TIDMPSN
RNS Number : 2734E
Persimmon PLC
27 February 2020
FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2019
Persimmon Plc today announces Final Results for the year ended
31 December 2019.
Highlights
"Improving build quality and the service delivered to our
customers were our top priorities throughout 2019. Putting
customers before volume is at the heart of our customer care
improvement plan and, as a result, new home legal completion
volumes were 4% lower year on year. Having commissioned the
Independent Review in April, we were clear that we would not delay
action until its completion in December and were engaged on a broad
range of customer service and quality improvement initiatives
throughout the year. We are confident these initiatives will add to
our momentum this year.
"Persimmon's results for 2019 reflect our focus on offering
attractively priced new homes for all, where housing need is
greatest across the UK. I am proud of the enthusiasm and dedication
with which the whole Persimmon team is making the many changes
necessary to achieve higher levels of quality and service to our
customers. We continue to invest in our teams, systems, and our
off-site manufacturing capabilities to support the Group's further
sustainable development.
"I am pleased with the headway we have made in 2019 and
determined that we will make further progress with these
initiatives in 2020. Persimmon is in a strong position for the
future supported by the Group's talented teams, healthy forward
sales, strong forward build and robust balance sheet."
Dave Jenkinson, Group Chief Executive
Strategic focus
-- Improving customer service levels - continuing to put
customers before volume
- Delaying sales release in higher demand locations
to later stages of construction is delivering the
anticipated benefits to customers
- Significant investment in improving build quality
and customer care, with an additional GBP213m invested
in work in progress and a c. GBP15m increase in annual
quality assurance and customer care spend
- Persimmon's HBF survey rating(1) continues to trend
strongly ahead of the Four Star threshold
- Customer portal being rolled out across the Group's
regional businesses during the first half of 2020
further strengthening engagement and service levels
-- Improving build quality and safety
- Industry leading retention scheme introduced in July
2019 reinforcing behavioural change in site construction
management and customer care
- Construction programmes advancing - work in progress
of GBP1,095m now at 32% of new housing sales (2018:
GBP882m, 25%) supporting increased new home inventory
volumes, improving new home quality, availability
and delivery
- New team of Independent Quality Inspectors engaged,
s trengthening our current assurance processes across
each of our regional businesses
- Additional Group wide training initiatives being
delivered to support improved site management of
construction programmes
-- Independent Review update
- The Independent Review, published on 17 December
2019, provided some additional recommendations which
the Persimmon team have embraced and are in the process
of implementing
- Persimmon's Construction Working Group is currently
consolidating the Group's construction standards
to define "the Persimmon Way" of new home construction,
and establish consistent construction and quality
processes Group wide
- Central control of construction processes and standards
is being established under the Group's newly appointed
Construction Champion
- The Group continues to progress its cavity barrier
inspection programme, with over 20,000 properties
now inspected
- Board review of clarity of Persimmon's purpose and
culture continuing with an update to be given at
the AGM in April 2020, as previously announced
-- Housebuilder for all
- Increasing the supply of good quality homes for everyone
with m ore first time buyers helped onto the housing
ladder than any other UK housebuilder - 6,262 new
homes sold to first time buyers in 2019, representing
50% of Group private sales
- Group average private selling price c. 18% lower
than the national average for newly built homes sold
to owner occupiers(2)
- Creating opportunities for all - directly employing
more local tradespeople (c. 2,050) than any other
housebuilder, with c. 750 trainees employed in structured
training courses
- Investment of over GBP520m in local communities during
the year, including the delivery of 3,392 new homes
for lower income families to our housing association
partners
- Signatory to the Social Mobility Pledge(3) - leading
engagement in the house building industry to promote
opportunities for all
- Launched our Building Futures campaign, joining forces
with Team GB, run by the British Olympic Association,
to support children across the UK
- Persimmon's Charitable Foundation contributed c.
GBP2.3m to support c. 900 charities, local community
groups and good causes across the UK
-- Supporting environmental wellbeing
- Reduced our Scope 1 and 2 greenhouse gas emissions
per new home sold by 8%
- Working with Government and industry to manage the
transition to low carbon homes
- Provided c. 750(4) acres of public open spaces and
gardens
- Planted c. 146,000 trees during 2019
-- Group Chief Executive Succession
- Dave Jenkinson has informed the Board of his wish
to step down in due course and a search process for
his successor will now commence
- Dave will remain as Group Chief Executive and is fully
committed to leading the ongoing programme of change
for as long as the business requires
Financial highlights
-- Financial trading performance remains strong
- 15,855 new homes sold (2018: 16,449) - 4% down on
last year
- Total new homes average selling price of GBP215,709
(2018: GBP215,563)
- Total Group revenue 2.4% lower at GBP3.65bn (2018:
GBP3.74bn)
- Underlying new housing operating margin(5) of 30.3%
(2018: 30.8%)
- Profit before tax of GBP1,041m (2018: GBP1,091m)
- Net free cash generation(6) of GBP544m (2018: GBP478m)
- Basic earnings per share of 266.8p (2018: 283.3p)
- Return on average capital employed(7) of 37.0% (2018:
41.3%)
- Return on equity(8) of 26.3% (2018: 27.7%)
-- Excellent platform for future growth
- 10,013 plots of new land secured in the period, including
4,218 plots converted from the Group's strategic land
bank; 71,942 plots owned (December 2018: 75,793 plots)
- Increase in work in progress investment to GBP1,095m
(2018: GBP882m)
- Land creditors reduced by GBP113m to GBP435m at year
end (2018: GBP548m) providing increased flexibility
to invest in attractive future land opportunities
- GBP844m cash held (2018: GBP1,048m)
- Strong current forward sales of GBP1.982bn (2018:
GBP2.017bn)
-- Shareholder returns
- Return of surplus capital of GBP1.25 per share (GBP397.7m)
paid 29 March 2019 in addition to the scheduled payment
of GBP1.10 per share (GBP350.1m) paid on 2 July 2019
- Interim and Final dividends of GBP1.25 and GBP1.10
per share respectively declared for 2019 to be paid
in 2020
- Commitment to a total return of GBP2.35 per share
in 2021 (2020: GBP2.35)
1 The Group participates in a National New Homes Survey, run by
the Home Builders Federation, the rating system is based on the
number of customers who would recommend their builder to a
friend.
2 National average selling price for newly built homes sourced
from the UK House Price Index as calculated by the Office for
National Statistics from data provided by HM Land registry. Group
average private selling price is GBP241,985.
3 Social Mobility Pledge is a cross party campaign to improve
social mobility in the UK
4 Estimated using an economic toolkit
5 Stated before goodwill impairment (2019: GBP7.3m, 2018:
GBP9.2m) and based on new housing revenue (2019: GBP3,420.1m, 2018:
GBP3,545.8m)
6 Net free cash generation stated before Capital Return Plan
payments
7 12 month rolling average stated before goodwill impairment and
includes land creditors
8 12 month rolling profit after tax generated from the average
of the opening and closing total equity for the 12 month period
For further information please contact:
Dave Jenkinson, Group Chief Executive Simon Rigby
Mike Killoran, Group Finance Director Kevin Smith
Persimmon Plc Jos Bieneman
Tel: +44 (0) 20 7638 9571 (on Ellen Wilton
27 February 2020)
Tel: +44 (0) 1904 642199 (thereafter) Citigate Dewe Rogerson
Tel: +44 (0) 20 7638 9571
Analysts unable to attend in person may listen to the
presentation live at 10:00am by using the details below:
Telephone number: +44 (0) 203 0095709
Conference ID: 2429008
Webcast link: https://edge.media-server.com/mmc/p/mkyge9i3
An archived webcast of today's analyst presentation will be
available on www.persimmonhomes.com/corporate this afternoon
CHAIRMAN'S STATEMENT
Persimmon's purpose is to build good quality homes at a range of
price points across the UK. We aim to create and protect superior
and sustainable levels of value for the benefit of our customers,
workforce, suppliers and shareholders through the housing cycle.
Developing a business based on strong, sustainable foundations, and
where our employees have the opportunity to achieve their full
potential, provides the platform for our continued success. We
recognise that this success is dependent upon strong engagement
with, and delivery for, all our stakeholders, including our
customers, our people, our supply chain partners, local communities
and Government.
From the start of 2019, Persimmon commenced a programme of
change, making significant additional investment in a customer care
improvement plan, which placed the customer at the centre of our
business. At the heart of this plan is a commitment by Persimmon to
a programme of cultural and operational change that prioritises
customer care over volume growth. Affirming the Group's commitment
to implement this change and to ensure it would achieve its
objectives, the Board commissioned an Independent Review ("the
Review"). The Review, published in December 2019, provided some
additional recommendations which the Persimmon team have embraced
and are in the process of implementing. As previously announced,
the Board will provide an update on its consideration of the
purpose and culture element of the Review's recommendations at the
AGM in April 2020.
The focus on delivering consistently higher build quality and
improving the standard and responsiveness of the service customers
receive has started to deliver the anticipated benefits. Whilst
Persimmon's plans to deliver consistently higher levels of quality
and service go far beyond a focus on the criteria of the HBF
customer satisfaction survey, the ongoing improvement in our HBF
rating, which is trending strongly ahead of the Four Star
threshold, is tangible evidence of the progress made so far.
Persimmon's results for 2019 reflect the strength of the Group's
positioning in offering a broad choice of homes for all, and across
the regions of the UK. The Group's new home legal completion
volumes were 4% lower than the prior year, reflecting the later
sales release of homes under construction in higher demand areas as
part of the plans to improve build quality and customer service.
The Group continued to increase its investment in work in progress
to GBP1,095m (2018: GBP882m) to support these initiatives. Profit
before tax was GBP1,041m (2018: GBP1,091m) with an underlying new
housing operating margin(1) of 30.3% (2018: 30.8%). Cash balances
of GBP844m were held at the end of the year (2018: GBP1,048m) and
the Group's owned and controlled land holdings totalled 93,246
plots (2018: 99,088 plots).
We are confident that the implementation of our customer care
improvement plan, our continued commercial success and wider
investment in society provide a strong platform for the long term,
sustainable development of the Group.
CUSTOMERS AND COMMUNITIES
Persimmon aims to provide homes for all by constructing a wide
range of good quality affordable homes in places where people want
to live and work right across the UK. The Group's average private
selling price of GBP241,985 is 18% lower than the national average
for newly built homes sold to owner occupiers(2) . In line with
Government housing policy, the Group focuses on creating attractive
neighbourhoods which enhance and contribute to the local area and
meet the housing needs of the communities they serve. Persimmon
supports more first time buyers onto the housing ladder than any
other UK major housebuilder, with 50% of our private new homes
being sold to first time buyers in 2019.
Improving the quality of the homes we build and the service we
provide to our customers was the Group's top priority throughout
2019. We are putting quality and service for our customers before
volume, delaying sales releases on developments with high demand
until build is at a more advanced stage, to support the
implementation of our customer care improvement plan initiatives.
New homes stock levels were 14% higher at the year end and the
Group invested an additional GBP213m in work in progress year on
year. The recruitment of our new Independent Quality Inspections
team provides another level of scrutiny, strengthening our overall
quality assurance processes.
Our Construction Working Group, led by our newly appointed Group
Construction Champion, is establishing "the Persimmon Way", which
will consolidate our approach to new home construction standards
and embed best practice across the Group. This approach is
consistent with the recommendations of the Independent Review.
We have also invested significantly in enhancing customer
service, increasing on-site customer care resource by 70% and
improving IT support to deliver a more responsive service. The
introduction of our Homebuyers Retention Scheme in July 2019, is a
first for the industry, and is already driving behavioural change
within the business. Further detail on the Group's customer care
improvement plan is provided in the Chief Executive's Review.
We place great importance on our wider contribution to the
communities we serve. During the year we have invested over GBP520m
in local communities through the delivery of new homes for lower
income families and planning contributions, which have helped
create over 2,500(3) school places. This brings the Group's total
community investment to c. GBP2.0bn over the last five years.
During 2019 the Group provided c. 750(3) acres of public open space
and gardens helping to support biodiversity betterment whilst
delivering good quality homes. Our operations have also supported
almost 50,000(3) jobs on our sites and within our supply chain.
Since 2010, in the ten year period following the global
financial crisis, the Group has invested over GBP4.8bn in land,
opened over 1,750 new development outlets and delivered over
130,000 newly built homes whilst also providing substantial amenity
value to the benefit of local communities and the environment right
across the UK. For example, the Group has planted c. 510,000 trees
over the last five years adding to the biodiversity of local
environments whilst providing opportunity for enhanced carbon
capture over future years. This commitment to building good quality
housing for all at affordable prices, to create vibrant inclusive
neighbourhoods that meet housing need is directly aligned with
Government policy. We continue to work closely with local planning
authorities and communities to bring land into construction as
promptly as possible, with our investment in associated
infrastructure, new home construction, and the local environment
helping to create long term value for the local communities we
serve.
LONG TERM STRATEGY AND CAPITAL RETURN PLAN
Persimmon's strategy is aligned to its purpose - building on its
sustained success the Group will support continued investment in
residential development opportunities for the benefit of local
communities throughout the UK. Our long-term strategy recognises
that the timing of this investment will be judged to mitigate the
risks to sustaining value creation for all stakeholders through the
housing market cycle, whilst making appropriate returns to
shareholders whose capital we deploy in pursuit of fulfilling our
purpose. Retaining flexibility to support the appropriate level of
reinvestment in the business, whilst minimising financial risk
through the cycle, is a key element of the Board's strategy.
