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PSN Persimmon Plc

1,316.00
12.50 (0.96%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Persimmon Plc LSE:PSN London Ordinary Share GB0006825383 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  12.50 0.96% 1,316.00 1,317.50 1,318.00 1,319.50 1,301.50 1,311.00 919,766 16:35:22
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Gen Contr-single-family Home 2.77B 255.4M 0.7996 16.48 4.21B

Persimmon PLC Final Results (2734E)

27/02/2020 7:00am

UK Regulatory


Persimmon (LSE:PSN)
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TIDMPSN

RNS Number : 2734E

Persimmon PLC

27 February 2020

FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2019

Persimmon Plc today announces Final Results for the year ended 31 December 2019.

Highlights

"Improving build quality and the service delivered to our customers were our top priorities throughout 2019. Putting customers before volume is at the heart of our customer care improvement plan and, as a result, new home legal completion volumes were 4% lower year on year. Having commissioned the Independent Review in April, we were clear that we would not delay action until its completion in December and were engaged on a broad range of customer service and quality improvement initiatives throughout the year. We are confident these initiatives will add to our momentum this year.

"Persimmon's results for 2019 reflect our focus on offering attractively priced new homes for all, where housing need is greatest across the UK. I am proud of the enthusiasm and dedication with which the whole Persimmon team is making the many changes necessary to achieve higher levels of quality and service to our customers. We continue to invest in our teams, systems, and our off-site manufacturing capabilities to support the Group's further sustainable development.

"I am pleased with the headway we have made in 2019 and determined that we will make further progress with these initiatives in 2020. Persimmon is in a strong position for the future supported by the Group's talented teams, healthy forward sales, strong forward build and robust balance sheet."

Dave Jenkinson, Group Chief Executive

Strategic focus

 
 --   Improving customer service levels - continuing to put 
       customers before volume 
 
 
 -   Delaying sales release in higher demand locations 
      to later stages of construction is delivering the 
      anticipated benefits to customers 
 -   Significant investment in improving build quality 
      and customer care, with an additional GBP213m invested 
      in work in progress and a c. GBP15m increase in annual 
      quality assurance and customer care spend 
 -   Persimmon's HBF survey rating(1) continues to trend 
      strongly ahead of the Four Star threshold 
 -   Customer portal being rolled out across the Group's 
      regional businesses during the first half of 2020 
      further strengthening engagement and service levels 
 
 
 --   Improving build quality and safety 
 
 
 -   Industry leading retention scheme introduced in July 
      2019 reinforcing behavioural change in site construction 
      management and customer care 
 -   Construction programmes advancing - work in progress 
      of GBP1,095m now at 32% of new housing sales (2018: 
      GBP882m, 25%) supporting increased new home inventory 
      volumes, improving new home quality, availability 
      and delivery 
 -   New team of Independent Quality Inspectors engaged, 
      s trengthening our current assurance processes across 
      each of our regional businesses 
 -   Additional Group wide training initiatives being 
      delivered to support improved site management of 
      construction programmes 
 
 
 --   Independent Review update 
 
 
 -   The Independent Review, published on 17 December 
      2019, provided some additional recommendations which 
      the Persimmon team have embraced and are in the process 
      of implementing 
 -   Persimmon's Construction Working Group is currently 
      consolidating the Group's construction standards 
      to define "the Persimmon Way" of new home construction, 
      and establish consistent construction and quality 
      processes Group wide 
 -   Central control of construction processes and standards 
      is being established under the Group's newly appointed 
      Construction Champion 
 -   The Group continues to progress its cavity barrier 
      inspection programme, with over 20,000 properties 
      now inspected 
 -   Board review of clarity of Persimmon's purpose and 
      culture continuing with an update to be given at 
      the AGM in April 2020, as previously announced 
 
 
 --   Housebuilder for all 
 
 
 -   Increasing the supply of good quality homes for everyone 
      with m ore first time buyers helped onto the housing 
      ladder than any other UK housebuilder - 6,262 new 
      homes sold to first time buyers in 2019, representing 
      50% of Group private sales 
 -   Group average private selling price c. 18% lower 
      than the national average for newly built homes sold 
      to owner occupiers(2) 
 -   Creating opportunities for all - directly employing 
      more local tradespeople (c. 2,050) than any other 
      housebuilder, with c. 750 trainees employed in structured 
      training courses 
 -   Investment of over GBP520m in local communities during 
      the year, including the delivery of 3,392 new homes 
      for lower income families to our housing association 
      partners 
 -   Signatory to the Social Mobility Pledge(3) - leading 
      engagement in the house building industry to promote 
      opportunities for all 
 -   Launched our Building Futures campaign, joining forces 
      with Team GB, run by the British Olympic Association, 
      to support children across the UK 
 -   Persimmon's Charitable Foundation contributed c. 
      GBP2.3m to support c. 900 charities, local community 
      groups and good causes across the UK 
 
 
 --   Supporting environmental wellbeing 
 
 
 -   Reduced our Scope 1 and 2 greenhouse gas emissions 
      per new home sold by 8% 
 -   Working with Government and industry to manage the 
      transition to low carbon homes 
 -   Provided c. 750(4) acres of public open spaces and 
      gardens 
 -   Planted c. 146,000 trees during 2019 
 
 
 --   Group Chief Executive Succession 
 
 
 -   Dave Jenkinson has informed the Board of his wish 
      to step down in due course and a search process for 
      his successor will now commence 
 -   Dave will remain as Group Chief Executive and is fully 
      committed to leading the ongoing programme of change 
      for as long as the business requires 
 

Financial highlights

 
 --   Financial trading performance remains strong 
 
 
 -   15,855 new homes sold (2018: 16,449) - 4% down on 
      last year 
 -   Total new homes average selling price of GBP215,709 
      (2018: GBP215,563) 
 -   Total Group revenue 2.4% lower at GBP3.65bn (2018: 
      GBP3.74bn) 
 -   Underlying new housing operating margin(5) of 30.3% 
      (2018: 30.8%) 
 -   Profit before tax of GBP1,041m (2018: GBP1,091m) 
 -   Net free cash generation(6) of GBP544m (2018: GBP478m) 
 -   Basic earnings per share of 266.8p (2018: 283.3p) 
 -   Return on average capital employed(7) of 37.0% (2018: 
      41.3%) 
 -   Return on equity(8) of 26.3% (2018: 27.7%) 
 
 
 --   Excellent platform for future growth 
 
 
 -   10,013 plots of new land secured in the period, including 
      4,218 plots converted from the Group's strategic land 
      bank; 71,942 plots owned (December 2018: 75,793 plots) 
 -   Increase in work in progress investment to GBP1,095m 
      (2018: GBP882m) 
 -   Land creditors reduced by GBP113m to GBP435m at year 
      end (2018: GBP548m) providing increased flexibility 
      to invest in attractive future land opportunities 
 -   GBP844m cash held (2018: GBP1,048m) 
 -   Strong current forward sales of GBP1.982bn (2018: 
      GBP2.017bn) 
 
 
 --   Shareholder returns 
 
 
 -   Return of surplus capital of GBP1.25 per share (GBP397.7m) 
      paid 29 March 2019 in addition to the scheduled payment 
      of GBP1.10 per share (GBP350.1m) paid on 2 July 2019 
 -   Interim and Final dividends of GBP1.25 and GBP1.10 
      per share respectively declared for 2019 to be paid 
      in 2020 
 -   Commitment to a total return of GBP2.35 per share 
      in 2021 (2020: GBP2.35) 
 

1 The Group participates in a National New Homes Survey, run by the Home Builders Federation, the rating system is based on the number of customers who would recommend their builder to a friend.

2 National average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land registry. Group average private selling price is GBP241,985.

3 Social Mobility Pledge is a cross party campaign to improve social mobility in the UK

4 Estimated using an economic toolkit

5 Stated before goodwill impairment (2019: GBP7.3m, 2018: GBP9.2m) and based on new housing revenue (2019: GBP3,420.1m, 2018: GBP3,545.8m)

6 Net free cash generation stated before Capital Return Plan payments

7 12 month rolling average stated before goodwill impairment and includes land creditors

8 12 month rolling profit after tax generated from the average of the opening and closing total equity for the 12 month period

For further information please contact:

 
 Dave Jenkinson, Group Chief Executive   Simon Rigby 
 Mike Killoran, Group Finance Director   Kevin Smith 
 Persimmon Plc                           Jos Bieneman 
 Tel: +44 (0) 20 7638 9571 (on           Ellen Wilton 
  27 February 2020) 
 Tel: +44 (0) 1904 642199 (thereafter)   Citigate Dewe Rogerson 
                                          Tel: +44 (0) 20 7638 9571 
 

Analysts unable to attend in person may listen to the presentation live at 10:00am by using the details below:

Telephone number: +44 (0) 203 0095709

Conference ID: 2429008

Webcast link: https://edge.media-server.com/mmc/p/mkyge9i3

An archived webcast of today's analyst presentation will be available on www.persimmonhomes.com/corporate this afternoon

CHAIRMAN'S STATEMENT

Persimmon's purpose is to build good quality homes at a range of price points across the UK. We aim to create and protect superior and sustainable levels of value for the benefit of our customers, workforce, suppliers and shareholders through the housing cycle. Developing a business based on strong, sustainable foundations, and where our employees have the opportunity to achieve their full potential, provides the platform for our continued success. We recognise that this success is dependent upon strong engagement with, and delivery for, all our stakeholders, including our customers, our people, our supply chain partners, local communities and Government.

From the start of 2019, Persimmon commenced a programme of change, making significant additional investment in a customer care improvement plan, which placed the customer at the centre of our business. At the heart of this plan is a commitment by Persimmon to a programme of cultural and operational change that prioritises customer care over volume growth. Affirming the Group's commitment to implement this change and to ensure it would achieve its objectives, the Board commissioned an Independent Review ("the Review"). The Review, published in December 2019, provided some additional recommendations which the Persimmon team have embraced and are in the process of implementing. As previously announced, the Board will provide an update on its consideration of the purpose and culture element of the Review's recommendations at the AGM in April 2020.

The focus on delivering consistently higher build quality and improving the standard and responsiveness of the service customers receive has started to deliver the anticipated benefits. Whilst Persimmon's plans to deliver consistently higher levels of quality and service go far beyond a focus on the criteria of the HBF customer satisfaction survey, the ongoing improvement in our HBF rating, which is trending strongly ahead of the Four Star threshold, is tangible evidence of the progress made so far.

Persimmon's results for 2019 reflect the strength of the Group's positioning in offering a broad choice of homes for all, and across the regions of the UK. The Group's new home legal completion volumes were 4% lower than the prior year, reflecting the later sales release of homes under construction in higher demand areas as part of the plans to improve build quality and customer service. The Group continued to increase its investment in work in progress to GBP1,095m (2018: GBP882m) to support these initiatives. Profit before tax was GBP1,041m (2018: GBP1,091m) with an underlying new housing operating margin(1) of 30.3% (2018: 30.8%). Cash balances of GBP844m were held at the end of the year (2018: GBP1,048m) and the Group's owned and controlled land holdings totalled 93,246 plots (2018: 99,088 plots).

We are confident that the implementation of our customer care improvement plan, our continued commercial success and wider investment in society provide a strong platform for the long term, sustainable development of the Group.

CUSTOMERS AND COMMUNITIES

Persimmon aims to provide homes for all by constructing a wide range of good quality affordable homes in places where people want to live and work right across the UK. The Group's average private selling price of GBP241,985 is 18% lower than the national average for newly built homes sold to owner occupiers(2) . In line with Government housing policy, the Group focuses on creating attractive neighbourhoods which enhance and contribute to the local area and meet the housing needs of the communities they serve. Persimmon supports more first time buyers onto the housing ladder than any other UK major housebuilder, with 50% of our private new homes being sold to first time buyers in 2019.

Improving the quality of the homes we build and the service we provide to our customers was the Group's top priority throughout 2019. We are putting quality and service for our customers before volume, delaying sales releases on developments with high demand until build is at a more advanced stage, to support the implementation of our customer care improvement plan initiatives. New homes stock levels were 14% higher at the year end and the Group invested an additional GBP213m in work in progress year on year. The recruitment of our new Independent Quality Inspections team provides another level of scrutiny, strengthening our overall quality assurance processes.

Our Construction Working Group, led by our newly appointed Group Construction Champion, is establishing "the Persimmon Way", which will consolidate our approach to new home construction standards and embed best practice across the Group. This approach is consistent with the recommendations of the Independent Review.

We have also invested significantly in enhancing customer service, increasing on-site customer care resource by 70% and improving IT support to deliver a more responsive service. The introduction of our Homebuyers Retention Scheme in July 2019, is a first for the industry, and is already driving behavioural change within the business. Further detail on the Group's customer care improvement plan is provided in the Chief Executive's Review.

We place great importance on our wider contribution to the communities we serve. During the year we have invested over GBP520m in local communities through the delivery of new homes for lower income families and planning contributions, which have helped create over 2,500(3) school places. This brings the Group's total community investment to c. GBP2.0bn over the last five years. During 2019 the Group provided c. 750(3) acres of public open space and gardens helping to support biodiversity betterment whilst delivering good quality homes. Our operations have also supported almost 50,000(3) jobs on our sites and within our supply chain.

Since 2010, in the ten year period following the global financial crisis, the Group has invested over GBP4.8bn in land, opened over 1,750 new development outlets and delivered over 130,000 newly built homes whilst also providing substantial amenity value to the benefit of local communities and the environment right across the UK. For example, the Group has planted c. 510,000 trees over the last five years adding to the biodiversity of local environments whilst providing opportunity for enhanced carbon capture over future years. This commitment to building good quality housing for all at affordable prices, to create vibrant inclusive neighbourhoods that meet housing need is directly aligned with Government policy. We continue to work closely with local planning authorities and communities to bring land into construction as promptly as possible, with our investment in associated infrastructure, new home construction, and the local environment helping to create long term value for the local communities we serve.

