares would continue to be subject to the holding period after cessation of employment and clawback and malus provisions will continue to apply in the same way as the existing arrangements. Deferred Shares will receive the dividends paid by the Company from time to time. | Immediate delivery of the shares provides a greater alignment with the interests of shareholders and is a simpler approach. The Group will have in place an appropriate mechanism to ensure that shares subject to the holding period, are under its control. | | **LTIP vesting** | The Committee currently has the flexibility to use its discretion to reduce the value of an LTIP award at the time of vesting. This flexibility will be broadened to allow the Committee to also use discretion to increase or decrease the value of an LTIP award on vesting. | This will bring this aspect of the LTIP in line with market practice and be consistent with the annual bonus plan. Discretion will continue to be used carefully and with full rationale given in the following Directors' Remuneration Report. | | **Pension** | The section covering pensions has been simplified to reflect the position on 1 January 2023 whereby all Executive Director pension contributions are in line with the contribution applying to the majority of the workforce (currently 6% of salary). | Transitional arrangements for the Chief Executive are no longer required and have been removed. | | **Payment of NED fees in shares** | Allow the option to pay some or all of a Non-Executive Director's fees in shares. | Although the Company has no current intention to do so, it is aware that the Government has stated that it wishes to see this reform. The Committee considers it prudent to add this ability to the 2023 Policy to give this flexibility should market practice develop in this way. | #### Statement of consideration of shareholder views As part of developing the 2023 Policy, the Committee consulted with its major shareholders and noted that the majority of feedback was positive. The feedback received was taken into account in the formulation of the 2023 Policy and the new Long Term Incentive Plan rules. In particular the individual limit in exceptional circumstances in the LTIP rules was reduced from 300% to 200% of salary, following feedback. In considering the operation of the Policy, the Committee takes into account the published remuneration guidelines and specific views of shareholders and proxy voting agencies. The Committee consults with the Company's major shareholders, where considered appropriate, regarding changes to the operation of the 2023 Policy and when the 2023 Policy is being reviewed and brought to shareholders for approval. The Committee considers specific concerns or matters raised at any time by shareholders. In addition, the Chair of the Committee regularly participates in governance meetings with the Company Chairman, offered to larger institutional shareholders normally on an annual basis. #### Engagement on Executive Director remuneration and the Directors' Remuneration Policy At the Employee Voice Forum (Forum) led by Louise Hardy, Non-Executive Director responsible for employee engagement during late September and early October 2022, the Chair of the Committee attended and engaged with Forum members on remuneration matters. During the course of the presentation, Octavia Morley covered such matters as the remit of the Committee, the Committee's approach to reward and how it seeks to achieve the right balance in remuneration decisions. A table showing how the reward package cascaded across the Group was shared and a more detailed discussion was held on how the variable reward plans and their measures are developed. As part of this, the draft 2023 Policy was discussed and feedback sought on how culture should be taken into account when setting pay, whether employees understood their bonus schemes or had ideas on other measures that could be used and whether employees had any concerns about the 2023 Policy. In general, the Forum attendees were supportive of the 2023 Policy and thought it was transparent and fair. However, they agreed more could be done to assist with understanding how their own annual bonus schemes were tracking during the year. Crest Nicholson ## 106 Annual Integrated Report 2022 ## Directors’ Remuneration ## Policy continued ### Remuneration Policy table This section sets out the 2023 Policy that will guide the Remuneration Committee’s decision-making process inthearea of Executive Director remuneration. This can also be found at www.crestnicholson.com/investors/results-centre. The 2020 Policy was approved at the Company’s AGM on 24 March 2020 and has reached the end of its three-year cycle. Subject to receiving shareholder approval at the Company’s AGM in March 2023, the new Policy, set out below, will replace thecurrent Policy – eective from the date of the 2023 AGM for a period of up to three years. Element and link to strategy Operation (including maximum opportunity) Base salary for Salaries are normally reviewed annually, or when there is a change in position or responsibility, Executive Directors taking into account: Recognises individual — Personal and Group performance experience, responsibility — Salary increase received by the wider workforce andperformance. — Inflation and earnings forecasts Provides an appropriate — External marketplace comparisons. leveloffixed pay without Base salary is set with reference to similar roles in a group of UK housebuilders and other listed over-reliance on variable pay. companiesmore widely. Essential to recruit, incentivise The exact positioning of salary depends on a variety of factors, including: andretain the best people — The specific nature of the role and responsibility (particularly where this is not directly comparable in the market to execute to roles outside the Group) theGroup’s strategy. — Individual experience and performance — Cost of living increases and inflation — Group performance — Relativities to other Group employees — Market practice among other UK housebuilders. A new Director may be appointed at a salary less than the prevailing market rate but which may increase over a period to the desired positioning, subject to satisfactory performance. While the Committee is guided by increases applied to employees in general, it retains discretion to applyan above-employee increase to a Director’s salary. This may occur, for example, should there be achange in: the scope of an individual’s role, the complexity of the business or market, or the size or valueofthe business that the Committee believes justifies a further adjustment of salary. Performance framework The Committee considers and sets appropriate individual Director salary levels annually having regard to the factors noted in this element of the Policy. Salary is not linked to specific financial or non-financial performance measures. Fees for Non-Executive Non-Executive Directors’ fees are paid in cash and/or shares and are not performance related. Directors Fees are reviewed annually and set taking into consideration the time commitment and responsibilities Remunerates appropriately ofthe role, the sector and market practice. based on individual experience, Fees are determined and approved by the Board upon a recommendation from the Executive Directors. time commitment and The Chairman’s fee is set by the Committee. No Director is involved in setting his or her own fee. responsibilities. Additional fees may be payable in relation to extra responsibilities or time commitments undertaken, forexample chairing a Board Committee and/or holding the position of Senior Independent Director. Any reasonable expenses incurred in carrying out duties will be fully reimbursed by the Company includingany personal taxation associated with such expenses. Benefits A range of benefits are provided, including but not limited to: Provides a competitive level — Family private medical insurance ofbenefits and encourages — Company car or car allowance thewellbeing and engagement — Income protection ofour people. — Personal accident insurance — Life assurance — Annual health check — Holiday and sick pay. The cost of these benefits varies over time depending on their cost in the market and individual circumstances. Directors who are required to move for a business reason may, where appropriate, be provided with relocation assistance. Where the Group oers a flexible benefits approach to employees generally (where the value of one benefit may be exchanged for another), a Director would also have the option to do so. Other benefits inline with those received by employees generally may also be oered at the discretion of the Committee, suchas long service awards or recognition of life events. The Group may also operate all-employee share incentive plans including Sharesave (SAYE), Share Incentive Plan (SIP) and other HMRC tax-approved all-employee schemes. Directors may participate inthese on the same terms as other employees. As a general principle, benefits are not provided to Non-Executive Directors. However, there may be exceptional circumstances under which the Group provides a benefit, for example private medical cover, either with or without their meeting the cost (at the Group’s negotiated rate). Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 107 Element and link to strategy Operation (including maximum opportunity) Pension Executive Directors may participate in the Crest Nicholson defined contribution pension scheme or, wheredeemed appropriate, receive cash in lieu of all or some of such benefit. Provides retirement planning and protection to employees A contribution will be payable in line with the pension contribution available to the majority of the workforce, and their family during their currently 6% of salary. working life. Annual bonus The maximum bonus opportunity is capped at 150% of salary for Executive Directors, with on-target performance receiving 50% of maximum and up to 25% of the maximum payable for threshold performance. Incentivises and rewards individuals to execute — Two-thirds of the bonus is paid in cash theGroup’s strategy and — One-third of the bonus is paid in shares (post tax, national insurance and other statutory deductions) achieve objectives linked andsubject to a holding period of three years (Deferred Shares). to its strategic priorities Annual bonus is non-pensionable. andfoundations. Deferred Shares will receive the dividends paid by the Company from time to time. Deferred element encourages longer-term shareholding Performance framework andlinks part of annual bonus At least half of the bonus will be linked to one or more financial metrics with the remainder linked to payment to the further non-financial metrics, normally measured over a period of one financial year. Non-financial metrics will successof the Group and be based on relevant operational, business, ESG or personalobjectives. The specific performance targets stakeholder and shareholder are set withthe aim of setting stretching targets which incentivise and reward improved performance. interests. The Committee may, in exceptional circumstances, use its discretion to amend the bonus outcome ifit believes that it does not properly reflect overall underlying business performance, an individual’s contribution or some other factor. The bonus (cash and Deferred Shares) is subject to recovery provisions for three years from the date of payment in the event of serious misconduct, corporate failure, material misstatement of financial statements, material failure of risk management, material breach of health and safety or environmental regulations, serious reputational damage arising from misconduct, error in calculation, or events that are similar in natureor outcome to those above. Repayments may be made through a reduction in future bonus or share awards on vesting, or by directrepayment. Long-Term Incentive Plan (LTIP) LTIP awards will take the form of nil-cost options or conditional share awards. LTIP awards normally veston the third anniversary of grant subject to achievement of performance measures and (other than Incentivises long-term ingoodleaver situations) provided the Director remains in oce with the Company. shareholder value creation andexecution of the strategy Award levels will be at a maximum of 200% of salary. over the longer term. Amounts equivalent to any dividends or shareholder distributions made during the vesting period Drives and rewards maybeawarded in respect of vested or exercisable LTIP awards, normally in the form of shares. achievementof key long-term A two-year post-vesting holding period will apply to all vested LTIP awards. Group objectives aligned with the strategy and with Performance framework shareholder interests. Awards will be subject to challenging performance conditions in line with the Group’s strategy (includingESG measures) and Total Shareholder Return (TSR) and will be measured normally by reference Contributes to building a toathree-year performance period. A maximum of 25% of each element vests for achieving the meaningful shareholding thresholdperformance target. byaligning interests with widershareholders. The Committee intends to use TSR (50%), ROCE (35%) and ESG (15%) for new awards and the range of metrics over the policy period is expected to remain consistent, though the Committee reserves discretion tochange these metrics. The Committee will review the measures, their relative weightings and targets prior to each award and may make changes as is deemed appropriate. The Committee reviews the measures, their relative weightings and targets prior to each award and makes changes as are deemed appropriate. The Committee may, in exceptional circumstances, use its discretion to adjust the level of vesting of LTIP awards if it believes it does not properly reflect overall underlying business performance, shareholders’ experience, an individual’s contribution or any combination thereof. LTIP awards are subject to clawback and malus at the Committee’s discretion in the event of material misstatement of financial statements, material failure of risk management, corporate failure, material breachof health and safety or environmental regulations, serious reputational damage arising from misconduct, serious misconduct, error in calculation, or events that are similar in nature or outcome tothoseset out above. Clawback and malus applies if such an event occurs within three years of an award vesting or, in the caseofan option, when it first becomes exercisable. Repayments may be made through a reduction infuture bonus or share awards on vesting, or by direct repayment. Minimum shareholding Executive Directors are expected to build up and retain a significant shareholding equivalent to at least requirement 200% of their base salary. Encourages long-term Executive Directors are required to retain 50% of vested deferred bonus/shares and LTIP awards after commitment and alignment saleofshares for tax, national insurance or other statutory deductions until the requirement is met. withshareholder interests. Post-service requirement An Executive Director shall continue to hold shares equivalent to 200% of their base salary for a period of two years following termination of their employment. If an Executive Director holds less than 200% of their base salary at the date of cessation, they must continue to hold that lower level for the same period oftwo years. Shares purchased by an Executive Director from their own funds will not be required to be held. The Committee may, in exceptional circumstances, exercise its discretion to adjust the holding requirement. Crest Nicholson ## 108 Annual Integrated Report 2022 ## Directors’ Remuneration ## Policy continued ### Remuneration policy for other employees The 2023 