Persimmon Plc · LSE:PSN
Persimmon — H1 2017 Earnings Presentation
52 slides from Persimmon's earnings presentation, Aug 22, 2017
Slide 1: Results Presentation 22 August 2017
Results Presentation 22 August 2017 51
Slide 2: Agenda
Agenda Results Presentation 22 August 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 - 49 Results Presentation 22 August 2017
Slide 3: Chairman's overview
Chairman’s overview • Performance highlights H1 2017 H1 2016 Change Turnover £1,662.2m £1,489.3m + 12% Operating profits * £459.4m £354.5m + 30% Operating margin * 27.6% 23.8% + 3.8% Pre-tax profits * £462.8m £356.3m + 30% Earnings per share * 121.2p 93.3p + 30% Cash £1,120.4m £462.0m n/a Return on
Slide 4: Chairman's overview – additional payment of 25p per share
Chairman’s overview • Continued execution of strategic plan − disciplined growth in volume - 556 additional new homes sold − further improvement in earnings quality - operating margin up 380bps to 27.6% − 15% increase in forward sales revenues to £2.005bn • Strong free cash generation pre capital re
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 22 August 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 22 August 2017 4
Slide 7: Review of operations - Group overview
Review of operations - Group overview • 95 new outlets opened during H1 2017 - strong sales network maintained • Group’s infrastructure strengthened – Nottingham opened in January 2017 – Brickworks to come on stream through H2 2017 • Affordable family housing − 45% of private sales priced below £200
Slide 8: Review of operations - Group overview
Review of operations - Group overview • Top line growth - 3.6% increase in average selling price and 8% growth in volume • Underlying operating profits of £459.4m up 30% • Pre working capital cash inflows increased 31% to £473.0m • Return on average capital employed of 47.3% improved by 33% year on
Slide 9: Review of operations - Group overview
Review of operations - Group overview Product Profile - 6 months ended 30 June 2017: Unit Completions Average selling Average price Plots owned and Plot count completions change price change under control change 3,226 + 12% £186,789 + 6% 39,370 + 15% Persimmon North 41% 40% 2,404 + 7% £250,473 + 2%
Slide 10: Review of operations - Consented land
Review of operations - Consented land • Compelling land acquisition opportunities that will support high quality returns in future periods − reduction in plot cost to revenue ratio to 13.7% for owned plots supports further margin growth (Dec 2016: 14.7%) − ex-strategic land content within consented
Slide 11: Review of operations - Strategic land
Review of operations - Strategic land Strategic • Superior long term returns supported by conversion of interests acquired during strategic land 2017 • H1 2017 conversion represents 42% of plot Strategic sites pulled through during 2017 consumption • 3,308 plots successfully converted in the period
Slide 12: Review of operations - Current trading
Review of operations - Current trading • Market remains confident: − private sales rates c. 2% stronger since 1 July − cancellation rates continue at low levels • Site activity: − continued focus on improving productivity − 18% increase in Space4 output supporting higher build rates − 22 of anticipa
Slide 13: Review of operations - Current trading
Review of operations - Current trading • Strong momentum moving into the second half of the year Half Year Forward Sales Units ASP Revenue June 2017 8,946 £179,179 £1,602.9m June 2016 8,110 £168,068 £1,363.0m Movement +10% +7% +18% Current Forward Sales (inc. 7 w eeks post half year) Units ASP Reven
Slide 14: Review of operations - Return of surplus capital
Review of operations - Return of surplus capital • Key feature of Group’s strategy is the commitment to return surplus capital to shareholders over the long term • Additional fifth payment of 25p per share, £77.1m, paid 31 March 2017 • Scheduled sixth payment of 110p per share, £339.5m, paid 3 July
Slide 15: Outlook - Overall market
Outlook - Overall market • Consumer confidence remains resilient • Employment levels robust • Competitive but disciplined mortgage market • New build market remains attractive for first time buyers accessing Help to Buy mortgages • Limited impact from the UK General Election result and the start of
Slide 16: Outlook - Operational priorities
Outlook - Operational priorities • Increase build through improved productivity and intensive management of build programmes • Growth of sales outlet network where possible • Core house types and traditional site layouts • Improve provision of skilled trade trainees - apprenticeships, Combat to Cons
Slide 17: Financial review