LONG TERM STRATEGY AND CAPITAL RETURN PLAN

Persimmon's strategy is aligned to its purpose - building on its sustained success the Group will support continued investment in residential development opportunities for the benefit of local communities throughout the UK. Our long-term strategy recognises that the timing of this investment will be judged to mitigate the risks to sustaining value creation for all stakeholders through the housing market cycle, whilst making appropriate returns to shareholders whose capital we deploy in pursuit of fulfilling our purpose. Retaining flexibility to support the appropriate level of reinvestment in the business, whilst minimising financial risk through the cycle, is a key element of the Board's strategy.

Persimmon's strategy recognises the Group's ability to generate surplus capital beyond the reinvestment needs of the business as the market cycle develops. The Board has been mindful of the increased uncertainties regarding the outlook for the UK economy for some time and has adopted a selective approach to new land investment, building Persimmon's cash reserves progressively to strengthen its financial position. For the current scale of the business, the Board believes cash holdings of c. GBP700m are appropriate, minimising financial risk by providing sufficient liquidity to cover the annual working capital cycle of the business, while maintaining flexibility to deploy additional capital should further attractive reinvestment opportunities arise.

The Board assesses the availability of surplus capital on a regular basis, considering the appropriate balance between the financial position of the Group and its reinvestment needs, the Group's land holdings, the housing market cycle and land market conditions, and the broader economic risk profile. The Board has set out its risk and viability assessment processes in note 11 to this announcement.

Having concluded its 2020 assessment of the availability of surplus capital, as part of the regular annual assessment of the Capital Return Plan, the Board is pleased to reiterate its commitment to total capital returns of GBP2.35 per share in 2020 in line with the existing plan, with a payment of GBP1.25 per share to be made on 2 April 2020 to shareholders on the register on 6 March 2020 as an interim dividend for 2019, together with recommending to shareholders a regular annual capital return of GBP1.10 per share to be paid on 6 July 2020 to shareholders on the register on 12 June 2020 as a final dividend for 2019. In addition, the Board is pleased to announce its intention to return a further GBP2.35 per share in 2021. The Board is increasing the regular annual payment to be made in early July 2021 to GBP1.25 per share, with the additional return of surplus capital of GBP1.10 per share to be paid in late March 2021. The total value of the capital return plan to 2021 is now GBP14.25 per share compared to the GBP6.20 per share initial commitment made by the Board in 2012.

RESULTS

Persimmon delivered another strong trading performance in 2019. The Group's total revenues were GBP3,649m (2018: GBP3,738m), with new housing revenues of GBP3,420m (2018: GBP3,546m) being 4% lower than last year. The Group sold 15,855 new homes in the year (2018: 16,449) at an average selling price of GBP215,709 (2018: GBP215,563), the lowest of any major housebuilder in the UK.

Customer demand across the regions of the UK was supported by resilient consumer confidence right through the year, despite elevated levels of uncertainty relating to both the political outlook and economic prospects, ahead of the UK's prospective exit from the EU. Customers acquiring new homes at higher price points have increasingly been more considered in their reservation commitments. Sales to private owner occupiers totalled 12,463 new homes (2018: 13,341), a reduction of 878 homes year on year, whilst sales to our housing association partners were 3,392 new homes (2018: 3,108), an increase of 284 homes.

The average selling price of the Group's private market sales was GBP241,985 (2018: GBP238,373), an increase of 1.5% year on year. Of the Group's total private sales of 12,463 homes, 57% were sold across our northern businesses (2018: 55%). The Group continues to provide strong support to the creation of mixed tenure sustainable communities across the UK, delivering over GBP400m of new homes to housing associations in the year (2018: GBP366m) at an average selling price of GBP119,166 (2018: GBP117,653), which represented 21.4% of the Group's total sales (2018: 18.9%). The volume of sales achieved by the Persimmon brand was 11,327 homes (2018: 11,947). Charles Church achieved 1,136 home sales (2018: 1,394).

The Group's total gross margin for the year was 31.0% (2018: 31.6%), with our new housing gross margin at 33.1%(4) (2018: 33.3%). The level of new housing gross margin reflects the ongoing investment being made in the Group's build quality and customer care resources and processes. The Group's customer care spend in the year increased by c. 50% over last year. The Group's margins are supported by its high quality consented land holdings with land cost recoveries of 14.0% of housing revenues (2018: 14.6%). At 31 December 2019 the Group's cost to revenue ratio(5) for its owned land holdings of 71,942 plots was 13.2%. The Group's continued investment in its build quality and customer care improvement initiatives will place the business in a strong position moving forward. The Group's total gross profit for the year was GBP1,131m (2018: GBP1,180m).

Underlying operating profit(6) for the Group was 5.1% lower than last year at GBP1,037m (2018: GBP1,092m). The Group's underlying new housing operating margin(1) of 30.3% was 50 basis points lower than last year (2018: 30.8%). The Group's pre tax profits were GBP1,041m, 4.6% lower than 2018 (GBP1,091m). Underlying basic earnings per share(6) for the year of 269.1 pence reduced by 6.0% compared to the prior year (2018: 286.3 pence).

The Group generated 250.7 pence of total capital value (before capital returns)(7) in the year (2018: 204.4 pence) reflecting the Group's strong set of results. After capital returns of 235 pence per share recognised in the period, reported net assets per share of 1,021.7 pence per share at 31 December were 15.7 pence higher than the prior year (2018: 1,006.0 pence). Underlying return on average capital employed(8) as at 31 December was 37.0% (2018: 41.3%).

The Group's balance sheet is strong. Due to the strength of the Group's existing land holdings we have remained selective in our approach to land replacement in line with our strategic priorities. We have continued to judge each opportunity in the context of the needs of each of the Group's 31 operating businesses and remained mindful of prospective changes to market conditions. During the year, the Group added a total of 10,013 plots of land into the business across 60 high quality locations, including 4,218 plots converted from our strategic land portfolio. The Group's land spend was GBP474m (2018: GBP628m).

At the year end the Group held cash reserves of GBP844m (2018: GBP1,048m) reflecting an increase of GBP213m in work in progress investment at GBP1,095m (2018: GBP882m) and a GBP113m reduction in land creditors to GBP435m (2018: GBP548m).

Return on equity(9) was 26.3% for the twelve month period to December 2019 (2018: 27.7%).

BOARD CHANGES

We have announced that Dave Jenkinson has informed the Board of his wish to step down as Group Chief Executive in due course. He has signalled his intention early to give the Board good time to recruit a successor. Dave will remain fully committed to leading the ongoing programme of change for as long as the business requires.

I would like to take this opportunity on behalf of the Board to thank Dave for the very significant contribution he has made to the success of Persimmon over almost 23 years with the Group. He has played a critical role in the shaping and development of new Persimmon. I am also grateful that Dave has signalled his intention to step down at an early stage to give us the time to carry out a thorough search process and to continue the evolution of the business.

The Board was also pleased to announce recently the appointment of Joanna Place as a non-executive Director from 1 April 2020. We look forward to Joanna bringing her experience to support the successful development of the business over future years.

The Board announced the resignation of Claire Thomas, former Independent Non-Executive Director, on 15 January 2020. The Board would like to thank Claire for her contribution to the Group during her tenure.

We also announced that Marion Sears, Independent Non-Executive Director and Chairman of the Remuneration and Corporate Responsibility Committees will retire from the Board at the conclusion of the AGM to be held on 29 April 2020. Following Claire Thomas' departure on 1 February 2020, if necessary, Marion has agreed to remain on the Board for a short time while the Board seeks a new Remuneration Committee Chairman. The Board would like to thank Marion for the significant contribution she has made to the Group during her seven years with Persimmon.

The Board is in the process of identifying and appointing a further Non-Executive Director with construction experience and will provide an update to the market once that process is completed.

OUTLOOK

The level of customer activity through the initial weeks of 2020 is encouraging with enquiries and visitors to our sites in line with our expectations. Sales rates in the early weeks of 2020 are tracking above the prior year and the Group's strong work in progress position leaves it well placed to respond to further market momentum as the year progresses whilst retaining its overriding focus on build quality and customer care. The UK housing market remains resilient, consumer confidence being supported by low interest rates, a competitive mortgage market and high levels of employment. Customers continue to carefully consider their circumstances prior to making reservation commitments and cancellations have continued to run at historically lower levels.

With the 2019 general election now behind us, the previous elevated levels of political uncertainty have subsided. As anticipated, the UK's recent withdrawal from the EU and commencement of the transition period, alongside other global economic challenges, continue to present uncertainties for the UK's economic outlook. However, Persimmon remains in a strong position. The Group's developments are located in areas of some of the greatest housing need in the UK and provide an attractive choice of good quality newly built homes at affordable prices.

The Group continues to release homes for sale only when a more advanced stage of construction is achieved. Maintaining our continued disciplined sales release process, the Group's average private sales rate per site in the first eight weeks of the year of 0.88 was c. 7% ahead of the same weeks last year, as expected. Given that the Group began the year with a similar level of active sales outlets as 2019 but a slightly lower forward sales position at 1 January 2020, we currently expect sales this year to follow a similar pattern to last year, and anticipate delivering a similar number of legal completions to 2019. The Group's current total forward sales, including new home legal completions taken so far in 2020, remain strong at GBP1.98 billion (2019: GBP2.02 billion). We have 5,679 new homes sold forward into the private owner occupier market with an average selling price of c. GBP245,000. Pricing conditions remain firm.

The Group has experienced some easing of build cost pressure over recent months and currently anticipates that cost inflation will be around 2.5% to 3% for the current year assisted by continued self help measures. Whilst the detail of the UK's future trading relationships with the EU and others remains uncertain, undoubtedly, the UK remains an attractive market. In partnership with its supply chain the Group continues to assess the risks associated with these developments and has put in place measures that help to reduce these risks where required.

We currently have c. 365 developments in construction, a similar number to last year. During the first half of 2020 we anticipate starting construction on c. 80 new developments, which will help meet the pressing housing need in these locations. Our ongoing customer care improvement plan, supported by implementation of the recommendations of the Independent Review, will underpin the delivery of a further improvement in the quality and service provided to our customers this year. These initiatives and investments are currently anticipated to increase the Group's customer care costs on an annualised basis by c. GBP15m. These substantial commitments, together with the higher new home stock investment, will help ensure that Persimmon delivers higher build quality, service and choice moving forwards. Whilst the Group's returns from the capital employed in the business will reduce we expect the Group's cash generation will remain strong.

Over the longer term, the UK housing market has a cycle, reflecting the health of the UK economy as it develops over time which, in part, will be influenced by the continued evolution of Government policy. As the UK establishes new commercial relationships on departing the EU during a period of increased global volatility we remain optimistic of Persimmon's prospects. The Group is positioned to continue to provide an important contribution to both UK housing supply, and the wider health of communities across the UK, in direct alignment with the Government's strategic objectives.

Currently the housing market continues to be resilient and we are seeing good demand across our regional markets. To achieve the Government's policy objective of increasing the provision of good quality homes to meet local communities' housing needs, further expansion in the output of newly built homes will be required. This growth will deliver additional social benefits, for example, increasing employment across the regions of the UK both directly on housing developments and in the supply chain. Persimmon currently supports c. 50,000(3) local construction and supply chain jobs through our development activities across the UK. We will continue to invest in these local communities and businesses to promote social mobility and support these local communities. The additional benefits associated with development activity, of higher contributions to communities through improved local amenities and infrastructure, taxes paid, and from additional investment will also be realised.

Persimmon's employees are the foundation upon which the Group's strength and future success is built. The Group directly employs c. 5,300 people across the UK. The Board's thanks go to this talented, hardworking and committed team that continues to embrace change and deliver such positive results.

The Board's thanks also go to all of the Group's workers, sub-contractors and other stakeholders for their contribution to the continued strong performance of Persimmon, together with the implementation of the important measures to improve build quality and customer service.

Persimmon has high quality land holdings, healthy forward sales, strengthened forward build and a strong balance sheet. Our team is united in its commitment to improve build quality and customer satisfaction. We remain confident of the Group's future prospects.

Roger Devlin

Chairman

26 February 2020

1 Stated before goodwill impairment (2019: GBP7.3m, 2018: GBP9.2m) and based on new housing revenue (2019: GBP3,420.1m, 2018: GBP3,545.8m).

2 National average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land registry.

3 Estimated using an economic toolkit

4 Stated on new housing revenues of GBP3,420.1m (2018: GBP3,545.8m) and gross profits of GBP1,130.7m (2018: GBP1,179.9m)

5 Land cost value for the plot divided by the anticipated future revenue of the new home sold

6 Stated before goodwill impairment (2019: GBP7.3m, 2018: GBP9.2m)

7 Movement in total equity before dividends on equity shares divided by the average number of shares in issue during the period

8 12 month rolling average stated before goodwill impairment and includes land creditors

9 12 month rolling profit after tax generated from the average of the opening and closing total equity for the 12 month period

CHIEF EXECUTIVE'S STATEMENT

Highlights

 
 --   Implementing our customer care improvement plan 
 --   Putting our customers before volume 
 --   Embracing the Independent Review recommendations 
 --   Homebuyer Retention Scheme introduced, a first for the industry 
 --   Providing "homes for all" - addressing the country's housing 
       needs 
 --   15% of our colleagues taking part in formal training programmes 
 --   Strong Employee Engagement Score (i) 
 --   8% reduction in our Scope 1 and 2 greenhouse gas emissions 
       per new home sold 
 --   Over GBP520m investment in local communities 
 --   GBP2.3m donated to local charities and community groups 
 --   Continuing to maintain sustainable, high quality land holdings 
 --   Continuing to deliver industry leading financial performance 
 

Overview

Throughout 2019 our focus was firmly on the quality of our homes and the service we offer to our customers. At the start of the year we implemented our customer care improvement plan ("the Plan"), with a clear priority of putting our customers before volume. The Plan is a comprehensive programme of measures to improve the Group's performance on all aspects of build quality and customer experience. It is challenging by design and we believe will place the Group in a strong position for the future.

Having commissioned the Independent Review in April, we were clear from the outset that we would not delay action until its completion in December. We have a culture of continuous review and rapid implementation within the business and as a result, the Plan strengthened and evolved throughout 2019 as the Group exercised increased discipline over the timing of sales releases, and invested in work in progress, quality and service resources, digital technology and enhancing Group wide processes.

