Redrow profits plunge in first half, but market warms to cost-cut plan

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The Independent Online

Redrow has stepped up its cost-cutting plan in the face of "unprecedented" economic headwinds in the housing sector, as revenues halved and it plunged into a loss in the first half.

The Flintshire-based group's profits swung into a £46.2m loss in the six months to December, reversing gains of £35.8m in 2007. It was hit by restructuring costs, writedowns and the slump in home buying and house prices.

Shares in Redrow rose 2.5 per cent to 125p as the results proved better than expected and the company said its restructuring plan was ahead of schedule in the second half.

Alan Bowkett, Redrow's chairman, said the company was now looking to cut £40m by the end of the year. It has slashed expenditure on sales and marketing, site overheads and administrative expenses. The group has already axed 43 per cent of its workforce to 740 since last January, and is preparing to cut a further 90. Annualised administrative expenses have now been cut to 40 per cent of the level of two years ago. It has also closed sites this year.

"We are ahead of our plan to achieve our debt objectives for June 2009 and 2010. We are well placed to reduce net debt to below £225m by June 2009," Redrow added. Further debt reductions are expected in the next financial year.

"Redrow recognised early that the unprecedented speed and severity of the downturn in the housing market would have a very significant impact on short-term profitability," Mr Bowkett said.

Mr Bowkett added that the group had taken "swift and decisive action", although it was not enough to post an interim profit given that "the marked reduction in the availability of mortgage finance and its impact on the number of housing transactions and house prices has been strongly felt".

Revenues plunged 57 per cent to £149.5m as the number of legal completions fell from 2,111 to 1,042, and the average selling price fell 14 per cent to £140,500.

The group was hit by exceptional items which totalled £25m, comprising restructuring costs and provisions against the fall in land values over the past year.

The group remains confident over its debt position. It refinanced its lending arrangements in September with a syndicated loan facility that will see it through to 2011. The new deal is "competitive" given the state of the corporate lending markets, it said, and has given the group more headroom against breaching its covenants.

"With financing in place and debt reducing, we view the group as a survivor of the UK housing recession," Jeremy Withersgreen, an analyst at Cazenove, said. He added that the company was unlikely to return to profit until 2012.