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Crest Nicholson hit by Brexit build cost inflation

29 Jan 19 House-builder Crest Nicholson has blamed Brexit uncertainties as well as its failure to keep tabs on build cost inflation for a dip in profits.

Crest Nicholson chief executive Patrick Bergin
Crest Nicholson chief executive Patrick Bergin

Crest Nicholson has reported a 15% fall in pre-tax profit to £176.4m for the year ended 31st October 2018 (2017: £207.0m).

This was despite a 9% rise in revenue to £1,136.1m (2017: £1,043.2m).

The operating profit margin slipped from 20.3% in fiscal 2017 to 16.7% this time.

Chief executive Patrick Bergin admitted that the company’s had been forced to respond to slowing private sector sales and had failed to keep control of costs properly.

“Build cost inflation has had a negative effect, putting margins under pressure as we continue to experience the effects of the weakness of sterling combined with continued pressure on wage and salary costs driven by the overall shortage of skilled labour serving the industry,” he said.

Mr Bergin said: "The business has had a good year operationally, with an increase in the number of new homes delivered. However, we have faced some challenges in London and with sales at higher price points where political and economic uncertainty has adversely impacted customer demand and this is likely to continue pending Brexit resolution.

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“The first half of the year was characterised by generally strong trading volumes, but we saw slower than anticipated sales rates in the second half of the year. The business took decisive action to mitigate the loss of sales volumes by accelerating bulk sales to registered providers and PRS [private rented sector] investors, selecting land sales on long tail sites and adjusting our build programmes. However, these measures, taken together with flat pricing in the market and continuing build cost inflation, had an adverse impact on margins.”

He said: “The experience of adverse build costs was most significant in London where internal controls over cost estimation and recording did not operate as intended.”

To get costs down, Crest Nicholson has developed a new range of house and apartment designs based on cheaper build costs.

“These designs offer significant cost efficiencies through some standardisation and will make procurement and construction easier over time,” Patrick Bergin said. “However, they are flexible enough to meet most local needs and to fulfil detailed planning requirements.”

Pre-fabricated steel frames are a big part of the plan. “We are also expanding our use of off- site manufacture (OSM), where house components, typically pre-insulated cold-rolled steel frames, are built in a factory and then erected on site,” he said. “The use of this modern method of construction can reduce the amount of on-site labour required, significantly reduce waste and make us less reliant on traditional brick- based construction. It also allows us to change the sequencing of work done on site more easily, offering works planning and productivity benefits.”

He concluded: “Following the completion of our three prototype plots at Arborfield Garden Village [in Wokingham] using off-site manufacture we are now conducting a post-occupancy evaluation to make sure that the homes not only perform as they were designed but that the air quality and thermal comfort support our customers' health over the long term.”

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