Persimmon's strategy recognises the Group's ability to generate
surplus capital beyond the reinvestment needs of the business as
the market cycle develops. The Board has been mindful of the
increased uncertainties regarding the outlook for the UK economy
for some time and has adopted a selective approach to new land
investment, building Persimmon's cash reserves progressively to
strengthen its financial position. For the current scale of the
business, the Board believes cash holdings of c. GBP700m are
appropriate, minimising financial risk by providing sufficient
liquidity to cover the annual working capital cycle of the
business, while maintaining flexibility to deploy additional
capital should further attractive reinvestment opportunities
arise.
The Board assesses the availability of surplus capital on a
regular basis, considering the appropriate balance between the
financial position of the Group and its reinvestment needs, the
Group's land holdings, the housing market cycle and land market
conditions, and the broader economic risk profile. The Board has
set out its risk and viability assessment processes in note 11 to
this announcement.
Having concluded its 2020 assessment of the availability of
surplus capital, as part of the regular annual assessment of the
Capital Return Plan, the Board is pleased to reiterate its
commitment to total capital returns of GBP2.35 per share in 2020 in
line with the existing plan, with a payment of GBP1.25 per share to
be made on 2 April 2020 to shareholders on the register on 6 March
2020 as an interim dividend for 2019, together with recommending to
shareholders a regular annual capital return of GBP1.10 per share
to be paid on 6 July 2020 to shareholders on the register on 12
June 2020 as a final dividend for 2019. In addition, the Board is
pleased to announce its intention to return a further GBP2.35 per
share in 2021. The Board is increasing the regular annual payment
to be made in early July 2021 to GBP1.25 per share, with the
additional return of surplus capital of GBP1.10 per share to be
paid in late March 2021. The total value of the capital return plan
to 2021 is now GBP14.25 per share compared to the GBP6.20 per share
initial commitment made by the Board in 2012.
RESULTS
Persimmon delivered another strong trading performance in 2019.
The Group's total revenues were GBP3,649m (2018: GBP3,738m), with
new housing revenues of GBP3,420m (2018: GBP3,546m) being 4% lower
than last year. The Group sold 15,855 new homes in the year (2018:
16,449) at an average selling price of GBP215,709 (2018:
GBP215,563), the lowest of any major housebuilder in the UK.
Customer demand across the regions of the UK was supported by
resilient consumer confidence right through the year, despite
elevated levels of uncertainty relating to both the political
outlook and economic prospects, ahead of the UK's prospective exit
from the EU. Customers acquiring new homes at higher price points
have increasingly been more considered in their reservation
commitments. Sales to private owner occupiers totalled 12,463 new
homes (2018: 13,341), a reduction of 878 homes year on year, whilst
sales to our housing association partners were 3,392 new homes
(2018: 3,108), an increase of 284 homes.
The average selling price of the Group's private market sales
was GBP241,985 (2018: GBP238,373), an increase of 1.5% year on
year. Of the Group's total private sales of 12,463 homes, 57% were
sold across our northern businesses (2018: 55%). The Group
continues to provide strong support to the creation of mixed tenure
sustainable communities across the UK, delivering over GBP400m of
new homes to housing associations in the year (2018: GBP366m) at an
average selling price of GBP119,166 (2018: GBP117,653), which
represented 21.4% of the Group's total sales (2018: 18.9%). The
volume of sales achieved by the Persimmon brand was 11,327 homes
(2018: 11,947). Charles Church achieved 1,136 home sales (2018:
1,394).
The Group's total gross margin for the year was 31.0% (2018:
31.6%), with our new housing gross margin at 33.1%(4) (2018:
33.3%). The level of new housing gross margin reflects the ongoing
investment being made in the Group's build quality and customer
care resources and processes. The Group's customer care spend in
the year increased by c. 50% over last year. The Group's margins
are supported by its high quality consented land holdings with land
cost recoveries of 14.0% of housing revenues (2018: 14.6%). At 31
December 2019 the Group's cost to revenue ratio(5) for its owned
land holdings of 71,942 plots was 13.2%. The Group's continued
investment in its build quality and customer care improvement
initiatives will place the business in a strong position moving
forward. The Group's total gross profit for the year was GBP1,131m
(2018: GBP1,180m).
Underlying operating profit(6) for the Group was 5.1% lower than
last year at GBP1,037m (2018: GBP1,092m). The Group's underlying
new housing operating margin(1) of 30.3% was 50 basis points lower
than last year (2018: 30.8%). The Group's pre tax profits were
GBP1,041m, 4.6% lower than 2018 (GBP1,091m). Underlying basic
earnings per share(6) for the year of 269.1 pence reduced by 6.0%
compared to the prior year (2018: 286.3 pence).
The Group generated 250.7 pence of total capital value (before
capital returns)(7) in the year (2018: 204.4 pence) reflecting the
Group's strong set of results. After capital returns of 235 pence
per share recognised in the period, reported net assets per share
of 1,021.7 pence per share at 31 December were 15.7 pence higher
than the prior year (2018: 1,006.0 pence). Underlying return on
average capital employed(8) as at 31 December was 37.0% (2018:
41.3%).
The Group's balance sheet is strong. Due to the strength of the
Group's existing land holdings we have remained selective in our
approach to land replacement in line with our strategic priorities.
We have continued to judge each opportunity in the context of the
needs of each of the Group's 31 operating businesses and remained
mindful of prospective changes to market conditions. During the
year, the Group added a total of 10,013 plots of land into the
business across 60 high quality locations, including 4,218 plots
converted from our strategic land portfolio. The Group's land spend
was GBP474m (2018: GBP628m).
At the year end the Group held cash reserves of GBP844m (2018:
GBP1,048m) reflecting an increase of GBP213m in work in progress
investment at GBP1,095m (2018: GBP882m) and a GBP113m reduction in
land creditors to GBP435m (2018: GBP548m).
Return on equity(9) was 26.3% for the twelve month period to
December 2019 (2018: 27.7%).
BOARD CHANGES
We have announced that Dave Jenkinson has informed the Board of
his wish to step down as Group Chief Executive in due course. He
has signalled his intention early to give the Board good time to
recruit a successor. Dave will remain fully committed to leading
the ongoing programme of change for as long as the business
requires.
I would like to take this opportunity on behalf of the Board to
thank Dave for the very significant contribution he has made to the
success of Persimmon over almost 23 years with the Group. He has
played a critical role in the shaping and development of new
Persimmon. I am also grateful that Dave has signalled his intention
to step down at an early stage to give us the time to carry out a
thorough search process and to continue the evolution of the
business.
The Board was also pleased to announce recently the appointment
of Joanna Place as a non-executive Director from 1 April 2020. We
look forward to Joanna bringing her experience to support the
successful development of the business over future years.
The Board announced the resignation of Claire Thomas, former
Independent Non-Executive Director, on 15 January 2020. The Board
would like to thank Claire for her contribution to the Group during
her tenure.
We also announced that Marion Sears, Independent Non-Executive
Director and Chairman of the Remuneration and Corporate
Responsibility Committees will retire from the Board at the
conclusion of the AGM to be held on 29 April 2020. Following Claire
Thomas' departure on 1 February 2020, if necessary, Marion has
agreed to remain on the Board for a short time while the Board
seeks a new Remuneration Committee Chairman. The Board would like
to thank Marion for the significant contribution she has made to
the Group during her seven years with Persimmon.
The Board is in the process of identifying and appointing a
further Non-Executive Director with construction experience and
will provide an update to the market once that process is
completed.
OUTLOOK
The level of customer activity through the initial weeks of 2020
is encouraging with enquiries and visitors to our sites in line
with our expectations. Sales rates in the early weeks of 2020 are
tracking above the prior year and the Group's strong work in
progress position leaves it well placed to respond to further
market momentum as the year progresses whilst retaining its
overriding focus on build quality and customer care. The UK housing
market remains resilient, consumer confidence being supported by
low interest rates, a competitive mortgage market and high levels
of employment. Customers continue to carefully consider their
circumstances prior to making reservation commitments and
cancellations have continued to run at historically lower
levels.
With the 2019 general election now behind us, the previous
elevated levels of political uncertainty have subsided. As
anticipated, the UK's recent withdrawal from the EU and
commencement of the transition period, alongside other global
economic challenges, continue to present uncertainties for the UK's
economic outlook. However, Persimmon remains in a strong position.
The Group's developments are located in areas of some of the
greatest housing need in the UK and provide an attractive choice of
good quality newly built homes at affordable prices.
The Group continues to release homes for sale only when a more
advanced stage of construction is achieved. Maintaining our
continued disciplined sales release process, the Group's average
private sales rate per site in the first eight weeks of the year of
0.88 was c. 7% ahead of the same weeks last year, as expected.
Given that the Group began the year with a similar level of active
sales outlets as 2019 but a slightly lower forward sales position
at 1 January 2020, we currently expect sales this year to follow a
similar pattern to last year, and anticipate delivering a similar
number of legal completions to 2019. The Group's current total
forward sales, including new home legal completions taken so far in
2020, remain strong at GBP1.98 billion (2019: GBP2.02 billion). We
have 5,679 new homes sold forward into the private owner occupier
market with an average selling price of c. GBP245,000. Pricing
conditions remain firm.
The Group has experienced some easing of build cost pressure
over recent months and currently anticipates that cost inflation
will be around 2.5% to 3% for the current year assisted by
continued self help measures. Whilst the detail of the UK's future
trading relationships with the EU and others remains uncertain,
undoubtedly, the UK remains an attractive market. In partnership
with its supply chain the Group continues to assess the risks
associated with these developments and has put in place measures
that help to reduce these risks where required.
We currently have c. 365 developments in construction, a similar
number to last year. During the first half of 2020 we anticipate
starting construction on c. 80 new developments, which will help
meet the pressing housing need in these locations. Our ongoing
customer care improvement plan, supported by implementation of the
recommendations of the Independent Review, will underpin the
delivery of a further improvement in the quality and service
provided to our customers this year. These initiatives and
investments are currently anticipated to increase the Group's
customer care costs on an annualised basis by c. GBP15m. These
substantial commitments, together with the higher new home stock
investment, will help ensure that Persimmon delivers higher build
quality, service and choice moving forwards. Whilst the Group's
returns from the capital employed in the business will reduce we
expect the Group's cash generation will remain strong.
Over the longer term, the UK housing market has a cycle,
reflecting the health of the UK economy as it develops over time
which, in part, will be influenced by the continued evolution of
Government policy. As the UK establishes new commercial
relationships on departing the EU during a period of increased
global volatility we remain optimistic of Persimmon's prospects.
The Group is positioned to continue to provide an important
contribution to both UK housing supply, and the wider health of
communities across the UK, in direct alignment with the
Government's strategic objectives.
Currently the housing market continues to be resilient and we
are seeing good demand across our regional markets. To achieve the
Government's policy objective of increasing the provision of good
quality homes to meet local communities' housing needs, further
expansion in the output of newly built homes will be required. This
growth will deliver additional social benefits, for example,
increasing employment across the regions of the UK both directly on
housing developments and in the supply chain. Persimmon currently
supports c. 50,000(3) local construction and supply chain jobs
through our development activities across the UK. We will continue
to invest in these local communities and businesses to promote
social mobility and support these local communities. The additional
benefits associated with development activity, of higher
contributions to communities through improved local amenities and
infrastructure, taxes paid, and from additional investment will
also be realised.
Persimmon's employees are the foundation upon which the Group's
strength and future success is built. The Group directly employs c.
5,300 people across the UK. The Board's thanks go to this talented,
hardworking and committed team that continues to embrace change and
deliver such positive results.
The Board's thanks also go to all of the Group's workers,
sub-contractors and other stakeholders for their contribution to
the continued strong performance of Persimmon, together with the
implementation of the important measures to improve build quality
and customer service.
Persimmon has high quality land holdings, healthy forward sales,
strengthened forward build and a strong balance sheet. Our team is
united in its commitment to improve build quality and customer
satisfaction. We remain confident of the Group's future
prospects.
Roger Devlin
Chairman
26 February 2020
1 Stated before goodwill impairment (2019: GBP7.3m, 2018:
GBP9.2m) and based on new housing revenue (2019: GBP3,420.1m, 2018:
GBP3,545.8m).
2 National average selling price for newly built homes sourced
from the UK House Price Index as calculated by the Office for
National Statistics from data provided by HM Land registry.
