McCarthy & Stone have forecast a lower operating profit for 2018, as it laments the lack of support from government for retirement housing.
In a recent trading statement, it said that it expected operating profit for the year to be within the current analyst forecast range of c.£65m to c.£73m, compared to £96m in 2017. Year-end net cash is expected to drop to c.£4m from £31m.
However, full year revenue is expected to be up at c.£670m, compared to £661m in 2017, supported by a 10% increase in the average selling price which is forecast at c.£300k.
Legal completions were down at 2,134 units (2017: 2,302), with volumes and operating profit constrained by the heavy H2 weighting of first occupations, continuing economic uncertainty coupled with a slower secondary market and a softening of pricing, particularly in the South, during the second half of the year.
In response to the uncertainty resulting from the government’s announcement on ground rents, the Group exercised additional caution throughout the year with 54 land exchanges (2017: 75) and 37 planning consents (2017: 64) achieved during the period. This lower level of activity is the result of a more measured approach to land buying and further time taken to renegotiate s.106 contributions with local planning authorities in order to partially mitigate the potential impact of zero-rating future ground rents on new build properties.
John Tonkiss, Interim Chief Executive Officer, said, “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. Build delivery remained strong, however, with 68 (2017: 49) 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 keyarea 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.
“We are continuing to engage with government in an effort to secure an exemption from the proposed changes to ground rents. We believe that there is a strong case for a specific exemption for the retirement housebuilding sector and we are awaiting clarification on this matter. Until this is received, we continue our planning to try and mitigate the potential impact on the business, including maintaining discipline around our cash position and adopting a more measured approach to securing land.
“We continue to lead the market when it comes to customer satisfaction and remain the only housebuilder of any size or type to have received the full Five Star rating in the Home Builders Federation customer satisfaction survey for thirteen consecutive years.”