TIDMPSN
RNS Number : 4246R
Persimmon PLC
01 March 2023
FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2022
Persimmon Plc today announces Final Results for the year ended
31 December 2022.
Dean Finch, Group Chief Executive, commented:
"Persimmon delivered a very strong performance in 2022. I am
particularly pleased we combined strong financial results with
five-star customer service and quality. I would like to thank
colleagues across the Group who have been working hard to deliver
the dream of homeownership for our customers during one of the most
turbulent years anyone can remember. The strength of our financial
and customer service results is testament to their hard work and
commitment.
"The market remains uncertain. Our marketing campaign has helped
improve the Group's sales rates in the new year from the lows at
the end of 2022, but they still remain lower year on year. We have
carefully managed our pricing, recognising the improved value and
energy efficiency of our product in these difficult times and sales
prices have proved resilient. We responded quickly to stimulate
sales, enhance cost controls and preserve cash, promptly slowing
new land investment in the fourth quarter of last year.
Nonetheless, the sales rates seen over the last five months mean
completions will be down markedly this year and as a consequence,
so will margin and profits. However, it is too early to provide
firm guidance.
"Looking further ahead, the fundamentals underpinning demand for
new homes remain strong and we continue to target disciplined
growth in the coming years while continuing to enhance our quality
and service credentials. Persimmon benefits from industry-leading
embedded margins in its existing land portfolio. This is a strong
platform for growth from next year as we look to expand our outlet
network to provide the capacity to deliver ahead of pre-Covid
volumes in the future. A more proactive approach to securing
permissions is starting to demonstrate success despite ongoing
difficulties in the planning system. We are prioritising securing
consents on sites we already own and will complement this through
targeted investment in outstanding new land opportunities at the
right time.
"The hard work of recent years has built a stronger and more
sustainable Persimmon for the future. With a well-positioned
product delivered with more consistent quality and service,
together with our high quality land holdings, we are well-placed to
succeed in the years ahead by growing our outlet network,
increasing the number of five-star homes we build, responding
swiftly to market changes and delivering sustainable returns to
shareholders."
Financial Highlights
2022 2021
New home completions 14,868 14,551
New home average selling price GBP248,616 GBP237,078
Total Group revenues GBP3.82bn GBP3.61bn
New housing revenues GBP3.70bn GBP3.45bn
Underlying new housing gross margin(1) 30.9% 31.4%
Underlying operating profit(2) GBP1,006.5m GBP966.7m
Underlying profit before tax(2) GBP1,012.3m GBP973.0m
Profit before tax GBP730.7m GBP966.8m
Cash at 31 December GBP861.6m GBP1,246.6m
Land holdings at 31 December -
plots owned and under control 87,190 88,043
Number of selling outlets at 31
December 272 234
Current forward sales position GBP1.52bn GBP2.21bn
Net assets per share 1,077p 1,136p
Underlying return on average capital
employed(3) 30.4% 35.8%
Customer satisfaction score(4) 5-star 5-star
A strong trading performance combined with five-star quality for
the first time
-- Underlying operating profit (2) up 4% year on year to over
GBP1bn.
-- Profit before tax of GBP730.7m reflecting the increase in
our provision by GBP275.0m to GBP350.0m (before spend to
date) for building safety remediation.
-- HBF customer satisfaction score (4) remained above the 90%
five-star threshold for the year with continued focus on
further improvements through our Persimmon Way build excellence
programme.
-- Average selling price increased 5% year on year, reflecting
house price inflation and a more sophisticated approach to
pricing in local markets.
-- Build rates up 8% year on year, with the second half of the
year particularly strong at 15%.
-- Industry-leading underlying operating margin (5) position
maintained at 27.2% (2021: 28.0%) as careful cost management
and the Group's vertical integration helped mitigate build
cost inflation of 8-10% through the year.
-- Strong cash generation of GBP1,002.7m (2021: GBP1,209.8m)
before capital return of GBP750.1m and net land spend of
GBP637.6m. Cash held at 31 December 2022 GBP861.6m (2021:
GBP1,246.6m) reflecting strong investment in land and work
in progress and capital return.
Disciplined investment
-- Proactively added additional control measures in Q4 2022
to slow land investment and ensure work in progress matched
sales demand.
-- Added 14,670 plots across 66 sites into our owned and under
control land holdings during the year, at gross investment
of GBP735.8m. These additions maintained both our industry-leading
embedded margins and the cost to revenue ratio of our owned
land has remained at 11.4%(6) .
-- The Group's high quality land holdings stand at 87,190 plots
owned and under control at 31 December 2022 (2021: 88,043).
-- The Group's underlying return on average capital employed3
of 30.4% (2021: 35.8%) reflects the increased investment
in land and work in progress as we built up our outlet network
in 2022.
-- Expediting sites on owned land with consent stalled or due
for application shortly, with a more proactive approach to
planning including an enhanced Placemaking Framework.
-- With a more selective approach in place, we expect new land
investment to be reduced in 2023. We will continue to target
attractive deals to help drive outlet growth from 2024 onwards,
subject to planning constraints.
Creating sustainable communities
-- Our private average selling price of GBP272,206 during 2022
is over 20% lower than the UK national average(7) .
-- Investment of GBP505.6m in local communities, including the
delivery of 2,694 new homes to our housing association partners
(2021: 2,533).
-- Good progress made on our carbon reduction targets including
through increased use of electric vehicles in our fleet and
100% renewable electricity in our offices.
-- Seeking to deliver our transition to net zero carbon homes
in use through innovative solutions from Space4, our timber
frame manufacturing facility.
-- One of only 10 companies to be awarded a Certificate of Commitment
and Progress - Building Safety Stage 1, as part of the Building
a Safer Future Charter Champion application process.
-- Remain proud to be a Living Wage Foundation accredited employer;
introduced the 2023 increase in January ahead of the requirement.
Legacy building safety provision
-- In February 2021 Persimmon led the industry in committing
that no leaseholder in a multi-storey development we built
would have to pay for cladding removal or life-critical fire-safety
remediation.
-- Persimmon has signalled its intent to sign the UK government's
developer remediation contract as it is in line with this
existing commitment. We continue to work positively with
the Welsh and Scottish governments on similar agreements.
-- Good progress has already been made on buildings we developed.
Of 73 developments identified as requiring remediation, work
is underway or complete on 42 and we aim to start work on
the remainder by the end of 2023.
-- As announced in November 2022, the Group has increased its
provision for building safety remediation across the UK to
GBP350.0m (before spend to date), resulting in a GBP275.0m
exceptional charge for the year.
Current trading and outlook
-- Forward sales position reflects the significant drop in private
sales rates experienced in Q4 2022 to 0.30 (Q4 2021: 0.77),
although cancellation rates have reverted back to typical
historic levels.
-- Current forward sales stand at GBP1.52bn, including private
average sales of GBP0.81bn with an average selling price
of GBP288,638 indicating that pricing remains firm.
-- Sales rates have improved to 0.52 in the first 8 weeks of
the year, in-line with industry peers yet still significantly
below the equivalent period last year (0.96).
-- Entered 2023 with 272 active sales outlets, up from 234 at
the start of 2022, with an average of 259 for the year. Average
likely to remain broadly similar in 2023 reflecting selective
investment and on-going effect of slow planning system.
-- Too early to assess a full year sales rate, but should current
rates continue for the rest of the selling year, the Group's
current outlet network would imply 8,000-9,000 legal completions
for 2023.
-- These lower completion levels will have a margin impact.
-- If cost inflation, which is currently running at c.8%,
continues all year and there is no mitigating increase
in average selling price, margins may reduce by around
500bps.
-- Reduced volumes and increased sales incentives and
marketing costs may further impact operating margins
by around 800bps.
-- Ultimately, any margin impact will of course be a
product of the interplay between each of these factors.
Equally, as they improve, it will drive relative margin
growth.
-- While focusing on securing planning permissions from our
existing owned land, it is our intention to continue to invest
in land in a targeted and disciplined way, when we judge
the timing is right, in order to deliver outlet growth in
future years. We are confident that this will lead to growing
margins and profits.
-- We have taken action to reduce our costs but wish to retain
our capabilities to grow again in the near term, which has
reduced our ability to mitigate the margin impact of lower
volumes.
-- We continue to enhance our capabilities through further investment
in our colleagues, innovation and vertical integration -
including a new timber frame factory - to enhance our build
quality and efficiency capabilities and ability to respond
to improvements in the market.
Shareholder returns
-- Dividends of 125p (GBP399.0m) and 110p (GBP351.1m) per share
paid on 1 April 2022 and 8 July 2022 respectively, representing
the capital return from 2021.
-- A new capital allocation policy was announced in November
to deliver sustainable returns to shareholders while investing
in future growth through disciplined expansion of our industry-leading
land portfolio and enhancing our quality and service capabilities.
Alongside this the board considers our current assessment
of prevailing market conditions, the sector's increased tax
contribution and building safety remediation costs.
-- For 2022, the Board proposes a final dividend of 60p per
share to be paid on 5 May 2023 to shareholders on the register
on 14 April 2023, following shareholder approval at the AGM.
This dividend is the final and only dividend in respect of
financial year 2022.
-- For 2023, the Board's intention is to at least maintain the
2022 dividend per share with a view to growing this over
time. As previously announced, payments will be made semi-annually
and the Board intends to pay an interim dividend in the second
half of this year in relation to 2023.
Footnotes
1 Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and based on new housing revenue (2022: GBP3,696.4m,
2021: GBP3,449.7m).
2 Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m). Operating profit after legacy buildings provision
charge and goodwill impairment is GBP724.9m (2021: GBP960.5m).
3 12 month rolling average calculated on operating profit before
legacy buildings provision charge (2022: GBP275.0m, 2021:
GBPnil) and goodwill impairment (2022: GBP6.6m, 2021: GBP6.2m)
and total capital employed. Capital employed being the Group's
net assets less cash and cash equivalents plus land creditors.
4 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. The rating used here reflects the live score
at time of publication.
5 Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m) and based on new housing revenue (2022: GBP3,696.4m,
2021: GBP3,449.7m)
6 Land cost value for the plot divided by the anticipated future
revenue of the new home sold.
7 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 GBP272,206.
For further information please contact:
Victoria Prior, Group IR Director Kevin Smith
Anthony Vigor, Group Director Holly Gillis
of Policy and External Affairs Ellen Wilton
Persimmon Plc Citigate Dewe Rogerson
Tel: +44 (0) 1904 642199 Tel: +44 (0) 20 7638 9571
A presentation to analysts and investors will be available in
person and via webcast at 9.00am on 1 March 2023.
There will be a live webcast facility and conference call for
anyone who does not wish to attend in person. All participants must
pre-register to join the webcast and / or conference call using the
Participant Registration links. Once registered, an email will be
sent with important details for this event, as well as a unique
Registrant ID. This ID is to be kept confidential and not shared
with other participants.
Webcast link:
https://edge.media-server.com/mmc/p/3mp5qs8q
Conference call link:
https://register.vevent.com/register/BIe53095c2619546a99139ffbc01a54a6e
A recording of the presentation will be available on the
corporate website later in the day:
https://www.persimmonhomes.com/corporate/investors/results-presentations-and-financial-reports
Chairman's Statement
Introduction
I am pleased to report that Persimmon had a strong year in 2022.
For the first time in our 50 year history we delivered five star
quality and service while also achieving underlying pre-tax
profits(1) in excess of GBP1 billion.
By contrast 2023 promises to be a tough year, albeit largely for
reasons beyond our control. While I am confident that our attention
to build quality and customer care will remain undimmed, we will
inevitably see a sharp fall in the number of completions as well as
a decline in profitability as a consequence of the nationwide
diminution in demand for housing arising from higher mortgage rates
and challenging economic circumstances.
However, I remain very confident of the exciting long-term
prospects for Persimmon. We are constantly reminded by the
political classes of the national need for 300,000 homes to be
built every year. I expect the outturn for 2023 may not be much
more than half this number. Therefore we anticipate that our
company will be a beneficiary of strong pent up demand when the
economic and housing cycles turn in our favour eventually.
When I joined the company as Chairman in 2018 I quickly
commissioned an Independent Review of our approach to build
quality. I am delighted that Dean and his team have responded to
the challenge so vigorously and diligently to deliver better homes
built right first time.
Many colleagues have commented to me that 2022 was perhaps the
most difficult year they have known in the building trade. The
combination of material and labour shortages, significant inflation
and the stark drop-off in sales rates in the fourth quarter
presented myriad challenges that my colleagues have navigated with
impressive skill and commitment. Our mission is to build homes with
quality our customers can rely on at a price they can afford and
2022's results demonstrate the company has done just that.
A more challenging period but opportunities ahead
Following the swift rise in interest rates the Group acted
quickly to enhance its already strong investment discipline and
working capital cost controls, to protect our cash position and in
the longer-term provide the flexibility to pursue new growth
opportunities.
We have a strong platform to prepare for a new growth phase when
market conditions permit. Although 2023 will be a difficult year,
Persimmon has the opportunity to expand our outlet network at the
right time through disciplined and targeted investment and a more
sophisticated approach to securing planning to expedite approvals.
