Persimmon (LSE:PSN) — Half Year Results

0:01 Good morning, and welcome to the PERSIMMON PLC Investor Presentation. Throughout the recorded meeting, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time at the Q and A tab situated at the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. However, the company can view all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CFO, Andrew Duxbury. Good morning to you, sir. Good morning. Thank you, everybody, as well for joining this morning's call. So the plan this morning, I will take you through a presentation for twenty minutes or so, and then we will open it up to questions. So please do submit any questions in the q and a tab. So thank you for calling the first half of twenty twenty five. We have shown continued growth, and we've shown that as a result of our differentiated operating platform of our business and as a result of our clear strategy, which is focusing on choosing where we build, what we build, and how we build our products. And that enables us to provide exceptional products at affordable prices to our target customer base.

1:11 So I'm gonna start by just taking us through some of the key highlights of the first half year results. As you can see on the slide, we had a very good first half year through to 06/30/2025. Our underlying profit before tax is up 11%, and that is a great performance, and that reflects strong pricing and rigorous cost controls. Sales outlets are up 4% compared to a declining number of outlets across the sector as a whole. Our weekly sales are up year on year. Together with our outlets, that's driving increased completions up in the first half year. And we've continued to invest in our excellent and our growing land bank, which has increased in the half year.

1:58 We have retained our HBF five star status, and we're rated as excellence Trustpilot for both PERSIMMON and for Charles Church. Our underlying earnings per share is up 3%. And as of the start of August, our total forward order book was up 9%. And within that, the private forward order book was up 11%. So that gives us really excellent visibility. And given the wider context, the challenging market, the wider industry performance, these are excellent results. Just to go into those in a bit more detail. Of the total new homes that we delivered in the first half year, 300 3,987 were private. That's 7% higher than the same period last year.

2:47 And that increase reflects strong sales rates and the increased number of sales outlets. And that's meant our total sales per week, including bulk sales, increased 3% to a 191 sales per week. Our private completions included 590 bulk sales. That's 13% higher or 66 houses higher than the first half of twenty twenty four, and we are continuing to engage strategically with this sector. This is the private built to rent sector. 34% of our private sales were to first time buyers. First time buyers has always been, and it remains a really important customer market for us. And Charles Church, which is our premium products, increased in line with our planned growth of this brand, increased to 11% of total private sales, 10% of total sales all to altogether.

3:44 And that's a a significant increase in Charles Church. Our partnerships output fell to 13% of total completions, and that really continues to reflect the fact we accelerated delivery into the partnership sector in 2023. And so there's a little bit of timing catch up there. But it the really important thing is that all of our required affordable delivery for 2025 is fully signed up. The blended average selling price on completions in the period was up 8%, and private average selling price increased strongly. And the private average selling price importantly remains well below the average national new build average selling price. And over half of our completions remain below £300,000.

4:32 So this is important in showing the affordability of our products. And this is important for our customers who are looking for good value products. Across the period, our use of incentives have reached at about four and a half percent. That's similar to 2024, but, of course, it's off slightly higher pricing. And taken together, the increased volume and the increased average selling price drove our revenue up 12% in the first half year. This slide shows how that increase in revenue has come through to an increase in operating profit. You can see on the slide the positive effects of increased volumes or increased average selling prices and the mix of more private units versus affordable units in the period.

5:23 The movement in the cost line there, you can see, is very small. We remain very, very focused on commercial disciplines and commercial costs, managing those costs very, very closely. We've got a new chief commercial officer appointed as of the first of January this year, really helping us to drive efficiencies through the business. And our net operating expenses increased £7,000,000. That's a 9% increase, so less than the 12% increase in in revenues. And within that, there is significant investment in our ongoing capabilities as we invest for the future growth as a business. Now, importantly, everybody, this bridge is on an underlying basis. There was only one exceptional item in the period, which I just want to draw your attention to. It was £16,200,000 in relation to our proposed contribution and some associated costs to conclude the ongoing CMA investigation.

