Friday 2 September 2016
McCarthy & Stone plc - full year trading update
Robust growth delivered in first year of trading as a public company
McCarthy & Stone (the "Group"), the UK's leading retirement housebuilder, is today issuing a trading update for the full year ended 31 August 2016, ahead of reporting its full year results on Tuesday 15 November 2016.
· Legal completions increased by 20% to 2,299 units (2015: 1,923)
· Net average selling price increased by 8% to £259k (2015: £239k)
· Revenue increased by 31% to c.£635m (2015: £486m)
· Land bank increased to c.10,206 plots (2015: c.10,087) for future development at attractive margins, with terms agreed on a further c.1,700 plots
· Key strategic initiatives to improve sales rates, reduce development time and implement build efficiencies all on track, delivering improved capital turn of c.1.2x (2015: 1.0x)
· Sustained capital discipline, delivering an estimated ROCE of c.20%
· Group remains in a strong financial position, with c.£52m of net cash at the year end
Clive Fenton, Chief Executive Officer, commented:
"We continue to capitalise on increasing demand for retirement housing driven by the UK's rapidly ageing population and have delivered strong growth in completions, reservations and profit this year. Notwithstanding current increased market uncertainty following the EU Referendum result and any financial impact on the business in the short term, McCarthy & Stone remains in robust health to capitalise on a continuing benign land market and the attractive fundamentals of the retirement market over the medium term.
"The investment made in new regions and additional operational infrastructure in the first half of the year is beginning to show benefit, with all nine regions delivering profit for the full year. As anticipated in our trading update on 29 June, we have required somewhat higher levels of incentives in order to deliver our volume out-turn. Despite this, we expect to announce at least a c.100 bp improvement in underlying operating margins in the second half of the year versus the first half, which should enable the Group to increase its underlying profit before tax1 by c.19%.
"Our continuing focus on operational excellence, through our three strategic initiatives to increase sales rates, reduce the time taken between securing land and starting on site and implement build programme efficiencies, have allowed us to deliver further improvement in our capital turn for the year ended 31 August 2016. Coupled with a more measured approach to the pace of investment in land and build over recent weeks, this has enabled us to sustain a strong balance sheet, with a net cash position, ahead of previous expectations. This financial strength will allow us to respond flexibly as housing market conditions develop".
1Underlying operating margin and underlying profit before tax are calculated by adding amortisation of brand and exceptional administrative expenses to operating profit and profit before tax respectively
Market and current trading
The market for retirement housing remains highly attractive. 3.5 million people in the UK over the age of 60 have expressed particular interest in buying a retirement property2 and yet only c.141,000 specialist retirement properties for owner occupation have ever been built3. With almost three-quarters (74%) of household growth in the UK to 2039 expected to come from those aged 65 and over4, McCarthy & Stone is uniquely placed to capitalise on this unprecedented demographic opportunity.
With this attractive backdrop, the Group opened 64 new sales outlets during the period (2015: 51), contributing to a 10% increase in the Group's net reservations above 2015. As a result, the Group delivered 2,299 legal completions in the year (2015: 1,923). The Group is carrying a forward order book of c.£114m into the new financial year (2015: £131m) despite, as expected, releasing a lower level of new sales outlets over the summer months.
The Group's net average selling price increased by 8% to £259k (2015: £239k), reflecting further improvements in the quality of the developments McCarthy & Stone is now bringing to market. As previously indicated, a return to modest house price inflation across our regions has been offset at a margin level by build cost inflationary pressures, although these have moderated recently. Margin improvement has also been constrained by the Group's investment in new regions and additional operational infrastructure to support growth, as guided previously, as well as an increased use of incentives in recent weeks to close out completion chains and deliver the targeted volume growth and improved cash.
Land and planning
The Group has again added good-quality sites with attractive embedded margins into its land bank. 65 sites (2015: 90) were exchanged in the year, equivalent to c.2,614 additional plots and the land bank now stands at c.10,206 plots (2015: c.10,087 plots), equivalent to 4.4 years'5 supply, of which 2.7 years5 has detailed planning consent. With the land market remaining benign, we have increased our hurdle rates and continue to exercise discipline in our addition of new land in good locations with attractive embedded margins and a high degree of contractual conditionality.
There has been evidence of some weakness in the secondary housing market since our trading update on 29 June. Whilst website enquiries have increased, and we have continued to take new reservations, these have been at a lower level than we saw in the first nine months of the financial year and cancellations have been at higher levels.
