crest nicholson holdings annual report (2010)

31st October 2010

CREST NICHOLSON HOLDINGS LTDDIRECTORS’ REPORT & ACCOUNTS

PORT MARINE, Portishead

KEY PERFORMANCE INDICATORS

DIRECTORS’ REPORT & ACCOUNTS 2010 | 2

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

KEY PERFORMANCE INDICATORS

£47.3m

£27.9m

27.5%

OPERATING PROFIT (2009: (£4.5m))

CASH FLOW (2009: £101.9m)

GROSS PROFIT MARGIN (2009:13.9%)

13,615

78%

£6,381m

SHORT TERM LANDBANK UNITS (2009:12,823)

HOMES BUILT ON BROWNFIELD LAND* (2009: 86%)

LANDBANK GDV (2009: £6,159m)

33%

62%

5-star CUSTOMER SERVICE independent rating

REDUCTION SINCE 2008 in Annual Injury Incidence Rate

WASTE REDUCTION to landfill since 2007

2 further BUILDING FOR LIFE AWARDS AND GOLD STANDARDS

>99%TIMBER SUPPLY audited with WWF as assured and legal*

COVER ELEMENTS, Epsom

Registered no. 6800600

*Not included in the Directors’ Report forming part of the Report and audited financial statements for the year ended 31st October 2010.

PARK CENTRAL, Birmingham

CONTENTS


CONTENTS

Chairman’s Statement 04

Chief Executive’s Review 05

Financial Review and Directors Report 08

Sustainability Review 16

Statement of Directors’ Responsibilities 22

Independent Auditor’s Report 23

Consolidated Income Statement 24

Consolidated Statement of Comprehensive Income 25

Consolidated Statement of Changes in Equity 26

Consolidated Statement of Financial Position 27

Consolidated Statement of Cash Flows 28

Notes to the Consolidated Financial Statements 29

Company Balance Sheet 53

Notes to the Company Financial Statements 54

CLARIDGE PARK, Milton Keynes

CHAIRMAN’S STATEMENT


CHAIRMAN’S STATEMENTbeing taken by our principal shareholders, provide a solid platform for future business growth and profitability.

The change of Government has resulted in a pause as the sector develops its understanding of the potential impact of the comprehensive spending review and changes in the planning system, and the figures in this report illustrate the continued loss of output across the industry.

The lack of mortgage finance, coupled with uncertainties in the planning regime, means there is hard work still to be done to meet Government aspirations for housing delivery.

Crest Nicholson’s commitment to excellence in design and constructive dialogue with both regulatory and community stakeholders, together with our mission to put sustainability principles and practice at the centre of our business,

will ensure we have the right balance of strategic strengths to drive economic success.

We are encouraged by our results in what has been a very challenging financial and market environment and the Board pays tribute to the hard work and commitment of our employees, who ensured that Crest Nicholson has robustly weathered the economic downturn and emerged in good shape to take advantage of opportunities that arise.

Alan GoldmanChairman

Following our decisive actions to ensure the business survived the downturn, Crest Nicholson successfully negotiated with lenders to progressively reduce the restrictions placed on it as a result of the 2009 restructuring.

This has facilitated a return to land buying and a focus on regrowing the business. These actions, along with the further steps

CHIEF EXECUTIVE’S REVIEW


HARBOURSIDE, Bristol

The tangible outcome of our business approach is high-quality new developments that successfully balance economic, environmental and social considerations to deliver an enduring contribution to the public realm and people’s quality of life.

Our results

Our financial results reflect a year of marked contrasts in the housing market. After an encouraging first half, with better than anticipated volumes and rising sale prices, we saw public confidence reducing after the General Election and ahead of the Comprehensive Spending Review, as prospective buyers confronted the challenges of affordability, mortgage availability and unemployment risks.

Against the backdrop of an uncertain market, we have made real progress in improving our financial position through close collaboration with our banks and advisers, building confidence by delivering on our commitments. As a result, we were able

to re-enter the land market and secure 11 new sites in 2010.

We also continued to help first time buyers to unlock financing through the Government’s HomeBuy Direct scheme and our own EasyBuy scheme. These schemes supported 20% of our total sales volume this year.

The market

The heavily centralised planning system of the last 20 years is considered by some to be the major factor in non-delivery of national housing targets set by the previous Government, but macro-economic constraints have also restricted output.

11 new sites We were able to re-enter the land market and secure 11 new sites in 2010.


MERCHANTS QUAY, Gloucester



That said, the abandonment of regional and national strategy and targets by the new Government in favour of local decision-making represents a radical change whose impacts are yet to be fully realised, particularly in terms of delivering much-needed new sustainable housing.

Crest Nicholson’s commitment to socially and environmentally responsible development positions us to take a proactive role under this new localism agenda and achieve successful planning outcomes. Our understanding of and commitment to this broad and complex arena, allied with our ethos of quality design and construction, will be even more significant differentiators than they are today.

Indeed, there is a natural synergy between good design, localism in planning and sustainability. Good design must reference the local landscape; local planning demands a clear understanding of community needs and consensus-building; and sustainability is key to delivering homes and communities for the low-carbon economy. In all three areas, Crest Nicholson is equipped to take a lead.

Viability issues remain a significant challenge for our industry. For Government to see the much-needed increase in

new homes there needs to be significant structural change – a more stable macro-economic environment and a viable delivery framework in which both developers and buyers can feel more confident – as well as an improvement in mortgage availability.

Developing our business

The contribution of our employees is vital to our future success and the exemplary professionalism of our people in this difficult year is fully appreciated. We have made it a priority to invest in retaining and developing skills in readiness for the economic upturn. The health, safety and wellbeing of staff and contractors – and everyone who comes into contact with Crest Nicholson – is of paramount importance. In 2010, we continued a positive trend by further reducing accidents and injuries in our operations and I want to see the bar raised even higher in coming years as we work towards exceptional performance.

Sustainability has for many years been embedded in our business strategy and operations and remains key to delivering the desirable, low carbon homes of the future. New ideas are fundamental to this, since business innovation and sustainable business are two sides of the same coin.

This is why we are investing significant time and resources to partner with our supply chain to develop groundbreaking products and construction techniques through the AIMC4 consortium.

We have placed the customer at the heart of our journey, ensuring that innovations and research place homeowners central to achieving low carbon emission outcomes, coupled with the development of desirable, sustainable communities. In partnership with CABE, the Group made a public commitment that all new sites being acquired will be reviewed against Building for Life, with a view to achieving a minimum Silver Standard across every single future development site.

In partnership with CABE, the Group made a public commitment that all new sites being acquired will be reviewed against Building for Life, with a view to achieving a minimum Silver Standard across every single future development site.

KALEIDOSCOPE, Cambridge



Our legacy in the built environment is the true measure of the success of our delivery, and we remain committed to excellence.

Awards

The breadth of our experience and the skill base of our employees is continually reflected in an increasing portfolio of awards, these awards not only represent the quality of our end product but also the high standards that we endeavour to achieve throughout the business.

We are proud to maintain our record as holder of more Gold Building for Life standards than any other developer and this position was reinforced in 2010 with the addition of Gold standards for Avante, Coxheath and One Brighton, Brighton. This success confirms our commitment to ensuring that all our sites undergo the rigorous quality assessment around which BfL is framed.

Our focus on sustainable delivery has ensured that we remain a consistent top performer in the NextGeneration industry benchmark and we were delighted that our highly sustainable scheme Icon, Somerset, was recognised as the overall winner in the Housing Design Awards 2010. These

accolades firmly underpin the design quality and sustainable ethos which Crest Nicholson is striving to replicate across its portfolio.

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

Our people remain our greatest asset and we were proud to achieve a ‘regional’ and ‘national’ National Training Award for our bespoke Sales Advisor training programme. Furthermore, the priority given to achieving the highest standards of health and safety were recognised when seven of our Site Managers, more than any other developer, received NHBC Health & Safety Awards and a further nine Site Managers received NHBC Pride in the Job awards.

We continually strive to achieve our ultimate goal of delivering outstanding customer satisfaction and we are encouraged to report that we achieved the highest 5 star rating in the HBF Customer Satisfaction survey, reflecting the ultimate accolade that 9/10 of our purchasers would recommend Crest Nicholson to a friend.

Outlook

The volume of housing completions in 2011 is likely to be lower than in 2010, as the impact of reduced land buying in recent years and delayed operational commencements designed to match production with demand has temporarily reduced the number of sales outlets from which the business is operating.

In the short term, the business will continue to face challenges with subdued prices and lower volumes. Over the longer term, the fundamentals of the housing market remain strong, underpinned by a structural imbalance between supply and demand.

The steps that have been taken to restructure the operations and the finances of the business, along with our continued commitment to excel in the area of sustainable development, provide a solid platform for future profitability.

Stephen Stone Chief Executive

INGRESS PARK, Greenhithe

BUSINESS REVIEW


The Directors present their annual report with the consolidated accounts of the company and its subsidiaries for the year ended 31st October 2010.

Principal activities and business review

Principal ActivityDuring the year to 31st October 2010, the principal activity of the Group was the design and delivery of sustainable housing and mixed use communities.

Results and Dividend1 Results for the financial year ended

31st October 2010 reflect a good trading performance in the face of a subdued housing market and an increasingly difficult economic backdrop.

In the first half of the year in particular, house prices recovered strongly, underpinned by a shortage of properties for sale. Stronger pricing has fed through to improved gross margins, with housing gross margin percentage rising to 15.5% from 9.3% in 2009.

