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| 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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -42.50 | -3.18% | 1,292.00 | 1,300.00 | 1,301.00 | 1,342.50 | 1,295.50 | 1,342.50 | 1,011,655 | 16:35:29 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Gen Contr-single-family Home | 2.77B | 255.4M | 0.7996 | 16.26 | 4.15B |
From Apr 2019 to Apr 2024
TIDMPSN
RNS Number : 9381Q
Persimmon PLC
03 March 2021
FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2020
Persimmon Plc today announces Final Results for the year ended 31 December 2020.
Dean Finch, Group Chief Executive, commented:
"Persimmon delivered a robust performance in 2020 despite the challenges presented by the pandemic. I would like to commend our workforce for the effective way Covid-secure operating protocols have been adopted, protecting our customers, local communities and colleagues alike whilst maintaining effective on-site operations.
"I am particularly pleased we have delivered all this whilst continuing to see an increase in our HBF eight-week customer satisfaction score, with our current rates above the five-star threshold. We must build on this important progress and further enhance our build quality and customer care so we are known for both outstanding service as well as outstanding value. To achieve this we will further strengthen our build quality and independent inspection regime within the Persimmon Way. This will both drive efficiencies that will pay for these improvements and enhance our capabilities, enabling us to build a greater volume of homes at five-star. We have also set new environmental targets in line with the Paris Agreement and will seek to further develop the Persimmon Way to embed the specific measures that will deliver on these targets in the future.
"In addition, having adopted the principles of the Living Wage Foundation within our direct pay policies we are seeking full accreditation in working with our broader supply chain and development partners.
"Persimmon is a company of many strengths with great opportunities ahead. Combining the business' entrepreneurial spirit and astute land buying with enhanced quality, efficiency and service standards will drive superior, sustainable value creation for our shareholders and broader stakeholders alike."
Financial Highlights
Hot Features
Premium
2020 2019
New home completions 13,575 15,855
--------------- ---------------
New home average selling price GBP230,534 GBP215,709
--------------- ---------------
Total Group revenues GBP3.33bn GBP3.65bn
--------------- ---------------
New housing revenues GBP3.13bn GBP3.42bn
--------------- ---------------
Underlying new housing gross margins(1) 31.0% 33.1%
--------------- ---------------
Underlying profit before tax(2) GBP863.1m GBP1,048.1m
--------------- ---------------
Profit before tax GBP783.8m GBP1,040.8m
--------------- ---------------
Cash at 31 Dec GBP1,234.1m GBP843.9m
--------------- ---------------
Land holdings at 31 Dec - plots
owned and under control 84,174 93,246
--------------- ---------------
Current number of developments c. 300 c. 345
across the UK
--------------- ---------------
Current forward sales position GBP2.27bn GBP1.98bn
--------------- ---------------
Net assets per share 1,102.7p 1,021.7p
--------------- ---------------
Return on average capital employed(3) 29.4% 37.0%
--------------- ---------------
Dividend 110p per share 235p per share
in the year in the year
--------------- ---------------
Trading performance
-- Persimmon has achieved a resilient trading performance for 2020,
the year including the period of maximum disruption with the outbreak
of the Covid-19 global pandemic
-- The Group's average private weekly sales rate per site for 2020
was 12% higher year on year reflecting good stock availability
coming into the year and strong customer demand
-- Average selling prices increased by 6.9% reflecting the 6.5% increased
proportion of homes sold to owner occupiers during the year
-- 2,212 new homes were delivered to our Housing Association partners
in 2020, representing 16% of new homes sold (2019: 3,392 homes,
21% of new homes sold)
-- GBP1,067m of net cash generation before capital returns of GBP351m
and net land spend of GBP326m
Legacy buildings provision
-- The Group is setting aside GBP75m towards any necessary remediation
work to remove now-banned cladding on 26 multi-storey developments
we have built in line with our announcement on 10 February 2021
-- Where Persimmon owns the building, it will lead this work. Where
the Group no longer owns the building, it will support the owners
and other parties in their efforts to ensure the buildings are
safe for residents. Should a building owner fail to meet their
obligations, Persimmon stands ready to provide the support to make
sure this happens
Continued focused management of housing cycle risk
-- The Group has maintained its selective investment in land to preserve
the quality of the Group's land holdings. 6,827 plots have been
brought into the business in 33 locations across the UK during
2020 (c. 50% of consumption levels), with 4,562 plots, two thirds,
in the second half of the year
-- Recognising the cyclical nature of the housing market, the Group
continues to execute its long established strategy which minimises
financial risk and judges the deployment of capital through the
cycle
2020 in focus
Covid-19 update
-- The health, safety and wellbeing of our customers, our workforce
and our communities remains paramount
-- Continuing to operate effectively across our business in accordance
with all relevant guidelines, including the Construction Leadership
Council Safe Operating Procedures, HBF Coronavirus Sales and Marketing
Operating Procedures and HM Government Working Safely During COVID-19
guidance
The homes we build - 'build right, first time, every time'
-- Building on recent progress, an even greater focus on quality and
customer service
-- The 'Persimmon Way', our Group wide consolidated approach to new
home construction is being strengthened further with enhanced quality
standards and a doubling of our Independent Quality Inspection
team
-- The Group has been trending above five-star from January 2020 in
its eight-week post-sale HBF customer satisfaction score(4) , showing
the progress made already
Customer service
-- Continuing to put our customers before volume, we strengthened
the enforcement of the Group's policy of build completion 21 days
ahead of customer handover, ensuring build programmes allow for
effective quality assurance procedures
-- c. 50% of the Group's owner occupiers have utilised our industry
leading Homebuyer Retention Scheme since 1 July 2020
-- Increased our online services to support our customers through
"lockdown" periods
-- Further investing in our customer portal, which supports our customers
from the point of reserving their new home
-- FibreNest, the Group's ultrafast, full fibre broadband service,
currently supports over 12,500 of our customers across 198 developments
Supporting our communities
-- Persimmon continues to build 'homes for all' providing a range
of house types at affordable prices
-- c. 50% of the Group's private home completions were to first time
buyers
-- Our private average selling price of GBP250,897 for the year to
31 December 2020 is c. 17%(5) below the UK national average
-- Investment of GBP376m in local communities, including the delivery
of 2,212 new homes for lower income families to our Housing Association
partners
-- Approximately GBP2.0m donated to local charities and community
groups
-- A commitment to achieving Living Wage Foundation accreditation
as soon as possible
-- Set new diversity targets to improve the Group's gender diversity
with the aim to have females composing 40% of our employees, 35%
of our senior management team and 45% of employees in management
roles by the end of 2025
Setting new environmental targets
-- Achieve net zero carbon in our homes in use by 2030 and across
our operations by 2040
-- Set interim science based carbon reduction targets to reduce carbon
emissions from our own operations by 46.2% by 2030 and our indirect
operations by 22% per m(2) completed floor area by 2030, in line
with the Paris Agreement
-- Appointed Regional Environmental Champions to further enhance environmental
considerations across each of our developments
Strong platform for future growth
-- Diverse network of c. 300 active outlets (2019: c. 345) across
the UK anticipated to be maintained at a consistent level throughout
the year
-- Robust balance sheet with high quality land holdings, with 84,174
plots owned and under control at 31 December 2020 held across 31
operating businesses (2019: 93,246 plots)
-- Strong liquidity with cash held of GBP1,234m and land creditors
reduced by GBP106m to GBP329m at 31 December 2020 (2019: GBP435m)
providing significant opportunity to grow the business
-- Seeking to take advantage of excellent land opportunities leading
to investment returning to historic levels of c. GBP0.5bn
Outlook
-- Strong forward sales levels of GBP2.3bn, 15% higher year on year,
supported by low interest rates, good mortgage availability and
ongoing Government support measures
-- The Group's average private weekly sales rates for the first eight
weeks was 7% ahead of last year
-- Build rates have been maintained at pre-Covid levels since July
2020
-- Further quality and service improvements to benefit our customers
and secure greater efficiency, protecting industry leading margins
and strengthening our platform for growth, thereby driving improved
profit and cash generation
-- Reflecting the consistent outlet levels anticipated through the
year, in the first half of 2021 we expect to deliver new home completion
volumes approaching the levels seen during the first half of 2019,
with similar delivery in the second half. We anticipate the Group's
margin will reflect the return to delivering an increased proportion
of homes to our Housing Association Partners from 2021
-- We are targeting a full return to 2019 levels of new home completions
in 2022. From 2023, with a stable market, we expect our enhanced
quality, service and efficiency capabilities to provide the opportunity
to grow further. We are focused on bringing more outlets into production
to support these targets
-- Despite near term uncertainties as the economic and social disruption
of the pandemic continue and the full impact of the UK's exit from
the EU unfolds, the longer term fundamentals of the UK housing
market remain strong
Shareholder returns
-- Dividends of 40p (GBP127.5m) and 70p (GBP223.2m) per share paid
on 14 September and 14 December 2020 respectively
-- Commitment to a total return of GBP2.35 per share in 2021 subject
to continual Board review
-- Payment of regular annual instalment of GBP1.25 per share to be
accelerated to 26 March 2021 from July 2021
-- Intended payment of GBP1.10 per share surplus capital to be split
into 55p per share to be paid in August 2021 and 55p per share
to be paid in December 2021
1. Stated before legacy buildings provision (2020: GBP75.0m, 2019:
GBPnil) and based on new housing revenue (2020: GBP3,129.5m, 2019:
GBP3,420.1m).
2. Stated before legacy buildings provision (2020: GBP75.0m, 2019:
GBPnil) and goodwill impairment (2020: GBP4.3m, 2019: GBP7.3m).
Profit before tax after legacy buildings provision and goodwill
impairment is GBP783.8m (2019: GBP1,040.8m).
3. 12 month rolling average calculated on underlying operating profit
and total capital employed (including land creditors). Underlying
operating profit is stated before legacy buildings provision (2020:
GBP75.0m, 2019: GBPnil) and goodwill impairment (2020: GBP4.3m,
2019: GBP7.3m).
4. The Group participates in a National New Homes Survey, run by the
Home Builders Federation. The rating system is based on the number
of customers who would recommend their builder to a friend.
5. 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 GBP250,897.
For further information please contact:
Dean Finch, Group Chief Executive Kevin Smith
Mike Killoran, Group Finance Director Jos Bieneman
Persimmon Plc Ellen Wilton
Tel: +44 (0) 1904 642199 Citigate Dewe Rogerson
Tel: +44 (0) 20 7638 9571
A presentation to analysts and investors will be available from 07.00 am on 03 March 2021. To view the presentation, please use the webcast link below:
Webcast link: https://edge.media-server.com/mmc/p/823znxwq
There will also be a Q&A session with management, hosted by Group Chief Executive, Dean Finch and Group Finance Director, Mike Killoran via conference call at 9.00am. Analysts may join the call by using the details below:
Telephone number: +44 (0) 33 0551 0200
Passcode: Persimmon
An audiocast of the call will be available on www.persimmonhomes.com/corporate from this afternoon.
CHAIRMAN'S STATEMENT
Persimmon is a company with many great strengths. We not only provide many of the new houses the country needs but also the opportunity of homeownership to thousands of families a year. In so doing we generate jobs across the country and value for local communities and shareholders alike.
I set out last year how Persimmon recognised that there were areas for improvement and that we were embarking on a period of cultural and operational change to enhance our customer care and build quality in particular. While the intervening year has seen the business and country confront the significant challenge of the pandemic, I am pleased we have still managed to make important progress. As well as delivering a strong operational and financial performance despite the pandemic, we have also seen the implementation of the important parts of the change programme. The enhanced build quality standards in the Persimmon Way have already helped improve our HBF eight-week post-sale customer satisfaction scores so that they are trending above five-star, for example. We have also made important new appointments to steer us through the next stages of this change.
In this vein, I am delighted that Dean Finch has joined as Group Chief Executive. Dean brings a strong track record of financial success achieved through good customer service and operational excellence. I welcome Dean's determination to build on our recent progress by accelerating and further enhancing Persimmon's approach to customer care and build quality. Dean's statement sets this out in more detail.
Covid-19 update
As the Group responded to the pandemic, our overarching principle was to ensure the wellbeing of our customers, workforce and local communities. A controlled and orderly shutdown of the Group's sites, sales offices, and off-site manufacturing facilities was therefore announced on 25 March 2020.
Having regard to the long-term interests of all of our stakeholders, all colleagues were retained on full pay throughout the shutdown period. This ensured that we could continue to serve our customers and maintain some operational momentum within the business, enabling the Group to mobilise its workforce effectively when sites were made Covid-secure and re-opened.
By the end of April 2020, the Group had introduced effective Covid-secure operating procedures, aligned with Government guidelines, covering all of its sites, offices and manufacturing facilities. Subject to local devolved Government regulations, the Group began re-opening its operations from the end of April with our sites in Scotland being the last to re-open at the end of June. The Group's build programmes, which have observed the stringent two metre social distancing rules throughout, returned to normal levels in July 2020 and have been maintained since.
