We could not find any results for:
Make sure your spelling is correct or try broadening your search.
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 | |
---|---|---|---|---|---|---|---|---|---|---|
61.00 | 4.67% | 1,366.50 | 1,360.50 | 1,362.00 | 1,361.50 | 1,309.50 | 1,318.50 | 1,279,884 | 16:35:10 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Gen Contr-single-family Home | 2.77B | 255.4M | 0.7996 | 17.02 | 4.35B |
TIDMPSN
RNS Number : 2885D
Persimmon PLC
02 March 2022
FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2021
Persimmon Plc today announces Final Results for the year ended 31 December 2021.
Dean Finch, Group Chief Executive, commented:
"Persimmon's performance was strong in 2021 as we delivered more homes, built better and strengthened our platform for future growth. Maintaining build rates at pre-Covid levels, we delivered almost 1,000 additional new homes, and improved customer service such that we anticipate receiving a five-star rating in the annual HBF survey later in March 2022, a first in the company's history, whilst also improving our underlying operating margin.
"An agile approach across the business ensured we navigated the supply chain challenges posed by the pandemic, with our Brickworks, Tileworks and Space4 manufacturing facilities providing security of supply for essential materials and helping us maintain our operating efficiency. We will significantly expand production capacity at our Brickworks and Tileworks facilities this year and invest in a new Space4 timber frame facility.
"We are taking advantage of exciting opportunities in the land market, bringing in over 20,750 plots into our business last year at industry-leading embedded margins, and we expect to open around 75 new outlets in the first half of 2022.
"A year ago, we adopted an industry-leading position regarding the remediation of all cladding and fire related defects on a small number of buildings developed by Persimmon over the last 30 years, which is consistent with the recent amendments to the Building Safety Bill. We await further details including any widening in scope of those developments brought within the Building Safety Levy .
"The new year's trading has started well, with private sales rates ahead by c. 2% in the opening weeks and a robust forward sales position of GBP2.21bn. We expect to grow our outlet position in 2022 and are targeting volume growth of 4-7% on 2021 levels, whilst maintaining our industry-leading margins, although we are mindful of the growing risk of an economic impact as a result of the tragic conflict in Ukraine ."
Financial Highlights
2021 2020 New home completions 14,551 13,575 ------------ ------------ New home average selling price GBP237,078 GBP230,534 ------------ ------------ Total Group revenues GBP3.61bn GBP3.33bn ------------ ------------ New housing revenues GBP3.45bn GBP3.13bn ------------ ------------ Underlying new housing gross margin(1) 31.4% 31.0% ------------ ------------ Underlying profit before tax(2) GBP973.0m GBP863.1m ------------ ------------ Profit before tax GBP966.8m GBP783.8m ------------ ------------ Cash at 31 December GBP1,246.6m GBP1,234.1m ------------ ------------ Land holdings at 31 December - plots owned and under control 88,043 84,174 ------------ ------------ Current number of developments c. 290 c. 300 across the UK ------------ ------------ Current forward sales position GBP2.21bn GBP2.27bn ------------ ------------ Net assets per share 1,135.7p 1,102.7p ------------ ------------ Underlying return on average capital employed(3) 35.8% 29.4% ------------ ------------ Customer satisfaction score(4) 92.0% 89.7% ------------ ------------
Trading performance
-- Strong demand throughout the year with the Group's average private weekly sales rate being c. 9% higher than 2020, a year significantly impacted by pent up demand brought about by the pandemic, and c. 22% ahead of 2019. -- Average selling prices increased by 2.8% since 2020 reflecting a combination of the mix of homes sold in the year and the increased proportion of homes sold to our housing association partners. -- Effective supply chain management, cost control and the Group's vertical integration, together with strong selling prices, mitigated build cost inflation of c. 5.0% and delivered an industry-leading underlying operating margin(5) of 28.0% (2020: 27.6%). -- Strong net cash generation of GBP1,209.8m (2020: GBP1,066.8m) before capital returns of GBP749.6m and net land spend of GBP447.7m.
Strengthening our development pipeline
-- Added over 20,750 plots of land, both from on market purchases and our strategic land holdings, with industry-leading embedded margins. -- High quality land holdings, with 88,043 plots owned and under control at 31 December 2021 (2020: 84,174 plots). -- Continued investment with gross land spend of GBP460m in 2021.
Build quality - 'build right, first time, every time'
-- An unrelenting focus on 'build right, first time, every time', further enhancing the Group's build quality and customer service. -- Achieved pre-Covid build rates throughout the year, whilst building better quality homes in line with the 'Persimmon Way', the Group's construction excellence programme, which is fully operational across the business. -- Build rates have further improved in the early part of this year as we continue to see the benefit of the Persimmon Way in our build programmes and the Group's vertical integration facilities -- All warranty provider scores have significantly improved over the last year, with a 17% year on year improvement in the number of NHBC Reportable Incidents(6) .
Customer service
-- Achieved a 92.0%(4) customer satisfaction score for the survey year ending 30 September 2021. We believe we will achieve a five-star rating when the HBF's annual results are published later in March 2022 for the first time in the company's history. -- FibreNest, the Group's ultrafast, full fibre broadband service, currently supports over 21,000 of our customers across over 270 developments. (2020: over 12,500 customers across 198 developments).
Supporting sustainable communities
-- Our private average selling price of GBP259,231 for the year to 31 December 2021 is over 20%(7) lower than the UK national average. -- Investment of GBP490m in local communities in 2021, including the delivery of 2,533 new homes for lower income families to our housing association partners. -- Over GBP1.8m donated to local charities and community groups. -- Challenging science-based carbon reduction targets - net zero homes by 2030 and net zero operations by 2040 - now set and independently accredited by the Science Based Targets initiative. -- Pilot projects, utilising innovative carbon reduction technologies, are underway to determine the most effective methods of delivering net zero carbon homes in use at scale.
Legacy buildings provision
-- In February 2021 the Group announced its commitment that no leaseholder living in buildings it developed, would pay for cladding related defects or fire related safety issues. -- Persimmon set aside GBP75m to pay for rectification works with 33 developments identified, including all those above 11m. -- Four of the identified developments have secured successful EWS1 forms, protecting leaseholders, and are working closely with the Management Companies and building owners of the rest. -- Persimmon will not claim from the Government's Building Safety Fund. -- In line with Government's request, we have extended the search back 30 years but do not expect the number of buildings identified to change materially.
Current trading and outlook
-- Persimmon is in an excellent position with strong current forward sales of GBP2.21bn, a c. 2% year on year increase in the Group's average private weekly sales rate for the first eight weeks of 2022 and strong weekly build rates. -- High quality land holdings with industry-leading embedded margins. -- Diverse network of c. 290 active outlets (2020: c. 300) across the UK with good visibility of c. 75 new outlets coming through in the first half of 2022 providing a strong platform for future disciplined growth. -- Investment in new Space4 factory and output increases at Brickworks (+25%) and Tileworks (+50%) planned for 2022, enhancing security of supply and driving further quality and efficiency gains. -- We expect to deliver volume growth of 4-7% for the full year 2022 from 2021 levels whilst maintaining the Group's industry-leading margins. -- We anticipate a greater proportion of completions in the second half of the year relative to the first reflecting a return to more typical trading patterns and the growth profile of our outlet network. -- We currently anticipate increases in selling prices will mitigate build cost inflation.
Shareholder returns
-- Dividends of 125p (GBP398.7m) and 110p (GBP350.9m) per share paid on 26 March 2021 and 13 August 2021 respectively. -- Payment of regular annual instalment of 125p per share to be made on 1 April 2022 (brought forward from July 2022) with payment of 110p of surplus capital in July 2022, subject to continuous review, in line with the Group's strategy.
Footnotes
1 Stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m).
2 Stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m). Profit before tax after legacy buildings provision and goodwill impairment is GBP966.8m (2020: GBP783.8m).
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 of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m).
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 Based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m) and underlying operating profit (2021: GBP966.7m, 2020: GBP862.8m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m)).
6 A Reportable Incident is an area of non-compliance with NHBC Standards. The item is rectified fully before completion of the home.
7 National average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land registry. Group average private selling price is GBP259,231.
For further information please contact:
Dean Finch, Group Chief Executive Kevin Smith Persimmon Plc Jos Bieneman Tel: +44 (0) 1904 642199 Ellen Wilton Citigate Dewe Rogerson Tel: +44 (0) 20 7638 9571
A presentation to analysts and investors will be available from 07.00 am on 2 March 2022. To view the presentation, please use the webcast link below:
Webcast link: https://edge.media-server.com/mmc/p/bxvcypb6
There will also be a Q&A session with management, hosted by Group Chief Executive, Dean Finch, Chief Commercial Officer, Martyn Clark, Group Financial Controller, Mike Smith and Julia Nichols, Group Strategy and Regulatory Director, 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
Introduction
I am pleased to report that Persimmon has had a strong year. The Group has sold more homes and built them to a consistently higher standard, while improving both profit and underlying operating margin. In combining improvements in quality, customer service and financial performance we are making the broader progress we set as our objective.
Since I joined as Chairman I have been clear that there were areas for improvement in customer care and build quality especially. Dean Finch's appointment around 18 months ago recognised the need to drive both our industry-leading financial performance and enhance our capabilities in key areas to sustain our success. I am therefore delighted to note that throughout the year we have been consistently trending above five-star on the Home Builders Federation (HBF) customer satisfaction score(1) and anticipate our first ever annual five-star award will be confirmed in the coming weeks.
This is a tangible demonstration of our progress but there is of course further to go to sustain and improve on it. This remains the clear focus of the Board and the senior management team .
Trading
The UK housing market remains supportive, with strong customer demand, good mortgage availability and low interest rates. The Group saw an increase in legal completions of nearly 1,000 homes to 14,551 last year (2020: 13,575). Average private sales rates per site were around 9% ahead of 2020 and around 22% ahead of 2019. Group total revenue increased by 8% to GBP3.61bn (2020: GBP3.33bn). Our continued disciplined cost control, combined with a positive pricing environment, drove underlying operating margin(2) up to 28.0% (2020: 27.6%) and our underlying pre-tax profit(3) increased to GBP973.0m (2020: GBP863.1m). Cash generation remains strong at GBP762.1m (pre-capital return).
This is a pleasing performance and a credit to our highly experienced and agile teams right across our business. They have expertly managed the challenges presented by the pandemic, material and labour shortages, and cost inflation, to achieve it.
We have increased our land investment, bringing in over 20,750 plots into the business, whilst maintaining our industry-leading margins. This strengthens our platform for future growth.
Over a year ago, in February 2021 we announced our industry-leading commitment to protect leaseholders from having to pay towards cladding removal or fire related safety issues on any building we constructed and set aside GBP75m to fund this. Whilst accounting for less than one percent of high rise buildings constructed we wanted to protect our customers and remove uncertainty for them. With 33 developments identified, including four where successful EWS1 forms have now been secured, we are already showing leadership and protecting leaseholders and will continue to engage positively with government.
Persimmon was also the first major developer to agree voluntary undertakings with the Competition and Markets Authority ("CMA") in respect of leaseholds, extending our existing schemes to offer leaseholders an even greater discount on the purchase of their freeholds. We were also delighted to become a Living Wage Foundation accredited employer and have our carbon targets accredited by the blue ribbon Science Based Target initiative during the year.
