TIDMPSN
RNS Number : 8552X
Persimmon PLC
27 February 2017
Persimmon plc today announces Final Results for the year ended
31 December 2016.
Highlights
-- Focus on disciplined high quality growth delivers excellent full year performance
-- Underlying profit before tax* increased by 23% to GBP782.8m (2015: GBP637.8m)
-- Full year revenue up 8% to GBP3.14bn (2015: GBP2.90bn)
-- Legal completions increased by 599 new homes to 15,171 (2015:
14,572) and average selling price increased by 3.8% to GBP206,765
(2015: GBP199,127)
-- Operating margin* increased to 24.8% (2015: 21.9%); with second half improvement to 25.7%
-- 41% increase in cash generation pre capital returns to GBP681m (2015: GBP483m)
-- Return on average capital employed** increased by 23% to 39.4% (2015: 32.1%)
-- A further 18,709 plots of land acquired in the year, with
11,268 plots successfully converted from the
Group's strategic land portfolio
-- Underlying basic earnings per share* increased by 19% to 205.6p (2015: 173.0p)
-- Net cash of GBP913.0m at 31 December 2016 (2015: GBP570.4m)
-- Forward sales ahead at GBP1.89bn (2016: GBP1.74bn), an increase of 9%
Long term strategy
-- Completion of fifth year of our ten year strategic plan, with
performance well ahead of original expectations
-- Successfully delivering growth - new home legal completions
ahead by over 60% since launch of plan in 2012
-- Successfully returning surplus capital - GBP1,071m, or
GBP3.50 per share, of excess capital returned since launch of plan
in 2012
-- Strong performance of the business enabled the Capital Return
Plan to be increased by 45% to GBP2.76bn or GBP9.00 per share in
February 2016, together with a further acceleration of the payment
schedule.
-- The Group's continued outperformance in 2016 is enabling a
further increase in the Capital Return Plan to be announced today,
with an additional payment of 25 pence per share, increasing the
total value of the Plan by c. GBP77m to GBP9.25 per share. This new
25 pence per share payment will be made on Friday 31 March 2017 as
a first interim dividend in respect of the financial year ended 31
December 2016.
-- In addition the Board confirms that the scheduled capital
return of 110 pence per share will be paid on 3 July 2017 as a
second interim dividend in respect of the financial year ended 31
December 2016.
* stated before goodwill impairment of GBP8.0m (2015:
GBP8.3m)
**12 month rolling average and stated before goodwill
impairment
Nicholas Wrigley, Group Chairman, said: "Persimmon continued to
perform strongly in 2016, meeting market demand with increased
output and delivering disciplined high quality growth.
"The Group has now completed the first five years of its long
term strategy which remains focused on growing Persimmon into a
stronger, larger business while maintaining capital discipline and
robust free cash generation. The strength of the Group's operating
model is demonstrated by our ability to grow completion volumes by
more than 60% and investing c. GBP2.6bn of cash in land through
this period while simultaneously returning over GBP1.0bn of excess
capital to shareholders.
"Customer activity in the early weeks of the 2017 spring season
has been encouraging. The further increase in the Capital Return
Plan demonstrates the Board's confidence in the Group's
prospects."
For further information,
please contact:
Jeff Fairburn, Group Chief Simon Rigby
Executive Kevin Smith
Mike Killoran, Group Finance Jos Bieneman
Director Citigate Dewe Rogerson
Persimmon plc
Tel: +44 (0) 20 7638 9571 Tel: +44 (0) 20 7638
(on 27 February 2017) 9571
Tel: +44 (0) 1904 642199
(thereafter)
Analysts unable to attend in person may listen to the
presentation live at 09:30am by using the details below:
Telephone number: +44(0)20 3427 1912
Password: Persimmon
Webcast link: http://edge.media-server.com/m/p/57fdunog
An archived version of today's webcast analyst presentation will
be available on www.corporate.persimmonhomes.com this
afternoon.
CHAIRMAN'S STATEMENT
Disciplined high quality growth
Results
Persimmon has delivered a strong performance in 2016, with
revenues increasing by 8% to GBP3,136.8m (2015: GBP2,901.7m) and
profit before tax increasing by 23% to GBP774.8m (2015: GBP629.5m).
The Group delivered 15,171 homes to customers across the UK, an
increase of 599 on last year. The Group's average selling price of
GBP206,765 was 3.8% higher (2015: GBP199,127).
The Group has continued to execute its long term strategic plan,
concentrating on delivering disciplined high quality growth. Key to
supporting this growth is opening new development sites swiftly
following receipt of an implementable detailed planning consent and
then progressing a build programme to secure rates of new home
construction to meet market demand.
Persimmon opened 255 new sales outlets during 2016 (2015: 252).
In line with expectations, legal completions from these new sites
supported a further reduction in the Group's land cost recoveries
during the year. These lower land cost recoveries and firm control
over development costs resulted in underlying gross margins
increasing by 240 basis points year on year to 27.8% (2015:
25.4%).
Underlying operating margin* of 24.8% was 290 basis points
higher than the prior year (2015: 21.9%). The Group's growth
towards optimal scale in each of its regional markets yielded
operating efficiency benefits which added 50 basis points to the
Group's operating margin. Underlying operating profit* of GBP778.5m
was 23% ahead of last year (2015: GBP634.5m). The increase of 695
homes sold in the second half of the year to 7,933 homes (H116:
7,238) supported the further 190 basis point improvement in the
second half operating margin* to 25.7% (H116 23.8%).
Underlying profit before tax* of GBP782.8m increased by 23% year
on year (2015: GBP637.8m) delivering underlying basic earnings per
share* of 205.6 pence which is 19% higher than last year's 173.0
pence.
In 2016 the Group generated total shareholder equity value per
share before capital returns of 202 pence, an increase of 12% over
the prior year (2015: 181 pence per share). This additional equity
value was generated through the excellent trading performance
combined with the Group's strong capital discipline during the
year.
The Group's strategy prioritises cash efficiency and capital
discipline through the cycle. As a result our liquidity remains
strong. We generated GBP681m of free cash before capital returns
during the year (2015: GBP483m) whilst also acquiring 18,709 plots
of new land across 86 high quality locations. Our strategic land
portfolio contributed 11,268 plots in 41 locations to this
total.
The Group held GBP913.0m of cash at the end of the year (2015:
GBP570.4m). Return on average capital employed** was 39.4% for
2016, an improvement of 23% over the previous year (2015:
32.1%).
Long term strategy and Capital Return Plan
The Group's long term strategy, launched in February 2012, is
focused on mitigating the risks to sustainable shareholder value
creation inherent in the UK housing market by maintaining capital
discipline and delivering strong free cash generation to
shareholders through the housing cycle. We are committed to taking
opportunities to increase output in each of our regional markets to
meet market demand and to enable us to achieve optimal sustainable
scale for each of our 29 house building businesses. This optimal
scale is based upon disciplined investment in land and work in
progress, at a pace and quantum that optimises trading efficiencies
and land replacement activity whilst minimising financial risk.
Over the last two years we have opened five new house building
businesses to support the growth of the Group taking advantage of
market share opportunities to do so. Having completed the first
five years of the plan, Group operational performance is well ahead
of our original expectations.
Our strategic plan recognises the potential of the Group to
generate substantial surplus capital should its operational
execution be successful. The Board therefore made a long term
commitment in early 2012 to deliver GBP1.9bn (GBP6.20 per share) of
surplus capital to shareholders over ten years to 2021 ("the
Capital Return Plan"). The value of the Capital Return Plan was
similar to the market capitalisation of the Group at the time the
plan was launched.
Given the strong progress the Group has made, the Board
announced an acceleration of, and an increase to, the Capital
Return Plan on 23 February 2016. Minimising financial risk and
retaining flexibility for reinvestment in the business remain key
priorities. The Board is of the firm belief that the prioritisation
of capital discipline through the housing cycle is critical to the
successful delivery of sustainable, superior shareholder value and,
therefore, maintained the original long term Capital Return Plan
period commitment to 2021.
