Persimmon Plc · LSE:PSN
Persimmon — H1 2019 Earnings Presentation
60 slides from Persimmon's earnings presentation, Aug 20, 2019
Slide 1: Final Results Presentation for the Year Ended 31 December 2018
FRONT COVER FINAL RESULTS PRESENTATION FOR THE YEAR ENDED 31 DECEMBER 2018 Results Presentation 20 August 2019
Slide 2: Results reflect the Group's positioning in a resilient UK housing market
“Results reflect the Group’s positioning in a resilient UK housing market” Results Presentation 20 August 2019
Slide 3: Agenda
Agenda Page Presented by • Highlights and Strategy 3 Dave Jenkinson • Delivery of improvement plan 8 Martyn Clark • Operational review 16 Dave Jenkinson • Financial review 26 Mike Killoran • Current trading and Outlook 39 Dave Jenkinson • Summary 41 Dave Jenkinson • Appendices 42 Results Presentatio
Slide 4: A clear purpose - long term sustainable returns
A clear purpose - long term sustainable returns • To build good quality homes at a range of price points across the UK to meet the countries housing needs • To create and protect superior long term value through the housing cycle for: shareholders customers workforce wider stakeholders Results Prese
Slide 5: Well defined strategic focus
Well defined strategic focus • Improve the quality of customer service • Committed to meeting “all” housing needs • Well trained, skilled and motivated workforce • Providing community benefits • Managing and maintaining our industry leading land holdings • Differentiation through off-site manufactur
Slide 6: Strong first half trading performance
Strong first half trading performance H1 2019 H1 2018 Change Unit completions 7,584 8,072 (6%) Average selling price £216,942 £215,813 + 1% New housing revenue £1,645.3m £1,742.0m (6%) Operating profits * £510.1m £518.2m (2%) Operating margin - New housing * 31.0% 29.7% + 1.3% Profit before tax £509
Slide 7: Strong first half trading performance
Strong first half trading performance • Trading performance remains strong new housing operating margin 31.0%* profit before tax of £509.3m return on average capital employed at 40.5% • Customers before volume 6% reduction in volumes shelves being “restocked” £142m additional WIP investment 19% more
Slide 8: Well defined customer care improvement plan
Well defined customer care improvement plan • Customer satisfaction rating, measured by the HBF, continues to improve • Customer service not just about quality • Key areas of focus: increased financial investment robust quality assurance process increasing consumer rights improved customer communica
Slide 9: Significant investment in customer service
Significant investment in customer service • Significant financial investment c. 40% increase in customer service spend over the prior year c. £15m increase in annual quality and service costs additional investment in work in progress of £142m • Increasing investment in resources 179% increase since
Slide 10: Robust quality assurance process
Robust quality assurance process • 7 stage pre-completion inspection process firmly established • Digitalisation of inspection process - to be launched Q3 2019 • Increased investment in WIP / reduction in volume to enable process to be followed • Specification enhancement fully implemented • Process
Slide 11: 7 stage pre-completion inspection process
7 stage pre-completion inspection process Building control sign off 1. Site Manager’s initial check 2. Contract Manager sign off 3. Blue/Green card quality check 4. Directors visit 5. New Home Demonstration 6. Independent Quality Inspection 7. Key Release Independent Construction Quality Inspections
Slide 12: Empowering our customers
Empowering our customers • Retention introduced for all customers reserving from 1st July • Retention equivalent to c. 1.5% of selling price • Retention cover increased to include faults identified during first week of occupation • Retention monies held until all items are rectified • We are taking
Slide 13: Improved customer communication
Improved customer communication • 11 key stages during “the customer journey” • Held back sales release to improve accuracy of moving in dates on some plots and new sites in areas of high demand • Improved availability to customers of new homes at more advanced stage of construction • Improved compa
Slide 14: High levels of service post handover
High levels of service post handover • Introduction of retention • 7 stage post completion procedure firmly established • Introduction of weekend and evening appointments as standard • Increased investment in customer care operations - improving resolution times • Mobile customer care app now introd
