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UK's largest home builder defies gloom with record profits

24th August 2005 | back to article listings BACK    print this article PRINT

Persimmon, the UK's largest home builder, has defied continued housing market gloom with the announcement that it has achieved record profits during the first half of 2005.

Despite reporting some of the toughest trading conditions for years, the company said that profits before tax for the first six months of the year increased by seven per cent to £235 million, with sales expected to pickup through the second half of the year.

The news bounced stock market confidence in the home building sector. Persimmon shares closed up 35p at 840p, and competitors such as Bovis Homes recorded share price increases of around 20p.

The news is another sign that the UK housing market may be due a reversal of fortunes, following its sustained period of cooling prices since late 2004. The Royal Institute of Chartered Surveyors (RICS) last week reported that although prices were still falling in July, the rate at which they were doing so had fallen to a near standstill.

Persimmon chief executive John White said that since 1 July the company had seen orders on new property rising by eight per cent on the same period of 2004, and that the much anticipated August base rate cut had added an extra impetus to sales activity.

"This quarter-point rate cut has helped to improve sentiment in the housing market," Mr White told the Guardian.

"Normally we'd expect autumn sales to pick up from the middle of September through to November, and the signs are encouraging and wouldn't lead us to thinking that it wouldn't happen this time around," he said.

"We remain optimistic for the business in 2005 and are well-placed for 2006 and beyond," chairman Duncan Davidson added. The company has predicted that the low levels of new home construction would keep the demand and prices buoyant.

While the company needed to boost its marketing budget, and offer additional incentives such as part exchange on buyer's previous homes to achieve its figures, it managed to off set these expenditures with tight cost controls. Operating margins for the first half were 23 per cent compared to 22.8 per cent in the same period of last year.

Persimmon has also managed to push the average sales price of its homes to £183,581 from £171,082 in mid 2004, in what has been a buyers market, offsetting a dip in sales from 6,058 units through the year to 5,954 units.




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