Accordingly, the Company accelerated the payment of a cash
return of GBP338m, or 110 pence per share, as an interim dividend
for 2015 which was paid on 1 April 2016. This was an increase of
100 pence per share on the provisional 10 pence per share payment
proposed under the previous Plan schedule, and an increase of 15
pence per share, or 16%, on the 95 pence per share paid in 2015. To
date GBP1.1bn, or GBP3.50 per share, has been returned to
shareholders.
In addition, on 23 February 2016 the Board increased the total
value of capital to be returned to shareholders within the original
Capital Return Plan period by c. GBP860m, or GBP2.80 per share,
over the plan period to 2021. The total value of the Capital Return
Plan therefore increased to c. GBP2.76bn, or GBP9.00 per share, an
increase of 45% over the original Plan value.
The future Capital Return Plan payment of GBP5.50 per share was
set to be paid in equal instalments of GBP1.10 per share over the
remaining five years of the Plan period, commencing in early July
2017.
The Board has completed its review of the availability of
surplus capital of the Group and is pleased to announce a further
increase in the Capital Return Plan of 25 pence per share to be
paid on 31 March 2017. This additional payment of surplus capital
will be a first interim dividend in respect of the year ended 31
December 2016 paid to shareholders on the register on 10 March
2017. In addition, the Board is pleased to confirm the scheduled
payment of 110 pence per share will be made on 3 July 2017 as a
second interim dividend with respect to the financial year ended 31
December 2016, to shareholders on the register on 16 June 2017.
As a result the Capital Return Plan to 2021 has now been
increased by 49% to GBP9.25 per share.
As previously stated, the actual value of the surplus capital to
be returned to shareholders in future years will continue to be
assessed each year after due consideration of the appropriate
balance between the current financial position of the Group and its
land bank, the housing market cycle and land market conditions, and
wider-ranging risks and external conditions.
Board Changes
The Board announced Simon Litherland's appointment as a
Non-Executive Director of the Company on 23 February 2017 and looks
forward to him joining the Group on 3 April 2017.
Outlook
The UK new build housing market remains confident with customer
demand for new homes supported by compelling mortgage products. We
are pleased with customer activity in the first eight weeks of the
2017 spring season. Visitors to our sites are c. 7% ahead year on
year. We have experienced a normal week on week strengthening of
the market on entering the 2017 spring selling season.
Despite particularly demanding comparatives given our excellent
trading performance through 2016, we are in a good position to
deliver further growth in 2017. Current total forward sales,
including legal completions taken so far in 2017, are GBP1.89bn, 9%
ahead of the previous year (2016: GBP1.74bn).The Group's overall
private reservation volumes in the forward order book are 6% ahead
of last year allowing for the first eight weeks private sales rate
per site being 4% lower at this point. Cancellations remain low.
Over the first few weeks of the year we have achieved some modest
selling price improvement.
Disciplined growth in mortgage lending to customers seeking to
buy a newly built home will support further increases in
construction. However, to increase new home supply the planning
system will need to allow the release of more land for development
by the industry. We are encouraged by the Government's action in
continuing to seek improvements in the planning system with the
consultation measures included in the recent Housing White Paper.
By opening new sales outlets in increasing numbers, together with
investing in training skilled trades people, the industry will be
able to expand output and fulfil the housing needs of local
communities across the UK.
As a result of substantial investment in replacement land over
the last few years we have maintained the strength of our sales
outlet network whilst increasing our sales volumes by over 60%
since the launch of our new strategy in 2012. The Group started the
year with 390 active sites, a network which is c. 4% stronger than
at the same point last year. We are working hard to make an early
start on as many new development sites as planning conditions will
allow. We have opened 51 new sales outlets so far this year. We
anticipate local authorities will continue to support the delivery
of greater housing supply in line with their obligations under the
National Planning Policy Framework and their planned five year
housing needs. Persimmon will continue to work in partnership with
all stakeholders to maintain the strength of our sales network and
to build more homes to meet customer demand. Our significant
investment in work in progress carried forward into the new year
provides a platform for further volume growth.
We remain keen to invest in new land in the open market where
terms are appropriate whilst remaining mindful of the risks
associated with the uncertainties arising from the UK's decision to
leave the EU. In addition, looking ahead, land from our strategic
portfolio is expected to provide an increasing proportion of the
Group's building plots with detailed consent. We will ensure that
the Group retains sufficient cash resources to take advantage of
these attractive market opportunities as they arise.
The performance of the UK economy has been resilient despite
some increase in uncertainty associated with the Government's
ongoing implementation of the UK's exit from the EU. Current market
conditions provide a supportive backdrop for the Group to fulfil
the needs of the local communities that we serve by investing in
local infrastructure and housing delivery. 2016 represented another
year of major achievement for Persimmon which reflects the hard
work and dedication of management, all our staff, our contractors
and suppliers. I thank them all for their efforts. The Board
remains confident of the Group's further progress.
Nicholas Wrigley
Chairman
24 February 2017
* stated before goodwill impairment of GBP8.0m (2015:
GBP8.3m)
**12 month rolling average and stated before goodwill
impairment
"Growth and capital discipline through the cycle"
Strategic update
Persimmon's strategy, launched in 2012 is designed to create
superior sustainable shareholder value over the long term through
the housing cycle. The Group is focused on delivering high quality
growth to meet customer demand by building well-designed homes of
quality in places where people wish to live and work.
The Group has 29 separate house building businesses operating
across the UK. Each of the management teams have shared aims and
values grounded in a strong understanding of the basics of good
house building. Over many years they have worked closely with local
communities to design and deliver developments that provide the new
homes and associated infrastructure which make thriving local
communities possible. Investing in high quality land, designing and
building good quality homes and helping to create sustainable
communities in desirable locations will remain our focus. Persimmon
is proud to make such an important contribution to the future
prosperity of its local markets.
The success of our strategy is dependent on optimising the
execution of the key elements of our business model
-- Ensure our land replacement activity is of the highest
standard supported by achieving the optimal scale for each of our
regional businesses;
-- Strategic land investment and its conversion into high
quality developments with detailed planning consents is prioritised
to maximise shareholder returns over the long term;
-- Optimise the Group's capital structure with disciplined
management of the capital employed within the business through the
housing cycle; and
-- Create greater certainty for shareholders regarding the value and timing of returns.
The successful execution of the Group's operational objectives
in the context of this strategy, whilst minimising operational and
financial risks, will deliver surplus capital across the housing
cycle. The strategy is designed to generate the maximum sustainable
returns and added value for our shareholders in compensation for
accepting the principal risks that we face.
The Group's capital discipline is reinforced through our long
term Capital Return Plan which, in 2012, initially committed to
return GBP1.9bn (GBP6.20 per share) of surplus capital to
shareholders over ten years ending in 2021. On 23 February 2016
this commitment was strengthened when the total value of the
Capital Return Plan was increased by 45% to GBP9.00 per share, or
c. GBP2.76bn, by adding a further GBP2.80 per share, or c. GBP860m,
of scheduled payments.
As announced on release of these results the Board has decided
to increase the Capital Return Plan by a further 25 pence per
share, or c. GBP77m, to a total of GBP9.25 per share, which now
represents a 49% improvement over the original Capital Return Plan
value. This additional 25 pence per share return is to be paid on
31 March 2017.
The Group's cash generation has been excellent. This has
supported significant investment in new land of over GBP3.1bn,
bringing over 120,000 new plots into the Group's land bank since
the global financial crisis in 2008. In addition we have increased
our construction activity significantly to support the expansion of
the number of new homes delivered to customers by over 60% since
the launch of the Group's strategy in 2012. This substantial growth
has been achieved whilst also returning GBP1.07bn of surplus
capital to shareholders, well ahead of the original Capital Return
Plan schedule.
Persimmon has delivered further significant progress in 2016 as
follows:
-- Growth
Persimmon has increased its revenues year on year by 8% to
GBP3.14bn, legal completions of new home sales increasing to 15,171
in total, 599 homes higher than last year.
