Hello, and welcome to this Persimmon Trading Update Analyst Conference Call. For the duration of the call, your lines will be on listen only. However, later in the call, you will have the opportunity to ask questions, and this is done by pressing star one on your telephone keypad. If at any point you need assistance, please press star zero and you'll be connected to the operator. I'd now like to hand over to Dean Finch, Group Chief Executive, to begin the call. Thank you.
Thank you. Good morning, everybody, and thank you for joining us. I'm joined as usual by Mike and Martin. I will start by saying a few words and then hand it over to questions. I'm pleased with this excellent result for 2021, which we've delivered despite a challenging backdrop in the highly unpredictable nature of the pandemic. The key points are that profit is in line with our expectations. We've built around 1,000 more homes compared to the previous year. We've done so while also delivering an improvement in our underlying operating margin, which we expect to be around 28% for the full year. This has been achieved while sustaining our HBF customer satisfaction score above the five-star threshold.
We've also brought in over 20,500 new plots of land at excellent embedded margins, providing a strong platform for the future growth of our business. We've built more, we've built better, strengthened the business, and maintained our industry-leading margin. That's a really strong result, and I commend our teams for achieving it in the circumstances. We did this by controlling the business well and chose to deliver a quality product together with a high quality margin, as well as invest in the high quality land that will underpin our future success. Our build programs are likely to continue to be challenged in 2022 as they were in 2021 as a consequence of COVID, and in particular, over the coming winter as a result of Omicron.
Until the pandemic is behind us, the consequences of it will continue to affect the business in ways we can't predict. We are acting to mitigate this, anticipating further disruption, but planning to increase production from our own brick, tile, and timber frame factories this year, as well as strengthen our resources in order to build more houses this year. Our ambition remains to increase output this year. Achieving it depends in part on our ability to successfully bring more of the sites we require to the planning system into construction, and we currently have some 75 new sites that we plan to launch in the first half of 2022. During 2022, our aim is to increase the number of outlets we operate from compared to an average of 285 in the second half of 2021.
This, of course, will critically depend on local targets in the second half of the group. If we can increase this to around 320 sites by the end of the year, we will consider this to be an excellent result, and this would set us up very well for continued strong performance into 2023. We expect another strong year of strong performance because demand remains strong, and we will obviously update on the new year in March. As this performance shows, our margins are proving resilient. We have a strong management team in place to continue to drive our quality, service, and volume targets. Our position in the market remains a great strength. We build attractive houses that are affordably priced, that are also increasingly environmentally efficient, particularly as compared to the secondhand market.
We continue to invest in land replacement at industry-leading margins, providing a strong platform for growth. A year ago, we led the industry in announcing that we thought no leaseholder should pick up the cost of replacing banned cladding. Over the course of the year, we got on with our commitment. The provision we made covered not just 18-meter-plus buildings, but also all multi-occupancy buildings where we thought there was a risk. It's important to remember that Persimmon has built relatively few such buildings, and indeed, we estimate this to be 28 developments. A year on, we continue to believe that we should be able to manage the resolution of our risk and exposure without the need to increase the provision, while keeping to the commitment that we made that no leaseholder should pay.
We shall of course enter into any discussions with Mr. Gove's department in a constructive way, trusting that any resolution will be fair, reasonable, and proportionate. Finally, I would like to pay tribute to Mike's long and excellent service to Persimmon. Many of you have known Mike for a long time, and he's been here for a long time. We thank him enormously and wish him well all the very best for his future. His legacy of prudent leadership shall remain with Persimmon. Of course, I would like to welcome Jason, who we announced as our new Group CFO this morning. As you will see, Jason is a very experienced and an excellent appointment who we expect to be joining us by the half year. I look forward to working with him. Thank you very much. Now we'll open up as we move to any questions.
Thank you very much. So if you would now like to ask a question on today's call, please press star one and please ensure your line is unmuted locally. So once again, please press star one if you'd like to ask a question. Our first question today comes from the line of Rajesh Patki from JPMorgan. Please go ahead.
Yes, good morning all. I've got two questions please. Firstly, on outlet numbers. I think you were targeting around 350 outlets in August last year and have revised it to 320 now. Presumably, it's all related to planning delays, so just wanted to understand how you've seen the planning environment evolve through the last year. Has it gotten better? Has it gotten worse towards the end of the year? Just wanted a bit more color on that. Secondly, I think the net cash position is ahead of expectations. Could you help us with the key moving parts there and anything specific that you might want to flag? Thank you.
Well, look, I think it was quite difficult for me to capture all you said there, but I think you were asking, you know, basically what's going on with planning. I mean, look, we've got some well-publicized issues that are affecting the business. You know, nutrients and water, which we touched on before. I think across the Southeast and the Southwest there's something in the order of 30,000-50,000 units across the country, not you know in the industry that's affected by that. We have a little of that. We've made progress in the course of 2021, and we continue to make progress in the course of 2022. I gave you, I thought, a very clear indication of what our ambitions were for the course of 2022.
I think the front end of the sites that we currently have under construction are beginning at the right front end of that pipeline. I think we've got the thick end of 40, I mean 37 sites that are currently under construction, where we've yet to undergo a first sales release. I think we're now seeing the results of all that hard work come through. We look forward to releasing those opportunities into the spring market shortly. Indeed, just a reflection on the market, we have got a lot of early interest booked against these sites that are coming through and are gonna be opened over the next few weeks.
That's quite encouraging in terms of sort of reflecting on the, you know, where the early spring market is. As Dean said earlier, you know, we're pretty confident about the demand that's out there in support of, you know, the ambition that we have to move the business forward in terms of growing the number of homes that we can deliver.
On net cash?
Yeah, on the net cash side, yes, Rajesh, I think, you know, you're right in that, you know, we are blessed with great liquidity. I think that that's for a number of factors. Obviously, we've traded particularly well. We've achieved good price growth. Obviously, that feeds through into the net cash delivery, whilst also, you know, accommodating, you know, the supply chain cost push that we've experienced over a little while now. I think what we need to do is just recognize that the priority for the team is to invest in the business in terms of utilizing that cash. We would like more work in progress on the ground.
As you can see in the statement, a measure of work in progress is our equivalent units of new homes constructed, which is around 4,100 at the end of last year. Which is a good position to be in, but we would like to invest more. You know, at an average of, say, GBP 100,000, you know, marginal build cost, if you will, you know, we could. You know, we would love to be able to invest another, you know, GBP 150 million of that cash in providing greater choice and availability in the market. We think that as these new sites come through, we'll be given that opportunity, with planning being supportive, to invest in support of the future growth.