3 Estimated using an economic toolkit
4 Stated on new housing revenues of GBP3,420.1m (2018:
GBP3,545.8m) and gross profits of GBP1,130.7m (2018:
GBP1,179.9m)
5 Land cost value for the plot divided by the anticipated future
revenue of the new home sold
6 Stated before goodwill impairment (2019: GBP7.3m, 2018:
GBP9.2m)
7 Movement in total equity before dividends on equity shares
divided by the average number of shares in issue during the
period
8 12 month rolling average stated before goodwill impairment and
includes land creditors
9 12 month rolling profit after tax generated from the average
of the opening and closing total equity for the 12 month period
CHIEF EXECUTIVE'S STATEMENT
Highlights
-- Implementing our customer care improvement plan
-- Putting our customers before volume
-- Embracing the Independent Review recommendations
-- Homebuyer Retention Scheme introduced, a first for the industry
-- Providing "homes for all" - addressing the country's housing
needs
-- 15% of our colleagues taking part in formal training programmes
-- Strong Employee Engagement Score (i)
-- 8% reduction in our Scope 1 and 2 greenhouse gas emissions
per new home sold
-- Over GBP520m investment in local communities
-- GBP2.3m donated to local charities and community groups
-- Continuing to maintain sustainable, high quality land holdings
-- Continuing to deliver industry leading financial performance
Overview
Throughout 2019 our focus was firmly on the quality of our homes
and the service we offer to our customers. At the start of the year
we implemented our customer care improvement plan ("the Plan"),
with a clear priority of putting our customers before volume. The
Plan is a comprehensive programme of measures to improve the
Group's performance on all aspects of build quality and customer
experience. It is challenging by design and we believe will place
the Group in a strong position for the future.
Having commissioned the Independent Review in April, we were
clear from the outset that we would not delay action until its
completion in December. We have a culture of continuous review and
rapid implementation within the business and as a result, the Plan
strengthened and evolved throughout 2019 as the Group exercised
increased discipline over the timing of sales releases, and
invested in work in progress, quality and service resources,
digital technology and enhancing Group wide processes.
The Board reviewed the effectiveness of the Group's build
quality and customer care initiatives in light of the
recommendations of the Independent Review (published in December
2019) and noted that many of them had already been, or were in the
process of being implemented. The additional recommendations have
been embraced by the business and are now in the process of being
rolled out.
I have informed the Board of my wish to step down as Group Chief
Executive in due course. I am fully committed to leading the
ongoing programme of change for as long as the business requires.
Persimmon is an outstanding business with a strong balance sheet
and talented and dedicated people. I am pleased with the energy and
enthusiasm with which the whole team is making the many necessary
changes to implement the Group's improvement plans. We have made a
positive start to our change programme and I am confident that the
required progress will be made to deliver higher levels of quality
and service to all of our customers.
I would like to thank the Persimmon team for their hard work and
commitment.
Focusing on our customers - our customer care improvement
plan
Our customer care improvement plan, introduced at the start of
2019, continued to evolve throughout the year. We have implemented
a number of initiatives to focus on improving:
-- The quality of the homes we build;
-- Communication with our customers;
-- The service we offer to our customers once they have moved
into their new home; and,
-- Consumer rights.
The Group has invested in its work in progress and delayed sales
releases on sites with higher demand to allow build progress to
reach a more advanced stage. This supports the improvement in
construction quality that we are determined to deliver, ensuring
that our quality assurance processes are more effective for each
home. It also enables us to enhance our customer service provision
as we are able to offer homes at a more advanced stage of build and
provide a more accurate moving in date. Reflecting these planned
outcomes, our work in progress investment had increased by GBP213m
at 31 December 2019, representing c. 6,100 new homes under
construction and an increase of 14% compared to last year.
We have invested significantly in digital technology covering
our build and inspection processes and have recruited a team of
Independent Quality Inspectors to critically assess each key stage
of our construction process and to provide increased levels of
quality and safety assurance. These inspectors operate
independently of our site management teams to ensure the homes
built for our customers are of the high quality standard that our
customers expect. In addition, each of our homes undergoes a seven
stage inspection process when it is nearing completion, to ensure
it meets the necessary quality standard.
Regular communication is important to our customers. We have
established a comprehensive customer support process which will be
further enhanced by the implementation of a 'customer portal' in
the first half of 2020. This customer portal is designed to inform
each of our customers of the construction progress of their new
home, to provide confirmation of their specification details and
the contractual status of their purchase, and to provide accurate,
timely information regarding their anticipated 'move in' date.
To facilitate improved levels of service to our customers after
they have moved into their new home we made a significant
investment in our customer care resource which has increased by 52%
year on year, with a 70% increase in site based customer care
staff. To deliver a more responsive service we have introduced
digital tools that support greater mobility and productivity of our
customer care teams out in the field and delivered c.1,100 customer
care training days to our teams in 2019.
To support improved consumer rights and empower its customers
Persimmon introduced its Homebuyer Retention Scheme from 1 July
2019. This is a first for the UK housebuilding industry and aims to
drive behavioural change throughout the business and reinforce the
Group's objective of delivering higher levels of build and finish
quality. Our pre-completion quality assurance procedures are
designed to "get it right first time". To reinforce this discipline
our customers are invited to complete their own seven-day
inspection review following their moving in day. They are requested
to highlight any items of concern they have identified having lived
in their new home. The customer's solicitor retains 1.5% of the new
home purchase price which is only released once any matters are
resolved.
Independent Review update
The Independent Review commissioned by the Board ("the Review")
assessed the effectiveness of Persimmon's improvement initiatives
to determine whether they would enable the business to deliver
consistent high standards of quality, safety and customer service
across all of our regions.
We agree with the Review's additional recommendation to
establish a consolidated, consistent Group wide approach to
construction (the Persimmon Way) and the process has already
commenced with the establishment of our Construction Working Group
in October 2019. This working group comprises experienced senior
construction professionals from across the business. The Group has
appointed a "Group Construction Champion" to manage and monitor the
implementation of the Persimmon Way based upon strong central
control of construction quality standards. Mandatory standardised
training will be provided to all relevant employees by the Group
Training Department. The Group's team of Independent Quality
Inspectors will focus on supporting site management teams to apply
these construction standards consistently across the business.
Once the Persimmon Way is rolled out across the Group through
2020, a third party will be appointed to independently verify the
execution of the required construction processes on an annual
basis, providing further assurance over the quality of our
build.
All of these measures are designed to ensure that the Group
builds well-designed, high quality, safe homes for all its
customers. These enhanced quality assurance procedures are
reinforcing the behavioural change required to mitigate the risk of
substandard execution of the Group's required build processes, such
as the historic failure to properly install cavity barriers in
certain of its properties, from occurring in the future. We are
continuing to progress our cavity barrier inspection programme,
with over 20,000 properties now inspected.
In the year to 30 September 2019, the last annual measurement
period, the percentage of our customers who would recommend
Persimmon to a friend under the independent Home Builders
Federation ("the HBF") survey is currently trending strongly ahead
of the Four Star threshold. We believe we will achieve a Four Star
rating when the annual results are published in March 2020. While
our ongoing quality and customer care improvement programme goes
far beyond a focus on the criteria of the HBF survey , we are
pleased that this external measure provides tangible evidence of
the improvements being delivered to our customers.
The Board is ensuring that senior management's objectives are
aligned with the Group's strategic aims by including build quality
and customer service metrics within the performance conditions for
annual bonus awards.
Performance review
Profit before tax for the year was GBP1,041m (2018: GBP1,091m),
from new housing revenues of GBP3,420m (2018: GBP3,546m). The
reduction in new housing revenues of 3.5% year on year reflects our
priority of putting customers before volume during the
implementation of the Group's customer care improvement plan. The
Group delivered 15,855 new homes in 2019 (2018: 16,449 new homes)
at an average selling price of GBP215,709 (2018: GBP215,563).
Through 2019, as part of the plan to increase the quality and
service provided to our customers, we released new homes for sale
at later stages of construction on sites with higher demand
resulting in a c. 7% reduction in the average number of sales
outlets open in 2019 when compared with 2018, at c. 350 outlets
(2018: c. 375). The Group had c. 350 sales outlets open at 31
December 2019 (31 December 2018: c. 370 outlets). Persimmon has a
strong, well balanced network of sites and each of our 31
housebuilding businesses is underpinned by high quality land
holdings ensuring that the Group maintains a sustainable market
share in each of its regional markets.
During 2019 the Group's private sales rate per outlet per week
was c. 0.68, c. 3% lower than the prior year (2018: c 0.70),
reflecting the resilience of customer confidence in the market
despite some significant uncertainties. This rate of private sale
was a little lower than our optimal rate of c. 0.75 of a sale per
outlet per week and, in part, reflects the impact of the successful
execution of the Group's customer care improvement initiatives.
We remain committed to meeting "all housing needs" by providing
homes at a range of price points across the UK. Persimmon has
opened seven new housebuilding businesses in the last five years in
support of the construction and delivery of c. 78,100 new homes
across the UK, of which c. 14,000 were provided to our housing
association partners. Our average private selling price of
GBP241,985 was 18% lower than the UK national average of GBP295,160
(ii) reflecting our commitment to delivering affordable housing for
all.
Forward sales at 31 December 2019 of GBP1.36bn were 3% lower
than the prior year (2018: GBP1.40bn) after second half legal
completion volumes of 8,271, which were 9% stronger than for the
first half of the year (H1: 7,584).
The Group's land holdings
The Group's existing high quality land holdings enabled us to
continue our strategy of disciplined selective investment in land
through 2019. The land market remained broadly supportive, albeit
through the second half there were some pockets of increased
competition, particularly for smaller sites, in certain locations.
We remain mindful of prospective changes to market conditions,
including those associated with the UK's departure from the EU,
when assessing land investment.
Persimmon has worked in long-term partnership with local
authorities and communities to acquire land in sustainable
locations that meet local housing needs. Since 2012 the Group has
spent GBP4.3bn on land and opened almost 1,500 new development
outlets delivering 113,000 new homes to communities across the UK
in line with the Government's drive to increase new home
supply.
At the year end the Group owned and controlled 93,246 plots in
its consented land holdings (2018: 99,088 plots) with c. 50%
previously held by the Group as strategic land. Within these land
holdings, the Group owned 46,055 plots on sites with detailed
planning consent, all of which are under construction. We have a
further 25,887 plots of owned land which are currently proceeding
towards achieving full planning consent.
The Group owned and controlled c. 15,900 acres of strategic
land, including a number of allocated sites, at 31 December 2019.
In line with our strategic objectives, our land, planning and
design teams will remain focused on working with planning
departments and local communities to achieve implementable detailed
consents as quickly as possible, to maintain a strong pipeline of
well designed, newly built, good quality homes over future
years.
Outstanding land creditors reduced by GBP113m to GBP435m at 31
December 2019 (2018: GBP548m). The Group's healthy cash generation
and careful working capital management place the business in a
strong position to take advantage of attractive future land
investment opportunities.
Off-site manufacturing
The Group continues to focus on self-help action to address
build cost pressures, including the use of the Group's core range
of house types, strong collaboration with our subcontractors and
suppliers, and utilisation of in-house manufactured brick and roof
tiles. The Group's investments in its in-house manufacturing
capabilities also support improvements in overall supply chain
capacity to assist the further expansion in industry output.
The Group's concrete brick manufacturing facility, based at
Harworth near Doncaster, has the capacity to manufacture c. 80m
concrete bricks per annum. During 2019, our operating businesses
used c. 50m bricks from this facility, just over 40% of the Group's
requirements for the year.
In December 2019, the Group completed the construction of its
roof tile manufacturing facility, Tileworks, based at the same site
in Doncaster. The facility is due to commence delivery to our sites
in spring 2020.
Our Space4 manufacturing facility, which produces timber frames,
closed insulated wall panels and roof cassettes, also helps in
easing traditional skills pressures in certain locations where
their availability remains tight. Space4 has increased its
production capacity by c. 13% to c. 6,900 units per year,
consisting of c. 5,500 timber frames and c. 1,400 'room in the
roof' systems.
FibreNest
In line with its ambition to deliver better service to its
customers, Persimmon established FibreNest in 2018 to deliver
ultrafast, full fibre to the home, broadband services. FibreNest,
which is aligned with the Government's digital strategy, has
expanded rapidly this year and is highly rated by its customers. At
31 December 2019, FibreNest had c. 4,700 customers connected to the
service on c. 110 sites.
The Group intends to continue to support new customers on future
sites as this service is rolled out further.
Our employees
The Group's talented, skilled and motivated workforce is a key
strength. We have a culture of hard work, enthusiasm, commitment
and resilience, and a capacity to embrace change and improvement to
support the successful development of the business. The results
from our recently completed Employee Engagement Survey showed that
96%(i) of colleagues understood how their individual efforts
contributed to Persimmon's ability to meet its objectives. This
culture is a key enabler of the delivery of the build quality and
customer service improvement plan. The Group is a meritocratic open
workplace where we encourage all employees to fulfil their
ambitions and pursue rewarding roles as part of the Persimmon team.
We provide clear opportunities for career progression and I was
pleased to see 374 colleagues promoted in the year. As well as
nurturing home grown talent, we recognise the value of wider
experience from colleagues that have been recruited externally. In
2019, we recruited 169 people into senior positions within the
business (2018: 249).
We recognise that investment in the Persimmon team is a key
priority to sustain the business over future years. The Group has
invested significantly in its Group Training Department which is
responsible for developing group wide training resources and
delivering a consistent approach to all our operating regions. The
department is also delivering a comprehensive mental health
training and awareness programme to each of our 31 operating
businesses. We have trained three members of the department to
become accredited mental health first aid trainers. To date we have
trained our first 22 mental health first aiders and intend to
increase this number to c. 75 by the end of 2020.