Long term strategy and Capital Return Programme
Persimmon has delivered an industry-leading performance over many years with a well-executed strategy which recognises the cyclical nature of the housing market. Over the last 20 years, the Group's average return on capital has been c. 23% reflecting the Group's long-term performance. With an experienced management team, the Group's strong positioning in its markets, reflected in robust forward sales of GBP2.21bn, and our high quality land holdings, we are determined to sustain this for many years to come by delivering on the five key priorities Dean Finch, our Group Chief Executive, sets out in his statement. We are investing in our platform for future growth, whilst maintaining our disciplined strategy around land investment, improving the Group's operational efficiencies and placing our customers at the heart of our business.
The Board continues to consider 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 investment opportunities. This cash retention policy demonstrates that we intend to continue to exercise caution through the cycle.
The Board remains committed to its well-established strategy of returning capital that is surplus to the needs of the business to its shareholders. Having assessed and concluded on the availability of surplus capital for 2021, the Board is pleased to re-iterate its intention to return 235p per share in 2022. The first payment of 125p per share will be made on 1 April 2022 (rather than July 2022 as was originally indicated) to shareholders on the register on 11 March 2022 as an interim dividend. The second payment of 110p per share will be made in July 2022 (rather than March 2022 as was originally indicated), subject to continuous assessment in line with our strategy.
Board changes
Mike Killoran retired as Group Finance Director in January 2022 after more than 25 years with Persimmon. Mike has played a key part in Persimmon's success and he leaves with our thanks and best wishes. I am delighted that we have appointed Jason Windsor as Chief Financial Officer and we expect him to join us in the summer.
The Board also welcomed Shirine Khoury-Haq who joined as a Non-Executive Director during the year. Rachel Kentleton decided to stand down from the Board during the year given other commitments and the Board thanks her for her contribution.
In what was again a very difficult year operationally, the Board would like to thank our colleagues, sub-contractors and suppliers for their hard work and determination to deliver for our customers.
Footnotes
1 The Group participates in a National New Homes Survey, run by the Home Builders Federation. The rating system is based on the number of customers who would recommend their builder to a friend.
2 Based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m) and underlying operating profit (2021: GBP966.7m, 2020: GBP862.8m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m)).
3 Stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m). Profit before tax after legacy buildings provision and goodwill impairment is GBP966.8m (2020: GBP783.8m).
Chief Executive Statement
Introduction
Persimmon has performed very strongly in 2021. I am delighted that we have delivered nearly 1,000 more legal completions and generated a 40 basis point increase in the Group's underlying operating margin(1) year on year (2021: 28.0%, 2020: 27.6%) while further improving our five-star HBF 8 week customer satisfaction score to 92.0%(2) . We are preserving Persimmon's great strengths and continuing to deliver an industry-leading performance whilst making good progress in enhancing our build quality and customer service on a consistent basis.
Trading
The Group delivered 14,551 new homes in 2021 (2020: 13,575) underpinned by a supportive housing market. Total Group revenues were GBP3.61bn, an 8% increase year on year (2020: GBP3.33bn). Our new housing revenues increased to GBP3.45bn in 2021 from GBP3.13bn in the prior year.
Demand was strong throughout 2021: the Group's average private sales rate per site was c. 9% ahead of 2020 and c. 22% ahead of 2019 reflecting Persimmon's positive positioning within a healthy housing market. This backdrop has supported positive pricing conditions with increased average selling prices for private sales seen across each of our regions. Our average selling price increased by 2.8% to GBP237,078 (2020: GBP230,534) reflecting a combination of the mix of homes sold in the year and the increased proportion of homes sold to our housing association partners. The Group's private average selling price increased by 3.3% to GBP259,231 (2020: GBP250,897) reflecting the mix of developments and house types sold in the year.
Our build rates were maintained at pre-Covid levels throughout 2021 as our highly experienced and responsive management teams navigated through the challenges posed by the pandemic and the supply chain restrictions experienced.
Our vertical integration, through our own Brickworks, Tileworks and Space4 timber frame manufacturing facilities were key in providing the business with security of supply of essential materials. In addition, using timber frames in our build improves on-site efficiencies and reduces our reliance on constrained skills.
The Group continues to deliver industry-leading margins, a key strength I am determined to build on. Our rigorous cost control helped mitigate material and labour cost inflation, while a disciplined approach to pricing helped more than offset its impact. Underlying operating margin(1) increased to 28.0% (2020: 27.6%), reflecting a benefit from the mix of legal completions achieved in the second half of the year.
Underlying profit before tax(3) grew to GBP973.0m (2020: GBP863.1m) and our cash generation to GBP762.1m (pre-capital return) (2020: GBP740.9m). The Group's profit before tax increased to GBP966.8m (2020: GBP783.8m).
Our increased investment in land opportunities is strengthening our platform for disciplined future growth, with over 20,750 plots brought into the business during the year, at a replacement rate of 143% of current consumption levels. Further, these opportunities were secured with attractive embedded margins, enabling Persimmon to continue to deliver leading financial performance. With this strong pipeline we will increase our UK-wide outlet position providing an excellent platform for the Group's future disciplined growth.
This strong performance was delivered whilst continuing to make good progress in bringing our customers into the heart of our business, putting them before volume, and taking important steps in recognising our role as a responsible developer. We were one of the first developers to give leaseholders a commitment they would not have to pay to remove cladding; led the industry in agreeing voluntary undertakings with the CMA on leaseholders purchasing their freeholds; and, became a Living Wage Foundation accredited employer. A new Mission, Vision and Values has been launched clearly setting out our ambitions and ways of working as a business.
Persimmon has a unique balance of strengths and skill-sets:
-- Our market positioning, with an average private selling price that is over 20%(4) lower than the UK national average together with our role in developing communities in places where people wish to live and work, uniquely positions us to widen the opportunity of home ownership to our customers; -- Our high quality land holdings with industry-leading embedded margins - the Group increased its owned and under control land holdings to 88,043 plots at 31 December 2021 supporting our UK-wide outlet network and providing a strong platform for disciplined growth; -- Our strong and experienced management teams, a large number of whom have been with the business for many years; -- Our focus on all aspects of operational efficiency and relentless pursuit of build cost efficiencies, including our disciplined approach to land buying, our carefully designed standardised house type range, rigorous master planning and market mix analysis; -- Our innovation and entrepreneurship resulting in us establishing, for example, our own vertical integration capabilities, with our Brickworks and Tileworks manufacturing facilities that provide us with security of supply and our Space4 timber frame manufacturing facility that reduces our reliance on constrained skills and increases on-site efficiencies. In addition, FibreNest, our ultrafast full fibre to the home broadband service, provides our customers with connection from the point they move into their new home.
At every stage of the process we have teams diligently focused on maximising value for customers and our business alike.
Placing customers at the heart of our business and our continuing pursuit of improvements in build quality and customer service is further strengthening our position. Our high quality land holdings, effective operational management and diverse network of sites across the UK provide an excellent platform to help deliver the homes that the country needs. Our focus on our five key priorities for the business will further enhance Persimmon's strengths and continue to drive real improvements across the Group, sustaining our industry-leading financial performance.
Delivery against our five key priorities
In short, during the year we delivered more homes, built better and strengthened our platform for future growth. As our results demonstrate, the five key priorities I set out last year are driving important progress, building on Persimmon's great strengths and enhancing our focus in certain key areas. These five key priorities will underpin and sustain our future success:
-- Build quality: our ambition is to build right, first time, every time; -- Reinforce trust in the brand: we will be consistently trusted to deliver a home to be proud of and a builder customers would readily recommend to others; -- Disciplined 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
Our focus on build quality is summed up by our determination to build right, first time, every time - the mantra of our Persimmon Way construction excellence programme. As a responsible developer, we recognise the importance of delivering high quality homes to our customers and are aligned with government's aims of enhancing quality across the industry. We welcome the introduction of the New Homes Quality Board and our ambition to be an industry leader is demonstrated by the fact we are an early signatory to the New Homes Quality Code. The code is designed to drive build quality and customer service improvements across the industry, in line with Persimmon's renewed ambition.
Last year, I made build quality my first priority, as I want Persimmon to be known for outstanding service as well as outstanding value, further securing our strong market positioning and increasing the value of the homes we build. Improving build quality will also deliver further improvements in our build costs as we increase on-site efficiencies and reduce the cost of remediation.
We have made good progress. All warranty provider scores have significantly improved over the last two years, with NHBC Reportable Incidents(5) down over 33%. Our build quality score on the HBF 8 week survey(6) has improved by 11% over the last two survey years.
We have achieved this progress by strengthening our standards, training, oversight and reward structures. To take each in turn. A new build standards guide and more exacting build tolerances which are set above prevailing industry norms have been published under our Persimmon Way programme. These are being augmented by construction excellence seminars, led by the Group Construction Director and senior local leaders, to disseminate best practice. They are already proving very popular.
Our sub-contract tendering process has been revised to emphasise quality and customer service performance alongside cost efficiency considerations. We are also seeking to become one of the first Building a Safer Future Charter Champions, recognising our renewed level of ambition for build quality and safety.
We have strengthened oversight to enhance the assurance of consistent delivery. In the last year, we have more than doubled our team of Independent Quality Controllers (IQCs) from 29 to 60. We believe this is the largest independent team of inspectors in the industry. Each key stage of development must be independently verified as complete and at the required standard before further work can continue. Our commitment to independent oversight is also demonstrated by undertaking our first external audits of the Persimmon Way's implementation both across our sites and within each of our 31 operating businesses by a leading national quality inspection consultancy. Alongside this, we are investing further in digitised site inspection, including a site manager app that provides a clear record of quality sign off and accountability as well as prompting tasking and completion of any necessary work.
To reinforce this renewed focus, our senior management bonus scheme was restructured last year to incorporate build quality and customer service targets. In the current year, this approach is being extended across the organisation, including to our site management teams. We will shortly announce the first national winner of our Construction Excellence Awards, with 31 local and five divisional winners already recognised for their build quality standards. I was also delighted to see our first NHBC Pride in the Job Awards winners in two years, recognising excellent site management practice. I look forward to many more awards in the years to come.
Reinforcing trust
Focusing on consistently delivering quality is the foundation of our renewed approach. As I said last year, Persimmon is known for outstanding value; I want us to equally be known for outstanding quality and service. Our recent progress on our HBF 8 week customer satisfaction score is therefore welcome and encouraging. From closing the 2019/2020 survey year at 89.7%, we are reporting a score of 92.0%(2) for the 2020/2021 survey year. We believe, for the first time in Persimmon's history, we will achieve a five-star rating when the results are published shortly.
I am determined to build even further on this progress. To reinforce trust we will continue to seek further improvement to both our 8 week and 9 month scores. We continue to invest in training to embed the new priorities further. For example, we have rolled out a Persimmon Site Manager Essentials course and c. 90% of our site managers have now gained an NVQ, up from 21% last January. Our Persimmon Pathway provides tailored programmes for staff and in the last year over 21,000 hours of training was delivered by our in-house team alone. We were also the first homebuilder to offer sales advisors a route to professional accreditation through a partnership with the Institute of Sales Professionals.
