Hello, and welcome to the Persimmon Trading Update Analyst Conference Call. My name is Molly, and I'll be your coordinator for today's event. Please note that this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I would now like to hand the call over to your host, Dean Finch, Group Chief Executive, to begin today's conference. Thank you.
Thank you. Good morning, everybody. I'm joined by, as usual, Mike Killoran and also Martin Clark. I will begin by picking out one or two key points, then hand over to questions as usual. The business continues to trade very well, with strong sales rates and good build rates. We're on track for the year end with the completions expected to be about 10% ahead of last year. Despite cost pressures, margins remain resilient. Build is coping with the supply chain difficulties and is strongly supported by our off-site manufacturing capabilities, and build rates in recent weeks have been particularly good. Selling prices remain strong. Reservation rates remain strong as well and are up about 16% on 2019, which we're taking really as the more comparable year.
On that token, forward sales for 2022 are up overall 20% by value on 2019, with private up 26% by volume and 37% by value. Our land acquisitions continue well. We bought 16,200 plots year- to- date with excellent embedded margins. Despite planning delays, we expect to open 60 new outlets by the spring. Build quality continues to improve, with the business now trending above 92% and with 26 out of 31 of our opcos, when I checked yesterday, above five-star. We continue with our ambition for zero carbon future, and our three projects, which we mentioned at the half year, are progressing well. We continue to make progress with cladding with three of our 30 high-rise developments now remediated, and we're sticking to our guarantee of ensuring that the leaseholder doesn't pay. Thank you very much, and I'll hand over to any questions you might have.
Thank you. As a reminder, if you would like to ask questions, please press star one on your telephone keypad. Please ensure that your line is unmuted locally. You'll then be advised when to go ahead with your question. That's star one. The first question comes from the line of Arnaud Lehmann calling from Bank of America. Please go ahead.
Thank you very much. Good morning, Dean, Mike and Martin.
Morning, Arnaud.
A couple of questions on my side, please. Firstly, I seen your statement this morning. A couple of times you expressed frustration around the planning system. I think Michael Gove this morning made some comments in the press or somewhere around potentially giving up on any reform. So I guess it looks like it could remain a constraint going forward. What do you believe should be done to make life easier for the industry? I guess is my first question. The second question is on the build cost inflation. I think you mentioned 5%. I think last time you reported you were talking about 4.5%-5%, so broadly consistent. Are you seeing signs that build cost inflation is starting to fade? How much of the +5 should we carry over into 2022? Thank you very much.
Morning, Arnaud. Look, I'm not getting into the reform area. I mean, I think it's about the system we've got. The system we've got at the moment has been impacted by firstly COVID, and now increasingly resource shortage. If I had a magic wand or I had a special ask of Mr. Gove, it would be, "Please, can you resource up the planning departments across the country so they consider the applications that we've got in?" Look, for us, we're just highlighting it as a frustration. Really, this is just a timing issue. We've got some really excellent sites that we've purchased that are just in the system. They will come to fruition and will do very well when we get onto them.
We are experiencing delays. I think everybody in the industry is experiencing delays. You know, all the chief execs that I talk to are saying the same thing. When I met with the housing minister a few weeks ago, you know, we all expressed the same point to him. You know, when asked, "Well, what do you want us to do here?" It's, "Well, resource up, please," because that's what we need. Look, you know, what it means is that, you know, there will be a bit of pent-up demand for product when it eventually does come, which should prove good for us. It's about resourcing rather than reform. I mean, we can speculate all morning about what may or may not be reformed.
I mean, I think as an industry, we work with whatever system's in place. If it looks like we're sticking with the existing system, fair enough. We've learned to work with it over years. This is really not about policy, it's about resource. On build cost inflation, look, I think it ebbs and flows across what component you're looking at. I mean, I think what people tell me who've been in the industry all their lives is that, you know, we've really seen across the entire supply chain this year, what's been unprecedented is that everything's been under pressure.
