Persimmon Plc · LSE:PSN
Persimmon — FY2016 Earnings Presentation
56 slides from Persimmon's earnings presentation, Feb 27, 2017
Slide 1: Results Presentation 27 February 2017
Results Presentation 27 February 2017 55
Slide 2: Agenda
Agenda Results Presentation 27 February 2017 Page Presented by • Chairman’s overview 1 Nicholas Wrigley • Review of operations 3 Jeff Fairburn • Outlook 13 Jeff Fairburn • Financial review 15 Mike Killoran • Summary 26 Nicholas Wrigley Appendices 1 to 11 27 - 53 Results Presentation 27 February 2017
Slide 3: Chairman's overview
Chairman’s overview • Performance highlights 2016 2015 Change Turnover £3,136.8m £2,901.7m + 8% Operating profits * £778.5m £634.5m + 23% Operating margin * 24.8% 21.9% + 2.9% Pre-tax profits * £782.8m £637.8m + 23% Earnings per share * 205.6p 173.0p + 19% Cash £913.0m £570.4m n/a Return on Average
Slide 4: Chairman's overview
Chairman’s overview • Execution of strategic plan − 599 additional new homes delivered, 15,171 legal completions across the UK − earnings quality continues to improve - operating margin up 290bps to 24.8% − forward sales revenue increased 9% to £1.89bn • £681m of free cash generated pre capital retu
Slide 5: Review of operations
Review of operations Page • Strategy 4 • Group overview 5 • Consented land 8 • Strategic land 9 • Current trading 10 • Return of surplus capital 12 • Outlook 13 Results Presentation 27 February 2017 3
Slide 6: Strategy to maximise long term shareholder value
Strategy to maximise long term shareholder value Growth to Optimise Long term optimal Disciplined Surplus cash capital scale in land capital efficiency of returns to regional investment generated operations shareholders markets Results Presentation 27 February 2017 4
Slide 7: Review of operations - Group overview
Review of operations - Group overview • Strong UK outlet network maintained - 255 new outlets opened • Group’s infrastructure strengthened – North Scotland and Cornwall opened in 2016, and Nottingham in January 2017 – Brickworks to support house building operations • Affordable family housing produc
Slide 8: Review of operations - Group overview
Review of operations - Group overview • Further improvement in average selling price - 3.8% increase to £206,765 • 23% growth in underlying operating profits to £778.5m • Pre working capital cash inflows increased 22% to £800.5m • 23% year on year improvement in return on average capital employed to
Slide 9: Review of operations - Group overview
Review of operations - Group overview Product Profile - 12 months ended 31 December 2016: Unit Completions Average selling Average price Plots owned and Plot count completions change price change under control change 6,231 + 10% £176,890 + 4% 37,577 + 11% Persimmon North 41% 39% 4,675 + 7% £243,858
Slide 10: Review of operations - Consented land
Review of operations - Consented land • Creating value by identifying compelling land acquisition opportunities − reduction in plot cost to revenue ratio to 14.7% for owned plots supports further margin growth (Dec 2015: 16.3%) − ex-strategic land content within consented land bank at c. 48% • Total
Slide 11: Review of operations - Strategic land
Review of operations - Strategic land Strategic interests acquired during • Conversion of strategic land supports superior returns 2016 • 2016 pull through represents 74% of total plot Strategic sites pulled through during 2016 consumption • 11,268 plots successfully converted in the period over 41
Slide 12: Review of operations - Current trading