The Board reviewed the effectiveness of the Group's build quality and customer care initiatives in light of the recommendations of the Independent Review (published in December 2019) and noted that many of them had already been, or were in the process of being implemented. The additional recommendations have been embraced by the business and are now in the process of being rolled out.

I have informed the Board of my wish to step down as Group Chief Executive in due course. I am fully committed to leading the ongoing programme of change for as long as the business requires. Persimmon is an outstanding business with a strong balance sheet and talented and dedicated people. I am pleased with the energy and enthusiasm with which the whole team is making the many necessary changes to implement the Group's improvement plans. We have made a positive start to our change programme and I am confident that the required progress will be made to deliver higher levels of quality and service to all of our customers.

I would like to thank the Persimmon team for their hard work and commitment.

Focusing on our customers - our customer care improvement plan

Our customer care improvement plan, introduced at the start of 2019, continued to evolve throughout the year. We have implemented a number of initiatives to focus on improving:

 
 --   The quality of the homes we build; 
 --   Communication with our customers; 
 --   The service we offer to our customers once they have moved 
       into their new home; and, 
 --   Consumer rights. 
 

The Group has invested in its work in progress and delayed sales releases on sites with higher demand to allow build progress to reach a more advanced stage. This supports the improvement in construction quality that we are determined to deliver, ensuring that our quality assurance processes are more effective for each home. It also enables us to enhance our customer service provision as we are able to offer homes at a more advanced stage of build and provide a more accurate moving in date. Reflecting these planned outcomes, our work in progress investment had increased by GBP213m at 31 December 2019, representing c. 6,100 new homes under construction and an increase of 14% compared to last year.

We have invested significantly in digital technology covering our build and inspection processes and have recruited a team of Independent Quality Inspectors to critically assess each key stage of our construction process and to provide increased levels of quality and safety assurance. These inspectors operate independently of our site management teams to ensure the homes built for our customers are of the high quality standard that our customers expect. In addition, each of our homes undergoes a seven stage inspection process when it is nearing completion, to ensure it meets the necessary quality standard.

Regular communication is important to our customers. We have established a comprehensive customer support process which will be further enhanced by the implementation of a 'customer portal' in the first half of 2020. This customer portal is designed to inform each of our customers of the construction progress of their new home, to provide confirmation of their specification details and the contractual status of their purchase, and to provide accurate, timely information regarding their anticipated 'move in' date.

To facilitate improved levels of service to our customers after they have moved into their new home we made a significant investment in our customer care resource which has increased by 52% year on year, with a 70% increase in site based customer care staff. To deliver a more responsive service we have introduced digital tools that support greater mobility and productivity of our customer care teams out in the field and delivered c.1,100 customer care training days to our teams in 2019.

To support improved consumer rights and empower its customers Persimmon introduced its Homebuyer Retention Scheme from 1 July 2019. This is a first for the UK housebuilding industry and aims to drive behavioural change throughout the business and reinforce the Group's objective of delivering higher levels of build and finish quality. Our pre-completion quality assurance procedures are designed to "get it right first time". To reinforce this discipline our customers are invited to complete their own seven-day inspection review following their moving in day. They are requested to highlight any items of concern they have identified having lived in their new home. The customer's solicitor retains 1.5% of the new home purchase price which is only released once any matters are resolved.

Independent Review update

The Independent Review commissioned by the Board ("the Review") assessed the effectiveness of Persimmon's improvement initiatives to determine whether they would enable the business to deliver consistent high standards of quality, safety and customer service across all of our regions.

We agree with the Review's additional recommendation to establish a consolidated, consistent Group wide approach to construction (the Persimmon Way) and the process has already commenced with the establishment of our Construction Working Group in October 2019. This working group comprises experienced senior construction professionals from across the business. The Group has appointed a "Group Construction Champion" to manage and monitor the implementation of the Persimmon Way based upon strong central control of construction quality standards. Mandatory standardised training will be provided to all relevant employees by the Group Training Department. The Group's team of Independent Quality Inspectors will focus on supporting site management teams to apply these construction standards consistently across the business.

Once the Persimmon Way is rolled out across the Group through 2020, a third party will be appointed to independently verify the execution of the required construction processes on an annual basis, providing further assurance over the quality of our build.

All of these measures are designed to ensure that the Group builds well-designed, high quality, safe homes for all its customers. These enhanced quality assurance procedures are reinforcing the behavioural change required to mitigate the risk of substandard execution of the Group's required build processes, such as the historic failure to properly install cavity barriers in certain of its properties, from occurring in the future. We are continuing to progress our cavity barrier inspection programme, with over 20,000 properties now inspected.

In the year to 30 September 2019, the last annual measurement period, the percentage of our customers who would recommend Persimmon to a friend under the independent Home Builders Federation ("the HBF") survey is currently trending strongly ahead of the Four Star threshold. We believe we will achieve a Four Star rating when the annual results are published in March 2020. While our ongoing quality and customer care improvement programme goes far beyond a focus on the criteria of the HBF survey , we are pleased that this external measure provides tangible evidence of the improvements being delivered to our customers.

The Board is ensuring that senior management's objectives are aligned with the Group's strategic aims by including build quality and customer service metrics within the performance conditions for annual bonus awards.

Performance review

Profit before tax for the year was GBP1,041m (2018: GBP1,091m), from new housing revenues of GBP3,420m (2018: GBP3,546m). The reduction in new housing revenues of 3.5% year on year reflects our priority of putting customers before volume during the implementation of the Group's customer care improvement plan. The Group delivered 15,855 new homes in 2019 (2018: 16,449 new homes) at an average selling price of GBP215,709 (2018: GBP215,563).

Through 2019, as part of the plan to increase the quality and service provided to our customers, we released new homes for sale at later stages of construction on sites with higher demand resulting in a c. 7% reduction in the average number of sales outlets open in 2019 when compared with 2018, at c. 350 outlets (2018: c. 375). The Group had c. 350 sales outlets open at 31 December 2019 (31 December 2018: c. 370 outlets). Persimmon has a strong, well balanced network of sites and each of our 31 housebuilding businesses is underpinned by high quality land holdings ensuring that the Group maintains a sustainable market share in each of its regional markets.

During 2019 the Group's private sales rate per outlet per week was c. 0.68, c. 3% lower than the prior year (2018: c 0.70), reflecting the resilience of customer confidence in the market despite some significant uncertainties. This rate of private sale was a little lower than our optimal rate of c. 0.75 of a sale per outlet per week and, in part, reflects the impact of the successful execution of the Group's customer care improvement initiatives.

We remain committed to meeting "all housing needs" by providing homes at a range of price points across the UK. Persimmon has opened seven new housebuilding businesses in the last five years in support of the construction and delivery of c. 78,100 new homes across the UK, of which c. 14,000 were provided to our housing association partners. Our average private selling price of GBP241,985 was 18% lower than the UK national average of GBP295,160 (ii) reflecting our commitment to delivering affordable housing for all.

Forward sales at 31 December 2019 of GBP1.36bn were 3% lower than the prior year (2018: GBP1.40bn) after second half legal completion volumes of 8,271, which were 9% stronger than for the first half of the year (H1: 7,584).

The Group's land holdings

The Group's existing high quality land holdings enabled us to continue our strategy of disciplined selective investment in land through 2019. The land market remained broadly supportive, albeit through the second half there were some pockets of increased competition, particularly for smaller sites, in certain locations. We remain mindful of prospective changes to market conditions, including those associated with the UK's departure from the EU, when assessing land investment.

Persimmon has worked in long-term partnership with local authorities and communities to acquire land in sustainable locations that meet local housing needs. Since 2012 the Group has spent GBP4.3bn on land and opened almost 1,500 new development outlets delivering 113,000 new homes to communities across the UK in line with the Government's drive to increase new home supply.

At the year end the Group owned and controlled 93,246 plots in its consented land holdings (2018: 99,088 plots) with c. 50% previously held by the Group as strategic land. Within these land holdings, the Group owned 46,055 plots on sites with detailed planning consent, all of which are under construction. We have a further 25,887 plots of owned land which are currently proceeding towards achieving full planning consent.

The Group owned and controlled c. 15,900 acres of strategic land, including a number of allocated sites, at 31 December 2019. In line with our strategic objectives, our land, planning and design teams will remain focused on working with planning departments and local communities to achieve implementable detailed consents as quickly as possible, to maintain a strong pipeline of well designed, newly built, good quality homes over future years.

Outstanding land creditors reduced by GBP113m to GBP435m at 31 December 2019 (2018: GBP548m). The Group's healthy cash generation and careful working capital management place the business in a strong position to take advantage of attractive future land investment opportunities.

Off-site manufacturing

The Group continues to focus on self-help action to address build cost pressures, including the use of the Group's core range of house types, strong collaboration with our subcontractors and suppliers, and utilisation of in-house manufactured brick and roof tiles. The Group's investments in its in-house manufacturing capabilities also support improvements in overall supply chain capacity to assist the further expansion in industry output.

The Group's concrete brick manufacturing facility, based at Harworth near Doncaster, has the capacity to manufacture c. 80m concrete bricks per annum. During 2019, our operating businesses used c. 50m bricks from this facility, just over 40% of the Group's requirements for the year.

In December 2019, the Group completed the construction of its roof tile manufacturing facility, Tileworks, based at the same site in Doncaster. The facility is due to commence delivery to our sites in spring 2020.

Our Space4 manufacturing facility, which produces timber frames, closed insulated wall panels and roof cassettes, also helps in easing traditional skills pressures in certain locations where their availability remains tight. Space4 has increased its production capacity by c. 13% to c. 6,900 units per year, consisting of c. 5,500 timber frames and c. 1,400 'room in the roof' systems.

FibreNest

In line with its ambition to deliver better service to its customers, Persimmon established FibreNest in 2018 to deliver ultrafast, full fibre to the home, broadband services. FibreNest, which is aligned with the Government's digital strategy, has expanded rapidly this year and is highly rated by its customers. At 31 December 2019, FibreNest had c. 4,700 customers connected to the service on c. 110 sites.

The Group intends to continue to support new customers on future sites as this service is rolled out further.

Our employees

The Group's talented, skilled and motivated workforce is a key strength. We have a culture of hard work, enthusiasm, commitment and resilience, and a capacity to embrace change and improvement to support the successful development of the business. The results from our recently completed Employee Engagement Survey showed that 96%(i) of colleagues understood how their individual efforts contributed to Persimmon's ability to meet its objectives. This culture is a key enabler of the delivery of the build quality and customer service improvement plan. The Group is a meritocratic open workplace where we encourage all employees to fulfil their ambitions and pursue rewarding roles as part of the Persimmon team. We provide clear opportunities for career progression and I was pleased to see 374 colleagues promoted in the year. As well as nurturing home grown talent, we recognise the value of wider experience from colleagues that have been recruited externally. In 2019, we recruited 169 people into senior positions within the business (2018: 249).

We recognise that investment in the Persimmon team is a key priority to sustain the business over future years. The Group has invested significantly in its Group Training Department which is responsible for developing group wide training resources and delivering a consistent approach to all our operating regions. The department is also delivering a comprehensive mental health training and awareness programme to each of our 31 operating businesses. We have trained three members of the department to become accredited mental health first aid trainers. To date we have trained our first 22 mental health first aiders and intend to increase this number to c. 75 by the end of 2020.

We remain committed to addressing the skills shortage within the industry and have recruited c. 750 trainees across the Group (15% of our team), including over 450 traditional apprentices. The Group is a member of The 5% Club, an employer organisation creating momentum behind the recruitment of apprentices, sponsored students and graduates into the workforce, demonstrating that young people seeking to gain skills and qualifications can have an excellent career with us. We directly employ c. 2,050 local tradespeople, more than any other housebuilder. In addition, we delivered c. 14,300 training days to our workforce and continue to be closely involved in the Home Building Skills Partnership, a joint initiative of the Construction Industry Training Board and the Home Builders Federation (HBF) that aims to address the shortage of skilled workers in the industry.

Over many years a key part of Persimmon's strategy has been to establish a diverse and inclusive workforce. In 2019, the Group signed up to the Social Mobility Pledge which encourages businesses to boost social mobility in the UK by partnering with schools and colleges to provide mentoring, coaching and structured work experience, and by adopting open recruitment practices which promote a level playing field for people from all backgrounds. Persimmon has been chosen by the Pledge team to lead its work within the housebuilding sector, reflecting the valuable work the Group is doing in this area. In addition, we have signed up to the Business Disability Forum which promotes best practice in order to help its members manage disability issues with employees, customers and other stakeholders.

To help guide and direct our investment in our colleagues we engage with our employees in a number of ways. The Group's Employee Engagement Panel, which met three times in 2019, presented its discussions to the Corporate Responsibility Committee and the Board during the year. In addition, the Group is partnering with Harris Interactive to undertake formal Employee Engagement Surveys, the first of which was rolled out in January 2020. As noted above, the initial results from this survey indicate strong employee engagement with Persimmon with colleagues valuing their work place and career opportunities highly.

Sustainability

We believe that a sustainable business is a successful business. Environmental, Social and Governance matters are extremely important to Persimmon and we believe we need to deliver long term value to all stakeholders in the business including our customers, our employees, our supply chain partners, our communities, and our shareholders, as well as wider society.

Our Corporate Responsibility Committee is responsible for co-ordinating the Board's sustainability strategy across the Group and comprises colleagues from a wide cross section of disciplines. We have appointed a Group Sustainability Manager who will be responsible for further embedding this strategy into our core operations.

We aim to embed sustainability and environmental considerations into all of our core processes. We develop on brownfield sites wherever possible. For example, our Charles Church business was awarded 'Best Refurbishment Project' at the Housebuilder Awards 2019 for its work on the previously derelict Stone Cross Manor in Ulverston.

As a responsible business, we continue to recognise the importance of contributing to wider society. During the year, the Corporate Responsibility Committee carefully reviewed each of the United Nations Sustainable Development Goals and their related targets to identify areas where we believe we can make a positive contribution to these common aims and to ensure our ongoing strategic objectives are aligned.

