Thank you for joining us. Preliminary results presentation. You will have seen alongside the results today, we've made a separate announcement about CEO succession. Dave has informed the board of his wish to step down in due course. He recognizes the best search and succession processes take time and are best done in the open. I think he's to be commended to giving us plenty of time to find the right successor and an open-ended commitment to stay in post until that successor joins the business. Dave, I'm thoroughly grateful for that. It's entirely likely that he'll still be here at the interims in August, so this is not a valedictory address, it is not his leaving party. I want to say a couple of things. When Dave was appointed CEO, I said he would be an agent of change, and I think he's delivered.
Under his leadership, he set about making the changes that were required at Persimmon with very real urgency and commitment. We've invested in a whole range of customer care and quality initiatives. We're now running comfortably at a four-star rating for the first time in quite a while. Dave has prioritized customers over volume, and in so doing, has initiated a reset of the approach and the culture at Persimmon. He's made us the first and the only U.K. housebuilder to have a retention policy. All of this, as you will see from the presentation today, without skipping a beat on the operational momentum of the business. There has been a huge amount of change. Change for good because change was needed.
As Chair, I have sought to ensure to involve this business smoothly and to preserve all that is excellent in terms of our operating margin, land acquisition. Yes, we are prioritizing the customer, but rest assured, we will not neglect the shareholder. Anyone who knows Dave will know that when he says he'll continue to give everything in the business until his successor joins, he really means it. Although it will be some considerable time before he leaves, I wanted to thank Dave for his tireless work in building new Persimmon. Now, Dave, over to you for the results presentation in fluent Geordie.
Thanks for them kind words, Roger. Okay, let's get down to business. Welcome to our full year results presentation, and the focus of today's presentation will be long-term sustainable returns for all. In the normal way, I will deal with the strategic focus and highlights and the customer care improvement plan. I'll pass on to Andy Fuller, who's going to update you on The Persimmon Way. I'll have a quick go at the operational review, and Mike will deal with the financial element. In the normal way, we'll move on to questions and answers. The aim of the company is to produce long-term sustainable returns for all. Persimmon now has a clear purpose, which the whole company was working towards.
To build good quality homes at a range of price points to meet the U.K.'s housing needs and to create and protect superior long-term value through the housing cycle for shareholders, customers, workforce, and wider stakeholders. This provides a clear strategic focus for all our company and staff. The area of focus, which you've all seen before, are now firmly embedded in the business. I make no apology for the fact they will be continuing to be my focus during 2020. We also intend to ensure we maintain our industry leading financial performance. Let's have a look at that financial performance. Trading performance has remained incredibly strong, and this is in the context of putting customers before volume. This is reflected in the unit completions, which are showing 4% down.
Our operating margin has retained an industry leading performance at 30.3% and a profit before tax of over GBP 1 billion. Our return on average capital employed, including land creditors, is 37%. During 2019, the company WIP position has also been transformed. GBP 213 million additional investment in 2019, 14% more units. WIP to percentage of forward sales is now at 81%, an 18% increase. WIP as a percentage of revenue is spot on what we targeted at 32%, a 7% increase. We've been able to maintain the financial performance while restocking the shelves. Work in progress is in great shape going into 2020. We have also now established firmly in the business our customer care improvement plan. It breaks down into the following key areas of focus.
Importantly, we believe it's not simply just about an HBF star rating, but a whole host of other metrics which are important to the customer. Some are still bedding into the business, and as yet, we have not had the full benefit from. The bottom three of these items, building good quality homes, the quality assurance process, and improved post-handover service, is what's covered in what we call The Persimmon Way, and Andy Fuller will pick up on that later. Let's have a look at the increased financial investment. We have a 50% increase in customer service spend over the prior year, and a 52% increase in customer care resource during 2019.
In 2020, we will continue to target WIP investment in selected companies, where the shelves are still not fully stocked, and in areas of the highest demand. We have also improved customer communication. We've done this through holding back sales releases, the introduction of the 11 case stage customer journey procedure, and an improved seven stage post-completion communication procedure after moving in. Looking forward into 2020, we will be rolling out our customer portal in half one. We've now got the digitalization of the new home demonstration, the key release, and the 70th inspection process in place. In 2019, we have also taken the lead in consumer rights. We are the first U.K. house builder to introduce the retention. This was introduced in July. We are now seeing clear signs of changing operational behaviors within the business.
I'm really pleased to say that we now have all the main lenders signed up for 2020. As part of our new home demonstration process, we already allow our customers access to inspect their home prior to legal place, occupation, and this has been in place for some time. Personally, I am looking forward to the introduction of the New Homes Ombudsman, which is something I've been an advocate for some time. We will continue to take the lead in consumer rights for our customers. We also believe all new homes should have access to modern technology. FibreNest is now fully established in the business. It is fully aligned with government digital strategy. We have 5,200 customers now connected, and we anticipate a further 6,000 customers in 2020. Finally, the area where we've made the most progress in 2019 is building good quality homes.
To support our customer care improvement plan, we commissioned an independent review, which reported in December 2019. It gave recommendations in two key areas. The first was on purpose and culture, which I'll be updating you on at the AGM. The second was building good quality homes. This is a significant area of activity where we focused during 2019, and in particular, I would like to draw your attention to the introduction of the 31 independent quality inspectors. All the above have been brought together to create and ensure what we call The Persimmon Way. I will now pass over to Andy Fuller, whose formal title is Group Construction Director, but we like to call him our construction champion. He has huge experience and reports directly to me. He will outline the processes we are putting in place.
