British housebuilding company, Persimmon, have announced that its first-half profit before tax fell 1.4% to £509.3m, as the previously announced decline in completions hit revenues.
That reflects Persimmon’s efforts to address customer satisfaction concerns. The group’s new quality initiatives are expected to increase customer care costs by around £15m a year.
Dave Jenkinson, Group Chief Executive commented: “Improving the quality and service delivered to our customers remains our top priority and I am encouraged with the progress made in the first half, which clearly shows that Persimmon is changing.
“Our decision to invest an additional £140m in work in progress as we held back some sites for later sales release to give customers more accurate moving-in dates reduced the Group’s overall sales volumes. Allowing for these impacts, Persimmon’s trading in the first half of 2019 was strong.
“I am proud of the commitment and dedication our teams have shown in supporting the many initiatives we have introduced to deliver a step-change in our customers’ experience. I am confident that the progress we are making with our initiatives, our strong forward build, healthy forward sales and robust balance sheet place Persimmon in a strong position for the second half.”
The shares were little moved following the announcement.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown
In normal circumstances a drop in completions and revenues would be a warning sign for a housebuilder, but while the blip to the top line might not make for pleasant reading, it’s actually good to see Persimmon applying the brakes. Following a flurry of customer dissatisfaction, it took the decision to temper the speed at which it released homes to market, in a bid to avoid a repeat performance.
That’s not to say there aren’t things to remain mindful of – Help to Buy ends in a few years, and as things stand this scheme is responsible for a big chunk of Persimmon’s business. 3,082 of new home sales in the first half were sold to first time buyers, representing 52% of all private sales.
Looking beyond Help to Buy, the wider economic and political sphere is jittery at the moment, and in the face of a downturn, housebuilders are one of the first to feel the pain. Persimmon has a sturdier balance sheet than in the past, so it’s in a better positon, but with Brexit-related material cost inflation encroaching on the sector, and a creaking housing market, investors will still be watching the clouds on the horizon closely.