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McCarthy & Stone plc

McCarthy & Stone Plc Significant progress in delivering new strategy

McCarthy & Stone Plc (LON:MCS), the UK’s leading developer and manager of retirement communities, announced its financial results for the six months ended 28 February 2019 (2019). All comparatives are to the prior year equivalent six-month period ended 28 February 2018 (2018) unless otherwise stated.

H1 2019

H1 2018


Legal completions1








Average selling price2




Gross profit




Underlying operating profit3




Operating profit




Underlying operating margin




Operating margin




Underlying profit before tax3




Profit before tax




Underlying basic earnings per share3,4




Basic earnings per share




Net debt5




Return on capital employed6 (ROCE)




Interim dividend per share



Financial highlights

· Revenue increased by 17% to £281m (2018: £240m) reflecting 11% increase in volumes to 845 legal completions (2018: 760) together with a 7% improvement in the average selling price to £319k (2018: £298k), reflecting improvements in the quality and locations of our developments as well as a change in geographic and product mix.

· Underlying operating profit3 increased by 47% to £21m (2018: £15m) driven by increased volumes and ASP profile together with planned margin improvement activity in line with the Group’s new strategy, partially offset by increased use of discounts and incentives, particularly part-exchange, to counteract a more challenging secondary market.

· Underlying profit before tax increased by 64% to £19m (2018: £12m) and statutory profit before tax decreased by 66% to £4m (2018: £11m) impacted by £14m (2018: nil) of exceptional costs incurred in relation to the delivery of the Group’s new business strategy including restructuring and redundancy costs, realignment of land bank to deliver steady state volumes and consultancy fees (£6m cash impact from exceptionals in H1).

· Underlying basic earnings per share3,4 increased by 71% to 2.9p (2018: 1.7p) and basic earnings per share decreased by 67% to 0.5p (2018: 1.5p).

· Period end net debt5 of £57m (2018: £76m) equivalent to gearing7 of 8% (2018: 10%).

· Interim dividend of 1.9p per share (2018: 1.9p per share), to be paid on 11 June 2019 to the shareholders on the register at close of business on 3 May 2019.

Operational highlights

· Significant progress in delivering the Group’s new strategy with key milestones achieved in accordance with plan:

o Two new COO appointments in January 2019, Nigel Turner and Mike Lloyd, to focus on two core activities: Build & Production and Sales & Services

o Margin improvement initiatives well underway with right-sizing activity substantially complete, expected to deliver an annualised cash saving of c.£12m across two workstreams

o Dedicated teams in place to leverage our strategic opportunities: affordability, flexibility and choice, with incubator hubs now live

· 15 first occupations brought to market in the period (2018: 16).

· Total land bank of c.8,372 plots (2018: c.10,021), equivalent to c.3.9 years’ supply (2018: 4.4 years’ supply), with 10 high-quality development sites (2018: 22 sites) added to the landbank and 21 planning consents achieved (2018: 21).

· Awarded the full Five Star rating for customer satisfaction by the Home Builders Federation (‘HBF’) for the fourteenth consecutive year – the only UK housebuilder, of any size or type, to achieve this accolade every year the survey has been run.

· Board appointment – Gill Barr appointed as a Non-Executive Director of the Group with effect from today bringing the total number of board members to eleven. Gill will succeed Mike Parsons as Chair of the Remuneration Committee. She will also join the Risk & Audit Committee.

Current trading and outlook for FY19

· In April 2019, the Group extended the maturity date of its existing £200m revolving credit facility (‘RCF’) from May 2021 to March 2023 with Barclays, HSBC and RBS.

· Completion volumes remain ahead of prior year, despite increasingly challenging market conditions with continued use of part-exchange.

· Sales leads and enquirers in line with prior year despite the planned lower level of sales releases (28, 2018: 54) reflecting strategic focus on rebalancing workflow.

· Forward order book as at 5 April 2019 (week 31) currently c.17% behind prior year at c.£485m (6 April 2018: £581m) with higher quality reservations now being held due to improved controls. Shortfall due to:

o organisational design changes within the Sales function (now completed)

o planned lower level of sales releases

· FY19 volume out-turn (14 months to 31 October) remains in line with the Board’s expectations:

o c.2,300 legal completions expected in FY19, with an expected ASP of c.£300k

o More than 40 first occupations expected in FY19 with all H2 first occupations currently under construction

o FRI sales assumed to go ahead as planned in FY19

o Group reiterates the expected FY19 savings range announced as part of the new strategy (c.20-30% of the FY21 targeted P&L saving of £40m) at gross profit level

· Increased use of discounts and incentives, particularly part-exchange, now expected to continue into H2 to counteract more challenging secondary market.

· House price inflation remains subdued and build cost inflation expected to remain at c.3-4% level.

John Tonkiss, McCarthy & Stone  Chief Executive Officer commented:

“During the first reporting period of our transformation strategy and against the backdrop of continuing uncertainty and challenging market conditions, we delivered encouraging results. Our half year revenue increased to £281m (2018: £240m), representing progress towards a rebalancing of our workflow and we brought 15 (2018: 16) high-quality developments to market. This revenue increase, together with margin improvement activity in line with our new strategy resulted in a 47% increase in underlying operating profit for the period.

“We are making significant progress across our strategic objectives, which focus on optimising our operations to deliver strong financial performance and increasing our return on capital employed, margins and cash generation over the next three years. We are mindful of the economic and political uncertainty that all businesses are currently facing but are confident that our FY19 expected volume out-turn remains in line with the Board’s expectations with increased use of discounts and incentives, particularly part-exchange, now expected to continue into H2 to counteract more challenging secondary market conditions.”

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