Thank you, Dave. I'd like to take a few minutes, if I can, to explain some significant changes to the build process at Persimmon. These new initiatives will be known as The Persimmon Way. These changes have and will become an integral part of our customer care improvement plan, an end-to-end build policy that will ensure we provide all our customers with a quality home. I will take you through each of these key areas in a little bit more detail, but firstly, what we do prior to site commencement. Our pre-start process has had a thorough overhaul to ensure that all issues identified prior to construction commencement is looked at, is dealt with, and is fully embedding the golden thread principles highlighted in the Hackitt review.
Our standard group house types and our construction details have undergone a thorough independent review to ensure they are correct, consistent, and will allow us to build quality homes consistently throughout the U.K. A thorough review of our product specification to ensure the long-term suitability of all of the products in each of the homes we build. Assessment of all our site workers to ensure suitability and consistency. The construction process. The use of standard house types and the use of comprehensive and detailed technical information to support those standard house types will ensure build quality consistency. We now have 21 clearly defined build stages, each with a comprehensive list of build areas to cover all parts of house construction. Detailed inspections carried out of all of the key stages by our site staff and our warranty providers and key milestones.
These are parts of the build where works cannot continue past until this independent verification has been achieved. These key stages can be demonstrated as follows. The 21 key stages down the left-hand side, one of those on the right, we've detailed the individual elements that will be inspected. I've also highlighted the four milestones, the four key stages, the four elements of construction where works cannot continue past until independent verification has been sought. I hope this will demonstrate to you how thorough the inspections will be of every new home we build going forward. Now, on to the checking process. As Dave's already highlighted, we have now employed 31 independent quality controllers. These are construction professionals whose only purpose is to look at build quality. This revised checking process is truly industry leading.
This check-the-checker principle has already proved to be extremely useful in identifying any areas of construction that need attention prior to build completion. All homes must successfully pass this independent quality control process beyond these key stages. This best practice and areas of improvement will be identified and reported not only at site level and divisional level. Now on to external verification. Taking the check-the-checker principle a stage further, we will be undertaking thorough independent external audits of this system to ensure that we are consistently delivering The Persimmon Way. The audit will provide a points-based verification report to allow us to easily identify any areas that require further attention. Exposure to the best practice and fine-tuning these procedures will enable ongoing evolution in education and improvement. Board and the most senior management at Persimmon will ensure a clear top-down message and a commitment to The Persimmon Way.
Next, we turn to training and education of our workforce. I am really pleased that during 2019, we employed a further five construction professionals as trainers. We will add a further two during the first six months of this year. Seven construction professional trainers to carry out construction training to our entire workforce. All site management have already received this further training. All new site management will receive induction training in The Persimmon Way. Our entire construction workforce will be supported and trained to ensure that correct standards are being met via modular training and also toolbox talks on site at the sharp end of what we do. The implementation of new site staff appraisal systems and a competency matrix is enabling us to identify training needs of our workforce. It will also enable succession planning for the future.
The delivery of mandatory training modules and refresher training will ensure the consistent delivery of The Persimmon Way. In conclusion, The Persimmon Way will ensure our group policy delivers build quality to industry standards. Our pre-start process, our house types, our workforce are all fit for purpose. The Persimmon Way will ensure construction build stages are checked both internally and externally, supported by our 31 independent quality controllers. An external audit will provide management with this further reassurance, and all site-based workers will be provided with continuous training and support. I really believe that The Persimmon Way is a real game changer at Persimmon. It will set new industry standards. Thank you. Back to Dave.
Thanks for that, Andy. At the heart of the company purpose is providing homes for all. We have built a business to have the most operating companies in the industry, with 31 regional operating businesses throughout the country. This provides strong national coverage. We still remain focused on providing a good range of house types at various price points so we can meet all customers, ranging from GBP 60,000 to GBP 1 million. 35% of our private sales are priced below GBP 200,000, 11% are priced below GBP 150,000. I am particularly proud that 50% of our private new homes sold are to first-time buyers. We make more people's dreams of owning their home a reality than any other house builder. We also aim to provide opportunities for all. We provide career opportunities for our staff. 374 colleagues promoted during 2019. We train and support our staff.
15% of our workforce across all disciplines are trainees. Once again, I am proud this has been recognized by a third party, the Social Mobility Pledge, who recognize us an industry leader in this space. Persimmon is a company to fulfill your potential. We also want to reward all our employees fairly. We've introduced the Real Living Wage criteria for our staff. We've introduced the flexible working hours during 2019. We also want a listening culture. We've introduced the employee engagement panel during 2019, which has direct feedback and presentation to the board. We've created a gender diversity panel during 2019 with direct feedback to the board. Having implemented the changes we've been covering today, I was delighted to implement the employee engagement survey, as I believe in the Persimmon staff, which produced the following results. There is overwhelming support for the Persimmon purpose.
90% of our staff are committed to what Persimmon is trying to achieve. 94% are clear about their own job responsibilities, and most importantly, 96% understand how their job contributes towards what Persimmon are trying to achieve. Let no one be in any doubt, Persimmon is a company with a clear sense of culture and purpose. We also want to ensure the community in which we operate shares in the company's success. I believe we have a duty of care to them communities and the local people we employ. We support over 50,000 construction jobs and supply chain jobs. We support local economies in which we operate. GBP 3.3 billion of gross value added in 2019 to the local economy. We support local charities, GBP 2.3 million during 2019. We're official partner at Team GB, and I'm looking forward to the 2020 Tokyo Olympics, if they're happening.
