Persimmon Plc · LSE:PSN
Persimmon — FY2018 Earnings Presentation
64 slides from Persimmon's earnings presentation, Feb 26, 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 26 February 2019
Slide 2: Strong progress in 2018 delivering disciplined growth and robust performance
“Strong progress in 2018COVER FRONT delivering disciplined FINAL RESULTS PRESENTATION FOR growth and THE robust YEARperformance across ENDED 31 DECEMBER the business” 2018 Results Presentation 26 February 2019
Slide 3: A strong performance in 2018
A strong performance in 2018 • Disciplined high quality growth • Strong financial position with excellent liquidity • Superior returns - 13% increase in profit before tax • High quality land bank across all regional markets • Strong market position and customer focus • Committed to further investmen
Slide 4: Agenda
Agenda Page Presented by • Highlights and Strategy 4 Dave Jenkinson • Operational review 7 Dave Jenkinson • Financial review 26 Mike Killoran • Summary 40 Dave Jenkinson • Appendices 41 Results Presentation 26 February 2019
Slide 5: A strong performance in 2018
A strong performance in 2018 2018 2017 Change Unit completions 16,449 16,043 + 3% Average selling price £215,563 £213,321 + 1% New housing revenue £3,545.8m £3,422.3m + 4% Operating profits * £1,091.9m £966.1m + 13% Operating margin - New housing * 30.8% 28.2% + 2.6% Profit before tax £1,090.8m £966
Slide 6: A strong performance in 2018
A strong performance in 2018 • Delivering high quality growth to meet market demand across the UK increase of 406 legal completions to 16,449 new homes delivered 4% increase in new housing revenue to £3.55bn strong forward sales revenue of £2.02bn (2018: £2.03bn) • Excellent operational and financia
Slide 7: Consistent strategy to maximise shareholder value
Consistent strategy to maximise shareholder value Growth to Long term optimal Optimise Disciplined Surplus capital scale in efficiency of land capital returns to regional operations investment generated shareholders markets Results Presentation 26 February 2019 6
Slide 8: Clear operational priorities
Clear operational priorities Market Returns position and (p 25) sales (p 8 - 10) Land and Our planning customers (p 21 - 22) (p 11 - 15) Off-site Our manufacturing people (p 20) (p 16 - 17) Our communities (p 18 - 19) Results Presentation 26 February 2019 7
Slide 9: Strong market coverage
Strong market coverage • Group’s regional structure strengthened 7 new offices opened in last four years Suffolk opened in January 2018 South Yorkshire opened in January 2019 • Strong sales network maintained - 181 new outlets opened in 2018 • All sites offer a good range and choice of house types a
Slide 10: Strong market position
Strong market position 2018 2017 Change Unit completions Private 13,341 13,274 + 1% Partnerships 3,108 2,769 + 12% Total 16,449 16,043 + 3% Average selling price Private £238,373 £233,609 + 2% Partnerships £117,653 £116,068 + 1% Group £215,563 £213,321 + 1% • c. 10% of private customers supported th
Slide 11: Strong market position
Strong market position Product Profile - 12 months ended 31 December 2018: Unit Completions Average selling Average price Plots owned and Plot count completions change price change under control change 6,717 + 1% £197,245 + 4% 37,135 (5%) Persimmon North 41% 37% 5,230 + 8% £260,074 + 4% 32,140 + 10%
Slide 12: Significant investment in customer service
Significant investment in customer service • We aim to improve our customers’ satisfaction levels by focusing on four key areas supported by increased investment in digital tools • Increased investment in resources since 2014 22% increase in legal completions 66% increase in site based resource 93%
Slide 13: Better customer communication
Better customer communication • 11 key stages during “the customer journey” • Completion on time/accuracy of moving in dates where high demand, site resourcing can be a constraint where high demand, later release for sale improves accuracy of anticipated moving in dates by allowing build to progress
