Subdued market impacts McCarthy & Stone profits

Pre-tax profit has fallen 37% to £58m (2017: £92m) at McCarthy & Stone as build cost increases and subdued market conditions impacted the retirement housebuilder.

Its full year results showed that revenue in the year ended 31 August 2018 rose by 2% to £672m (2017: £661m), while underlying operating profit fell 30% to £68m (2017: £96m) in line with the group’s announcement on 6 September 2018.

During the year legal completions were lower at 2,134 units, down from 2,302 in 2017. However, the average selling price rose 10% to £300,000 (2017: £273,000).

Fifty-four development sites were added to its land bank, down from 75 in 2017. Its total land bank had 9,797 plots (2017: 9,967).

McCarthy & Stone said the secondary market remained challenging, particularly in the South East with customers continuing to exercise caution due to economic uncertainty. House price inflation continued to be subdued, according to chief executive John Tonkiss, who said he was ‘generally happy with trading’ during a live webcast presentation. Build cost inflation remains at a 3-4% level, he said.

As reported in September, the group’s strategy will focus on growing return on capital employed (ROCE), margins and cash generation. It will also concentrate on two core products – Retirement Living and Retirement Living PLUS.

The new strategy has included a company headcount reduction of around 20%, with the consultation process now complete. Tonkiss said: ‘The problem was we were going for growth, growth, growth and that was putting enormous strain on our workforce.’

On plans for delivering 2,100 units each year, he said the number ‘would be delightful if it can be achieved.’

In the financial report, Tonkiss said: ‘During the year, we conducted a full strategic review of the business and in September 2018 announced our new transformation strategy. This new strategy represents a significant shift in the business mindset away from growth and towards increasing our return on capital employed and operating margin.

‘Our focus now is on creating a more efficient business capable of delivering improved shareholder returns, while leveraging our longer term strategic opportunities. This includes increasing customer appeal by offering a broader choice of tenure options, as well as increased flexibility and affordable offerings.’