We will continue to support local communities during 2020. We also want to manage our impact on the environment. We will increase our focus on the use of sustainable building materials. We have introduced our own concrete bricks, which has 100 kg less CO2 per ton of bricks. We have also owned our own Space4 for some time, and we produce the most timber frame houses in the industry. We also carry out full environmental assessments prior to commencing on site. We also support biodiversity across the country with over 146,000 trees planted in 2019. Moving forward, we are committed to reducing our carbon emissions. The key to managing a housing cycle is how you manage your land holdings. As you know, for some time, I've adopted a disciplined and focused management approach of land.
Each opportunity is looked at on its own merits. As I constantly say, we've no need to do a bad deal. In 2019, we invested GBP 474 million in land compared to GBP 628 million in 2019. Importantly, our land credit has reduced by GBP 113 million to GBP 435 million. Moving forward, at the end of 2019, we had total plots owned and controlled of 93,246 plots. That element in itself represents 5.9 years of forward land supply. In addition, we have 29,400 plots held under option that have currently got planning applications in, going through the planning process.
On top of that, we have 14,500 additional plots controlled, allocated in local plans. This is important because it's how you describe your land bank. We have total visibility of 137,100 plots. Not land which is approved, not land which is still subject to contract, but clear control and visibility of 137,100 plots. In addition, we have 15,900 strategic land under control of acres. What does this mean for the business? What this means in reality is Persimmon has a secure future. I'll now pass over to Mike
Thanks, sir. Thanks for that, Dave. Seems to have stopped working. Went the wrong way? No. Anybody good at sorting these clickers out? Is it a battery? It might be. Is it about batteries? It might be a battery thing. Yeah. Use those arrows there. Okay. Now smashing. Smashing. Thanks very much. Right. What I'm going to do, in the usual way, I'm going to look at the key elements of the trading of the group for 2019. We'll look at some of the main features of the balance sheet. We'll look at the cash generation. Then we'll touch on some considerations around the capital return. Moving on to pick out some of the highlights on trading.
Dave's already touched on the stance and approach that we've taken to sales release as being a fundamental support to our program to deliver improved quality and service to customer. You can see the impact there, 4% down year-on-year, just shy of 16,000 units delivered in 2019. Just drilling down into the detail a little, though, you can see that the partnerships business had a really strong year in 2019. Delivering 21.4% of the sales mix, compared with just shy of 19% in the previous year. That sort of feature will ripples through the numbers, in terms of cost recoveries, et cetera. You just need to bear that in mind when you're thinking about things like average selling price, for example, which you can see there is flat year-on-year.
When you then look at the different elements in terms of private sale business and the partnerships business, you can see there's modest price improvement. It's the mix that flattens that. Thank you. It's the mix that flattens that from a group perspective. Customers are finding Help to Buy is a continued attractive route to getting on the housing ladder. You can see there, just shy of 6,900 customers have chosen to use that to purchase a Persimmon home through 2019. That reflects about 43% of our total legal completions in the year, 55% of our private legals in the year. We've seen firm pricing, good demand through 2019, and disciplined control of sales release delivering the small reduction in completions year-on-year.
Looking at profitability, you can see that volume consideration coming through as the key driver in terms of the bridge from last year to this year in profit delivery. The gross margin reduction is small. I like this pointer, so you'll see me use it a few times. The gross margin reduction is small, and that reflects this mix issue, a bit more affordable in the mix, which as you all know, carries a lower margin, delivering a small reduction in gross margin as a result of that. Turning to the margins, just demonstrating the key cost recoveries through the year. You've seen this sort of analysis before. Particularly pleased with the gross margin level at 33.1% for the group. That is industry leading, and principally reflects the support coming through from the land bank.
You can see there 60 basis points year-on-year support in terms of that overall margin delivery. Recovering land cost at 14% of revenue value in 2019, compared with 14.6% for the previous year. A key driver and support to our margins. Thinking about the future in that regard, looking at the land bank, as Dave mentioned a few minutes ago, I think we have got the highest quality land bank in the industry. One dimension to think about that is the cost to revenue percentage within the consented land bank. You can see there for the total plots, the grand total of all plots, 13.5% at the end of December last, compares with 13.8% at the same point last year.
We've been preserving and protecting the quality of the land bank that puts the business, the group, in such a strong position moving forward. The quality embedded within that land bank is demonstrated by the analysis of the gross margin distribution. Yes, every site is different, but what we've tried to do, as you've seen before, is demonstrate the range and volume of sites delivering plots at different levels of margin there. If you do the simple calcs, I think it comes out about 34.5% gross, which is very similar to what we've seen over recent times. The replacement activity that we've been undertaking through 2019 has maintained, slightly improved, in fact, the embedded quality and margins that will support and sustain the business moving forward. We've also been looking at our sustainability. We've been investing in the sustainability of the business, as you know.