We remain confident in our ability to continue to operate safely and effectively. As the second and third lockdowns were introduced we reviewed and revised our Covid-secure protocols in line with the changing requirements. I commend the management teams and colleagues across the whole country who have ensured they are fully embedded within the business and the Group's operations have continued to run effectively. The Group's own absentee levels have been relatively low and our regional businesses have managed resource efficiently where unplanned absences have occurred. We recognise, however, the highly uncertain nature of the pandemic and continue to monitor the situation and any potential impact of increased transmission rates or social distancing measures on our ongoing operations.
Whilst uncertainty persists around the Covid-19 pandemic and its potential to further disrupt our operations, there has been no significant disruption to the business caused by the UK's exit from the EU and the completion of the free trade agreement. We maintain close contact with our supply chain and remain mindful of any potentially adverse impacts.
Results
Whilst facing the challenges presented by Covid-19 customer demand remained resilient, supported by low interest rates, good levels of mortgage availability and the Government's support measures introduced in response to the pandemic. The Group's diverse active outlet network and strong forward build levels coming into 2020 ensured it was well placed to meet the rise in sales rates seen coming out of the first national lockdown. The strength of underlying housing demand across the UK is reflected in the Group's sales rates continuing to surpass historical normal seasonal trends throughout the remainder of the year.
Whilst recognising the disruption caused during the first national lockdown, Persimmon delivered a robust trading performance for the year, legally completing the sale of 13,575 new homes (2019: 15,855). The Group's total revenues were GBP3,328m (2019: GBP3,649m) with new housing revenues of GBP3,130m (2019: GBP3,420m).
The Group's underlying profit before tax(1) for 2020 was GBP863m, (2019: GBP1,048m) with an underlying new housing operating margin(2) of 27.6% (2019: 30.3%), supported by the quality of the Group's asset base. The Group's balance sheet is strong with cash balances of GBP1,234m (2019: GBP844m) and reduced land creditors of GBP329m (2019: GBP435m) at the end of the year.
Legacy buildings provision
Our results also reflect our decision to act decisively on legacy concerns around now-banned cladding. A s a responsible business, we believe that although we have no legal obligation on properties we do not currently own, we have a duty to act.
As announced on 10 February 2021, we have therefore decided that for any multi-storey developments we have built, we will ensure that the necessary work to protect residents is undertaken. Where we own the building, we will act to do what is necessary to keep the residents safe. Where we do not own the building we will work with the owner and offer our support. Ultimately, if the owners do not step up and meet their obligations, we will ensure the work is done to make the buildings safe. To meet this commitment we have recognised a GBP75m provision. We will work with the Government on its proposals to balance the need to generate income to help address the broader cladding challenge while ensuring their housing targets can be delivered.
Our customers
As I set out above, the Group has made progress in its important programme of implementing operational improvements to support higher levels of customer service and build quality assurance processes. Persimmon's HBF eight-week customer satisfaction score(3) is now above the threshold needed to achieve a five-star rating. This is clear evidence that our customers are seeing these benefits in their new homes and in the service they receive.
We have maintained our strategy of putting customers before volume, ensuring that our build programmes allow for the effective completion of all our quality assurance processes before we hand over homes to our customers. The Persimmon Way, the Group wide consolidated approach to new home construction, which encompasses improved technology for our site managers and enhanced training for all relevant members of our workforce, is now embedded within the business and making a real difference. An external audit of this process, to ensure consistency across the Group, will be undertaken in 2021.
Our Homebuyer Retention Scheme, the first in the industry, has been utilised by c. 50% of our private customers since 1 July 2020 and continues to drive operational improvements across our developments whilst providing greater reassurance to our customers that their new home will fulfil their expectations.
We are continuously seeking innovative and effective ways to further this excellent progress. Dean sets out an ambition that we should aim to 'build right, first time, every time'. The enhancements he sets out in build quality standards, the expansion of our team of Independent Quality Inspectors and the investment in training are all aimed at driving improvements in both the consistency of higher build quality and our efficiency as a result. We also intend to invest further in technology to aid our site and sales staff and our Inspectors, as well as engage our customers more closely. We welcome the introduction of a New Homes Ombudsman to drive improvements in quality standards throughout the industry.
Supporting our communities
We remain committed to supporting our communities during these unprecedented times. The social and economic disruption caused by the pandemic is significant and we are determined to play our part in the UK's recovery. We have recently pledged a GBP250,000 donation to the Daily Mail's Mailforce campaign to provide laptops to all children in the UK, so they can fully participate in online home schooling.
We support our communities in a number of ways, designing our developments in places where people wish to live and work within attractive open spaces and environments, with a balance of different house types and prices and providing homes to our local Housing Association partners. Our average selling price to owner occupiers is c. 17% lower than the UK national average(4) and we help a significant number of younger people onto the housing ladder with c. 50% of our private homes sold to first time buyers. In addition, the Group contributes to local services and amenities including education provision and new infrastructure benefitting its communities. In 2020, the Group contributed GBP376m to its local communities, bringing the total community investment to c. GBP2.4bn over the last 6 years.
Persimmon remains keen to employ significant numbers of employees from the communities we serve. At 31 December 2020, we directly employed 5,221 people (2019: 5,285) and supported c. 86,000(5) jobs across our communities and within our wider supply chain. Our financial resilience enabled us to support our colleagues and our supply chain through the significant disruption experienced this year and retain all of our colleagues on full pay, including those that were stood down during periods of site closure. We provided our suppliers and subcontractors with secure forward orders, prepaying for material deliveries to support our supply chain's cash flows, whilst, as a member of the Prompt Payment Code, continuing with our prompt payment processes.
Persimmon is industry lead to the Social Mobility pledge, providing opportunities to young people with c. 680 trainees and apprentices in the business. In addition, the Group is a signatory to the Covid-19 Business Pledge supporting colleagues, customers and communities through the pandemic. The Group is determined to attract a more diverse workforce, recognising the benefits that this brings. We have therefore set new diversity targets to improve the Group's gender diversity with the aim to have females composing 40% of our employees, 35% of our senior management team and 45% of employees in management roles by the end of 2025.
The Persimmon Charitable Foundation continued to support local charities and good causes, through its Building Futures and Community Champions campaigns donating c. GBP2m to c. 900 organisations during 2020. For more information on our Charitable Foundation's campaigns, please visit https://www.persimmonhomes.com/corporate
Long-term strategy and capital return programme
Persimmon's strategy, which has been executed over a sustained period, recognises the cyclical nature of the housing market by minimising financial risk and judging the deployment of capital at the appropriate points in the cycle. Over the last 20 years, the Group's average return on capital(6) has been 22.1% reflecting the sustainable performance of the business. Total shareholder returns have been 2,631% over the same extended period (FTSE 100: 114%). The Group has a strong track record in the land market and it has undoubtedly been a key asset in the business' success. While maintaining our robust and disciplined approach to returns we anticipate increasing our land buying to more typical annual levels as we seek to grow the business. We are of course mindful of the uncertainty surrounding the housing market and future economic conditions, so are ready to adapt quickly should circumstances demand. Reflecting the Group's strong positioning in its markets, our current forward sales are GBP2.3bn, 15% higher year on year.
The Board considers that, under normal circumstances, cash holdings of c. GBP700m are appropriate for the business, providing the right balance between ensuring appropriate liquidity levels are maintained to cover the Group's annual working capital requirements and providing sufficient funds to take advantage of attractive land investment opportunities.
A key element of the Group's strategy remains the return of any capital that is deemed surplus to the needs of the business, having regard to existing economic and market conditions, the Group's existing land holdings and other investment opportunities. The availability of surplus capital is continually assessed by the Board. Given the significant social and economic disruption and uncertainties resulting from the onset of the Covid-19 pandemic and the mitigating Government response measures, the Board cancelled the prospective payment of the previously assessed surplus capital of GBP1.25 per share due to be paid to shareholders on 2 April 2020. In addition the Board postponed the payment of the final dividend for the 2019 financial year of GBP1.10 per share that was scheduled to be paid on 6 July 2020.
During the second half of 2020, as part of the Board's ongoing commitment to its strategy, and recognising the importance of dividend income to all investors - including support to retired workers and their families - the Board continued to assess the ability of the Company to make distributions to its shareholders. Reflecting the continued good progress made by the business, on 18 August 2020 the Board announced a dividend of 40p per share, which was paid on 14 September 2020, and on 10 November 2020 announced a further dividend of 70p per share, which was paid on 14 December 2020. These two distributions fulfilled the payment of the final dividend of GBP1.10 per share for the year ended 31 December 2019 which had previously been postponed. No further distributions are to be made regarding the financial year ended 31 December 2019.
Having concluded its 2020 assessment of the availability of surplus capital, as part of the regular annual assessment of the Capital Return Programme, the Board is pleased to reiterate its commitment to total capital returns of GBP2.35 per share in regard of the financial year ended 31 December 2020. However, the Board has concluded that it intends to make these distributions according to an amended profile. Firstly, the payment of GBP1.25 per share, representing the regular annual distribution for the year ended 31 December 2020 will be accelerated from early July to be made on 26 March 2021 to shareholders on the register on 12 March 2021 as an interim dividend. It is envisaged that this acceleration will be for one year only, the payment of the regular annual distribution returning to being made in early July in successive years which is designed to mitigate the traditional peak working capital requirements of the Group. In addition, but subject to continual review, the Board intends to split the payment of surplus capital of 110p per share previously anticipated to be paid in late March/early April into two payments. A first payment of surplus capital of 55p per share will be made in August 2021, with a second payment of surplus capital of 55p per share to follow in December 2021. Further details of the Board's ongoing assessment of its Capital Return Programme will be provided as part of Persimmon's normal market updates.
Looking forward to 2022, the Board currently intends to return to the pre-Covid profile of capital return, with the payment of the regular annual distribution of 125p per share being made in early July 2022 aligned to the traditional working capital profile of the business. In line with the Group's strategy, the Board will continue to assess the investment needs of the business and capital deemed surplus to these needs will be returned to shareholders.
Sustainability
For Persimmon, sustainability is about looking after our customers, our workforce and our suppliers and adopting innovative build and design techniques to reduce our environmental impact. We believe that this will generate superior long-term returns for the benefit of all our stakeholders.
The Group's newly formed Sustainability Committee has set the Group's sustainability approach which was approved by the Board in October 2020. As Dean sets out, an early outcome of the strategy has been to adopt science based targets to reduce our greenhouse gases in line with the Paris Agreement and to set new targets to have net zero homes in use by 2030 and achieve net zero carbon emissions across our operations by 2040.
Board Changes
Dean Finch joined as the new Group Chief Executive on 28 September and has made a strong start in the business with his focus on build quality, customer service and sustainability. We would like to thank Dave Jenkinson for his valuable contribution to the business over his 23 years with Persimmon.
In addition, the Board welcomes Joanna Place, Annmarie Durbin and Andrew Wyllie, who joined as Non-Executive Directors during the year.
Finally, during an exceptionally difficult year, our colleagues, sub-contractors and suppliers have risen to the challenge, showing flexibility, commitment and hard work. The Board would like to take this opportunity to thank them for their efforts.
Roger Devlin
Chairman
2 March 2021
1. Stated before legacy buildings provision of GBP75.0m (2019:
GBPnil) and goodwill impairment (2020: GBP4.3m, 2019:
GBP7.3m). The Group's profit before tax is GBP783.8m (2019:
GBP1,040.8m).
2. Stated before legacy buildings provision (2020: GBP75.0m,
2019: GBPnil), goodwill impairment (2020: GBP4.3m, 2019:
GBP7.3m) and based on new housing revenue (2020: GBP3,129.5m,
2019: GBP3,420.1m).
3. The Group participates in a National New Homes Survey,
run by the Home Builders Federation. The Survey year covers
the period from 1 October to 30 September. The rating
system is based on the number of customers who would recommend
their builder to a friend.
4. 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.
5. Estimated using an economic toolkit, updated in 2020 to
reflect latest best practice and Government guidance.
6. Calculated based on operating profit and the Group's capital
employed which includes land creditors.
CHIEF EXECUTIVE'S STATEMENT
In my five months at Persimmon I have seen for myself - as I have toured as many of our sites as restrictions will permit - our many great strengths. I want to immediately pay tribute to our employees who have continued to build safely despite the challenge of Covid-19. From right back at the start of the pandemic, Persimmon's response has been very nimble, dealing with a difficult situation well.
Right across the country we have committed teams who combine industry-leading expertise in land purchase with site development efficiency, delivering good value homes at prices substantially below the sector average. We are known for offering outstanding value, and the importance of that is not to be underestimated: Persimmon is opening up the opportunity of home ownership to thousands of families each year who otherwise might not have been able to afford it.