We remain committed to addressing the skills shortage within the
industry and have recruited c. 750 trainees across the Group (15%
of our team), including over 450 traditional apprentices. The Group
is a member of The 5% Club, an employer organisation creating
momentum behind the recruitment of apprentices, sponsored students
and graduates into the workforce, demonstrating that young people
seeking to gain skills and qualifications can have an excellent
career with us. We directly employ c. 2,050 local tradespeople,
more than any other housebuilder. In addition, we delivered c.
14,300 training days to our workforce and continue to be closely
involved in the Home Building Skills Partnership, a joint
initiative of the Construction Industry Training Board and the Home
Builders Federation (HBF) that aims to address the shortage of
skilled workers in the industry.
Over many years a key part of Persimmon's strategy has been to
establish a diverse and inclusive workforce. In 2019, the Group
signed up to the Social Mobility Pledge which encourages businesses
to boost social mobility in the UK by partnering with schools and
colleges to provide mentoring, coaching and structured work
experience, and by adopting open recruitment practices which
promote a level playing field for people from all backgrounds.
Persimmon has been chosen by the Pledge team to lead its work
within the housebuilding sector, reflecting the valuable work the
Group is doing in this area. In addition, we have signed up to the
Business Disability Forum which promotes best practice in order to
help its members manage disability issues with employees, customers
and other stakeholders.
To help guide and direct our investment in our colleagues we
engage with our employees in a number of ways. The Group's Employee
Engagement Panel, which met three times in 2019, presented its
discussions to the Corporate Responsibility Committee and the Board
during the year. In addition, the Group is partnering with Harris
Interactive to undertake formal Employee Engagement Surveys, the
first of which was rolled out in January 2020. As noted above, the
initial results from this survey indicate strong employee
engagement with Persimmon with colleagues valuing their work place
and career opportunities highly.
Sustainability
We believe that a sustainable business is a successful business.
Environmental, Social and Governance matters are extremely
important to Persimmon and we believe we need to deliver long term
value to all stakeholders in the business including our customers,
our employees, our supply chain partners, our communities, and our
shareholders, as well as wider society.
Our Corporate Responsibility Committee is responsible for
co-ordinating the Board's sustainability strategy across the Group
and comprises colleagues from a wide cross section of disciplines.
We have appointed a Group Sustainability Manager who will be
responsible for further embedding this strategy into our core
operations.
We aim to embed sustainability and environmental considerations
into all of our core processes. We develop on brownfield sites
wherever possible. For example, our Charles Church business was
awarded 'Best Refurbishment Project' at the Housebuilder Awards
2019 for its work on the previously derelict Stone Cross Manor in
Ulverston.
As a responsible business, we continue to recognise the
importance of contributing to wider society. During the year, the
Corporate Responsibility Committee carefully reviewed each of the
United Nations Sustainable Development Goals and their related
targets to identify areas where we believe we can make a positive
contribution to these common aims and to ensure our ongoing
strategic objectives are aligned.
In early 2019, we established a 'low carbon homes' working group
to plan and manage the transition to constructing new build homes
with low carbon heating and improved levels of energy efficiency.
We are actively engaging with the housing industry and Government
to find an effective and cohesive strategy to meet the challenge of
achieving the 'Future Homes Standard' proposed for 2025.
We monitor the environmental impact of our operations carefully.
We have seen a reduction in our Scope 1 and 2 greenhouse gas
emissions per new home sold from 2018 of c. 8% and will continue to
seek more efficient methods of operating to drive further
improvements. In 2020, we will review our emissions target with the
aim of aligning it with the latest climate science.
The Persimmon Charitable Foundation
We are proud of the contribution made by the Persimmon
Charitable Foundation. During the year, the Foundation ran some
extremely successful campaigns resulting in donations of GBP2.3m
being made to c. 900 local charities and community groups.
The 'Community Champions' campaign which was originally
established in 2015, continued throughout 2019 and donated c.
GBP740,000 to c. 770 local organisations.
The Foundation launched its 'Building Futures' campaign in 2019,
in association with Team GB, and donated GBP1,072,000 to 127
charities which support children and young people's participation
in the arts, sport, and health and wellbeing.
Both campaigns will continue in 2020.
In addition, the Foundation donated GBP400,000 to Crisis, a
national charity working to end homelessness, and has pledged a
total of GBP200,000 to SASH, a York based charity aiming to prevent
homelessness among young people aged 16 to 25 in North and East
Yorkshire.
Strong returns, capital discipline, and cash generation
The Group's return on equity(iii) for 2019 of 26.3% (2018:
27.7%) reflects its strong post tax profit of GBP848.8m (2018:
GBP886.4m) and disciplined approach to capital deployment. The
Group's strategy and capital return plan ensures the reinvestment
needs of the business are addressed whilst the capital employed in
the business is managed at appropriate levels to generate
attractive risk adjusted returns for our shareholders.
Persimmon's underlying return on average capital employed(iv)
for 2019 of 37.0% (2018: 41.3%) reflects the investment in our
business to promote its sustainable success.
A central feature of the Group's strategy is the delivery of
strong liquidity with free cash generation in 2019 of GBP543.6m
(before capital returns of GBP747.8m) (2018: GBP477.7m before
capital returns of GBP732.3m).
Capital returns
The Group's strategy launched in 2012 recognises Persimmon's
ability to return capital which is surplus to the reinvestment
needs of the business to its investors at certain points through
the market cycle. We invest in infrastructure and on-site new home
construction to fulfil local communities' housing needs. Our
continued strong financial performance allows Persimmon to invest
to achieve optimal operating scale within each of our regional
markets, including executing disciplined, well judged land
investment at the right time through the cycle, whilst also
minimising financial risk, for the long term benefit of all
stakeholders in the business.
During the eight year period from 2012 to 2019 capital returns
of GBP9.55 per share, or GBP2.97 billion, have now been paid to
shareholders.
As explained in the Chairman's statement, the Directors are
maintaining the existing schedule of capital returns for 2020 and
are pleased to announce a further return of GBP2.35 per share for
2021.
The total value of the Capital Return Plan to 2021 is now
GBP14.25 per share compared to the GBP6.20 per share initial
commitment made by the Board in 2012.
The schedule of payments under the Capital Return Plan is as
follows:
Original Plan Existing Plan Original Plan Existing Plan
Pence Per Share Pence Per Share
28 June 2013 28 June 2013 75 paid 75 paid
------------------ ----------------- -----------------
4 July 2014 - 70 paid
------------------ ----------------- -----------------
30 June 2015 2 April 2015 95 paid 95 paid
------------------ ----------------- -----------------
1 April 2016 - 110 paid
------------------ ----------------- -----------------
31 March 2017 - 25 paid
------------------ ----------------- -----------------
30 June 2017 3 July 2017 110 paid 110 paid
------------------ ----------------- -----------------
29 March 2018 - 125 paid
2 July 2018 - 110 paid
------------------ ----------------- -----------------
30 June 2019 29 March 2019 - 125 paid
2 July 2019 110 paid 110 paid
------------------ ----------------- -----------------
30 June 2020 2 April 2020 - 125^
6 July 2020 115 110^
---------------------------------- ----------------- -----------------
Early March 2021 - 110^
30 June 2021 Early July 2021 115 125^
------------------ ----------------- -----------------
Total 620 1425
----------------- -----------------
^ Current anticipated profile of payments.
Over and above the Group's short term outperformance, the Board
has also assessed the longer term prospects of the Group and the
effectiveness of its strategy. The Board's conclusions are
explained within the Viability Statement in note 11.
FINANCIAL REVIEW
Profitability
The Group delivered another solid trading performance in 2019.
Total revenues were GBP3,649.4m (2018: GBP3,737.6m), with a 4%
reduction in new housing revenues of GBP125.7m to GBP3,420.1m from
GBP3,545.8m in 2018, reflecting the Group's priority of putting
customers before volume through the implementation of its customer
care improvement plan (described in further detail in the Chief
Executive's Statement).
During the year, new housing gross margins remained relatively
stable at 33.1%(v) (2018: 33.3%). The Group's average private
selling price of GBP241,985 (2018: GBP238,373) increased by 1.5%
from the prior year. Private market sales of 12,463 new homes in
the year accounted for c. 88% of the Group's housing revenue (2018:
90%). Sales in our Northern businesses accounted for 57% of the
total private new homes delivered (2018: 55%).
In 2019, a greater proportion of our new home legal completions
were sold to our Housing Association partners by our Westbury
Partnerships business, contributing 21% of homes sold in the year
(2018: 19%).
The Group's total average selling price has remained broadly in
line with last year at GBP215,709 (2018: GBP215,563). The increased
proportion of homes sold by Westbury Partnerships in the year
served to reduce the overall year on year improvement of 1.5% in
the average selling prices of the Persimmon and Charles Church
private sales brands.
The Group's total gross margin for the year was 31.0% (2018:
31.6%), with a new housing gross margin of 33.1%(v) (2018: 33.3%).
The cost of the Group's investment in quality assurance and
customer care resources has increased by c. 50% reflecting the
Group's priority of focusing on improving levels of quality and
customer service.
The high quality of the Group's land holdings is reflected in
the lower land recovery rates year on year which have secured an
additional 60 basis point contribution to the Group's new housing
gross margin. For 2019, the value of the Group's land recoveries
totalled 14.0% of new housing revenue (2018: 14.6% of housing
revenue).
Underlying operating profits(vi) have decreased by 5.1% to
GBP1,036.7m (2018: GBP1,091.9m), with an underlying new housing
operating margin(vii) of 30.3% (2018: 30.8%). The Group's
underlying pre-tax profits(vi) were GBP1,048.1m, 4.7% lower than
2018 (GBP1,100.0m).
Asset strength
The Group has a robust balance sheet with net assets of
GBP3,258.3m at 31 December 2019 (2018: GBP3,194.5m) having retained
earnings of GBP2,693.9m in 2019 (2018: GBP2,634.0m). After
returning GBP747.8m of surplus capital to shareholders during the
year, the Group's net assets per share at 31 December were 1,021.7
pence, an increase of 2% compared with the prior year (2018:
1,006.0 pence).
At 31 December 2019 the carrying value of the Group's land
assets was GBP1,938.6m, GBP138.6m lower than the prior year (2018:
GBP2,077.2m) reflecting the Group's disciplined approach to land
investment. The Group owns 71,942 plots of which 46,055 have
detailed implementable planning consents. A further 21,304 plots
are under the Group's control, being plots where we have exchanged
contracts to buy but where the contract remains to be completed due
to outstanding conditions remaining unfulfilled. Our total owned
and under control land holdings provide 5.9 years of forward supply
at 2019 volumes. During the year, 10,013 plots were added to our
land holdings. Continued conversion of land from our strategic land
portfolio together with excellent value on-market acquisitions have
maintained the Group's high quality consented land holdings.
Our work in progress carrying value at 31 December 2019 of
GBP1,094.6m was GBP212.8m higher than the prior year (2018:
GBP881.8m). This reflects the Group's strategy of undertaking
substantial investment in its site work in progress and delaying
sales release until more advanced stages of construction are
achieved in higher demand locations to support increased levels of
quality and customer service. This action has improved the
availability of homes to buy which are at a more advanced stage of
construction, enabling us to provide more accurate move in dates
for our customers and also assists in increasing the effectiveness
of our quality assurance processes.
By the end of the year the Group's work in progress investment
represented 32% of 2019 housing sales revenue, providing a solid
platform for improved build quality and customer service.
The Board reviewed the net realisable value of land and work in
progress at 31 December 2019 using consistent principles to prior
years and concluded that the carrying value was appropriate. At the
year end the Group retained an impairment provision of GBP33.7m
(2018: GBP37.8m).
The Group's total retained profit after tax for the year was
GBP848.8m (2018: GBP886.4m). The after tax remeasurement loss on
the Group's GBP77.6m defined pension asset reduced the Group's
retained earnings by GBP22.4m. The net settlement of share options
exercised in 2019 resulted in a GBP26.9m decrease in the Group's
retained earnings.
Cash generation, net finance income and financial assets
The Group continues to deliver strong cash generation. In 2019,
the Group generated GBP996.2m (2018: GBP1,082.1m) of cash before
capital returns of GBP747.8m and net land spend of GBP452.6m. Cash
balances at 31 December 2019 totalled GBP843.9m (2018: GBP1,048.1m)
reflecting the Group's additional investment in work in progress of
GBP212.8m and a reduction in land creditors of GBP112.8m to
GBP435.2m (2018: GBP548.0m). With the progressive reduction in its
outstanding land creditors the Group is in a strong position to
invest in new attractive land opportunities using deferred land
payments where appropriate. Cash inflow from operations totalled
GBP778.2m in 2019 (2018: GBP818.2m).
The Group's shared equity loans have generated GBP31.4m of cash
in the year (2018: GBP41.6m). The carrying value of these
outstanding shared equity loans, reported as "Shared equity loan
receivables", is GBP68.6m at 31 December 2019 (2018: GBP86.9m). The
Board has reviewed the carrying value of these receivables and has
concluded that the value is appropriate.
Net finance income for the year was GBP11.4m (2018: GBP8.1m).
Incorporated within this is GBP13.1m of gains generated on the
Group's shared equity loan receivables (2018: GBP11.2m) and GBP5.4m
of imputed interest payable on land creditors (2018: GBP9.3m).
