Fresh warning signs for the construction sector emerged today as housebuilder Crest Nicholson’s shares plunged amid a loss for the first half of the year and a profit warning for the months ahead.
The FTSE 250 firm made a £30.9 million loss in the six months to 30 April, as revenue fell by 9%. Completions fell by 12% to 794.
A one-off £31.4 million charge due to “build defects” at four sites within its regeneration and London arms, which closed in 2019 also weighed on the results.
The total was more than double the £15 million the builder had put away in March to cover the costs. Crest said the higher charge “is due to a wider scope of the review to cover all completed sites” after it brought in external consultants to assess the cost of fixing the defects.
Investec analysts Aynsley Lammin and Lewis Roxburgh said: “The provision is higher, but the key issue is whether it is now sufficient with low risk of it increasing. With a recently joined CFO and being supported by an external consultant we would assume it should be.”
After rising interest rates hit the sector in 2023, housebuilders had hoped to see an improvement in demand starting in the middle of this year, as rates started to come down.
Instead, the expected date of the first interest rate cut has been repeatedly pushed back, with City markets now suggesting it may not come until the autumn. This has pushed mortgage rates back up - with the average price of a two-year fixed-rate deal now near 6%, according to Moneyfacts - and “softened” demand for Crest’s homes. High wage growth and inflation in the services sector have encouraged the Bank of England to keep its interest rates at 14-year highs.
The businesses added that “the imminent General Election is creating some short-term uncertainty, but this is anticipated to be alleviated in July once the outcome is known”.
The construction sector may be hoping for a post-election boost from a new Government that could make housebuilding a greater priority. Labour deputy leader Angela Rayner last week said the party would work in “lock step with the housing developers, investors and housebuilders” in its ambition to build 1.5 million homes over the next three years.
The business said it now expects to complete less homes this year than previously thought. It now expects adjusted profits this year - which do not include most of the defects charge - to fall between £22 million and £29 million.
Boss Peter Truscott, who revealed earlier this year that he will retire tomorrow, said: “We have made some important operational progress in the first half of the year against our strategic priorities. We are on track to achieve a five-star customer service rating, have a clear and comprehensive plan to resolve the legacy and operational issues, and continue to focus on maintaining a strong balance sheet.”
Martyn Clark, previously Persimmon’s chief commercial officer, will take over from Truscott.
The shares, which had gained more than 35% in the previous two months, plunged today by as much as 12.5% to 211p. That leaves Crest valued at £564.7 million.
The profit warning is the latest sign of challenges in the housing market after the Royal Institution of Chartered Surveyors said this morning that the housing market’s recovery has “slipped into reverse”, with demand falling in May.
Figures published earlier this week showed that just 7,613 units were approved in London between January and March - the lowest quarterly figure since 2012.
