Peter Truscott joined the board of house-builder Crest Nicholson as chief executive in September 2019 having previously run Galliford Try. Today he unveiled his plans for the business after seeing annual profits tumble.
Crest Nicholson Holdings’ preliminary Results for the year ended 31st October 2019 show a 39% drop in pre-tax profit to £102.7m (2018: £168.7m) on sales down 2.4% to £1,094.9m (2018: £1,122.0m). Home completions were down 4% at 2,912 units (2018: 3,048).
The results include an exceptional charge of £18.4m to fix fire risks and replace combustible materials on current and completed developments.
Mr Truscott said that he plans to impose “a greater focus on operational efficiency” at the business with “simplified ways of working and organisational restructure”, which is corporate code for cuts. The reduction in sales-related costs and overheads is already underway, he said.
Mr Truscott also said that he plans to introduce “new enhanced house type range and a consistent group wide specification review”.
The target is to increase home completions to 3,500 units (2019: 2,912) and grow outlets to a minimum of 70 (2019: 59).
He said that when he joined the company he “observed a bespoke mindset to house type design and specification which had led to inherent procurement inefficiencies”.
He said: “The ratio of sales and marketing costs and central overheads needed reducing in order to reflect our weaker trading performance and align with industry norms. In some regions, we were seeking to command a price premium versus our competition that was unsustainable against a market backdrop of more generous discounts and incentives. This was starting to impact on volumes and was causing stock levels to rise.”
He also described at length some of the failings that he has inherited at Crest Nicholson.
“Historically, we have defined operational efficiency in terms of building an off-site manufacturing (OSM) capability. OSM will remain an important development for our sector and we will continue to assess its relevance for our delivery model. However, our operational efficiency opportunity is much wider than just OSM and this historically narrow view reflects where we have lost pace with our competitors and their ways of working.
“Currently, we are inconsistent with many aspects of our operations, often doing things differently from site to site and from one division to another. This has led to higher build costs than necessary, inconsistent quality and delivery, excessive overheads and selling costs, and inefficient use of working capital. Additionally, this inconsistency means there is limited opportunity to develop best practice through benchmarking.
“Significant benefits will be derived from the adoption of our new house type range which is currently being rolled out across the group. It comprises 24 core house types and builds on some of the benefits of open and broken plan living that was pioneered through the previous Aurora Range. The new range also adds closed plan options within the same building shell. It is designed to be plotted effectively with common depths enabling efficient roof construction and the ability for accommodation to be arranged over two, two and a half, and three floors. An added benefit is the flexibility of the range to be dressed with a wide variety of elevational styles so as to ensure the built design is always individual and appropriate to its local vernacular, supporting our commitments to placemaking and distinctiveness. We will target 80% of our production coming from this new range over time and we have begun the process of re-planning current sites starting with St. Laurence View in Ludlow, Shropshire.
“Our build costs will benefit from the introduction of the new house type range and we also anticipate significant savings being derived from a standard group specification. Previously, we specified our product too widely across divisions and our supply chain, leading to excessive costs and insufficient buying power. We will continue to provide a high quality specification within our homes, but we will do so in a more consistent and cost effective manner.
“Our delivery processes have become inconsistent and cumbersome, driving complexity and execution challenges. Accordingly, our overhead costs are far higher than our peer group. We have already made significant reductions in this area without impacting on operational performance. Over time, we will continue to reduce overhead costs as our model is simplified.
“As with our build costs and overheads, our selling costs are also too high due to a lack of consistency, challenge and benchmarking. Again, action has been taken to address this without impacting the quality of our customer experience. These activities and associated costs will continue to reduce as our product and processes are standardised across our divisions.”
He concluded: “Our use of working capital is also inefficient and can improve significantly with greater focus and use of best practice. Build times are inconsistent across sites and can be improved with more focus and challenge.”