I am proud to have been given the opportunity to lead a company that performs such an important role and has such strengths. Persimmon is incredibly well-positioned in the markets - first time buyer and first time mover, especially - it has served so strongly. We have maintained industry-leading margins, achieved strong financial performance and secured a robust balance sheet by investing smartly through the economic cycle and retaining a competitive edge over our rivals. These are great prizes that must - and will - remain the hallmark of Persimmon's approach and continue to drive strong shareholder returns.
To maintain these leadership positions I believe Persimmon needs to change in some specific areas. There is a need for careful evolution, rather than revolution. While there has undoubtedly been important recent progress, I believe, Persimmon's challenge now is to be recognised for outstanding service as well as value. In my career I have learnt the crucial importance of safety and service and putting the customer at the heart of all that we do. When that is delivered - or even better, you become trusted to deliver it - it sustains financial success.
In some important, targeted areas we have been reviewing our approach. Our product range is strong, but I believe there are opportunities for a small number of additional house types to meet evolving demand within Persimmon's market segments. Persimmon's site development efficiency is outstanding, but there are opportunities to drive even greater benefit from our manufacturing facilities and a 'build right, first time, every time' programme. I see success here as generating both savings to be reinvested to help maintain our competitive advantage and securing an enhanced capability to supply more homes that consistently achieve a five-star customer satisfaction score.
There is a real opportunity to build on Persimmon's many great strengths and secure the next chapter of its success. At its best Persimmon is a powerful combination of a very disciplined approach to investment and costs coupled with an entrepreneurial spirit that captures new market opportunities. I want us to build on this and enhance our capabilities further, by setting new ambitions for build quality, customer service and growth whilst remaining nimble and being able to respond quickly to any changing economic conditions. As I set out in more detail below, we will invest to help achieve this - for example, in a prudent approach to land - while retaining the discipline that has underpinned our strong shareholder returns.
I have five key priorities to achieve our new ambition and secure a reputation for providing both outstanding service and outstanding value:
-- Build quality: our ambition will be to build right, first
time, every time;
-- Reinforce trust in the brand: consistently trusted to
deliver a home to be proud of and a builder customers
would readily recommend to others;
-- Growth: through our improvements in build quality and
increased focus on customer care we will be strengthening
our capability to deliver more five-star homes to meet
the strong demand;
-- Maintaining an industry leading financial performance:
sustaining our strong margins and returns and driving
healthy profit and cash generation;
-- Sustainable communities: we will play a full and active
role in the imperative of achieving a net zero carbon
economy, as well as setting new biodiversity and sustainable
community targets.
Quality
To become truly customer-focused we must start with quality, my first priority. I am acutely aware that by purchasing one of our homes, our customers may well be making their largest lifetime financial commitment and one that has significant emotional importance. We must make sure we are providing them with the best quality home at the best possible price, delivered with outstanding service.
This is why further strengthening the Persimmon Way is so important, enhancing existing procedures and establishing new review points to improve standards across the Group. I have seen first-hand the difference this is making, with happier customers and efficiency benefits such as lower remediation costs, protecting our industry-leading margins.
These benefits are why I want to go further and faster in implementing it consistently across the Group. I want the Persimmon Way to be synonymous with a new standard in the industry, one that our customers can trust. Ultimately I want the Persimmon Way to become less our own quality assurance process and more a guarantee for customers.
Our ambition is to build right, first time, every time, by setting new industry standards for construction, independent inspections, and employee training:
-- We will adopt more exacting building tolerances than existing
industry standards;
-- We will employ the industry's largest group of Independent
Quality Controllers who will check every stage of construction,
by doubling our team of inspectors to over 60 by the end
of this year;
-- This team, which will directly report to the Group Construction
Director, will assess every single plot we build at a
number of key stages and only allow work to continue if
our higher standards have been met;
-- Our new 'Persimmon Pathway' will ultimately ensure that
every direct employee will receive a tailored training
programme. We are starting with our site-based colleagues,
so they can receive the recognised industry qualification
in their area of expertise. Alongside our pioneering new
NVQ Assessment Centre and a reinvigorated toolbox talk
programme for tradespeople, we will ensure our Site Managers,
Independent Quality Controllers and sales advisors are
amongst the best trained in the industry.
These enhanced standards, the increased investment and enhanced training are targeted at ensuring we build right, first time, every time. With a significantly expanded team under our Group Construction Director and a new Group Technical Director, we are strengthening our central oversight to ensure the consistent application of these standards. This is clearly crucial, but to strengthen our customers' trust we need to go further.
Reinforcing trust
My second priority is to reinforce trust in the Group's brands. I want our customers to feel that we are a dependable partner. As well as setting new quality standards and improving our own processes, I want our customers to feel a valued part of the review process, able in good time to flag any issues and concerns. An immediate focus last year when I joined the company was ensuring consistent compliance with our Persimmon Way policy that properties should be finished 21 days ahead of customers completing their purchase, so that a high quality finish can be achieved before a customer moves in. Whilst this effectively reduced the number of homes we handed over in the second half of 2020 (although we still achieved record levels) crucially, we have already started to see a notable improvement in customer satisfaction scores. While there remains work to be done, this performance shows the further potential of this approach. We also expect, of course, to see a reduction in the corresponding remedial spend, offsetting the investment and maintaining industry-leading margins.
Fundamentally, this is about strengthening our care procedures so that customers feel they have received both outstanding value and outstanding service. We are strengthening customer service teams across the Group and reviewing how we interact with customers throughout their whole Persimmon experience. We have made positive progress already, with our current customer satisfaction scores trending ahead of the five-star HBF rating in their eight-week post-sale survey. I am determined to both further improve the eight-week score so we are consistently five-star and significantly improve the longer term satisfaction of our customers. We are piloting a new customer portal to enhance their service experience ahead of a wider Group roll-out. This portal will support our customers from the point of reserving their new home.
I am also determined that we reinforce our position as a trusted partner for planning authorities, public bodies and within the industry. The Government has ambitious targets for 300,000 houses a year with expanded homeownership also a key objective. As consistently one of the largest builders by volume at prices below the sector's average, we are ideally placed to help Government deliver.
Growth
My third priority is growth. Assuming a stable market, 2021 will be a year of rebuilding volumes as we emerge from the pandemic. We are targeting pre-pandemic levels of output in 2022 and thereafter Persimmon is particularly well placed to accelerate delivery. The Government housebuilding targets provide an indication of the medium to longer-term growth opportunity in the market.
Persimmon has strong land holdings to draw upon to help achieve this. At 31 December 2020, the Group had 84,174 plots that were owned and under control (2019: 93,246 plots). Specifically, 67,205 plots are owned of which 42,963 have detailed implementable planning consent. A further 16,969 plots are 'under control', being plots that the Group has exchanged contracts on but have yet to complete due to outstanding planning conditions.
Today we have about 300 active outlets which we will expand over the coming years to meet our targets. Our experienced land and planning teams will continue to progress our under control land holdings through the planning system enabling us to achieve our near term growth targets. To meet our medium to longer-term ambitions and capture the opportunities that exist we will need more land. We have a well justified, strong reputation for buying land that I have sought to reinvigorate. I anticipate that land spend in 2021 will start to return to historic levels of c. GBP0.5bn a year. Recognising that we live in highly uncertain times, and Persimmon's historic success in investing strategically through economic cycles, we will of course proceed carefully and should the economic circumstances change we will adapt quickly and nimbly to meet them.
With our strong capabilities in the land market and our focus on further quality and service improvements we are in an excellent position to capture more of the market with homes that ensure we consistently secure five-star customer satisfaction scores. With the associated efficiency benefits our growth will be designed to continue to deliver industry-leading margins and returns.
We will grow our local teams and have invested in digital technology to increase both our capacity and capabilities in identifying the most sustainable locations for future development. Central oversight has been expanded through a new Land Committee which rigorously scrutinises our purchasing against demanding hurdle rates that guarantee value creation for shareholders whilst ensuring we deliver the homes our customers and local communities need. We will also be looking to build new partnerships, as we seek new sources of land.
Our expertise in developing land is also well earned and something I have witnessed for myself on my site visits. This requires real skill and I believe we have industry leading capabilities and creativity, often identifying good opportunities that our competitors overlook. We also have strong assets in our timber frame, brick and tile manufacturing facilities that - as I set out below - I believe can drive even greater opportunities for both improved build quality and efficiency. Our FibreNest broadband network is another great business asset and one that we are looking to develop further. Providing high quality broadband access from the day customers move in is a great service credential and one we want to ensure we provide consistently.
Financial
As I have highlighted, there are real opportunities to drive improved performance from the Group, but we start from incredibly solid foundations. We have a great team, a countrywide footprint and a balance sheet that matches our ambitions. We will not take any of that for granted and instead are determined to continue to lead the industry in financial performance, my fourth key priority. Persimmon has had a very successful capital return programme over recent years and I am determined that we continue to deliver strong shareholder returns for years to come. Indeed, we will look to see how we can improve them further while meeting the investment needs of the business.
I believe there are significant efficiency opportunities for us to capture. I have already mentioned the opportunity our manufacturing facilities and the reduced remedial spend from build right, first time, every time present. Our manufacturing facilities have the opportunity to be an even greater contributor to our operational efficiency. We have recently decided, for example, to expand the range of products made by our tile factory. With this investment in an expanded tile range the factory itself will also work at an even more efficient rate. Improvements in our brick factory should lead to the business using substantially more of our own bricks this year. With the growing interest in Modern Methods of Construction, as well as a continual drive for greater efficiency, I have instigated a thorough review of the brick, tile and timber frame manufacturing facilities to ensure we maximise their contribution to Persimmon's future.
There is also a real opportunity from targeting waste and remediation. We have recently taken action to take advantage of the opportunity to eliminate more frequent build process issues to ensure a better finish. We believe this will generate an immediate pay back as well as improve customer satisfaction. Procurement is another area of focus, and we have recently appointed a new Group Commercial Director. Given our size and importance to multiple suppliers we are now taking a more strategic approach, reviewing existing contracts and expanding the use of multi-year deals. We anticipate this will deliver both meaningful cost savings and improved service levels.
We are building from significant financial strength. The resilience demonstrated against the backdrop of a global pandemic is notable. The record number of new homes completed in the second half of the year of 8,675, mitigated some of the impact caused by the on-site and operational disruption experienced in the second quarter of 2020. As such, the Group delivered 13,575 new homes to its customers (14% lower than 2019) generating new housing revenue of GBP3,130m (2019: GBP3,420m). We have also seen the strong demand for new homes continue in the early weeks of 2021.
Underlying profit before tax(1) was GBP863m (2019: GBP1,048m) with an underlying new housing operating margin(2) of 27.6% (2019: 30.3%). The resilient margin reflects the Group's high quality land holdings. The Group has a robust balance sheet, with net assets of GBP3,518m (December 2019: GBP3,258m) and land holdings of GBP1,722m (December 2019: GBP1,939m). Our liquidity is strong with cash holdings of GBP1,234m at 31 December 2020 (December 2019: GBP844m) and reduced land creditors of GBP329m (December 2019: GBP435m) providing an excellent platform for future growth.
Sustainable communities
As I have said, Persimmon plays a crucial role in society, which is why sustainable communities is my fifth key priority. We provide skilled jobs up-and-down the country, and meet a pressing need for new homes and the aspiration of home ownership for thousands every year by delivering 'homes for all'. Our private average selling price of GBP250,897 for the year to 31 December 2020 is c. 17% below the UK national average(3) and we help a significant number of younger people onto the housing ladder, with c. 50% of our private home completions to first time buyers.
Recognising the role we play in society, I am determined we do more to make a positive difference in the communities we are part of. We have well-established programmes such as Community Champions and Building Futures that have been very popular and well-received. I want us to also embrace the power of our practice and ensure our approach to business itself is making as positive a difference as possible. We are hoping to shortly become a Living Wage Foundation accredited employer, for example. As a signatory of the Social Mobility Pledge we are looking to see how we can provide new opportunities for jobs and skills development in the most disadvantaged areas of our country. The Group has also set new diversity targets, recognising the benefits that a more diverse workforce brings.
Our environment
The world is also facing an unprecedented environmental challenge so we must - and will - play a full and active role in the imperative of achieving a net zero carbon economy.
We have developed a net zero carbon plan with the targets of having net zero carbon homes in use from 2030 and achieving net zero emissions across our own operations by 2040. We will set out further details in due course, but as a first step we have adopted the Science-Based Target approach to carbon reduction in line with the Paris Agreement. We have also published the Task Force for Climate related Financial Disclosures and SASB in our Annual Report and Accounts and will monitor our performance against these measures. The Government has set very ambitious targets through its Future Homes Standard. We share the objective of net zero carbon homes and are already building our first 'zero carbon ready' house, in York. This house is one of our standard range, engineered to deliver the necessary carbon savings. We believe that in looking to adapt a 'standard' home, this is an industry first. We are running it as a research project in partnership with the University of Salford to investigate how effective the modifications are when a family lives in it and goes about their daily lives. We hope the project is both an exemplar and identifies where we can make improvements to meet the Government's ambitions most efficiently.