Yeah, I mean, as you will know because you follow these things, some of the commodity prices in particular have come back a bit since the spring and early summer. There's still some spikes out there, and we expect, you know, we expect it to be a feature of what we've gotta live through during the course of 2022, though also anticipate that eventually supply chain will recover, and that should ease some of the pressures.
I think the other dimension, Arno, is, you know, we reference in the statement that we're fortunate to have the brick and roof tile facilities together with the Space4 support, 'cause that is helping ease some of the issues and some of the restrictions on availability. It's all about security of supply. That is helping us through these pinch points as Dean references.
Is Space4, as you mentioned it, is it scalable? Can it make a meaningful difference to your national business?
It does. You know, we will be expanding it over time. You know, I see it as a key resource for the business. As Mike says, I think our vertical integration is a competitive advantage for us. You know, candidly, it's made the difference between us being able to hit our numbers this year and not. You know, it's. I'm deeply impressed with that capability we've got within the business and want to strengthen it over the coming years.
I think, you know, Arno, just thinking about, as Dean says, you know, the Space4 construction system, you know, we are doing quite a lot of work in terms of R&D, in terms of further developments of that process and manufacturing approach. With a sight on sort of 2025, 2026 and decarbonizing, helping to decarbonize the homes that we build. There's, you know, it's a really interesting space at the moment, which will, as Dean says, you know, continue to be quite attractive for us to explore in terms of providing the right solution in support of the Future Homes Standard and achieving those requirements.
It really ticks four boxes for us, quality, growth, zero carbon, and skills shortage. You know, it's a key part of what we do.
Is that okay, Arno?
Thank you, Dean. Thank you, Mike.
Yeah.
Thank you very much.
The next question comes from the line of Charlie Campbell calling from Liberum. Please go ahead.
Good morning, everyone.
Hi, Charlie.
Hi, Charlie.
First of all, thank you for taking the question. I've got three, if I may, but they are all pretty quick actually. Just on land, I mean, you've talked about being very successful in land purchase, but some of the agents are starting to note kind of land prices going up a bit. Is that something to worry about or the concern or is that something that maybe you're not even seeing yourselves? Just some color on that'd be great. Secondly, you mentioned in the statement that you were looking forward to spring, and I wondered if there's any kind of forward-looking indicators that you might sort of highlight to, sort of, underpin that confidence in spring.
The last point really asks about, you know, Help to Buy and low deposit lending. What are your impressions of the Deposit Unlock scheme and whether you think that might kind of fill the void that will be left with Help to Buy, you know, as of sort of towards the end of next year.
Okay. I'll have a go at the first two, and Mike wants to answer the third one. On land, well, I suspect prices have always gone up to some degree, but you know, we cope with it. I mean, yeah, we are in a competitive market, but you know, we bring the Persimmon great Persimmon capabilities of land buying and build to that. You know, we've got particular strengths in terms of you know, the scale at which we can buy and the size of units that we can buy and then trade off. Look, we really are pleased with progress we've made in the last 12 months, 16,200 units as we referenced in the statement this year at great margins.
There are some really super developments out there that we want to get through planning and bring into construction. Lots of people ask me that question all the time, but you know, candidly, I think we're just dealing with it. It's just market. We're taking it in stride. You referenced spring, where you can see our forward sales position is strong, you know. I'm sure Mike will touch on this in a moment. You know, as we've seen the Help to Buy numbers change in terms of the proportion of demand, you know, our sales rates remain very strong, and they're continuing in recent rates to be very strong.
Notwithstanding the fact that, you know, we've now passed the end of furlough, notwithstanding the fact we're in, you know, post-tapering of stamp duty relief. There is a very strong demand for product out there and, you know, it's hard for us to tell what impact pandemic has had on demand. Working from home and demand for green space, all of which I think is, you know, a feature of product we supply. Whilst, you know, mortgages remain affordable, demand remains strong. We expect that to continue in the spring as we sit here at the moment. Mike, I don't know if you have anything more to say or answer the Help to Buy question.
