Earnings Call: H2 2020

Mar 3, 2021

and welcome to the Persimmon 2020 Full Year Results Presentation. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded. And for the duration I will now hand you over to your host, Dean Finch, Group Chief Executive to begin today's conference. Thank you. Thank you. Good morning, everybody, and welcome to our call this morning. I'm joined by Mike, Our CFO, Andy Fuller, our Construction Director and Marcin Clark, Regional Chair for Southern. Hopefully, you've had chance to see the materials that we posted this morning And had a chance to look at the presentation. I thought I might spend just a couple of minutes talking through some of the key points and then open up to Q and A. So in terms of 2020, I think a very robust performance in the context of COVID, 13,005 completions for the full year, record completions of 8,675 in the second half, A private affordable mix of strong at 84.16 Statutory PBT at €8,500,000,000 8,900,000 and obviously strong cash position of 1,234,000,000 Looking ahead to the new year, it started well. We come into the year with a record order book, which is 15% up by value. Sales rates are strong, up 7% per outlook per week. And we're seeing that selling prices is firm. We're selling well into the second half At the moment, no material impact of price caps on the business so far. Indeed, we've sold We reserved some 1500 under the new Help to Buy scheme. So we've got a great platform For growth, I'm pleased to say that in terms of quality, Persimmon is doing really well. I'll check this morning. Our latest survey results So, we're at 93.2 percent for the new survey year, so business is doing really well there. Hopefully, you've had chance to look at our priorities, and we'll no doubt discuss those this morning, but they were posted on the website in a couple of materials that we released, build, brand, Being able to build consistently well, maintaining our financial position and driving healthy profits and cash and sustainability. Turning to the outlook for 2021. Well, as I said, The business has started well. We were affected by production at the beginning of the year. We had Quite a storm of COVID, Brexit, quarantining, bad weather, which did affect us in January in particular, but The business is back now to where it needs to be. We probably lost about 2 weeks' worth of production over those The first few weeks of the year, but I'm pleased to say build is back to more or less now where it was pre Christmas. And the shape of the build, I think, is also important. So if we look ahead, we're forecasting that by March, we'll have everything grouped That we need to for the end of the first half. So I think that's in good shape and recovering. So Obviously, in 2021, we're still dealing with the consequences of COVID in terms of the impact on production and also the impact on outlets. So we're thinking that in 'twenty one, we'll be around in terms Volume 90% to 95% of where we were in 2019 volumes with first half approaching first half of twenty twenty one approaching first half of twenty nineteen volumes. Looking forward though, which I think is important, 2022, we're aiming to be back where we were in 2019. And then in 2023, hopefully, we've done what we want to do with land and also with our ability to our capabilities to build consistently well, Well, and we should be in a great place at that point, assuming stable economic conditions for growth. We will have created, I feel, a great platform for growth at that point. In terms of dividend, I'm pleased to say you will have seen the Board's As expected, an increase in the regular dividend Up from £1.10 to £1.25 and we're expecting that we will be paying the £2.35 full dividend So thank you very much for listening to me and I'll now open it up to questions. Thank you very much. Our first question comes from the line of Rajesh Bhatia from JPMorgan. Rajesh, please go ahead. Your line is now unmuted. Great. Thank you and good morning, Dean. Good morning, Mike. Congrats on the good results. I've got three questions, Firstly, within the forward sales position, ASP is 5% ahead of last year. Could you help us in understanding what the private ASP and sort of what level of underlying house price Inflation within that looks like. 2nd question is on margins. You had earlier talked about a drift in margins and this You mentioned about the dilutive impact from a higher affordable mix this year. With the affordable mix Sorry, could you repeat? I lost you there. Yes, sorry. So the second question was on margins. You had earlier talked about a drift in margins. And this morning you mentioned about dilutive impact from a higher affordable mix this year. So with that mix Reaching a more normalized level and completions reaching closer to pre COVID levels, would you expect margins to see some uplift in 2022 and 2023? And lastly on land market, commentary seems to have improved as you plan to get back to £500,000,000 of land investment. Does that mean your previous comments on allowing the land bank to drift back are no longer applicable. Thank you. Right. Thanks, Rajesh. So, look, I'll start, if I may. In forward sales, the Increase in private is around about 2.5% and the underlying is around about half of that. And if we look ahead to the year, that's sort of further underlying increase maybe around about that level. I mean, obviously, We look at selling prices on all of our outlets every single day. Obviously, we're not price setters, Well, we do what we can. So yes, selling prices is firm and good. And I suppose connecting that into the next point on margin, look, we are seeing an increase in costs And some of them are quite punchy, 3%, 3.5%. Within that, some commodities have gone through the roof, But overall 3%, 3.5%. And so if you take the underlying increase in selling price and What we think might happen as we look forward across the year, then maybe there's some neutrality in the margin there overall. There's obviously the mix effect that you talk about. We're still below volumes We're still pre COVID level of volume. We're not back to pre COVID levels of volume, sorry. And so that's obviously going to have an impact on overhead absorption, but we will be increasing volumes we hope this year. And obviously, we've still got the cost of COVID with us. We've still got the inspectors out on-site. We've got around about 340 of those out on-site at the moment and other costs So we've got some headwinds. But as I said, volume is recovering, selling prices are And also, look, in the coming years, 2022, 2023 and beyond, we hope to be reaping the rewards Of the investment we're making in terms of building right first time and being able to consistently build well at quality. So other things being equal, we're expecting that the business will do well and we'll be able to protect its margins. And on the land side, we're not I think obviously With the vaccine or multiple vaccines out there now, we're being able to tick off some of the uncertainties that we were facing last year. So that enables us to whilst we've got, as you know, an incredibly strong land platform, I think that the resolution of these uncertainties as we move forward, and As Dean says, there are still some out there that you've got to still be vigilant around. I think That provides us with a bit more confidence with respect to residual land values. Dean mentioned selling price profile. And looking forward, our expectations around that, and obviously, that It's a bit of a key driver around residual land values. So yes, I think we do feel a little bit more confident About the outlook, just over the last sort of 3 or 4 weeks as we get more data around The efficacy of the vaccines that are now getting dispensed