Redrow margins jump as building costs held

Aaron Morby 12 years ago

A tight grip on building costs helped house builder Redrow recover its margins and more than double operating profit to £31.2m.

Steve Morgan, chairman of the house builder, said that in the year to June, Redrow delivered a robust performance improving both revenue and profitability, in spite of the difficulties facing the home building industry.

He 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.”

Morgan warned there was growing upward pressure on materials consuming high levels of energy and timber products.

He said: “Overall the group has managed to contain any significant increase in its build cost base by largely offsetting any rises with volume-related reductions elsewhere.

“Wider use of the New Heritage Collection assists in expanding the use of group-wide supplier deals and also allows us to more tightly monitor and control build costs.”

Tough supplier and contractor negotiations lifted operating margin from 3.2% to 6.9%, bringing the house builder into line with market rivals.

Morgan said Redrow had managed the strong profit growth even after closing its Scottish office and investing heavily in its new London business, where five new sites of 324 plots have already been secured.

Net debt increased during the year to £75.4m from £47.1m last year with gearing increasing to 16% due to investment in London and the land bank

Redrow revenue rose 14% to £452.7m, helped by a 12% rise in average selling prices to £174,100 and completions edging ahead from 2,587 last year to 2,626 in 2011.

The improved performance saw Redrow return to more healthy pre-tax profits of £25.3m after scraping in with £700,000 the year before.

But Morgan warned the recovery remained extremely fragile.

He said: “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.”

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