6:19 That's currently under consultation by the the CMA. And that cost is shown within administration expenses on the income statement. And I just want to turn briefly to building safety remediation, which is and the progress we're making there. This is an important topic for everybody involved. And the key point here is that we are making good progress, and that is the right thing to do and the right thing for for everybody with an interest in in this particular area. We are on-site or completed at 77% of known developments or 80% of buildings, and there's been no change to the total number of developments within the scope during the period.

7:05 Importantly, we have assessed all known developments, and we expect to be on-site at all of these developments this year. And this is significantly ahead of the progress of the overall industry progress across the country. You can see on the slide, there's 19 sites which are still to start. And, of course, there's some cost risk there, whether it's in inflation or scope changes. But overall, the important thing is that our provision is reducing. You can see we spent £31,000,000 in the first half year, and that brings our total spend to date to about a £150,000,000, and we'll spend somewhere close to a £100,000,000 this calendar year. And the provision at June 30 £208,000,000 reduced from 235,000,000 at the start of the year. The bulk of that remaining 208,000,000 will be spent over the next twenty four months.

8:05 And importantly, I'll come back to it later, completing this work quickly also creates us capital allocation opportunities in the future. We spent £31,000,000, and you can see that £31,000,000 here on this normal cash bridge. And the reduction in cash through the period reflects our investment in land and whip as we look to grow the business. And this is an important point because to grow the business, we need to invest cash. And we've chosen to make this investment at this point of the cycle, and we can make that choice partly because our fire safety obligations are relatively smaller than for others and partly because of the strength of our balance sheet position. So on the graph, you can see the cash inflow from operations was a £183,000,000.

8:55 That's 11% higher than the same period in 2024. You can see the whip working capital movements of a £163,000,000, and that includes the investment into new outlets in the second half year delivery that we'll make. So we'll be delivering more units in the second half than the first half. We spent £46,000,000 on interest and tax in the period and £25,000,000 on capital expenditure, including investment into our new automated timberline facility just North of Birmingham. So before spend on building safety remediation and our investment into land, we had net cash of 204,000,000. We have invested a net £50,000,000 into new land in the period, and that's the net of money spent less the land that we've utilized in the period.

9:50 And as I said earlier, we spent £31,000,000 on our safety remediation program. But now let me come back to that investment in land. Our investment in land combined with our strength and success in planning applications means that we have been able to open more outlets to grow our outlet base, and we have got some really good momentum. We are outperforming the industry on planning, and we're doing that because we do it differently. And this investment in land and in planning is really critical to achieving our strategy and our ambition of growing back to at least 300 outlets over the next two years. Total plots owned and under control were up 120 since the start of the year, and owned plots with planning at June 30 was 7% higher than the same time last year. So that's the investment in land. That's the investment in future growth of the business.

10:52 And importantly, these land holdings are of high quality. You can see in the top graph that the land cost to assumed revenue ratio has stayed really stable over the last few years, and that's really pleasing. That shows that we're buying land at good value, and that's gonna help drive our margin potential. And you can see on the bottom graph that within our land holdings, the embedded site margin in those owned land holdings has stayed stable at around 29% with nearly 80% of plots delivering a site margin in excess of 25%. So taken together, this quality of these land holdings, their investment in land, our approach to planning and opening new outlets really provides confidence that we've got the land and the structure in place for our growth ambitions.

11:49 The structure of our capital allocation policy that you can see on the slide is unchanged and is proving successful. We're maintaining a strong balance sheet whilst prioritizing dealing with our building safety remediation work this year and next year, particularly. Secondly, we're continuing to invest in the business to deliver our organic growth objectives, and this has allowed us to return to growth in 2024 and to build on that growth in 2025 ahead of the industry, which is still retrenching in many places. And we're paying a sustainable dividend well covered by profits with an interim dividend declared of 20p per share. And, of course, what we'll do is we'll look to keep this policy under review and to review this again as we deliver our growth plans, and in particular, as we progress with our fire safety remediation works, all the things that's been equal, that throws a £100,000,000 of free cash into the opportunity from 2027 onwards. So that gives opportunity to accelerate growth and to also increase our shareholder returns.

