Persimmon Plc · LSE:PSN
Persimmon — FY2019 Earnings Presentation
66 slides from Persimmon's earnings presentation, Feb 27, 2020
Slide 1: Results Presentation 27 February 2020
FRONT COVER FINAL Results Presentation 27 February 2020
Slide 2: Long term sustainable returns for all
“Long term sustainable FINAL returns for all” FRONT COVER Results Presentation 27 February 2020
Slide 3: Agenda
Agenda Page Presented by • Strategic focus and Highlights 3 Dave Jenkinson • Customer care improvement plan 7 Dave Jenkinson • The Persimmon Way 13 Andrew Fuller • Operational review 21 Dave Jenkinson • Financial review 30 Mike Killoran • Strong platform for 2020 39 Dave Jenkinson • Summary 40 Dave
Slide 4: Long term sustainable returns for all
Long term sustainable returns for all Persimmon now has a clear purpose which the whole company is working towards • To build good quality homes at a range of price points to meet the UK’s housing needs • To create and protect superior long term value through the housing cycle for: shareholders
Slide 5: Well established areas of strategic focus
Well established areas of strategic focus • Improving customer experience • Building good quality homes • Providing homes for all • Workforce training and relationship • Ensuring community benefits • Building sustainable homes and communities • Managing and maintaining our industry leading land hold
Slide 6: Trading performance remains strong
Trading performance remains strong 2019 2018 Change Unit completions 15,855 16,449 (4%) Average selling price £215,709 £215,563 + 0.1% New housing revenue £3,420.1m £3,545.8m (4%) Operating profits * £1,036.7m £1,091.9m (5%) Operating margin - New housing ** 30.3% 30.8% (0.5%) Profit before tax £1,0
Slide 7: Industry leading financial performance
Industry leading financial performance • Trading performance remains strong while putting customers before volume new housing operating margin 30.3%* profit before tax of £1,041m return on average capital employed at 37.0%** • Company’s work in progress position transformed £213m additional
Slide 8: Well defined customer care improvement plan
Well defined customer care improvement plan • 2019 had several key areas of focus - more than just about HBF star ratings increased financial investment improved customer care communication increasing consumer rights good access to modern technology building good quality homes robust qua
Slide 9: Increased financial investment
Increased financial investment • c. 50% increase in customer service spend over the prior year • c. £15m increase in annual quality assurance and customer service costs • additional investment in WIP of £213m - includes 28% increase in site overhead • 52% increase in customer care resource during 20
Slide 10: Improved customer communication
Improved customer communication • Held back sales releases • 11 key stage “customer journey” contacts pre moving in • Improved customer complaints process • Improved 7 stage post completion communication procedure • Introduction of weekend and evening appointments as standard • Mobile customer care
Slide 11: Increasing consumer rights
Increasing consumer rights • Empowering our customers - UK housebuilding industry first retention introduced in July 1.5% of selling price retained initial take up of 15% clear signs of changing operational behaviours • Main lenders signed up for 2020 • As part of our New Home Demonstration
Slide 12: Good access to modern technology
Good access to modern technology • FibreNest now fully established • Fully aligned with the Government’s digital strategy • Only UK housebuilder offering connectivity from moving in date • Over 5,200 customers now connected • Approval of Code Powers will enable improved site connection times • In 20
Slide 13: Building good quality homes
Building good quality homes • Independent Review to support the customer care improvement plan reported in December 2019 - recommendations in two key areas Purpose & Culture - update to be provided at the AGM Building Quality Homes • Significant activity on a wide range of initiatives throughout
Slide 14: The Persimmon Way
The Persimmon Way • Integral part of the customer care improvement plan • Clearly defined “end to end” build policy for all regions in the Group prior to site commencement construction process checking process external inspection training and education Results Presentation 27 February 2020
