House builder Redrow saw profits and income rocket in the year that it sold its Scottish business and opened a London division.
Redrow said today that despite the constraints of the mortgage market, revenue was up nearly 14 per cent to £452.7 million in the year to 30 June 2011, while pre tax profit surged from £0.7m in 2009/10 to £25.3m last year. Gross margin increased from 3.2 per cent to 6.9 per cent.
Net debt was up to £75.4m, from £47.1m, due to investment in London and the land bank. No dividend is being declared for the year as the firm concentrates on land investment.
In 2008/9, Redrow made a loss of £44.2m and was £214.6m in debt.
But the company’s 2010 results also came with a warning that the under-supply of housing in the UK is reaching “chronic proportions”, and a call for the return of the mortgage indemnity guarantee to stimulate lending.
Chairman Steve Morgan, the founder of the company who returned to the helm in 2009 after a nine-year absence, said: “Through decisive management action, particularly the introduction of the New Heritage Collection, we have been able to increase average selling prices and margins by changing mix and keeping costs under control.
“The outlook for the industry remains challenging due to the lack of mortgages, particularly for first time buyers. With five new jobs being created for every new home built, it is strongly in our country’s interest to resolve the mortgage issue, which would once again enable the housing industry to provide urgently needed new homes and a major stimulus to the economy.”
The last year saw the average selling price up 10 per cent from £149,300 to £164,800, and up 12.5 per cent to £174,100 for private homes. Redrow moved away from apartments to focus on the New Heritage Collection, launched in February 2010 and providing “traditional family homes”, which brought in 36 per cent of private turnover. The average value of New Heritage homes increased by 11 per cent to £201,000, up 7 per cent on the old Signature range.
Redrow said it is expecting more customers to opt for part exchange in the year ahead and that by using the government-granted Homebuy funds, shared equity schemes had been used “in one form or another” on 17 per cent of private reservations.
Full-year land bank was at 11,190 plots, with a forward land bank at just over 22,000 plots. The southern share increased by 4 per cent to 36 per cent.
A new London division was established with five sites secured, representing 342 plots and gross development value of £200m. The Scottish business, which had 831 plots, was sold to Springfield plc for £49m as Redrow focused on the south east. The total workforce increased by over 100 to 949, and the firm also acquired Harrow – the business formerly owned by Mr Morgan.
Redrow said the housing market, which was particularly challenging in the first half of the financial year, improved in the second half with a stronger spring/summer season. The cancellation rate was flat year-on-year at 18 per cent, blamed on mortgage issues and in particular the poor availability of high loan to value (LTV)mortgages at competitive rates.
The company has also called for the return of the mortgage indemnity guarantee (MIG) – an insurance premium which protects lenders against customers defaulting on payments.
“Going forward it is essential to find a balance between the regulatory risk weighting of higher LTV mortgages and the aspirations of first time buyers who simply don’t have the current average deposit requirement of 25 per cent to purchase their first home,” it said.
“Now that risk assessment and management are rightly back at the forefront of lending, the reintroduction of up to date MIG policies would ensure a better market balance between affordability for first time buyers and the risk taken by the lenders.
“Unless initiatives such as MIGs are reintroduced, the current low levels of turnover in the housing market are set to stay for some time.”
City analysts said they were “upgrading 2012 estimates considerably” after the company beat expectations. Its share price grew by 2 per cent, to 118.7 pence per share.