Persimmon (LSE:PSN) — FY24 Results

0:00 Good morning, and welcome to the PERSIMMON PLC Investor Presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged, they can be submitted at any time just by using the Q and A tab that's situated on the top right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CFO, Andrew Duxbury. Good morning to you, sir. Good morning. Thank you, and good morning, everybody. Thank you for joining today's call. So we're really pleased with our 2024 results. We've achieved a return to growth after reductions in 2023, I'm really confident that we're well positioned for more to come. So I'm going to start this morning with some of the key highlights from our results.

0:54 So as you can see on the slide, we've grown underlying PBT by 10% to GBP $395,000,000. We've delivered a 7% growth in completions to 10,664. Our sales rate in 2024 of 0.7% is up 21% from last year's 0.58%. We've grown our owned land bank by 4% to over 69,000 plots. And the total number of plots in our short term land bank is now over 82,000, and that gives us excellent visibility for the year ahead. Build quality and customer service is at a record high with the HBF eight week score at 96%. Our current forward order book is up 12% at GBP 1,700,000,000.

1:44 And within that, the private order book is up 27%. And finally, underlying earnings per share for 2024 of 92.1p is up 12%. So in combination, everybody, these are excellent results that delivered through the hard work of my colleagues up and down the country. And really importantly, this improved financial performance was against a backdrop of a sector that went backwards in 2024. So that demonstrates the tangible benefits of our own business improvements that we've put in place over the last few years. And it's these improvements that mean we're set for further growth in 2025, as I'll come back to later on in the presentation. But first, just to give you a little bit more color on the 2024 performance.

2:34 So this slide sets out the volume split. And you can see of the total new homes delivered in 2024, 9000 and '75 were private, and that's 18% higher than the previous year, driven by increased sales rates, increased number of sales outlets, and bulk investor sales. We finished the year with two seventy outlets. That's 5% more than we started the year with. And bear in mind that outlets in the sector as a whole shrank by 5% across the same period. 31% of our private completions were to first time buyers. That's a very important market for us as well. You can see on the slide that partnerships output fell. That was 15% of total completions but from a particularly high point in 2023.

3:20 And typically, I'd expect that to be 15% to 20% of completions going forward. Private average selling price increased a small amount as you can see and overall pricing has been robust, particularly through the second half of last year. Importantly, our product remains affordable with PERSIMMON HOME's average selling price 20% lower than the average new build across The UK and with 60% of our completions below £300,000 Across the year, average incentives on completions were around 4.5%, but off slightly stronger pricing. And our blended average selling price was up 5%, which in combination with the increased volumes led to revenues increasing by 13%.

4:12 This slide shows how that increase in revenue led to a GBP 50,000,000 increase in underlying operating profit and an increase in our underlying operating margin to 14.1%. You can see on the slide the positive effect of the increased volumes, the increased average selling price and the positive mix moving more towards private units. The movement in the cost line is small, and we continue to be very, very focused on commercial disciplines across the business. Net operating expenses increased by £11,600,000 That was a 7% increase lower than the 13% increase in revenues, showing improved overhead efficiency. As you really see, I mean, of course, that's on an underlying basis.

5:01 Within our exceptional costs, we included a £2,000,000 adjustment for our building safety remediation provisions. And it's building safety remediation that I'd just like to cover now briefly. So this is an important topic, and the most important thing here, everybody, is that we are getting on with our remediation work, getting on with our obligations, and we're making good progress. We are on-site or complete over 70% of known developments or 80% of known buildings and just one additional development came into our program last year. And importantly, we have assessed all known developments. So this is a complete list of our developments within our scope. During the year, we spent £58,000,000 and that brings our total spend on remediation work to around £120,000,000 And I expect us to spend another £100,000,000 this calendar year.

5:57 So the provision at 12/31/2024 was £235,000,000 and you can see that the bulk of the remaining spend is going to be spent over the course of the next two years or so. Getting on with this spend is the right thing for us to do and it will also create free cash and capital allocation opportunities for us in the future, which I'll come back to shortly.

