McCarthy & Stone, the retirement home builder, unveiled a 20 per cent drop in first-half profits yesterday, blaming a rise in building costs and land prices for its poor performance.
However, the chairman Keith Lovelock said the company was optimistic about the prospects of a turnaround in the second half, revealing forward reservations were up 22 per cent on the same time last year.
Although the group's revenues were flat compared to the first half of its last financial year, higher costs eroded profit margins, driving the group to a 22 per cent fall in earnings per share.
Mr Lovelock said he had expected the first half to be tough, and was satisfied with the group's performance given the market conditions. He said he expected an improvement in the housing market to help sales in the second half.
"We are seeing some signs of increasing buyer confidence and although it is too early to assess how the market will develop, we now believe there is an opportunity for the group to exceed last year's sales of 1,983 units - although we expect margins to ease as the higher historic margin sites are sold out," he said.
"Looking beyond the next few months, there remains a considerable opportunity for McCarthy & Stone to expand and grow within its retirement niche."
Mr Lovelock added that although affordability in the housing market was still stretched, McCarthy & Stone's longer-term prospects were good due to the current sharp increases in single-person households in age bracket of 65 and above. "This is exactly the market our retirement apartments and assisted living developments serve," he said.
In spite of the fall in profits, the group increased its interim dividend by 11 per cent to 6p. However, the shares closed down more than 1 per cent at 770.5p, giving the company a market value of £791m.