Our strategy is to secure and maintain a sustainable market
share in each of our regional markets. To support the delivery of
high quality growth we opened two new businesses at Launceston in
Cornwall and Perth in Scotland on 4 January 2016. In addition, we
opened an additional new business in Mansfield, north of Nottingham
on 2 January 2017. In total we have invested in five new businesses
over a period of just over two years to strengthen the Group's
infrastructure for the delivery of increased new home output across
the UK.
Over the long term the Group's optimal annual private sales rate
from each active site has been around three new homes sold every
four weeks (or c. 0.75 of a sale per site per week), with
efficiencies and returns being maximised at this level. During 2016
the Group achieved a weekly sales rate of 0.72 (2015: 0.67), an
increase of c. 7% year on year.
Achieving disciplined growth in the scale of our house building
operations to support further advancement in the Group's cash
generation and returns remains a key focus.
-- Momentum
Total forward sales at 24 February 2017, including legal
completions so far this year, increased to GBP1.89bn, 9% stronger
than at the same point last year (2016: GBP1.74bn).
-- Resilience
The effectiveness of the Group's operations depends upon the
skills and expertise of all our employees and subcontractors and in
particular the teams engaged in land sourcing and acquisition,
design, site management and construction, sales and customer care.
We continue to invest in our employees, their skills and the
supporting systems and processes to help the teams achieve
success.
The investment in our land, planning and design teams is
supporting the Group's land replacement activity, with a keen focus
on opening up new development sites as quickly as possible. We
opened 255 new sales outlets during 2016, slightly ahead of the
prior year. Achieving implementable detailed planning consents
remains a challenge. However, we have an excellent pipeline of new
opportunities approaching the point at which a planning consent
should be secured which will support the Group opening a further 90
new sales outlets in the first half of 2017.
Over the five years since the launch of the Group's new strategy
we have opened almost 1,000 new sales outlets. The Group currently
has a strong network of c. 390 sites across all regions of the UK
(2015: c. 375). The Persimmon team's skills, expertise, and hard
work make the Group's operations strong and resilient.
-- Asset strength
The Group owned c. 52,800 plots of land which have an
implementable detailed planning consent at 31 December 2016 (2015:
c. 54,300 plots). This land bank provides the Group with the
necessary surety of supply over the short term to support our
planned output. As local planning authorities complete their land
allocations in 2017 to fulfil their local housing needs over the
next five years in line with requirements of the National Planning
Policy Framework, we will work to secure planning consents to
support the Group's future growth in partnership with these local
planning authorities and other stakeholders.
We own a further c. 18,000 plots of land (2015: c. 8,700 plots)
which are progressing towards detailed consent at this point. As we
work through the specific planning requirements and conditions to
enable a start on site these plots will feed into our current land
bank over future years.
We are encouraged by the Government's plans to continue to
improve the planning system with the recent Housing White Paper
containing some further opportunities for simplification and
efficiencies. These changes recognise that delivering new sites for
construction swiftly remains a key challenge for the industry. By
increasing the number and diversity of new residential development
sites the Government is attempting to not only reduce the chronic
under supply of new homes across the country but is also focused on
delivering these new homes in locations where people prefer to live
and work. For our part we support these actions and will focus the
Group's efforts on delivering new housing developments as quickly
as possible to these communities to fulfil local housing needs.
Complementing the Group's owned land bank is land that we
control under exchanged contracts but which have yet to reach a
satisfactory condition to allow purchase completion. Unfortunately
we continue to experience significant delays to achieving
substantive progress in many of these situations which prevent this
land being released for a construction start. The c. 26,400
controlled plots (2015: c. 30,700 plots) are at an earlier stage in
the planning journey and the ultimate acquisition of this land
typically remains subject to achieving clearance of numerous
planning conditions and technical consents. We are working hard to
achieve these implementable detailed consents to allow us to make a
start on these sites as quickly as possible.
During 2016 the Group was successful in acquiring 18,709 plots
of new land in 86 locations, of which 11,268 plots were converted
from our strategic land portfolio in 41 locations. Since the launch
of the new strategy, we have successfully converted c. 38,700 plots
from our strategic land portfolio and invested in a further c.
8,500 acres of strategic land. At 31 December 2016, of the plots
owned in our consented land bank together with the plots under our
control, c. 48% were previously within the Group's strategic land
portfolio.
We remain confident of further significant success in achieving
detailed planning permission for our strategic land over the next
few years as we continue to invest in promoting their sustainable
qualities. We will ensure we remain disciplined in retaining the
appropriate liquidity in the business to successfully support the
delivery of both the housing numbers and the associated
infrastructure to local communities. Our commitment to serving our
markets is reflected in the scale of our land investment activity
since the launch of the Group's strategy in 2012. Over the last
five years we have acquired over 98,500 plots of land to support
the growth of the Group whilst spending c. GBP2.6bn.
-- Returns
Persimmon's return on average capital employed* ("ROACE") for
2016 of 39.4% improved by 23% from 32.1% in 2015.
This substantial improvement in returns was supported by the 13%
growth in underlying operating margin** to 24.8% in 2016 (from
21.9% in 2015). Underlying operating profits** for the year
increased by 23% to GBP778.5m (2015: GBP634.5m). The continued
improvement in the underlying margins of the Group is supported by
the reduction in land cost recoveries on new home legal completions
in the year. The quality of the new land replacement achieved in
2016 has continued to embed further high quality returns in the
Group's forward land bank which will be released over future
years.
The Group's continued focus on managing its construction
programmes to deliver the new homes reserved by our customers
promptly resulted in an industry leading asset turn, with work in
progress representing just 20% of 2016 revenues. This capital
efficiency is supportive of higher levels of returns.
The Group delivers strong liquidity reflecting our focus on the
cash efficiency of our key business processes. The free cash
generated by the business before capital return and before land
creditor movement in 2016 was GBP711.3m, or 231 pence per share
(2015: GBP383.7m, or 125 pence per share). Since the launch of the
new strategy the Group has generated over GBP1.96bn, or c. 640
pence per share, of free cash before capital returns.
The Group's return on equity for 2016 increased by 7% to 24.1%
(2015: 22.5%). The Group's aim of growing the business to meet
market demand delivered a 20% increase in post tax profit in the
year whilst our focus on capital discipline, supported by the
Capital Return Plan, contained the accretion in equity value to 11%
to GBP2.74bn (2015: GBP2.46bn).
-- Surplus capital
On 23 February 2016 the Directors announced the acceleration of
the fourth instalment under the Capital Return Plan of 110 pence
per share, amounting to GBP338m, which was paid on 1 April
2016.
At the same time, the Directors increased the Capital Return
Plan by GBP2.80 per share, or c. GBP860m, a c. 45% increase in
total value. As a result GBP5.50 per share remained to be paid over
the last five years of the Capital Return Plan to 2021. This value
is to be paid in equal instalments over the remaining five years of
the Plan period.
As explained in the Chairman's Statement, the Directors are
further increasing the Capital Return Plan with a payment of 25
pence per share, or c. GBP77m to be paid on 31 March 2017. This
payment will be a first interim dividend for the 2016 financial
year. The Board has also confirmed that the scheduled capital
return of GBP1.10 per share will be paid as a second interim
dividend for the 2016 financial year on 3 July 2017. We will not be
paying a final dividend for the 2016 financial year.
The revised schedule of payments under the Capital Return Plan
will now be as follows:
Original Plan New Plan Original Plan New Plan
Pence Per Share Pence Per
Share
--------------- --------------- ----------------- -----------
28 June 2013 28 June 2013 75 paid 75 paid
--------------- --------------- ----------------- -----------
4 July 2014 - 70 paid
--------------- --------------- ----------------- -----------
30 June 2015 2 April 2015 95 paid 95 paid
--------------- --------------- ----------------- -----------
1 April 2016 - 110 paid
--------------- --------------- ----------------- -----------
31 March 2017 - 25
------------------------------- ----------------- -----------
30 June 2017 3 July 2017 110 110
--------------- --------------- ----------------- -----------
6 July 2018 - 110*
------------------------------- ----------------- -----------
30 June 2019 5 July 2019 110 110*
--------------- --------------- ----------------- -----------
30 June 2020 6 July 2020 115 110*
--------------- --------------- ----------------- -----------
30 June 2021 6 July 2021 115 110*
--------------- --------------- ----------------- -----------
Total 620 925
-------------------------------- ----------------- -----------
* current anticipated profile of payments
We will continue to review future Capital Return payments in the
context of market conditions and the performance of the
business.
