Persimmon warns volumes could plummet unless market improves

The UK’s most profitable housebuilder has said its build volumes could nearly halve this year if trading conditions fail to improve from their current level.

Shares in Persimmon dropped 10% in early trading as the housebuilder published full year results for 2022 in which it said it could complete as few as 8,000-9,000 sales in 2023 unless there was a market improvement. If realised, 8,000 completions would represent a 46% drop on the 14,868 homes completed in 2022.

While group chief executive Dean Finch said it was too early to give a “firm guidance” on the year ahead, he said that current reservation rates would also cut the group’s margins by up to 13 percentage points. The group made a pre-tax profit margin of 19% in 2022, after taking into account a £275m writedown to pay for cladding repairs.

The gloomy prospectus came as Persimmon reported pre-tax profit of £731m for 2022, down 24% on 2021 numbers due to the cladding charge, on revenue of £3.82bn, up 6%.

Finch said Persimmon had delivered a “very strong performance” in 2022 despite the challenges of rising build costs and the mini Budget-inspired drop off in sales in the last quarter but that this year “the market remains uncertain”.

He said that while sales rates had improved from the average 0.30 sales per sites per week seen in the last quarter of last year, the 0.52 seen since New Year was still well down on the 0.96 sales rate in the same period last year. In addition, the results statement said Persimmon was having to spend around 3% of the price of a house on incentives for each sale achieved, with 25% of customers making use of its part exchange service – compared to 6% in 2021.

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The firm said it was too early to assess a full year sales rate but “should current rates continue for the rest of the selling year, the Group’s current outlet network would imply 8,000-9,000 legal completions for 2023”, and that lower completions “will have a margin impact”.

Persimmon said this scale of drop off would see a five percentage point margin impact from build cost inflation, which would no longer be covered by sales price inflation as in previous years, and a likely eight percentage point margin hit from “reduced volumes and increased sales incentives and marketing costs”.

Persimmon said it had already instituted a hiring freeze and had identified £40m of efficiency savings from its 2023 operating budget. It added it was reining in land spend, by only targeting “exceptional” deals and expected land spend to be “down” in 2023, though the firm didn’t specify by how much.

The firm said the market had been toughest around London and the South-east, where prices were highest and the lack of any government support for first time buyers, since the closure of the Help to Buy programme, was being felt most keenly.

But it said it was preparing for recovery in the market: “It is our intention to continue to invest in land in a targeted and disciplined way, when we judge the timing is right, in order to deliver outlet growth in future years.”

Persimmon chair Roger Devlin said he expected the number of homes built in the UK this year to drop to “not be much more than half” the government’s 300,000 homes a year target – which would imply a significant fall from the 236,000 net additions recorded in the most recent government statistics for 2021/22.