Policy described in the previous table applies specifically to the Company’s Executive Directors and Non-Executive Directors. The Committee believes that it is appropriate that the reward of the Group’s senior management be linked to Group performance andaligned with the growth of shareholder value. The same remuneration and benefits framework is operated across the Group: Area Policy and operation Salary The Policy applied to Executive Directors is applied in the same way to the wider workforce. Benefits The Policy applied to Executive Directors is applied in the same way to the wider workforce. Certainbenefits apply at higher levels based on seniority, relate to specific roles or have shorter ornowaiting periods. Annual bonus Annual bonus schemes operate throughout the Group at all levels of seniority. Performance targets and theamount which can be earned are based on seniority and the nature of the role and responsibilities. Long-Term Incentive Plan Share-based long-term incentive arrangements also apply to senior management at areduced opportunity level commensurate with the seniority and level of responsibility of participants. SAYE All eligible employees are invited to participate in the Crest Nicholson Sharesave scheme or any other all-employee scheme operated by the Company. When making remuneration decisions for Executive Directors, the Committee considers the wider economic environment and conditions withinthe Group. In particular, the Committee is sensitive to pay and employment conditions across the wider workforce and carefully considers the employee salary increase budget when making reward decisions for Directors. The Committee considers industry benchmarking in the context of monitoring its overall position on Director and employee pay. ### Approach to recruitment remuneration The table below sets out the components that would be considered for inclusion in the remuneration package of an Executive Director onappointment, and the approach the Committee will adopt in respect of each element. Area Policy and operation Overall For an external appointment, the Committee will take account of an individual’s remuneration package intheir prior role, the market positioning of the package and their skills and experience. The Committee willnot pay more than necessary to facilitate the recruitment of an individual. For an internal appointment, the Committee may initially position remuneration below market level and increase overall pay levels over a period of time to achieve alignment with market levels for the role, subject to Group and individual performance. Base salary Salary level will be set taking into account the skills and experience of the individual, responsibilities of therole and salaries paid for similar roles in comparable organisations. The direct comparability or otherwise of those other roles will be a material factor. Pension and benefits Directors will be eligible to participate in Crest Nicholson’s benefit plans and the Crest Nicholson defined contribution pension scheme or salary supplement scheme in accordance with the Policy set out in the Policy table. Annual bonus Directors will be eligible to participate in the discretionary annual bonus scheme as set out in the Policytable. Depending on the timing of the appointment, the Committee may deem it appropriate to set dierent annual bonus performance conditions to the current Executive Directors in the first performance year ofappointment. Long-Term Incentive Plan An Executive Director will be eligible to participate in the LTIP set out in the Policy table. The opportunity levels will be consistent with what is disclosed in the Policy table. An LTIP award may be made shortly following an appointment. Replacement awards The Committee may grant an Executive Director replacement awards to compensate for forfeited remuneration (including bonus and long-term incentive awards) from previous employment. Should replacement awards be made, the awards granted would be no more generous in terms of quantum or vesting period than the awards due to be forfeited. In determining the quantum and structure of these commitments, the Committee will seek to replicate the fair value of the award and, as far as is practical, the timing and performance of the remuneration foregone. For an internal appointment, any variable pay element awarded in respect of their prior role may be permitted to pay out according to its terms. Other The Committee may agree that the Group will meet certain relocation or other transitional expenses deemed appropriate. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 109 ### Service contracts and policy on payment for loss of oce For Executive Directors, nine months’ notice of termination is required from either party and this will be the approach for all new appointments. The table below sets out the Committee’s policy on termination arrangements for Executive Directors. References to good or bad leavers beloware examples of how the Policy could work and are not definitive: Area Policy and operation Overall Because terminations do not always fit neatly into defined categories, when considering the suitable treatment of a termination, the Committee will have regard to all relevant facts and circumstances availableat the time including the reason, contractual obligations and incentive plan rules. The Committee is firmly set against rewarding failure. The Committee retains discretion for payments to be made in good faith in relation to very specific legal circumstances, such as the discharge of an existing legal obligation in respect of salary, benefits and other contractual entitlements, damages for breach ofobligation and a settlement or compromise of any claim or potential claim arising with the termination of a person’s oce or employment. In any event the Committee will only make such payments where itconsiders it to be in the best interests of the Group and its shareholders, with full disclosure of any suchpayments in the following year’s Directors’ Remuneration Report. Contractual payments Crest Nicholson may terminate service contracts immediately by making a payment in lieu of notice consisting of base salary, pension and any contractual benefits for the unexpired period of notice. This payment may be made as either a lump sum or as instalments over the period. If Crest Nicholson elects to make this payment by instalments, the Executive Director normally has a duty to seek alternative employment and, where practical, any remuneration received from a new role will be oset against the payment. Annual bonus In the event of termination for a reason other than resignation or gross misconduct for material performance or conduct concerns, a Director may be entitled, at the discretion of the Committee, to a bonus in respect of the year in which their employment terminates. Payment would be reduced on a pro rata basis to reflect the portion of the bonus year worked, be paid atthe usual time and be subject to an assessment of performance over the period. For any bonus payable in shares, these shares will normally continue to be subject to the holding period post cessation of employment. In relation to Deferred Bonus Awards made in or prior to 2023, if an individual is categorised as a good leaver then, other than in exceptional circumstances, they will continue to hold the deferred share award, which will vest on the normal vesting date. If an individual is considered by the Committee to be a bad leaver, their deferred share awards will lapse in full. Good leavers are those leaving under pre-determined circumstances such as retirement (proved to the satisfaction of the Board), redundancy, ill-health, death or disability (proved to the satisfaction of the Board), or those deemed by the Board in its absolute discretion to be good leavers given the circumstances surrounding termination. All other leavers would be bad leavers. Long-term incentives Individuals would be defined as good or bad leavers, with good leavers being those leaving under pre-determined circumstances such as retirement (proved to the satisfaction of the Board), redundancy, ill-health, death or disability (proved to the satisfaction of the Board), or those deemed by the Board in its absolute discretion to be good leavers given the circumstances surrounding termination. All other leavers would be bad leavers. If an individual is categorised as a good leaver then, other than in exceptional circumstances, the award willvest on the normal vesting date reflecting the extent to which performance targets have been met. Thenumber of shares would normally reflect the reduced service period, pro rata, and any amounts equivalent to any dividends or shareholder distributions made during the vesting period. Thepost-vesting holding period would also apply, other than in exceptional circumstances. If an individual is determined to be a bad leaver, their awards will lapse in full. Shareholding requirements The Committee would enforce the post cessation of employment shareholding requirements, as described in the Policy. Other The Committee may provide for outplacement services where it considers that this is reasonable. 110 Crest Nicholson Annual Integrated Report 2022 # Directors' Remuneration # Policy continued # Performance conditions and target setting Performance metrics for incentives, weightings and targets are considered annually for the year ahead. The Committee considers the application of the prevailing policy in the prior year and whether in light of the strategy, market practice or the remuneration policy for the wider workforce, changes are required for the year ahead. Targets for the annual bonus and LTIP awards are also reviewed and consideration is given as to whether these remain appropriate or need to be recalibrated. The specific performance targets seek to be stretching to incentivise and reward improved performance. Shareholders' views will be sought depending on the changes proposed. # Illustration of application of Policy in FY23 The composition and structure of the remuneration package for Executive Directors in three performance scenarios is set out in the chart below: ![img-3.jpeg](img-3.jpeg) Key and assumptions Minimum: fixed remuneration consisting of current annualised salary, pension (plan contribution or cash supplement) and benefits. Target: fixed remuneration as detailed above, plus 50% of maximum as target bonus opportunity, and vesting of 50% of the maximum LTIP award. Maximum: fixed remuneration together with the maximum annual bonus opportunity of 125% and vesting of 100% of LTIP award representing 150% of salary. The graph also shows what would happen should Crest Nicholson's share price increase by 50%, increasing the value of LTIP awards. Other than illustrating 50% share price growth, share price movement and dividend accrual are excluded. # Legacy arrangements For the avoidance of doubt, authority is given to the Committee to honour any commitments entered into with current or former Directors under a previous shareholder-approved remuneration policy that has been disclosed to shareholders in previous remuneration reports. # How the Committee will use its discretion Incentive plans will be operated in line with the rules of each plan, together with relevant laws and regulations. However, it is important that the Committee retains appropriate discretion (as is customary) over the administration and operation of incentive plans. Discretion includes, but is not limited to, the following in relation to incentive schemes: - Changes or adjustments required in certain circumstances (e.g. change of control, rights issues, special corporate or dividend events, or change in business strategy) - Determination of vesting (or payment) and the treatment of leavers and vesting for leavers - As permitted by HMRC and other regulations, in respect of SAYE, SIP or any other all-employee schemes. In relation to incentive schemes including annual bonus and LTIP, the Committee may adjust performance targets and/or measures where these have ceased to be appropriate. Such adjusted targets or measures will not be materially less difficult to satisfy. Any use of this discretion would, where relevant, be explained in future Directors' Remuneration Reports and may be subject to consultation with major shareholders where appropriate. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 111 ## Annual Report ## on Remuneration The information in this Report is audited where this is indicated, and otherwise unaudited. The table below sets out FY22 remuneration for Executive Directors and Non-Executive Directors. ### FY22 remuneration payable to Directors (audited) | | | | | | | | | Retirement | | | | Total | | Total | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 | | | 2 | | | 3 | | | | 4 | | | | | | | Salary | | Benefits | | | Bonus | LTIPs | | | benefits | | | pay | fixed pay | | variable pay | | | £000 | | | £000 | | £000 | £000 | | | | £000 | | £000 | | £000 | | £000 | 2022 666 25 670 329 67 1,757 758 999 Peter Truscott 2021 650 24 683 – 65 1,422 739 683 2022 374 22 376 138 22 932 418 514 Duncan Cooper 2021 365 22 384 – 22 793 409 384 Former Director 2022 219 12 220 142 13 606 244 362 5 Tom Nicholson 2021 374 21 393 – 22 810 417 393 1 Salary: Where salaries are adjusted for benefits which are provided via salary exchange, such salaries are quoted as the gross figure disregarding the eect of salary exchange. 2 Benefits: The figure shown includes the value of car benefit, private medical insurance, group income protection, personal accident, life assurance and an annual health check. 3 LTI Ps: This figure includes the value of additional shares awarded in respect of dividend equivalents and has been estimated based on the average share price of 224.2 pence over the three months from 1 August 2022 to 31 October 2022 as these awards are notexercisable until after the date of this report. These estimated figures will be restated for the actualshare price on the date they first become exercisable in next year’s report. 4 Retirement benefits: Salary supplement of 10% (employee maximum) in respect of Peter Truscott; 6% (employee majority rate) in respect of Tom Nicholson and Duncan Cooper. No Directors have a prospective interest in a defined benefit scheme. 5 Tom Nicholson: The figures stated in columns Salary, Benefits, Bonus and Retirement benefits are to the date Tom Nicholson stepped down from the Board on 27 May 2022. Column 4 (LTIP) represents the period 1 November 2019 to 31 October 2022 (the end of the Award’s performance period) as a result of ongoing garden leave. Further details regarding Tom’s leaving arrangements can be found on page 115. The table below shows the remuneration for the Non-Executive Directors who served during FY22. 2022 fee 2021 fee £000 £000 Iain Ferguson 205 200 1 David Arnold 62 10 Lucinda Bell 53 52 Louise Hardy 58 56 Octavia Morley 70 68 1 David Arnold: joined Board as Non-Executive Director and Chair of the Audit and Risk Committee from 1 September 2021. ### Pay for performance in FY22 (audited) Annual bonus targets and outcomes The performance measures set for FY22 were a combination of financial elements (70% of the bonus maximum) and non-financial elements (30% of the bonus maximum) aligned to our strategy. The maximum bonus potential for PeterTruscott and Duncan Cooper was 125% ofsalary. Tom Nicholson was entitled to a bonus of 125% of salary pro rated to 31 August 2022, the end of his handover period. The following results were achieved for each element of the annual bonus incentive: Stretch and | | | | | Threshold | On-target | maximum | % of maximum | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Weighting | (10% or 20% of | | (50% of | (100% of | | | bonus | % of | | Measure | (% of maximum) | | | maximum) | maximum) | maximum) Actual | | achieved | | salary | 2 Financial Adjusted profit before tax 50% £123.5m £130.0m £143.0m £137.8m 40.1 50.1 Net cash 20% £194.6m £204.8m £225.3m £276.5m 20 25 2 Non-financial Customer service and quality 10% 90% 92% 94% 88.0% 0 0 Environmental, Social and 10% 2.496 2.480 2.464 1.82 10 12.5 Governance – reduction in carbon 3 emissions Personal and strategic objectives Voluntary employee turnover 5% 33.25% 31.50% 29.75% 27. 