12:55 So speaking of growth, let me remind you of our growth strategy and just go through those plans in a little bit more detail. In March, those of you who saw this presentation that I did in March off the back of our full year results for 2024, I highlighted five key growth drivers. And we've made some real progress on those in the first half of this calendar year, and I'll just run through these now on this slide. So firstly, our investment in land coupled with our industry leading planning success is driving increased outlets. And we're also strengthened our strategic land bank, which is a longer term land bank which will support future delivery, and we've also invested and grown the team in our strategic land team.

13:49 All three of our brands have seen growing private sales this year, and our diversification of branding, particularly into our Charles Church premium brand, means that we are able to sell more homes more quickly to grow the business and to increase our return on capital. Our sustained reputational improvement is being seen through our HBF and our Trustpilot scores that I referred to at the outset. And as well as the growth in customer inquiries and in sales, this is also driving increased numbers of partner relationships, whether that be with institutional customers or with landowners and with the supply chain. So it's really helping. It's helping us to secure more land, to secure better supply chain relationships, and more private and institutional sales. So the reputational improvements we've made over the last few years are really continuing to drive the business forward.

14:45 Turning to vertical integration, we've got a state of the art timber frame production line, our Space 4 facility in Birmingham that went live during this calendar year into the new robotic line. Also have our brick and tile factories in Doncaster, which are delivering more products. And we're investing in further innovation to enable us to grow the business further and faster in the future. And in particular, digitalization is continuing to secure operational and cost efficiencies for us. So investment in vertical integration, investment in innovation really driving the business forward. And alongside that, we're maintaining a strong balance sheet. And as I said earlier, we expect our progress on building safety remediation to provide further capital allocation opportunities from 2027 onwards.

15:34 So this strategy and our approach means that we are delivering growth despite, let's say, the operational challenges, the external challenging market that we find ourselves in. So the first half is demonstrate this, and I'm also really pleased with our our sales so far this year. The numbers on the slide show the sales through to the start of August. Our private forward order book up 11% compared to the same period last year, and that includes a 10% increase in the number of homes as well as our increase in the average selling prices. And our x our sales rate excluding bulk in the first five weeks of the second half year, so July and the first week of August, was 17% higher than the same period last year. So this, I think, is really further evidence of our enhanced reputation, our improved sales and marketing capabilities coupled with that increased number of outlets I referred to earlier. So it's a good performance. It gives us good visibility for the year ahead.

16:40 So to summarize, a differentiated strategy is delivering growth, is delivering growth ahead of the wider market, and delivering growth in a challenging environment. We are on track to deliver our guidance of 11 to 11 and half thousand completions for this calendar year 2025 on track to be our second year of outlet volume and profit growth. And we as we look forward, we also expect yeah. We're not expecting a significant external catalyst to the market or any government demand stimulus. So our growth remains dependent on our own self help measures that I have outlined. But as I've said, there's more innovation. There's more investment still to come through, and that will build on the success and the progress that we've made. Our improved reputation, our improved sales and marketing will continue to enable us to sell more of our homes, which are priced attractively and delivering good value for our customers.

17:37 Our factories continue to expand, and they're crucial to meeting demand and increase that demand in an efficient way. And as a result, we're gonna keep opening new outlets driving towards 300 net outlets, and that will be a continued driver of growth for the business over the next couple of years. So we have a growing platform. We've got diversified brands enabling us to sell more homes and to build those homes efficiently. And as a result, we expect further growth in outlets and in volume in 2026. Notwithstanding, there are uncertainties around the upcoming budget, around increased costs of doing business, increased costs of setting up sites, the risk of customer sentiment, and so on.