I think, you know, we do have a home for that liquidity. And as Dean's already pointed to, you know, great progress in the land market. Some of that again will support that activity. And always reminding ourselves that for the scale we are, you know, we've book ended the capital structure liquidity by way of that GBP 700 million number, which we've touched on a number of times before. I think that the priority is to invest in the growth of the business, and we'll be using, you know, an element of the liquidity we have to do that. Is that all right, Rajesh?
Thank you.
Yeah.
Great. Thanks. Thanks, guys.
Thank you very much. Our next question this morning comes from the line of Aynsley Lammin from Investec. Please go ahead.
Thanks. Morning there. Just two questions from me.
Morning .
Morning. Two questions from me, please. Just one, a point of clarity over the outcome for 2021. Obviously, you know, very strong result, but you say expected, as expected. I'm kind of reading into that. I think you'd said that completions will be 10% up back in November, and obviously they're up 7%. Am I correct in thinking that maybe the completions were slightly, you know, short of where you'd thought they would be in November?
Can I just jump in on that?
Yeah.
That wasn't quite what was said. We said within 10% of 2019 delivery. I think that the 10% number, yes, but it was coming at it from a slightly different angle. I think, you know, we're sort of within 7%-8% of what we delivered in 2019 as, you know, using that benchmark. I think that, we're really quite pleased with the shape of what we've delivered. It's a higher quality shape, you know, a little, you know, the volume perhaps, you know, around the edges a little lighter, but a little bit more margin. As a house builder, that shape, you know, you'd take that every day. You know, you're preserving a few plots in your land bank to fight another day with.
particularly when we feel we've got a good marketplace to sell those homes into and perhaps achieve a bit better value in a rising market. There's always that sort of opportunity cost, isn't there, in terms of the model that house builders follow. you know, we are particularly pleased with the shape that we've delivered because we believe it's a higher quality delivery. and just to emphasize that, you know, we're not a business that's pursuing volume, you know? yes, there's a balance to be achieved but, you know, I think it's the balance of quality that we want to deliver both in terms of the build service levels and the returns. I think that that's the approach we're bringing to it. You know, we're not particularly too worried about, you know, a few units here and there. It's about the overall balance, really.
Sure. Okay. That makes sense. From that you're comfortable with where kind of PBT consensus, I think it's around GBP 970s for this year then, or for 2021?
Yeah, very.
Yeah. Okay.
Our focus is at the end of the day, profits and return on capital. As Mike said, we are not chasing volume. That said, we increased volume over the year. Delighted with that. I'm equally delighted with the margin improvement and the improvement in the quality of the product we handed over.
Sure. Okay. That's all reassuring.
Those two.
Yeah, I mean, actually we know the, you know, the supply chain has demanded more from the industry through this year. You know, when we opened this year, we were pointing 4% to 4.5% to 5% cost push inflation. I seem to remember that people were a bit puzzled why we're saying that at the time, but hey, presto, you know, we're nearer the five than the two aren't we?
I think the point of me mentioning that is that, you know, to deliver the levels of returns that we are, whilst looking after our supply chain, you know, in the way that we are, is to the credit of the business, and the balance within the business to still deliver, you know, the industry-leading level of returns that we do. As Dean’s already said, you know, the new land we’ve got coming through is geared to continue that. I think, you know, we’re very pleased with the shape that we’ve delivered and we can be, you know, pretty confident about how, you know, the business is set up looking forward.
Great. That's all clear. Just my second question was, I wonder if you could just provide a bit more color on your expectations for build cost inflation, trends you expect in labor cost inflation and building materials this year?
Well, look, I mean, overall, while in general we've seen some easing in, you know, the shortage of commodities and products across the base, we still are still experiencing challenges and, you know, some commodities remain a problem. Fortunately for us, some of those we can deal with with our own internal resource, which is why, you know, I referenced the timber frame brick and tile earlier, and that has been extremely valuable to us in 2021, and I think will actually be even more valuable to us in 2022. And we're gearing up to increase production further to have self-help. I think that's, you know, a great strength for Persimmon. Inflation remains punchy, and I don't expect
That it's going to ease during the course of 2022. You know, I think we are looking at a result at this point in time, which is gonna be very similar to what we saw in 2021, at least. Look, you know, you will appreciate that I don't think anybody dramatic fall on this because I don't know any supplier that is really committing to prices beyond market. So, you know, the reality is our best feel for this is about what we saw in 2021 is gonna come through to us in 2022. Just as we have, I think, very successfully dealt with it in 2021, I expect us to very successfully at this point in time, deal with it again in 2022 based on what we know.
Great. Thank you very much.
Cheers, Aynsley. Thanks.
Thank you very much. We now have a question from the line of Will Jones from Redburn. Please go ahead.
Thanks, good morning. I've got a couple, please, that perhaps-
Hi, Will.
I could start by just saying all the very best, Mike, for your retirement after-
That's very kind, Will. Thanks very much.
Superb career at Persimmon. Yes, back onto questions. First around build, if I could, just coming back to that equivalent units number and really, I guess, the tactics for 2022 in terms of where you might want that figure to be at year-end. Should we still think at the moment, I think you talked previously around building at roughly one a week on every kind of build site. Is that still the run rate, give or take?
Yeah, I mean, I think that's a good rule. You know, the level of average outlets that we expect to have running through this year, I think we can see our way through to supporting the growth aspirations we have for 2022, which, you know, just to be clear, going back to what Aynsley touched on before, just to avoid any confusion, we've said approaching 2019 levels, which just to remind everybody was 15,855, I think it was in 2019. So again, you know, we're not fixated about volume.
It is about quality of delivery, Will, and you know the ability to build at pre-COVID rates of build per site, which you know we are managing to do despite the challenges that we've touched on, is a great credit to the team. I think that gives us a hell of a lot of confidence that we'll be able to continue to do that, especially with the vertical integration we've got in support. Yeah, I mean, I think your rule of thumb is right. You know, one new home build per site per week sort of level. We'd love to be able to increase that stock of EUs as one measure of work in progress investment by the time we get to the end of the year.
You know, just to remind you, in early 2020, going back to the start of the pandemic, we said it would take some time to, you know, fill the hole that, you know, was created by the disruptions to production in Q2 2020. I think, you know, that is the truth of the matter. We are working almost day and night to achieve that.