6:23 Our capital allocation opportunities also include investment in future growth and thus the basis of that is our strong balance sheet. So in the year, our net assets increased 2.5. And within this, we reported net cash at December of £259,000,000 And even taken together with our land creditors, that means our gearing at the end of December was less than 5%. So we said this time last year that our cash would reduce in 2024, and you can see on the slide how the cash changed through the year. The year end position is still very, very strong even though we've invested substantially in the future growth of the business. We've invested over GBP 1,500,000,000 in land over the last three years.

7:09 So just working across the bridge there, you can see cash inflow from operations was GBP $420,000,000. The net cash flow into new land, so after land utilization and the movement in land creditors, was £113,000,000 and that is about investing in future growth. WIP and other working capital movements of £61,000,000 includes an increase in our part exchange holdings, but again, we're very focused on turning those PX holdings into cash. We spent £102,000,000 on interest and tax. And so before our Building Safety Remediation Works and before dividends, we had net cash generation of £89,000,000 And that would have been a net cash inflow of $2.00 £2,000,000 before the net investment into new land.

7:57 So all that demonstrates is that our model is cash generative and sustainable even at the bottom of the housing cycle where we are at the moment, and we'll start to generate strong cash as we grow the business. So let me now move on to capital allocation. The structure of our capital allocation policy is set up on the slide. So we will maintain our strong balance sheet. We'll keep low leverage through the cycle. And alongside this, we'll prioritize dealing with the building safety remediation work, which I talked about earlier. And for context, that building safety remediation work, that £58,000,000, that equated to around 18p per share in 2024. Secondly, we'll continue to invest to grow our number of outlets, driving our organic growth opportunities.

8:47 And we've deliberately continued to invest in our capabilities and to invest in land at the bottom of the cycle, over £1,500,000,000 in the last three years. This has reduced our current cash position, but it's providing us a platform for growth as I'll come on to shortly. And we'll continue to pay a sustainable dividend well covered by profits through the cycle. So to be sustainable, we won't over distribute. We need to continue to invest in growth. And given the strong performance in 2024 and the good outlook, we've retained our final dividend of 40p, bringing a total dividend for the year to with underlying dividend cover increasing from 1.37x to 1.54x. And as we deliver our growth plans and we progress our fire safety remediation works, I'm very confident that we'll be able to grow our dividend as a result.

9:42 So what I'd like to do now is spend a little bit more time talking through our strategy and our growth plans. So I will spend a few minutes on this single slide. So it is really important, it's very good to see the business growing again in 2024. And the strategy which I'm about to walk you through here gives us optimism that we can continue to grow into the future. So firstly, our strong balance sheet and improved planning performance is helping to grow our pipeline of new sales outlets. So in the last three years, we spent £1,500,000,000 on land. We've utilized about £1,000,000,000 of land. And that's in a period where land prices have been softer than previously. In 2024, we increased our outlets to two seventy. That was up 5% even though the market as a whole reduced outlets by 5%.

10:37 In 2024, we achieved planning permission on over 13,000 plots, plus 120% of last year's delivery, meaning that we're in a better position to grow than we came into last year with. Our planning consents were 20% higher than in 2023, and that shows the benefit of our own improved approach to planning and a more supportive policy environment. Secondly, our record quality and customer service scores are enhancing our reputation and that is helping us to sell more homes. So in the year our HPF score reached a record, 96%. And over the last five years, we've moved from being bottom in the peer group to being third amongst our industry peers.

11:23 Our reportable items, which is a measure of build quality, improved again in the year and we're now 60% better than we were in 2019. Thirdly, our investment in sales and marketing. That is also generating more inquiries and is improving our sales rates. So the customer consideration of the PERSIMMON brand has increased 26% in the last two years, and customers' trust in the PERSIMMON brand has increased 14% over the same period. We've invested in new sales teams, we've invested in new sales systems to generate more inquiries. And website inquiries this year so far are up 20%, and that's building on consistent year on year improvement since 2022.