39% 5 6.25 Employee engagement 5% 75.00% 76.88% 78.75% 83% 5 6.25 SHE leadership Less up to 10% – – adjustment Total bonus 80.1 100.1 1 10% for financial measures. 20% for non-financial measures. 2 Financial measures and non-financial measures are as defined in the table overleaf. 3 Scope 1 and 2 emissions intensity – tCO 2 e per 100 sq. m of completed floor area. 112 Crest Nicholson^{}[] Annual Integrated Report 2022 ## Annual Report on Remuneration continued As set out in the Financial Review on pages 52–56, the Group delivered strong financial performance against its key financial measures during FY22 despite some market uncertainty in the second half. The FY22 bonus scheme followed a similar format to previous years with adjusted profit before tax and cash generation (70%) as well as non-financial measures (30%) focusing on customer service and quality, voluntary employee turnover, employee engagement, carbon reduction and SHE leadership. Appropriately stretching targets were set based on forecasts relating to the financial and market outlook at the end of 2021. During the period, the Group made good progress reducing voluntary employee turnover and increasing employee engagement, but did not perform as strongly with respect to customer service and quality with performance below the 90% threshold$^{1}$. However, strong progress continued to be made in relation to carbon reduction during the year which is a key part of our sustainability strategy as set out on pages 26–29. The Committee reviewed the formulaic performance outcome against overall Group performance, the experience of shareholders, employees and other stakeholders and determined that discretion was not needed to ensure a proportionate outcome. During the year the Committee continued to carefully consider the Group's ongoing progress in respect of remediating legacy buildings affected by combustible materials or building safety concerns. Although affected buildings were constructed and sold prior to the Executive Directors joining the Group in 2019, the Committee has carefully monitored the operation of schemes during the year to ensure that no measure acted as any incentive not to progress all remedial solutions and incur associated costs as quickly as possible. The Committee reviewed the circumstances in detail in determining the outcome of the FY22 bonus scheme and was satisfied that the schemes had operated appropriately. The Committee also considered the performance ahead of stretch with respect to net cash, reviewing the underlying reasons for these in the context of how the target was set. The Committee is satisfied that the original target was suitably stretching at the time it was set in the context of market risk (late 2021), and the Group's overall performance in the year. 1. Further information about our customer service performance can be found on page 14. ### FY22 annual bonus metrics The maximum target for each element was set to stretch and further challenge the Executive Directors. Achievement was calculated on a straight-line basis between threshold and target, and target and maximum/stretch. | Bonus target | Description | Link to strategy | | --- | --- | --- | | Adjusted profit before tax | Adjusted profit before tax as defined on pages 188–189. | 1 2 3 | | Net cash | Cash and cash equivalents plus non-current and current interest-bearing loans and borrowings as at 31 October 2022. | 1 2 3 4 | | Customer service and quality | The 12-month NHBC 'recommend your housebuilder' score at 31 December 2022. | 1 2 | | Environmental, Social and Governance | Reduction in scope 1 and scope 2 carbon emissions during FY22 (CO_{2} e/100 sq. m) of completed floor area; compared to FY19 equivalent. See page 38 for further information about the Group's greenhouse gas emissions. | 2 | | Personal and strategic objectives | | | | Voluntary employee turnover | Resignations or retirements during the year as a proportion of total employees, compared to the position at 31 October 2021. | 3 | | Employee engagement | Employee engagement performance score from the employee survey carried out during September 2022. | 4 | | SHE leadership | A downwards adjustment of up to 10% of the bonus achieved should SHE leadership fall below the standard expected by the Group. | 5 | 1 Placemaking & Quality 2 Operational Efficiency 3 Multi Channel Approach 4 Sustainability & Social Value 5 Financial Targets 6 Land Portfolio 7 Five-Star Customer Service 8 People 9 Safety, Health & Environment ### FY22 annual bonus payments and deferral One-third of the annual bonus is deferred into a share award which will ordinarily become exercisable after three years from the date of grant. Other than in certain good leaver situations, the awards are subject to being in service when the awards become exercisable and are subject to certain withholding and recovery conditions, exercisable at the Committee's discretion. A full breakdown of the bonus payments and shares award deferral is set out below: | | Bonus total | Bonus paid in cash | | Bonus deferred into shares | | | --- | --- | --- | --- | --- | --- | | | £ | £ | % bonus | £ | % bonus | | Peter Truscott | 670,036 | 448,924 | 67 | 221,112 | 33 | | Duncan Cooper | 376,251 | 252,088 | 67 | 124,163 | 33 | | Tom Nicholson | 219,698 | 147,198 | 67 | 72,500 | 33 | 1. Bonus for the period 1 November 2021 to 27 May 2022. See Loss of office payments and payments to post directors on page 115 for details of bonus applicable for the period 28 May 2022 to 31 August 2022 (end of handover period). Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 113 ### LTIP targets and outcomes (audited) The FY20 LTIP award, granted on 20 February 2020, was based on performance over the three years ended 31 October 2022 and will become exercisable from 20 February 2023 (subject to the Director still being in employment or otherwise having been a good leaver). The table below sets out details of the measures, performance targets and actual performance which results in 54.1% of the awards vesting. Performance Threshold Maximum Actual % of award Measure Weighting period (25%) (100%) performance achieved Adjusted EPS in FY22 40% 3 years ending 31.10.22 48.9 pence 52.3 pence 42.0 pence 0.0% Adjusted EBIT margin in FY22 20% 3 years ending 31.10.22 14.2% 15.2% 15.4% 100.0% 3 ROCE in FY22 40% 3 years ending 31.10.22 19.3% 23.3% 22.5% 85.2% Total 100% 3 years ending 31.10.22 – – – 54.1% 1 Adjusted earnings per share as defined on page 189. 2 Adjusted EBIT Margin as defined on page 189. 3 ROCE has been calculated using unrounded numbers. ROCE presented in the financial statements and elsewhere in the Annual Integrated Report has been calculated using numbers rounded to £0.1m. There was significant disruption during the performance period associated with COVID-19. The Group navigated this uncertainty and continued to implement its strategy over the performance period. The targets for this award were set prior to the COVID-19 pandemic and were based on the business plan at that time. Nevertheless, the Group has delivered significant improvements in Adjusted EBIT Margin and ROCE during that time resulting in achievement of 100% and 85.2% ofthose measures, respectively. Although Adjusted EPS has improved significantly, it has not yet returned to levels anticipated when the target was setresulting in no award being achieved for this measure. The Committee considers that this level of vesting is appropriate reflecting the overall performance over the last three years. In accordance with the LTIP rules, the vested award will be subject to a two-year post vesting holding period during which the Executive Director cannot sell those shares other than to satisfy related tax liabilities. Dividends paid during the performance period will also be awarded in additional shares. The Group will have in place an appropriate mechanism to ensure that shares subject to the holding period, are under its control. The resulting vesting will be as follows: | | | | | | Number | | | | | | | | Value | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Original | | | | of awards | | Dividend | | | Estimate of | | attributable | | | | | number of | | Overall | | vesting | equivalents | | | Number | total values | | to share price | | | | share awards | | percentage | | | based on | (number of | | | of awards | of awards | | change since | | | | | | | | | | | | 1 | | | 2 | | | 3 | | in 2020 LTIP | | | vesting | performance | | | shares) | | vesting | vesting | (£) | award | | (£) | Peter Truscott 253,016 54.1 136,882 9,669 146,551 328,586 -424,393 Duncan Cooper 106,558 54.1 57,648 4,072 61,719 138,383 -178,732 4 Tom Nicholson 109,186 54.1 59,070 4,172 63,242 141,796 -183,140 1 In accordance with the LTIP rules, the Committee has discretion to allow LTIP participants to receive the benefit of any dividends arising between the grant date and exercise date of the award in the form of additional shares. 2 This figure has been estimated based on the average share price of 224.21 pence over the three months from 1 August 2022 to 31 October 2022 as these awards are not exercisableuntil after the date of this report. These estimated figures will be restated for the actual share price on the date they first become exercisable in next year’s report. 3 The share price at the date of grant was 513.8 pence. At 31 October 2022 the value of shares that have vested has fallen by 56.4%. 4 Details of leaving arrangements can be found on page 115. ### Scheme interests awarded during the financial year (audited) On 28 January 2022 in accordance with the Policy, an LTIP award of 150% of salary was made to Peter Truscott, Duncan Cooper and Tom Nicholson. The following table sets out the FY22 awards granted to Executive Directors under the Group’s LTIP for the performance period 1 November2021 to 31 October 2024: Face value % of award 2 Date of Number of award % of receivable 1 Award Type grant ofshares £000 salary at threshold Peter Truscott Performance Nil-cost option 28.01.22 320,764 1,004 150 25 Duncan Cooper Performance Nil-cost option 28.01.22 180,121 564 150 25 Tom Nicholson Performance Nil-cost option 28.01.22 184,563 578 150 25 1 Performance conditions in each case measured in FY24: 40% relative TSR (threshold median to maximum upper quartile), 30% average ROCE (threshold 19% to maximum 22%), 30%Adjusted EBIT margin (threshold 16% to maximum 18%). 2 Face value calculated based on 313.1 pence, the average of the closing middle market share price for the five preceding dealing days of the grant date. On 28 January 2022, the following Directors received an award under the deferred bonus plan in respect of the deferred element oftheirFY21 annual bonus as set out on page 115 of the Annual Integrated Report 2021. Face value % of 2 Date of Number of award bonus 1 Award Type grant ofshares £000 payable Peter Truscott Service Nil-cost option 28.01.22 73,597 226 33 Duncan Cooper Service Nil-cost option 28.01.22 41,328 127 33 Tom Nicholson Service Nil-cost option 28.01.22 42,347 130 33 1 There are no performance conditions attached to the award. The award will accrue dividend equivalents in accordance with the rules of the scheme and the amount ofdividendequivalent to be awarded as shares upon vesting will be adjusted according to the number of shares that vest, pro rata. 2 Face value calculated based on 306.4 pence, the closing middle market share price on the preceding dealing day. Crest Nicholson ## 114 Annual Integrated Report 2022 ## Annual Report ## on Remuneration continued ### Directors’ shareholdings at the end of the financial year (audited) The table below sets out the number of shares and share awards held by Directors (including any connected persons) as at 31 October 2022. There have been no changes to Directors’ interests between 31 October 2022 and 17 January 2023. 2 | | | | Outstanding | | | | Outstanding | | | | Shareholding | | as a | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 1 | | | | 1 | | | | | | | | | share awards | | at | | share awards | | at | | | percentage of salary | | | | Shares held, including | | 31 October 2022 | | | | 31 October 2022 | | | | Total share | and share price of | | | | connected persons at | | with performance | | | without performance | | | | | interests at | | 202.0 pence at | | | | 31 October 2022 | | conditions | | | | conditions | | 31 October 2022 | | | 31 October 2022 | | Iain Ferguson 150,000 N/A N/A 150,000 N/A Peter Truscott 415,171 871,144 73,837 1,360,152 137.1% Duncan Cooper 37,200 453,660 41,648 532,508 31.9% David Arnold 15,250 N/A N/A 15,250 N/A Lucinda Bell 11,650 N/A N/A 11,650 N/A Louise Hardy – N/A N/A – N/A Octavia Morley 5,600 N/A N/A 5,600 N/A Former Directors 3 Tom Nicholson 33,485 464,848 53,291 551,624 32.4% 1 Share awards take the form of nil-cost options other than Sharesave awards which are fixed price options. There are no conditional or restricted share awards. There were no vestedbut unexercised share awards at 31 October 2022. 2 Shareholding includes shares held including connected persons, outstanding share awards without performance conditions (e.g. Deferred Bonus Plan (DBP) and Sharesave) netoftaxand excludes outstanding share awards with performance conditions (e.g. LTIP). 3 Shareholding as at date of stepping down from the Board: 27 May 2022. ### Directors’ shareholdings and share interests Share ownership plays a key role in aligning Executive Directors’ interests with the interests of shareholders and over the long term. The Policy requires Executive Directors to build up and maintain a significant shareholding in the Company of 200% of salary and, following cessation ofemployment, to continue to hold the lower of their shareholding requirement or their shareholding atthe date of leaving for aperiod of two years. Under the Policy, shares owned outright and deferred shares (because they no longer haveperformance conditions attached) count towards the shareholding requirement. Peter Truscott and Duncan Cooper will build up theirshareholding over time. The chart below shows the Executive Directors’ current shareholdings together with unvested DBP/Sharesave awards and the illustrative eect if 50% of outstanding LTIP awards vested in the future. Shares which are not owned outright are shown net of tax (i.e. excluding that proportion of those shares expected to be sold on vesting to settle the associated tax liability). 