Earnings Call: Q3 2018

Nov 7, 2018

Earnings release

Hello, and welcome to the Persimmon Trading Update Analyst Conference Call. Throughout the call, all participants will be in listen only mode. Following the short introduction from management, there will be a question and answer session. Today, I'm pleased to present Roger Devlin, Chairman of Persimmon Homes. Please begin your Good morning, ladies and gentlemen, and thank you for joining the call. We've got Jeff, Mike and Dave Jenkinson We'll take you through the trading update as usual. But before that, I just wish to address the change in leadership. You will have seen that alongside the trading update, we've made a separate announcement about Jeff leaving the business at the end of the year To be succeeded by Dave as interim CEO. As you will be aware, although the operating performance of The business has been strong for many years. This performance has led to very significant awards for Geoff under the 2012 LTIP, which have been controversial across the company's stakeholders. Jeff had hoped That outlining his plans to set up a charitable trust and waiving a proportion of the award would enable the company to put this issue behind it. However, this has not come to pass. And after some very open conversations with Jeff, the Board has decided But with regret, it is in the best interest of Persimmon that Jeff should stand down. Jeff has been a hardworking, Dedicated and highly successful Chief Executive of the business, and I want to place on record the Board's appreciation for the work he's done, not just in producing consistently strong operating results, but positioning the business well for the future and developing the exceptional talent we have throughout the company. I'd also like to thank him personally for the exceptionally professional way He's conducted himself throughout this process. Most of you will know that Dave, who has been with the business for over 20 years, has worked very closely with Jeff on delivering the strategy that was set out in 2012. He knows every inch of the business, And I'm confident that together with Mike, we won't skip a beat in this handover period. But this call is all about a good trading update. So please could I ask you that we keep questions today focused on that. And with that, Jeff, I'm handing over to you. Thank you, Chairman, and good morning, everybody. Welcome to the Persimmon 3rd quarter trading statement. I'm very pleased to say that the autumn season has Got underway. And in the traditional way, we've seen a strengthening in the market with good Sales rates across our network. We've got around about 370 sites across the U. K. At the moment, which actually is 5% stronger through the course of the same period last year. And trading has been incredibly resilient With total private sales up 3% over the same period. That's backed up by good mortgage support And approvals are showing positive growth. We've got good levels of continued affordability. And there are very good competitive mortgage products available to our buyers. As you know, we continue to be focused on 1st time buyers and 1st time movers. And in that marketplace, we're seeing very good demand for our products At the right price points across the UK. Total forward sales were up by 9%, so very strong picture there It's just under £1,000,000,000 and we continue to show good growth in the business. Over the last three and a half years, we've opened 6 new operating companies. And I'm very pleased today to announce We will open a further operating company, taking us to 31 total operating companies around the UK. That new office will be in South Yorkshire and will commence from January next year. And that's made possible through continued investment in very good opportunities for land and sites throughout the area, which has meant that we're in a very strong position to continue to move the business forward. And actually, I think the key issue there is particularly in relation to the shape of our land bank and the ability for us to have confidence in sustainability over the long term. The office will be located at our site in Haworth, which is where we've set up our manufacturing hub. So we're currently building the office on that site at the moment. And as you're aware, we've already opened A roof a brick manufacturing plant there, which is up to full operating capacity. And I'm pleased to say that we're delivering over 1,000,000 bricks a week from that facility. And we're currently on track to construct Our rooftop factory, which is underway, and we'll be producing product in the second I think it's right to recognize that housebuilding is a very large employer And at Persimmon, we're supporting over 20,000 construction jobs and a further 29,000 jobs in the supply network. Well, we continue to look for further opportunities and investment. And one initiative that we've identified and again are announcing today is the investment in the 4th utility, Ultrafast broadband. Our customers' demand for fast Internet speeds and reliable service are clear. We understand that the market is not particularly well served in that regard. And we are very pleased now to be able to offer our own high quality ultrafast speed broadband to customers on our sites. The company name is Fibonest, and it's already supplying customers on 15 of our new developments across the U. K. And this will be rolled out across the whole of the site network as we open new sites going forward. Early