Open-market housing completions have been maintained at a similar level to last year, although the restricted availability of mortgage finance has continued to be a constraint on volumes.

The business has generated positive cash flow in the year of £27.9m, (2009 £101.9m), with receipts including the benefits from higher pricing accompanied by strong controls over work-in-progress.

FINANCIAL REVIEW & DIRECTORS’ REPORT

1 On 24th March 2009, Castle Bidco Ltd, the immediate parent company of Crest Nicholson PLC, was acquired by the company, as part of a financial restructure of the Crest Nicholson business. The company became the ultimate parent company of Crest Nicholson PLC (Crest), which in turn owns the trading operations of the Group. Comparative figures for 2009 are thus for the period from 24th March 2009 to 31st October 2009.

Year-on-year comparatives for ‘Crest’ refer to the ongoing trading operations of the Group.

BOLNORE VILLAGE, Haywards Heath

BUSINESS REVIEW


Group profits before financing costs, share of profits from joint ventures and tax were £47.3m (2009 Loss of £4.5m). The 2009 result included an exceptional item of £18.7m, being an impairment of the element of goodwill arising on CNHL’s acquisition of Castle Bidco Limited which was not supported by expected future cash flows.

After financing costs and taxation, The Group recorded a loss of £27.6m (2009 loss of £50.5m)

The Directors do not propose a dividend.

Financial Position

Following the financial restructuring of the Crest Nicholson Holdings Limited group in March 2009, the business has been dependent for its working capital requirements on funds provided to it through senior bank facilities totalling £500 million, which are scheduled for repayment in March 2012.

During the year, the Directors commenced discussions with its lenders about a further financial restructuring of the Group, to

increase the equity on the Group balance sheet and extend bank facilities for a further three to four years. After the balance sheet date, Värde Partners, together with certain market associates and partners, progressively acquired the debt of other group lenders in order to facilitate a financial restructuring of the Group.

At 23rd March 2011, Värde Partners, together with certain market associates and partners, had control over more than 80% of the senior debt of the Group, which enables them to pursue the financial restructuring of the Group, either by consent or through a scheme of arrangement. The precise terms of this restructuring have still to be agreed, but draft and indicative terms include the conversion of £359m of debt to equity, restoring the Group balance sheet to a net asset position, borrowing facilities being made available to the Group on normal commercial terms and the extension of bank facilities through to 2015. The £359m of debt conversion comprises £200m of senior debt, £150m of subordinated PIK debt and capitalized interest on the PIK debt of £9m. Värde Partners have written to

the Directors requesting that the company works with them to achieve this significant de-leveraging of the Group balance sheet.

The restructuring of the Group balance sheet will put the Group on a more sustainable financial footing and enable it to pursue commercially attractive opportunities as they arise.

£47.3mGroup profits before financing costs, share of profits from joint ventures and tax

BUSINESS REVIEW


Group net assets at 31st October

2010

£m

Amortization of bank debt

fair valuationdiscount

£m

Debt conversion

£m

Proforma net assets of the Group at 31st

October 2010 £m

ASSETS

Non-current assets 57.8 57.8

Current assets 531.3 531.3

Total assets 589.1 589.1

LIABILITIES

Non-current liabilities (507.6) (87.3) 358.9 (236.0)

Current liabilities (180.5) (180.5)

Total liabilities (688.1) (87.3) 358.9 (416.5)

NET (LIABILITIES)/ASSETS (99.0) (87.3) 358.9 172.6

Note: this unaudited pro forma statement of net assets has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not represent the actual financial position or results of the Group at that date. The proforma illustrates only the impact of debt conversion and does not include any other adjustments that may arise.

The table below is an unaudited pro forma statement of consolidated net assets of the Group, which has been prepared to illustrate the effect of the restructuring on the consolidated net assets of the company as if the restructuring had taken place on 31st October 2010.

THE BEACON, Hindhead

BUSINESS REVIEW


27.5%Group gross profit margin for the period, after sales and marketing costs.

THE ACADEMY, Kilburn

Housing

Total Crest housing completions in 2010 were 1,609 units, down 14.3% on the 1,878 completions achieved in 2009. Open market completions of 1,330 (2009 1,365) were down 2.6%, whereas completions of affordable units were down 45.6% to 279 (2009 513). The lower number of affordable unit completions was in part a consequence of a hiatus in new site starts resulting from the terms of the March 2009 restructuring, under which a number of sites were temporarily mothballed.

The average sale price was £187k, up 13.3% on the £165k recorded in 2009 reflective both of improved pricing and the lower number of affordable units in the 2010 housing mix.

Forward sales for 2011 and later years amounted to £99.1m (2009 £165.7m), which includes c.20% of 2011 open market housing sales (2009 37%).

Mixed Use CommercialConditions in the commercial property market continue to be subdued and revenues recognised in the year primarily relate to sales at our Park Central development in Birmingham.

MarginsGroup gross profit margin for the period was 27.5% (2009 13.9%), after sales and marketing costs. Stronger pricing in the year has underpinned this improvement, supported by controls over the levels of stock and work-in-progress which have averted any need for excessive discounting.

The business has continued to maintain a focus on cost savings and efficiencies and has – where appropriate – re-negotiated certain of its development agreements to secure viable margins.

PAPERMILL WALK, Ingress Park

BUSINESS REVIEW


The short term housing land bank has increased by 792 plots in the year, as the Group has re-commenced land buying after a hiatus during the worst part of the housing market downturn and converted a number of plots from the strategic land bank during the year. The Group continues to seek benefits from re-planning sites where appropriate, to adopt a product mix more suited to the current sales environment and to secure greater flexibility on timing of production.

At the 2010 level of Crest turnover, the short term housing portfolio represents over 8 years supply, although the growth

intentions for the business would result in a lower figure. The Group also monitors the number of selling outlets that it has, to ensure that the business has an appropriate number of sites open for sales at any one time. This measure of land bank ‘width’ is a more pertinent guide to potential future volumes and selective additional land acquisitions are targeted to maintain the optimum number of sales outlets.

Our strategic land bank continues to provide a source of longer-term development value as sites are converted to short term portfolio at the prevailing market price.

Land Bank The Group’s contracted land bank is summarised in terms of units and gross development value as follows:

2010 2009

Units GDV £m Units GDV £m

Short term housing 13,615 2,605 12,823 2,375

Short term commercial - 281 - 335

Total short term 13,615 2,886 12,823 2,710

Strategic land 16,726 3,495 18,330 3,449

Total under contract 30,341 6,381 31,153 6,159

The Group converted over 1,200 plots from the strategic land bank during the year and continues to promote a number of sites for future development.

DonationsDuring the year the Group made donations to charities of £2,000 (2009 £2,000). Employees have continued to support the Group’s nominated charity, The Variety Club and raised £11,000 for this cause during the year. There were no political donations made.

ADMIRALTY QUARTER, Portsmouth

BUSINESS REVIEW


Managing risk is a core element of executive management; a risk management framework must be proactive and dovetail with normal business processes, to drive business benefits.

Making it part of normal business therefore means:

• Having a hierarchy of risk assessments

• Focusing on key risks

• Linking the assessment of risks to consequential actions

- Monitoring controls

- Developing mitigating actions

- Establishing ownership

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

The Audit Committee reports to the Board and the external auditors perform controls work as part of the annual audit.

RISKS AND UNCERTAINTIES

BUSINESS REVIEW


AREA RISK MITIGATION

The principal risks facing Crest Nicholson in 2011 include but are not limited to those set out in the table below:

MACRO-ECONOMIC CLIMATE

PLANNING UNCERTAINTY

RECRUITMENT & RETENTION

REGULATION

HEALTH, SAFETY AND ENVIRONMENTAL

MORTGAGE LENDING

Consumer confidence is undermined by a worsening of current economic conditions, leading to a rise in unemployment and/or pessimism about employment prospects

The introduction of principles of ‘Localism’ to planning matters is likely to cause uncertainty and delay, as local authorities weigh the benefits of housing development against other pressures.

Ability to recruit and retain staff with the requisite skills to secure and deliver sustainable developments which generate appropriate returns

Changes to Government Policy on housing and planning gain, increasing regulation, cost and delay will render schemes and land buying unviable.

Injury to persons, potential loss of life, serious damage to sites and environment. Reputational damage and costs.

Mortgage availability will continue to be constrained, particularly for first time buyers requiring higher loan-to-value products

Keep economic environment under review, to ensure the business can respond appropriately to changes in trading conditions

Develop understanding of the new approach to planning, working closely with key regulators and decision makers, and incorporating planning environment uncertainties into assessment of land opportunities

Ensure company is a desirable employer, with competitive packages, clear career progression, good communication, training and review processes

Monitor closely changes /proposed changes in regulatory environment, and make representations as necessary. Ensure financial appraisals include new regulatory cost assessments.

Executive Board leadership and scrutiny of health, safety and environment. Dedicated teams in place, comprehensive procedures and controls.

Monitor lending product availability, work to increase finance availability for developments and seek to assist purchasers through the use of schemes such as the Government’s HomeBuy Direct. Manage cash flow by matching production to finance availability.

Social and environmental risk are analysed in more detail in our comprehensive 2010 Sustainability Report, with a particular focus on the business risks and opportunities associated with Climate Change.

BUSINESS REVIEW


Disclosure of information to auditorsThe Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the company’s auditors are unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information.

Directors during the year:Mr S Stone

Mr D P Darby (Resigned 19th January 2011)

Mr N C Tinker

Mr A I Goldman

Mr A M Coppel

Mr M G McCaig

AuditorsPursuant to section 487 of the Companies Act 2006, the auditors will be deemed to be reappointed and KPMG Audit Plc will therefore continue in office.