125.3% 28.1%34.8%11.8% 20.0% 11.8% 32.3% 135.9% 0% 180%160%140%120%100%80%60%40%20% 200% Shares owned outright Unvested DBP/Sharesave awards Eect of 50% of LTIPs vesting Balance to achieve shareholding requirement Executive Directors’ alignment to share price The table below contains the value of shares currently held by the Executive Directors, those awarded under the DBP but not yet released (on a post-tax basis) and Sharesave. It illustrates the Executive Directors’ alignment to share price movement through theirordinary shareholdings. Shares Unvested Unvested 1 owned DBP shares Sharesave Total Indicative value on Consequence of a +/- £1 outright (post-tax) shares shares 31 October 2022 (£) share price change (£) Peter Truscott 415,171 39,134 – 454,305 917,695 454,305 Duncan Cooper 37,200 22,073 – 59,273 119,732 59,273 1 Value calculated using the share price of 202.0 pence as at 31 October 2022. Director Peter Truscott Duncan Cooper Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 115 ### Executive Directors’ scheme interests at the end of the financial year (audited) The tables below set out the Executive Directors’ outstanding share awards under the LTIP and DBP as at 31 October 2022 including any dividend equivalents awarded in the year. The DBP and SAYE awards do not have any performance criteria attached to them. The LTIP awards have performance criteria attached to them in accordance with the Policy and as set out in the relevant Directors’ Remuneration Report. | Outstanding | | | | | | Outstanding | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | share | | | | | | share | Market | | | | | Market | | | | | | | | | | options/ | | | | | | options/ | | price | | | | | price at | | | | | | Date | | | | awards at | | | | Vested | | awards at | | | on | Exercise | | | exercise/ | | | Gain | | exercisable | | | | 31 October | | | Date of | | but not | 31 October | | | award | | | price | | vesting | | receivable | | | or capable | | Expiry | | | | 2021 | grant Granted Exercised Lapsed | exercised | | | | 2022 | | £ | | | £ | | £ | | | £ | of vesting | | date | Peter Truscott LTIP 2020 253,016 20.02.2020 – – – – 253,016 5.138 Nil – – 20.02.2023 19.02.2030 2021 297,364 08.02.2021 297,364 3.279 Nil – – 08.02.2024 07.02.2031 2022 28.01.2022 320,764 320,764 3.131 Nil – – 08.01.2025 27.01. 2032 DBP 2020 240 28.02.2020 – – – – 240 4.530 Nil – – 28.02.2023 27.02.2030 2022 28.01.2022 73,597 – – – 73,597 3.064 Nil – – 28.01.2025 27.01.2032 Duncan Cooper LTIP 2019 141,389 21.06.2019 – – 141,389 – – 3.554 Nil – – 21.06.2022 20.06.2029 2020 106,558 20.02.2020 – – – – 106,558 5.138 Nil – – 20.02.2023 19.02.2030 2021 166,981 08.02.2021 – – – – 166,981 3.279 Nil – – 08.02.2024 07.02.2031 2022 – 28.01.2022 180,121 – – – 180,121 3.131 Nil – – 28.01.2025 27.01.2032 DBP 2020 320 28.02.2020 – – – – 320 4.530 Nil – – 28.02.2023 27.02.2030 2022 – 28.01.2022 41,328 – – – 41,328 3.064 Nil – – 28.01.2025 27.01.2032 Tom Nicholson LTIP 2019 137,169 21.06.2019 – – 137,169 – – 3.554 Nil – – 21.06.2022 20.06.2029 2020 109,186 20.02.2020 – – – – 109,186 5.138 Nil – – 20.02.2023 19.02.2030 2021 171,099 08.02.2021 – – – – 171,099 3.279 Nil – – 08.02.2024 07.02.2031 2022 – 28.01.2022 184,563 – – – 184,563 3.131 Nil – – 28.01.2025 27.01.2032 DBP 2020 356 28.02.2020 – – – – 356 4.530 Nil – – 28.02.2023 27.02.2030 2022 – 28.01.2022 42,347 – – – 42,347 3.064 Nil – – 28.01.2025 27.01.2032 SAYE 2020 10,588 07.08.2020 – – – – 10,588 2.120 1.700 – – 01.09.2023 28.02.2024 ### Loss of oce payments and payments to past directors (audited) Tom Nicholson Tom Nicholson was served nine months’ notice by the Company on 27 May 2022 and stepped down from the Board as Chief Operating Ocer with immediate eect. A period of handover took place until 31 August 2022, and the remainder of the nine-month notice period isbeing taken as garden leave from 1 September 2022 until 26 February 2023 (Termination Date). During this period Tom will continue to receive his salary, pensionand benefits, paidmonthly. The salary, pension and benefits received for the remainder of FY22 after stepping down from the Boardare set out in the table on the following page, alongside the payments to be made in FY23 until the end of his notice period. The Remuneration Committee has usedits discretion to determine the following approach to outstanding incentive awards: — Pro rata FY22 bonus for the period 1 November 2021 to 31 August 2022 (the end of the period of handover) with 33% deferred into sharesin accordance with the bonus plan — Unvested 2019 and 2021 DBP (over 356 shares and 42,347 shares respectively) to vest at the normal time in accordance with the relevantrules (being February 2023 and February 2025 respectively) together with any dividend equivalent payments — Unvested 2020, 2021 and 2022 LTIP awards (over 109,186, 171,099 and 184,563 shares respectively) to be pro-rated to the Termination Date to vest at the normal time (being February 2023, February 2024 and January 2025 respectively) based on the achievement oftheperformance conditions together with any dividend equivalent payments. A two-year post-vesting holding period will continue toapplyinaccordance with the condition of the awards — Sharesave award over 10,588 shares to be treated in accordance with the Sharesave rules. Crest Nicholson ## 116 Annual Integrated Report 2022 ## Annual Report ## on Remuneration continued | Remuneration in respect of | | | Remuneration in respect of | | | | --- | --- | --- | --- | --- | --- | | | FY22 | | | FY23 | | | | | £ | | | £ | Salary 164,651 126,114 1 FY22 Bonus 101,575 – Pension 9,879 7,567 Benefits 8,788 6,746 Annual leave – accrued but untaken 17,779 – Total 302,672 140,427 1 Represents bonus accrued between end of directorship on 27 May 2022 and end of handover period 31 August 2022. Amounts relating to the period of directorship are disclosed onpages 111 and 112. ### Payments to past Directors (audited) Other than in respect of Tom Nicholson disclosed above under Loss of oce payments, there were no payments to past Directors made during the year. ### External directorships Subject to Board approval, Executive Directors are able to hold one non-executive position outside of the Group that complements andenhances their current role. Any fees may be retained by the Director. During the year, Peter Truscott served as a Non-Executive Director of Anchor Housing Group (appointed September 2020), for which hereceives and retains an annual fee of £30,000. ### Directors’ service contracts and letters of appointment In line with our Policy, Executive Directors have contracts of employment providing for a maximum of nine months’ notice from either party. Non-Executive Directors have letters of appointment for an initial three-year term and generally serve two to three terms. The required notice is three months’ from either party. Unexpired term remaining Date of appointment Notice period 31 October 2022 Peter Truscott 9 September 2019 Nine months Terminable on nine months’ notice Duncan Cooper 17 June 2019 Nine months Terminable on nine months’ notice Iain Ferguson 16 September 2019 Three months Terminable on three months’ notice David Arnold 1 September 2021 Three months Terminable on three months’ notice Lucinda Bell 25 May 2018 Three months Terminable on three months’ notice Louise Hardy 24 January 2018 Three months Terminable on three months’ notice Octavia Morley 1 May 2017 Three months Terminable on three months’ notice The Group has the right to terminate the contracts of Executive Directors by making a payment in lieu of notice. Any such payment willtypically reflect the individual’s salary, benefits in kind and pension entitlements. Further information is found on page 109. Strategic Report Governance and directors' Report Financial Statements Crest Nicholson^{}[] Annual Integrated Report 2022 117 # **Performance graph and table** The graph below illustrates the Company's total shareholder return performance relative to the constituents of the FTSE 250 Index (excluding investment trusts) from the start of conditional share dealing. As a member of the FTSE 250 (since joining the index on 24 June 2013), the Committee considers this to be an appropriate comparator. The graph below shows the performance of a hypothetical £100 invested over that period since the Company's listing in February 2013. ![img-4.jpeg](img-4.jpeg) # **Historical Chief Executive remuneration** The table below sets out total Chief Executive remuneration for FY22 and prior years, together with the percentage of maximum annual bonus outcome in that year and the percentage of maximum LTIP vested in that year. | £000 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Chief Executive total remuneration | 14,110^{1} | 1,313 | 4,127 | 2,345 | 2,150 | 714^{1} | 1,495^{1} | 739 | 1,422 | 1,757 | | Annual bonus % of maximum | 100 | 100 | 82 | 82 | 84 | 0 | 3.5 | 0 | 84 | 80 | | Long-term incentive plan award % of maximum | 100 | N/A^{2} | 100 | 100 | 100 | 25 | 0 | 0 | 0 | 54 | 1 The total Chief Executive salary and benefits remuneration in FY15 was £1,274,507 before inclusion of incentive plan shares and options included in the 2013 figure above. 2 No long-term incentive plans vested or had a performance period ending in FY14. 3 Based pro rata, on salaries and total remuneration of Stephen Stone to 21 March 2018 and Patrick Bergin from 22 March 2018 to 31 October 2018. 4 Based pro rata, on salaries and total remuneration of Patrick Bergin to 26 March 2019, Chris Tinker from 26 March 2019 to 8 September 2019 and Peter Truscott from 9 September 2019. It also includes the cost of buy out arrangements for Peter Truscott. # **Relative importance of spend on pay** This includes data for all employees, including those who were promoted, had salary changes, were new starters or received incentive-based remuneration, as well as pay in respect of individuals who left during the year but had some service. Distributions to shareholders for FY21 and FY22 are made up of cash paid to shareholders in each respective year. The increase in total spend on pay is reflective of the increase in headcount over the last year including narrowing the time upon which vacancies were open compared to FY21. This also includes a higher number of salary increases awarded during the year including promotions. In addition, the one-off payment of £1,000 to each employee, excluding the ELT, is included as we support our people through the cost-of-living challenges. The increased level of distributions to shareholders reflects the dividend policy's application for a full year, with only the interim dividend made in the prior year following reinstatement of dividend payments. The measures shown below are those specified by the applicable disclosure requirements and total spend on pay reflects actual expenditure in the year. The table below shows how employee remuneration costs compare to distributions made to shareholders in FY21 and FY22. # **Total spend on pay** **£49.0m** ![img-5.jpeg](img-5.jpeg) # **Distributions to shareholders by way of dividend and share buyback** **£38.4m** ![img-6.jpeg](img-6.jpeg) 118 Crest Nicholson^{}[] Annual Integrated Report 2022 ## Annual Report on Remuneration continued ### Our employees #### Statement of consideration of employment conditions elsewhere in the Group During the year the Committee reviewed the remuneration framework applicable to all employees. The Directors' policy framework applies in a very similar way across the Group in terms of types of benefits and variable pay relative to role grades and disciplines. This ensures alignment across the Group and encourages shared goals and objectives. The Committee also considered the following employee matters during the year: | Matter | How our employees are treated | | --- | --- | | Annual bonus | Where performance targets have been met, payments under employee schemes will be made. These are consistent with the performance of the Executive Directors' scheme. | | Annual salary increase | After consideration of Group performance and wider economic factors such as inflation and role benchmarking, the average annual salary increase across the Group is 6.4%. | | Benefits | The Committee considered management's review of the Group's benefits programme, noting no significant changes were considered necessary. The Committee also reviewed the Group's pension contribution framework and considered that budgetary headroom would be more appropriately focused on base salaries. | | Sharesave | The Committee approved the launch of the 2022 Sharesave scheme to all employees which had 34% participation this year. Unfortunately, the 2019 Sharesave option price was above the prevailing share price at the end of the option period and employees had the option to return their savings in full. | When making remuneration decisions for Executive Directors, the Committee considers the wider economic environment and conditions within the Group as detailed on page 108. | | Executive Directors^{1} | Senior management^{1} | Management^{1} | Wider employee workforce^{1} | | --- | --- | --- | --- | --- | | **Base salary** | Base salary is set with reference to the specific nature of the role and responsibility, individual experience and performance, relative to other Group employees and market practice among other UK housebuilders. This is normally reviewed and increased with reference to cost of living, inflation, role benchmarking and Group performance. Other than where other wage rates apply such as apprentices, all employees are paid at or above the voluntary Real Living Wage. | | | | | **Benefits** | The Group's benefit programme applies to all employees in a similar way including access to healthcare coverage and life assurance. Certain benefits have a service requirement or have enhanced cover for management roles and above. Employees have access to a real-time total reward statement via our MyReward platform which also allows them to access and manage their benefits. | | | | | **Pension** | All employees are initially auto-enrolled into the Group pension plan with a 6% employer contribution or have the ability to opt in. Employees can opt to increase or decrease their contribution amounts. The maximum employer contribution is 10% depending on employee contribution level and service. The majority of employees receive an employer contribution of 6%. More than 90% of our employees are members of the Group pension plan. | | | | | **Annual bonus** | Yes | Yes | Yes | Yes | | **LTIP** | Yes | Yes | No | No | 1. **Executive Directors:** Executive Directors of the Company 2. **Senior management:** Executive Leadership Team (other than Executive Directors) and other senior roles. 3. **Management:** Management roles below senior management. 4. **Wider employee workforce:** Other roles not included in (1) to (3). #### Chief Executive to employees' pay ratio The table below reports the pay ratio for FY22 and has been calculated using the method known as Option A as the Committee considers this to be the most appropriate and robust way to calculate the ratio. This is our third year publishing a Chief Executive pay ratio and previous years are below for comparison. We will continue to build this up over time to show a rolling 10-year period. | Year | Method | | 25^{th} percentile pay ratio | Median pay ratio | 75^{th} percentile pay ratio | | --- | --- | --- | --- | --- | --- | | 31 October 2020 | Option A | **Ratio** | 25:1 | 17:1 | 11:1 | | 31 October 2021 | Option A | **Ratio** | 46:1 | 32:1 | 21:1 | | | | **Ratio** | 55:1 | 37:1 | 25:1 | | 31 October 2022 | Option A | **Employees' total pay** | £32,062 | £46,905 | £71,167 | | | | **Employees' salary** | £27,500 | £40,380 | £65,508 | Under Option A we calculated the total remuneration for all employees in FY22 on the same basis as the Chief Executive single total figure of remuneration (see page 111) and then identified three employees that represent the lower quartile, median and upper quartile based on pay and benefits. Earnings for those who are part time, joined or left during the year have been annualised on a full time equivalent basis as at 31 October 2022. Employee pay includes such items as overtime, commission, annual bonus$^{1}$ and any long-term incentives. Benefits include company car or car allowance, private medical and employer pension contributions. Other than any annual bonus, all other payments are included on a cash basis. The annual bonus element for the Chief Executive and all other employees is the bonus earned during FY22 which is due to be paid in February 2023. The Company considers the median pay ratio is consistent with the Group's wider policies on employee pay, reward and progression. The ratio has increased this year because the Chief Executive's FY20 LTIP award vested at 54.1% where no award vested in FY21. 