PERSIMMON has hailed an “excellent” 65% hike in profits as it overcame a sluggish market by focusing on building family homes in affluent areas.
The York-based builder, whose brands include Charles Church and Westbury, saw revenues rise 13% to £806.7m in the six months to June 30.
The strategy helped underlying pre-tax profits hit £98.7m, meaning the group, founded by Duncan Davidson who owns the vast Lilburn Estates in north Northumberland where he lives, is on course to ramp up dividend payments as part of plans to return £1.9bn of surplus cash to shareholders over the next nine years.
The group said private reservations have slowed from the 18% growth in the first half but are still 5% ahead of last year since the start of July, while it has already sold 220 homes through the Government’s NewBuy scheme, which encourages the return of 95% mortgages.
The profits figure came in higher than the City had expected but shares opened flat yesterday as traders eyed the slowdown in summer sales with caution.
Persimmon, like other housebuilders, is battling levels of demand far weaker than before the financial crisis as lenders ask for larger deposits from buyers although they benefited from a surge in the spring as first-time buyers rushed to take advantage of a stamp duty holiday.
Recent demand has been underpinned by Government initiatives to boost the sector. As well as seeing “good levels of customer interest” in the NewBuy scheme, the group has also been helped by the FirstBuy shared equity scheme, which aims to encourage affordable mortgage lending to first-time buyers.
Persimmon, the UK’s largest homebuilder by market value, said it had a shared equity interest in 30% of its first-half sales, although this is expected to fall in the second half as its sells its allocation under the scheme.
It said the mortgage market was expected to remain challenging, reflecting the UK’s economic malaise and the shortage of affordable deals.
But it was pleased by recent rate reductions from lenders, which many have attributed to the Treasury and Bank of England’s £80bn Funding for Lending scheme which aims to encourage banks to lend more.
Average selling prices rose 7% to £171,206 in the first half, helped by Persimmon’s strategy of building more family homes, while the number of completions rose 6% to 4,712.
The group’s margins were boosted by more than three percentage points to 12.2% as it also benefited from building on cheaper land acquired since the financial crisis.