Very widely. So that's great to see. And indeed, that creates a bit more certainty for us to plan for the future. And indeed, press the button on some of the really quite attractive Land parcels that we've got in the pipeline. So we're very fortunate in that regard. So as Dean says, that gives us a real opportunity To grow back our volumes from here as we move forward. There's no doubt that if we had More outlets at the moment, we will be selling more products. And as Mike said, The land bank is very strong and certainly it has got some fantastic embedded margins within it. Persimmon in my view buys land incredibly well and develops it really, really well. And I think it's our job to deliver that effectively for shareholders and for stakeholders. And We're doing a lot of work to develop what we've got into the land bank I'm looking ahead to bring more into it, to bring more supply and to deliver what government wants us to do, which is to Bring more houses which are affordable for buyers into the market. Thank you. Thank you very much. Our next question comes from the line of Arnaud Lehmann from Bank of America. Arnaud, please go ahead. Your line is now unmuted. Thank you very much. Good morning, gentlemen. Good morning, Ana. Good morning. Three questions on my side. Just following up on your last comments. Is it fair to say that you sound probably a little bit more optimistic about your medium term volume outlook at this stage? And I guess You referenced 2019 in your statement, but that was not your peak volumes. I guess 2018 had actually higher volumes than 2019 because you slowed things down back in the time. So do you think going back to 2018 volumes, Maybe, let's say, by 2023 could be achievable? That's my first question. My second question is around the cash return. You do confirm the $235,000,000 for 2021 and that's quite helpful. Are you implying that there could be upside to this in the medium term, so beyond 2021. And also you've adjusted the timing of the payments Of the returns, could you elaborate why you I mean, it's just a timing issue, but why that was the case? And lastly, Could you just comment on the cladding provision, the €75,000,000 that you announced in February? Are you confident that this is as bad as it gets, let's say, and that there's no risk that the provision might be Increase that at a later stage. Thank you very much. Okay. Well, shall I have a go? And then I'll turn over to Mike. So Thank you for your questions. Look, the world is a different place than January, isn't it? And the vaccine rollout is Motoring ahead, and I think that gives us optimism to be able to see through the crisis And other things that were hanging over us earlier in the year. Look, yes, I'm well aware that 2018 was higher than 2019. And I believe that and I hope that we will be able to, in the fullness of time, beat those previous records in terms of volume. And yes, Certainly, 23 would be where I would see 2018 or beyond maybe, but it's about us Building that capability within the business to consistently deliver quality houses So, well, I see that being developed, thanks to the Persimmon Way in the business, which, as I've said, we're doubling down on in terms of strengthening within the business. And I just think to give listeners some confidence about that, when I go out on-site, I which I do every week, I do make a point of seeing the IQC, our independent inspectors out on-site and they're engaging well with the businesses up and down the land and making a real difference to our quality and actually building efficiently. So I think it's a tremendous It's a tool the business has got there. And I'm confident that over time, we'll actually be a differentiator for Persimmon and strengthening its ability to turn out volume consistently well, our quality. So yes, we're feeling good about what the future might hold, assuming economy remains stable. I think in terms of dividend, look, we've got the cash And we sat on £1,200,000,000 worth of cash as we speak. And so it felt only right To be accelerating the timing of that return in March, I think in future years, We'll return to a more normal pattern of distribution. Look, let's not get ahead ourselves in In terms of even bigger distributions in future years, I can assure you that I firmly believe that the Board is committed to Always distributing surplus cash subject to the investment needs of the business, which will vary From year to year, we, Persimmon has, I think, a justified reputation for managing the deployment of capital within the cycle. And I'm not going to do anything that's going to upend that. I want to strengthen and continue that. And so that may mean in some years we'll have more cash and some We'll have less cash, but I think that's the strength of the business's balance sheet and the metrics it's Put out there in terms of the $600,000,000 to $700,000,000 of cash at the year end to enable us to manage those cycles whilst giving Shareholders the confidence of that not just the regular dividend, but the surplus dividend as well. And I'm sure we'd all like to see that in the share price. Turning on to cladding. Well, look, this is about us Doing the right thing as a company, we triggered a review in November, and Andy has done an exhaustive and Extensive review of the business going back years years years. And we've identified these 26 buildings, 5 of which we own. They're all below 18 meters. The other 21 are a mix of above and below. And I think we have taken what I hope is A conservative view of the level of provisioning to give both us certainty, stakeholders Certainly. And I think importantly, it's a signal to our customers out there that, look, We're going to keep you safe in your homes. You're going to be safe in the home you buy from Persimmon, but also we're going to make sure you get your As well to enable you to mortgage your homes and sell your homes. So hopefully, that's answered Most of the points, Mike, did I have anything on to? No, I think that's fine. Yes. That's perfect. Thank you very much. Our next question comes from the line of Aynsley Lammin from Canaccord. Aynsley, please go ahead. Your line is now unmuted. Hi, good morning. Just two questions for me, please. First of all, on the mortgage market, just wondered if you could give a bit more color what's In mortgage market, the kind of providers becoming a bit more optimistic as well. And any thoughts you have on what we expect today with the kind of mortgage guarantee product It's been speculated that we'll be announcing the budget. And then secondly, a question, just any more color on kind of regional difference Well, look, the mortgage market Has improved obviously since last year and there's more products available And at certainly 90% and there's a tick or more at 95%. I mean, obviously, from an affordability point of view, it's with low interest rates remaining than that. That's obviously key. Welcome. The speculation that which everybody's assume now is certainty about what the Chancellor is going to say. I mean, I'm probably going to show my age here, but I remember Chancellor resigning when they when budgets were leaked, but that doesn't seem to happen anymore, probably a good thing. So look, positive for sentiment. It's obviously for the broader market, not just new homes. But obviously welcome that it's the government policy is there to help people Get their feet on to the housing ladder. In terms of regional differences, well, Actually, it's looking at all right overall. I mean, there obviously are pockets of strengths and weaknesses as they always are. But I think Persimmon's got a fantastic platform, national platform. I think it's in the right markets, And it's right not to be in the markets. It's not in as