As well as a net zero carbon plan, we are also reviewing our broader environmental impact including biodiversity, water and waste targets. This agenda is, of course, broader than the environment alone. This whole sustainability and community agenda is one I hope to develop continually in my time at Persimmon.
We will shortly establish a new vision and values to firmly embed a culture that is determined to be the builder that customers trust, by delivering consistent quality and making a positive difference to the environment and communities we are part of. These will be the foundations of our future growth and sustained shareholder returns.
It was with this new approach in mind that Persimmon announced on 10 February 2021 our decision to act on cladding and provide reassurance to residents of any multi-storey building we built. In total we have identified 26 buildings built by us that may contain now-banned cladding. Where we still own these buildings we will lead the work to make sure residents are safe and any issues around now-banned cladding are addressed. Where we are no longer the owner, the current owner has the legal responsibility and duty to act. We will offer our support to these owners and seek to work with them to carry out their legal responsibilities. Ultimately, however, if the owners do not step up to their responsibilities we will make sure the residents are safe.
Our commitment is therefore to keep the residents safe and make sure the necessary work is carried out. We have set aside a GBP75m fund to pay for our contribution to this work. We have made this commitment because we think it is the right thing to do.
We are currently assisting the Consumer Markets Authority with their enquiries into new properties sold on leasehold terms.
Outlook
Persimmon is a company with fantastic assets and great people which has consistently delivered industry-leading financial performance. We play a crucially important role in society, creating jobs as well as expanding the opportunity of home ownership. I am optimistic about the future.
We demonstrated what is possible in the second half of 2020 by strictly enforcing the 21-day pre-handover quality processes, delivering record completions and improving customer satisfaction scores. I believe with this continued focus we will also successfully support our customers' longer term enjoyment of the places we help create. We are investing further in training, customer service and quality to ensure we enhance our brands, in land to enable us to continue to grow volumes and help eliminate the critical shortage of homes in the country, and in sustainability to help improve the environment and the communities where our customers live.
With a reputation for both outstanding service and value, I want us to be a trusted partner for our customers and for our other stakeholders, as we play a full part in helping to meet the Government's ambitions for new home delivery across the country. We will achieve this while maintaining our industry-leading margins as the investment in building right, first time, every time and our further improvements to customer service will be offset by the operational efficiencies these initiatives will bring. In the medium term these improvements will enable us to meet demand with homes that more consistently secure a five-star customer satisfaction score, which when coupled with reinvigorated yet disciplined land acquisition which will grow our outlet network, profits and cashflow. This will enable us to maintain our strong and flexible balance sheet and deliver enhanced returns to shareholders.
In 2021 we are still operating under the limitations of the Covid pandemic but we have had a strong start with current forward sales of GBP2.3bn, 15% higher year on year. We expect to deliver new home completion volumes approaching the levels seen during the first half of 2019, with similar delivery in the second half. Group margin is expected to reflect the increased proportion of homes sold to our Housing Association partners. Beyond this year we are targeting a return to 2019 volume levels in 2022 and with a stable market hope to continue to grow further in the medium term as the benefits of our quality and customer service improvement programmes take hold. To reflect this we intend to increase our land purchasing to expand our active outlet network further strengthening our development network right across the UK. We will of course remain nimble to changing market conditions and keep our land position and strategy under constant review.
It is a privilege to have been asked to lead this company and there is much to do. Working with my many outstanding colleagues I look forward to meeting the challenges and capitalising on the many opportunities ahead.
Footnotes
1. Stated before legacy buildings provision of GBP75.0m (2019:
GBPnil) and goodwill impairment of GBP4.3m (2019: GBP7.3m).
2. Stated before legacy buildings provision (2020: GBP75.0m,
2019: GBPnil) and goodwill impairment (2020: GBP4.3m,
2019: GBP7.3m) and based on new housing revenue (2020:
GBP3,129.5m, 2019: GBP3,420.1m).
3. 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.
FINANCIAL REVIEW
Trading
The Group entered 2020 in a strong position with record levels of forward sales at c. GBP1.4bn and work in progress including c. 6,100 new homes under construction. In the first 11 weeks of 2020 the Group achieved a c. 10% increase on the average private sales rate per site compared with the same period in 2019.
The onset of the pandemic disrupted site operations from the end of March for approximately five weeks to the end of April 2020. The resulting build delays led to a 35% reduction in the Group's first half new home legal completions of 4,900 compared with the prior year. This disruption was mitigated by resilient customer demand, ongoing Government support measures and the Group's ability to maintain a good degree of operational continuity. This, together with strong levels of forward build at the end of June 2020 (with c. 14% more equivalent units of new home construction carried forward than at 30 June 2019) and build rates back at pre-Covid levels, the Group performed strongly in the second half of the year, delivering 8,675 new homes to our customers. Indeed, for the year as a whole, the Group's average private sales rate per site ended 12% ahead of the prior year.
For 2020, the Group generated total revenues of GBP3,328.3m (2019: GBP3,649.4m), with new housing revenue of GBP3,129.5m (2019: GBP3,420.1m) from the completion of 13,575 new homes (2019: 15,855).
The Group's average selling price has increased by 6.9% to GBP230,534 (2019: GBP215,709), mainly resulting from the 6.5% increase in the proportion of new homes sold to private owner occupiers during 2020. 11,363 (84%) homes were sold to owner occupiers at an average selling price of GBP250,897 (2019: GBP241,985). This 3.7% year on year increase in selling price to private owner occupiers largely reflects changes in the active sales outlets and range of house types sold within the Group's Persimmon brand at an average selling price of GBP239,318 (2019: GBP230,036).
The Group's Charles Church brand contributed 1,080 or c. 10% of new homes sold to private owner occupiers for 2020, which was broadly in line with the prior year (1,136 or c. 9%) at an average selling price of GBP361,147 (2019: GBP361,132).
The Group's underlying new housing gross profit(1) was GBP969.4m (2019: GBP1,130.7m) generating a resilient underlying new housing gross margin of 31.0%(2) (2019: 33.1%), reflecting the quality of the Group's land holdings. The reduction in underlying new housing gross margin year on year includes the impact of reduced build and site overhead cost efficiencies incurred due to the delays to construction on site and legal completions caused by the pandemic and increased site overheads resulting from the stringent Covid secure operating protocols we have introduced and maintained.
Given recent evolving practices in relation to fire safety on multi storey, multi occupancy buildings, the Group has undertaken a review of all of its legacy buildings that used cladding materials. The Group has identified 26 buildings that used now-banned materials. The Group retains ownership of 5 of these buildings, all of which are less than 6 storeys high, where work will be completed to ensure fire safety. In addition, there are 21 buildings which are owned by third parties that have a legal responsibility to act, and the Group will support these owners, to do so.
The Group has therefore recognised a provision of GBP75.0m in respect of the estimated cost of remedial works based on management's estimates of these costs.
Adjusting for this charge, the Group's gross profit is GBP894.4m (2019: GBP1,130.7m).
The total cost impact of Covid-19 during 2020 was GBP17.1m, GBP9.5m of which is included in the Group's work in progress balance representing the direct costs and site overheads incurred in completing site development and providing Covid-19 secure environments for on-site activities. As noted in our Half Year announcement, this treatment is consistent with prior periods where the Group has suffered build inefficiencies under various circumstances, for example, in periods of particularly poor weather. This consistent treatment is estimated to reduce the Group's future gross margins over the remaining current active outlet construction cycle by c. 30 basis points. We will continue to seek to recover the impact of these additional costs over the course of the Group's normal operations over future periods.
Underlying operating profit(3) for the Group was GBP862.8m (2019: GBP1,036.7m). The Group's underlying new housing operating margin(4) of 27.6% (2019: 30.3%) reflects Persimmon's continuing investment in all of its colleagues and operations during this time. As previously reported Persimmon has not utilised any of the Government support measures introduced to mitigate the impact of the pandemic. The Group's underlying pre-tax profits(3) were GBP863.1m (2019: GBP1,048.1m), 18% lower than the prior year. Adjusting for the legacy buildings provision and goodwill impairment the Group's reported pre-tax profits were GBP783.8m (2019: GBP1,040.8m).
Taxation
The Group has an overall tax charge of GBP145.4m for the year (2019: GBP192.0m) and an effective tax rate of 18.6% (2019: 18.5%). Factors that may affect the Group's taxation charge include changes in tax legislation and the closure of certain open matters in the ordinary course of business in relation to prior year's tax computations. The Group operates an overarching principle of full compliance with current UK tax legislation. During 2020, the Group paid all of its tax liabilities on time and has not taken any advantage of delayed payment terms or other Government support measures.
Balance sheet resilience
The Group's net assets have increased to GBP3,518.4m at 31 December 2020 (2019: GBP3,258.3m) including retained earnings of GBP2,950.9m (2019: GBP2,693.9m). After returning GBP350.7m to shareholders during 2020, the Group's net assets per share was 1,102.7p, an increase of 8% compared with the prior year (1,021.7p). Underlying return on average capital employed(5) as at 31 December was 29.4% (2019: 37.0%).
The Group's land holdings
At 31 December 2020, the carrying value of land was GBP1,722.1m (2019: GBP1,938.6m), reflecting the strong sales rates experienced during 2020 and the Group's continued selective investment in land opportunities.
The Group had 84,174 plots owned and under control at 31 December 2020 (2019: 93,246 plots). 67,205 plots are owned of which 42,963 have detailed implementable planning consent. A further 16,969 plots are 'under control', being plots that the Group has exchanged contracts on but have yet to complete due to outstanding planning conditions.
The Group's land cost recoveries of 14.2% of new housing revenues (2019: 14.0%), reflect the high quality of the Group's land holdings. During 2020, the Group brought 6,827 plots into its owned and under control land holdings across 33 locations. The Group's experienced land and planning teams successfully progressed c. 10,500 under control plots through the planning system, transferring them into the Group's owned land holdings and delivering a continued pipeline of sites for development in the near to medium term.
During 2020, we acquired interests in a further 315 acres of strategic land, securing a total of c. 15,500 acres at 31 December 2020. This provides a long-term supply of forward plots for future development by the Group. During the year, 2,708 plots were converted from our strategic land holdings into the Group's owned and under control land holdings, representing c. 40% of plots brought into the business in the year.
Work in progress
Our work in progress carrying value of GBP1,091.6m at 31 December 2020 was in line with the prior year (December 2019: GBP1,094.6m). With continued investment to open up new sites and strong construction rates on existing sites, the Group has performed well in mitigating the combined effects of; the Covid-19 site disruption during the second quarter of 2020, the strong sales rates experienced, particularly in the second half of 2020, and the resulting reduced number of active sales outlets (2020: c. 300, 2019: c. 345 outlets).
The Group's pre-Covid build rates have been maintained since the end of July 2020 and we continue to invest in our of work in progress levels to ensure that our customers have a good range of stock availability and our build quality assurance processes are completed effectively.
Cash generation and liquidity
The Group's liquidity remains strong, having ended the year with cash of GBP1,234.1m (December 2019: GBP843.9m). This reflects strong net cash generation of GBP1,066.8m before capital returns of GBP350.7m and net land spend of GBP325.9m (2019: net cash generation of GBP996.2m). The Group's deferred land commitments have reduced by GBP105.9m to GBP329.3m from GBP435.2m at 31 December 2019. This progressive reduction in land creditors and robust cash position provides further opportunity to invest in the future growth of the business. The Group has generated GBP993.3m cash from its operations (2019: GBP778.2m).
In addition, the Group has an undrawn GBP300m Revolving Credit Facility which has a five year term out to 31 March 2025.
The Group's shared equity loans have generated GBP16.4m of cash in the year (2019: GBP31.4m). The carrying value of these outstanding shared equity loans, reported as "Shared equity loan receivables", is GBP56.2m at 31 December 2020 (December 2019: GBP68.6m). 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 GBP0.3m (2019: GBP11.4m). Incorporated within this is GBP4.0m of gains generated on the Group's shared equity loan receivables (2019: GBP13.1m) and GBP5.4m of imputed interest payable on land creditors (2019: GBP5.4m).
Shareholders' equity, treasury policy and related risks
A key element of the Group's strategy remains the return of any capital that is deemed surplus to the needs of the business through the Group's Capital Return Programme. This Programme is continually reviewed and assessed by the Directors having regard to the progress and trading position of the business, existing economic and market conditions, the Group's current land holdings and other investment opportunities. The total value of the Capital Return Programme to 2021 is now GBP13.00 per share, compared to the GBP6.20 per share initial commitment made by the Board in 2012.
The Group's strategy of minimising financial risk and retaining flexibility reflects the cyclical nature of the housing market. The business maintains a robust balance sheet with an efficient capital structure and stringent controls around its working capital management.
The Group's GBP300m Revolving Credit Facility provides further flexibility. These facilities will only be used to support short term working capital needs of the business.