FibreNest continues to be a real strength for the Group, with over 21,000 customers across more than 270 developments now connected to our national ultrafast broadband network. Created to address persistent customer frustration that established internet providers were not connecting their homes from the day they moved in, FibreNest has seen a sustained improvement in day one connection rates, so they averaged over 85% during 2021, with the start of 2022 showing a further notable improvement. Customers increasingly view broadband as a key utility and FibreNest's gigabit ready, ultrafast network is therefore an important part of our service. Indeed, last year FibreNest launched a new Wholesale Services division to encourage other retail service providers to use our network and meet our ambition of expanding customer choice.
Acting as a responsible developer, over a year ago, we led the industry in making a commitment to leaseholders that they would not have to pay to remove any cladding or correct fire related safety issues on any buildings we constructed. We created a GBP75m fund to pay for this work and set up a Special Projects Team to complete the programme as quickly as possible. This team wrote proactively to the Management Companies and owners of all potentially affected buildings going back 22 years and identified 33 developments where work is required. Of the 33 developments identified, 3 are below 11 metres, 16 are between 11m and 18m and 10 are taller than 18m. The remaining four developments have already secured successful EWS1 forms. We are working with Management Companies and building owners to help expedite their programmes to provide reassurance to leaseholders as soon as possible.
In response to the Government's request we have extended the search back to 30 years but do not expect the number to change materially. We will not claim from the Government's Building Safety Fund to complete the works on these buildings and will reimburse any funding already claimed by the Management Companies involved. We hope these actions will lead to us becoming a member of the government's new Building Industry Scheme and continue to engage in positive discussions with officials.
Disciplined growth
Alongside the focus on consistent delivery of quality and service, we are determined to drive disciplined growth in the business and sustain our industry-leading performance. We have highly experienced land and planning teams in our operating businesses with in depth knowledge of their local communities' needs. In combining this with expert design and place making skills we create communities that meet our customers' needs.
In the second half of 2021 we operated from an average of 285 outlets reflecting the high sales rates achieved and some planning delays experienced. We have clear visibility on our pipeline of new outlets and, subject to planning consents, are forecasting to open around 75 new outlets in the first half of 2022. We have had some success in gaining planning consents in the early part of this year, however, the process continues to move at a slow pace. We aim to continue to grow our UK-wide outlet network to c. 320 building on this momentum through 2023 and beyond providing an excellent platform for disciplined growth.
In 2021 we invested GBP460m in land payments (including around GBP180m of deferred land creditor payments). We brought in over 20,750 plots across 101 sites into the business. This represents a land replacement rate of 143% compared to our current output level. I am delighted that we have achieved this while maintaining our industry-leading embedded margins. This investment is strengthening our platform for growth.
Industry-leading financial performance
We seek to combine our very strong platform of experienced and skilled teams and high quality land holdings with a focus on quality and re-enforcing trust in our brand to further enhance our industry-leading financial performance. I have set out above how the quality and build right, first time, every time focus helps here.
Our Space4, Brickworks and Tileworks factories have also proven crucial tools in both maintaining security and consistency of supply and securing build efficiencies, especially in a period of material and labour cost inflation. Through the bulk buying of raw materials and stable labour costs within our factories, we have been able to maintain a price advantage compared to the open market. Further, our use of Space4 timber frames in 33% of our homes built in the year, reduces our reliance on bricklayers, where labour shortages have been most pronounced.
These factories will play an increasingly crucial role in our security of supply, quality control and drive to secure cost-efficiencies. We are already looking to expand production - through increased shifts and product lines - across our Brickwork and Tilework factories. We anticipate increasing output at Brickworks by 25% and at Tileworks by over 50% this year. We also plan to start building a new Space4 factory in 2022, updating the technology and techniques to drive enhanced quality and further efficiency gains. We anticipate - for example - that the new factory's product will improve our speed of build by up to five days per house.
This focus on cost efficiency is demonstrated in our underlying operating margin(1) , which grew to 28.0% (2020: 27.6%) and further progress on the Group's underlying return on average capital employed(7) , increasing to 35.8% (2020: 29.4%).
The Group has generated net cash of GBP1,209.8m (2020: GBP1,066.8m) before capital returns of GBP749.6m and net land spend of GBP447.7m supporting investment in the future disciplined growth of the business and the sustainable delivery of our Capital Return Programme. The Board is pleased to re-iterate its intention to return 235p per share in 2022.
Sustainable communities
Persimmon is proud of the important role it plays in communities across the country. With our average selling price over 20%(4) lower than the industry average and the recent addition of smaller house types to our core product range, we are opening up the opportunity of homeownership to thousands of families who otherwise might not be able to achieve it. We provide well-paid, skilled employment across the country and have been reviewing our apprenticeship programmes to enhance our routes into employment for those who might otherwise either not consider or struggle to access construction jobs. A new innovative partnership with Bridgend College, where we have installed classroom facilities on one of our sites so the college can deliver courses to students directly, is a good example of our work in this area.
Our Community Champions and Building Futures programmes donated over GBP1.8m to local communities and good causes in 2021. Through our planning contributions we have paid GBP127m for new educational, medical and community facilities that benefit all local residents near our developments.
We recognise our important role in helping the UK achieve its climate change targets and ambitions. That is why we set stretching targets, accredited by the blue-ribbon Science Based Targets initiative. As part of a broader suite of commitments we have made pledges to have net zero carbon homes in use from 2030 and net zero operations from 2040. We have already taken action, switching all our offices and manufacturing facilities to 100% renewable energy last year. We have also introduced electric vehicle options into our car fleet and are investigating options to reduce our diesel use, including through alternative fuels trials for our construction plant and equipment.
Our new homes are already 30% more energy efficient than the second hand housing stock. We are determined to meet the demanding targets set for new build homes through the building regulations and Future Homes Standard in a cost efficient way and are running technology trials to assess options for innovation. On our Germany Beck site in York, our zero carbon home will shortly be welcoming its tenants who will live in the house as part of a joint project with the University of Salford to assess the effectiveness of its zero carbon technologies and build techniques and to discover what it is like to live in a zero carbon home.
Renewed focus and further opportunity
We have made important headway but I am determined to drive even further progress and have taken steps to achieve it.
We have recently launched our Mission, Vision and Values. They build on Persimmon's many strengths and our recent progress to strive even higher, to be Britain's leading homebuilder, with core values that demonstrate how we will achieve it. The new Mission, Vision and Values further embeds the five key priorities into how we operate as a business.
Our Mission is simple: to build homes with quality our customers can rely on at a price they can afford.
Our Vision is to be Britain's leading homebuilder, with quality and customer service at its heart, building the best value homes on the market in sustainable and inclusive communities. We will invest in innovation and technology to extend our low cost strengths and enhance our five-star capabilities to enable as many people as possible to buy the homes we build.
To achieve this we will live by our five core values: customer focused, value driven, team work, social impact and excellence always.
I am delighted that these values have been warmly embraced across the business and look forward to delivering on the ambition they set out.
Our experienced management teams
We have highly experienced management teams and are proud to provide our colleagues with rewarding career opportunities. We continue to build on our track record of promoting from within, with 177 colleagues promoted during the year.
A new senior management structure has been established to combine an even greater focus on consistent build quality and customer service with an even sharper commercial approach. These changes draw on internal experience and expertise to provide a structure that supports and challenges local teams to meet their targets and explore new opportunities for growth.
Paul Hurst (UK Managing Director), John Eynon (Deputy UK Managing Director) and Andy Fuller (Group Construction Director) together provide an operational senior management team with over 100 years of industry experience. Our regional teams will report into Paul and John, with Andy working closely alongside them, to ensure we deliver the improved consistency of standards the Persimmon Way demands throughout the business, while meeting our growth ambitions. Both Paul (Space4) and John (Brickworks and Tileworks) are also chairmen of our own factories leading our drive to deliver both enhanced products and greater efficiency.
Martyn Clark has become our Chief Commercial Officer, leading on all commercial aspects, including new business development and enhancing our relationships with key external partners. With a number of Group functions reporting to him, Martyn will ensure we co-ordinate our approach, so that the operational teams have the best possible opportunity to meet our targets. A key aspect of the role is to ensure that we maintain the recent progress in land buying, bringing in assets to the business at industry-leading margins, while also seeking to work with local authorities to secure faster planning permissions. Martyn will also lead our further innovation and value creation opportunities.
With this highly experienced team in place, we will continue to enhance our capability to deliver five-star performance consistently and maintain our industry-leading financial performance. Persimmon has many opportunities ahead of it and I look forward to securing the growth, quality and efficiency opportunities necessary to drive our continued industry-leading performance.
Outlook
The UK housing market remains supportive with demand continuing to exceed supply, favourable interest rates and good levels of mortgage availability. The business is in a strong position. We are leading the industry as a responsible developer; we were one of the first developers to agree voluntary undertakings with the CMA on leaseholders purchasing their freeholds and to give leaseholders a commitment they would not have to pay to remove cladding. We identified 33 developments where work is required, have already contacted relevant Management Companies and building owners to help expedite their programmes and have successfully secured EWS1 forms on four of the 33 developments.
With a new senior management structure, comprising colleagues from within the business, supporting an experienced and agile team, a growing outlet network and high quality land holdings, I expect to deliver further growth this year and through the medium term. For 2022, we are targeting 4-7% volume growth whilst maintaining our industry-leading margins. We currently anticipate increases in selling prices will mitigate build cost inflation.
We have already made a strong start to the year with GBP2.21bn of forward sales. Our private average weekly sales rate per site for the first eight weeks of 2022 is c. 2% ahead of the prior year. We anticipate a greater proportion of completions in our second half relative to our first reflecting more typical trading patterns and the growth profile of our outlet network. Group margin is expected to reflect the increased proportion of homes sold to our housing association partners. Our build rates, which were at pre-Covid levels throughout 2021, have improved in the early weeks of this year.
Some short term uncertainties remain, particularly regarding cost inflation, potentially rising interest rates and the impact of the current geo-political environment on the UK economy. The speed of achieving planning consents remains an issue and the withdrawal of the Government's Help to Buy scheme is still planned for March 2023. In addition, the recent Building Safety Bill amendments include the potential significant widening of those developments brought within the Building Safety Levy's scope.
Given our unique market positioning with attractively priced homes, our high quality land holdings and strong cash position, our focus on customers and quality, building on our existing strengths and driving further operational efficiencies (including the investment in a new Space4 factory and our Brickworks and Tileworks facilities securing build programme and cost efficiencies) the Board is confident of the Group's future success.
Footnotes
1 Based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m) and underlying operating profit (2021: GBP966.7m, 2020: GBP862.8m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m)).
2 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.
3 Stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m). Profit before tax after legacy buildings provision and goodwill impairment is GBP966.8m (2020: GBP783.8m).
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. Group average private selling price is GBP259,231.
5 A Reportable Incident is an area of non-compliance with NHBC Standards. The item is rectified fully before completion of the home.
6 The Group participates in a National New Homes Survey, run by the Home Builders Federation. The build quality score is based on how satisfied customers are with the quality of their home.
7 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 of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m).
FINANCIAL REVIEW
Trading
The Group entered 2021 in a resilient position with forward sales at c. GBP1.69bn and work in progress including c. 5,600 new homes under construction. Trading through the year was strong with increased selling prices across our regions and healthy levels of customer demand, the Group's average private sales rate per site being c. 9% ahead of 2020 and c. 22% ahead of 2019.
