Profits plunge at retirement housebuilder McCarthy & Stone

Retirement housebuilder McCarthy & Stone’s profits decreased by two-thirds in the first half of 2019 as it undertook a strategic shift to deal with a weak second-hand housing market.

Read more: UK house prices drop in March after shock rise, says Halifax

The company said it had increasingly turned to discounting and other incentives as political uncertainty weighed on people’s willingness to buy as it released half-year results today.

The figures

McCarthy & Stone’s profit before tax dropped to £3.6m in the six months to 28 February, a fall of 66 per cent compared to its profit of £10.5m in the same period a year before.

Its revenue increased 17 per cent to £281m, from £240m in the first half of 2018.

The housebuilder’s net cash outflow fell to £41.7m in the six months to the end of February, compared to £86.6m year-on-year. This compares to an inflow of £30.2m in the year ended 31 August 2018.

McCarthy & Stone’s net debt fell to £57.2m in the first half of 2019, compared to £75.9m a year earlier.

Its underlying basic earnings per share rose to 2.9p in the period, up from 1.7p year-on-year.

The company’s interim dividend per share stayed the same at 1.9p.

The group incurred £14m of exceptional costs in relation to the delivery of a new business strategy which it said “represents a shift in the business mindset from growth to increasing our return on capital employed, margins and cash generation”.

It highlighted that its underlying operating profit increased 47 per cent to £21m in the six months to the end of February.

Why it’s interesting

McCarthy & Stone’s results come amid a slowdown in the UK housing market. Last month Nationwide reported a drop in confidence among potential buyers, while Halifax last week said prices fell 1.6 per cent from February to March.

The housebuilder's forward order book as of 5 April 2019, which stood at around £485m, was 17 per cent behind where it was the previous year.

It said it had been heavily employing incentives such as part-exchange, where a seller buys a house from a potential customer to stop them needing to sell it, to counteract a challenging second-hand market.

Brexit uncertainty was a major drag, McCarthy & Stone said, but it also pointed to the government’s help to buy scheme which had boosted the new homes market while being less helpful to the second-hand market.

It said it expected that this approach would still be required in the second half of the year.

What McCarthy & Stone said

John Tonkiss, chief executive, told City A.M.: “We're pleased with where we’ve got to at the half year. I think it's a solid performance in terms of each of our numbers in the face of what we consider to be continued challenges in the secondary housing market.”

The retirement housebuilder explained its drop in profits with reference to discounting and part-exchange as well as redundancy and land costs.

“In the last few months, in the last few weeks in particular, we've just seen customers' confidence and buying behaviour starting to be impaired by what's going on in the broader and economic political backdrop,” Tonkiss said.

Tonkiss also said the help to buy scheme had “a dislocation effect because first time buyers are going in to new builds almost to the exclusion of going in to established secondary housing.”

Read more: Steep London house price drop drags back UK housing market

“As a result of that to help people get over the line and to facilitate the secondary housing market, we've used part-exchange more readily than we have historically.”