Yeah, look, I mean, look, I agree. I think until let's all get real about this. Until the pandemic is in the rearview mirror and the consequences of the pandemic are in the rearview mirror, I don't expect we're gonna be getting back fully to pre-pandemic levels of performance. I share Mike's ambition to be approaching 2019 levels of performance. You know, I think 95%-100% of that level of performance during the course of the current year would be a great result. I also think, you know, increasing output and sales this year by 3%-5% would be an outstanding result, and a great profit delivery, you know, at great margins. I absolutely share the ambition of increasing the number of equivalent units by this time next year.
you know, our guys, and Martin's in the room, are, you know, dealing with the real world in the sites we deal with day in, day out. There is a more of a fuzzy science, I think, in the field from in terms of delivery than you know when we look at these things back in the office. We have to deal with the day-to-day realities of delivery, which I think we've, as a business, highly successfully do day in, day out, and deliver fantastic returns for our shareholders.
Great. Thank you. Just the second one, if I could please, is just a more straightforward one around like-for-like house price inflation last year. I guess on the private business, just how you think that fared January to December. If you can maybe help us as well with the private selling price in the order book as you start the year. Thanks.
I mean, I wish I could give you a number for that because, I mean, the reality is, and I've seen Mike do it, and I've seen others in the business try and do it, but, you know, it really varies. I see all sorts on a daily basis. Being quoted as to what is the house price inflation, you know. It really does vary site to site. You know, you can pick any number, and you know, it could be above that number or below that number in terms of, well, what it is. Because it all is down to mix.
It all is where we're building in the country, what part of the country, what we're seeing. The key thing at the end of the day is margin and being able to absorb our build costs, which, you know, we have successfully done during the course of this year, and our ambition is to do the same in 2022.
Because you know, Will, you know, we're in a great position. You know, we've got the national footprint, obviously. You know that backwards. You know, the great position that we're in as a business is that, you know, we have a great hedge across the market in terms of our sales presence. You know, we've got 31 house building businesses. You know, if the regional market offers more opportunity, say, in the north of the country, more northern markets, well, you know that the average price of a three-bed, semi-detached unit in the north is, you know, a little lighter than the same product on a site, you know, further south. As always, as these regional geographies wax and wane, then as Dean correctly says, you know, the pricing will reflect that.
We saw a little bit of that in 2021, to be fair. You know, the headline rate of inflation is different, as Dean said. It's different in every region, as you know. If we're guilty of anything, we're guilty of trying to simplify things a little bit, and we look at headline average pricing, etc. But once you get under the skin of it, as you know, it's a lot more complex than that. But suffice to say, you know, in 2021, we've seen some great opportunity to achieve better value. And you know, we have been doing that. And that ranges from, you know, low single digits up into double-digit underlying inflation, depending on where you are. As Dean says, you know, there's the full range of experience when it's there.
Yeah. Thank you. Perhaps I could just that private ASP in the order book, Mike, which you sometimes give us.
In the forward order book, yeah.
Yeah.
We're about GBP 254,000 average on the PD. That is a tad higher than the same point last year. What I would say is just reflect on the fact that, you know, we are well placed, and there is a little bit more northern content in there. As we saw in 2021, you know, that is reflected in the carry forward as well in terms of that headline price on private. I wouldn't read too much into that comparison. I think, you know, as you know, the pricing mechanisms in the market work as they do. We achieve best pricing every week when we're releasing new homes for sale and reserving those with our customers.
Great. Thanks a lot.
Cheers, Will. Thanks.
Thank you very much. We now have a question from the line of Arnaud Lehmann from Bank of America. Please go ahead.
Thank you very much. Good morning, Mike. Good morning, Dean. First question is on, I guess cladding remediation costs and obviously the headlines from the housing minister a few days ago. You provisioned, I believe, GBP 75 million, a few months back. Are you comfortable that the scope of this provision is sufficient considering the announcement made by the housing minister and the upcoming discussion I believe you're gonna have with him and the rest of the industry in the coming weeks? That's my first question. Secondly, well, congratulations to Mike for his retirement, I believe happening tomorrow. Mr. Jason Windsor will be coming in the summer, which means if I understand well that, Dean, you're gonna be CFO for six months. I guess my question is, does this have any implication for the timing of potential cash returns in 2022? Thank you very much.
Well, you know, goodness only knows how I'm gonna fill my shoes, as am I. I will fail miserably, I'm sure. You know, let me put that out there, so I create a low base of expectation. Which I will try not to fail from a low base of expectation. In terms of the cladding, we are very comfortable with the GBP 75 million covering the of not needing to increase the GBP 75 million to address any of our own remediation in return, in respect of any building of any height. You know, this time last year we took, as I said at the top of the call, a fully comprehensive view of our responsi bility.
I think we were industry leading at the time, and I'm jolly pleased we did do that. And we've got on with it. We've dealt with a number of developments and every day we've got a team working on this in the business. And in addition, of course, we will shortly be paying a further 4% levy on our corporation tax for cladding. And as I said at the outset, of course, you know, clearly, the question that we're all interested in is the voluntary contribution that is being sought for remediation that we ourselves did not cause. And you'll readily understand and appreciate that we are in a dialogue with Mr. Gove and his department at the moment, and we can't comment on that.
As I said, we will engage constructively with the department, recognizing that we are responsible corporate citizens and want to see the good for the entire industry. Also recognizing that shareholders rightly expect that we spend their money wisely. We trust that the department and Mr. Gove will enter into these negotiations on a fair, proportionate, and reasonable basis. In terms of cash returns, I am certainly not qualified to look at such highbrow matters. You're absolutely right. We will pass that immediately across to Jason when he returns, and I will pass from that point without any shame. As we always have said, we return all of our surplus cash over the course of the cycle, and that's not changing.
Investors can expect that policy is going to continue over the coming years. As Michael alluded to a few moments ago in answer to another question, we want to invest in the business. We'd be delighted to have more work in progress this time next year, and some of our resources tied up in that because that will ensure that there's, you know, even greater continuation of even greater returns in the future. We are very alive to the topic of surplus cash, and it is something that the board constantly looks at.
Thanks, Finch. Thank you very much for that.
Thank you very-
Thank you very much. We now have a question from the line of Charlie Campbell from Liberum. Please go ahead.