The Group's overall effective tax rate for 2019 was 18.5%,
slightly lower than the mainstream rate of 19%. The Group paid
corporation tax of GBP159.6m (2018: GBP165.8m) during the year.
With changes in UK tax legislation, in keeping with all large UK
companies, there will be an acceleration of the Group's corporation
tax payments resulting in a c. GBP100m increase in tax cash
outflows for 2020.
Shareholders' equity, treasury policy and related risks
A key element of the Board's strategy remains the return to
shareholders of any capital which is surplus to the reinvestment
needs of the business through the Group's Capital Return Plan. The
Group maintains an efficient capital structure and a robust balance
sheet which is designed to minimise financial risk through the
economic cycle. The Group's Capital Return Plan schedule is
continually assessed by the Directors.
In March 2019 we concluded the renewal of the Group's GBP300m
Revolving Credit Facility with strong support from our five
relationship banks. This facility has a five year term to 31 March
2024 and forms an important element in the Group's working capital
resources and flexibility.
As already noted, during 2019, as part of the implementation of
the customer care improvement plan the Group has invested more in
its on site work in progress to support higher levels of quality
and customer service, putting customers before volume. The Group
has maintained its strong liquidity and a robust balance sheet
including this additional substantial site investment. The Group's
revolving credit facilities will only be used to support short term
seasonal working capital needs. We will continue to carefully
manage the working capital needs of the business, ensuring that
appropriate work in progress levels are maintained on site to meet
our strategic objectives, the generation of annual after tax
earnings and the management of the Group's equity, debt and cash
management facilities. This considered approach will mitigate the
financial risks the Group faces which include credit risk,
liquidity risk, interest rate volatility and debt capital market
pricing risk.
Current trading outlook
The UK housing market remains supportive against a backdrop of
high employment, historically low interest rates, a positive
lending environment and resilient consumer confidence. The health
of the UK housing market will be dependent on the impact of the new
trade agreements between the UK and other world nations, including
the EU, and this together with other global economic challenges,
present some uncertainties over the future outlook. However, market
fundamentals remain positive including long term unfulfilled level
of demand. Our strategic objectives are aligned with Government
housing priorities. Since 2012 we have invested c. GBP4.3bn in land
to help bring as many new developments forward as possible. We
support the Government's initiatives to assist the increase in
output from the industry towards its goal of reaching 300,000 new
homes built each year by the mid-2020's. The Group is well
positioned in its local markets, offering homes at affordable
prices on developments that concentrate on providing a good range
and choice for all.
We have seen a solid start to 2020 with customer visitors to our
sites running ahead of the prior year over the same eight week
period. We are continuing to deliver on our strategic discipline of
putting customers before volume and are delaying sales releases on
certain sites with high demand until construction reaches a more
advanced stage. The Group's average private sales rate in the first
eight weeks of the new year is c. 7% higher than the prior year at
0.88 (2019: 0.82).
The Group has c. 4,800 new homes forward sold to its housing
association partners for lower income families, in line with the
same point last year. A key element of the Group's purpose is to
deliver homes for all, creating inclusive and sustainable
communities. We continue to offer our housing association partners
the opportunity to acquire healthy new home volumes, given the
Group's strong investment in new land and external infrastructure
works, which is enabling substantial new developments to be brought
forward. Our newly acquired Monktonhall site on the outskirts of
Edinburgh, for example, will provide c. 1,000 new homes of which c.
260 will be to our housing association partners providing much
needed affordable homes for the area.
Looking forward, our priority will remain on improving build
quality and customer service by putting customers before volume,
whilst also seeking to fulfil pressing housing needs in towns and
cities across the country. We will remain alert to changing
conditions in the sales and land markets and retain flexibility to
react to evolving market events, particularly with regard to the
transition period as the UK establishes new trading relationships,
including with the EU. The Group will continue to work tirelessly
in partnership with local planning authorities and local
communities to bring forward the Group's strategic land for
inclusion in local authority housing plans and meet their
communities' housing needs over the next five years in line with
the National Planning Policy Framework.
The Board recognises that the hard work, enthusiasm, resilience
and commitment of the whole Persimmon team is supporting
significant positive change throughout the business and delivering
these strong financial results. We remain confident that the
Persimmon team have the skills, imagination and drive to continue
to successfully develop the business and we thank all our
employees, supply chain partners, subcontractors and other
stakeholders for their continued contribution to the success of the
Group.
i Based on Harris Interactive Employee Engagement Survey.
ii National average selling price for newly built homes sourced
from the UK House Price Index as calculated by the Office for
National Statistics from data provided by HM Land Registry.
iii 12 month rolling profit after tax generated from the average
of the opening and closing total equity for the 12 month period
iv 12 month rolling average stated before goodwill impairment and includes land creditors.
v Stated on new housing revenue of GBP3,420.1m (2018:
GBP3,545.8m) and gross profits of GBP1,130.7m (2018:
(GBP1,179.9m).
vi Stated before goodwill impairment of GBP7.3m (2018: GBP9.2m)
vii Stated before goodwill impairment (2019: GBP7.3m, 2018:
GBP9.2m) and based on new housing revenue (2019: GBP3,420.1m, 2018:
GBP3,545.8m)
PERSIMMON PLC
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
2019 2018
Note Total Total
GBPm GBPm
----------------------------------------- ----- ---------- -----------
Revenue 2 3,649.4 3,737.6
Cost of sales (2,518.7) (2,557.7)
----------------------------------------- ----- ---------- -----------
Gross profit 1,130.7 1,179.9
Other operating income 8.8 5.6
Operating expenses (110.1) (102.8)
Profit from operations before
impairment of intangible assets 1,036.7 1,091.9
Impairment of intangible assets (7.3) (9.2)
----------------------------------------- ----- ---------- -----------
Profit from operations 1,029.4 1,082.7
Finance income 20.5 20.4
Finance costs (9.1) (12.3)
----------------------------------------- ----- ---------- -----------
Profit before tax 1,040.8 1,090.8
Tax 3 (192.0) (204.4)
----------------------------------------- ----- ---------- -----------
Profit after tax (all attributable
to equity holders of the parent) 848.8 886.4
----------------------------------------- ----- ---------- -----------
Other comprehensive (expense)/income
Items that will not be reclassified
to profit:
Remeasurement (loss)/gain on defined
benefit pension schemes 10 (27.0) 19.7
Tax 3 4.6 (3.3)
----------------------------------------- ----- ---------- -----------
Other comprehensive (expense)/income
for the year, net of tax (22.4) 16.4
----------------------------------------- ----- ---------- -----------
Total recognised income for the
year 826.4 902.8
----------------------------------------- ----- ---------- -----------
Earnings per share
Basic 5 266.8p 283.3p
Diluted 5 266.3p 280.8p
----------------------------------------- ----- ---------- -----------
PERSIMMON PLC
Consolidated Balance Sheet
As at 31 December 2019
2019 2018
Note GBPm GBPm
--------------------------------- ----- ---------- ----------
Assets
Non-current assets
Intangible assets 186.1 193.4
Property, plant and equipment 82.0 58.0
Investments accounted for using
the equity method 2.1 3.0
Shared equity loan receivables 7 59.2 70.6
Trade and other receivables 7.1 7.0
Deferred tax assets 6.6 13.4
Retirement benefit assets 10 77.6 90.6
--------------------------------- ----- ---------- ----------
420.7 436.0
--------------------------------- ----- ---------- ----------
Current assets
Inventories 6 3,156.8 3,059.5
Shared equity loan receivables 7 9.4 16.3
Trade and other receivables 58.5 91.8
Cash and cash equivalents 9 843.9 1,048.1
--------------------------------- ----- ---------- ----------
4,068.6 4,215.7
--------------------------------- ----- ---------- ----------
Total assets 4,489.3 4,651.7
--------------------------------- ----- ---------- ----------
Liabilities
Non-current liabilities
Trade and other payables (178.0) (270.4)
Deferred tax liabilities (25.2) (27.7)
Partnership liability (31.6) (35.2)
--------------------------------- ----- ---------- ----------
(234.8) (333.3)
--------------------------------- ----- ---------- ----------
Current liabilities
Trade and other payables (911.7) (1,058.5)
Partnership liability (5.5) (5.4)
Current tax liabilities (79.0) (60.0)
--------------------------------- ----- ---------- ----------
(996.2) (1,123.9)
--------------------------------- ----- ---------- ----------
Total liabilities (1,231.0) (1,457.2)
--------------------------------- ----- ---------- ----------
Net assets 3,258.3 3,194.5
--------------------------------- ----- ---------- ----------
Equity
Ordinary share capital issued 31.9 31.7
Share premium 19.2 15.5
Capital redemption reserve 236.5 236.5
Other non-distributable reserve 276.8 276.8
Retained earnings 2,693.9 2,634.0
--------------------------------- ----- ---------- ----------
Total equity 3,258.3 3,194.5
--------------------------------- ----- ---------- ----------
PERSIMMON PLC
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2019
Share Share Capital Other non-distributable Retained Total
capital premium redemption reserve earnings
reserve
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Balance at 1 January
2018 30.9 13.5 236.5 276.8 2,643.9 3,201.6
Profit for the year - - - - 886.4 886.4
Other comprehensive
income - - - - 16.4 16.4
Transactions with owners:
Dividend on equity
shares - - - - (732.3) (732.3)
Issue of new shares 0.8 2.0 - - - 2.8
Own shares purchased - - - - (1.3) (1.3)
Exercise of share options/share
awards - - - - (1.0) (1.0)
Share-based payments - - - - 1.1 1.1
Net settlement of share-based
payments - - - - (180.2) (180.2)
Satisfaction of share
options from own shares
held - - - - 1.0 1.0
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Balance at 31 December
2018 31.7 15.5 236.5 276.8 2,634.0 3,194.5
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Profit for the year - - - - 848.8 848.8
Other comprehensive
expense - - - - (22.4) (22.4)
Transactions with owners:
Dividend on equity
shares - - - - (747.8) (747.8)
Issue of new shares 0.2 3.7 - - - 3.9
Exercise of share options/share
awards - - - - (0.5) (0.5)
Share-based payments - - - - 8.2 8.2
Net settlement of share-based
payments - - - - (26.9) (26.9)
Satisfaction of share
options from own shares
held - - - - 0.5 0.5
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Balance at 31 December
2019 31.9 19.2 236.5 276.8 2,693.9 3,258.3
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
The other non-distributable reserve arose prior to transition to
IFRSs and relates to the issue of ordinary shares to acquire the
shares of Beazer Group Plc in 2001.
PERSIMMON PLC
Consolidated Cash Flow Statement
For the year ended 31 December 2019
2019 2018
Note GBPm GBPm
--------------------------------------- ----- -------- --------
Cash flows from operating activities:
Profit for the year 848.8 886.4
Tax charge 3 192.0 204.4
Finance income (20.5) (20.4)
Finance costs 9.1 12.3
Depreciation charge 13.3 10.0
Impairment of intangible assets 7.3 9.2
Share-based payment charge 3.7 7.9
Net imputed interest income 7.7 1.9
Other non-cash items (7.6) (0.2)
--------------------------------------- ----- -------- --------
Cash inflow from operating
activities 1,053.8 1,111.5
Movement in working capital:
Increase in inventories (87.7) (225.5)
Decrease/(increase) in trade
and other receivables 6.3 (26.7)
Decrease in trade and other
payables (225.6) (82.7)
Decrease in shared equity loan
receivables 31.4 41.6
--------------------------------------- ----- -------- --------
Cash generated from operations 778.2 818.2
Interest paid (4.2) (3.9)
Interest received 5.6 5.8
Tax paid (159.6) (165.8)
--------------------------------------- ----- -------- --------
Net cash inflow from operating
activities 620.0 654.3
--------------------------------------- ----- -------- --------
Cash flows from investing activities:
Joint venture net funding movement 0.9 -
Purchase of property, plant
and equipment (27.5) (15.5)
Proceeds from sale of property,
plant and equipment 0.7 0.5
--------------------------------------- ----- -------- --------
Net cash outflow from investing
activities (25.9) (15.0)
--------------------------------------- ----- -------- --------
Cash flows from financing activities:
Lease capital payments (3.8) -
Payment of Partnership liability (3.4) (3.2)
Net settlement of share-based
payments (47.2) (159.9)
Own shares purchased - (1.3)
Share options consideration 3.9 2.8
Dividends paid 4 (747.8) (732.3)
--------------------------------------- ----- -------- --------
Net cash outflow from financing
activities (798.3) (893.9)
--------------------------------------- ----- -------- --------
Decrease in net cash and cash
equivalents 9 (204.2) (254.6)
--------------------------------------- ----- -------- --------
Cash and cash equivalents at
the beginning of the year 1,048.1 1,302.7
--------------------------------------- ----- -------- --------
Cash and cash equivalents at
the end of the year 9 843.9 1,048.1
--------------------------------------- ----- -------- --------
Notes
1. Basis of preparation
The results for the year have been prepared on a basis
consistent with the accounting policies set out in the Persimmon
Plc Annual Report for the year ended 31 December 2019.