feedback is very encouraging with excellent service and a price guarantee to give people confidence about the product. But it really is to recognize the demands on customers going forward in terms of providing a platform for them to receive high quality fiber to the home Internet service. Separately, we're very pleased with the announcement from government of a 2 year extension to Help to Buy. This underpins our strategy of continued investment in land. And in the period, we've invested a further 180,000,000 On nearly 5,000 plots. So for this year, 23% of the new plots That we have purchased have come via our strategic land bank. So that is operating very well. Ladies and gentlemen, Persimmon is in excellent and extremely strong position for the future, and we're very pleased With that, I would now like to pass to questions and answers. And Mike, Dave and myself will take questions from anybody on any aspect of the business. Thank you. Thank you. We'll now take questions from analysts and investors. Our first question comes from the line of Aynsley Lammin of Canaccord. Please go ahead. Your line is open. Hi, good morning everybody. Good morning, Aynsley. Good morning. Just two questions actually. Wondered if you could give a number for the sales 3 per site per week. I think in the first half, it was 0.78. So I just wondered what it's been kind of year to date. And secondly, I think that you mentioned cash in the statement. Just any kind of guidance And I guess just a quick third one. Could you just tell us what percentage of your Help to Buy use being sold to 1st time buyers. Thanks. Thanks, Ainsley. Yes. The Help to Buy The first time buyer content, Aynsley, within the Help to Buy volume is just a tad over 80%. It's about 82%. And I think that's more or less in line with the average for the industry. Great. And on the sales rate side, Ainsley, I think What we've seen, as Jeff said earlier, we've seen a pickup into autumn. And interestingly, The fact that we have delivered 3% more volume this year over last or 5% more outlets means that Our sales rate per site per week for the last 11 weeks from the interims, the 21st August, It's around about 2% lower than last year. But if you remember, when we talked at the interims in August, We did point out that the average sales rate for the year to date up to that point was tracking around 2% lower than the prior year. Around 2% lower than the prior year, recognizing that the prior year presented Quite strong comparatives as well. So we're as Jeff said, we've seen the normal pickup into autumn. If anything, Slightly stronger pickup this year than last year. And I think that speaks to last year's profile, which was pretty strong through summer, If you remember, whereas this summer we had a number of distractions, people could plan for barbecues and obviously the World Cup, So I think that this summer was perhaps a little bit more subdued because people had other things that they want And that has led to a position where we've seen maybe a slightly stronger pickup into autumn Because of the slightly different shape this year compared with last. Is that okay, Antoine? Yes. And just on the cash, any comment there? Well, I think on the cash, obviously, We have so far had a very good year's trading and but we would point to land where we've continued to invest strongly. So There's still a lot to do before the end of the year. Yes. I mean, I think in terms of year end Sort of positionally, if that's what you're trying to get a feel for. As Jess said, I think there's as always, there's an interesting land pipeline that we've got to see The clear timing on and as you know, those deals will drop when they will drop and We just need to see how those progress from now to the end of December and beyond. But there's also quite a lot of completions to take as well. So there's quite a lot of build To complete, so and then product to finish off as we would like them for handovers. So I think there's many moving parts Still, it's a positive prognosis. I think the year end cash position is going to be a positive position And we'll place us in a strong position to review any proposals For the capital return that will come to market in February next year as we normally do subject to our annual review. So I think the it's quite a positive backdrop, we would say, in terms of giving us choices, if you will, in terms of The liquidity that the business enjoys. Great. Thank you very much. Thanks, Aynsley. Thank you. Our next question comes from the line of Gregor Kuglitsch of UBS. Please go ahead. Your line is open. Good morning, Gregor. Hi. Good morning To the 4 of you, I think. So one question on trading. If you could just kind of the margins obviously weren't mentioned in the statement. If you can kind of Give us some kind of steer. I think when you last spoke in August, you were still talking about sequential improvements visavis the first half. I would just Kind of have confirmation that, that hasn't changed for any reason. And to the extent that you can, I think at The time you were also talking about, I think, the exact which was something like a couple of years of further margin expansion, albeit at a slower pace, I think it may not be quite what you said, but I think that was the gist of it? If you could kind of give us some assurance around that. And then Sorry, if I'm breaking protocol with regards to the management change. I'd be interested to know, to know, 1, what the kind of time