Persimmon profits dive on fewer new-builds and rising costs

Persimmon’s profits more than halved last year after the housebuilder completed far fewer new homes and was hit by rising costs.

The FTSE 100 company posted pre-tax profits of £351.8m in 2023, up from £730.7m a year earlier, as the UK property sector continued to be hit hard by higher interest rates. highs and widespread economic uncertainty.

And the housebuilder expects the market to “remain subdued” and “challenging” in 2024, with looming interest rate cuts insufficient to significantly boost demand.

Although they have fallen since peaking last July, an average two-year mortgage settlement at the end of 2023 was 5.9 percent, compared to 2.4 percent two years earlier, according to the information provider Financial Moneyfacts.

Housing demand also remains affected by the end of the Help to Buy Scheme and rigid planning regulations that severely limit developers’ ability to build more homes.

Persimmon completed construction on 9,922 properties last year, about a third fewer than in 2022, and trading was particularly subdued in the first three months of the period.

While average selling prices rose 3 per cent to £255,752, the company’s lower pre-order book and a drop in home completions led to total turnover falling 27 per cent to £2.77 thousand millions.

This contributed to falling profits, as did high levels of construction cost inflation, which amounted to around 8 to 9 percent.

However, the York-based company anticipates inflation will slow to around 3 to 5 per cent this year and will deliver a greater number of new-build homes amid stronger affordability levels and greater competition in the mortgage market. .

Dean Finch, chief executive of Persimmon, said: ‘While the near-term outlook remains uncertain, significant pent-up demand for housing remains unchanged.

“We are well positioned to manage the current uncertainty and have good visibility over our onshore product portfolio which, in the medium term, will support a return to growth in outlets and volumes, along with improved margins and strong cash generation.”

Persimmon’s results come a fortnight after rival blue-chip housebuilder Taylor Wimpey revealed its annual profits had plunged mainly due to fewer new homes and rising construction costs.

But unlike Persimmon, Taylor Wimpey expects to build even fewer houses in 2024 than last year: between 9,500 and 10,000, excluding joint ventures, compared to 10,848 in 2023.

John Moore, investment director at RBC Brewin Dolphin, said: “The structural housing shortage in the UK is not going away anytime soon and, as long as that is the case, Persimmon should be one of the main beneficiaries.”

Persimmon Stock They were down 3.4 per cent to 1,327.5 pence early on Tuesday, meaning they are down about 60 per cent since their pre-pandemic peak in February 2020.