Slide 14: Customer portal - supporting customer needs
Customer portal - supporting customer needs Our customers Results Presentation 26 February 2019 13
Slide 15: Reinforcing quality assurance
Reinforcing quality assurance • Better quality control • 7 stage pre-completion inspection process introduction of New Home Inspectors review of specification • Investing in increased site skills training • Investing in digital tools to support site management Our customers Results Presentation 26 F
Slide 16: High levels of service post handover
High levels of service post handover • Enhanced care and service improved escalation process weekend and evening appointments introduced • Investment in customer care trade skills to improve resolution times • Empowering customer care teams through investment in mobile systems support out in the fie
Slide 17: Investing in our people
Investing in our people • A vibrant and meritocratic environment with entrepreneurial spirit • Talent is recognised and nurtured - over 570 colleagues promoted in last 2 years • Training and development is a top priority - c. 11,000 training days delivered • Investing for further improvement Group T
Slide 18: Investing in our people
Investing in our people • The Group is taking the lead to tackle the acknowledged shortage of skills over 630 trainees across all disciplines - almost 15% of the workforce 381 traditional apprentices engaged across the Group • Adoption of the Living Wage Foundation payment criteria from January 2019
Slide 19: 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 • Concentrate on delivering traditional homes that our customers prefer in neighbourhoods that fulfil communities housing needs • 14% of
Slide 20: Strong engagement with our communities
Strong engagement with our communities • Community Champions and Healthy Community Campaigns through the Persimmon Charitable Foundation have donated £1.3m to c. 900 local charities and sporting groups during 2018 • Building Futures campaign launched - will donate over £1m to support children in hea
Slide 21: Differentiation through off-site manufacturing
Differentiation through off-site manufacturing • Commitment to self help through innovation • Securing availability of key materials easing supply chain pressures • Brickworks approaching optimal capacity • Tileworks factory construction proceeding to plan - anticipate first deliveries to site in se
Slide 22: Good visibility of high quality land supply
Good visibility of high quality land supply • Land market continues to provide compelling opportunities 47,305 owned plots with detailed consent - all sites under construction owned plot cost to revenue ratio of 13.2% (Dec 2017: 13.2%) ex-strategic land content within consented land bank at c. 49% •
Slide 23: Strategic land success
Strategic land success • 3,772 plots successfully converted in the year over 22 Strategic interests acquired during locations including: 2018 Strategic sites Coventry, Central - 180 plots pulled through during 2018 Ashford, South East - 178 plots Easingwold, Yorkshire - 115 plots • Conversion repres
Slide 24: Current trading
Current trading • Early weeks trading in line with our expectations: private weekly sales rate per site c. 4% lower over first eight weeks of 2018 - strong comparatives with record sales weeks in prior year cancellation rates remain at historically lower levels • Site activity: labour, and some mate
Slide 25: Strong forward sales position
Strong forward sales position 1 January Forward Sales Units ASP Revenue 2019 7,953 £175,677 £1,397.2m 2018 7,758 £174,799 £1,356.1m Movement +3% +1% +3% Current Forward Sales (inc. 8 w eeks post year end) Units ASP Revenue 2019 10,865 £185,679 £2,017.4m 2018 10,900 £186,619 £2,034.1m Movement (0%) (
Slide 26: A great platform for future returns