Review of operations - Current trading • Consumer activity encouraging: − visitor numbers c. 7% stronger over first eight weeks of 2016 − cancellation rates remain at low levels • Site activity: − working to increase site productivity despite labour constraints − use of Space4 product supporting hig
Slide 13: Review of operations - Current trading
Review of operations - Current trading • Good position to deliver further growth 1 January Forward Sales Units ASP Revenue 2017 7,327 £168,429 £1,234.1m 2016 6,967 £158,336 £1,103.1m Movement +5% +6% +12% Current Forward Sales (inc. first 8 w eeks sales) Units ASP Revenue 2017 10,525 £179,762 £1,892
Slide 14: Review of operations - Return of surplus capital
Review of operations - Return of surplus capital • Fourth payment of 110p per share, £338m, paid 1 April 2016 • Additional fifth payment of 25p per share to be paid 31 March 2017 • Scheduled payment of 110p per share to be paid 3 July 2017 Paid Paid Paid Paid 2013 2014 2015 2016 2017 2018 2019 2020
Slide 15: Outlook - Overall market
Outlook - Overall market • EU referendum − uncertain economic outlook − UK economy remained resilient • Mortgage lenders keen to lend but remain disciplined • Government confirmation that Help to Buy will continue to 2021 • New “Starter Home” initiative to support more first time buyers • Key challe
Slide 16: Outlook - Operational priorities
Outlook - Operational priorities • Maintain and enhance strength of sales outlet network • Drive increases in build • Continue roll out of Group core house types • Increased numbers of skilled trade trainees - apprenticeships, Combat to Construction, Upskill to Construction • Disciplined investment
Slide 17: Financial review
Financial review Page • Trading overview 16 • Operating profit bridge 17 • Cost recoveries 18 • Operating efficiency 19 • Land holdings at 31 December 2016 20 • Balance sheet 21 • Cash generation 22 • Underlying operating profit and cash flow 23 • Cash generation through cycle 24 • Capital return co
Slide 18: Financial review - Trading overview
Financial review - Trading overview • Strong trading and capital discipline delivering increased profits Underlying trading (adjusted for goodw ill im pairm ent) 2016 2015 Total % of revenue Total % of revenue Revenue £3,136.8m- £2,901.7m Cost of sales: - land cost (£514.9m) (16.4%) (£522.8m) (18.0%
Slide 19: Financial review - Operating profit bridge
Financial review - Operating profit bridge • New outlet openings and top line growth key to profit increase Results Presentation 27 February 2017 17
Slide 20: Financial review - Cost recoveries
Financial review - Cost recoveries • Gross margin improvement to 27.8%, up 240bps • 160bps margin gain due to 5% reduction in unit land recoveries • Cost control and build efficiencies delivered 80bps margin contribution • 13.5% increase in gross profit per unit sold to £57,440 Per plot: 2016 2015 2
Slide 21: Financial review - Operating efficiency
Financial review - Operating efficiency • Underlying operating margin increased 290bps to 24.8% • 17.8% increase in operating profit per unit to £51,316 2016 2016 2016 2015 2015 2015 FY H2 H1 FY H2 H1 Gross margin 27.8% 28.6% 26.9% 25.4% 26.6% 24.0% Operating expenses * (3.2%) (2.9%) (3.5%) (3.9%) (
Slide 22: Financial review - Land holdings at 31 December 2016
Financial review - Land holdings at 31 December 2016 • Cost to revenue percentage of owned & controlled plots of 14.9% (Dec 15: 16.3%) Number Number Number Anticipated Average Cost to Cost to of plots of plots of plots ave. revenue plot cost revenue revenue Dec 2015 Dec 2016 Change Dec 2016 Dec 2015
Slide 23: Financial review - Balance sheet
