Crest Nicholson has warned of a surprise loss this year, citing difficult trading in a “subdued” property market. The British housebuilder now expects to complete between 1,350 and 1,400 homes in the year to 31 October, down from its previous estimate of 1,400 to 1,500.
Slower sales and rising costs
Conditions in the property market have been “more subdued” than expected during the summer, which is typically quieter as many people go on holiday. The company said its sales rate had slowed over the past six weeks compared with the first half of the year, as “affordability constraints and competitive pricing” dragged down demand.
Crest Nicholson now expects to slide into the red, with an operating loss of about £10m, reversing an earlier forecast of a profit of between £5m and £10m. It is the third profit warning since April. The Crest share price plunged more than 10% on Thursday morning.
Cost pressures and job cuts
Building material prices remain about 3% to 4% higher on average. Crest has closed one divisional office and cut 50 jobs in recent months. It reported a pre-tax loss of £35.2m for the six months to the end of April.
However, it is reducing its borrowings faster than expected, and expects net debt of £70 to £90m at the end of October, down from the £100m to £120m flagged previously. The Surrey-based company has been trying to renegotiate its banking covenants with lenders for some time to ensure it has enough funding in the future. It described the talks as constructive but anticipates “some slippage in the current timetable”, indicating the negotiations are taking longer than expected.
Market outlook and geopolitical impact
Martyn Clark, the chief executive, said: “While the trading backdrop has remained difficult through the summer, we are making tangible progress on the actions within our control. Although the timing of a broader market recovery remains uncertain, the group is taking the right actions to protect liquidity and improve operational execution, while positioning the business for recovery when market conditions normalise.”
The outlook for the property market has been clouded this year by the impact of the US-Israel war on Iran. The conflict has pushed up oil prices, stoking fears over inflation and this week leading to turmoil in bond markets. UK swap rates, which lenders use to price mortgages, have risen to a three-year high, as this week’s global bond market sell-off ripples through the economy.