Yeah, Tom. Morning. Thanks very much for taking the questions. I guess sort of two really, and both, you know, sort of one on your own business and one on the industry. Firstly, just on land, clearly you've been very successful in extending the land bank. Just wondered if you could sort of give us an idea of as to whether, you know, that land's come in at margins that are consistent with the margins you're making. I mean, I guess it is, but just be great to have that confirmed.
Secondly, just in terms of the mortgage market, I just wondered if you had any indications yet about how lenders are going to think about, you know, fuel bills going up, cost of living going up, and whether that changes their stance on mortgage availability, valuations. Yeah, just what you're hearing from those lenders on those points. Thank you.
Well, I mean, look, as we said at our last update, it continues to be true. We're delighted that, you know, the extension of the land bank and the margins are definitely consistent with our historical performance. It, you know, we're super excited about the opportunity of the future that brings to the business. It will be a continuation of the same, which is brilliant. I commend the team for the fantastic results they do bring in for us. In terms of mortgage availability, well, you know, we do expect that's going to improve this year, and indeed we are seeing that. Availability I think will help us all.
You know, a point I tried to make at my opening remarks is that I do absolutely, and I take no credit for the great positioning the business finds itself in, but I absolutely believe it's fantastic, you know. I think with you know, the potential for rising interest rate bills, and you know, burdens of affordability in general, Persimmon being at the most affordable end of the market and the size of the product we build, I think makes us even more attractive to first-time buyers and first-time movers, while also having Charles Church in the range for those who've got a bit more purse. I think we're in a great place.
Yeah, I mean, just to, I mean, there is obviously some chatter, Charlie, about, you know, slight tweaks to the regulations around, you know, what the lenders can and can't do. As we know, I mean, you know as much as we do on that front at this point, I would say. We do, you know, as you pointed out many times, I think, the mortgage lenders appear quite keen to lend in support of families acquiring a home of their own. I think as Dean said, you know, we're in a great place to help them achieve those ambitions, you know, in conjunction with the primary lenders. Yeah, I mean, it's.
I think looking forward to 2022, as much as we can, we would assess that customers will be well supported. Yes, cost of living is increasing, but we feel that with we can't ignore the fact that there is wage inflation in the system. On the one hand, that creates a bit more of a burden in terms of cost-push inflation, as we've already touched on. Actually with that extra income being in the hands of the population at large, then it does equip them to be able to mitigate the pressures that they find day to day in terms of energy bills and other cost of living pressures, which obviously we're acutely aware of. You know, we would anticipate that there's a certain amount of balance there that allows continued good participation in the market.
Thank you very much.
Thanks, Charlie.
Thank you very much. We now have a question from the line of Gregor Kuglitsch from UBS. Please go ahead.
Hi, good morning. Thanks for taking-
Hi, Gregor.
My question. Good morning. A couple of questions. Just coming back to cladding. Can I just be clear, and I think well, I probably should know this, but if you could just clarify if that, those developments that at the time you provided for include all Persimmon build, in other words, also the ones where you're no longer the freeholder. I appreciate if-
Yes.
You can give us that differential. Yes. It's, I don't know, going back 30 years, I think, is the new threshold, where that. There's no issue around the freeholder.
Right.
The joint ownership basically with the freeholder. Okay.
Right.
Maybe this is a difficult question for you to answer. I think the government's kind of taking the stance of well, you know, we helped the industry with, you know, Help to Buy and obviously, you know, after all, have been a big beneficiary of that, over, you know, the last say, you know, nine years or so. On that basis, you know, you have to pay kinda regardless of, you know, whether you actually build some of these buildings. I guess the problem with that analysis is that, you know, you're obviously, I think looking here at my spreadsheet, you're maybe 20% of the profit pool, right, of the industry.
Obviously if you take that, you know, you'd be, I suppose, proportionately liable, you know, for 20% of the cost. Obviously the counterargument is that, well, you didn't actually build those buildings. I guess I wanna, you know, get your stance on how you think about, you know, that kind of analysis. Then perhaps back to the capital-
Gregor, can I just.
Question. Yeah.
Can I just quickly take that one on? I think that.
Sure.
That is, you know, the way you construct that argument is one way of constructing an argument. I'm not sure that it's the, you know, the proper construct, if you will. I think that this is a particularly complex situation as you correctly point out. Okay, yes, you know, we are a successful business, but, you know, in the. You know, we take some confidence and encouragement from what Mr. Gove and the department has said so far in that, you know, there has to be some sense of fairness and, you know, proportionate approach to this.
I think that, at the end of the day, it, you know, it's about taking responsibility initially, isn't it, for our activities that we've undertaken in the past. Dean's been pretty clear in just reminding everybody where we are on that, which is pretty fully comprehensive. Looking to the future, I don't think anybody would want to preempt the eventual outcome of, you know, the process that is underway. I don't think we should really be debating, you know, a hypothetical answer to a hypothetical question at this point. I think that we should sort of concentrate on, you know, the discussions that we will have in a responsible manner, and come up with, you know, hopefully the right workable solution for the industry and particularly the leaseholders who we agree, you know, shouldn't be required to pay for the necessary works.
Look, I mean, just coming in a bit on that as well, if I may. I mean, I'm sure you want us to try and give you an answer, but we can't.
Mm-hmm.
You know, this is the summary of, you know, what Mike is trying to say nicely, and you wouldn't expect us to, not least because, you know, Mr. Gove announced this or it was leaked on his behalf on Friday evening and, you know, we've been knee-deep in conversations ever since, the twists and turns of this.
Mm.
You know, are almost hourly. I agree completely with what Mike said. Just to slightly, you know, elaborate. First of all, I am sure that you will all be focused on, you know, a number because a number was put out there, which is GBP 4 billion. Well, as you might imagine, we're all incredibly interested to understand the provenance of that GBP 4 billion. You know, we will see where that goes, too. Also, just to remind you that it's about the residual because as the Treasury may claim, if Mr. Gove can't get it from the developers, then he must fund it from his own department. Since those initial iterations, you know, you. The profit pool?
Well, a profit pool of what? You know, he's already said that, he's talking about broadening who he's talking to, including the supply chain. I don't think we're 20% of the entire supply chain's profitability, but maybe we are. I don't think we are, but I don't. You know, that seems a very large number to me. Of course, it's the residual as well, isn't it? First and foremost, Mr. Gove is interested to ensure that the many that, you know. It may be a slightly curious place to find ourselves in, but Persimmon were one of those people that Mr. Gove stood up and commended in the House on Monday. What he's really saying is, "Let's go.
