2020 Trading Update
For the six months ended 30 June 2020, the Company closed 207 new home sales (H1 2019: 390 closed new home sales) and generated total revenues of c. €80.6 million (H1 2019: €192.4 million).
The half year gross margin is expected to be c. 16.0% (H1 2019: 18.6%). This includes additional costs associated with the pandemic with sites closed for two months and increased site management and preliminary costs. Assuming no further site closures occur relating to COVID-19, Cairn would expect that this negative impact on gross margin will not sustain into future periods.
Operating profit for the six months is expected to be c. €5.6 million (H1 2019: €27.3 million). Cairn remained profitable in the six month period despite the significant headwinds faced around production capacity and sales in April and May 2020 when all sites and show houses were closed and marketing activity was significantly curtailed.
The Company’s primary focus is on delivering high quality, A-rated and competitively priced new homes and our H1 starter home average selling price (excluding VAT) of c. €322,000 (H1 2019: €321,000) is at a price level where first time buyers can get access to mortgage finance.
Cairn’s uniquely strong financial position and balance sheet allows us to focus on rescaling our business as evidenced by 15 construction sites reopening on 18 May 2020. The Company had a gross cash position of c. €155.0 million and net debt of c. €187.0 million as at 30 June 2020. Our balance sheet is underpinned by c. €955.0 million in inventories, consisting of c. €695.0 million of land held for development and c. €260.0 million of construction work in progress.
We are encouraged by the level of underlying demand and sales since our show homes reopened by appointment on 8 June 2020, including new sales launches at Parkside (Malahide Road), Graydon (Newcastle) and Shackleton Park (Lucan). Our closed and current forward sales pipeline has grown to 970 new homes as of 10 August 2020 (from 863 on 13 May 2020). Due to the COVID-19 shutdown, c. 300 of our forward sales are now expected to close in H1 2021. Further sales launches are scheduled over the remainder of the summer and into early autumn, having been postponed from spring. These launches include new homes which will be completed in 2020. Our focus on competitively priced, high quality new homes for first time buyers has meant that, since reopening show homes in June, selling prices are broadly in line with pre-COVID-19 levels.
We successfully reopened 15 residential construction sites on 18 May 2020, including three new 2020 site commencements, under strict compliance to new operating procedures adhering to social distancing requirements. As outlined in our market update on 14 May 2020, COVID-19 is impacting gross and operating margins as the business incurs additional costs associated with lockdown and social distancing, impacting site preliminary and management costs, reducing operating efficiency and extending construction programmes. However, over the past three months, productivity levels are improving and we are achieving c. 80% of pre-pandemic levels.
While formal guidance for 2020 remains withdrawn at this point given the uncertainty into the second half of the year, the business has recovered well and is ahead of our expectations at the time of our last update on 14 May 2020 in terms of selling activity and operational performance. We will provide a further update with our 2020 interim results on 10 September.
Michael Stanley, Co-Founder and CEO of Cairn, commented:
“Notwithstanding the impact of the pandemic on our operations, the resilience of the business has shone through in recent months. We successfully reopened 15 residential construction sites in mid-May with new health and safety protocols and procedures. Sales interest has picked up appreciably in recently months, underpinned by strong demand for high quality, energy efficient new homes in attractive locations. Our financial strength and liquidity enables us to continue to plan and deliver to meet market demand through 2020 and beyond.”
“A new coalition Government was formed in mid-June which, after years of undersupply, has put home building at the core of its programme. The construction of affordable housing at scale for aspiring homeowners who currently find it difficult to get mortgage approval and the delivery of apartment schemes in and around our urban centres and employment zones remain the two significant but not insurmountable challenges. Current and future delivery serving these two key market segments continues to be the clear focus of Cairn’s short and long-term sustainable business objectives and core capabilities.”