Slide 15: Prior to site commencement
Prior to site commencement • Pre-start process fully reviewed to embed the principles of the Golden Thread from the Hackitt Review • Independent review of standard house types and construction details • Review of all product specifications • Assessment of site based workforce to ensure fit for purpo
Slide 16: Construction process
Construction process • Comprehensive and detailed technical drawings providing clear instructions for all build stages • 21 clearly defined stages covering the whole construction process • Detailed inspection of all important build stages by site staff and warranty providers • Key milestones which m
Slide 17: Construction process - build stages
Construction process - build stages Independent Quality Controllers - 21 KPI’s Detailed KPI Stage - Roof Construction 1. FOUNDATIONS • FLAT ROOFS 2. GROUND FLOOR & SUBSTRUCTURE • WALL PLATE 3. BRICKWORK/BLOCKWORK TO 1ST FLOOR JOIST • TRUSS ERECTION 4. TIMBER FRAME • ATTIC TRUSS 5. TIMBER/CONCRETE UP
Slide 18: Checking process
Checking process • 31 independent quality inspectors critically assess compliance with the Persimmon Way • “check the checker” principle providing additional assurance throughout the construction and finishing process • Key stages identified requiring 100% compliance before construction can continue
Slide 19: External inspection
External inspection • External audit of the Persimmon Way • Points based verification process identifying areas of strength and weakness • Exposure to current best practice enabling ongoing evolution and education process • Board report ensures engagement at highest level Results Presentation 27 Feb
Slide 20: Training and education
Training and education • All new site managers and assistants to undertake a Persimmon Way induction • Site staff and sub-contractors educated and supported in the required standards via modular learning and on-site tool box talks • Implementation of a new site staff appraisal system and skills comp
Slide 21: The Persimmon Way
The Persimmon Way Ensures: • A Group policy delivers build quality to industry and regulatory standards • Pre-start processes, house types and workforce are fit for purpose • Completion of all build stages to a consistent standard across the Group • All construction work is checked both internally a
Slide 22: Providing homes for all
Providing homes for all • 31 regional housebuilding offices • Strong national coverage across whole of the UK • Remain focused on offering good choice of quality homes at a range of prices • House prices range from £60,000 to £1,000,000 35% of private sales priced below £200,000 11% of private s
Slide 23: Workforce training
Workforce training • Aim to provide opportunities for all • Career development opportunities 374 colleagues promoted during 2019 • Trained, talented staff supported c. 14,300 training days delivered c.15 % of our workforce across all disciplines are trainees over 450 traditional apprentices
Slide 24: Excellent workforce relationship
Excellent workforce relationship • Reward and value employees introduced real living wage criteria for all staff introduced flexible working hours introduced improved maternity pay introduced mental health awareness courses • A listening culture employee engagement panel introduced with di
Slide 25: Excellent workforce relationship
Excellent workforce relationship • Overwhelming support for Persimmon’s purpose 90% of staff committed to what Persimmon is trying to achieve 94% clear about their own job responsibilities 96% understand how their job contributes towards what Persimmon are trying to achieve * Harris Interactiv
Slide 26: Ensuring community benefits
Ensuring community benefits • Proactive engagement throughout the planning and development process contributed £522m through affordable housing and planning contributions during the year (2018: £474m) • Duty of care to our communities by employing local tradespeople and suppliers supported c. 50
Slide 27: Building sustainable homes & communities
Building sustainable homes & communities • Committed to managing the direct and indirect impacts on the environment of our developments • Our homes - focused use of sustainable building materials introduction of own concrete bricks (100kg less CO2 per tonne of bricks) introduction of combi boile