Yeah. I mean, I think it goes hand in hand in a way, doesn't it, Charlie? In that, you know, obviously the Help to Buy scheme for the industry overall has been supportive. I think the change to it, you know, we anticipated a lower take-up for the changes that have happened and came into effect earlier on this year. In terms of, you know, since that change, from, you know, let's say the start of April, we've seen around about 30% of our customers have chosen to use the Help to Buy scheme. Yes, that is a reduction on historical levels.
You know, as Dean's already said, you know, the sales rates we're achieving, despite the changes to Help to Buy and stamp duty window, tapering and then shutting, demonstrates to us the resilience in the market. Thinking about spring, obviously we've got some exciting developments in the pipeline. We're already out marketing a few of those, which will be released into spring, the other side of Christmas, because obviously, we're now reaching a stage where, you know, we start to think, well, is there any point in opening up a new development this side of Christmas? We probably start to hold them now. You know, just to get, as Dean says, you know, tap into that pent-up demand in the spring season, which is always the better season to sell.
I think that, we're seeing, you know, good early interest in these developments coming through our website. Good levels of inquiry, which supports our confidence in terms of the outlook for spring. When you look at our forward sales, in terms of reservations already taken, they are particularly strong. Dean's already mentioned that our PD, our private sales into the owner occupier market for next year are already sort of 26% ahead of where we were in 2019. Just shy of 2,700 homes sold.
I think that, you know, there's a number of points there, together with the new outlets that are to be opened into that spring season, which, you know, we're confident that we'll be in a good position to meet the demand that's there. I mean, obviously interest rates. You know, there's been a lot of chatter around interest rates, et cetera. We're still seeing good support from lenders. They did pull a few deals, you know, in anticipation of last week's decision. I think that generally speaking, the major lenders we talk to are very keen to support customers in the market. I think that's gonna continue to be the case. Yeah, as Dean says, you know, we are confident that spring should be a good season again for us.
Yeah. Thanks very much. Just from the Help to Buy piece, just, do you have any specific comments about Deposit Unlock? Obviously it's now kind of a broader scheme, isn't it? Some more national take-up. What was your first impressions of that?
Yeah, I mean, I think, you know, from our point of view, it's what customers are recommended to do by their independent financial advisors and their legal advisors. You know, customers are very well advised, as you know, and obviously, you know, their relationships with their advisors, they, you know, they would. You know, their advisors would always recommend the best deal for the customer. I think still, as you know, Charlie, the Help to Buy scheme provided by the government is a particularly attractive opportunity for first time buyers.
That doesn't mean to say Deposit Unlock hasn't got a part to play, but I still think in terms of the priority order of advisors are advising customer that, you know, to Help to Buy if they're in that first time buyer position would be using it. I think, for others, you know, existing homeowners, well, they, you know, they tend to have equity. We're not seeing a lot of demand for that type of product at the moment. But, you know, it's another club in the bag, isn't it, that we can play if we need to, and certainly we are participating. Yeah, I mean, we'll see how we go.
Thank you very much. Thank you.
Cheers, John.
Thank you. The next question comes from the line of Gavin Jago calling from Barclays. Please go ahead.
Morning, gents. Hope you're well.
Good morning.
Yeah, hi there. I just wanted to explore just on the planning comments really, and maybe get a bit more granularity on the outlet numbers. Just I guess looking back to the interim, I think you were talking about maybe 300 average for this year and looking to open 85 in the second half. Now you're talking about opening 60 by spring. Just trying to square all of that really into your comments around the issues around planning. Maybe, Dean, just back to your point on kind of the resource shortage. Have you got any sense from your discussions with, I guess, ministers around whether you've had talent leaving that industry?
'Cause looking back to where we were pre-pandemic and the site numbers across the whole industry were, you know, were some way high. I'm just wondering whether, you know, it's just slow to come back, or whether actually there have been people leaving. It's actually gonna be a longer term issue.