Just a quick reminder in terms of off-site manufacturing capability, vertical integration, if you will. Brickworks providing around about 50 million bricks into the business through 2019. A bit more headroom there to use should we wish to secure supply. For example, if the future means that greater pressure is brought to bear on the supply chain in terms of capacity because the industry output increases. We've secured our supply of a key component of build there. We've got capacity to move into and utilize to support our delivery. Tileworks coming on. First delivery is end of March, early April. In terms of roof tile at the same site, where Brickworks is successfully commissioned and about to start deliveries.
Space4 being our timber frame, close-panel system of construction continues to support the business, easing site skills on site, which helps in the round in terms of overall delivery and cost control. We have a very strong balance sheet. It provides a fantastic, super secure base for the business, from which the improved quality and service can be delivered from, together with a platform for future growth moving into the future. Work in progress has been built successfully through 2019. Over GBP 210 million additional investment going in, as Dave's already mentioned. There are pockets of further investment, maybe another GBP 30 million, GBP 40 million, maybe a tad more. I think we're keen to invest to support greater availability for customers across the regions. The bulk of that work is behind us now. You can see there, a reduction in land creditors to GBP 435 million.
Opening up headroom on the balance sheet to take advantage of further investment opportunities as they arise. I think you'll see we obviously have an amortizing tail to that land creditor over the next three or four years. Further headroom will open up depending on the activity that we pursue through 2020 in terms of land replacement. Dave's already mentioned the strong return on capital employed levels at 37%, which again, I think is a very strong result for the business. Slightly down because of the cash absorption, in terms of work in progress, essentially. Looking at cash in a bit more detail. As we've said before, cash generation from the business is a combination of delivered through trading and balance sheet management. You can see that on the graph on the left.
This is the working capital absorption piece for 2019, the investment in work in progress. Whereas the trading cash from operating activities is the blue bar over GBP 1 billion in the year, replicating the operating profitability, the business more or less being a cash business, putting land to one side. The financial position of the business is very strong, and that's the graph on the right-hand side. This is purely the liquidity of the business stated after assuming a bullet repayment to the land creditor. At over GBP 400 million of cash resource available after recognizing that refinancing obligation in December with respect to the land creditors, we're in a very strong liquid position to deal with the cycle. When we consider the cycle, you've seen this sort of graph before. We all recognize that the industry is cyclical. Persimmon is a cyclical business.
The key thing in here is the fact it's successfully managing a cyclical business through the cycle, as Dave's already mentioned, a key part of that is judging when we deploy more capital, i.e., in the land market at the right time, at the right values, to sustain superior returns for all stakeholders through that cycle. You can see the cash generation from the business is a permanent feature because it comes out of the balance sheet when we turn off the land replacement activity. When we start reinvesting in land more, then obviously it becomes more cash absorptive, coupled with the trading activity of the business. Earnings can come and go a little bit, but as long as you're judging that timing around capital deployment, cash generation is a permanent feature of a house building business, so long as you're judging the timing correctly.
As a result of that, you can generate surplus capital. We've talked about our approach, our philosophy around capital return previously. We've said that we want to hold GBP 600 million, GBP 700 million on the balance sheet, primarily to cover two requirements, two key requirements of the business. That's to cover the working capital amplitude in the year. We've got two peaks of working capital requirements in the year, typically end of April, end of September, early October. We want to minimize financial risk through the cycle by covering that peak-to-trough requirement together with holding some firepower to be more active in the land market should we see the opportunity to take advantage of some good quality deals.
After meeting those needs, which come first, then obviously that generates possibly surplus capital, which you can see there. We have successfully returned so far, to the end of 2019, GBP 9.55 in terms of capital returns, in terms of what was surplus to business need. Today, it's very pleasing to be able to provide confidence to everybody in the room and the market, confidence in the future. We've extended our intention to return GBP 2.35 per share, not just this year, completing our three-year commitment that we made in 2018, but extending that another year to 2021. GBP 2.35 is our intention for 2021.
However, as you can see there, we're switching around the regular bottom slice, if you will, from GBP 1.10 to GBP 1.25, and the top-up payment of surplus capital from GBP 1.25 to GBP 1.10. In total, GBP 2.35 the same, but we've switched around the bottom slice and the top slice, which means in terms of our intention to continue to pay those regular payments through the cycle, come what may, has actually increased by thick end of 14% from GBP 1.10 to GBP 1.25. On that point, I think I'll hand back to you, Dave. Thank you very much.
What does all this mean? Looking forward, we have a strong platform for 2020. We are encouraged by the early week sales, which are 7% ahead of last year, and this is still in the context of a disciplined approach to sales release. We continue to put customers before volume. The business is at a secure footing to respond to any further market momentum. 80 new outlets to come through to our first half of 2020. Selling prices are encouraging. WIP is in a great place. I will not put volume before customers. Any additional volume will only take place if we can do it in the right way. In 2020, my focus will continue to be on long-term sustainable returns. Let no one in this room be in any doubt, to achieve this, you need a strong financial platform.
Persimmon has industry-leading landholdings, industry-leading margins, industry-leading liquidity, and as you just heard from Mike, an industry-leading balance sheet. More importantly, Persimmon is a company with a clear purpose, which is embraced by all our staff, or 96% of them, and we are serving all stakeholders. To be absolutely clear, we believe Persimmon will enjoy greater long-term prosperity for our investors, for our workforce, and for society as a whole by being a more sustainable, inclusive company. That is how you create long-term sustainable returns for all. Thank you. We'll now open up the questions and answers. If you can direct them questions through me, I'll allocate them to the appropriate person. Who's got the mic? Got some quick arms up there.