We are hopeful that by next year we will be expanding once more,
delivering more new homes for customers and sustainable returns for
shareholders.
Industry leadership
Although the national political environment has become more
challenging as backbench anti-new housing forces have gained
strength, we are pleased to continue to lead the industry with
cladding and fire safety remediation. We were proud to be first
with our initial commitment in February 2021 to protect
leaseholders from the costs of remediation in any multi-storey
development we built. The government's developer remediation
contract seeks to contractualise our existing commitment; a
commitment we are already making good progress on. We expect to
sign the contract imminently. We are also engaged in similarly
positive discussions with the Welsh and Scottish governments.
As announced in November 2022, the Group increased our provision
for building safety remediation across the UK to GBP350m (before
spend to date), resulting in a GBP275m exceptional charge for the
year. This increase reflects the extensive work we have done to get
a more detailed understanding of costs over the last year. The
government has also broadened the scope of works required this year
to include non-cladding fire related build defects, resulting in
both an increase in the amount of work required and in the number
of eligible buildings. This has also happened against a background
of significant build cost inflation during the period. We expect
the work to be largely completed - with the associated cash impact
- over the next three years.
Capital allocation policy
Persimmon remains a fundamentally strong business, with
industry-leading financial performance through the cycle. The
actions we are currently taking will strengthen our capabilities to
grow and deliver sustainable returns over time to shareholders.
A new capital allocation policy was announced in November to
deliver sustainable returns to shareholders while investing in
future growth through disciplined expansion of our industry-leading
land portfolio and enhancing our quality and service capabilities.
Alongside this the Board considers our current assessment of
prevailing market conditions, the sector's increased tax
contribution and building safety remediation costs.
For 2022, the Board proposes a final dividend of 60p per share
to be paid on 5 May 2023 to shareholders on the register on 14
April 2023, following shareholder approval at the AGM. This
dividend is the final and only dividend in respect of financial
year 2022. The Board's intention is to at least maintain the 2022
dividend per share in 2023, with a view to growing this over time.
As previously announced, payments will be made semi-annually with
an interim dividend paid in the second half of this year in
relation to 2023.
Board changes
The only Board change during the year was Jason Windsor joining
on 11 July 2022 as Chief Financial Officer, replacing Mike Killoran
following his retirement in January 2022. The Board warmly welcomes
Jason to the business.
Finally, on behalf of the whole Board I would like to thank our
colleagues, subcontractors and suppliers for their hard work and
determination to deliver a good performance in 2022. This year will
not be easy. Sometimes in life you have to go backwards in order to
move forwards. I am convinced our long-term future is bright and we
all look forward to working together to maintain Persimmon's
industry-leading position and deliver more quality homes for our
customers and sustainable returns for our shareholders through the
cycle.
Footnotes
1. Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m).
Chief Executive Statement
Introduction
Persimmon delivered a very strong performance in 2022. I am
delighted that the Group's second half delivery was 15% higher year
on year, resulting in 14,868 legal completions for 2022 (2021:
14,551), with a new housing gross margin of 30.9%(1) (2021: 31.4%)
and a five-star HBF 8 week customer satisfaction score(2)
maintained. This performance - perhaps Persimmon's strongest ever -
was delivered despite prevailing economic headwinds and supply
constraints. Its achievement is testament to the hard work of
colleagues across the whole Group to preserve Persimmon's great
strengths while making good progress in enhancing our build quality
and customer service.
2022 trading
The Group generated total revenues of GBP3.82bn, a 6% increase
year on year (2021: GBP3.61bn). Our new housing revenues increased
to GBP3.70bn in 2022, from GBP3.45bn in the prior year.
Our build rates, which were a record for the Group, were 8%
higher year on year. The build rate in the second half of the year
was particularly strong, up 15% year on year. Delivering these
build rates while maintaining a five-star HBF score demonstrates
the progress we have made through the Persimmon Way to strengthen
our key build quality and customer service capabilities and embed
them throughout the Group.
Demand reflected the broader market, with a significant
weakening in the second half of the year as concerns over the
economy, mortgage rates and the cost of living weighed heavily on
customer confidence. Overall private net sales rates for 2022 were
0.69 per outlet per week (2021: 0.83), driven by a steep decline in
Q4 to 0.30 (Q4 2021: 0.77). Indeed, after the well-publicised
problems catalysed by September's 'mini-budget', the last 7 weeks
of the year saw 0.19 private net sales per outlet per week,
compared to 0.61 in the comparative period the year before.
Average selling prices increased 5% year on year to GBP248,616
(2021: GBP237,078), reflecting house price inflation, our more
sophisticated approach to local market pricing and the mix of homes
sold. The Group's private average selling price was GBP272,206 in
2022, 5% higher than the prior year (2021: GBP259,231).
These price increases helped mitigate build cost inflation of
c.8-10% for the year. Our vertically integrated factories -
Brickworks, Tileworks and Space4 - also helped here, with all three
increasing their production year on year. Our increased use of
Space4 timber frame also helped deliver the improved build rate and
efficiency in the year.
The Group delivered a 4% year on year increase in underlying
operating profit(3) to GBP1,006.5m (2021: GBP966.7m) generating an
underlying new housing operating margin of 27.2 %(4) (2021: 28.0%).
This 80bps reduction reflects the Group's investment in its
enhanced operational capabilities, delivering improved quality and
service for its customers.
Underlying profit before tax(5) grew 4% year on year to
GBP1,012.3m (2021: GBP973.0m). Reflecting the GBP275.0m exceptional
charge for building safety remediation made in the year, profit
before tax was GBP730.7m (2021: GBP966.8m). The Group's cash
generation was strong at GBP1,002.7m pre-capital return of
GBP750.1m and net land spend of GBP637.6m (2021: GBP1,209.8m). Cash
held at 31 December 2022 was GBP861.6m (2021: GBP1,246.6m)
reflecting strong investment in land and work in progress and
capital returns.
Disciplined investment
The Group's high quality land holdings are a key strength for
the business. At 31 December 2022, the Group held 70,768 plots in
its owned land holdings with a plot cost to anticipated revenue
ratio of 11.4%(6) . During the year, we invested in some exciting
land opportunities adding 14,670 plots across 66 sites into the
Group's portfolio, a plot replacement rate of 99%. These additions
maintained our industry-leading embedded margins through our
well-established, disciplined approach to land investment.
Reflecting this strong position, in current market conditions we
are being highly selective, taking advantage of only the very best
opportunities at the right time.
The Group entered 2022 with 234 selling outlets, which it
successfully built up through the year as planned, ending at 272
selling outlets at 31 December 2022 and operating from an average
of 259 for the year. As market conditions became increasingly
uncertain, particularly during the last quarter of the year, we
carefully managed outlet openings to ensure that infrastructure and
work in progress investment met local demand.
Creating sustainable communities
We have a clear approach to sustainability that is centred
around three core pillars: transforming communities, safe and
inclusive and building for tomorrow. Our approach is embedded in
our day-to-day operations and we are proud of the work that we do
in creating sustainable communities for our customers. Our new
Placemaking Framework considers social value and the wellbeing of
our communities within our site design, for example providing
public open spaces, walkways, play areas and enhancing
bio-diversity.
Our private average selling price is over 20% below the UK
national average(7) , enabling customers to access the housing
market when otherwise they might not have been able to do so. The
business also delivered 2,694 homes to its Housing Association
partners during the year (2021: 2,533).
We aim to provide a scalable, cost effective way of ensuring our
customers can live more sustainable lives through exploring
innovative solutions to deliver net zero carbon homes in use. We
are undertaking a number of trials to support this transition by
2030. A "net zero carbon home" was built at one of our developments
in York to evaluate how we could achieve this in a practical,
repeatable way. We are working in conjunction with the University
of Salford to assess the "liveability" of the home for our
customers.
Building on from this trial, we are constructing a highly
thermally efficient timber frame home utilising new wall cassettes
from Space4, our timber frame manufacturing facility, together with
zero carbon heating from air source heat pumps with connection to a
100% renewable electricity supply. This is an exciting opportunity
to establish if, through use of innovative technology at our Space4
factory, we can achieve a net zero carbon home in use with
relatively simple technologies inside the home for our customers to
maintain. We are also trialling alternative heating solutions, such
as infra-red and underfloor systems on other developments.
Investing in our colleagues
Staff engagement scores demonstrate the progress we have made in
supporting our colleagues' professional development and making
Persimmon a great place to work. In 2022's survey our staff
engagement score was 83% (2021: 78%). Managing Directors and Site
Management teams are good examples of our approach to colleagues'
development. Both have received tailored training courses and plans
to enhance their skills further. Alongside rolling out enhanced
technical standards through the Persimmon Way, we have actively
assessed our site team's understanding of the requirements to
identify any gaps. Our NVQ programme continues, with over 500 site
management staff undertaking courses since 2021. Managing Directors
have also received assessments with plans put in place to develop
skills and strengthen any gaps. As we drive up our standards and
the consistency of their delivery we are investing to make
Persimmon an even better place to work where colleagues' skills are
developed and career aspirations fulfilled. We were delighted to be
announced as a Top 100 Apprenticeship Employer by the Department
for Education in 2022.
FibreNest
FibreNest continues to be a real strength for the Group, with
over 30,000 customers across more than 330 developments now
connected to our national ultrafast broadband network. FibreNest
was created to address persistent customer frustration that larger
and established internet providers were not connecting their homes
from the day they moved in, and has seen a sustained improvement in
day one connection rates. In 2022, FibreNest's Day One connection
rate was 90% (2021: 85%). FibreNest's customer ratings on Google
and Trustpilot are currently ahead of the larger and established
national internet providers. Customers view broadband as a key
utility and FibreNest's gigabit ready, ultrafast network is
therefore an important part of our service.
Building safety and the developer remediation contract
Persimmon was proud to lead the industry with our original
commitment made in February 2021 to protect leaseholders in multi
storey developments we built from the cost of any necessary
cladding removal or fire safety remediation. Since that original
commitment, we have worked proactively with management companies
and their agents to progress remediation. We have also worked
positively with the Department for Levelling Up, Housing and
Communities (DLUHC) this year to agree a final developer
remediation contract. This was recently published by DLUHC,
contractualising the Developer Pledge made in April 2022. We have
signalled our intention to sign ahead of the March 13(th) deadline
set by DLUHC.
As indicated in November 2022, the Group has increased its
provision for building safety remediation at the 2022 year end to
GBP350m. This rise reflects the more detailed understanding of
costs, which now include non-cladding fire related build defects,
the broader scope required by Government and an increase in the
number of eligible buildings, against a background of significant
cost inflation. We currently have 73 multi-storey developments
identified that require cladding removal or life-critical fire
safety work. Any necessary work has already been completed on 33
developments and is underway on a further 9. We aim for work to
have started at all remaining sites by the end of 2023.
Our five priorities
Our 2022 performance demonstrates that we have delivered against
the five priorities I first set out 2 years ago. These priorities
have guided our approach of building on Persimmon's great strengths
and enhancing our capabilities in key areas:
-- Build quality: our ambition has grown from "build right, first
time, every time" to trusted to deliver five-star homes consistently;
-- Reinforcing trust: in seeking to build a compelling brand we will
place customers at the heart of our business, trusted to deliver
the best value homes customers can be proud of;
-- Disciplined growth: maintain our stringent appraisal, investing
in high quality land in the right areas;
-- Industry-leading financial performance: sustain our industry-leading
margins and returns and drive healthy profit and cash;
-- Supporting sustainable communities: actively part of the net zero
carbon economy transition, the communities we operate in and efforts
to widen opportunity.
2023: a year of discipline
Our progress against these five priorities also provides a
strong platform from which to continue to deliver against the
backdrop of a challenging operational environment in 2023. We are
combining operational excellence with commercial excellence to
improve our product, our systems and processes and our position in
the market, to serve customers well while building a stronger
business for the long- term.
Proactive response to a challenging sales environment
As set out above, the sales environment has become more
challenging. The sales window for 2023 completions effectively
opened around September 2022. With the significant drop in sales
rates in Q4 2022, we ended the year with a forward sales position
of GBP1bn, 36% lower year on year (2021: GBP1.6bn). Private forward
sales revenue was down more markedly (55%) at GBP0.5bn (2021:
GBP1.1bn).
We responded proactively, including with a marketing campaign
launched on Boxing Day. This campaign offered "up to 10 months
mortgage free" or 105% part exchange for those reserving before the
end of February. Our website visitors increased markedly year on
year after its launch. Beyond the campaign specifically, our
marketing is more sophisticated, using targeted, digital channels
to drive sales and our brand reputation.
These actions have helped drive an improvement in sales rates in
2023 compared to the end of last year. Private sales rates per
outlet per week are running at 0.52 for the first 8 weeks of the
year. This is still below last year's comparable rate of 0.96.
Pricing has remained firm and cancellation rates have returned
to typical historical norms. Sales incentives costs have increased
slightly to around 3% of gross sales price from 2.39% in the fourth
quarter of last year. Part Exchange is proving popular, accounting
for around 25% of sales in the first 8 weeks of the year (2021:
c.6%).
