Crest Nicholson in talks with lenders as firm issues profit warning on back of Middle East conflict

Crest Nicholson said it is in discussions with lenders as the firm cut its earnings guidance because of uncertainty caused by the ongoing conflict in Iran.

In a trading update this morning, the housebuilder said that, since a trading update on 25 March, macro-uncertainty had increased with the conflict in the Middle East “contributing to the prospect of a more prolonged higher interest rate environment, renewed cost pressures and a deterioration in consumer confidence”.

It said there had been a reduction in new enquiries and visitor levels, adding there had been a softening in sentiment among prospective land buyers.

The group said it was “acting quickly and decisively to prioritise cash and balance sheet strength”, targeting a faster reduction of its finished plots inventory, particularly on completed apartment schemes. 

Based on what it called its “prudent assumption” that current conditions would continue “at least for the balance of its financial year”, which runs until the end of October, it has revised its guidance, with expected sales volumes dropping from 1,550-1,700 units to 1,400-1,500 units.

The group also anticipated reduced land sales, with expected revenue of £40m, down from £75m-£100m. It said it did not expect to make “a material level of profit on disposals in the remainder of the financial year”.

It now anticipates earnings before interest and taxation for the financial year to be around £5m to £15m, with interest costs of roughly £15m and a revised year-end net debt position of £100m and £120m. 

It said that as a consequence of lower expected profitability it was “in the early stages of seeking temporary banking covenant relaxation”. 

“Discussions with the group’s lenders have commenced and a further update will be provided in due course,” it said.

Martyn Clark, chief executive, added: “It is increasingly clear that the current macroeconomic uncertainty is contributing to the prospect of a more prolonged higher interest rate environment, renewed cost pressures and a deterioration in consumer confidence. 

“Therefore, in the near term the right and prudent course of action is to adapt quickly to the challenges presented by the current trading environment and focus on prioritising cash generation and optimising our balance sheet position. 

“We are doing what needs to be done to navigate this uncertainty to best position the business to deliver the attractive medium-term opportunity.”

Crest’s shares slumped more than a third in initial trading following the update.