The preparation of the financial statements in conformity with
the Group's accounting policies requires the Directors to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of
revenue and expenses during the reported period. Whilst these
estimates and assumptions are based on the Directors' best
knowledge of the amount, events or actions, actual results may
differ from those estimates.
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 December 2019 or
2018, but is derived from those accounts. Statutory accounts for
2018 have been delivered to the Registrar of Companies, and those
for 2019 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not
include reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain statements under Section 498(2) or (3) of the
Companies Act 2006.
Whilst the financial information included in this announcement
has been computed in accordance with IFRS as adopted by the
European Union, this announcement does not itself contain
sufficient information to comply with IFRS. The Company expects to
send its Annual Report 2019 to shareholders on 17 March 2020.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report in the Annual Report and the
financial statements and notes. The Directors believe that the
Group is well placed to manage its business risks successfully. The
principal risks that may impact the Group's performance and their
mitigation are outlined in note 11. After making enquiries, the
Directors have a reasonable expectation that the Group has adequate
resources to fund its operations for the foreseeable future. For
this reason, they continue to adopt the going concern basis in
preparing the annual financial statements.
Adoption of new and revised International Financial Reporting
Standards (IFRSs) and Interpretations (IFRICs)
The following relevant new standards and amendments to standards
are mandatory for the first time for the financial year beginning 1
January 2019:
-- IFRS 16 Leases
-- Annual improvements to IFRS Standards 2015-2017 Cycle
-- Amendments to IAS 19 Plan Amendment, Curtailment or Settlement
-- Amendments to IAS 28 Long-term Interests in Associates and
Joint Ventures
-- IFRIC 23 Uncertainty over Income Tax Treatments
-- Amendments to IFRS 9 Prepayment Features with Negative Compensation
With the exception of IFRS 16 Leases, the effects of the
implementation of these standards have been limited to
presentational and disclosure amendments.
The Group have adopted the modified (asset = liability)
retrospective approach on implementation of IFRS 16 Leases and have
not amended the prior year comparatives. The Group operate a number
of leases that are affected by this new standard, principally in
relation to office properties and vehicles. At 31 December 2019 a
"right of use" asset of GBP8.4m is reported within Property, plant
and equipment. The associated lease liability, reported within
Trade and other payables, is GBP8.9m at 31 December 2019.
The Group has not applied the following new amendments to
standards which are EU endorsed but not yet effective:
-- Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark
Reform
-- Amendments to IAS 1 and IAS 18 Definition of Material
-- Amendments to Reference to Conceptual Framework in IFRS
Standards
The Group is currently considering the implication of these
amendments with the expected impact upon the Group being limited to
disclosures.
2. Revenue
2019 2018
GBPm GBPm
----------------------------------------------------------- ------------------- -------------------
Revenue from the sale of new housing 3,420.1 3,545.8
Revenue from the sale of part exchange
properties 228.6 191.8
Revenue from the provision of internet 0.7 -
services
Revenue from the sale of goods and services
as reported in the statement of comprehensive
income 3,649.4 3,737.6
----------------------------------------------------------- ------------------- -------------------
3. Tax
2019 2018
GBPm GBPm
--------------------------------------------------------- ----------------- -----------------
Tax charge comprises:
UK corporation tax in respect of the current
year 196.7 202.1
Adjustments in respect of prior years (8.2) (5.0)
--------------------------------------------------------- ----------------- -----------------
188.5 197.1
--------------------------------------------------------- ----------------- -----------------
Deferred tax relating to origination and
reversal of temporary differences 3.2 6.9
Adjustments recognised in the current year
in respect of prior years deferred tax 0.3 0.4
--------------------------------------------------------- ----------------- -----------------
3.5 7.3
--------------------------------------------------------- ----------------- -----------------
192.0 204.4
--------------------------------------------------------- ----------------- -----------------
The tax charge for the year can be reconciled to the accounting
profit as follows:
2019 2018
GBPm GBPm
----------------------------------------------------------- ------------------- -------------------
Profit from continuing operations 1,040.8 1,090.8
----------------------------------------------------------- ------------------- -------------------
Tax calculated at UK corporation tax rate
of 19% (2018: 19%) 197.7 207.3
Accounting base cost not deductible for
tax purposes 0.5 0.5
Goodwill impairment losses that are not
deductible 1.4 1.7
Expenditure not allowable for tax purposes 0.2 0.3
Effect of change in rate of corporation
tax - (2.2)
Deferred tax written off on lapsed share-based
payments 0.1 1.4
Adjustments in respect of prior years (7.9) (4.6)
----------------------------------------------------------- ------------------- -------------------
Tax charge for the year recognised in profit 192.0 204.4
----------------------------------------------------------- ------------------- -------------------
The Group's overall effective tax rate of 18.5% has been reduced
from the mainstream rate of 19% by a prior year tax credit arising
from the removal of some uncertainties regarding the Group's prior
year tax computations.
The applicable corporation tax rate remains at 19% in line with
corporation tax rates effective from 1 April 2017. In relation to
the Group's deferred tax calculations, the corporation tax rate
change enacted on 15 September 2016 effective from 1 April 2020
(17%) has been used unless timing differences are expected to
reverse in 2020 or 2021.
In addition to the amount recognised in profit, deferred tax of
GBP4.6m was credited directly to other comprehensive income (2018:
charge of GBP3.3m), and a GBP5.3m charge was recognised in equity
(2018: charge of GBP71.7m). The Group has recognised deferred tax
liabilities of GBP13.2m (2018: liabilities of GBP15.4m) on
retirement benefit assets of GBP77.6m (2018: assets of
GBP90.6m).
4. Dividends/Return of capital
2019 2018
GBPm GBPm
----------------------------------------------------------- ----------------- -----------------
Amounts recognised as distributions to capital
holders in the period:
2017 dividend to all shareholders of 125p
per share paid 2018 - 388.5
2017 dividend to all shareholders of 110p
per share paid 2018 - 343.8
2018 dividend to all shareholders of 125p 397.7 -
per share paid 2019
2018 dividend to all shareholders of 110p 350.1 -
per share paid 2019
Total capital return 747.8 732.3
----------------------------------------------------------- ----------------- -----------------
The Directors propose to return 125 pence of surplus capital to
shareholders for each ordinary share held on 6 March 2020 with
payment made on 2 April 2020 as an interim dividend in respect of
the financial year ended 31 December 2019. In addition, the
Directors propose the payment of the regular annual capital return
instalment of 110 pence per share, with payment scheduled for 6
July 2020 as a final dividend with respect to the financial year
ended 31 December 2019, to shareholders for each ordinary share
held on 12 June 2020. The total return to shareholders is therefore
235 pence per share (2019: 235 pence per share) in respect of the
financial year ended 31 December 2019 .
5. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue during the year of
318.1m shares (2018: 312.9m) which excludes those held in the
employee benefit trust and any treasury shares, all of which are
treated as cancelled.
Diluted earnings per share is calculated by dividing the profit
for the year attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue adjusted to assume
conversion of all potentially dilutive ordinary shares from the
start of the year, giving a figure of 318.8m shares (2018:
315.7m).
Underlying earnings per share excludes goodwill impairment. The
earnings per share from continuing operations were as follows:
2019 2018
--------------------------------------- ------- -------
Basic earnings per share 266.8p 283.3p
Underlying basic earnings per share 269.1p 286.3p
Diluted earnings per share 266.3p 280.8p
Underlying diluted earnings per share 268.6p 283.7p
--------------------------------------- ------- -------
The calculation of the basic and diluted earnings per share is
based upon the following data:
2019 2018
GBPm GBPm
------------------------------------------------------------- ----------------- -----------------
Underlying earnings attributable to shareholders 856.1 895.6
Goodwill impairment (7.3) (9.2)
------------------------------------------------------------- ----------------- -----------------
Earnings attributable to shareholders 848.8 886.4
------------------------------------------------------------- ----------------- -----------------
6. Inventories
2019 2018
GBPm GBPm
------------------------------------- ------------------- -------------------
Land 1,938.6 2,077.2
Work in progress 1,094.6 881.8
Part exchange properties 71.8 56.2
Showhouses 51.8 44.3
------------------------------------- ------------------- -------------------
3,156.8 3,059.5
------------------------------------- ------------------- -------------------
7. Shared equity loan receivables
2019 2018
GBPm GBPm
---------------------------------------------------------- ------------------ ------------------
Shared equity loan receivables at 1 January 86.9 117.3
Settlements (31.4) (41.6)
Gains 13.1 11.2
---------------------------------------------------------- ------------------ ------------------
Shared equity loan receivables at 31 December 68.6 86.9
---------------------------------------------------------- ------------------ ------------------
All gains/losses have been recognised through finance income in
the statement of comprehensive income. Of the gains recognised in
finance income for the period, GBP7.1m (2018: GBP3.0m) was
unrealised.
8. Financial instruments
In aggregate, the fair value of financial assets and liabilities
are not materially different from their carrying value.
Financial assets and liabilities carried at fair value are
categorised within the hierarchical classification of IFRS 7
Revised (as defined within the standard) as follows:
2019 2018
-------------------------------- ------ ------
Level Level
3 3
GBPm GBPm
-------------------------------- ------ ------
Shared equity loan receivables 68.6 86.9
-------------------------------- ------ ------
Shared equity loan receivables
Shared equity loan receivables represent loans advanced to
customers and secured by way of a second charge on their new home.
They are carried at fair value. The fair value is determined by
reference to the rates at which they could be exchanged by
knowledgeable and willing parties. Fair value is determined by
discounting forecast cash flows for the residual period of the
contract by a risk adjusted rate.
There exists an element of uncertainty over the precise final
valuation and timing of cash flows arising from these loans. As a
result the Group has applied inputs based on current market
conditions and the Group's historic experience of actual cash flows
resulting from such arrangements. These inputs are by nature
estimates and as such the fair value has been classified as level 3
under the fair value hierarchy laid out in IFRS 13 Fair Value
Measurement.
Significant unobservable inputs into the fair value measurement
calculation include regional house price movements based on the
Group's actual experience of regional house pricing and management
forecasts of future movements, weighted average duration of the
loans from inception to settlement of ten years (2018: ten years)
and discount rate 9% (2018: 9%) based on current observed market
interest rates offered to private individuals on secured second
loans.
The discounted forecast cash flow calculation is dependent upon
the estimated future value of the properties on which the shared
equity loans are secured. Adjustments to this input, which might
result from a change in the wider property market, would have a
proportional impact upon the fair value of the loan. Furthermore,
whilst not easily accessible in advance, the resulting change in
security value may affect the credit risk associated with the
counterparty, influencing fair value further.
9. Reconciliation of net cash flow to net cash and analysis
of net cash
2019 2018
GBPm GBPm
------------------------------------------------------ ------------------- -------------------
Cash and cash equivalents at 1 January 1,048.1 1,302.7
Decrease in net cash and cash equivalents
in cashflow (204.2) (254.6)
------------------------------------------------------ ------------------- -------------------
Cash and cash equivalents at 31 December 843.9 1,048.1
IFRS 16 lease liability (8.9) -
------------------------------------------------------ ------------------- -------------------
Net cash at 31 December 835.0 1,048.1
------------------------------------------------------ ------------------- -------------------
Net cash is defined as cash and cash equivalents, bank
overdrafts, lease obligations and interest bearing borrowings.
10. Retirement benefit assets
As at 31 December 2019 the Group operated four employee pension
schemes, being two Group personal pension schemes and two defined
benefit pension schemes. Remeasurement gains and losses in the
defined benefit schemes are recognised in full as other
comprehensive income within the consolidated statement of
comprehensive income. All other pension scheme costs are reported
in profit or loss.
The amounts recognised in the consolidated statement of
comprehensive income are as follows:
2019 2018
GBPm GBPm
----------------------------------------------- ------- -------
Current service cost 1.7 2.0
Past service cost - 5.5
Administrative expense 0.9 0.9
----------------------------------------------- ------- -------
Pension cost recognised as operating expense 2.6 8.4
----------------------------------------------- ------- -------
Interest cost 14.9 14.2
Return on assets recorded as interest (17.6) (15.9)
----------------------------------------------- ------- -------
Pension cost recognised as net finance credit (2.7) (1.7)
----------------------------------------------- ------- -------
Total defined benefit pension (credit)/cost
recognised in profit or loss (0.1) 6.7
Remeasurement loss/(gain) recognised in
other comprehensive income 27.0 (19.7)
----------------------------------------------- ------- -------
Total defined benefit scheme loss/(gain)
recognised 26.9 (13.0)
----------------------------------------------- ------- -------
The past service cost recognised in the prior period reflected
the impact of the legal rulings regarding Guaranteed Minimum
Pension equalisation (GMP). The amounts included in the balance
sheet arising from the Group's obligations in respect of the
Pension Scheme are as follows:
2019 2018
GBPm GBPm
------------------------------------- -------- --------
Fair value of Pension Scheme assets 672.8 616.8
Present value of funded obligations (595.2) (526.2)
------------------------------------- -------- --------
Net pension asset 77.6 90.6
------------------------------------- -------- --------
11. Principal risks and Viability Statement
UK's exit from the EU
Residual Impact Mitigation
Risk The UK's exit from the We continue to monitor the political
High European Union may lead situation, the UK economy and the housing
to increased economic uncertainty market through the review of external
Change adversely impacting: consumer information and changes in the behaviour
from prior confidence, demand and of our customer base. We robustly manage
year pricing for new homes, and control our work in progress and
No change revenues, margins, profits land investment and our stringent investment
and cash flows and may appraisals will continue, aiming to
result in the impairment ensure exposure to market disruption
of asset values. is reduced.