There have been some encouraging signs in the mortgage market
recently, with rates reducing compared to late last year. However,
affordability and mortgage product availability still remain the
key issues, with particular challenges in the south of England. Our
sales rates are proving more resilient in the North and Midlands.
The end of Help to Buy means that for the first time in over a
decade there is not a significant government scheme to assist first
time buyers in place. With the affordability challenges in London
and the south east, its removal is being felt most strongly
there.
Our enduring relative pricing position in the market and
national network has helped maintain first time buyer interest
outside of London and the South East especially, and helped
mitigate the impact on sales rates. Given the political salience of
young families and the aspiration of homeownership, this may prove
to be a policy area that the major parties revisit ahead of the
general election. In the meantime, we will continue to focus on
improving our product, our quality and our service whilst
maintaining this price advantage within the market for the benefit
of our customers. Our mission 'to build homes with quality our
customer can rely on at a price they can afford' has never been
more relevant.
Our Partnership Homes team has also been working to improve our
business processes and reputation amongst Registered Providers (RP)
and local authorities. By drawing on our improved product and build
quality consistency, they have reviewed our standard approach to
working with RPs across the Group. This is leading to more RPs
looking to partner with us and puts us in a stronger position to
drive market competition and secure enhanced returns. Equally, we
have proactively engaged with the First Homes pilot scheme which
delivers homes to first time buyers at a 30% discount to prevailing
market value. We have around 215 homes either completed or
allocated within the current Homes England programme. We have also
identified the potential for additional homes to be included
subject to Homes England's approval.
Disciplined cost controls and opportunities for further
efficiency
Within this challenging market we are exerting ever-more
discipline and even greater cash and cost control. Since Q4 2022 we
have been increasingly selective on new land investment. We are
only targeting exceptional deals and expect our land spend to be
down in 2023, compared to 2022. Our local teams are focused on
securing planning consents from sites we already own and are
working closely with our External Affairs team to enhance our
stakeholder engagement and presentation to achieve approvals from
planning committees. Recent successes with previously stalled
applications are already demonstrating the benefit of this new
approach. We are also embedding this more proactive approach
earlier on in our new planning application process.
Persimmon has a strong track record of disciplined cost control
and we have strengthened these further. We are taking clear actions
to mitigate the impact of the deterioration in sales rates and have
added extra control stages into our existing processes to ensure
work in progress is being spent most effectively and at the right
time to secure the best returns. A key part of this is closely
managing construction programmes to local sales rates. We already
operate with a lean cost base and are operating from a relatively
low number of outlets but we also have a hiring freeze in place,
except where the role is business critical. Our approach is one of
prudent discipline and agility: seeking to reduce costs where
appropriate while making sure the company is ready for an upturn in
demand. We are therefore looking to retain and enhance key skills
and capabilities in the business to respond with even better
customer service and build quality.
Securing efficiency gains in our build programmes continues to
be a key area of focus for the business. A detailed review last
year found that Space4 timber frame construction is around 7 weeks
faster than traditional build. Space4's timber frames are therefore
being rolled out to more regions across the Group. We are looking
to expand timber frame's use more widely and our planning
application for our new state of the art factory in Leicestershire
was submitted last year. This factory will provide a wider variety
of timber frame products and innovative solutions to delivering
increasingly energy efficient homes even more cost effectively.
Our tendering processes have been strengthened through greater
central oversight and an expanded use of framework agreements.
Build cost inflation is currently c.8%, showing some slight
moderation from last year but still persisting. Strict disciplines
have been in place since the fourth quarter of 2022 to ensure new
contracts did not fix prices beyond 6 months, to give the
opportunity for price reductions at that time. Where incumbents are
not willing to negotiate we will go to a tender process, while
maintaining quality, service and safety standards, to secure best
value. With greater central specification and standardisation of
layouts and products (such as internal door sets) the Group is
using framework agreements to secure cost efficiency, enhanced
quality consistency and greater certainty on materials'
delivery.
We have conducted a thorough review of build programmes to
identify further opportunities. Every business now has a build
programme that better matches their prevailing conditions. This
allows for more accurate forecasting and the timely call off and
delivery of materials. This provides greater assurance of delivery
and efficiency in build. We are also trialling the procurement of
some key materials directly from manufacturers, as opposed to a
traditional supply and fix model, as part of this drive for
assurance and efficiency.
This combination of disciplined cost control and investment,
alongside ever-improving build efficiency underpins our next phase
of the Group's industry-leading financial performance.
Quality and customer improvements
Alongside this drive for ever-greater efficiency our focus on
enhancing quality continues. Our NHBC Construction Quality Review
score improved by 9% in 2022 compared to 2021. We are stepping up
further our Persimmon Way programme including trialling a new app
to provide direct personal communication with our site-based
workforce, providing induction, site-specific, quality and health
and safety information amongst other areas. We were also pleased to
become one of only 10 companies to be awarded a Certificate of
Commitment and Progress - Building Safety Stage 1, as part of the
Building a Safer Future Charter Champion application process.
As well as our enhancements to our sales and marketing set out
above, we have been investing in new tools and training to
strengthen our customer service. A training programme has been
rolled out to support Sales Advisors selling in this more
challenging market. This has been complemented by a mystery shopper
exercise on every site, identifying areas for further improvement
to help drive sales. This training builds on recent progress. We
were pleased to become the first homebuilding company to achieve
the Institute for Sales Professionals' Investor in Sales award for
our commitment to develop strong customer relationships based on
integrity, trust, and ethical selling.
We also welcomed the New Homes Quality Board's New Homes Quality
Code and registered last year. The aims of the code and its
supporting process are consistent with the Group's own focus on
further improving build quality and customer service standards. We
intend to activate in the coming months and have rolled out
training programmes across the Group - not limited to customer
service roles - to prepare. We are also putting extra assurance in
place to align our build programme to meet its requirements,
including effective earlier legal completion dates ahead of our
year end.
We have procured a new CRM system (YourKeys, developed by the
Zoopla Group), which will allow a comprehensive and integrated
system from initial instruction through to completion. This
platform will allow both customers and our colleagues to
communicate more effectively and provide enhanced information such
as on progression and layouts all in one place. We will be piloting
it shortly, with a view to rolling out across the Group later this
year.
We are continuing to invest in our staff and are further
enhancing our training offer to colleagues, including through a new
e-learning initiative. We are also pioneering new approaches, as
the Persimmon Academy in Llanilid, South Wales demonstrates. In
partnership with Bridgend College, we have established an
innovative on-site education and training academy, which is
producing the next generation of construction workers and site
staff in South Wales. It has already been recognised for
best-practice by key political stakeholders and shortlisted in the
Welsh Government's Apprenticeships Awards Cymru and the National
Federation of Builders' Construction Excellence Awards 2023. As
part of building the next generation or tradespeople we are looking
to develop similar academies elsewhere across the Group.
We continue to benefit from highly experienced management teams
across the business. Our senior management teams bring decades of
experience to managing the current market challenges and are
driving our investment disciplines while leading programmes to
enhance our capabilities. We will continue to invest in our
colleagues' development and our systems and technology to support
them in both their professional development and drive to deliver
ever more consistent quality for our customers.
Capital allocation policy
A new capital allocation policy was announced in November to
deliver sustainable returns to shareholders while investing in
future growth through disciplined expansion of our industry-leading
land portfolio and enhancing our quality and service capabilities.
Alongside this the board considers our current assessment of
prevailing market conditions, the sector's increased tax
contribution and building safety remediation costs.
Outlook
The longer-term fundamentals of the UK housing market remain
strong. Despite the current challenges and uncertainty, the
historic lack of supply means demand for new housing will remain.
The key current challenges are affordability and mortgage product
availability. While there has been some recent easing in mortgage
rates from their high at the end of last year, the majority of
respected forecasters do not expect them to return quickly to the
levels seen during the previous cycle.
Persimmon's 2022 performance demonstrates our capabilities to
deliver both strong financial performance and consistent build
quality and customer service for the first time in our history. We
have an improved - and improving - product that is well positioned
in the market, with a below average selling price at a time when
affordability is key. The breadth of our nationwide network and
near absence from London provides some protection from the most
acute affordability challenges. Combined with our excellent land
holdings with its industry-leading embedded margins, we have a
strong platform for the future. A strong balance sheet also
provides options and flexibility to pursue future growth.
Our proactive sales and marketing initiatives and improved
market conditions have helped increase the sales rate in recent
weeks but they still remain lower than last year. With our focus on
continually enhancing our product, including through an
ever-greater consistency of quality and service delivery, and
investment in a new CRM and further training, we aim to improve the
sales rate further.
It is too early to assess sales rates for the year as a whole,
but were our prevailing 0.52 sales rate to continue for the rest of
the selling year, the current outlet network would imply
8,000-9,000 legal completions for 2023. This includes homes sold to
housing associations, which we anticipate will deliver a higher
proportion of this year's completions than is typical, with a
higher weighting in the first half.
At these lower completion levels, there will be a margin impact.
To provide an illustration, assuming cost inflation which is
currently running at around 8% continues all year without a
mitigating increase in average selling price, margins may reduce by
around 500bps. As well as assuming this level of inflation, reduced
volumes and increased sales incentives and marketing costs may
further impact operating margins by around 800bps. Ultimately any
margin impact will of course be a product of the interplay between
each of these factors. Equally, as they improve, it will drive
relative margin growth.
We are taking action to manage our already lean cost base
through disciplined cost control and GBP40m of efficiencies were
identified in the 2023 operating budget, meaning that our combined
overhead costs on an underlying basis are holding broadly flat year
on year. We have a hiring freeze in place, other than where the
role is business critical. We believe 2023 will represent the floor
in our volumes and we want to retain our experienced and skilled
teams to respond quickly when the market turns back in our
favour.
We have been rebuilding our outlet position following the pause
in investment a few years ago. At the start of 2022 we had a
relatively low number of selling outlets (234) and successfully
grew this to 272 outlets by year end. This figure is itself still
relatively low for the Group - we have been up in the high 300s in
the past - and we have been looking to progressively grow our
outlet network while maintaining our disciplined approach to
investment.
In light of the market shift late in 2022, we exerted even
greater control on land spend and were highly selective with any
new investment. We expect to spend less on land in 2023 than in the
previous year and forecast land creditor spend of GBP270m in 2023.
We anticipate lower levels of cash balances in 2023, reflecting
lower completion levels, careful investment in land and work in
progress and building safety remediation costs. We will continue to
exert disciplined cash control and ensure our infrastructure and
build programme spend matches local demand. Some outlet openings
have been delayed as a result of this action. We are likely to have
a broadly similar number of average sales outlets in 2023 as
2022.
However, we are working now to grow our outlet network, at the
right time, to provide the capacity to deliver ahead of pre-Covid
volumes over the longer-term. We are focusing on securing consents
on land we already own to pull through more outlets most
efficiently. A more proactively engaged approach to local planning
is already starting to unlock some blocked consents and we are also
embedding it at an earlier stage in our applications process to
seek consents quicker. We will remain very disciplined on new
investment. Where we see excellent land investment opportunities
meeting our strict financial disciplines, we will invest at the
right time. We are also strengthening our strategic land teams to
secure new opportunities in the years ahead.
Our 2022 performance demonstrates that we have combined our
great financial strength with renewed capabilities of build quality
and customer service. We will continue to invest in these
capabilities, in a disciplined manner, so that we are even more
efficient and ever more consistent in the quality homes we deliver
to our customers. The investment in a new timber frame factory will
provide the capacity to deliver an additional 7,000 timber frame
units a year, as well as new innovations in wall systems and
panelling. As timber frame homes are typically 7 weeks faster to
construct, this investment will enhance our build efficiency
further. Targeted investment will help deliver further enhancements
to our BrickWorks and TileWorks factories. We will continue to
improve our product and our service to meet customer demand with
excellence and efficiency. Our existing land portfolio gives us a
strong platform to build from and again we will invest in it
further in a disciplined manner. While our margin will be impacted
by the contraction in volumes this year, it will grow as we
increase completions in the years ahead.
The hard work of recent years has enhanced our value proposition
to customers and built a stronger and more sustainable business for
the future. By combining operational excellence and commercial
excellence along with disciplined investment we will grow the
business from 2024 onwards. We will expand our outlet network at
the right time and enhance our capabilities to respond quickly and
efficiently to any increase in market demand. This growth will
deliver the opportunity of a new home to more customers, create
sustainable communities across the country and drive sustainable
returns to our shareholders for the years to come that will include
payment of an attractive and improving dividend.
Footnotes
1 Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and based on new housing revenue (2022: GBP3,696.4m,
2021: GBP3,449.7m)
2 The Group participates in a National New Homes Survey, run
by the Home Builders Federation. The build quality score
is based on how satisfied customers are with the quality
of their home. The rating used here reflects the live score
at time of publication.
3 Stated before legacy buildings provision charge of GBP275.0m
(2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m).
4 Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m) and based on new housing revenue (2022: GBP3,696.4m,
2021: GBP3,449.7m).
5 Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m).
6 Land cost value for the plot divided by the anticipated future
revenue of the new home sold.
7 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 GBP272,206.
