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 increasing costs.

The FTSE 100 company reported pre-tax profits of £351.8million in 2023, plunging from £730.7million the prior year, as Britain’s property sector continued to be heavily impacted by higher interest rates 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 fix at the end of 2023 stood at 5.9 per cent, compared to 2.4 per cent two years earlier, according to financial information provider Moneyfacts.

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

Persimmon finished building 9,922 properties last year, about one-third less than in 2022, with trading particularly subdued in the first three months of the period.

While average sales prices tipped up by 3 per cent to £255,752, the company’s lower forward order book and drop in home completions led to total turnover plunging by 27 per cent to £2.77billion.

This contributed to profits plummeting, as did elevated levels of build cost inflation, which totalled about 8 to 9 per cent.

However, the York-based business anticipates inflation easing to around 3 to 5 per cent this year and delivering a larger number of new-build homes amid stronger affordability levels and greater mortgage market competition.

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

‘We are well placed to manage the ongoing uncertainty, and we have good visibility over our land pipeline which, over the medium-term, will support a return to growth in outlets and volumes, alongside improved margins and robust cash generation.’

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

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

John Moore, senior investment manager at RBC Brewin Dolphin, said: ‘The structural housing shortage in the UK isn’t going anywhere soon and, so long as that is the case, Persimmon should be one of the main beneficiaries.’

Persimmon shares were 3.4 per cent down at 1,327.5p on early Tuesday morning, meaning they have declined by approximately 60 per cent since their pre-pandemic peak in February 2020.