York-based house building giant Persimmon plc said its 2023 profit before tax fell 52% to £352 million as revenues fell 27% to £2.77 billion.

Dividend per share is maintained at 60p.

On its current trading and outlook, Persimmon said: “Our current forward sales position is £1.55bn, including £946m of private forward sales with a private ASP of c.£280,000.

“Overall, we expect to deliver between 10,000 and 10,500 completions for 2024, of which we have full planning on 98%, with a housing operating margin in line with 2023.

“Build cost inflation is expected to be c.3-5% in 2024, with spot inflation currently running at c.1%.

“As we look to expand our outlet base and invest in work in progress in anticipation of a housing market upturn, we expect to utilise our new £700m Revolving Credit Facility during 2024.

“Consequently, we anticipate transitioning from an average net cash to an average net debt position through 2024, resulting in an estimated net finance charge of approximately £15m-£20m for the 2024 financial year.

“We currently anticipate our net cash to be between zero and £200m as of 31 December 2024.

“While we are prepared for 2024 to be another challenging year, we are confident of our ability to manage this. The longer-term fundamentals for the housing market remain positive.

“Our focus on maintaining a robust balance sheet while investing for growth gives us confidence in our ability to generate strong cash generation and industry-leading returns over the medium-term.”

REACTION:

Richard Hunter, head of markets at Interactive Investor: “Against a particularly torrid backdrop, Persimmon’s numbers have inevitably plummeted, although there are emerging signs that the housing market could be at a turning point.

“The litany of headwinds for this reporting year are well-known, with the sector facing the combined challenges of lower mortgage availability and affordability, stubborn build cost inflation, higher interest rates and understandably less buying interest.

“Margins have also suffered given the effects of lower volumes, increased marketing costs and build costs which has not been enough to offset a modest increase in average selling prices, while the recently announced Competition and Markets Authority probe into issues including poor build quality and potential price collusion is an unwelcome development.

“The removal of the Help to Buy scheme has had a particular impact on first time buyers, an area to which Persimmon has had a traditionally higher exposure. The general bureaucracy of the planning process is another headwind, while the lower sales rate and indeed forward order book imply that the current raft of pressures are still in place.

“As such, the headline numbers do not make for pleasant reading. Revenue came in at £2.77 billion, down 27% from the previous year, although marginally ahead of estimates of £2.65 billion.

“Pre-tax profit bombed by 52% to £352 million, which was in line with expectations. The generally dour environment also impacted on other key metrics, with underlying operating margin down to 14% from a previous 27.2% and the underlying return of capital at 10.5% from 30.4% in the corresponding period.

“Set against this challenging cyclical environment, Persimmon has been working hard to assert some influence on the factors within its control.

“The introduction of incentives and a part exchange scheme have shown some signs of mitigating the wider malaise, while the group continues to acquire new land opportunities on what it describes as an exceptional basis.

“An overall forward order book of £1.6 billion is still much lower, but is showing signs of improvement from the start of the year, while full-year completions of 9922 exceeded the previously guided range of between 8000 and 9000 homes following a strong delivery in the fourth quarter.

“For this year, the guided range has been increased to between 10000 and 10500 completions, with an early boost hopefully coming from the imminent Spring selling season.

“At the same time, its ability to manage costs through its ownership of brick, tile and timber frame factories sets it aside from its competitors, guaranteeing a cost-effective and resilient supply of building materials.

“Build cost inflation nonetheless remained around a stubborn 5%, although this represents an improvement from the previous levels of 9% to 10% and indeed is forecast by the group to fall to between 3% and 5% this year.

“The group also retains net cash of £420 million and excess extra liquidity of £700 million, the combined total of which could be used this year in anticipation of a housing market upturn as Persimmon ramps up investment.

“Land holdings remain in excess of 82000, while the average reservations per outlet per week for the initial part of this trading year are showing signs of renewed life. In the meantime, a reduced and more prudent dividend payment nonetheless leaves the yield at a very respectable 4.4%.

“Persimmon will be hoping that these results signal the bottom of the economic cycle to which the sector is bound, with significant pent-up demand, improving mortgage affordability and availability given wage growth and competition, and with its own marketing campaign generating a notable increase in leads.

“Even so, there is also much damage to repair, not least of which in a share price which has declined by 37% over the last two years and by 54% over the last three.

“The performance has stabilised recently in anticipation of a pick-up in the market and falling interest rates, with a rise of 11% over the last year comparing with an increase of 1.6% for the wider FTSE100 and including a bounce of 33% over the last six months, notwithstanding the tepid reaction to the numbers in early trade today.

“The more recent improvement saw Persimmon regain its FTSE100 status somewhat by default in January, following the delisting of Dechra Pharmaceuticals after its own relegation in September last year.

“Glimmers of hope aside, the general market view of the shares as a hold represents a split of opinion that the tide has finally turned, implying much more interest in Persimmon’s trading performance in the months to come.”

Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “Although the near-term outlook for Persimmon remains uncertain, the significant pent-up demand for homes remains unchanged.

“Persimmon’s average weekly sales rates fell around 16% in 2023, as high interest rates and the removal of the Help-to-Buy scheme have weighed on buyer affordability. As a result, total completions of new homes dropped by around a third to 9,922.

“These lower volumes, coupled with high levels of build-cost inflation, saw operating profit margins roughly halve.

“This impact would have been worse if it weren’t for the group’s in-house materials business, which is a key differentiator to peers and offers some relief to inflating costs.

“Despite the difficult trading backdrop, there was a strong finish to 2023, with fourth-quarter sales rates showing signs of improvement.

“Heading into 2024, there have been more positive signs. Easing mortgage rates, lower build-cost inflation, real wage growth and some strong responses to marketing efforts mean that Persimmon’s starting the new year out on the right foot.

“The group’s extensive landbank, which is one of the largest compared to peers, is another key strength.

“That means there’s less pressure to go out and buy new plots, at a time when land prices are yet to fully reflect the uncertain housing market.

“While it may be a while before this happens, whenever the market does turn, Persimmon has the land to hike volumes quickly and benefit from the uplift.”