Financial review - Balance sheet • Total shareholder equity value per share (pre capital return) of 202 pence generated during the year, 12% up on 2015 (181 pence per share) • Investing in land to support future growth − £483m land payments (including land creditors) in period - total land investmen
Slide 24: Financial review - Cash generation
Financial review - Cash generation Pre dividend/capital return free cash generation (£m) * Pre dividend/capital return free cash generation (after working capital) + 750 FY H2 H1 + 700 2016 + 684.3 + 450.2 + 234.1 + 650 + 600 2015 + 484.6 + 291.5 + 193.1 + 550 + 500 2014 + 388.7 + 263.9 + 124.8 + 45
Slide 25: Financial review - Underlying operating profit and cash flow
Financial review - Underlying operating profit and cash flow • Group strategy prioritises cash efficiency and capital discipline through the cycle 1,000 900 45.2 800 700 800.5 600 500 653.6 £m 400 498.5 300 9.0 200 345.5 100 231.4 - (63.6) (1.8) (27.7) (100) 2012 2013 2014 2015 2016 Cash from operat
Slide 26: Financial review - Cash generation through cycle
Financial review - Cash generation through cycle • Strong cash generation 700 HALF YEARLY AVERAGE CASH GENERATION PRE LAND EXPENDITURE: £455M 600 through the housing cycle is at 500 the heart of our strategy 400 • Minimising financial risk and £m 300 £623m £628m £549m £539m £494m 200 £308m £327m £41
Slide 27: Financial review - Capital return considerations
Financial review - Capital return considerations • The Group will retain flexibility to adapt to changes in market conditions • Focus on return on average capital employed and capital efficiency • Scale of capital deployment across the cycle critically important • Increased conversion of strategic l
Slide 28: Summary
Summary • Strong performance through 2016 - excellent cash generation • Earnings quality continues to improve • Controlled growth to optimal scale in regional markets yields operating benefits • Committed to increasing output to meet market demand • The quality of the Group’s land holdings continue
Slide 29: 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 30: Appendix 1: Financial record - Income Statement
Appendix 1: Financial record - Income Statement 2012 2013 2014 2015 2016 Unit completions 9,903 11,528 13,509 14,572 15,171 Turnover £1,721.4m £2,085.9m £2,573.9m £2,901.7m £3,136.8m Average Selling Price £173,823 £180,941 £190,533 £199,127 £206,765 Operating profit * £222.5m £333.1m £473.3m £634.5m
Slide 31: Appendix 1: Financial record - Balance Sheet
Appendix 1: Financial record - Balance Sheet 2012 2013 2014 2015 2016 Shareholders' funds £1,993.7m £2,045.5m £2,192.6m £2,455.8m £2,737.4m Cash £201.5m £204.3m £378.4m £570.4m £913.0m Net asset value per share 658.2p 671.4p 715.4p 800.7p 887.3p Work in progress £443.1m £463.5m £464.7m £517.9m £617.
Slide 32: Appendix 2: Half yearly profit & loss
Appendix 2: Half yearly profit & loss Underlying performance: 2016 2016 2015 2015 H2 H1 H2 H1 Unit completions 7,933 7,238 7,717 6,855 Turnover £1,647.5m £1,489.3m £1,569.2m £1,332.5m Operating profit * £424.0m £354.5m £361.2m £273.3m Operating margin * 25.7% 23.8% 23.0% 20.5% Interest & finance cos
Slide 33: Appendix 3: Half yearly sales profile
Appendix 3: Half yearly sales profile Half Year Sales Profile 4,000 3,500 3,000 Completions (No.) 2,500 2,000 1,500 1,000 500 - H1 15 H2 15 H1 16 H2 16 H1 15 H2 15 H1 16 H2 16 H1 15 H2 15 H1 16 H2 16 North Division South Division Partnerships Appendix 3 Results Presentation 27 February 2017 31
Slide 34: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2016 2015 FY FY Change No. No. Units Persimmon Core 10,906 10,043 + 9% Charles Church 2,047 2,382 (14%) Partnerships 2,218 2,147 + 3% Total 15,171 14,572 + 4% £ £ Average Selling Price Persimmon Core 205,597 199,661 + 3% Charles Church 321,209 283,690