I think, look, of the 85 we referenced in the second half, probably about 2/3 to three quarters of those are open by now anyhow. You know, I'm now looking forward to what we might open in the spring and, you know, there's another 60 by spring. I think we're talking about another 85 in the first half of next year. We really do have a good pipeline of developments coming through. The timing of that is inextricably intertwined with what's going on with planning authorities and, you know, whether that opens in January, February, March or June, July, August, is governed to some extent by factors outside of our control.
I think the planning departments have suffered a turnover of staff that they are struggling to replace currently, and in the short term, that is an issue. It's really timing. You know, the opportunity and the revenues for us are out there, and they will eventually come. It's hard for us to give you complete precision about days, weeks, months when we're gonna be opening up outlets, but we've got extremely good visibility. You know, we will do everything we can to keep pulling those through.
Okay. Thanks. Just in terms of, I guess, the outlet numbers for this year and next, you know, I think you're looking at 300 for this year. Would you, given, I guess, the land buying and that you've done, do you got to move north in FY 2022? Would you be looking to hold it?
Oh, yeah, we're definitely moving north. You know, first half of next year, I think we're targeting an average of 310. We're still on with that, still our best guess, you know, and our long-term target is still 350. You know, that's what we're moving towards. We definitely have got those in the pipeline, subject to planning when they come into construction.
Brilliant. Very useful. Thanks very much.
Cheers, Gavin.
Thank you. Before we take the next question, please be reminded, if you would like to ask a question, please press star one on your telephone keypad. The next question comes from the line of Glynis Johnson, calling from Jefferies. Please go ahead.
Morning, gents. Apologies. The signal from Southampton isn't very strong, so I may ask you questions you've already answered, but I just have a few, if I may. The first one, just in terms of you talk about your build program being on track. Can you just talk about potentially where build equivalent units could be at the year-end? Secondly, just in terms of the order book, forgive me, I know you talked about volume and value of that order book, but I missed it as I flicked in and out of signal. What is the HPI in that order book? What should we think about in terms of ASP for next year?
Just in terms of that margin resilience comment, I wonder if you can just maybe give us a little bit more granularity in terms of what that really means, either relative to your land bank margin or relative to first half margin. Lastly, just given that build program that you've got in place and the WIP you're putting on board, sort of should we be thinking about year-end net cash?
I'll just jump in and do the cash, the last one first, Glynis. Yeah, I mean, I think cash is still, you know, the cash gen's still very strong. We'd love to be, as we said before, investing more in work in progress. That's what we're sort of striving to do. Obviously that goes hand in hand with opening up the outlets and starting the construction of the development. So that's still very much our focus, and I think that
You know, to what degree we succeed in that, we'll have to wait until end of December to find out. I think that the cash generation will remain very strong. In terms of EUs, we are, you know, our productivity's good. We're building at sort of pre-pandemic levels, as we've been saying through this year. We're continuing to do that despite the materials challenges that we're seeing in the supply chain. Again, it depends on the number of outlets that we get into construction, et cetera, to give you a definitive view on EU. I think we'll best wait to find out, you know, how much success we've had on that.
You know, the focus is on achieving a very strong, as strong as possible platform on building to next year, come the end of December and obviously into spring as well. You know, that is very much our focus. You know, our rate of build at the moment would be on average around, you know, one new home per site per week, which, you know, is our rule of thumb sort of rate for the group, which, you know, we're there or thereabouts. Yeah, we're pleased with the productivity that we're seeing on the sites.
Yeah. Just to jump in on that. I mean, look, since really, you know, obviously pandemic impacted on build during last year, but really since March of this year we've been building ahead of sales, so we've been recovering that position, albeit not maybe as fast as we want to, but we're still staying ahead of build. In terms of HPI, it remains strong and it is where it was at half year. And that's what's embedded in the forward order book. So, you know, selling prices do remain firm, and that, you know, to touch on a previous question earlier, that also gives us confidence about looking forward into next year. And also is underpinning margin resilience.
