Retirement housebuilder McCarthy & Stone blames profits drop on government ground rent policy
Retirement housebuilder McCarthy & Stone expects profits to slump amid a slowdown in the sector and uncertainty surrounding government policy.
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The figures
Operating profit for the year ended 31 August is expected to be between £65m and £73m, a drop from the 2017 figure of £96m, the group said in a trading update today.
Revenue is expected to increase to around £670m from £661m last year, but year end net cash will be an estimated £4m compared to £31m in 2017.
Annual results will be published on 13 November.
Why it matters
The group, which exited the FTSE 250 this week, said it had exercised additional caution over the year due to uncertainty surrounding a government announcement on ground rents, which banned leaseholds on new-build homes.
Only 54 land exchanges were made in the period, compared to 75 last year, and the number of planning consents achieved dropped from 64 in 2017 to 31 this year.
The housebuilder, which is based in Bournemouth, called for the retirement housebuilding sector to be exempt from the new policy.
What McCarthy & Stone said:
John Tonkiss, interim chief executive, hailed "strong" build delivery, but said the company is fighting the government for an exemption from proposed changes to ground rents for retirement sector builders.
"It has been a tough year for the group with ongoing adverse market conditions continuing to impact the business, and without the benefit of any additional government support for the retirement housing sector," he added.
"Build delivery remained strong, however, with 68 high-quality developments [up from 49 in 2017] brought to market during the year.
"In light of the continuing challenging market conditions, the group began a review of its strategy in April.
"As previously announced, our strategic focus will be on pursuing a more measured trajectory and smoothing our workflow to create a more efficient business.
"This will naturally lead to a right-sizing of our cost base, with build cost savings being a key area of focus.
"Additionally, we are continuing to trial a number of strategic initiatives designed to increase customer appeal and offer a broader choice of tenure options, increased flexibility and affordability.
"We will provide the market with more detail on this at our strategy update later this month.
What analysts said:
“On the face of it, McCarthy & Stone should be a goldmine – it’s offering a product that the UK’s aging society needs in steadily increasing volumes, due to demographics and changes in life expectancy," wealth management firm Brewin Dolphin's senior investment manager, John Moore, said.
"Nevertheless, the company has struggled over the years and this mixed set of results only adds to that mixed story.
"Is this a familiar problem brewing for a business that has had a troubled corporate past? It certainly could be if management doesn’t take action to restore profitability to industry averages while the housing market remains reasonable.”
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