By Order of the BoardK M MaguireSecretaryCrest House, Pyrcroft Road,Chertsey,SurreyKT16 9GN

18th April 2011

DIRECTORS

HARBOURSIDE, Bristol


SUSTAINABILITY REVIEW


The most sustainable business is one that prospers and grows. Our vision for sustainable communities is part of our core purpose and sets us apart in our market. This year we continued to address economic, regulatory and technical challenges and moved further towards realising the full value of sustainability for our business.


AVANTE, Coxheath

Crest Nicholson’s sustainability goals relate directly to our business strategy and priorities.

Our reputation as a company with a clear, long-term vision founded on design and quality has undoubtedly helped us to maintain strong relationships with banks and other stakeholders, particularly over the last two challenging years. Our proactive engagement with senior local authority officers and councillors was a real highlight this year, providing further evidence that authorities do want to see new housing and are looking for ways to deliver it in sustainable ways.

In every local authority where we hold land, we were able to talk openly and strategically about delivery, share a common perspective on the need for new, sustainable housing and agree that there should be no compromise on stretching sustainability goals – including lower carbon new homes. All this must be balanced against other community needs such as affordable homes, local infrastructure and education. That shared understanding also gave us a basis for exploring viability challenges for our industry.

Chris TinkerRegeneration Chairman

Board Director responsible for Sustainability



Embedding sustainability thinking and practice remains a priority. Indeed, 2010 has seen a great deal of learning in many parts of the business as technical challenges have been met and surmounted – from the intricacies of the Government’s SAP calculation tool for energy efficiency design, to the use of renewable energy.

We firmly believe that sustainability must be part of our everyday culture. As a business, we are linking the sustainability agenda more comprehensively to commerciality and viability, and revisiting our sustainability goals and targets.

With business performance, innovation and sustainability as key goals, we will continue to participate actively in the AIMC4 consortium, now in its second year. This is key to delivering the next generation of sustainable homes cost-effectively in volume, for which we need products and build solutions suitable for the real-world conditions of our industry and to meet our customers’ needs.

We have also begun a strategic programme to understand the performance of our homes in practice – both in terms of build

and customer interfaces and we were delighted to be awarded a project for Building Performance Evaluation in the first such programme launched by the Technology Strategy Board. The knowledge from this work, and future programmes, will ensure continuous improvement cycles are embedded within Crest Nicholson, not least to ensure that our homeowners are able to realise in practice the sustainability benefits we design into the homes of the future.

Ultimately, it is with our customers that we can take important steps to promote sustainability. Putting aside the fact that the sustainability value of new homes is still not fully recognised in the market we can, and must, make sustainability real for our customers and our business.

As an industry and as a company we need to translate customer satisfaction into inspiring communication, engaging all our customers in the true benefits of designing and building for lower carbon, more sustainable lifestyles.

BASE, Brentwood

Customers at one of our Sales and Marketing Suites



Testing new products and technologies with Focus Groups.

A long term programme of Post-occupancy feedback to drive customer centric innovation.

Continuously improving our handover, induction processes and homeowner guides.

Working with the Zero Carbon Hub on Customer Engagement: making sustainability benefits a homeowner reality.

Working with lenders to drive added value for sustainability features.

For the second year a 5-star rating for customer satisfaction in the HBF independent survey.

96% of our customers would recommend Crest Nicholson to a friend.

Delivering excellence in customer service

Ensuring the sustainable homes of the future are customer focussed

Delivering aspirational homes of the future which also deliver real reductions in carbon emissions means putting the customer at the heart of everything we do.

KEEPING THE CUSTOMER AT THE HEART OF THE BUSINESS

96%of our customers would recommend Crest Nicholson to a friend

In a difficult market, it has been more important than ever to deliver homes of the highest quality, to ensure we understand our customers’ needs and to bring desirable homes to market in the right place at the right price.

As an industry, and as a company, we need to translate customer satisfaction into inspiring communication, engaging all our customers in the true benefits of designing and building for lower carbon, more sustainable lifestyles.

Included in the Sustainability Review is some commentary which was not included in the Directors’ Report forming part of the Report and audited financial statements for the year ended 31st October 2010.

AVANTE, Coxheath



There is much debate around what makes a sustainable community. Many complex and sometimes conflicting issues must be carefully balanced in order to create a truly sustainable community.

DELIVERING SUSTAINABLE COMMUNITIES

A sustainable community is a place that adds to quality of life and stability. It provides homes with a range of types and tenure that match current lifestyles, but that can also adapt to changing needs. It will have been created with respect for the local environment – both in terms of the built form and how it supports people in leading more sustainable lifestyles. It must be well integrated within the locality, especially in terms of design and character, notwithstanding the need for good access to transport and other services.

Fundamentally, it’s a place that can stand the test of time because it is planned, designed, built and maintained to high standards responding to local community needs and aspirations and with the long-term future in mind.

Responding to local needs

In-depth consultation, along with detailed planning and design, ensure we offer housing choice and a suitable mix of tenure which will create neighbourhoods that cater for a wide range of households and socio-economic groups.

Delivering responsibly and with care and consideration

An average score of 33 in the Considerate Constructors Scheme against the “Best Practice” level of 32.

Building for Life

All new schemes will target silver standard as a minimum.

A Building Performance Evaluation (BPE) Strategy to understand the actual performance of our homes once built and occupied.

With Oxford Brookes University, we successfully bid for a Building Performance Evaluation project in the first such programme launched by the Technology Strategy Board.

A strategy to understand how our homes perform and embed new continuous improvement cycles


ICON, Street



Embedding sustainability thinking and practice to be part of our everyday culture remains a priority. New ideas are key to this, since business innovation and sustainable business are two sides of the same coin.

LOW CARBON HOMES FOR THE FUTURE

The UK’s stretching carbon reduction targets are a significant challenge for the design and development of new homes, with technical definitions such as ‘Zero Carbon’ and ‘Carbon Compliance’ still evolving.

Delivery

Over half our homes met EcoHomes or Code for Sustainable Homes standards, and all were designed to Code 4.

Regulations

We work closely with Regulators, Trade associations, NGOs and experts to understand and influence developing regulation. We contribute to Government Advisory Groups, are part of the Zero Carbon Hub Workgroups, and are members of the UKGBC.

Innovation

We continued to drive innovation in cost effective low carbon homes via the AIMC4 Consortium.

Measurement and continuous improvement

We set targets for reduction in carbon emissions through energy and water use, and have a focus on resource management and elimination of waste. We report our carbon footprint annually according to the GHG Protocol, our data is externally assured. www.crestnicholson.com/reports.

Over 99%Of our timber supply is audited by WWF as legally sourced, to FSC or PEFC standards.

Responsible Procurement

We implement a sustainable procurement policy, sharing the journey with our suppliers to provide value, quality and demonstrate that their approach is environmentally responsible.

Over 99% of our timber supply is audited as legally sourced, 62% to FSC standards, and assured through our membership of the World Wildlife Fund, Forest Trade Network.




Our employees’ talents and skills play a pivotal part in building a sustainable business, and we have made it a priority to invest in developing the expertise of frontline teams.

Our approach to managing health and safety is focused on risk reduction, regular monitoring, behavioural based procedures and training, and continuous improvement. We are raising the bar even higher in coming years as we work towards exceptional performance in health and safety.

As a responsible business we focus on reducing our own carbon emissions, and publish a Climate Change report annually. What can be measured can be managed and we continue to invest in capturing key information to understand and reduce our full carbon footprint. We apply this approach to resource conservation – ‘waste’ is surplus material – and a major contributor to the construction industry carbon emissions.

Health and safety for all 33% reduction in annual injury incidence rate since 2008

Zero complaints, prosecutions and fines 194 days of health and safety training completed

All Sales Advisors now carry personal safety devices and receive training and safety measures through the Suzy Lamplugh Trust.

Reducing our carbon emissionsTargeting a 25% reduction by 2020 over 2007 levels

Develop a quantitative assessment picture of our full carbon footprint

Conserving resources

The contribution of our employees is vital to our future success and the exemplary professionalism of our people in this difficult year is fully appreciated. We have made it a priority to invest in retaining and developing skills in readiness for the economic upturn.

A RESPONSIBLE AND ETHICAL BUSINESS

Achieved the 2008 WRAP target “Halving waste to Landfill” by 2011.

84% Construction waste recycled in 2010.

Achieved 62% reduction in construction waste to landfill since 2007

Developing expertise

12 hours of training per employee.

100% carded: employees and sub-contractors - Construction Skills .

Certification Scheme

26 new Apprentices

4 new Graduates

Site Managers at Avante, Coxheath


STATEMENT OF DIRECTORS’ RESPONSIBILITIES


The Directors are responsible for preparing the Directors’ Report and the Group and parent company financial statements in accordance with applicable law and regulations.

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

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

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent;

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

• for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE DIRECTORS’ REPORT AND THE FINANCIAL STATEMENTS

WHITELANDS PARK, Putney

INDEPENDENT AUDITOR’S REPORT


We have audited the financial statements of Crest Nicholson Holdings Limited for the year ended 31 October 2010 set out on pages 24 to 56. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditors

As explained more fully in the Directors’ Responsibilities Statement set out on page 22, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB’s web-site at www.frc.org.uk/apb/scope/UKNP.