well, I believe. So overall, The position is pretty well looking consistently good. Actually, just one last one as well actually, if you don't mind. The Split between private and affordable, is that closer to 20% this year in 2020? Yes, it's going to be a more normal return, eighty-twenty this year, yes. Great. Thanks very much. Our next question comes from the line of Will Jones from Redburn. Will, please go ahead. Your line is now unmuted. Thanks. Good morning. A Couple from me as well, if I could, please. Good morning, Will. Good morning. It's just exploring, I guess, what you might deem the optimal Sales rate at the moment, I think in the past, you talked about somewhere in the midpoint 7s, which is pretty much where you were in 2020 as a whole. You're obviously ahead of 2020 at the moment against the toughest comp. So how are you thinking about the that position in terms of what you might deem at The optimal level, is there a ceiling you might put on it, at which point you might say to the teams, let's try and push a little bit more on price? So just I guess the trade off there, please, would be great. And then the second just coming back to the comments around growth. Obviously, there is a 2022 target ambition. Presumably, there's a site and outlet number Underpinned to that, would you be willing to share what you think that might be next year? And then maybe just looking beyond it, is there anything, as you look at the map For the business as a whole, any gaps you think you might look to be bigger in regionally, new offices needed longer term, anything like that to support that Okay. I'll have a go and then Mike can tell me often Put me right. I mean, and finally, you should say this, but obviously, a heated debate internally and my The gentleman sitting opposite me across the table has been heard recently to say, well, if you're selling that fast, then why don't you put the prices up? No, you didn't say that, did you really? Yes. Look, we're on it all the time. And we're clearly benefiting At the moment from, I think, very strong sales, and it is a mix of Price and what's available and obviously demand out there, and I think that's driving us towards the higher end of The sales rate at the moment, but obviously, as we're always at pains to point out, we don't set price. It's valuations that set price. I would say that we're not seeing much In terms of down values at the moment, and so there does seem to be an ability to afford what's going on out there. We want to build at a rate that matches what we're selling at. So I think that's also very important. In fact, we want to get ahead of the rate at which we're selling at so that we can deliver a quality product to our customers. So It feels quite hot at the moment. We're keeping up with that. You can see, I mentioned at the top of the call, the HBS survey Results where we're at at the moment. So I think that's a particularly strong performance of the business in terms of quality at these very high sales rates. Turning to and I'll invite Mike to comment in a moment. I think turning to outlets, I mean, we're around about 300, Which is where we're going to be broadly be during the course of this year, a bit stronger in the second half. So over 50 new outlets being opened this year. And look, this goes to the heart of what we want to do, which is to open back, open up more outlets. That takes time to bring them through planning and the business is Extremely focused on this at the moment. And We will be our ambition is to drive out that growth in 2022 and 2023 and beyond, getting More towards the $350,000,000 level towards the end of 'twenty two, we would hope. And then subject to market conditions, seeing how that develops from there. There are it's interesting what you say about new offices. I mean, I do Without well, wanting to give the game away, I think there are clearly opportunities as I walked around the business where I think Actually, there would be the potential for us to open more offices to right size the regions and take advantage of more presence in certain of the markets. So I think, yes, there is that opportunity out there, which is great for the business. And we want See that come on stream over the next 2 or 3 years. Mike, anything to add? Yes. I think that's fine. Yes. I mean, in terms of sales rates, Obviously, we expect the traditional seasonality of the market to reassert itself this year. And as you know, it's well documented now that the disruption last year turned that Traditional pattern of seasonality on its head in terms of sales behavior, customer behavior. So We would expect that to return to a more normal pattern of where spring is stronger than autumn. And indeed, The 1st 8 weeks, as Dean has already touched on, is encouraging to us to think along those lines as well, Well, we've got a PD sales, an average PD sales rate per site of around 0.94 Over the 1st 8 weeks, which is a good rate of sale, albeit it's spring and we would expect that. So I think that bodes well for spring, and we'd expect autumn to be a little bit slower If that seasonality comes through, so we'd expect a decent forward order book at June. And then with the pattern of handover of completed properties, legal completions in through the second half, as we've indicated, We'd expect a pretty good forward order position to take into the following year as well, into 'twenty two. So, yes, I mean, we're encouraged with what we're seeing at this point in terms of sales rates. And I think that we haven't touched on it yet. Maybe there will be a question later, I don't know. But I mean, clearly, I think consumer habits are Customer habits are certainly anecdotally pick up when I walk around. There's differences In terms of what we've seen through COVID, I mean, I was at a site with Whitney the other week and I was talking to sales rep there and she was telling me that maybe this she's seeing 15% More inquiry, more interest from people moving out of London, for instance, which she's not seen before at that scale. And maybe we're seeing that really across the country as people are Wanting to work from home in a different pattern to where they were before. And I know there's a huge debate about What working life is going to be like post COVID? Will it ever go back to quite where it was? I mean, Some people have, well, there's very different views on that, isn't there? But I can't imagine that I'll ever quite go back to where it was, certainly not for some time. And what we offer in terms of space and also you've seen what we said today about fiber and estimating, it's a Real USP for the company. So maybe all of that is underpinning strong sales as well. Great. Thanks a lot. Thanks, Will. Our next question comes from the line of Chris Millington from Numis. Chris, please go ahead. Your line is now unmuted. Thank you. Good morning, gentlemen. A couple, if I can, please. Can you just comment on How much more money you'd like to see in Wick through the course of this year? I think you did mention that you'd like to kind of update the build rate a little bit. The second one I just wanted to ask really was about the role land creditors are going to play in this increased land buying you're forecasting and whether or not you're looking to run those up a little bit higher. And then just back to Will's question before. I just wonder if you could make a quick comment about where You see the current capacity of the business in terms of volumes based on your regional structure. That's all for me. Thank you. Okay. Thank you. Yes, well, look, we are going to be investing in this year. We came we entered the year at about 500, 600 EUs and we want to get back to a more normal rate of 6,100 by the year end. So We want to get ahead of