Slide 35: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2016 2015 FY FY Change £m £m Gross Profit Persimmon Core 652.3 536.8 + 22% Charles Church 175.8 161.0 + 9% Partnerships 43.3 39.5 + 10% Total 871.4 737.3 + 18% Gross Margin Persimmon Core 29.1% 26.8% + 2.3% Charles Church 26.7% 23.8% + 2.9% Partnershi
Slide 36: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2016 2015 H2 H2 Change No. No. Units Persimmon Core 5,763 5,485 + 5% Charles Church 1,074 1,185 (9%) Partnerships 1,096 1,047 + 5% Total 7,933 7,717 + 3% £ £ Average Selling Price Persimmon Core 204,939 203,194 + 1% Charles Church 324,273 293,430 + 11
Slide 37: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2016 2015 H2 H2 Change £m £m Gross Profit Persimmon Core 347.2 313.8 + 11% Charles Church 101.9 84.6 + 20% Partnerships 21.5 18.8 + 14% Total 470.6 417.2 + 13% Gross Margin Persimmon Core 29.4% 28.2% + 1.2% Charles Church 29.3% 24.3% + 5.0% Partnershi
Slide 38: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2016 2015 H1 H1 Change No. No. Units Persimmon Core 5,143 4,558 + 13% Charles Church 973 1,197 (19%) Partnerships 1,122 1,100 + 2% Total 7,238 6,855 + 6% £ £ Average Selling Price Persimmon Core 206,334 195,409 + 6% Charles Church 317,827 274,049 + 16
Slide 39: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2016 2015 H1 H1 Change £m £m Gross Profit Persimmon Core 305.1 223.0 + 37% Charles Church 73.9 76.4 (3%) Partnerships 21.8 20.7 + 5% Total 400.8 320.1 + 25% Gross Margin Persimmon Core 28.8% 25.0% + 3.8% Charles Church 23.9% 23.3% + 0.6% Partnerships
Slide 40: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 31 December 2016 Units Average Sale Annual average Plots owned and No. Price (£) price change under control Yorkshire 966 163,476 + 9% 7,342 Scotland 1,675 172,875 + 3% 5,837 North West 927 161,639 + 7% 6,522 North East 1,272 160,892 + 3% 9,460 Midl
Slide 41: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 31 December 2016 Units Average Sale Annual average Plots owned and No. Price (£) price change under control Shires 2,024 241,625 + 2% 13,767 Western 1,562 203,172 + 3% 11,300 Southern 1,220 244,795 + 3% 8,125 Wales 1,009 161,153 + 2% 5,994 Persimmon
Slide 42: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 31 December 2016 Units Average Sale Plots owned and No. Price (£) under control Charles Church 2,399 293,437 12,813 31 December 2015 2,759 260,816 13,070 Change (13%) + 13% (2%) Appendix 5 - 3 of 3 Results Presentation 27 February 2017 40
Slide 43: Appendix 6: Analysis of unit sales
Appendix 6: Analysis of unit sales By Price Band (Private) By House Type (All) 30% 28% Detached Over £250,000 36% 29% 25% Semi-detached 21% 27% £200,000 to £249,999 23% 17% Townhouse 27% ' 30% £150,000 to £199,999 29% 26% Apartment 9% 21% Less than £150,000 2% Bungalow 19% 1% 0% 10% 20% 30% 40% 50%
Slide 44: Appendix 6: Analysis of unit sales - Product mix
Appendix 6: Analysis of unit sales - Product mix 0% 1% 0% 1% 0% 1% 1% 1% 1% 1% 2% 100% 11% 8% 7% 13% 10% 12% 10% 16% 14% 14% 90% 25% 80% 27% 28% 24% 26% 29% 32% 29% 70% 31% 30% 29% 17% 60% 50% 29% 26% 27% 28% 26% 25% 25% 24% 24% 26% 24% 40% 30% 20% 37% 35% 36% 36% 32% 32% 33% 34% 29% 31% 30% 10% 0%
Slide 45: Appendix 6: Analysis of unit sales - Price range
Appendix 6: Analysis of unit sales - Price range 100% 14% 16% 17% 90% 20% 19% 23% 24% 29% 29% 31% 80% 20% 21% 22% 70% 23% 25% 21% 20% 60% 21% 22% 23% 50% 35% 34% 31% 30% 40% 29% 33% 32% 29% 29% 29% 30% 20% 31% 30% 29% 28% 26% 23% 24% 10% 19% 20% 19% 0% 6mths to June 6mths to 6mths to June 6mths to 6
Slide 46: Appendix 7: Balance Sheet