12:12 And we're continuing to invest here, for example, in a new interactive customer website and in new marketing cloud systems to help target and track individual customers through the sales journey. Last year's sales rate was 21% higher than 2023, and so far, the sales rate is up again this year. So fourthly on the list, our three diversified brands are providing us new opportunities to drive volume, to drive margins and drive improved return on capital. So PERSIMMON Homes is very well positioned. That's with simple, standardized house types that are quick to build.

12:54 Charles Church, our premium product, is a clearly distinct product. It's positioned for cost conscious customers who are prepared to pay a premium for a higher value product. And this is delivering margins over four percentage points higher than the typical PERSIMMON house. And we think we can double the volume of Charles Church products over the next few years following a brand relaunch that we completed at the beginning of last week. And our third brand, Westbury, is ideally placed for the Section 106 and the growing build to rent markets. That build to rent market has doubled to GBP 5,000,000,000 per annum over the last five years, and around half of the delivery in 2024 was for single family accommodation outside of city centers, exactly the kind of product that PERSIMMON produces. So we'll continue to engage with the built around sector to drive volumes and drive increasing returns.

13:56 Fifthly, our unique vertical integration model provides efficiency and scale opportunities for us. So in 2024, we self manufactured over half the bricks that we used and over 80% of the roof tiles that we used last year. And that provides us with security of supply, it protects us from cost inflation, and it provides us real cost efficiency opportunities.

14:23 Used alongside our own timber frame kits, we can save up to £5,500 per plot supporting our margin improvement plans. And we're currently investing in upgrading and automating our timber frame factory. And in due course, we've got plenty of pressure and we will build a second factory doubling our capacity of timber frame production. Alongside this, we're also investing in a new facade product to use with our timber frame houses, allowing us to construct the superstructure, so from foundations up to roof, including that tile roof within five days. Whereas at the moment, on a typical construction site, that would take nearer twelve weeks. So a huge time and cost saving for us.

15:10 And all the products that we would use in that five day build could be manufactured within our own factories, giving us that security of supply and cost efficiency as well as increased return on capital.

15:25 And finally, whilst none of us can predict the macroeconomic dynamics, the government's pro house building agenda is is very welcome, and their planning reforms could provide a tailwind adding further outlet growth given our strong strategic land bank. So strategic land was a source of 42% of completions in 2024, and we continue to replenish it. So we currently have 70,000 plots in that strategic land bank with excellent margins and some of these we will be able to accelerate production because of the planning reforms announced by the government. So far we've identified 38 sites, 7,500 plots, and we're continuing to assess what the new planning policies mean for our portfolio going forwards.

16:18 And you can see on this slide how the areas that I've just been talking about will allow us to grow our margins back in the medium term to 20%, assuming stable market conditions. It's important to say this is not going to be a straight line progression. There's regulatory changes, including the building safety levy and future home standards that will come into play, and they will dampen the margin growth in the short term until they're fully factored into land prices. And beyond this, of course, our margin progression will be accelerated or held back by wider macroeconomic drivers. But we're confident of the elements that we're controlling. You can see on the slide there the volume impact, Charles Church, vertical integration and the land buying, the new land coming through post the inflation spike of 2022.

17:08 Our operating margin is already higher than our direct peers, and we've got a clear plan for margin progression and increased capital return as a result. So to summarize, our strategy delivered a turning point in 2024, and 2025 has started so far very well. So we believe that we're in this is this is just a summary of the 2025 start. You can see the improved forward sales book on the slide. So we believe that we're well placed to deliver growth in 2025 to over 11,000 units, And our private order book is already 27% higher than last year. That includes a 23% increase in the number of homes sold and ASP is up 3%.

17:59 You can see from the slide that private sales in the first nine weeks of the year are very good. Including books sales. Our sales rate is up 19% compared to last year at 179 sales a week. And excluding book sales, it's up 8% to 158 sales per week. And incentives this year so far are down a little bit even though pricing is stronger. So putting all of that together, as I say, this is a very good positive start to the year.

