Persimmon has reported a dramatic reduction in its forward sales position as a result of the erratic housing market conditions and economic uncertainty.
Highlights
| 2022 | 2021 | % change | |
| New home completions | 14,868 | 14,551 | +2% |
| Average selling price | c. £248,600 | £237,078 | +5% |
| Average open sales outlets | 259 | 260 | |
| Cash at 31 December | £0.86bn | £1.25bn | |
| Current forward sales position | £1.0bn | £1.6bn | -36% |
| Of which private forward sales | £0.5bn | £1.1bn | -56% |
| Land holdings (plots owned and under control) | c. 87,200 | 88,043 |
Trading
In its latest trade statement, the Group reports that it completed the sale of 14,868 new homes in 2022, towards the top end of previous guidance. This has been achieved despite the Group only beginning the rebuild of its outlet position during the year. Execution of its build programmes was strong, particularly in the second half, with a 15% increase in build rates compared with H2 2021, supporting the delivery of over 8,200 homes in H2 2022. Overall build rates in the year tracked c. 8% ahead of 2021, with an average of 276 equivalent units built per week (2021: 255).
The Group’s private average selling price increased by c. 5% to c. £272,200 (2021: £259,231) reflecting the mix of developments and house types sold along with overall house price inflation during 2022. The Housing Association average selling price increased by 8% to c. £142,000 (2021: £131,976).
Persimmon’s vertically integrated manufacturing facilities continue to support delivery across the business with Brickworks, Tileworks and Space4 all increasing production compared with the prior year and plans for the new Space4 factory remain on track.
In line with the broader market, Persimmon saw notably weaker customer demand in the second half of the year as concerns over the economy, mortgage rates and the cost of living weighed heavily on consumer confidence.
Overall, in 2022 private net sales were 0.69 per outlet per week for the year (2021: 0.83). The change in market conditions gathered pace in the final months of the period, with private net sales reducing to 0.30 per outlet per week in Q4 (Q4 2021: 0.77), with the last 7 weeks of 2022 at 0.19 per outlet per week (2021: 0.61). The trading performance weakened across all geographies with the biggest impact on sales seen in our Southern regions. There was also a particularly sharp fall in demand on those sites where Help to Buy was more widely used once the scheme in England closed for new applications from 31 October.
As a result of the lower sales rates and elevated cancellations in the second half, and against a strong comparative at the start of 2022, Persimmon’s forward sales position has reduced year on year to £1.0bn (2021: £1.6bn), of which £0.5bn relates to private forward sales (2021: £1.1bn).
Land
Land spend for the year was c. £665m (2021: £460m) of which c. £210m was the settlement of land creditors (2021: £179m). Land payments in Q4 were at a lower level compared with the first three quarters at c. £120m of which c. £52m was in relation to the settlement of land creditors. Persimmon’s owned and under control land holdings stood at c. 87,200 plots at 31 December 2022 (2021: 88,043 plots). With this strong position, the company is taking action to manage the impact of the uncertain outlook for the UK housing market and have already taken action to either renegotiate or pause the start of around 30 sites. Persimmons expects land spend in 2023 to predominantly relate to the settlement of land creditors, and we will take a highly selective approach to any new land purchases, investing only where we see the very best opportunities.
Outlook
Higher mortgage rates, inflation, heightened market uncertainty and the end of reservations under Help to Buy in England, had a sharp impact on the Group’s private sales rates in the fourth quarter and will have an adverse impact on the outlook for 2023. Taking together the absence of Help to Buy and the increase in mortgage rates, Persimmon estimates that the monthly cash cost of mortgage payments for some first time buyers has approximately doubled over the past year compounded by limited availability of high loan to value mortgages.
While Persimmon is promoting initiatives to stimulate demand, including the recent launch of its “10 months mortgage free” customer offer, it reports that it is too early to predict when there will be a recovery in demand.
The Group currently anticipates average outlets will remain broadly similar during 2023 at 250-260 open selling outlets, although it has opportunities to increase this if demand improves as the year progresses.
Comment from chief executive
Dean Finch, group chief executive of the housing building company, commented: “Persimmon has delivered a strong performance for 2022 which has been achieved despite headwinds from supply constraints in the early part of the year and a more challenging sales environment in the second half. We delivered 14,868 new homes to customers in the year, towards the top end of our guidance.
“In the second half of the year, rising interest and mortgage rates, inflation and weaker consumer confidence began to impact customer behaviour across the housing market. This change in market conditions gathered pace in the fourth quarter and is reflected in the reduction in our recent weekly sales rates and a lower forward sales position as we enter the new financial year. However, with high quality land holdings, a strong balance sheet and an experienced management team, Persimmon is well placed to navigate this challenging short-term backdrop, whilst continuing to take advantage of any opportunities that may arise.
“The longer-term demand for new homes remains strong. We have made significant progress over the past two years in augmenting the Group’s longstanding commercial excellence with renewed operational capabilities building a stronger, more sustainable business for the future.”