You know, we continue to see margin is good. You know, we're able to absorb cost inflation, whether it's materials or labor cost inflation, and protect bottom line and, you know, expect to report a good second half.
Previously you talked about a positive margin spread, high percentage of the build cost inflation. Is that still the same case now or is it more now absorbing that build cost inflation?
I think on balance we're expecting a positive spread, but we'll see where we get to at the end of the year.
Yeah. I mean, it's not gonna be hundreds of basis points, but, you know, there may be a little bit of a tickle northwards, but, you know, we'll see when we get there. I mean, obviously, we're only partway through the second half, as Dean said, so there's a bit of water to flow under the bridge. The weekly margins we're seeing, as Dean's already said, are strong and we anticipate that. I think we did an EBIT margin of 27.6% in the first half of the year and there may be a little bit of betterment, but it'll only be marginal given everything that's going on. Yeah, I mean, we're managing that balance well.
The HPI you're seeing in the order book, should we just assume that flows through in terms of private ASP next year or is there a mix effect in private next year?
Yeah, I mean, I think again, you know, with the new sites opening, old sites closing, et cetera, and the different geographies, it's very hard to predict where the ASP's eventually gonna land. Underlying, I would say, you know, agree with Dean in that, you know, we are seeing solid pricing conditions. We are achieving, nudging our prices forward, week by week. I wouldn't wanna predict exactly where the ASP is gonna be next year because obviously there's a lot of moving parts. We don't see any major change to mix between private and housing association sales, particularly at this stage. I think that's something that will evolve.
Obviously as these new developments come through, we've got the opportunity to sell into our housing association partners the new product that will be available, which will, you know, be great for the affordable business. That typically, you know, we deliver in any one year, in a normal year, around 3,000 new homes into the social housing space. You know, we are one of the larger providers.
Can I just check how far forward your order book goes? Are you selling into April now or are you still selling into March?
Yeah, we are.
Yeah. Yeah. Obviously it's different for different sites, but, yeah, we'll be selling through the first quarter and touching the second quarter now, yeah.
Thank you.
Thanks, Glynis.
The next question comes from the line of Jonny Coubrough calling from Deutsche Bank. Please go ahead.
Yeah. Dean, Mike, Martin, good morning. I think I've got three. Good morning. The first one is a bit of a follow-up to Charlie's question. You've described them as great, but what are the embedded margins on your new land acquisitions? I can hear you chuckling, Mike, so yeah, good luck on that one.
Do you want the 59th decimal point? Or is that just what we're going for on both lines?
Well, let's start with any kind of answer. Anyway, the second one would be-
Well, good.
Great. Okay. The second one would be, you're referencing in the statement the outlet network. I just wonder at what stage does that morph from new sites to new divisions? The third one, just wondering what's the latest on finding someone to dance in Mike's old shoes?
Look, I think it is a good question about, you know, at what stage does growing outlets morph into new divisions, and some of the businesses actually are quite big now. That is something we've got to keep under review. You know, I'm watching that very keenly, and certainly I think, you know, I could think of at least two parts of the country at the moment where they're beginning to get our size and scale, where you could justify opening another office and bring a bit more focus. We'll watch how that develops in the course of the spring and see where we go with that. Yeah, it's a good question.
I guess our feel where is, you know, where there is that demand and there's opportunity and we've got the resource to do it, then, you know, would that focus bring us even more opportunity? Yeah, very much front of mind for me at the moment, that one, actually. On CFO search, look, we've got some great candidates, internal and external. I hope to be making an announcement soon, and I will do that just as soon as I can.
I mean, on the margins front, John, obviously we are holding our discipline around land replacement. That's the important thing. What you've seen in the past, everything else being equal, you'll see in the future for a little while yet. And we do give visibility at the time of our half year and full- year announcements in terms of some insight in that. I think that, you know, it'll be a similar sort of picture, based on, you know, the deals that we've been doing.