Slide 15: 7 stage post completion inspection process
7 stage post completion inspection process Legal Completion 0 +3 +7 +21 +28 +42 +49 +56 DAYS 7. CC Manager to confirm 1 month items complete or refer to Regional Chairman 6. CC Manager to confirm 1month items complete or refer to MD to arrange Director’s call 5. CC Manager confirms 1month items comp
Slide 16: Leader in access to modern technology
Leader in access to modern technology • FibreNest now fully established • Only UK house builder offering ultrafast full fibre to the home on all new sites • c. 5,000 customers by the end of the year • Approval of Code Powers will enable improved connection times for customer occupations • Customer p
Slide 17: Ensuring homes are built safely
Ensuring homes are built safely • Processes reviewed to embed the principles of “The Golden Thread” from the Hackitt review • Site pre-start process amended to ensure home safety is considered from start to finish of the home buying process • We established the principle risk is the policing of the
Slide 18: Future investment in quality and safety
Future investment in quality and safety • Investing in 31 independent quality and safety inspectors • Considerable investment of over £2m • Provides an extra layer of “checking the checker” to ensure specific quality and safety standards are being complied with • Intended to eliminate situations lik
Slide 19: Meeting housing needs throughout the UK
Meeting housing needs throughout the UK • Group’s regional structure strengthened 7 new offices opened in last four years South Yorkshire opened in January 2019 • Excellent national coverage across the UK • Remain focused on offering good choice of quality homes at a range of prices 35% of private s
Slide 20: Clear commitment to meeting all housing needs
Clear commitment to meeting all housing needs • 52% of new homes sold to first time buyers • Average price of sales to owner occupiers c. 17% lower than national average • House prices range from £60,000 to £1,000,000 • 11% of private sales priced at less than £150,000 • Strong affordable housing vo
Slide 21: Firm pricing throughout the country
Firm pricing throughout the country Brand Profile - 6 months ended 30 June 2019: Unit Completions Average selling Average price Plots owned and Plot count completions change price change under control change Persimmon North 3,133 (3%) £203,710 + 4% 35,762 (8%) 41% 38% Persimmon South 2,337 (10%) £27
Slide 22: Company employees - opportunities for all
Company employees - opportunities for all • A company to fulfil your potential • Career development opportunities over 570 colleagues promoted in last 2 years further 200 colleagues promoted during H1 2019 • Trained, talented staff c. 11,000 training days delivered over 600 trainees across all disci
Slide 23: Strong engagement with our communities
Strong engagement with our communities • We have a duty of care to the communities and our stakeholders supporting over 50,000* construction and supply chain jobs • Supporting communities through improvements to local infrastructure, local amenities and public open spaces £255m contributed through a
Slide 24: Focused management of land holdings
Focused management of land holdings • Total plots owned and under control at 95,086 (Dec 2018: 99,088) represents c. 6.0 years forward supply (2018: c. 6.1 years) selective land replacement - £239m of land payments (including land creditors) in the period (2018: £343m) land creditors reduced to £484
Slide 25: Strategic land success
Strategic land success Strategic • 1,962 plots successfully converted in the period over interests acquired during H1 2019 10 locations including: Strategic sites pulled through Fleckney, North Midlands - 290 plots during H1 2019 Barnsley, South Yorkshire - 150 plots • Conversion represents c. 55% o
Slide 26: Differentiation through off-site manufacturing
Differentiation through off-site manufacturing • Commitment to self help through innovation • Brickworks - c. 25m bricks delivered across the Group during the period • Tileworks factory to be commissioned in the second half of the year, commencing deliveries to development sites in Q4 2019 • Site sk
Slide 27: Financial review
Financial review Page • Trading overview 27 - 28 • Operating profit bridge 29 • Cost recoveries 30 • Land holdings at 30 June 2019 31 - 32 • Balance sheet 33 • Cash generation 34 • Underlying operating profit and cash flow 35 • Cash generation through cycle 36 • Capital return considerations 37 - 38
Slide 28: Strong trading performance