A great platform for future returns • Motivated, talented and experienced team • Efficient usage of core house types and site layouts to meet customer demand • Strong culture of self help • High quality land bank with a strong strategic element • Ability to mitigate market risks through strong capit
Slide 27: Financial review
Financial review Page • Trading overview 27 • Operating profit bridge 28 • Cost recoveries 29 • Operating efficiency 30 • Land holdings at 31 December 2018 31 - 32 • Balance sheet 33 • Cash generation 34 • Underlying operating profit and cash flow 35 • Cash generation through cycle 36 • Capital retu
Slide 28: Robust trading delivering further profit growth
Robust trading delivering further profit growth Underlying trading (adjusted for goodw ill im pairm ent) 2018 2017 New housing Total % of revenue Total % of revenue Revenue £3,545.8m- £3,422.3m Cost of sales: - land cost (£518.8m) (14.6%) (£551.7m) (16.1%) - build and other direct costs (£1,847.1m)
Slide 29: Growth and cost control supporting profitability
Growth and cost control supporting profitability Stated before goodwill impairment Results Presentation 26 February 2019 28
Slide 30: Gross margin improvement delivered
Gross margin improvement delivered • 200bps increase in new housing gross margin to 33.3% • Lower land recoveries from new outlets - 150bps margin gain • Change in mix and control over costs contributed 50bps improvement in margin • Gross profit per unit sold of £71,732, an increase of 7.4% New hous
Slide 31: Operating efficiencies supporting higher margins
Operating efficiencies supporting higher margins • Underlying new housing operating margin increased to 30.8%, 260bps increase • Operating profit per unit increased 10.2% to £66,382 2018 2018 2018 2017 2017 2017 New housing FY H2 H1 FY H2 H1 Gross margin 33.3% 34.1% 32.4% 31.3% 32.1% 30.5% Operating
Slide 32: Maintaining a high quality land bank
Maintaining a high quality land bank • Cost to revenue percentage of owned & controlled plots of 13.6% (Dec 17: 13.7%) Number Number Number Anticipated Average Cost to Cost to of plots of plots of plots ave. revenue plot cost revenue revenue Dec 2017 Dec 2018 Change Dec 2018 Dec 2017 Plots owned wit
Slide 33: Maintaining a high quality land bank
Maintaining a high quality land bank • Proforma margin distribution based on land bank mix 70.0% 60.0% 41% gm* 33% gm* 50.0% Gross margin % 40.0% 24% gm* 30.0% 35% of plots 20.0% 16% of plots 49% of plots 10.0% 0.0% Owned plots - 75,793 * Estimated weighted average gross margin - assuming revenues a
Slide 34: Robust balance sheet supports future returns
Robust balance sheet supports future returns • Investing in future growth £628m land payments (including land creditors) in year - total land investment of £2.08bn (Dec 2017: £2.01bn) attractive deferred terms secured - land creditors of £548m (Dec 2017: £567m) • Stronger work in progress platform f
Slide 35: Strong cash generation
Strong cash generation Free cash generation (£m) * Free cash generation (after working capital) * + 850 FY H2 H1 + 800 + 750 2018 + 686.2 + 374.1 + 312.1 + 700 + 650 2017 + 806.3 + 519.3 + 287.0 + 600 + 550 2016 + 684.3 + 450.2 + 234.1 + 500 + 450 2015 + 484.6 + 291.5 + 193.1 £m + 400 + 350 2014 + 3
Slide 36: Cash efficiency and capital discipline remain key
Cash efficiency and capital discipline remain key • Current year work in progress investment to support future growth 1,200 1,100 1,000 45.2 900 1,111.5 800 996.8 700 600 800.5 500 653.6 £m 400 300 498.5 200 100 - (100) (1.8) (19.4) (27.7) (293.3) (200) (300) (400) 2014 2015 2016 2017 2018 Cash from
Slide 37: Cash generation remains strong through cycle
Cash generation remains strong through cycle 800 HALF YEARLY AVERAGE CASH GENERATION: £519M * 700 600 500 • Disciplined investment in land 400 and work in progress supports £m £752m £656m £655m £659m 300 £623m £628m 200 £419m £412m £549m £494m £539m £418m £419m £467m efficient capital structure £342
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 for the next
Slide 39: Surplus capital returned to shareholders
