Persimmon: We will learn the lesson of aggressive buying

Published on Thursday 21 August 2008 21:41

PERSIMMON finance director Mike Killoran yesterday predicted that caution would dominate the house building sector for several years and the industry would "live and learn" from its recent aggressive land acquisitions.

Killoran's comments came as Britain's largest house builder kicked off what is expected to be a grim reporting season for the industry, which has been one of the hardest hit by the economic slowdown.

In a signal that the company had learned from the recent downturn in the market, Killoran confirmed that a "cautious" approach to land acquisition had resulted in Persimmon's land bank falling by 7 per cent in the six months to 30 June.

Based on forecast sales, house builders have in the last five years aggressively acquired land, leaving many companies with significant debt.

Killoran told The Scotsman yesterday that the land grab would not recover as quickly as sales. He said: "We do live and learn, and as an industry we will be more cautious in terms of forward commitment to land."

Persimmon said it was taking a "very cautious" approach to business decisions in general, which Killoran predicted would be the approach of most house builders for the next few years.

York-based Persimmon blamed market conditions which were "the most challenging in its recent history" as it reported a 64 per cent fall in pre-tax profits in the six months to 30 June, to 100.9 million.

Sales of new homes during the period were 5,501, some 2,501 below the same period in 2007, with the average sale price falling by almost 8,000 to 181,485. In 2007 the company built almost 2,000 homes in Scotland, but Killoran said there was little chance of this being repeated this year.

However, there were some hopeful signs, with sales volumes since April stabilising, although the company said it was too early to call the bottom of the current slowdown.

Killoran blamed increasingly strict mortgage lending criteria for a large portion of the fall in sales, but admitted consumer confidence has also fallen: "Visitor numbers at our sites are 20 to 25 per cent below what they were last year, so clearly a lot of people are being excluded from the market because of restrictions on mortgage lending.

"Obviously the issue of consumer confidence is important. We have to contend with the prospect that the economic performance in the UK is not going to be as robust as it has been over the last three or four years... That tempers the views of those in the industry as to what level of recovery might materialise."

Persimmon followed rival Bellway by describing rumours that the government was considering suspending stamp duty on house sales as "unhelpful", creating added doubt in the market.

But Killoran said it would be "very helpful" if the Bank of England was to help facilitate the reopening of the market for residential mortgage-backed securities.

Despite profits being towards the lower end of market expectations, shares in Persimmon leapt 9.5 per cent to 327p as the company cut, but did not abolish, the interim dividend, down from 18.5p to 5p.

Persimmon also revealed that cost-saving measures made earlier this year – which saw more than 2,000 jobs cut – would cost only 15m, while saving 45m in costs annually.

Upbeat SIG insulated against the slump

EUROPE'S largest supplier of roofing and insulation shrugged off "challenging" markets yesterday after benefiting from surging demand for its products.

SIG, which is based in Sheffield, said tougher UK building standards for construction schemes and new energy-efficiency targets had generated "strong growth" in demand for retrofit insulation in existing homes.

The company said: "Demand for insulation products continues to perform better than other building materials due to a combination of regulatory, environmental and economic drivers throughout all regions in which SIG trades."

Pre-tax profits at SIG rose by 10 per cent to 68.3 million in the first half of 2008, with like-for-like sales up 9 per cent to 1.49 billion.

In the UK, which accounts for 57 per cent of SIG's revenues, the company grew like-for-like sales by 3.3 per cent to 849.4m. Total sales in mainland Europe – helped by acquisitions and a strong euro – jumped by 71 per cent to 644.3m.

SIG has spent 126.9m on 24 on acquisitions in the UK and Europe in the first half as it seeks to grow, although it will take on a "cautious and highly selective" to further moves in the current market, the company added

SIG said it is wary of the slowing housing markets in the UK and Ireland, but added that two-thirds of its sales came from the non-residential and industrial sectors.

The company expects discretionary consumer spending on insulation to weaken further in 2009, but said building contractors were reporting solid order books for publicly-funded projects such as schools and hospitals.

PETER RANSCOMBE