Persimmon Plc (LON:PSN) has announced Final Results for the year ended 31 December 2022.
Dean Finch, Group Chief Executive, commented:
“Persimmon delivered a very strong performance in 2022. I am particularly pleased we combined strong financial results with five-star customer service and quality. I would like to thank colleagues across the Group who have been working hard to deliver the dream of homeownership for our customers during one of the most turbulent years anyone can remember. The strength of our financial and customer service results is testament to their hard work and commitment.
“The market remains uncertain. Our marketing campaign has helped improve the Group’s sales rates in the new year from the lows at the end of 2022, but they still remain lower year on year. We have carefully managed our pricing, recognising the improved value and energy efficiency of our product in these difficult times and sales prices have proved resilient. We responded quickly to stimulate sales, enhance cost controls and preserve cash, promptly slowing new land investment in the fourth quarter of last year. Nonetheless, the sales rates seen over the last five months mean completions will be down markedly this year and as a consequence, so will margin and profits. However, it is too early to provide firm guidance.
“Looking further ahead, the fundamentals underpinning demand for new homes remain strong and we continue to target disciplined growth in the coming years while continuing to enhance our quality and service credentials. Persimmon benefits from industry-leading embedded margins in its existing land portfolio. This is a strong platform for growth from next year as we look to expand our outlet network to provide the capacity to deliver ahead of pre-Covid volumes in the future. A more proactive approach to securing permissions is starting to demonstrate success despite ongoing difficulties in the planning system. We are prioritising securing consents on sites we already own and will complement this through targeted investment in outstanding new land opportunities at the right time.
“The hard work of recent years has built a stronger and more sustainable Persimmon for the future. With a well-positioned product delivered with more consistent quality and service, together with our high quality land holdings, we are well-placed to succeed in the years ahead by growing our outlet network, increasing the number of five-star homes we build, responding swiftly to market changes and delivering sustainable returns to shareholders.”
| Financial Highlights | ||
| 2022 | 2021 | |
| New home completions | 14,868 | 14,551 |
| New home average selling price | £248,616 | £237,078 |
| Total Group revenues | £3.82bn | £3.61bn |
| New housing revenues | £3.70bn | £3.45bn |
| Underlying new housing gross margin1 | 30.9% | 31.4% |
| Underlying operating profit2 | £1,006.5m | £966.7m |
| Underlying profit before tax2 | £1,012.3m | £973.0m |
| Profit before tax | £730.7m | £966.8m |
| Cash at 31 December | £861.6m | £1,246.6m |
| Land holdings at 31 December – plots owned and under control | 87,190 | 88,043 |
| Number of selling outlets at 31 December | 272 | 234 |
| Current forward sales position | £1.52bn | £2.21bn |
| Net assets per share | 1,077p | 1,136p |
| Underlying return on average capital employed3 | 30.4% | 35.8% |
| Customer satisfaction score4 | 5-star | 5-star |
A strong trading performance combined with five-star quality for the first time
• Underlying operating profit2 up 4% year on year to over £1bn.
• Profit before tax of £730.7m reflecting the increase in our provision by £275.0m to £350.0m (before spend to date) for building safety remediation.
• HBF customer satisfaction score4 remained above the 90% five-star threshold for the year with continued focus on further improvements through our Persimmon Way build excellence programme.
• Average selling price increased 5% year on year, reflecting house price inflation and a more sophisticated approach to pricing in local markets.
• Build rates up 8% year on year, with the second half of the year particularly strong at 15%.
• Industry-leading underlying operating margin5 position maintained at 27.2% (2021: 28.0%) as careful cost management and the Group’s vertical integration helped mitigate build cost inflation of 8-10% through the year.
• Strong cash generation of £1,002.7m (2021: £1,209.8m) before capital return of £750.1m and net land spend of £637.6m. Cash held at 31 December 2022 £861.6m (2021: £1,246.6m) reflecting strong investment in land and work in progress and capital return.
Disciplined investment
• Proactively added additional control measures in Q4 2022 to slow land investment and ensure work in progress matched sales demand.
• Added 14,670 plots across 66 sites into our owned and under control land holdings during the year, at gross investment of £735.8m. These additions maintained both our industry-leading embedded margins and the cost to revenue ratio of our owned land has remained at 11.4%6.
• The Group’s high quality land holdings stand at 87,190 plots owned and under control at 31 December 2022 (2021: 88,043).
• The Group’s underlying return on average capital employed3 of 30.4% (2021: 35.8%) reflects the increased investment in land and work in progress as we built up our outlet network in 2022.
• Expediting sites on owned land with consent stalled or due for application shortly, with a more proactive approach to planning including an enhanced Placemaking Framework.
• With a more selective approach in place, we expect new land investment to be reduced in 2023. We will continue to target attractive deals to help drive outlet growth from 2024 onwards, subject to planning constraints.
Creating sustainable communities
• Our private average selling price of £272,206 during 2022 is over 20% lower than the UK national average7.
• Investment of £505.6m in local communities, including the delivery of 2,694 new homes to our housing association partners (2021: 2,533).
• Good progress made on our carbon reduction targets including through increased use of electric vehicles in our fleet and 100% renewable electricity in our offices.
• Seeking to deliver our transition to net zero carbon homes in use through innovative solutions from Space4, our timber frame manufacturing facility.
• One of only 10 companies to be awarded a Certificate of Commitment and Progress – Building Safety Stage 1, as part of the Building a Safer Future Charter Champion application process.