Over and above this short term outperformance, the Board has
also assessed the longer term prospects of the Group and the
effectiveness of its strategy. The Board's conclusions are
explained within the Viability Statement.
The UK housing market and brand performance
The UK housing market
In 2016 the new build housing market experienced continued
recovery in industry output, supported by good levels of customer
confidence and strong support from a disciplined mortgage
market.
The market in the first half of the year was supported by the
continuation of low interest rates, healthy employment levels and
some improvement in real disposable household incomes which
provided positive conditions for the market. We experienced the
traditional seasonality of demand with a confident spring sales
market. There was a substantial increase in overall market activity
in February/March as investors pulled forward purchase decisions in
anticipation of the tax changes implemented from early April.
However, whilst this did move some new build demand forward to the
first quarter of the year, trading continued to outperform the
prior year during the run up to the EU referendum on 23 June 2016.
This was achieved despite strong comparatives in the prior year
when confidence recovered after the General Election in May
2015.
Despite some understandable caution being exercised by consumers
and corporates alike during the period ahead of the EU referendum,
the result created an immediate and significant uncertainty in the
markets. However, the vast majority of the Group's customers
remained focused on exchanging contracts and completing their new
home purchases. As a result we were able to increase the number of
new homes sold in the first half of the year by 383 homes to 7,238
legal completions, a 6% increase year on year. In addition we were
able to carry forward a similar value of forward sales into the
second half as at the same point last year at GBP1.36bn.
Mortgage approvals reduced during the summer weeks in line with
normal seasonal activity levels whilst markets regained their
composure as the performance of the UK economy remained resilient.
Our sales through the summer weeks were strong, supported by the
sales release of 35 new outlets for which we had advanced build in
response to early indications of strong levels of customer
interest. As always, we ensured we had an appropriate number of
plots released for sale on existing sites to ensure customers had a
good choice of house types available whilst remaining mindful of
fulfilling their expectations for acceptable construction delivery
dates. In addition, the cut in Bank Rate to 0.25% by the Bank of
England on 4 August 2016 together with the introduction of a
package of measures to support growth in the economy, including the
Term Funding Scheme, provided further support to the market.
As we moved into the autumn we experienced the usual seasonal
increase in demand. Mortgage lenders provided robust support to
customers with compelling mortgage offers. Whilst overall mortgage
approvals were slightly weaker than for 2015 through the autumn our
average weekly private sales rate for the second half of the year
was c. 15% stronger year on year. We believe that the greater
availability of good quality newly built homes, together with
access to the Government sponsored Help to Buy shared equity scheme
for first time buyers, has led to the new build housing market
increasing its market share of overall housing transactions
relative to the second hand market. We believe the Group's focus on
house types that appeal to both first time buyers and first time
movers within the mix of homes offered for sale on our typical
developments provides strong support for our site activity and
greater confidence for our investment in build. The recent
confirmation of the duration of the existing Help to Buy scheme to
2021 in the Housing White Paper together with the commitment for
early consideration of the future of the scheme provides important
visibility for the industry. Affordability of newly built homes
remains very attractive when compared to the cost of renting an
equivalent house in a similar location.
The industry's two main challenges to delivering further
expansion of new build housing volumes remain opening new sales
outlets as swiftly as possible in increasing numbers together with
resourcing sites with the appropriate level of skilled labour to
support increased build activity.
In 2016 we were successful in opening 255 new sales outlets, a
similar number to the prior year. However, as we have seen over
recent years, our active outlet network has remained at similar
levels at c. 380 sites. Securing implementable detailed planning
consents for new land parcels remains a challenging and time
consuming process, even after the principle of residential
development has been achieved on securing an outline planning
consent. Measures contained within the Neighbourhood Planning Bill
and the Government's recent Housing White Paper should lead to some
progress being made. We will continue to work with all stakeholders
to identify and secure further opportunities to improve the
efficiency of the planning system at the local level which will
allow an earlier start of construction activity on site.
Achieving an increase in the number of separate locations where
land is allocated for residential development by local planning
authorities is an important and necessary step towards achieving
the required increase in active outlet numbers across the industry.
In turn this will allow the industry to increase the numbers of new
homes built and sold to meet this local demand from these increased
site locations. We hope that this platform is secured by local
planning authorities on identifying the appropriate land release
within their five year plans as required by the National Planning
Policy Framework.
We have worked hard to increase our rate of new home
construction despite the availability of skilled labour remaining
challenging during the period. The Board remains committed to
increasing its investment in training both trade apprentices in the
necessary site skills and graduate trainees across all functions in
the business to support higher sustainable levels of output. We are
pleased with the progress of our "Combat to Construction"
initiative which provides re-training opportunities for service
personnel on leaving the armed forces. Our complementary "Upskill
to Construction" initiative is also supporting mature trainees to
gain the required construction skills across the country. We look
forward to utilising the Government's new Apprenticeship Levy from
its introduction in April this year to provide stronger support to
our skills training initiatives with the objective of delivering
increasing numbers of newly trained employees to support the
desired expansion in output
The Group has continued its drive to improve productivity and
secure efficiency improvements to mitigate some of the pressures
resulting from the desire to increase build rates on site. Greater
visibility of anticipated build completion dates and prompt
delivery of new homes to our customers, combined with active
management of site resourcing and construction programmes, is
helping to improve the progress of our development activities.
Greater utilisation of our core Group house types as new sites open
is also helping to secure increased production, particularly when
supported by our Space4 modern method of construction processes.
During the current year we plan to deploy new management tools to
assist site work flow to help achieve further site efficiencies and
support productivity gains.
The availability of the Government's Help to Buy scheme remains
an important facility supporting greater access and increased
participation of first time buyers in regional new build housing
markets. Mortgage lenders continue to support this 20% shared
equity loan scheme with very competitive interest rates, with Help
to Buy mortgage products remaining the most attractive opportunity
for customers to buy a new home. During 2016 we sold 6,970 new
homes to customers who have taken advantage of the scheme, 5,852 in
England, and 1,118 in Wales and Scotland, where we have seen good
take up of the equivalent shared equity products.
We welcome the introduction of the Government's "Starter Homes"
initiative as outlined in the recent Housing White Paper. We will
be focusing on identifying early opportunities to contribute to
this extension of affordable housing tenures to local communities
where appropriate.
During 2016 our two private sale brands, Persimmon and Charles
Church, delivered strong performances in their regional
markets.
Persimmon
The Persimmon brand delivers traditional family housing to the
private owner occupier market in locations where customers wish to
live and work. Total revenues for Persimmon increased by 12% over
last year to GBP2,242m (2015: GBP2,005m).
Reflecting Persimmon's market positioning on sites across all
regions of the UK, the brand continues to offer an extensive choice
of new homes at affordable prices. Persimmon's average selling
price of GBP205,597 for 2016, increased 3.0% over the prior year
(2015: GBP199,661). We remain focused on delivering homes that
provide good affordability, supporting greater access to the
housing market for customers who have the opportunity to own their
own home. For the Group as a whole, just under 50% of our total
private market sales were delivered at prices of less than
GBP200,000.
In line with the Group's strategy we have improved our build
rates and successfully increased legal completion volumes by 9%, or
by 863 new homes, to 10,906 for the year (2015: 10,043). This was
the main driver of the growth in revenues for Persimmon. Our focus
on the first time buyer and first mover segments of the market,
with attractively designed Group house types that customers have
found compelling to buy whilst taking advantage of the Government
sponsored Help to Buy scheme, has supported this expansion in
output.