Slide 28: Building sustainable homes & communities
Building sustainable homes & communities • Our developments full environmental impact assessments prior to commencing on site engage with local authorities and communities on proposed developments support bio diversity provided c. 750 acres* of public open space and gardens during 2019 ove
Slide 29: Managing industry leading land holdings
Managing industry leading land holdings • Disciplined and focused management of land • Each opportunity looked at on its own merits - no need to do a “bad” deal • In 2019 added 10,013 plots across 60 locations all opportunities in line with Group hurdle rates invested £474m (including land cre
Slide 30: Continued strategic land success
Continued strategic land success Strategic • c. 29,400 plots held under option that are proceeding interests acquired during 2019 through planning • c. 14,500 additional plots controlled and allocated in local plans • Total visibility - c. 137,100 plots • c. 15,900 acres of strategic land • c. 490 a
Slide 31: Financial review
Financial review Page • Trading overview 31 • Margins and cost recoveries 32 • Land holdings at 31 December 2019 33 • Off-site manufacturing 34 • Balance sheet 35 • Cash generation 36 • Managing the cycle 37 • Capital return considerations 38 Results Presentation 27 February 2020 30
Slide 32: Investment in quality and service - lower volumes
Investment in quality and service - lower volumes 2019 2018 Change • Strong sales to housing associations Legal completions Private Partnerships 12,463 3,392 13,341 3,108 (7%) + 9% • Average private selling price 18% Total 15,855 16,449 (4%) lower than national average* Average selling price Private
Slide 33: Industry leading gross margins
Industry leading gross margins New housing 2019 2018 2019 2018 Per plot: FY FY Change FY FY Change Revenue £215,709 £215,563 + 0.1% 100.0% 100.0% Land costs (£30,290) (£31,536) (4.0%) (14.0%) (14.6%) + 0.6% Build and other direct costs (£114,106) (£112,295) + 1.6% (52.9%) (52.1%) (0.8%) Gross profit
Slide 34: Margin supported by high quality land holdings
Margin supported by high quality land holdings Number Anticipated Average Cost to • Cost to revenue percentage of Plots owned with detailed planning of plots ave. revenue 46,055 £215,610 plot cost £31,197 revenue 14.5% owned & controlled plots of 13.3% Plots owned proceeding to planning 25,887 £201,
Slide 35: Enhancing our sustainability
Enhancing our sustainability • Focused on self-help action to support improvement in supply chain capacity • Securing key material availability and easing supply chain pressures c. 50m bricks manufactured by Brickworks have been used during the year Tileworks factory commencing deliveries to sit
Slide 36: Solid base for quality and service improvements
Solid base for quality and service improvements 2019 2018 Change • Excellent platform for future growth and Work in progress £1,095m £882m + £213m improvement in build quality and customer Land £1,939m £2,077m (£138m) service Land creditors £435m £548m (£113m) • Selective land replacement leading to
Slide 37: Strong cash generation delivery
Strong cash generation delivery • Free cash generation before capital returns of £544m (2018: £478m) • Working capital investment of £276m during 2019 (2018: £293m) - includes £213m in work in progress (2018: £158m) • Strong net cash* of £409m (2018: £500m) * Being cash less land creditors Results P
Slide 38: Ability to manage the cycle
Ability to manage the cycle • Judging scale and timing of capital deployment through the cycle remains a strategic priority • Ongoing WIP investment strengthening quality and service and putting customers before volume • Carefully managing the working capital needs of the business, ensuring appropri
Slide 39: Surplus capital returned to shareholders
Surplus capital returned to shareholders Existing Plan Original Plan • Reinvestment in the business and Regular payments Top up payments Total payments working capital needs remain a priority Paid 2019 110p 125p 235p 110p • Capital surplus to reinvestment needs Total paid to 2019 680p 275p 955p 390p
Slide 40: Strong platform for 2020