The Group will continue to effectively manage its liquidity and working capital investment needs, whilst ensuring they are in line with the Group's continued focus on investment in work in progress to support an increase in the equivalent units of new home construction that will support good levels of stock availability and the improved levels of build quality and customer service. The Group will continue to ensure it maintains flexibility when considering the generation of after tax earnings, and the management of the Group's equity, debt and cash management facilities. This approach will maintain the Group's robust balance sheet and strong liquidity levels, securing a resilient position for the future.
1. Stated before legacy buildings provision of GBP75.0m
(2019: GBPnil)
2. Based on new housing revenues of GBP3,129.5m (2019: GBP3,420.1m)
and underlying gross profits of GBP969.4m (2019: GBP1,130.7m)
(stated before legacy buildings provision of GBP75.0m
(2019: GBPnil)).
3. Stated before legacy buildings provision of GBP75.0m
(2019: GBPnil) and goodwill impairment (2020: GBP4.3m,
2019: GBP7.3m).
4. Based on new housing revenue (2020: GBP3,129.5m, 2019:
GBP3,420.1m) and underlying operating profit (2020: GBP862.8m,
2019: GBP1,036.7m) (stated before legacy buildings provision
of GBP75.0m (2019: GBPnil) and goodwill impairment (2020:
GBP4.3m, 2019: GBP7.3m)).
5. 12 month rolling average calculated on underlying operating
profit and total capital employed (including land creditors).
Underlying operating profit is stated before legacy buildings
provision (2020: GBP75.0m, 2019: GBPnil) and goodwill
impairment (2020: GBP4.3m, 2019: GBP7.3m).
PERSIMMON PLC
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 2019
Note Total Total
GBPm GBPm
---------------------------------------- ----- ---------- ----------
Revenue 3 3,328.3 3,649.4
Cost of sales (2,433.9) (2,518.7)
---------------------------------------- ----- ---------- ----------
Gross profit 894.4 1,130.7
Analysed as:
Underlying gross profit 969.4 1,130.7
Legacy buildings provision 9 (75.0) -
---------------------------------------- ----- ---------- ----------
Other operating income 5.4 8.8
Operating expenses (116.3) (110.1)
---------------------------------------- ----- ---------- ----------
Profit from operations 783.5 1,029.4
Analysed as:
Underlying operating profit 862.8 1,036.7
Legacy buildings provision (75.0) -
Impairment of intangible assets (4.3) (7.3)
---------------------------------------- ----- ---------- ----------
Finance income 8.9 20.5
Finance costs (8.6) (9.1)
---------------------------------------- ----- ---------- ----------
Profit before tax 783.8 1,040.8
Analysed as:
Underlying profit before tax 863.1 1,048.1
Legacy buildings provision (75.0) -
Impairment of intangible assets (4.3) (7.3)
---------------------------------------- ----- ---------- ----------
Tax 4 (145.4) (192.0)
---------------------------------------- ----- ---------- ----------
Profit after tax (all attributable
to equity holders of the parent) 638.4 848.8
---------------------------------------- ----- ---------- ----------
Other comprehensive expense
Items that will not be reclassified
to profit:
Remeasurement loss on defined benefit
pension schemes 12 (42.5) (27.0)
Tax 4 6.5 4.6
---------------------------------------- ----- ---------- ----------
Other comprehensive expense for the
year, net of tax (36.0) (22.4)
---------------------------------------- ----- ---------- ----------
Total recognised income for the year 602.4 826.4
---------------------------------------- ----- ---------- ----------
Earnings per share
Basic 6 200.3p 266.8p
Diluted 6 199.6p 266.3p
---------------------------------------- ----- ---------- ----------
PERSIMMON PLC
Consolidated Balance Sheet
As at 31 December 2020
2020 2019
Note GBPm GBPm
--------------------------------- ----- ---------- ----------
Assets
Non-current assets
Intangible assets 181.8 186.1
Property, plant and equipment 90.4 82.0
Investments accounted for using
the equity method 2.1 2.1
Shared equity loan receivables 8 41.7 59.2
Trade and other receivables 4.0 7.1
Deferred tax assets 7.7 6.6
Retirement benefit assets 12 50.6 77.6
--------------------------------- ----- ---------- ----------
378.3 420.7
--------------------------------- ----- ---------- ----------
Current assets
Inventories 7 2,901.3 3,156.8
Shared equity loan receivables 8 14.5 9.4
Trade and other receivables 86.6 58.5
Current tax assets 8.3 -
Cash and cash equivalents 11 1,234.1 843.9
--------------------------------- ----- ---------- ----------
4,244.8 4,068.6
--------------------------------- ----- ---------- ----------
Total assets 4,623.1 4,489.3
--------------------------------- ----- ---------- ----------
Liabilities
Non-current liabilities
Trade and other payables (179.3) (178.0)
Deferred tax liabilities (22.9) (25.2)
Partnership liability (27.8) (31.6)
--------------------------------- ----- ---------- ----------
(230.0) (234.8)
--------------------------------- ----- ---------- ----------
Current liabilities
Trade and other payables (794.2) (911.7)
Partnership liability (5.5) (5.5)
Legacy buildings provision 9 (75.0) -
Current tax liabilities - (79.0)
--------------------------------- ----- ---------- ----------
(874.7) (996.2)
--------------------------------- ----- ---------- ----------
Total liabilities (1,104.7) (1,231.0)
--------------------------------- ----- ---------- ----------
Net assets 3,518.4 3,258.3
--------------------------------- ----- ---------- ----------
Equity
Ordinary share capital issued 31.9 31.9
Share premium 22.3 19.2
Capital redemption reserve 236.5 236.5
Other non-distributable reserve 276.8 276.8
Retained earnings 2,950.9 2,693.9
--------------------------------- ----- ---------- ----------
Total equity 3,518.4 3,258.3
--------------------------------- ----- ---------- ----------
PERSIMMON PLC
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2020
Share Share Capital Other non-distributable Retained Total
capital premium redemption reserve earnings
reserve
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Balance at 1 January
2019 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:
Dividends 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
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Profit for the year - - - - 638.4 638.4
Other comprehensive
expense - - - - (36.0) (36.0)
Transactions with owners:
Dividends on equity
shares - - - - (350.7) (350.7)
Issue of new shares - 3.1 - - - 3.1
Exercise of share options/share
awards - - - - (0.2) (0.2)
Share-based payments - - - - 7.7 7.7
Net settlement of share-based
payments - - - - (2.4) (2.4)
Satisfaction of share
options from own shares
held - - - - 0.2 0.2
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
Balance at 31 December
2020 31.9 22.3 236.5 276.8 2,950.9 3,518.4
--------------------------------- --------- --------- ------------ ------------------------ ---------- --------
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 2020
2020 2019
Note GBPm GBPm
--------------------------------------- ----- -------- --------
Cash flows from operating activities:
Profit for the year 638.4 848.8
Tax charge 4 145.4 192.0
Finance income (8.9) (20.5)
Finance costs 8.6 9.1
Depreciation charge 14.1 13.3
Impairment of intangible assets 4.3 7.3
Legacy buildings provision 9 75.0 -
Share-based payment charge 6.4 3.7
Net imputed interest income (1.4) 7.7
Other non-cash items (7.3) (7.6)
--------------------------------------- ----- -------- --------
Cash inflow from operating
activities 874.6 1,053.8
Movements in working capital:
Decrease/(increase) in inventories 265.0 (87.7)
(Increase)/decrease in trade
and other receivables (45.8) 6.3
Decrease in trade and other
payables (116.9) (225.6)
Decrease in shared equity loan
receivables 16.4 31.4
--------------------------------------- ----- -------- --------
Cash generated from operations 993.3 778.2
Interest paid (4.1) (4.2)
Interest received 4.7 5.6
Tax paid (228.4) (159.6)
--------------------------------------- ----- -------- --------
Net cash inflow from operating
activities 765.5 620.0
--------------------------------------- ----- -------- --------
Cash flows from investing activities:
Joint venture net funding movement - 0.9
Purchase of property, plant
and equipment (18.9) (27.5)
Proceeds from sale of property,
plant and equipment 0.8 0.7
--------------------------------------- ----- -------- --------
Net cash outflow from investing
activities (18.1) (25.9)
--------------------------------------- ----- -------- --------
Cash flows from financing activities:
Lease capital payments (3.6) (3.8)
Payment of Partnership liability (3.6) (3.4)
Net settlement of share-based
payments (2.4) (47.2)
Share options consideration 3.1 3.9
Dividends paid 5 (350.7) (747.8)
--------------------------------------- ----- -------- --------
Net cash outflow from financing
activities (357.2) (798.3)
--------------------------------------- ----- -------- --------
Increase/(decrease) in net
cash and cash equivalents 11 390.2 (204.2)
--------------------------------------- ----- -------- --------
Cash and cash equivalents at
the beginning of the year 843.9 1,048.1
--------------------------------------- ----- -------- --------
Cash and cash equivalents at
the end of the year 11 1,234.1 843.9
--------------------------------------- ----- -------- --------
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 2020.
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 2020 or 2019, but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 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 with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union , this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to send its Annual Report 2020 to shareholders on 26 March 2021.
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 13. 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 amendments to standards are mandatory for the first time for the financial year beginning 1 January 2020:
-- Amendments to References to the Conceptual Framework in
IFRS Standards
-- Amendments to IAS 1 and IAS 8: Definition of Material
-- Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark
Reform
-- Amendments to IFRS 3 Business Combinations
-- Amendment to IFRS 16 Leases Covid-19 Related Rent Concessions
The effects of the implementation of these amendments have been limited to disclosure amendments where applicable.
The Group has not applied the following new amendments to standards which are EU endorsed but not yet effective:
-- Amendments to IFRS 4 Insurance Contracts
-- Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark
Reform - phase 2
The Group is currently considering the implication of these amendments with the expected impact upon the Group being limited to disclosures if applicable.
Following the UK's exit from the EU, in future the Group will be required to follow UK endorsed IFRS.
Going concern
The Group entered this challenging time from a position of strength. Its long-term strategy, which focuses on the risks associated with the housing cycle and on minimising financial risk and maintaining financial flexibility, has equipped the business with strong liquidity and a robust balance sheet.
Despite the significant disruption caused by the response to the Covid-19 pandemic, the Group delivered a strong trading performance in the twelve months to 31 December 2020, completing the sale of 13,575 new homes (2019: 15,855) and generating a profit before tax of GBP783.8m (2019: GBP1,040.8m). At 31 December 2020, the Group's balance sheet was strong with GBP1,234.1m of cash held (December 2019: GBP843.9m), high quality land holdings and reduced land creditors of GBP329.3m (December 2019: GBP435.2m). In addition, the Group has an undrawn Revolving Credit Facility of GBP300m, with a maturity date of 31 March 2025.
The Group's forward order book, including new home legal completions taken so far in 2021, is 15% stronger year on year with new home forward sales of c. GBP2.3bn. We have c. 6,550 new homes sold forward into the private owner occupier market with an average selling price of c. GBP251,300.
The Directors have carried out a robust assessment of the principal risks facing the Group, as described in Note 13. The impact of the ongoing social distancing restrictions, introduced by the UK and devolved Governments to mitigate the spread of Covid-19 and the risk of a further pandemic, have been included as a principal risk for the Group. The Directors have considered this risk and its potential impact on the other principal risks facing the Group including how they may threaten the Group's strategy, business model, future operational and financial performance, solvency and liquidity. The Group has considered the impact of these risks on the going concern of the business by performing a range of sensitivity analyses, covering the period to 30 June 2022, including severe but plausible scenarios materialising together with the likely effectiveness of mitigating actions that would be executed by the Directors. For further detail regarding the approach and process the Directors follow in assessing the long-term viability of the business, please see the Viability Statement in Note 13.
The scenarios emphasise the potential impact of severe market disruption, for example including the effect of the Covid-19 pandemic, on short to medium term demand for new homes. The scenarios' emphasis on the impact on the cash inflows of the Group through reduced new home sales is designed to allow the examination of the extreme cash flow consequences of such circumstances occurring. The Group's cash flows are less sensitive to supply side disruption given the Group's sustainable business model, flexible operations, agile management team and off-site manufacturing facilities.
In the first scenario modelled, the combined impact is assumed to cause a c. 38% reduction in volumes and a c. 11% reduction in average selling prices through to 30 June 2022. As a result of these factors, the Group's housing revenues were assumed to fall by c. 45% during this period. The assumptions used in this scenario reflect the experience management gained during the Global Financial Crisis ('GFC') from 2007 to 2010, it being the worst recession seen in the housing market since World War Two.
A second, even more extreme, scenario assumes a significant and enduring depression of the UK economy and housing market causing a reduction of c. 38% in new home sales volumes and a c. 37% fall in average selling prices through to 30 June 2022. As a result of these factors, the Group's housing revenues were assumed to fall by c. 61% during this period.
