McCarthy & Stone warns on operating profit after 'tough' year

Retirement housebuilder McCarthy & Stone downgraded its operating profit guidance for the year on Thursday following a "tough" year.

In an update for the year to 31 August, the company said it now expects operating profit for the year to be within the current analyst forecast range of £65m to £73m, down from £96m in 2017 and below its previous guidance of between £65m and £80m back in June.

Full-year revenue is expected to come in at around £670m from £661m in 2017, supported by a 10% rise in the average selling price to around £300,000, which reflects continuing improvements in the sales mix, as well as quality and location of its developments.

During the period, the group achieved total legal completions of 2,134 units versus 2,302 the year before, with volumes and operating profit constrained by the heavy second-half weighting of first occupations, continuing economic uncertainty, a slower secondary market and a softening of pricing, particularly in the South.

McCarthy said the year-end forward order book is currently around 23% ahead of the previous year at £174m, supported by 69 sales releases in the year.

Interim chief executive John Tonkiss said it's been a tough year, with ongoing adverse market conditions continuing to impact the business, and without the benefit of any additional government support for the retirement housing sector. Still, build delivery remained strong, with 68 high-quality developments brought to market during the year versus 49 in 2017.

"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," said Tonkiss.

"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."