REG - Persimmon Plc - Full Year Results
02/03/2022 07:00
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RNS Number : 2885D Persimmon PLC 02 March 2022
FULL YEAR RESULTS FOR THE YEAR ENDED 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 £2.21bn. 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 £237,078 £230,534
Total Group revenues £3.61bn £3.33bn
New housing revenues £3.45bn £3.13bn
Underlying new housing gross margin(1) 31.4% 31.0%
Underlying profit before tax(2) £973.0m £863.1m
Profit before tax £966.8m £783.8m
Cash at 31 December £1,246.6m £1,234.1m
Land holdings at 31 December - plots owned and under control 88,043 84,174
Current number of developments across the UK c. 290 c. 300
Current forward sales position £2.21bn £2.27bn
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 £1,209.8m (2020: £1,066.8m) before capital
returns of £749.6m and net land spend of £447.7m.
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 £460m 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 £259,231 for the year to 31 December
2021 is over 20%(7) lower than the UK national average.
● Investment of £490m in local communities in 2021, including the delivery of
2,533 new homes for lower income families to our housing association partners.
● Over £1.8m 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 £75m 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
£2.21bn, 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 (£398.7m) and 110p (£350.9m) 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: £nil, 2020: £75.0m) and
based on new housing revenue (2021: £3,449.7m, 2020: £3,129.5m).
2 Stated before legacy buildings provision (2021: £nil, 2020: £75.0m) and
goodwill impairment (2021: £6.2m, 2020: £4.3m). Profit before tax after
legacy buildings provision and goodwill impairment is £966.8m (2020:
£783.8m).
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 £nil (2020: £75.0m) and goodwill
impairment (2021: £6.2m, 2020: £4.3m).
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: £3,449.7m, 2020: £3,129.5m) and
underlying operating profit (2021: £966.7m, 2020: £862.8m) (stated before
legacy buildings provision of £nil (2020: £75.0m) and goodwill impairment
(2021: £6.2m, 2020: £4.3m)).
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
£259,231.
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
(https://protect-eu.mimecast.com/s/Y_GoCgkDqtqEyKjuNHb8B?domain=edge.media-server.com)
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
(http://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 £3.61bn (2020:
£3.33bn). 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 £973.0m (2020:
£863.1m). Cash generation remains strong at £762.1m (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 £75m 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 £2.21bn, 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. £700m 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: £3,449.7m, 2020: £3,129.5m) and
underlying operating profit (2021: £966.7m, 2020: £862.8m) (stated before
legacy buildings provision of £nil (2020: £75.0m) and goodwill impairment
(2021: £6.2m, 2020: £4.3m)).
3 Stated before legacy buildings provision (2021: £nil, 2020: £75.0m) and
goodwill impairment (2021: £6.2m, 2020: £4.3m). Profit before tax after
legacy buildings provision and goodwill impairment is £966.8m (2020:
£783.8m).
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 £3.61bn, an 8% increase
year on year (2020: £3.33bn). Our new housing revenues increased to £3.45bn
in 2021 from £3.13bn 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 £237,078 (2020: £230,534) 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 £259,231 (2020: £250,897) 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 £973.0m (2020: £863.1m) and our cash
generation to £762.1m (pre-capital return) (2020: £740.9m). The Group's
profit before tax increased to £966.8m (2020: £783.8m).
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 £75m 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 £460m in land payments (including around £180m 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 £1,209.8m (2020: £1,066.8m) before
capital returns of £749.6m and net land spend of £447.7m 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 £1.8m to
local communities and good causes in 2021. Through our planning contributions
we have paid £127m 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 £2.21bn 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: £3,449.7m, 2020: £3,129.5m) and
underlying operating profit (2021: £966.7m, 2020: £862.8m) (stated before
legacy buildings provision of £nil (2020: £75.0m) and goodwill impairment
(2021: £6.2m, 2020: £4.3m)).
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: £nil, 2020: £75.0m) and
goodwill impairment (2021: £6.2m, 2020: £4.3m). Profit before tax after
legacy buildings provision and goodwill impairment is £966.8m (2020:
£783.8m).
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
£259,231.
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 £nil (2020: £75.0m) and goodwill
impairment (2021: £6.2m, 2020: £4.3m).
