Persimmon to axe 1100 jobs as home sales fall 3%

Persimmon hammered the beleaguered house-building sector with more grim news yesterday, saying that it planned to cut 1100 salaried staff - a quarter of its workforce as first-half home sales fell 31%.

However, the builder said there would not be a significant write-down in the value of its land holdings.

A company spokeswoman said 85 staff in two of the firm's Scottish offices would lose their jobs. The group recently told The Herald it was having trouble selling some of its units at its 50 developments north of the border because protential buyers could not get mortgages from lenders.

Chief executive Mike Farley said yesterday that any write-down at the time of the company's first-half results on August 21 would be in the tens of millions of pounds, not hundreds of millions.

He also said the York-based company, the biggest house builder by market value and number three by homes built, would take a charge of £10m to £12m for the job cuts that began in May and will leave the company with 3000 employees.

Persimmons' completed house sales plunged 31% year-on-year to 5501 houses in the six months to end-June. The average selling price fell 4% to about £181,500 in what Farley said was the most challenging period in the company's recent history.

The announcement by Persimmon came only a few days after Barratt Developments, Taylor Wimpey and two other smaller builders said they planned to elimate around 2000 jobs in total.

Housebuilders' share prices have collapsed this year, partly on fears of big write-downs on land bought at the peak of the housing market. The mood worsened on June 30 when indebted Taylor Wimpey announced a £660m write-down.

Persimmon shares, which peaked at 1544p in January 2007, fell sharply in early dealing but later recovered to close 7.75p stronger at 228p.

The group, which previously announced plans to scale back development of new sites, forecast its underlying first-half operating margin fell to about 14% from 20.8%.

"Poorer market conditions have continued. The significantly reduced availability of mortgage funds and a reduction in consumer confidence is restricting the level of sales activity and the volume of total housing transactions across all markets in the UK," Persimmon said.

Simon Brown, an analyst at Landsbanki, cut his price target on Persimmon shares to 370p from 630p and downgraded the company's profit forecast for 2008.

He said: "The decline in sales has been faster than predicted although not by much and the pricing and margins have suffered accordingly. The group announces a cost-cutting programme that should result in annualised cash savings of £45m and an overhead reduction of £20m. The shortfall in sales is likely to deteriorate in the second half and for this reason we are reducing our forecast for the full year by 27% to £175m at the pre-tax level."

He went on to say the UK housing market has deteriorated markedly in recent months. "The prices being put on houses are attracting potential buyers and deals are being done but the finance is not there to complete the exchange. This position will result in fewer completions in the first half than expected and a lower forward sold position, down 30% on last year at £650m at weaker margins going into the second half."

Last week, investment bank Merrill Lynch downgraded the sector after Taylor Wimpey failed to secure £500m from shareholders in a bid to shore up its balance sheet.

Elsewhere in the sector, Savills, the property services group, said that sales of luxury homes in the previously booming London market fell 45% in the first half of the year. The news sent its share tumbling 10%, or 22.5p, to 193p by the end of trading.

Savills said the housing market slump made its full-year performance hard to predict, prompting analysts to cut their profit forecasts.

"Trading conditions for our transactional businesses in many of our markets makes predictions of full-year performance very difficult," the company said in a trading statement.

Savills chief executive Jeremy Helsby said the downturn in the UK property market, which occurred as mortgage lenders pushed up borrowing costs in the wake of the credit crunch, had accelerated since the spring.

"We all hoped this would be a short, sharp downturn and we'd get back to normal in the second half. What we've seen, particularly on the residential side, is that life has got signi-t ficantly worse over the last three months," he stated.