• Remain proud to be a Living Wage Foundation accredited employer; introduced the 2023 increase in January ahead of the requirement.
Legacy building safety provision
• In February 2021 Persimmon led the industry in committing that no leaseholder in a multi-storey development we built would have to pay for cladding removal or life-critical fire-safety remediation.
• Persimmon has signalled its intent to sign the UK government’s developer remediation contract as it is in line with this existing commitment. We continue to work positively with the Welsh and Scottish governments on similar agreements.
• Good progress has already been made on buildings we developed. Of 73 developments identified as requiring remediation, work is underway or complete on 42 and we aim to start work on the remainder by the end of 2023.
• As announced in November 2022, the Group has increased its provision for building safety remediation across the UK to £350.0m (before spend to date), resulting in a £275.0m exceptional charge for the year.
Current trading and outlook
• Forward sales position reflects the significant drop in private sales rates experienced in Q4 2022 to 0.30 (Q4 2021: 0.77), although cancellation rates have reverted back to typical historic levels.
• Current forward sales stand at £1.52bn, including private average sales of £0.81bn with an average selling price of £288,638 indicating that pricing remains firm.
• Sales rates have improved to 0.52 in the first 8 weeks of the year, in-line with industry peers yet still significantly below the equivalent period last year (0.96).
• Entered 2023 with 272 active sales outlets, up from 234 at the start of 2022, with an average of 259 for the year. Average likely to remain broadly similar in 2023 reflecting selective investment and on-going effect of slow planning system.
• Too early to assess a full year sales rate, but should current rates continue for the rest of the selling year, the Group’s current outlet network would imply 8,000-9,000 legal completions for 2023.
• These lower completion levels will have a margin impact.
- If cost inflation, which is currently running at c.8%, continues all year and there is no mitigating increase in average selling price, margins may reduce by around 500bps.
- Reduced volumes and increased sales incentives and marketing costs may further impact operating margins by around 800bps.
- Ultimately, any margin impact will of course be a product of the interplay between each of these factors. Equally, as they improve, it will drive relative margin growth.
• While focusing on securing planning permissions from our existing owned land, it is our intention to continue to invest in land in a targeted and disciplined way, when we judge the timing is right, in order to deliver outlet growth in future years. We are confident that this will lead to growing margins and profits.
• We have taken action to reduce our costs but wish to retain our capabilities to grow again in the near term, which has reduced our ability to mitigate the margin impact of lower volumes.
• We continue to enhance our capabilities through further investment in our colleagues, innovation and vertical integration – including a new timber frame factory – to enhance our build quality and efficiency capabilities and ability to respond to improvements in the market.
Shareholder returns
• Dividends of 125p (£399.0m) and 110p (£351.1m) per share paid on 1 April 2022 and 8 July 2022 respectively, representing the capital return from 2021.
• A new capital allocation policy was announced in November to deliver sustainable returns to shareholders while investing in future growth through disciplined expansion of our industry-leading land portfolio and enhancing our quality and service capabilities. Alongside this the board considers our current assessment of prevailing market conditions, the sector’s increased tax contribution and building safety remediation costs.
• For 2022, the Board proposes a final dividend of 60p per share to be paid on 5 May 2023 to shareholders on the register on 14 April 2023, following shareholder approval at the AGM. This dividend is the final and only dividend in respect of financial year 2022.
• For 2023, the Board’s intention is to at least maintain the 2022 dividend per share with a view to growing this over time. As previously announced, payments will be made semi-annually and the Board intends to pay an interim dividend in the second half of this year in relation to 2023.
Footnotes
1 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil) and based on new housing revenue (2022: £3,696.4m, 2021: £3,449.7m).
2 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil) and goodwill impairment (2022: £6.6m, 2021: £6.2m). Operating profit after legacy buildings provision charge and goodwill impairment is £724.9m (2021: £960.5m).
3 12 month rolling average calculated on operating profit before legacy buildings provision charge (2022: £275.0m, 2021: £nil) and goodwill impairment (2022: £6.6m, 2021: £6.2m) and total capital employed. Capital employed being the Group’s net assets less cash and cash equivalents plus land creditors.
4 The Group participates in a National New Homes Survey, run by the Home Builders Federation. The rating system is based on the number of customers who would recommend their builder to a friend. The rating used here reflects the live score at time of publication.
5 Stated before legacy buildings provision charge (2022: £275.0m, 2021: £nil) and goodwill impairment (2022: £6.6m, 2021: £6.2m) and based on new housing revenue (2022: £3,696.4m, 2021: £3,449.7m)
6 Land cost value for the plot divided by the anticipated future revenue of the new home sold.
7 National average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land registry. Group average private selling price is £272,206.
A presentation to analysts and investors will be available in person and via webcast at 9.00am on 1 March 2023.
There will be a live webcast facility and conference call for anyone who does not wish to attend in person. All participants must pre-register to join the webcast and / or conference call using the Participant Registration links. Once registered, an email will be sent with important details for this event, as well as a unique Registrant ID. This ID is to be kept confidential and not shared with other participants.
Webcast link:
https://edge.media-server.com/mmc/p/3mp5qs8q
Conference call link:
https://register.vevent.com/register/BIe53095c2619546a99139ffbc01a54a6e
A recording of the presentation will be available on the corporate website later in the day: https://www.persimmonhomes.com/corporate/investors/results-presentations-and-financial-reports
