Persimmon (LSE:PSN) — 2026 Half Year Results

0:00 Good morning, and welcome to the PERSIMMON PLC Investor Presentation. Before we begin, I'd like to submit the following poll. Now I'd like hand you over to Andrew Doctorbury, CFO. Good morning, sir. Good morning. Thank you, everybody, for joining today. So I plan to talk for around fifteen minutes or so, and then I will take any questions. So really pleased. Last week, we reported strong half year performance. We've delivered volume led profit growth in a challenging market while we've maintained our balance sheet discipline, and we've continued to make appropriate investments to support our future returns.

0:45 And I think these results show that PERSIMMON's strategy is delivering is delivering growth today while building a larger, stronger, and a higher returns business for the future. And, of course, as you all know, the market is challenging, and we are responding to that challenge from a position of strength, and we retain confidence in our medium term ambitions. So first of all, I'm gonna go through our first half performance. As I say, that performance has been very strong in a challenging market. You can see on the slide the progress that we made in the first half year. Underlying profit before tax was up 3% to a £170,000,000, and that was driven by volume growth and some higher interest costs. Average outlets in the period were up to 273 from 272 this time last year.

1:36 Net private weekly sales were up to 205. That's up 7%. And with the private sales rate, including our bulk sales improving to naught point seven five per outlet per week. And I'm really pleased that growth in outlets and the growth in sales rates has driven completions up 13% to 5,189. And those completions include a 14% increase in first time buyers, and that demonstrates the importance of our products being affordable in this market. Importantly, we continue to retain our five star status, and that's now for five consecutive years. We secured detailed planning permissions on over 6,100 plots.

2:22 That was a 118% of first year completions. So that further strengthens our outlet pipeline for the future. Our land bank remains a really key asset. We've got close to 81,000 owned and controlled plots. And in addition, behind that, our strategic land bank stands at a further 82,000 plots. Our total forward order book as at the 30 as at last week was 1,900,000,000, and our private order book within that was up 5% year on year. So I'm really pleased with this overall performance. And what I want to do now is just talk to you a little bit more about the margin progress within that. So you can see on the slide, and you'll know, in any case, that the margins across the market have been coming under pressure.

3:13 That is an industry wide challenge. So our strategy has been to drive volume growth through increasing sales rates and increasing our outlets and use that volume growth to drive an increase in operating profit, and you can see that coming through on this slide. On a margin basis, the reduction from 13.1% to 12.8% includes the effect of more housing association units in the mix this half year, and that alone diluted the margin by about 40 bps. Beyond that mix, you can see the benefits of volume leverage have helped offset cost pressures and increased sales incentives. And you can see that between the the kind of second and fourth bars on the graph. Net operating expenses improved by £12,500,000.

4:00 That includes lower administration costs despite the increased volumes and some additional land sale profits within there as well. So in summary, our volume growth and our tight overhead control has helped to mitigate the impact of cost pressures in the period and has helped us to report an increase in operating profit. And that blend provides confidence as well for the future that we can deliver on our medium term margin and return ambitions. We'll do this by continuing to drive volume leverage while progressing operational priorities of trading out of older lower margin land, of acquiring quality new land at higher margins, improving the mix of our delivery across our three brands, and strengthening our vertical integration.

4:47 As well as volume, another key driver of the success of the business is our strong balance sheet. We announced in March that we now have £1,000,000,000 of committed bank facilities. That is really important in providing both resilience and growth opportunities to the business. We had gearing at the end of June, 165,000,000 of net debt due to the payment of land creditors and increasing WIP for delivery in the second half year. And adjusted gearing, including land creditors, sat at 18%, and that's within the range that we indicated for this year. Net assets are up 4% since this time last year, and net assets per share are up 37 p since this time last year. And I'm really pleased as well that our return on capital is also higher than this time last year.

5:37 So that brings me on to our capital allocation priorities. So our capital allocation policy is designed to create shareholder value. We generate returns which are greater than our cost of capital, and we are typically trading at around or at a premium to our net asset value. And those two things in combination give us an opportunity to drive value by investing for growth. So the structure of this policy is similar to what you'll have seen before. Firstly, maintaining a strong balance sheet while prioritizing dealing with our building remediation program. Secondly, we're investing in the business, in land, and in our capabilities in order to drive future growth.

