Profit warning at Redrow

HOUSEBUILDER Redrow said today sales of new homes have fallen by 50% amid the collapse of the housing market and warned that profits will be below previous expectations.

But it added that the group has laid the foundations to benefit from a future recovery of the market. In early trading shares slipped 4% to 156.75p.

The Flintshire-based group, which has shed around 500 jobs and seen its share price halve, believes its cost reduction measures, including cutting back on its land acquisition, will help it weather the storm.

In a statement the group said forward sales at the end of December of 1,000 homes were 40% lower than in 2007. Sales achieved in the first six months were down 49% with 853 sales compared with 1,657 last year.

Redrow said it expects trading in 2009 to be “extremely difficult” and that gross margins will be around 5% lower than management’s previous expectations.

On a brighter note, Redrow added that as a result of proactive cash management to reduce stock levels and generate income, net debt at the end of December was just under £270m and it is well placed to meet its debt target of under £225m at June 2009.

Chief executive Neil Fitzsimmons said: “The housing market was one of the first sectors to enter the current economic downturn and our sector has historically been amongst the earliest beneficiaries once the broader economy starts to recover. However, it remains difficult to assess when improvements in the housing market may come through.

“Our strategy in the medium term is to position Redrow through the continuing strengths of our forward land bank coupled with the delivery of a differentiated product to our customers to provide a competitive lead when market conditions improve.”

Redrow will announce its interim results on February 24.