In each of these scenarios cash flows were assumed to be managed consistently ensuring all relevant land, work in progress and operational investments were made in the business at the appropriate time to deliver the projected new home legal completions. The Directors assumed they would continue to make well judged decisions in respect of capital return payments, ensuring that they maintained financial flexibility throughout.
In addition, due to the level of uncertainty surrounding the impact of the Covid-19 pandemic, the Directors have also assessed the impact of a complete shutdown of the housing market for the period to 30 June 2022. This extended "lockdown" scenario assumes that the Group does not receive any further sales receipts for the period whilst maintaining its current level of fixed costs.
Throughout each of these scenarios, the Group maintains substantial liquidity with a positive cash balance and no requirement to access the Group's GBP300m Revolving Credit Facility.
Having considered the Group's forecasts, scenarios, sensitivity analyses and the Group's significant financial headroom, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these accounts.
2. Segmental analysis
The Group has only one reportable operating segment, being housebuilding within the UK, under the control of the Executive Board. The Executive Board has been identified as the Chief Operating Decision Maker as defined under IFRS 8 Operating Segments.
3. Revenue
2020 2019
GBPm GBPm
----------------------------------------------------------- ------------------- -------------------
Revenue from the sale of new housing 3,129.5 3,420.1
Revenue from the sale of part exchange
properties 196.2 228.6
Revenue from the provision of internet
services 2.6 0.7
Revenue from the sale of goods and services
as reported in the statement of comprehensive
income 3,328.3 3,649.4
----------------------------------------------------------- ------------------- -------------------
4. Tax
Analysis of the tax charge for the year
2020 2019
GBPm GBPm
--------------------------------------------------------- ----------------- -----------------
Tax charge comprises:
UK corporation tax in respect of the current
year 148.5 196.7
Adjustments in respect of prior years (6.4) (8.2)
--------------------------------------------------------- ----------------- -----------------
142.1 188.5
--------------------------------------------------------- ----------------- -----------------
Deferred tax relating to origination and
reversal of temporary differences 2.6 3.2
Adjustments recognised in the current year
in respect of prior years deferred tax 0.7 0.3
--------------------------------------------------------- ----------------- -----------------
3.3 3.5
--------------------------------------------------------- ----------------- -----------------
145.4 192.0
--------------------------------------------------------- ----------------- -----------------
The tax charge for the year can be reconciled to the accounting profit as follows:
2020 2019
GBPm GBPm
----------------------------------------------------------- ----------------- -------------------
Profit from continuing operations 783.8 1,040.8
----------------------------------------------------------- ----------------- -------------------
Tax calculated at UK corporation tax rate
of 19% (2019: 19%) 148.9 197.7
Accounting base cost not deductible for
tax purposes 0.3 0.5
Goodwill impairment losses that are not
deductible 0.8 1.4
Expenditure not allowable for tax purposes 0.2 0.2
Effect of change in rate of corporation 0.9 -
tax
Deferred tax written off on lapsed share-based
payments - 0.1
Adjustments in respect of prior years (5.7) (7.9)
----------------------------------------------------------- ----------------- -------------------
Tax charge for the year recognised in profit 145.4 192.0
----------------------------------------------------------- ----------------- -------------------
The Group's overall effective tax rate of 18.6% 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 substantively enacted on 17 March 2020 was 19% and all deferred tax balances have been recognised at this rate.
Deferred tax recognised in other comprehensive income
2020 2019
GBPm GBPm
-------------------------------------------------------- ----------------- -----------------
Recognised on remeasurement loss on pension
schemes (6.5) (4.6)
-------------------------------------------------------- ----------------- -----------------
Tax recognised directly in equity
2020 2019
GBPm GBPm
--------------------------------------------------------------- ----------------- -----------------
Arising on transactions with equity participants
Current tax related to equity settled transactions (1.1) (9.9)
Deferred tax related to equity settled
transactions (0.2) 5.4
--------------------------------------------------------------- ----------------- -----------------
(1.3) (4.5)
--------------------------------------------------------------- ----------------- -----------------
5. Dividends/Return of capital
2020 2019
GBPm GBPm
----------------------------------------------------------- ----------------- -----------------
Amounts recognised as distributions to capital
holders in the period:
2018 dividend to all shareholders of 125p
per share paid 2019 - 397.7
2018 dividend to all shareholders of 110p
per share paid 2019 - 350.1
2019 dividend to all shareholders of 40p 127.5 -
per share paid 2020
2019 dividend to all shareholders of 70p 223.2 -
per share paid 2020
Total capital return 350.7 747.8
----------------------------------------------------------- ----------------- -----------------
The Directors propose to return 125 pence of surplus capital to shareholders for each ordinary share held on the register on 12 March 2021 with payment made on 26 March 2021 as an interim dividend in respect of the financial year ended 31 December 2020. The Directors propose two further additional distributions relating to surplus capital returns of 55 pence per share each as interim dividends with respect to the financial year ended 31 December 2020. These distributions to shareholders are anticipated to be made in August 2021 and in December 2021. Both additional distributions of surplus capital will be subject to continuous Board assessment. The total anticipated distributions to shareholders is therefore 235 pence per share (2019: 110 pence per share) in respect of the financial year ended 31 December 2020 .
6. 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 318.8m shares (2019: 318.1m) 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 319.9m shares (2019: 318.8m).
Underlying earnings per share excludes the legacy buildings provision charge and goodwill impairment. The earnings per share from continuing operations were as follows:
2020 2019
--------------------------------------- ------- -------
Basic earnings per share 200.3p 266.8p
Underlying basic earnings per share 220.7p 269.1p
Diluted earnings per share 199.6p 266.3p
Underlying diluted earnings per share 219.9p 268.6p
--------------------------------------- ------- -------
The calculation of the basic and diluted earnings per share is based upon the following data:
2020 2019
GBPm GBPm
------------------------------------------------------------- ------------------ -----------------
Underlying earnings attributable to shareholders 703.5 856.1
Legacy buildings provision (net of tax) (60.8) -
Goodwill impairment (4.3) (7.3)
------------------------------------------------------------- ------------------ -----------------
Earnings attributable to shareholders 638.4 848.8
------------------------------------------------------------- ------------------ -----------------
At 31 December 2020 the issued share capital of the Company was 319,071,261 ordinary shares (2019: 318,902,385 ordinary shares).
7. Inventories
2020 2019
GBPm GBPm
------------------------------------- ------------------- -------------------
Land 1,722.1 1,938.6
Work in progress 1,091.6 1,094.6
Part exchange properties 40.9 71.8
Showhouses 46.7 51.8
------------------------------------- ------------------- -------------------
2,901.3 3,156.8
------------------------------------- ------------------- -------------------
The Group has conducted a further review of the net realisable value of its land and work in progress portfolio at 31 December 2020. Our approach to this review has been consistent with that conducted at 31 December 2019 and was fully disclosed in the financial statements for the year ended on that date. The key judgements and estimates in determining the future net realisable value of the Group's land and work in progress portfolio are future sales prices, house types and costs to complete the developments. Sales prices and costs to complete were estimated on a site by site basis. There is currently no evidence or experience in the market to inform management that expected selling prices used in the valuations are materially incorrect.
Net realisable value provisions held against inventories at 31 December 2020 were GBP25.4m (2019: GBP33.7m). Following the review, GBP5.9m of inventories are valued at fair value less costs to sell rather than historical cost (2019: GBP7.4m).
8. Shared equity loan receivables
2020 2019
GBPm GBPm
---------------------------------------------------------- ------------------ ------------------
Shared equity loan receivables at 1 January 68.6 86.9
Settlements (16.4) (31.4)
Gains 4.0 13.1
---------------------------------------------------------- ------------------ ------------------
Shared equity loan receivables at 31 December 56.2 68.6
---------------------------------------------------------- ------------------ ------------------
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, GBP1.5m (2019: GBP7.1m) was unrealised.
9. Legacy buildings provision
2020
GBPm
------------------------------------ -----
At 1 January -
Additions to provision in the year 75.0
------------------------------------ -----
At 31 December 75.0
------------------------------------ -----
Given evolving practices experienced during the second half of 2020, in relation to fire safety on multi storey, multi occupancy buildings, the Group commenced a review of all of its legacy buildings that used cladding materials. The review, undertaken over a number of months, provided interim findings to the Board in February 2021. It identified 26 buildings that may have used now-banned materials. The Group has recognised a provision of GBP75m (2019: GBPnil) based on management's best estimates of the costs of completing works to ensure fire safety on affected buildings under direct ownership, and to work with and support owners and other relevant stakeholders on buildings it has developed, in order to reach positive solutions where these buildings are affected. These estimates may change over time as further information is assessed, remedial works progress and the interpretation of fire safety regulations further evolves. This is a highly complex area with judgements and estimates in respect of the cost of remedial works and the scope of the properties requiring remedial works may change should regulation further evolve.
The charge of GBP75m has been separately disclosed on the face of the Income Statement.
10. 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:
2020 2019
-------------------------------- ------ ------
Level Level
3 3
GBPm GBPm
-------------------------------- ------ ------
Shared equity loan receivables 56.2 68.6
-------------------------------- ------ ------
Shared equity loan receivables
Shared equity loan receivables represent loans advanced to customers and secured by way of a second charge on their new home. They are carried at fair value. The fair value is determined by reference to the rates at which they could be exchanged by knowledgeable and willing parties. Fair value is determined by discounting forecast cash flows for the residual period of the contract by a risk adjusted rate.
There exists an element of uncertainty over the precise final valuation and timing of cash flows arising from these loans. As a result the Group has applied inputs based on current market conditions and the Group's historic experience of actual cash flows resulting from such arrangements. These inputs are by nature estimates and as such the fair value has been classified as level 3 under the fair value hierarchy laid out in IFRS 13 Fair Value Measurement.
Significant unobservable inputs into the fair value measurement calculation include regional house price movements based on the Group's actual experience of regional house pricing and management forecasts of future movements, weighted average duration of the loans from inception to settlement of ten years (2019: ten years) and discount rate 5% (2019: 9%). The reduction in discount rate reflects the continued fall in interest rates and is 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.
11. Reconciliation of net cash flow to net cash and analysis of net cash
2020 2019
GBPm GBPm
----------------------------------------------------- ------------------- -------------------
Cash and cash equivalents at 1 January 843.9 1,048.1
Increase/(decrease) in net cash and cash
equivalents in cash flow 390.2 (204.2)
----------------------------------------------------- ------------------- -------------------
Cash and cash equivalents at 31 December 1,234.1 843.9
IFRS 16 lease liability (9.6) (8.9)
----------------------------------------------------- ------------------- -------------------
Net cash at 31 December 1,224.5 835.0
----------------------------------------------------- ------------------- -------------------
Net cash is defined as cash and cash equivalents, bank overdrafts, lease obligations and interest bearing borrowings.
12. Retirement benefit assets
As at 31 December 2020 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:
2020 2019
GBPm GBPm
------------------------------------------------------ ------- -------
Current service cost 1.9 1.7
Past service cost 0.5 -
Administrative expense 0.6 0.9
------------------------------------------------------ ------- -------
Pension cost recognised as operating expense 3.0 2.6
------------------------------------------------------ ------- -------
Interest cost 11.7 14.9
Return on assets recorded as interest (13.4) (17.6)
------------------------------------------------------ ------- -------
Pension cost recognised as net finance credit (1.7) (2.7)
------------------------------------------------------ ------- -------
Total defined benefit pension cost/(credit)
recognised in profit or loss 1.3 (0.1)
Remeasurement loss recognised in other comprehensive
income 42.5 27.0
------------------------------------------------------ ------- -------
Total defined benefit scheme loss recognised 43.8 26.9
------------------------------------------------------ ------- -------
The past service cost recognised in the current period reflects the impact of the legal ruling 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:
2020 2019
GBPm GBPm
------------------------------------- -------- --------
Fair value of Pension Scheme assets 694.4 672.8
Present value of funded obligations (643.8) (595.2)
------------------------------------- -------- --------
Net pension asset 50.6 77.6
------------------------------------- -------- --------
The reduction in the net pension asset to GBP50.6m (2019: GBP77.6m) is largely due to the continued fall in long-term corporate bond yields reducing the discount rate assumption applied to scheme obligations to 1.4% (2019: 2.0%).
13. Principal Risks and Viability Statement
The Group's principal risks are those considered to have a potentially material impact on Persimmon's strategy and business model. The Group's strategy, which recognises the cyclical nature of the housing market, focuses on minimising financial risk and deploying capital at the most appropriate time in the housing market cycle. This, together with an agile and responsive management team, has established a highly resilient business able to address a range of future economic scenarios.
Pandemic risk
Residual Impact Mitigation
Risk An increase in the Covid-19 During the current pandemic,
High transmission rate or a new the Group's business continuity
pandemic occurring in the UK plans were deployed swiftly,
Change may lead to a requirement for with Board oversight. A Covid-19
from prior our workforce and our customers Steering Committee continues
year to comply with varying degrees to monitor progress.