that. And as I mentioned, January early February, we took a bit of a setback. So we will be investing More in WIP. In a moment, I'll hand to Mike on land creditors, but I think you can expect those returning to more normal Pat? Yes. I mean, just to stick a number on that, Chris, you've got to think that if we can get ahead on the build, as Dean is pointing to, Because obviously building a sort of more or less full capacity that we return to on the 300 outlets, It's an incremental sort of slow moving additional investment that will go in through this year Because it's not as if we've got loads of fresh sites that we're beavering away on, we're at Full capacity as we sit here. So I think that over the rest of the year, we might see maybe another 75,000,000 to 100,000,000 Being absorbed in work in progress by the time we get to the end of this year, just to give you a sort of feel for The scale of that intent, if you will. Dean, back to you. Thanks, Mike. And then on capacity, well, look, we've got 31 companies, and We're targeting 600 to 650 as an optimum for scale build in those companies. And I think that's pretty good Ties drives and tested model within Persimmon. So do the math, you can see where we think we can get to. And a lot of our companies now within the business Our operating at 5 Star, few aren't now, particularly in the New Year. So I think We're proving we can deal with it. And so that links back to the previous question about opening new offices as If the market is there and we see the opportunity to go on and expand, build in future years. Chris, the other thing on the additional investment that's needed that we touched on a minute ago. Obviously, yes, we need more work in progress. But yes, we'll be investing in land as well. And Dean mentioned the land creditor point, which is very important. The pay down of land creditor over the last 2 or 3 years is by intent, by design. And the flip side of that is that it opens up more headroom to Accelerate your investment game because you've got the ability to add more leverage, more gearing. And I think that to characterize what Persimmon does over the long term is we tend to agree Terms with landowners where we defer a decent proportion of the initial value to, Say over the next year or 2, maybe 40%, 50% on average. So if we're Within that we've indicated about $500,000,000 is a more typical level of Spend cash out on land, if you split that to say, well, €150,000,000 to €200,000,000 on land credit to pay down, You've maybe got $300,000,000 left on new deals, but that in terms of cash would represent, say, only 50% of the land value, so double it up. You've got $600,000,000 to $700,000,000 capacity, if you will, to in a more normal stable market that we'd be expecting to invest. So that gives you a feel for the firstly, the gearing effect, the assistance we have, the balance sheet that we've got, Together with liquidity, together with a normal sort of pattern in terms of how that capital would be deployed. That's very clear. Thanks so much. Cheers, Chris. Our next question comes from the line of Glynis Johnson from Jefferies, Glynis. Please go ahead. Your line is now unmuted. Good morning, gents. Good morning, Glynis. I have 3, if I may. The first one just in terms of growth, forgive me, Dean, I just want to clarify. You gave you talked about volumes for 2023 and beyond 18,000, was that for 2023 or was that beyond? And the reason I say that is the 350 site levels at the end of 'twenty two, that's 16% increase on where you're saying you're going to sort of be in 2021. So that would suggest it's quite a meaningful outlook. The second one, land bank margins. You talked in your presentation about being above 32.5%. I calculated it's around 32.8 Can you just give us a bit of color in terms of, does that include the COVID costs that you've referenced? Does that include the recent house price inflation? Just to make sure we understand the basis of that number. And then the last one just in terms of land buying, excuse me, Chris said it was clear. I certainly realized I didn't think it was in my head. Are you saying that the land spend will be 500, Then on top of that increased line credits as to where they were, I. E. We will see somewhat of a bulge come through in the next 12, 18 months or so? Or should we just be having that GBP 500,000,000 in per annum? So thanks, Blenis. Just on growth, I mean, in 2018, we were about 16,500 units. And sorry, Mike is reaching out. Clintus, you were referencing 1,000 units, I think you're getting confused between 2018,018,000 units. The capacity of the business, we believe, It is around about 18,000 at the moment. I'm not saying that's where I think we will be in 2023, but if we are, nobody will be happier than me, so long as we're at 5 Star. But yes, are we signaling long term Ambition and intent for growth subject to managing the cycle and maintaining our margins. Chief for me, keep people safe, maintain our margins, grow the business, protect the balance sheet. Those were The issues that drive me and deliver a 5 star. In terms of the land bank, yes, I mean, look, COVID costs, I think Mike said that carry forward is about $9,500,000 So in the context of what we've got not material And in terms of inflation, well, as I said, I think at the moment, selling price and cost Inflation are broadly neutral, so that I think evens out. There's some tremendous embedded margins in the land bank. I've seen some super exciting things since I joined the business in terms of opportunity And very strong margins in there, both within the land bank on strategic land and on spot 2. I think on land spend, I think the cash is around about, as Mike outlined, But I'll ask him to cover that. Yes. I mean, again, it's reiterating Chris' question really. In terms of the cash flow and obviously you're thinking about absorb how much is going to be absorbed By way of cash, the liquidity. I think the land credits there is to lean on really. That provides us with Assistance in supporting a more positive Land replacement process, given that we're seeing the future perhaps a little bit more clearly, As we referenced earlier, with the vaccine virus equation being fought out and hopefully successfully. So I think given that we've paid, we've opened up this headroom on the land creditor that gives us great opportunity To talk about the acquisition of new land parcels with landowner with some deferral attached to that. But also, Dean's touched on already the fact that in terms of the capital structure of the business, We bookended the liquidity issue with sort of the $650,000,000 $700,000,000 We think we should be carrying at the scale we are to minimize financial risk through the cycle. Within that $700,000,000 say there's about half of it that's there to assist our land investment ambition, And that's ignoring the fact that we're currently at $1,200,000,000 of liquidity. So I think when you put the pieces together, together with The available gearing and headroom in land credit. So we've probably got thick end of €1,000,000,000 slightly more than €1,000,000,000 That we could invest in the land market over time, together with, obviously, Looking at what we're going to do on trading this year, because as you know, the cash generation of the business is a combination of Trading and Working Capital Management. So if you look back at 20 in the slide deck, Page 12 in there is a good worked example. The trading compared with 'nineteen, we're about $180,000,000 cash gen lower at just shy of £900,000,000 Whereas if you look at after working capital and tax payments, We turn that round to £150,000,000 positive comparison to 2019. So that is a great worked example of how the cash generation in the business can work so