Chief Financial Officer's statement
Trading
2022 quarterly performance Q1 Q2 HY Q3 Q4 FY
---------------------------- ------ ------ ------ ------ ------ -------
Completions 1,950 4,702 6,652 2,270 5,946 14,868
Net private sales
rate 0.98 0.89 0.91 0.63 0.30 0.69
FTB(1) % (private
completions) 33% 46% 42% 42% 42% 42%
HTB(2) % (private
reservations) 23% 21% 23% 21% 8% 21%
Average sales outlets 245 255 250 269 267 259
1 First time buyers
2 Help to Buy
Trading through the first half of the year was strong with good
levels of customer demand and average private weekly sales rate in
line with the prior year at 0.91. The summer months showed the
"normal seasonal" expected slow-down, with sales rates in Q3
decreasing to 0.63 (Q3 2021: 0.63). In the second half, pricing
remained firm whilst cancellation rates stepped upwards as the
ongoing war in Ukraine, along with the UK Government changes and
the increased cost of living, created significant uncertainty in
the UK economy. The change in market conditions gathered pace in Q4
with weaker consumer confidence impacting on customer behaviour
across the housing market. This weakening was reflected in the
Group's private weekly sales rate that fell to 0.30 in Q4 (Q4 2021:
0.77) and to 0.19 for last seven weeks of the year (2021:
0.61).
The strong forward sales position at the start of the 2022
financial year supported the excellent financial performance for
the year. As a result of the lower sales rate and elevated
cancellations in the second half of the year, the Group's forward
sales position reduced significantly year on year to GBP1.0bn
(2021: GBP1.6bn) at 31 December 2022.
For 2022, the Group generated total revenues of GBP3.82bn (2021:
GBP3.61bn), with new housing revenue 7% higher than 2021 at
GBP3.70bn (2021: GBP3.45bn). The Group delivered 2% more new homes
in 2022 when compared to the prior year (2022: 14,868; 2021:
14,551) at an average selling price of GBP248,616 (2021:
GBP237,078), 5% higher.
The Group delivered 12,174, new homes to private customers, an
increase of 1% on 2021 (2021: 12,018). The private average selling
price of GBP272,206 (2021: GBP259,231) was up 5% year on year
largely reflecting improvements in achieved selling prices and the
mix of new homes sold. The Group delivered a further 2,694 new
homes to its housing association partners (2021: 2,533) at an
average selling price up 8% at GBP142,017 (2021: GBP131,976).
The Group's underlying gross profit(1) for the year was
GBP1,142.5m (2021: GBP1,083.8m) with a new housing gross margin of
30.9%(2) (2021: 31.4%). The Group's well established land
replacement strategy, the improved selling prices achieved and
agile management of the high cost inflation environment we
experienced during the year continued to deliver industry-leading
margins.
Underlying operating profit(3) for the Group was GBP1,006.5m
(2021: GBP966.7m), generating an underlying new housing operating
margin(4) of 27.2% (2021: 28.0%).
On 8 November 2022 we announced that we expected to increase our
legacy buildings safety provision to approximately GBP350.0m from
GBP75.0m. This increase has been finalised and has resulted in a
GBP275.0m exceptional charge to the Income Statement in 2022.
After the exceptional charge the Group's reported gross profit
was GBP867.5m (2021: GBP1,083.8m) and its reported operating profit
was GBP724.9m (2021: GBP960.5m).
The Group generated a profit before tax of GBP730.7m in the year
(2021: GBP966.8m).
Taxation
The Finance Act 2022 received Royal Ascent on 24 February 2022
introducing a new residential property developer tax (RPDT) which
was effective from 1 April 2022 and is chargeable at 4% of profits
generated from residential property development in excess of an
annual threshold. RPDT was introduced by HM Treasury to obtain
further contributions from the UK's largest residential property
developers towards the cost of remediating defective cladding and
fire safety in the UK's "orphaned" high-rise housing stock
developed by third-parties.
As a result the Group has an overall tax charge of GBP169.7m for
the year (2021: GBP179.6m) and an effective tax rate of 23.2%
(2021: 18.6%), marginally higher than the mainstream rate of 22.0%
(2021: 19.0%). Factors that may affect the Group's taxation charge
include changes in tax legislation and the closure of certain open
matters in the ordinary course of business in relation to prior
year's tax computations.
Underlying return on average capital employed ('ROACE')
including land creditors remained strong at 30.4%(5) , albeit lower
than the prior year (2021: 35.8%). The reduction on the prior year
reflects the increased investment in land and work in progress
during the year leading to a 22% increase in average capital
employed, partially offset by the 4% increase in underlying
operating profit(3) . ROACE excluding land creditors was 35.6%(5)
compared with 40.9% at 31 December 2021. On a statutory basis ROACE
including land creditors was 21.9% (2021: 35.6%).
Return on Equity based on underlying profit after tax(6) was in
line with the prior year at 22.0% (2021: 20.1%).
Balance sheet
The Group has maintained its robust balance sheet with net
assets of GBP3,439.3m at 31 December 2022 (2021: GBP3,625.2m),
equivalent to 1,077p net assets per share (2021: 1,136p). This was
after returning GBP750.1m of surplus capital to shareholders under
the previous capital allocation plan. Retained earnings were
GBP2,868.5m (2021: GBP3,055.1m). Underlying basic earnings per
share(3) for the year was 247.3p, 0.6% lower than the prior year
(2021: 248.7p).
The Group's defined benefit pension asset has increased to
GBP155.9m at 31 December 2022 (2021: GBP148.8m). The increase being
due to an increase in discount rates and a decrease in inflation
assumptions which have reduced the value placed on the liabilities
offset by falling asset values resulting from weak asset
performance.
As noted above we have increased the legacy buildings safety
provision by GBP275.0m in the year. At 31 December 2021, the
provision stood at GBP72.7m and during the year works have
continued across a number of affected developments resulting in
spend of GBP14.4m. At 31 December 2022, the provision stands at
GBP333.3m and is management's best estimate of the costs of
completing works to ensure fire safety on the remaining affected
buildings that we are responsible for.
The Group's land holdings
At 31 December 2022, the carrying value of the Group's land
assets increased by c.16% to GBP2,091.7m (2021: GBP1,798.2m),
reflecting the continuation of the Group's disciplined land
replacement strategy and its investment in its future. During 2022,
the Group made investments totalling GBP735.8m in new land (2021:
GBP531.2m). The Group's land cost recoveries for the year of
12.0%(7) of new housing revenue (2021: 13.2%) reflect the
attractive margin embedded in the Group's land holdings.
During the year the Group brought 14,670 plots into its owned
and under control land holdings across 66 locations, of which 5,348
(36%) of the plots added were converted from our strategic land
portfolio.
The owned and under control land holdings of 87,190 at 31
December 2022 (2021: 88,043) represents 5.9 years of forward supply
at 2022 volumes. 70,768 plot are owned of which 35,860 have a
detailed implementable planning consent, providing excellent
visibility of the near to medium term. The Group's owned land
holdings represents 4.8 years of forward supply at 2022 volumes,
with an overall pro-forma gross margin(8) of c.32% and a cost to
revenue ratio of 11.4%(9) (2021: 11.4%).
A further 16,422 plots are under the Group's control (2021:
20,954), being plots where the Group has exchanged contracts to
acquire the site but has yet to complete the contract due to
outstanding planning conditions remaining unfulfilled. Cash
outflows with regard to these under control plots will be limited
to deposits paid on the exchange of contracts and fees associated
with progressing the sites through the planning system. During the
year the Group's progressed c.18,500 under control plots through
the planning system, transferring them into the Group's owned land
holdings.
The Group incurred GBP663.8m of cash land spend during 2022,
including GBP206.7m relating to the satisfaction of deferred land
commitments as well as the associated cash spend on the acquisition
of sites previously held as under control sites and their movement
into the Group's owned land holdings.
In 2022, the Group acquired interests in a further 450 acres of
strategic land, securing a total of c. 13,100 acres at 31 December
2022 (2021: c.13,700 acres). This will provide a long-term supply
of forward plots for future development by the Group.
Work in progress
We entered 2022 with c.4,100 equivalent units of new homes under
construction. Execution of our build programmes was strong
throughout 2022. Overall build rates tracked c. 8% ahead of 2021,
with an average of 276 equivalent units of build per week, compared
to 255 per week in 2021. When allowing for the strong delivery of
new homes in 2022, we start 2023 with a significant level of work
in progress, with c.3,900 equivalent units of build on the balance
sheet.
The Group increased its outlet position by 16% in the year and
continued to support investment in a number of large sites which
require high levels of infrastructure and enabling works. In
addition, we have seen higher rates of cost inflation. This has
resulted in our work in progress investment at 31 December 2022 of
GBP1,263.9m being 20% higher than the level of investment with
which we entered 2022 (2021: GBP1,054.1m).
We remain focused on build levels throughout 2023, managing
appropriate levels of build against customer demand, facing into
the continuing operational challenges within the industry and
whilst securing the availability of key build components through
our in-house manufactured bricks, roof tiles, closed panel timber
frame kits and pre-manufactured roof cassettes. All of this whilst
delivering high levels of customer satisfaction and build
quality.
Cash generation and liquidity
At 31 December 2022 the Group had a cash balance of GBP861.6m
(2021: GBP1,246.6m) with the Group having generated GBP1,002.7m
(2021: GBP1,209.8m) of cash before returning GBP750.1m of surplus
capital to shareholders in relation to the 2021 financial year
under the previous capital return programme and net land spend of
GBP637.6m. Resulting from the Group's increased activity in the
land market during 2022 the Group's deferred land commitments have
increased by GBP65.2m to GBP472.8m from GBP407.6m at 31 December
2021. Cash generated from operations was GBP566.3m (2021:
GBP972.8m).
Operational cash generated, being cash generated before returns
to shareholders and after land investment, was GBP266.9m (2021:
GBP678.6m).
The Group has an undrawn GBP300m Revolving Credit Facility which
extends out to 31 March 2026.
As at 31 December 2022, we had 286 part exchange properties
(2021: 130) on the balance sheet at a value of GBP62.5m (2021:
GBP25.9m).
The Group's shared equity loans have generated GBP13.3m of cash
in the year (2021: GBP18.9m). The carrying value of these
outstanding shared equity loans, reported as "Shared equity loan
receivables", is GBP36.0m at 31 December 2022 (2021: GBP45.6m).
Net finance income for the year was GBP5.8m (2021: GBP6.3m) and
includes GBP3.9m of gains generated on the Group's shared equity
loan receivables (2021: GBP7.9m) and GBP1.8m of imputed interest
payable on land creditors (2021: GBP1.8m).
Capital allocation policy, treasury and related risks
A key feature of the Group's strategy is the commitment to
minimise financial risk, retain flexibility and maintain capital
discipline over the long-term through the housing cycle.
In November 2022, we announced the conclusion of the capital
return programme that was first introduced in 2012, and the move to
a new capital allocation policy that takes into account political
and economic uncertainty and the sector's increased taxation
rates.
The Group has a long track record of delivering returns for
shareholders and the Board will continue to prioritise value
creation from a strong and sustainable return on capital by
investing in land and other opportunities as they arise.
For 2022, the Board proposes a final dividend of 60p per share
to be paid on 5 May 2023 to shareholders on the register on 14
April 2023, following shareholder approval at the AGM. This
dividend is the final and only dividend in respect of financial
year 2022.
For 2023, the Board's intention is to at least maintain the 2022
dividend per share with a view to growing this over time whilst
maintaining an average payout that is well covered by earnings over
the housing cycle. This approach will balance shareholder payouts
with the company's objective to retain capital to invest
sustainably and profitably for growth.
Any dividend proposal in future years is subject to the
company's financial performance and position at that time.
In periods of higher profitability, any excess capital will be
returned to shareholders through a share buyback or special
dividends.
As previously announced, capital allocation payments will be
paid semi-annually and the Board intends to pay an interim dividend
in relation to 2023, in the second half of this year.
The business maintains a robust balance sheet with an efficient
capital structure and controls around its working capital
management. The Group's GBP300m Revolving Credit Facility provides
further flexibility to the Group's working capital resource. These
facilities are available to support the working capital needs of
the business.
The Group will continue to effectively manage its liquidity and
working capital investment needs, whilst ensuring they are aligned
with the Group's focus on outlet growth, high levels of build
quality and excellent customer service. The Group will continue to
ensure it maintains flexibility when considering the generation of
after tax earnings, and the management of the Group's equity, debt
and cash management facilities. This approach will mitigate the
financial risks the Group faces and maintain the Group's robust
balance sheet and strong liquidity levels, securing a resilient
position for the future.
1. Stated before legacy buildings provision charge of GBP275.0m
(2021: GBPnil).
2. Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and based on new housing revenue (2022: GBP3,696.4m,
2021: GBP3,449.7m)
3. Stated before legacy buildings provision charge of GBP275.0m
(2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m).
4. Stated before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m) and based on new housing revenue (2022: GBP3,696.4m,
2021: GBP3,449.7m).
5. 12 month rolling average calculated on operating profit
before legacy buildings provision charge (2022: GBP275.0m,
2021: GBPnil) and goodwill impairment (2022: GBP6.6m, 2021:
GBP6.2m) and total capital employed. Capital employed being
the Group's net assets less cash and cash equivalents plus
land creditors. ROACE excluding land creditors is calculated
on capital employed being the Group's net assets less cash
and cash equivalents excluding land creditors.