Persimmon generated 43% of legal completion volumes and 51% of
revenues from our southern regional markets with an average selling
price for the year of GBP243,858 (2015: GBP237,786). This southern
regional market average selling price was 38% higher than that of
our northern regional markets of GBP176,890 (2015: GBP170,388). The
highest average selling price was again achieved by our Shires
market at GBP281,252 (2015: GBP268,536). Good volumes of sales were
delivered from higher value sites at Harborne and Leamington, south
of Birmingham and Coventry respectively, and at The Boulevards at
East Tilbury. The North East market delivered the lowest average
selling price for the year at GBP163,777 (2015: GBP159,173) with
sites such as Portland Park, Ashington and The Hawthorns,
Hartlepool, achieving higher volumes of sales at lower price points
to first time buyers.
For the first half Persimmon's legal completion volumes
increased by 13% (585 homes) over last year and were up 5% (278
homes) in the second half, resulting in growth of 9% (863 homes)
for the year as a whole. Growth in the second half appears more
muted but is largely down to particularly strong comparatives which
were buoyed by strong sales post the May General Election in 2015.
In fact, second half sales for Persimmon in 2016 were 620 units, or
12%, stronger than for the first half. Second half sales benefited
from additional sites being released for sale through the summer
following the EU referendum for which we had advanced build in
response to indications of strong demand. Persimmon sales rates
reflected a confident market throughout the second half.
Across our regional markets the highest volumes were secured in
our Shires and Scottish markets with 1,539 and 1,492 legal
completions respectively. In addition, our North East, Midlands and
Western markets also produced very strong sales with each
delivering over 1,250 legal completions. The four new businesses we
opened in 2015 and 2016 all made a good start to trading and have
made solid contributions to Persimmon's growth. We will pursue this
controlled growth to achieve a sustainable market share for each of
our regional businesses in line with the Group's strategy.
Competition in the land market has remained disciplined for the
improved land supply resulting from the consistent application of
the planning regulations within the National Planning Policy
Framework. Through 2016 we remained keen to invest in new land
offering compelling returns, whilst adopting a cautious and
controlled approach given we remain wary of the risks and increased
uncertainties associated with the EU referendum result. The Group
is in a strong position to remain selective in its land replacement
activities given the strength of its existing asset platform.
Persimmon owned and controlled 66,382 plots in its forward
consented land bank at the end of 2016 having acquired 14,321 plots
of new land during the period. Of these total plots, 36,855 plots
have an implementable planning consent. All these sites are under
construction. This land bank represents c. 3.4 years of forward
supply at 2016 output levels. We remain keen to sell and develop
all these sites as promptly as market conditions allow, asset
efficiency and higher levels of return on capital employed being
key deliverables for all our operating companies.
The Group had another successful year in securing planning
consents for residential development from its strategic land
portfolio. We delivered 8,403 plots into our owned and controlled
land bank within the Persimmon business over 36 sites, which
represents 77% of the plots consumed by legal completions in the
year. We secured notable consents for 300 plots at Rainham, in
South East which includes a Westbury Partnership housing allocation
of 75 plots, and for 450 new homes at Lichfield in West Midlands,
which we intend to triple brand with 80 plots allocated for Charles
Church and 139 homes for Westbury Partnerships.
Our joint developments with St Modwen also delivered good growth
from the eight active sites under construction, selling 172 new
homes during the year (2015: 331 legal completions).
Charles Church
Charles Church delivers executive housing in premium locations
across the UK. We ensure that its market positioning is
complementary to that of Persimmon by differentiating the house
types and specification offered by the two brands in the same
locations. Utilisation of the distinctive Group house types for
each brand as we have opened new sites has resulted in Charles
Church selling a reduced number of smaller homes. This brand
positioning has continued to reduce the overall number of active
outlets offering Charles Church product across the UK to 76 active
sites at the end of 2016 (2015: 85). We remain keen to invest in
these higher value premium locations where our market research
points to strong demand for the Charles Church product which will
support higher returns on invested capital due to the stronger
sales rates.
Total revenue for 2016 of GBP657m was 3% lower than the prior
year (2015: GBP676m). The Charles Church average selling price of
GBP321,209 increased by 13.2% (2015: GBP283,690) supported by 55%
of its sales being completed in more southern markets which
experienced good pricing conditions through the year. Charles
Church experienced particularly strong demand on sites at The
Coppice, Weston-Super-Mare, at Castle Mead in Trowbridge and at The
Croft, Burgess Hill, north of Brighton.
Total legal completion volumes for Charles Church of 2,047 new
homes reduced by 335 units compared with last year largely due to
the reduced number of active sales outlets. The reduction in legal
completions was higher in the first half of the year (by 224 new
homes) due to the slightly later timing of new site openings. Legal
completions in the second half of the year for Charles Church were
101 new homes higher than for the first half reflecting the
stronger spring sales season, sales reservations taken in the
second quarter of the year largely being delivered in the second
half.
Larger sites may allow us to provide a differentiated offer to
deliver both Persimmon and Charles Church branded new homes in a
location assisted by the Group core house types for each brand. By
using this dual branding opportunity we are able to optimise our
sales rates from the site and achieve a swifter asset turn by
attracting customers from across the widest range of the home
buying public. This allows our site operations to run more
efficiently with consequential benefits being captured across the
business, from continuity of site resourcing and build programme
management, to health and safety compliance and standards of
customer care. We have recently established dual branding with two
sales offices at Cheltenham where we plan to sell 250 Persimmon
homes and 61 Charles Church homes, and similarly at Frome in
Wiltshire on a scheme for 450 new homes where 101 Charles Church
homes are available.
Charles Church acquired 1,861 new plots in 2016 and held 11,805
plots in its forward consented land bank at 31 December 2016. Of
these total plots 6,720 have an implementable detailed residential
development consent which provides c. 3.3 years of forward supply
at 2016 sales volumes. In line with our long term operational
strategy for the Charles Church business it will retain a shorter
land bank than that held for Persimmon. This allows Charles Church
to deliver a strong return on capital whilst accommodating the
slower sales rate typically associated with the larger and more
highly specified Charles Church homes.
Within the Charles Church business 617 plots were converted from
the strategic land bank on 5 sites, representing 30% of 2016 legal
completions. This success includes a consent at Downton, south of
Salisbury for a development of 99 Charles Church homes and at
Morpeth in the North East for 50 plots. These sites will support
the delivery of superior returns for the business as we take legal
completions from them over future periods.
Westbury Partnerships
Westbury Partnerships is our partnership housing business
working with housing associations across the UK. Westbury
Partnerships delivered 2,218 new homes in 2016, an increase of 3%
over last year (2015: 2,147 homes). The average selling price for
these homes increased 4.0% to GBP106,889 (2015: GBP102,810).
The Group invests in high quality management teams who live in
the communities which we support by way of new build housing
delivery. We believe this strong local knowledge is essential to
designing and developing sustainable communities in locations where
families wish to live and work. The Group will continue to seek to
develop strong relationships with housing associations to support
as many lower income families as possible to access the housing
market in line with the aims of the National Planning Policy
Framework. By partnering with our housing association colleagues we
will continue to focus on supporting the social sustainability of
the communities we serve through new housing provision.
As part of the Group's planning processes our Partnerships
business will typically work with our housing association partners
to identify the mix of house types and tenures required by a local
community and the timing of delivery at an early stage. This is
usually incorporated within the details of the planning consent
granted by the local planning authority for the delivery of new
housing in that location. The Group is keen to deliver the newly
built homes to our housing association partners as soon as possible
in coordination with their funding position. The market for
affordable housing continues to be important for us. In 2016 the
Group again delivered c.15% of total legal completions to our
housing association partners. At 31 December 2016 we had c. 3,700
affordable housing units forward sold in our order book providing a
strong platform for future sales into this market place.
Government measures with respect to funding, rental levels and
tenure types are starting to work through the market and will
provide opportunities for expansion of housing delivery to lower
income families from housing associations and others who commit to
construction activity in conjunction with land made available by
Government departments. We are working with local authorities and
third party funding providers to support the delivery of increased
housing numbers through these local authority approved schemes.