long as you pull the right levers and press the right buttons at the right time in the cycle. So it's all with this combination of trading and working capital management that delivers the cash flow of the business, which supports our investment ambition as well as the distributions that we make To shareholders to keep the capital structure in the right place. And I think that's just coming in on Mike's Point there, which I think is really important one. I mean, look, my own calculations and the calculations of the business do Support the view that assuming we've got stable market conditions, we protect the margin that the business can continue to invest and grow At the pace we sort of indicating this morning, whilst being able to continue to pay the dividends that we paid in the past. So I think, great business, strong balance sheet, Strong opportunities. We can protect returns to shareholders and grow the business too. And just a clarify on that land bank margin, is there anything in the mix and the timing that would suggest why that land bank margin I always my stock answer on that, Glynis, is that, look, In any 6 or 12 month period, we can't be it's not a sausage machine. We haven't got CapEx out there delivering a homogeneous product. Every plot is different. Every site is different. And the mix Delivered from all those sites will be different in any period. So it's hard to guarantee an absolute level because That mix does change from time to time as we saw in 2020. But having said that, we've got a fantastic underpin. When you look at the blended margin that we provide sites on, as usual, within the slide deck and pointing it to it on Page The graph with the 3 colored blobs on it. If you do the simple calc on a weighted basis For the 67,200 plots that we own, we've got an embedded margin over 32.5%, Which is provides great strength to the outlook as Dean is pointing to bring forward and support delivery as we move forward. So As always, it's hard to be tremendously precise about an exact margin in any 6 or 12 month period because of the various moving parts. But I think that there is a Strength, it is a really strong high quality land bank in the right locations, Offering more affordable product, 17% lower than the national average, our private selling price. Thank you. Our next question comes from the line of Gregor Goklitsch from UBS. Hi, Gregor. Hi. So I just want to be very clear on what you're actually trying to say on 'twenty one margin, Because obviously it's moving parts, yes, the social mix a headwind, volumes are going up. But are you trying to tell us margins will be Down year over year? Or are you referencing the growth relative to the land bank margin? So if you could just be explicit maybe on Essentially, whether you think it will be down year over year, say, on the operating level to keep it simple. And then I'm intrigued also by the comments, Dean, you made I think you kept on referencing maintenance of margins, right? That's, I think, It was repeated several times, which suggests you think the current margin level, I don't know, 27%, 28%, say, high 20s, Is the right level. Obviously, it doesn't quite square off, right, with a 33% Growth minus 3% overhead, you'd be closer to 30%. I mean, maybe we're splitting hair here. Maybe it is the maybe you mean the same thing by that. But just to be clear, are you suggesting that kind of the margin level that you're producing in 'twentytwenty one is kind of what you think This is what the business should be doing. And then maybe finally on Fibrenest, because it was called out a few times, And I think there was a section that in the presentation. Can you actually give us some financials on this? So did it generate revenue and profit? And how does it kind of fit in? Appreciate it's a value added offer for your customers and so on. So it's a differentiator. But does it make is it meaningful in terms of P and L contribution? Okay. Well, I'll have a go at answering these questions and I'll I'll start to Mike. Look, the central case this year is broadly in line with what we saw last year on margin. But we're pointing to The puts and takes in that, and we're all crystal ball gazing here, aren't we? And as Mike said, it Depends on how things cycle through during the course of the year. But in terms of this year, that's our central case. In terms of going forward, over the next couple of years, as you say, as Business expands. We would expect the normal pattern of margin and profit to deploy into that. And on Fibonest, it's a small net cost to the business, but I think at this point in time, but I think it's a huge USP and And of growing importance to the business, which will become incredibly valuable in the years to come. You're right to say that we see it as an adjunct in terms of being able to provide a value add To the customer, which is exactly how I see it, in future years, would it have its own value? Yes, yes, it might well do, but we're not there yet. However, I'll pass over to Mike. Yes. I think that's right, Dean. On Fibonacci, it's an exciting opportunity. It's a real strategic long term view that we've taken there to invest in A full fiber national network, and you can see within the slide deck the footprint that we've already got, and that's only after sort of 2, 2.5 years Well, we've got sort of 2 thirds of the outlet network already hooked up with new outlets going on to that network. So It's really quite an exciting platform that we've already built and we'll continue to build out. And there's many opportunities that we're considering actively that will add value for the customer. As Dean correctly points out, this is all about added value services Persimmon will be able to provide choice and value To customers moving forward, hopefully. So we it's sort of a scale currently where it's a Small net cost as Dean characterizes it. And we recognize that you do obviously, you have to invest At the front end of these sorts of business opportunities to get the return out Longer term, and I think that's where Persimmon at Persimmon's mindset, and indeed, we are, as you know, We think very long term, we acquire land parcels that continue for many years And establishing a fiber network is of a similar characteristic in that We are prepared to take those longer term views if we see value for the customer. And indeed, We can generate value for stakeholders more generally, including shareholders. So We're very, very confident this will become increasingly valuable in both respects as it moves forward. In terms of the overall margin, I'll just echo what Dean said. I think We've got great support. I know you're asking us for more precision, but I think that Dean says, well, hopefully, this year will be similar to last. That it might be slightly thinner For various COVID costs, etcetera, etcetera, the mix that we've touched on, the overhead optimization that isn't quite there. But I do think that with the investment in customer care and maintenance that we're doing, the Quality inspection team that we're doubling up on through this year. There's more investment going in. It's a bit like fiber. You've got to invest to get the return. So there's a bit of a timing difference there. And that's why I'm saying that it might be a little bit thinner this year Because we're putting that investment in, we're expensing that investment prudently this year, but that's in the full expectation For 'twenty two and 'twenty three and beyond, it provides a platform whereby margins will then start To ascend, if you will, the trend will be positive. Exactly to what level, we haven't got a crystal ball that Provides that exact answer, but that's the sort of trend and pattern to it that we see. Thank you. That's really helpful. I