frame is for the search for a new Chief Executive? And then secondly, to the extent that Dave and Mike, obviously, who are in a similar position as regards to the LTIP, Any kind of comment they would like to make as to their commitment to staying with persimmon? Thank you. Thanks, Greg. If I could just address the search element, headhunters will be appointed Really to sort of benchmark Dave, who we have massive confidence it is an interim. And I don't think you should expect any announcements on this much before Easter time. I will allow Dave and Mike to speak for themselves in this, but clearly, I've had conversations with them about their ongoing commitment to the company and it is absolutely total. They are significantly invested in the business. They've worked here for a long And I believe it's their intention to be here for some time to come. Yes, Roger, as far as I'm That's right. We're here to do the right thing for the company and see it through this period of time, and we'll commit this as long as we're needed. Yes. And I think The key thing here is that the business is in a very strong position. And I think As Roger commented earlier, Dave has been instrumental in working with Jeff And in Globe in placing the business in such a strong position. And I think that The quality and depth of the team that we have working Alongside us across the company, we'll ensure that Dave and myself Very well supported in continuing to deliver continued Success. They want to achieve their own personal objectives as well as the objectives that we've set strategically for the business. And I think that both Dave and I are looking forward to Enjoying working with that team over the long term to continue to deliver Benefits for our shareholders, but as Jeff points to, the wider stakeholder groups That have an active interest in our business. So I think that, Dave and Masam I'm not here to speak for Dave, but Dave and myself have remained very To position the business so well in the markets with the challenges that we've got ahead of Which we remain very mindful of. I mean, just moving on to the margin point, Gregor, if I may. Yes. I mean, we have pointed to further progress on margins moving forward. That is still the There's no reason to believe that we can't continue to deliver on That ambition, we've got all the moving parts that we need to deliver on that. Now The only caveat on that is circumstances outside our control, which I'm sure you would acknowledge that with the Prospect of quite a significant structural change for the U. K. Economy with exiting the EU And the challenges with respect to global trade wars and the like, then as you know and the audience There's a lot of uncertainty out there. So we have to do what we can with the things that we can control. And we will be working 20 fourseven as always to deliver the best outcomes Thank you. Our next question comes from the line of Will Jones of Redburn. Please go ahead. Your line is open. Good morning, all. Good morning, Will. Good morning. Yes, 3 for me, if I could, please. The first just, I guess, I think in the statement you talked about being fully sold up for the year, which I guess We'd expect in November that perhaps you could help us with your views, therefore, on what it means, I guess, at least the top line with regard to Volumes and price for the P and L in 2018, obviously assuming that completions will happen on schedule through to year end, please. The The second was maybe just perhaps you could update us on any anecdotes really around the customer care side of things. Clearly, I think the data we see externally is only really once The year in the early part of the calendar year. So anything you, I guess, know of on the midpoint of that time frame and just to update us on would be great around Pacinima's performance of the customers. And then the last one really just, I guess, expanding on the Help to Buy news last week, but I guess particularly digging into the price caps, How you saw those, particularly on the more northern regions? And I guess just whether it has any implications of how you think you might operate strategically either between now 2021 or now in 2023, obviously, as the various changes look to come in. Thanks. Thanks, Will. I'll just take the last question first, if I may, on Help to Buy. Yes, it was interesting to see The revised process that was announced for 2021 through to 2023. And as you can imagine, that plays pretty well to our focus in the business. And I think we're extremely well positioned on that. And we've done a little bit of work in terms of analyzing The sales that we have taken in the first half of this year and around about 85% of the sales Do fall within those price cap levels as outlined by the government across the UK. So I think it's a very positive picture for us. And we're well positioned for the future in that regard. But we've it's by design. We, as you know, are very keen on ensuring affordability And people's ability to buy is still very good at the lower price points, and we'll continue to focus on that. In terms of customer care, we've continued to make good progress on that, Will. We have seen a step forward in all of the numbers over the last There have been some challenges around issues such as weather at the earlier part of the year, Which I think for the industry set, construction teams back in that regard. So there was A catch up area there really in order to ensure that we could get more work in