In early 2019, we established a 'low carbon homes' working group to plan and manage the transition to constructing new build homes with low carbon heating and improved levels of energy efficiency. We are actively engaging with the housing industry and Government to find an effective and cohesive strategy to meet the challenge of achieving the 'Future Homes Standard' proposed for 2025.

We monitor the environmental impact of our operations carefully. We have seen a reduction in our Scope 1 and 2 greenhouse gas emissions per new home sold from 2018 of c. 8% and will continue to seek more efficient methods of operating to drive further improvements. In 2020, we will review our emissions target with the aim of aligning it with the latest climate science.

The Persimmon Charitable Foundation

We are proud of the contribution made by the Persimmon Charitable Foundation. During the year, the Foundation ran some extremely successful campaigns resulting in donations of GBP2.3m being made to c. 900 local charities and community groups.

The 'Community Champions' campaign which was originally established in 2015, continued throughout 2019 and donated c. GBP740,000 to c. 770 local organisations.

The Foundation launched its 'Building Futures' campaign in 2019, in association with Team GB, and donated GBP1,072,000 to 127 charities which support children and young people's participation in the arts, sport, and health and wellbeing.

Both campaigns will continue in 2020.

In addition, the Foundation donated GBP400,000 to Crisis, a national charity working to end homelessness, and has pledged a total of GBP200,000 to SASH, a York based charity aiming to prevent homelessness among young people aged 16 to 25 in North and East Yorkshire.

Strong returns, capital discipline, and cash generation

The Group's return on equity(iii) for 2019 of 26.3% (2018: 27.7%) reflects its strong post tax profit of GBP848.8m (2018: GBP886.4m) and disciplined approach to capital deployment. The Group's strategy and capital return plan ensures the reinvestment needs of the business are addressed whilst the capital employed in the business is managed at appropriate levels to generate attractive risk adjusted returns for our shareholders.

Persimmon's underlying return on average capital employed(iv) for 2019 of 37.0% (2018: 41.3%) reflects the investment in our business to promote its sustainable success.

A central feature of the Group's strategy is the delivery of strong liquidity with free cash generation in 2019 of GBP543.6m (before capital returns of GBP747.8m) (2018: GBP477.7m before capital returns of GBP732.3m).

Capital returns

The Group's strategy launched in 2012 recognises Persimmon's ability to return capital which is surplus to the reinvestment needs of the business to its investors at certain points through the market cycle. We invest in infrastructure and on-site new home construction to fulfil local communities' housing needs. Our continued strong financial performance allows Persimmon to invest to achieve optimal operating scale within each of our regional markets, including executing disciplined, well judged land investment at the right time through the cycle, whilst also minimising financial risk, for the long term benefit of all stakeholders in the business.

During the eight year period from 2012 to 2019 capital returns of GBP9.55 per share, or GBP2.97 billion, have now been paid to shareholders.

As explained in the Chairman's statement, the Directors are maintaining the existing schedule of capital returns for 2020 and are pleased to announce a further return of GBP2.35 per share for 2021.

The total value of the Capital Return Plan to 2021 is now GBP14.25 per share compared to the GBP6.20 per share initial commitment made by the Board in 2012.

The schedule of payments under the Capital Return Plan is as follows:

 
 Original Plan      Existing Plan      Original Plan      Existing Plan 
                                       Pence Per Share    Pence Per Share 
  28 June 2013      28 June 2013          75 paid            75 paid 
                 ------------------  -----------------  ----------------- 
                     4 July 2014             -               70 paid 
                 ------------------  -----------------  ----------------- 
  30 June 2015      2 April 2015          95 paid            95 paid 
                 ------------------  -----------------  ----------------- 
                    1 April 2016             -               110 paid 
                 ------------------  -----------------  ----------------- 
                    31 March 2017            -               25 paid 
                 ------------------  -----------------  ----------------- 
  30 June 2017       3 July 2017          110 paid           110 paid 
                 ------------------  -----------------  ----------------- 
                    29 March 2018            -               125 paid 
                     2 July 2018              -              110 paid 
                 ------------------  -----------------  ----------------- 
  30 June 2019      29 March 2019            -               125 paid 
                     2 July 2019          110 paid           110 paid 
                 ------------------  -----------------  ----------------- 
  30 June 2020      2 April 2020             -                 125^ 
             6 July 2020                     115               110^ 
 ----------------------------------  -----------------  ----------------- 
                  Early March 2021           -                 110^ 
  30 June 2021     Early July 2021           115               125^ 
                 ------------------  -----------------  ----------------- 
               Total                        620                1425 
                                     -----------------  ----------------- 
 

^ Current anticipated profile of payments.

Over and above the Group's short term outperformance, the Board has also assessed the longer term prospects of the Group and the effectiveness of its strategy. The Board's conclusions are explained within the Viability Statement in note 11.

FINANCIAL REVIEW

Profitability

The Group delivered another solid trading performance in 2019. Total revenues were GBP3,649.4m (2018: GBP3,737.6m), with a 4% reduction in new housing revenues of GBP125.7m to GBP3,420.1m from GBP3,545.8m in 2018, reflecting the Group's priority of putting customers before volume through the implementation of its customer care improvement plan (described in further detail in the Chief Executive's Statement).

During the year, new housing gross margins remained relatively stable at 33.1%(v) (2018: 33.3%). The Group's average private selling price of GBP241,985 (2018: GBP238,373) increased by 1.5% from the prior year. Private market sales of 12,463 new homes in the year accounted for c. 88% of the Group's housing revenue (2018: 90%). Sales in our Northern businesses accounted for 57% of the total private new homes delivered (2018: 55%).

In 2019, a greater proportion of our new home legal completions were sold to our Housing Association partners by our Westbury Partnerships business, contributing 21% of homes sold in the year (2018: 19%).

The Group's total average selling price has remained broadly in line with last year at GBP215,709 (2018: GBP215,563). The increased proportion of homes sold by Westbury Partnerships in the year served to reduce the overall year on year improvement of 1.5% in the average selling prices of the Persimmon and Charles Church private sales brands.

The Group's total gross margin for the year was 31.0% (2018: 31.6%), with a new housing gross margin of 33.1%(v) (2018: 33.3%). The cost of the Group's investment in quality assurance and customer care resources has increased by c. 50% reflecting the Group's priority of focusing on improving levels of quality and customer service.

The high quality of the Group's land holdings is reflected in the lower land recovery rates year on year which have secured an additional 60 basis point contribution to the Group's new housing gross margin. For 2019, the value of the Group's land recoveries totalled 14.0% of new housing revenue (2018: 14.6% of housing revenue).

Underlying operating profits(vi) have decreased by 5.1% to GBP1,036.7m (2018: GBP1,091.9m), with an underlying new housing operating margin(vii) of 30.3% (2018: 30.8%). The Group's underlying pre-tax profits(vi) were GBP1,048.1m, 4.7% lower than 2018 (GBP1,100.0m).

Asset strength

The Group has a robust balance sheet with net assets of GBP3,258.3m at 31 December 2019 (2018: GBP3,194.5m) having retained earnings of GBP2,693.9m in 2019 (2018: GBP2,634.0m). After returning GBP747.8m of surplus capital to shareholders during the year, the Group's net assets per share at 31 December were 1,021.7 pence, an increase of 2% compared with the prior year (2018: 1,006.0 pence).

At 31 December 2019 the carrying value of the Group's land assets was GBP1,938.6m, GBP138.6m lower than the prior year (2018: GBP2,077.2m) reflecting the Group's disciplined approach to land investment. The Group owns 71,942 plots of which 46,055 have detailed implementable planning consents. A further 21,304 plots are under the Group's control, being plots where we have exchanged contracts to buy but where the contract remains to be completed due to outstanding conditions remaining unfulfilled. Our total owned and under control land holdings provide 5.9 years of forward supply at 2019 volumes. During the year, 10,013 plots were added to our land holdings. Continued conversion of land from our strategic land portfolio together with excellent value on-market acquisitions have maintained the Group's high quality consented land holdings.

Our work in progress carrying value at 31 December 2019 of GBP1,094.6m was GBP212.8m higher than the prior year (2018: GBP881.8m). This reflects the Group's strategy of undertaking substantial investment in its site work in progress and delaying sales release until more advanced stages of construction are achieved in higher demand locations to support increased levels of quality and customer service. This action has improved the availability of homes to buy which are at a more advanced stage of construction, enabling us to provide more accurate move in dates for our customers and also assists in increasing the effectiveness of our quality assurance processes.

By the end of the year the Group's work in progress investment represented 32% of 2019 housing sales revenue, providing a solid platform for improved build quality and customer service.

The Board reviewed the net realisable value of land and work in progress at 31 December 2019 using consistent principles to prior years and concluded that the carrying value was appropriate. At the year end the Group retained an impairment provision of GBP33.7m (2018: GBP37.8m).

The Group's total retained profit after tax for the year was GBP848.8m (2018: GBP886.4m). The after tax remeasurement loss on the Group's GBP77.6m defined pension asset reduced the Group's retained earnings by GBP22.4m. The net settlement of share options exercised in 2019 resulted in a GBP26.9m decrease in the Group's retained earnings.

Cash generation, net finance income and financial assets

The Group continues to deliver strong cash generation. In 2019, the Group generated GBP996.2m (2018: GBP1,082.1m) of cash before capital returns of GBP747.8m and net land spend of GBP452.6m. Cash balances at 31 December 2019 totalled GBP843.9m (2018: GBP1,048.1m) reflecting the Group's additional investment in work in progress of GBP212.8m and a reduction in land creditors of GBP112.8m to GBP435.2m (2018: GBP548.0m). With the progressive reduction in its outstanding land creditors the Group is in a strong position to invest in new attractive land opportunities using deferred land payments where appropriate. Cash inflow from operations totalled GBP778.2m in 2019 (2018: GBP818.2m).

The Group's shared equity loans have generated GBP31.4m of cash in the year (2018: GBP41.6m). The carrying value of these outstanding shared equity loans, reported as "Shared equity loan receivables", is GBP68.6m at 31 December 2019 (2018: GBP86.9m). The Board has reviewed the carrying value of these receivables and has concluded that the value is appropriate.

Net finance income for the year was GBP11.4m (2018: GBP8.1m). Incorporated within this is GBP13.1m of gains generated on the Group's shared equity loan receivables (2018: GBP11.2m) and GBP5.4m of imputed interest payable on land creditors (2018: GBP9.3m).

The Group's overall effective tax rate for 2019 was 18.5%, slightly lower than the mainstream rate of 19%. The Group paid corporation tax of GBP159.6m (2018: GBP165.8m) during the year. With changes in UK tax legislation, in keeping with all large UK companies, there will be an acceleration of the Group's corporation tax payments resulting in a c. GBP100m increase in tax cash outflows for 2020.

Shareholders' equity, treasury policy and related risks

A key element of the Board's strategy remains the return to shareholders of any capital which is surplus to the reinvestment needs of the business through the Group's Capital Return Plan. The Group maintains an efficient capital structure and a robust balance sheet which is designed to minimise financial risk through the economic cycle. The Group's Capital Return Plan schedule is continually assessed by the Directors.

In March 2019 we concluded the renewal of the Group's GBP300m Revolving Credit Facility with strong support from our five relationship banks. This facility has a five year term to 31 March 2024 and forms an important element in the Group's working capital resources and flexibility.

As already noted, during 2019, as part of the implementation of the customer care improvement plan the Group has invested more in its on site work in progress to support higher levels of quality and customer service, putting customers before volume. The Group has maintained its strong liquidity and a robust balance sheet including this additional substantial site investment. The Group's revolving credit facilities will only be used to support short term seasonal working capital needs. We will continue to carefully manage the working capital needs of the business, ensuring that appropriate work in progress levels are maintained on site to meet our strategic objectives, the generation of annual after tax earnings and the management of the Group's equity, debt and cash management facilities. This considered approach will mitigate the financial risks the Group faces which include credit risk, liquidity risk, interest rate volatility and debt capital market pricing risk.

Current trading outlook

The UK housing market remains supportive against a backdrop of high employment, historically low interest rates, a positive lending environment and resilient consumer confidence. The health of the UK housing market will be dependent on the impact of the new trade agreements between the UK and other world nations, including the EU, and this together with other global economic challenges, present some uncertainties over the future outlook. However, market fundamentals remain positive including long term unfulfilled level of demand. Our strategic objectives are aligned with Government housing priorities. Since 2012 we have invested c. GBP4.3bn in land to help bring as many new developments forward as possible. We support the Government's initiatives to assist the increase in output from the industry towards its goal of reaching 300,000 new homes built each year by the mid-2020's. The Group is well positioned in its local markets, offering homes at affordable prices on developments that concentrate on providing a good range and choice for all.

We have seen a solid start to 2020 with customer visitors to our sites running ahead of the prior year over the same eight week period. We are continuing to deliver on our strategic discipline of putting customers before volume and are delaying sales releases on certain sites with high demand until construction reaches a more advanced stage. The Group's average private sales rate in the first eight weeks of the new year is c. 7% higher than the prior year at 0.88 (2019: 0.82).

The Group has c. 4,800 new homes forward sold to its housing association partners for lower income families, in line with the same point last year. A key element of the Group's purpose is to deliver homes for all, creating inclusive and sustainable communities. We continue to offer our housing association partners the opportunity to acquire healthy new home volumes, given the Group's strong investment in new land and external infrastructure works, which is enabling substantial new developments to be brought forward. Our newly acquired Monktonhall site on the outskirts of Edinburgh, for example, will provide c. 1,000 new homes of which c. 260 will be to our housing association partners providing much needed affordable homes for the area.

Looking forward, our priority will remain on improving build quality and customer service by putting customers before volume, whilst also seeking to fulfil pressing housing needs in towns and cities across the country. We will remain alert to changing conditions in the sales and land markets and retain flexibility to react to evolving market events, particularly with regard to the transition period as the UK establishes new trading relationships, including with the EU. The Group will continue to work tirelessly in partnership with local planning authorities and local communities to bring forward the Group's strategic land for inclusion in local authority housing plans and meet their communities' housing needs over the next five years in line with the National Planning Policy Framework.