1. An element of employee bonus schemes are based on customer satisfaction score on 31 January 2023, which falls after publication of this report. These figures for the cohort group are therefore calculated using the customer satisfaction score on 31 December 2022. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 119 Percentage change in Directors’ remuneration The table below sets out the percentage change between FY19 and FY20, FY20 and FY21 and FY21 and FY22 for salary, benefits and annualbonus of the Directors compared with a selected cohort of employees. The parent company, Crest Nicholson Holdings plc, does not have any direct employees. However, we disclose on a voluntary basis the comparison of the pay decisions taken by the Committee for ourDirectors against the experience of the wider workforce using a comparator group of employees. To provide the best like-for-like comparison, this group of employees have similar employment terms to the Executive Directors and have notjoined or left employment during the latest comparison period. The average increase in salary of 9.4% for the cohort of employees duringFY22 is due to role changes, promotions and market rate adjustments during the year. Due to their nature, the average increases forbenefits and bonus are aected by these salary and role changes. Percentage change FY22 compared to FY21 Percentage change FY21 compared to FY20 Percentage change FY20 compared to FY19 8 8 8 Salary/Fees Benefits Bonus Salary/Fees Benefits Bonus Salary/Fees Benefits Bonus 1 Peter Truscott 2.5% 1.7% -1.9% 0.0% -0.3% 100% 35.2% -6.1% -100% 2 Duncan Cooper 2.5% -2.6% -1.9% 1.4% 4.6% 100% 7.6% 18.4% -100% 3 Tom Nicholson 2.5% -0.3% -1.9% 2.2% 1.4% 100% 14.8% 6.3% -100% 4 Iain Ferguson 2.5% – – 0.0% – – -26.4% – – 5 David Arnold 2.5% – – 0.0% – – – – – 6 Octavia Morley 2.5% – – 5.5% – – 8.3% – – Lucinda Bell 2.5% – – 0.0% – – 0.0% – – 7 Louise Hardy 2.5% – – 9.7% – – 0.0% – – Average change for cohort employee 9.4% 16.5% 4.7% 7.1% 11.2% 244.0% 2.8% 13.8% -35.0% 1 The figures used for FY19 are the blended salaries for Patrick Bergin, Chris Tinker (who acted as Interim Chief Executive) and Peter Truscott, in respect of their time serving as Chief Executive. They do not include buy out awards in respect of Peter Truscott. 2 For FY19 we have used annualised amounts in respect of Duncan Cooper. 3 For FY19, FY20 and FY22 we have used annualised amounts in respect of Tom Nicholson, and for FY20 included remuneration prior to joining the Board. 4 The figure used for FY19 is the salary for Stephen Stone who was Chairman during this period. 5 The figure used for FY20 is the fee for Sharon Flood who served in the same role during this period. 6 The FY21 increase for Octavia Morley reflected her extra responsibilities as Senior Independent Director. 7 The FY21 increase for Louise Hardy reflected her extra responsibilities as Non-Executive Director responsible for employee engagement. 8 An element of employee bonus schemes is based on customer satisfaction scores on 31 January each year which falls after publication of this report. These figures for the cohort groupare therefore calculated using the customer satisfaction score on 31 December in the respective year. Employee engagement | At the Employee Voice Forums led | The Group’s HR team regularly reviews | | --- | --- | | by Louise Hardy, Non-Executive | base pay across the Group and compares | | Director responsible for employee | this to market analysis and will continue | | engagement, during late September | todo so in FY23. | andearly October2022, the Chair of Recent initiatives include: theCommitteeengaged with Forum — An additional £1,000 one-o members on remuneration matters. paymentto employees below ELT Further detail canbe found on page 105. — A range of salary increases in the year In addition, the Chief Executive reflecting changes to market rates hostsemployee update webinars — Average annual salary increase throughout the year. acrossthe total employee workforce The Group also carries out periodic of6.4% of salary. employee engagement surveys. The Committee was pleased that 34% 72%ofour employees tookpart in our of eligible employees joined the 2022 mostrecent survey in September 2022, Sharesave scheme and that employee and the survey reported a83% overall participation across allshare schemes engagement score. remained at 49%. The Committee consider In relation to pay, around one-third Sharesave to be a valuable mechanism ofthose who participated disagreed that provides employees with a path or strongly disagreed that the pay toshare ownership. they receive compares favourably The Committee will continue to review withother employers in our industry, employee pay structures and levels and around 7%felt the same about during FY23. thebenefits package. Crest Nicholson ## 120 Annual Integrated Report 2022 ## Annual Report ## on Remuneration continued Gender pay gap reporting 1 Our gender pay gap performance for 2021 is set out on page 47. Whilst we saw the gap steadying and gradually reducing in previous years reporting, in 2021 we saw an increase in our mean hourly pay gap to 27% (2020: 21%) and our median hourly pay gap to 22% (2020: 19%). This is as a result of a Group restructure in 2020. Men are still earning more than women, as a result of having more men in senior roles than women. Although we have had an increase in the number ofwomen in the lower quartile of 4.5% compared to the previous year we still have a high proportion of men in the higher salary bandings. We are seeking toaddress this by increasing female representation at senior levels. Initiatives supporting this focus include, ensuring that flexible working practices are applied through our Agile Working Policy, continuous monitoring of succession plans and development opportunities and a wider review and development of policies that support diversity, inclusion and equality within the Group. More details can be found on pages 44–47. The Committee continues to take into account its genderpay gap when making pay decisions and works in conjunction withthe Nomination Committee to improve the diversity of employees. 1 Gender pay gap 2022 will be published in April 2023. ### Statement of implementation of Remuneration Policy in the following financial year In FY23 the Committee intends to implement the Executive Director and Non-Executive Director remuneration policies as set out below. ### Executive Directors Director Salary (annual) Change Peter Truscott An increase of 5%, less than the 2023 £702,975 5% average employee award 2022 £669,500 Duncan Cooper An increase of 5%, less than the 2023 £394,748 5% average employee award 2022 £375,950 The average annual salary increase across the employee workforce was 6.4% of salary. The Committee considered the level of increase for Executive Directors carefully and took into account the average salary increase across the employee workforce and the additional responsibilities undertaken by both Executive Directors as a result of the Chief Operating Ocer leaving the Group. The Committee concluded that an increase of 5%, being below the current level of inflation and below the average workforce salary increase was appropriate in the circumstances eective from 1 January 2023. Non-Executive Directors Director Role 2022 fee (annual) 2023 fee (annual) Change Iain Ferguson Chairman £206,000 £212,180 3.00% 1 1 David Arnold Non-Executive Director £61,800 £63,654 3.00% Lucinda Bell Non-Executive Director £53,045 £54,636 3.00% 2 | Louise Hardy Non-Executive Director £58,195 | | £59,941 3.00% | | | | --- | --- | --- | --- | --- | | | 3 | | 3 | | | Octavia Morley Senior Independent Director £70,555 | | £72,672 | | 3.00% | 1 Includes an additional fee for role as Chair of the Audit and Risk Committee. This fee (on an annual basis) was £8,755 in 2022 and will be £9,018 in 2023. 2 Includes an additional for role as Non-Executive Director responsible for employee engagement. This fee (on an annual basis) was £5,150 in 2022 and will be £5,305 in 2023. 3 Includes additional fees for roles as Chair of the Remuneration Committee and as Senior Independent Director. Both such fees (on an annual basis) were£8,755in 2022 and willbe£9,018 in 2023. Pension and incentives 1 Pension or cash equivalent Annual bonus LTIP Peter Truscott 6% of salary 125% of salary 150% of salary Duncan Cooper 6% of salary 125% of salary 150% of salary 1 6% is the rate applicable to the majority of the employee workforce. All Executive Directors can elect whether to contribute some of the benefit directly into the Group’s defined contribution pension plan andreceive any balance (or all the benefit) as cash. Annual bonus The annual bonus opportunity will remain at 125% of salary for FY23. For financial targets and non-financial targets, the threshold will be 20%, 50% for meeting target and 100% for maximum stretch performance. The targets are considered to be commercially sensitive and will be disclosed in the FY23 Directors’ Remuneration Report. The Committee willreview performance under the annual bonus in the context of wider stakeholder experience over the performance period when determining bonus payments. Subject to approval of the new Remuneration Policy, one-third of any bonus earned will be paid in shares which are subject toa three year holding period. The Committee has reviewed the mix of measures in line with the Group’s strategy and, accordingly, the following measures and weightings have been agreed for the FY23 annual bonus and are set out on the following page. The Committee is also satisfied that the bonus scheme framework is applied in a similar way to employees across the Group, tailored to roles and functions. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 121 Weighting Performance (% of total bonus measure Measure detail Link to strategy opportunity) Financial | Adjusted profit | Adjusted PBT performance measured between a threshold | | 3 | 5 | 9 | 50 | | --- | --- | --- | --- | --- | --- | --- | | before tax | andmaximum | | | | | | | Net cash Net cash performance measured between a threshold and maximum | | 2 | 3 | 5 | 9 | 20 | Non-financial | Customer service | Customer Satisfaction Survey score measured between threshold | | 1 | 4 | 15 | | --- | --- | --- | --- | --- | --- | | and quality | and maximum (7.5%) | | | | | | Environment, Social | Reduction in waste intensity (7.5%) | 3 | 6 | 8 | 15 | and Governance Reduce voluntary employee turnover (7.5%) SHE Leadership Assessment of SHE leadership duringthe year 8 less up to 10% downward adjuster LTIP Peter Truscott and Duncan Cooper will be granted an LTIP award with a face value of 150% of base salary. Vested awards will be subject to atwo-year post vesting holding period which, together with the three-year performance period during which withholding applies, provides afive-year period overall. Following careful consideration of the structure and weightings of its LTIP for FY23, and taking account of the Group’s future strategy, the Committee has removed EBIT Margin. This reflects the significant improvement in EBIT Margin in recent years and the element of crossover with ROCE. The Committee has therefore introduced ESG as the third measure focusing on a reduction in scope 1 and scope 2 carbon emissions. As the Group’s sustainability strategy develops which this year included thesetting of Science Based Targets, it is appropriate toadd this carbon reduction measure. In addition, total shareholder return (TSR) measured against the FTSE 250 and certain sector peers and ROCE is retained. At the same time the Committee has reviewed the relative weightings of the measures. All measures are considered topromote the long-term success of the Group: | | | Threshold | | Maximum | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Measure % of award | (25% of element) | | (100% of element) Link to strategy | | | | | | | | | TSR (FTSE 250 and sector peers) 50 Median Upper Quartile | | | | | 1 | 2 | 3 | 5 | 7 | 9 | | ROCE FY25 35 17% 23% | | | | | | | 2 | 3 | 5 | 9 | ESG: Absolute scope 1 and 2 15 4,300 tCO 2 e 3,870 tCO 2 e 3 7 carbonemissions FY25 1 Placemaking & Quality 3 Operational Eciency 5 Multi Channel Approach 7 Sustainability & Social Value 9 Financial Targets 2 Land Portfolio 4 Five-Star Customer Service 6 People 8 Safety, Health & Environment TSR is measured using the companies comprising the FTSE 250 index (excluding investment trusts) as at 1 November 2022 (50%) and aselection of sector peers (50%). This has changed from one-third/two-thirds in FY21 to better align the award with the experience in the wider FTSE 250. The FY23 peer group comprises Barratt Developments plc, Bellway plc, The Berkeley Group plc, MJ Gleeson plc, Persimmon plc, Redrow plc, Taylor Wimpey plc andVistry Group plc. For both TSR elements, performance will be measured on a straight-line basis between a threshold of median TSR (earning 25% of the element) and a maximum at upper quartile TSR (earning 100% of the element). TSR provides a focus on the Company’s relative TSR performance against the sector and the stock market generally, following the Company’s underperformance in recent years as well as providing a renewed focus on sustained growth in profitability and dividend distribution. ROCE will reward strong operational eciency and margin accretion and will be an adjusted measure as defined on pages 188–189. At its Capital Markets Day in October 2021, the Group announced a range of five-year financial targets including in relation to ROCE (FY24–FY26: 22%–25%). Since then, and in response to the significant economic uncertainty, the Group has deferred the opening of its third division. As a result of this and the eects of further uncertainty through 2023, the Committee has widened the ROCE target range for FY25 starting this at 17% but has increased the maximum level to 23% an increase in the maximum used in the prior year award. The Committee believes that this provides appropriate incentivisation to maximise ROCE towards the previously set ambitious range, but reflects the uncertainty present inthe early years. The ESG measure targets an reduction in absolute scope 1 and 2 emissions. Achievement of the maximum target would have the eect of accelerating the path to the Group’s 2030 target by approximately three years. In addition, the nature of an absolute emissions target means that even as the Group grows, the carbon emission targets stay the same making them harder to achieve. Taking these into account, the Committee considers the targets to be stretching. The reduction in scope 1 and 2 emissions is also a target under the Group’s Sustainability Linked Revolving Credit Facility (see pages 26 and 55 forfurther information). Crest Nicholson ## 122 Annual Integrated Report 2022 ## Annual Report ## on Remuneration continued The Committee intends to grant awards at the normal policy level of 150% of base salary, but will consider the grant level at the time of theaward taking into account the share price level at grant. The final vesting value of any awards will be considered carefully by the Committee atthat time to ensure the value delivered toparticipants remains appropriate relative to the performance of the Group, shareholder experience, and employee workforce impact over the performance period. In particular the Committee will ensure that no undue windfall gains are made asa result of share price movements and there will be full disclosure of this determination in the Directors’ Remuneration Report. ### Advisors to the Committee The Chief Executive and Group HR Director provide input to the Committee on matters concerning remuneration and the General Counsel andCompany