For 2021, the Group generated total revenues of GBP3.61bn (2020: GBP3.33bn), with new housing revenue of GBP3.45bn (2020: GBP3.13bn). The Group delivered 14,551 new homes (2020: 13,575) at an average selling price of GBP237,078 (2020: GBP230,534), 2.8% higher than the prior year.
The Group delivered 12,018 new homes to private owner occupiers (2020: 11,363) at an average selling price of GBP259,231 (2020: GBP250,897). This 3.3% year on year increase largely reflecting improvements in achieved selling prices and the mix of new homes sold. The Group delivered a further 2,533 new homes to our housing association partners (2020: 2,212) at an average selling price of GBP131,976 (2020: GBP125,930).
The Group's underlying gross profit(1) for the year was GBP1,083.8m (2020: GBP969.4m) generating a new housing gross margin of 31.4%(2) (2020: 31.0%). The Group's well established land replacement strategy, the improved selling prices achieved and good management of the cost inflation we have experienced during the year continues to deliver industry-leading margins.
Underlying operating profit(3) for the Group was GBP966.7m (2020: GBP862.8m), generating an underlying new housing operating margin(4) of 28.0% (2020: 27.6%) as the second half benefitted from the particular mix of legal completions achieved.
The Group generated a profit before tax of GBP966.8m in the year (2020: GBP783.8m).
Taxation
The Group has an overall tax charge of GBP179.6m for the year (2020: GBP145.4m) and an effective tax rate of 18.6% (2020: 18.6%), marginally lower than the mainstream rate of 19.0%. Factors that may affect the Group's taxation charge include changes in tax legislation and the closure of certain open matters in the ordinary course of business in relation to prior year's tax computations.
Balance sheet strength
Net assets of GBP3,625.2m at 31 December 2021 (2020: GBP3,518.4m), including retained earnings of GBP3,055.1m (2020: GBP2,950.9m), underpin the Group's balance sheet strength. After returning GBP749.6m of surplus capital to shareholders during the year, the Group's reported net assets per share was 1,135.7p, an increase of 3% compared with the prior year (2020: 1,102.7p). Underlying return on average capital employed(5) as at 31 December 2021 was 35.8% (2020: 29.4%), further demonstrating the resilience of the business. Underlying basic earnings per share(3) for the year was 248.7p, a 12.7% increase on the prior year (2020: 220.7p).
The Group's defined benefit pension asset has increased to GBP148.8m at 31 December 2021 (2020: GBP50.6m). The increase is largely due to the recovery in markets and good asset performance combined with the actuarial benefit from the increase in discount rates through the year.
In February 2021 we pledged to support leaseholders in multi-storey developments we built that required cladding removal and in obtaining the EWS1 form they need to sell their home. As part of this pledge we created a GBP75.0m fund and have been in contact with management companies and building owners to ensure the required progress is being made. During the year works have been undertaken across a number of affected developments resulting in total spend of GBP2.3m. At 31 December 2021, the provision stands at GBP72.7m and is management's best estimate of the costs of completing works to ensure fire safety on the remaining affected buildings under direct ownership and on those under third party ownership we have developed.
The Group's land holdings
At 31 December 2021, the carrying value of the Group's land asset was GBP1,798.2m (2020: GBP1,722.1m), reflecting the Group's disciplined land replacement strategy and the strong sales performance the Group has experienced during the year. The high quality of the Group's land holdings are reflected in the Group's land cost recoveries for the year of 13.2% of new housing revenue (2020: 14.2%).
The Group increased its owned and under control land holdings to 88,043 plots at 31 December 2021 (2020: 84,174 plots) to facilitate future output growth and to support the Group's national outlet network. 67,089 plots are owned of which 39,079 have detailed implementable planning consents. A further 20,954 plots are under the Group's control, being plots where the Group has exchanged contracts to acquire the site but have yet to complete the contract due to outstanding planning conditions remaining unfulfilled.
During the year the Group's experienced land and planning teams successfully progressed c. 14,400 under control plots through the planning system, transferring them into the Group's owned land holdings. The Group's owned land holding provides excellent visibility of the near to medium term with 4.6 years of forward supply at 2021 volumes, an overall pro-forma gross margin of c. 33 % and a cost to revenue ratio of 11.4% (2020: 11.9%).
The Group continued to pursue its disciplined land replacement strategy of identifying new land in areas where people wish to live and work, providing new housing in areas where there is the most need. The Group brought over 20,750 plots into its owned and under control land holdings across 101 locations, with 10,220 of these plots converted from our strategic land portfolio. In line with our expectations, we have incurred land spend of GBP460.0m in the year, including GBP178.5m of payments in satisfaction of deferred land commitments.
During 2021, the Group acquired interests in a further 480 acres of strategic land, securing a total of c. 13,700 acres at 31 December 2021 (2020: c. 15,500 acres). This provides a long-term supply of forward plots for future development by the Group.
Work in progress
Against the backdrop of a reduced number of sales outlets, the delivery of increased volume of new homes, material and labour resource shortages we have successfully maintained our build rates at pre-Covid levels. This has resulted in our work in progress investment at 31 December 2021 of GBP1,054.1m being only c. 3% lower than the level of investment we entered 2021 (2020: GBP1,091.6m). The Group's level of work in progress of c. 4,100 equivalent units of new homes construction at the end of 2021 provides a robust opening position that will support the Group's build programmes for the first half of 2022 and deliver the new homes the country needs.
We are focused on driving strong levels of build throughout 2022, managing the continuing operational challenges we face and securing the availability of key build components through our in-house manufactured bricks, roof tiles, closed panel timber frame kits and pre-manufactured roof cassettes, whilst delivering high levels of customer satisfaction and build quality.
Cash generation and liquidity
The Group had a cash balance of GBP1,246.6m at 31 December 2021 (2020: GBP1,234.1m). During the year the Group generated GBP1,209.8m (2020: GBP1,066.8m) of cash before returning GBP749.6m of surplus capital to shareholders and net land spend of GBP447.7m. The Group's deferred land commitments have increased by GBP78.3m to GBP407.6m from GBP329.3m at 31 December 2020 reflecting the Group's increased activity in the land market throughout 2021. The Group's healthy liquidity position will provide further opportunity to support the future growth of the business. Cash generated from operations was GBP972.8m (2020: GBP993.3m).
In addition, the Group has an undrawn GBP300m Revolving Credit Facility which extends out to 31 March 2026.
The Group's shared equity loans have generated GBP18.9m of cash in the year (2020: GBP16.4m). The carrying value of these outstanding shared equity loans, reported as "Shared equity loan receivables", is GBP45.6m at 31 December 2021 (2020: GBP56.2m). 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 GBP6.3m (2020: GBP0.3m) and includes GBP7.9m of gains generated on the Group's shared equity loan receivables (2020: GBP4.0m) and GBP1.8m of imputed interest payable on land creditors (2020: GBP5.4m).
Shareholders' equity, treasury policy and related risks
The Group's strategy of minimising financial risk and retaining flexibility reflects the cyclical nature of the housing market. The return of any capital that is deemed surplus to the needs of the business through the Group's Capital Return Programme remains a key element of this strategy. The 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 paid of the Capital Return Programme to 2021 was GBP13.00 per share, compared to the GBP6.20 per share initial commitment made by the Board in 2012.
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 an important element in the Group's working capital resource and 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 aligned with the Group's focus on work in progress investment to support an increase in the equivalent units of new home construction that will support good levels of stock availability and the high levels of build quality and customer service we currently deliver. The Group will continue to ensure it maintains flexibility when considering the generation of after tax earnings, and the management of the Group's equity, debt and cash management facilities. This approach will mitigate the financial risks the Group faces and maintain the Group's robust balance sheet and strong liquidity levels, securing a resilient position for the future.
Footnotes
1 Stated before legacy buildings provision of GBPnil (2020: GBP75.0m)
2 Based on new housing revenues of GBP3,449.7m (2020: GBP3,129.5m) and underlying gross profits of GBP1,083.8m (2020: GBP969.4m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m)).
3 Stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m).
4 Based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m) and underlying operating profit (2021: GBP966.7m, 2020: GBP862.8m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m)).
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 (2021: GBPnil, 2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m).
6 Estimated weighted average gross margin based on assumed revenues and costs at 31 December 2021 and normalised output levels