The rigor that the business has brought to focus on margin will not change when Mike leaves.
Yep. Okay. Thanks, gents.
Cheers, John.
Thank you. The next question comes from the line of Andy Murphy calling from Edison Research. Please go ahead.
Thank you. Morning, Dean, Mike, Martin.
Morning.
Hi, Andy.
Some of my questions have been answered. Hi. Some of my questions have been answered, but, or asked and answered, but, I've got a couple left. Just going back to the original question around cost inflation, can you talk a little bit about the balance between labor and materials? One of your peers was talking this morning about pressure on materials seems to be easing, but therefore labor seems to be sort of remaining at a higher inflation rate. I wonder what your thoughts are around that and into next year. Then the other question was around about sort of, you know, the carbon sustainability measures. Just thinking about that whole sort of slice of the action at the moment, can you just talk a little bit about what the next kind of milestones or measures might be that we'll see coming out of the company?
Look, I mean, I think certainly I'm not sure we're seeing things are getting that much easier on materials at the moment. I guess it's all relative. You know, maybe I don't know, maybe we've been spoiled with our own, you know, our own capability, brick and tile and, you know, offsite manufacturing capability. I don't know. It's hard to comment on what's in somebody else's head.
I mean, I think logic would say to you that, you know, eventually supply chain pressures brought on by COVID and all the other things that have impacted it during the course of this year, which have, you know, let's face it, have probably been some of the most turbulent times anybody, most of us have seen in our lifetime, outside of war, will ease. It just stands to reason it will ease eventually. I don't think, you know, that's immediately around the corner. I do think, you know, it's fair to say that you think that labor pressure will continue to be an issue.
Having said that, you know, as I referenced at the top of the call, I have been incredibly impressed in the last couple of weeks with how well the business has done in terms of build rate. It has done extremely well, and long may that continue. Mike?
Yeah, just Andy, just to remind you know, the inflationary effects around this, you've gotta always bear in mind the labor and material content, broadly speaking, in terms of the cost of sales, where, you know, as you know, labor would typically account for maybe 60% weighting, maybe a tad more in terms of, you know, the overall cost that, you know, a house builder incurs.
Yes, the materials have been more difficult for a little while, a little bit more inflationary, but their impact on the overall cost base is obviously less of a weighting than on the labor side. That's something just to bear in mind, Andy.
Yeah. Okay, thanks.
On zero carbon, look, as you know, we've got three developments of our own across the country at the moment that we are progressing with. I suppose it's quite, you know, a very dynamic situation with us learning all the time how to improve and supply chain catching up with demand out there. I think, you know, what's increasingly apparent is that whilst perhaps as an industry we've been focused on what the consequences of zero carbon cost is gonna be for new build, you know, maybe we should, whilst continuing to be mindful of that, think about the competitive advantage it might eventually give us against second-hand stock.
You know, what is clear to me is that you know, new build is gonna solve this problem well ahead of second-hand stock. You know, that I think will become increasingly attractive to buyers, lenders and investors, as we solve the zero-carbon challenge in our industry. I mean, obviously Part L is you know, we're now building towards and compliant with in 2023. After that, it will be waiting for government to finally decide on what Future Homes Standard will be. I think you know, that's probably well-known and well-publicized now. The issue really is supply chain catching up with what that will mean for us as an industry.
Okay. All right. Thank you very much.
Cheers, Andy.
Thanks.
We have no further questions coming through on the phone lines, so I'd like to hand the call back over to your host for any concluding remarks.
Okay. Well, look, thank you. It, you know, it's just a trading update. Business is performing incredibly well, despite it being very challenging times, and we're looking forward to report back to you at the year end with a good set of numbers. Thank you for your interest, and speak soon.
Thank you for joining today's call. You may now disconnect your lines.