Strong trading performance Underlying trading (adjusted for goodw ill im pairm ent) H1 2019 H1 2018 New housing Total % of revenue Total % of revenue Revenue £1,645.3m- £1,742.0m Cost of sales: - land cost (£229.8m) (13.9%) (£262.1m) (15.0%) - build and other direct costs (£860.0m) (52.3%) (£914.8m)
Slide 29: Sales delivery supporting customer initiatives
Sales delivery supporting customer initiatives H1 2019 H1 2018 Change Legal completions Private 5,963 6,577 (9%) Partnerships 1,621 1,495 + 8% Total 7,584 8,072 (6%) Average selling price Private £242,912 £238,773 + 2% Partnerships £121,413 £114,807 + 6% Group £216,942 £215,813 + 1% New housing reve
Slide 30: High quality land holdings supporting profitability
High quality land holdings supporting profitability Stated before goodwill impairment Results Presentation 20 August 2019 29
Slide 31: Gross margin resilient
Gross margin resilient • c. 40% increase in customer service spend during first half of 2019 - ongoing commitment to increase customer satisfaction levels • 30bps reduction in new housing gross margin from H2 2018 • 140bps increase in new housing gross margin to 33.8% from H1 2018 New housing 2019 2
Slide 32: Maintaining industry leading land holdings
Maintaining industry leading land holdings • Cost to revenue percentage of owned & controlled plots of 13.5% (Dec 18: 13.6%) Number Number Number Anticipated Average Cost to Cost to of plots of plots of plots ave. revenue plot cost revenue revenue Dec 2018 Jun 2019 Change Jun 2019 Dec 2018 Plots own
Slide 33: Maintaining industry leading land holdings
Maintaining industry leading land holdings • Proforma margin distribution based on land holding mix 70.0% 60.0% 40% gm* 33% gm* 50.0% Gross margin % 40.0% 25% gm* 30.0% 35% of plots 20.0% 17% of plots 48% of plots 10.0% 0.0% Owned plots - 75,444 * Estimated weighted average gross margin - assuming r
Slide 34: Strong balance sheet supports future returns
Strong balance sheet supports future returns • Platform for future growth total land investment of £2.01bn (Dec 2018: £2.08bn) selective land replacement leading to reduction in land creditors to £484m (Dec 2018: £548m) • Continued work in progress investment - £1,024m invested (Dec 2018: £882m) 19%
Slide 35: WIP investment supporting quality and service
WIP investment supporting quality and service Free cash generation (£m) * FY H2 H1 2019 + 241.9 2018 + 686.2 + 374.1 + 312.1 2017 + 806.3 + 519.3 + 287.0 2016 + 684.3 + 450.2 + 234.1 2015 + 484.6 + 291.5 + 193.1 2014 + 388.7 2013 + 235.5 2012 + 178.0 2011 + 119.4 2010 + 225.6 • Net free cash generat
Slide 36: Strong liquidity
Strong liquidity • Net cash inflow from operations remains healthy Results Presentation 20 August 2019 35
Slide 37: Cash generation remains strong through cycle
Cash generation remains strong through cycle • Selective land replacement supports efficient capital structure • Quality and service strengthened through WIP investment • Minimising financial risks and retaining flexibility to reinvest through the cycle is a key priority • Business scale changes whi
Slide 38: Capital return considerations
Capital return considerations • Liquidity for annual working capital needs and land replacement remains a priority • Capital returns include two elements “regular” return of surplus capital i.e. 110p per share - long term commitment “top up” return of excess capital i.e. 125p per share in 2020 • Wel
Slide 39: Surplus capital returned to shareholders
Surplus capital returned to shareholders • Paid in 2019 125p per share, £397.7m, paid 29 March 110p per share, £350.1m, paid 2 July Paid Paid Paid to 2017 2018 2019 2020 2021 TOTAL Original Plan 280p - 110p 115p 115p 620p Existing Plan Regular payments 460p 110p 110p 110p 110p 900p Top up payments 2
Slide 40: Current trading - strong forward sales position
Current trading - strong forward sales position Half Year Forward Sales Units ASP Revenue June 2019 9,128 £177,684 £1,621.9m June 2018 9,340 £179,879 £1,680.1m Movement (2%) (1%) (3%) Current Forward Sales (inc. 7 w eeks post half year) Units ASP Revenue August 2019 11,006 £186,102 £2,048.2m August
Slide 41: Solid current trading and outlook
Solid current trading and outlook • Trading encouraging summer weeks trading in line with last year year to date private weekly sales rate of 0.72 homes per site (2018: 0.76) cancellation rates remain at historically lower levels • Site activity indications of labour and material availability improv
Slide 42: Persimmon - a changing business
Persimmon - a changing business • The company is very aware of its obligations to wider stakeholders • In particular, customer satisfaction is my personal no.1 priority • However, we should not forget the solid foundations Persimmon is built upon strong market coverage industry leading margins indus