Let me get after those people who have not taken such a commendable stance." That's a good many, and that's a large sum of money that will reduce significantly the residual of any pool. As you can understand from that, there is an awful lot of water to flow under this bridge yet. You know, we really can't say more than that at the moment.
I appreciate that.
Gregor-
Thanks for your answers. Absolutely. Then maybe sort of coming back to sort of your outlook, if that's okay. Just sort of summarizing it all. I mean, essentially you're saying, okay, volumes may be 95%-100% of the 2019 sort of bar margins, if I interpret correctly, flattish or I don't know if that-
Yeah, I think 28% underlying EBIT margin struck off the housing revenue is a good place to be, Gregor.
Mm.
For 2022, because, you know, there's a lot of moving parts. As you know, there's a lot of moving parts. I think that, you know, to achieve that this year, we're absolutely delighted, you know, for 2021, as we're at pains to point out. We're really pleased with the shape, you know, the higher quality shape of delivery for 2021. If we can replicate that in 2022, to be honest, I'd take that now. As you know, with the challenges that the industry faces, and I'm sure you would do too. If we can do a bit better than that, well, great. But as Dean said, there's a lot of water to flow under the bridge. You know, there's a lot of moving parts.
Thank you. We now have a question from the line of Emily Biddulph from Credit Suisse. Please go ahead.
Hey, morning, guys. I hope you're both well. I just have two follow-ups, please, on sort of ASP mix for 2022. I think you say in the statement that you expect to sort of deliver further growth to sort of housing associations. Like, I'm conscious that the mix of affordable is still relatively low. Like, if we look at 2019, it was 21%. Like, does the mix head back towards that sor t of level for this year?
Yeah, I think it
Sorry.
I think it's right in terms of directionally, Emily. I think exactly where we're gonna end up, well, you know, again, that we can't be absolutely precise at this point, but we're well forward sold on the affordable business, as you know, as usual. At around 4,100 homes sold forward to our HA partners. So we, you know, we've got great visibility on that. We've got new outlets coming through, which provide us with greater opportunity. I think, you know, for those reasons, we can be optimistic about delivering a few more to our HA partners. Therefore, I personally think that the mix is likely to tick up a little bit from just over 17%.
That we've achieved in Q1. So that might, you know, grow to maybe 18, maybe even a little bit more, as we move forward. You know, as I say, it's hard to be absolutely precise, but the trend, the direction of travel, I think you're right, in terms of what we'll see in 2022.
Okay, great. Thanks. Then did the comment that you made about sort of the negative mix effect from more northern in the order book, presumably we should be sort of playing that through all of our numbers for all of the year, and is there more of that to come? Should we be factoring in a negative sort of mix effect on ASP through the year?
Yeah, I mean, just, you know, the bit of detail on that, and obviously Dean can maybe comment on the overall positioning of his business, but just to pick up a little bit of detail on that. Yes, that is true. I think that when you look at the outlet distribution, and the positioning, we do have a few more outlets the further north you travel.
I think, again, it comes back to this market hedging and risk management within the business in that, you know, it, this is by design in that, you know, where one markets get a little bit more heated, a bit more competitive, which generally speaking, you know, it is the case the further south you travel, generally speaking, then, you know, we can play, you know, a slightly different tune by pursuing opportunities elsewhere. I think that, you know, our selectivity in terms of maintaining the quality around land replacement guides us in terms of where we do invest for the future growth. And you know, I think we're blessed with strong positions across the country, but with a bit more availability currently, a little bit further north. Generally speaking, again, you put your finger on a good point, and I think that your observation is right.
Okay, great. Thanks so much.
Thanks, Ellen.
Thank you very much. We now have a question from the line of Ami Galla from Citigroup.
Yeah. Good morning, guys. Just a few follow-ups from me as well. The first one was on Help to Buy. If you could give us some color in terms of what is the proportion of mix in the reservations on Help to Buy, and how do you see that moving by the year end? And the second one really was on the construction work in progress. Do you think that's the current level is more or less normal now? And could you give us some color of how that level stood at the start of 2020 and 2021? Thank you.
About 25%.
Yeah. No, look, our width's a bit lower than that, which we recognize that, you know, we're. As Mike and I said to you before, we are frankly a victim of our own success here in the strength of sales as in through our outlets and, you know, obviously that has a knock-on impact to build. I mean, the build we have got, I think is, you know, well distributed across our outlets, so that's a good starting point for us to build from this year. As we said earlier this morning, I mean, we wanna get on with investment, and Mike talked about GBP 100 million and that, certainly, you know, very keen to see us do that.
If not more.
If not more. Yeah, indeed.
I mean, EUs are only one element of the work in progress, Amy. As we touched on before, you know, that is really concentrating on, as we call it, plot and unit build in terms of-
Mm-hmm.
You know, individual home construction. There's a lot more work that's done in terms of offsite works, enabling works, that we are actively pursuing. You know, we referenced earlier, you know, thick end of 40 new sites under construction, where we've yet to release for sale. Well, you know, the investment that we're putting in, you know, the cash investment we're putting into that work in progress doesn't show up on EUs at this point. You know, the EU count is nearer, you know, building the actual home rather than being an overall reflection of the investment we're making in the ground. We are, as you can imagine, you know, we intensively manage this. We've got great visibility.
As Dean's already said, you know, we're keen as mustard to get more investment in the ground, so that we can give more choice to our customers, because, you know, we see a market opportunity obviously to do so. You know, there, as we all recognize, you know, the shortage of supply needs addressing and, you know, we're committed to helping address that.
Thank you very much for your question.
Sure.
Our next question now comes from the line of Gavin Jago from Barclays. Please go ahead.
Yeah. Morning, all. Thanks for taking the questions.
Morning, Gavin.
Yeah. Good morning. Just a few points of clarity. I think I missed the Help to Buy answer just a moment ago. Did you say it was 25% of-
Yeah.
The pipeline in the order book?
Yeah.
Okay. That's great. So the other questions I had, please, were just on, I guess, your view at this stage on the potential split of volumes and I guess the timing of outlet growth, that 320 you're looking to get to potentially by the end of this year. Would that be kind of a fairly smooth line or are you seeing maybe more of an H2 weighting in that? And then the final is just around the land market. Just then, I guess, any commentary about appetite for land and what sort of replenishment rate you might be aiming for in the current year. Thank you.