18:22 All of these will weigh on the pace of growth, but we will see outlet volume and margin growth in 2026. So our medium term ambitions that I outlined on this presentation in March remain in place, and we have made really good progress towards them. So I will just finish by reminding you of those medium term targets with this slide, which I did put up for the first time in March this year. So to summarize everybody, we're really happy with our performance in the first half year and challenging conditions. We're confident there's more improvement and more growth to come. And so with that, I will pause and take any questions. That's great. Well, Andrew, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions. You can do so just by using the q and a tab that's situated in the right hand corner of your screen. But just while the company take a few moments for you, the questions have been submitted today, I'd like to remind you the recording of this presentation along with a copy of the slides and the published Q and A can be accessed by your investor dashboards.

19:24 As you can see, we have received a number of questions both pre submitted and throughout today's live presentation. And at this point, I'll hand over to Victoria to share the q and a, and I'll pick up from the team at the end. Great. Thanks, Alexandra. Right. The there's there's a few questions here. Andrew, the first one is probably, have your results been affected by the change in first time buyer stamp duty regime as well as a result of all developers as results of all developers? Sorry. So yeah. Thank you for for that question. So I think relatively little impact from the change to stamp duty for us partly because of our price point being you know, the average price being below £300,000. The impact is relatively smaller. What we didn't see was a sort of spike in March and then a tail off in April. Partly, I'd say it's less affected us because of our price point and also because, you know, we just didn't have as much stock available as there was on the second hand market, which is why I think you saw more of a disruption in the kind of second hand market than than the new build.

20:26 What I have been pleased with is the sales rate, you know, which has continued through the summer. It was a little bit softer perhaps at the end of May, but it's really picked up since then. So no significant impact. But, of course, you know, consumer confidence, consumer sentiment is really you know, remains really important. So, yeah, there's there's so many competing or various aspects of that, not just stamp duty, but also mortgage rates, also real wage growth, also employment levels, and so on. So there's a whole kind of myriad of of imports, but the statutory changes themselves didn't make a significant difference in the period. Thanks, Andrew. And then I suppose linked to that looking forward, there's a question here from Mark. Are you concerned about potential measures in the upcoming budget? If so, which measures concern you the most? Well, I suppose I you know, I guess if I start today, you know, of course, it's unhelpful. You know, we've got another ten weeks of speculation.

21:21 And and, you know, what I what would be unhelpful if it is if that weighs on customer sentiment, you know, particularly of our customers, whether institutional customers or private customers. So, obviously, what we want is people to feel confident to be able to purchase a house, you know, changes you know, proposed changes to, you know, abolishing stamp duty. Will that mean people try to wait for the budget before they buy? I, you know, I don't know. So so kind of, you know, uncertainty is never is never helpful. Similarly, you know, the risk of increased costs or taxes, you you know, is always unhelpful. So, you know, I think for us, what we need is you know, what we really look for is that predictability of the policy environment so we can plan, you know, as we're buying land, taking through planning, taking onto site, and selling to customers.

22:09 You know? So so I think you have to wait and see what the what the budget brings. You know? But I think for us, you know, what we're looking for is, you know, continued progress. You know, we're not expecting any demand stimulus in the budget, for example, as a return to help to buy. Yeah. We're continuing, therefore, to to to really work ourselves. We've introduced our own shared equity products in in April of this year. So, again, you know, what we're looking to do is to set the business and to control what's within our gift, and then and then we have to respond to the market as we find it. Great. And and I suppose, just thinking about sort of the market as you as we find it then, following on from that, one of the questions that's come through is, would you like to increase partnership sales? And if so, why?

22:59 So I guess there's various parts. So so by partnership sales, know, if we're talking now about affordable housing to housing associations, then, you know, that you've read through those 13% of sales in in the first half of this year. I think, typically, that will be somewhere in the 15 to 20% of our completions depending a little bit on geography. So some local authorities need more affordable housing than others. So it depends on where you're selling depends on depends on what that percentage will be. You I think I think that will stay that sort of 15 to 20%. Where we have spent more time investing in is the build to rent market. So this is selling houses to the institutional build to rent market, which is around about 10% of our of our overall delivery. So I think I think trying to make sure that we're playing in with, you know, in affordable housing, but also with built to rent, you know, with PERSIMMON and with Charles Church is giving us a good diversification of our brands across and and, like, across the spectrum. And that gives us, you know, probably more resilience and more opportunities as we as we look to open individual sites. So I don't think we need to necessarily increase affordable housing beyond the statutory commitments that we make other than but, you know, that that clearly will ebb and flow depending on the sites that we're operating on.