Strong platform for 2020 • Strong forward sales - £2.0bn • Early weeks of 2020 tracking above prior year - private weekly sales rate 1 January Forward Sales Units ASP Revenue of 0.88 homes per site, c. 7% ahead 2020 7,692 £176,347 £1,356.5m 2019 7,953 £175,677 £1,397.2m of last year Movement (3%) +0
Slide 41: Maintaining long term sustainable returns
Maintaining long term sustainable returns • Persimmon has a strong financial platform industry leading land holdings industry leading margins industry leading liquidity industry leading balance sheet • More importantly Persimmon is a company … with a clear purpose embraced by our staff
Slide 42: Appendices
Appendices − Appendix 1 - 2019 performance − Appendix 2 - Half yearly profit & loss − Appendix 3 - Financial record: Income Statement Balance Sheet − Appendix 4 - Half yearly sales profile − Appendix 5 - Trading performance - Business split − Appendix 6 - Trading performance - Divisional split − App
Slide 43: Appendix 1: 2019 performance
Appendix 1: 2019 performance Underlying trading (adjusted for goodw ill im pairm ent) 2019 2018 New housing Total % of revenue Total % of revenue Revenue £3,420.1m- £3,545.8m Cost of sales: - land cost (£480.2m) (14.0%) (£518.8m) (14.6%) - build and other direct costs (£1,809.2m) (52.9%) (£1,847.1m)
Slide 44: Appendix 1: 2019 performance
Appendix 1: 2019 performance Brand Profile - 12 months ended 31 December 2019: Unit Completions Average selling Average price Plots owned and Plot count completions change price change under control change 6,521 (3%) £204,671 + 4% 36,114 (3%) Persimmon North 41% 39% 4,806 (8%) £264,452 + 2% 29,528 (
Slide 45: Appendix 2: Half yearly profit & loss
Appendix 2: Half yearly profit & loss Underlying performance: 2019 2019 2018 2018 H2 H1 H2 H1 New housing Unit completions 8,271 7,584 8,377 8,072 Revenue £1,774.8m £1,645.3m £1,803.8m £1,742.0m Operating profit * £526.6m £510.1m £573.7m £518.2m Operating margin * 29.7% 31.0% 31.8% 29.7% Net finance
Slide 46: Appendix 3: Financial record - Income Statement
Appendix 3: Financial record - Income Statement 2015 2016 2017 2018 2019 Unit completions 14,572 15,171 16,043 16,449 15,855 New housing revenue £2,901.7m £3,136.8m £3,422.3m £3,545.8m £3,420.1m Average Selling Price £199,127 £206,765 £213,321 £215,563 £215,709 Operating profit * £634.5m £778.5m £96
Slide 47: Appendix 3: Financial record - Balance Sheet
Appendix 3: Financial record - Balance Sheet 2015 2016 2017 2018 2019 Shareholders' funds £2,455.8m £2,737.4m £3,201.6m £3,194.5m £3,258.3m Cash £570.4m £913.0m £1,302.7m £1,048.1m £843.9m Net asset value per share 800.7p 887.3p 1036.6p 1006.0p 1021.7p Work in progress £517.9m £617.2m £723.9m £881.8
Slide 48: Appendix 4: Half yearly sales profile
Appendix 4: Half yearly sales profile Appendix 4 Results Presentation 27 February 2020 47
Slide 49: Appendix 5: Trading performance - Business split
Appendix 5: Trading performance - Business split 2019 2018 New housing FY FY Change No. No. Units Persimmon Core 11,327 11,947 (5%) Charles Church 1,136 1,394 (19%) Partnerships 3,392 3,108 + 9% Total 15,855 16,449 (4%) £ £ Average Selling Price Persimmon Core 230,036 224,749 + 2% Charles Church 361
Slide 50: Appendix 5: Trading performance - Business split
Appendix 5: Trading performance - Business split 2019 2018 New housing FY FY Change £m £m Gross Profit Persimmon Core 924.0 926.1 (0%) Charles Church 129.2 182.7 (29%) Partnerships 77.5 71.1 + 9% Total 1,130.7 1,179.9 (4%) Gross Margin Persimmon Core 35.5% 34.5% + 1.0% Charles Church 31.5% 36.9% (5.
Slide 51: Appendix 5: Trading performance - Business split
Appendix 5: Trading performance - Business split 2019 2018 New housing H2 H2 Change No. No. Units Persimmon Core 5,857 6,139 (5%) Charles Church 643 625 + 3% Partnerships 1,771 1,613 + 10% Total 8,271 8,377 (1%) £ £ Average Selling Price Persimmon Core 227,691 226,112 + 1% Charles Church 363,596 354
Slide 52: Appendix 5: Trading performance - Business split
Appendix 5: Trading performance - Business split 2019 2018 New housing H2 H2 Change £m £m Gross Profit Persimmon Core 464.8 491.3 (5%) Charles Church 71.0 86.1 (18%) Partnerships 39.4 37.4 + 5% Total 575.2 614.8 (6%) Gross Margin Persimmon Core 34.9% 35.4% (0.5%) Charles Church 30.4% 38.9% (8.5%) Pa
Slide 53: Appendix 5: Trading performance - Business split