6. 12 month rolling profit after tax pre legacy buildings provision
charge generated from the average of the opening and closing
total equity for the 12 month period.
7. Land cost value for the plot divided by the anticipated
future revenue of the new home sold.
8. Estimated weighted average gross margin based on assumed
revenues and costs at 31 December 2022 and normalised output
levels.
9. Land cost value for the plot divided by the anticipated
future revenue of the new home sold.
PERSIMMON PLC
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
2022 2021
Total Total
Note GBPm GBPm
Revenue 3 3,815.8 3,610.5
Cost of sales (2,948.3) (2,526.7)
----------------------------------------- ------- ---------- -------------
Gross profit 867.5 1,083.8
Analysed as:
Underlying gross profit 1,142.5 1,083.8
Legacy buildings provision 4 (275.0) -
----------------------------------------- ------- ---------- -------------
Other operating income 10.3 6.4
Operating expenses (152.9) (129.7)
----------------------------------------- ------- ---------- -------------
Operating profit 724.9 960.5
Analysed as:
Underlying operating profit 1,006.5 966.7
Legacy buildings provision (275.0) -
Impairment of intangible assets (6.6) (6.2)
----------------------------------------- ------- ---------- -------------
Finance income 9.9 9.9
Finance costs (4.1) (3.6)
----------------------------------------- ------- ---------- -------------
Profit before tax 730.7 966.8
Analysed as:
Underlying profit before tax 1,012.3 973.0
Legacy buildings provision (275.0) -
Impairment of intangible assets (6.6) (6.2)
----------------------------------------- ------- ---------- -------------
Tax 5 (169.7) (179.6)
----------------------------------------- ------- ---------- -------------
Profit after tax (all attributable to
equity holders of the parent) 561.0 787.2
Other comprehensive (expense)/income
Items that will not be reclassified to
profit:
Remeasurement gain on defined benefit
pension schemes 13 5.2 83.3
Tax 5 (7.6) (24.8)
----------------------------------------- ------- ---------- -------------
Other comprehensive (expense)/income
for the year, net of tax (2.4) 58.5
----------------------------------------- ------- ---------- -------------
Total recognised income for the year 558.6 845.7
Earnings per share
Basic 7 175.8p 246.8p
Diluted 7 174.3p 245.6p
----------------------------------------- ------- ---------- -------------
PERSIMMON PLC
Consolidated Balance Sheet
As at 31 December 2022
2022 2021
Note GBPm GBPm
-------------------------------- ----- ---------- ----------
Assets
Non-current assets
Intangible assets 173.0 175.6
Property, plant and
equipment 118.6 99.0
Investments accounted
for using the equity
method 0.3 0.3
Shared equity loan receivables 9 29.1 35.7
Trade and other receivables 0.3 0.6
Deferred tax assets 10.5 9.7
Retirement benefit assets 13 155.9 148.8
--------------------------------- ----- ---------- ----------
487.7 469.7
-------------------------------- ----- ---------- ----------
Current assets
Inventories 8 3,462.9 2,920.7
Shared equity loan receivables 9 6.9 9.9
Trade and other receivables 193.2 123.9
Current tax assets 21.8 21.4
Cash and cash equivalents 12 861.6 1,246.6
--------------------------------- ----- ---------- ----------
4,546.4 4,322.5
-------------------------------- ----- ---------- ----------
Total assets 5,034.1 4,792.2
--------------------------------- ----- ---------- ----------
Liabilities
Non-current liabilities
Trade and other payables (214.8) (203.4)
Deferred tax liabilities (72.1) (54.6)
Partnership liability (19.6) (23.8)
Legacy buildings provision 10 (196.8) -
--------------------------------- ----- ---------- ----------
(503.3) (281.8)
-------------------------------- ----- ---------- ----------
Current liabilities
Trade and other payables (949.4) (807.0)
Partnership liability (5.6) (5.5)
Legacy buildings provision 10 (136.5) (72.7)
(1,091.5) (885.2)
-------------------------------- ----- ---------- ----------
Total liabilities (1,594.8) (1,167.0)
--------------------------------- ----- ---------- ----------
Net assets 3,439.3 3,625.2
--------------------------------- ----- ---------- ----------
Equity
Ordinary share capital
issued 31.9 31.9
Share premium 25.6 24.9
Capital redemption reserve 236.5 236.5
Other non-distributable
reserve 276.8 276.8
Retained earnings 2,868.5 3,055.1
--------------------------------- ----- ---------- ----------
Total equity 3,439.3 3,625.2
--------------------------------- ----- ---------- ----------
PERSIMMON PLC
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2022
Share Share Capital Other non-distributable Retained Total
capital premium redemption reserve earnings
reserve
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Balance at 1 January
2021 31.9 22.3 236.5 276.8 2,950.9 3,518.4
Profit for the year - - - - 787.2 787.2
Other comprehensive
income - - - - 58.5 58.5
Transactions with
owners:
Dividends on equity
shares - - - - (749.6) (749.6)
Issue of new shares - 2.6 - - - 2.6
Share-based payments - - - - 8.1 8.1
Balance at 31 December
2021 31.9 24.9 236.5 276.8 3,055.1 3,625.2
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Profit for the year - - - - 561.0 561.0
Other comprehensive
expense - - - - (2.4) (2.4)
Transactions with
owners:
Dividends on equity
shares - - - - (750.1) (750.1)
Issue of new shares - 0.7 - - - 0.7
Own shares purchased - - - - (0.7) (0.7)
Exercise of share options/share
awards - - - - (1.0) (1.0)
Share-based payments - - - - 5.6 5.6
Satisfaction of share
options from own shares
held - - - - 1.0 1.0
Balance at 31 December
2022 31.9 25.6 236.5 276.8 2,868.5 3,439.3
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
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 2022
2022 2021
Note GBPm GBPm
------------------------------------ ----- -------- --------
Cash flows from operating
activities:
Profit for the year 561.0 787.2
Tax charge 5 169.7 179.6
Finance income (9.9) (9.9)
Finance costs 4.1 3.6
Depreciation charge 15.8 14.5
Impairment of intangible assets 6.6 6.2
Legacy buildings provision 10 275.0 -
Share-based payment charge 9.0 6.4
Net imputed interest income 2.1 6.1
Other non-cash items (7.9) (7.9)
------------------------------------ ----- -------- --------
Cash inflow from operating
activities 1,025.5 985.8
Movements in working capital:
Increase in inventories (532.5) (9.8)
Increase in trade and other
receivables (81.1) (59.5)
Increase in trade and other
payables 141.1 37.4
Decrease in shared equity loan
receivables 13.3 18.9
------------------------------------ ----- -------- --------
Cash generated from operations 566.3 972.8
Interest paid (3.3) (3.7)
Interest received 3.5 1.9
Tax paid (164.2) (186.2)
------------------------------------ ----- -------- --------
Net cash inflow from operating
activities 402.3 784.8
------------------------------------ ----- -------- --------
Cash flows from investing
activities:
Joint venture net funding movement - 1.8
Acquisition of subsidiary (0.2) -
Purchase of property, plant
and equipment (30.5) (20.9)
Proceeds from sale of property,
plant and equipment 0.9 0.9
------------------------------------ ----- -------- --------
Net cash outflow from investing
activities (29.8) (18.2)
------------------------------------ ----- -------- --------
Cash flows from financing
activities:
Lease capital payments (3.3) (3.3)
Payment of Partnership liability (4.1) (3.8)
Own shares purchased (0.7) -
Share options consideration 0.7 2.6
Dividends paid 6 (750.1) (749.6)
------------------------------------ ----- -------- --------
Net cash outflow from financing
activities (757.5) (754.1)
------------------------------------ ----- -------- --------
(Decrease) / Increase in net
cash and cash equivalents 12 (385.0) 12.5
------------------------------------ ----- -------- --------
Cash and cash equivalents at
the beginning of the year 1,246.6 1,234.1
------------------------------------ ----- -------- --------
Cash and cash equivalents
at the end of the year 12 861.6 1,246.6
------------------------------------ ----- -------- --------
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 2022.
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 2022 or
2021, but is derived from those accounts. Statutory accounts for
2021 have been delivered to the Registrar of Companies, and those
for 2022 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 using the recognition and measurement
requirements of UK adopted International Accounting Standards (IAS)
, this announcement does not itself contain sufficient information
to comply with IAS. The Company expects to send its Annual Report
2022 to shareholders on 22 March 2023.
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 14. 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 UK endorsed new amendments to standards
are mandatory for the first time for the financial year beginning 1
January 2022:
-- Amendment to IFRS 1 First-time Adoption of International Financial Reporting
Standards - Subsidiary as a First-time Adopter
-- Amendment to IFRS 9 Financial Instruments - Fees in the '10 per cent'
Test for Derecognition of Financial Liabilities
-- Amendment to IAS 14 Agriculture - Taxation in Fair Value Measurements
-- Amendment to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract
-- Amendment to IAS 16 Property, Plant and Equipment - Proceeds before
Intended Use
-- Amendment to IFRS 3 Reference to the Conceptual Framework
The effects of the implementation of these amendments have been
limited to disclosure amendments where applicable.
The Group has not applied the following new amendments to
standards which are not yet effective:
-- Amendments to IAS 12 Deferred Tax related to Assets and Liabilities
arising from a Single Transaction
-- Amendments to IAS 8 Definition of Accounting Estimates
-- Amendments to IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting
policies
The Group is currently considering the implication of these
amendments with the expected impact upon the Group being limited to
disclosures if applicable.
Going concern
The Group has performed well in the twelve months ended 31
December 2022. Persimmon's long-term strategy, which recognises the
risks associated with the housing cycle by maintaining operational
flexibility, investing in high quality land, minimising financial
risk and deploying capital at the right time in the cycle, has
equipped the business with strong liquidity and a robust balance
sheet.
The Group delivered a strong trading performance in the twelve
months to 31 December 2022, completing the sale of 14,868 new homes
(2021: 14,551) and generating an underlying profit before tax* of
GBP1,005.7m (2021: GBP966.8m). At 31 December 2022, the Group's
strong financial position included GBP861.6m of cash (2021:
GBP1,246.6m), high quality land holdings and land creditors of
GBP472.8m (2021: GBP407.6m). In addition, the Group has an undrawn
Revolving Credit Facility of GBP300m, which extends out to 31 March
2026.
Given the economic turmoil resulting from the "mini budget" in
September 2022 and the adverse impact it has had on the UK housing
market the Group's forward order book, including legal completions
taken so far in 2023, is c. 30% weaker year on year with new home
forward sales of c. GBP1.5bn. We have over 2,800 new homes sold
forward into the private owner occupier market with an average
selling price of over GBP288,600, which is 11% stronger than a year
ago. The cumulative average private sales reservation rate for the
first 8 weeks of the year is c. 70% stronger than the rate achieved
in Q4 2022.
The Directors have carried out a robust assessment of the
principal risks facing the Group, as described in note 14 of this
announcement. The Group has considered the impact of these risks on
the going concern of the business by performing a range of
sensitivity analyses, covering the period to 30 June 2024,
including severe but plausible scenarios based on experience gained
by management during the Global Financial Crisis from 2007 to 2010,
materialising together with the likely effectiveness of mitigating
actions that would be executed by the Directors. For further detail
regarding the approach and process the Directors follow in
assessing the long-term viability of the business, please see the
Viability Statement in note 14.
The scenarios emphasise the potential impact of severe market
disruption, including for example the ongoing effect of economic
disruption from the cost of living crisis and the war in Ukraine,
on short to medium-term demand for new homes. The scenarios'
emphasis on the impact on the cash inflows of the Group through
reduced new home sales is designed to allow the examination of the
extreme cash flow consequences of such circumstances occurring. The
Group's cash flows are less sensitive to supply side disruption
given the Group's sustainable business model, flexible operations,
agile management team and off-site manufacturing facilities.
In the first downside scenario modelled, the combined impact is
assumed to cause, when compared to the 2022 outturn, a c. 59%
reduction in volumes and a c. 15% reduction in average selling
price in 2023. The combined impact results in a c. 65% fall in the
Group's 2023 housing revenues. From the lower 2023 position, the
scenario then assumes a c. 40% increase in housing revenue as a
result of a c. 34% increase in volume and a c. 5% increase in
average selling price.
A second, even more extreme, scenario assumes a significant and
enduring depression of the UK economy and housing market in 2023,
consistent with the above scenario, causing a reduction of c. 59%
in new home sales volumes, a c. 15% fall in average selling prices
and a c. 65% fall in the Group's housing revenue in 2023. The
scenario then assumes that neither volumes nor revenue recover into
2024.
In each of these scenarios, cash flows were assumed to be
managed consistently, ensuring all relevant land, work in progress
and operational investments were made in the business at the
appropriate time to deliver the projected new home legal
completions. Each scenario fully reflects the current estimate of
cash outflows, value and timing, associated with the legacy
buildings provision.
In addition the Group has been increasingly assessing climate
related risk and opportunities that may present to the Group.
During the period assessed for going concern no significant risk
has been identified that would materially impact the Group's
ability to generate sufficient cash and continue as a going
concern.