7 Land cost value for the plot divided by the anticipated future revenue of the new home sold.
PERSIMMON PLC
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2021
2021 2020 Note Total Total GBPm GBPm ----------------------------------------- ----- ---------- ----------- Revenue 3 3,610.5 3,328.3 Cost of sales (2,526.7) (2,433.9) ----------------------------------------- ----- ---------- ----------- Gross profit 1,083.8 894.4 Analysed as: Underlying gross profit 1,083.8 969.4 Legacy buildings provision 9 - (75.0) ----------------------------------------- ----- ---------- ----------- Other operating income 6.4 5.4 Operating expenses (129.7) (116.3) ----------------------------------------- ----- ---------- ----------- Profit from operations 960.5 783.5 Analysed as: Underlying operating profit 966.7 862.8 Legacy buildings provision - (75.0) Impairment of intangible assets (6.2) (4.3) ----------------------------------------- ----- ---------- ----------- Finance income 9.9 8.9 Finance costs (3.6) (8.6) ----------------------------------------- ----- ---------- ----------- Profit before tax 966.8 783.8 Analysed as: Underlying profit before tax 973.0 863.1 Legacy buildings provision - (75.0) Impairment of intangible assets (6.2) (4.3) ----------------------------------------- ----- ---------- ----------- Tax 4 (179.6) (145.4) ----------------------------------------- ----- ---------- ----------- Profit after tax (all attributable to equity holders of the parent) 787.2 638.4 ----------------------------------------- ----- ---------- ----------- Other comprehensive income/(expense) Items that will not be reclassified to profit: Remeasurement gain/(loss) on defined benefit pension schemes 12 83.3 (42.5) Tax 4 (24.8) 6.5 ----------------------------------------- ----- ---------- ----------- Other comprehensive income/(expense) for the year, net of tax 58.5 (36.0) ----------------------------------------- ----- ---------- ----------- Total recognised income for the year 845.7 602.4 ----------------------------------------- ----- ---------- ----------- Earnings per share Basic 6 246.8p 200.3p Diluted 6 245.6p 199.6p ----------------------------------------- ----- ---------- -----------
PERSIMMON PLC
Consolidated Balance Sheet
As at 31 December 2021
2021 2020 Note GBPm GBPm --------------------------------- ----- ---------- ---------- Assets Non-current assets Intangible assets 175.6 181.8 Property, plant and equipment 99.0 90.4 Investments accounted for using the equity method 0.3 2.1 Shared equity loan receivables 8 35.7 41.7 Trade and other receivables 0.6 4.0 Deferred tax assets 9.7 7.7 Retirement benefit assets 12 148.8 50.6 --------------------------------- ----- ---------- ---------- 469.7 378.3 --------------------------------- ----- ---------- ---------- Current assets Inventories 7 2,920.7 2,901.3 Shared equity loan receivables 8 9.9 14.5 Trade and other receivables 123.9 86.6 Current tax assets 21.4 8.3 Cash and cash equivalents 11 1,246.6 1,234.1 --------------------------------- ----- ---------- ---------- 4,322.5 4,244.8 --------------------------------- ----- ---------- ---------- Total assets 4,792.2 4,623.1 --------------------------------- ----- ---------- ---------- Liabilities Non-current liabilities Trade and other payables (203.4) (179.3) Deferred tax liabilities (54.6) (22.9) Partnership liability (23.8) (27.8) --------------------------------- ----- ---------- ---------- (281.8) (230.0) --------------------------------- ----- ---------- ---------- Current liabilities Trade and other payables (807.0) (794.2) Partnership liability (5.5) (5.5) Legacy buildings provision 9 (72.7) (75.0) (885.2) (874.7) --------------------------------- ----- ---------- ---------- Total liabilities (1,167.0) (1,104.7) --------------------------------- ----- ---------- ---------- Net assets 3,625.2 3,518.4 --------------------------------- ----- ---------- ---------- Equity Ordinary share capital issued 31.9 31.9 Share premium 24.9 22.3 Capital redemption reserve 236.5 236.5 Other non-distributable reserve 276.8 276.8 Retained earnings 3,055.1 2,950.9 --------------------------------- ----- ---------- ---------- Total equity 3,625.2 3,518.4 --------------------------------- ----- ---------- ----------
PERSIMMON PLC
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2021
Share Share Capital Other non-distributable Retained Total capital premium redemption reserve earnings reserve GBPm GBPm GBPm GBPm GBPm GBPm --------------------------------- --------- --------- ------------ ------------------------ ---------- -------- Balance at 1 January 2020 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 --------------------------------- --------- --------- ------------ ------------------------ ---------- -------- Profit for the year - - - - 787.2 787.2 Other comprehensive income - - - - 58.5 58.5 Transactions with owners:
Dividends on equity shares - - - - (749.6) (749.6) Issue of new shares - 2.6 - - - 2.6 Share-based payments - - - - 8.1 8.1 Balance at 31 December 2021 31.9 24.9 236.5 276.8 3,055.1 3,625.2 --------------------------------- --------- --------- ------------ ------------------------ ---------- --------
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 2021
2021 2020 Note GBPm GBPm --------------------------------------- ----- -------- -------- Cash flows from operating activities: Profit for the year 787.2 638.4 Tax charge 4 179.6 145.4 Finance income (9.9) (8.9) Finance costs 3.6 8.6 Depreciation charge 14.5 14.1 Impairment of intangible assets 6.2 4.3 Legacy buildings provision 9 - 75.0 Share-based payment charge 6.4 6.4 Net imputed interest income/(expense) 6.1 (1.4) Other non-cash items (7.9) (7.3) --------------------------------------- ----- -------- -------- Cash inflow from operating activities 985.8 874.6 Movements in working capital: (Increase)/decrease in inventories (9.8) 265.0 Increase in trade and other receivables (59.5) (45.8) Increase/(decrease) in trade and other payables 37.4 (116.9) Decrease in shared equity loan receivables 18.9 16.4 --------------------------------------- ----- -------- -------- Cash generated from operations 972.8 993.3 Interest paid (3.7) (4.1) Interest received 1.9 4.7 Tax paid (186.2) (228.4) --------------------------------------- ----- -------- -------- Net cash inflow from operating activities 784.8 765.5 --------------------------------------- ----- -------- -------- Cash flows from investing activities: Joint venture net funding movement 1.8 - Purchase of property, plant and equipment (20.9) (18.9) Proceeds from sale of property, plant and equipment 0.9 0.8 --------------------------------------- ----- -------- -------- Net cash outflow from investing activities (18.2) (18.1) --------------------------------------- ----- -------- -------- Cash flows from financing activities: Lease capital payments (3.3) (3.6) Payment of Partnership liability (3.8) (3.6) Net settlement of share-based payments - (2.4) Share options consideration 2.6 3.1 Dividends paid 5 (749.6) (350.7) --------------------------------------- ----- -------- -------- Net cash outflow from financing activities (754.1) (357.2) --------------------------------------- ----- -------- -------- Increase in net cash and cash equivalents 11 12.5 390.2 --------------------------------------- ----- -------- -------- Cash and cash equivalents at the beginning of the year 1,234.1 843.9 --------------------------------------- ----- -------- -------- Cash and cash equivalents at the end of the year 11 1,246.6 1,234.1 --------------------------------------- ----- -------- --------
Notes
1. Basis of preparation
The results for the year have been prepared on a basis consistent with the accounting policies set out in the Persimmon Plc Annual Report for the year ended 31 December 2021.
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 2021 or 2020, but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies, and those for 2021 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 UK adopted International Accounting Standards , this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to send its Annual Report 2021 to shareholders on 21 March 2022.
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 UK endorsed new amendments to standards are mandatory for the first time for the financial year beginning 1 January 2021:
-- Amendments to IFRS 4 Insurance Contracts -- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - phase 2 -- Amendments to IFRS 16 Leases: Covid-19 Related Rent Concessions beyond 30 June 2021
The effects of the implementation of these amendments have been limited to disclosure amendments where applicable.
The Group has not applied the following new amendments to standards which are not yet effective:
-- Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 -- IFRS 17 Insurance Contracts; including Amendments to IFRS 17
The Group is currently considering the implication of these amendments with the expected impact upon the Group being limited to disclosures if applicable.
Going concern
The Group has performed well in the twelve months ended 31 December 2021. Persimmon's long-term strategy, which recognises the risks associated with the housing cycle by maintaining operational flexibility, investing in high quality land, minimising financial risk and deploying capital at the right time in the cycle, has equipped the business with strong liquidity and a robust balance sheet.
The Group delivered a strong trading performance in the twelve months to 31 December 2021, completing the sale of 14,551 new homes (2020: 13,575; 2019: 15,855) and generating a profit before tax of GBP966.8m (2020: GBP783.8m; 2019: GBP1,040.8m). At 31 December 2021, the Group's strong financial position included GBP1,246.6m of cash (2020: GBP1,234.1m; 2019: GBP843.9m), high quality land holdings and land creditors of GBP407.6m (2020: GBP329.3m; 2019: GBP435.2m). In addition, the Group has an undrawn Revolving Credit Facility of GBP300m, which extends out to 31 March 2026.
The Group's forward order book, including legal completions taken so far in 2022, is 3% weaker year on year with new home forward sales of c. GBP2.2bn. We have over 6,200 new homes sold forward into the private owner occupier market with an average selling price of over GBP259,350. The cumulative average private sales reservation rate for the first 8 weeks of the year is c. 2% ahead of last year.
The Directors have carried out a robust assessment of the principal risks facing the Group, as described in note 13. 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 2023, 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 a 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. 45% reduction in volumes and a c. 11% reduction in average selling prices through to 30 June 2023. The combined impact results in a c. 57% fall in the Group's housing revenues. 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. 47% in new home sales volumes and a c. 37% fall in average selling prices through to 30 June 2023. As a result of these factors, the Group's housing revenues were assumed to fall by c. 67% during this period.
In addition, the Directors have assessed the impact of a complete shutdown of the housing market from the date of this announcement to 30 June 2023 on the resilience of the Group. This scenario assumes that the Group does not receive any further sales receipts for the period whilst maintaining its current level of fixed costs.
Throughout this scenario, the Group maintains substantial liquidity with a positive cash balance and no requirement to access the Group's GBP300m Revolving Credit Facility.
The Group has been increasingly assessing climate related risk and opportunities that may present to the Group. During the period assessed for going concern no significant risk has been identified that would materially impact the Group's ability to generate sufficient cash and continue as a going concern.
Having considered the continuing strength of the UK housing market, the sales rates being achieved by the Group, the resilience of the Group's average selling prices, the Group's scenario analysis as detailed above and 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 financial statements.
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
2021 2020 GBPm GBPm ----------------------------------------------------------- ------------------- ------------------- Revenue from the sale of new housing 3,449.7 3,129.5 Revenue from the sale of part exchange properties 155.4 196.2 Revenue from the provision of internet services 5.4 2.6 Revenue from the sale of goods and services as reported in the statement of comprehensive income 3,610.5 3,328.3 ----------------------------------------------------------- ------------------- -------------------
4. Tax
Analysis of the tax charge for the year
2021 2020 GBPm GBPm ------------------------------------------------------------ ----------------- ----------------- Tax charge comprises: UK corporation tax in respect of the current year 181.2 148.5 Adjustments in respect of prior years (8.3) (6.4) ------------------------------------------------------------ ----------------- ----------------- 172.9 142.1 ------------------------------------------------------------ ----------------- ----------------- Deferred tax relating to origination and reversal of temporary differences 5.4 2.6 Adjustments recognised in the current year in respect of prior years deferred tax 1.3 0.7 ------------------------------------------------------------ ----------------- ----------------- 6.7 3.3 ------------------------------------------------------------ ----------------- ----------------- Tax charge for the year recognised in Statement of Comprehensive Income 179.6 145.4 ------------------------------------------------------------ ----------------- -----------------
The tax charge for the year can be reconciled to the accounting profit as follows:
2021 2020 GBPm GBPm ------------------------------------------------------------ ----------------- ----------------- Profit from continuing operations 966.8 783.8 ------------------------------------------------------------ ----------------- ----------------- Tax calculated at UK corporation tax rate of 19% (2020: 19%) 183.7 148.9 Accounting base cost not deductible for tax purposes 0.2 0.3 Goodwill impairment losses that are not deductible 1.2 0.8 Expenditure not allowable for tax purposes 0.2 0.2 Effect of change in rate of corporation tax 2.7 0.9 Enhanced tax reliefs (1.3) - Adjustments in respect of prior years (7.1) (5.7) ------------------------------------------------------------ ----------------- ----------------- Tax charge for the year recognised in Statement of Comprehensive Income 179.6 145.4 ------------------------------------------------------------ ----------------- -----------------
The Group's overall effective tax rate of 18.6% has been reduced from the mainstream rate of 19.0% 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. On 10 June 2021, the Finance Act 2021 was enacted into law, introducing a new higher rate of corporation tax of 25% coming into effect from 1 April 2023. Consequently, the expected tax rate for the full year includes the effect of revaluing deferred tax assets and liabilities at this higher rate where these are expected to be realised or settled on or after 1 April 2023.
Following consultation by HM Treasury to implement a Residential Property Developer Tax ("RPDT") on profits arising from residential property activity, on 27 October 2021, the Chancellor of the Exchequer announced new legislation and an RPDT rate of 4% on all annual residential property profits in excess of GBP25m, effective from 1 April 2022. This additional rate once enacted will add to the standard rate of corporation tax of 25% effective from 1 April 2023, as noted above.
As the RPDT was not substantively enacted prior to 31 December 2021, the additional 4% tax rate is not reflected in the valuation of the Group's deferred tax assets and liabilities at that date. The estimated impact on the Group's deferred tax balances as at 31 December 2021 would be to increase the net deferred tax liability by GBP7m with a corresponding charge to the Statement of Comprehensive Income/Statement of Shareholders Equity.