FINANCIAL REVIEW
Trading
The Group entered 2021 in a resilient position with forward sales at c.
£1.69bn 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 £3.61bn (2020: £3.33bn),
with new housing revenue of £3.45bn (2020: £3.13bn). The Group delivered
14,551 new homes (2020: 13,575) at an average selling price of £237,078
(2020: £230,534), 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 £259,231 (2020: £250,897). 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
£131,976 (2020: £125,930).
The Group's underlying gross profit(1) for the year was £1,083.8m (2020:
£969.4m) 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 £966.7m (2020: £862.8m),
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 £966.8m in the year (2020:
£783.8m).
Taxation
The Group has an overall tax charge of £179.6m for the year (2020: £145.4m)
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 £3,625.2m at 31 December 2021 (2020: £3,518.4m), including
retained earnings of £3,055.1m (2020: £2,950.9m), underpin the Group's
balance sheet strength. After returning £749.6m 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 share³ 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 £148.8m at 31
December 2021 (2020: £50.6m). 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
£75.0m 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 £2.3m. At 31 December 2021, the provision stands at £72.7m
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
£1,798.2m (2020: £1,722.1m), 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 margin⁶
of c. 33% and a cost to revenue ratio of 11.4%⁷ (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
£460.0m in the year, including £178.5m 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 £1,054.1m
being only c. 3% lower than the level of investment we entered 2021 (2020:
£1,091.6m). 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 £1,246.6m at 31 December 2021 (2020:
£1,234.1m). During the year the Group generated £1,209.8m (2020: £1,066.8m)
of cash before returning £749.6m of surplus capital to shareholders and net
land spend of £447.7m. The Group's deferred land commitments have increased
by £78.3m to £407.6m from £329.3m 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 £972.8m
(2020: £993.3m).
In addition, the Group has an undrawn £300m Revolving Credit Facility which
extends out to 31 March 2026.
The Group's shared equity loans have generated £18.9m of cash in the year
(2020: £16.4m). The carrying value of these outstanding shared equity loans,
reported as "Shared equity loan receivables", is £45.6m at 31 December 2021
(2020: £56.2m). 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 £6.3m (2020: £0.3m) and includes £7.9m
of gains generated on the Group's shared equity loan receivables (2020:
£4.0m) and £1.8m of imputed interest payable on land creditors (2020:
£5.4m).
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 £13.00 per share, compared to the £6.20 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 £300m 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 £nil (2020: £75.0m)
2 Based on new housing revenues of £3,449.7m (2020: £3,129.5m) and
underlying gross profits of £1,083.8m (2020: £969.4m) (stated before legacy
buildings provision of £nil (2020: £75.0m)).
3 Stated before legacy buildings provision of £nil (2020: £75.0m) and
goodwill impairment (2021: £6.2m, 2020: £4.3m).
4 Based on new housing revenue (2021: £3,449.7m, 2020: £3,129.5m) and
underlying operating profit (2021: £966.7m, 2020: £862.8m) (stated before
legacy buildings provision of £nil (2020: £75.0m) and goodwill impairment
(2021: £6.2m, 2020: £4.3m)).
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: £nil, 2020: £75.0m) and
goodwill impairment (2021: £6.2m, 2020: £4.3m).
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
£m £m
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 £m £m
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 capital Share premium Capital redemption reserve Other non-distributable reserve Retained earnings Total
£m £m £m £m £m £m
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 £m £m
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 £966.8m (2020: £783.8m; 2019:
£1,040.8m). At 31 December 2021, the Group's strong financial position
included £1,246.6m of cash (2020: £1,234.1m; 2019: £843.9m), high quality
land holdings and land creditors of £407.6m (2020: £329.3m; 2019:
£435.2m). In addition, the Group has an undrawn Revolving Credit Facility
of £300m, 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. £2.2bn.
We have over 6,200 new homes sold forward into the private owner occupier
market with an average selling price of over £259,350. 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 £300m
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
£m £m
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 3,610.5 3,328.3
comprehensive income
4. Tax
Analysis of the tax charge for the year
2021 2020
£m £m
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 1.3 0.7
tax
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
£m £m
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
£25m, 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 £7m with a corresponding charge to the
Statement of Comprehensive Income/Statement of Shareholders Equity.