Financial review Page • Trading overview 16 • Operating profit bridge 17 • Cost recoveries 18 • Operating efficiency 19 • Land holdings at 30 June 2017 20 • Balance sheet 21 • Cash generation 22 • Underlying operating profit and cash flow 23 • Cash generation through cycle 24 • Capital return consid
Slide 18: Financial review - Trading overview
Financial review - Trading overview • Strong trading, new outlet openings and cost control deliver increased profits Underlying trading (adjusted for goodw ill im pairm ent) H1 2017 H1 2016 Total % of revenue Total % of revenue Revenue £1,662.2m- £1,489.3m Cost of sales: - land cost (£269.8m) (16.2%
Slide 19: Financial review - Operating profit bridge
Financial review - Operating profit bridge • Top line growth and excellent asset platform key to improved returns Results Presentation 22 August 2017 17
Slide 20: Financial review - Cost recoveries
Financial review - Cost recoveries • 30.5% gross margin, up 360bps • 320bps margin contribution delivered from cost control and build efficiencies • 40bps margin gain from land cost recoveries • Gross profit per unit sold increased 17.5% to £65,092 Per plot: 2017 2016 2017 2016 H1 H1 Change H1 H1 Ch
Slide 21: Financial review - Operating efficiency
Financial review - Operating efficiency • 380bps increase in underlying operating margin to 27.6% • Operating profit per unit of £58,940 increased 20.3% 2017 2016 2016 2016 H1 FY H2 H1 Gross margin 30.5% 27.8% 28.6% 26.9% Operating expenses * (3.3%) (3.2%) (2.9%) (3.5%) Other operating income 0.4% 0
Slide 22: Financial review - Land holdings at 30 June 2017
Financial review - Land holdings at 30 June 2017 • Cost to revenue percentage of owned & controlled plots of 14.4% (Dec 16: 14.9%) Number Number Number Anticipated Average Cost to Cost to of plots of plots of plots ave. revenue plot cost revenue revenue Dec 2016 Jun 2017 Change Jun 2017 Dec 2016 Plo
Slide 23: Financial review - Balance sheet
Financial review - Balance sheet • Total shareholder equity value per share (pre capital return) of 126 pence generated during the period, 82% up on H1 2016 (70 pence per share) • Future growth supported by investment in compelling land opportunities − £369m land payments (including land creditors)
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 2017 + 287.0 + 650 + 600 2016 + 684.3 + 450.2 + 234.1 + 550 + 500 2015 + 484.6 + 291.5 + 193.1 + 450 + 400 2014 + 3
Slide 25: Financial review - Underlying operating profit and cash flow
Financial review - Underlying operating profit and cash flow • High quality growth and cash efficiency of operations are at the core of our strategy 600 550 500 112.3 450 400 4.8 473.0 350 438.5 300 372.0 362.0 £m 250 200 281.6 150 100 50 - (32.5) (67.1) (79.8) (50) (100) H1 2015 H2 2015 H1 2016 H2
Slide 26: Financial review - Cash generation through cycle
Financial review - Cash generation through cycle 700 HALF YEARLY AVERAGE CASH GENERATION PRE LAND EXPENDITURE: £473M 600 500 • Maintenance of capital 400 discipline is key, minimising £m £656m 300 £549m £494m £623m £539m £628m financial risk whilst retaining 200 £419m £412m £369m 100 £248m £308m £32
Slide 27: Financial review - Capital return considerations
Financial review - Capital return considerations • Flexibility to adapt to changes in market conditions is key • The focus on return on capital and capital efficiency will be maintained • Scale and timing of capital deployment across the cycle critically important • Strategic land conversion is anti
Slide 28: Summary
Summary • Results for the first half of 2017 are excellent • The growth of the Group is disciplined and high quality • Each regional business has a sustainable model • We are keen to increase output to meet demand • High quality platform for future success • Achieving our strategic objectives secure
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 2015 2015 2016 2016 2017 H1 FY H1 FY H1 Unit completions 6,855 14,572 7,238 15,171 7,794 Turnover £1,332.5m £2,901.7m £1,489.3m £3,136.8m £1,662.2m Average Selling Price £194,378 £199,127 £205,762 £206,765 £213,262 Operating profit * £273.3m £634.5m £3
Slide 31: Appendix 1: Financial record - Balance Sheet
Appendix 1: Financial record - Balance Sheet 2015 2015 2016 2016 2017 H1 FY H1 FY H1 Shareholders' funds £2,161.8m £2,455.8m £2,343.8m £2,737.4m £2,711.0m Cash £278.0m £570.4m £462.0m £913.0m £1,120.4m Net asset value per share 705.2p 800.7p 760.3p 887.3p 878.4p Work in progress £508.5m £517.9m £587
Slide 32: Appendix 2: Half yearly profit & loss
Appendix 2: Half yearly profit & loss 2017 2016 2016 H1 H1 Change FY Unit completions 7,794 7,238 + 556 15,171 Turnover £1,662.2m £1,489.3m + £172.9m £3,136.8m Operating profit * £459.4m £354.5m + £104.9m £778.5m Operating margin * 27.6% 23.8% + 3.8% 24.8% Net finance (income) / cost (£0.2m) £0.4m (
