Builder to hand £1.9bn back to investors

ANALYSTS hailed Persimmon’s decision to return £1.9bn of surplus cash to shareholders over the next decade as a “game-changer”.

The York-based housebuilder yesterday revealed a 55 per cent surge in pre-tax profits to £148.1m and a capital-return plan which sent its shares surging as much as 20 per cent.

Persimmon said it will pay out dividends totalling £6.20 per share over the next 9.5 years – without piling debt onto its balance sheet.

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“We’ve got cash in hand, we’re generating a lot of cash, and we think we will continue to do that,” said group managing director Jeff Fairburn. “We’ve had a fairly good land-replacement strategy and intend to continue doing that. It’s really about delivering value to shareholders.”

Housebuilders are trading through a tough housing market, with demand constrained by weak mortgage availability and economic turmoil.

But Persimmon echoed its peers in reporting strong profits growth in 2011, as it snaps up land cheaply and builds a greater proportion of family homes. These are more in demand than smaller houses and flats.

Persimmon’s output dipped slightly to 9,360 completions, from 9,384 a year earlier.

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Mr Fairburn said rather than ramping up output significantly or making a big acquisition, returning the surplus cash will give shareholders better value.

“We’re working at a volume which is at a level which matches the market,” he said. “We will move with the market. We can increase the volumes to match the market.

“We already have national coverage. We feel we can grow our business without acquiring a competitor.”

Persimmon also plans to shrink its land bank, which currently provides 6.7 years’ output, to about five years over the decade.

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Asked if the cash-return risks exacerbating the UK’s housing crisis by sapping money from the industry, Mr Fairburn said the priority should be “facilitating people to buy”. “The problem is the constraint in the mortgage market.”

Shares in the group closed up 13 per cent, gaining 79.5p to 706.5p. The company proposed a 10p total dividend for 2011, up 33 per cent on a year earlier.

Peel Hunt analyst Robin Hardy dubbed the capital return programme a “game-changer”. He said: “It shows a far more disciplined approach to the cycle and means that Persimmon will not be drawn back into a destructive volume spiral.”

Mike Bessell, at Investec, added: “We see this move as very positive – housebuilding is, by definition, a cyclical industry, and we are therefore supportive of a capital return strategy that rolls with the cycle.”

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Persimmon also plans to be largely “ungeared” through the next decade. “The payments of dividends are made out of profitability so we need to generate those profits to be able to pay those shareholders,” said chief executive Mike Farley.

Sales in Persimmon’s northern division were up one per cent in 2011 to 1,996 homes.

The group’s Yorkshire division sold 475 homes in 2011, but prices in the region dipped four per cent to £156,027. This year it plans to open sites in Norton, Pickering, Holton-le-Clay and Withernsea.

The group said it expects the UK housing market to remain “challenging” in 2012, with weakness in the mortgage market continuing.

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However, it carried £615m of forward sales into 2012, up nine per cent on a year earlier. Private sales in the first eight weeks of the year are 22 per cent up on a year earlier.

Persimmon’s booming profits follow strong results from other housebuilders. On Monday, Bovis reported a 74 per cent surge in 2011 pre-tax profits to £32.1m.

However, Bovis plans to spend its surplus cash on buying more land and expanding its operations.

“I’m not suggesting we cannot put the shareholders’ money to good use,” said chief executive David Ritchie on Monday. “If we gave it back to them we would be saying we’re generating so much cash that we cannot spend it all.”

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