Having considered the inherent strength of the UK housing
market, the resilience of the Group's average selling prices and
the Group's scenario analysis as detailed above, the Directors have
a reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing these financial statements.
* Stated before legacy buildings provision charge (2022:
GBP275.0m, 2021: GBPnil)
2. Segmental analysis
The Group has only one reportable operating segment, being
housebuilding within the UK, under the control of the Executive
Board. The Executive Board has been identified as the Chief
Operating Decision Maker as defined under IFRS 8 Operating
Segments.
3. Revenue
2022 2021
GBPm GBPm
----------------------------------------------------------- ------------------- -------------------
Revenue from the sale of new housing 3,696.4 3,449.7
Revenue from the sale of part exchange
properties 110.6 155.4
Revenue from the provision of internet
services 8.8 5.4
Revenue from the sale of goods and services
as reported in the statement of comprehensive
income 3,815.8 3,610.5
----------------------------------------------------------- ------------------- -------------------
4. Exceptional Items
During 2022 the Group have recognised an exceptional charge of
GBP275.0m (2021: GBPnil) in relation to the increase in the
anticipated costs of the Group's commitments to support
leaseholders in buildings we had developed with the costs of
removal of combustible cladding and other fire related remediation
works. This reflects the extended commitment of the government long
form contract, the identification of further developments for which
we are now responsible, and a greater understanding of remediation
costs. Further detail on this matter is provided in note 10 to this
announcement.
This has been disclosed as an exceptional item due to the
non-recurring nature and scale of the charge, in order to aid
understanding of the financial performance of the Group and to
assist in the comparability of financial performance between
accounting periods.
5. Tax
Analysis of the tax charge for the year
2022 2021
GBPm GBPm
--------------------------------------------------------- ----------------- -----------------
Tax charge comprises:
UK corporation tax in respect of the current
year 138.8 181.2
Residential Property Developer Tax (RPDT) 28.7 -
in respect of the current year
Adjustments in respect of prior years (2.8) (8.3)
--------------------------------------------------------- ----------------- -----------------
164.7 172.9
--------------------------------------------------------- ----------------- -----------------
Deferred tax relating to origination and
reversal of temporary differences - 5.4
Impact of introduction of RPDT on deferred 3.9 -
tax
Adjustments recognised in the current year
in respect of prior years deferred tax 1.1 1.3
--------------------------------------------------------- ----------------- -----------------
5.0 6.7
--------------------------------------------------------- ----------------- -----------------
Tax charge for the year recognised in
Statement of Comprehensive Income 169.7 179.6
--------------------------------------------------------- ----------------- -----------------
The tax charge for the year can be reconciled to the accounting
profit as follows:
2022 2021
GBPm GBPm
------------------------------------------------------- ----------------- -----------------
Profit from continuing operations 730.7 966.8
------------------------------------------------------- ----------------- -----------------
Tax calculated at UK corporation tax rate
of 22% (inclusive of RPDT) (2021: 19%) 160.8 183.7
Accounting base cost not deductible for
tax purposes - 0.2
Goodwill impairment losses that are not
deductible 1.2 1.2
Expenditure not allowable for tax purposes 0.8 0.2
Effect of change in rate of corporation
tax - 2.7
Impact of introduction of RPDT 3.9 -
Items not deductible for RPDT 6.8 -
Enhanced tax reliefs (2.1) (1.3)
Adjustments in respect of prior years (1.7) (7.1)
------------------------------------------------------- ----------------- -----------------
Tax charge for the year recognised in
Statement of Comprehensive Income 169.7 179.6
------------------------------------------------------- ----------------- -----------------
The UK corporation tax rate will increase from 19% to 25% with
effect from 1 April 2023. Legislation to increase the corporation
tax rate was enacted during the 31 December 2021 accounting period
and the impact on deferred tax was taken into account at the
previous balance sheet date. The Finance Act 2022 received Royal
Ascent on 24 February 2022 introducing a new residential property
tax ('RPDT') which was effective from 1 April 2022 and is
chargeable at 4% of profits generated from residential property
development in excess of an annual threshold. RPDT was introduced
by HM Treasury to obtain contributions from the UK's largest
residential developers towards the cost of remediating defective
cladding in the UK's high-rise housing stock.
Deferred tax recognised in other comprehensive income
2022 2021
GBPm GBPm
-------------------------------------------------------- ---------------- ----------------
Recognised on remeasurement gain on pension
schemes 7.6 24.8
-------------------------------------------------------- ---------------- ----------------
Tax recognised directly in equity
2022 2021
GBPm GBPm
--------------------------------------------------------------- ----------------- -----------------
Arising on transactions with equity participants
Current tax related to equity settled transactions (0.8) 0.1
Deferred tax related to equity settled
transactions 4.2 (1.8)
--------------------------------------------------------------- ----------------- -----------------
3.4 (1.7)
--------------------------------------------------------------- ----------------- -----------------
6. Dividends/Return of capital
2022 2021
GBPm GBPm
----------------------------------------------------------- ----------------- -----------------
Amounts recognised as distributions to capital
holders in the period:
2020 dividend to all shareholders of 125p
per share paid 2021 - 398.7
2020 dividend to all shareholders of 110p
per share paid 2021 - 350.9
2021 dividend to all shareholders of 125p 399.0 -
per share paid 2022
2021 dividend to all shareholders of 110p 351.1 -
per share paid 2022
Total capital return to shareholders 750.1 749.6
----------------------------------------------------------- ----------------- -----------------
The Directors propose to return 60 pence of surplus capital to
shareholders for each ordinary share held on the register on 14
April 2023 with payment made on 5 May 2023 as a final dividend in
respect of the financial year ended 31 December 2022. The Directors
do not intend to return any further surplus capital in respect of
the financial year 31 December 2022. The total anticipated
distributions to shareholders is 60 pence per share (2021: 235
pence per share) in respect of the financial year ended 31 December
2022.
7. 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
319.2m shares (2021: 319.0m) 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 321.8m shares (2021:
320.2m).
Underlying earnings per share excludes the legacy buildings
provision charge and goodwill impairment. The earnings per share
from continuing operations were as follows:
2022 2021
--------------------------------------- ------- -------
Basic earnings per share 175.8p 246.8p
Underlying basic earnings per share 247.3p 248.7p
Diluted earnings per share 174.3p 245.6p
Underlying diluted earnings per share 245.3p 247.6p
--------------------------------------- ------- -------
The calculation of the basic and diluted earnings per share is
based upon the following data:
2022 2021
GBPm GBPm
------------------------------------------------------------- ------------------- -----------------
Underlying earnings attributable to shareholders 789.5 793.4
Legacy buildings provision (net of tax) (221.9) -
Goodwill impairment (6.6) (6.2)
------------------------------------------------------------- ------------------- -----------------
Earnings attributable to shareholders 561.0 787.2
------------------------------------------------------------- ------------------- -----------------
At 31 December 2022 the issued share capital of the Company was
319,323,432 ordinary shares (2021: 319,206,474 ordinary
shares).
8. Inventories
2022 2021
GBPm GBPm
------------------------------------- ------------------- -------------------
Land 2,091.7 1,798.2
Work in progress 1,263.9 1,054.1
Part exchange properties 61.0 24.8
Showhouses 46.3 43.6
------------------------------------- ------------------- -------------------
Inventories 3,462.9 2,920.7
------------------------------------- ------------------- -------------------
The Group has conducted a further review of the net realisable
value of its land and work in progress portfolio at 31 December
2022. Our approach to this review has been consistent with that
conducted at 31 December 2021 and was fully disclosed in the
financial statements for the year ended on that date. The key
judgements and estimates in determining the future net realisable
value of the Group's land and work in progress portfolio are future
sales prices, house types and costs to complete the developments.
Sales prices and costs to complete were estimated on a site by site
basis. There is currently no evidence or experience in the market
to inform management that expected selling prices used in the
valuations are materially incorrect.
Net realisable value provisions held against inventories at 31
December 2022 were GBP5.5m (2021: GBP18.6m). Following the review,
GBP2.9m of inventories are valued at net realisable value rather
than historical cost (2021: GBP4.1m).
9. Shared equity loan receivables
2022 2021
GBPm GBPm
---------------------------------------------------------- ------------------ ------------------
Shared equity loan receivables at 1 January 45.6 56.2
Settlements (13.3) (18.9)
Gains 3.7 8.3
---------------------------------------------------------- ------------------ ------------------
Shared equity loan receivables at 31 December 36.0 45.6
---------------------------------------------------------- ------------------ ------------------
All gains/losses have been recognised in the Consolidated
Statement of Comprehensive Income. Of the gains recognised in
finance income for the period, GBP0.3m (2021: GBP4.2m) was
unrealised.
10. Legacy buildings provision
2022 2021
GBPm GBPm
------------------------------------------- ------- ------
Legacy buildings provision at 1 January 72.7 75.0
Additions to provision in the year 275.0 -
Provision utilised in the year (14.4) (2.3)
------------------------------------------- ------- ------
Legacy buildings provision at 31 December 333.3 72.7
------------------------------------------- ------- ------
In 2020 the Group made an initial commitment that no leaseholder
living in a building we had developed should have to cover the cost
of removal of combustible cladding. During 2022 we have signed the
Building Safety Pledge (England) and worked constructively with the
government to agree the 'Long Form Contract' that turns the pledge
into a legal agreement, which will be signed imminently. As we have
worked through this process we have identified further eligible
multi-storey developments requiring remediation for which we will
be liable, and developed a more detailed understanding of
remediation costs. The number of developments we are responsible
for has increased and now stands at 73 (of which 33 have now either
secured EWS1 certificates or concluded any necessary works). This,
along with a broader scope, including reimbursement of any funds
already outlaid by the Building Safety Fund, remediation of
non-cladding fire related build defects and interim protection
measures for residents, set against a background of significant
build cost inflation has resulted in our total provision for fire
related build remediation works increasing by GBP275.0m to
GBP350.0m, before spend to date. It is assumed the majority of the
work will be completed over the next 3 years and the amount
provided for has been discounted accordingly.
The charge of GBP275.0m in the year has been separately
disclosed on the face of the Consolidated Statement of
Comprehensive Income.
This is a highly complex area with judgments and estimates in
respect of the cost of the remedial works, with investigative
surveys ongoing to determine the full extent of those required
works. Where remediation works have not yet been fully tendered we
have estimated the likely scope and costs of such works based on
experience of other similar sites. Whilst management have exercised
their best judgement of these matters, there remains the potential
for variations to this estimate from multiple factors such as
material, energy and labour cost inflation, limited qualified
contractor availability and abnormal works identified on intrusive
surveys. Should a 10% variation in the costs of untendered projects
occur then the overall provision would vary by +/- GBP14.3m.
The financial statements have been prepared on the latest
available information, however there remains the possibility that
despite managements endeavours to identify all such properties,
including those constructed by acquired entities well before
acquisition, further developments requiring remediation may
emerge.
11. 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:
2022 2021
-------------------------------- ------ ------
Level Level
3 3
GBPm GBPm
-------------------------------- ------ ------
Shared equity loan receivables 36.0 45.6
-------------------------------- ------ ------
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 (2021: ten years)
and discount rate 7% (2021: 5%) 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.
12. Reconciliation of net cash flow to net cash and analysis of
net cash
2022 2021
GBPm GBPm
------------------------------------------------------- ------------------- -------------------
Cash and cash equivalents at 1 January 1,246.6 1,234.1
(Decrease) / Increase in net cash and cash
equivalents in cash flow (385.0) 12.5
------------------------------------------------------- ------------------- -------------------
Cash and cash equivalents at 31 December 861.6 1,246.6
IFRS 16 lease liability (10.9) (8.8)
------------------------------------------------------- ------------------- -------------------
Net cash at 31 December 850.7 1,237.8
------------------------------------------------------- ------------------- -------------------
Net cash is defined as cash and cash equivalents, bank
overdrafts, lease obligations and interest bearing borrowings.
13. Retirement benefit assets
As at 31 December 2022 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:
2022 2021
GBPm GBPm
------------------------------------------------------ ------- -------
Current service cost 1.9 2.0
Administrative expense 0.6 0.6
------------------------------------------------------ ------- -------
Pension cost recognised as operating expense 2.5 2.6
------------------------------------------------------ ------- -------
Interest cost 11.3 8.9
Return on assets recorded as interest (14.1) (9.6)
------------------------------------------------------ ------- -------
Pension cost recognised as net finance credit (2.8) (0.7)
------------------------------------------------------ ------- -------
Total defined benefit pension (income)/cost
recognised in profit or loss (0.3) 1.9
Remeasurement gain recognised in other comprehensive
income (5.2) (83.3)
------------------------------------------------------ ------- -------
Total defined benefit scheme gain recognised (5.5) (81.4)
------------------------------------------------------ ------- -------
The amounts included in the Balance Sheet arising from the
Group's obligations in respect of the Pension Scheme are as
follows:
2022 2021
GBPm GBPm
------------------------------------- -------- --------
Fair value of Pension Scheme assets 555.6 751.9
Present value of funded obligations (399.7) (603.1)
------------------------------------- -------- --------
Net pension asset 155.9 148.8
------------------------------------- -------- --------
The increase in the net pension asset to GBP155.9m (2021:
GBP148.8m) is largely due to an increase in long-term corporate
bond yields increasing the discount rate assumption applied to
scheme obligations to 4.8% (2021: 1.9%) offset by underperformance
of asset returns compared to the expected return assumed at the
start of the year.