As we've put in the statement, I mean, we are gonna be opening 75 new, we hope, during the course of the spring. As Mike said, you know, about 36 are in the course of construction. You know, having them, we were at 290 at the year end, we're very pleased with that. We are, as you might imagine, I mean, incredibly enthusiastic to get them open and released for sale. You know, you can be certain that we will be pressing and encouraging vigorously to get that moved on as quickly as possible because we want to capture the strength that we anticipate in the spring.
Only so much of this is in our control and, you know, it is also obviously, forgive me for saying the obvious, but, you know, it all depends on how quickly we eat through existing sites. So the net position is difficult for us to predict. I do think, you know, there will be a degree of second half weighting in this, but what I would also point to is, if Help to Buy does end as it's currently scheduled to do, then, you know, you could logically expect quite a push on demand in the second half of the year. You know, obviously, we need to see where that goes to, but that would obviously be helpful to the business if we have, you know, a slightly greater weighting to net new outlets opening up in the second half.
I think, you know, that is, when you think about that trade-off between timing and value, I think we said in November or back in August that, well, if we own a few sites a little later into the spring, later on in the first half, well, again, you know, so long as we deliver what we deliver, which we have, that's in the rearview mirror. We've got more strength looking forward. I think as Dean said, you know, we're really nicely positioned to take advantage of the anticipated market that we think will be there. That trade-off in terms of timing and value comes into sharper focus, and I think that, you know, these are finer judgments.
I would say, you know, as always, Dean is reflecting on this and managing it with the wider team in terms of timing those releases and the delivery. These are the sort of, you know, the finer detail and the finer judgments that we undertake week by week. Yeah, we hold off release. You know, we didn't release a few sites pre-Christmas, for example, because, you know, we wanted to work for the spring. That timing value trade-off is very important because we, you know, as you know, we can only sell them once.
Well, indeed. Can I just have one brief follow-up? I think it was what Aynsley was maybe trying to get out right at the start of the call. Just a reference back to November's trading update when I think you were expecting to deliver 10% increase in 2021 completions over the prior year, but you've come in at 7. Can you point to anything particular between that delta of the 10 and 7?
No, Gavin, yeah, I think obviously there's a misunderstanding somewhere there. I don't think we said that. I'd have to check the transcript, but.
I'm just reading it now. It was one of the bullet points on the statement, sorry, back in November.
It's what we. Well, maybe that was, that's our fault for for-
As a reference more to the 2019 number than, basically. Is that what I should be thinking about?
Yeah. I mean, we've said we've always guided to within 10% of 2019 in 2021.
Yeah.
Maybe we should have been a bit clearer about that.
Yeah. Okay.
Even having said that, you know, disregarding any specific guidance, I think the principle is the thing that matters. I think you would agree with that. Or tell me if you agree with that, perhaps. Actually in the house building model, you know, if you can deliver quality, both in terms of the homes that you're delivering to the customer, as well as, you know, the industry leading level of returns that we do, that, you know, is what we should be shooting for. Now in terms of, you know, the result for 2021, well, you know, obviously people can get a little bit twisted up around the exact numbers.
You know, if you look at the profitability of the business, it's gonna be in line with expectations. We are particularly pleased with the shape, the high-quality shape that we've delivered, as we've said. You know, just to be very clear, you know, we've said approaching 2019, and we, you know, we touched on that earlier on in the call. Hopefully, you know, whether or not that's 157 through to 159, well, you know, who knows? In a way, I go back to the principle, it doesn't really matter so long as the quality's there.
Yeah. Okay.
Let's be honest about this. I mean, to try and land this vast machine on the pinhead of a number during the midst of a pandemic is challenging. I think, though, every day of the week we would take profit and returns over volume. I am very focused on profits and returns and not volume. We've not lost those sales. They'll appear in January and February. What we've handed over as a result of it is a high quality product and giving our shareholders a high quality profit. I think that you know, many of you asked me this morning about cladding. Well, you know, cladding is about safety, but it's also about quality, isn't it?
We're in an environment and an increasingly media savvy and media connected customer base that is incredibly, rightly demanding of quality and service. That's what we're about. That's what we're gonna deliver. If that means for me a few marginal units at a year-end are not delivered, well, you know, I'll take that every day and hand over to the customer the product that we feel proud of and they love, and are willing to pay for.
That's all very clear. Thank you very much for that. I guess just echoing others, Mike, all the best for retirement and hope you get on the ski slopes in the next few weeks.
Thanks, Gavin.
Cheers. Take care. Bye.
See you.
Thank you very much. We now have a question from the line of Jon Bell from Deutsche Bank. Please go ahead.
Good morning, gents.
Hi, Jon.
Mike, I also wish you well. Don't spend all your time at Elland Road. Suspect the seat you've got these days is a little nicer than the one you started out at, but, there we are.
That's an exciting journey as well, Jon, so
Indeed. Yeah. I've got two questions. I'll be as quick as I can. First one, vertical integration. You've probably done more than any of your peers along those lines. What's next? You've done bricks, you've done roof tiles. Is there anything else that you can do to help your own production?
Going in February. Yeah.
The second one is, one of your peers said this morning that it's got two sites where groundworkers have gone bust. I don't know whether there's a particular issue there or just these things happen, but have you seen anything along those lines? Thank you.
No, no, not across, not that I'm aware of. I've not picked up groundworkers going bust. Look, I think groundworkers are under pressure. I mean, we're certainly picking that up, and we're seeing that come through in the pricing across the business, you know, because labor's tight, right? They're feeling squeezed and, you know, that's impacting us all. I'm kind of not surprised to hear what you're saying. No, I've not picked anything up at the moment that's impacting our business.
I mean, again, a little bit of extra detail, Jon. I think it's a very good point that you raise in terms of fragility of supply chain. I think that as always at Persimmon, you know, we do think about these things, as you'd imagine. For example, in our sort of westerly business in Wales, you know, over recent years, we have taken a little bit more control over the groundworks front end in terms of opening sites and getting line and level, so to speak. So we have in-house a certain element of capability there, which does again help. Now that's not right across the country.
I don't want to misrepresent what our position there is in terms of in-house capability. You know, we have got some, you know, very exciting large positions in Wales and we thought it was the right step to take four, I think it's four years ago, to exercise a bit more control over that. Because obviously, as you point to John, those activities start at the start of opening up sites and get cracking once you've got your detailed consent. They are very important enabling works to move things forward. We do already have a little bit of vertical integration on that capability, which, you know, has proved useful and continues to do so.