The Board recognises that the hard work, enthusiasm, resilience and commitment of the whole Persimmon team is supporting significant positive change throughout the business and delivering these strong financial results. We remain confident that the Persimmon team have the skills, imagination and drive to continue to successfully develop the business and we thank all our employees, supply chain partners, subcontractors and other stakeholders for their continued contribution to the success of the Group.

   i          Based on Harris Interactive Employee Engagement Survey. 

ii National average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land Registry.

iii 12 month rolling profit after tax generated from the average of the opening and closing total equity for the 12 month period

   iv        12 month rolling average stated before goodwill impairment and includes land creditors. 

v Stated on new housing revenue of GBP3,420.1m (2018: GBP3,545.8m) and gross profits of GBP1,130.7m (2018: (GBP1,179.9m).

   vi        Stated before goodwill impairment of GBP7.3m (2018: GBP9.2m) 

vii Stated before goodwill impairment (2019: GBP7.3m, 2018: GBP9.2m) and based on new housing revenue (2019: GBP3,420.1m, 2018: GBP3,545.8m)

PERSIMMON PLC

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

 
                                                        2019         2018 
                                            Note       Total        Total 
                                                        GBPm         GBPm 
-----------------------------------------  -----  ----------  ----------- 
 
 Revenue                                     2       3,649.4      3,737.6 
 Cost of sales                                     (2,518.7)    (2,557.7) 
-----------------------------------------  -----  ----------  ----------- 
 
 Gross profit                                        1,130.7      1,179.9 
 
 Other operating income                                  8.8          5.6 
 Operating expenses                                  (110.1)      (102.8) 
 
 Profit from operations before 
  impairment of intangible assets                    1,036.7      1,091.9 
 Impairment of intangible assets                       (7.3)        (9.2) 
-----------------------------------------  -----  ----------  ----------- 
 
 Profit from operations                              1,029.4      1,082.7 
 
 Finance income                                         20.5         20.4 
 Finance costs                                         (9.1)       (12.3) 
-----------------------------------------  -----  ----------  ----------- 
 
 Profit before tax                                   1,040.8      1,090.8 
 
 Tax                                         3       (192.0)      (204.4) 
-----------------------------------------  -----  ----------  ----------- 
 
 Profit after tax (all attributable 
  to equity holders of the parent)                     848.8        886.4 
-----------------------------------------  -----  ----------  ----------- 
 
 Other comprehensive (expense)/income 
 Items that will not be reclassified 
  to profit: 
 Remeasurement (loss)/gain on defined 
  benefit pension schemes                    10       (27.0)         19.7 
 Tax                                         3           4.6        (3.3) 
-----------------------------------------  -----  ----------  ----------- 
 Other comprehensive (expense)/income 
  for the year, net of tax                            (22.4)         16.4 
-----------------------------------------  -----  ----------  ----------- 
 
 Total recognised income for the 
  year                                                 826.4        902.8 
-----------------------------------------  -----  ----------  ----------- 
 
 Earnings per share 
 Basic                                       5        266.8p       283.3p 
 Diluted                                     5        266.3p       280.8p 
-----------------------------------------  -----  ----------  ----------- 
 
 

PERSIMMON PLC

Consolidated Balance Sheet

As at 31 December 2019

 
                                                2019        2018 
                                    Note        GBPm        GBPm 
---------------------------------  -----  ----------  ---------- 
 Assets 
 Non-current assets 
 Intangible assets                             186.1       193.4 
 Property, plant and equipment                  82.0        58.0 
 Investments accounted for using 
  the equity method                              2.1         3.0 
 Shared equity loan receivables      7          59.2        70.6 
 Trade and other receivables                     7.1         7.0 
 Deferred tax assets                             6.6        13.4 
 Retirement benefit assets           10         77.6        90.6 
---------------------------------  -----  ----------  ---------- 
                                               420.7       436.0 
---------------------------------  -----  ----------  ---------- 
 
 Current assets 
 Inventories                         6       3,156.8     3,059.5 
 Shared equity loan receivables      7           9.4        16.3 
 Trade and other receivables                    58.5        91.8 
 Cash and cash equivalents           9         843.9     1,048.1 
---------------------------------  -----  ----------  ---------- 
                                             4,068.6     4,215.7 
---------------------------------  -----  ----------  ---------- 
 
 Total assets                                4,489.3     4,651.7 
---------------------------------  -----  ----------  ---------- 
 
 Liabilities 
 Non-current liabilities 
 Trade and other payables                    (178.0)     (270.4) 
 Deferred tax liabilities                     (25.2)      (27.7) 
 Partnership liability                        (31.6)      (35.2) 
---------------------------------  -----  ----------  ---------- 
                                             (234.8)     (333.3) 
---------------------------------  -----  ----------  ---------- 
 
 Current liabilities 
 Trade and other payables                    (911.7)   (1,058.5) 
 Partnership liability                         (5.5)       (5.4) 
 Current tax liabilities                      (79.0)      (60.0) 
---------------------------------  -----  ----------  ---------- 
                                             (996.2)   (1,123.9) 
---------------------------------  -----  ----------  ---------- 
 
 Total liabilities                         (1,231.0)   (1,457.2) 
---------------------------------  -----  ----------  ---------- 
 
 Net assets                                  3,258.3     3,194.5 
---------------------------------  -----  ----------  ---------- 
 
 Equity 
 Ordinary share capital issued                  31.9        31.7 
 Share premium                                  19.2        15.5 
 Capital redemption reserve                    236.5       236.5 
 Other non-distributable reserve               276.8       276.8 
 Retained earnings                           2,693.9     2,634.0 
---------------------------------  -----  ----------  ---------- 
 
 Total equity                                3,258.3     3,194.5 
---------------------------------  -----  ----------  ---------- 
 

PERSIMMON PLC

Consolidated Statement of Changes in Shareholders' Equity

For the year ended 31 December 2019

 
                                       Share      Share       Capital   Other non-distributable    Retained     Total 
                                     capital    premium    redemption                   reserve    earnings 
                                                              reserve 
                                        GBPm       GBPm          GBPm                      GBPm        GBPm      GBPm 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 Balance at 1 January 
  2018                                  30.9       13.5         236.5                     276.8     2,643.9   3,201.6 
 Profit for the year                       -          -             -                         -       886.4     886.4 
 Other comprehensive 
  income                                   -          -             -                         -        16.4      16.4 
 Transactions with owners: 
 Dividend on equity 
  shares                                   -          -             -                         -     (732.3)   (732.3) 
 Issue of new shares                     0.8        2.0             -                         -           -       2.8 
 Own shares purchased                      -          -             -                         -       (1.3)     (1.3) 
 Exercise of share options/share 
  awards                                   -          -             -                         -       (1.0)     (1.0) 
 Share-based payments                      -          -             -                         -         1.1       1.1 
 Net settlement of share-based 
  payments                                 -          -             -                         -     (180.2)   (180.2) 
 Satisfaction of share 
  options from own shares 
  held                                     -          -             -                         -         1.0       1.0 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 Balance at 31 December 
  2018                                  31.7       15.5         236.5                     276.8     2,634.0   3,194.5 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 Profit for the year                       -          -             -                         -       848.8     848.8 
 Other comprehensive 
  expense                                  -          -             -                         -      (22.4)    (22.4) 
 Transactions with owners: 
 Dividend on equity 
  shares                                   -          -             -                         -     (747.8)   (747.8) 
 Issue of new shares                     0.2        3.7             -                         -           -       3.9 
 Exercise of share options/share 
  awards                                   -          -             -                         -       (0.5)     (0.5) 
 Share-based payments                      -          -             -                         -         8.2       8.2 
 Net settlement of share-based 
  payments                                 -          -             -                         -      (26.9)    (26.9) 
 Satisfaction of share 
  options from own shares 
  held                                     -          -             -                         -         0.5       0.5 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 Balance at 31 December 
  2019                                  31.9       19.2         236.5                     276.8     2,693.9   3,258.3 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 

The other non-distributable reserve arose prior to transition to IFRSs and relates to the issue of ordinary shares to acquire the shares of Beazer Group Plc in 2001.

PERSIMMON PLC

Consolidated Cash Flow Statement

For the year ended 31 December 2019

 
                                                    2019      2018 
                                          Note      GBPm      GBPm 
---------------------------------------  -----  --------  -------- 
 Cash flows from operating activities: 
 Profit for the year                               848.8     886.4 
 Tax charge                                3       192.0     204.4 
 Finance income                                   (20.5)    (20.4) 
 Finance costs                                       9.1      12.3 
 Depreciation charge                                13.3      10.0 
 Impairment of intangible assets                     7.3       9.2 
 Share-based payment charge                          3.7       7.9 
 Net imputed interest income                         7.7       1.9 
 Other non-cash items                              (7.6)     (0.2) 
---------------------------------------  -----  --------  -------- 
 Cash inflow from operating 
  activities                                     1,053.8   1,111.5 
 Movement in working capital: 
 Increase in inventories                          (87.7)   (225.5) 
 Decrease/(increase) in trade 
  and other receivables                              6.3    (26.7) 
 Decrease in trade and other 
  payables                                       (225.6)    (82.7) 
 Decrease in shared equity loan 
  receivables                                       31.4      41.6 
---------------------------------------  -----  --------  -------- 
 Cash generated from operations                    778.2     818.2 
 Interest paid                                     (4.2)     (3.9) 
 Interest received                                   5.6       5.8 
 Tax paid                                        (159.6)   (165.8) 
---------------------------------------  -----  --------  -------- 
 Net cash inflow from operating 
  activities                                       620.0     654.3 
---------------------------------------  -----  --------  -------- 
 Cash flows from investing activities: 
 Joint venture net funding movement                  0.9         - 
 Purchase of property, plant 
  and equipment                                   (27.5)    (15.5) 
 Proceeds from sale of property, 
  plant and equipment                                0.7       0.5 
---------------------------------------  -----  --------  -------- 
 Net cash outflow from investing 
  activities                                      (25.9)    (15.0) 
---------------------------------------  -----  --------  -------- 
 Cash flows from financing activities: 
 Lease capital payments                            (3.8)         - 
 Payment of Partnership liability                  (3.4)     (3.2) 
 Net settlement of share-based 
  payments                                        (47.2)   (159.9) 
 Own shares purchased                                  -     (1.3) 
 Share options consideration                         3.9       2.8 
 Dividends paid                            4     (747.8)   (732.3) 
---------------------------------------  -----  --------  -------- 
 Net cash outflow from financing 
  activities                                     (798.3)   (893.9) 
---------------------------------------  -----  --------  -------- 
 Decrease in net cash and cash 
  equivalents                              9     (204.2)   (254.6) 
---------------------------------------  -----  --------  -------- 
 Cash and cash equivalents at 
  the beginning of the year                      1,048.1   1,302.7 
---------------------------------------  -----  --------  -------- 
 Cash and cash equivalents at 
  the end of the year                      9       843.9   1,048.1 
---------------------------------------  -----  --------  -------- 
 
 
 Notes 
            1.   Basis of preparation 
 

The results for the year have been prepared on a basis consistent with the accounting policies set out in the Persimmon Plc Annual Report for the year ended 31 December 2019.

The preparation of the financial statements in conformity with the Group's accounting policies requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reported period. Whilst these estimates and assumptions are based on the Directors' best knowledge of the amount, events or actions, actual results may differ from those estimates.

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2019 or 2018, but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

Whilst the financial information included in this announcement has been computed in accordance with IFRS as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to send its Annual Report 2019 to shareholders on 17 March 2020.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report in the Annual Report and the financial statements and notes. The Directors believe that the Group is well placed to manage its business risks successfully. The principal risks that may impact the Group's performance and their mitigation are outlined in note 11. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to fund its operations for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the annual financial statements.

Adoption of new and revised International Financial Reporting Standards (IFRSs) and Interpretations (IFRICs)

The following relevant new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2019:

 
 --   IFRS 16 Leases 
 --   Annual improvements to IFRS Standards 2015-2017 Cycle 
 --   Amendments to IAS 19 Plan Amendment, Curtailment or Settlement 
 --   Amendments to IAS 28 Long-term Interests in Associates and 
       Joint Ventures 
 --   IFRIC 23 Uncertainty over Income Tax Treatments 
 --   Amendments to IFRS 9 Prepayment Features with Negative Compensation 
 

With the exception of IFRS 16 Leases, the effects of the implementation of these standards have been limited to presentational and disclosure amendments.

The Group have adopted the modified (asset = liability) retrospective approach on implementation of IFRS 16 Leases and have not amended the prior year comparatives. The Group operate a number of leases that are affected by this new standard, principally in relation to office properties and vehicles. At 31 December 2019 a "right of use" asset of GBP8.4m is reported within Property, plant and equipment. The associated lease liability, reported within Trade and other payables, is GBP8.9m at 31 December 2019.

The Group has not applied the following new amendments to standards which are EU endorsed but not yet effective:

 
 --   Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark 
       Reform 
 --   Amendments to IAS 1 and IAS 18 Definition of Material 
 --   Amendments to Reference to Conceptual Framework in IFRS 
       Standards 
 

The Group is currently considering the implication of these amendments with the expected impact upon the Group being limited to disclosures.