Thank you very much. Can you hear me?
Yeah, can.
Yeah.
Just want to say who you are.
Yes. Arnaud Lehmann, Bank of America. I'll start with two questions. If I may start with you Dave. Obviously, it was a little bit of a surprise this morning.
Sorry. It's got to be that one.
Yeah, okay. I'll try again.
Oh, that's better. Yeah.
Give me the opportunity to try again. Arnaud Lehmann, Bank of America. I have to start with a question for you, Dave.
Okay, yeah.
I appreciate if you don't want to go into any specific personal details. Could you please just reassure us that there was no disagreement with the board or the rest of the management? However long it takes to replace you, eventually, we should not expect any meaningful change in strategy? That's my first question. My second question, which is also, you speak about the long term. There's a new immigration policy that will apply probably from next year in the U.K., that creates potentially a risk to labor shortages. How do you deal with that? In the longer term, also, some impact on the population growth in the country. Yeah. What's your view on those two points, please?
Well, I'll give the first one to Mike.
No, I'm not. You better not.
No, there's been no fallout. I've been really pleased with the progress we've made. When I took over the job, I had a clear plan, I had a clear view for what I wanted to achieve. As you probably heard this morning, the speed of change and what the business has achieved in a short period of time, I think has been incredible. At the same time, we've been able to maintain fantastic financial performance. I'm not running away. I'll be here as long as the business needs. As well, I just said earlier, I do think it's important that the businesses have plenty time.
At least things can be planned properly, can we understand the business, and we get the right person with the right ideas into the company at the right time. I'll be here until that time. What I can assure you is, this business is a secure footing, and anyone who will be taking over will be inheriting a business in a fantastic position with a great land holdings, a great balance sheet, and more importantly, an incredibly strong team of people throughout the staff, throughout the company, who are committed to what we're trying to achieve. Sorry. The question on the.
Immigration
Immigration. We have had discussions with the government on this. That's one of the benefits of being a national business. We only really have a problem probably among the M25 and a couple of our businesses. Around the rest of the country, most of our labor isn't foreign nationals. We did speak to the government upon the impact of that. What I would like to see the government would introduce.
And if it does prove to be a problem, may introduce a policy where Berkeley has enjoined us, for example, have a special status, like doctors and nurses to bring them into the industry. I'm sure if the government were to realize that they can't hit their targets of 300,000 houses a year, they will look to introduce a policy like that. I have great faith that we'll achieve that. I'm not lying in bed worrying about that at the moment.
Thank you. Alex?
Alex.
Hi, good morning.
Morning, Alex.
Alex Friedman from Goldman Sachs. Two questions. First, on volume. Second, on cash returns. On the volumes point, you've said you've got WIP where you wanted to be at 32%, and clearly some good progress on the customer satisfaction on the build quality initiatives. Given that early trading this year, sales rates have been firm, pricing's been firm. Why only guiding to flat volumes for the year? It seems like that there's some scope for some sensible, sort of cautious upside there, without putting anything at risk.
Then the second question on cash returns, also, you've announced today GBP 0.35, essentially flat there. You've got more net cash than you mentioned you need for your working capital requirements. You've got 6.9 years of land. You've mentioned previously that that can come back a little bit. What chance of a special, or is there upside to cash returns that we can see coming down the line?
Well, I'll deal with the first one, Mike, and let you take the second one first.
Yeah. No, on the cash returns, I think, it is a positive prognosis. We review it all the time. We say that we come to market annually, about this time on the back of the prelims. I think one technical point, we do have, as in keeping with all U.K. corporates, the acceleration of tax payments, corporation tax payments to deal with through 2020. Which for us, at this sort of level of profit, it's thick end of GBP 100 million. You just need to bear sort of that in mind as an additional permanent timing difference, if you will, bringing forward cash payments that would have been made in 2021.
That basically unwinds when you get to 2021, and I think, it's steady as we go. I don't think it's a time to be too brave. There's a lot of challenges still out there that I think you'd recognize. A lot of trade agreements to sign up to and negotiate. Obviously, the macro is very important to the industry and ourselves. I think that we've shown a lot of confidence in the business in terms of what the board has announced today. I think that to be still a little bit cautious is probably the right place to be at this point.
In terms of volume, Alex, I think your assessment's pretty accurate. However, we shouldn't forget one, it's sitting in February. There's a long time to go. The early signs are encouraging, and you're right, the potential's there for a little bit more volume. At the moment, we would still be going for relatively flat volume. If the opportunity is there, and we can do it in the right way, and produce houses to the right quality for the customers, then I would take that opportunity. As we sit here now, I'm not prepared to sacrifice in any way, putting customers behind the volume of the business.
Thanks. Aynsley Lammin from Canaccord. I've got three actually, please. On the first one, you mentioned pricing's firm. Just wondered, given the good sales rates, are you beginning to think about pushing pricing a bit more? I guess that kind of feeds into a question about, are you confident maintaining those margins of 30% this year? Secondly, just on the land spend and the kind of cash. Some of your peers recently said with the political clarity, it gets them a bit more confident to buy land, maybe relaxing hurdle rates a bit from where they were last year.
Just wondered what your view was in terms of the opportunities there in the land market and where we are in the cycle, I guess. Thirdly, on your successor, Dave, you said that anybody coming into the company would find a good platform. Are we right to assume that there's good internal candidates that would also be in the frame?