24:21 Great. And one of the other areas of differentiation within the business is the level of vertical integration. Steven's got a question saying, can you please explain the rationale for owning Brickworks? Does return on capital compare to house building alone? Yeah. So so so just by way of background for everybody, so we self manufacture, give or take, 80% of our own roof tiles and just shy of 60% of our own bricks. And that's proved really successful for us. So if they are cheaper, so we save probably $151,600 pounds a plot when we use our own bricks and probably another £500 a plot on by using our own roof tiles. Yeah. And that more than pays for itself. But those factories also give us more control of our own destiny if you like. Yeah.

25:09 We can increase and and reduce the output depending on our own requirements. And because they are because of the manufacturing techniques, you know, they they are continual manufacturing processes, we don't have to, you know, make that big capital investment in a new kill firing it up or or or closing it down. So they are proving really helpful giving us security of supply, cheaper supply, you know, and and, you know, allows us to to control to a degree our own our own input. So I think the brick and tile factories are really helpful, and then we put that alongside as well our timber frame factory, which, again, you know, there's opportunity for us to increase our timber frame output from probably 25% of what we build at the moment to closer to 50%, I think, over the next few years. And, as we want to grow the business, you know, that's a great way of growing the business in a more environmentally sustainable way and needing fewer on-site resources because we're doing more of the production in a factory environment. So I think vertical integration is a really important part of both our growth and our margin improvement.

26:19 Thanks. You just mentioned there that first integration sort of helps you improve the environmental sustainability of the homes. Can you just maybe expand on that a bit further? Yeah. So, I mean, we've got various environmental targets as as you would expect. So we've got some targets for 2030 to reduce our scope one, scope two carbon emissions by 46% compared to 2019, and we also have a relative measure as well. And then we are those have been approved by science based targets initiative, and we're currently progressing to approval with our 2045 net zero targets as well. And there's all sorts of things that we do to to achieve that. So whether that's the use of replacing generators or or looking at the fueling generators, getting early grid connections, you know, whether it's about looking at the efficiency of homes once they've been built. So that, obviously, we're committed to replacing the use of gas boilers with asphalt heat pumps. We put solar panels on on all of our products now. But, the the manufacturing techniques are using timber frame, you know, is more environmentally sustainable than using blocks, traditional build.

27:35 You know? And we're also investing in a potential facade product, which will mean, again, taking bricks out of the equation and putting a a a facade product, which, again, is a lower carbon, more environmentally sustainable products as well. So, actually, there's lots of innovation both in the in the construction, in the operation of the houses, and also in the, you know, the operation of the business as well just to, you know, to to progress our environmental targets alongside, you know, growing the business as well. Thank you. And and just sort of on, broader sort of social elements, there's a request for Frank. Can we just recap on the continuing cost around building safety and what the timeline of work is?

28:20 Yeah. So and and it's it's it's important, Frank, to I guess, there's there's there's two sort of pieces of context that I would draw out. So one is PERSIMMON does have fewer properties developments that are impacted than some of the peer group, and that really is a function of what the business built '25, you know, thirty years ago. So that's just, I suppose, the historical legacy. But I think PERSIMMON also and I've I've been in the business a year. But one of the things I was impressed by when I joined was that PERSIMMON had faced into these obligations probably quicker and more energetically than some of the peer groups. So what that means is we are further progressed. You know, we have assessed all developments that we're aware of, and we'll be on-site to all of those developments by the end of this year already on-site at nearly 80% of them.