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 17 H1 15 H2 15 H1 16 H2 16 H1 17 H1 15 H2 15 H1 16 H2 16 H1 17 North Division South Division Partnerships Appendix 3 Results Presentation 22 Augu
Slide 34: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2017 2016 H1 H1 Change No. No. Units Persimmon Core 5,630 5,143 + 9% Charles Church 900 973 (8%) Partnerships 1,264 1,122 + 13% Total 7,794 7,238 + 8% £ £ Average Selling Price Persimmon Core 213,982 206,334 + 4% Charles Church 347,819 317,827 + 9% Pa
Slide 35: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2017 2016 H1 H1 Change £m £m Gross Profit Persimmon Core 383.8 305.1 + 26% Charles Church 95.4 73.9 + 29% Partnerships 28.1 21.8 + 29% Total 507.3 400.8 + 27% Gross Margin Persimmon Core 31.9% 28.8% + 3.1% Charles Church 30.5% 23.9% + 6.6% Partnership
Slide 36: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 30 June 2017 Units Average Sale Annual average Plots owned and No. Price (£) price change under control Yorkshire 527 163,901 + 1% 7,432 Scotland 776 183,713 + 8% 7,267 North West 462 170,201 + 7% 5,756 North East 660 170,812 + 5% 10,322 Midlands 98
Slide 37: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 30 June 2017 Units Average Sale Annual average Plots owned and No. Price (£) price change under control Shires 1,076 247,651 + 3% 14,364 Western 762 211,413 + 5% 11,957 Southern 681 247,219 + 4% 7,763 Wales 504 164,280 + 1% 5,508 Persimmon South 3,0
Slide 38: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 30 June 2017 Units Average Sale Plots owned and No. Price (£) under control Charles Church 1,095 309,102 12,155 30 June 2016 1,171 285,440 13,276 Change (6%) + 8% (8%) Appendix 5 - 3 of 3 Results Presentation 22 August 2017 36
Slide 39: Appendix 6: Analysis of unit sales
Appendix 6: Analysis of unit sales By Price Band (Private) By House Type (All) 29% 29% Detached Over £250,000 37% 32% 24% Semi-detached 22% 29% £200,000 to £249,999 23% 17% Townhouse 25% ' 29% £150,000 to £199,999 28% 28% Apartment 8% 20% Less than £150,000 2% Bungalow 17% 1% 0% 10% 20% 30% 40% 50%
Slide 40: Appendix 6: Analysis of unit sales - Product mix
Appendix 6: Analysis of unit sales - Product mix 0% 1% 0% 1% 1% 1% 1% 1% 1% 2% 100% 11% 8% 7% 8% 13% 10% 12% 10% 14% 90% 28% 80% 25% 27% 28% 24% 26% 29% 32% 29% 70% 29% 17% 60% 29% 50% 29% 26% 27% 28% 26% 25% 25% 24% 24% 40% 30% 20% 37% 37% 35% 36% 36% 32% 32% 33% 34% 29% 10% 0% 6mths to June 6mths
Slide 41: Appendix 6: Analysis of unit sales - Price range
Appendix 6: Analysis of unit sales - Price range 100% 17% 90% 20% 19% 23% 24% 29% 29% 31% 32% 80% 22% 70% 23% 25% 21% 20% 60% 21% 22% 23% 23% 50% 31% 30% 40% 29% 33% 32% 29% 29% 29% 28% 30% 20% 30% 28% 26% 23% 24% 10% 19% 20% 19% 17% 0% 6mths to June 6mths to 6mths to June 6mths to 6mths to June 6mt
Slide 42: Appendix 7: Balance Sheet
Appendix 7: Balance Sheet 2017 2016 2016 H1 H1 Change FY Work in progress £676.1m £587.4m + £88.7m £617.2m Land £1,970.8m £2,085.5m (£114.7m) £1,946.4m Land creditors £487.3m £573.7m (£86.4m) £554.9m Part exchange stock £32.2m £27.4m + £4.8m £37.1m Shared equity debt £132.7m £163.2m (£30.5m) £148.7m
Slide 43: Appendix 8: Cash flows
Appendix 8: Cash flows H1 17 H1 16 Change £m £m Operating cash (before working capital movements) 473.0 362.0 +31% Investment in working capital: Increase in gross land (22.5) (34.3) Decrease in land creditors (72.4) (5.6) Net land movement (94.9) (39.9) Increase in WIP, part exchange and showhouses
Slide 44: Appendix 9: Mortgage approvals for house purchase
Appendix 9: Mortgage approvals for house purchase 150 Average monthly approvals since beginning of 1993: 81,740 Approvals - Volume ('000) 100 Dec 2013: 72,800 Dec 2015: 70,600 Jun 2017: 64,700 Dec 2009: 59,000 Dec 2011: 52,300 Dec 2014: Dec 2016: 50 60,100 67,900 Dec 2012: Dec 2010: 55,000 Average m
Slide 45: Appendix 10: New housing starts
New Housing Starts ('000) 25 50 75 0 100 125 150 175 200 2005 2006 2007 2008 2009 2010 Source: NHBC Housing Market Report (July 2017) 2011 2012 Results Presentation 22 August 2017 Annual Housing Starts (2005-2016) 2013 2014 2015 2016 New Housing Starts ('000) 43 10 12 14 16 18 0 2 4 6 8 Appendix 10:
Slide 46: 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 47: 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 48: 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 49: 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 50: 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 51: 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 52: 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