Deferred tax recognised in other comprehensive income
2021 2020 GBPm GBPm ---------------------------------------------------- ---------------- ----------------- Recognised on remeasurement gain/(loss) on pension schemes 24.8 (6.5) ---------------------------------------------------- ---------------- -----------------
Tax recognised directly in equity
2021 2020 GBPm GBPm --------------------------------------------------------------- ----------------- ----------------- Arising on transactions with equity participants Current tax related to equity settled transactions 0.1 (1.1) Deferred tax related to equity settled transactions (1.8) (0.2) --------------------------------------------------------------- ----------------- ----------------- (1.7) (1.3) --------------------------------------------------------------- ----------------- -----------------
5. Dividends/Return of capital
2021 2020 GBPm GBPm ----------------------------------------------------------- ----------------- ----------------- Amounts recognised as distributions to capital holders in the period: 2019 dividend to all shareholders of 40p per share paid 2020 - 127.5 2019 dividend to all shareholders of 70p per share paid 2020 - 223.2 2020 dividend to all shareholders of 125p 398.7 - per share paid 2021 2020 dividend to all shareholders of 110p 350.9 - per share paid 2021 Total capital return to shareholders 749.6 350.7 ----------------------------------------------------------- ----------------- -----------------
The Directors propose to return 125p of surplus capital to shareholders for each ordinary share held on the register on 11 March 2022 with payment made on 1 April 2022 as an interim dividend in respect of the financial year ended 31 December 2021. The Directors intend to return surplus capital of 110p per ordinary share as an interim dividend with respect to the financial year ended 31 December 2021. This distribution to shareholders is anticipated to be made in July 2022 subject to continuous Board assessment in line with the Group's strategy. The total anticipated distributions to shareholders is 235p per share (2020: 235p per share) in respect of the financial year ended 31 December 2021.
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 319.0m shares (2020: 318.8m) 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 320.2m shares (2020: 319.9m).
Underlying earnings per share excludes the legacy buildings provision charge and goodwill impairment. The earnings per share from continuing operations were as follows:
2021 2020 --------------------------------------- ------- ------- Basic earnings per share 246.8p 200.3p Underlying basic earnings per share 248.7p 220.7p Diluted earnings per share 245.6p 199.6p Underlying diluted earnings per share 247.6p 219.9p --------------------------------------- ------- -------
The calculation of the basic and diluted earnings per share is based upon the following data:
2021 2020 GBPm GBPm ------------------------------------------------------------- ----------------- ------------------ Underlying earnings attributable to shareholders 793.4 703.5 Legacy buildings provision (net of tax) - (60.8) Goodwill impairment (6.2) (4.3) ------------------------------------------------------------- ----------------- ------------------ Earnings attributable to shareholders 787.2 638.4 ------------------------------------------------------------- ----------------- ------------------
At 31 December 2021 the issued share capital of the Company was 319,206,474 ordinary shares (2020: 319,071,261 ordinary shares).
7. Inventories
2021 2020 GBPm GBPm ------------------------------------- ------------------- ------------------- Land 1,798.2 1,722.1 Work in progress 1,054.1 1,091.6 Part exchange properties 24.8 40.9 Showhouses 43.6 46.7 ------------------------------------- ------------------- ------------------- Inventories 2,920.7 2,901.3 ------------------------------------- ------------------- -------------------
The Group has conducted a further review of the net realisable value of its land and work in progress portfolio at 31 December 2021. Our approach to this review has been consistent with that conducted at 31 December 2020 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 2021 were GBP18.6m (2020: GBP25.4m). Following the review, GBP4.1m of inventories are valued at net realisable value rather than historical cost (2020: GBP5.9m).
8. Shared equity loan receivables
2021 2020 GBPm GBPm ---------------------------------------------------------- ------------------ ------------------ Shared equity loan receivables at 1 January 56.2 68.6 Settlements (18.9) (16.4) Gains 8.3 4.0 ---------------------------------------------------------- ------------------ ------------------ Shared equity loan receivables at 31 December 45.6 56.2 ---------------------------------------------------------- ------------------ ------------------
All gains/losses have been recognised in the statement of comprehensive income. Of the gains recognised in finance income for the period, GBP4.2m (2020: GBP1.5m) was unrealised.
9. Legacy buildings provision
2021 2020 GBPm GBPm ------------------------------------------- ------ ----- Legacy buildings provision at 1 January 75.0 - Additions to provision in the year - 75.0 Provision utilised in the year (2.3) - ------------------------------------------- ------ ----- Legacy buildings provision at 31 December 72.7 75.0 ------------------------------------------- ------ -----
In the prior year we made a commitment that no leaseholder living in a building we had developed, including all those above 11 metres, should have to cover the cost of cladding removal. As part of this commitment, we created a GBP75.0m provision to cover the cost of any necessary works. Work has been ongoing throughout 2021 at a cost of GBP2.3m. The provision at 31 December 2021 remains management's best estimate of the costs of completing works to ensure fire safety on the remaining affected buildings under direct ownership and on those under third party ownership we have developed. As a result no further charge to the Statement of Comprehensive Income has been made in the year. 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 the remedial works and the scope of the properties requiring remedial works may change should regulation further evolve.
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:
2021 2020 -------------------------------- ------ ------ Level Level 3 3 GBPm GBPm -------------------------------- ------ ------ Shared equity loan receivables 45.6 56.2 -------------------------------- ------ ------
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 (2020: ten years) and discount rate 5% (2020: 5%) based on current observed market interest rates offered to private individuals on secured second loans.
The discounted forecast cash flow calculation is dependent upon the estimated future value of the properties on which the shared equity loans are secured. Adjustments to this input, which might result from a change in the wider property market, would have a proportional impact upon the fair value of the loan. Furthermore, whilst not easily accessible in advance, the resulting change in security value may affect the credit risk associated with the counterparty, influencing fair value further.
11. Reconciliation of net cash flow to net cash and analysis of net cash
2021 2020 GBPm GBPm ------------------------------------------------------ ------------------- ------------------- Cash and cash equivalents at 1 January 1,234.1 843.9 Increase in net cash and cash equivalents in cash flow 12.5 390.2 ------------------------------------------------------ ------------------- ------------------- Cash and cash equivalents at 31 December 1,246.6 1,234.1 IFRS 16 lease liability (8.8) (9.6) ------------------------------------------------------ ------------------- ------------------- Net cash at 31 December 1,237.8 1,224.5 ------------------------------------------------------ ------------------- -------------------
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 2021 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:
2021 2020 GBPm GBPm ----------------------------------------------- ------- ------- Current service cost 2.0 1.9 Past service cost - 0.5 Administrative expense 0.6 0.6 ----------------------------------------------- ------- ------- Pension cost recognised as operating expense 2.6 3.0 ----------------------------------------------- ------- ------- Interest cost 8.9 11.7 Return on assets recorded as interest (9.6) (13.4) ----------------------------------------------- ------- ------- Pension cost recognised as net finance credit (0.7) (1.7) ----------------------------------------------- ------- ------- Total defined benefit pension cost recognised in profit or loss 1.9 1.3 Remeasurement (gain)/loss recognised in other comprehensive income (83.3) 42.5 ----------------------------------------------- ------- ------- Total defined benefit scheme (gain)/loss recognised (81.4) 43.8 ----------------------------------------------- ------- -------
The amounts included in the balance sheet arising from the Group's obligations in respect of the Pension Scheme are as follows:
2021 2020 GBPm GBPm ------------------------------------- -------- -------- Fair value of Pension Scheme assets 751.9 694.4 Present value of funded obligations (603.1) (643.8) ------------------------------------- -------- -------- Net pension asset 148.8 50.6 ------------------------------------- -------- --------
The increase in the net pension asset to GBP148.8m (2020: GBP50.6m) is largely due to an increase in long-term corporate bond yields increasing the discount rate assumption applied to scheme obligations to 1.9% (2020: 1.4%).
13. Principal Risks and Viability Statement
In line with the UK Corporate Governance Code, the Group defines its principal risks as those considered to have a potentially material impact on its strategy and business model, including its future performance, solvency, liquidity and reputation. The Group's strategy focuses on minimising financial risk and deploying capital at the right time in the housing market cycle, recognising the inherent risks and cyclical nature of the housing market. This, together with an agile, experienced and responsive management team, and robust risk management framework, has established a highly resilient business able to address a range of future economic scenarios.