14. Principal Risks and Viability Statement
In line with the UK Corporate Governance Code 2018, the Group
defines its principal risks as those considered to have a
potentially material impact on its strategy and business model,
including its future performance, solvency, liquidity and
reputation. The Group has identified 11 risk areas that meet its
criteria for consideration as principal risks.
The 2022 assessment has identified a new principal risk
concerning legacy buildings. T his reflects the potential for
further legacy properties to be brought into the scope of cladding
and life-critical fire safety remediation works, for costs to be
greater than anticipated, or other regulatory changes to occur in
this area.
The assessment has also noted movements in our rating of the
risks in respect of UK economic conditions, mortgage availability
and cyber and data risk.
The Group no longer considers the previously reported pandemic
and strategy risks as meeting the criteria of principal risks. This
reflects the Group's comprehensive suite of controls deployed
during the Covid-19 pandemic, which could be swiftly adapted and
redeployed as necessary, and that the likely effects of a future
pandemic are reflected within the Group's other principal risks,
such as those concerning UK economic conditions and Government
policy.
The results of the Board's assessment of the Group's principal
risks are outlined below.
1. UK economic conditions
Residual Very High Risk trend assessment
risk rating
-------------- ----------------------------------------------------------------------------------------------
Overall Impact Likelihood
-------------- --------------- --------------- ------------------------------------------------------------
Increase No change Increase
-------------- --------------- --------------- ------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
-------------------------------- ----------------------------------------------------------------
The housebuilding industry In order to minimise
is sensitive to changes risk and maintain financial * The Board closely monitors sales activity and UK
in the economic environment, flexibility, the Group economic trends closely.
including unemployment pursues a highly disciplined
levels, interest rates approach to investments
and consumer confidence. in land and work in * The Principal Risk Lead Indicator reports issued to
A deterioration in economic progress, ensuring each meeting of the Board includes analysis of
conditions could adversely these are appropriate economic indicators, using both internal and external
affect demand and pricing and reflective of current sources.
for new homes, which and anticipated levels
could in turn impact of demand.
upon our revenues, margins,
profits and cash flows Pricing structures
and potential impairment are regularly reviewed
of asset values. to reflect local market
conditions. The Group
Economic conditions in benefits from a UK-wide
the land market may adversely network (with no significant
affect the availability presence in London),
of a sustainable supply mitigating the effects
of land at appropriate of regional economic
levels of return. fluctuations.
-------------------------------- ----------------------------------------------------------------
2. Government policy and political risk
Residual High Risk trend assessment
risk rating
-------------- ----------------------------------------------------------------------------------------------
Overall Impact Likelihood
-------------- --------------- --------------- ------------------------------------------------------------
No change No change No change
-------------- --------------- --------------- ------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
-------------------------------- ----------------------------------------------------------------
Changes to government Our mission and our
policy have the potential five key priorities * Likely evolutions in government policy in relation to
to impact on several are aligned with the the housing market are monitored closely by our
aspects of our strategy government's stated External Affairs, Technical and Land and Planning
and operational performance. ambition to increase departments, with regular feedback to the Executive
Recent examples include housing stock. Committee and Board.
the impacts of the withdrawal
of the Help to Buy scheme, Investment decisions
the introduction of the in land and work in * We routinely engage with industry bodies to review
Residential Property progress are tightly the impact of any anticipated legislative or
Developer Tax, and proposed controlled in order regulatory changes.
changes in planning regulations. to mitigate exposure
Further policy changes to external influences,
may arise in response including potential
to the anticipated CMA changes in Government
market study into the policy.
housebuilding sector.
Such changes have the The Group has experienced
potential to adversely teams with expertise
affect revenues, margins, in managing and responding
tax charges and asset to relevant areas subject
values, and potentially to Government involvement,
impact on the viability including our Group
of land investments. Planning, Technical
and External Affairs
departments.
-------------------------------- ----------------------------------------------------------------
3. Health, safety and environment
Residual High Risk trend assessment
risk rating
------- ------------------------------------------------------------------------------------------------------------------------------
Overall Impact Likelihood
------- ------------------------------- ------------------------------- ------------------------------------------------------------
No change No change No change
------- ------------------------------- ------------------------------- ------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
---------------------------------------------------------------- ----------------------------------------------------------------
In addition to the human The Board retains a
impacts of any health, very strong commitment * Data from inspections by the Group Health, Safety and
safety or environmental to health and safety Environment department feed into management reports
breach or incident, and managing the risks at all levels of the Group.
there in this area effectively.
is the potential for Operationally, this
reputational damage, commitment is implemented * The Principal Risk Lead Indicator reports issued to
construction delays and by a range of measures, each meeting of the Board includes analysis of
financial penalties. including: inspection metrics provided by the Group Health,
Safety and Environment department.
* Comprehensive policies and procedures to manage
construction activities safely.
* The Group Health, Safety and Environment Director is
a member of the Group Executive Committee, and
* Training programmes to embed the Group's policies provides additional periodic reports and updates to
effectively. both the Board and the Audit & Risk Committee.
* Inspection regime led by our Group Health, Safety a
nd
Environment department.
* Engagement with industry forums and best practice
groups.
---------------------------------------------------------------- ----------------------------------------------------------------
4. Skilled workforce, retention and succession
Residual High Risk trend assessment
risk rating
--------- ----------------------------------------------------------------------------------------------------------------------------
Overall Impact Likelihood
--------- ------------------------------ ------------------------------ ------------------------------------------------------------
No change No change No change
--------- ------------------------------ ------------------------------ ------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
-------------------------------------------------------------- ----------------------------------------------------------------
Recruiting and retaining The Group has deployed
a highly skilled workforce a range of measures * The Group HR department provides reporting, including
and supporting management to maintain an appropriately metrics such as training hours, to management at all
teams is essential to skilled workforce, levels of the Group.
the delivery of the including:
Group's * Comprehensive range of training programmes managed by
strategy. Heightened the Group Training department, including * The Group HR Director is a member of the Group
competition for skilled apprenticeships, graduate scheme and the Persimmon Executive Committee, and provides additional periodic
labour creates risks Pathways in core disciplines. reports and updates to both the Board on employment
of increased costs, trends.
operational
disruption and potential * Talent management and succession planning programmes.
delays to build * Feedback from the employee engagement panel is
programmes. reviewed by the Board.
* Remuneration benchmarking to ensure reward is
appropriate to attract and retain talent at all
levels. * The Principal Risk Lead Indicator reports issued to
each meeting of the Board includes staff turnover
data and commentary from the Group HR department.
* Utilisation of our Space4 products, which improve
build efficiency and require less on-site labour than
traditional construction.
* Increased focus on employee engagement measures.
* Deployment of hybrid working practices, where
appropriate.
-------------------------------------------------------------- ----------------------------------------------------------------
5. Materials and land purchasing
Residual High Risk trend assessment
risk rating
--------- ------------------------------------------------------------------------------------------------------------------------------
Overall Impact Likelihood
--------- ------------------------------ ------------------------------ --------------------------------------------------------------
No change No change Decrease
--------- ------------------------------ ------------------------------ --------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
-------------------------------------------------------------- ------------------------------------------------------------------
Availability of materials Availability of materials Availability of materials
Ensuring access to Various mitigations * The Group Procurement department provides routine
materials are in place to ensure monitoring of trends and supplier performance.
of the requisite quantity consistent sourcing
and specifications is of materials and cost
critical in delivering efficiency: * Site budgets and performance, including availability
high quality homes. * Vertical integration through the Brickworks, and pricing of materials, are assessed through the
Heightened Tileworks and Space4. bi-monthly valuation process.
levels of demand for
materials may cause
availability * Strategic approach to procurement, led by our Group * The Principal Risk Lead Indicator reports issued to
constraints and increase Procurement team. each meeting of the Board include commentary from the
cost pressures. Build Group Commercial Director on materials purchasing
quality may be trends and issues.
compromised * Supply chain engagement, including robust processes
if unsuitable materials for appointing suppliers and reviewing their
are procured leading performance thereafter.
to damage to the Group's
reputation and overall
customer experience. * Detailed forecasting and planning of materials
requirements to inform supplier negotiations.
* Support for our supply chain through adherence to the
Prompt Payment Code. Land purchasing
The Group's Land Committee
meets regularly to review
the Group's current land
Land purchasing holdings and future needs,
The Group maintains and to assess potential
Land purchasing strong land holdings. land transactions.
Maintaining an All land purchases
appropriate undergo comprehensive
supply of suitable land viability assessments
is crucial to the Group's and must meet specific
strategy. Failure to levels of projected
maintain a sufficient returns, taking into
supply of land at the account anticipated
appropriate levels of market conditions and
return could adversely sales rates.
affect sales, margins
and return on capital
employed.
-------------------------------------------------------------- ------------------------------------------------------------------
6. Climate change
Residual Medium Risk trend assessment
risk rating
----------- -----------------------------------------------------------------------------------------------------------------------------
Overall Impact Likelihood
----------- ------------------------------ ----------------------------- --------------------------------------------------------------
No change No change No change
----------- ------------------------------ ----------------------------- --------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
------------------------------------------------------------- ------------------------------------------------------------------
The effects of climate The potential impacts
change and the UK's of climate change are * The Sustainability Committee meets regularly to
transition considered systematically review progress on the Group's climate related
to a lower carbon economy in key business decisions, initiatives.
could lead to increasing from land acquisition
levels of regulation through to planning
and legislation, as seen and build processes. * Key indicators including CO(2) emissions and waste
with the Future Homes In response, the Group generation are monitored and reported on.
Standard. These may in has established a range
turn result in planning of measures to improve
delays, increased costs its operational efficiency * External review of our Scope 1, Scope 2, Scope 3
and competition for some and direct environmental Category 1 (Purchased goods and services) and Scope 3
materials. impact, including: Category 11 (Use of sold products) emissions.
Changes in weather * Maintaining a detailed climate change risk register.
patterns
and the frequency of
extreme weather events, * Setting science based carbon reduction targets,
particularly storms and accredited by the Science Based Targets Initiative.
flooding, may increase
the likelihood of
disruption * Targets to deliver 'net zero' homes in use to our
to the construction customers by 2030 and become 'net zero' in our
process. operations by 2040.
The availability of
mortgages
and property insurance * Regular meetings of the low carbon homes working
may reduce in response group, comprising senior employees from various
to financial institutions disciplines, including preparation for the
considering the possible implementation of the Future Homes Standard.
impacts relating to
climate
change. * Introduction of electric vehicle options into the
Group's fleet.
* Procurement of 100% renewable energy for our offices
and manufacturing facilities.
------------------------------------------------------------- ------------------------------------------------------------------
7. Reputation
Residual Medium Risk trend assessment
risk rating
----------- -----------------------------------------------------------------------------------------------
Overall Impact Likelihood
----------- --------------- --------------- -------------------------------------------------------------
No change No change No change
----------- --------------- --------------- -------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
-------------------------------- -----------------------------------------------------------------
Failure to live up to The Group is committed
our expected high standards to ensuring an appropriate * Operational performance, including build quality and
in governance, build culture and maintaining customer experience, are subject to routine
quality (including remediation high quality in all management oversight, with reporting to the Executive
of legacy issues), customer aspects of its operations. Committee and Board.
experiences, operational This is subject to
performance, management oversight from the
of health and safety Board. * The Board also oversees stakeholder engagement,
or local planning concerns including monitoring feedback from shareholders, and
could damage stakeholder We have made significant the results of our employee engagement surveys and
relationships and have investments in build the Employee Engagement Panel.
a detrimental impact quality, through The
on financial performance. Persimmon Way and the
supporting IQC regime, * The Principal Risk Lead Indicator reports issued to
and in addressing legacy each meeting of the Board includes analysis of media
issues. coverage and trends that could be indicative of the
Group's overall reputation.
We formally commenced
the registration process
for the New Homes Quality
Code (NHQC) within
2022. The Group supports
the NHQC's focus on
driving quality and
customer service improvement
across the industry.
The Group also proactively
works to build positive
relationships with
all of our stakeholders.
This includes supporting
communities in addressing
housing needs, creating
attractive neighbourhoods
and employing local
people, both on our
sites and in the supply
chain. We make significant
contributions to local
infrastructure and
good causes within
the communities in
which the Group operates.
-------------------------------- -----------------------------------------------------------------
8. Regulatory compliance
Residual Medium Risk trend assessment
risk rating
----------- ---------------------------------------------------------------------------------------------
Overall Impact Likelihood
----------- --------------- --------------- -----------------------------------------------------------
No change No change No change
----------- --------------- --------------- -----------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
-------------------------------- ---------------------------------------------------------------
The housebuilding industry The Group maintains
is subject to increasingly comprehensive management * The Board and Audit & Risk Committee are provided
complex regulations, systems to ensure regulatory with regular updates on core areas of regulatory
particularly in areas and legal compliance, compliance and preparation for upcoming regulatory
such as land acquisition, including policies change.
planning, building regulations and procedures for
and the environment. key areas of regulation.
