McCarthy & Stone PLC, retirement housebuilder – Half Year Trading Update

McCarthy & Stone (the ‘Company’), the UK’s leading retirement housebuilder, has issued a trading update for the half year ended 29 February 2016, ahead of reporting its half year results on Tuesday 19 April 2016.

Highlights include:

Legal completions increased by 19% to 923 units (2015: 776) driven by 36 new sales outlets and improved sales rates
Net average selling price increased by 12% to £253k (2015: £226k)
Revenue increased by 32% to c.£250m (2015: £189m) and forward sales at 29 February 2016 39% ahead at c.£200m (2015: £144m)
Strong performance in land purchasing maintained, with 40 (2015: 44) new development sites under control since September 2015, representing c.1,700 units
Land bank now comprises c.10,800 plots (2015: c.9,460) for future development at attractive margins, with terms agreed on a further c.1,600 plots
Continued progress on our three major transformation programmes in support of our target ROCE in excess of 25% over the medium term
On track to deliver strategic objective of building and selling at least 3,000 units per annum by 2019
Group performance in line with previous guidance and expectations for the full year unchanged Clive Fenton, Chief Executive Officer, commented:
‘We have delivered another period of strong top-line growth as we seek to address the increasing market demand for retirement housing generated by a rapidly ageing population. With the over-65 age group in the UK expected to increase by over 50% in the next twenty years, and a lack of suitable retirement housing, McCarthy & Stone is uniquely placed to capitalise on this opportunity.

‘Our operating performance over the past six months has been in line with expectations, with further growth in reservations, legal completions, and c.1,700 additional plots under control in high-quality locations.

‘During the period we have delivered our first sales from our new North London region, which has now opened six developments, and the investment we have made to establish the three additional regional offices which opened on 1 September 2015 is beginning to bear fruit. Each of the new regions now has high calibre, senior management teams in place with wide-ranging experience from across the housebuilding sector. We are carrying a strong order book into the second half, with forward sales well ahead of last year.

‘We remain on track to deliver our 2016 targets in line with the expectations set for investors at the time of our IPO and, as a result of the land acquired in the first half, now have a sufficient land bank to deliver fully our growth objective of building and selling more than 3,000 new homes per annum by 2019.’

Market and Current Trading

The market for retirement housing remains highly attractive. 3.5 million people over the age of 60 express particular interest in buying a retirement property1 and yet only c.128,000 specialist retirement properties for owner occupation have been built2. McCarthy & Stone is uniquely placed to capitalise on this demographic opportunity, which will see the over-65 age group in the UK expand by more than 50% by 2033.

With this attractive backdrop, the Group opened 36 new sales outlets during the period (2015: 29), contributing towards a 21% increase in the Group’s net reservations above 2015. As a result, the Group delivered 923 legal completions in the first half (2015: 776) and carries an increased forward order book of c. £200m into the second half of 2016, 39% ahead of last year (2015: £144m).

The Group’s net average selling price increased by 12% to £253k (2015: £226k), reflecting further improvements in the quality of the developments McCarthy & Stone is now bringing to market, as well as sustained discipline around discounts and incentives and the benefits of a return to moderate house price inflation across our regions.

As a result, the Group anticipates margins in 2016 comparable to those achieved in 2015, in line with expectations, with the first half impact of the Group’s investment in new regions and additional operational infrastructure mitigated in the second half as these regions increasingly contribute to revenues and profit.

Land, Planning and Build

The benign market for land continues to offer significant opportunity and the Group has again added good-quality sites with attractive embedded margins into its land bank. 40 sites (2015: 44) were exchanged in the first half, equivalent to c.1,700 additional plots and the land bank now stands at c.10,800 plots (2015: c.9,460 plots). In addition, senior management continues to focus on streamlining the Group’s development process to accelerate capital turn, achieving 19 planning consents in the period and starting build on 15 sites.

The land bank now stands at 5.6 years3 supply, of which 3.0 years3 has detailed planning consent, supporting the strategy to invest £2.5bn in the retirement housing market over four financial years, and providing the Group with sufficient land under control to deliver all targeted sales up to and including 2019.

Outlook

The Group has delivered strong first half growth and has substantially increased both the value of the forward order book and the land bank for development. With a significant number of recent sales releases, the opportunity to leverage the investment in new regions and infrastructure and continuing good market conditions, the Group remains confident in the outlook for the full year.

The Group reiterates its expectations of a c.20% increase in sales volumes and a c.100 bp improvement in ROCE in 2016, and as such remains on track to deliver in line with previous guidance for the full year. It remains the Group’s intention to pay a first dividend pro rata from admission to 29 February 2016 in the third quarter of the financial year. McCarthy & Stone will release its interim results for the half year ending 29th February 2016 on Tuesday 19th April 2016.