progress on the ground to achieve Handover days, which are satisfactory from the customer's perspective. But we've still got more to do. So We've got lots of initiatives. We've got an excellent process in place, which is providing good results, And we continue to see the benefit of that. So there's more work to do. I think one thing I'm very clear about The quality of our houses at handover is excellent. We verify that and we'll continue to do so. We need continued focus on both the period of moving a customer into a property, Managing that process and also the after moving date of ensuring that works are completed On time in terms of various minor snagging works and so forth. So there's still challenges there, but I think we've made excellent progress. Just on the top line, Will. Obviously, we're not in the business of giving forecasts. You know that. So nice try. But yes, I'll tell you where the consensus So you've probably got your own view on that, but something around $3,500,000,000 to $3,600,000,000 of sales, which will be maybe 16,400 or maybe a few more units this year, which we think will be a great outcome given the challenges, but it does demonstrate the, As Jeff said earlier, the resilience of the demand with respect to our positioning in the market, With respect to having a greater weighting, if you will, Within our mix of offer on each of our sites, which is obviously trying to support first time buyers and first time movers, Albeit, we always do try and provide a good range of choice on all of our sites for customers that would like Goodbye in the locations where we're building. Thanks for your questions, John. Thank you. Thank you. Our next question comes from the line of John Bell of Barclays. Please go ahead. Your line is open. Good morning, John. Good morning, Jeff. Good morning, Mike. I was going to ask you about the Help to Buy I've got a couple of others though. Firstly, on bricks, could you just remind us of your external brick needs In the new world, and anything you can give us on the annual brick price negotiations? And then secondly, just wondering how Charles Church has traded over the period, whether there's any interesting trends in there? Yes. Thanks, John. Yes, Bricks, we I've said that our new facility can and is providing about 2 thirds of our requirement overall. So we've still got a substantial external requirement. And we've got good relationships On a number of channels in that respect, which we work very well with those suppliers, And I believe we'll continue to do so. I think, as we've said before, in terms of Materials, particularly for our sector, there are shortages. And therefore, that does lead To some price pressure, and I think we'll continue to see that. But We have obviously put ourselves in a good position to ensure that we can negotiate well in that respect. So we don't anticipate significant increases To our own supply in that regard. I mean, on Charles Church, John, obviously, everybody appreciates Charles Church is A more aspirational purchase for the customer in perhaps more priced locations with greater amenity value. As you know, we've been repositioning both the persimmon, but more importantly, the Charles Church brand over recent times, whereby Charles Church has a greater focus on that premium offering. It's not luxury, but it is a more aspirational purchase. As you know, has an average price of around about £340,000, £350,000 traditionally, depending on the mix. So we're finding that Charles Church is still attracting good levels of interest in its markets. We are pretty selective in terms Where we offer Charles Church, having done the market research and understanding The housing need in those particular areas. So I think that we're happy with How Charles Church is performing? More recently, you've seen the quality of the earnings delivered by the Charles Church business has moved forward, Albeit, the number of units sold has come back a little bit because of that repositioning. But we feel that The Charles Church business is positioned very strongly in the locations where there is good demand for that type of Product and I think those are the typical ingredients, as you know, John, to make sure that any part of your business It's on a robust footing to do pretty well in its market. Thanks, Mike. Can I just ask one Follow-up really on the brick side? So the 1 third of your requirement that is coming externally, is that All clay bricks or are you still purchasing some concrete bricks from outside? Yes, it's a mixture actually, John. So we've got 2 main suppliers, 1 brick, 1 clay and 1 concrete, but we've got other More localized suppliers as well. So it's a mixture, but there's 2 main Suppliers, 1 of each. Yes. Okay. Thank you. Thanks, John. Thank you. Our next question comes from the line of Amit Gala of Citi. Please go ahead. Your line is open. Good morning, Amit. Good morning, Amit. Amit? If you have your Morning. Can you hear me? We can hear you now. Yes, there you are. Sorry for that. I just have two questions here. Firstly, if you could give us some color on the across your regional businesses, the differences in strength that you've seen in the autumn And the second one on the land market, could you give us some commentary around the intake margins that you see in the land market today? And how has the backdrop evolved over the last 6 to 12 months? Thanks, Ami. Well, Sales, I'm pleased to say that, again, as is usually the case, we see good strength