6:24 Thirdly, we're paying a sustainable dividend that is well covered by profits. And fourthly, we think that in the medium term, as growth is delivered, as our building remediation work concludes, we will generate excess cash. And we are retaining the flexibility to deploy that excess cash depending on market conditions at the time. So either by investing into additional growth or by increasing our returns to shareholders or by a combination of both. So I just wanna spend some time now looking at how that investment in our strategy and into the future looks. This slide essentially brings our story together. It shows why we're confident in the medium term opportunity for PERSIMMON. And we've invested significantly in our strategy over recent years. Our focus has been increasingly now on turning those investments into improving returns.

7:25 And as I've said, our strategy is delivering growth with completions in the first half year up 13%. Our land and planning pipeline is good, and that gives us visibility of future outlet growth and future margin improvements. Our three brands are giving us more routes to markets and better use of land, improving our returns, and I'll come back to this part of the strategy in a moment. Our quality and customer service improvements are continuing to support good sales momentum. Vertical integration and broader innovation continue to give us some structural advantage in our cost base on efficiency, and they underpin our margin. And, again, I'll come back to this aspect of the strategy again in a moment.

8:11 And as I've just said, we are carefully managing our balance sheet that enables us to make disciplined investment in the future while supporting growing returns to shareholders. So taken together, these five value drivers support our confidence in our ability to grow volumes, improve margins, and grow our returns into the future. So I'll now come back to that three brand strategy in a bit more detail. This is really important for both growing the business and providing resilience to the business. So our three brand strategy strengthens returns by giving us broader market reach. It gives us better use of land and so increases the speed of asset turn, and it gives us more resilience through the cycle by giving us more routes to market.

9:01 And each of our three brands on the left hand side has a clear market position. PERSIMMON is our core brand. It's our core growth engine. It's efficient to build, and it is affordable to own. Charles Church gives us a premium proposition and supports volume growth and margin expansion. And Westbury is a capital efficient route to driving volume and returns. So these are three complementary brands, very different market positioning, and that is together translating into market share gains. And you can see on the slide that completions in the half year were up in all three brands, up 7% in PERSIMMON, up 26% in Charles Church, and up 22% in Westbury.

9:47 So the key point is it's not just having brands for the sake of brands. It's about using our complementary brands to create more routes to market and thereby drive better capital returns. And just by way of example of the success of this, 36% of our sales are to first time buyers, and completions to first time buyers in the period were up 14% year on year. Charles Church continues to build momentum by increasing outlets, and Westbury is continuing to build momentum by increasing additional partnerships and relationships in both the registered provider and the build to rent markets. So collectively, these three brands increase our land efficiency. They broaden our customer reach. They improve our sales resilience, and together, they support stronger returns. So they are central to our medium term aspirations to grow margin, grow ROCE, and create sustainable value creation.

10:46 And alongside these is our build efficiency. So all three brands are designed to be affordable and to be value propositions, so we need to be able to build them efficiently. You can see from the chart on the right hand side, this was a chart published recently by Phoenix Asset Management, that we have a structurally lower build cost than our peer group, and we've had that over a a prolonged period of time. Vertical inter remains a key differentiator for us, and that provides supply and margin resilience, particularly in the current market conditions. And in the first half year of this year, our brickworks factory delivered 31,000,000 bricks. That's 13% higher than last year. Tileworks delivered 5,600,000 bricks, very similar to last year. And our space for timber frame factory delivered a 30% increase in timber frame products compared to the first half of last year.

11:43 Alongside vertical integration, we're also at the moment prioritizing AI investment, and we're looking to do that where it can make the biggest difference to our operational performance. So, for example, in the areas of land appraisal, our new sales CRM system, and commercial cost control. So taken together, vertical integration and AI are really helping us to protect margins while we grow volumes, and they're really good examples of how PERSIMMON tries to drive our business performance and drive business improvement through what we call our self help strategy. Now I've talked a couple of times already that the current market is challenging. So this slide sets out some of the current market challenges, and you'll all be very familiar with these.