Deferred tax recognised in other comprehensive income
2021 2020
£m £m
Recognised on remeasurement gain/(loss) on pension schemes 24.8 (6.5)
Tax recognised directly in equity
2021 2020
£m £m
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
£m £m
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 per share paid 2021 398.7 -
2020 dividend to all shareholders of 110p per share paid 2021 350.9 -
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
£m £m
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
£m £m
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 £18.6m (2020: £25.4m). Following the review, £4.1m of inventories are
valued at net realisable value rather than historical cost (2020: £5.9m).
8. Shared equity loan receivables
2021 2020
£m £m
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, £4.2m
(2020: £1.5m) was unrealised.
9. Legacy buildings provision
2021 2020
£m £m
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
£75.0m provision to cover the cost of any necessary works. Work has been
ongoing throughout 2021 at a cost of £2.3m. 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 3 Level 3
£m £m
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
£m £m
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
£m £m
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
£m £m
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 £148.8m (2020: £50.6m) 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 mitigation Developments in 2021
The potential for increased rates of transmission, further variants of The Group maintains business continuity plans and can draw upon extensive Whilst the industry continued to face ongoing operational and economic
Covid-19 or a new pandemic occurring in the UK, could have significant impacts Board and management experience from the response to the initial Covid-19 challenges from the pandemic, particularly as the Omicron outbreak unfolded
Residual risk rating: High across the Group's operations. These could include: outbreak. late in the year, the Group continued to manage these ongoing challenges
effectively.
- Increased health and safety risk to our workforce, our customers and
the wider public.
Risk trend assessment
Robust and comprehensive policies and procedures have been developed under the
- Disruption to build programmes and delays in sales, due to staff supervision of the Health, Safety and Environment Department. These procedures The comprehensive suite of measures established at the start of the pandemic,
Overall: No change absences and material and labour supply issues. allow for safe continuity of operations under various pandemic conditions. including our robust Covid-19 policies and procedures, have been continually
adapted to reflect all government and industry guidance and good practice, and
Impact: No change - Economic downturn, with reduced consumer confidence, demand and have enabled a strong degree of continuity in our operations. We continue to
pricing for new homes, thereby affecting revenues, margins, profits and cash
maintain the two-metre social distancing protocols across our sites.
Likelihood: No Change flows and impairment of asset values. Remote working capabilities are in place, facilitated through enhanced use of
technology. This supports continuity of operations in the event of ongoing or
future pandemic conditions. The risks associated with increased use of remote
working are mitigated through a combination of IT controls and user awareness The Group's strong balance sheet, high liquidity and robust financial
training. disciplines ensure we are well placed to manage the ongoing challenges of the
pandemic.
Potential disruption of supply is mitigated through centralised procurement
and management of key materials. The 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 mitigation Developments in 2021
The Group's strategy has been developed by the Board as the most appropriate The Group's strategy is agreed by the Board at an annual strategy meeting. The Our well-established strategy continues to reflect a firm understanding of the
approach to successfully deliver the Group's purpose and ambition and generate strategy undergoes a continuous and iterative process of review and adaptation risks associated with the economic cycle and the housing market. Through
Residual risk rating: Low optimal sustainable value for all stakeholders. at Board meetings and in response to the evolution of conditions in which the minimising associated financial risk and judging the deployment of capital at
Group operates. the right time in the cycle, the Group has safeguarded its strong balance
As political, economic and other conditions evolve, the strategy currently
sheet and maintained its positioning for continued future success.
being pursued may cease to be the most appropriate approach. The Board engages with all stakeholders to ensure the strategy is understood
Risk trend assessment
and effectively communicated. For example, an Employee Engagement Panel,
If the Group's strategy is not effectively communicated to our workforce and / Diversity and Inclusion Council and employee engagement surveys are in place
Overall: No change or engagement and incentive measures are inappropriate, operational activities to monitor the cultural health of the organisation and ensure strategy is
may not successfully deliver the Group's strategic objectives. understood and implemented.