Appendix 5: Trading performance - Business split 2019 2018 New housing H1 H1 Change No. No. Units Persimmon Core 5,470 5,808 (6%) Charles Church 493 769 (36%) Partnerships 1,621 1,495 + 8% Total 7,584 8,072 (6%) £ £ Average Selling Price Persimmon Core 232,547 223,308 + 4% Charles Church 357,917 355
Slide 54: Appendix 5: Trading performance - Business split
Appendix 5: Trading performance - Business split 2019 2018 New housing H1 H1 Change £m £m Gross Profit Persimmon Core 459.2 434.8 + 6% Charles Church 58.2 96.6 (40%) Partnerships 38.1 33.7 + 13% Total 555.5 565.1 (2%) Gross Margin Persimmon Core 36.1% 33.5% + 2.6% Charles Church 33.0% 35.3% (2.3%) P
Slide 55: Appendix 6: Trading performance - Divisional split
Appendix 6: Trading performance - Divisional split 31 December 2019 New housing Units Average Sale Annual average Plots owned and No. Price (£) price change under control Yorkshire 1,038 187,768 + 6% 5,411 Scotland 1,552 191,306 + 5% 9,388 North West 1,200 157,318 (5%) 4,361 North East 1,199 175,022
Slide 56: Appendix 6: Trading performance - Divisional split
Appendix 6: Trading performance - Divisional split 31 December 2019 New housing Units Average Sale Annual average Plots owned and No. Price (£) price change under control Shires 2,645 245,611 (3%) 14,320 Western 1,931 211,959 (2%) 12,623 Southern 1,192 254,324 - 6,377 Wales 947 169,370 - 5,468 Persi
Slide 57: Appendix 6: Trading performance - Divisional split
Appendix 6: Trading performance - Divisional split 31 December 2019 New housing Units Average Sale Plots owned and No. Price (£) under control Charles Church 1,413 319,632 11,819 31 December 2018 1,773 309,536 12,691 Change (20%) + 3% (7%) Appendix 6 - 3 of 3 Results Presentation 27 February 2020 56
Slide 58: Appendix 7: Analysis of unit sales
Appendix 7: Analysis of unit sales * Persimmon data represents completions in the period ** NHBC data represents registrations in the period NHBC Source: NHBC Housing Market Report (January 2020) Appendix 7 - 1 of 3 Results Presentation 27 February 2020 57
Slide 59: Appendix 7: Analysis of unit sales - Product mix
Appendix 7: Analysis of unit sales - Product mix Persimmon data represents completions in the period and NHBC data represents registrations in the period NHBC Source: NHBC Housing Market Report (January 2020) Appendix 7 - 2 of 3 Results Presentation 27 February 2020 58
Slide 60: Appendix 7: Analysis of unit sales - Price range
Appendix 7: Analysis of unit sales - Price range Appendix 7 - 3 of 3 Results Presentation 27 February 2020 59
Slide 61: Appendix 8: Land holdings at December 2019
Appendix 8: Land holdings at 31 December 2019 Number Number Number Anticipated Average Cost to Cost to of plots of plots of plots ave. revenue plot cost revenue revenue Dec 2018 Dec 2019 Change Dec 2019 Dec 2018 Plots owned with detailed planning 47,305 46,055 (1,250) £215,610 £31,197 14.5% 14.2% Pl
Slide 62: Appendix 9: Balance Sheet
Appendix 9: Balance Sheet 2019 2018 Change Work in progress £1,094.6m £881.8m + £212.8m Land £1,938.6m £2,077.2m (£138.6m) Land creditors £435.2m £548.0m (£112.8m) Part exchange stock £71.8m £56.2m + £15.6m Shared equity debt £68.6m £86.9m (£18.3m) Cash £843.9m £1,048.1m (£204.2m) Shareholders' fund
Slide 63: Appendix 10: Cash flows
Appendix 10: Cash flows H1 19 H2 19 FY 19 FY 18 Change £m £m £m £m Operating cash (before working capital movements) 516.2 537.6 1,053.8 1,111.5 -5% Investment in working capital: Decrease / (Increase) in gross land 69.0 79.2 148.2 (58.5) Decrease in land creditors (66.7) (51.5) (118.2) (28.6) Net l
Slide 64: Appendix 11: Mortgage approvals for house purchase
Appendix 11: Mortgage approvals for house purchase 150 Average monthly approvals since beginning of 1993: 80,300 Approvals - Volume ('000) 100 Dec 2013: 72,800 Dec 2015: Dec 2017: Dec 2019: 71,000 62,000 67,200 Dec 2009: 59,000 Dec 2011: 52,300 Dec 2016: Dec 2018: Dec 2014: 64,300 50 60,100 68,400 D
Slide 65: Appendix 12: New housing starts
Appendix 12: New housing starts Source: NHBC Housing Market Report (January 2020) Appendix 12 Results Presentation 27 February 2020 64
Slide 66: Disclaimer Important Notice
Disclaimer Important Notice Certain statements in this results presentation are forward looking statements. Forward looking statements involve evaluating a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those stat