12:29 The important thing is that we are managing them proactively. We're taking positive actions to deal with them, to protect our margins, protect our cash, and continue our growth, and our strategy is working. So just to run down the slide very quickly, the first item there is cost inflation. We estimate that the additional cost inflation as a result of the Middle East conflict could be in the order of 40 to £50,000,000 over the next eighteen months, and we're taking action. We're doing a comprehensive review across the business to mitigate that cost, looking at house types, procurements, overhead, build efficiency, and build vertical integration. And we think we've already found savings to offset half of that through 2027. Mortgage availability remains a challenge for most of our customers, and, you know, demand remains strong, but affordability is a challenge. So our affordable price point leveraging off our affordable and build efficiency is really important for us, and you can see the benefits of that through our 14% increase in sales to first time buyers in the period.

13:32 Our land position, our nationwide footprint means that we're able to respond to the market and market constraints quickly, and our strong order book is evidence of that. I'll come to that in a moment. Just to be clear, over the last three years, we've delivered a 22% increase in completions and a 24% increase in operating profit. So that is really underpinning our response to the market. We continue to maintain momentum in planning outlets. We've got a very proactive approach to planning. We've increased outlets by 6% over the last two years. And I said earlier, we've got more planning commissions in the first half than completions that we than we took. So this gives us confidence in the long term trajectory. Building safety remains a priority. We're making good progress on that. Our provision reduced by £20,000,000 in the year because in the half year because of the progress that we've made. And we continue to maintain a focus on quality and customer services as we grow. We've made lots of improvements. That's embedded in the business, and we'll continue to prioritize health and safety and customer service. So, really, the point of this is to show that, look, external factors will influence the pace of our progress, but we're taking positive actions, and so they will not change our overall ambition and our medium term ambitions to get to 20% operating margin and return on capital.

14:54 And how is that translating? Well, the current order book is up 3% at £1,900,000,000. Within that, the private order book is up 5% at £1,300,000,000. ASP in the order book is up 3%. And just to be clear, the order book is now the private order book is about 80% sold for this year, and we're fully sold for the affordable housing delivery. So this is a really strong market position. And assuming no change to market conditions, we're now expecting to deliver 12 and a half thousand homes this year. That's at the upper end of our previous guidance to the city. So to summarize, our half year results demonstrate we are delivering growth in a challenging market.

15:41 We're continuing to strengthen our platform, and they demonstrate our strategy is working. We've improved volumes. We've grown market share. We've increased profits, and we've continued to invest for the future. We're clear about the challenges which lay ahead, and we're taking positive action to address them. And we're focused on our sustained focus on self help and the medium term strategic drivers of our business, and that is delivering progress for us. I've talked about our efficiency program that will help mitigate much of the current cost pressure that we're seeing coming through because of the Middle East conflict. So the progress and the pace of progress may vary depending on market conditions, but we're very focused on delivering our medium term ambitions of 20% operating margin, 20% return on capital, and that is underpinned by the drivers at the bottom of this slide.

16:33 So to capture it all, we're managing risk, we're delivering growth, and we're confident in our medium term value creation. So on that note, I will hand over to Vicky to take the questions which have been coming through. Thank you. Great. Thanks, Andrew. So there's a couple of questions that have come through here on costs, which I'll group together. So the first one is on the 40,000,000 to 50,000,000 cost headwind over the next eighteen months, how much is already contractually locked in versus based on assumptions for future energy, materials and subcontractor costs? If energy and commodity prices fall by year end, what is the normal lag before that feeds into build costs? And how much of the estimated headwind could realistically unwind? That's the first one. And I think just linking into that, are there area any areas in particular that you're experiencing significant cost increases currently, and how are you managing those?