That's not a question for me. What I can say, I'm very confident in the strength of my team and the people around us, whether it's internal or external is a decision for the board and the chairman. I probably don't think it's appropriate to speak about that today. We'll park that one up. That's three questions mixed in two there. I think the first one's on pricing, the second one's on margin, and the third one's on land. In terms of pricing, and this is something I always find interesting. At Persimmon, I would like to think we're pretty sophisticated. We have over 300 sites across the country. We don't ever take a simplistic approach, "Well, let's just put prices up across the board." We have different sites at different stages and different market conditions. Of course, every week we look at prices, every plot's looked at.
Of course, some plots have had the price increased. Some are still the same. There is still some sites in the country where pricing's difficult, and we've had to reduce prices. We're in February. What's the early signs? Pricing's been encouraging, and we've been able to take a little bit of advantage in that, just like we normally probably would at this time of year. I think the simplistic message, "Well, let's just put prices up," is the wrong message to the business. I would rather be much more thorough, and we review individual sites and individual plots on a site. Even the difference of a garden direction can make a difference on price, and that's the level of detail we go into. In terms of margins, do you want to pick up on that one, mate?
Yeah, I think, over recent times, we've been signaling a bit of a margin drift. I think that, yes, there's positivity in the market. We're only eight weeks in, as Dave's already mentioned. The year's seen a good start. Again, I suppose, from my point of view, to remain a tad cautious. It's dynamic, isn't it? In that, if we do see an increase in housing starts, greater demand for labor on site, supply chain reacting to that, I think we've got ourselves in a strong position on a lot of materials because we do group deals for periods of time. I think that if housing starts do increase by the industry, then there is potential for some cost inflation to come back in.
I think that for us, more investment, the full annualized investment in the customer care quality initiatives will be born and seen in 2020 this year, together with a bit of nibbling away at the margin because of the balance on the inflation. We need to see. It's early days. I think a bit of margin drift for us is still the right place to be, albeit there is a bit of upside risk, if you will, as the market develops. We need to give ourselves time to understand that.
In terms of the land market, I'm not sure if we could actually pick up exactly what I said this morning, and this is a material change in what we report in terms of numbers. Our land bank isn't just six years. If we compare it the way all our peers report, we actually have 137 plots, thousand plots, under our control, either in planning applications or allocated and planned. Our visibility is not just six year, and I'll let you do the maths on 137,000. It's actually longer than that. That is the key to managing a housing cycle, when and when not to buy land. Which is why the question you come to me with is really important. What's Persimmon doing in terms of buying land? Nothing's really changed.
If a good deal comes along, we'll buy it. If it's a bad deal, we don't have any need to do a deal because we've earned the position with our strategic decisions in the past to buy land at the right time. What are we seeing in the land market at the moment? It is becoming a bit more competitive, and our peers are gambling much more on conditionality and what and when they'll get planning consent. We're not playing on that. We're still holding to our conditionality on our bids. Margins, in terms of what I've seen our peers bidding, yeah, it is becoming a little bit more difficult to buy land. I'm confident that we'll be able to buy enough to support the business moving forward in view of the strength of our current land bank.
Ami Galla from Citi.
Hi, Ami.
I wanted to touch on the customer retention scheme. If you could talk about how the experience has been so far. The scheme, at an initial take-up, was about 15%. I was wondering what the working capital flow we should consider for 2020 when it's on a run rate basis. The second question, again, a follow-up on the land market. You've touched upon being selective on land. When we think about your investments in land, is it mainly from the strategic pipeline, we should be thinking that you would be adding this year?
I'll deal with the land market and let Mike.
Yeah
The customer retention. I'll take the land market first. I'm not precious whether the deal comes from strategic, open market, or from anywhere. I'm more bothered that it meets my earn rate. It's conditional on what I want to achieve. I can achieve the mix of product that I want on there. I can achieve the price points I want on there. If it ticks off with the criteria, which all come through me, then we're happy to buy the land. If it doesn't meet that criteria, then we're not happy to buy the land. It's as simple as that, really. I'm not bothered where it comes from, as long as it's a good deal and not a bad deal. Do you want to pick on the retention, Mike?
On the retention scheme, it's early days, as we've said. We've seen about a 15% take-up through the second half of this year. Actually, some customers are electing not to bother, which is interesting. I think at the end of December 2019, we had about GBP 3 million held. This year, depending on take-up, we've got all the major lenders signed up. We would hope that it would increase, because it's a customer service at the end of the day. It supports the offer to the market. In terms of where we're going to be, say, at the end of 2020, as an estimate, at this point, maybe GBP 7 million-GBP 8 million held, maybe, given the seasonality of the legal completions. As I say, it's still early days and we need to see how it develops through this year.
I think the important thing is we are seeing clear signs of behavioral change in the business. We've got what's called a one-month list. What we can see already that the number of items at one month are reducing dramatically. We're getting on the items if they are there much earlier and dealing with them, and the customers are really pleased with the response to that. It is changing the behavior, which is really why it was introduced. Firstly, to give the customer some leverage and give them some empowerment. Secondly, to change the behavior in our business, and then we're definitely seeing signs of that.