18:33 So to summarize, although there will be bumps in the road, the building safety levy, future home standards and of course, the volatile macroeconomic and geopolitical risks that we're all aware of, we are optimistic about our growth prospects over the medium term. We've got a strong land bank and a growing pipeline of sales outlets. We have three distinct brands, each well positioned in their respective markets. We're delivering record build quality and record customer service. Our deepening investment in vertical integration could drive a step change in volume at cost efficient rates, and our commitment to a strong balance sheet is absolute and resolute. Importantly, our principal liabilities in respect to the fire safety remediation are well known and are controlled.

19:24 So put simply, we are a growing business and we're capable of delivering even stronger returns to shareholders in the years to come. So thank you very much for listening. And with that, I'm going to suggest that we move to Q

19:41 and gentlemen, please do continue to submit your questions. You can do so just by using the Q and A tab that's situated on the top right hand corner of your screen. Just while the company take a few moments to view the questions that have been submitted today, I'd like to remind you that the recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboards. As you can see, we have received a number of questions throughout today's presentation. And at this point, Victoria, if I can hand over to you, that'd great, and I'll pick up from you at the end. Great. Thank you. So the first question that's come through is with an improved forward order book and pricing, could you accelerate your medium term margin and returns targets? Well, I think the improved forward order book gives us confidence certainly for our growth targets for 2025 and gives us confidence that we're doing the right things for those medium term targets. I think those medium term targets are ambitious but achievable.

20:32 I think let's get a little closer to them before we start accelerating them all further. But certainly, you know, what we think is that we've got the right building blocks in place to drive those medium term targets, assuming a stable macroeconomic background, which you know, and and I think the

20:48 pent up demand for new housing is there and is strong. So that stable background gives us a real opportunity to to to deliver those targets. And I think linked to that, the the strong start that we've had in 2025, how much of that do you think is linked to the upcoming stamp duty changes? How much is coming to Q1 that would normally have been delivered in Q2 onwards? Yes. The stamp duty changes, I read a lot about this in the press, is relatively little impact for PERSIMMON for I think two reasons. Firstly, we don't have a huge amount of finished stock. The way we control our WIP through the year, we don't come into kind of January 3 with lots of finished stock more than we would have otherwise been purchasing for. So if you like, at the moment where they announced the change of stamp duty,

21:38 you know, if you like, our Q1 production was already pretty well set in train. And secondly, because of our price point, our customers are relatively less affected. So a first time buyer buying a £300,000 house is no change just to their stamp duty. So because of our price points, relatively smaller impact for us. I think the impact you read about a lot in the press at the moment from the solicitors and state agents and so on is probably driven more by the second hand market rather than by new build. Okay. Thank you. And then moving on to sort of land buying. So there are a couple of linked questions here. The first one is what is your land buying strategy for 2025? Will you remain selective, or is there an opportunity for, sort of faster expansion?

22:26 And then sort of following on to that, the second one is, you know, what impact will you then see from the the land investment you've already made for the last three years? What will what impact will the land have on cash flow and dividends for both twenty twenty five and beyond? Okay. Fine. So our strategy is to continue to invest in land. So we need to invest in land because that's our, if I like, our raw material to grow the business. So we we have invested heavily in the last three years when the market's been softer, and we'll continue to invest in land because whilst the land market is, you know, still relatively orderly, that's that's the right thing for us to do to grow the business. And, you know, we can still buy land at the appropriate hurdle rates. We can still buy land with deferred payment terms and the right payment terms to meet our requirements. So we are still active in the land market. There's still lots of good opportunities, you know, coming to us.

23:19 And I think, you know, with the government's ambitions and with the planning reforms, that that helps and is a is a into the land the land market. So, you know, I think, you know, clearly, as we go forward through the plan, the amount of net investment into land in the medium term would perhaps start to stabilize and that then generates more free cash and that gives us opportunity around

23:43 shareholder returns, of course. But I think it was the right thing for the business to invest in land in the trough of the market because that's what's allowed us to grow our outlets in 2024 and just to return to growth so quickly after the difficult period at the back end of 2022. And so just on that Oh, sorry. Vicky, sorry, I lost you. Yeah. It went from mine as well. Sorry. So just in terms of the house boarding, pro house boarding stance of the government, how much did that sort of help with accelerating?