Slide 43: Appendices
Appendices − Appendix 1 - Financial record: Income Statement Balance Sheet − Appendix 2 - Half yearly profit & loss − Appendix 3 - Half yearly sales profile − Appendix 4 - Trading performance - Business split − Appendix 5 - Trading performance - Divisional split − Appendix 6 - Analysis of unit sales
Slide 44: Appendix 1: Financial record - Income Statement
Appendix 1: Financial record - Income Statement 2017 2017 2018 2018 2019 HY FY HY FY HY Unit completions 7,794 16,043 8,072 16,449 7,584 New housing revenue £1,662.2m £3,422.3m £1,742.0m £3,545.8m £1,645.3m Average Selling Price £213,262 £213,321 £215,813 £215,563 £216,942 Operating profit * £459.4m
Slide 45: Appendix 1: Financial record - Balance Sheet
Appendix 1: Financial record - Balance Sheet 2017 2017 2018 2018 2019 HY FY HY FY HY Shareholders' funds £2,711.0m £3,201.6m £2,836.3m £3,194.5m £2,837.5m Cash £1,120.4m £1,302.7m £1,154.6m £1,048.1m £832.8m Net asset value per share 878.4p 1036.6p 906.3p 1006.0p 890.8p Work in progress £676.1m £723
Slide 46: Appendix 2: Half yearly profit & loss
Appendix 2: Half yearly profit & loss Underlying performance: 2019 2018 2018 H1 H1 Change FY New housing Unit completions 7,584 8,072 (488) 16,449 Revenue £1,645.3m £1,742.0m (£96.7m) £3,545.8m Operating profit * £510.1m £518.2m (£8.1m) £1,091.9m Operating margin * 31.0% 29.7% + 1.3% 30.8% Net finan
Slide 47: Appendix 3: Half yearly sales profile
Appendix 3: Half yearly sales profile Appendix 3 Results Presentation 20 August 2019 46
Slide 48: Appendix 4: Trading performance - Business split
Appendix 4: 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 49: Appendix 4: Trading performance - Business split
Appendix 4: 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 50: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 30 June 2019 New housing Units Average Sale Annual average Plots owned and No. Price (£) price change under control Yorkshire 453 189,495 + 10% 6,107 Scotland 720 186,319 + 4% 8,249 North West 589 155,336 (12%) 4,673 North East 600 180,935 + 2% 10,3
Slide 51: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 30 June 2019 New housing Units Average Sale Annual average Plots owned and No. Price (£) price change under control Shires 1,339 250,114 - 14,913 Western 950 211,080 (2%) 12,677 Southern 637 252,391 (5%) 6,827 Wales 389 176,177 + 6% 6,002 Persimmon
Slide 52: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 30 June 2019 New housing Units Average Sale Plots owned and No. Price (£) under control Charles Church 630 311,549 11,956 30 June 2018 987 307,313 12,168 Change (36%) + 1% (2%) Appendix 5 - 3 of 3 Results Presentation 20 August 2019 51
Slide 53: Appendix 6: Analysis of unit sales
Appendix 6: Analysis of unit sales * Persimmon data represents completions in the period ** NHBC data represents registrations in the period NHBC Source: NHBC Housing Market Report (July 2019) Appendix 6 - 1 of 3 Results Presentation 20 August 2019 52
Slide 54: Appendix 6: Analysis of unit sales - Product mix
Appendix 6: Analysis of unit sales - Product mix Appendix 6 - 2 of 3 Results Presentation 20 August 2019 53
Slide 55: Appendix 6: Analysis of unit sales - Price range
Appendix 6: Analysis of unit sales - Price range Appendix 6 - 3 of 3 Results Presentation 20 August 2019 54
Slide 56: Appendix 7: Balance Sheet
Appendix 7: Balance Sheet 2019 2018 2018 H1 H1 Change FY Work in progress £1,024.0m £749.6m + £274.4m £881.8m Land £2,013.0m £2,132.3m (£119.3m) £2,077.2m Land creditors £484.0m £611.4m (£127.4m) £548.0m Part exchange stock £61.8m £45.8m + £16.0m £56.2m Shared equity debt £73.7m £104.0m (£30.3m) £86
Slide 57: Appendix 8: Cash flows
Appendix 8: Cash flows H1 19 H1 18 Change £m £m Operating cash (before working capital movements) 516.2 529.3 -2% Investment in working capital: Decrease / (Increase) in gross land 69.0 (117.8) (Decrease) / Increase in land creditors (66.7) 39.0 Net land movement 2.3 (78.8) Increase in WIP, part exc
Slide 58: Appendix 9: Mortgage approvals for house purchase
Appendix 9: Mortgage approvals for house purchase 150 Average monthly approvals since beginning of 1993: 80,530 Approvals - Volume ('000) 100 Dec 2015: Dec 2013: 71,000 Dec 2016: Jun 2019: 72,800 68,400 66,400 Dec 2009: 59,000 Dec 2011: 52,300 Dec 2017: Dec 2018: Dec 2014: 61,800 64,300 50 60,100 De
Slide 59: Appendix 10: New housing starts
Appendix 10: New housing starts Source: NHBC Housing Market Report (July 2019) Appendix 10 Results Presentation 20 August 2019 58
Slide 60: 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