Good morning. It's John Fraser-Andrews, HSBC. First question is on the vertical integration. Mike, you set out your Brickworks, Tileworks, and Space4. Could you just remind us where you are in terms of the amount of supply that your resources secure of your completions? Perhaps elaborate on the build cost inflation that the guidance 2.5%-3%. How much of your build cost have you got under control, agreed, particularly on the materials and labor, to be confident in that number? That's the first one. The second is on land.
Clearly, a replacement ratio of well below one. Was that the market firming or was that a deliberate tactic, strategy rather, that you're happy for it to be at this just under four years level? Then the third and final on markets trading. Any regional comments you might make on firm prices last year and this slight improvement you've just referred to in current trading? Any regional or Persimmon Homes, Charles Church color to that? Thank you.
I'll take the first two, mate, and then you can take the last one. You want to take the last one first?
From a pricing point of view, I think it's still the case that product homes with higher prices are a bit slower in terms of sales rate. Obviously, you're offering to a smaller cohort of potential purchasers at that sort of level. I think that there's a bit more incentivization. You might not be pure price movement that you're dealing on there, but there may be a bit of further incentive applied, which turns out to the same thing, really. We've not seen any real change. Our Part Exchange in 2019 Part Exchange support was about 10% to our private legal completions. 9% the previous year. A slight tick-up in PX. Our PX stock is clean, got very little aged stock in there.
We're agreeing deals with customers for convenience, which allow us to realize decent values on resale. That all seems okay at this point in time. As I said before, I think we would say that it's a bit early, as Dave's already said. We're only eight weeks in terms of trying to predict where this year is going to be overall in terms of price improvement. I would hesitate to do that at this point, albeit saying there is positivity in the market. That provides opportunity, and then it's down to each business to realize that opportunity as it sees fit, as Dave's already explained.
In terms of build costs, build costs have got two moving parts. The first bit is building materials. We're very secure for 2020. Most of our group deals are now in place. We're probably looking around about 2% increase on materials. Some materials have gone up, like some plaster and radiators, and some have come down, like some roof tiles and CLS. In the round, we're pretty comfortable we've secured the build cost element. The labor element has been very static for the last three, four months.
However, if the market picks up, I could see the labor market becoming a little bit more competitive, and a byproduct of that would put the cost under pressure. A lot will depend upon on the market. If we do find the market improving, I could see the build cost increasing beyond 2%, 3%. If it doesn't pick up, I think probably 2%-3% is a good gain for you. In terms of the land market, what was that question again?
Whether the?
What's your replacement?
The replacement ratio was deliberate or was a function of market conditions.
We manage our land actively, and every deal is looked at on its own merits. It's more a byproduct of the fact that the deals weren't there to hit our hurdle rates. They didn't have the conditionality that we wanted. They didn't have the mix of product at the right price points to achieve our objectives. I'm quite happy, as I've said a number of times, when you've got control of 137,000 plots, not four years, 137,000 plots, I've got no need to do a bad deal, and that will continue well into the future. That secures Persimmon's future.
There was just one you didn't answer, was the amount that your vertical integration covers.
Yeah. Sorry.
Of your?
Go on, mate, yeah. No, go on. No, you haven't yet.
Yeah, in terms of brick usage, we probably are the biggest user of brick in the country, given the types of two, two and a half storey properties that we construct. We would estimate 125, 130 million bricks used per annum at the sort of level of output that we currently are. You can do the math at 50. The Brickworks can produce 75 to 80 on a three-shift pattern, if we choose to go down that route. We're on a two-shift pattern, which is a bit of a sweet spot in terms of productivity and efficiency at the moment. Tileworks, actually Tileworks's got greater capacity. Again, I think we'll be gauging that as we learn about it. Maybe 50% usage for group is probably a good rule of thumb to assume at this point.
Thanks. Will Jones at Redburn. Sorry, I think I might have four, but the first one's really just a clarification question. When we wrap up everything that you've said today and in previous meetings around the measures you're taking to improve build quality, customer satisfaction, do you think everything we know today and you've told us today is kind of sufficient to get the business to where you want it to be? Just to be sure that all the numbers you've talked to us about around, well, you've talked today about the extra customer costs, again, there's nothing new today that we should factor in in terms of future factors for the economics. The second was just around net cash. When you announced the GBP 235 a couple of years ago, I think at the time you talked about an appropriate cash balance of GBP 700, GBP 750 longer term.
I appreciate we're talking about uncertainties with the macro and Brexit and what have you, but when you think longer term, how's that number evolved, in your mind, Mike? Third one was just around Help to Buy. It dropped last year to about 55% of private sales from 60 the previous year. Quite a big change down. Was that deliberate or just the way the market fell? The last one was just when we look at your land bank buckets, the 26% gross margin, I think a fifth of the land bank at 26. What kind of sites are they? Are they ones that you maybe still carry from pre-crisis?
As good a margin as the others, Will.
Exactly. Still a great margin.
Still that people would want. Anybody else with land itself.
Is that stuff you might replace at a higher margin in the future, or you'll always be buying some stuff at GBP 26, presumably?
I think it's a fair
Do you want to take the first two? I'll take the one for me. You want to take two and three?
Yeah. In terms of the cash holdings, which I think was question two, I don't think we're changing our view on that. I think that you scale that or you measure that in terms of the scale of your business. If the sky fell in and all of a sudden we're delivering 10,000 units, then we wouldn't need as much cover for the working capital amplitude because the spend would be smaller, the reinvestment need of the business would be smaller. I think, again, it's a dynamic situation that you gauge as the market develops and as the business develops. At the current scale, I think we're entirely consistent. Sort of GBP 650 million-GBP 700 million is about the right level we feel.