Further regulatory evolutions Additional oversight
are expected in the short-term, is in place through
such as the introduction the Group-level functions
of the NHQC, and measures and cross-functional
on audit and corporate steering groups for
governance reform, which key areas, such as
will affect many of our GDPR compliance.
processes. Failure to
comply with regulations In respect of land
could result in imposition and planning, experienced
of financial penalties management teams are
and potential damage in place at Group and
to the Group's reputation. local level. These
enable effective engagement
with planning authorities
and other stakeholders
to reduce the likelihood
and impact of any delays
or disruption.
-------------------------------- ---------------------------------------------------------------
9. Cyber and data risk
Residual High Risk trend assessment
risk rating
--------- ------------------------------------------------------------------------------------------------
Overall Impact Likelihood
--------- --------------- --------------- --------------------------------------------------------------
Increase Increase No change
--------- --------------- --------------- --------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
-------------------------------- ------------------------------------------------------------------
In common with most modern The Group has dedicated
businesses, the Group cyber security resource, * In recognition of the serious nature of cyber risk to
is reliant on the consistent led by the Chief Information modern businesses, the Board receives reports from
availability and security Security Officer, in the Group's Chief Information Officer (CIO) at each
of its IT systems. Failure order to manage and of its meetings. The CIO also serves as a member of
or significant disruption oversee security controls. the Group Executive Committee, ensuring IT and cyber
to the Group's core IT This includes use of risks are a consideration in all key business
systems, particularly third party expertise decision making.
those in relation to to ensure implementation
customer information of good-practice controls.
and customer service * Routine reporting on cyber security and IT
could result in significant External partners are developments is presented to the Audit & Risk
financial costs, reputational used to support the Committee.
damage and business disruption. Group, both through
cyber security assessments
As the Group's use of and periodic penetration * The Principal Risk Lead Indicator reports issued to
technology to support testing. each meeting of the Board include a section on IT
operational processes developments.
continues to develop, In the event of an
cyber and data risks incident, the Group
have become an area of has a defined Cyber * The Group has an internal GDPR Steering Group to
increased focus for the Incident Response Plan. monitor all processes, risks and controls associated
Group. This is reflected with personal data.
in the elevation of this Training and regular
risk from 'medium' to communications are
'high'. delivered to all users
to increase awareness
of cyber risks, with
particular focus on
risks associated with
remote and hybrid working.
-------------------------------- ------------------------------------------------------------------
10. Mortgage availability
Residual Very High Risk trend assessment
risk rating
------------- ---------------------------------------------------------------------------------------------------
Overall Impact Likelihood
------------- ----------------- ---------------- --------------------------------------------------------------
Increase Increase Increase
------------- ----------------- ---------------- --------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
----------------------------------- ------------------------------------------------------------------
Higher interest rates The Group closely monitors
or tightening of bank the economic outlook * The Board closely monitors sales activity and UK
lending criteria could for the UK, including economic trends closely, including Bank of England
reduce both the affordability indicators on mortgage commentary on credit conditions, lenders'
and availability of mortgages availability and affordability. announcements and reports from UK Finance.
for our customers. This Investments in land
could reduce demand for and work in progress
new homes and affect are moderated to align * The Principal Risk Lead Indicator reports issued to
sales prices, revenues, with our level of sales each meeting of the Board includes analysis of
profits, cash flows, and expectations of lending trends and mortgage approval rates.
and asset values. the current market
conditions.
Incentive schemes to
support sales are kept
under review by management,
and can be flexed according
to underlying market
conditions.
----------------------------------- ------------------------------------------------------------------
11. Legacy buildings
Residual High Risk trend assessment
risk rating
------------- ---------------------------------------------------------------------------------------------------
Overall Impact Likelihood
------------- ----------------- ---------------- --------------------------------------------------------------
NEW NEW NEW
------------- ----------------- ---------------- --------------------------------------------------------------
Risk description Approach to risk mitigation How we monitor the risk
----------------------------------- ------------------------------------------------------------------
In line with our commitments The Group has a dedicated
under the Developer Pledge, Special Projects team, * A report on the progress of the works is provided to
the Group remains committed responsible for the every Board meeting.
to undertaking any cladding identification of affected
or life-critical fire buildings, assessment
safety remediation works of any remediation * All identified buildings are assessed and, where
for buildings it has required, and ensuring necessary, interim measures carried out to ensure the
constructed, and to protecting that the work is completed residents safety until remedial works are carried
leaseholders. Provisions as quickly as practicable. out.
have been made to cover
the anticipated costs Detailed investigations
of these works; however, are undertaken on all * The Finance team monitors costs incurred and provides
the works are complex identified buildings assurance on the utilisation and appropriateness of
and could be protracted and independent fire the Group's provision.
in nature. As such, the risk assessments completed.
value may be subject
to revision if legislation The Group's assumptions
or regulation evolve, on the estimated financial
further properties are costs associated with
identified, or costs the remediation works
prove to be greater than have been subject to
anticipated. comprehensive challenge.
----------------------------------- ------------------------------------------------------------------
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, which have been updated to
reflect current UK economic conditions and uncertainties (including
the ongoing cost of living crisis and war in Ukraine), also form
part of the Board's assessment of long-term prospects and
viability*.
Assessing Persimmon's long-term 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 and the Group's strategy recognises
the inherently cyclical nature of the UK housing market. The Group
has therefore been able to maintain a position of strength with
good liquidity, high quality land holdings and a strong balance
sheet throughout the disruption caused by the ongoing cost of
living crisis and war in Ukraine. The future impacts of the cost of
living crisis and other factors creating uncertainty within the UK
economy on the Group's sales and construction programmes remain
uncertain. The Board has considered these potential impacts in
depth when assessing the long-term prospects of the Group.
Whilst this uncertainty remains, Persimmon possesses the sound
fundamentals required to realise the Group's purpose and ambitions
and deliver sustainable success:
-- Talented teams focused on consistently delivering good quality homes for
our customers;
-- High quality land holdings that allow us to create attractive places in areas
where people wish to live and work;
-- Strong customer and local community relationships;
-- Continued investment in the training and development of our teams;
-- Market knowledge, expertise and industry know-how;
-- Long-term healthy supplier engagement; and
-- Vertical integration ensuring internalised supply of key materials.
By continuing to build on these solid foundations through, for
example, The Persimmon Way and our ongoing investments in the
customer experience, its land, development sites and in its supply
chain, the Group aims to create enduring value for the communities
we serve and our wider stakeholders. This is reflected within the
Group's materiality assessment, which ensures a thorough review of
stakeholder interests is incorporated within the assessment of the
Group's long-term prospects.
The Group adopts a disciplined annual business planning regime,
which is consistently applied and involves the management teams of
the Group's 30 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 12 month budgets are
established for each business annually.
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 five key priorities and overall 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:
The Group's current market positioning
1.
-- 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.
-- Sustained investment to support higher levels of construction quality and customer service
through the implementation of initiatives such as The Persimmon Way.
-- Strong financial position with considerable cash reserves and with additional substantial
working capital credit facilities maturing March 2026.
2. Strategy and business model
-- Strategy focuses on the risks associated with the housing cycle and on minimising financial
risk and maintaining financial flexibility.
-- 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.
-- 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.
-- Simple capital structure maintained with no structural gearing.
3. Principal risks associated with the Group's strategy and business
model include:
-- Disruption to the UK economy adversely affecting demand for and pricing of new homes, or contributing
to inflationary pressures.
-- Changes in government policy affecting the housebuilding sector, such as those relating to
taxation, planning conditions or market support.
-- Changes in market conditions affecting the availability and pricing of land and/or construction
materials.
-- Reduction in mortgage availability and/or affordability arising from, for example, reduced
risk appetite of lenders or significant regulatory change.
-- Climate change risk, comprising both transition (legal and regulatory changes affecting the
housebuilding sector) and physical (operational disruption through more frequent and prolonged
adverse weather) elements.
-- Adverse market competition and construction workforce trends, resulting in an inability to
attract and retain high quality workers and an appropriately experienced management team.
-- Cyber and data risk, including potential for significant or prolonged operational disruption
arising from cyber-attack or failure of critical IT systems.
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 towards the end
of 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,
allocating capital with the aim of achieving the long-term
strategic objectives of the Group including our five key
priorities. 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. 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,
funding projections, reviews of the Group's liquidity and capital
structure, and for the identification of surplus capital available
for return to shareholders via the Group's Capital Allocation
Policy, 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 period for the purpose of assessing the
viability of the Group is considered the most appropriate time
horizon, as it reflects the business model of the Group, with 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. This is already in alignment with anticipated
evolutions in corporate reporting, such as the resilience statement
criteria referenced within the government's response to the BEIS
consultation 'restoring trust in audit and corporate
governance'.
A key feature of the Group's strategy, as documented in the
Strategic Report, is the Group's commitment to maintain capital
discipline over the long-term through the housing cycle. This
commitment is reinforced by the introduction of the Group's Capital
Allocation Policy ("CAP"). Following a comprehensive review and
reflecting the increased uncertainty in the political and
macro-economic environment, alongside increased corporation tax and
the residential property tax, the Board decided to conclude the
previous Capital Return Programme, which was introduced in
2012.
On 8 November 2022, the Directors announced the implementation
of the new CAP with the following key principles:
-- Invest in the long-term performance of Persimmon by ensuring
the business retains sufficient capital to continue our disciplined
and appropriately timed approach to land acquisition;
-- Operate prudently, with low balance sheet risk, and a continued
focus on achieving a superior return on capital;
-- Ordinary dividends will be set at a level that is well covered
by post-tax profits, thereby balancing capital retained for
investment in the business with those dividends; and
-- Any excess capital will be distributed to shareholders from
time to time, through a share buyback or special dividend.
On 1 March 2023, the Directors announced the scheduled CAP
payment in respect of the financial year ended 31 December 2022, to
be paid in May 2023. 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 on issues such as the timing of legal
completions of new homes sold, average selling prices achieved,
profitability, working capital requirements and cash flows. They
also include the CAP. The Directors have made the assumption that
the Group's revolving credit facility is renewed during the period,
having extended the maturity of the facility out to 31 March 2026
during 2021.
The Directors have also carried out a robust assessment of the
principal and emerging 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. This risk assessment
was also informed by the performance of the Group's materiality
assessment, incorporating views from the Group's key stakeholders,
and through a comprehensive survey to incorporate input from the
Board and senior management from across the Group. The Directors
have considered the impact of these risks on the viability of the
business by performing a range of sensitivity analyses to a Base
Case, including severe but plausible scenarios materialising
together with the likely effectiveness of mitigating actions that
would be executed by the Directors.
The scenarios emphasise the potential impact of severe market
disruption including, for example, the ongoing effect of economic
disruption from the cost of living crisis and the war in Ukraine on
the short to medium-term demand for new homes. The scenarios'
emphasis on the impact on the cash inflows of the Group through
reduced new home sales is designed to allow the examination of the
extreme cash flow consequences of such circumstances occurring. The
Group's cash flows are less sensitive to supply side disruption
given the Group's sustainable business model, flexible operations,
agile management team and off-site manufacturing facilities.
In the first scenario modelled, the combined impact is assumed
to cause, when compared to the 2022 outturn, a c. 59% reduction in
volumes and a c. 15% reduction in average selling price in 2023. As
a result of these factors, the Group's housing revenues were
assumed to fall by c. 65% during this period. The scenario assumes
a subsequent recovery to current volume levels within a seven year
time period.
A second, even more extreme, scenario assumes a significant and
enduring depression of the UK economy and housing market in 2023,
consistent with the above scenario, causing a reduction of c. 59%
in new home sales volumes, a c. 15% reduction in average selling
price and a c. 65% fall in the Group's housing revenue in 2023. The
scenario then assumes that neither volumes nor average selling
prices recover from this point through to 2027.
In each of these scenarios, cash flows were assumed to be
managed consistently, ensuring all relevant land, work in progress
and operational investments were made in the business at the
appropriate time to deliver the projected new home legal
completions. Each scenario fully reflect the current estimate of
cash outflows, value and timing, associated with the legacy
buildings provision. The Directors assumed they would continue to
make well-judged decisions in respect of capital allocation
payments, ensuring that they maintained financial flexibility
throughout.
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 2027.
* 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 2022 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
2022 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
Dean Finch Group Chief Executive
Jason Windsor Chief Financial Officer
Nigel Mills Senior Independent Director
Simon Litherland Non-Executive Director
Joanna Place Non-Executive Director
Annemarie Durbin Non-Executive Director
Andrew Wyllie Non-Executive Director
Shirine Khoury-Haq Non-Executive Director
By order of the Board
Dean Finch Jason Windsor
Group Chief Executive Chief Financial Officer
28 February 2023
The Group's Annual financial reports, half year reports and
trading updates are available from the Group's website at
www.persimmonhomes.com/corporate.
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END
FR TPMJTMTATTTJ
(END) Dow Jones Newswires
March 01, 2023 02:00 ET (07:00 GMT)
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