Opinion on financial statementsIn our opinion:

• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 October 2010 and of the Group’s loss for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

• the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice;

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

Opinion on other matter prescribed by the Companies Act 2006

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

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

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

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

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

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

W E J Holland (Senior Statutory Auditor)

for and on behalf of KPMG Audit Plc, Statutory Auditor

Chartered Accountants 15 Canada Square, London E14 5GL

18th April 2011

INDEPENDENT AUDITOR’S REPORTTO THE MEMBERS OF CREST NICHOLSON HOLDINGS LIMITED

ACCOUNTS


CONSOLIDATED INCOME STATEMENTFor year ended 31st October 2010

Note Year ended 31st October 2010

£m

Period ended 31st October 2009

£m

Revenue – continuing activities 2 284.4 238.2

Cost of sales (206.3) (205.2)

Gross profit 78.1 33.0

Administrative expenses:

- Administrative expenses (31.0) (19.1)

- Exceptional charge 3 - (18.7)

(31.0) (37.8)

Other operating income 0.2 0.3

Operating profit/(loss) 4 47.3 (4.5)

Financial income 6 8.2 4.7

Bank finance costs:

- Nominal bank interest charges (14.1) (10.5)

- Amortisation of bank debt fair value discount (61.5) (35.7)

6 (75.6) (46.2)

Other financial expenses 6 (8.8) (5.5)

Net financing expense (76.2) (47.0)

Share of profit of associates and jointly controlled entities using the equity accounting method, net of tax

1.5 0.8

Loss before tax (27.4) (50.7)

Income tax 7 (0.2) 0.2

Loss for the year/period attributable to equity shareholders (27.6) (50.5)

The notes on pages 29 to 52 form part of these financial statements.

ACCOUNTS


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFor year ended 31st October 2010

Year ended 31st October 2010

£m


£m

Loss for the year/period (27.6) (50.5)

Other comprehensive income:

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

Actuarial gain/(losses) on defined benefit pension schemes 6.2 (27.3)

Change in fair value of available for sale assets 0.2 -

Other comprehensive income for the year/period, net of income tax 6.2 (27.1)

Total comprehensive income attributable to equity shareholders (21.4) (77.6)


ACCOUNTS


CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor year ended 31st October 2010

Share capital

£m

Cash flow hedging reserve

£m

Retained earnings

£m

Total

£m

Loss for the period - - (50.5) (50.5)

Shares issued (£100) - - - -

Actuarial loss on pension scheme - - (27.3) (27.3)

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

Balance at 31st October 2009 - 0.2 (77.8) (77.6)

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

Actuarial gain on pension scheme - - 6.2 6.2

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

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

Balance at 31st October 2010 - - (99.0) (99.0)


ACCOUNTS


CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 31st October 2010

Note 2010 £m

2009 £m

ASSETSNon-current assets

Intangible assets 9 29.0 29.0Property, plant and equipment 10 4.0 4.8Investments 11 3.7 11.2Available for sale assets 12 21.1 14.6

57.8 59.6

Current assetsInventories 13 361.9 386.0Trade and other receivables 14 39.6 41.5Cash and cash equivalents 129.8 101.9

531.3 529.4

Total assets 589.1 589.0

LIABILITIESNon-current liabilities

Interest bearing loans and borrowings 15 (433.7) (367.5)Trade and other payables 16 (25.0) (36.6)Retirement benefit obligations 21 (36.1) (46.1)Provisions 18 (12.8) (17.9)

(507.6) (468.1)

Current liabilitiesTrade and other payables 16 (174.0) (195.1)Provisions 18 (6.5) (3.4)

(180.5) (198.5)

Total liabilities (688.1) (666.6)

Net liabilities (99.0) (77.6)

SHAREHOLDERS’ EQUITYShare capital - -Retained earnings (99.0) (77.6)

Total deficit attributable to equity shareholders (99.0) (77.6)


These financial statements were approved by the Board of Directors on 18th April 2011 and were signed on its behalf by:S Stone N C TinkerDirectors


ACCOUNTS


CONSOLIDATED STATEMENT OF CASH FLOWSFor year ended 31st October 2010


£m


£m

Cash flows from operating activitiesLoss for the year/period (27.0) (50.5)

Adjustments for:Depreciation charge 1.2 0.7Loss on disposal of fixed assets - 0.1Impairment of goodwill - 18.7Net finance charges 75.6 47.0Share of profit of joint ventures (1.5) (0.8)Taxation 0.2 (0.2)

Operating profit before changes in working capital and provisions 48.5 15.0

Decrease/ (increase) in trade and other receivables 1.9 (4.7)Decrease in inventories 24.1 81.4(Decrease)/increase in trade and other payables (36.4) 9.4

Cash generated from operations 38.1 101.1

Interest paid (10.8) (6.2)

Net cash from operating activities 27.3 94.9

Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired - 15.4Proceeds from sales of property, plant and equipment - 0.1Purchases of property, plant and equipment (0.4) (0.2)Loans to joint ventures 7.9 (0.9)Increase in available for sale assets (6.3) (5.9)

Net cash from investing activities 1.2 8.5

Cash flows from financing activitiesNet proceeds from the issue of share capital - -Debt arrangement & facility fees (0.6) (1.5)

Net cash flow from financing activities (0.6) (1.5)

Net increase in cash and cash equivalents 27.9 101.9Cash and cash equivalents at the beginning of the period 101.9 -Cash and cash equivalents at end of the period 129.8 101.9


CONSOLIDATED FINANCIAL STATEMENTS


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

The Group financial statements consolidate those of the company and its subsidiaries (together referred to as the “Group”) and include the Group’s interest in associates and jointly controlled entities. The parent company financial statements present information about the company as a separate entity and not about its group.

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). The company has elected to prepare its parent company financial statements in accordance with UK GAAP; these are presented on pages 53 to 56.

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

Judgements made by the Directors, in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 26.

Measurement convention The financial statements are prepared in accordance with the historical cost convention, except for certain financial instruments and available for sale assets, which are carried at fair value.

Basis of preparation – going concern

Following the financial restructuring of the Crest Nicholson Holdings Limited group in March 2009, the business has been dependent for its working capital requirements on funds provided to it through senior bank facilities totalling £500 million, which are scheduled for repayment in March 2012. The Directors have prepared cash flow projections for the period to maturity of the senior facilities in March 2012, which show that the Group is capable of operating within the bank facilities currently available and meeting the financial covenant tests. The nature of the Group’s business is such that there can be unpredictable variations in the timing of cash inflows and performance. The Directors recognise that in the current economic environment, risks exist regarding the amount and timing of cash flows from future sales and future building costs and have considered the effect of reasonably possible variations on their ability to trade.

During the year, the Directors commenced discussions with its lenders about a further financial restructuring of the Group, to increase the equity on the Group balance sheet and extend bank facilities for a further three to four years. After the balance sheet date, Värde Partners, together with certain market associates and partners, progressively acquired the debt of other group lenders in order to facilitate a financial restructuring of the Group.

At 23rd March 2011, Värde Partners, together with certain market associates and partners, had control over more than 80% of the senior debt of the Group, which enables them to pursue the financial restructuring of the Group, either by consent or through a scheme of arrangement. The precise terms of this restructuring have still to be agreed, but draft and indicative terms include the conversion of £350m to equity, restoring the Group balance sheet to a net asset position, borrowing facilities being made available to the Group on normal commercial terms and the extension of bank facilities through to 2015. Värde Partners have written to the Directors requesting that the company works with them to achieve this significant de-leveraging of the Group balance sheet.

At the accounts signature date, the financial restructuring of the Group has not been concluded, but the Directors are satisfied, having regard to current circumstances, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, the Directors consider it appropriate to prepare the financial statements of the Group on a going concern basis. These financial statements do not include any adjustments that would result from the going concern basis of preparation being inappropriate.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS1. ACCOUNTING POLICIES


Consolidation

The consolidated accounts include the accounts of Crest Nicholson Holdings Limited and entities controlled by the company (its subsidiaries) at the reporting date. Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The profits and losses of subsidiaries acquired or sold during the year are included as from or up to their effective date of acquisition or disposal.

On acquisition of a subsidiary, all of the subsidiary’s separable, identifiable assets and liabilities existing at the date of acquisition are recorded at their fair values reflecting their condition at that date. All changes to those assets and liabilities, and the resulting gains and losses that arise after the Group has gained control of the subsidiary are charged to the post acquisition income statement or statement of recognised income and expense.

Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the acquired entity at the date of the acquisition. Goodwill arising on acquisition of subsidiaries and businesses is capitalised as an asset. Goodwill allocated to the strategic land holdings is recognised as an asset, being the intrinsic value within these holdings in the acquired entities, which is realised upon satisfactory planning permission being obtained and sale of the land.

Goodwill is assessed for impairment at each reporting date by performing a value in use calculation, using a discount factor based on the Group’s pre-tax weighted average cost of capital. It is tested by reference to the proportion of legally completed plots in the period compared to the total plots which are expected to receive

satisfactory planning permission in the remaining acquired strategic land holdings, taking account of historic experience and market conditions. Any impairment loss is recognised immediately in the income statement.

Joint ventures A joint venture is an undertaking in which the Group has a participating interest and which is jointly controlled under a contractual arrangement.

Where the joint venture involves the establishment of a separate legal entity, the Group’s share of results of the joint venture after tax is included in a single line in the consolidated income statement and its share of net assets is shown in the consolidated balance sheet as an investment.

