Persimmon’ First-Half Profit Lifted By New Buyers Boost

on Aug 22, 2012
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Persimmon (PSN:LES), Britain’s biggest homebuilder by market value, reported a 65 per cent rise in its pre-tax profit for the first half of the year as it overcame sluggish market by focusing on building family homes for new buyers. The homebuilder’s underlying profit before tax for the six months till the end of June was £98.7 million versus £59.7 million in the same period in 2011. The York-based builder, whose brands include Charles Church and Westbury, also saw revenues rise 13 per cent to £806.7 million.

The UK government’s NewBuy scheme, which was launched in March to help first-time buyers get up to a 95 per cent mortgage, has been successful for Persimmon. The builder has actively pushed the initiative and seen 220 new homes sold via the scheme, representing around 5 per cent of its first-half sales total. Overall, Persimmon completed the sales of 4,712 new houses in the first half of 2012, a six per cent increase on the previous year. The homebuilder’s average selling price rose seven per cent to £171,206, reflecting the company’s shift towards traditional family homes built on discounted land, rather than city flats which have fallen out of favour.

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!m[](/uploads/story/291/thumbs/pic1_inline.png)”The Group has made an excellent start to the current financial year,” said Chairman Nicholas Wrigley. “These results reflect the early success of Persimmon’s new strategy to grow into a stronger, larger business whilst returning £1.9 billion of surplus cash to shareholders. The future growth of Persimmon will continue to be based on the solid foundations of the good results achieved in the first half of 2012,” he added.

Persimmon’s profits came in higher than the City had expected, but shares opened flat following the news, as traders eyed the housing crisis in the UK with caution. Figures published earlier this week show that homebuilding activity in Britain fell by 10 per cent between March and June. Research from the National Housing Federation has once again indicated the reasons for this sluggish trend — house prices in the UK have risen three times faster than wages over the past decade, with the average size of deposit needed to buy a home increasing by 386 per cent since the financial crisis.

Persimmon, like its industry peers, is battling levels of demand far weaker than before the housing crisis in Britain. Yet homebuilders are in a significantly better financial position than they were three years ago, as they have been cutting costs and investing in new land bought at much cheaper prices. Persimmon have used the financial crisis and tough market conditions as an opportunity to buy 5,779 new plots on 50 sites in the first half of the year. This increases the company’s landowning to 63,786 plots, representing more than 6.5 years’ supply at current sales levels. But despite the strong first-half performance and opportunity to expand its landholdings, Persimmon remains cautious over Britain’s housing market development:
“We expect conditions in the UK housing market to remain challenging reflecting the wider issues within the economy. However, we anticipate continued firm underlying demand for new homes but this will remain constrained by the low level of mortgage availability,” said Mr Wrigley.

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