LONDON (Alliance News) - Persimmon PLC on Tuesday became the latest UK housebuilder to report an increase in profit in the first half of 2014, as the FTSE 100 company benefited from an increase in the number of new homes built and an increase in the average selling price of its properties.
On Monday, FTSE 250 peer Bovis Homes Group PLC said legal completions in the first half rose 54%, while the average selling price on private legal completions came in 20% higher than a year earlier. As a result, the Kent-based housebuilder said pretax profit more than doubled to GBP49.4 million for the six months-ended June 30, from GBP18.6 million a year earlier.
In turn, Persimmon on Tuesday said pretax profit rose to GBP208.9 million for the six months-ended June 30, from GBP132.9 million a year earlier, as revenue rose 33% to GBP1.20 billion from GBP899.9 million.
“The market has been supportive,” Finance Director Mike Killoran said in a telephone interview. “We have seen good rate of sales, our private rates [of sales] were up 17%, and lenders appear to be supporting customers in the market, which we applaud. Additionally, we are working very hard to resource all our sites, we've got about 180 active housing construction sites at the moment, and we are working very hard to build the properties that we're selling. The result in the first half demonstrate all that activity.”
Persimmon said legal completions increased 28% to 6,408 new homes sold, compared with 5,022 a year earlier. The average selling price of its properties also increased 4.3% to GBP186,970 from GBP179,199.
Persimmon said it experienced better market conditions in the first half of 2014, supporting improved prices and sales rate. The company said its private sales rate for the six months was 17% ahead of the prior year, supported by the UK government's introduction of Help to Buy.
Help to Buy has been a welcome boost to housebuilders, which have reported an accelerating recovery in the UK housing market through 2013 and into 2014, particularly in London and the south east. The builders virtually halted new building in the wake of the financial crisis as banks pulled mortgage financing and the ensuing economic crisis put off house buyers. The companies instead focused on paying down debt.
The first part of the scheme - which is now a year old - makes buyers of newly built homes eligible for a 20% equity loan from the UK government on top of their 5% deposit - it has been extended by four years to 2020. The second phase, which has not been extended, started in the Autumn last year and guarantees a portion of a buyer's mortgage of new and existing homes.
Persimmon's Killoran said the company is “conscious” of the UK's need for affordable housing following concern that certain groups, such as those under 25, are still struggling to get onto the property ladder.
“At Persimmon we've always tried to hit the right price point across each and every development. We always offer a good choice of different house types on our schemes that are attractive to both first-time buyers and the next-steppers looking for a bit more space,” he said.
“If you look at our price pointing, of our sales in the first half of 2014 around 40% were priced less than GBP150,000, with around 60% priced at less than GBP200,000. So we do concentrate on making sure that we do remain affordable and that helps to mitigate the risk of coming under pressure as we move forward.”
Persimmon said underlying gross margin improved by 220 basis points to 21.9% from 19.7%.
At an operating level, the company said it benefited from 175 new sites opened last year in addition to 90 new sites in the first half of 2014. Persimmon said these new sites "refreshed our strong outlet network whilst continuing to reduce the cost of land recoveries on legal completions."
The company said at the period-end it had 82,250 plots of land owned and under control compared with 70,716 plots a year earlier. Within this consented land bank, 43% of these total plots were previously held as strategic land which will support the group's delivery of strong margins in the future, Persimmon said.
Looking ahead, the company said it expects to open around 100 new development sites during the second half of 2014, in addition to increasing build rates to meet customer demand.
Persimmon also said it expects mortgage lenders to continue to actively develop their participation in the UK mortgage market over the medium term.
This comes on the same day the mortgage lender Nationwide reported a drop in net mortgage lending to GBP1.7 billion in the three months to June from GBP2.6 billion in the corresponding quarter of 2013.
“I think what we are seeing with Nationwide and Halifax is these two big lenders managing their market share of new business. Because if you look at mortgage lending overall, it's still increasing year-on-year. If you look at mortgage approvals in June, it was 14% ahead of June in the prior year. So overall I think mortgage lending is increasing for house purchase,” Killoran said.
“I think the two majors Halifax, part of Lloyds [Banking Group PLC], and Nationwide are making a bit of room for the other lenders to gain more share. So the likes of the building societies, Virgin Money and perhaps Natwest and Woolwich. These are lenders who are quite keen to take a bit more market share, and I think the two major players are making a bit of room for them,” he added.
In 2012 the company committed to return GBP1.9 billion to shareholders over a ten-year period. In June 2013 Persimmon paid 75 pence per share and last month it paid an additional 70 pence per share to shareholders. The company hopes to pay around 90 pence next year dependent on its performance.
Persimmon shares were quoted up 1.0% at 1,348.00 pence Tuesday afternoon.