Where the joint venture does not involve the establishment of a legal entity, the Group recognises its share of the jointly controlled assets and liabilities and income and expenditure on a line by line basis in the balance sheet and income statement.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable, net of value-added tax, rebates and discounts but excludes the sale of properties taken in part exchange.

Revenue is recognised once the value of the transaction can be reliably measured and the significant risks and rewards of ownership have been transferred.

Revenue is recognised on house sales at legal completion. Revenue is recognised on land sales and commercial property sales from the point of unconditional exchange of contracts. Where the conditions for the recognition of revenue are met but the Group still has significant acts to perform under the terms of the contract, revenue is recognised as the acts are performed.

Exceptional items

Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group’s financial performance.

Taxation

Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is also recognised in equity.

Current tax is the expected tax payable on taxable profit for the period and any adjustment to tax payable in respect of previous periods. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences, except those exempted by the relevant accounting standard, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Dividends

Dividends are recorded in the Group’s financial statements in the period in which they are paid.



Property, plant and equipmentProperty, plant and equipment is initially recognised at cost. Freehold land is not depreciated.

Plant, vehicles and equipment are depreciated on cost less residual value on a straight line basis at rates varying between 10% and 33% determined by the expected life of the assets.

Available for sale assets

These assets are initially recognised at fair value. Changes in fair value relating to the expected recoverable amount are recognised in the income statement; changes in fair value arising from a change of discount factor are recognised directly in equity, until the asset is divested.

On disposal of these assets, the difference between the carrying value and the consideration received plus cumulative fair value movements previously recognised in equity is recognised in the income statement.

Leases

A finance lease is a lease that transfers substantially all the risks and rewards incidental to the ownership of an asset; all other leases are operating leases.

Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors. Operating lease rentals are charged to the income statement on a straight line basis over the period of the lease.

Inventories Inventories are valued at the lower of cost and net realisable value. Land includes land under development, undeveloped land and land option payments. Work in progress comprises direct materials, labour costs, site overheads, associated professional fees and other attributable overheads.

Land inventories and the associated land creditors are recognised in the balance sheet from the date of unconditional exchange of contracts. If land is purchased on deferred settlement terms then the land and the land creditor are discounted to their fair value. The land creditor is then increased to the settlement value over the period of financing, with the financing element being charged as interest expense through the income statement.

Cash and cash equivalents Cash and cash equivalents are cash balances in hand and in the bank. For the purpose of the cash flow statement, bank overdrafts are considered part of cash and cash equivalents as they form an integral part of the Group’s cash management. Offset arrangements across group businesses are applied to arrive at the net cash figure.

Retirement benefit costs The Group operates a defined benefit pension scheme (closed to new employees) and also makes payments into a defined contribution scheme for employees.

In respect of defined benefit schemes, the net obligation is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, such benefits measured at discounted present value, less the fair value of the scheme assets. The discount rate used to discount the benefits accrued is the yield at the balance sheet date on AA credit rated bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit method. The operating and financing costs of such plans are recognised separately in the income statement; service costs are spread systematically over the lives of employees and financing costs are recognised in the periods in which they arise.

The Group has applied the requirements of IAS 19 (revised), recognising expected scheme gains and losses via the income statement and actuarial gains and losses recognised in the period they occur directly in equity through the statement of recognised income and expense.

Payments to the defined contribution schemes are accounted for on an accruals basis.



Financial Instruments

Trade receivables Trade receivables which do not carry any interest are stated at their nominal amount less impairment losses.

Trade payables Trade payables are generally stated at their nominal amount; land payables with deferred settlement terms are recorded at their fair value.

Borrowings Interest bearing bank loans and overdrafts are measured initially at fair value, net of direct issue costs. Finance charges are accounted for on an accruals basis in the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise or included within interest accruals.

Derivative financial instruments and hedge accounting Derivative financial instruments are recognised at fair value. The fair value of swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account the current creditworthiness of the swap counterparties.

Where the derivative instrument is deemed an effective hedge over the exposure being hedged, the derivative instrument is treated as a hedge and hedge accounting applied. Under a fair value hedge the change in the fair value of the derivative is recognised in the income statement and offsets the movement in fair value of the hedged item. Under a cash flow hedge, gains and losses on the effective portion of the change in the fair value of the derivative instrument are recognised directly in equity.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting and any ineffectiveness in the hedge relationship are recognised in the income statement as they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in reserves is retained in reserves until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in reserves is transferred to net profit or loss for the period.

Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Impact of Standards and Interpretations in issue but not yet effective Improvements to IFRSs were issued in April 2009 and will be effective for the Group’s 2011 financial statements. These amendments cover a range of standards but the Directors do not anticipate any material impact on the Group. These amendments are not yet effective for the period ended 31st October 2010 and have not been applied in preparing these consolidated financial statements.

2. REVENUE

There is no Group revenue in geographical markets outside the United Kingdom.

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

3. EXCEPTIONAL ITEM

There are no exceptional items in the current year.

Following the acquisition of Castle Bidco Limited by Crest Nicholson Holdings Limited on 24th March 2009, the goodwill arising on acquisition was assessed for impairment. An exceptional impairment charge of £18.7m was made in the period ended 31st October 2009.



4. PROFIT/(LOSS) FROM OPERATIONS

Profit/(loss) from operations is stated after charging/(crediting) the items set out below:

In addition to the Auditors’ remuneration disclosed above, fees of £2,000 (2009 £7,000) were paid to the Group’s auditors by the Crest Nicholson Money Purchase pension scheme in respect of the audit of the scheme.

Amounts paid to the Company’s auditor in respect of services to the Company, other than the audit of the Company’s financial statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis.


£m

Period ended 31st October

2009£m

Staff costs (Note 5) 25.4 15.8

Net loss on disposal of property, plant & equipment - 0.1

Depreciation 1.2 0.7

Operating lease rentals:

Hire of plant and machinery 0.2 0.1

Other – including land and buildings 4.1 2.5

Auditors’ remuneration: £000 £000

Audit of these financial statements 36 61

Audit of financial statements of subsidiaries pursuant to legislation 112 114

Other services relating to taxation 34 21





Average number of persons employed by the Group Number NumberDevelopment 453 456Head office 11 11

464 467

Staff costs £m £mWages and salaries 23.0 13.4Social security costs 2.7 1.4Other pension costs (0.1) 1.0

25.6 15.8

DIRECTORS’ REMUNERATION Year ended 31st October 2010

£000


£000

Aggregate emoluments 1,915 871

Highest paid DirectorEmoluments 841 341Defined benefit scheme:- Accrued pension at end of year 113 99

5. STAFF NUMBERS & COSTS

Key Management comprises the Main Board, as the Directors are considered to have the authority and responsibility for planning, directing and controlling the activities of the Group. Details of Directors’ remuneration, pension and share based payments are as follows:-

Retirement benefits have accrued to three Directors under the Crest Nicholson defined benefit scheme. The aggregate value of company contributions paid for Directors was £107,000 (2009 £79,000).




£m


£m

Interest income 0.7 0.6Imputed interest on available for sale assets 2.2 0.6Expected return on defined benefit pension plan assets 5.3 3.5

Finance income 8.2 4.7

Finance costs Year ended 31st October 2010

Nominal bank interest charges

£m

Amortisation of bank debt fair

value discount£m

Total

£m

Bank Term loan – Facility B 5.4 11.5 16.9Bank Term loan – Facility E 5.2 50.0 55.2Other interest 3.5 - 3.5

14.1 61.5 75.6Imputed interest on deferred land creditors 1.5 - 1.5Interest on defined benefit pension plan obligations 7.3 - 7.3

8.8 - 8.8

22.9 61.5 84.4

Finance costs Period ended 31st October 2009

Nominal bank interest charges

£m

Amortisation of bank debt fair

value discount£m

Total

£m

Bank Term loan – Facility B 5.2 6.6 11.8Bank Term loan – Facility E 3.7 29.1 32.8Other interest 1.6 - 1.6

10.5 35.7 46.2Imputed interest on deferred land creditors 1.5 - 1.5Interest on defined benefit pension plan obligations 4.0 - 4.0

5.5 - 5.5

16.0 35.7 51.7

6. FINANCE INCOME & COSTS




£m


£m

Current tax incomeUK Corporation tax on profits for the period - (0.2)Adjustment in respect of prior years 0.2 -Total current tax 0.2 (0.2)Deferred tax expenseOrigination and reversal of temporary differences (Note 17) - -

Total tax in income statement 0.2 (0.2)

£m £mLoss before tax (27.4) (50.7)Tax on Loss at 28% (2009 28%) (7.7) (14.2)Effects of:Expenses not deductible for tax purposes 0.8 0.6Adjustments to tax charge in respect of prior years 0.2 -Deductible temporary differences not recognised (1.3) (0.4)Land remediation tax credit - (0.2)Stock fair value adjustment (11.9) (12.6)Unrecognised tax losses 20.1 26.6

Total tax in income statement 0.2 (0.2)

7. TAXATION

8. DIVIDENDS


The total tax charge for the period is higher (2009 higher) than the standard rate of UK Corporation tax of 28%. The differences are explained below:

There were no distributions to equity shareholders in the year (2009 nil). No dividend has been proposed by the Directors after the balance sheet date.


