Persimmon lops £600m off value of landbank

Persimmon has felt the need to bring forward a trading statement previously planned for 18 November. The bad news is that it has had to slash another £600m off the value of its land bank.

Despite that, the house builder states: “The group continues to comply with all its financing covenants.”

Persimmon’s statement today provides an update on trading in the third quarter of its financial year.

“We anticipate that our underlying trading results for the full year will be in line with expectations,” says Persimmon.

That points to 10,000 homes for the year ending 31 December 2008.  Sales have generated £1.8bn so far this year and another £250m has already been banked for work that will be completed in 2009. 

But Persimmon points to deteriorating trading conditions with cancellation rates lifting to 35% in recent weeks. The battle to achieve sales means that incentives and marketing costs are on the rise which is eating into profit margins.   

Persimmon plans a reduction in its land bank to match the drop in the scale of its business.  There is also a push to lift social housing sales volumes to 25% of total sales.

House prices fell by 5% in the first half of 2008.

That had already triggered a cut of £40m in the value of the land bank. Now, Persimmon is lopping another 10% off the valuation of the land bank which has resulted in today’s announcement of the £600m hit.