In a trading statement, retirement housebuilder McCarthy & Stone reported that its new rental proposition is gaining momentum.
Full year revenue is expected to be c.£720m, up from £672m in 2018, supported by a c.3% increase in average selling price to c.£308k and total legal completions of 2,3012 units (2018: 2,1342).
Underlying operating profit for the 14-month period is expected to be within the current analyst forecast range of c.£64m to c.£71m (2018 underlying operating profit: £67.5m).
Underlying trading conditions remained challenging during the period due to the impact of ongoing political and economic uncertainty on the secondary housing market, the retirement housebuilder said. Additional uncertainty over potential stamp duty changes dented transaction levels, particularly in the South East, resulting in higher discount and incentive levels compared to the prior year. These tougher market conditions are expected to continue throughout the new financial year.
McCarthy & Stone have implemented a cost-cutting strategy to help the through the troublesome market. It said that its main priority this year was to start delivering on its three-year programme of business optimisation “with focus on delivering 15% ROCE, 15% operating profit margin by FY21 and cumulative cash savings of >£90m across the life of the plan. This strategy remains on track and is expected to deliver c.£40m cost saving which will be weighted towards delivery in FY21 due to its focus on build cost savings.”
It said that the new strategy has driven a solid trading performance in a difficult market. “These challenging market conditions, created by the continued political and economic uncertainty, are now expected to continue throughout the new financial year,” it said. “The impact is expected to be evident in the Group’s underlying operating margin through an ongoing need for increased levels of part-exchange and a lower mix of sales from the South East.
“We expect this to be partially mitigated, however, by the decisive actions management have taken in executing the Group’s new strategy, particularly the increased opportunity for multi-tenure, which has made a positive start and is expected to become a more substantial part of the Group’s overall volumes in FY20 and beyond.”
John Tonkiss, Chief Executive Officer, commented: “While the long-term demand for our products and services remains strong, we have continued to experience challenging conditions in the secondary housing market resulting from the ongoing political and economic uncertainty. The medium–term economic outlook will depend on how the UK’s EU withdrawal is delivered, but our new strategy has positioned us well to deliver a solid trading performance in a difficult market and respond positively when trading conditions improve.
“We have a strong balance sheet, a continued focus on delivery of operational improvements across our business and an ongoing commitment to deliver high-quality developments and Five Star customer satisfaction.
“We are also making exciting progress across our key strategic initiatives as set out last September, particularly rental, where our initial pilots have confirmed strong demand for renting in later life. This is a hugely positive step for the business as it enables our business model to become more resilient and ensures that we are in a strong position to capitalise on future market recovery.
“We are committed to finding a high-quality strategic capital partner to co-invest with us in this hugely underserved retirement rental space in order to develop our vision of creating even deeper and longer lasting relationships with our customers.”