£mTotal

Goodwill

CostAt 23rd January 2009 -Acquired through business combination 47.7At 31st October 2009 47.7At 31st October 2010 47.7ImpairmentAt 23rd January 2009 -Impairment charge (18.7)At 31st October 2009 (18.7)At 31st October 2010 (18.7)Carrying valueAt 31st October 2009 29.0

At 31st October 2010 29.0

Total Plant, Vehicles & Equipment

£m

CostAt 23rd January 2009 -Acquired through business combination 8.6Additions 0.2Disposals (0.5)At 31st October 2009 8.3Additions 0.4At 31st October 2010 8.7Accumulated depreciationAt 23rd January 2009 -Acquired through business combination 3.1Charged in the period 0.7Disposals (0.3)At 31st October 2009 3.5Charged in the period 1.2At 31st October 2010 4.7Carrying valueAt 31st October 2009 4.8


9. INTANGIBLE ASSETS

10. PROPERTY, PLANT & EQUIPMENT


Goodwill arose on the acquisition of Castle Bidco Limited on 24th March 2009. Goodwill is allocated to acquired strategic land holdings and is tested annually for impairment. The recoverable amounts are determined by assessing value in use, using a house building sector weighted average cost of capital of 9.57% (2009 9.73%), covering a period of 22 years (being the minimum period that management expects to benefit from the acquired strategic land holdings) and based on current market conditions.

CHIEF EXECUTIVE’S REVIEW | 02


Cost of Investment

£m

Loans

£m

Share of Post Acquisition

Reserves £m

Total

£m

Joint venturesAt 23rd January 2009 - - - -Acquired through business combination - 4.4 (15.3) (10.9)Share of profit for the period - - 0.8 0.8Additions - 6.8 - 6.8At 31st October 2009 - 11.2 (14.5) (3.3)Re-classification (see note below) 13.4 13.4Share of profit for the year - - 1.5 1.5Additions - - - -Repayments - (7.9) - (7.9)

At 31st October 2010 - 3.3 0.4 3.7

11. INVESTMENTS

The Group has a 50% interest in Crest/Galliford Try (Epsom) LLP, a Limited Liability partnership set up to develop three sites in Epsom. The LLP purchased the land and is responsible for developing the infrastructure on the sites. The risks and rewards of development will accrue to the development partners, Crest Nicholson and Galliford Try. Accordingly, fair value provisions of £13.4m acquired through business combination are no longer shown as deductions from Investments but are classified as provisions of the Crest Nicholson Group.

At 31st October 2010, Crest/Galliford Try (Epsom) LLP had Capital Employed of £61m (2009 £78m).

The Group has a 50% interest in Crest Nicholson Bioregional Quintain LLP, a Limited Liability partnership set up to develop a site in Brighton. The site was substantially completed during the year; at 31st October 2010, Crest Nicholson Bioregional Quintain LLP had Capital Employed of £3.4m (2009 £15m).

The Group owns 500 ordinary shares of £1 each representing 50% of the issued share capital of Brentford Lock Limited, a company registered in England, which was set up to redevelop a site in West London. The site was completed and all units sold in 2006. At 31st October 2010, £3m was due from Crest Nicholson Operations Limited to Brentford Lock Limited, pending declaration of a final dividend (2009 £3m).

Subsidiary undertakings The subsidiary undertakings which are significant to the Group and traded during the period are set out below. The Group’s interest is in respect of ordinary issued share capital which is wholly owned and all the subsidiary undertakings are incorporated in Great Britain and included in the consolidated financial statements.

Subsidiary Nature of BusinessCastle Bidco Limited Holding company

Crest Nicholson PLC Holding company

Crest Nicholson Operations Limited Residential and commercial property development



£m

At 23rd January 2009 -Acquired through business combination 8.3Additions 6.0Disposals (0.1)Change in fair value 0.4At 31st October 2009 14.6Additions 6.5Disposals (0.2)Change in fair value 0.2


12. AVAILABLE FOR SALE ASSETS

13. INVENTORIES

Crest Nicholson operates an ‘Easybuy’ scheme, under which up to 25% of the purchase price of selected properties is funded through a loan from the Group, secured on the property. The Group retains a percentage interest in the market value of the property equal to the initial percentage of the loan provided. These loans are repayable at the relevant percentage of the market value of the property upon sale or transfer of ownership of the property or within 10 years, whichever is sooner. The purchaser also has an option to repay the loan earlier than would otherwise be required, subject to a market valuation of the property. Interest is payable on the outstanding balance from the fifth anniversary of the purchase.

Crest Nicholson has also participated in the Government’s ‘HomeBuy Direct’ scheme, under which up to 30% of the purchase price of selected properties was funded through loans of up to 15% each from the Group and from the Homes and Communities Agency, secured on the property. The Group retains an interest in the market value of the property equal to the initial percentage of the loan provided. These loans are repayable at the relevant percentage of the market value of the property upon sale or transfer of ownership of the property or within 25 years, whichever is sooner. The purchaser also has an option to repay the loan earlier than would otherwise be required, subject to a market valuation of the property. Interest is payable on the outstanding balance from the fifth anniversary of the purchase.

Available for sale assets are held at fair value. The Directors believe that there is sufficient relevant expertise within the Group to perform this valuation.

Included within inventories is £223.4m (2009 £235.7m) expected to be recovered in more than 12 months. Inventories to the value of £190.0m (2009 £185.3m) were recognised as expenses in the period.

2010£m

2009£m

Work in progress: land, building and development 314.9 338.2Completed buildings including show houses 47.0 47.8

361.9 386.0



14. TRADE AND OTHER RECEIVABLES

15. INTEREST BEARING LOANS AND BORROWINGS

16. TRADE AND OTHER PAYABLES

2010£m

2009£m

CurrentTrade receivables 8.7 10.1Recoverable on contracts 16.5 23.3Due from associate 9.4 0.1Other receivables 3.9 5.3Interest rate cap - 1.5Prepayments and accrued income 1.1 1.2

39.6 41.5

2010£m

2009£m

Non-currentTerm loans 418.5 349.3Other loans 12.1 12.6Loan notes 3.1 5.6

433.7 367.5

2010£m

2009£m

Non-currentLand payables on contractual terms 21.5 32.1Accruals 3.5 4.5

25.0 36.6

CurrentLand payables on contractual terms 24.0 40.7Other trade payables 19.2 19.6Payments on account 28.2 22.7Due to associates 0.9 0.2Other taxes and social security costs 1.0 1.0Other payables 24.9 33.9Accruals 75.8 77.0

174.0 195.1



Rental and other

obligations in respect of vacant

properties£m

Future losses on joint

ventures (note 11)

£m

Total

£m

Non-currentAt 23rd January 2009 - - -Acquired through business combination 3.2 12.3 15.5Charged to the income statement 2.4 - 2.4At 31st October 2009 5.6 12.3 17.9Charged/(credited) to the income statement 0.2 (5.3) (5.1)At 31st October 2010 5.8 7.0 12.8

CurrentAt 23rd January 2009 - - -Acquired through business combination 2.1 2.9 5.0Credit to the income statement (0.9) (0.7) (1.6)At 31st October 2009 1.2 2.2 3.4Charged to the income statement 0.5 2.6 3.1

At 31st October 2010 1.7 4.8 6.5

18. PROVISIONS

17. DEFERRED TAX ASSETS

Deferred tax assets are recognised to the extent that the realisation of the related tax benefit through future taxable profits is probable. The company did not recognise deferred tax assets of £53.0m (2009 £36.9m) in respect of losses amounting to £196.4m (2009 £131.7m) that can be carried forward against future taxable income. The Company did not recognise other deferred tax assets of £10.4m (2009 £15.1m), in relation to retirement benefit obligations £9.7m (2009 £12.9m), and £0.7m (2009 £2.2m) other timing differences.



19. CAPITAL AND RESERVES

Share Capital 2010£

2009£

Authorised10,000 ordinary shares of one penny each 100 100

Allotted and fully paid

10,000 ordinary shares of one penny each 100 100

At 31st October 2010 there were no options outstanding to subscribe for ordinary shares (2009 nil).

Cash flow hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

20. FINANCIAL INSTRUMENTS & RISK MANAGEMENT

Group operations are financed through net borrowings, comprising bank and loan facilities which are secured by fixed charges over land and work-in-progress. The Group has hedged a substantial portion (£260 million) of its floating rate interest exposure by the use of a financial instrument (cap), which caps the LIBOR rate paid by the business to 3%.

Fair values

Financial assets The carrying amount of financial assets equates to their fair value. Financial assets of the Group at 31st October 2010 consisted of sterling cash deposits of £129.8m (2009 £101.9m), with solicitors and on current account and £21.1m (2009 £14.6m) of available for sale assets.

Financial liabilities The fair value of the facilities and their related hedging instruments is determined by discounting risk-adjusted expected future cash flows with application of current market interest rates.

The fair values of the facilities determined on this basis are:

Nominalinterest rate

Facevalue2010

£m

Carrying value 2010

£m

Fair value 2010

£m

Year ofmaturity

2010Facility B Term loan 12 mth LIBOR + 0.50% 343.5 327.1 281.5 2012Facility C Term loan 12 mth LIBOR + 0.50% 3.4 3.4 3.4 2012Facility E Term loan 6 mth LIBOR + 2.50% 158.9 88.0 - 2012Loan notes 3 mth LIBOR - 0.50% 3.1 3.1 3.1 2012Other loans 6.75% 12.1 12.1 12.1 2014

Total non-current and current interest bearing loans 521.0 433.7 300.1



Nominalinterest rate

Facevalue2009

£m

Carrying value 2009

£m

Fair value 2009

£m

Year ofmaturity

2009Facility B Term loan 12 mth LIBOR + 0.50% 343.5 315.6 317.6 2012Facility C Term loan 12 mth LIBOR + 0.50% 0.9 0.9 0.9 2012Facility E Term loan 6 mth LIBOR + 2.50% 153.7 32.8 25.9 2012Loan notes 3 mth LIBOR - 0.50% 5.6 5.6 5.6 2012Other loans 6.75% 12.6 12.6 12.6 2012 - 13

Total non-current and current interest bearing loans 516.3 367.5 362.6

The difference between the face value and the carrying value of the Term loans of £16.4m and £70.9m respectively (£87.3m in total), (2009 £27.9m and £120.9m respectively (£148.8m in total)) is being charged as interest over the life of the facilities.