right across the UK. And I think that's really borne out of the fact that we've got a very good mix of house types at the right price point. So we're not seeing any signs of particular strength or weakness anywhere, which is good. And all of our regional operating companies Are doing very well in that regard. What was the second question, sorry, Amy? The second one was on the land intake margins. If you could give us some sense of how that has evolved over the last 1 year? Well, again, it's pretty similar to what we've seen over recent times. So each site is each Potential opportunities looked at on its own merits. And given the fact that the group is in such a strong position In terms of its land bank, each of the 31 businesses as will be has a sustainable supply of land. So we're not Sport in terms of having to buy sites to maintain an individual company. So we can be pretty selective in that regard. And we tend to judge the circumstances As they occur, so if a site comes forward, if it's a particularly large site, obviously, we're concerned with the payment terms, But also because of the longevity of it, we may well expect to get higher margins. So there aren't any particular Hurdle rates that we aim for, but what I can tell you is that our inter margins that we have seen or continue to see are in line With what we have been achieving previously. So I think that's positive, which means that We can certainly maintain our position. And given the strength of value in the land bank, As Mike said earlier, then we expect that to show and come through as we continue to move the business forward. Thank you. Thanks, Ami. Thank you. Our next question comes from the line of Charlie Campbell of Leroyam. Please go ahead. Your line is open. Hi. Good morning, Ronny. I think just two questions really. The forward sales you've given up given is up 9%. I just wonder if you could split that between volume and price. And I mean, if not, maybe just to give us an idea of what you're seeing underlying house price inflation through the year? And then the second question, just On valuations, you talked about the mortgage market being pretty supportive competitive. But are you seeing any down valuations Anywhere across the group at the moment? Thanks, Charlie. Well, I'll deal with the second point, If I may, because I think it is interesting. But in terms of valuations, There's no real change in behavior that we've seen. Obviously, we are keen to make sure that we Get the best price that is available in the market. So certainly when we get on to a new site, That is the opportunity, particularly if it is outside of a normal settlement area to Ensure that we get the strongest possible price on the first release. So You tend to see a little bit of tension around valuation in that regard. But generally in the marketplace, prices are firm And we're seeing valuations holding up on the sales that we're taking. So that's very positive for us. Mike, do you want to deal with Yes. I mean, on the forward sales, Charlie, the balance within the book, The PD order book is more or less in line in terms of pricing, But obviously, that will be influenced by mix to a degree. The strength is in the affordable business, which is really delivering that 9% increase, where we've got about around about 650 Additional booked orders within our affordable the affordable elements of the forward sales So that's great to have. We're very keen to deliver Housing for lower income families to our housing association partners. It is a bit lumpy in terms of when the contracts But I guess it's a good reflection of the fact that we've got quite an interesting pipeline of new outlets coming through Into the new year, which gives us confidence that we'll have a strong platform for sales moving into next This year, with some new sites opening up and delivering these units As we move through next year. So, yes, we're pleased with the position we've got. But the strength in the forward order But compared with last year, that sort of 9% number is coming out of the affordable end of the book, PD More or less in line. Thanks, Charlie. Thank you. Thank you. Our next question comes from the line of Chris Millington of Numis. Please go ahead. Your line is open. Good morning, Chris. Good morning, gentlemen. Hi, Chris. Hope you're all well. Just a couple from me, please. Jeff, you just mentioned there that pricing is firm. I just wonder if I could push you on that anymore, whether there's been any material change in what you're speaking after the interim. So that's the first one. The second one is just about overall cost growth feeding through the business. And then the final one is Just to ask about management changes outside of the exec team level. I'm just wondering if there's been any kind of notable departures either the kind of regional or senior level throughout the organization. Thanks, Chris. Yes, I think, I mean, on the pricing issue, It's pretty much in line with what we reported before, Chris. So no real change in that. I think that, I mean, cost inflation, we've said before that there is pressure in that respect. But for the full year, we would probably serve for a 12 month period, we'd probably say 3.5% to 4%. So it is At a manageable level, but it does vary from product to product. And of course, we've got a bit of mitigation in any In that regard. I think In terms of the management team, it's a strong picture. As the Chairman said earlier, we've got real strength and depth