 
 2.   Revenue 
 
 
                                                                            2019                 2018 
                                                                            GBPm                 GBPm 
-----------------------------------------------------------  -------------------  ------------------- 
            Revenue from the sale of new housing                         3,420.1              3,545.8 
            Revenue from the sale of part exchange 
             properties                                                    228.6                191.8 
            Revenue from the provision of internet                           0.7                    - 
             services 
            Revenue from the sale of goods and services 
             as reported in the statement of comprehensive 
             income                                                      3,649.4              3,737.6 
-----------------------------------------------------------  -------------------  ------------------- 
 
 
 3.   Tax 
 
 
                                                                        2019               2018 
                                                                        GBPm               GBPm 
---------------------------------------------------------  -----------------  ----------------- 
            Tax charge comprises: 
            UK corporation tax in respect of the current 
             year                                                      196.7              202.1 
            Adjustments in respect of prior years                      (8.2)              (5.0) 
---------------------------------------------------------  -----------------  ----------------- 
                                                                       188.5              197.1 
---------------------------------------------------------  -----------------  ----------------- 
            Deferred tax relating to origination and 
             reversal of temporary differences                           3.2                6.9 
            Adjustments recognised in the current year 
             in respect of prior years deferred tax                      0.3                0.4 
---------------------------------------------------------  -----------------  ----------------- 
                                                                         3.5                7.3 
---------------------------------------------------------  -----------------  ----------------- 
                                                                       192.0              204.4 
---------------------------------------------------------  -----------------  ----------------- 
 

The tax charge for the year can be reconciled to the accounting profit as follows:

 
                                                                            2019                 2018 
                                                                            GBPm                 GBPm 
-----------------------------------------------------------  -------------------  ------------------- 
            Profit from continuing operations                            1,040.8              1,090.8 
-----------------------------------------------------------  -------------------  ------------------- 
 
            Tax calculated at UK corporation tax rate 
             of 19% (2018: 19%)                                            197.7                207.3 
            Accounting base cost not deductible for 
             tax purposes                                                    0.5                  0.5 
            Goodwill impairment losses that are not 
             deductible                                                      1.4                  1.7 
            Expenditure not allowable for tax purposes                       0.2                  0.3 
            Effect of change in rate of corporation 
             tax                                                               -                (2.2) 
            Deferred tax written off on lapsed share-based 
             payments                                                        0.1                  1.4 
            Adjustments in respect of prior years                          (7.9)                (4.6) 
-----------------------------------------------------------  -------------------  ------------------- 
            Tax charge for the year recognised in profit                   192.0                204.4 
-----------------------------------------------------------  -------------------  ------------------- 
 

The Group's overall effective tax rate of 18.5% has been reduced from the mainstream rate of 19% by a prior year tax credit arising from the removal of some uncertainties regarding the Group's prior year tax computations.

The applicable corporation tax rate remains at 19% in line with corporation tax rates effective from 1 April 2017. In relation to the Group's deferred tax calculations, the corporation tax rate change enacted on 15 September 2016 effective from 1 April 2020 (17%) has been used unless timing differences are expected to reverse in 2020 or 2021.

In addition to the amount recognised in profit, deferred tax of GBP4.6m was credited directly to other comprehensive income (2018: charge of GBP3.3m), and a GBP5.3m charge was recognised in equity (2018: charge of GBP71.7m). The Group has recognised deferred tax liabilities of GBP13.2m (2018: liabilities of GBP15.4m) on retirement benefit assets of GBP77.6m (2018: assets of GBP90.6m).

 
 4.   Dividends/Return of capital 
 
 
                                                                          2019               2018 
                                                                          GBPm               GBPm 
-----------------------------------------------------------  -----------------  ----------------- 
            Amounts recognised as distributions to capital 
             holders in the period: 
            2017 dividend to all shareholders of 125p 
             per share paid 2018                                             -              388.5 
            2017 dividend to all shareholders of 110p 
             per share paid 2018                                             -              343.8 
            2018 dividend to all shareholders of 125p                    397.7                  - 
             per share paid 2019 
            2018 dividend to all shareholders of 110p                    350.1                  - 
             per share paid 2019 
            Total capital return                                         747.8              732.3 
-----------------------------------------------------------  -----------------  ----------------- 
 

The Directors propose to return 125 pence of surplus capital to shareholders for each ordinary share held on 6 March 2020 with payment made on 2 April 2020 as an interim dividend in respect of the financial year ended 31 December 2019. In addition, the Directors propose the payment of the regular annual capital return instalment of 110 pence per share, with payment scheduled for 6 July 2020 as a final dividend with respect to the financial year ended 31 December 2019, to shareholders for each ordinary share held on 12 June 2020. The total return to shareholders is therefore 235 pence per share (2019: 235 pence per share) in respect of the financial year ended 31 December 2019 .

 
 5.   Earnings per share 
 

Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year of 318.1m shares (2018: 312.9m) which excludes those held in the employee benefit trust and any treasury shares, all of which are treated as cancelled.

Diluted earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares in issue adjusted to assume conversion of all potentially dilutive ordinary shares from the start of the year, giving a figure of 318.8m shares (2018: 315.7m).

Underlying earnings per share excludes goodwill impairment. The earnings per share from continuing operations were as follows:

 
                                            2019     2018 
---------------------------------------  -------  ------- 
 Basic earnings per share                 266.8p   283.3p 
 Underlying basic earnings per share      269.1p   286.3p 
 Diluted earnings per share               266.3p   280.8p 
 Underlying diluted earnings per share    268.6p   283.7p 
---------------------------------------  -------  ------- 
 

The calculation of the basic and diluted earnings per share is based upon the following data:

 
                                                                            2019               2018 
                                                                            GBPm               GBPm 
-------------------------------------------------------------  -----------------  ----------------- 
            Underlying earnings attributable to shareholders               856.1              895.6 
            Goodwill impairment                                            (7.3)              (9.2) 
-------------------------------------------------------------  -----------------  ----------------- 
            Earnings attributable to shareholders                          848.8              886.4 
-------------------------------------------------------------  -----------------  ----------------- 
 
 
 6.   Inventories 
 
 
                                                      2019                 2018 
                                                      GBPm                 GBPm 
-------------------------------------  -------------------  ------------------- 
            Land                                   1,938.6              2,077.2 
            Work in progress                       1,094.6                881.8 
            Part exchange properties                  71.8                 56.2 
            Showhouses                                51.8                 44.3 
-------------------------------------  -------------------  ------------------- 
                                                   3,156.8              3,059.5 
-------------------------------------  -------------------  ------------------- 
 
 
 7.   Shared equity loan receivables 
 
 
                                                                          2019                2018 
                                                                          GBPm                GBPm 
----------------------------------------------------------  ------------------  ------------------ 
            Shared equity loan receivables at 1 January                   86.9               117.3 
            Settlements                                                 (31.4)              (41.6) 
            Gains                                                         13.1                11.2 
----------------------------------------------------------  ------------------  ------------------ 
            Shared equity loan receivables at 31 December                 68.6                86.9 
----------------------------------------------------------  ------------------  ------------------ 
 

All gains/losses have been recognised through finance income in the statement of comprehensive income. Of the gains recognised in finance income for the period, GBP7.1m (2018: GBP3.0m) was unrealised.

 
 8.   Financial instruments 
 

In aggregate, the fair value of financial assets and liabilities are not materially different from their carrying value.

Financial assets and liabilities carried at fair value are categorised within the hierarchical classification of IFRS 7 Revised (as defined within the standard) as follows:

 
                                    2019    2018 
--------------------------------  ------  ------ 
                                   Level   Level 
                                       3       3 
                                    GBPm    GBPm 
--------------------------------  ------  ------ 
 Shared equity loan receivables     68.6    86.9 
--------------------------------  ------  ------ 
 

Shared equity loan receivables

Shared equity loan receivables represent loans advanced to customers and secured by way of a second charge on their new home. They are carried at fair value. The fair value is determined by reference to the rates at which they could be exchanged by knowledgeable and willing parties. Fair value is determined by discounting forecast cash flows for the residual period of the contract by a risk adjusted rate.

There exists an element of uncertainty over the precise final valuation and timing of cash flows arising from these loans. As a result the Group has applied inputs based on current market conditions and the Group's historic experience of actual cash flows resulting from such arrangements. These inputs are by nature estimates and as such the fair value has been classified as level 3 under the fair value hierarchy laid out in IFRS 13 Fair Value Measurement.

Significant unobservable inputs into the fair value measurement calculation include regional house price movements based on the Group's actual experience of regional house pricing and management forecasts of future movements, weighted average duration of the loans from inception to settlement of ten years (2018: ten years) and discount rate 9% (2018: 9%) based on current observed market interest rates offered to private individuals on secured second loans.

The discounted forecast cash flow calculation is dependent upon the estimated future value of the properties on which the shared equity loans are secured. Adjustments to this input, which might result from a change in the wider property market, would have a proportional impact upon the fair value of the loan. Furthermore, whilst not easily accessible in advance, the resulting change in security value may affect the credit risk associated with the counterparty, influencing fair value further.

 
 9.   Reconciliation of net cash flow to net cash and analysis 
       of net cash 
 
 
                                                                       2019                 2018 
                                                                       GBPm                 GBPm 
------------------------------------------------------  -------------------  ------------------- 
            Cash and cash equivalents at 1 January                  1,048.1              1,302.7 
            Decrease in net cash and cash equivalents 
             in cashflow                                            (204.2)              (254.6) 
------------------------------------------------------  -------------------  ------------------- 
            Cash and cash equivalents at 31 December                  843.9              1,048.1 
            IFRS 16 lease liability                                   (8.9)                    - 
------------------------------------------------------  -------------------  ------------------- 
            Net cash at 31 December                                   835.0              1,048.1 
------------------------------------------------------  -------------------  ------------------- 
 

Net cash is defined as cash and cash equivalents, bank overdrafts, lease obligations and interest bearing borrowings.

 
 10.   Retirement benefit assets 
 

As at 31 December 2019 the Group operated four employee pension schemes, being two Group personal pension schemes and two defined benefit pension schemes. Remeasurement gains and losses in the defined benefit schemes are recognised in full as other comprehensive income within the consolidated statement of comprehensive income. All other pension scheme costs are reported in profit or loss.

The amounts recognised in the consolidated statement of comprehensive income are as follows:

 
                                                    2019     2018 
                                                    GBPm     GBPm 
-----------------------------------------------  -------  ------- 
 Current service cost                                1.7      2.0 
 Past service cost                                     -      5.5 
 Administrative expense                              0.9      0.9 
-----------------------------------------------  -------  ------- 
 Pension cost recognised as operating expense        2.6      8.4 
-----------------------------------------------  -------  ------- 
 Interest cost                                      14.9     14.2 
 Return on assets recorded as interest            (17.6)   (15.9) 
-----------------------------------------------  -------  ------- 
 Pension cost recognised as net finance credit     (2.7)    (1.7) 
-----------------------------------------------  -------  ------- 
 Total defined benefit pension (credit)/cost 
  recognised in profit or loss                     (0.1)      6.7 
 Remeasurement loss/(gain) recognised in 
  other comprehensive income                        27.0   (19.7) 
-----------------------------------------------  -------  ------- 
 Total defined benefit scheme loss/(gain) 
  recognised                                        26.9   (13.0) 
-----------------------------------------------  -------  ------- 
 

The past service cost recognised in the prior period reflected the impact of the legal rulings regarding Guaranteed Minimum Pension equalisation (GMP). The amounts included in the balance sheet arising from the Group's obligations in respect of the Pension Scheme are as follows:

 
                                           2019      2018 
                                           GBPm      GBPm 
-------------------------------------  --------  -------- 
 Fair value of Pension Scheme assets      672.8     616.8 
 Present value of funded obligations    (595.2)   (526.2) 
-------------------------------------  --------  -------- 
 Net pension asset                         77.6      90.6 
-------------------------------------  --------  -------- 
 
