Persimmon moved to calm the nerves of investors yesterday by stating that any writedown of its land bank and work in progress would be limited to “tens of millions of pounds” rather than the figures of between £200 million to £300 million forecast by some City analysts.
The residential housebuilder, which yesterday confirmed it was laying off more than a fifth of its workforce, is facing up to the toughest conditions in its recent history.
Despite this, it said it did not see the need for any significant writedown of its land values in the six months to the end of June 2008, although it said it was keeping the value of its land bank under constant review.
“Any writedowns are likely to be in the order of tens of millions of pounds,” said group chief executive Mike Farley.
“Any further writedown will depend on how the market moves over the next few months and our view of trading conditions at the time,” he added.
However, stockbrokers Panmure Gordon still believes the group will have to write down the value of its land and work in progress and reiterated its view that total writedowns for 2008 could be somewhere between £200 million to £300 million, with a similar level in 2009 should the pricing environment weaken further. For the first half of 2008, it said it saw writedowns of between one and two per cent.
Mr Farley said he was aware of the higher level of writedowns being forecast by some analysts, but said the group would only write down land if there was “no margin” to be made or if it failed to meet net realisable value.
“We have not reached that stage yet,” he said.
In the first six months of 2008, the group saw legal home completions fall by 31 per cent to 5,501 as the credit crunch and the restricted availability of new mortgage finance, especially for new home buyers, hit sales. Total revenue for the half was down 34 per cent to £1 billion, while average selling prices fell from £189,255 to £181,500.
“Trading conditions in the first six months have been the most challenging in the company’s recent history,” said Mr Farley.
“It could go on for another 12 to 18 months like this,” he added.
For the second half of 2008, Mr Farley is budgeting for a similar level of completions as the first six months, implying a total of about 11,000 for 2008. This would compare to 15,900 completions in 2007.
The sharp downturn in the market, coupled with price erosion and a higher level of customer incentives, has also hit first-half operating margins with returns likely to be in the order of 14 per cent, compared to 20.8 per cent in the same period last year.
“We’ve also felt some impact from rising building and marketing costs,” said Mr Farley.
The group also revealed that weekly visitor levels to its sites have been consistently down by about 20 per cent since the beginning of the year, while private sale reservations have been 45 per cent lower.
“Against this background, it’s difficult to predict what will happen over the full year.
But we’re responding to these challenges and looking to reduce costs and overheads, while we will not be opening any more sites this year,” he said.
Persimmon expects its restructuring process to generate a cash saving of £45 million per annum and annualised savings in excess of £20 million.
“The whole sector in is a state of transition. Some of the smaller players are finding it exceptionally tough. It’s my job to make sure Persimmon comes through this,” added Mr Farley.
He pointed to the group’s relatively low level of gearing – 39 per cent at the end of June – compared to some other housebuilders and said there was no need for any fundraising moves.
“Our borrowings remain comfortably within our committed facilities of £1.39 billion,” he said.
“We expect borrowings to decrease further during the second half of 2008,” he added. At the end of June, net debt stood at £900 million.
Analysts have drastically revised their earnings estimates for Persimmon, just like they have for others in the sector, given the sharp deterioration in home sales and volumes levels.