McCarthy shows 50% profit rise

McCarthy & Stone, one of the only retirement home builders to have survived the housing slump, continued its recovery in the six months to February, announcing a 50 per cent jump in profits and promising a drive to increase volumes in the next year.

More unit sales and slightly better margins drove the half-time increase and John McCarthy, chairman, said signs of improvement in the housing market generally made him "cautiously optimistic" about the rest of the year.

McCarthy sold 357 retirement homes in the six-month period, an increase of 12 per cent on last year. That, together with a small increase in return on sales, from 33 per cent to 34 per cent, pushed pre-tax profits up from pounds 1.4m to pounds 2.1m. The company paid its first interim dividend since 1992, a 0.55p payout.

The shares, which have enjoyed a strong run over the past year, closed unchanged at 100p as the market focused on the company's measured comments on trading.

"Whilst recognising the continuing difficulties facing the housebuilding industry, we remain confident for the years ahead," the company said.

Shareholder caution reflects memories of the collapse into the red in the early years of the 1990s when McCarthy made aggregate losses of more than pounds 60m between 1990 and 1993. The shares, which reached 584p in the summer of 1987, fell to a low of 22p at the beginning of 1993.

Average sales prices were more or less unchanged during the half year at pounds 63,400 (pounds 63,000) with the increase in operating margin coming from a reducing land cost. The problems facing the housing market were also underlined by an increase in the number of buyers relying on selling their existing home to McCarthy at a discounted price to enable them to move.

Even more than other housebuilders, McCarthy is dependent on its customers being able to free up the capital tied up in often large family homes to finance the purchase of a retirement flat. Part-exchange deals rose from 44.5 per cent of transactions to 50 per cent, although the company maintained the amount of capital tied up in secondhand properties by selling them on more quickly. The balance sheet remained strong with net cash of pounds 3.6m at the half year.

A big problem facing McCarthy has been the increase in delays in the planning process, with some applications taking more than a year to push through the system. McCarthy has to gain approval for change of use for its mainly town-centre sites.