have a follow-up on land. I know there was lots of numbers flying around, but maybe if you can look at it differently. In terms of the length of the land bank, It's been pretty consistent over the years. But to support that kind of volume growth, do you think it has to be 4.5 Is that kind of what you're thinking? Or can it go lower? Yes. I mean, back in the day, Gregor, when we used to talk maybe 15, 20 years We'd have been saying, well, a 5 year land bank, consented land bank is at the outer edges of the length that we would want to carry. And I think Over recent years, we've let that drift back, managing the cycle risk in many respects and the capital structure of the business. I think that as we tick off these uncertainties with the pandemic and what have you, it's not over yet, And you can't afford to be complacent. You've got to remain vigilant. But what we've got, and we've spent many years Positioning the business in this way is that we've got a starting position. If you take today's date as a starting position, There remains strength and capacity to invest. And I think that as Dean has already touched on, we've got ambition to do that. But as we said in answer to Chris' and Glynis' questions, we've got capacity within our capital structure to do that Without putting strain on the business, we've accumulated the Financial strength over many years and preserve that, protected that for the right time to deploy. And We're still sticking to our strategy. We're managing the cycle with a real focus on the risks that are associated with that. And a big part of that, as you know, is timing of the deployment of more capital rather than less. And we've not said anything, I think today or previously that contradicts that. So I think that we are really well positioned to Our next question comes from the line of Sam Cullen from Peel Hunt. Sam, please go ahead. Your line is now unmuted. Yes. Good morning, everyone. I've got a couple of questions. Good morning, sir. So on the kind of sales rate and outlet growth, I think Maths to be wrong, but you can correct me if you wish. But I think the implied sales rate for 'twenty two at least given your outlook and the numbers you've given around Allergan appliance kind of 0.75. And are you happy that the business has infrastructure to kind of build and sell at that rate and maintain the quality given, I think, now Sales were ahead of what you were doing in 2017, 2018 when you probably had some of the more serious quality issues. So that would be the first one. And then The answer to that is yes. Yes. Okay. So you don't but you don't need any incremental investment from here? Well, Mike's just we're doing it now. Yes. Okay. And then the second question around, I think, Dean, you had some comments initially around margins and looking into the medium term, Adding back to margins from no longer having to do kind of remediated It works on build. Can you give us a number for what you're spending currently or what you have spent maybe last year in 2020? That would be helpful. I think it's I mean, just I'll take that if I may, Dean. I think, Sam, the gross margins that we're talking about reflect The level of customer care investment in terms of the teams that we have there on the ground and any of the remedial work that we do. Obviously, we've got the we haven't mentioned the homebuyer Retention scheme that we is unique in the market that we introduced in the previous year. That It's playing out really well. About 50% of our customers have taken the opportunity to use that scheme, Although it's on offer to them all. So again, that plays to the fact that our quality is running Quality standards and service standards are running at these higher levels, which is great to see. So customers are reflecting that in actually choosing not to use that retention scheme, which is interesting. So the piece dividend, if you will, from this investment that we have made to promote better quality and service. It's hard to put your finger on what the payback will be on that investment, but we do positively think that There is going to be a reduction in remedial works on the back of it. The logic is sound in that we do if we do build the right way Initially, then there's less interruption of the construction process on-site. And the focus we've got on finishing quality with the handover processes now as part of the Persimmon Way, All adds up to delivering top class quality for the customer. What you I know you're trying to say, well, is that worth 50 bps of margin or 100 bps of margin or whatever? Again, it's hard to be it would be remiss of us to give you a precise number because it's a bit of a false precision. But there will be a return on that investment. Yes. Look, I would agree with what Mike said. The truth is at the moment, the business Doesn't know what the opportunity is there, but we all agree there is an opportunity. So we're going to get after it, just like Persimmon always does. 1st and foremost, it's about ensuring that we and our absolute focus is to make sure that the business is Consistently delivering quality houses and make sure that we've got our customers' content. That is our absolute priority. When we feel we're secure and we're delivering that, then these efficiencies that we've identified will play into that And give us a return, which I'm sure is there. I mean, Andy, do you want to I mean, you let me have the We've got our group construction director in the room with us. So I mean last year, we invested, as Mike and Dean have We have over 30 independent quality controllers that report into me. And Dean has said in his report We're doubling that investment this year. So we shall have over 60 independent quality controllers reporting centrally. So that we ensure that we're going to build each home right first time. The training that we are delivering to our construction teams Now is ensuring that we've got the very best experience and skill set building each one of these homes and that check for checker principle as the Slide, if you've looked at them, show, means that we can quality assure each home we build. And It's not the driver to save remedial costs in the future, but clearly that's going to be A business benefit in 2022, 2023. What that number is, I don't know. But what we can be sure of And what the statistics are already showing is that customer satisfaction numbers are now well above 90%, 5 star and clearly on a par with others in our sector. Okay. Thanks. Thanks, Karl. Our next question comes from the line of Charlie Campbell from Liberum. Charlie, please go ahead. Your line is now unmuted. Good morning all. I have a couple of questions, Please, if I can. Just going back to the idea of volume growth. Back in sort of the pre COVID days, you sort of grew Quite happily, it's about 4% a year, while still having a long land bank and the capital returns Is that your thinking going forward that you would be physically able to grow at that kind of speed while maintaining quality? And The second question is sort of related. I'm just reading sort of slightly between the lines in the statement. Do I get a sense as you scale up even further, either in terms of kind of building materials or in terms of construction labor. Good morning, Charlie. So look, I'll take the second question first, if I may. I think, Persimmon, I've been really impressed with the capabilities, the in house capabilities That Persimmon have got through brick, through tile and through timber frame. And I think there is an opportunity there To draw what we have more into the business and to make full use of the capacity that we have. I mean, if you just take for tiles at the moment. We don't yet fully exploit that opportunity in house that we've got. I