- Builder prides itself on quality
- Initial costs of up to £15 million
- Shares erase their 2024 gains
As they prepared to get together over tea and biscuits at the firm’s AGM (annual general meeting) in leafy Surrey, investors in housebuilder Crest Nicholson (CRST) received the unwelcome news the firm had decided to take a large remediation charge for build defects.
The shares dropped 10% to 202p, erasing most of their gains year-to-date.
LEGACY COSTS COULD RISE
Addlestone-based Crest Nicholson prides itself on ‘building great places for our customers, communities and the environment’, so the revelation it had been made aware of ‘certain build defects predominantly on four sites that were completed prior to 2019 when the group closed its Regeneration and London divisions’ will be most unwelcome.
The sites will need remediation over the next three years at an estimated cost of up to £15 million, and the board has appointed outside consultants ‘to provide greater assurance on the adequacy of current provisions around these and other sites completed prior to 2019’, which suggests £15 million could be the tip of the iceberg if more sites need remediation or the costs are higher than currently estimated.
For context, the firm made a net profit of £17.9 million last year and the consensus for this year is £27.6 million according to Stockopedia, while the company-compiled consensus has been removed from its website and is ‘under review’.
At the end of 2023, the firm had net cash of just under £65 million and a £230 million RCF (revolving credit facility) so it should have plenty of resources should the ultimate cost of remediation exceed £15 million.
SECTOR NEEDS TO GET ITS HOUSE IN ORDER
In its report on the new-build market published last month, the CMA (Competition and Markets Authority) found it ‘is not delivering well for consumers and has consistently failed to do so over successive decades’.
As well as building too few new homes, housebuilders enjoy a level of profitability ‘higher than we would expect in a well-functioning market’ while levels of innovation in the industry are ‘lower than we might expect in a dynamic, well-functioning market’, the CMA concluded.
In terms of build quality, the report highlighted customers’ perceptions of the quality of service they had received or in some cases were still receiving deteriorated as they lived in their homes for longer.
‘In particular, where consumers experience a greater number of snags or faults it can be more difficult to resolve them, taking weeks or even months. It also appears that there is a small but significant minority experiencing the most serious defects, who are likely to experience significant consumer detriment’, added the report.
