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Persimmon imposes freeze on new sites
Persimmon has announced that it will not be opening any new sites until the mortgage market improves. The housebuilder thinks the way to improve the situation is for government to "urgently consider additional action to benefit first-time buyers by increasing the threshold for stamp duty".
Despite its latest words, Persimmon has yet to be blown off course. The group weathered the tougher conditions in the housebuilding sector so well last year that it was able to lift its profit in 2007 to £580m.
The average Persimmon home sold for £190,000 in 2007, leaving the company with a profit of over £36,000 on each sale. That profit of £36,000 per house might fall this year.
Persimmon says today that as a result of concerns about the global credit crisis "an increase in discounting, marketing costs and incentives are being utilised to compete for the reduced level of demand", and this is eating into profit margins.
The market will become more challenging, says the leading housebuilder. "We are focusing on management of cash-flows to ensure our balance sheet strength is maintained," says Persimmon. "Close control of investments in work-in-progress, land, build costs and overheads are a priority for our management teams."
Persimmon is operating off 5% more sites than a year ago. "Against the current backdrop we have postponed the commencement of scheduled new sites until the mortgage market improves."
At the end of March, Persimmon had bank borrowings of £1bn. After actively helping with the integration of Westbury, John White is stepping back to a more normal role of non-executive chairman.
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