17:27 Okay. So why don't I start with that second part, actually, I maybe just give some context. So, clearly, a lot of the cost pressure at the moment is through energy costs, whether that is direct energy or through energy intensive parts of the business. That includes timber, some aggregates, groundworks, and so What we have done is we've looked to agree those as temporary surcharges where possible. But, clearly, what we've this 40 to 50,000,000 effectively assumes a one to 2% increase in build cost inflation over what we would have expected before the Middle East conflict, and that's spread over an eighteen months period. Bear in mind, we we spent £2,500,000,000 a year on on build costs. So what is the the the I think the question was around the lag and how quickly that that will unwind.

18:15 And, of course, it depends. So although we've agreed many of the increases as temporary surcharges, I I think in my experience, inflation always goes up quicker than it comes down. So we are factoring in the fact that, look, things will come down slower. Clearly, the product that we are selling in the second half of this year and, to a degree, the first half of next year, the groundworks of that will already be done. So for this year, it's already in the ground, and we're currently pulling foundations for first half delivery in 2027. So, clearly, there is a kind of, if you like, inevitable lag because of just the timing of and and the duration of the build program. And and and taking those two things together, that's why we are focused on trying to mitigate those costs ourselves through efficiency, through specifications, through redesigns, through house types, and so on.

19:06 And as I say, we've already we think we've mitigated half of that cost in 2027, and I think we can just about get to all of that mitigation for 2028. And, of course, if the inflation reduces and if those costs come down, then those mitigations are good, and they are to the benefit of our customers and to PERSIMMON. So that's still the right exercise to be doing. Okay. Great. Thank you. And I I suppose sort of linked to that just in terms of cost, can you please explain your rationale for owning a brickworks? What percentage of bricks do you manufacture versus purchase externally? Yeah. So we've had a brick work, so I think coming up to ten years now, and and but the bricks now are are the, I think, fourth generation and the best quality they've ever been. We deliver somewhere close to 60% of our own bricks from internally sourced. And, actually, as I look to grow the business, that brickworks is is, you know, nearing capacity. So I'm looking to put some additional capacity into that line so I can continue to self deliver as I grow the volumes of the business overall. What does that give me? It gives me a cost advantage. A typical house using my own bricks is probably I'm saving something in the order of 1,500 to £2,000 per house in terms of the cost compared to go to the open market. It also gives me resilience, and you'll have seen various brick manufacturers. In fact, an article in the Sunday Times yesterday about brick manufacturers reducing

20:37 supply, reducing their outputs. Actually, the fact that I've got 60% of the bricks self delivered means that I'm slightly insulated from that. So it gives me resilience, and it gives me a cost advantage. Great. Thank you. And then part of the answer to this, I think, is going to be VI as well. But what gives you most confidence in achieving the 20% margin target that you set out? Well, it's a combination of various things. So growing my volumes, so increase my volumes back to in the order 15 to 20,000 gives me good volume leverage. So I'll drive overhead leverage through volume growth. I'm currently still trading off some land with lower embedded margins because of the cost inflation of 2022 and 2023, which you'll remember was probably an aggregate somewhere like 30% build cost inflation.

21:27 As I trade out of that older land and as I replace it with newer, higher margin land, then there's a natural tipping point where we start to drive increased gross margin. And then beyond that, it's the other operational priorities, so including increasing vertical integration, which gives me a cost advantage, increasing delivery of my three brands, which drives better use of my land. And and and so those are the the key things. But that volume leverage and the the switch from the older to the newer land are are the two real key drivers. Thank you. And then linking into the volume growth, there's a question here. How much further can market share grow from here for PERSIMMON? Well, I think it can grow. I mean, the key thing for me is, of course, growing PERSIMMON's overall volumes. And if the market itself grows as well, then that's great. But at the moment, I think what we've been able to do is by really leaning in on the Charles Church strategy.

22:26 And you remember, we we relaunched Charles Church at the beginning of 2025, and that's really made good progress, up 26% year on year. So that's driving additional additional volume. And similarly with the build to rent and the affordable housing really driving through additional growth. And the reason the three brand strategy is so important is in this market, which is challenging, it's it is subdued. Having more outlets, having more opportunities around the country to sell different products to different customers is broadening my customer reach, and that's what's driving my market share. So I think we are very focused on continuing to drive volume growth. And as I've said, this year, we expect to grow from 11,900 to 12 and a half thousand units in 2026, and and that volume growth is a really important part of driving increasing returns.