1. Pandemic risk Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- The potential for The Group Whilst the Residual risk increased rates maintains industry rating: High of transmission, business continued further variants continuity to face ongoing Risk trend of Covid-19 or a plans and can operational assessment new pandemic occurring draw and economic Overall: No in the UK, could upon extensive challenges change have significant Board from the Impact: No impacts across the and management pandemic, change Group's operations. experience particularly Likelihood: No These could include: from the response as the Omicron
Change * Increased health and safety risk to our workforce, to the initial outbreak our customers and the wider public. Covid-19 unfolded late in outbreak. the year, the Group * Disruption to build programmes and delays in sales, Robust and continued due to staff absences and material and labour supply comprehensive to manage these issues. policies and ongoing procedures challenges have been effectively. * Economic downturn, with reduced consumer confidence, developed demand and pricing for new homes, thereby affecting under the The revenues, margins, profits and cash flows and supervision comprehensive impairment of asset values. of the Health, suite Safety of measures and Environment established Department. These at the start of procedures allow the pandemic, for safe including our continuity robust of operations Covid-19 under policies and various pandemic procedures, have conditions. been continually Remote working adapted to capabilities reflect all are in place, government facilitated and industry through enhanced guidance use of and good technology. practice, and This supports have enabled a continuity strong of operations in degree of the event of continuity ongoing in our or future operations. We pandemic continue to conditions. The maintain risks associated the two-metre with increased social use distancing of remote working protocols are mitigated across our through sites. a combination of IT controls and The Group's user awareness strong balance training. sheet, high liquidity Potential and robust disruption financial of supply is disciplines mitigated ensure we through are well placed centralised to manage procurement and the ongoing management of key challenges materials. The of the pandemic. vertical integration afforded by use of our own Brickworks, Space4 and Tileworks production provides further mitigation for some critical materials. ----------------------------------------------------------- ------------------ ----------------- 2. Strategy Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- The Group's strategy The Group's Our Residual risk has been developed strategy well-established rating: Low by the Board as is agreed by the strategy the most appropriate Board at an continues to Risk trend approach to successfully annual reflect a firm assessment deliver the Group's strategy meeting. understanding Overall: No purpose and ambition The strategy of the risks change and generate optimal undergoes associated Impact: No sustainable value a continuous and with the change for all stakeholders. iterative process economic cycle Likelihood: No As political, economic of review and and the housing change and other conditions adaptation market. evolve, the strategy at Board meetings Through currently being and in response minimising pursued may cease to the evolution associated
to be the most appropriate of conditions in financial risk approach. which the Group and judging If the Group's strategy operates. the deployment is not effectively The Board engages of capital communicated to with all at the right our workforce and stakeholders time in / or engagement to ensure the the cycle, the and incentive measures strategy Group are inappropriate, is understood and has safeguarded operational activities effectively its strong may not successfully communicated. balance sheet deliver the Group's For example, an and maintained strategic objectives. Employee its positioning Engagement for continued Panel, Diversity future success. and Inclusion Council and employee engagement surveys are in place to monitor the cultural health of the organisation and ensure strategy is understood and implemented. ----------------------------------------------------------- ------------------ ----------------- 3. National and regional economic conditions Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- The housebuilding As noted above, The Board and Residual risk industry is sensitive the Group's our operational rating: High to changes in the long-term management teams economic environment, strategy is have Risk trend including unemployment focused continued to assessment levels, interest on the cyclical monitor Overall: No rates and consumer nature of the the economic change confidence. housing environment Impact: No market and closely change Deterioration in minimising throughout the Likelihood: No economic conditions, financial risk, year, with change resulting from the maintaining particular ongoing Covid-19 operational focus on the pandemic or continued and financial impact of impact of the UK's flexibility the disruption withdrawal from and judging the caused the EU for example, timing of capital by the pandemic could affect demand deployment and the and pricing for through UK's exit from new homes, with the cycle. the EU. resultant effects Despite these on our revenues, Lead indicators challenges, margins, profits on the future market and cash flows and direction conditions potential impairment of the UK housing remained of asset values. market are positive, with monitored strong Economic conditions to enable demand for in the land market informed housing and may adversely affect management of continued the availability exposure resilience of a sustainable to potential of selling supply of land at market prices. appropriate levels disruption. of return. Pricing structures are regularly reviewed to reflect local market conditions. The Group's geographical spread is continuously monitored to help mitigate the effects of regional economic fluctuations. In line with the Group's strategy, levels of build on site are closely monitored and land investment decisions are subject to comprehensive
due diligence processes to ensure effective deployment of capital. ----------------------------------------------------------- ------------------ ----------------- 4. Government policy Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- Changes to government Government policy Our assessment Residual risk policy have the in relation to has identified rating: High potential to impact the an overall on several aspects housing market is increase in Risk trend of our strategy monitored risk likelihood, assessment and operational closely. reflecting Overall: No performance. For Consistency of recent change example, the forthcoming policy government Impact: No withdrawal of the formulation and actions change Help to Buy scheme application affecting the Likelihood: in 2023, amendments remains industry, Increase to planning regulations supportive of the such as the and the recent government housebuilding introduction requirement to pay industry of the a contribution to as a whole, Residential a fund to cover encouraging Property the cost of fire continued Developer Tax, safety remediation substantial the potential works, could have investment in introduction of an adverse effect land, the Building on revenues, margins, work in progress Industry Scheme, tax charges and and skills to changes asset values. support to the stamp output growth. duty regime The Department for Our and the Levelling Up, Housing mission to build forthcoming and Communities homes with withdrawal (DLUHC) has demanded quality of the Help to that residential our customers can Buy Scheme property developers rely on at a in 2023. take a lead in the price Government funding and rectification they can afford continues of unsafe cladding and our strategic to recognise the and fire safety objectives, are need issues on buildings aligned with for increased over 11 metres in government construction height constructed priorities to of new homes, in the last 30 years. increase however, The government want housing stock. providing a developers to pay broadly for all the necessary Land investment supportive remediation on buildings decisions and environment for they constructed levels the industry. as well as make of work in additional contributions progress to an industry-wide are tightly scheme that protects controlled all leaseholders in order to from paying towards mitigate any works. exposure to external To reinforce this influences. demand, the government has introduced amendments Persimmon is into the Building taking Safety Bill, which, part in ongoing if passed, will discussions with require membership government to of a 'Building Industry identify Scheme'. Membership an effective of this scheme will solution be determined by to the funding the government, and based on the developer's rectification of commitments and unsafe cladding actions to rectify and fire safety cladding and fire issues on safety related issues buildings on buildings it over 11 metres has developed. The and government has indicated ensure they would use the leaseholders powers conferred are protected. through the amendments Persimmon to block planning led the industry and building control in committing permissions for that developers that leaseholders are not members should of the scheme. not have to pay for such works on any buildings we constructed. Last year, a GBP75m legacy buildings provision
was created to fund necessary work on these buildings. In light of DLUHCs request, we are reviewing buildings we constructed over the last 30 years but do not believe that this will result in a material increase to the 33 developments already identified. In addition, Persimmon will not claim from the Government's Building Safety Fund. We hope these actions will lead to us becoming a member of the government's new Building Industry Scheme and continue to engage in positive discussions with officials. ----------------------------------------------------------- ------------------ ----------------- 5. Health, safety and environment Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- In addition to the The Board retains The effective Residual risk human impacts of a very strong management rating: High any accident, there commitment of health, is the potential to health and safety and Risk trend for reputational safety environmental assessment damage, construction and managing the risks has Overall: No delays and financial risks in this remained a change penalties as a result area critical area Impact: No of any health, safety effectively. This of focus for the change or environmental is implemented by Board Likelihood: No incident. comprehensive and our change management management teams systems and throughout the controls, year. managed by our highly As noted above, experienced our Health, comprehensive Safety and suite of Environment Covid-19 Department, which mitigation includes detailed measures, training and including our inspection robust policies programmes to and procedures, minimise have been the likelihood continually and adapted to impact of reflect accidents government on our sites. and industry While guidance all reasonable and good steps practice, and are taken to have enabled a reduce strong the likelihood of degree of an incident, the continuity potential human, in our reputational and operations. financial impacts of any such Environmental incident management are considered has been an area high. of particular focus in the year, with senior appointments made
to support ongoing development in this area. ----------------------------------------------------------- ------------------ ----------------- 6. Skilled workforce, retention and succession Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- Shortages of skilled Access to an The demand for Residual risk labour, driven in appropriately labour rating: High part through the skilled workforce within the effects of the UK's and experienced construction Risk trend exit from the EU management team sector has assessment and from increased is essential in remained high Overall: UK housebuilding maintaining throughout the Increase activities, create operational year, Impact: No risks of increased performance and driven by a change costs and delays ensuring the number of Likelihood: and disruption to successful factors. This is Increase build programmes. delivery of the reflected Group's strategy. in an overall increase The Group in our operates assessment of a range of this risk. apprenticeships and in-house The Group has training continued programmes, under to invest in its the supervision people of the Group and processes to Training mitigate department, in this risk. order Notable to support an developments adequate within the year supply of skilled include labour. In an expansion of addition, the resource the Group is within our Group committed Training to supporting department and industry the further initiatives to development of address the 'Persimmon the skills gap. Pathway', a The Group's structured Space4 training manufacturing programme and facility, career pathway which produces for key timber disciplines. frames, highly insulated wall panels and roof cassettes, improves build efficiency and requires less on-site labour than a traditionally built home, mitigating some labour shortage risk. A range of measures have been deployed to ensure high levels of retention across the workforce. These include increased focus on employee engagement, further development of performance management frameworks, career management, and financial incentives. At the most senior level, the Nomination Committee oversees these processes
and promotes effective succession planning. ----------------------------------------------------------- ------------------ ----------------- 7. Materials and land purchasing Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- Materials availability Materials Sustained growth Residual risk Ensuring access availability in UK rating: High to the right quantity Our build housebuilding and specification programmes activities, Risk trend of materials is and our supply and supply chain assessment critical in delivering chain disruption Overall: high quality homes. are closely caused by a Increase monitored combination Impact: Increase Heightened levels to allow us to of the Covid-19 Likelihood: of demand for materials manage pandemic Increase may cause availability and react to any and issues constraints and supply chain associated increase cost pressures. issues with the UK's Furthermore, build and to help exit from quality may be compromised ensure the EU, has if unsuitable materials consistent high increased are procured leading quality pressure on the to damage to the standards. supply Group's reputation We build strong chain. This has and customer experience. relationships resulted with in increased Land Purchasing key suppliers lead times Land may be purchased over and inflationary at too high a price, the long term to pressures in the wrong location ensure in some and at the wrong consistency materials. time in the housing of supply and market cycle. cost These pressures efficiency. Our have Group Procurement been reflected team works with in an our operating increased businesses overall risk to ensure the rating. However, Group's the suppliers provide Group continues materials to the to benefit expected from its specification vertical and quantities. integration through our The Group's Brickworks, off-site Tileworks and manufacturing hub Space4 at Harworth, near manufacturing Doncaster, facilities, provides and the current a significant positive proportion sales pricing of the bricks and conditions roof tiles used continue to across our sites, mitigate providing effects of cost security inflation. of supply. This complements our In respect of existing off-site land, we manufacturing have maintained facility our at Space4, which well-established produces timber disciplined frames, highly approach insulated to replacement wall panels and whilst roof cassettes. continuing to take advantage Land Purchasing of exciting The Group opportunities maintains in the market. strong land During holdings. the year, our All land land replacement purchases has exceeded undergo current comprehensive consumption. viability assessments and must meet specific levels of projected returns, taking
into account anticipated market conditions and sales rates. ----------------------------------------------------------- ------------------ ----------------- 8. Climate change Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- The effects of climate The Group takes The likelihood Residual risk change and the UK's a range of assessment rating: Medium transition to a measures of this risk has lower carbon economy to monitor and increased Risk trend could lead to increasing improve compared to the assessment levels of regulation its operational prior Overall: No and legislation, efficiency and year as change as seen with the direct increasing Impact: No Future Homes Standard. environmental awareness change These may in turn impact, and desire for Likelihood: result in planning including action, Increase delays, increased measuring in part costs and competition CO(2) emissions following COP26, for some materials. and the amount of is likely to waste we generate result in Changes in weather for each home we a more urgent patterns and the sell. transition frequency of extreme to a lower weather events, The Group carbon economy. particularly storms maintains and flooding, may a detailed Within the year, increase the likelihood climate the of disruption to change risk Group has set the construction register, science process. The availability which ensures based carbon of mortgages and that reduction property insurance the management targets, in line may reduce in response and with to financial institutions mitigation of the the Paris considering the risk is embedded Agreement, possible impacts within the which were fully relating to climate Group's accredited change. risk management by the Science process. Based Targets We systematically Initiative. We consider the have set potential ambitious 'net impacts of zero' targets, climate aiming change throughout to deliver 'net the land zero' acquisition, homes in use to planning and our customers build by 2030 and processes and become 'net work zero' in our closely with operations planning by 2040. authorities and other statutory The Group has bodies to manage already and mitigate made good these progress on risks. its carbon reduction The government's roadmap with a 'Future Homes number Standard' of projects to will be research introduced the most by 2025. To plan effective method for and manage of delivering a the 'net transition to low zero' home in carbon homes, a use and low carbon homes engaging a third working group party (consisting expert to of members from measure the across the embodied carbon Group's of our various homes. Our homes disciplines) are has been already established. significantly The Group engages more energy proactively with efficient the housebuilding than existing industry and the housing Government to stock and our