The Starter Homes initiative as recently included in the
Government's Housing White Paper is an extension to affordable home
tenures. This initiative targets the delivery of new homes to
first-time buyers under the age of 40 on a discounted open market
basis and may prove particularly attractive given the support
provided to the purchaser by way of the discount offered. We
believe this initiative has the potential to support the delivery
of more new housing and we look forward to reviewing the detail of
the scheme as it is finalised.
Westbury Partnerships is actively involved in managing our
relationships associated with the Help to Buy equity loan scheme in
England and similar schemes in Scotland and Wales. These schemes
are managed on behalf of the Government by the Homes &
Communities Agency ("HCA") in England and the Housing Agencies of
Scotland and Wales. The Group has sold over 20,600 new homes to
customers who have secured Help to Buy mortgages since these
schemes started in 2013. The bulk of these sales have been to
first-time buyers, reflecting the greater access this scheme
provides for customers taking their first step into the housing
market.
Westbury Partnerships leads the Group's participation in the
Government's Affordable Housing Programmes ("AHP") which is focused
on delivering low cost homes across the regions. We continue to
review the opportunity for Group sites to participate in the AHP
2015-2018, which commenced in April 2015, where appropriate. In
2016 we completed the delivery of affordable homes at East
Trowbridge, Bath under this scheme.
The Government continues to seek to use public land through the
Delivery Partner Panel ("DPP") mechanism to support the delivery of
increased housing numbers. Our Partnerships business has secured
the Group's participation in successive DPP frameworks and our site
at Pleasley Hill, Mansfield, sourced through the DPP, will deliver
151 new houses, including 31 affordable homes, on completion. We
will seek to continue to participate in the development of newly
released public land on appropriate terms on submitting the Group's
tender document for the next DPP3 framework which commences in May
2017.
Off-site manufacturing
Space4
The Group's Space4 system is a modern method of construction
using off-site manufacturing techniques to produce timber frames,
highly insulated wall panels and roof cassettes as a "fabric first"
solution to the construction of new homes. The Space4 construction
process delivers high levels of thermal efficiency and positions
the Group at the forefront of the industry with its ability to
accommodate changes to building regulations that target the
reduction in carbon emissions and measures that mitigate global
warming in the future. Our Space4 business is based in Castle
Bromwich near Birmingham and is entirely focused on supporting the
Group's house building businesses. The Space4 system has delivered
over 40,000 new homes to the market since launch in 2001.
As we have opened new sales outlets across the UK we have
continued to increase the coverage of our Group house types
providing the opportunity for the most effective use of the Space4
product. During 2016 we realigned Space4 production to concentrate
on delivering our Group core house types which now form over three
quarters of all Space4 orders. Whilst this refocusing of the Space4
production planning and work flow has meant overall output for 2016
was reduced a little on the prior year at c. 5,500 units, these
kits have been manufactured at greater levels of efficiency. In
2017 we will be seeking to take forward the advantages of this
greater efficiency as we look to expand production further, focused
on our core Group house types. This increased production volume
through the factory will further improve overhead recoveries and
reduce unit costs.
The usage of the Space4 construction process across the Group's
sites is helping to improve productivity, easing resourcing
pressures and increasing our build capacity by simplifying site
processes and reducing the traditional skills content within these
processes. Space4 has made a valuable contribution to supporting
the delivery of the Group's industry leading asset turn of c. 5.1x,
an important ingredient in delivering higher levels of returns on
the capital invested in the Group's asset platform.
The Space4 factory has the capacity to increase production to
support the construction of around 8,000 new homes each year. We
are continuing to investigate the further development of the Space4
build processes driven by the design of the Group house types, to
secure further improvements for the business.
Brickworks
The Group has used concrete bricks for a number of years to
secure the availability of high quality product, particularly
through periods of industry growth. In 2016, after completing our
detailed due diligence, the Group started construction of its own
factory for the manufacture of concrete bricks as a further
development of its offsite manufacturing capability. This new
facility will secure availability of this key material component
for our build process, helping to support the most effective
delivery of new homes to the market whilst exercising greater
control over our build costs. The greater assurance of supply will
assist our build programming and site efficiencies as an aid to
capturing productivity improvements. The factory will be entirely
focused on supplying the Group's house building operations.
The factory is sited at Harworth near Doncaster with good access
to established motorway networks to support efficient logistics for
delivery to Group companies. The manufacturing plant has been
sourced to deliver a consistent high quality product with a high
degree of automation and with strong environmental credentials. The
plant is robust in construction having high durability and low
maintenance requirements. Subsequent to the planned commissioning
in Q1 2017 the plant will have the capacity to manufacture c. 80
million bricks each year. This output will satisfy approximately
two thirds of the Group's current requirements and deliver a
pay-back period of approximately three years on the initial
investment of c. GBP10m.
Operating and financial review
Seasonality and pricing
The Group experienced a traditional seasonal pattern to trading
during 2016 but with a particularly strong first quarter as some
purchasers brought forward their buying decisions prompted by the
change to the tax rules which came into force from April 2016. In
addition, we experienced firmer sales activity through the autumn
sales season despite market uncertainties associated with the UK's
vote to leave the EU. In the first half the Group achieved an
average weekly private sales reservation rate of c. 0.75 from an
average of c. 355 active sales outlets, whilst through the second
half the weekly private sales rate was c. 0.66 from c. 385 active
outlets. The private sales rate in the first half of 2016 was c.4%
ahead of the prior year, whilst the second half rate was c. 15%
stronger.
Legal completions delivered in the first half of 2016 totalled
7,238 new homes reflecting the conversion of strong carried forward
sales from the 2015 autumn sales period (c. 13% up on the prior
year) together with sales taken during the spring sales season.
First half legal completions were 6% (or 383 homes) ahead of last
year (2015: 6,855).
As a result of the growth in legal completions in the first half
due to our focus on delivering completed new homes as promptly as
possible, we entered the second half with forward sales on a par
with the same point in the prior year. However, legal completions
delivered in the second half of the year of 7,933 new homes were
216 units (3%) stronger than the prior year due to the strength of
the second half market and our drive to increase our build rates.
The strength of the market in the second half was in part due to
the action taken by the Bank of England in cutting the Bank Rate to
0.25% and introducing measures, including the Term Funding Scheme,
to support growth in the UK economy. The Group's second half volume
was 695 homes (or 10%) higher than the first half of the year.
Despite this strong growth in legal completions in the second half,
forward sales value at the end of 2016 finished c. 12% ahead year
on year. This strong carried forward position provides a platform
for additional growth in 2017.
For the Group as a whole, selling prices improved modestly
through the year, our average selling price increased from
GBP205,762 in the first half to GBP207,680 in the second half.
Against the prior year the Group's total average selling price for
the full year increased by 3.8% to GBP206,765 (2015:
GBP199,127).
The Group experienced an underlying improvement in its average
selling price of around half of the 3.8% overall increase, with the
change in mix explained in the brand performance review above
adding to this gain. For 2016 our southern regional markets
accounted for c. 55% of total revenues, reflecting both a greater
proportion of higher value Charles Church homes in these regional
markets as well as the distribution of our active sales outlet
network across the UK.
Profitability
Operational improvements combined with reduced land recoveries
associated with opening new sales outlets from more recent land
investments added a further 290 basis points to the Group's
underlying operating margin** which reached 24.8% (2015: 21.9%) for
the full year. In line with our expectations, we maintained our
margin progress through the second half of the year achieving a
margin of 25.7% in the second six months (2015: 23.0%), margins in
the first half being 23.8%.
Given the continued challenges in achieving a detailed planning
consent and making a start on site, coupled with our strong sales
rates, opening up new sales outlets is key to maintaining the
strength of our sales network. We opened 255 new sales outlets in
the year (2015: 252 new sales outlets). Our hard work to open
outlets as promptly as possible has been rewarded. Land cost
recoveries have improved and secured an additional 160 basis point
contribution to the Group's gross margin year on year. The value of
the Group's land recoveries totalled 16.4% of sales for 2016, down
from 18.0% in 2015. The continued improvement in land cost
recoveries results from the quality of the land we have acquired
across the UK as well as the focus on optimising the planning
consents we secure to deliver our developments to our local
markets. These critical value-added activities are combined with
strong control over our development costs.