mean, we've only really brought that on stream during the course of 2020, but there is that opportunity to come. Will we necessarily see because that will beg another 300 questions about the margin. Will that result in a margin Not necessarily, but what it does do is give us security of supply and actually critically speed of supply of a good quality product. Likewise with the bricks is to make sure that we maximize The use of the product within the business, we're doing that. We're increasing the take up of our own bricks And innovating with Permeable rock pavers, for instance, which is helping on all sorts of issues within the business and helping on the biodiversity front as well. So there's that opportunity. And I think Space 4, modern methods of production and timber frame, yes, I do think over the coming years, there is an opportunity there To build into the business, we don't We're still working out that what that opportunity is going to be, but it definitely exists. And we are experimenting with all Sorts of new internal design ideas that will I think take us into In future years, real opportunities to think about how we build differently. So I think that's a really interesting aspect of the business. I mean, look, yes, I mean, I think turning to 1, yes, 4%, 5% Kind of growth is what we're hoping for in a stable market and being able to deliver that Whilst also consistently maintaining our quality build is our ambition. Thank you very much. Thanks, Charlie. Our next question comes from the line of John Bell from Deutsche Bank. John, please go ahead. Your line is now unmuted. Good morning, Dean. Good morning, Mike. Good morning, John. Good morning, Matt. I've got one question. It's not about margins. So it is about capital allocation. Just casting our minds back, the GBP 400,000,000 dividend that you held back last year in the throes of COVID. You're telling us that you're honoring the 235p total for this year, No more, no less. And you're also telling us that 125p of it is going to recur going forward. Is your message to us that you're going to keep running the business with as much as £400,000,000 worth of extra cash in it through this cycle or should we expect the top up elements of that dividend to manage your balance sheet starting from next year? Here we go. Mike's getting excited now. He does that. He does that. He's Going red in the face, Dave. You're asking my finance director to reach for the checkbook. I mean, oh my God. Yes, I think, I mean, we really answered it already, John. I think that no, I don't think that we are Permanently going to be running liquidity levels at the level that we're currently at. We're consistent in saying at the scale we are, €650,000,000 to €700,000,000 of liquidity at June December is about the right sort of level to minimize financial risk. And I think that sort of philosophy was Reinforced, if you will, and confirmed on the back in the middle of March last year When, yes, we did have to cancel the $400,000,000 surplus top up return that was earmarked for Early April. But I think the design of our distribution policy and Policy around maintaining a sound capital structure For a cyclical business in a cyclical industry, basically demonstrated its worth at that time. We've always said that the Board will continually assess and review The level of surplus capital it feels able to return to shareholders depending on a number of aspects, Where the business is, what the outlook looks like, what the reinvestment opportunities are because we continually are told by Certainly, the owners of the business, if we see good opportunity, they would like us to invest in those opportunities. So long as with the cost of equity around 7%, we can add Good value and generate value for them and the wider Stakeholders over time. But I think the lessons of the past in terms of the cycle and the risks that we We're well documented, and I think that our strategy It's well designed and we've spent many years theorizing it, back testing it, projecting it, demonstrating the moving parts. As we said last year, 2020 is a great worked example As to how well designed the strategy is to deal with turbulent conditions Because at the end of the day, none of our stakeholders, shareholders and wider stakeholders, Would thank us for running a capital structure that was fragile because there's a lot of stakeholders that rely on the business for And that's what we're all about. We said that over many years, And I think that it's well designed to deliver. So I think the philosophy is permanent, John, yes, given the nature of the business we're in. Yes. Okay. It's all right. I tried. Cheers, John. Cheers. Our next question comes from the line of John Fraser Andrews from HSBC. John, please go ahead. Your line is now unmuted. Thanks and good morning, gents. 2 for me, please. The first one is on the build rates for 'twenty one. What you've implied with your guidance doubling Half one 'nineteen is a build rate that looks about 10% higher than per site than you achieved in 2019. So perhaps you could just flesh out your comfort on that When the equivalent units start ramping up, whether that will take advantage of this spring Selling season, so you must have some sort of visibility on that. Then the second question is back on The EBIT margin, because at interims in November, we were talking about margin drift From a 2019 level of sort of plus 30%, The Slide 9, the land bank blobs, that does seem to have drifted a little bit, but you sound now much more Dick, on getting some dividends from your investment in build quality. So is that the factor that's changed? And are you able to replenish land at what we're seeing on Slide 9? So just Some detail there please on the margin, that change in outlook. Thank you. Good morning. Well, look, the business was building, I mean, obviously there's build rates and there's sales Right. And they occur at different times, certainly. But the business is now back to broadly, had a few weeks of January, February, as I said, lost about 2 weeks of production. We come into the year with 5,600 units in terms of in stock and it's also it's not just as simple as that you've got to look at the shape I'll build as well. But look, we're back to now near enough 300 EUs a week, multiply that by 50, you get to the number. So, we're all right on build rate this year. There's nothing to see there. In terms of embedded margins, can we replace? Yes, we are seeing that. Yes. I mean, I think, I mean, the biggest driver, let's not forget, is the quality of our input margins on every parcel of land that we invest And this is about the discipline around that focus, and we've banged on about that for years years years. And Those that blob graph, I think, as it's become It's a good demonstration of that resilience. And okay, it's going to flex around a little bit. Surprise, surprise, it's come back a little bit. You're talking 2 or 3 Basis points or whatever it is, 6 months on 6 months. I mean, let's ignore but not ignore the fact that we sold more PD units In 2020, 84% of the sales were into the private market. They carry a higher margin. So surprise, surprise, the embedded margin comes back a little bit. It's dynamic. In terms of a slight change in tone, you're right, John. I think that is a fair observation. But the margin drift issue was around the parity of the inflation equation. And as we've already said, This year with better visibility, yes, there is a bit of pressure on costs, Timber and 1 or 2 other areas, as you know, there's some inflationary pressure. There's still a game to be played out there in terms of ForEx because of Brexit. So we need to see how that plays out. But the margin drift was really a consideration around The balance