Surprise rate rise fails to hit Persimmon performance

Britain's biggest housebuilder, Persimmon, expects the housing market to remain strong and said this month's surprise interest rate rise had no tangible effect on its business. Reporting a better than expected 16% increase in interim profits to £271.5m, executive chairman John White said visitor levels and inquiries remain at healthy levels despite the rate rise.

"For the majority of our homebuyers, decisions to move are driven primarily by their family dynamics and therefore we expect this healthy market to be sustainable," he said. The group, which joined the FTSE 100 index last December, was "well placed to take advantage of a strong and stable housing market".

Its results were boosted by a first-time contribution from Westbury, the house-building firm it bought for £644m in January. The acquisition pushed margins lower, though the group is confident of recovery following integration.

Mr White said integration had been completed ahead of schedule and that cost savings accelerated to £10m in the first half with at least a further £20m expected in the second half. Savings for 2007 and beyond are put at more than £40m. There were one-off reorganisation costs of just over £15m in the period. Turnover rose 42% to £1.5bn over the six months to June 30 and home completions were ahead by 38% to 8,226 units. Excluding Westbury, volume was ahead by 7%.

The average selling price rose by 3% to £188,427, and though the group sees this rising to £190,000 by the year end, Mr White said he did not expect any further significant increases: "Therefore we are redoubling our efforts to keep increases in build costs and overheads to a minimum."

The group had been encouraged by recent government moves to improve the planning process and welcomed its decision to reconsider full implementation of home information packs.

Total sales revenues for the year to date, including completions, is at an all-time high of £2.9bn, which puts the group "in a healthy position" to achieve volume expectations for the full year. The interim dividend is raised by 15% to 13.8p a share, which Mr White says is an expression of confidence in the success of the Westbury acquisition and in future earnings growth.

Analysts were largely impressed with the figures, particularly the reduction in gearing from 80% at the time of the Westbury deal to 50% at the end of the first half - a target achieved six months ahead of schedule. Credit Suisse's David Brock said it was "a robust statement" from the group: "We remain of the view that the market remains fragile and could be unsettled by further interest rate changes but the prospect of a major collapse certainly seems to have retreated." Persimmon was in a position to cope with less rampant price inflation.