Housebuilder’s shift around forward sales risk hits operating margin
Crest Nicholson has said the 270 basis points dip in its first half operating margin was the trade-off around its strategy to create “certainty” in the business by reducing its forward sales risk.
The housebuilder, which earlier this year revealed that ex-Galliford Try boss Peter Truscott would become its chief executive in September, said its plan to reduce forward sales risk by ramping up the proportion of pre-funded, pre-sold homes to private rental sector investors and registered providers had resulted in a 15% increase in its total forward sales position, albeit at a cost to its operating margin.
“This increased certainty has traded an element of operating margin, which together with generally flat pricing and continuing build cost inflation, has contributed to a reduction in the operating margin,” the firm added.
Crest Nicholson’s operating margin fell to 14.1% in the six months to 30 April 2019, down from 16.8% in the same period last year.
The group said its average selling price of £418,000, up 8% year-on-year, was likely to be at the top of the curve and would edge downwards as the proportion of higher value homes in high value locations declined and more sites with lower average selling prices began to open.
Turnover in the first half rose 7% to £502m, but following the dip in operating margin its pre-tax profit dipped 11% to £64.4m.
Looking ahead Crest Nicholson’s interim chief executive Chris Tinker said the group had made good progress on delivering its revised strategy during a period of “heightened political uncertainty”.