McCarthy & Stone PLC Trading Update (9053P)

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RNS Number : 9053P

McCarthy & Stone PLC

06 September 2017

Wednesday 6 September 2017

McCarthy & Stone plc - full year trading update

Strong recovery in the second half

McCarthy & Stone plc (the 'Group'), the UK's leading retirement housebuilder, is today issuing its trading update for the full year ended 31 August 2017 (2017), ahead of reporting its annual results on 14 November 2017. All comparatives are to the full year ended 31 August 2016 (2016) unless otherwise stated.

Highlights

   --     52 new sales outlets opened during the year (2016: 64). 
   --     Total legal completions 2,302(1) (2016: 2,296(1) ). 

-- Gross average selling price increased by 3% to c.GBP273k (2016: GBP264k) in line with previous guidance.

   --     Revenue increased by 4% to c.GBP660m (2016: GBP636m). 

-- Strong recovery in underlying operating margin(2) in H2 (+ c.700bp). As anticipated, full year margins expected to be lower than prior year due to age mix of stock and higher levels of incentives.

   --     Year end forward order book 21% ahead of the prior year at c.GBP141m (2016: GBP116m(3) ). 

-- Workflow on track to support growth strategy and deliver c.80 new sales releases in FY18 (2017: 52).

-- Continuing to maintain a strong balance sheet, with c.GBP30m of net cash (2016: GBP53m) notwithstanding significant ongoing investment in land and work in progress.

-- Maintaining industry-leading levels of customer satisfaction as the only housebuilder to receive the full Five Star rating from the HBF for twelve consecutive years.

   --     New strategic relationship with Places for People to access the growing rental market. 

Trading update

The Group delivered a consistent improvement in trading throughout the year despite the increased uncertainty in the secondary market following the EU Referendum result in June 2016 and the General Election in June 2017. Total legal completions were in line with the prior year at 2,302 (2016: 2,296) and forward sales have steadily improved throughout the year despite the significantly lower number of new sales releases and first occupations(4) . All sales lead indicators remain well ahead of the prior year and an increased level of forward sales of c.GBP141m are being carried into the new financial year, representing a 21% improvement on the prior year (2016: GBP116m). Build activity was delivered in line with management expectations, with 49 first occupations achieved in the year (2016: 69). The Group opened 52 new sales outlets during the year (2016: 64) and remains confident of delivering a further c.80 new sales releases in FY18.

As expected, there has been strong upward momentum in average selling prices and margins during the second half of the year, reflecting a continuing improvement in sales mix and quality of sites, and this is set to continue into the next financial year. Average selling prices have exceeded GBP273k per unit for the first time in the Group's history (2016: GBP264k) and this has delivered a record level of revenue of c.GBP660m (2016: GBP635.9m).

Margins have recovered significantly since 1 March, with a c.700bp improvement in underlying operating profit margin expected in the second half of the year versus the first half (2017 H1: 10.1%). As previously guided, full year margins are expected to be lower than the prior year mainly due to the age mix of stock sold and the increased use of part exchange leading to consistently higher levels of incentives.

Over the course of the last financial year, the Group has sought to enhance its business model by developing a strategic relationship with Places for People. This represents an exciting new opportunity to access the growing rental market and has the potential to improve capital turn and enable land investment in new, previously untapped locations. This strategic relationship resulted in the sale of 126 apartments (included within the total legal completions of 2,302) across 27 sites to be held within a specialist retirement PRS Fund being established and managed by PfP Capital, the fund management business of Places for People. The apartments will be offered for private open market rent. We will update further on this strategic relationship alongside our full year results announcement in November.

The Group continues to lead the housebuilding sector on customer satisfaction. It is the only housebuilder, of any size or type, to have received the full Five Star rating in the Home Builders Federation customer satisfaction survey for twelve consecutive years, in which more than 90% of its customers would recommend it to a friend.

The workflow of the business remains firmly on track to support its growth strategy. Build activity commenced on 73 sites during the year (2016: 54) and the Group plans to deliver c.80 new sales releases next financial year (2017: 52), contributing to both FY18 and FY19 sales. First occupations are planned to increase to c.65 next year (2017: 49) and are expected to be weighted towards the second half of the year due to the timing of our build programmes. The demand for high-quality retirement housing remains strong and the Group remains confident of delivering its medium-term growth objective of building and selling more than 3,000 units per annum.

An update on current trading and further guidance for FY18 will be issued alongside our full year results announcement on 14 November 2017.

- Ends -

(1) Excludes commercial unit sales

(2) Underlying operating margin is calculated by dividing underlying operating profit for the year by revenue. Underlying operating profit is calculated by adding amortisation of brand and exceptional administrative expenses to operating profit

(3) Forward order book reflects revenue due on reservations and is stated after discounts but before incentive costs. The prior year comparative stated at 2 September 2016 of GBP114m was stated net of incentive costs of GBP2m

(4) 'First occupation' is the date of the first legal completion within a given development

For more information, please contact:

McCarthy & Stone, 01202 292480

Clive Fenton, Chief Executive Officer

Rowan Baker, Chief Financial Officer

Paul Teverson, Director of Communications

Powerscourt, 020 7250 1446 / [e-mail]

Justin Griffiths

Nick Dibden

Notes to Editors

About McCarthy & Stone

McCarthy & Stone is the UK's leading retirement housebuilder with a c.70% share of the owner-occupied market(1) . The Group has sold over 54,000 properties across c.1,200 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.

There is growing demand for specialist retirement housing, with the number of people aged 85 and over in the UK expected to more than double between 2015 and 2035 from 1.5 million to 3.2 million, and the number of people aged 65 and over expected to increase by more than 50% from 11.6 million to 17.2 million(2) . According to research by Demos, 1 in 4 over 60s are interested in retirement living(3) , yet only c.141,000 units of specialist retirement housing for homeowners have been built(4) .

The Group has two established product ranges - Retirement Living and Retirement Living Plus (formerly known as Assisted Living) - which provide mainly 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 Lifestyle Living (formerly 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 apartments in this product range across nine locations, helping the Group to capture a wider share of the active retiree market.

The first Lifestyle Living development at Scarlet Oak in Solihull won the Best Retirement Scheme at the annual Housebuilder Awards in November 2015. At the same awards in November 2016, we were pleased to again receive Best Retirement Scheme for Ramsay Grange and Lyle Court, our combined Retirement Living Plus and Lifestyle Living development in Barnton, Edinburgh, as well as Best Customer Satisfaction Initiative for our approach to ensuring that we deliver a Five Star service for our homeowners.

The Group was also pleased to win 15 awards at the 2017 NHBC Pride in the Job awards, marking a 50% increase in winners from 2016. The scheme is dedicated to recognising construction site managers who achieve the highest standards in housebuilding and has been instrumental in driving up standards in the sector for 37 years.

McCarthy & Stone's commitment to quality and customer service continues to be recognised by homeowners. In March 2017, the Group received the full Five Star rating for customer satisfaction from the Home Builders Federation for the twelfth consecutive year - making it the only UK housebuilder, of any size or type, to achieve this accolade.

(1) Based on 4,778 registrations of cross-tenure properties specifically designed for the elderly with the NHBC during 18 month period ended 30 June 2017, of which 3,684 were registered by McCarthy & Stone

(2) Population projections by the Office for National Statistics (2014 based)

(3) Demos -- Top of the Ladder (September 2013)

(4) Independent data provided by Elderly Accommodation Counsel (April 2016)

This information is provided by RNS

The company news service from the London Stock Exchange

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September 06, 2017 02:00 ET (06:00 GMT)