Secretary acts as Secretary to the Committee. The Committee received external advice in the year from Korn Ferry (total fees £53,657). Korn Ferry was appointed by the Committee following a competitive selection process in 2018. Korn Ferry is a founder member of the Remuneration Consultants’ Group, which operates a code of conduct. No other services are provided by Korn Ferry. Fees paid to external remuneration advisors are typically charged on anhourly basis with costs for work agreed in advance where possible. The Committee manages conflicts of interest by ensuring the relevant member of management or the Committee are not present when theirown remuneration is determined or discussed. Taking into account their work in the year and their relationship with the Company, theCommittee is satisfied that the advice received by Korn Ferry in relation to executive remuneration matters was objective and independent. During the year the Committee’s performance was evaluated as part of the overall Board evaluation. The review explored how the Committee operates, its scope of work and areas for development. The evaluation concluded that the Committee continues towork eectively. ### Statement of voting at Annual General Meeting The tables below set out the votes received for the 2021 Directors’ Remuneration Report at the 2022 AGM and Remuneration Policy at the 2020 AGM, respectively. | Directors’ Remuneration Report (2022 AGM) | Directors’ Remuneration Policy (2020 AGM) | | --- | --- | | 1 Shares voted in favour 197,503, 370 98.3% | 1 Shares voted in favour 193,645,902 98.0% | | 2 Shares voted against 3,465,781 1.7% | 2 Shares voted against 3,858,618 1.9% | The Committee has maintained a regular dialogue with major shareholders on a range of matters, including remuneration. This year, the Committee engaged with the Company’s major shareholders regarding the pay outcomes for FY22 along with the new Directors’ Remuneration Policy. The Committee welcomes feedback and encourages shareholders to contact the Remuneration Committee Chair viathe General Counsel andCompany Secretary to provide their views and feedback. ### Approval This Directors’ Remuneration Report and 2023 Policy were approved by the Board of Directors on 17 January 2023 and signed on its behalf by Octavia Morley Remuneration Committee Chair Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 123 ## Compliance and other disclosures ## Directors’ Report The Directors’ Report for the year ended Articles of Association (Articles) Directors’ and ocers’ 31 October 2022 comprises pages 66–125 liabilityinsurance The Articles regulate the internal aairs together with other sections of the report of the Company and are available on the The Company maintains Directors’ and asreferenced below. In accordance with Company’s website. The Articles were ocers’ liability insurance for the Directors the UK Financial Conduct Authority’s notamended during the year. and the General Counsel and Company ListingRules LR 9.8.4c, the information to Amendments to the Articles may be Secretary. The Company has granted be included within the Annual Integrated madeinaccordance with the provisions indemnities to the extent permitted by law Report, where applicable, is set out ofCompanies Act 2006 by special to the Directors and to the Directors of as follows: resolution of the shareholders. CrestNicholson Pension Trustee Limited, which acts as trustee to the Company’s Content Page(s) Going concern and viability statement defined benefit pension scheme. Business model 20–21 Having assessed the principal risks and ### Share capital all other relevant matters, the Directors Key performance indicators 50–51 consider it appropriate to adopt the going As at 31 October 2022 the Company had Board of Directors 70–71 concern basis of accounting in preparing issued share capital of 256,920,539 ordinary Principal risks 58–64 shares of 5 pence. No ordinary shares have the financial statements of the Company. Stakeholder relation including 22–25 Further details can be found in note 1 been issued during the financial year. Section 172 Statement tothe consolidated financial statements. Rights attached to shares The Company’s viability statement can Audit and Risk Committee 92–99 andrestrictions on transfers befound on page 65. Directors’ interests 114–115 Subject to the provisions of relevant statutes, | Directors’ responsibilities | 128 | Directors | and without prejudice to any rights attached | | --- | --- | --- | --- | | statement | | The current Directors and their biographical | to any existing shares or class of shares: | | Dividend 55 | | details are detailed on pages 70–71. | | — Any share may be issued with such rights Employee engagement 46, 78–79 or restrictions as the Company may by Powers of Directors ordinary resolution determine or, subject Employment of persons 47 The Directors’ powers are conferred to and in default of such determination, withadisability on them by UK legislation and by the as the Board shall determine Financial assets and liabilities 177 Company’s Articles. — In any general meeting, on a show Going concern 142–144 Election and re-election of Directors ofhands, every member who is present Greenhouse gas emissions 38 in person shall have one vote, and on a The Board may appoint any person to poll every member present in person or Group profit 138 bea Director (so long as the total number by proxy shall have one vote for every of Directors does not exceed the limit Employee share schemes 166–169 shareof which they are the holder prescribed in the Company’s Articles). Outlook 7, 1 0 Any such Director shall hold oce until — There are no specific restrictions on Viability statement 65 transfer of shares, other than where the next AGM and shall then be eligible | forelection. All current Directors will submit | | theseare imposed by law or regulations. | | --- | --- | --- | | themselves for re-election at the 2023 | The Company is not aware of any | | | AGM. The Board confirms that it has the | arrangements between shareholders that | | | appropriate balance of skills, experience, | may result in restrictions on the transfer | | | independence and knowledge, and | ofsecurities or voting rights. | | shareholders should support the re-election of the Directors. Power to issue or buy back ownshares At the AGM in March 2022 the Company’s shareholders delegated the following powers in relation to the issue or market purchase by the Company of its shares: — Authority to allot shares in the Company up to an aggregate nominal amount of£4,282,008 (equivalent to one-third ofthe Company’s issued share capital) — Authority to allot a further one-third of the Group’s issued share capital up to anaggregate nominal amount of £4,282,008 (equivalent to one-third ofthe Company’s issued share capital) inconnection with a pre-emptive oer byway of a rights issue 124 Crest Nicholson Annual Integrated Report 2022 # Compliance and other disclosures # Directors' Report continued - Authority to disapply pre-emption rights up to an aggregate nominal amount of £642,301 (equivalent to 5% of the Company's issued share capital) - Authority to disapply pre-emption rights up to an aggregate nominal amount of £642,301 (equivalent to 5% of the Company's issued share capital) for transactions which the Board determines to be an acquisition or other capital investment as defined by the Pre-Emption Group's revised Statement of Principles - Authority to make market purchases of its own shares up to a maximum aggregate number of 25,692,053 (equivalent to 10% of the Company's issued shares). These standard authorities will expire on 30 April 2023 or at the conclusion of the next AGM, whichever is earlier. The Board currently intends to hold the AGM on 23 March 2023. At the 2023 AGM, the Company proposes to seek authority to issue non pre-emptively share capital of the Company in accordance with the recently updated Pre-Emption Group's Statement of Principles 2022 on Disapplying Pre-Emption Rights, being no more than 24% in total rather than the previous thresholds of 10% in accordance with the Pre-Emption Group's Statement of Principles published in 2015. Full details will be included in the explanatory notes in the Notice of AGM. In addition, the Company proposes to seek approval for two new long-term share schemes to ensure the Group has appropriate share schemes in place and that they operate consistently with the proposed Directors' Remuneration Policy. The two new share schemes will replace the existing share schemes that will expire in 2023. Full details will be included in the explanatory notes in the Notice of AGM. For details on the resolutions and explanatory notes, please refer to the Notice of AGM which will be posted to shareholders and made available at www.crestnicholson.com/investors/shareholder-centre. # Employee benefit trust As at 31 October 2022, the Group's employee benefit trust (EBT) held 788,140 ordinary shares in the Company for the purposes of satisfying awards under the Company's share and incentive plans. The EBT has waived rights to a dividend now and in the future. # Policies and procedures Policies and procedures, including operating and financial controls, are detailed in the Group's policies and procedures manuals. There are approval processes in relation to the acquisition of land and the commencement of development projects. All developments go through a rigorous approval and assessment process at Group level. The Group operates a range of compliance, ethical and equal treatment policies, including the equality and diversity policy and the anti-bribery and corruption policy. The Group also operates 'Speaking Up', our whistleblowing policy whereby employees and supply chain partners can report concerns via an independent, free and confidential helpline. The Speaking Up policy details the appropriate lines of communication and an escalation procedure enables any reports to be dealt with effectively and efficiently. A copy is available on the Group's website www.crestnicholson.com/supply-chain # Substantial shareholdings Set out below are the percentage interests in ordinary share capital of the Company, disclosable under the Disclosure Guidance and Transparency Rules, that were notified to the Company as at 31 October 2022 and 17 January 2023. As at 31 October 2022 As at 17 January 2023 | Shareholder | Number of voting rights held | % of voting rights held | Number of voting rights held | % of voting rights held | | --- | --- | --- | --- | --- | | abrdn plc | 17,908,723 | 6.97 | Below 5% | Below 5% | | Boldhaven Management LLP | 12,925,160 | 5.03 | 12,925,160 | 5.03 | | Liontrust Asset Management Plc | 12,684,562 | 4.94 | 12,684,562 | 4.94 | | Norges Bank | 10,079,020 | 3.92 | 10,079,020 | 3.92 | | Standard Life Assurance Limited | Not disclosable | Not disclosable | 8,400,308 | 3.27 | | Lorsden (Jersey) Limited | Not disclosable | Not disclosable | 7,976,420 | 3.10 | Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 125 Central functions Events after the balance sheet date ### Strong central functions support the There were no significant events after Directors’ Report approval Board, Executive Committee and divisional thebalance sheet date. Disclosure of information businesses. These functions include, among Branches to the auditor others: Legal and Company Secretarial, The Group has no branches outside The Directors who held oce at the Group Finance, IT, Human Resources, theUnited Kingdom. date ofapproval of the Directors’ Internal Audit, Marketing, Procurement, Report confirm that, so far as they Safety, Health & Environment (SHE), Change of control are each aware, there isno relevant Sustainability and Technical. Each central The Group has in place several agreements audit information of which the Group’s function contributes in its area of expertise with its lending banks, private placement auditor is unaware. Each Director has to improve compliance, oversight, support note holders, joint venture partners, taken all the steps they ought to have and education with the relevant legal Government authorities (such as Homes taken as a Director to make themselves and regulatory requirements. In addition, England), private investors and customers, aware of any relevant audit information principal treasury-related risks, decisions which contain certain termination rights that andto establish that the Group’s auditor and control processes are managed by would have an eect on a change of control. isaware of that information. theGroup Finance function. The Directors believe these agreements Appointment of auditor Significant contracts to be commercially sensitive and consider that their disclosure would be seriously PricewaterhouseCoopers LLP (PwC) The Group does not have any contracts prejudicial to the Group. was re-appointed at the 2022 Annual thatare considered alone to be essential to General Meeting (AGM) and is willing the business of the Group. The Group does, Accordingly, they do not intend to disclose to seek re-appointment this year. | on occasion, make significant purchases | specific details of these. In addition, all the | | | --- | --- | --- | | of goods and services from a sole supplier | Group’s share schemes contain provisions | Resolutions to re-appoint PwC will | | where this is deemed necessary for | that, in the event of a change of control, | be proposed at the 2023 AGM. | | eciency, practicality or value. However, | this would result in outstanding options | | Approval itdoes so only after a tender or appropriate andawards becoming exercisable, subject selection process and in the context of the The Directors’ Report was approved tothe rules of the relevant schemes. level of risk such sole supply might bring. bytheBoard of Directors on 17 January There are no agreements between the 2023 and signed on its behalf. Group and its Directors or employees Financial risk management providing for compensation for loss Note 25 to the consolidated financial of oceor employment that occurs statements set out the Company’s Kevin Maguire becauseofatakeover bid. approachto financial risk management Company Secretary including financial credit and liquidity risk. Political donations The Group made no political donations during the year (FY21: nil). Crest Nicholson ## 126 Annual Integrated Report 2022 ## A strong ## financial ## performance ## in the year ## The Group has made further good ## progress implementing its strategy ## and we have made good financial ## performance in the year. | Strategic | Governance and | Financial | | | | --- | --- | --- | --- | --- | | | | | Crest Nicholson Crest Nicholson | | | Report | Directors’ Report | Statements | | | | | | | Annual Integrated Report 2022 Annual Integrated Report 2022 | 127 127 | ## In this section | 128 Statement of Directors’ | | 183 Company statement | | | --- | --- | --- | --- | | | Responsibilities | | of financial position | | 129 Independent Auditors’ report | | 184 Company statement | | of changes in equity 138 Consolidated income statement 185 Notes to the Company 138 Consolidated statement financial statements of comprehensive income 188 Alternative performance 139 Consolidated statement measures (unaudited) of changes in equity 190 Historical summary (unaudited) 140 Consolidated statement of financial position 191 Shareholder services 141 Consolidated cash flow statement 192 Group directory 142 Notes to the consolidated financial statements Crest Nicholson ## 128 Annual Integrated Report 2022 ## Statement of Directors’ Responsibilities ## in respect of the financial statements The Directors are responsible for The Directors are also responsible for In the case of each Director in oce at preparingthe Annual Integrated Report keeping adequate accounting records thedate the Directors’ Report