24:29 And is there anything else that, you know, the government should be doing that you'd be looking for? Yeah. So we we are encouraged, I think, in doing the right thing on on the planning front. Mean, let's be clear. That's not gonna affect my delivery in 2025 or probably even into '26 because clearly, it's a gestation period from a change of planning rules to getting something designed through planning, constructed and on-site. But I think in the forms of time, it's very, very helpful. I think they've gone I think they've really grasped the nettle, if you like, of some of the

25:00 challenges in the planning system, and they've really looked to try to address those. We are very encouraged by that. And as I say, what we've in the very short term, what we've done is we've gone through our strategic land bank. We've looked to see where there are sites in there that we can potentially accelerate into the shorter term land bank because of the fact that they may now get applying allocations earlier than they would otherwise have done. So we're very encouraged by what they've done on planning. Clearly, they haven't at the moment talked about anything on the demand side. This is if you the HPF have a statistic that this is the first time in sixty years that there's been no support for first time buyers on the demand side. And so, you know, I think the affordability, particularly for first time buyers, is still, you know, that access in the mortgage market and being able to get hold of a mortgage to be able to move into the housing market. That is, you know, perhaps the challenge which we haven't seen addressed yet. But certainly, what they've done on the planning side, think we're very encouraged by.

26:02 Thanks. And just sort of looking at sort of the ability of the industry to be able to deliver sort of an uplift in housing. We've sort of heard a lot about an industry wide skill shortage. Are you seeing any of that at the moment? And what strategies is PERSIMMON putting in place to secure sufficient labor to meet build targets in 2025 and beyond?

26:26 Yes. So that's not an issue as of today. But then the sector is the volumes at the moment are relatively lower, of course. And so I think as the sector looks to increase delivery and we've only as a country delivered 300,000 houses on occasion. So the skills that will create some skills challenges, I've no doubt. It's why we need to continue to invest in apprentices and trainees and early careers and bring people into the sector. But it's also from a PERSIMMON's perspective why the investment in vertical integration in our timber frame factories, in the facade product that I talked about are so important because if we can deliver more volume with the same number of people, then that clearly is a very good way to address skill shortages as the sector grows.

27:21 And so, you're moving to an off-site manufacturer of timber frame panels to on-site assembly of those panels needs different skill sets, needs probably fewer people. And certainly, we then bring the facade products in rather than having brick skins, then again, that takes away another pinch point from the skill set. So I think, of course, investing in people, investing in early careers is very important, but as is the innovation, vertical integration, modern methods of construction. I think it's in combination, those two things is how as a sector we address address the skill shortages in order to deliver those higher volumes.

27:57 And I think just linked to that, there's another question sort of around the investment in automation and new timber frame factory. I suppose, can you just expand a little bit more on, you know, how quickly you'd expect to sort of get that up and running? What sort of capacity a factory could be? And how much efficiency and cost savings do you think that will bring sort of over the next three years, like longer term?

28:19 Yes. So sure. So the timber frame factory at the moment, our existing factory, we've got one of our lines out of action whilst we're replacing it, we're upgrading it, putting in an automated line. That will increase the capacity of the existing factory. So last year, we probably delivered something like 25%, 30% of our products through timber frame. We would like that to grow towards 50%. So increasing the quality and the efficiency and the capacity of our existing factory is important. That new line will be in production in the middle of this year. So that's very, very close. We have got permission for a second factory that will increase and probably double our capacity overall. We haven't started construction of that yet. We'll probably start that work later on this year, which is the early ground works and so on. So that will come online in, I guess, a couple of three years, maybe a couple of years' time. So but overall, it's important that we do two things. One is that we invest in that quality and the capacity within the factory. And secondly, that we invest in the skill set of our teams and our supply chain to be able to use the timber frame products. So at the moment, timber frame is quite a regionalized product. So Scotland is very familiar.