New of social distancing or other The Group has a highly experienced
measures introduced to curb Group Health, Safety and Environment
the spread of the disease. Department with well established
This action may disrupt continuity Group policies and procedures
of site construction and access together with the ability to
to labour and materials, leading swiftly enhance or adapt safe
to significant delays to the operating protocols to mitigate
Group's build programmes and against specific risks. For example,
the legal completion of new the Group quickly amended, tested
home sales. The magnitude of and executed the Group's Covid-19
any impact on the business Risk Assessments and associated
will depend on the extent of procedures to mitigate the risk
the measures introduced as of transmission of the Covid-19
applied to our workforce, our infection.
customers, and wider society. (Also see Health and Safety risk
The pandemic presents an increased below).
health and safety risk to the During the Covid-19 pandemic,
public, our workforce and customers the Group was able to rapidly
on our sites and our employees transition to increased levels
in our offices and in our off-site of remote working through enhanced
manufacturing facilities. use of technology. The Group's
Social distancing requirements sales teams provided a continuous
have resulted in an increased service to our customers through
number of our workforce working our digital sales platform and
remotely leading to additional other online tools, which enabled
IT and information security the business to continue to take
risks. sales reservations and legal
An increase in the Covid-19 completions throughout the lockdown
transmission rate or a new period.
pandemic may also adversely Our remote working processes
impact the wider economy resulting have been strengthened further
in reduced consumer confidence, through a number of collaboration
lower demand and pricing for tools to enable effective home
new homes, thereby impacting working.
revenues, margins, profits These enhancements to the Group's
and cash flows and may give remote working capabilities support
rise to impairment of asset appropriate numbers of our workforce
values. to work from home when required,
for example in response to amendments
to Government guidance as changes
to infection transmission rates
occur.
The risks of increased use of
remote working are mitigated
through regular communication
with all users reminding them
of potential issues, particularly
for example in relation to phishing
emails and other Cyber security
threats.
(Also see mitigation of Cyber
and Data Risk).
The impact of build delays caused
by the lockdown were mitigated
by our planned increase in levels
of construction work in progress
coming into the pandemic. This
was the result of a strategic
decision to provide greater stock
availability to our customers,
to improve quality and service
levels, and in anticipation of
increased demand ahead of the
end of the Government's current
Help to Buy scheme. The Group
continues to aim to hold strong
levels of investment in construction
work in progress to provide an
effective buffer to potential
build delays. The Group's build
programmes returned to pre-Covid
levels by July 2020 assisted
by the Group's decision for all
colleagues to continue to prepare
for a strong return to site and
not to take advantage of the
Government's Job Retention Scheme.
The vertical integration afforded
by our own Brickworks, Space4
and Tileworks production mitigates
the risk of potential supply
chain disruption.
The Group's long-term strategy
recognises the risks associated
with the cyclical nature of the
housing market by minimising
financial risk, maintaining operational
and financial flexibility and
deploying capital at the most
appropriate time in the cycle.
This strategy and management's
preparedness, responsiveness
and agility provide us with the
sound fundamentals required to
enter periods of demand, volume
or pricing downturns in a position
of strength with strong levels
of liquidity and a robust balance
sheet.
--------------------------------------- -----------------------------------------------
Strategy
Residual Impact Mitigation
Risk The Group's strategy has been The Group's strategy is agreed
Low developed by the Board as the by the Board at an annual strategy
most appropriate approach to meeting, and undergoes a continuous
Change successfully deliver the Group's and iterative process of implementation,
from prior purpose and ambition and generate review and adaptation at Board
year optimal sustainable value for meetings and in response to the
No change all stakeholders. evolution of conditions in which
As political, economic and the Group operates.
other conditions evolve, the The Board engages with all stakeholders
strategy currently being pursued to ensure the strategy is communicated,
may cease to be the most appropriate understood and effective. For
approach. example, an Employee Engagement
If the Group's strategy is Panel, Gender Diversity Panel
not effectively communicated and employee engagement surveys
to our workforce and / or engagement have been established to monitor
and incentive measures are the cultural health of the organisation
inappropriate, operational and ensure strategy is understood
activities may not successfully and implemented.
deliver the Group's strategic
objectives.
--------------------------------------- -----------------------------------------------
UK's exit from the EU
Residual Impact Mitigation
Risk Whilst the completion of the We continue to monitor the political
High free trade agreement between situation, the UK economy and
the UK and the EU has relieved the housing market through the
Change some immediate concerns, including review of external information
from prior regarding increased customs and changes in the behaviour
year duties on supplies imported of our customer base. We robustly
No change from the EU, the broader impact manage and control our work in
of these new trade arrangements progress and land investment
has yet to be seen. and our stringent investment
The new arrangements may lead appraisals will continue, aiming
to increased economic uncertainty to ensure exposure to market
adversely impacting: consumer disruption is reduced.
confidence, demand and pricing We routinely engage with our
for new homes, revenues, margins, key suppliers and are currently
profits and cash flows and working closely with them to
may result in the impairment ensure that our supply chain
of asset values. is not materially impacted. We
The new trade arrangements will continue to employ effective
may result in delays impacting tendering processes to ensure
the availability and cost of cost impacts are mitigated as
imported materials and components far as possible.
within our supply chain. The vertical integration afforded
by use of our own Brickworks,
Space4 and Tileworks production
will mitigate the availability
and cost risks further.
(Also see mitigation and review
of Government policy and Labour
and Resources)
--------------------------------------- -----------------------------------------------
National and regional economic conditions
Residual Impact Mitigation
Risk The housebuilding industry The Group's long-term strategy
High is sensitive to changes in recognises the cyclical nature
the economic environment, including of the housing market and focuses
Change unemployment, interest rates on minimising financial risk,
from prior and consumer confidence. Any maintaining operational and financial
year deterioration in economic conditions flexibility and judging the timing
No change may have an adverse impact of capital deployment through
on demand and pricing for new the cycle.
homes, which could have a material We continually monitor lead indicators
effect on our revenues, margins, on the future direction of the
profits and cash flows and UK housing market so as to manage
result in the impairment of our exposure to any future market
asset values. disruption. We regularly review
Economic conditions in the our pricing structure to ensure
land market may adversely affect it reflects local market conditions
the availability of a sustainable and continuously monitor the
supply of land at appropriate Group's geographical spread.
levels of return. Our diversity of geographical
markets and our range of price
points helps us mitigate the
effects of regional economic
fluctuations. In the current
climate, our strategy of providing
'homes for all' at more affordable
price points is proving successful.
We control the level of build
on site by closely monitoring
our stock and work in progress
levels. The Group's strong land
holdings provide continuity of
supply and disciplined and extensive
due diligence processes are always
undertaken prior to entering
into any land investment decisions.
These processes have regard to
local market demands and conditions,
and the Group's existing strategic
and on market land holdings.
All land additions are reviewed
by the Executive Directors.
--------------------------------------- -----------------------------------------------
Government policy
Residual Impact Mitigation
Risk Changes to Government policy We monitor Government policy
High have the potential to impact in relation to the housing market
on several aspects of our strategy closely. Consistency of policy
Change and operational performance. formulation and application remains
from prior For example, changes to the very supportive of the housebuilding
year planning system, changes in industry, encouraging continued
No change the tax regime, or further substantial investment in land,
amendment of the Help to Buy work in progress and skills to
scheme or other housing policies support output growth. Our strategic
could have an adverse effect objectives, delivering 'homes
on revenues, margins and asset for all', are aligned with Government
values. Changes to the planning priorities for increasing housing
system may also adversely impact stock.
the Group's ability to source The devolved Governments continue
suitable land to deliver appropriate to support the industry with
levels of return. their respective Help to Buy
and other equity loan schemes.
In England, the current Help
to Buy scheme closed for customer
reservations on 15 December 2020
and all new homes have to be
delivered to customers by 31
March 2021. A replacement Help
to Buy scheme opened for customers
to reserve new homes from 16
December 2020 and is available
until 31 March 2023. In Scotland,
the First Home Fund Scheme will
re-open from 1 April 2021.
We actively manage our land investment
decisions and levels of work
in progress to mitigate exposure
to external influences.
--------------------------------------- -----------------------------------------------
Mortgage availability
Residual Impact Mitigation
Risk Any restrictions in the availability We monitor Bank of England commentary
High or affordability of mortgages on credit conditions including
for customers could reduce the monthly approvals for house
Change demand for new homes and affect purchases and UK Finance's monthly
from prior revenues, profits, cash flows, reports and lenders' announcements
year and asset values. There has for trends in lending. We ensure
No change been some tightening of lending that our investment in land and
criteria observed post-Covid-19. work in progress is appropriate
for our level of sales and our
expectations for market conditions.
The devolved Government's Help
to Buy and other equity loan
schemes, support customers to
gain access to the housing market
across the UK with competitive
mortgage rates.
--------------------------------------- -----------------------------------------------
Health, safety and the environment
Residual Impact Mitigation
Risk The health and safety of our The Board has a very strong commitment
High employees, subcontractors, to health, safety and the environment,
customers and visitors to our and managing the risks in this
Change construction sites is of paramount area effectively. This is implemented
from prior importance to us. Accidents by comprehensive management systems
year on our sites could also lead and controls, managed by our
No change to reputational damage and highly experienced Group Health,
financial penalties. Safety and Environment Department,
Environmental breaches may which includes detailed training
result in financial penalties, and inspection programmes to
undermine the creation of sustainable minimise the likelihood and impact
communities and damage the of accidents or environmental
reputation of the Group. breaches on our sites. The Group's
established policies and procedures
can be quickly and effectively
adapted to evolving health and
safety guidance and regulation.
This has been recently demonstrated
with the swift Group wide adoption
of Covid-19 secure operating
procedures.
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.
The Group's Health, Safety and
Environment Department continues
to enhance the Group's environmental
processes and policies in partnership
with the Group's Sustainability
Committee and the wider operational
teams. Regional Environmental
Champions have been introduced
to ensure compliance with these
processes on site.
--------------------------------------- -----------------------------------------------
Labour and resources: skilled workforce, retention and succession
Residual Impact Mitigation
Risk Access to an appropriately We closely monitor our build
Medium skilled workforce is a key programmes to enable us to manage
requirement for the Group. our labour requirements effectively.
Change Rising UK house building activity We operate in-house apprentice
from prior in recent years has increased and training programmes, to support
year demand for skilled labour, an adequate supply of skilled
No change which has increased pressure labour. Our in-house Group Training
on costs. Department provides standardised
A skilled management team is training that is centrally controlled.
essential in maintaining operational We are also committed to playing
performance and the implementation a full and active role in external
of the Group's strategy. initiatives to address the skills
shortage such as the Home Building
Skills Partnership, 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
and supply chain disruption supply chain are closely monitored
Change caused by the Covid-19 pandemic to allow us to manage and react
from prior has led to an increased demand to any issues and to help ensure
year for materials which is placing consistent high quality standards.
No change greater pressure on some elements We build strong relationships
of the supply chain. This may with key suppliers over the long
continue to cause availability term to maintain consistency
constraints and increase cost of supply and cost efficiency.
pressures. We have invested in expanding
our off-site manufacturing hub
at Harworth, near Doncaster,
to strengthen security of supply.
Our brick plant and roof tile
manufacturing facility provide
a significant proportion of these
materials to our sites. 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
if unsuitable materials are that the Group's suppliers provide
procured leading to damage materials to the expected specification.
to the Group's reputation and Materials are inspected on receipt
customer experience. at site.
Throughout construction, each
of our new homes undergo 21 key
stage checks by our Independent
Quality Inspectors, as part of
"the Persimmon Way" (the Group-wide
consolidated approach to new
home construction), and before
handover to the customer, our
management teams perform a seven
stage internal quality check
process.
Land Purchasing Land Purchasing
Land may be purchased at too The Group has strong land holdings.
high a price, in the wrong All land purchases undergo stringent
location and at the wrong time viability assessments performed
in the housing market cycle. by our dedicated land and planning
teams and 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.
--------------------------------------- -----------------------------------------------
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
to a lower carbon economy lead in a number of ways including
Change to increasing national regulation measuring our scope 1 and scope
from prior this could cause constrained 2 CO (2e) emissions and the amount
year land supply, additional planning of waste we generate for each
No change delays, increase the cost and home we sell.
accessibility of materials
required within our construction The Group maintains a climate
process and potentially limit change risk register which ensures
their supply or require additional that the management and mitigation
features which could significantly of this risk is embedded within
increase our costs. the Group's risk management processes.
Changes in weather patterns The risk register is updated
and the frequency of extreme at least once a year and reviewed
weather events, particularly by the Group Sustainability Manager,
storms and flooding, may increase the Group Internal Audit Manager
the likelihood of disruption and the Risk Committee. The Group
to the construction process. has appointed a Group Sustainability
The availability of mortgages Manager bringing increased focus
and property insurance may to both the risks and opportunities
reduce in response to financial surrounding climate change.
institutions considering the
possible impacts relating to We systematically consider the
climate change. Changes in potential impacts of climate
weather patterns may also lead change throughout the land acquisition,
to increased build costs and/or planning and build processes
development timeframes. and work closely with planning
authorities and other statutory
bodies to manage and mitigate
these risks. For example, we
conduct full environmental assessments
for each parcel of land we acquire
for development to ensure our
activities fulfil all obligations,
respecting the natural environment
and the communities for which
we are delivering newly built
homes. We are keen to adopt Sustainable
Urban Drainage Systems on all
our new sites, subject to local
planning requirements, to address
the risk of flooding.