 
 11.   Principal risks and Viability Statement 
 
 
 UK's exit from the EU 
 Residual      Impact                                 Mitigation 
  Risk          The UK's exit from the                 We continue to monitor the political 
  High          European Union may lead                situation, the UK economy and the housing 
                to increased economic uncertainty      market through the review of external 
  Change        adversely impacting: consumer          information and changes in the behaviour 
  from prior    confidence, demand and                 of our customer base. We robustly manage 
  year          pricing for new homes,                 and control our work in progress and 
  No change     revenues, margins, profits             land investment and our stringent investment 
                and cash flows and may                 appraisals will continue, aiming to 
                result in the impairment               ensure exposure to market disruption 
                of asset values.                       is reduced. 
                Should the UK's future                 We closely engage with our key suppliers 
                trading arrangements with              and have obtained assurances over the 
                the EU not be finalised                continuity of our material supply where 
                before the end of the transition       relevant. We will continue to employ 
                period in December 2020,               effective tendering processes to ensure 
                a 'no deal' scenario could             cost impacts are mitigated as far as 
                still occur. If this is                possible. 
                the case, some of the Group's          The vertical integration afforded by 
                EU imported materials may              use of our own Brickworks, Space4 and 
                be subject to tariffs resulting        Tileworks production will mitigate the 
                in increased material costs.           availability and cost risks further. 
                Potential legislative changes          (Also see mitigation and review of Government 
                on customs arrangements                policy and Labour and Resources) 
                could create bottlenecks 
                at ports and impact on 
                the availability and cost 
                of imported materials and 
                components within our supply 
                chain. 
              -------------------------------------  -------------------------------------------------- 
 National and regional economic conditions 
 Residual      Impact                                 Mitigation 
  Risk          The housebuilding industry             We continually monitor lead indicators 
  High          is sensitive to changes                on the future direction of the UK housing 
                in the economic environment,           market so as to manage our exposure 
  Change        including unemployment,                to any future market disruption. We 
  from prior    interest rates and consumer            regularly review our pricing structure 
  year          confidence. Any deterioration          to ensure it reflects local market conditions. 
  No change     in economic conditions                 Our diversity of geographical markets 
                may have an adverse impact             and our continual monitoring of the 
                on demand and pricing for              Group's geographical spread helps us 
                new homes, which could                 mitigate the effects of regional economic 
                have a material effect                 fluctuations. 
                on our revenues, margins,              We control the level of build on site 
                profits and cash flows                 by closely monitoring our stock and 
                and result in the impairment           work in progress levels. The Group's 
                of asset values.                       strong land bank provides continuity 
                Economic conditions in                 of supply and ensures that our extensive 
                the land market may adversely          due diligence processes and targeted 
                affect the availability                hurdle rates are always achieved prior 
                of a sustainable supply                to entering into any land investment 
                of land at appropriate                 decisions. These processes have regard 
                levels of return.                      to local market demands and conditions, 
                                                       and the Group's existing strategic and 
                                                       on market land holdings. Significant 
                                                       land additions are reviewed by the Executive 
                                                       Directors. 
              -------------------------------------  -------------------------------------------------- 
 Government policy 
 Residual      Impact                                 Mitigation 
  Risk          Changes to government policy           We monitor Government policy in relation 
  High          have the potential to impact           to the housing market very closely. 
                on several aspects of our              Consistency of policy formulation and 
  Change        strategy and operational               application is very supportive of the 
  from prior    performance. For example,              housebuilding industry, encouraging 
  year          changes to the planning                continued substantial investment in 
  No change     system, changes in the                 land, work in progress and skills to 
                tax regime, or further                 support output growth. Our strategic 
                amendment of the Help to               objectives, delivering homes for all, 
                Buy scheme or other housing            are aligned with government priorities 
                policies could have an                 for increasing housing stock. 
                adverse effect on revenues,            The UK Government continues to support 
                margins and asset values.              the Help to Buy scheme, which is currently 
                Changes to the planning                scheduled to remain in place until 2023. 
                system may also adversely              We actively manage our land investment 
                impact the Group's ability             decisions and levels of work in progress 
                to source suitable land                to mitigate exposure to external influences. 
                to deliver appropriate 
                levels of return. 
              -------------------------------------  -------------------------------------------------- 
 Mortgage availability 
 Residual      Impact                                 Mitigation 
  Risk          Any restrictions in the                We monitor Bank of England commentary 
  High          availability or affordability          on credit conditions including the monthly 
                of mortgages for customers             approvals for house purchases and UK 
  Change        could reduce demand for                Finance's monthly reports and lenders' 
  from prior    new homes and affect revenues,         announcements for trends in lending. 
  year          profits and cash flows.                We ensure that our investment in land 
  No change                                            and work in progress is appropriate 
                                                       for our level of sales and our expectations 
                                                       for market conditions. The Government's 
                                                       Help to Buy scheme, which is currently 
                                                       scheduled to remain in place until 2023, 
                                                       supports customers to gain access to 
                                                       the housing market across the UK with 
                                                       competitive mortgage rates. 
              -------------------------------------  -------------------------------------------------- 
 Health and safety 
 Residual      Impact                                 Mitigation 
  Risk          The health and safety of               The Board has a very strong commitment 
  High          our employees, subcontractors,         to health and safety and managing the 
                customers and visitors                 risks in this area effectively. This 
  Change        to our construction sites              is implemented by comprehensive management 
  from prior    is of paramount importance             systems and controls, managed by our 
  year          to us. Accidents on our                Group Health and Safety Department, 
  No change     sites could also lead to               which includes detailed training and 
                reputational damage and                inspection programmes to minimise the 
                financial penalties.                   likelihood and impact of accidents on 
                                                       our sites. While all reasonable steps 
                                                       are taken to reduce the likelihood of 
                                                       an incident, the potential impacts of 
                                                       any such incident are considered to 
                                                       be high. 
              -------------------------------------  -------------------------------------------------- 
 Labour and resources: skilled workforce, retention and succession 
 Residual      Impact                                 Mitigation 
  Risk          Access to an appropriately             We closely monitor our build programmes 
  Medium        skilled workforce is a                 to enable us to manage our labour requirements 
                key requirement for the                effectively. We operate in-house apprentice 
  Change        Group. Rising UK house                 and training programmes, to support 
  from prior    building activity in recent            an adequate supply of skilled labour. 
  year          years has increased demand             Our in-house Group Training Department 
  No change     for skilled labour, which              has been established to standardise 
                has increased pressure                 and more effectively coordinate training 
                on costs.                              activity. 
                A skilled management team              We are also committed to playing a full 
                is essential in maintaining            and active role in external initiatives 
                operational performance                to address the skills shortage such 
                and the implementation                 as the Home Building Skills Partnership, 
                of the Group's strategy.               a joint initiative of the Construction 
                                                       Industry Training Board and the Home 
                                                       Builders Federation. 
                                                       Where appropriate, we also use the Group's 
                                                       Space4 modern method of construction 
                                                       which helps diversify resource requirements 
                                                       on site. 
                                                       The Group focuses on retaining its key 
                                                       staff through a range of measures, including 
                                                       the establishment of a Gender Diversity 
                                                       Panel, an Employee Engagement Panel, 
                                                       employee engagement surveys, further 
                                                       development of performance management 
                                                       frameworks, career management, and incentives. 
                                                       At the most senior level, the Nomination 
                                                       Committee oversees these processes and 
                                                       promotes effective succession planning. 
              -------------------------------------  -------------------------------------------------- 
 Labour and resources: materials and land purchasing 
 Residual      Impact                                 Mitigation 
  Risk          Materials availability                 Materials availability 
  Medium        Recent growth in UK housebuilding      Our build programmes and our supply 
                has led to an increased                chain are closely monitored to allow 
  Change        demand for materials which             us to manage and react to any supply 
  from prior    is placing greater pressure            chain issues and to help ensure consistent 
  year          on the supply chain. This              high quality standards. We build strong 
  No change     may continue to cause availability     relationships with key suppliers over 
                constraints and increase               the long term to ensure consistency 
                cost pressures.                        of supply and cost efficiency. 
                                                       We have invested in expanding our off-site 
                                                       manufacturing hub at Harworth, near 
                                                       Doncaster, to strengthen security of 
                                                       supply. Our brick plant is providing 
                                                       a significant proportion of the bricks 
                                                       we use and our roof tile manufacturing 
                                                       facility will be commissioned in spring 
                                                       2020. This complements our existing 
                                                       off-site manufacturing capability at 
                                                       Space4, which produces timber frames, 
                                                       highly insulated wall panels and roof 
                                                       cassettes as a modern method of constructing 
                                                       new homes. 
               Build quality may be compromised       Our procurement team ensures that the 
                if unsuitable materials                Group's suppliers provide materials 
                are procured leading to                to the expected specification. Materials 
                damage to the Group's reputation       are inspected on receipt at site. During 
                and customer experience.               build, each of our new homes undergoes 
                                                       a seven stage internal quality check 
                                                       process, supported with IT tools to 
                                                       enable monitoring. This process has 
                                                       been further strengthened during 2019 
                                                       by the introduction of a new team of 
                                                       Independent Quality Inspectors across 
                                                       each of our regional businesses. 
               Land Purchasing                        Land Purchasing 
                Land may be purchased at               The Group has strong land holdings. 
                too high a price, in the               All land purchases undergo stringent 
                wrong place and at the                 viability assessments performed by our 
                wrong time in the housing              dedicated land and planning teams and 
                market cycle.                          must meet specific levels of projected 
                                                       returns. 
                                                       The Board review and determine the appropriate 
                                                       timing of land purchases having regard 
                                                       to existing market conditions and sales 
                                                       rates. 
              -------------------------------------  -------------------------------------------------- 
 Strategy 
 Residual      Impact                                 Mitigation 
  Risk          The Group's strategy has               The Group's strategy is agreed by the 
  Low           been developed by the Board            Board at an annual strategy meeting, 
                as the most appropriate                and undergoes a continuous and iterative 
  Change        approach to successfully               process of implementation, review and 
  from prior    deliver the Group's purpose            adaptation at Board meetings and in 
  year          and ambition and generate              response to the evolution of conditions 
  No change     optimal sustainable value              in which the Group operates. During 
                for all stakeholders.                  the year, for example, the Group implemented 
                As political, economic                 a clear strategy to put customers before 
                and other conditions evolve,           volume. The Board is incorporating the 
                it is possible that the                recommendations of the Independent Review 
                strategy currently being               in its future strategy. A search has 
                pursued may cease to be                commenced for a Non-Executive Director 
                the most appropriate approach.         with construction sector expertise in 
                If the Group's strategy                order to further challenge and inform 
                is not effectively communicated        strategic decision making. 
                to our workforce and / 
                or engagement and incentive            The Board engages with all stakeholders 
                measures are inappropriate,            to ensure the strategy is communicated, 
                operational activities                 understood and effective. For example, 
                may not successfully deliver           an Employee Engagement Panel, Gender 
                the Group's strategic objectives.      Diversity Panel and employee engagement 
                                                       surveys have been established to monitor 
                                                       the cultural health of the organisation 
                                                       and ensure strategy is understood and 
                                                       implemented. 
              -------------------------------------  -------------------------------------------------- 
 Climate change 
 Residual      Impact                                 Mitigation 
  Risk          Should the effects of climate          We monitor our operational efficiency 
  Medium        change and the UK's transition         and direct environmental impact in a 
                to a lower carbon economy              number of ways including measuring our 
  Change        lead to increasing national            own CO (2e) emissions and the amount 
  from prior    regulation this could cause            of waste we generate for each home we 
  year          additional planning delays,            sell. 
  Increased     increase the cost and accessibility    The Group has developed a climate change 
                of materials required within           risk register which ensures that the 
                our construction process               management and mitigation of the risk 
                and potentially limit their            is embedded within the Group's risk 
                supply or require additional           management process. We have also appointed 
                features which could significantly     a Group Sustainability Manager bringing 
                increase our costs.                    increased focus to both the risks and 
                Changes in weather patterns            opportunities surrounding climate change. 
                and the frequency of extreme           We systematically consider the potential 
                weather events, particularly           impacts of climate change throughout 
                storms and flooding, may               the land acquisition, planning and build 
                increase the likelihood                processes and work closely with planning 
                of disruption to the construction      authorities and other statutory bodies 
                process. The availability              to manage and mitigate these risks. 
                of mortgages and property              For example, we conduct full environmental 
                insurance may reduce should            assessments for each parcel of land 
                financial institutions                 we acquire for development to ensure 
                consider the possible impacts          our activities fulfil all obligations, 
                relating to climate change.            respecting the natural environment and 
                Changes in weather patterns            the communities for which we are delivering 
                may increase build costs               newly built homes. We are keen to adopt 
                and/or development timeframes.         Sustainable Urban Drainage Systems on 
                The impact and likelihood              all our new sites, subject to local 
                of this risk has increased             planning requirements, to address the 
                compared to the prior year             risk of flooding. 
                as an ever heightening                 On 1 October 2019, the Government set 
                awareness and demand for               out its plans for the 'Future Homes 
                action is likely to result             Standard' including proposed options 
                in a more urgent transition            to increase the energy efficiency requirements 
                to a lower carbon economy.             for new homes in 2020 as a 'stepping 
                                                       stone' to achieving the new standard. 
                                                       The Future Homes Standard (to be introduced 
                                                       by 2025) will require new build homes 
                                                       to be future-proofed with low carbon 
                                                       heating and world leading levels of 
                                                       energy efficiency. 
                                                       During the year, the Group established 
                                                       a low carbon homes working group (consisting 
                                                       of members from across the Group's various 
                                                       disciplines) to effectively plan and 
                                                       manage the transition to low carbon 
                                                       homes. The Group, which collaborates 
                                                       with key suppliers, is aiming to identify 
                                                       the most effective solutions to developing 
                                                       low carbon homes. It meets regularly 
                                                       and reports its findings to the Board. 
                                                       The Group is proactively engaging with 
                                                       the housing industry and the Government 
                                                       to develop industry wide solutions to 
                                                       meet the requirements of the Future 
                                                       Homes Standard. 
                                                       We continually seek to strengthen our 
                                                       supply chain, for example, our off-site 
                                                       manufacturing facilities provide us 
                                                       with greater assurance of quality and 
                                                       supply, and use modern methods of construction 
                                                       and technology to assist the mitigation 
                                                       of climate change related risks. The 
                                                       Group procurement team maintain strong 
                                                       links with our suppliers delivering 
                                                       value through our supply chain by regular 
                                                       engagement and robust tendering processes. 
              -------------------------------------  -------------------------------------------------- 
 Reputation 
 Residual      Impact                                 Mitigation 
  Risk          Damage to the Group's reputation       Management Supervision 
  Medium        could adversely impact                 The Group has a strong commitment to 
                on its ability to deliver              appropriate culture and maintaining 
  Change        its strategic objectives.              the high quality of its operations. 
  from prior    For example, should governance,        Oversight from the Board seeks to ensure 
  year          build quality, customer                key processes are robust and any matters 
  No change     experiences, operational               are promptly and effectively addressed. 
                performance, management                The Group's build quality and customer 
                of health and safety or                service processes are a key strategic 
                local planning concerns                priority and significant investment 
                fall short of our usual                has been made in this area during the 
                high standards, this may               year with further ongoing improvements 
                result in damage to customer,          being made. 
                commercial and investor 
                relationships and lead                 Where management oversight identifies 
                to higher staff turnover.              inconsistencies in adherence to agreed 
                                                       processes, correcting actions are swiftly 
                                                       taken. The identification of instances 
                                                       of incorrect cavity barrier installations, 
                                                       for example, resulted in immediate action 
                                                       and a detailed programme of inspections 
                                                       and rectifications, including training 
                                                       and introduction of the initiatives 
                                                       described below to strengthen oversight 
                                                       during construction. 
 
                                                       A Construction Working Group comprising 
                                                       senior experienced construction professionals 
                                                       from across the Group was established 
                                                       in October 2019 in order to strengthen 
                                                       Group build processes and establish 
                                                       a consolidated, consistent Group wide 
                                                       approach to construction (the Persimmon 
                                                       Way). A new senior "Construction Champion" 
                                                       role has also been created to strengthen 
                                                       oversight of Group build processes across 
                                                       all regions. The Group has appointed 
                                                       a team of Independent Quality Inspectors 
                                                       to undertake regular inspections of 
                                                       all aspects of construction activity 
                                                       on our sites as well as continually 
                                                       assessing the finished quality of our 
                                                       new homes. Once implemented there will 
                                                       be an external audit of this process 
                                                       on an annual basis in line with the 
                                                       Persimmon Way. 
 
                                                       Other senior appointments have been 
                                                       made at Group level to promote and enforce 
                                                       compliance with policies and procedures 
                                                       as well as to provide the Board with 
                                                       assurance that they are being implemented 
                                                       properly. 
 
                                                       Stakeholder Relationships 
                                                       We take actions to maintain positive 
                                                       relationships with all of our stakeholders 
                                                       to minimise the risks of reputational 
                                                       damage and aim to comply with best practice 
                                                       in corporate governance. 
 