Split it into two, cover that working capital cycle around GBP 400 and a bit of extra firepower to take advantage of additional land opportunities as they come through. As Dave said, I think we've got ourselves in such a strong position. It's hard-won, as you know. Takes years and years to put in place in terms of when you look at our balance sheet, both in terms of the quality of the land holdings, but also the capital structure of the business. You don't want to squander that, you want to be sure-footed about the moves that you make. I think to retain that sort of level of cash holding is about right. Just moving on to the Help to Buy point, the drop. I think that's well observed. I think that's more about our control and discipline around sales release-
Scotland
That does mean the overall Help to Buy content, if you will, has reduced, rather than any particular conscious decision to say, "Well, we're managing that down actively for some other reason." I think it's more about a function of our discipline around sales release, really.
Scotland a little bit has obviously changed. Up north Scotland with the price criteria, so it is only really West Scotland where you take the advantage of Help to Buy in Scotland. In terms of land bank and pre-crisis, and they are sufficient to where we want to buy. Have we gone far enough on customer care? I believe we have gone a long, long way. I would never say we have not gone far enough. What I do know is a lot of the stuff we have introduced has still bedded in the business. We have not had the full benefit of that financial investment yet.
For example, I have heard Andy speak at length today about the introduction of The Persimmon Way. That is all catered for the mass. The majority of that overhead spend has already been encompassed in them numbers you've actually seen, but we still haven't seen the benefit of that yet. I'm confident that we'll see further benefit from what we've actually seen. I'm very encouraged by the start we've made to the new customer care period and the HBF survey, and we're trending much closer to a five-star than what we are a four-star.
We've seen material improvement from the 2018 and 2019 results. I'm confident once these things bed in, we'll see even more improvement. What I can confirm is if we do have to make further investment, we will do it. As I said to you at the moment, I think we're pretty confident we've got it squared off, apart from maybe something around the edges, but the bulk of the spend is accounted for. What was the land bank question again? We're having four here, I'm confused.
Sorry, just around that fifth of the land bank at 26.
Oh, the 26. Oh, the easy one. Yeah. That's just purely legacy stuff that we've had for a long, long time. We still have one or two things on dating back for NRV, sites which have been mothballed, which are starting to come through, et cetera. What you'll have is, that doesn't mean there are the sites which we will trade through, but the legacy, not ones we've been buying at new, and there's certainly not an indication that we're buying any land at that margin at the moment.
Thanks. Yeah. Sam Cullen from Berenberg. Back on the gross margins and hurdle rates. You've mentioned hurdle rates kind of probably six or seven times today without actually giving a number. Are you willing to give a number?
No.
Presumably it's not 26.
No, I'm not going to give you
It's not going to be
I'm not going to give any number away, no. As much as I can get away with.
All right. Okay. Thanks very much.
It's different for different businesses, isn't it?
It is.
Yeah.
Okay. Then you obviously made commendable progress on improving customer service and the slides you went through at the top of the presentation. Sitting from outside the business, how should we judge your relative success on those measures? Should it just be the HBF survey numbers that we can see improving? What else would you be looking for?
I've always said our customer care improvement plan was much wider than just the star rating, which is why I've covered all their maintenance to date in detail.
What metrics should we be looking at? Because obviously we don't have a full suite of metrics that you guys do sitting internally.
I think when you see The Persimmon Way, when it comes out and established, you'll be able to see the scoring that we'll have on that. You'll be able to see that our customers use of the retention. We'll be able to tell you how many customers have access to modern technology. We'll be able to give you details of how many customers receive their letters and how they're communicated. We'll be able to show you how widely used the customer portal is. We'll be able to monitor other digitizations that are going. There's a huge sweep of things which we're targeting. To be clear, this was never just about the star rating. This is about a full customer package.
Okay. Thanks.
Morning. Emily Biddulph from Credit Suisse. I just wanted to come back and ask one question again on that. The point you were making on the net cash and sort of saying that sort of GBP 650 million-GBP 700 million is where you'd want to run. Given that you're talking about potentially, or certainly at the moment, you're not replacing land at the same rate. If you were to work the land bank down and it was to become sort of meaningfully shorter, would that net cash balance still be what you'd want to run with? Or would the excess cash that you produced, would you sort of want to sit on it because you sort of wanted to buy more land in future? Or does the math change if the land bank's shorter?
It's well documented, and it's a good observation. It's well documented, that's probably the elephant in the room a little bit, it's well documented. We believe we've got our land bank pretty much where we want it to be, and it's happily drifted back. We've got our WIP in a position that you want to be. The natural conclusion of that, if we're not going to make net investment at WIP and we're not going to move the land bank, we're going to throw off more cash.
The amount of cash we hold on the balance sheet is pretty much where it wants to be. We'll have nice choices what to do with that cash. What I'm not going to say today are what we'll do with that cash. What I am happy to say is it's a great position to be in. Most importantly, that secures the future of the company, the land bank, the balance sheet, and our cash position. This business is in an incredibly secure position.
Thank you.
I've got one there. No more questions. Is that it? Well, thanks, everybody. Thanks for all your questions, and look forward to seeing you all again soon. Thank you.
Thank you.
Thanks.
You've got a real mouth.