Impact: No change
Likelihood: No change
3. National and regional economic conditions
Risk assessment Risk description Approach to risk mitigation Developments in 2021
The housebuilding industry is sensitive to changes in the economic As noted above, the Group's long-term strategy is focused on the cyclical The Board and our operational management teams have continued to monitor the
environment, including unemployment levels, interest rates and consumer nature of the housing market and minimising financial risk, maintaining economic environment closely throughout the year, with particular focus on the
Residual risk rating: High confidence. operational and financial flexibility and judging the timing of capital impact of the disruption caused by the pandemic and the UK's exit from the EU.
deployment through the cycle. Despite these challenges, market conditions remained positive, with strong
demand for housing and continued resilience of selling prices.
Risk trend assessment Deterioration in economic conditions, resulting from the ongoing Covid-19
pandemic or continued impact of the UK's withdrawal from the EU for example, Lead indicators on the future direction of the UK housing market are monitored
Overall: No change could affect demand and pricing for new homes, with resultant effects on our to enable informed management of exposure to potential market disruption.
revenues, margins, profits and cash flows and potential impairment of asset Pricing structures are regularly reviewed to reflect local market conditions.
Impact: No change values. The Group's geographical spread is continuously monitored to help mitigate the
effects of regional economic fluctuations.
Likelihood: No change
Economic conditions in the land market may adversely affect the availability
of a sustainable supply of land at appropriate levels of return. 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 mitigation Developments in 2021
Changes to government policy have the potential to impact on several aspects Government policy in relation to the housing market is monitored closely. Our assessment has identified an overall increase in risk likelihood,
of our strategy and operational performance. For example, the forthcoming Consistency of policy formulation and application remains supportive of the reflecting recent government actions affecting the industry, such as the
Residual risk rating: High withdrawal of the Help to Buy scheme in 2023, amendments to planning housebuilding industry as a whole, encouraging continued substantial introduction of the Residential Property Developer Tax, the potential
regulations and the recent government requirement to pay a contribution to a investment in land, work in progress and skills to support output growth. Our introduction of the Building Industry Scheme, changes to the stamp duty regime
fund to cover the cost of fire safety remediation works, could have an adverse mission to build homes with quality our customers can rely on at a price they and the forthcoming withdrawal of the Help to Buy Scheme in 2023. Government
effect on revenues, margins, tax charges and asset values. can afford and our strategic objectives, are aligned with government continues to recognise the need for increased construction of new homes,
Risk trend assessment
priorities to increase housing stock. however, providing a broadly supportive environment for the industry.
Overall: No change
The Department for Levelling Up, Housing and Communities (DLUHC) has demanded
Impact: No change that residential property developers take a lead in the funding and Land investment decisions and levels of work in progress are tightly
rectification of unsafe cladding and fire safety issues on buildings over 11 controlled in order to mitigate exposure to external influences.
Likelihood: Increase metres in height constructed in the last 30 years. The government want
developers to pay for all the necessary remediation on buildings they
constructed as well as make additional contributions to an industry-wide
scheme that protects all leaseholders from paying towards any works. Persimmon is taking part in ongoing discussions with government to identify an
effective solution to the funding and rectification of unsafe cladding and
fire safety issues on buildings over 11 metres and ensure leaseholders are
protected. Persimmon led the industry in committing that leaseholders should
To reinforce this demand, the government has introduced amendments into the not have to pay for such works on any buildings we constructed. Last year, a
Building Safety Bill, which, if passed, will require membership of a 'Building £75m legacy buildings provision was created to fund necessary work on these
Industry Scheme'. Membership of this scheme will be determined by the buildings. In light of DLUHCs request, we are reviewing buildings we
government, based on the developer's commitments and actions to rectify constructed over the last 30 years but do not believe that this will result in
cladding and fire safety related issues on buildings it has developed. The a material increase to the 33 developments already identified. In addition,
government has indicated they would use the powers conferred through the Persimmon will not claim from the Government's Building Safety Fund. We hope
amendments to block planning and building control permissions for developers these actions will lead to us becoming a member of the government's new
that are not members of the scheme. Building Industry Scheme and continue to engage in positive discussions with
officials.
