Housing revival hopes bolstered on builders' performance

Published:  29 February, 2012

LONDON: There are hopes for a revival of the battered housing market as Bovis reports a 41% surge in sales since the start of the year.

The firm said prices were slightly up, to add to recent signs of a pick-up from rival builders and builders' merchants.

Bovis said prices were slightly up. It sold more than 2000 homes in 2011, up 8% on 2010, for an average of £162,400 - £1700 higher.

But the results highlighted a countrywide split, with Kent-based Bovis ploughing most of its investment into southern England. Mortgage lending has leapt recently as first-time buyers try to beat the end of a stamp duty holiday next month.

Bovis chief executive David Ritchie hopes the government's new mortgage indemnity scheme, which will help buyers borrow up to 95% of the value of their new home, will sustain demand.

Carillion operating profits at its UK construction division jumped 41% last year but the company will be selective about contracts as it continued with plans to scale down its UK construction operations by a third by this year.

Results released yesterday show construction turnover in the UK fell 24% to £1.3bn for the year to December while operating margins rose to 3.1% from 1.9% and operating profit increased 41% to £57.9m

The firm said: "Our decision to re-scale UK construction anticipated the government's cuts in capital spending of some 30% in real terms over the current four-year spending plan.

"In 2012, UK market conditions are expected to remain competitive as government cuts in capital spending continue to bite.

"We will continue to re-scale our UK business by maintaining a very selective approach to the contracts for which we bid, which will also continue to support margins."

Group-wide, Carillion saw turnover stay flat at £5.1bn with pre-tax profit down 15% to £142.8m. Chairman, Philip Rogerson, said: "Carillion's integrated UK support services and international business mix has once again enabled the group to perform strongly, despite challenging market conditions.

• Taylor Wimpey has become the latest house builder to deliver a big jump in profits on the back of near flat housing completions.

The big improvement came from building out cheaper land and substantial cuts to construction costs.

Pete Redfern, chief executive, Taylor Wimpey said: "Having achieved our target of a 10% reduction in private build costs per square foot between the first half of 2009 and the first half of 2010, we have retained our focus on build cost efficiency.

"We have achieved further savings in 2011, with the full-year average private build cost per square foot reduced to £102 (2010: £106)."

He said the majority of the savings were earned from greater efficiency on site and increased standardisation, with the underlying build cost environment remaining broadly flat.

Operating profits for the year jumped 56% to £173m on turnover edging up 2% to £1,780m. The small rise was driven by completions that rose 2.2% to 10,180 as average selling prices remained the same as the previous year.

Taylor Wimpey delivered a sharp rise in operating margin from 6.4% to 9.7%, with its target double-digit margin achieved in the last half of the year.

Redfern said: "Our performance is the result of a continued focus on driving value by prioritising a further improvement in margins and return on capital.

"In 2011, we saw significant progress in our operational performance and I am pleased that we have reached our double digit operating margin target ahead of schedule.

"While wider economic conditions remain uncertain, the UK has seen a period of continued stability in the underlying housing market and strong growth across a number of areas as shown by our order book," he said.

Persimmon saw annual completions fall to 9,360 and average selling prices drop 2% last year. But the fall in building completions failed to dent its performance with underlying profits soaring 55% to £148m.

The house builder also revealed plans to return £1.9bn to shareholders over the next 10 years in enhanced dividend payments.

Nicholas Wrigley, group chairman, said: "Underlying profit before tax grew by 55% during the year, as Persimmon's successful strategy of improving operating margins, investing in high quality land and generating surplus cash to pay down debt proved highly effective, despite difficult prevailing housing market conditions.

"Looking ahead, we have made a strong start to the year, with forward sales up by 9.4% to £927 million.

"Visitor levels and reservations continue on an improving trend and, although we expect the UK housing market to remain difficult, Persimmon is in a strong position to meet this challenge."

Legal completions for the year were 9,360 (2010: 9,384) at an average selling price down 2% at £166,142.

Persimmon said the fall reflected a greater proportion of first time buyer homes in the sales mix

Operating margin peaked in the second half of the year at 10.8%, up from 8.2% last year. Wrigley predicted that the house builder would see further improvement this year and believed margins would again return to 15-17%.

He added: "Persimmon will return £1.9bn of cash to shareholders over the next 9.5 years, whilst maintaining a largely ungeared balance sheet.

"This new strategy sets Persimmon on course to build a stronger, larger business and deliver enhanced shareholder returns over the next decade."

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