Going back to your broader question then, which I asked and answered with the ridge tile line. I mean, that is going to be an important addition for us. You know, as I said at the top of the call, the increase in, you know, the brick in-house capability this year, where we're increasing shifts working and the hours we're working, that's going to be significant for us. As is the further extension of in-house manufactured tiles to deal with our ambition to grow volumes this year. And also the quality. You know, we've also improved the quality of the brick that we're producing, which, you know, I think is significant for us, and is great for us.
Also investing further in timber frame, which we produce in-house. You know, we're doing a lot of that work in that regard. We do expect to extend in-house production of timber frame this year, and also experimenting with new skins and brick slips as well, and producing closed systems to extend our panel range. There's an awful lot that we are doing quietly to further enhance our own vertical integration capability.
Yep. Thanks, gents.
Thanks, Jon.
Thank you very much. We now have a question from the line of Andy Murphy from Edison Group. Please go ahead.
Good morning, Dean. Good morning, Mike. Thanks for taking my questions. I've got sort of four, might be sort of three if they're a little bit interrelated. Just first of all, on customer service, you know, now you're a five-star, and just considering the Persimmon Way, I was just wondering if you could sort of try and put a figure on what additional cost per dwelling that might have or have added to the overall cost base. Secondly, just thinking about sort of the New Homes Ombudsman, the New Homes Quality Code, Future Homes Standard. Just wondering again around that, what additional costs this might add on a per dwelling basis. Is it material?
And then also sort of allied to that, around the sort of net zero homes initiative, what additional cost is that likely to add, and is it material? And then finally, just you were just talking about your own operations in terms of supplies, I know it's hard to quantify, but you know, the tiles and the bricks and Space4. Over the last year or so when things have been difficult, getting hold of products and the cost of products, I was just wondering if you could discuss a little bit how that has helped you versus your competitors and whether you are able to put any sort of figures or color around that advantage that you have that they don't. Thank you.
Well, I'll have a go and Mike will step in. Only just on that last point, I mean, the key thing is security of supply. You know, that's absolutely the key thing for us. It does give us a cost advantage, you know, which contributes to the margin we've got. First and foremost for us is the security of supply, and that will continue. I think we've given you costs before about net zero in terms of Part L cost being GBP 3,045 per sq ft is our estimate. You know, the numbers around Future Homes Standard, well, we've still got to see Future Homes Standard.
You know, I think the additional cost of GBP 10,000 we talked about before is probably right at the moment, but I fully expect that cost will come down. We've got nothing new to say in that regard. You know, I'm on the government energy net zero council. You know, the whole industry across the U.K. is focused on making sure the supply chain is ready for that in 2025 and 2026. I think in terms of New Homes Quality Code, we will be registering for that later this week. Looking to activate it in the second half of the year.
Look, I'm not expecting, you know, material costs coming from that for us because, you know, we've invested to give us that improvement in quality as you've seen coming through in our five-star rating, which, you know, I very much hope will be confirmed in March and is what we expect to be confirmed at the end of the survey year as we see things at the moment. You know, you've seen what's happened to the margin in the last couple of years. I think what's really important, and I re-emphasize the fact that over the course of this year, we've seen margin expand, despite the fact we've invested more in the product, and improved the quality of the product.
I think many feared that, you know, we would become volume junkies and trash the margin in order to improve quality. We haven't done that and nor shall we do that. You know, the specifics of the New Homes Quality Code is that, you know, customer complaints need resolution within 30 days. Well, you know, we're pretty much internally on that target anyway at the moment. There's a bit of training we need to do to make sure that both customer services and sales staff are trained and equipped to deal with the new regime. I think it's very much in line with what we aspire to be delivering anyway. As I said, I'm not expecting a material cost to come from it.
I mean, you will read the code, and you will see that customers have the right to an independent snagging survey. You know, we focus an awful lot on inspections, key stage inspections, mystery shoppers, and everything else which we've invested in over the course of the last year. I'm highly hopeful that it won't result in much material cost.
Was there anything to say about the customer service, the five-star rating or not?
Well, I mean, we doubled the number of inspectors, but you know, that's a minor payroll cost over the course of the year.
I think, Andy, you know, we would fully expect that, you know, the science behind this really is about, you know, getting more emphasis on earlier on the value chain. I think that, as we've said before, I think, you know, if we manage to eliminate the need for reworking and replacement and get the construction quality spot on, then that should naturally reduce the amount of post-handover activity that we have to support customer with. It's a matter of investing further up the value chain to yield benefits further down, you know, downstream, so to speak. I think that, yes, you know, we've got that expectation still.
We're still in the process of implementing those improvements. But we are seeing good early signs, and that is most encouraging. I think that, yes, every home builder will have a certain amount of post-handover activity in terms of customer care, snagging or, you know, however you want to describe it. You know, if we get the sense is if you get the front end right in terms of control over construction and finishing, then you know, I guess in a perfect world, your aftercare becomes a lot more just handholding and reassurance rather than actually having to do any work thereafter. You know, that's the theory and we're seeing good early signs of the investments that we've made.
Yeah. Mike's right. Look, you know, the payback from. We see repeated examples of the payback from building right first time. But there's the other side of this as well, which is, you know, as we become prouder and prouder of our product and increase the value of our product, the value of our brand goes up, and you can attract that in terms of pricing. You know, again, you see that in the margin delivery we've been able to achieve.
Sure. Great. Okay. Thank you very much for your answers. Mike, good luck in your retirement.
Thanks, Andy. Yeah. Cheers, then.
Thank you very much. We now have a question from the line of John Fraser-Andrews from HSBC. Please go ahead.
Thank you and morning, gents. Two for me, if I may. The first is on completions. Just coming back to what's said in the statement about Omicron delaying some of the handovers, some on the customer side, some on, it sounds like, subcontractors' absenteeism. So sort of how many are you taking into the current year to give you a boost in completions? On those for 2022, there's been various numbers on the call. I've heard the 15,700-15,900, which obviously is both very close, but also heard 95%. Just wondered if you could clarify, you know, what visibility is at this stage on completions. Appreciate its value on volume, but what is that volume visibility?