The carrying amount of the financial liabilities equates to their fair value, with the exception of the Term loans. The Facility B Term loan has a fair value of £281.5m (2009 £317.6m). The 2010 fair valuation has been determined by reference to market evidence for the enterprise value of the business. The 2009 fair valuation was determined on a discounted cash flow basis, taking into account the margin over cost of funds that would ordinarily be payable by companies in the Group’s market sector. The Facility E Term loan has a fair value of nil (2009 £25.9m), reflecting expectations that this loan will be waived in full as part of the 2011 financial restructuring of the Group. The 2009 fair valuation of this loan was calculated by assessing the debt-free enterprise value of the Group at the balance sheet date and deducting from this value debt repayments that would rank ahead of this debt.

Land purchased on extended payment terms When land is purchased on extended payment terms, the Group initially records it at its fair value with a land creditor recorded for any outstanding monies based on its fair value assessment. Fair value is determined by using the effective interest method. The difference between the nominal value and the initial fair value is amortised over the period of the extended credit term and charged to finance costs, increasing the value of the land creditor such that at the date of maturity the land creditor equals the payment required.

Undrawn borrowing facilities The Group had undrawn committed borrowing facilities of £20m at 31st October 2010 (2009 £40m). The repayment terms of the facilities are set out below. In addition there were undrawn guarantee facilities of £18.4m (2009 £6.7m).

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or other counterparty fails to meet its contractual obligations.

Surplus cash is placed on deposit with banks with a minimum credit rating, or in accordance with group policy. The security and suitability of these banks is monitored by treasury on a regular basis.

Trade and other receivables are mainly amounts due from housing associations and commercial property sales, which are within credit terms. Management considers that the credit ratings of these various debtors are good and therefore credit risk is considered low.

The maximum exposure to credit risk at 31st October 2010 is represented by the carrying amount of each financial asset in the balance sheet. The Group has no substantial exposure to any individual third party.



Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

Cash flow forecasts are produced to monitor the expected cashflow requirements of the Group against the available facilities. The principal risks within these cashflows relate to achieving the level of sales volume and prices in line with current forecasts.

The following are the contractual maturities including estimated cash flows of the financial liabilities of the Group at 31st October 2010:

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s income or the value of its holdings of financial instruments.

Interest rate risk The Group is exposed to interest rate risk due to borrowing funds at floating interest rates. Interest rate caps are used to manage this volatility. At 31st October 2009, the Group hedged a substantial portion (£260 million) of its floating rate interest exposure by the use of a financial instrument (cap), which capped the LIBOR rate paid by the business to 3%. The remaining borrowing requirement is funded principally through Term loans which are subject to variable interest rates which remain unhedged.

The cap was deemed an effective cash flow hedge at the balance sheet date and was recognised at fair value of nil (2009 £1.5m). The fair value was the estimated amount that the Group would receive if the instrument were sold at the balance sheet date. The cost of the cap of £1.3m has been recognised in full as a finance cost during the year. The movement in the fair value during the year of £0.2m loss (2009 £0.2m gain) has been recognised directly in equity.

Carrying value

£m

Contractual cash flows

£m

Within 1 year

£m

1-2 years

£m

2-3 years

£m

More than 3 years

£m

2010Facility B Term loan 327.1 353.1 6.8 346.3 - -Facility C Term loan 3.4 3.5 0.1 3.4 - -Facility E Term loan 88.0 164.8 - 164.8 - -Loan notes 3.1 3.1 1.0 2.1 - -Other loans 12.1 15.7 - - - 15.7At 31st October 2010 433.7 540.2 7.9 516.6 - 15.7

2009Facility B Term loan 315.6 362.6 5.4 9.7 347.5 -Facility C Term loan 0.9 0.9 - - 0.9 -Facility E Term loan 32.8 166.4 - - 166.4 -Loan notes 5.6 5.8 1.0 1.0 3.8 -Other loans 12.6 16.4 - - - 16.4At 31st October 2010 367.5 552.1 6.4 10.7 518.6 16.4



2010 Carrying amount

Sterling

Floating rate

financial liabilities

£m

Fixed rate financial

liabilities

£m

Financial liabilities carrying

no interest£m

Total

£m

Bank borrowings, loan notes and long term creditors 433.7 - 117.8 551.5

2009 Carrying amount

Sterling

Floating rate

financial liabilities

£m

Fixed rate financial

liabilities

£m

Financial liabilities carrying

no interest£m

Total

£m

Bank borrowings, loan notes and long term creditors 367.5 - 149.0 516.5

Interest rate risk

At 31st October 2010, the interest rate profile of the financial liabilities of the Group was:

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

For financial liabilities which have no interest payable but for which imputed interest is charged, consisting of land creditors, the weighted average period to maturity is 26 months (2009 39 months).

The maturity of the financial liabilities is:

2010£m

2009£m

Repayable within one year 96.3 116.9Repayable between one and two years 430.8 12.2Repayable between two and five years 12.3 378.8Repayable after five years 12.1 8.6

551.5 516.5



2010 2009

Equity

£m

Income statement

£m

Equity

£m

Income statement

£m

Increase in rates (5.0) (5.0) (5.0) (5.0)Decrease in rates 5.0 5.0 5.0 5.0

Sensitivity analysis

A change of 100 basis points in interest rates at the balance sheet date would have increased (decreased) equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date.

This analysis assumes that all other variables remain constant and considers the pre-tax effect of financial instruments with variable interest rates.

Capital management

New operating policies and procedures were approved by the Board as part of the financial restructuring agreed in March 2009. The Group has also agreed new covenants with the lenders as part of the terms of the restructure.

The Group’s policies seek to match long term assets with long term finance and ensure that there is sufficient working capital to meet the Groups commitments as they fall due, comply with the loan covenants and continue to sustain trading.

Management will continue to monitor actual cash flows against the approved cash flow forecast.



21. EMPLOYEE BENEFITS

Retirement benefit obligations

Defined contribution scheme The Group (through Crest Nicholson PLC) operates a defined contribution scheme for new employees. The assets of the scheme are held separately from those of the Group in an independently administered fund. The service cost of this scheme for the year was £0.8m (2009 £0.3m). At the balance sheet date there were no outstanding or prepaid contributions.

Defined benefit scheme The Group (through Crest Nicholson PLC) operates a contributory defined benefit pension scheme which is closed to new entrants and was closed to future accrual by existing members during the year. The assets of the schemes are held separately from those of the Group, being invested in managed funds.

The most recent funding valuation of the scheme was carried out as at 31st January 2010 by a professionally qualified actuary using the projected unit method.

The assets of the defined benefit scheme have been calculated at fair value and the liabilities, at the balance sheet date under IAS 19 (Revised), using the Projected unit method and based on the following financial assumptions:

31st October 2010%pa

31st October 2009%pa

Discount rate 5.7% 5.5%Salary escalation 0.0% 4.4%Price inflation 3.5% 3.4%Pension increases on benefit increasing in line with 5% or RPI if lower 3.1% 3.0%Expected return on invested assets 5.9% 6.1%Expected return on insurance annuity contracts 5.7% 5.5%

The expected return on assets reflects the weighted average return on the categories of scheme assets shown below.

Mortality assumptions are as follows:

• Mortality before retirement: PNMA 00 medium cohort (year of birth) 1.5% minimum improvement p.a. and PNFA 00 medium cohort (year of birth) 1.5% minimum improvement p.a.

• Mortality after retirement: PNMA 00 medium cohort (year of birth) 1.5% minimum improvement p.a. and PNFA 00 medium cohort (year of birth) 1.5% minimum improvement p.a.

The major categories of Scheme assets as a percentage of the total fair value of Scheme assets are as follows:

2010%

2009%

Equities 58.2% 50.8%Bonds 29.3% 28.4%Property 2.2% 2.1%Cash 1.3% 4.9%Secured annuities 9.0% 13.8%Total 100.0% 100.0%



The amounts recognised in the year (2009 post 24th March 2009) are as follows:

The cumulative debit to the SORIE since the adoption of IAS 19 (Revised) is £21.1m (2009 £27.3m). The actual return on scheme assets is:

The amounts included in the balance sheet arising from the Group’s obligation in respect of its defined benefit scheme are as follows:

No deferred tax asset has been recognised on the balance sheet in relation to the net pension obligation as realisation of the related tax benefit through future taxable profits is not considered probable in the foreseeable future (2009 nil).

Movements in the liability recognised on the balance sheet were as follows:

2010 £m

2009 £m

Current service cost – recognised in administrative expenses 0.6 0.5Gain on curtailment – recognised in administrative expenses (1.7) -Interest cost – recognised in finance costs 7.3 4.0Expected return on scheme assets – recognised in finance income (5.3) (3.5)Total 0.9 1.0Actuarial (gain)/loss (6.2) 27.3Total defined benefit scheme (gains)/costs recognised in the year/period (5.3) 28.3

2010 £m

2009 £m

Expected return on scheme assets 5.3 3.5Actuarial gain/(loss) on scheme assets 1.8 (27.3)Actual return on scheme assets 7.1 (23.8)

2010 £m

2009 £m

Present value of defined benefit obligations 131.0 136.4Fair value of scheme assets (94.9) (90.3)Defined benefit liability recognised in the balance sheet 36.1 46.1

2010 £m

2009 £m

At beginning of year/period 46.1 20.9Total (gain)/expense (as shown above) (5.3) 28.3Company contributions paid in the year/period (4.7) (3.1)At end of year/period 36.1 46.1



Changes in the present value of the defined benefit obligation were as follows:

The gain on curtailment arose as a result of the decision to close the scheme to future accrual during the year.