                                                       Within 2019 we have further developed 
                                                       our engagement activities with all stakeholders. 
                                                       For example, we have improved engagement 
                                                       with our employees through the Employee 
                                                       Engagement and Gender Diversity Panels 
                                                       which meet regularly and report to the 
                                                       Board. We have invested in a number 
                                                       of measures to improve customer experience 
                                                       by putting customers before volume. 
                                                       These measures have included the introduction 
                                                       of a retention scheme for customers 
                                                       with cover to include any faults identified 
                                                       during the first week of occupation, 
                                                       and invested in a customer portal which 
                                                       will be rolled out across the Group 
                                                       in 2020. We continue to foster long 
                                                       term, mutually beneficial relationships 
                                                       with our suppliers. 
 
                                                       We actively support local communities 
                                                       in addressing housing needs, in creating 
                                                       attractive neighbourhoods and employing 
                                                       local people, both on our sites and 
                                                       in the supply chain. Significant contributions 
                                                       are made to local infrastructure and 
                                                       good causes within the communities in 
                                                       which the Group operates. 
              -------------------------------------  -------------------------------------------------- 
 Regulatory compliance 
 Residual      Impact                                 Mitigation 
  Risk          The housebuilding industry             We operate comprehensive management 
  Low           is subject to extensive                systems to ensure regulatory and legal 
                and complex laws and regulations,      compliance, including a suite of policies 
  Change        particularly in areas such             and procedures covering key areas of 
  from prior    as land acquisition, planning          legislation and regulation. Where these 
  year          and the environment. Ensuring          systems identify inconsistencies in 
  Increased     compliance in these areas              adherence to agreed processes, correcting 
                can result in delays in                actions are swiftly taken. The identification 
                securing the land required             of instances of incorrect cavity barrier 
                for development and in                 installations, for example, resulted 
                construction.                          in immediate action and a detailed programme 
                Any failure to comply with             of inspections and rectifications, including 
                regulations could result               training and a range of other initiatives 
                in damage to the Group's               to strengthen oversight during construction. 
                reputation and potential               We engage extensively with planning 
                imposition of financial                authorities and other stakeholders to 
                penalties.                             reduce the likelihood and impact of 
                The potential risk impact              any delays or disruption. We also hold 
                in this area has increased             a land bank sufficient to provide security 
                during the year, reflecting            of supply for medium term land requirements. 
                increasing regulatory requirements, 
                and the scale of potential 
                penalties under recent 
                legislation (for example 
                those under the General 
                Data Protection Regulation 
                "GDPR"). 
              -------------------------------------  -------------------------------------------------- 
 Cyber and Data Risk 
 Residual      Impact                                 Mitigation 
  Risk          Failure of any of the Group's          We operate centrally maintained IT systems 
  Medium        IT systems, particularly               with a fully tested disaster recovery 
                those in relation to customer          programme. 
  Change        information and customer               All infrastructure is highly resilient, 
  from prior    service could result in                with geographically diverse datacentres 
  year          significant financial costs            that have a series of backups. 
  New           and reputational damage                The Group has detailed and robust systems 
                and business disruption,               development and implementation processes 
                due to the loss, theft                 in place and a Cyber Incident Response 
                or corruption of data either           Plan. The Group has also appointed a 
                inadvertently or via a                 Cyber Security Manager responsible for 
                targeted cyber-attack.                 the management and oversight of security 
                                                       controls. 
                                                       Periodic penetration testing is carried 
                                                       out through security partners to test 
                                                       the security of our perimeter network. 
                                                       Established GDPR compliant business 
                                                       processes and data management are maintained 
                                                       and regularly reviewed. 
              -------------------------------------  -------------------------------------------------- 
 

VIABILITY STATEMENT

Persimmon's prospects and viability

The long term prospects and viability of the business are a consistent focus of the Board when determining and monitoring the Group's strategy. The identification and mitigation of the principal risks facing the business also form part of the Board's assessment of long term prospects and viability*.

Assessing Persimmon's prospects

Persimmon has built a strong position in the UK's house building market over many years recognising the potential for long term growth across regional housing markets. The Board recognises that the long term demographic fundamentals of continued positive population growth and new household formation, together with the requirement to replace and improve the quality of the country's housing stock, provide a long term supportive backdrop for the industry. However, the Board recognises the inherent cyclicality of the UK housing market. This cyclicality reflects the effect that some of the principal risks that challenge the Group's strategy and business model can have over time.

Persimmon possesses the key ingredients that are required to realise the Group's purpose and will deliver sustainable success - talented teams focused on consistently delivering good quality homes for our customers, strong local community and customer relationships, market knowledge and long term supplier engagement, expertise and industry know how, and high quality land that allows us to create attractive places that deliver long term value for our customers and other stakeholders. Through the implementation of the Group's customer care improvement plan and the recommendations of the Independent Review the Group is further strengthening the platform that will support the future success of the business. By building on these solid foundations the Group aims to help create sustainable and inclusive communities through continued investment in its people, its land, its development sites and in its supply chain, creating enduring value for the communities we serve.

The Group adopts a disciplined annual business planning regime which is consistently applied and involves the management teams of the Group's 31 house building businesses and senior management, with input and oversight by the Board. The Group combines detailed five year business plans generated by each house building business from the "bottom up" with ten year projections constructed from the "top down" to properly inform the Group's business planning over these longer term horizons. Zero based annual budgets are established for each business twice a year.

This planning process provides a valuable platform which facilitates the Board's assessment of the Group's short and long term prospects. Consideration of the Group's purpose, current market position, its strategic objectives and business model, and the risks that may challenge them are all included in the Board's assessment of the prospects of the Group.

Key Factors in assessing the long term prospects of the Group:

 
 1.   The Group's current market positioning 
 
 
 --   Strong sales network from active developments across the UK providing geographic diversification 
       of revenue generation 
 --   Three distinct brands providing diversified products and pricing deliver further diversification 
       of sales 
 --   Imaginative and comprehensive master planning of development schemes with high amenity value 
       to support sustainable, inclusive neighbourhoods which generate long term value to the community 
 --   Disciplined land replacement reflecting the extent and location of housing needs across the 
       UK provides a high quality land bank in the most sustainable locations supporting future operations 
 --   Long term supplier and subcontractor relationships providing healthy and sustainable supply 
       chains 
 --   Flexible cost structure to allow the effective response to changes in market conditions 
 --   Increased investment to support higher levels of construction quality and customer service 
       through the implementation of the Group's customer care improvement plan 
 --   Strong financial position with considerable cash reserves and with additional substantial 
       working capital credit facilities maturing March 2024 
 
 
 2.   Strategy and business model 
 
 
 --   Clear strategy to support continued investment in sustainable, inclusive residential development 
       opportunities for the long term benefit of local communities and other stakeholders throughout 
       the UK 
 --   Focusing on constructing new homes for our customers to the high quality standards that they 
       expect and helping to create attractive neighbourhoods 
 --   Strategy recognises the Group's ability to generate surplus capital beyond the reinvestment 
       needs of the business 
 --   Positioning the business to retain appropriate flexibility to mitigate the impacts of the 
       cyclicality of the UK housing market is a key element of the Group's strategy 
 --   Substantial investment in staff engagement, training and support to sustain operations over 
       the long term 
 --   Approach to land investment and development activity provides the opportunity to successfully 
       deliver much needed new housing supply and create value over the long term 
 --   Differentiation through vertical integration achieving security of supply of key materials 
       and complementary modern methods of construction to support sustainable growth in output 
 --   Simple capital structure maintained with no structural gearing 
 
 
 3.   Principal risks associated with the Group's strategy and business 
       model include: 
 
 
 --   Risk of the impact of disruption to the UK economy resulting 
       from the departure of the UK from the EU 
 --   Market risk related to reduced consumer confidence due to 
       regional economic uncertainties 
 --   The risk of a reduction in mortgage funding availability 
       and/or affordability due to reduced lender risk appetite 
       and/or regulatory change 
 --   Team, skills and talent related risks regarding retention 
       and change management 
 

See above for the full list of principal risks together with detailed descriptions.

Disciplined strategic planning process

The prospects for the Group are principally assessed through the annual strategic planning review process conducted in October each year. The management team from each of the Group's house building businesses produce a five year business plan with specific objectives and actions in line with the Group's strategy and business model. These detailed plans reflect the development skill base of the local teams, the region's housing market, strategic and on market land holdings and investments required to support their objectives. Special attention is paid to construction programmes and capital management through the period to ensure the appropriate level of investment is made at the appropriate time to support delivery of the plan. Emerging risks and opportunities in their markets are also assessed at this local level.

Senior Group management review these plans and balance the competing requirements of each of the Group's businesses and allocates capital with the aim of achieving the long term strategic objectives of the Group. The five year plans provide the context for setting the annual budgets for each business for the start of the new financial year in January, which are consolidated to provide the Group's detailed budgets. These budgets are updated after six months, for the following twelve months, which are then replaced by the new strategic planning, and budget setting, cycle. The Board review and agree both the long term plans and the shorter term budgets for the Group.

The outputs from the business planning process are used to support development construction planning, impairment reviews, for funding projections, for reviews of the Group's liquidity and capital structure, and identification of surplus capital available for return to shareholders via the Group's Capital Return Plan, resulting in the payment of dividends to shareholders.

Assessing Persimmon's viability

The Directors have assessed the viability of the Group over a five year period, taking into account the Group's current position and the potential impact of the principal risks facing the Group.

The use of a five year time horizon for the purpose of assessing the viability of the Group reflects the business model of the Group, new land investments generally taking at least five years to build and sell through, and for the development infrastructure to be adopted by local authorities.

A key feature of the Group's strategy launched in early 2012 and documented in the Strategic Report is the Group's commitment to maintain capital discipline over the long term through the housing cycle. On launch, this commitment was reinforced with the announcement of the Group's Capital Return Plan ("CRP"). The CRP initially committed to return GBP1.9bn of surplus capital over the following ten financial years to 2021, or GBP6.20 per share. After eight years the Group is ahead of plan and has paid GBP9.55 per share, or GBP2.97bn back to shareholders. On 27 February 2020 the Directors announced the scheduled CRP payments in respect of the financial year ended 31 December 2019. Further details can be found in the Chief Executive's statement earlier in this announcement.

On an annual basis the Directors review financial forecasts used for this Viability Statement as explained in the disciplined strategic planning processes outlined earlier. These forecasts incorporate assumptions about the timing of legal completions of new homes sold, average selling prices achieved, profitability, working capital requirements and cash flows, and are designed to test the Group's ability to fulfil its strategic objectives. They also include the CRP. The Directors have made the assumption that the Group's revolving credit facility is renewed during the period having again extended the maturity of the facility during the year to 31 March 2024.

The Directors have also carried out a robust assessment of the principal risks facing the Group (as set out above), and how the Group manages those risks, including those risks that would threaten its strategy, business model, future operational and financial performance, solvency and liquidity. The Group has considered the impact of these risks (particularly those in relation to the cyclicality of the UK housing market and the economic environment) on the viability of the business by performing a range of sensitivity analyses including severe but plausible scenarios materialising together with the likely effectiveness of mitigating actions that would be executed by the Directors.

These scenarios included the stress testing of the Group's business model assuming that a combination of events resulted in a substantial reduction in sales, similar to a severe recession, with a deterioration in employment levels and consumer confidence, coupled with a collapse in bank risk appetite, leading to a material reduction in credit availability. In undertaking the stress testing, the Directors assumed a rapid change in circumstances over a relatively short period of time so as to test the strength of the mitigating actions available to address the stress exerted on the Group's business model. In total it was assumed average selling prices fell by c. 15% over an initial three year period, during which time it was also assumed that sales volumes fell by over 45%, before the market was assumed to stabilise and then gradually move into a recovery phase. Due to the combined effect of these factors the Group's housing revenues were assumed to fall by c. 53% during this period. The stress tests and mitigation were guided by the experience gained from the management of the business through the Global Financial Crisis from 2007 to 2010. Cash flows were assumed to be managed consistently ensuring all appropriate investment was made in the business at the appropriate time as a priority. The Directors assumed they would make the most appropriate decisions regarding returning surplus capital to shareholders through this period to ensure the strategic objective of minimising financial risk through the cycle was achieved. The payment of the "regular" element of the CRP in early July each year was maintained. This stress testing of principal risks materialising also considered the potential for costs of exceptional charges and asset impairment to arise.

Based on this assessment, the Directors confirm that they have reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to the end of 31 December 2024.

* The Directors have assessed the longer term prospects of the Group in accordance with provision 31 of the UK Corporate Governance Code 2018

Statement of Directors' Responsibilities

The Statement of Directors' Responsibilities is made in respect of the full Annual Report and the Financial Statements not the extracts from the financial statements required to be set out in the Announcement.

The 2019 Annual Report and Accounts comply with the United Kingdom's Financial Conduct Authority Disclosure Guidance and Transparency Rules in respect of the requirement to produce an annual financial report.

We confirm that to the best of our knowledge:

 
 --   the Group and Parent Company financial statements, contained 
       in the 2019 Annual Report and Accounts, prepared in accordance 
       with the applicable set of accounting standards, give a 
       true and fair view of the assets, liabilities, financial 
       position and profit or loss of the Company and the undertakings 
       included in the consolidation taken as a whole; and 
 --   the Strategic Report includes a fair review of the development 
       and performance of the business and the position of the 
       issuer and the undertakings included in the consolidation 
       taken as a whole, together with a description of the principal 
       risks and uncertainties that they face. 
 

We consider the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

The Directors of Persimmon Plc and their function are listed below:

 
 Roger Devlin            Chairman 
 Dave Jenkinson          Group Chief Executive 
 Mike Killoran           Group Finance Director 
 Nigel Mills             Senior Independent Director 
 Marion Sears            Non-Executive Director 
 Rachel Kentleton        Non-Executive Director 
 Simon Litherland        Non-Executive Director 
 
 By order of the Board 
 
 
 Dave Jenkinson          Mike Killoran 
 
 Group Chief Executive   Group Finance Director 
 26 February 2020 
 

The Group's Annual financial reports, half year reports and trading updates are available from the Group's website at www.persimmonhomes.com/corporate.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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