Secondly, on outlets, the 290 being, I think you referenced being your year-end number of outlets. Does that include the 35-40 where you're under construction and not yet released? You know, what visibility you... I think you said you're still targeting 310 for the second half. Some color behind how you get there would be very helpful. Thank you.
Well, I suppose my best guidance is to listen to what we have said today and, you know, we're the guys that are gonna be around to deliver it. It is very difficult at this point, 10 days into the new year, to give you much additional guidance than we've got given you because we don't have much of a way of data. We have started the year very well. The outlets do include the 36 in construction at the 290 figure that we gave you. There's a small marginal number of units we will carry into the course of this year. We'll give you a greater update on guidance in March.
Sure. Understood.
When you look at the forward order book, John, you know, we've got just over 4,300 private sales already sold forward into next year or into this year at the end of December. You know, we're in a good forward sell position together with, as I've already said, you know, around about 4,100 forward sold units on the affordable business side. You know, 8,400 overall forward sold, which, you know, is a pretty good position to carry forward into the new year. We've got, you know, a great network already open. We've got new outlets coming through to add to that with good early interest, you know, registered.
I think that, you know, we can see our way through to, you know, delivering, you know, the sort of level that we've touched on. But as you already recognize, you know, it's the quality of the shape of what you deliver, not the volume. You know, we're not chasing volume. That is, you know, part of our strategy.
On the outlet side, I guess your base actually is 285 and 21 from what's been announced. Obviously you're pushing a few more, but it seems like you'll definitely be more than 285. Your build rate per site doesn't have to be anything different, could even be slightly lower given what happens on outlets.
Exactly.
To achieve the volumes that you described.
That's why, you know, I think the key data point is that, you know, sort of pre-COVID levels, you know, rate of build with, you know, I think we touched on earlier, I think it was Will's question, but I think, you know, that that's key for us. You know, this sort of one new home per site per week type metric is a good sort of average feel, albeit that there is a seasonal shape to it, as you can appreciate, John, in the you know, in the dark days of winter with the weather, et cetera, and then you throw a bit of skirmishing around supply chain and Omicron or whatever, then you know, it can be a little bit tighter at times.
You know, as you move into the middle of the year, longer days, better weather, that's when we hit our straps and we'd look to go beyond that average of one. I think that you know we are nicely positioned to be able to support the ambition that we've described today.
This time last year we guided you, 'cause I distinctly remember saying that we were gonna be at 90%-95% in 2019, and we come in towards the top end of that in terms of profit. You know, we hope to achieve the same again in the coming year.
Sure. Just a follow-up on the sites. I think, Dean, you said there were 30 across your business that have been caught up in this planning authority moratorium on-
No, I didn't say that. We've got a handful that have been caught up in water, you know, in closing digits, but they affect the business.
Right. Is it just the last one then? Is it, you know, staffing resources in authorities?
Well, that clearly does have an impact on gaining consent. You know, we are seeing local authorities are suffering. You talk to any planning person in the business or any planning authority in the country, then they are struggling with resourcing and you know, what they are paying for these people, 'cause the market's moved on, and I think that is impacting. We are certainly seeing that impact on the availability of planning officers in authorities to deal with our applications.
John, you know, we're happy to go that extra mile to support planning office, you know. You know, on occasion, you know, we do help them with their reports and what have you, to try and lighten their load and, you know, do everything we can to help. Because obviously the planning authorities, you know, wanna get there as well. You know.
Sure.
They've got communities that they're keen to support. You know, the working from home disciplines and the constraints that Dean points to, you know, I think the whole industry would say it has slowed down at times.
Yeah. Yeah. No, that's fair. No, well, thank you very much, both of you for those answers. Mike, congratulations on a tremendous career and best wishes.
Thanks, John.
Thank you very much. We now have our final question on today's call, and the question comes from the line of Sam Cullen from Peel Hunt. Please go ahead.
Hi, morning all. Hopefully quite brief for us. I think we'll be at the final before we know it. In terms of.
Yeah, I think so.
We will be able to tell you the numbers.
Right. In terms of the forward book. How far ahead are you selling? Or more to the point, I guess, has that changed materially versus last year or 2019 levels? Because that kind of a more normalized level. That's question number one. Question number two is, if you could wave a wand and get rid of all the planning issues that people have talked about this morning, how confident would you be on kind of deploying that extra GBP 100 million in WIP? Is there, are there things in the supply chain that are still concerning you around getting that WIP number up?
I don't think there's any change, you know, in the shape of all the
Yeah.
You know, we're pleased with the start of the year, and we see that, you know, extending even already now into seven and a half years. That's brilliant. Yeah, supply chain issues are still with us, you know. I mean, look at the newspapers, how many NHS staff are off. You know, the pandemic has affected the entire country and everybody in it in unpredictable ways, from the prime minister down, I think. We're not immune from that. Of course it is affecting us on site and in the supply chain. We're a very big business with very many sites right across the U.K., and that is affecting the efficiency of our build. The fact that the guys deliver what they delivered is, I think, close to a miracle, and at fantastic margins.
You know, if I could wave a magic wand and get all the planning tomorrow, then we'd have a lot of outlets out there, and that would be brilliant. You know, we've been very bullish about our numbers. But there would still be issues affecting supply chain, which I think is gonna take some time to still work through, as Omicron is still in the system, isn't it?
Yeah. Okay. Thank you.
An associated question, Sam, is, well, for how long, I guess, isn't it? You think, well, who knows? As Dean says, you know, it is ultimately unpredictable, isn't it? I mean, we all hope we're through this quite quickly and see the other side of it. You've then got, you know, as you point to the secondary constraints in terms of supply chain tightness and that's what we wrestle with every day. I think we're still confident that we can achieve, you know, the build that we're shooting for.
Great. Thank you.
Cheers, Sam.
Thank you very much for all your questions. All questions have now been answered, so I'll hand back to yourselves, Dean and Mike, if I may, for any final remarks.
Thank you all very much for your interest. Thank you all for your expressions of goodwill towards Mike. He rightly deserves the praise, and we shall miss him. Again, we wish him all the very best in retirement. Thank you. A heartfelt thanks for the enormous lifetime contributions to the success of Persimmon.
Thanks, Dean. I'd just like to say thank you for the expression of best wishes from everybody. No doubt I'll be speaking to one or two, regardless of whether I was sat in this seat or not. I wish everybody all the luck and best wishes moving forward.
Thank you very much, everybody, for joining today's Persimmon conference call. You may now disconnect your lines.