Should the UK's future We closely engage with our key suppliers
trading arrangements with and have obtained assurances over the
the EU not be finalised continuity of our material supply where
before the end of the transition relevant. We will continue to employ
period in December 2020, effective tendering processes to ensure
a 'no deal' scenario could cost impacts are mitigated as far as
still occur. If this is possible.
the case, some of the Group's The vertical integration afforded by
EU imported materials may use of our own Brickworks, Space4 and
be subject to tariffs resulting Tileworks production will mitigate the
in increased material costs. availability and cost risks further.
Potential legislative changes (Also see mitigation and review of Government
on customs arrangements policy and Labour and Resources)
could create bottlenecks
at ports and impact on
the availability and cost
of imported materials and
components within our supply
chain.
------------------------------------- --------------------------------------------------
National and regional economic conditions
Residual Impact Mitigation
Risk The housebuilding industry We continually monitor lead indicators
High is sensitive to changes on the future direction of the UK housing
in the economic environment, market so as to manage our exposure
Change including unemployment, to any future market disruption. We
from prior interest rates and consumer regularly review our pricing structure
year confidence. Any deterioration to ensure it reflects local market conditions.
No change in economic conditions Our diversity of geographical markets
may have an adverse impact and our continual monitoring of the
on demand and pricing for Group's geographical spread helps us
new homes, which could mitigate the effects of regional economic
have a material effect fluctuations.
on our revenues, margins, We control the level of build on site
profits and cash flows by closely monitoring our stock and
and result in the impairment work in progress levels. The Group's
of asset values. strong land bank provides continuity
Economic conditions in of supply and ensures that our extensive
the land market may adversely due diligence processes and targeted
affect the availability hurdle rates are always achieved prior
of a sustainable supply to entering into any land investment
of land at appropriate decisions. These processes have regard
levels of return. to local market demands and conditions,
and the Group's existing strategic and
on market land holdings. Significant
land additions are reviewed by the Executive
Directors.
------------------------------------- --------------------------------------------------
Government policy
Residual Impact Mitigation
Risk Changes to government policy We monitor Government policy in relation
High have the potential to impact to the housing market very closely.
on several aspects of our Consistency of policy formulation and
Change strategy and operational application is very supportive of the
from prior performance. For example, housebuilding industry, encouraging
year changes to the planning continued substantial investment in
No change system, changes in the land, work in progress and skills to
tax regime, or further support output growth. Our strategic
amendment of the Help to objectives, delivering homes for all,
Buy scheme or other housing are aligned with government priorities
policies could have an for increasing housing stock.
adverse effect on revenues, The UK Government continues to support
margins and asset values. the Help to Buy scheme, which is currently
Changes to the planning scheduled to remain in place until 2023.
system may also adversely We actively manage our land investment
impact the Group's ability decisions and levels of work in progress
to source suitable land to mitigate exposure to external influences.
to deliver appropriate
levels of return.
------------------------------------- --------------------------------------------------
Mortgage availability
Residual Impact Mitigation
Risk Any restrictions in the We monitor Bank of England commentary
High availability or affordability on credit conditions including the monthly
of mortgages for customers approvals for house purchases and UK
Change could reduce demand for Finance's monthly reports and lenders'
from prior new homes and affect revenues, announcements for trends in lending.
year profits and cash flows. We ensure that our investment in land
No change and work in progress is appropriate
for our level of sales and our expectations
for market conditions. The Government's
Help to Buy scheme, which is currently
scheduled to remain in place until 2023,
supports customers to gain access to
the housing market across the UK with
competitive mortgage rates.
------------------------------------- --------------------------------------------------
Health and safety
Residual Impact Mitigation
Risk The health and safety of The Board has a very strong commitment
High our employees, subcontractors, to health and safety and managing the
customers and visitors risks in this area effectively. This
Change to our construction sites is implemented by comprehensive management
from prior is of paramount importance systems and controls, managed by our
year to us. Accidents on our Group Health and Safety Department,
No change sites could also lead to which includes detailed training and
reputational damage and inspection programmes to minimise the
financial penalties. likelihood and impact of accidents on
our sites. While all reasonable steps
are taken to reduce the likelihood of
an incident, the potential impacts of
any such incident are considered to
be high.
------------------------------------- --------------------------------------------------
Labour and resources: skilled workforce, retention and succession
Residual Impact Mitigation
Risk Access to an appropriately We closely monitor our build programmes
Medium skilled workforce is a to enable us to manage our labour requirements
key requirement for the effectively. We operate in-house apprentice
Change Group. Rising UK house and training programmes, to support
from prior building activity in recent an adequate supply of skilled labour.
year years has increased demand Our in-house Group Training Department
No change for skilled labour, which has been established to standardise
has increased pressure and more effectively coordinate training
on costs. activity.
A skilled management team We are also committed to playing a full
is essential in maintaining and active role in external initiatives
operational performance to address the skills shortage such
and the implementation as the Home Building Skills Partnership,
of the Group's strategy. a joint initiative of the Construction
Industry Training Board and the Home
Builders Federation.
Where appropriate, we also use the Group's
Space4 modern method of construction
which helps diversify resource requirements
on site.
The Group focuses on retaining its key
staff through a range of measures, including
the establishment of a Gender Diversity
Panel, an Employee Engagement Panel,
employee engagement surveys, further
development of performance management
frameworks, career management, and incentives.
At the most senior level, the Nomination
Committee oversees these processes and
promotes effective succession planning.
------------------------------------- --------------------------------------------------
Labour and resources: materials and land purchasing
Residual Impact Mitigation
Risk Materials availability Materials availability
Medium Recent growth in UK housebuilding Our build programmes and our supply
has led to an increased chain are closely monitored to allow
Change demand for materials which us to manage and react to any supply
from prior is placing greater pressure chain issues and to help ensure consistent
year on the supply chain. This high quality standards. We build strong
No change may continue to cause availability relationships with key suppliers over
constraints and increase the long term to ensure consistency
cost pressures. of supply and cost efficiency.
We have invested in expanding our off-site
manufacturing hub at Harworth, near
Doncaster, to strengthen security of
supply. Our brick plant is providing
a significant proportion of the bricks
we use and our roof tile manufacturing
facility will be commissioned in spring
2020. This complements our existing
off-site manufacturing capability at
Space4, which produces timber frames,
highly insulated wall panels and roof
cassettes as a modern method of constructing
new homes.
Build quality may be compromised Our procurement team ensures that the
if unsuitable materials Group's suppliers provide materials
are procured leading to to the expected specification. Materials
damage to the Group's reputation are inspected on receipt at site. During
and customer experience. build, each of our new homes undergoes
a seven stage internal quality check
process, supported with IT tools to
enable monitoring. This process has
been further strengthened during 2019
by the introduction of a new team of
Independent Quality Inspectors across
each of our regional businesses.
Land Purchasing Land Purchasing
Land may be purchased at The Group has strong land holdings.
too high a price, in the All land purchases undergo stringent
wrong place and at the viability assessments performed by our
wrong time in the housing dedicated land and planning teams and
market cycle. must meet specific levels of projected
returns.
The Board review and determine the appropriate
timing of land purchases having regard
to existing market conditions and sales
rates.
------------------------------------- --------------------------------------------------
Strategy
Residual Impact Mitigation
Risk The Group's strategy has The Group's strategy is agreed by the
Low been developed by the Board Board at an annual strategy meeting,
as the most appropriate and undergoes a continuous and iterative
Change approach to successfully process of implementation, review and
from prior deliver the Group's purpose adaptation at Board meetings and in
year and ambition and generate response to the evolution of conditions
No change optimal sustainable value in which the Group operates. During
for all stakeholders. the year, for example, the Group implemented
As political, economic a clear strategy to put customers before
and other conditions evolve, volume. The Board is incorporating the
it is possible that the recommendations of the Independent Review
strategy currently being in its future strategy. A search has
pursued may cease to be commenced for a Non-Executive Director
the most appropriate approach. with construction sector expertise in
If the Group's strategy order to further challenge and inform
is not effectively communicated strategic decision making.
to our workforce and /
or engagement and incentive The Board engages with all stakeholders
measures are inappropriate, to ensure the strategy is communicated,
operational activities understood and effective. For example,
may not successfully deliver an Employee Engagement Panel, Gender
the Group's strategic objectives. Diversity Panel and employee engagement
surveys have been established to monitor
the cultural health of the organisation
and ensure strategy is understood and
implemented.
------------------------------------- --------------------------------------------------
Climate change
Residual Impact Mitigation
Risk Should the effects of climate We monitor our operational efficiency
Medium change and the UK's transition and direct environmental impact in a
to a lower carbon economy number of ways including measuring our
Change lead to increasing national own CO (2e) emissions and the amount
from prior regulation this could cause of waste we generate for each home we
year additional planning delays, sell.
Increased increase the cost and accessibility The Group has developed a climate change
of materials required within risk register which ensures that the
our construction process management and mitigation of the risk
and potentially limit their is embedded within the Group's risk
supply or require additional management process. We have also appointed
features which could significantly a Group Sustainability Manager bringing
increase our costs. increased focus to both the risks and
Changes in weather patterns opportunities surrounding climate change.
and the frequency of extreme We systematically consider the potential
weather events, particularly impacts of climate change throughout
storms and flooding, may the land acquisition, planning and build
increase the likelihood processes and work closely with planning
of disruption to the construction authorities and other statutory bodies
process. The availability to manage and mitigate these risks.
of mortgages and property For example, we conduct full environmental
insurance may reduce should assessments for each parcel of land
financial institutions we acquire for development to ensure
consider the possible impacts our activities fulfil all obligations,
relating to climate change. respecting the natural environment and
Changes in weather patterns the communities for which we are delivering
may increase build costs newly built homes. We are keen to adopt
and/or development timeframes. Sustainable Urban Drainage Systems on
The impact and likelihood all our new sites, subject to local
of this risk has increased planning requirements, to address the
compared to the prior year risk of flooding.
as an ever heightening On 1 October 2019, the Government set
awareness and demand for out its plans for the 'Future Homes
action is likely to result Standard' including proposed options
in a more urgent transition to increase the energy efficiency requirements
to a lower carbon economy. for new homes in 2020 as a 'stepping
stone' to achieving the new standard.
The Future Homes Standard (to be introduced
by 2025) will require new build homes
to be future-proofed with low carbon
heating and world leading levels of
energy efficiency.
During the year, the Group established
a low carbon homes working group (consisting
of members from across the Group's various
disciplines) to effectively plan and
manage the transition to low carbon
homes. The Group, which collaborates
with key suppliers, is aiming to identify
the most effective solutions to developing
low carbon homes. It meets regularly
and reports its findings to the Board.
The Group is proactively engaging with
the housing industry and the Government
to develop industry wide solutions to
meet the requirements of the Future
Homes Standard.
We continually seek to strengthen our
supply chain, for example, our off-site
manufacturing facilities provide us
with greater assurance of quality and
supply, and use modern methods of construction
and technology to assist the mitigation
of climate change related risks. The
Group procurement team maintain strong
links with our suppliers delivering
value through our supply chain by regular
engagement and robust tendering processes.
------------------------------------- --------------------------------------------------
Reputation
Residual Impact Mitigation
Risk Damage to the Group's reputation Management Supervision
Medium could adversely impact The Group has a strong commitment to
on its ability to deliver appropriate culture and maintaining
Change its strategic objectives. the high quality of its operations.
from prior For example, should governance, Oversight from the Board seeks to ensure
year build quality, customer key processes are robust and any matters
No change experiences, operational are promptly and effectively addressed.
performance, management The Group's build quality and customer
of health and safety or service processes are a key strategic
local planning concerns priority and significant investment
fall short of our usual has been made in this area during the
high standards, this may year with further ongoing improvements
result in damage to customer, being made.
commercial and investor
relationships and lead Where management oversight identifies
to higher staff turnover. inconsistencies in adherence to agreed
processes, correcting actions are swiftly
taken. The identification of instances
of incorrect cavity barrier installations,
for example, resulted in immediate action
and a detailed programme of inspections
and rectifications, including training
and introduction of the initiatives
described below to strengthen oversight
during construction.
A Construction Working Group comprising
senior experienced construction professionals
from across the Group was established
in October 2019 in order to strengthen
Group build processes and establish
a consolidated, consistent Group wide
approach to construction (the Persimmon
Way). A new senior "Construction Champion"
role has also been created to strengthen
oversight of Group build processes across
all regions. The Group has appointed
a team of Independent Quality Inspectors
to undertake regular inspections of
all aspects of construction activity
on our sites as well as continually
assessing the finished quality of our
new homes. Once implemented there will
be an external audit of this process
on an annual basis in line with the
Persimmon Way.
Other senior appointments have been
made at Group level to promote and enforce
compliance with policies and procedures
as well as to provide the Board with
assurance that they are being implemented
properly.
Stakeholder Relationships
We take actions to maintain positive
relationships with all of our stakeholders
to minimise the risks of reputational
damage and aim to comply with best practice
in corporate governance.