29:35 Southwest Of England is very familiar. But then other parts of England, timber frame is not something which is has been used extensively. So again, upskilling our supply chain in line with us increasing our capacity is what we're looking to do there. And as I say, if I was

29:52 at the moment, if I was to build a timber frame house with my own bricks as the brick skin and my own roof tiles on top, including the shorter construction period, that probably saves me £55,500 per plot. If I was to then wrap it with the facade product we're talking about instead, given the speed of delivery, that saving could be near £10,000. So significant cost savings as well as the capacity that it gives us. So it's a really important part of the strategy. Thank you. And just sort of moving on to the capital allocation a bit. There's a question here. So what is the company's view on share buyback programs? Do you agree that the market doesn't really appreciate them and shareholder returns are bettering by increasing dividends?

30:38 Yes. So what we've said on capital allocation is in the first instance, we want to make sure that we have a sustainable dividend through the cycle. So that's why this year, we brought our dividend cover up a little to 1.54 times. And as we go forward, then we'll be able to grow our dividends as well. I think you know, in terms of then if there is excess capital beyond that, you know, whether there's additional dividends, whether there's capital buy you know, share buybacks, that's something that we would look at at the time based on market conditions, you know, and and so on. So, yeah, I guess I'm open minded, but in the first instance, I expect to see probably the dividends increasing before before moving into share buybacks. Thank you, Angie. A slightly different sort of topic, but looking at the net zero sort of moving targets, how disruptive are the various changes the similar? To what extent are we looking to build houses with, you know, solar and heat pump systems versus more traditional systems? So perhaps just talk a little bit about upcoming regulation.

31:43 Yeah. So so it's very few regulatory changes. So the part of the building regulations brought in requirements for solar panels, for the PP panels on roofs, electric car chargers and so on. Future hose standards, and we're still there's a little bit of uncertainty about exactly when that will be fully applicable. You will replace gas boilers with SLC pumps, for example. So so there is a kind of regulatory move towards lower carbon

32:10 houses, you know, once the houses are are there and in operation. So, you know, the challenge, I think, for any company with regulatory changes when that regulatory change happens with little notice. So where you know, what we would look to do is those those those regulatory changes do add cost to the building of houses. So it is more expensive to put PV pumps on roofs than to not do. It is more expensive to put in air source heat pumps than gas boilers. So we would look to build all of those cost base into the cost base as we acquire land as we go forward. The transitionary risk is always on the land I've already acquired. If the regulations change, then the question is, well, how do I recover that cost? Because it's probably it's not something which I think our customers are seeing the value of in order to pay particularly much extra for at the moment. So that's why there's on that margin slide I showed, there is a I said there is it won't be a straight line. There'll be some bumps in the road because as regulatory change comes in before you can factor that into the land acquisition process, then that is a cost to the business.

33:20 So if from my mind, I think having enough of a run-in enough line of sight into the regulatory changes is very important. You know, this is an industry which clearly works in, you know, we buy land. We we need to have a a long enough line of sight in order to in order to factor those costs into the work that we're doing.

33:41 Thank you. There is just one final question sort of on the list at the moment, and that's, you know, thank you for presenting on Investor Meet, but when might PERSIMMON make research available for private investors? So this is something we talk about yeah, from time to time, so we we keep under review. So what what I like to do is to look across the pieces to our investor relations activities. So this is the first time, for example, that we've presented on the investment company. I think it's, you know, it's a platform which reaches a a wider audience and a different audience to to other investor relations opportunities. And I think the paid for research kind of falls into that same bucket. So, look, we keep all of these things under review, and we just keep, you know, keep trying to make sure that we've got a balanced approach across the whole IR strategy.

34:34 Thank you. I think, Andrew, I think that's all the questions that we've got at the moment if you want to make some closing remarks. Okay. Well, thank you all for the questions and for joining the call today. As I said, 2024, we're very pleased with our performance, particularly that was a performance delivered under our own steam, not because of a really strong market backdrop. And you can see from, hopefully, from the strategy and the elements of the strategy I've set out on today's presentation that we are well placed to grow and to continue our growth into 2025 and beyond. So thank you all for joining the call. Andrew, Victoria, thank you very much for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations?

35:23 This will only take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of PERSIMMON PLC, we'd like to thank you for attending today's presentation, and good morning to you all.