29:13 And our total spend to date, a £150,000,000. I've got just over £200,000,000 left to spend, which will be largely spent over the course of the next twenty four months. I mean, there's bound to be a little bit of a a tail for of spend for for various reasons, but we will be largely completed on those works over the next eighteen to twenty four months. And so and that is ahead of the you know, we are ahead of the sector, partly to say because we had a had fewer to deal with. But I think also we we faced into a doubt and and and got on to dealing with these quicker and sooner than than some others. So it's it's a responsibility we take very seriously. You know, we're working on, and we're we're making, you know, progress on those and we'll say it will be largely done over the next two years.

30:00 Thanks, Andrew. So it's just a a couple more questions just to go. Are you happy with your capital allocation policy, or is there an opportunity in your return to increase returns back to shareholders? Yeah. I think so, of course, I I am happy with the policy. I think it's I think it's working. I think there's opportunity as we get towards the end of the fire safety work to really re revisit some some aspects But I think we're right to prioritize the fire safety work. We're right to prioritize growth in the business, particularly this part of the cycle. Investment in land, investment in capabilities is giving us a platform to grow the business over the next few years. And that's what we really are focused on because that will drive shareholder value.

30:47 So that's what we are are focused on. I think, you know, at the same time, we are paying a sustainable dividend. So, yeah, I think it's important that those competing priorities of investment in growth, investment in fire safety remediation, and sustainable dividend, you were trying to keep the all of those three things in balance. So I think that's working, and I think it's giving us a platform to grow. And then say as we come out with the fire safety and as the as the market recovers, then that will give us opportunity to really drive shareholder value. Thanks, Andrew. And you just mentioned there about growth, in business. Can you just give a little bit more detail on how, against the industry, you're managing to to increase the outlets and and planning for sense? Because I think you mentioned, earlier in the presentation, bucking trend. Yeah. So it's really interesting because, you know, the you know, when you look at the industry as a whole, the number of, you know, planning consents is still reducing, and the number of outlets is actually still reducing.

31:45 But what we've done, I think there's two things. One is we invested in new land through the downturn of 2022, 2023, and that's meant that we've had a, like, a head start in terms of being able to bring land forward for development and new outlets. But I think it's not just a timing point. I think we've also fundamentally changed the way that we approach planning applications. Yeah. We are using planning applications as a means to see how we can yeah. We work with councils to see how they can how they can say yes to applications rather than just reasons that they aren't able to say no, if you like this. Rather than making an adversarial process, we're trying to engage with the councils, you know, in a much more constructive way. And we're seeing our success of first time planning you know, first time success increase significantly.

32:34 You know, our success at planning is significantly higher than it was eighteen months, twenty four months ago. And, you know, getting through planning applications is the first step of being able to open a new site and and start to be able to make a return on the investment into the land. So it's really important. So I think our approach to planning sets us apart in the sector, and and it's proving its worth at the moment. So that doesn't mean there's there's not challenges and challenges, you know, even once you've got planning permission to make sure you get the right approvals from the various statutory bodies or utility companies and all the rest of it. But I think our approach is a much more constructive approach than some of our peer group, and it's really, really paying off. Great. Thanks, Andrew. We we don't have any further questions, so I don't know if you want to just say a few closing remarks before we finish.

33:26 Yeah. Well well, firstly, thank you everybody again for for joining the call this morning. I think, hopefully, what you've seen through presentation, the discussion is that PERSIMMON is in a good position. We're growing, and we are set set to continue to grow through 2025 and into 2026. And the reason we are able to do that is because we have a very clear strategy, which is focusing on our business, focusing on our land bank and growing our number of outlets, focusing on our brands, focusing on our quality and our customer service and our sales and marketing, focusing on innovation, vertical integration, and folk and and retaining our strong balance sheet. And this will really is what's driving the success of the business. So we're a growing business. We've got growing opportunities, and we're doing that off a differentiated operating platform. And that's what gives us the real confidence in the future.

34:20 So let's say, thank you all very much indeed for taking the time to join this morning. That's great. Well, thank you very much for updating investors today. Could I please ask investors not to close the session? As you know, we automatically redirected to provide your feedback and all the management team can better understand your views and expectations. On behalf of management team of PERSIMMON PLC, we'd like to thank you for attending today's presentation, and good morning to you all.