Assisted by an independent expert,
the Group has set science based
carbon reduction targets for
its Scope 1, 2 and 3 emissions.
Steering Groups have been established
to plan and manage the Group's
carbon reduction pathway to ensure
these targets are met.
The Group's low carbon home Steering
Group has launched a Regional
Demonstration Project to understand
the environmental, social and
financial impacts of implementing
the Future Homes Standard, monitoring
the home's occupants to understand
real life "liveability" through
time. Working with Energy House
Laboratories at the University
of Salford, we will monitor the
true in-use carbon savings of
the home, impacts to the homeowner
as well as potential additional
processes and costs to the build
process.
The aim of the project is to
inform UK policy direction and
debate on building low carbon
homes cost effectively at scale.
We will seek to identify the
optimum opportunities when considering
input costs versus carbon savings
for each component used within
the demonstration house. The
demonstration house will be built
in summer 2021 in Fulford, York,
North Yorkshire.
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 on its The Group has a strong commitment
ability to deliver its strategic to appropriate culture and maintaining
Change objectives. the high quality of its operations.
from prior For example, should governance, Oversight from the Board seeks
year build quality, customer experiences, to ensure key processes are robust
No change operational performance, management and any shortcomings identified
of health, safety and the environment are promptly and effectively
or local planning concerns addressed.
fall short of our usual high The Group's build quality and
standards, this may result customer service processes are
in damage to customer, commercial a key strategic priority, and
and investor relationships significant investment has been
and lead to higher staff turnover. made in this area with the Customer
Care Improvement Plan now embedded
within the business. Persimmon's
Homebuyer Retention scheme, introduced
on 1 July 2019 is unique in the
market, and is proving to be
both popular with customers and
a key driver of behavioural change
within the business. The Consumer
Code for Housebuilders has highlighted
this industry leading scheme
as an area of good practice in
relation to customer service.
Where management oversight identifies
inconsistencies in adherence
to agreed processes, correcting
actions are swiftly taken, for
example in the case of incorrect
cavity barrier installations
where immediate action was taken
through inspections and remediation.
The Group has introduced the
Persimmon Way in order to strengthen
build quality and assurance processes
and establish a consolidated,
consistent Group-wide approach
to construction. The Group Construction
Director is responsible for the
implementation of the Persimmon
Way and reports to the Group
Chief Executive. Independent
Quality Inspectors undertake
inspections at 21 key stages
of the construction process as
well as continually assessing
the finished quality of our new
homes.
The Group is to implement a process
of complimentary external verification
of the key processes to further
support Group best practice.
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.
The Group continues to further
developed engagement activities
with all stakeholders. For example,
improved engagement with our
employees is facilitated through
the Employee Engagement and Gender
Diversity Panels, which meet
regularly and report to the Board.
The Group has also invested in
a number of measures to improve
customer experience by putting
customers before volume. For
example, investment in increased
work in progress levels, the
introduction of a Home Buyer
Retention Scheme for customers,
and investment in the development
of a customer portal which is
currently being piloted ahead
of a wider Group roll-out. In
addition, the Group continues
to foster long term, mutually
beneficial relationships with
its 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.
The Group supports Team GB, the
British Olympic team, and continues
to pursue extensive community
support programmes in partnership
with Team GB, as part of the
Group's Healthy Community charitable
activities.
--------------------------------------- -----------------------------------------------
Regulatory compliance
Residual Impact Mitigation
Risk The housebuilding industry We operate comprehensive management
Medium is subject to extensive and systems to ensure regulatory
complex laws and regulations, and legal compliance, including
Change particularly in areas such a suite of policies and procedures
from prior as land acquisition, planning covering key areas of legislation
year and the environment and building and regulation. Where these systems
Increase and fire safety regulations. identify inconsistencies in adherence
Ensuring compliance in these to agreed processes, correcting
areas can result in delays actions are swiftly taken. For
in securing the land required example, our response to the
for development and in construction incorrect cavity barrier installations
and increased costs of development. where immediate action was taken
Any retrospective changes in through inspections and remediation.
these regulations or failure We also carefully monitor evolving
to comply with them could result regulations and consider the
in remediation costs, damage impact on the Group and its responsibilities.
to the Group's reputation and For example, the Group has been
potential imposition of financial closely assessing the impact
penalties. of the changing fire safety regulations
with respect to multi storey,
The risk has increased from multi occupancy buildings, particularly
the prior year due to the rapidly in respect of buildings less
and continuously evolving regulations than 18 metres in height, that
and practices regarding fire may have used now-banned materials.
safety of multi storey, multi As practices have evolved, the
occupancy buildings. Group has responded swiftly and
committed to perform fire safety
remedial works where necessary
on buildings that it currently
owns and work with owners and
other stakeholders on buildings
that the Group developed.
We engage extensively with planning
authorities and other stakeholders
to reduce the likelihood and
impact of any delays or disruption.
In addition, the Group controls
sufficient land holdings to provide
security of supply for medium
term trading requirements.
--------------------------------------- -----------------------------------------------
Cyber and Data Risk
Residual Impact Mitigation
Risk Failure of any of the Group's We operate centrally maintained
Medium IT systems, particularly those IT systems with a fully tested
in relation to customer information disaster recovery programme.
Change and customer service could All infrastructure is highly
from prior result in significant financial resilient, with geographically
year costs, business disruption diverse datacentres that have
No change and reputational damage due a series of backups.
to the loss, theft or corruption Regular awareness emails are
of data either inadvertently delivered to all users and the
or via a targeted cyber-attack. Group performs substantial online
training activity to increase
awareness of cyber-risks.
Specialists within the Group's
IT Department provide oversight
on the suite of controls in place
to ensure they are continually
updated to mitigate evolving
threats.
The Group has detailed and robust
systems development and implementation
processes in place and a Cyber
Incident Response Plan. An Information
Security Steering Group has been
established to provide oversight
of the Group's cyber security
strategy and to continue to promote
a positive culture for cyber
security.
Periodic penetration testing
is carried out through security
partners to test the security
of our perimeter network.
An externally led review of the
Group's cyber security processes
and controls has been completed
in 2020 and provided assurance
over the Group's existing measures.
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, which have been updated to reflect the impact of the Covid-19 pandemic, also form part of the Board's assessment of long term prospects and viability*.
Assessing Persimmon's long term prospects
Persimmon has built a strong position in the UK's house building market over many years recognising the potential for long term growth across regional housing markets. The Board recognises that the long term demographic fundamentals of continued positive population growth and new household formation, together with the requirement to replace and improve the quality of the country's housing stock, provide a long term supportive backdrop for the industry. However, the Board and the Group's strategy recognises the inherent cyclicality of the UK housing market. The Group therefore came into the Covid-19 pandemic from a position of strength with good liquidity, high quality land holdings and a strong balance sheet. The future impacts of the Covid-19 pandemic on the UK economy and the Group's sales and construction programmes remain uncertain. The Board has considered these potential impacts when assessing the long term prospects of the Group.
Whilst this uncertainty remains, Persimmon possesses the sound fundamentals required to realise the Group's purpose and ambitions and deliver sustainable success:
-- talented teams focused on consistently delivering good quality
homes for our customers;
-- high quality land holdings that allow us to create attractive
places in areas where people wish to live and work;
-- strong customer and local community relationships,
-- market knowledge, expertise and industry know-how; and,
-- long term healthy supplier engagement.
By continuing to build on these solid foundations through, for example, the Group's customer care improvement plan, 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's materiality assessment, ensures that a thorough review of stakeholder interests are incorporated within the assessment of the Group's long term prospects.
The Group adopts a disciplined annual business planning regime which is consistently applied and involves the management teams of the Group's 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
-- Sustained 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 2025
2. Strategy and business model
-- Strategy focuses on the risks associated with the housing cycle and on minimising financial
risk and maintaining financial flexibility
-- Focusing on constructing new homes for our customers to the high quality standards that they
expect and helping to create attractive neighbourhoods
-- Strategy recognises the Group's ability to generate surplus capital beyond the reinvestment
needs of the business
-- Substantial investment in staff engagement, training and support to sustain operations over
the long term
-- Approach to land investment and development activity provides the opportunity to successfully
deliver much needed new housing supply and create value over the long term
-- Differentiation through vertical integration achieving security of supply of key materials
and complementary modern methods of construction to support sustainable growth in output
-- Simple capital structure maintained with no structural gearing
3. Principal risks associated with the Group's strategy and business model include
-- Disruption to the UK economy resulting from the measures introduced to mitigate the impact
of the Covid-19 pandemic adversely impacting demand for new homes and construction programmes
-- The impact of disruption to the UK economy resulting from the departure of the UK from the
EU
-- Market impacts related to reduced consumer confidence due to regional economic uncertainties
-- Reduction in mortgage funding availability and/or affordability due to reduced lender risk
appetite and/or regulatory change
-- Response required to mitigate the impact of climate 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 towards the end of each year. The management team from each of the Group's house building businesses produce a five year business plan with specific objectives and actions in line with the Group's strategy and business model. These detailed plans reflect the development skill base of the local teams, the region's housing market, having particular regard to the impacts of the Covid-19 pandemic on the local area, 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 documented in the Strategic Report is the Group's commitment to maintain capital discipline over the long term through the housing cycle. This commitment was reinforced with the announcement of the Group's Capital Return Programme ("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 nine years the Group is ahead of plan and has paid GBP10.65 per share, or GBP3.3bn back to shareholders. On 3 March 2021 the Directors announced the scheduled CRP payments in respect of the financial year ended 31 December 2020 to be paid in 2021. Further details can be found in the Chairman'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, out to 31 March 2025.
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 Directors have considered the impact of these risks (particularly those in relation to the ongoing social distancing restrictions introduced by the UK and devolved Governments to contain the spread of Covid-19) on the viability of the business by performing a range of sensitivity analyses to a Base Case, including severe but plausible scenarios materialising together with the likely effectiveness of mitigating actions that would be executed by the Directors.
The scenarios emphasise the potential impact of severe market disruption, for example including the effect of the Covid-19 pandemic, on short to medium term demand for new homes. The scenarios' emphasis on the impact on the cash inflows of the Group through reduced new home sales is designed to allow the examination of the extreme cash flow consequences of such circumstances occurring. The Group's cash flows are less sensitive to supply side disruption given the Group's sustainable business model, flexible operations, agile management team and off-site manufacturing facilities.
In the first scenario modelled, the combined impact is assumed to cause a c. 42% reduction in volumes and a c. 14% reduction in average selling prices through to 2022. As a result of these factors, the Group's housing revenues were assumed to fall by c. 50% during this period. The assumptions used in this scenario reflect the experience management gained during the Global Financial Crisis ('GFC') from 2007 to 2010, it being the worst recession seen in the housing market since World War Two. The scenario assumes a subsequent recovery occurs over a similar extended period as in the GFC.
A second, even more extreme, scenario assumes a significant and enduring depression of the UK economy and housing market over the next five years causing a reduction of c. 45% in new home sales volumes and a c. 48% fall in average selling prices through to 2022. As a result of these factors, the Group's housing revenues were assumed to fall by c. 71% during this period. It assumes that neither volumes nor average selling prices recover from this point through to 2025.
In each of these scenarios cash flows were assumed to be managed consistently ensuring all relevant land, work in progress and operational investments were made in the business at the appropriate time to deliver the projected new home legal completions. The Directors assumed they would continue to make well judged decisions in respect of capital return payments, ensuring that they maintained financial flexibility throughout.
Based on this assessment, the Directors confirm that they have reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to the end of 31 December 2025.
* 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 2020 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 2020 Annual Report and
Accounts, prepared in accordance with the applicable set of accounting standards, give a true
and fair view of the assets, liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as a whole; and
-- the Strategic Report includes a fair review of the development and performance of the business
and the position of the issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and uncertainties that they face.
We consider the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.
The Directors of Persimmon Plc and their function are listed below:
Roger Devlin Chairman Dean Finch Group Chief Executive Mike Killoran Group Finance Director Nigel Mills Senior Independent Director Rachel Kentleton Non-Executive Director Simon Litherland Non-Executive Director Joanna Place Non-Executive Director Annemarie Durbin Non-Executive Director Andrew Wyllie Non-Executive Director
By order of the Board
Dean Finch Mike Killoran Group Chief Executive Group Finance Director 2 March 2021
The Group's Annual financial reports, half year reports and trading updates are available from the Group's website at www.persimmonhomes.com/corporate.
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