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Berkeley sees lower profit after performance peaks
Berkeley Group said it expected profit to fall by 30% in its current financial year as the benefits of buying land at low prices fade for the London-focused housebuilder.
The FTSE 100 company's pre-tax profit for the year to the end of April rose 15% to £934.9m from £812.4m a year earlier. Revenue fell 0.7% to £2.7bn. Berkeley said pre-tax profit for the two years ending April 2019 would be at least £1.575bn - £75m higher than previously estimated.
Chief executive Rob Perrins said Berkeley's performance resulted from buying sites from 2010 to 2013 when prices were low following the financial crisis. Berkeley's profitability has peaked and profits will be about 30% lower from 2018/19, he said.
The company had said before that business had peaked but had not put a figure on how far profit would fall. Artjom Hatsaturjants, research analyst at Accendo Markets, said the new guidance was effectively a profit warning. Berkeley shares fell 4.5% to £39.53 at 09:55 BST.
"Despite solid 2018 numbers, the real message from the housebuilder was that current results represented a peak," Hatsaturjants said. "With even the most financially stable of housebuilders worried about future profits, do even bleaker times lie ahead for the rest of the sector?"
Berkeley, which builds most of its houses in London and South East England, sold 3,536 homes last year, down from 3,905 the year before. The average selling price increased to £715,000 from £675,000.
The London property market has been subdued by high stamp duty, tighter mortgage lending and economic uncertainty. These constraints affect UK buyers more than overseas customers "who still see relative value in the London market", Perrins said. Overseas investors have snapped up properties in prime London postcodes.
Berkeley's new reservations are 12% higher than a year ago and forward sales at the end of April were £2.2bn compared with £2.7bn a year earlier.
Perrins said he was concerned about a potential skills shortage in the construction industry when the UK leaves the EU.
"While this is hard to predict, it is a fact that over half of London's site labour comes from the EU," Perrins said. "This needs to be addressed by a combination of continued access to EU labour, skills training and innovation in construction if the industry is to achieve its medium term production aspirations."