Surplus capital returned to shareholders • Paid in 2018 125p per share, £388.5m, paid 29 March 110p per share, £343.8m, paid 2 July 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 25p 12
Slide 40: Market outlook
Market outlook • Consumer confidence resilient • Strong Bank of England lender oversight and continued disciplined lending • Economic outlook influenced by the nature of the UK’s exit from the EU • Employment levels currently strong but concerns over job security, wage growth and interest rate incre
Slide 41: Strong progress in 2018 delivering disciplined growth and robust performance
“Strong progress in 2018 delivering disciplined growth and robust performance across the business” • Disciplined high quality growth • Strong financial position with excellent liquidity • High quality land bank across all regional markets • Enhanced customer care focus • Committed to further investm
Slide 42: 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 43: Appendix 1: Financial record - Income Statement
Appendix 1: Financial record - Income Statement 2014 2015 2016 2017 2018 Unit completions 13,509 14,572 15,171 16,043 16,449 New housing revenue £2,573.9m £2,901.7m £3,136.8m £3,422.3m £3,545.8m Average Selling Price £190,533 £199,127 £206,765 £213,321 £215,563 Operating profit * £473.3m £634.5m £77
Slide 44: Appendix 1: Financial record - Balance Sheet
Appendix 1: Financial record - Balance Sheet 2014 2015 2016 2017 2018 Shareholders' funds £2,192.6m £2,455.8m £2,737.4m £3,201.6m £3,194.5m Cash £378.4m £570.4m £913.0m £1,302.7m £1,048.1m Net asset value per share 715.4p 800.7p 887.3p 1036.6p 1006.0p Work in progress £464.7m £517.9m £617.2m £723.9m
Slide 45: Appendix 2: Half yearly profit & loss
Appendix 2: Half yearly profit & loss Underlying performance: 2018 2018 2017 2017 H2 H1 H2 H1 New housing Unit completions 8,377 8,072 8,249 7,794 Revenue £1,803.8m £1,742.0m £1,760.1m £1,662.2m Operating profit * £573.7m £518.2m £506.7m £459.4m Operating margin * 31.8% 29.7% 28.8% 27.6% Net finance
Slide 46: 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 17 H2 17 H1 18 H2 18 H1 17 H2 17 H1 18 H2 18 H1 17 H2 17 H1 18 H2 18 North Division South Division Partnerships Appendix 3 Results Presentation 26 February 2019 45
Slide 47: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2018 2017 New housing FY FY Change No. No. Units Persimmon Core 11,947 11,489 + 4% Charles Church 1,394 1,785 (22%) Partnerships 3,108 2,769 + 12% Total 16,449 16,043 + 3% £ £ Average Selling Price Persimmon Core 224,749 215,336 + 4% Charles Church 35
Slide 48: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2018 2017 New housing FY FY Change £m £m Gross Profit Persimmon Core 926.1 804.1 + 15% Charles Church 182.7 205.1 (11%) Partnerships 71.1 62.5 + 14% Total 1,179.9 1,071.7 + 10% Gross Margin Persimmon Core 34.5% 32.5% + 2.0% Charles Church 36.9% 32.7%
Slide 49: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2018 2017 New housing H2 H2 Change No. No. Units Persimmon Core 6,139 5,859 + 5% Charles Church 625 885 (29%) Partnerships 1,613 1,505 + 7% Total 8,377 8,249 + 2% £ £ Average Selling Price Persimmon Core 226,112 216,637 + 4% Charles Church 354,590 354
Slide 50: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2018 2017 New housing H2 H2 Change £m £m Gross Profit Persimmon Core 491.3 420.3 + 17% Charles Church 86.1 109.7 (22%) Partnerships 37.4 34.4 + 9% Total 614.8 564.4 + 9% Gross Margin Persimmon Core 35.4% 33.1% + 2.3% Charles Church 38.9% 35.0% + 3.9%
Slide 51: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2018 2017 New housing H1 H1 Change No. No. Units Persimmon Core 5,808 5,630 + 3% Charles Church 769 900 (15%) Partnerships 1,495 1,264 + 18% Total 8,072 7,794 + 4% £ £ Average Selling Price Persimmon Core 223,308 213,982 + 4% Charles Church 355,574 34
Slide 52: Appendix 4: Trading performance - Business split
