REG - Persimmon Plc - Full Year Results
01/03/2023 07:00
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RNS Number : 4246R Persimmon PLC 01 March 2023
FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
Persimmon Plc today announces Final Results for the year ended 31 December
2022.
Dean Finch, Group Chief Executive, commented:
"Persimmon delivered a very strong performance in 2022. I am particularly
pleased we combined strong financial results with five-star customer service
and quality. I would like to thank colleagues across the Group who have been
working hard to deliver the dream of homeownership for our customers during
one of the most turbulent years anyone can remember. The strength of our
financial and customer service results is testament to their hard work and
commitment.
"The market remains uncertain. Our marketing campaign has helped improve the
Group's sales rates in the new year from the lows at the end of 2022, but they
still remain lower year on year. We have carefully managed our pricing,
recognising the improved value and energy efficiency of our product in these
difficult times and sales prices have proved resilient. We responded quickly
to stimulate sales, enhance cost controls and preserve cash, promptly slowing
new land investment in the fourth quarter of last year. Nonetheless, the sales
rates seen over the last five months mean completions will be down markedly
this year and as a consequence, so will margin and profits. However, it is too
early to provide firm guidance.
"Looking further ahead, the fundamentals underpinning demand for new homes
remain strong and we continue to target disciplined growth in the coming years
while continuing to enhance our quality and service credentials. Persimmon
benefits from industry-leading embedded margins in its existing land
portfolio. This is a strong platform for growth from next year as we look to
expand our outlet network to provide the capacity to deliver ahead of
pre-Covid volumes in the future. A more proactive approach to securing
permissions is starting to demonstrate success despite ongoing difficulties in
the planning system. We are prioritising securing consents on sites we already
own and will complement this through targeted investment in outstanding new
land opportunities at the right time.
"The hard work of recent years has built a stronger and more sustainable
Persimmon for the future. With a well-positioned product delivered with more
consistent quality and service, together with our high quality land holdings,
we are well-placed to succeed in the years ahead by growing our outlet
network, increasing the number of five-star homes we build, responding swiftly
to market changes and delivering sustainable returns to shareholders."
Financial Highlights
2022 2021
New home completions 14,868 14,551
New home average selling price £248,616 £237,078
Total Group revenues £3.82bn £3.61bn
New housing revenues £3.70bn £3.45bn
Underlying new housing gross margin(1) 30.9% 31.4%
Underlying operating profit(2) £1,006.5m £966.7m
Underlying profit before tax(2) £1,012.3m £973.0m
Profit before tax £730.7m £966.8m
Cash at 31 December £861.6m £1,246.6m
Land holdings at 31 December - plots owned and under control 87,190 88,043
Number of selling outlets at 31 December 272 234
Current forward sales position £1.52bn £2.21bn
Net assets per share 1,077p 1,136p
Underlying return on average capital employed(3) 30.4% 35.8%
Customer satisfaction score(4) 5-star 5-star
A strong trading performance combined with five-star quality for the first
time
• Underlying operating profit(2) up 4% year on year to over £1bn.
• Profit before tax of £730.7m reflecting the increase in our provision by
£275.0m to £350.0m (before spend to date) for building safety remediation.
• HBF customer satisfaction score(4) remained above the 90% five-star threshold
for the year with continued focus on further improvements through our
Persimmon Way build excellence programme.
• Average selling price increased 5% year on year, reflecting house price
inflation and a more sophisticated approach to pricing in local markets.
• Build rates up 8% year on year, with the second half of the year particularly
strong at 15%.
• Industry-leading underlying operating margin(5) position maintained at 27.2%
(2021: 28.0%) as careful cost management and the Group's vertical integration
helped mitigate build cost inflation of 8-10% through the year.
• Strong cash generation of £1,002.7m (2021: £1,209.8m) before capital return
of £750.1m and net land spend of £637.6m. Cash held at 31 December 2022
£861.6m (2021: £1,246.6m) reflecting strong investment in land and work in
progress and capital return.
Disciplined investment
• Proactively added additional control measures in Q4 2022 to slow land
investment and ensure work in progress matched sales demand.
• Added 14,670 plots across 66 sites into our owned and under control land
holdings during the year, at gross investment of £735.8m. These additions
maintained both our industry-leading embedded margins and the cost to revenue
ratio of our owned land has remained at 11.4%(6).
• The Group's high quality land holdings stand at 87,190 plots owned and under
control at 31 December 2022 (2021: 88,043).
• The Group's underlying return on average capital employed3 of 30.4% (2021:
35.8%) reflects the increased investment in land and work in progress as we
built up our outlet network in 2022.
• Expediting sites on owned land with consent stalled or due for application
shortly, with a more proactive approach to planning including an enhanced
Placemaking Framework.
• With a more selective approach in place, we expect new land investment to be
reduced in 2023. We will continue to target attractive deals to help drive
outlet growth from 2024 onwards, subject to planning constraints.
Creating sustainable communities
• Our private average selling price of £272,206 during 2022 is over 20% lower
than the UK national average(7).
• Investment of £505.6m in local communities, including the delivery of 2,694
new homes to our housing association partners (2021: 2,533).
• Good progress made on our carbon reduction targets including through increased
use of electric vehicles in our fleet and 100% renewable electricity in our
offices.
• Seeking to deliver our transition to net zero carbon homes in use through
innovative solutions from Space4, our timber frame manufacturing facility.
• One of only 10 companies to be awarded a Certificate of Commitment and
Progress - Building Safety Stage 1, as part of the Building a Safer Future
Charter Champion application process.
• Remain proud to be a Living Wage Foundation accredited employer; introduced
the 2023 increase in January ahead of the requirement.
Legacy building safety provision
• In February 2021 Persimmon led the industry in committing that no leaseholder
in a multi-storey development we built would have to pay for cladding removal
or life-critical fire-safety remediation.
• Persimmon has signalled its intent to sign the UK government's developer
remediation contract as it is in line with this existing commitment. We
continue to work positively with the Welsh and Scottish governments on similar
agreements.
• Good progress has already been made on buildings we developed. Of 73
developments identified as requiring remediation, work is underway or complete
on 42 and we aim to start work on the remainder by the end of 2023.
• As announced in November 2022, the Group has increased its provision for
building safety remediation across the UK to £350.0m (before spend to date),
resulting in a £275.0m exceptional charge for the year.
Current trading and outlook
• Forward sales position reflects the significant drop in private sales rates
experienced in Q4 2022 to 0.30 (Q4 2021: 0.77), although cancellation rates
have reverted back to typical historic levels.
• Current forward sales stand at £1.52bn, including private average sales of
£0.81bn with an average selling price of £288,638 indicating that pricing
remains firm.
• Sales rates have improved to 0.52 in the first 8 weeks of the year, in-line
with industry peers yet still significantly below the equivalent period last
year (0.96).
• Entered 2023 with 272 active sales outlets, up from 234 at the start of 2022,
with an average of 259 for the year. Average likely to remain broadly similar
in 2023 reflecting selective investment and on-going effect of slow planning
system.
• Too early to assess a full year sales rate, but should current rates continue
for the rest of the selling year, the Group's current outlet network would
imply 8,000-9,000 legal completions for 2023.
• These lower completion levels will have a margin impact.
• If cost inflation, which is currently running at c.8%, continues all year and
there is no mitigating increase in average selling price, margins may reduce
by around 500bps.
• Reduced volumes and increased sales incentives and marketing costs may further
impact operating margins by around 800bps.
• Ultimately, any margin impact will of course be a product of the interplay
between each of these factors. Equally, as they improve, it will drive
relative margin growth.
• While focusing on securing planning permissions from our existing owned land,
it is our intention to continue to invest in land in a targeted and
disciplined way, when we judge the timing is right, in order to deliver outlet
growth in future years. We are confident that this will lead to growing
margins and profits.
• We have taken action to reduce our costs but wish to retain our capabilities
to grow again in the near term, which has reduced our ability to mitigate the
margin impact of lower volumes.
• We continue to enhance our capabilities through further investment in our
colleagues, innovation and vertical integration - including a new timber frame
factory - to enhance our build quality and efficiency capabilities and ability
to respond to improvements in the market.
Shareholder returns
• Dividends of 125p (£399.0m) and 110p (£351.1m) per share paid on 1 April
2022 and 8 July 2022 respectively, representing the capital return from 2021.
• A new capital allocation policy was announced in November to deliver
sustainable returns to shareholders while investing in future growth through
disciplined expansion of our industry-leading land portfolio and enhancing our
quality and service capabilities. Alongside this the board considers our
current assessment of prevailing market conditions, the sector's increased tax
contribution and building safety remediation costs.
• For 2022, the Board proposes a final dividend of 60p per share to be paid on 5
May 2023 to shareholders on the register on 14 April 2023, following
shareholder approval at the AGM. This dividend is the final and only dividend
in respect of financial year 2022.
• For 2023, the Board's intention is to at least maintain the 2022 dividend per
share with a view to growing this over time. As previously announced, payments
will be made semi-annually and the Board intends to pay an interim dividend in
the second half of this year in relation to 2023.
Footnotes
1 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and based on new housing revenue (2022: £3,696.4m, 2021: £3,449.7m).
2 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and goodwill impairment (2022: £6.6m, 2021: £6.2m). Operating profit after
legacy buildings provision charge and goodwill impairment is £724.9m (2021:
£960.5m).
3 12 month rolling average calculated on operating profit before legacy
buildings provision charge (2022: £275.0m, 2021: £nil) and goodwill
impairment (2022: £6.6m, 2021: £6.2m) and total capital employed. Capital
employed being the Group's net assets less cash and cash equivalents plus land
creditors.
4 The Group participates in a National New Homes Survey, run by the Home
Builders Federation. The rating system is based on the number of customers who
would recommend their builder to a friend. The rating used here reflects the
live score at time of publication.
5 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and goodwill impairment (2022: £6.6m, 2021: £6.2m) and based on new housing
revenue (2022: £3,696.4m, 2021: £3,449.7m)
6 Land cost value for the plot divided by the anticipated future revenue of the
new home sold.
7 National average selling price for newly built homes sourced from the UK House
Price Index as calculated by the Office for National Statistics from data
provided by HM Land registry. Group average private selling price is
£272,206.
For further information please contact:
Victoria Prior, Group IR Director Kevin Smith
Anthony Vigor, Group Director of Policy and External Affairs Holly Gillis
Ellen Wilton
Persimmon Plc Citigate Dewe Rogerson
Tel: +44 (0) 1904 642199 Tel: +44 (0) 20 7638 9571
A presentation to analysts and investors will be available in person and via
webcast at 9.00am on 1 March 2023.
There will be a live webcast facility and conference call for anyone who does
not wish to attend in person. All participants must pre-register to join the
webcast and / or conference call using the Participant Registration links.
Once registered, an email will be sent with important details for this event,
as well as a unique Registrant ID. This ID is to be kept confidential and not
shared with other participants.
Webcast link:
https://edge.media-server.com/mmc/p/3mp5qs8q
(https://protect-eu.mimecast.com/s/9Io4Cq2pEsX0lwQHZ2C34?domain=edge.media-server.com)
Conference call link:
https://register.vevent.com/register/BIe53095c2619546a99139ffbc01a54a6e
(https://protect-eu.mimecast.com/s/v6t4CrYqGu2VoJqizPEkL?domain=register.vevent.com)
A recording of the presentation will be available on the corporate website
later in the day:
https://www.persimmonhomes.com/corporate/investors/results-presentations-and-financial-reports
(https://protect-eu.mimecast.com/s/JPWSCvjxMcANKV9czeVa8?domain=persimmonhomes.com)
Chairman's Statement
Introduction
I am pleased to report that Persimmon had a strong year in 2022. For the first
time in our 50 year history we delivered five star quality and service while
also achieving underlying pre-tax profits(1) in excess of £1 billion.
By contrast 2023 promises to be a tough year, albeit largely for reasons
beyond our control. While I am confident that our attention to build quality
and customer care will remain undimmed, we will inevitably see a sharp fall in
the number of completions as well as a decline in profitability as a
consequence of the nationwide diminution in demand for housing arising from
higher mortgage rates and challenging economic circumstances.
However, I remain very confident of the exciting long-term prospects for
Persimmon. We are constantly reminded by the political classes of the national
need for 300,000 homes to be built every year. I expect the outturn for 2023
may not be much more than half this number. Therefore we anticipate that our
company will be a beneficiary of strong pent up demand when the economic and
housing cycles turn in our favour eventually.
When I joined the company as Chairman in 2018 I quickly commissioned an
Independent Review of our approach to build quality. I am delighted that Dean
and his team have responded to the challenge so vigorously and diligently to
deliver better homes built right first time.
Many colleagues have commented to me that 2022 was perhaps the most difficult
year they have known in the building trade. The combination of material and
labour shortages, significant inflation and the stark drop-off in sales rates
in the fourth quarter presented myriad challenges that my colleagues have
navigated with impressive skill and commitment. Our mission is to build homes
with quality our customers can rely on at a price they can afford and 2022's
results demonstrate the company has done just that.
A more challenging period but opportunities ahead
Following the swift rise in interest rates the Group acted quickly to enhance
its already strong investment discipline and working capital cost controls, to
protect our cash position and in the longer-term provide the flexibility to
pursue new growth opportunities.
We have a strong platform to prepare for a new growth phase when market
conditions permit. Although 2023 will be a difficult year, Persimmon has the
opportunity to expand our outlet network at the right time through disciplined
and targeted investment and a more sophisticated approach to securing planning
to expedite approvals. We are hopeful that by next year we will be expanding
once more, delivering more new homes for customers and sustainable returns for
shareholders.
Industry leadership
Although the national political environment has become more challenging as
backbench anti-new housing forces have gained strength, we are pleased to
continue to lead the industry with cladding and fire safety remediation. We
were proud to be first with our initial commitment in February 2021 to protect
leaseholders from the costs of remediation in any multi-storey development we
built. The government's developer remediation contract seeks to contractualise
our existing commitment; a commitment we are already making good progress on.
We expect to sign the contract imminently. We are also engaged in similarly
positive discussions with the Welsh and Scottish governments.
As announced in November 2022, the Group increased our provision for building
safety remediation across the UK to £350m (before spend to date), resulting
in a £275m exceptional charge for the year. This increase reflects the
extensive work we have done to get a more detailed understanding of costs over
the last year. The government has also broadened the scope of works required
this year to include non-cladding fire related build defects, resulting in
both an increase in the amount of work required and in the number of eligible
buildings. This has also happened against a background of significant build
cost inflation during the period. We expect the work to be largely completed -
with the associated cash impact - over the next three years.
Capital allocation policy
Persimmon remains a fundamentally strong business, with industry-leading
financial performance through the cycle. The actions we are currently taking
will strengthen our capabilities to grow and deliver sustainable returns over
time to shareholders.
A new capital allocation policy was announced in November to deliver
sustainable returns to shareholders while investing in future growth through
disciplined expansion of our industry-leading land portfolio and enhancing our
quality and service capabilities. Alongside this the Board considers our
current assessment of prevailing market conditions, the sector's increased tax
contribution and building safety remediation costs.
For 2022, the Board proposes a final dividend of 60p per share to be paid on 5
May 2023 to shareholders on the register on 14 April 2023, following
shareholder approval at the AGM. This dividend is the final and only dividend
in respect of financial year 2022. The Board's intention is to at least
maintain the 2022 dividend per share in 2023, with a view to growing this over
time. As previously announced, payments will be made semi-annually with an
interim dividend paid in the second half of this year in relation to 2023.
Board changes
The only Board change during the year was Jason Windsor joining on 11 July
2022 as Chief Financial Officer, replacing Mike Killoran following his
retirement in January 2022. The Board warmly welcomes Jason to the business.
Finally, on behalf of the whole Board I would like to thank our colleagues,
subcontractors and suppliers for their hard work and determination to deliver
a good performance in 2022. This year will not be easy. Sometimes in life you
have to go backwards in order to move forwards. I am convinced our long-term
future is bright and we all look forward to working together to maintain
Persimmon's industry-leading position and deliver more quality homes for our
customers and sustainable returns for our shareholders through the cycle.
Footnotes
1. Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and goodwill impairment (2022: £6.6m, 2021: £6.2m).
Chief Executive Statement
Introduction
Persimmon delivered a very strong performance in 2022. I am delighted that the
Group's second half delivery was 15% higher year on year, resulting in 14,868
legal completions for 2022 (2021: 14,551), with a new housing gross margin of
30.9%(1) (2021: 31.4%) and a five-star HBF 8 week customer satisfaction
score(2) maintained. This performance - perhaps Persimmon's strongest ever -
was delivered despite prevailing economic headwinds and supply constraints.
Its achievement is testament to the hard work of colleagues across the whole
Group to preserve Persimmon's great strengths while making good progress in
enhancing our build quality and customer service.
2022 trading
The Group generated total revenues of £3.82bn, a 6% increase year on year
(2021: £3.61bn). Our new housing revenues increased to £3.70bn in 2022, from
£3.45bn in the prior year.
Our build rates, which were a record for the Group, were 8% higher year on
year. The build rate in the second half of the year was particularly strong,
up 15% year on year. Delivering these build rates while maintaining a
five-star HBF score demonstrates the progress we have made through the
Persimmon Way to strengthen our key build quality and customer service
capabilities and embed them throughout the Group.
Demand reflected the broader market, with a significant weakening in the
second half of the year as concerns over the economy, mortgage rates and the
cost of living weighed heavily on customer confidence. Overall private net
sales rates for 2022 were 0.69 per outlet per week (2021: 0.83), driven by a
steep decline in Q4 to 0.30 (Q4 2021: 0.77). Indeed, after the well-publicised
problems catalysed by September's 'mini-budget', the last 7 weeks of the year
saw 0.19 private net sales per outlet per week, compared to 0.61 in the
comparative period the year before.
Average selling prices increased 5% year on year to £248,616 (2021:
£237,078), reflecting house price inflation, our more sophisticated approach
to local market pricing and the mix of homes sold. The Group's private average
selling price was £272,206 in 2022, 5% higher than the prior year (2021:
£259,231).
These price increases helped mitigate build cost inflation of c.8-10% for the
year. Our vertically integrated factories - Brickworks, Tileworks and Space4 -
also helped here, with all three increasing their production year on year. Our
increased use of Space4 timber frame also helped deliver the improved build
rate and efficiency in the year.
The Group delivered a 4% year on year increase in underlying operating
profit(3) to £1,006.5m (2021: £966.7m) generating an underlying new housing
operating margin of 27.2 %(4) (2021: 28.0%). This 80bps reduction reflects the
Group's investment in its enhanced operational capabilities, delivering
improved quality and service for its customers.
Underlying profit before tax(5) grew 4% year on year to £1,012.3m (2021:
£973.0m). Reflecting the £275.0m exceptional charge for building safety
remediation made in the year, profit before tax was £730.7m (2021: £966.8m).
The Group's cash generation was strong at £1,002.7m pre-capital return of
£750.1m and net land spend of £637.6m (2021: £1,209.8m). Cash held at 31
December 2022 was £861.6m (2021: £1,246.6m) reflecting strong investment in
land and work in progress and capital returns.
Disciplined investment
The Group's high quality land holdings are a key strength for the business. At
31 December 2022, the Group held 70,768 plots in its owned land holdings with
a plot cost to anticipated revenue ratio of 11.4%(6). During the year, we
invested in some exciting land opportunities adding 14,670 plots across 66
sites into the Group's portfolio, a plot replacement rate of 99%. These
additions maintained our industry-leading embedded margins through our
well-established, disciplined approach to land investment. Reflecting this
strong position, in current market conditions we are being highly selective,
taking advantage of only the very best opportunities at the right time.
The Group entered 2022 with 234 selling outlets, which it successfully built
up through the year as planned, ending at 272 selling outlets at 31 December
2022 and operating from an average of 259 for the year. As market conditions
became increasingly uncertain, particularly during the last quarter of the
year, we carefully managed outlet openings to ensure that infrastructure and
work in progress investment met local demand.
Creating sustainable communities
We have a clear approach to sustainability that is centred around three core
pillars: transforming communities, safe and inclusive and building for
tomorrow. Our approach is embedded in our day-to-day operations and we are
proud of the work that we do in creating sustainable communities for our
customers. Our new Placemaking Framework considers social value and the
wellbeing of our communities within our site design, for example providing
public open spaces, walkways, play areas and enhancing bio-diversity.
Our private average selling price is over 20% below the UK national
average(7), enabling customers to access the housing market when otherwise
they might not have been able to do so. The business also delivered 2,694
homes to its Housing Association partners during the year (2021: 2,533).
We aim to provide a scalable, cost effective way of ensuring our customers can
live more sustainable lives through exploring innovative solutions to deliver
net zero carbon homes in use. We are undertaking a number of trials to support
this transition by 2030. A "net zero carbon home" was built at one of our
developments in York to evaluate how we could achieve this in a practical,
repeatable way. We are working in conjunction with the University of Salford
to assess the "liveability" of the home for our customers.
Building on from this trial, we are constructing a highly thermally efficient
timber frame home utilising new wall cassettes from Space4, our timber frame
manufacturing facility, together with zero carbon heating from air source heat
pumps with connection to a 100% renewable electricity supply. This is an
exciting opportunity to establish if, through use of innovative technology at
our Space4 factory, we can achieve a net zero carbon home in use with
relatively simple technologies inside the home for our customers to maintain.
We are also trialling alternative heating solutions, such as infra-red and
underfloor systems on other developments.
Investing in our colleagues
Staff engagement scores demonstrate the progress we have made in supporting
our colleagues' professional development and making Persimmon a great place to
work. In 2022's survey our staff engagement score was 83% (2021: 78%).
Managing Directors and Site Management teams are good examples of our approach
to colleagues' development. Both have received tailored training courses and
plans to enhance their skills further. Alongside rolling out enhanced
technical standards through the Persimmon Way, we have actively assessed our
site team's understanding of the requirements to identify any gaps. Our NVQ
programme continues, with over 500 site management staff undertaking courses
since 2021. Managing Directors have also received assessments with plans put
in place to develop skills and strengthen any gaps. As we drive up our
standards and the consistency of their delivery we are investing to make
Persimmon an even better place to work where colleagues' skills are developed
and career aspirations fulfilled. We were delighted to be announced as a Top
100 Apprenticeship Employer by the Department for Education in 2022.
FibreNest
FibreNest continues to be a real strength for the Group, with over 30,000
customers across more than 330 developments now connected to our national
ultrafast broadband network. FibreNest was created to address persistent
customer frustration that larger and established internet providers were not
connecting their homes from the day they moved in, and has seen a sustained
improvement in day one connection rates. In 2022, FibreNest's Day One
connection rate was 90% (2021: 85%). FibreNest's customer ratings on Google
and Trustpilot are currently ahead of the larger and established national
internet providers. Customers view broadband as a key utility and FibreNest's
gigabit ready, ultrafast network is therefore an important part of our
service.
Building safety and the developer remediation contract
Persimmon was proud to lead the industry with our original commitment made in
February 2021 to protect leaseholders in multi storey developments we built
from the cost of any necessary cladding removal or fire safety remediation.
Since that original commitment, we have worked proactively with management
companies and their agents to progress remediation. We have also worked
positively with the Department for Levelling Up, Housing and Communities
(DLUHC) this year to agree a final developer remediation contract. This was
recently published by DLUHC, contractualising the Developer Pledge made in
April 2022. We have signalled our intention to sign ahead of the March 13(th)
deadline set by DLUHC.
As indicated in November 2022, the Group has increased its provision for
building safety remediation at the 2022 year end to £350m. This rise reflects
the more detailed understanding of costs, which now include non-cladding fire
related build defects, the broader scope required by Government and an
increase in the number of eligible buildings, against a background of
significant cost inflation. We currently have 73 multi-storey developments
identified that require cladding removal or life-critical fire safety work.
Any necessary work has already been completed on 33 developments and is
underway on a further 9. We aim for work to have started at all remaining
sites by the end of 2023.
Our five priorities
Our 2022 performance demonstrates that we have delivered against the five
priorities I first set out 2 years ago. These priorities have guided our
approach of building on Persimmon's great strengths and enhancing our
capabilities in key areas:
• Build quality: our ambition has grown from "build right, first time, every
time" to trusted to deliver five-star homes consistently;
• Reinforcing trust: in seeking to build a compelling brand we will place
customers at the heart of our business, trusted to deliver the best value
homes customers can be proud of;
• Disciplined growth: maintain our stringent appraisal, investing in high
quality land in the right areas;
• Industry-leading financial performance: sustain our industry-leading margins
and returns and drive healthy profit and cash;
• Supporting sustainable communities: actively part of the net zero carbon
economy transition, the communities we operate in and efforts to widen
opportunity.
2023: a year of discipline
Our progress against these five priorities also provides a strong platform
from which to continue to deliver against the backdrop of a challenging
operational environment in 2023. We are combining operational excellence with
commercial excellence to improve our product, our systems and processes and
our position in the market, to serve customers well while building a stronger
business for the long- term.
Proactive response to a challenging sales environment
As set out above, the sales environment has become more challenging. The sales
window for 2023 completions effectively opened around September 2022. With the
significant drop in sales rates in Q4 2022, we ended the year with a forward
sales position of £1bn, 36% lower year on year (2021: £1.6bn). Private
forward sales revenue was down more markedly (55%) at £0.5bn (2021: £1.1bn).
We responded proactively, including with a marketing campaign launched on
Boxing Day. This campaign offered "up to 10 months mortgage free" or 105% part
exchange for those reserving before the end of February. Our website visitors
increased markedly year on year after its launch. Beyond the campaign
specifically, our marketing is more sophisticated, using targeted, digital
channels to drive sales and our brand reputation.
These actions have helped drive an improvement in sales rates in 2023 compared
to the end of last year. Private sales rates per outlet per week are running
at 0.52 for the first 8 weeks of the year. This is still below last year's
comparable rate of 0.96.
Pricing has remained firm and cancellation rates have returned to typical
historical norms. Sales incentives costs have increased slightly to around 3%
of gross sales price from 2.39% in the fourth quarter of last year. Part
Exchange is proving popular, accounting for around 25% of sales in the first 8
weeks of the year (2021: c.6%).
There have been some encouraging signs in the mortgage market recently, with
rates reducing compared to late last year. However, affordability and mortgage
product availability still remain the key issues, with particular challenges
in the south of England. Our sales rates are proving more resilient in the
North and Midlands. The end of Help to Buy means that for the first time in
over a decade there is not a significant government scheme to assist first
time buyers in place. With the affordability challenges in London and the
south east, its removal is being felt most strongly there.
Our enduring relative pricing position in the market and national network has
helped maintain first time buyer interest outside of London and the South East
especially, and helped mitigate the impact on sales rates. Given the political
salience of young families and the aspiration of homeownership, this may prove
to be a policy area that the major parties revisit ahead of the general
election. In the meantime, we will continue to focus on improving our product,
our quality and our service whilst maintaining this price advantage within the
market for the benefit of our customers. Our mission 'to build homes with
quality our customer can rely on at a price they can afford' has never been
more relevant.
Our Partnership Homes team has also been working to improve our business
processes and reputation amongst Registered Providers (RP) and local
authorities. By drawing on our improved product and build quality consistency,
they have reviewed our standard approach to working with RPs across the Group.
This is leading to more RPs looking to partner with us and puts us in a
stronger position to drive market competition and secure enhanced returns.
Equally, we have proactively engaged with the First Homes pilot scheme which
delivers homes to first time buyers at a 30% discount to prevailing market
value. We have around 215 homes either completed or allocated within the
current Homes England programme. We have also identified the potential for
additional homes to be included subject to Homes England's approval.
Disciplined cost controls and opportunities for further efficiency
Within this challenging market we are exerting ever-more discipline and even
greater cash and cost control. Since Q4 2022 we have been increasingly
selective on new land investment. We are only targeting exceptional deals and
expect our land spend to be down in 2023, compared to 2022. Our local teams
are focused on securing planning consents from sites we already own and are
working closely with our External Affairs team to enhance our stakeholder
engagement and presentation to achieve approvals from planning committees.
Recent successes with previously stalled applications are already
demonstrating the benefit of this new approach. We are also embedding this
more proactive approach earlier on in our new planning application process.
Persimmon has a strong track record of disciplined cost control and we have
strengthened these further. We are taking clear actions to mitigate the impact
of the deterioration in sales rates and have added extra control stages into
our existing processes to ensure work in progress is being spent most
effectively and at the right time to secure the best returns. A key part of
this is closely managing construction programmes to local sales rates. We
already operate with a lean cost base and are operating from a relatively low
number of outlets but we also have a hiring freeze in place, except where the
role is business critical. Our approach is one of prudent discipline and
agility: seeking to reduce costs where appropriate while making sure the
company is ready for an upturn in demand. We are therefore looking to retain
and enhance key skills and capabilities in the business to respond with even
better customer service and build quality.
Securing efficiency gains in our build programmes continues to be a key area
of focus for the business. A detailed review last year found that Space4
timber frame construction is around 7 weeks faster than traditional build.
Space4's timber frames are therefore being rolled out to more regions across
the Group. We are looking to expand timber frame's use more widely and our
planning application for our new state of the art factory in Leicestershire
was submitted last year. This factory will provide a wider variety of timber
frame products and innovative solutions to delivering increasingly energy
efficient homes even more cost effectively.
Our tendering processes have been strengthened through greater central
oversight and an expanded use of framework agreements. Build cost inflation is
currently c.8%, showing some slight moderation from last year but still
persisting. Strict disciplines have been in place since the fourth quarter of
2022 to ensure new contracts did not fix prices beyond 6 months, to give the
opportunity for price reductions at that time. Where incumbents are not
willing to negotiate we will go to a tender process, while maintaining
quality, service and safety standards, to secure best value. With greater
central specification and standardisation of layouts and products (such as
internal door sets) the Group is using framework agreements to secure cost
efficiency, enhanced quality consistency and greater certainty on materials'
delivery.
We have conducted a thorough review of build programmes to identify further
opportunities. Every business now has a build programme that better matches
their prevailing conditions. This allows for more accurate forecasting and the
timely call off and delivery of materials. This provides greater assurance of
delivery and efficiency in build. We are also trialling the procurement of
some key materials directly from manufacturers, as opposed to a traditional
supply and fix model, as part of this drive for assurance and efficiency.
This combination of disciplined cost control and investment, alongside
ever-improving build efficiency underpins our next phase of the Group's
industry-leading financial performance.
Quality and customer improvements
Alongside this drive for ever-greater efficiency our focus on enhancing
quality continues. Our NHBC Construction Quality Review score improved by 9%
in 2022 compared to 2021. We are stepping up further our Persimmon Way
programme including trialling a new app to provide direct personal
communication with our site-based workforce, providing induction,
site-specific, quality and health and safety information amongst other areas.
We were also pleased to become one of only 10 companies to be awarded a
Certificate of Commitment and Progress - Building Safety Stage 1, as part of
the Building a Safer Future Charter Champion application process.
As well as our enhancements to our sales and marketing set out above, we have
been investing in new tools and training to strengthen our customer service. A
training programme has been rolled out to support Sales Advisors selling in
this more challenging market. This has been complemented by a mystery shopper
exercise on every site, identifying areas for further improvement to help
drive sales. This training builds on recent progress. We were pleased to
become the first homebuilding company to achieve the Institute for Sales
Professionals' Investor in Sales award for our commitment to develop strong
customer relationships based on integrity, trust, and ethical selling.
We also welcomed the New Homes Quality Board's New Homes Quality Code and
registered last year. The aims of the code and its supporting process are
consistent with the Group's own focus on further improving build quality and
customer service standards. We intend to activate in the coming months and
have rolled out training programmes across the Group - not limited to customer
service roles - to prepare. We are also putting extra assurance in place to
align our build programme to meet its requirements, including effective
earlier legal completion dates ahead of our year end.
We have procured a new CRM system (YourKeys, developed by the Zoopla Group),
which will allow a comprehensive and integrated system from initial
instruction through to completion. This platform will allow both customers and
our colleagues to communicate more effectively and provide enhanced
information such as on progression and layouts all in one place. We will be
piloting it shortly, with a view to rolling out across the Group later this
year.
We are continuing to invest in our staff and are further enhancing our
training offer to colleagues, including through a new e-learning initiative.
We are also pioneering new approaches, as the Persimmon Academy in Llanilid,
South Wales demonstrates. In partnership with Bridgend College, we have
established an innovative on-site education and training academy, which is
producing the next generation of construction workers and site staff in South
Wales. It has already been recognised for best-practice by key political
stakeholders and shortlisted in the Welsh Government's Apprenticeships Awards
Cymru and the National Federation of Builders' Construction Excellence Awards
2023. As part of building the next generation or tradespeople we are looking
to develop similar academies elsewhere across the Group.
We continue to benefit from highly experienced management teams across the
business. Our senior management teams bring decades of experience to managing
the current market challenges and are driving our investment disciplines while
leading programmes to enhance our capabilities. We will continue to invest in
our colleagues' development and our systems and technology to support them in
both their professional development and drive to deliver ever more consistent
quality for our customers.
Capital allocation policy
A new capital allocation policy was announced in November to deliver
sustainable returns to shareholders while investing in future growth through
disciplined expansion of our industry-leading land portfolio and enhancing our
quality and service capabilities. Alongside this the board considers our
current assessment of prevailing market conditions, the sector's increased tax
contribution and building safety remediation costs.
Outlook
The longer-term fundamentals of the UK housing market remain strong. Despite
the current challenges and uncertainty, the historic lack of supply means
demand for new housing will remain. The key current challenges are
affordability and mortgage product availability. While there has been some
recent easing in mortgage rates from their high at the end of last year, the
majority of respected forecasters do not expect them to return quickly to the
levels seen during the previous cycle.
Persimmon's 2022 performance demonstrates our capabilities to deliver both
strong financial performance and consistent build quality and customer service
for the first time in our history. We have an improved - and improving -
product that is well positioned in the market, with a below average selling
price at a time when affordability is key. The breadth of our nationwide
network and near absence from London provides some protection from the most
acute affordability challenges. Combined with our excellent land holdings with
its industry-leading embedded margins, we have a strong platform for the
future. A strong balance sheet also provides options and flexibility to pursue
future growth.
Our proactive sales and marketing initiatives and improved market conditions
have helped increase the sales rate in recent weeks but they still remain
lower than last year. With our focus on continually enhancing our product,
including through an ever-greater consistency of quality and service delivery,
and investment in a new CRM and further training, we aim to improve the sales
rate further.
It is too early to assess sales rates for the year as a whole, but were our
prevailing 0.52 sales rate to continue for the rest of the selling year, the
current outlet network would imply 8,000-9,000 legal completions for 2023.
This includes homes sold to housing associations, which we anticipate will
deliver a higher proportion of this year's completions than is typical, with a
higher weighting in the first half.
At these lower completion levels, there will be a margin impact. To provide an
illustration, assuming cost inflation which is currently running at around 8%
continues all year without a mitigating increase in average selling price,
margins may reduce by around 500bps. As well as assuming this level of
inflation, reduced volumes and increased sales incentives and marketing costs
may further impact operating margins by around 800bps. Ultimately any margin
impact will of course be a product of the interplay between each of these
factors. Equally, as they improve, it will drive relative margin growth.
We are taking action to manage our already lean cost base through disciplined
cost control and £40m of efficiencies were identified in the 2023 operating
budget, meaning that our combined overhead costs on an underlying basis are
holding broadly flat year on year. We have a hiring freeze in place, other
than where the role is business critical. We believe 2023 will represent the
floor in our volumes and we want to retain our experienced and skilled teams
to respond quickly when the market turns back in our favour.
We have been rebuilding our outlet position following the pause in investment
a few years ago. At the start of 2022 we had a relatively low number of
selling outlets (234) and successfully grew this to 272 outlets by year end.
This figure is itself still relatively low for the Group - we have been up in
the high 300s in the past - and we have been looking to progressively grow our
outlet network while maintaining our disciplined approach to investment.
In light of the market shift late in 2022, we exerted even greater control on
land spend and were highly selective with any new investment. We expect to
spend less on land in 2023 than in the previous year and forecast land
creditor spend of £270m in 2023. We anticipate lower levels of cash balances
in 2023, reflecting lower completion levels, careful investment in land and
work in progress and building safety remediation costs. We will continue to
exert disciplined cash control and ensure our infrastructure and build
programme spend matches local demand. Some outlet openings have been delayed
as a result of this action. We are likely to have a broadly similar number of
average sales outlets in 2023 as 2022.
However, we are working now to grow our outlet network, at the right time, to
provide the capacity to deliver ahead of pre-Covid volumes over the
longer-term. We are focusing on securing consents on land we already own to
pull through more outlets most efficiently. A more proactively engaged
approach to local planning is already starting to unlock some blocked consents
and we are also embedding it at an earlier stage in our applications process
to seek consents quicker. We will remain very disciplined on new investment.
Where we see excellent land investment opportunities meeting our strict
financial disciplines, we will invest at the right time. We are also
strengthening our strategic land teams to secure new opportunities in the
years ahead.
Our 2022 performance demonstrates that we have combined our great financial
strength with renewed capabilities of build quality and customer service. We
will continue to invest in these capabilities, in a disciplined manner, so
that we are even more efficient and ever more consistent in the quality homes
we deliver to our customers. The investment in a new timber frame factory will
provide the capacity to deliver an additional 7,000 timber frame units a year,
as well as new innovations in wall systems and panelling. As timber frame
homes are typically 7 weeks faster to construct, this investment will enhance
our build efficiency further. Targeted investment will help deliver further
enhancements to our BrickWorks and TileWorks factories. We will continue to
improve our product and our service to meet customer demand with excellence
and efficiency. Our existing land portfolio gives us a strong platform to
build from and again we will invest in it further in a disciplined manner.
While our margin will be impacted by the contraction in volumes this year, it
will grow as we increase completions in the years ahead.
The hard work of recent years has enhanced our value proposition to customers
and built a stronger and more sustainable business for the future. By
combining operational excellence and commercial excellence along with
disciplined investment we will grow the business from 2024 onwards. We will
expand our outlet network at the right time and enhance our capabilities to
respond quickly and efficiently to any increase in market demand. This growth
will deliver the opportunity of a new home to more customers, create
sustainable communities across the country and drive sustainable returns to
our shareholders for the years to come that will include payment of an
attractive and improving dividend.
Footnotes
1 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and based on new housing revenue (2022: £3,696.4m, 2021: £3,449.7m)
2 The Group participates in a National New Homes Survey, run by the Home
Builders Federation. The build quality score is based on how satisfied
customers are with the quality of their home. The rating used here reflects
the live score at time of publication.
3 Stated before legacy buildings provision charge of £275.0m (2021: £nil) and
goodwill impairment (2022: £6.6m, 2021: £6.2m).
4 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and goodwill impairment (2022: £6.6m, 2021: £6.2m) and based on new housing
revenue (2022: £3,696.4m, 2021: £3,449.7m).
5 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and goodwill impairment (2022: £6.6m, 2021: £6.2m).
6 Land cost value for the plot divided by the anticipated future revenue of the
new home sold.
7 National average selling price for newly built homes sourced from the UK House
Price Index as calculated by the Office for National Statistics from data
provided by HM Land registry. Group average private selling price is
£272,206.
Chief Financial Officer's statement
Trading
2022 quarterly performance Q1 Q2 HY Q3 Q4 FY
Completions 1,950 4,702 6,652 2,270 5,946 14,868
Net private sales rate 0.98 0.89 0.91 0.63 0.30 0.69
FTB(1) % (private completions) 33% 46% 42% 42% 42% 42%
HTB(2)% (private reservations) 23% 21% 23% 21% 8% 21%
Average sales outlets 245 255 250 269 267 259
1 First time buyers
2 Help to Buy
Trading through the first half of the year was strong with good levels of
customer demand and average private weekly sales rate in line with the prior
year at 0.91. The summer months showed the "normal seasonal" expected
slow-down, with sales rates in Q3 decreasing to 0.63 (Q3 2021: 0.63). In the
second half, pricing remained firm whilst cancellation rates stepped upwards
as the ongoing war in Ukraine, along with the UK Government changes and the
increased cost of living, created significant uncertainty in the UK economy.
The change in market conditions gathered pace in Q4 with weaker consumer
confidence impacting on customer behaviour across the housing market. This
weakening was reflected in the Group's private weekly sales rate that fell to
0.30 in Q4 (Q4 2021: 0.77) and to 0.19 for last seven weeks of the year (2021:
0.61).
The strong forward sales position at the start of the 2022 financial year
supported the excellent financial performance for the year. As a result of the
lower sales rate and elevated cancellations in the second half of the year,
the Group's forward sales position reduced significantly year on year to
£1.0bn (2021: £1.6bn) at 31 December 2022.
For 2022, the Group generated total revenues of £3.82bn (2021: £3.61bn),
with new housing revenue 7% higher than 2021 at £3.70bn (2021: £3.45bn). The
Group delivered 2% more new homes in 2022 when compared to the prior year
(2022: 14,868; 2021: 14,551) at an average selling price of £248,616 (2021:
£237,078), 5% higher.
The Group delivered 12,174, new homes to private customers, an increase of 1%
on 2021 (2021: 12,018). The private average selling price of £272,206 (2021:
£259,231) was up 5% year on year largely reflecting improvements in achieved
selling prices and the mix of new homes sold. The Group delivered a further
2,694 new homes to its housing association partners (2021: 2,533) at an
average selling price up 8% at £142,017 (2021: £131,976).
The Group's underlying gross profit(1) for the year was £1,142.5m (2021:
£1,083.8m) with a new housing gross margin of 30.9%(2) (2021: 31.4%). The
Group's well established land replacement strategy, the improved selling
prices achieved and agile management of the high cost inflation environment we
experienced during the year continued to deliver industry-leading margins.
Underlying operating profit(3) for the Group was £1,006.5m (2021: £966.7m),
generating an underlying new housing operating margin(4) of 27.2% (2021:
28.0%).
On 8 November 2022 we announced that we expected to increase our legacy
buildings safety provision to approximately £350.0m from £75.0m. This
increase has been finalised and has resulted in a £275.0m exceptional charge
to the Income Statement in 2022.
After the exceptional charge the Group's reported gross profit was £867.5m
(2021: £1,083.8m) and its reported operating profit was £724.9m (2021:
£960.5m).
The Group generated a profit before tax of £730.7m in the year (2021:
£966.8m).
Taxation
The Finance Act 2022 received Royal Ascent on 24 February 2022 introducing a
new residential property developer tax (RPDT) which was effective from 1 April
2022 and is chargeable at 4% of profits generated from residential property
development in excess of an annual threshold. RPDT was introduced by HM
Treasury to obtain further contributions from the UK's largest residential
property developers towards the cost of remediating defective cladding and
fire safety in the UK's "orphaned" high-rise housing stock developed by
third-parties.
As a result the Group has an overall tax charge of £169.7m for the year
(2021: £179.6m) and an effective tax rate of 23.2% (2021: 18.6%), marginally
higher than the mainstream rate of 22.0% (2021: 19.0%). Factors that may
affect the Group's taxation charge include changes in tax legislation and the
closure of certain open matters in the ordinary course of business in relation
to prior year's tax computations.
Underlying return on average capital employed ('ROACE') including land
creditors remained strong at 30.4%(5), albeit lower than the prior year (2021:
35.8%). The reduction on the prior year reflects the increased investment in
land and work in progress during the year leading to a 22% increase in average
capital employed, partially offset by the 4% increase in underlying operating
profit(3). ROACE excluding land creditors was 35.6%(5) compared with 40.9% at
31 December 2021. On a statutory basis ROACE including land creditors was
21.9% (2021: 35.6%).
Return on Equity based on underlying profit after tax(6) was in line with the
prior year at 22.0% (2021: 20.1%).
Balance sheet
The Group has maintained its robust balance sheet with net assets of
£3,439.3m at 31 December 2022 (2021: £3,625.2m), equivalent to 1,077p net
assets per share (2021: 1,136p). This was after returning £750.1m of surplus
capital to shareholders under the previous capital allocation plan. Retained
earnings were £2,868.5m (2021: £3,055.1m). Underlying basic earnings per
share³ for the year was 247.3p, 0.6% lower than the prior year (2021:
248.7p).
The Group's defined benefit pension asset has increased to £155.9m at 31
December 2022 (2021: £148.8m). The increase being due to an increase in
discount rates and a decrease in inflation assumptions which have reduced the
value placed on the liabilities offset by falling asset values resulting from
weak asset performance.
As noted above we have increased the legacy buildings safety provision by
£275.0m in the year. At 31 December 2021, the provision stood at £72.7m and
during the year works have continued across a number of affected developments
resulting in spend of £14.4m. At 31 December 2022, the provision stands at
£333.3m and is management's best estimate of the costs of completing works to
ensure fire safety on the remaining affected buildings that we are responsible
for.
The Group's land holdings
At 31 December 2022, the carrying value of the Group's land assets increased
by c.16% to £2,091.7m (2021: £1,798.2m), reflecting the continuation of the
Group's disciplined land replacement strategy and its investment in its
future. During 2022, the Group made investments totalling £735.8m in new land
(2021: £531.2m). The Group's land cost recoveries for the year of 12.0%(7) of
new housing revenue (2021: 13.2%) reflect the attractive margin embedded in
the Group's land holdings.
During the year the Group brought 14,670 plots into its owned and under
control land holdings across 66 locations, of which 5,348 (36%) of the plots
added were converted from our strategic land portfolio.
The owned and under control land holdings of 87,190 at 31 December 2022 (2021:
88,043) represents 5.9 years of forward supply at 2022 volumes. 70,768 plot
are owned of which 35,860 have a detailed implementable planning consent,
providing excellent visibility of the near to medium term. The Group's owned
land holdings represents 4.8 years of forward supply at 2022 volumes, with an
overall pro-forma gross margin(8) of c.32% and a cost to revenue ratio of
11.4%(9) (2021: 11.4%).
A further 16,422 plots are under the Group's control (2021: 20,954), being
plots where the Group has exchanged contracts to acquire the site but has yet
to complete the contract due to outstanding planning conditions remaining
unfulfilled. Cash outflows with regard to these under control plots will be
limited to deposits paid on the exchange of contracts and fees associated with
progressing the sites through the planning system. During the year the Group's
progressed c.18,500 under control plots through the planning system,
transferring them into the Group's owned land holdings.
The Group incurred £663.8m of cash land spend during 2022, including £206.7m
relating to the satisfaction of deferred land commitments as well as the
associated cash spend on the acquisition of sites previously held as under
control sites and their movement into the Group's owned land holdings.
In 2022, the Group acquired interests in a further 450 acres of strategic
land, securing a total of c. 13,100 acres at 31 December 2022 (2021: c.13,700
acres). This will provide a long-term supply of forward plots for future
development by the Group.
Work in progress
We entered 2022 with c.4,100 equivalent units of new homes under construction.
Execution of our build programmes was strong throughout 2022. Overall build
rates tracked c. 8% ahead of 2021, with an average of 276 equivalent units of
build per week, compared to 255 per week in 2021. When allowing for the strong
delivery of new homes in 2022, we start 2023 with a significant level of work
in progress, with c.3,900 equivalent units of build on the balance sheet.
The Group increased its outlet position by 16% in the year and continued to
support investment in a number of large sites which require high levels of
infrastructure and enabling works. In addition, we have seen higher rates of
cost inflation. This has resulted in our work in progress investment at 31
December 2022 of £1,263.9m being 20% higher than the level of investment with
which we entered 2022 (2021: £1,054.1m).
We remain focused on build levels throughout 2023, managing appropriate levels
of build against customer demand, facing into the continuing operational
challenges within the industry and whilst securing the availability of key
build components through our in-house manufactured bricks, roof tiles, closed
panel timber frame kits and pre-manufactured roof cassettes. All of this
whilst delivering high levels of customer satisfaction and build quality.
Cash generation and liquidity
At 31 December 2022 the Group had a cash balance of £861.6m (2021:
£1,246.6m) with the Group having generated £1,002.7m (2021: £1,209.8m) of
cash before returning £750.1m of surplus capital to shareholders in relation
to the 2021 financial year under the previous capital return programme and net
land spend of £637.6m. Resulting from the Group's increased activity in the
land market during 2022 the Group's deferred land commitments have increased
by £65.2m to £472.8m from £407.6m at 31 December 2021. Cash generated from
operations was £566.3m (2021: £972.8m).
Operational cash generated, being cash generated before returns to
shareholders and after land investment, was £266.9m (2021: £678.6m).
The Group has an undrawn £300m Revolving Credit Facility which extends out to
31 March 2026.
As at 31 December 2022, we had 286 part exchange properties (2021: 130) on the
balance sheet at a value of £62.5m (2021: £25.9m).
The Group's shared equity loans have generated £13.3m of cash in the year
(2021: £18.9m). The carrying value of these outstanding shared equity loans,
reported as "Shared equity loan receivables", is £36.0m at 31 December 2022
(2021: £45.6m).
Net finance income for the year was £5.8m (2021: £6.3m) and includes £3.9m
of gains generated on the Group's shared equity loan receivables (2021:
£7.9m) and £1.8m of imputed interest payable on land creditors (2021:
£1.8m).
Capital allocation policy, treasury and related risks
A key feature of the Group's strategy is the commitment to minimise financial
risk, retain flexibility and maintain capital discipline over the long-term
through the housing cycle.
In November 2022, we announced the conclusion of the capital return programme
that was first introduced in 2012, and the move to a new capital allocation
policy that takes into account political and economic uncertainty and the
sector's increased taxation rates.
The Group has a long track record of delivering returns for shareholders and
the Board will continue to prioritise value creation from a strong and
sustainable return on capital by investing in land and other opportunities as
they arise.
For 2022, the Board proposes a final dividend of 60p per share to be paid on 5
May 2023 to shareholders on the register on 14 April 2023, following
shareholder approval at the AGM. This dividend is the final and only dividend
in respect of financial year 2022.
For 2023, the Board's intention is to at least maintain the 2022 dividend per
share with a view to growing this over time whilst maintaining an average
payout that is well covered by earnings over the housing cycle. This approach
will balance shareholder payouts with the company's objective to retain
capital to invest sustainably and profitably for growth.
Any dividend proposal in future years is subject to the company's financial
performance and position at that time.
In periods of higher profitability, any excess capital will be returned to
shareholders through a share buyback or special dividends.
As previously announced, capital allocation payments will be paid
semi-annually and the Board intends to pay an interim dividend in relation to
2023, in the second half of this year.
The business maintains a robust balance sheet with an efficient capital
structure and controls around its working capital management. The Group's
£300m Revolving Credit Facility provides further flexibility to the Group's
working capital resource. These facilities are available to support the
working capital needs of the business.
The Group will continue to effectively manage its liquidity and working
capital investment needs, whilst ensuring they are aligned with the Group's
focus on outlet growth, high levels of build quality and excellent customer
service. The Group will continue to ensure it maintains flexibility when
considering the generation of after tax earnings, and the management of the
Group's equity, debt and cash management facilities. This approach will
mitigate the financial risks the Group faces and maintain the Group's robust
balance sheet and strong liquidity levels, securing a resilient position for
the future.
1. Stated before legacy buildings provision charge of £275.0m (2021: £nil).
2. Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and based on new housing revenue (2022: £3,696.4m, 2021: £3,449.7m)
3. Stated before legacy buildings provision charge of £275.0m (2021: £nil) and
goodwill impairment (2022: £6.6m, 2021: £6.2m).
4. Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil)
and goodwill impairment (2022: £6.6m, 2021: £6.2m) and based on new housing
revenue (2022: £3,696.4m, 2021: £3,449.7m).
5. 12 month rolling average calculated on operating profit before legacy
buildings provision charge (2022: £275.0m, 2021: £nil) and goodwill
impairment (2022: £6.6m, 2021: £6.2m) and total capital employed. Capital
employed being the Group's net assets less cash and cash equivalents plus land
creditors. ROACE excluding land creditors is calculated on capital employed
being the Group's net assets less cash and cash equivalents excluding land
creditors.
6. 12 month rolling profit after tax pre legacy buildings provision charge
generated from the average of the opening and closing total equity for the 12
month period.
7. Land cost value for the plot divided by the anticipated future revenue of the
new home sold.
8. Estimated weighted average gross margin based on assumed revenues and costs at
31 December 2022 and normalised output levels.
9. Land cost value for the plot divided by the anticipated future revenue of the
new home sold.
PERSIMMON PLC
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
2022 2021
Total Total
Note £m £m
Revenue 3 3,815.8 3,610.5
Cost of sales (2,948.3) (2,526.7)
Gross profit 867.5 1,083.8
Analysed as:
Underlying gross profit 1,142.5 1,083.8
Legacy buildings provision 4 (275.0) -
Other operating income 10.3 6.4
Operating expenses (152.9) (129.7)
Operating profit 724.9 960.5
Analysed as:
Underlying operating profit 1,006.5 966.7
Legacy buildings provision (275.0) -
Impairment of intangible assets (6.6) (6.2)
Finance income 9.9 9.9
Finance costs (4.1) (3.6)
Profit before tax 730.7 966.8
Analysed as:
Underlying profit before tax 1,012.3 973.0
Legacy buildings provision (275.0) -
Impairment of intangible assets (6.6) (6.2)
Tax 5 (169.7) (179.6)
Profit after tax (all attributable to equity holders of the parent) 561.0 787.2
Other comprehensive (expense)/income
Items that will not be reclassified to profit:
Remeasurement gain on defined benefit pension schemes 13 5.2 83.3
Tax 5 (7.6) (24.8)
Other comprehensive (expense)/income for the year, net of tax (2.4) 58.5
Total recognised income for the year 558.6 845.7
Earnings per share
Basic 7 175.8p 246.8p
Diluted 7 174.3p 245.6p
PERSIMMON PLC
Consolidated Balance Sheet
As at 31 December 2022
2022 2021
Note £m £m
Assets
Non-current assets
Intangible assets 173.0 175.6
Property, plant and equipment 118.6 99.0
Investments accounted for using the equity method 0.3 0.3
Shared equity loan receivables 9 29.1 35.7
Trade and other receivables 0.3 0.6
Deferred tax assets 10.5 9.7
Retirement benefit assets 13 155.9 148.8
487.7 469.7
Current assets
Inventories 8 3,462.9 2,920.7
Shared equity loan receivables 9 6.9 9.9
Trade and other receivables 193.2 123.9
Current tax assets 21.8 21.4
Cash and cash equivalents 12 861.6 1,246.6
4,546.4 4,322.5
Total assets 5,034.1 4,792.2
Liabilities
Non-current liabilities
Trade and other payables (214.8) (203.4)
Deferred tax liabilities (72.1) (54.6)
Partnership liability (19.6) (23.8)
Legacy buildings provision 10 (196.8) -
(503.3) (281.8)
Current liabilities
Trade and other payables (949.4) (807.0)
Partnership liability (5.6) (5.5)
Legacy buildings provision 10 (136.5) (72.7)
(1,091.5) (885.2)
Total liabilities (1,594.8) (1,167.0)
Net assets 3,439.3 3,625.2
Equity
Ordinary share capital issued 31.9 31.9
Share premium 25.6 24.9
Capital redemption reserve 236.5 236.5
Other non-distributable reserve 276.8 276.8
Retained earnings 2,868.5 3,055.1
Total equity 3,439.3 3,625.2
PERSIMMON PLC
Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 December 2022
Share capital Share premium Capital redemption reserve Other non-distributable reserve Retained earnings Total
£m £m £m £m £m £m
Balance at 1 January 2021 31.9 22.3 236.5 276.8 2,950.9 3,518.4
Profit for the year - - - - 787.2 787.2
Other comprehensive income - - - - 58.5 58.5
Transactions with owners:
Dividends on equity shares - - - - (749.6) (749.6)
Issue of new shares - 2.6 - - - 2.6
Share-based payments - - - - 8.1 8.1
Balance at 31 December 2021 31.9 24.9 236.5 276.8 3,055.1 3,625.2
Profit for the year - - - - 561.0 561.0
Other comprehensive expense - - - - (2.4) (2.4)
Transactions with owners:
Dividends on equity shares - - - - (750.1) (750.1)
Issue of new shares - 0.7 - - - 0.7
Own shares purchased - - - - (0.7) (0.7)
Exercise of share options/share awards - - - - (1.0) (1.0)
Share-based payments - - - - 5.6 5.6
Satisfaction of share options from own shares held - - - - 1.0 1.0
Balance at 31 December 2022 31.9 25.6 236.5 276.8 2,868.5 3,439.3
The other non-distributable reserve arose prior to transition to IFRSs and
relates to the issue of ordinary shares to acquire the shares of Beazer Group
Plc in 2001.
PERSIMMON PLC
Consolidated Cash Flow Statement
For the year ended 31 December 2022
2022 2021
Note £m £m
Cash flows from operating activities:
Profit for the year 561.0 787.2
Tax charge 5 169.7 179.6
Finance income (9.9) (9.9)
Finance costs 4.1 3.6
Depreciation charge 15.8 14.5
Impairment of intangible assets 6.6 6.2
Legacy buildings provision 10 275.0 -
Share-based payment charge 9.0 6.4
Net imputed interest income 2.1 6.1
Other non-cash items (7.9) (7.9)
Cash inflow from operating activities 1,025.5 985.8
Movements in working capital:
Increase in inventories (532.5) (9.8)
Increase in trade and other receivables (81.1) (59.5)
Increase in trade and other payables 141.1 37.4
Decrease in shared equity loan receivables 13.3 18.9
Cash generated from operations 566.3 972.8
Interest paid (3.3) (3.7)
Interest received 3.5 1.9
Tax paid (164.2) (186.2)
Net cash inflow from operating activities 402.3 784.8
Cash flows from investing activities:
Joint venture net funding movement - 1.8
Acquisition of subsidiary (0.2) -
Purchase of property, plant and equipment (30.5) (20.9)
Proceeds from sale of property, plant and equipment 0.9 0.9
Net cash outflow from investing activities (29.8) (18.2)
Cash flows from financing activities:
Lease capital payments (3.3) (3.3)
Payment of Partnership liability (4.1) (3.8)
Own shares purchased (0.7) -
Share options consideration 0.7 2.6
Dividends paid 6 (750.1) (749.6)
Net cash outflow from financing activities (757.5) (754.1)
(Decrease) / Increase in net cash and cash equivalents 12 (385.0) 12.5
Cash and cash equivalents at the beginning of the year 1,246.6 1,234.1
Cash and cash equivalents at the end of the year 12 861.6 1,246.6
Notes
1. Basis of preparation
The results for the year have been prepared on a basis consistent with the
accounting policies set out in the Persimmon Plc Annual Report for the year
ended 31 December 2022.
The preparation of the financial statements in conformity with the Group's
accounting policies requires the Directors to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the balance sheet date and the reported
amounts of revenue and expenses during the reported period. Whilst these
estimates and assumptions are based on the Directors' best knowledge of the
amount, events or actions, actual results may differ from those estimates.
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 31 December 2022 or 2021, but is
derived from those accounts. Statutory accounts for 2021 have been delivered
to the Registrar of Companies, and those for 2022 will be delivered in due
course. The auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain statements under Section 498(2) or (3) of the Companies
Act 2006.
Whilst the financial information included in this announcement has been
computed using the recognition and measurement requirements of UK adopted
International Accounting Standards (IAS), this announcement does not itself
contain sufficient information to comply with IAS. The Company expects to
send its Annual Report 2022 to shareholders on 22 March 2023.
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Strategic
Report in the Annual Report and the financial statements and notes. The
Directors believe that the Group is well placed to manage its business risks
successfully. The principal risks that may impact the Group's performance
and their mitigation are outlined in Note 14. After making enquiries, the
Directors have a reasonable expectation that the Group has adequate resources
to fund its operations for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the annual financial
statements.
Adoption of new and revised International Financial Reporting Standards
(IFRSs) and Interpretations (IFRICs)
The following relevant UK endorsed new amendments to standards are mandatory
for the first time for the financial year beginning 1 January 2022:
• Amendment to IFRS 1 First-time Adoption of International Financial Reporting
Standards - Subsidiary as a First-time Adopter
• Amendment to IFRS 9 Financial Instruments - Fees in the '10 per cent' Test for
Derecognition of Financial Liabilities
• Amendment to IAS 14 Agriculture - Taxation in Fair Value Measurements
• Amendment to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract
• Amendment to IAS 16 Property, Plant and Equipment - Proceeds before Intended
Use
• Amendment to IFRS 3 Reference to the Conceptual Framework
The effects of the implementation of these amendments have been limited to
disclosure amendments where applicable.
The Group has not applied the following new amendments to standards which are
not yet effective:
• Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising
from a Single Transaction
• Amendments to IAS 8 Definition of Accounting Estimates
• Amendments to IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting
policies
The Group is currently considering the implication of these amendments with
the expected impact upon the Group being limited to disclosures if applicable.
Going concern
The Group has performed well in the twelve months ended 31 December 2022.
Persimmon's long-term strategy, which recognises the risks associated with the
housing cycle by maintaining operational flexibility, investing in high
quality land, minimising financial risk and deploying capital at the right
time in the cycle, has equipped the business with strong liquidity and a
robust balance sheet.
The Group delivered a strong trading performance in the twelve months to 31
December 2022, completing the sale of 14,868 new homes (2021: 14,551) and
generating an underlying profit before tax* of £1,005.7m (2021: £966.8m).
At 31 December 2022, the Group's strong financial position included £861.6m
of cash (2021: £1,246.6m), high quality land holdings and land creditors of
£472.8m (2021: £407.6m). In addition, the Group has an undrawn Revolving
Credit Facility of £300m, which extends out to 31 March 2026.
Given the economic turmoil resulting from the "mini budget" in September 2022
and the adverse impact it has had on the UK housing market the Group's forward
order book, including legal completions taken so far in 2023, is c. 30% weaker
year on year with new home forward sales of c. £1.5bn. We have over 2,800
new homes sold forward into the private owner occupier market with an average
selling price of over £288,600, which is 11% stronger than a year ago. The
cumulative average private sales reservation rate for the first 8 weeks of the
year is c. 70% stronger than the rate achieved in Q4 2022.
The Directors have carried out a robust assessment of the principal risks
facing the Group, as described in note 14 of this announcement. The Group
has considered the impact of these risks on the going concern of the business
by performing a range of sensitivity analyses, covering the period to 30 June
2024, including severe but plausible scenarios based on experience gained by
management during the Global Financial Crisis from 2007 to 2010, materialising
together with the likely effectiveness of mitigating actions that would be
executed by the Directors. For further detail regarding the approach and
process the Directors follow in assessing the long-term viability of the
business, please see the Viability Statement in note 14.
The scenarios emphasise the potential impact of severe market disruption,
including for example the ongoing effect of economic disruption from the cost
of living crisis and the war in Ukraine, on short to medium-term demand for
new homes. The scenarios' emphasis on the impact on the cash inflows of the
Group through reduced new home sales is designed to allow the examination of
the extreme cash flow consequences of such circumstances occurring. The
Group's cash flows are less sensitive to supply side disruption given the
Group's sustainable business model, flexible operations, agile management team
and off-site manufacturing facilities.
In the first downside scenario modelled, the combined impact is assumed to
cause, when compared to the 2022 outturn, a c. 59% reduction in volumes and a
c. 15% reduction in average selling price in 2023. The combined impact
results in a c. 65% fall in the Group's 2023 housing revenues. From the
lower 2023 position, the scenario then assumes a c. 40% increase in housing
revenue as a result of a c. 34% increase in volume and a c. 5% increase in
average selling price.
A second, even more extreme, scenario assumes a significant and enduring
depression of the UK economy and housing market in 2023, consistent with the
above scenario, causing a reduction of c. 59% in new home sales volumes, a c.
15% fall in average selling prices and a c. 65% fall in the Group's housing
revenue in 2023. The scenario then assumes that neither volumes nor revenue
recover into 2024.
In each of these scenarios, cash flows were assumed to be managed
consistently, ensuring all relevant land, work in progress and operational
investments were made in the business at the appropriate time to deliver the
projected new home legal completions. Each scenario fully reflects the current
estimate of cash outflows, value and timing, associated with the legacy
buildings provision.
In addition the Group has been increasingly assessing climate related risk and
opportunities that may present to the Group. During the period assessed for
going concern no significant risk has been identified that would materially
impact the Group's ability to generate sufficient cash and continue as a going
concern.
Having considered the inherent strength of the UK housing market, the
resilience of the Group's average selling prices and the Group's scenario
analysis as detailed above, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going concern
basis in preparing these financial statements.
* Stated before legacy buildings provision charge (2022: £275.0m, 2021:
£nil)
2. Segmental analysis
The Group has only one reportable operating segment, being housebuilding
within the UK, under the control of the Executive Board. The Executive Board
has been identified as the Chief Operating Decision Maker as defined under
IFRS 8 Operating Segments.
3. Revenue
2022 2021
£m £m
Revenue from the sale of new housing 3,696.4 3,449.7
Revenue from the sale of part exchange properties 110.6 155.4
Revenue from the provision of internet services 8.8 5.4
Revenue from the sale of goods and services as reported in the statement of 3,815.8 3,610.5
comprehensive income
4. Exceptional Items
During 2022 the Group have recognised an exceptional charge of £275.0m (2021:
£nil) in relation to the increase in the anticipated costs of the Group's
commitments to support leaseholders in buildings we had developed with the
costs of removal of combustible cladding and other fire related remediation
works. This reflects the extended commitment of the government long form
contract, the identification of further developments for which we are now
responsible, and a greater understanding of remediation costs. Further
detail on this matter is provided in note 10 to this announcement.
This has been disclosed as an exceptional item due to the non-recurring nature
and scale of the charge, in order to aid understanding of the financial
performance of the Group and to assist in the comparability of financial
performance between accounting periods.
5. Tax
Analysis of the tax charge for the year
2022 2021
£m £m
Tax charge comprises:
UK corporation tax in respect of the current year 138.8 181.2
Residential Property Developer Tax (RPDT) in respect of the current year 28.7 -
Adjustments in respect of prior years (2.8) (8.3)
164.7 172.9
Deferred tax relating to origination and reversal of temporary differences - 5.4
Impact of introduction of RPDT on deferred tax 3.9 -
Adjustments recognised in the current year in respect of prior years deferred 1.1 1.3
tax
5.0 6.7
Tax charge for the year recognised in Statement of Comprehensive Income 169.7 179.6
The tax charge for the year can be reconciled to the accounting profit as
follows:
2022 2021
£m £m
Profit from continuing operations 730.7 966.8
Tax calculated at UK corporation tax rate of 22% (inclusive of RPDT) (2021: 160.8 183.7
19%)
Accounting base cost not deductible for tax purposes - 0.2
Goodwill impairment losses that are not deductible 1.2 1.2
Expenditure not allowable for tax purposes 0.8 0.2
Effect of change in rate of corporation tax - 2.7
Impact of introduction of RPDT 3.9 -
Items not deductible for RPDT 6.8 -
Enhanced tax reliefs (2.1) (1.3)
Adjustments in respect of prior years (1.7) (7.1)
Tax charge for the year recognised in Statement of Comprehensive Income 169.7 179.6
The UK corporation tax rate will increase from 19% to 25% with effect from 1
April 2023. Legislation to increase the corporation tax rate was enacted
during the 31 December 2021 accounting period and the impact on deferred tax
was taken into account at the previous balance sheet date. The Finance Act
2022 received Royal Ascent on 24 February 2022 introducing a new residential
property tax ('RPDT') which was effective from 1 April 2022 and is chargeable
at 4% of profits generated from residential property development in excess of
an annual threshold. RPDT was introduced by HM Treasury to obtain
contributions from the UK's largest residential developers towards the cost of
remediating defective cladding in the UK's high-rise housing stock.
Deferred tax recognised in other comprehensive income
2022 2021
£m £m
Recognised on remeasurement gain on pension schemes 7.6 24.8
Tax recognised directly in equity
2022 2021
£m £m
Arising on transactions with equity participants
Current tax related to equity settled transactions (0.8) 0.1
Deferred tax related to equity settled transactions 4.2 (1.8)
3.4 (1.7)
6. Dividends/Return of capital
2022 2021
£m £m
Amounts recognised as distributions to capital holders in the period:
2020 dividend to all shareholders of 125p per share paid 2021 - 398.7
2020 dividend to all shareholders of 110p per share paid 2021 - 350.9
2021 dividend to all shareholders of 125p per share paid 2022 399.0 -
2021 dividend to all shareholders of 110p per share paid 2022 351.1 -
Total capital return to shareholders 750.1 749.6
The Directors propose to return 60 pence of surplus capital to shareholders
for each ordinary share held on the register on 14 April 2023 with payment
made on 5 May 2023 as a final dividend in respect of the financial year ended
31 December 2022. The Directors do not intend to return any further surplus
capital in respect of the financial year 31 December 2022. The total
anticipated distributions to shareholders is 60 pence per share (2021: 235
pence per share) in respect of the financial year ended 31 December 2022.
7. Earnings per share
Basic earnings per share is calculated by dividing the profit for the year
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year of 319.2m shares (2021: 319.0m) which
excludes those held in the employee benefit trust and any treasury shares, all
of which are treated as cancelled.
Diluted earnings per share is calculated by dividing the profit for the year
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue adjusted to assume conversion of all potentially
dilutive ordinary shares from the start of the year, giving a figure of 321.8m
shares (2021: 320.2m).
Underlying earnings per share excludes the legacy buildings provision charge
and goodwill impairment. The earnings per share from continuing operations
were as follows:
2022 2021
Basic earnings per share 175.8p 246.8p
Underlying basic earnings per share 247.3p 248.7p
Diluted earnings per share 174.3p 245.6p
Underlying diluted earnings per share 245.3p 247.6p
The calculation of the basic and diluted earnings per share is based upon the
following data:
2022 2021
£m £m
Underlying earnings attributable to shareholders 789.5 793.4
Legacy buildings provision (net of tax) (221.9) -
Goodwill impairment (6.6) (6.2)
Earnings attributable to shareholders 561.0 787.2
At 31 December 2022 the issued share capital of the Company was 319,323,432
ordinary shares (2021: 319,206,474 ordinary shares).
8. Inventories
2022 2021
£m £m
Land 2,091.7 1,798.2
Work in progress 1,263.9 1,054.1
Part exchange properties 61.0 24.8
Showhouses 46.3 43.6
Inventories 3,462.9 2,920.7
The Group has conducted a further review of the net realisable value of its
land and work in progress portfolio at 31 December 2022. Our approach to this
review has been consistent with that conducted at 31 December 2021 and was
fully disclosed in the financial statements for the year ended on that date.
The key judgements and estimates in determining the future net realisable
value of the Group's land and work in progress portfolio are future sales
prices, house types and costs to complete the developments. Sales prices and
costs to complete were estimated on a site by site basis. There is currently
no evidence or experience in the market to inform management that expected
selling prices used in the valuations are materially incorrect.
Net realisable value provisions held against inventories at 31 December 2022
were £5.5m (2021: £18.6m). Following the review, £2.9m of inventories are
valued at net realisable value rather than historical cost (2021: £4.1m).
9. Shared equity loan receivables
2022 2021
£m £m
Shared equity loan receivables at 1 January 45.6 56.2
Settlements (13.3) (18.9)
Gains 3.7 8.3
Shared equity loan receivables at 31 December 36.0 45.6
All gains/losses have been recognised in the Consolidated Statement of
Comprehensive Income. Of the gains recognised in finance income for the
period, £0.3m (2021: £4.2m) was unrealised.
10. Legacy buildings provision
2022 2021
£m £m
Legacy buildings provision at 1 January 72.7 75.0
Additions to provision in the year 275.0 -
Provision utilised in the year (14.4) (2.3)
Legacy buildings provision at 31 December 333.3 72.7
In 2020 the Group made an initial commitment that no leaseholder living in a
building we had developed should have to cover the cost of removal of
combustible cladding. During 2022 we have signed the Building Safety Pledge
(England) and worked constructively with the government to agree the 'Long
Form Contract' that turns the pledge into a legal agreement, which will be
signed imminently. As we have worked through this process we have identified
further eligible multi-storey developments requiring remediation for which we
will be liable, and developed a more detailed understanding of remediation
costs. The number of developments we are responsible for has increased and
now stands at 73 (of which 33 have now either secured EWS1 certificates or
concluded any necessary works). This, along with a broader scope, including
reimbursement of any funds already outlaid by the Building Safety Fund,
remediation of non-cladding fire related build defects and interim protection
measures for residents, set against a background of significant build cost
inflation has resulted in our total provision for fire related build
remediation works increasing by £275.0m to £350.0m, before spend to date. It
is assumed the majority of the work will be completed over the next 3 years
and the amount provided for has been discounted accordingly.
The charge of £275.0m in the year has been separately disclosed on the face
of the Consolidated Statement of Comprehensive Income.
This is a highly complex area with judgments and estimates in respect of the
cost of the remedial works, with investigative surveys ongoing to determine
the full extent of those required works. Where remediation works have not
yet been fully tendered we have estimated the likely scope and costs of such
works based on experience of other similar sites. Whilst management have
exercised their best judgement of these matters, there remains the potential
for variations to this estimate from multiple factors such as material, energy
and labour cost inflation, limited qualified contractor availability and
abnormal works identified on intrusive surveys. Should a 10% variation in
the costs of untendered projects occur then the overall provision would vary
by +/- £14.3m.
The financial statements have been prepared on the latest available
information, however there remains the possibility that despite managements
endeavours to identify all such properties, including those constructed by
acquired entities well before acquisition, further developments requiring
remediation may emerge.
11. Financial instruments
In aggregate, the fair value of financial assets and liabilities are not
materially different from their carrying value.
Financial assets and liabilities carried at fair value are categorised within
the hierarchical classification of IFRS 7 Revised (as defined within the
standard) as follows:
2022 2021
Level 3 Level 3
£m £m
Shared equity loan receivables 36.0 45.6
Shared equity loan receivables
Shared equity loan receivables represent loans advanced to customers and
secured by way of a second charge on their new home. They are carried at
fair value. The fair value is determined by reference to the rates at which
they could be exchanged by knowledgeable and willing parties. Fair value is
determined by discounting forecast cash flows for the residual period of the
contract by a risk adjusted rate.
There exists an element of uncertainty over the precise final valuation and
timing of cash flows arising from these loans. As a result the Group has
applied inputs based on current market conditions and the Group's historic
experience of actual cash flows resulting from such arrangements. These
inputs are by nature estimates and as such the fair value has been classified
as level 3 under the fair value hierarchy laid out in IFRS 13 Fair Value
Measurement.
Significant unobservable inputs into the fair value measurement calculation
include regional house price movements based on the Group's actual experience
of regional house pricing and management forecasts of future movements,
weighted average duration of the loans from inception to settlement of ten
years (2021: ten years) and discount rate 7% (2021: 5%) based on current
observed market interest rates offered to private individuals on secured
second loans.
The discounted forecast cash flow calculation is dependent upon the estimated
future value of the properties on which the shared equity loans are secured.
Adjustments to this input, which might result from a change in the wider
property market, would have a proportional impact upon the fair value of the
loan. Furthermore, whilst not easily accessible in advance, the resulting
change in security value may affect the credit risk associated with the
counterparty, influencing fair value further.
12. Reconciliation of net cash flow to net cash and analysis of net cash
2022 2021
£m £m
Cash and cash equivalents at 1 January 1,246.6 1,234.1
(Decrease) / Increase in net cash and cash equivalents in cash flow (385.0) 12.5
Cash and cash equivalents at 31 December 861.6 1,246.6
IFRS 16 lease liability (10.9) (8.8)
Net cash at 31 December 850.7 1,237.8
Net cash is defined as cash and cash equivalents, bank overdrafts, lease
obligations and interest bearing borrowings.
13. Retirement benefit assets
As at 31 December 2022 the Group operated four employee pension schemes, being
two Group personal pension schemes and two defined benefit pension schemes.
Remeasurement gains and losses in the defined benefit schemes are recognised
in full as other comprehensive income within the Consolidated Statement of
Comprehensive Income. All other pension scheme costs are reported in profit
or loss.
The amounts recognised in the Consolidated Statement of Comprehensive Income
are as follows:
2022 2021
£m £m
Current service cost 1.9 2.0
Administrative expense 0.6 0.6
Pension cost recognised as operating expense 2.5 2.6
Interest cost 11.3 8.9
Return on assets recorded as interest (14.1) (9.6)
Pension cost recognised as net finance credit (2.8) (0.7)
Total defined benefit pension (income)/cost recognised in profit or loss (0.3) 1.9
Remeasurement gain recognised in other comprehensive income (5.2) (83.3)
Total defined benefit scheme gain recognised (5.5) (81.4)
The amounts included in the Balance Sheet arising from the Group's obligations
in respect of the Pension Scheme are as follows:
2022 2021
£m £m
Fair value of Pension Scheme assets 555.6 751.9
Present value of funded obligations (399.7) (603.1)
Net pension asset 155.9 148.8
The increase in the net pension asset to £155.9m (2021: £148.8m) is largely
due to an increase in long-term corporate bond yields increasing the discount
rate assumption applied to scheme obligations to 4.8% (2021: 1.9%) offset by
underperformance of asset returns compared to the expected return assumed at
the start of the year.
14. Principal Risks and Viability Statement
In line with the UK Corporate Governance Code 2018, the Group defines its
principal risks as those considered to have a potentially material impact on
its strategy and business model, including its future performance, solvency,
liquidity and reputation. The Group has identified 11 risk areas that meet its
criteria for consideration as principal risks.
The 2022 assessment has identified a new principal risk concerning legacy
buildings. This reflects the potential for further legacy properties to be
brought into the scope of cladding and life-critical fire safety remediation
works, for costs to be greater than anticipated, or other regulatory changes
to occur in this area.
The assessment has also noted movements in our rating of the risks in respect
of UK economic conditions, mortgage availability and cyber and data risk.
The Group no longer considers the previously reported pandemic and strategy
risks as meeting the criteria of principal risks. This reflects the Group's
comprehensive suite of controls deployed during the Covid-19 pandemic, which
could be swiftly adapted and redeployed as necessary, and that the likely
effects of a future pandemic are reflected within the Group's other principal
risks, such as those concerning UK economic conditions and Government policy.
The results of the Board's assessment of the Group's principal risks are
outlined below.
1. UK economic conditions
Residual risk rating Very High Risk trend assessment
Overall Impact Likelihood
Increase No change Increase
Risk description Approach to risk mitigation How we monitor the risk
The housebuilding industry is sensitive to changes in the economic In order to minimise risk and maintain financial flexibility, the Group - The Board closely monitors sales activity and UK economic trends
environment, including unemployment levels, interest rates and consumer pursues a highly disciplined approach to investments in land and work in closely.
confidence. A deterioration in economic conditions could adversely affect progress, ensuring these are appropriate and reflective of current and
demand and pricing for new homes, which could in turn impact upon our anticipated levels of demand. - The Principal Risk Lead Indicator reports issued to each meeting
revenues, margins, profits and cash flows and potential impairment of asset
of the Board includes analysis of economic indicators, using both internal and
values. external sources.
Pricing structures are regularly reviewed to reflect local market conditions.
The Group benefits from a UK-wide network (with no significant presence in
Economic conditions in the land market may adversely affect the availability London), mitigating the effects of regional economic fluctuations.
of a sustainable supply of land at appropriate levels of return.
2. Government policy and political risk
Residual risk rating High Risk trend assessment
Overall Impact Likelihood
No change No change No change
Risk description Approach to risk mitigation How we monitor the risk
Changes to government policy have the potential to impact on several aspects Our mission and our five key priorities are aligned with the government's - Likely evolutions in government policy in relation to the housing
of our strategy and operational performance. Recent examples include the stated ambition to increase housing stock. market are monitored closely by our External Affairs, Technical and Land and
impacts of the withdrawal of the Help to Buy scheme, the introduction of the
Planning departments, with regular feedback to the Executive Committee and
Residential Property Developer Tax, and proposed changes in planning Board.
regulations. Further policy changes may arise in response to the anticipated
CMA market study into the housebuilding sector. Such changes have the Investment decisions in land and work in progress are tightly controlled in - We routinely engage with industry bodies to review the impact of
potential to adversely affect revenues, margins, tax charges and asset values, order to mitigate exposure to external influences, including potential changes any anticipated legislative or regulatory changes.
and potentially impact on the viability of land investments. in Government policy.
The Group has experienced teams with expertise in managing and responding to
relevant areas subject to Government involvement, including our Group
Planning, Technical and External Affairs departments.
3. Health, safety and environment
Residual risk rating High Risk trend assessment
Overall Impact Likelihood
No change No change No change
Risk description Approach to risk mitigation How we monitor the risk
In addition to the human impacts of any health, safety or environmental breach The Board retains a very strong commitment to health and safety and managing - Data from inspections by the Group Health, Safety and Environment
or incident, there is the potential for reputational damage, construction the risks in this area effectively. Operationally, this commitment is department feed into management reports at all levels of the Group.
delays and financial penalties. implemented by a range of measures, including:
- The Principal Risk Lead Indicator reports issued to each meeting
of the Board includes analysis of inspection metrics provided by the Group
Health, Safety and Environment department.
- Comprehensive policies and procedures to manage construction
activities safely. - The Group Health, Safety and Environment Director is a member of the
Group Executive Committee, and provides additional periodic reports and
- Training programmes to embed the Group's policies effectively. updates to both the Board and the Audit & Risk Committee.
- Inspection regime led by our Group Health, Safety and Environment
department.
- Engagement with industry forums and best practice groups.
4. Skilled workforce, retention and succession
Residual risk rating High Risk trend assessment
Overall Impact Likelihood
No change No change No change
Risk description Approach to risk mitigation How we monitor the risk
Recruiting and retaining a highly skilled workforce and supporting management The Group has deployed a range of measures to maintain an appropriately - The Group HR department provides reporting, including metrics such
teams is essential to the delivery of the Group's strategy. Heightened skilled workforce, including: as training hours, to management at all levels of the Group.
competition for skilled labour creates risks of increased costs, operational
disruption and potential delays to build programmes. - Comprehensive range of training programmes managed by the Group - The Group HR Director is a member of the Group Executive Committee,
Training department, including apprenticeships, graduate scheme and the and provides additional periodic reports and updates to both the Board on
Persimmon Pathways in core disciplines. employment trends.
- Talent management and succession planning programmes. - Feedback from the employee engagement panel is reviewed by the Board.
- Remuneration benchmarking to ensure reward is appropriate to - The Principal Risk Lead Indicator reports issued to each meeting of
attract and retain talent at all levels. the Board includes staff turnover data and commentary from the Group HR
department.
- Utilisation of our Space4 products, which improve build efficiency
and require less on-site labour than traditional construction.
- Increased focus on employee engagement measures.
- Deployment of hybrid working practices, where appropriate.
5. Materials and land purchasing
Residual risk rating High Risk trend assessment
Overall Impact Likelihood
No change No change Decrease
Risk description Approach to risk mitigation How we monitor the risk
Availability of materials Availability of materials Availability of materials
Ensuring access to materials of the requisite quantity and specifications is Various mitigations are in place to ensure consistent sourcing of materials - The Group Procurement department provides routine monitoring of trends
critical in delivering high quality homes. Heightened levels of demand for and cost efficiency: and supplier performance.
materials may cause availability constraints and increase cost pressures.
Build quality may be compromised if unsuitable materials are procured leading - Vertical integration through the Brickworks, Tileworks and Space4. - Site budgets and performance, including availability and pricing of
to damage to the Group's reputation and overall customer experience.
materials, are assessed through the bi-monthly valuation process.
- Strategic approach to procurement, led by our Group Procurement
team. - The Principal Risk Lead Indicator reports issued to each meeting of
the Board include commentary from the Group Commercial Director on materials
- Supply chain engagement, including robust processes for appointing purchasing trends and issues.
suppliers and reviewing their performance thereafter.
- Detailed forecasting and planning of materials requirements to
inform supplier negotiations.
- Support for our supply chain through adherence to the Prompt
Payment Code.
Land purchasing
The Group 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.
Land purchasing Land purchasing
Maintaining an appropriate supply of suitable land is crucial to the Group's The Group's Land Committee meets regularly to review the Group's current land
strategy. Failure to maintain a sufficient supply of land at the appropriate holdings and future needs, and to assess potential land transactions.
levels of return could adversely affect sales, margins and return on capital
employed.
6. Climate change
Residual risk rating Medium Risk trend assessment
Overall Impact Likelihood
No change No change No change
Risk description Approach to risk mitigation How we monitor the risk
The effects of climate change and the UK's transition to a lower carbon The potential impacts of climate change are considered systematically in key - The Sustainability Committee meets regularly to review progress on the
economy could lead to increasing levels of regulation and legislation, as seen business decisions, from land acquisition through to planning and build Group's climate related initiatives.
with the Future Homes Standard. These may in turn result in planning delays, processes. In response, the Group has established a range of measures to
increased costs and competition for some materials. improve its operational efficiency and direct environmental impact, including: - Key indicators including CO(2) emissions and waste generation are
monitored and reported on.
- External review of our Scope 1, Scope 2, Scope 3 Category 1 (Purchased
Changes in weather patterns and the frequency of extreme weather events, - Maintaining a detailed climate change risk register. goods and services) and Scope 3 Category 11 (Use of sold products) emissions.
particularly storms and flooding, may increase the likelihood of disruption to
the construction process. The availability of mortgages and property insurance - Setting science based carbon reduction targets, accredited by the
may reduce in response to financial institutions considering the possible Science Based Targets Initiative.
impacts relating to climate change.
- Targets to deliver 'net zero' homes in use to our customers by
2030 and become 'net zero' in our operations by 2040.
- Regular meetings of the low carbon homes working group, comprising
senior employees from various disciplines, including preparation for the
implementation of the Future Homes Standard.
- Introduction of electric vehicle options into the Group's fleet.
- Procurement of 100% renewable energy for our offices and
manufacturing facilities.
7. Reputation
Residual risk rating Medium Risk trend assessment
Overall Impact Likelihood
No change No change No change
Risk description Approach to risk mitigation How we monitor the risk
Failure to live up to our expected high standards in governance, build quality The Group is committed to ensuring an appropriate culture and maintaining high - Operational performance, including build quality and customer
(including remediation of legacy issues), customer experiences, operational quality in all aspects of its operations. This is subject to oversight from experience, are subject to routine management oversight, with reporting to the
performance, management of health and safety or local planning concerns could the Board. Executive Committee and Board.
damage stakeholder relationships and have a detrimental impact on financial
performance. - The Board also oversees stakeholder engagement, including monitoring
feedback from shareholders, and the results of our employee engagement surveys
We have made significant investments in build quality, through The Persimmon and the Employee Engagement Panel.
Way and the supporting IQC regime, and in addressing legacy issues.
- The Principal Risk Lead Indicator reports issued to each meeting of
the Board includes analysis of media coverage and trends that could be
indicative of the Group's overall reputation.
We formally commenced the registration process for the New Homes Quality Code
(NHQC) within 2022. The Group supports the NHQC's focus on driving quality and
customer service improvement across the industry.
The Group also proactively works to build positive relationships with all of
our stakeholders. This includes supporting communities in addressing housing
needs, creating attractive neighbourhoods and employing local people, both on
our sites and in the supply chain. We make significant contributions to local
infrastructure and good causes within the communities in which the Group
operates.
8. Regulatory compliance
Residual risk rating Medium Risk trend assessment
Overall Impact Likelihood
No change No change No change
Risk description Approach to risk mitigation How we monitor the risk
The housebuilding industry is subject to increasingly complex regulations, The Group maintains comprehensive management systems to ensure regulatory and - The Board and Audit & Risk Committee are provided with regular
particularly in areas such as land acquisition, planning, building regulations legal compliance, including policies and procedures for key areas of updates on core areas of regulatory compliance and preparation for upcoming
and the environment. Further regulatory evolutions are expected in the regulation. Additional oversight is in place through the Group-level functions regulatory change.
short-term, such as the introduction of the NHQC, and measures on audit and and cross-functional steering groups for key areas, such as GDPR compliance.
corporate governance reform, which will affect many of our processes. Failure
to comply with regulations could result in imposition of financial penalties
and potential damage to the Group's reputation.
In respect of land and planning, experienced management teams are in place at
Group and local level. These enable effective engagement with planning
authorities and other stakeholders to reduce the likelihood and impact of any
delays or disruption.
9. Cyber and data risk
Residual risk rating High Risk trend assessment
Overall Impact Likelihood
Increase Increase No change
Risk description Approach to risk mitigation How we monitor the risk
In common with most modern businesses, the Group is reliant on the consistent The Group has dedicated cyber security resource, led by the Chief Information - In recognition of the serious nature of cyber risk to modern
availability and security of its IT systems. Failure or significant disruption Security Officer, in order to manage and oversee security controls. This businesses, the Board receives reports from the Group's Chief Information
to the Group's core IT systems, particularly those in relation to customer includes use of third party expertise to ensure implementation of Officer (CIO) at each of its meetings. The CIO also serves as a member of the
information and customer service could result in significant financial costs, good-practice controls. Group Executive Committee, ensuring IT and cyber risks are a consideration
reputational damage and business disruption.
in all key business decision making.
- Routine reporting on cyber security and IT developments is presented
External partners are used to support the Group, both through cyber security to the Audit & Risk Committee.
As the Group's use of technology to support operational processes continues to assessments and periodic penetration testing.
develop, cyber and data risks have become an area of increased focus for the
- The Principal Risk Lead Indicator reports issued to each meeting of
Group. This is reflected in the elevation of this risk from 'medium' to the Board include a section on IT developments.
'high'.
In the event of an incident, the Group has a defined Cyber Incident Response - The Group has an internal GDPR Steering Group to monitor all
Plan. processes, risks and controls associated with personal data.
Training and regular communications are delivered to all users to increase
awareness of cyber risks, with particular focus on risks associated with
remote and hybrid working.
10. Mortgage availability
Residual risk rating Very High Risk trend assessment
Overall Impact Likelihood
Increase Increase Increase
Risk description Approach to risk mitigation How we monitor the risk
Higher interest rates or tightening of bank lending criteria could reduce both The Group closely monitors the economic outlook for the UK, including - The Board closely monitors sales activity and UK economic trends
the affordability and availability of mortgages for our customers. This could indicators on mortgage availability and affordability. Investments in land closely, including Bank of England commentary on credit conditions, lenders'
reduce demand for new homes and affect sales prices, revenues, profits, cash and work in progress are moderated to align with our level of sales and announcements and reports from UK Finance.
flows, and asset values. expectations of the current market conditions.
- The Principal Risk Lead Indicator reports issued to each meeting
of the Board includes analysis of lending trends and mortgage approval rates.
Incentive schemes to support sales are kept under review by management, and
can be flexed according to underlying market conditions.
11. Legacy buildings
Residual risk rating High Risk trend assessment
Overall Impact Likelihood
NEW NEW NEW
Risk description Approach to risk mitigation How we monitor the risk
In line with our commitments under the Developer Pledge, the Group remains The Group has a dedicated Special Projects team, responsible for the - A report on the progress of the works is provided to every Board
committed to undertaking any cladding or life-critical fire safety remediation identification of affected buildings, assessment of any remediation required, meeting.
works for buildings it has constructed, and to protecting leaseholders. and ensuring that the work is completed as quickly as practicable.
Provisions have been made to cover the anticipated costs of these works;
- All identified buildings are assessed and, where necessary, interim
however, the works are complex and could be protracted in nature. As such, the measures carried out to ensure the residents safety until remedial works are
value may be subject to revision if legislation or regulation evolve, further
carried out.
properties are identified, or costs prove to be greater than anticipated. Detailed investigations are undertaken on all identified buildings and
independent fire risk assessments completed. - The Finance team monitors costs incurred and provides assurance on the
utilisation and appropriateness of the Group's provision.
The Group's assumptions on the estimated financial costs associated with the
remediation works have been subject to comprehensive challenge.
VIABILITY STATEMENT
Persimmon's prospects and viability
The long-term prospects and viability of the business are a consistent focus
of the Board when determining and monitoring the Group's strategy. The
identification and mitigation of the principal risks facing the business,
which have been updated to reflect current UK economic conditions and
uncertainties (including the ongoing cost of living crisis and war in
Ukraine), also form part of the Board's assessment of long-term prospects and
viability*.
Assessing Persimmon's long-term prospects
Persimmon has built a strong position in the UK's house building market over
many years, recognising the potential for long-term growth across regional
housing markets. The Board recognises that the long-term demographic
fundamentals of continued positive population growth and new household
formation, together with the requirement to replace and improve the quality of
the country's housing stock, provide a long-term supportive backdrop for the
industry. However, the Board and the Group's strategy recognises the
inherently cyclical nature of the UK housing market. The Group has therefore
been able to maintain a position of strength with good liquidity, high quality
land holdings and a strong balance sheet throughout the disruption caused by
the ongoing cost of living crisis and war in Ukraine. The future impacts of
the cost of living crisis and other factors creating uncertainty within the UK
economy on the Group's sales and construction programmes remain uncertain. The
Board has considered these potential impacts in depth when assessing the
long-term prospects of the Group.
Whilst this uncertainty remains, Persimmon possesses the sound fundamentals
required to realise the Group's purpose and ambitions and deliver sustainable
success:
• Talented teams focused on consistently delivering good quality homes for our
customers;
• High quality land holdings that allow us to create attractive places in areas
where people wish to live and work;
• Strong customer and local community relationships;
• Continued investment in the training and development of our teams;
• Market knowledge, expertise and industry know-how;
• Long-term healthy supplier engagement; and
• Vertical integration ensuring internalised supply of key materials.
By continuing to build on these solid foundations through, for example, The
Persimmon Way and our ongoing investments in the customer experience, its
land, development sites and in its supply chain, the Group aims to create
enduring value for the communities we serve and our wider stakeholders. This
is reflected within the Group's materiality assessment, which ensures a
thorough review of stakeholder interests is incorporated within the assessment
of the Group's long-term prospects.
The Group adopts a disciplined annual business planning regime, which is
consistently applied and involves the management teams of the Group's 30 house
building businesses and senior management, with input and oversight by the
Board. The Group combines detailed five-year business plans generated by each
house building business from the "bottom up", with ten year projections
constructed from the "top down" to properly inform the Group's business
planning over these longer term horizons. Zero-based 12 month budgets are
established for each business annually.
This planning process provides a valuable platform, which facilitates the
Board's assessment of the Group's short and long-term prospects. Consideration
of the Group's purpose, current market position, its five key priorities and
overall business model, and the risks that may challenge them are all included
in the Board's assessment of the prospects of the Group.
Key Factors in assessing the long-term prospects of the Group:
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 adversely affecting demand for and pricing of new
homes, or contributing to inflationary pressures.
· Changes in government policy affecting the housebuilding sector, such as those
relating to taxation, planning conditions or market support.
· Changes in market conditions affecting the availability and pricing of land
and/or construction materials.
· Reduction in mortgage availability and/or affordability arising from, for
example, reduced risk appetite of lenders or significant regulatory change.
· Climate change risk, comprising both transition (legal and regulatory changes
affecting the housebuilding sector) and physical (operational disruption
through more frequent and prolonged adverse weather) elements.
· Adverse market competition and construction workforce trends, resulting in an
inability to attract and retain high quality workers and an appropriately
experienced management team.
· Cyber and data risk, including potential for significant or prolonged
operational disruption arising from cyber-attack or failure of critical IT
systems.
See above for the full list of principal risks together with detailed
descriptions.
Disciplined strategic planning process
The prospects for the Group are principally assessed through the annual
strategic planning review process conducted towards the end of each year. The
management team from each of the Group's house building businesses produce a
five-year business plan with specific objectives and actions in line with the
Group's strategy and business model. These detailed plans reflect the
development skill base of the local teams, the region's housing market,
strategic and on market land holdings and investments required to support
their objectives. Special attention is paid to construction programmes and
capital management through the period to ensure the appropriate level of
investment is made at the appropriate time to support delivery of the plan.
Emerging risks and opportunities in their markets are also assessed at this
local level.
Senior Group management review these plans and balance the competing
requirements of each of the Group's businesses, allocating capital with the
aim of achieving the long-term strategic objectives of the Group including our
five key priorities. The five-year plans provide the context for setting the
annual budgets for each business for the start of the new financial year in
January, which are consolidated to provide the Group's detailed budgets. The
Board review and agree both the long-term plans and the shorter-term budgets
for the Group.
The outputs from the business planning process are used to support development
construction planning, impairment reviews, funding projections, reviews of the
Group's liquidity and capital structure, and for the identification of surplus
capital available for return to shareholders via the Group's Capital
Allocation Policy, resulting in the payment of dividends to shareholders.
Assessing Persimmon's viability
The Directors have assessed the viability of the Group over a five-year
period, taking into account the Group's current position and the potential
impact of the principal risks facing the Group.
The use of a five-year period for the purpose of assessing the viability of
the Group is considered the most appropriate time horizon, as it reflects the
business model of the Group, with new land investments generally taking at
least five years to build and sell through, and for the development
infrastructure to be adopted by local authorities. This is already in
alignment with anticipated evolutions in corporate reporting, such as the
resilience statement criteria referenced within the government's response to
the BEIS consultation 'restoring trust in audit and corporate governance'.
A key feature of the Group's strategy, as documented in the Strategic Report,
is the Group's commitment to maintain capital discipline over the long-term
through the housing cycle. This commitment is reinforced by the introduction
of the Group's Capital Allocation Policy ("CAP"). Following a comprehensive
review and reflecting the increased uncertainty in the political and
macro-economic environment, alongside increased corporation tax and the
residential property tax, the Board decided to conclude the previous Capital
Return Programme, which was introduced in 2012.
On 8 November 2022, the Directors announced the implementation of the new CAP
with the following key principles:
• Invest in the long-term performance of Persimmon by ensuring the business
retains sufficient capital to continue our disciplined and appropriately timed
approach to land acquisition;
• Operate prudently, with low balance sheet risk, and a continued focus on
achieving a superior return on capital;
• Ordinary dividends will be set at a level that is well covered by post-tax
profits, thereby balancing capital retained for investment in the business
with those dividends; and
• Any excess capital will be distributed to shareholders from time to time,
through a share buyback or special dividend.
On 1 March 2023, the Directors announced the scheduled CAP payment in respect
of the financial year ended 31 December 2022, to be paid in May 2023. Further
details can be found in the Chief Executive's statement earlier in this
announcement.
On an annual basis, the Directors review financial forecasts used for this
Viability Statement as explained in the disciplined strategic planning
processes outlined earlier. These forecasts incorporate assumptions on
issues such as the timing of legal completions of new homes sold, average
selling prices achieved, profitability, working capital requirements and cash
flows. They also include the CAP. The Directors have made the assumption that
the Group's revolving credit facility is renewed during the period, having
extended the maturity of the facility out to 31 March 2026 during 2021.
The Directors have also carried out a robust assessment of the principal and
emerging risks facing the Group (as set out above), and how the Group manages
those risks, including those risks that would threaten its strategy, business
model, future operational and financial performance, solvency and liquidity.
This risk assessment was also informed by the performance of the Group's
materiality assessment, incorporating views from the Group's key stakeholders,
and through a comprehensive survey to incorporate input from the Board and
senior management from across the Group. The Directors have considered the
impact of these risks on the viability of the business by performing a range
of sensitivity analyses to a Base Case, including severe but plausible
scenarios materialising together with the likely effectiveness of mitigating
actions that would be executed by the Directors.
The scenarios emphasise the potential impact of severe market disruption
including, for example, the ongoing effect of economic disruption from the
cost of living crisis and the war in Ukraine on the short to medium-term
demand for new homes. The scenarios' emphasis on the impact on the cash
inflows of the Group through reduced new home sales is designed to allow the
examination of the extreme cash flow consequences of such circumstances
occurring. The Group's cash flows are less sensitive to supply side disruption
given the Group's sustainable business model, flexible operations, agile
management team and off-site manufacturing facilities.
In the first scenario modelled, the combined impact is assumed to cause, when
compared to the 2022 outturn, a c. 59% reduction in volumes and a c. 15%
reduction in average selling price in 2023. As a result of these factors, the
Group's housing revenues were assumed to fall by c. 65% during this period.
The scenario assumes a subsequent recovery to current volume levels within a
seven year time period.
A second, even more extreme, scenario assumes a significant and enduring
depression of the UK economy and housing market in 2023, consistent with the
above scenario, causing a reduction of c. 59% in new home sales volumes, a c.
15% reduction in average selling price and a c. 65% fall in the Group's
housing revenue in 2023. The scenario then assumes that neither volumes nor
average selling prices recover from this point through to 2027.
In each of these scenarios, cash flows were assumed to be managed
consistently, ensuring all relevant land, work in progress and operational
investments were made in the business at the appropriate time to deliver the
projected new home legal completions. Each scenario fully reflect the current
estimate of cash outflows, value and timing, associated with the legacy
buildings provision. The Directors assumed they would continue to make
well-judged decisions in respect of capital allocation payments, ensuring that
they maintained financial flexibility throughout.
Based on this assessment, the Directors confirm that they have reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period to the end of 31 December 2027.
* The Directors have assessed the longer-term prospects of the Group in
accordance with provision 31 of the UK Corporate Governance Code 2018.
Statement of Directors' Responsibilities
The Statement of Directors' Responsibilities is made in respect of the full
Annual Report and the Financial Statements not the extracts from the financial
statements required to be set out in the Announcement.
The 2022 Annual Report and Accounts comply with the United Kingdom's Financial
Conduct Authority Disclosure Guidance and Transparency Rules in respect of the
requirement to produce an annual financial report.
We confirm that to the best of our knowledge:
• the Group and Parent Company financial statements, contained in the 2022
Annual Report and Accounts, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
• the Strategic Report includes a fair review of the development and performance
of the business and the position of the issuer and the undertakings included
in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
We consider the Annual Report and Accounts taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Group's position and performance, business model and strategy.
The Directors of Persimmon Plc and their function are listed below:
Roger Devlin Chairman
Dean Finch Group Chief Executive
Jason Windsor Chief Financial Officer
Nigel Mills Senior Independent Director
Simon Litherland Non-Executive Director
Joanna Place Non-Executive Director
Annemarie Durbin Non-Executive Director
Andrew Wyllie Non-Executive Director
Shirine Khoury-Haq Non-Executive Director
By order of the Board
Dean Finch Jason Windsor
Group Chief Executive Chief Financial Officer
28 February 2023
The Group's Annual financial reports, half year reports and trading updates
are available from the Group's website at www.persimmonhomes.com/corporate.
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