The growth in the number of new homes we build and deliver to
customers provides us with the opportunity to capture productivity
gains and overhead efficiencies across the Group. We continue to
increase the coverage of our Group house types across our regional
markets as we secure new development consents and open new sales
outlets. This has allowed us to achieve benefits from further
consolidated procurement processes and site construction
activities. The Group house types also support our efforts to
improve our build programme management and site processes to
capture productivity gains. Our site management teams, site
workers, sub-contractors and suppliers have all worked extremely
hard to support the Group's progress. These efforts have delivered
a further reduction in our build and direct costs by 80 basis
points to 55.8% of sales (2015: 56.6% of sales) for 2016.
Having opened five new businesses in just over 24 months the
Group continues to invest in our management teams, processes and
systems to ensure sustainable growth is supported. With our growth
in volume in 2016, the Group's operating expense efficiency
improved contributing a further 70 basis points to the Group's
operating margin year on year. With further growth we expect this
trend will continue.
Cash generation, net finance income, and financial assets
The Group's long term strategy has strong cash generation
through the housing cycle at its core. By exercising capital
discipline, together with maximising the cash efficiency of
operational activities, management will deliver strong cash
generation whilst minimising financial risk through the cycle. In
2016 we generated GBP681m of free cash before capital returns, or
221 pence per share (2015: GBP483m, 158 pence per share) and held
GBP913m of cash balances at 31 December 2016 (2015: GBP570m).
Net finance income for 2016 was GBP4.3m (2015: GBP3.3m). Within
this the imputed interest generated on the Group's shared equity
receivables totalled GBP15.9m (2015: GBP15.7m) whilst the imputed
interest payable on land creditors totalled GBP12.0m (2015:
GBP14.4m).
A key feature of our strategy is the disciplined reinvestment of
the free cash generated by the Group. The level of reinvestment
will vary over the cycle depending upon actual and prospective
conditions in the sales and land markets. During 2016 we increased
our investment in development work in progress to support higher
levels of output to meet increased demand in the market. However,
we remained mindful of the risks associated with the UK's decision
to leave the EU and its potential impacts on the UK economy and the
UK housing market, as we still are today. In 2016 we were
successful in growing our cash margins whilst also optimising the
cash efficiency of our land replacement activity. The Group also
maintained its superior asset turn. The resulting strong cash
generation provided the Group with the confidence and ability to
invest in substantial new land holdings at a rate of c. 123% of
2016 consumption.
We have focused on taking advantage of attractive investment
opportunities in a supportive land market where a number of the
acquisitions offered good deferred payment terms. However, due to
the reduction in absolute number and value of land acquisitions
completed year on year the Group has reduced its deferred land
creditor obligations slightly, by GBP18m to GBP555m at the year
end. As a result the growth of the business was financed through
the generation of cash inflows from operations before working
capital requirements, which totalled GBP800m in 2016 (2015:
GBP654m), without reducing the cash resources available to
shareholders.
The Group has continued to receive strong cash inflows from
customers relating to the early redemption of outstanding shared
equity loans provided by the Group in earlier years. The carrying
value of the outstanding shared equity loans, designated as
"Available for sale financial assets", reduced in the year by
GBP29m to GBP149m (2015: GBP178m). The Board has reviewed the
carrying value of these receivables and has concluded that the
value is appropriate.
The cash efficiency of our business processes combined with our
capital discipline is fundamental to the delivery of the Capital
Return Plan. The 23% increase in the rate of return on average
capital employed* in the business to reach 39.4% (2015: 32.1%)
results from our focus on what we believe is the right capital
structure for the Group. We are confident that our operational
approach will support the execution of our long term strategy. The
continued acceleration and significant increase in the value of the
Capital Return Plan underscores this confidence.
Land and construction
At 31 December 2016 the carrying value of the Group's land
assets was GBP1,946m, GBP101m lower than the prior year (2015:
GBP2,047m).
To sustain the business and support the Group's future growth we
acquired 18,709 new plots of land during 2016. The Group owned
70,792 plots at the end of the year. Of these total land interests
52,765 plots had an implementable residential planning consent
providing c. 3.5 years of forward supply at 2016 output levels.
These plots will provide the necessary support to operations as we
seek to increase our output levels to optimal sustainable market
share in each of our regional markets in the future. We hope to
secure an implementable consent on the remaining plots as promptly
as the planning system will allow.
Disciplined investment in new land opportunities at the
appropriate point in the housing market cycle at attractive values
is critical in sustaining superior shareholder value creation over
the longer term.
We are currently promoting an additional 26,395 plots through
the planning system. The Group has entered into conditional
contracts to eventually acquire this land should we be successful
in securing a full detailed implementable consent.
Each of our 29 house building businesses is focused on securing
high quality returns by acquiring high quality replacement land in
their regional markets. The quality of these investments is
confirmed by the strong profitability and cash generation of the
business and in the quality of the land bank we hold for future
development. We continue to invest in the Group's land and planning
skills and expertise which allows us to create significant value by
identifying compelling acquisition opportunities both in the short
term land market and for strategic land investment. Our planning
teams continue to focus on optimising our development schemes and
bringing the sites into production as quickly as possible.
A fundamental element of the Group's business model is the
continued investment in strategic land and successfully promoting
this land through the planning system to deliver plots with
detailed residential consent. During the year we acquired interests
in a further c. 900 acres of strategic land and we converted 11,268
plots of land from our strategic land portfolio, representing c.
74% of the Group's land consumption.
Strategic land in sustainable locations offers local communities
the optimal opportunity for new homes to be delivered to meet their
housing needs. We focus on securing development opportunities that
fulfil all the specific planning requirements to enable the Group
to achieve a detailed residential planning consent as quickly as
possible. The consistent application of the National Planning
Policy Framework in delivering more land for development underpins
the industry's confidence to make the substantial investment in
land and work in progress that is required to support an increase
in output, increasing the supply of new homes to communities across
the UK.
We remain determined to pursue our planning applications with
local planning authorities and we are confident that our strategic
land portfolio of c. 16,600 acres will yield up to c. 100,000
forward plots for future development by the business in due
course.
At 31 December 2016 the carrying value of our work in progress
of GBP617m was GBP99m higher than the prior year (2015: GBP518m).
The Group is making substantial investments in infrastructure on
opening new sites to support prompt delivery of new home sales in
increasing numbers. We remain focused on increasing build rates to
meet market demand and to deliver as many new homes as is possible
on all of the Group's sites that have an implementable detailed
planning consent. The Group is carrying a larger volume of plot
foundations into the new year providing a strong platform for build
completions in 2017.
At the end of the year the Group's work in progress investment
represented 20% of 2016 sales, an industry leading asset turn. This
supports superior cash generation and returns whilst minimising
operational and financial risks. We expect substantial additional
investment will be made in work in progress to support the Group's
future growth.
The Board reviewed the net realisable value of land and work in
progress at 31 December 2016 using consistent principles to prior
years and concluded that the carrying value was appropriate. At the
year end the Group retained an impairment provision of GBP48.5m
(2015: GBP62.9m) which is considered adequate to address the
potential impact of current market uncertainties on future revenues
and direct costs for the relevant sites.
Shareholders' equity, treasury policy and related risks
The housing market is cyclical. Persimmon's long term strategy
is designed to mitigate the risks associated with this cycle. By
maintaining the disciplined application of capital over the long
term we will retain flexibility of funding to support investment in
land and work in progress at the appropriate point in the cycle,
whilst returning a substantial amount of surplus capital to
shareholders. This approach will deliver and sustain greater
shareholder value creation over the long term. It will also support
the development of the business over the long term whilst
minimising financial risk by maintaining a strong financial
position.
The excellent progress made to date, together with our
confidence regarding the Group's prospects, is reflected in the
Directors' decision to enhance the Capital Return Plan further on
the announcement of these results for 2016. The Board has decided
to make an additional payment of surplus capital of 25 pence per
share, or c. GBP77m, to shareholders as a first interim dividend
for the 2016 financial year.