5. Health, safety and environment
Risk assessment Risk description Approach to risk mitigation Developments in 2021
In addition to the human impacts of any accident, there is the potential for The Board retains a very strong commitment to health and safety and managing The effective management of health, safety and environmental risks has
reputational damage, construction delays and financial penalties as a result the risks in this area effectively. This is implemented by comprehensive remained a critical area of focus for the Board and our management teams
Residual risk rating: High of any health, safety or environmental incident. management systems and controls, managed by our highly experienced Health, throughout the year.
Safety and Environment Department, which includes detailed training and
inspection programmes to minimise the likelihood and impact of accidents on
our sites. While all reasonable steps are taken to reduce the likelihood of an
Risk trend assessment incident, the potential human, reputational and financial impacts of any such As noted above, our comprehensive suite of Covid-19 mitigation measures,
incident are considered high. including our robust policies and procedures, have been continually adapted to
Overall: No change
reflect government and industry guidance and good practice, and have enabled a
strong degree of continuity in our operations.
Impact: No change
Likelihood: No change
Environmental management has been an area 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 mitigation Developments in 2021
Shortages of skilled labour, driven in part through the effects of the UK's Access to an appropriately skilled workforce and experienced management team The demand for labour within the construction sector has remained high
exit from the EU and from increased UK housebuilding activities, create risks is essential in maintaining operational performance and ensuring the throughout the year, driven by a number of factors. This is reflected in an
Residual risk rating: High of increased costs and delays and disruption to build programmes. successful delivery of the Group's strategy. overall increase in our assessment of this risk.
Risk trend assessment The Group operates a range of apprenticeships and in-house training The Group has continued to invest in its people and processes to mitigate this
programmes, under the supervision of the Group Training department, in order risk. Notable developments within the year include an expansion of the
Overall: Increase to support an adequate supply of skilled labour. In addition, the Group is resource within our Group Training department and the further development of
committed to supporting industry initiatives to address the skills gap. The the 'Persimmon Pathway', a structured training programme and career pathway
Impact: No change Group's Space4 manufacturing facility, which produces timber frames, highly for key disciplines.
insulated wall panels and roof cassettes, improves build efficiency and
Likelihood: Increase 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 mitigation Developments in 2021
Materials availability Materials availability Sustained growth in UK housebuilding activities, and supply chain disruption
caused by a combination of the Covid-19 pandemic and issues associated with
Residual risk rating: High Ensuring access to the right quantity and specification of materials is Our build programmes and our supply chain are closely monitored to allow us to the UK's exit from the EU, has increased pressure on the supply chain. This
critical in delivering high quality homes. manage and react to any supply chain issues and to help ensure consistent high has resulted in increased lead times and inflationary pressures in some
quality standards. We build strong relationships with key suppliers over the materials.
long term to ensure consistency of supply and cost efficiency. Our Group
Risk trend assessment
Procurement team works with our operating businesses to ensure the Group's
Heightened levels of demand for materials may cause availability constraints suppliers provide materials to the expected specification and quantities.
Overall: Increase and increase cost pressures. Furthermore, build quality may be compromised if
These pressures have been reflected in an increased overall risk rating.
unsuitable materials are procured leading to damage to the Group's reputation However, the Group continues to benefit from its vertical integration through
Impact: Increase and customer experience.
our Brickworks, Tileworks and Space4 manufacturing facilities, and the current
The Group's off-site manufacturing hub at Harworth, near Doncaster, provides a positive sales pricing conditions continue to mitigate effects of cost
Likelihood: Increase significant proportion of the bricks and roof tiles used across our sites, inflation.
providing security of supply. This complements our existing off-site
Land Purchasing manufacturing facility at Space4, which produces timber frames, highly
insulated wall panels and roof cassettes.
Land may be purchased at too high a price, in the wrong location and at the
In respect of land, we have maintained our well-established disciplined
wrong time in the housing market cycle. approach to replacement whilst continuing to take advantage of exciting
opportunities in the market. During the year, our land replacement has
Land Purchasing exceeded current consumption.
The Group maintains strong land holdings. All land purchases undergo
comprehensive 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 mitigation Developments in 2021
The effects of climate change and the UK's transition to a lower carbon The Group takes a range of measures to monitor and improve its operational The likelihood assessment of this risk has increased compared to the prior
economy could lead to increasing levels of regulation and legislation, as seen efficiency and direct environmental impact, including measuring CO(2) year as increasing awareness and desire for action, in part following COP26,
Residual risk rating: Medium with the Future Homes Standard. These may in turn result in planning delays, emissions and the amount of waste we generate for each home we sell. is likely to result in a more urgent transition to a lower carbon economy.
increased costs and competition for some materials.
Risk trend assessment
The Group maintains a detailed climate change risk register, which ensures Within the year, the Group has set science based carbon reduction targets, in
Changes in weather patterns and the frequency of extreme weather events, that the management and mitigation of the risk is embedded within the Group's line with the Paris Agreement, which were fully accredited by the Science
Overall: No change particularly storms and flooding, may increase the likelihood of disruption to risk management process. Based Targets Initiative. We have set ambitious 'net zero' targets, aiming to
the construction process. The availability of mortgages and property insurance
deliver 'net zero' homes in use to our customers by 2030 and become 'net zero'
Impact: No change may reduce in response to financial institutions considering the possible in our operations by 2040.
impacts relating to climate change.
Likelihood: Increase
We systematically consider the potential impacts of climate change throughout
the land acquisition, planning and build processes and work closely with
planning authorities and other statutory bodies to manage and mitigate these The Group has already made good progress on its carbon reduction roadmap with
risks. a number of projects to research the most effective method of delivering a
'net zero' home in use and engaging a third party expert to measure the
embodied carbon of our homes. Our homes are already significantly more energy
efficient than existing housing stock and our pathway to 'net zero' homes in
The government's 'Future Homes Standard' will be introduced by 2025. To plan use by 2030 has clear interim milestones.
for and manage the transition to low carbon homes, a low carbon homes working
group (consisting of members from across the Group's various disciplines) has
been established. The Group engages proactively with the housebuilding
industry and the Government to develop industry wide solutions to meet the Operationally, the Group has introduced electric vehicle options into its
requirements of the Future Homes Standard. fleet, is now purchasing 100% renewable energy for its offices and
manufacturing facilities and continues to investigate methods of reducing the
Group's red diesel consumption and increasing the use of alternative fuels.
We continually seek to strengthen our supply chain, for example, our off-site
manufacturing facilities provide us with greater assurance of quality and
supply, and use modern methods of construction and technology to assist the
mitigation of climate change related risks. The Group Procurement team
maintain strong links with our suppliers delivering value through our supply
chain by regular engagement and robust tendering processes.
9. Reputation
Risk assessment Risk description Approach to risk mitigation Developments in 2021
Damage to the Group's reputation could adversely affect its ability to deliver Management Supervision The Persimmon Way, our end-to-end consolidated construction process, is now in
its strategic objectives.
operation across the business, and supporting our desire to 'build right,
Residual risk rating: Medium
The Group is committed to ensuring an appropriate culture and maintaining the first time, every time'.
If governance, build quality, customer experiences, operational performance, high quality of its operations. This is subject to oversight from the Board.
management of health and safety or local planning concerns fall short of our
usual high standards, this may result in damage to customer, commercial and
Risk trend assessment investor relationships and have a detrimental impact on financial
Persimmon formally commenced the registration process for the New Homes
performance. Build quality and re-enforcing trust in the brand are key priorities for the Quality Code (NHQC) on 14 January 2022, one of the first housebuilders to do
Overall: No change Group. Significant investment has been made in these areas, for example so. We welcome the introduction of the NHQC, which aims to drive up quality
through the Persimmon Way, including expanding the Group's team of and customer service across the industry together with the appointment of a
Impact: Increase Independent Quality Controllers (IQCs) and addressing the Group's legacy New Homes Ombudsman Service.
quality issues.
Likelihood: No change
The Group continues to invest in its people and processes, driving operational
Senior appointments have been made at Group level to promote and enforce improvements. These enhancements reduce the probability of operational issues
compliance with policies and procedures as well as to provide the Board with and the consequent reputational damage they can cause.
assurance on their effective implementation.
Stakeholder Relationships
We take actions to maintain positive relationships with all of our
stakeholders to minimise the risks of reputational damage and aim to comply
with best practice in corporate governance.