develop pathway industry wide to 'net zero' solutions homes in to meet the use by 2030 has requirements clear of the Future interim Homes milestones. Standard. Operationally, We continually the Group seek has introduced to strengthen our electric supply chain, for vehicle options example, our into off-site its fleet, is manufacturing now purchasing facilities 100% renewable provide us with energy greater assurance for its offices of quality and and supply, manufacturing and use modern facilities and methods continues of construction to investigate and technology to methods assist the of reducing the mitigation Group's of climate change red diesel related risks. consumption The and increasing Group Procurement the use team maintain of alternative strong fuels. links with our suppliers delivering value through our supply chain by regular engagement and robust tendering processes. ----------------------------------------------------------- ------------------ ----------------- 9. Reputation Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- Damage to the Group's Management The Persimmon Residual risk reputation could Supervision Way, our rating: Medium adversely affect The Group is end-to-end its ability to deliver committed consolidated Risk trend its strategic objectives. to ensuring an construction assessment If governance, build appropriate process, Overall: No quality, customer culture and is now in change experiences, operational maintaining operation across Impact: Increase performance, management the high quality the business, Likelihood: No of health and safety of its and supporting change or local planning operations. our desire to concerns fall short This is subject 'build of our usual high to oversight from right, first standards, this the Board. time, every may result in damage time'. to customer, commercial Build quality and and investor relationships re-enforcing Persimmon and have a detrimental trust formally impact on financial in the brand are commenced performance. key priorities the registration for process the Group. for the New Significant Homes Quality investment has Code (NHQC) on been 14 January made in these 2022, one of the areas, first for example housebuilders to through do so. the Persimmon We welcome the Way, introduction including of the NHQC, expanding which aims the Group's team to drive up of Independent quality and Quality customer service Controllers across (IQCs) the industry and addressing together the with the Group's legacy appointment quality of a New Homes issues. Ombudsman
Service. Senior appointments The Group have been made at continues to Group level to invest in its promote people and enforce and processes, compliance driving with policies and operational procedures as improvements. well These as to provide the enhancements Board with reduce assurance the probability on their of operational effective issues and the implementation. consequent reputational Stakeholder damage they Relationships can cause. 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. 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. ----------------------------------------------------------- ------------------ ----------------- 10. Regulatory compliance Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- The housebuilding Comprehensive The assessment Residual risk industry is subject management of the rating: Medium to extensive and systems are in likelihood of complex laws and place this risk Risk trend regulations, particularly to ensure has increased assessment in areas such as regulatory within Overall: No land acquisition, and legal the year. This change planning, building compliance, reflects Impact: No regulations and including a suite the continuing change the environment. of policies and increase Likelihood: Ensuring compliance procedures in the volume Increase in these areas can covering and complexity result in delays key areas of of regulatory in securing the legislation requirements, land required for and regulation. and the development and Additional financial and in construction. oversight reputation risks Any failure to comply is in place associated with regulations through with any could result in the Group-level failures to damage to the Group's functions and manage reputation and potential cross-functional regulatory imposition of financial steering groups compliance penalties. for key areas, effectively. such as GDPR Key regulatory compliance. areas Where these of focus within systems the year identify have included inconsistencies planning
in adherence to conditions, with agreed processes, the corrective Group, in common actions with are swiftly the wider taken. industry, continuing We engage to experience extensively delays with planning to outlet authorities openings due and other to the delays stakeholders within to reduce the the planning likelihood system. and impact of any delays or Persimmon disruption. formally In respect of commenced land, the registration the Group process controls for the NHQC on sufficient 14 January holdings 2022. The aims to provide of the security Code and its of supply for supporting medium process are term trading consistent requirements. with the Group's Our land needs own and focus on further potential improving acquisitions build quality are subject to and customer extensive service due diligence to standards. manage planning risks and uncertainties and maintain an effective pipeline. ----------------------------------------------------------- ------------------ ----------------- 11. Cyber and data risk Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- The Group relies The Group Within the year, Residual risk on its IT systems operates the rating: Medium being consistently centrally assessment of available and secure. maintained the risk Risk trend Failure of any of IT systems with impact and assessment the Group's core a fully tested likelihood Overall: No IT systems, particularly disaster remain change those in relation recovery unchanged. Impact: No to customer information programme. However, change and customer service All cyber and data Likelihood: No could result in infrastructure risks change significant financial is highly continue to be costs, reputational resilient, an area damage and business with of growing focus disruption. geographically for diverse the Group, datacentres reflecting and a series of the increase in backup the use arrangements. of technology in supporting The Group the Group's maintains operations. dedicated cyber security resource The Group has to manage and continued oversee to strengthen security its mitigation controls, measures in benchmarked to respect of external cyber risk, sources of good under the practice such as supervision of the NCSC's 'Ten the Information Steps to Cyber Security Security'. Steering Group Periodic (ISSG) and penetration through the testing is work of the carried Group IT out through department. external security partners To develop
to test the controls security further, of our perimeter an externally network. In the led review event of an of the Group's incident, cyber the Group has a security defined Cyber measures has Incident been Response Plan. commissioned. This Training and will build on an regular earlier communications assessment by are the same delivered to all external partner users to increase in 2020, awareness of and will ensure cyber-risks, the Group's with particular approach to focus on risks cyber risk associated remains with remote and appropriate and hybrid working. reflects best practice. ----------------------------------------------------------- ------------------ ----------------- 12. Mortgage availability Risk assessment Risk description Approach to risk Developments in mitigation 2021 ----------------------------------------------------------- ------------------ ----------------- Reduced availability We monitor Bank The fundamentals Residual risk or affordability of England of the rating: High of mortgages for commentary UK housing customers could on credit market remain Risk trend reduce demand for conditions strong, with assessment new homes and affect including the robust consumer Overall: No sales prices, revenues, monthly demand and change profits, cash flows, approvals for confidence. Impact: Decrease and asset values. house We continue to Likelihood: purchases, see good Increase reports levels of from UK Finance, mortgage and lenders' availability announcements and continued for trends in low interest lending. rates, We ensure that encouraging our affordability investment in for new homes. land and work in progress is appropriate for our level of sales and our expectations of the current market conditions. The government's Help to Buy scheme, which is scheduled to remain in place until 2023, supports customers to gain access to the housing market across the UK with competitive mortgage rates. ----------------------------------------------------------- ------------------ -----------------
VIABILITY STATEMENT
Persimmon's prospects and viability
The long-term prospects and viability of the business are a consistent focus of the Board when determining and monitoring the Group's strategy. The identification and mitigation of the principal risks facing the business, which have been updated to reflect current UK economic conditions and uncertainties (including the ongoing impacts of the Covid-19 pandemic and the UK's exit from the European Union), 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 cyclical nature of the UK housing market. The Group has therefore been able to maintain a position of strength with good liquidity, high quality land holdings and a strong balance sheet throughout the disruption of the Covid-19 pandemic. The future impacts of the pandemic, and other factors creating uncertainty within the UK economy and the Group's sales and construction programmes, remain uncertain. The Board has considered these potential impacts in depth when assessing the long-term prospects of the Group.
Whilst this uncertainty remains, Persimmon possesses the sound fundamentals required to realise the Group's purpose and ambitions and deliver sustainable success:
-- talented teams focused on consistently delivering good quality homes for our customers; -- high quality land holdings that allow us to create attractive places in areas where people wish to live and work; -- strong customer and local community relationships; -- continued investment in the training and development of our teams; -- market knowledge, expertise and industry know-how; and, -- long-term healthy supplier engagement.
By continuing to build on these solid foundations through, for example, the Persimmon Way and our ongoing investments in the customer experience, the Group aims to help create sustainable and inclusive communities through continued investment in its people, its land, and 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 initiatives such as the Persimmon Way -- Strong financial position with considerable cash reserves and with additional substantial working capital credit facilities maturing March 2026
2. Strategy and business model
-- Strategy focuses on the risks associated with the housing cycle and on minimising financial risk and maintaining financial flexibility -- Focusing on constructing new homes for our customers to the high quality standards that they expect and helping to create attractive neighbourhoods -- Strategy recognises the Group's ability to generate surplus capital beyond the reinvestment needs of the business -- Substantial investment in staff engagement, training and support to sustain operations over the long-term -- Approach to land investment and development activity provides the opportunity to successfully deliver much needed new housing supply and create value over the long-term -- Differentiation through vertical integration, achieving security of supply of key materials and complementary modern methods of construction to support sustainable growth -- Simple capital structure maintained with no structural gearing
3. Principal risks associated with the Group's strategy and business model include:
-- Disruption to the UK economy, including the impacts arising from the Covid-19 pandemic and the UK's exit from the EU, adversely impacting demand for new homes and construction programmes, or contributing to inflationary pressures -- Changes in government policy affecting the housebuilding sector, such as withdrawal of the Help to Buy scheme, and the recent government requirement to pay a contribution to a fund to cover the cost of fire safety remediation works -- 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, strategic and on market land holdings and investments required to support their objectives. Special attention is paid to construction programmes and capital management through the period to ensure the appropriate level of investment is made at the appropriate time to support delivery of the plan. Emerging risks and opportunities in their markets are also assessed at this local level.
Senior Group management review these plans and balance the competing requirements of each of the Group's businesses, allocating capital with the aim of achieving the long-term strategic objectives of the Group. 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 period for the purpose of assessing the viability of the Group is considered the most appropriate time horizon, as it reflects the business model of the Group, with new land investments generally taking at least five years to build and sell through, and for the development infrastructure to be adopted by local authorities. This is already in alignment with anticipated evolutions in corporate reporting from the BEIS consultation on 'restoring trust in audit and corporate governance', such as the resilience statement requirement.
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 is reinforced by 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. The Group has exceeded this initial commitment and has paid GBP13.00 per share, or GBP4.1bn back to shareholders over this period. On 2 March 2022, the Directors announced the scheduled Capital Return Programme payments in respect of the financial year ended 31 December 2021, to be paid in 2022. 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 on issues such as the timing of legal completions of new homes sold, average selling prices achieved, profitability, working capital requirements and cash flows. They also include the 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 out to 31 March 2026.
The Directors have also carried out a robust assessment of the principal and emerging risks facing the Group and how the Group manages those risks, including those risks that would threaten its strategy, business model, future operational and financial performance, solvency and liquidity. This risk assessment was also informed by the performance of the Group's materiality assessment, incorporating views from the Group's key stakeholders. The Directors have considered the impact of these risks on the viability of the business by performing a range of sensitivity analyses to a Base Case, including severe but plausible scenarios materialising together with the likely effectiveness of mitigating actions that would be executed by the Directors.
The scenarios emphasise the potential impact of severe market disruption including, for example, the ongoing effect of economic disruption from the Covid-19 pandemic on the short to medium-term demand for new homes. The scenarios' emphasis on the impact on the cash inflows of the Group through reduced new home sales is designed to allow the examination of the extreme cash flow consequences of such circumstances occurring. The Group's cash flows are less sensitive to supply side disruption given the Group's sustainable business model, flexible operations, agile management team and off-site manufacturing facilities.
In the first scenario modelled, the combined impact is assumed to cause a 44% reduction in volumes and a c.14% reduction in average selling prices through to 2023. As a result of these factors, the Group's housing revenues were assumed to fall by c. 51% 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. 40% fall in average selling prices through to 2023. As a result of these factors, the Group's housing revenues were assumed to fall by c. 67% during this period. It assumes that neither volumes nor average selling prices recover from this point through to 2026.
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 2026.
* 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 2021 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 2021 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 Nigel Mills Senior Independent Director Simon Litherland Non-Executive Director Joanna Place Non-Executive Director Annemarie Durbin Non-Executive Director Andrew Wyllie Non-Executive Director Shirine Khoury-Haq Non-Executive Director
By order of the Board
Dean Finch Group Chief Executive 1 March 2022
The Group's Annual financial reports, half year reports and trading updates are available from the Group's website at www.persimmonhomes.com/corporate.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
END
FR JBMLTMTBMBAT
(END) Dow Jones Newswires
March 02, 2022 02:00 ET (07:00 GMT)
1 Year Persimmon Chart |
1 Month Persimmon Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions