REG - Persimmon Plc - Trading Update

PersimmonAnnouncement

07/07/2022 07:17

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RNS Number : 5921R  Persimmon PLC  07 July 2022

 

TRADING UPDATE

THURSDAY 7 JULY 2022

 

Persimmon plc ("the Group") announces the following trading update ahead of
its Half Year Results to 30 June 2022, which will be released on Wednesday 17
August 2022. This statement covers the period from 1 January 2022 to 30 June
2022.

 

Dean Finch, Group Chief Executive, said:

 

"I am pleased we have further enhanced our build quality in the period while
also driving build efficiency to historical highs and increasing housing gross
margin. We continued to complement this progress with high quality,
disciplined investments in land driving growth in our outlet position. We have
delivered this despite the significant on-going challenges being faced by the
industry. As we rebuild our outlet position, delays in the planning system,
disruption in material supply chains and challenges in securing labour have
impacted completions in the period. We anticipate, however, profit at the half
year to be modestly above our expectations reflecting strong demand and
positive pricing conditions. Our forward sales position is robust.

 

"Our disciplined investment is further enhancing our strong land holdings
which alongside our rigorous focus on margins is underpinning our continued
financial strength. We are expanding our unique vertical integration
capabilities to provide further supply resilience and cost efficiency. Our
enhanced product range and service quality are strengthening our customer
proposition. My ambition firmly remains for Persimmon to become Britain's best
housebuilder for both customers and shareholders alike, by resolutely focusing
on the delivery of high quality homes, improved customer service and strong
financial returns."

( )

 ●    Highlights
 −            6,652 legal completions (2021: 7,406)
 −            Total revenue(1) of £1.69bn (2021: £1.84bn)
 −            Forward sales of £1.87bn (2021: £1.82bn)
 −            Improving housing gross margin with house price inflation currently offsetting
              build cost inflation
 −            c. 300 active outlets at 30 June 2022 with c. 70 forecast to open in H2 2022
 −            c. 8,800 plots of land brought into the business across 37 sites at
              industry-leading embedded margins
 −            c. £0.78bn of cash at 30 June 2022 (June 2021: £1.32bn)
 −            Five-star builder - improving current customer satisfaction score of 92.2%(2)

 

 

Trading review

 

The Group delivered 6,652 new homes in the first half of the year (2021:
7,406) which, as guided, was below the first half of 2021, but also slightly
lower than we previously expected due to further delays in the planning system
and material and labour shortages. Total revenues(1) for the period were
£1.69bn (2021: £1.84bn) including housing revenues of £1.63bn (2021:
£1.75bn).

 

The Group's average selling price increased by 4.0% year on year in the first
half to c. £245,600 (2021: £236,199) reflecting strong demand and a
reduction in the proportion of homes sold to our housing association partners.
In the period, 5,553 (83%) of the Group's legal completions were delivered to
owner occupiers (2021: 6,104 (82%)) with an average selling price of c.
£267,300 (2021: £258,220).

 

Rising energy prices, supply constraints on certain materials and increased
labour costs are driving upward pressure on total build costs. Currently,
house price inflation is continuing to offset these increases. As a result, we
expect  to deliver a housing gross margin that is slightly ahead year on
year, although, the lower number of completions will result in a slight fall
in operating margin reflecting the reduced efficiency of the Group's overhead
recovery rates. Despite this, we anticipate the Group's profit at the half
year to be modestly above our expectations.

 

As previously announced, the Group entered the year with a low number of
outlets (c. 290) reflecting its robust volume performance in 2020 and 2021
together with relatively fewer land additions in 2019 and 2020. As a result of
the Group's high quality land investment, we successfully brought c. 65
outlets into construction in the period, however, the planning system remains
slow impacted by a Covid-related backlog and increasing complexity. For
example, across the industry there are c. 120,000 plots in England currently
stalled within the system due to Natural England's nutrient neutrality
guidance. In the absence of firm guidance from government this uncertainty
will continue. Persimmon currently has around 1,500 plots affected by this
issue which were due for delivery to local communities over the next five
years.

 

 

 

Building an even stronger business

 

The Group continues to invest in high quality land opportunities at
industry-leading embedded margins providing excellent support for Persimmon's
high quality growth. During the period, c. 8,800 new plots were brought into
the business across 37 locations. As at 30 June 2022, the Group held around
89,000 plots in its owned and under control land holdings and around 100,000
plots in its strategic land portfolio.

 

Persimmon has a robust balance sheet and high levels of liquidity. After
returning £399m to shareholders on 1 April 2022, investing £416m (2021:
£200m) in high quality land opportunities at industry-leading embedded
margins and increasing investment in the Group's work in progress balance, the
Group held £0.78bn of cash at 30 June 2022 (December 2021: £1.25bn) with
deferred land commitments of approximately £125m to the end of the current
year. At 30 June 2022, the Group had work in progress of c. 4,400 equivalent
units of new home construction (December 2021: c. 4,100). In addition, the
Group has an undrawn £300m Revolving Credit Facility which is in place until
31 March 2026.

 

The Persimmon Way, the Group's construction excellence programme, continues to
drive benefits throughout the business. Whilst delivering higher quality homes
with great levels of customer service, and in a highly challenging operating
environment where we have seen material and labour shortages, our build rates
are improving and since March, have exceeded historical performance. The
vertical integration afforded by our own Brickworks and Tileworks
manufacturing facilities has helped mitigate some material shortages.

 

FibreNest, the Group's ultrafast full fibre broadband service, continues to
grow, providing our customers with a key utility from moving in day. FibreNest
currently has c. 24,000 customers across 315 of our developments (2021: c.
16,500 customers).

 

As previously announced, on 5 April 2022, Persimmon signed the Department for
Levelling Up, Housing and Communities' Developer Pledge on cladding removal
and fire safety remediation. Our proactive approach and engagement with
Management Companies, or their agents, is actively helping progress
remediation of a number of buildings.

 

Capital Return Programme

 

On 2 March 2022, the Board re-iterated its intention to return 235p per share
in 2022. The first payment of the regular annual distribution of 125p per
share was made on 1 April 2022 (rather than July 2022 as originally intended).
As announced on 27 April 2022, 110p per share of surplus capital will be
returned to shareholders on 8 July 2022. There will be no further dividend
payments in relation to the year ended 31 December 2021.

 

Outlook

 

Demand across the UK remains strong. During the first six months of the year,
the Group's average private weekly sales rate per site was around 1% ahead of
that achieved during the same period in 2021. Customer enquiry levels are
healthy and cancellation rates low. As at 30 June 2022, the value of the
Group's forward sales was robust at c. £1.87bn (2021: £1.82bn) with c. 8,800
homes (2021: c. 9,550) in our forward order book at 30 June 2022, c. 4,680 of
which are sold into the private market (2021: c. 4,950). The Group is around
75% forward sold for the full year. The average selling price of new homes
forward sold to owner occupiers was c. £280,700, c. 12% ahead of the prior
year (2021: c. £250,350).

 

At 30 June 2022, the Group had c. 300 active outlets across the UK and,
subject to planning, we expect to bring c. 70 outlets into the business in the
second half of the year, enabling us to deliver a strong increase in our net
outlet position. Whilst there are a number of external factors outside of the
Group's control which are impacting volume delivery and making it difficult to
forecast with accuracy, we currently anticipate delivering around 14,500 to
15,000 legal completions this year while retaining our industry-leading
margins and securing profit growth.

 

Persimmon is performing strongly within all the areas it directly controls
whilst actively managing broader economic and regulatory challenges. The Group
is investing in high quality land, improving its build rates and through its
relentless pursuit of both quality and service, strengthening its product
appeal in its core markets. With the longer-term fundamentals of the housing
market remaining strong, we are confident that with this progress together
with our continued disciplined approach to investment, the Group is well
positioned for the future.

 

The Board would like to take this opportunity to thank the Persimmon team for
their hard work and commitment throughout this period.

 

There will be a call for analysts at 09.00 BST today. Please use the dial-in
details below:

 

Telephone number: +44 (0) 33 0551 0200

Password: Persimmon

An audiocast of the call will be available on www.persimmonhomes.com/corporate
(http://www.persimmonhomes.com/corporate)  from this afternoon.

 

For further information please contact:

 

 Dean Finch, Group Chief Executive                        Kevin Smith
 Mike Smith, Group Financial Controller                   Jos Bieneman
 Julia Nichols, Group Strategy & Regulatory Director      Ellen Wilton
 Persimmon Plc                                            Citigate Dewe Rogerson
 Tel: +44 (0) 1904 642199                                 Tel: +44 (0) 20 7638 9571

Footnote 1

Total Revenues - The Group's total revenues include the fair value of
consideration received or receivable on the sale of part exchange properties
and income from the provision of broadband internet services. Housing revenues
are the revenues generated on the sale of newly built residential properties
only.

 

Footnote 2

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

 

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