In the management team. And we've got a good structure in place, which Gives excellent opportunity for people to come through the business. We've got a great record of that. There has been a few changes lower down the management structure, But nothing more than we anticipated. A handful of people in that regard, but I think that's positive. What we've got to recognize is that, as I mentioned earlier, we've this will be our 7th new office within 4 years. And that has created great opportunity for people that we managed To move into new positions created. But of course, going forward, we've got a very strong platform now across the UK, And we need to keep creating opportunity for the very good talent coming through the business. So it's natural and very healthy for To see people coming through and people retiring and that's the normal sequence of events. So Nothing really to be concerned with, but a positive picture. Thank you. And we have one further question in the queue, and that's from Kevin Kamak of Venkos. Please go ahead. Your line is open. Good morning, Kevin. Yes. Hi, Mike. I've actually if the Chairman is still with you, I've got one for him. We may have Yes. No one here. Well, let's start with that one then. I mean, obviously, You've done a fair old round of counseling shareholders, I guess, 1st and foremost I'm just wondering if there was anything else that cropped up in those discussion, general And the one just a bit of an odd one, I know, but just a question I've got on this fiber nest thing. Just for me to understand, is this your own scheme that people would Subscribe and pay a monthly charge to you? Or is it or are people free to sort of Yes. I'll deal with that point first, Kevin, if I may. So Fibonest It's incredibly our own scheme. And it is end to end from our own service To the customer's home providing ultrafast speed, broadband, and it really is borne out of this issue, as I mentioned, to Provide an excellent service for the customer. And we've seen customers disappointed With the availability and products that on the market And the speeds in some respects are absolutely dreadful. And like many things that we believe there's an opportunity for us to provide a better facility, a better service to the customer. And that is what this is about. So it's about excellent service for the customer At a good price and we've got a price guarantee in that regard to give the customer confidence It's good value. As with any Location, any sites, there are opportunities for other providers to come in to provide customers. However, We install the infrastructure. We install infrastructure for BT on older sites. And in that regard, we're installing infrastructure for ourselves on our new sites. So that is Really, the what the scheme looks like as we've announced today. Okay. Can I just ask then, who actually do You administer the scheme as such? So if I've opted for your systems And then 2 weeks in or whatever, I suddenly can't get Sky Sports on a Sunday afternoon, do I phone who's admit do I effectively, do you have to send someone around to Solve it and everything or is it I mean, it's I think the first thing, Kevin, is not a scheme, it's a service. So it is Just like any other Internet provider, it is exactly the same, but it is a high quality service. And we have engineers who install the service. We have engineers to provide any detailed issues and Repairs that are required. We've also got partners that we're working with in that regard and we've got a customer service department Who deal with orders being placed and also any issues that may occur. So it's a full end to end comprehensive service. Yes. Thank you. And gentlemen, would you like to deal with the first point? Yes. Yes. I mean, Kevin, look, I mean, the conversations With shareholder, essentially private, and it's important that I respect that. As you've learned from this call, I mean, you all know the track record of this business is 1st class. The current trading is in good shape, And we're positive about the future. But I was very clear that as I went around the Shareholders, the noise and distraction around Jeff's remuneration was Defining broader stakeholder views of Persimmon, and by broader, I mean shareholders, customers, politicians, whatever. And this was sadly damaging the company's reputation, and we had to take the action that we have taken. And I guess if there is any learning from this, it is the financial outperformance, which this company has achieved in spades, doesn't trump Absolutely everything, and that's kind of where we are. Thank you. That now concludes the question and answer session. I'll now hand back to our speakers for the closing comments. Well, thanks very much for your questions. Together with our Signia management team, the Board looks forward So Horstin, our Capital Market Day, both this evening and tomorrow. And all of the contents of That will be available on the website for everybody to review. We will welcome our guests To hear it firsthand how Persimmon continues to perform so strongly and how we show innovation and differentiation in our sector. So thank you for joining us on this call. We look forward to continued success As we work through to a positive conclusion to the full year 2018, the business is in excellent shape, And it is our intention to update the market in relation to full year trading in the New Year. Thank you very much. Good day. This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.