Changes in the fair value of scheme assets were as follows:

A history of experience adjustments is as follows:

The expected employer contributions to the defined benefit scheme during 2011 are currently under review but will not be less than £4m (2010 £4.9m).

2010 £m

2009 £m

At beginning of year/period 136.4 99.7Current service cost 0.6 0.5Gain on curtailment (1.7) -Interest cost 7.3 4.0Employee contributions 0.2 0.2Actuarial (gains)/losses (4.4) 36.1Benefits and expenses paid (7.4) (4.1)At end of year/period 131.0 136.4

2010 £m

2009 £m

At beginning of year/period 90.3 78.8Expected return on scheme assets 5.3 3.5Actuarial gain on scheme assets 1.8 8.8Employer contributions 4.7 3.1Employee contributions 0.2 0.2Benefits and expenses paid (7.4) (4.1)At end of year/period 94.9 90.3

2010 £m

2009 £m

Present value of defined benefit obligation 131.0 136.4Fair value of scheme assets 94.9 90.3Deficit in the scheme 36.1 46.1Experience adjustments on scheme liabilities 1.8 35.7Percentage of scheme liabilities 1.4% 26.2%Experience adjustments on scheme assets 4.4 8.5Percentage of scheme assets 4.6% 9.4%



22. CONTINGENT LIABILITIES

There are performance bonds and other engagements, including those in respect of joint venture partners, undertaken in the ordinary course of business from which it is anticipated that no material liabilities will arise.

23. OPERATING LEASES

At 31st October 2010 total outstanding commitments for future minimum lease payments under non-cancellable operating leases were:

2010 £m

2009 £m

Land and buildingsWithin one year 3.6 3.8Less: minimum sub-lease income (1.3) (1.6)Between two and five years 12.4 13.8Less: minimum sub-lease income (2.6) (2.7)After five years 9.2 13.4Less: minimum sub-lease income (0.3) (0.7)

21.0 26.0

OtherWithin one year 0.6 0.6Between two and five years 0.9 1.0

1.5 1.6




24. RELATED PARTY TRANSACTIONS

The Group has entered into the following related party transactions:

(i) Transactions with joint ventures, which are disclosed in Note 11. The Group has provided book-keeping services to certain JVs which have been recharged at cost.

(ii) On 24th March 2009, the Company acquired Castle Bidco Limited, the parent company of Crest Nicholson PLC, pursuant to a financial restructuring of the Crest Nicholson Group. 90% of the shares in Crest Nicholson Holdings Limited are owned by the syndicate of lenders who have made Term loans to the business.

At 31st October 2010, the interests of the syndicate lenders in the financial instruments of the Group were as follows:

In addition, the syndicate lenders provide a £66.3m bank guarantee facility. Guarantees of £47.9m (2009 £59.6m) had been given by the lenders at 31st October 2010.

Borrowings of the Group are secured against the value of stock and work in progress.

(iii) Compensation of key management personnel is disclosed within Note 5. Key management also hold 8% of the shares in the Company, with a further 2% held by other senior Crest Nicholson employees.

2010 £m

2009 £m

Term loans (£500m face value) 418.5 349.3


25. ACCOUNTING ESTIMATES & JUDGEMENTS

Management considers the key estimates and judgments made in the accounts to be related to the valuation of Goodwill, WIP, Deferred tax and pension liabilities.

Goodwill The carrying value of goodwill is substantially dependent on the ability of the Group to successfully progress its strategic land holdings. Changes to the planning regime could undermine current assumptions about the sites which are expected to be successfully developed.

Carrying value of land and work in progress Inventories of land, work in progress and completed units are stated in the balance sheet at the lower of cost and net realisable value. Due to the nature of development activity and in particular, the length of the development cycle, the Group has to allocate site-wide development costs such as infrastructure between units being built and/or completed in the current year and those for future years. It also has to make estimates of the cost to complete such developments.

There is a degree of inherent uncertainty in making such estimates. The Group has established internal controls that are designed to ensure an effective assessment is made of inventory carrying values and the costs to complete developments.

Deferred tax Management has elected not to recognise deferred tax assets arising in respect of losses that can be carried forward against future taxable income, nor those in relation to retirement benefit obligations and other timing differences, on the grounds that realisation of the related tax benefit through future taxable profits could not be stated as probable at the balance sheet date.

Pensions Management has employed the services of an actuary in setting these estimates; however, they recognise the risk that both expected investment returns and ultimate scheme payments may differ substantially from current forecasts.

26. POST BALANCE SHEET EVENT

After the balance sheet date, Värde Partners, together with certain market associates and partners, progressively acquired the debt and equity of other group lenders in order to facilitate a financial restructuring of the Group.

At 23rd March 2011, Värde Partners, together with certain market associates and partners, had control over more than 80% of the senior debt and equity of the Group.



COMPANY BALANCE SHEETAs at 31st October 2010

COMPANY BALANCE SHEET

Note 2010 £

2009 £

Fixed assets

Investments 4 - -

Current assets

Cash at bank and in hand 99 99

Net current assets 99 99

Total assets less current liabilities - -

Net assets 99 99

Capital and reserves

Called up share capital 5 100 100

Profit and loss account 6 (1) (1)

Equity shareholders’ fund 6 99 99


Approved by the Board of Directors on 18th April 2011 and were signed on its behalf by:S Stone N C TinkerDirectors

There are no recognised gains and losses for the year (2009 nil).



NOTES TO THE COMPANY FINANCIAL STATEMENTSFor the period 31st October 2010

COMPANY FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

2. STAFF NUMBERS AND COSTS

The Company has no employees.

3. DIVIDENDS

Details of the dividends recognised as distributions to equity shareholders in the period and those proposed after the

balance sheet date are as shown in Note 8 of the Consolidated financial statements.

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements.

Basis of preparationThe Company financial statements have been prepared under the historical cost accounting rules and in accordance with applicable UK Accounting Standards.

The accounting policies have been applied consistently in dealing with items which are considered material.

Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account. Under FRS 1, the company is exempt from the requirement to prepare a cash flow statement on the grounds that its consolidated financial statements, which include the Company, are publicly available.

The principal accounting policies adopted are set out below.

Investments Investments in group undertakings are included in the balance sheet at cost less any provision for impairment.

Taxation The charge for taxation is based on the result for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen, but not reversed by the balance sheet date, except as otherwise required by FRS 19.

Dividends Dividends are recorded in the Company’s financial statements in the period in which they are paid.


The subsidiary undertakings which are significant to the Group and traded during the period are shown in Note 11 of the Consolidated financial statements.

2010 £

2009 £

Authorised10,000 Ordinary shares of 1p each 100 100

Allotted, called up and fully paid10,000 Ordinary shares of 1p each 100 100

4. FIXED ASSET INVESTMENTS

5. SHARE CAPITAL

FIXED ASSET INVESTMENTS 2010 £

2009 £

Shares in and loans to subsidiary undertakings At start of year/period - -Additions - 1Capital contribution to subsidiary undertaking - 397,615,000Impairment - (397,615,001)At end of year/period - -




The loss dealt with in the books of the Company was nil (2009 £397,615,001).

During the prior reporting period ended 31st October 2009, on acquisition of Castle Bidco Limited, the Company became a guarantor to the senior facilities agreement and the mezzanine facilities agreement of the Castle Bidco Group. Lenders under these facilities made a partial demand under this guarantee amounting to £397,615,000. This was treated as a capital contribution to Castle Bidco Limited, with the corresponding receivable from Castle Bidco being subsequently waived. The initial investment of £1 was impaired to nil.

The lenders also agreed to exchange their debt of £397,615,000 for equity in the Company, resulting in a gain on equitisation.

7. CONTINGENT LIABILITIES

There are performance bonds and other engagements, including those in respect of joint venture partners, undertaken in the ordinary course of business from which it is anticipated that no material liabilities will arise.

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

Under the terms of the bank facilities, each company within the Group is a guarantor of the bank facilities of other group members that have acceded to the senior facilities agreement.

8. RELATED PARTIES

As 100% of the Company’s voting rights are controlled within the Crest Nicholson Group, the Company has taken advantage of the exemption contained in FRS 8 and has therefore not disclosed transactions or balances with entities which form part of the Group (or investees of the Group qualifying as related parties).

6. RECONCILIATION OF SHAREHOLDERS’ FUNDS

Share capital

£

Profit and loss account

£

Total

£

At 23rd January 2009 - - -

Issue of shares 100 - 100

Loss for the period - (397,615,001) (397,615,001)

Gain on equitisation of debt - 397,615,000 397,615,000

At 31st October 2009 100 (1) 99

Result for the year - - -

At 31st October 2010 100 (1) 99

Crest Nicholson Holdings LimitedCrest HousePyrcroft RoadChertseySurrey KT16 9GN

Tel: 01932 580 555 Fax: 0870 336 3990www.crestnicholson.com

crest nicholson holdings annual report (2010)

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