23:18 Thanks, Andrew. And then just the final question then that we've got on here at the moment is around capital allocation. Are management considering a share repurchase program given it's likely to deliver material shareholder value over the coming years? So we, of course, keep these things under review all the time, both in terms of the the absolute shareholder returns and and the mix between dividend and and other forms of share buybacks. But I think one thing which is really important and and and a differentiator for PERSIMMON relative to to many others in the sector, I mentioned it briefly in in the presentation, is our return on capital is greater than our cost of capital, and our shares are trading at a premium to net assets. So what that means is there is also opportunity for PERSIMMON to invest in growth and to drive shareholder value by driving returns and by driving growth in the business given those metrics. So I think the debate is very real. It's very live. I mean but it is more nuanced around the benefit of investing in growth versus investing in or or returning funds to shareholders.

24:26 But, of course, there's a balance, and we set a minimum capital return, you know, which we're currently in line with. And as we grow the business, I would expect to generate excess cash and expect to grow those returns, and we will be very flexible about whether that is through dividend or buyback or a combination. We've had one more just come through. Thank you, Andrew. So government repeatedly comments on policy to deliver more houses to a market where perceived demand is far greater than supply? What are the key parts of policy that will facilitate the building companies to expand their build policy to meet that demand? Okay. Well, I think if if you take it in two halves, I think there is a supply question and there's a demand question. So the government thus far has been very focused on the supply side, so planning reform.

25:16 For example, we think that is very good. It's very important. I think the speed of that translating into consistent, fast planning success on the ground, yeah, there is more to be done there. The government has introduced their new homes accelerator program, which I think is helping, But it's still there is still more to do to make that a consistent and a predictable process. So I think there's more where, you know, the the the cost, not just you know, it's particularly the case for the smaller house builders, of course, but the cost of and the risk of going through a planning process is very high, and the outcome is uncertain. And that does limit the ability, particularly for smaller house builders, to invest in new sites. So I think continuing to focus on supply side and planning reform, bringing through the benefits of the planning and infrastructure act, for example, is is very, very important.

26:10 And then on the demand side, you know, the question is one of really is is affordability. So we know there is demand, but we know that the cost of building houses is expensive. I think the HBF estimate has gone up by £76,000 in the last five years, so that is a lot of extra cost, yeah, which then needs to be passed on to customers. So that's why PERSIMMON is so focused on having a product which is affordable, why we're so focused on it being designed to be affordable, being built, you know, with our own materials just to to lower the cost of production so that we can present a lower cost house to the market. And I think that's why we've been able to grow, as I've said a couple of times, our first time buyer delivery by 14% in a market where first time buyers are are pretty flat year on year. So I think, you know, affordability, you'll hear a a lot of people talking about, but our approach is, you know, if the government introduced some demand side stimulus, of course, that's very helpful for us, whether that's on stamp duty and help to buy and so on. But, fundamentally, we're focused on controlling what we can keep control of ourselves, and that is the design and the cost of the houses that we're building. So we're focused on self help, if you like, rather than waiting for for a help to buy to come through. But I think it's that combination of supply side and demand side, which is where we're really trying to get the the balance with the government.

27:37 Perfect. Thank you for updating investors today. But just before we ask investors to share their feedback, which I know is particularly important to the company, Andrew, could I please just ask you for some closing comments? Yeah. Of course. Well, thank you all for taking the time to to listen this morning. I think my closing comments are we're very clear on our strategy. Our strategy is working. It's delivering growth in volumes, growth in operating profit, growth in return on capital, and we continue to focus on delivering our own strategy in the face of challenges, but being proactive, being on the front foot so we can continue to drive growth through the business. That's great. Thank you both once again. Could I please ask investors not to close this session? It should now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team of PERSIMMON PLC, we'd like to thank you for attending today's presentation, and good morning.