Persimmon cuts 1,100 staff as sales fall by a third

HOUSEBUILDER Persimmon today announced it is to shed 1,100 staff after its “most challenging period in recent history” during which it has seen sales fall by a third.

The York-based group’s decision to shed jobs was widely expected and adds to the gloom in the housebuilding sector caused by the credit crunch which has seen mortgage approvals tumble and consumer confidence shaken.

Its shares fell 4.5%, down 10.25p to 217.75p in early trading today.

In a trading update on the first six months of the year, Persimmon said today that since its last update in April, there had been “further deterioration in market conditions” in all levels of the housing market.

It said that completions of house sales in the six months to June were down by 31% to 5,501 while its revenues were down 34% to £1bn, and the average selling price of its homes had fallen to £181,500 from £189,255 this time last year.

The group said that underlying operating margins for the first half had fallen to 14% from 20.8% a year ago reflecting the “many pressures” of the market.

Following its decision to shed around 600 jobs in May, the group has taken further steps to reduce its overheads by cutting a total of 1,100 staff from its 5,000 workforce this year.

It said the job losses would save it £45m a year and reduce annual overheads by £20m.

“We believe we now have the appropriate level of overheads to manage the anticipated lower level of business efficiently,” it said in a statement.

The news follows the announcement by fellow housebuilder Barratt Developments last week that it is shedding 1,000 jobs, or 15% of its workforce, as it closed six regional offices.

Construction company Galliford Try also axed 260 jobs and Taylor Wimpey has laid off 900 staff, meaning that more than 3,000 jobs will have been lost in the sector in a week following Persimmon’s cull.

Persimmon, which has seen its shares tumble from 915p to 228p over the last 12 months, was demoted from the FTSE 100 Index last month.

Persimmon said it continues to “apply extreme caution” to buying more land for building plots but does not plan to write down the value of its land. It currently owns 76,000 plots which it said had been bought at below market values which it said would help to protect its margins.

“Currently we do not expect to announce any significant write down of our land values when we announce our interim results in August,” it said.

It said total borrowings at the half year were £900m, giving it gearing of 39% “comfortably within our committed facilities of £1.39bn. We expect our debt levels to decrease as we proceed with our strategy of a significantly reduced overhead, a reduced level of land spend and careful management of work in progress investment appropriate to the level of demand and mortgage availability.

The group has forward sales order book of £650m which is 8% ahead of its January order book but 30% lower than a year ago.

It added: “Our strategy is to maintain a presence in all markets across the UK whilst reducing costs, overheads and debt in line with current demand and market
conditions.

“We have reappraised our business in the light of the significant change in trading conditions and have taken action to address the new challenges presented.

“We now have a lower level of overheads and structure appropriate for the current levels of business, whilst at the same time remaining well placed to achieve an increase in output whenever mortgage availability and the overall market improves.”

It will announce its half-year results on August 21.