Within 2019 we have further developed
our engagement activities with all stakeholders.
For example, we have improved engagement
with our employees through the Employee
Engagement and Gender Diversity Panels
which meet regularly and report to the
Board. We have invested in a number
of measures to improve customer experience
by putting customers before volume.
These measures have included the introduction
of a retention scheme for customers
with cover to include any faults identified
during the first week of occupation,
and invested in a customer portal which
will be rolled out across the Group
in 2020. We continue to foster long
term, mutually beneficial relationships
with our suppliers.
We actively support local communities
in addressing housing needs, in creating
attractive neighbourhoods and employing
local people, both on our sites and
in the supply chain. Significant contributions
are made to local infrastructure and
good causes within the communities in
which the Group operates.
------------------------------------- --------------------------------------------------
Regulatory compliance
Residual Impact Mitigation
Risk The housebuilding industry We operate comprehensive management
Low is subject to extensive systems to ensure regulatory and legal
and complex laws and regulations, compliance, including a suite of policies
Change particularly in areas such and procedures covering key areas of
from prior as land acquisition, planning legislation and regulation. Where these
year and the environment. Ensuring systems identify inconsistencies in
Increased compliance in these areas adherence to agreed processes, correcting
can result in delays in actions are swiftly taken. The identification
securing the land required of instances of incorrect cavity barrier
for development and in installations, for example, resulted
construction. in immediate action and a detailed programme
Any failure to comply with of inspections and rectifications, including
regulations could result training and a range of other initiatives
in damage to the Group's to strengthen oversight during construction.
reputation and potential We engage extensively with planning
imposition of financial authorities and other stakeholders to
penalties. reduce the likelihood and impact of
The potential risk impact any delays or disruption. We also hold
in this area has increased a land bank sufficient to provide security
during the year, reflecting of supply for medium term land requirements.
increasing regulatory requirements,
and the scale of potential
penalties under recent
legislation (for example
those under the General
Data Protection Regulation
"GDPR").
------------------------------------- --------------------------------------------------
Cyber and Data Risk
Residual Impact Mitigation
Risk Failure of any of the Group's We operate centrally maintained IT systems
Medium IT systems, particularly with a fully tested disaster recovery
those in relation to customer programme.
Change information and customer All infrastructure is highly resilient,
from prior service could result in with geographically diverse datacentres
year significant financial costs that have a series of backups.
New and reputational damage The Group has detailed and robust systems
and business disruption, development and implementation processes
due to the loss, theft in place and a Cyber Incident Response
or corruption of data either Plan. The Group has also appointed a
inadvertently or via a Cyber Security Manager responsible for
targeted cyber-attack. the management and oversight of security
controls.
Periodic penetration testing is carried
out through security partners to test
the security of our perimeter network.
Established GDPR compliant business
processes and data management are maintained
and regularly reviewed.
------------------------------------- --------------------------------------------------
VIABILITY STATEMENT
Persimmon's prospects and viability
The long term prospects and viability of the business are a
consistent focus of the Board when determining and monitoring the
Group's strategy. The identification and mitigation of the
principal risks facing the business also form part of the Board's
assessment of long term prospects and viability*.
Assessing Persimmon's prospects
Persimmon has built a strong position in the UK's house building
market over many years recognising the potential for long term
growth across regional housing markets. The Board recognises that
the long term demographic fundamentals of continued positive
population growth and new household formation, together with the
requirement to replace and improve the quality of the country's
housing stock, provide a long term supportive backdrop for the
industry. However, the Board recognises the inherent cyclicality of
the UK housing market. This cyclicality reflects the effect that
some of the principal risks that challenge the Group's strategy and
business model can have over time.
Persimmon possesses the key ingredients that are required to
realise the Group's purpose and will deliver sustainable success -
talented teams focused on consistently delivering good quality
homes for our customers, strong local community and customer
relationships, market knowledge and long term supplier engagement,
expertise and industry know how, and high quality land that allows
us to create attractive places that deliver long term value for our
customers and other stakeholders. Through the implementation of the
Group's customer care improvement plan and the recommendations of
the Independent Review the Group is further strengthening the
platform that will support the future success of the business. By
building on these solid foundations the Group aims to help create
sustainable and inclusive communities through continued investment
in its people, its land, its development sites and in its supply
chain, creating enduring value for the communities we serve.
The Group adopts a disciplined annual business planning regime
which is consistently applied and involves the management teams of
the Group's 31 house building businesses and senior management,
with input and oversight by the Board. The Group combines detailed
five year business plans generated by each house building business
from the "bottom up" with ten year projections constructed from the
"top down" to properly inform the Group's business planning over
these longer term horizons. Zero based annual budgets are
established for each business twice a year.
This planning process provides a valuable platform which
facilitates the Board's assessment of the Group's short and long
term prospects. Consideration of the Group's purpose, current
market position, its strategic objectives and business model, and
the risks that may challenge them are all included in the Board's
assessment of the prospects of the Group.
Key Factors in assessing the long term prospects of the
Group:
1. The Group's current market positioning
-- Strong sales network from active developments across the UK providing geographic diversification
of revenue generation
-- Three distinct brands providing diversified products and pricing deliver further diversification
of sales
-- Imaginative and comprehensive master planning of development schemes with high amenity value
to support sustainable, inclusive neighbourhoods which generate long term value to the community
-- Disciplined land replacement reflecting the extent and location of housing needs across the
UK provides a high quality land bank in the most sustainable locations supporting future operations
-- Long term supplier and subcontractor relationships providing healthy and sustainable supply
chains
-- Flexible cost structure to allow the effective response to changes in market conditions
-- Increased investment to support higher levels of construction quality and customer service
through the implementation of the Group's customer care improvement plan
-- Strong financial position with considerable cash reserves and with additional substantial
working capital credit facilities maturing March 2024
2. Strategy and business model
-- Clear strategy to support continued investment in sustainable, inclusive residential development
opportunities for the long term benefit of local communities and other stakeholders throughout
the UK
-- Focusing on constructing new homes for our customers to the high quality standards that they
expect and helping to create attractive neighbourhoods
-- Strategy recognises the Group's ability to generate surplus capital beyond the reinvestment
needs of the business
-- Positioning the business to retain appropriate flexibility to mitigate the impacts of the
cyclicality of the UK housing market is a key element of the Group's strategy
-- Substantial investment in staff engagement, training and support to sustain operations over
the long term
-- Approach to land investment and development activity provides the opportunity to successfully
deliver much needed new housing supply and create value over the long term
-- Differentiation through vertical integration achieving security of supply of key materials
and complementary modern methods of construction to support sustainable growth in output
-- Simple capital structure maintained with no structural gearing
3. Principal risks associated with the Group's strategy and business
model include:
-- Risk of the impact of disruption to the UK economy resulting
from the departure of the UK from the EU
-- Market risk related to reduced consumer confidence due to
regional economic uncertainties
-- The risk of a reduction in mortgage funding availability
and/or affordability due to reduced lender risk appetite
and/or regulatory change
-- Team, skills and talent related risks regarding retention
and change management
See above for the full list of principal risks together with
detailed descriptions.
Disciplined strategic planning process
The prospects for the Group are principally assessed through the
annual strategic planning review process conducted in October each
year. The management team from each of the Group's house building
businesses produce a five year business plan with specific
objectives and actions in line with the Group's strategy and
business model. These detailed plans reflect the development skill
base of the local teams, the region's housing market, strategic and
on market land holdings and investments required to support their
objectives. Special attention is paid to construction programmes
and capital management through the period to ensure the appropriate
level of investment is made at the appropriate time to support
delivery of the plan. Emerging risks and opportunities in their
markets are also assessed at this local level.
Senior Group management review these plans and balance the
competing requirements of each of the Group's businesses and
allocates capital with the aim of achieving the long term strategic
objectives of the Group. The five year plans provide the context
for setting the annual budgets for each business for the start of
the new financial year in January, which are consolidated to
provide the Group's detailed budgets. These budgets are updated
after six months, for the following twelve months, which are then
replaced by the new strategic planning, and budget setting, cycle.
The Board review and agree both the long term plans and the shorter
term budgets for the Group.
The outputs from the business planning process are used to
support development construction planning, impairment reviews, for
funding projections, for reviews of the Group's liquidity and
capital structure, and identification of surplus capital available
for return to shareholders via the Group's Capital Return Plan,
resulting in the payment of dividends to shareholders.
Assessing Persimmon's viability
The Directors have assessed the viability of the Group over a
five year period, taking into account the Group's current position
and the potential impact of the principal risks facing the
Group.
The use of a five year time horizon for the purpose of assessing
the viability of the Group reflects the business model of the
Group, new land investments generally taking at least five years to
build and sell through, and for the development infrastructure to
be adopted by local authorities.
A key feature of the Group's strategy launched in early 2012 and
documented in the Strategic Report is the Group's commitment to
maintain capital discipline over the long term through the housing
cycle. On launch, this commitment was reinforced with the
announcement of the Group's Capital Return Plan ("CRP"). The CRP
initially committed to return GBP1.9bn of surplus capital over the
following ten financial years to 2021, or GBP6.20 per share. After
eight years the Group is ahead of plan and has paid GBP9.55 per
share, or GBP2.97bn back to shareholders. On 27 February 2020 the
Directors announced the scheduled CRP payments in respect of the
financial year ended 31 December 2019. Further details can be found
in the Chief Executive's statement earlier in this
announcement.
On an annual basis the Directors review financial forecasts used
for this Viability Statement as explained in the disciplined
strategic planning processes outlined earlier. These forecasts
incorporate assumptions about the timing of legal completions of
new homes sold, average selling prices achieved, profitability,
working capital requirements and cash flows, and are designed to
test the Group's ability to fulfil its strategic objectives. They
also include the CRP. The Directors have made the assumption that
the Group's revolving credit facility is renewed during the period
having again extended the maturity of the facility during the year
to 31 March 2024.
The Directors have also carried out a robust assessment of the
principal risks facing the Group (as set out above), and how the
Group manages those risks, including those risks that would
threaten its strategy, business model, future operational and
financial performance, solvency and liquidity. The Group has
considered the impact of these risks (particularly those in
relation to the cyclicality of the UK housing market and the
economic environment) on the viability of the business by
performing a range of sensitivity analyses including severe but
plausible scenarios materialising together with the likely
effectiveness of mitigating actions that would be executed by the
Directors.
These scenarios included the stress testing of the Group's
business model assuming that a combination of events resulted in a
substantial reduction in sales, similar to a severe recession, with
a deterioration in employment levels and consumer confidence,
coupled with a collapse in bank risk appetite, leading to a
material reduction in credit availability. In undertaking the
stress testing, the Directors assumed a rapid change in
circumstances over a relatively short period of time so as to test
the strength of the mitigating actions available to address the
stress exerted on the Group's business model. In total it was
assumed average selling prices fell by c. 15% over an initial three
year period, during which time it was also assumed that sales
volumes fell by over 45%, before the market was assumed to
stabilise and then gradually move into a recovery phase. Due to the
combined effect of these factors the Group's housing revenues were
assumed to fall by c. 53% during this period. The stress tests and
mitigation were guided by the experience gained from the management
of the business through the Global Financial Crisis from 2007 to
2010. Cash flows were assumed to be managed consistently ensuring
all appropriate investment was made in the business at the
appropriate time as a priority. The Directors assumed they would
make the most appropriate decisions regarding returning surplus
capital to shareholders through this period to ensure the strategic
objective of minimising financial risk through the cycle was
achieved. The payment of the "regular" element of the CRP in early
July each year was maintained. This stress testing of principal
risks materialising also considered the potential for costs of
exceptional charges and asset impairment to arise.
Based on this assessment, the Directors confirm that they have
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period
to the end of 31 December 2024.
* The Directors have assessed the longer term prospects of the
Group in accordance with provision 31 of the UK Corporate
Governance Code 2018
Statement of Directors' Responsibilities
The Statement of Directors' Responsibilities is made in respect
of the full Annual Report and the Financial Statements not the
extracts from the financial statements required to be set out in
the Announcement.
The 2019 Annual Report and Accounts comply with the United
Kingdom's Financial Conduct Authority Disclosure Guidance and
Transparency Rules in respect of the requirement to produce an
annual financial report.
We confirm that to the best of our knowledge:
-- the Group and Parent Company financial statements, contained
in the 2019 Annual Report and Accounts, prepared in accordance
with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
-- the Strategic Report includes a fair review of the development
and performance of the business and the position of the
issuer and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
We consider the Annual Report and Accounts taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
The Directors of Persimmon Plc and their function are listed
below:
Roger Devlin Chairman
Dave Jenkinson Group Chief Executive
Mike Killoran Group Finance Director
Nigel Mills Senior Independent Director
Marion Sears Non-Executive Director
Rachel Kentleton Non-Executive Director
Simon Litherland Non-Executive Director
By order of the Board
Dave Jenkinson Mike Killoran
Group Chief Executive Group Finance Director
26 February 2020
The Group's Annual financial reports, half year reports and
trading updates are available from the Group's website at
www.persimmonhomes.com/corporate.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR DDGDDDGDDGGL
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February 27, 2020 02:00 ET (07:00 GMT)
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