McCarthy back to profit after housing crash

McCarthy & Stone has become the latest homebuilder to see some green shoots of recovery following the housing crash of 2007, reporting a return to pre-tax profit for the full year.

The builder of retirement homes, which was taken private by a team led by HBOS in 2006, was hit particularly hard by the financial crisis owing to the high levels of debt taken on in the deal. It found itself unable to finance its debt and was forced to suspend construction activity for almost a year from the middle of 2008.

The group gradually restarted its construction activity and crept towards recovery. This started to bear fruit this year, when 24 newly built developments became available, helping total unit sales to rise 11 per cent to 1,264.

Pre-tax profit rebounded from a loss of £8.7m ($13.5m) to a profit of £5.4m in the year to August 31 and revenues climbed 13 per cent to £230.6m.

McCarthy & Stone was also upbeat about its future, forecasting a 58 per cent increase in the number of units to be sold annually by 2015 to 2,000. “The group is well positioned to benefit from demographic trends that will generate a rapidly increasing population of potential customers,” said a statement from the board.

This follows news earlier in the year that the housebuilding companies Barratt, Redrow and Berkeley have also enjoyed an increase in sales activity despite the fragile recovery and the reluctance of banks to offer mortgages.

But McCarthy & Stone was pessimistic about the wider market. “There were no material signs during the course of the last financial year to suggest that the poor trading conditions seen since 2007 were improving.”

The group said it still had gross term debt facilities of £486.8m, which are repayable in April 2014. It had cash of £153.2m at August 31, slightly up from £148.9m the year before.

McCarthy & Stone was restructured in 2009 in a debt-for-equity swap with a consortium of banks. In the deal, £200m of its £700m senior debt pile was written off in exchange for 100 per cent of its equity.

At the time, Michael Ball, the company’s chief financial officer, said that when the HBOS buy-out took place in 2006 the group had not expected such a severe housing crisis.

“The assumptions made about the housing market [at the time of the buy-out] in 2006 didn’t include the kind of scenario we’re now in,” he said.