Crest Nicholson has issued a warning that its annual profit is set to plummet by about a third this year due to ongoing challenges in the housing market.
The London-based housebuilding company revealed that property sales have dipped since Easter following the Bank of England's decision to postpone the base interest rate cut until later this year. Despite a promising start to the spring selling season, fluctuations in mortgage rates and a delayed rate cut have caused a loss of momentum.
This, coupled with a difficult winter period characterised by soaring inflation and high mortgage rates impacting demand, resulted in an 88% drop in half-year profits to a mere £2.6million for the six months leading up to April 30. The group anticipates an annual profit between £22million and £29million, falling short of analyst expectations of around £38million.
This decrease is attributed to a reduction in expected annual housing completions from 2,000 to a maximum of 1,900. Crest also reduced its dividend to shareholders to 1p per share, down from 5.5p last year. This news comes ahead of incoming chief executive Martyn Clark taking over from current boss Peter Truscott tomorrow.
Mr Truscott announced his retirement in January. Crest has been grappling with a backlog of older, lower-margin sites recently, but also cited broader market forces as contributing to its recent struggles.
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At the start of the year, analysts were predicting that the Bank might slash interest rates as early as May, potentially lowering mortgage rates and giving the housing market a much-needed boost. However, due to stubbornly high inflation especially noticeable in the job sector experts are now saying that the central bank won't be ready to reduce rates until at least August.
Crest has reported that the surge in building costs has cooled off, shifting from "mid-single digit percentages" to a flat rate compared to last year. The firm also noted that the looming General Election has stirred up some short-term market jitters, but it anticipates a return to stability post-election.
For the half-year ending April 30, Crest Nicholson announced an adjusted pre-tax profit of £2.6million, a steep drop from £20.9million the previous year. Mr Truscott shared that Crest is armed with "a clear and comprehensive plan to resolve the legacy and operational issues, and continue to focus on maintaining a strong balance sheet".
He further highlighted: "Going forward the group will benefit from its high-quality, higher margin land portfolio, and with an increased commitment to operational efficiency and control, is well-positioned to capture growth opportunities as market conditions improve."
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