is approved: andthe financial statements in accordance that are sucient to show and explain the — So far as the Director is aware, there with applicable law and regulation. Group’s and Company’s transactions and isnorelevant audit information of disclose with reasonable accuracy at any Company law requires the Directors whichthe Group’s and Company’s time the financial position of the Group and toprepare financial statements for each auditors are unaware, and Company and enable them to ensure that financial year. Under that law the Directors — They have taken all the steps that the financial statements and the Directors’ have prepared the Group financial theyought to have taken as a Director Remuneration Report comply with the statements in accordance with UK-adopted in order to make themselves aware Companies Act 2006. | international accounting standards and | | ofany relevant audit information | | --- | --- | --- | | theCompany financial statements in | The Directors are responsible for | and toestablish that the Group’s | | accordance with United Kingdom Generally | themaintenance and integrity of the | and Company’s auditors are aware | | Accepted Accounting Practice (United | Company’s website. Legislation in | ofthat information. | | Kingdom Accounting Standards, comprising | the UnitedKingdom governing the | | | FRS 101 ‘Reduced Disclosure Framework’, | preparation and dissemination of financial | | On behalf of the Board and applicable law). statements maydier from legislation inother jurisdictions. Under company law, Directors must not approve the financial statements unless ### Directors’ confirmations Peter Truscott they are satisfied that they give a true and Director The Directors consider that the fair view of the state of aairs of the Group 17 January 2023 AnnualIntegrated Report and financial and Company and of the profit or loss statements, taken as awhole, is fair, ofthe Group for that period. In preparing balanced and understandable and provides the financial statements, the Directors the information necessary for shareholders arerequired to: to assess the Group’s and Company’s — Select suitable accounting policies position and performance, business andthen apply them consistently modeland strategy. — State whether applicable UK-adopted Each of the Directors, whose names and international accounting standards have functions are listed on page 71 confirm that, been followed for the Group financial tothe best of their knowledge: statements and United Kingdom — The Group financial statements, Accounting Standards, comprising whichhave been prepared in accordance FRS101, have been followed for the withUK-adopted international accounting Company financial statements, subject standards, give a true and fair view of to any material departures disclosed theassets, liabilities, financial position andexplained in the financial statements and profit of the Group — Make judgements and accounting — The Company financial statements, estimates that are reasonable and whichhave been prepared in accordance prudent, and with United Kingdom Accounting — Prepare the financial statements Standards, comprising FRS 101, give onthe going concern basis unless it atrue and fair view of the assets, is inappropriate to presume that the liabilities and financial position of Groupand Company will continue theCompany, and in business. — The Strategic Report includes a The Directors are responsible for fair review of the development and safeguarding the assets of the Group performance of the business and the andCompany and hence for taking position of the Group and Company, reasonable steps for the prevention and together with a description of the detection of fraud and other irregularities. principal risks and uncertainties thatit faces. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 129 ## Independent Auditors’ report ## to the members of Crest Nicholson Holdings plc ### Report on the audit of Basis for opinion We conducted our audit in accordance ### thefinancial statements with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. ### Opinion Our responsibilities under ISAs (UK) In our opinion: are further described in the Auditors’ — Crest Nicholson Holdings plc’s Group responsibilities for the audit of the financial financial statements and Company statements section of our report. We believe financial statements (the “financial that the audit evidence we have obtained statements”) give a true and fair view issucient and appropriate to provide of the state of the Group’s and of the abasis for our opinion. Company’s aairs as at 31 October 2022 | and of the Group’s profit and the Group’s | Independence | | --- | --- | | cash flows for the year then ended; | We remained independent of the Group in | | — the Group financial statements have been | accordance with the ethical requirements | | properly prepared in accordance with | that are relevant to our audit of the financial | | UK-adopted international accounting | statements in the UK, which includes the | | standards as applied in accordance | FRC’s Ethical Standard, as applicable to | | with the provisions of the Companies | listed public interest entities, and we have | | Act 2006; | fulfilled our other ethical responsibilities | | — the Company financial statements have | inaccordance with these requirements. | | been properly prepared in accordance | To the best of our knowledge and belief, | | with United Kingdom Generally Accepted | wedeclare that non-audit services | | Accounting Practice (United Kingdom | prohibited by the FRC’s Ethical Standard | | Accounting Standards, including FRS 101 | were not provided. | “Reduced Disclosure Framework”, Other than those disclosed in note 5 and applicable law); and oftheconsolidated financial statements, — the financial statements have been wehave provided no non-audit services to prepared in accordance with the the company or its controlled undertakings requirements of the Companies inthe period under audit. Act 2006. We have audited the financial statements, included within the Annual Integrated Report (the “Annual Report”), which comprise: the Consolidated and Company Statements of Financial Position as at 31 October 2022; the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Cash Flow Statement and the Consolidated and Company Statements of Changes in Equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit and Risk Committee. 130 Crest Nicholson Annual Integrated Report 2022 ## Independent Auditors' report continued ### Our audit approach #### Context Crest Nicholson Holdings plc is a residential housebuilder listed on the London Stock Exchange. The Group is wholly UK based, operating primarily across the Midlands and the southern half of England. The Group is susceptible to external macro-economic factors such as government regulation, mortgage availability and changes in the wider building sector such as customer demand, supply chain availability and build cost inflation. This is particularly relevant for our work in the areas of margin forecasting and the valuation of inventory. During the year ended 31 October 2022, the Group has increased its revenue as a result of higher unit sales and higher selling prices. The Group has recorded an additional exceptional charge in relation to the combustible materials provision, as a result of increases in cost estimates and the impact of the extension of scope from the government's Building Safety Pledge. Our audit procedures, as set out below in the related key audit matters, focused on the appropriateness of the significant accounting estimates made by management. #### Overview ##### Audit scope - We conducted an audit of the complete financial information of each of the five geographically-based housebuilding divisions, which form the majority of the Group. Specific balances and financial statement line items were audited within additional reporting units based on their size. Revenue, the carrying value of inventory, pensions and the combustible materials provision were tested at the Group level. ##### Key audit matters - Valuation of inventory at the lower of cost and net realisable value ("NRV") (Group). - Margin forecasting and recognition (Group). - Accounting for the combustible materials provision (Group). - Valuation of intercompany receivables (Company). ##### Materiality - Overall Group materiality: £6,400,000 (2021: £6,000,000) based on approximately 5% of current year profit before tax and exceptional items (2021: based on consideration of a number of acceptable benchmarks, this level of materiality is equivalent to approximately 6% of current year profit before tax and exceptional items). - Overall Company materiality: £2,200,000 (2021: £2,500,000) based on approximately 1% of total assets. - Performance materiality: £4,800,000 (2021: £4,500,000) (Group) and £1,800,000 (2021: £1,650,000) (Company). ### The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 131 ### Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest eect on: the overall audit strategy; the allocation of resources in the audit; and directing the eorts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not providea separate opinion on these matters. This is not a complete list of all risks identified by our audit. The key audit matters below are consistent with last year. Key audit matter How our audit addressed the key audit matter Valuation of inventory at the lower of cost and net realisable Our audit procedures included: value (“NRV”) (Group) — Confirming and updating our understanding of management’s Refer to Note 1 (Accounting policies) Note 4 (Exceptional items) process for preparing a forecast for each development, consistent andNote 19 (Inventories) of the Group financial statements, with the risk associated with the margin forecasting and recognition andpage94 (Key financial and internal control matters). process (see below); Inventory is the most significant balance on the consolidated — Testing management’s controls over the approval of the initial statement of financial position and is held at the lower of cost and net forecasts and the monitoring of updates required to the forecasts realisable value (“NRV”). While the cost is relatively straightforward over the course of the development’s life, including attendance at to determine, theNRV of each development is judgemental, based build cost control meetings at all divisions; on forecasts ofcosts and sales prices. During the year, a NRV charge — Testing the appropriateness and accuracy of the inputs into the of £9.6m was recognised resulting in a total NRV position at year development forecasts, for example by comparing sales prices endof £12.6m, with the majority expected to be utilised in the next andcosts to market research, quotes or purchase orders. As part of financial year. our audit procedures, we also had discussions with site surveyors and other individuals outside the finance function; Due to the size of the balances and the judgemental nature of the forecasts we determined that the valuation of this financial statement — Understanding the composition of the inventory balance, line item is a significant risk for the audit and therefore afocus of specifically the level and ageing of completed but ourwork. unreserved units, to confirm if completed units are held at the appropriate value; — Assessing the level of post year end reservations and comparing forecast sales prices to actual sales prices achieved or to external market data to determine if there are any valuation issues at the period end; — Evaluating the margins recognised on sites where we identified potential valuation issues, being those sites with low margins or high levels of completed and unreserved units at the year end date; — Evaluating the carrying value of part exchange stock by verifying sales values to external evidence and testing to post-year end reservations; — Assessing the accuracy of the NRV charge recognised in the period by testing management’s latest estimates of costs and sales prices, and confirmed the appropriateness of the NRV utilised during the year; and — Testing management’s NRV model to confirm the mathematical accuracy of the workings. Based upon the procedures performed we did not identify any sites where we determined that further material impairments were required. We are satisfied that the Group’s provisions were not materially misstated. Crest Nicholson ## 132 Annual Integrated Report 2022 ## Independent Auditors’ report ## continued Key audit matter How our audit addressed the key audit matter Margin forecasting and recognition (Group) Our audit procedures included: Refer to Note 1 (Accounting policies) of the Group financial — Testing management’s forecasting and monitoring controls statementsand page 94 (Key financial and internal control matters). for the developments (including attendance at a selection of management’s internal control meetings designed to monitor cost TheGroup’s margin is recognised on a plot by plot basis by movements) and testing over the data used in these meetings; reference to the margin forecast across the related development site. The margin per site reflects the best estimates of sales prices — Attending build cost control meetings at all divisions. and costs. There is a risk that the margin forecast for the site and Where necessary we followed up the controls testing with consequently the margin recognised on each unit sale is incorrect additional substantive procedures to obtain the required evidence; and not reflective of the management’s best estimates of the final — For a sample of sites where we noted variances in forecast build margin recognised on a development. costs comparing to the prior year, substantively testing a sample of the inputs at a high level of assurance to confirm these were As a result, profit margins could be manipulated through the high appropriate and appeared complete; level of management estimation involved in ensuring the accuracy and completeness of an individual site forecast, and the monitoring — Confirming, through sampling of additions to inventory, that costs of these estimates over time. Sales prices and build costs are were being allocated to appropriate developments and therefore inherently uncertain as they are influenced by changes in external impacting the correct margin; market factors, such as the availability and aordability of mortgages, — Assessing management’s overall historic accuracy of the forecasts changes in customer demand due to market uncertainty or build by analysing the changes to margins in the year and adjustments costinflation. made to margins through cost of sales. We also assessed how margins had moved across divisions to consider whether there There is higher uncertainty when a development is scheduled to be were any systemic trends that might impact revenue recognition; completed over a long timeframe. Management have implemented internal controls and forecasting to assess land acquisition prior — Checking, by recalculating the margins, that the system correctly to build commencement and assist the initial financial appraisal calculates the margin following each cost or sales price amendment process, and further controls to monitor the ongoing costs and made by management; salesprices within these forecasts. — Confirming the consistent application of the margin recognition framework through analysing the margins recognised on specific We consider the accuracy and completeness of forecasting and sites compared to the developments’ forecast margin; and margin recognition across the life of the site to be a significant financial reporting risk for the Group. — Auditing any material manual adjustments to margins to ensure these were appropriate by agreeing these costs/income to third party