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 mitigation Developments in 2021
The housebuilding industry is subject to extensive and complex laws and Comprehensive management systems are in place to ensure regulatory and legal The assessment of the likelihood of this risk has increased within the year.
regulations, particularly in areas such as land acquisition, planning, compliance, including a suite of policies and procedures covering key areas of This reflects the continuing increase in the volume and complexity of
Residual risk rating: Medium building regulations and the environment. Ensuring compliance in these areas legislation and regulation. Additional oversight is in place through the regulatory requirements, and the financial and reputation risks associated
can result in delays in securing the land required for development and in Group-level functions and cross-functional steering groups for key areas, such with any failures to manage regulatory compliance effectively.
construction. as GDPR compliance. Where these systems identify inconsistencies in adherence
to agreed processes, corrective actions are swiftly taken.
Risk trend assessment Any failure to comply with regulations could result in damage to the Group's
reputation and potential imposition of financial penalties. Key regulatory areas of focus within the year have included planning
Overall: No change
conditions, with the Group, in common with the wider industry, continuing to
We engage extensively with planning authorities and other stakeholders to experience delays to outlet openings due to the delays within the planning
Impact: No change reduce the likelihood and impact of any delays or disruption. In respect of system.
land, the Group controls sufficient holdings to provide security of supply for
Likelihood: Increase medium term trading requirements. Our land needs and potential acquisitions
are subject to extensive due diligence to manage planning risks and
uncertainties and maintain an effective pipeline. Persimmon formally commenced the registration process for the NHQC on 14
January 2022. The aims of the Code and its supporting process are consistent
with the Group's own focus on further improving build quality and customer
service standards.
11. Cyber and data risk
Risk assessment Risk description Approach to risk mitigation Developments in 2021
The Group relies on its IT systems being consistently available and secure. The Group operates centrally maintained IT systems with a fully tested Within the year, the assessment of the risk impact and likelihood remain
Failure of any of the Group's core IT systems, particularly those in relation disaster recovery programme. All infrastructure is highly resilient, with unchanged. However, cyber and data risks continue to be an area of growing
Residual risk rating: Medium to customer information and customer service could result in significant geographically diverse datacentres and a series of backup arrangements. focus for the Group, reflecting the increase in the use of technology in
financial costs, reputational damage and business disruption.
supporting the Group's operations.
Risk trend assessment The Group maintains dedicated cyber security resource to manage and oversee
security controls, benchmarked to external sources of good practice such as The Group has continued to strengthen its mitigation measures in respect of
Overall: No change the NCSC's 'Ten Steps to Cyber Security'. Periodic penetration testing is cyber risk, under the supervision of the Information Security Steering Group
carried out through external security partners to test the security of our (ISSG) and through the work of the Group IT department.
Impact: No change perimeter network. In the event of an incident, the Group has a defined Cyber
Incident Response Plan.
Likelihood: No change
To develop controls further, an externally led review of the Group's cyber
security measures has been commissioned. This will build on an earlier
Training and regular communications are delivered to all users to increase assessment by the same external partner in 2020, and will ensure the Group's
awareness of cyber-risks, with particular focus on risks associated with approach to cyber risk remains appropriate and reflects best practice.
remote and hybrid working.
12. Mortgage availability
Risk assessment Risk description Approach to risk mitigation Developments in 2021
Reduced availability or affordability of mortgages for customers could reduce We monitor Bank of England commentary on credit conditions including the The fundamentals of the UK housing market remain strong, with robust consumer
demand for new homes and affect sales prices, revenues, profits, cash flows, monthly approvals for house purchases, reports from UK Finance, and lenders' demand and confidence. We continue to see good levels of mortgage availability
Residual risk rating: High and asset values. announcements for trends in lending. We ensure that our investment in land and and continued low interest rates, encouraging affordability for new homes.
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
Risk trend assessment the housing market across the UK with competitive mortgage rates.
Overall: No change
Impact: Decrease
Likelihood: Increase
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
£1.9bn of surplus capital over the following ten financial years to 2021, or
£6.20 per share. The Group has exceeded this initial commitment and has
paid £13.00 per share, or £4.1bn 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.
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