between, well, in a market where we've seen Some improvement in selling prices over a number of years now. We all know where price levels have got to In terms of the journey we've traveled so far from the GFC, the question is, well, from an affordability point of view, Okay, interest rates are likely to remain low for longer. But from an affordability point of view, What is the ability of the industry and Persimmon to continue to push its prices forward at a rate that Covers the cost push inflation. That is the exam question. And previous comments were around the feeling that we'd only be able to move price modestly At a time when the industry has ambition to meet government housing targets, which means There's pressure building in the supply chain. Now what we've done is we've invested to help ourselves and actually the wider industry in vertical integration, And we'll continue to think about that, but that only helped so far. So I think, again, There's still that specter out there, that shadow out there that we may suffer from A supply chain that is increasingly tight again. There's so many bricklayers in the country, and There are tight spots in manufacturing capacity in the supply chain to support the industry. Those comments were reflecting on those pressures, and we haven't got A clear answer to how they will play out because again there's a lot of moving parts, albeit as always like Persimmon does, we try and help ourselves And create more certainty in terms of security of supply, perhaps a little bit of cost advantage associated with that over time. But the key thing is get the homes built because that is the big cash release mechanism For the business, we don't want to be in a position where we can't build houses for lack of roof tiles. That would be a nonsense. So is that all right? I think you have the full And bear case. To the margin. Well, thank you, Mike. Just So a quick follow-up on that, that security of supply. Now have you locked in your supply chain Certainly on the material side to the end of this year, obviously you've got your own supplies and how far does labor stretch Shay, in terms of that visibility of the sort of 3%, 3.5% cost increase? That's our best estimate at the moment. We Constantly test it all the time. We're on top of managing the business. Yes. I mean materials, more certainty. Obviously, labor is You play more in the spot market, don't you? You let the work packages out on-site for as far ahead as you feel confident about. And it does vary, it's more variable, should we say, because of that. But on the material side, you can lock into longer term supply agreements. Great. Thanks, Chaps. Cheers, John. Our next question comes from the line of Ami Galla from Citigroup. Ma'am, please go ahead. Your line is now unmuted. Yes. Good morning, guys. Just a few from me. First, on the land investment, is this still dominated by your strategic pipeline? Or are we talking for meaningful increase in open market purchases over the next 3 years? My second question was on the planning system and the sort of potential slots which are currently proceeding through planning. Can you give us some sense of how long does that process take now? And my third question is on the outlook growth for 2023. As we think about the Outlet increases, when should we actually see a material pickup in the outlet openings? Is that in the first half of twenty twenty two? Good morning. I think if I may take some of these in reverse. I think an outlet I would I think we're going to see the ambition is the second half of 22 is when we see the outlet position. It will improve during the course of this year and early spring, but it will take time to come through the business. I think everybody is seeing planning delays in the system at the moment, which have been exacerbated by COVID. And we are certainly, Debated by COVID, and we are certainly no we're in no different position to that. And We're not seeing any relief on that at the moment, and we probably won't until we're out of COVID. I think that's common that everybody is experiencing that. In terms of strategic land, yes, Look, we're probably where we've always been in terms of strategic land and spot and there's a healthy balance in the business on that and that's We continue to invest in strategic land, Ami. It's an important Part of the business, we've got around about 15,500 acres of strategic land, as you can see, with the potential to deliver over 100,000 plots over the longer term. And we are Converting that, we've got a great reputation in terms of planning success. We've probably got the biggest planning team, land and planning team in the country. The expertise in that area of the business is excellent. As we've seen over many years and that continues to be an important part of The strategy as well as participating in the open market for land. So No real change there, except obviously a drive to push forward. Our final question comes from the line of Gavin Jagiel from Barclays. Gavin, please go ahead. Your line is now unmuted. Yes. Good morning, gents. I hope you're well. Just a quick one from me, hopefully. Just on the future home standards and Sorry to use the margin word again, but just how you're thinking about that and extra costs and how that might be impacting you or indeed land availability? Good morning, Gavin. Well, good question. CAR L is obviously communicated out to us now, and we know what that means for the Business, and that's about a 31% reduction in emissions as So no immediate impact on the margin. It does add to build costs. We think about £3.50 a square foot, something like that in the business. And when we buy land, We make allowance in the viability process. And so that should help protect us. Looking beyond Part L to future home standards, well, At this stage, we need to see we do not yet know exactly what they're going to be. And they're impacting or going to impact the business from 2025 onwards. So quite out into the future. There are, as I'm sure you're well aware, lots of issues around future home standards, which affect the whole industry in terms of the ability of the supply chain at this stage To deliver the ambitions. But as with everything, when capital is brought to bear, The supply chain will perform and unit costs will drop. I think that we obviously absolutely sign up to these important agendas and reducing emissions And producing net 0 carbon homes as we've said in our statement today, we set our own challenges there, our own targets For ourselves there, which we're going to live to, and these are important for The customer, I think are very important to the customers and important for us. And we're working out how to do that. We've got a very clear idea how we'll cope with Part L. I'm sure there are yet more iterations to come though in terms of how future home standard itself will ultimately pan out and how the industry delivers it. We have no further questions, so I'll hand back over to the hosts. Thank you very much all this morning for listening to us. Look, we I think particularly well in 2020 in handling the pandemic. I think it was very nimble, very well managed. Hopefully, we've communicated exhaustively this Our bull and bear case for the margin, but we are feeling good about our prospects for the future. I think Persimmon's Great strength is in its land and land development and that continues and it's got fantastic embedded margins there. And We're about ensuring we can consistently deliver quality homes well for customers And 2021 has started well. And after some initial production difficulties, we're back now in full swing. So thank you very much, and speak to you again soon. Thank you very much for joining today's call. You may now disconnect your handsets.