Appendix 7: Balance Sheet 2016 2015 Change Work in progress £617.2m £517.9m + £99.3m Land £1,946.4m £2,046.7m (£100.3m) Land creditors £554.9m £573.3m (£18.4m) Part exchange stock £37.1m £38.3m (£1.2m) Shared equity debt £148.7m £177.9m (£29.2m) Cash £913.0m £570.4m + £342.6m Shareholders' funds £2,
Slide 47: Appendix 8: Cash flows
Appendix 8: Cash flows H1 16 H2 16 FY 16 FY 15 Change £m £m £m £m Operating cash (before working capital movements) 362.0 438.5 800.5 653.6 +22% Investment in working capital: (Increase) / Decrease in gross land (34.3) 142.1 107.8 (199.2) (Decrease) / Increase in land creditors (5.6) (24.8) (30.4) 9
Slide 48: Appendix 9: Mortgage approvals for house purchase
Appendix 9: Mortgage approvals for house purchase 150 Average monthly approvals: 82,070 Approvals - Volume ('000) 100 Dec 2013: Dec 2015: 72,800 70,600 Dec 2009: 59,000 Dec 2011: 52,300 Dec 2014: Dec 2016: 50 60,100 67,900 Dec 2012: 55,000 Dec 2010: Average monthly 42,600 approvals since beginning o
Slide 49: Appendix 10: New housing starts
New Housing Starts ('000) 25 50 75 0 100 125 150 175 200 2005 2006 2007 2008 2009 2010 2011 Source: NHBC Housing Market Report (January 2017) 2012 Annual Housing Starts (2005-2015) Results Presentation 27 February 2017 2013 2014 2015 2016 New Housing Starts ('000) 47 10 12 14 16 18 0 2 4 6 8 Appendi
Slide 50: Appendix 11: Capital Markets Day - The Cycle - starting position
Appendix 11: 2 November 2016 Capital Markets Day - The Cycle • What is our starting position? – high quality land bank - margin resilience and asset value protection – 67,300 plots owned at a cost to revenue ratio of 15.7% – 4.4 years owned forward supply at 15,200 units – tight stock levels - WIP t
Slide 51: Appendix 11: Capital Markets Day - The Cycle - gross margins
Appendix 11: 2 November 2016 Capital Markets Day - The Cycle • Future margin resilience – gross margins reflect high quality land bank 2016 2015 2014 H1 H2 H1 H2 H1 Revenue 100.0% 100.0% 100.0% 100.0% 100.0% Land cost (16.6)% (17.8)% (18.3)% (19.4)% (20.7)% Build and other direct cost (56.5)% (55.6)
Slide 52: Appendix 11: Capital Markets Day - The Cycle - margin resilience
Appendix 11: 2 November 2016 Capital Markets Day - The Cycle • Future margin resilience – high quality land bank provides resilience for the future Price change * -20% -10% -5% H1 2016 +5% Gross margin 14.4% 21.3% 23.1% 26.9% 28.8% * excluding mix effects • Sensitivity above assumes the following (o
Slide 53: Appendix 11: Capital Markets Day - The Cycle - cash generation
Appendix 11: 2 November 2016 Capital Markets Day - The Cycle • Future cash resilience – cash generation delivered from trading and working capital management – trading cash delivery together with stress tests (on a pro-forma basis): Base Volume falls 34% Volume falls 47% Per unit H1 2016 £ £ £ Reven
Slide 54: Appendix 11: Capital Markets Day - The Cycle - combined trading
Appendix 11: 2 November 2016 Capital Markets Day - The Cycle • Future cash resilience (cont.) – combined trading delivery and working capital management (on a pro-forma basis): Volume falls 34% Volume falls 47% £m Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 Volume 10,000 10,000 10,000 8,000 8,000 8,00
Slide 55: Appendix 11: Capital Markets Day - The Cycle - return on capital
Appendix 11: 2 November 2016 Capital Markets Day - The Cycle • Future return resilience - “right sizing” the balance sheet (on a pro-forma basis) – return on capital employed maintained at higher levels through capital returns Volume falls 34% Volume falls 47% £m Year 1 Year 2 Year 3 Year 1 Year 2 Y
Slide 56: 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