support. Based on the procedures performed, we did not identify any sites where we considered the actual margin recognised or forecast margin to be materially misstated. Strategic Governance and Financial Crest Nicholson Report Directors’ Report Statements ## Annual Integrated Report 2022 133 Key audit matter How our audit addressed the key audit matter Accounting for the combustible materials provision (Group) Our audit procedures included: Refer to Note 1 (Accounting policies), Note 4 (Exceptional items), — Enquiring with management, including the Executive Leadership Note23 (Provisions) of the Group financial statements and page 94 Team, which includes the CEO, Group Operations Director and (Keyfinancial and internal control matters). Group Legal Counsel, to understand the impact of signing the Pledge and to understand the movement in the provision in the The Group first recognised the combustible materials provision year and whether the approach taken aligns with accounting in 2019. The provision reflects management’s best estimate of the standards, as well as assessing completeness; forecast costs to remediate legacy sites which are identified to have defective or non-compliant fire or other build safety related issues, — Recalculating and checking the integrity of management’s manual and where the Group has a legal or constructive obligation to model to confirm its accuracy; perform this remediation. — Reading and understanding the requirements of the Pledge document as well as drafts of the long form agreement to confirm During the year the Group has recorded an exceptional cost of sales management’s assumptions and interpretations are reasonable charge of £102.5m, increasing the provision, which primarily reflects anddetermine the scope of required remediation; the extended scope of the Group signing the UK government’s Building Safety Pledge, but also reflects changes in cost estimates. — Testing the valuation of the provision recorded at the year end. The calculation behind the provision is judgemental, in particular For sites where the Building Safety Fund (BSF) have made given defective work cost estimates are provisional until detailed full or partial awards, this involved agreeing the amounts to intrusive works can be performed, and that defective works cannot correspondence from DLUHC. For the remaining sites where an always be identified and assessed until a claim has been received obligation exists but no award has been made by the BSF, our orintrusive works performed. focus was testing management’s internal estimates to understand the extent of remediation required. This testing also included The provision is identified as a critical accounting estimate as there assessing whether the provisions were recognised in the remain several factors which could drive further changes to the level correct period; of provision required in future periods, in particular government — Assessing the completeness of the provision through various guidance and intervention and new claims. procedures, including internet searches on unnotified buildings, Given the related estimation uncertainty, we identified the valuation trend analytics on sites by location and comparison of similar and completeness of the combustible materials provision as a buildings. We also performed external searches for management significant risk for the audit. companies who have notified the Group of remediation issues, resulting in the recognition of a provision, to identify other potential buildings and to assess exposure; — Assessing the technical capabilities and expertise of the Group’s employees and consultants involved in assessing the provision; — Reviewing the disclosures made in the financial statements and considering these both in the context of IAS 37 and expected disclosures around contingent liabilities; and — Auditing the long-term and short-term split of the provision based on management’s best estimate of the timing of plans for remediation, which is likely to be impacted by the timing of signing the long form agreement. Overall, we concluded management’s assessment was reasonable given the level of judgement involved. 134 Crest Nicholson^{}[] Annual Integrated Report 2022 ## Independent Auditors' report | Key audit matter | How our audit addressed the key audit matter | | --- | --- | | **Valuation of intercompany receivables (Company)** Refer to Note 5 (Trade and other receivables) of the Company financial statements. Intercompany receivables of £222.4m are the largest financial statement line item in the Company financial statements and are repayable on demand. The recoverability, and any expected credit losses, of these balances from other Group companies depends on the ability of the Group as a whole to generate cash flows to enable future repayment. Whilst this is not a significant risk for the audit, in the context of the audit of the Company it is the area of highest audit effort. | Our audit procedures included: — Testing the outcomes of the Group's going concern model, in particular the cash flow forecasts, and confirming that there were no liquidity issues in the Group; and — Verifying the level of cash held by the subsidiaries of the Group and their ability to repay this if required. Based on our procedures performed we did not identify any material issues with regard to valuation of classification of intercompany receivables. | ### How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group's financial statements are ultimately a consolidation of 18 reporting units (each of which were deemed to be components) representing the Group's geographically-based housebuilding divisions, other smaller trading subsidiaries and the centralised functions. The reporting units vary in size, but the bulk of the Group's operations is represented by the five geographically-based housebuilding divisions. Consequently, we determined each of these five divisions required an audit of its complete financial information due to its size. These five reporting units were all audited by the Group engagement team. The reporting units where we performed an audit of the complete financial information, in addition to the audit of consolidation journals and the audit of specific financial statement line items for other reporting units, accounted for 100% of the Group's revenues and 96% of the Group's profit before tax and exceptional items. We audited exceptional items at the Group level. The audit of specific financial statement line items included a further two reporting units, to provide additional coverage over items such as administrative costs and accruals. Our audit work across these reporting units, together with the additional procedures performed at the Group level on revenue, the carrying value of inventory, the consolidation, goodwill, taxation, retirement benefit obligations, payroll expense, finance expense, loans and borrowings, provisions and other financial assets, gave us the evidence we needed for our opinion on the Group financial statements as a whole. The audit of the Company financial statements consisted of the full scope audit of one reporting unit which operates as the holding Company function. ### The impact of climate risk on our audit As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the Group's and Company's financial statements. The risks are primarily transitional and relate to additional regulatory and/or reporting requirements, which may result in further cost to the Group. These costs, for example by applying the Future Homes Standard to new homes from 2025, will impact the whole housebuilding sector and therefore become a feature of house price valuation at that time. The Group will also procure land factoring in these costs to its future margin appraisals, but there is a risk that for some existing parts of the landbank that these costs have to be absorbed by the Group. We have audited management's assessment of this risk and it does not result in any material changes to future margins or to current inventory valuation levels. Our procedures, therefore, did not identify any material impact as a result of climate risk on the Group's and Company's financial statements. ### Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: | | Financial Statements – Group | Financial Statements – Company | | --- | --- | --- | | **Overall materiality** | £6,400,000 (2021: £6,000,000). | £2,200,000 (2021: £2,500,000). | | **How we determined it** | Approximately 5% of current year profit before tax and exceptional items (2021: based on consideration of a number of acceptable benchmarks, this level of materiality is equivalent to approximately 6% of current year profit before tax and exceptional items). | Approximately 1% of total assets. | | **Rationale for benchmark applied** | Profit before tax and exceptional items is one of the key measures used by the shareholders in assessing the performance of the entity and is a generally accepted auditing benchmark. | We believe that total assets is the primary measure used by the shareholders in assessing the performance of the entity, which acts solely as a holding company, and is a generally accepted auditing benchmark. | Strategic Report Governance and Directors' Report Financial Statements Crest Nicholson Annual Integrated Report 2022 135 For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £1 million and £6 million. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £4,800,000 (2021: £4,500,000) for the Group financial statements and £1,800,000 (2021: £1,650,000) for the Company financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above £300,000 (Group audit) (2021: £300,000) and £110,000 (Company audit) (2021: £125,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. ### Conclusions relating to going concern Our evaluation of the directors' assessment of the Group's and the Company's ability to continue to adopt the going concern basis of accounting included: - Evaluating the appropriateness of the going concern assessment performed by the directors, including the accuracy of the underlying model and the principles applied to determine the cash flows, in particular in the base case model; and - Testing of the key assumptions used in the model, including comparison to third party market information where appropriate and confirmation that the assumptions used in the "severe but plausible" scenario were sufficiently severe to model potential future economic downturn, above and beyond current market forecasts. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group's and the Company's ability to continue as a going concern. In relation to the directors' reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. ### Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic report and the Directors' report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Crest Nicholson ## 136 Annual Integrated Report 2022 ## Independent Auditors’ report ## continued Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters asdescribed below. ### Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and the Directors’ report for the year ended 31 October 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and the Directors’ report. ### Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. ### Corporate governance statement The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information aredescribed in the Reporting on other information section of this report. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to: — The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks; — The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks andan explanation of how these are being managed or mitigated; — The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basisofaccounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability tocontinue to do so over a period of at least twelve months from the date of approval of the financial statements; — The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers andwhythe period is appropriate; and — The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Our review of the directors’ statement regarding the longer-term viability of the Group and Company was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit: — The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy; — The section of the Annual Report that describes the review of eectiveness of risk management and internal control systems; and — The section of the Annual Report describing the work of the Audit and Risk Committee. We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. Strategic Report Governance and Directors' Report Financial Statements Crest Nicholson Annual Integrated Report 2022 137 ## Responsibilities for the financial statements and the audit ### Responsibilities of the Directors for the financial statements As explained more fully in the Statement of Directors' Responsibilities in respect of the financial statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group's and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. ### Auditors' responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 6As (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to government guidelines on fire safety and other health and safety requirements, employment law, including legislation relating to pensions, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Listing Rules and the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to management bias, in particular in areas of estimation uncertainty as set out in note 1 to the consolidated financial statements. Audit procedures performed by the Group engagement team included: - Discussions with the Executive Leadership Team, divisional management teams and the Audit and Risk Committee, review of internal audit reports and consideration of known or suspected instances of non-compliance with laws and regulation and fraud; - Evaluation and testing of the operating effectiveness of management's controls designed to prevent and detect irregularities, in particular their controls around cost and margin forecasting; - Challenging the assumptions and judgements made by management in determining their significant accounting estimates, in particular in relation to cost forecasting, margin estimation and provisions (see related key audit matters above); and - Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations including unusual or unexpected journal postings to the consolidated income statement. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditors responsibilities. This description forms part of our auditors' report. ### Use of this report This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. ## Other required reporting ### Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: - we have not obtained all the information and explanations we require for our audit; or - adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or - certain disclosures of directors' remuneration specified by law are not made; or - the Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. ### Appointment Following the recommendation of the Audit and Risk Committee, we were appointed by the members on 23 March 2015 to audit the financial statements for the year ended 31 October 2015 and subsequent financial periods. The period of total uninterrupted engagement is eight years, covering the years ended 31 October 2015 to 31 October 2022. ### Other matter In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.114R, these financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard ('ESEF RTS'). This auditors' report provides no assurance over whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS. Darryl Phillips Senior Statutory Auditor For and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 17 January 2023