Berkeley is optimistic for housing market despite drop in profits

Berkeley, the housebuilder turned "regeneration specialist," gave a cautiously optimistic outlook for the UK housing market yesterday after reporting a drop in annual profits.

Berkeley, the housebuilder turned "regeneration specialist," gave a cautiously optimistic outlook for the UK housing market yesterday after reporting a drop in annual profits.

Roger Lewis, the chairman, said: "I don't think we are as pessimistic as some of the others. Two years ago we were in a [housing] boom, but booms don't go on forever. We're now in a market that's more demanding... We're back to a normal housing market, but it's a market that is still acceptable to us." The London market, he said, is "quite near the bottom. One should be nearer to being a buyer than a seller."

Its rival Crest Nicholson warned the day before that the housing market remains "challenging" despite seeing more buyer activity.

Mr Lewis said sales had been good this month and were likely to be up slightly on last year's. Berkeley's forward order book of sales to its year-end at 30 April stood at £948m, against £945.3m the previous year when the market was still booming. The comments, combined with an uptick in margins and a strong cash flow, debt and landbank performance, reassured investors. The group has no debt after the sale of Crosby, its Northern and Midlands subsidiary, for £250m two days ago.

However, pre-tax profits fell 11.7 per cent to £202.9m last year, with sales volumes down 6 per cent, as Berkeley pressed ahead with a restructuring of its business and focused on generating more cash to pay for a £1.45bn share buy-back programme. Last year it decided to exit the traditional housebuilding market and focus on large-scale urban regeneration projects.

Under the plans, Berkeley is returning £12 a share to investors over six years. It paid back £5 a share last December and will pay the next tranche of £2 a share in December next year.

But it also emerged last year that the company drew up a controversial new bonus scheme, linked to the share buy-back programme, that will hand four directors 15 per cent of the company in 2011. The long-term incentive plan for the directors, including the chief executive Tony Pidgley and the finance director Rob Perrins, will also land the company with a £42m accounting charge by 2011.

Earlier this week, the news that two members of the Bank of England's Monetary Policy Committee surprisingly voted for a cut in rates at this month's meeting raised hopes for housebuilders and retailers.