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London-focused housebuilder Berkeley said its current financial year would be a peak for the group, even as it upgraded its profit forecast for the five years to April 2021.
Berkeley said in its interim results for the six months to the end of October that more than 60 per cent of its profit forecast for this year and next are expected to fall within the year to April 30, 2018:
The 2017/18 full year results will represent a peak for Berkeley, before returning to more normal returns in 2018/19. Our guidance of £1.5 billion of pre-tax profit for these two years will be approximately 60% weighted towards the current year.
Pre-tax profits for the half-year period were up 36 per cent from the same stretch a year ago to £533.3m from £392.7m. Revenues increased 14 per cent to £1.6bn from £1.4bn.
The rosy outlook for the current year came despite a faltering London housing market, where all housing transactions were down by almost a fifth from last year and new housing starts down more than 30 per cent from 2015, it said.
For the five-year period which started in May 2016, the company raised its guidance for pre-tax profit to £3.3bn from £3bn, assuming current market conditions continue.
Berkeley’s results continue to benefit from the investment made in the financial crisis and strong sales market immediately following. Looking forward to the end of the guidance period, operating margins are expected to moderate towards more normal levels of 17.5% to 19.5% in line with the prevailing market environment.
There remains good underlying demand for property in London and the South East, but the combination of uncertain UK economic and political outlook and high property taxation continues to mean customers are more circumspect and inevitably purchasing later in the development cycle. This is particularly the case for domestic customers who are choosing not to move or invest because of the cost of taxation.
While trading has been sufficiently robust to support an increase in our earnings guidance, we are appropriately cautious in our investment strategy at present.