Crest Nicholson profit slips, warns on margins

FTSE 250 housebuilder Crest Nicholson posted a drop in half-year pre-tax profit on Tuesday as it warned that margins for the year would come in towards the lower end of its guidance range, squeezed by cost pressures.

In the six months to 30 April, pre-tax profit slipped 2% to £74.8m while revenue was 13% higher at £473.8m.

The company said it delivered strong growth in housing revenues and housing unit numbers, with open-market revenues up 16% and the number of private homes delivered up 11%.

Open market average selling prices excluding the private rented sector were 5% higher at £439,000, mostly due to changes in product and location mix.

Headline gross margins were down on the 26.3% achieved last half-year at 23.6%, impacted by generally flat pricing against a backdrop of continuing build cost inflation at 3-4%, although this is showing some signs of moderation.

Operating margins fell to 17.2% from 19.1% and Crest said operating margins for the full year are expected to be around 18%, at the bottom end of its 18-20% guided range.

Chief executive Patrick Bergin said: "The group has delivered a good sales performance in the first half of the year. The business continues to increase the number of homes built and carries positive momentum into the second half of 2018, with steady outlet growth and higher forward sales.

"Our experience of generally flat pricing against a back-drop of continuing build cost inflation has, however, had an adverse impact on our margins and we have taken a number of actions to seek to offset build cost pressures and invest in areas of greater housing affordability.

"Our robust business model, focused on delivering well-designed product across the Southern half of the UK, ensures the business is well positioned to thrive against a backdrop of continuing strong demand for housing."

Artjom Hatsaturjants, research analyst at Accendo Markets, said: "With the company unable to significantly upgrade their pricing structure as the housing sector was being hit by Brexit uncertainties, there was precious little Crest Nicholson was able to achieve to offset rising cost pressure.

"Crest Nicholson was attempting to alleviate some of the pressure on operating margins by investing in areas with more affordable housing, yet this would only address one side of the equation, with the issue of costs left unaddressed by the company apart from vague promises to tackle the problem going forward. And with the average sale price +5%, would some of the more expensive developments end up much harder to sell?

"Markets were unimpressed with lack of a clear cost control strategy and with UK housing sector on the downturn (with latest Halifax House Price May data pointing to a still very soft market) it is not clear if the outlook for the housebuilder will improve substantially. Crest Nicholson pointed out that cost inflation was “showing some signs of moderation” which read like a potential admission that the company was at the mercy of the macroeconomic environment and wasn’t taking proactive enough steps to put a leash on rising build costs."

At 0925 BST, the shares were down 6.7% to 416.30p.