Appendix 4: Trading performance - Business split 2018 2017 New housing H1 H1 Change £m £m Gross Profit Persimmon Core 434.8 383.8 + 13% Charles Church 96.6 95.4 + 1% Partnerships 33.7 28.1 + 20% Total 565.1 507.3 + 11% Gross Margin Persimmon Core 33.5% 31.9% + 1.6% Charles Church 35.3% 30.5% + 4.8%
Slide 53: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 31 December 2018 New housing Units Average Sale Annual average Plots owned and No. Price (£) price change under control Yorkshire 1,040 177,136 + 6% 6,206 Scotland 1,621 182,186 (1%) 7,330 North West 1,160 166,163 (1%) 5,282 North East 1,310 176,550
Slide 54: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 31 December 2018 New housing Units Average Sale Annual average Plots owned and No. Price (£) price change under control Shires 2,459 253,143 + 3% 15,323 Western 2,014 215,817 + 4% 13,279 Southern 1,324 254,062 + 1% 7,325 Wales 1,007 170,034 + 6% 6,2
Slide 55: Appendix 5: Trading performance - Divisional split
Appendix 5: Trading performance - Divisional split 31 December 2018 New housing Units Average Sale Plots owned and No. Price (£) under control Charles Church 1,773 309,536 12,691 31 December 2017 2,203 310,794 12,239 Change (20%) (0%) + 4% Appendix 5 - 3 of 3 Results Presentation 26 February 2019 54
Slide 56: Appendix 6: Analysis of unit sales
Appendix 6: Analysis of unit sales By Price Band (Private) By House Type (All) 31% 33% Detached Over £250,000 36% 36% 27% Semi-detached 24% 29% £200,000 to £249,999 25% 15% Townhouse 27% ' 27% £150,000 to £199,999 25% 25% Apartment 8% 16% Less than £150,000 2% Bungalow 14% 0% 0% 10% 20% 30% 40% 50%
Slide 57: Appendix 6: Analysis of unit sales - Product mix
Appendix 6: Analysis of unit sales - Product mix 0% 1% 1% 1% 1% 1% 1% 0% 1% 2% 100% 1% 8% 7% 8% 8% 8% 8% 13% 10% 10% 12% 90% 26% 80% 25% 27% 28% 28% 28% 26% 24% 26% 29% 29% 70% 14% 60% 29% 50% 29% 26% 27% 28% 27% 29% 29% 26% 25% 27% 40% 30% 20% 37% 37% 34% 35% 36% 36% 36% 35% 36% 33% 31% 10% 0% 6mth
Slide 58: Appendix 6: Analysis of unit sales - Price range
Appendix 6: Analysis of unit sales - Price range 100% 90% 19% 23% 24% 29% 29% 31% 32% 33% 36% 36% 80% 70% 23% 21% 20% 60% 21% 22% 23% 23% 25% 25% 26% 50% 30% 40% 33% 32% 29% 29% 29% 28% 30% 26% 25% 24% 20% 28% 23% 24% 10% 19% 20% 19% 17% 16% 14% 14% 0% 6mths to June 6mths to 6mths to June 6mths to 6
Slide 59: Appendix 7: Balance Sheet
Appendix 7: Balance Sheet 2018 2017 Change Work in progress £881.8m £723.9m + £157.9m Land £2,077.2m £2,010.6m + £66.6m Land creditors £548.0m £567.3m (£19.3m) Part exchange stock £56.2m £45.2m + £11.0m Shared equity debt £86.9m £117.3m (£30.4m) Cash £1,048.1m £1,302.7m (£254.6m) Shareholders' funds
Slide 60: Appendix 8: Cash flows
Appendix 8: Cash flows H1 18 H2 18 FY 18 FY 17 Change £m £m £m £m Operating cash (before working capital movements) 529.3 582.2 1,111.5 996.8 +12% Investment in working capital: (Increase) / Decrease in gross land (117.8) 59.3 (58.5) (59.9) Increase / (Decrease) in land creditors 39.0 (67.6) (28.6)
Slide 61: Appendix 9: 2012 LTIP
Appendix 9: 2012 LTIP • All options vested - 17.2m options exercised in 2018, 3.0m remain to be exercised • 8.2m shares issued to date - estimate a further 1.3m shares to be issued • Total payments made to HMRC in 2018 of £207m - employers NIC (£47m) and net settlement (£160m) on all options exercis
Slide 62: Appendix 10: Mortgage approvals for house purchase
Appendix 10: Mortgage approvals for house purchase 150 Average monthly approvals since beginning of 1993: 80,820 Approvals - Volume ('000) 100 Dec 2013: 72,800 Dec 2015: 71,000 Dec 2017: 61,500 Dec 2009: 59,000 Dec 2011: 52,300 Dec 2014: Dec 2016: Dec 2018: 50 60,100 68,400 63,800 Dec 2012: Dec 2010
Slide 63: Appendix 11: New housing starts
New Housing Starts ('000) 25 50 75 0 100 125 150 175 200 Source: NHBC Housing Market Report (January 2019) Annual Housing Starts (2006-2018) Results Presentation 26 February 2019 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 New Housing Starts ('000) 62 10 12 14 16 18 0 2 4 6 8 Ap
Slide 64: Disclaimer
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