McCarthy & Stone PLC - Trading and strategy update


Trading Update

McCarthy & Stone is today issuing the following trading update ahead of reporting its final results for the year ending 31 August 2018.


2018 Financial Performance


On 11 April, the Group reported a good response to the opening of its new sales outlets during Q1 of the calendar year.  Since this date, however, there has been a noticeable decline in reservation rates as potential customers have exercised more caution due to ongoing economic uncertainty, a slower secondary market and a softening of pricing, particularly in the South East. 


The Group's outcome for the financial year ending 31 August 2018 was always heavily dependent on a strong Spring selling season, and under these less favourable conditions the Group is now forecasting to achieve c.2,100 to c.2,300 (2017: 2,302) legal completions.  As a result, the Group is now guiding to an expected FY18 operating profit of £65m to £80m (FY17: £96m), with the profit impact of the unit shortfall skewed to the South (at higher average selling prices). The Group's forward order book including legal completions currently stands c. £67m ahead of the prior year at £706m (2017: £639m).  Whilst this is lower than management's expectations given the higher number of outlets, it is nevertheless sufficient to deliver within the new guided range.  Incentives and discounts are also expected to remain approximately in line with recent prior year levels. 


The contract for the sale of the Group's H2 Freehold Reversionary Interests has now exchanged with a total cash value of c.£30m and completion expected prior to the year end in August.


Throughout the period, the Group has continued to exercise its usual cash management discipline with the overriding priority of maintaining a strong balance sheet. At year end, any debt is likely to be at a low level and we are forecasting a FY18 TNAV of c.£700m.


Future strategy


The growing need for retirement housing caused by the UK's rapidly ageing population continues to underpin the long-term prospects of McCarthy & Stone.  The business has consistently achieved five star customer satisfaction scores (2018: 93.5% recommend score) supported by its industry-leading levels of build quality.  


However, in light of the ongoing difficult market conditions, and without the benefit of any additional Government support for the retirement housing sector, the Group began a review of its strategy in April led by the Chairman, Paul Lester.


This strategic review will seek to focus on improving margins and ROCE (targeting mid-teens ROCE over the short to medium term) together with a more balanced workflow.  This will naturally lead to a more measured growth trajectory and a right-sizing of the Group's cost base, with build cost savings as an additional key area of focus.  As outlined in its half year results presentation, McCarthy & Stone will also be trialling a number of strategic initiatives designed to increase customer appeal and offer a broader choice of tenure options including rental and part ownership.


Whilst the focus currently remains on delivering the best possible result for the year end, the Group will provide a further update on the actions resulting from this strategic review in September.


The Board has announced separately this morning that Clive Fenton will retire as Chief Executive and step down from the Board on 31 August. A search to identify his successor has commenced.

Paul Lester, Chairman, Clive Fenton, Chief Executive Officer and Rowan Baker, Chief Financial Officer, will be hosting a conference call for analysts and investors at 8.00am today, Tuesday 19 June, to discuss this trading update. If you wish to participate in the call please contact Powerscourt on 020 7250 1446.


This announcement contains inside information as defined in the Market Abuse Regulation (EU) 596/2014


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