As the boss of a FTSE 250 housebuilder which has just passed through a year to forget, John Tonkiss is surprisingly upbeat. For the new chief executive of McCarthy & Stone is a man with a plan, and he thinks it will turn around the fortunes of Britain’s biggest provider of retirement homes.
It concerns the “phenomenal” opportunities of the retirement market, which can be unlocked, he believes, using new business models.
Appointed in September after a string of dismal results which sent the share price tumbling, the Brummie property specialist, who turns 51 today, sees product innovation as the clear way forward in the daunting task of rebuilding profits in a very difficult market.
McCarthy & Stone has a traditional model of building retirement homes and selling them for ownership, but Tonkiss thinks there is a great opportunity to offer other forms of tenure, including rental and shared ownership.
Tonkiss is also looking to develop new customer services in the company’s retirement communities, and to slash some new-build prices by more than fifteen per cent though the use of new construction technology.
Firstly, though, the London Business School and Harvard alumnus recognises that margins have to be restored to something like respectability, after a year of disastrous results.
In April, the company announced a 52 per cent drop in profits in the half year to February, while in June it issued a profit warning which took 16 per cent off the company’s share price, and was followed by the resignation of the previous chief executive, Clive Fenton.
The company blamed the challenging market for second-hand homes, and in particular the government’s help-to-buy scheme – which encourages people to buy newly-built properties, rather than the second-hand homes potential McCarthy & Stone customers were putting on the market.
Tonkiss, who was chief operating officer before succeeding to the top job, has instituted a cost- cutting programme, including redundancies, which aims to slash £40m annually by 2021, and sees the essence of the company’s earlier trouble in continuing to try to grow after the market turned down.
“At the end of the day the business is still profitable and generating cash,” he tells City A.M. in his first major interview as boss.
“But we’d set ourselves a very high target on the back of a grow-grow-grow agenda which went back to 2015 and our IPO.
“So we were really fuelling the business for growth, and to some extent that was very sensible in 2014/15 when housing market was positive and tailwinds were with us.
“But Osborne’s stamp duty changes affected the top end of the market, and the uncertainty around Brexit has been weighing on consumer confidence, and the general housing market as a secondary market has slowed down quite substantially over the last 18 months – and so we were carrying on trying to grow-grow-grow in a market that was more of a headwind than a tailwind.”
Tonkiss spent ten years with student accommodation giant Unite and is looking to use the lessons of how the university market dramatically expanded, at the other end of the age spectrum. He sees the potential of the retirement homes sector as “phenomenal” and thinks it will develop into an asset class of its own in the property sector.
And the key to unlocking its expansion, he believes, lies in a three-pronged innovation strategy, of “choice, flexibility and affordability.” New tenure choice will include much more rental, which surveys have shown interest nearly 50 per cent of potential pensioner customers. By flexibility he means much more tech innovation, such as having fleets of electric cars in retirement communities
As for affordability, Tonkiss thinks new compact properties, built using high-tech construction methods, will enable McCarthy & Stone to slash £50,000 off its average £300,000 sale price over about 15 per cent of its product range.
The retirement living sector has “tremendous potential,” he says.
“I compare it to when I began my previous career at Unite Group nearly two decades ago, with student accommodation. Then, we fundamentally created a new service industry and a new property asset class and we can do this with the retirement sector. There’ll be five million more retirees and double the number of over-85-year-olds year over next 20 years.”
“It is a phenomenal opportunity, and our new strategy is designed to enable us to take full advantage of it.”