Whilst it is too early to judge what medium term impact we will see from the EU Referendum result and the Bank of England's subsequent changes to monetary policy, prolonged housing market weakness, particularly in the secondary market, could affect our ability to deliver our targeted 15% volume growth previously indicated for the financial year ending 31 August 2017. There has been some improvement in customer sentiment during the month of August, however, it is too early to predict at this stage whether these improving conditions will persist into the new financial year.
McCarthy & Stone will release its results for the full year ended 31 August 2016 on Tuesday 15th November 2016 and provide a further update on prospects for the year ending 31 August 2017 at that time.
- Ends -
2Demos (September 2013)
3Independent data provided by Elderly Accommodation Counsel (April 2016)
4The Department for Communities and Local Government (DCLG) projections, July 2016
5Based on 2,299 legal completions achieved in 2016
This trading update contains certain forward-looking statements about the future outlook for the Group. Although the Directors believe that these statements are based upon reasonable assumptions, any such statements should be treated with caution as future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.
This announcement contains inside information.
Conference call for analysts and investors
Clive Fenton, Chief Executive Officer and Nick Maddock, Chief Financial Officer, will be hosting a conference call at 8.00 am today, Friday 2 September, to discuss this trading update.
To access the conference call:
International Number: +44 (0) 20 3003 2666
UK Toll Free: 0808 109 0700
Participant PIN: 9017157#
A replay facility will be available shortly after:
Dial in details: +44 (0) 20 8196 1998
Access PIN: 4135581#
For more information, please contact:
McCarthy & Stone, 01202 292480
Clive Fenton, Chief Executive Officer
Nick Maddock, Chief Financial Officer
Paul Teverson, Director of Communications
Powerscourt, 020 7250 1446 / [email protected]
Notes to Editors
About McCarthy & Stone
McCarthy & Stone is the UK's leading retirement housebuilder with a c.70% share of the owner-occupied market6. The Group has sold over 51,000 properties across more than 1,100 retirement developments since 1977 and is renowned for its focus on the needs of those in later life. It re-joined the Main Market of the London Stock Exchange in November 2015 and re-entered the FTSE 250 following its quarterly review on 21 March 2016.
UK demographics remain strongly in favour of the specialist retirement housing market, with the number of people aged 85 and over in the UK expected to more than double between 2014 and 2033 from 1.5m to 3.0m, with those aged 65 and over expected to increase by more than 50% from 11.4m to 16.7m7. According to research, 1 in 4 over 60s are interested in retirement living8, yet only c.141,000 units of specialist retirement housing for homeowners have been built9.
Older people are also the one group where rates of homeownership have risen in recent years. Homeownership among those aged 65 to 74 increased from 50% in 1981 to 78% in 2012 and among the over 75s it rose from 47% to 73%. However, for those aged 25 to 34, it has fallen from 62% in 1981 to 43% in 2012 and for 35 to 44 year olds it fell from 69% to 63%10. The Department for Communities and Local Government (DCLG) is forecasting that older householders (aged 65+) will grow by 155,000 per year to 2039 and will account for about three quarters (74%) of total household growth over that period.
The Group has two established product ranges - Retirement Living and Assisted Living - which provide one and two bedroom apartments across the country with varying levels of support and care for older homeowners. In late 2014, McCarthy & Stone launched its Ortus Homes product, which is exclusively for the over 55s and those in the earlier stages of retirement who are seeking to downsize for their leisure years. McCarthy & Stone is currently selling its first apartments in this new product range across seven locations, helping the Group to capture a wider share of the active retiree market. The first Ortus Homes development at Scarlet Oak in Solihull won the Best Retirement Scheme at the annual Housebuilder Awards in November 2015.
McCarthy & Stone's commitment to quality and customer service continues to be recognised by homeowners. In March 2016, the Group received the full Five Star rating for customer satisfaction from the HBF for the eleventh consecutive year - making it the only UK housebuilder, of any size or type, to achieve this accolade.
6Based on 3,453 registrations of cross-tenure properties specifically designed for the elderly with the NHBC during calendar year 2015, of which 2,672 were registered by McCarthy and Stone
7Population projections by the Office for National Statistics (2014 based)
8Demos (September 2013)
9Independent data provided by Elderly Accommodation Counsel (April 2016)
10Office for National Statistics - Housing and home ownership in the UK (2015)
This information is provided by RNS