This is a further improvement on the 45% increase to the Capital
Return Plan announced on 23 February 2016 when the Board announced
an increase of 280 pence per share, (c. GBP860m) to the Capital
Return Plan to a total of GBP9.00 per share, or c. GBP2.76bn, over
the Capital Return Plan period. The Board has confirmed that the
scheduled capital return of GBP1.10 per share will be paid as
planned on 3 July 2017, as a second interim dividend for the 2016
financial year.
The Capital Return Plan now totals GBP9.25, or c. GBP2.85bn, to
be paid over the ten year period to 2021, representing a 49%
increase over the original Capital Return Plan.
The fourth instalment under the Capital Return Plan of GBP338m
was accelerated and paid to shareholders on 1 April 2016.
The Group's total retained profit after tax for 2016 of
GBP625.3m was 20% higher than the prior year (2015: GBP521.9m). The
Group's retained earnings were offset by an after tax remeasurement
loss of GBP19.0m associated with the Group's pension scheme asset
of GBP23.3m but supplemented by share based payments of
GBP13.3m.
Total net asset value of the Group for the year ended 31
December 2016 of GBP2,737m (2015: GBP2,456m) increased by 11% or
GBP281m. Net assets per share increased 11% over the prior year end
to 887.3 pence (2015: 800.7 pence). Cash balances held at the year
end increased by GBP343m and totalled GBP913m (2015: GBP570m).
The Group will focus on generating strong liquidity on a
consistent basis. The Group maintains revolving credit facilities
which, if required, will only be used to support the short term
seasonal working capital needs of the business. The Group extended
the maturity of its GBP300m revolving credit facility to 31 March
2021 in 2016. The generation of strong annual after tax earnings,
management of the Group's equity, and debt and cash management
facilities, together with changes to planned shareholder capital
returns will continue to provide the appropriate resources through
the housing cycle for the Group to deliver its operational plans.
This approach will mitigate the financial risks the Group faces
which include credit risk, liquidity risk, interest rate volatility
and debt capital market pricing risk.
Corporate Responsibility
Our Corporate Responsibility Committee reviews, monitors and
evaluates sustainability performance within the business. Committee
membership is drawn from all parts of the Group's operations to
maintain clear alignment with the Group's strategy. By organising
its work into the five areas set out below, "Our Customers", "Our
Environment", "Our People", "Our Wellbeing" and "Our Communities",
we ensure that the interests of all stakeholders in the Group are
addressed. Detailed information on our approach to Corporate
Responsibility together with case studies can be found in our 2016
Sustainability Report available at
www.corporate.persimmonhomes.com.
Our Customers
Delivering good quality new homes and great service to our
customers is the Group's priority. All members of our team are
responsible for delivering high levels of customer
satisfaction.
Our land replacement processes focus on acquiring new land in
locations which deliver high amenity value to local communities
providing great confidence to our customers that they are buying a
new home in the right location for their family. Through the drive
for excellence in execution of our development plans we have the
opportunity to create places where our customers wish to live and
work. The Group's house type designs and approach to development
scheme layouts is focused on creating sustainable environments that
offer a compelling choice for our customers to enjoy.
We continue to invest in the skills and systems that support our
sales teams to provide excellent levels of service to our
customers, particularly in respect of the specification of our
homes and the amenity value of each of our developments. We
understand that buying a new home, and then preparing to move in,
is complicated and at times challenging. Our sales teams have the
expertise to provide information and guidance on the home buying
process and will support our customers with the practicalities of
moving day to make it as straightforward and enjoyable as
possible.
As part of our design process we listen to our customers
comments regarding house type design, finishes and features to
ensure our new homes offer choices that our customers prefer. A key
part of our sales and development process is to offer good
availability and choice of house types on all our developments. We
believe an important element to delivering good service to our
customers is to enable them to reserve their new home at an early
stage in the development process so as to create as much certainty
as possible in support of their buying decision. This allows
greater opportunity for our customers to choose from a range of
bespoke extras which we offer through our Finishing Touches range
so as to deliver a home tailored to their needs and preferences. We
aim to make the legal process of buying the home as straightforward
and prompt as is possible working closely with the customer's
solicitor and mortgage provider to conclude matters
efficiently.
Supporting the affordability of new homes for our customers by
providing a comprehensive range of selling prices and by exercising
strong control over development costs is of paramount importance to
us. Our site sales teams support our customers in deciding on the
right choice of new home for their family. In 2016 the Group's
average selling price was GBP206,765 with c. 50% of our private new
homes being sold for GBP200,000 or less. Our typical house type mix
on a development provides a comprehensive range and is designed to
generate strong interest from first time buyers and first time
movers. The Government's Help to Buy shared equity loan scheme is
providing greater access to the owner occupier market, principally
for first time buyers, by supporting the buyer to purchase a newly
built home with a 5% deposit. Mortgage lenders are also keen to
support these customers and offer the most favourable interest
rates on loans associated with this scheme. During the year 6,970
of our customers bought a new home with a Government Help to Buy
shared equity loan.
We also seek to provide strong support to existing home owners
to achieve their move into a newly built home. We offer Part
Exchange facilities to remove the worries that usually accompany
the uncertainties associated with home buying chains. During 2016
10% of our private sale customers took advantage of this
opportunity to assist their move.
As a key part of the Group's drive to support the sustainability
of communities we delivered 2,218 homes (2015: 2,147) to our
housing association partners during the year. This low cost housing
delivered by our Westbury Partnerships business represented c. 15%
of our sales and helps support social inclusion within the local
communities that we serve.
During 2016 we have continued to invest additional resources in
new customer focused initiatives to improve our customers' buying
experience and our NHBC/HBF 3 star rating. This is yielding further
improvement in performance with the majority of the Group's
operating businesses showing progress. Prior to customers moving
into their new home we have improved our communication processes
with them to provide greater understanding of the progress we are
making in constructing their new home. We have strengthened our
build management processes to facilitate delivery to expected
timeframes. Additional support is being provided through
reinvigorated processes to demonstrate the features of the new home
to customers, assistance with identifying any small remaining
issues on moving in day and providing improved systems and
processes for our customer care teams to support the prompt
rectification of any outstanding matters. Customer care performance
is reflected in relevant employees' remuneration to support a
closer alignment to the Group's objectives. Whilst these
initiatives are delivering tangible improvements in our customer
satisfaction ratings we remain determined to deliver further
advancement this year.
Our Environment
As part of our development approach we aim to minimise the
impact we have on the environment. Key elements of our processes
for assessing and designing our developments have the objective of
minimising both our direct and indirect impact on the environment.
To support our execution of more efficient development activity we
identify all major environmental risks that we face in both the
short and long term. Our development processes include appropriate
management actions that will mitigate these risks. Addressing these
issues at the start of our development plans ensures our
environmental performance remains robust and helps the Group secure
more sustainable business processes.
The most important indirect environmental impact of our
development activities is the ongoing effect of our new homes. Our
focus is to build new homes to high sustainability standards
harnessing the benefits of good design, and improvements in
materials and building techniques to deliver new homes with high
sustainable qualities. Our Space4 business manufactures components
to support a modern method of housing construction as discussed
above. Space4 focuses on a fabric first approach to the
construction of new homes with strong sustainability credentials.
The off-site manufacture of timber frames together with wall panels
and roof cassettes which are highly insulated delivers new homes
that are highly thermally efficient and air tight with minimal
waste. The new homes built using Space4 technology support the
delivery of an average energy efficiency for the Group's new homes
as measured by the Standard Assessment Procedure (SAP) of 83, which
is 40% more energy efficient than existing housing stock which has
an average SAP rating of 59. Importantly, Space4 adds to the
Group's capability to implement future changes to building
regulations that target reductions in carbon emissions and other
measures that will combat global warming. As a further extension of
our off-site manufacturing capability we are in the process of
establishing our own concrete brick manufacturing facility (as
mentioned earlier in this report). This facility has been procured
on the basis of achieving very low energy usage, concrete brick
manufacture uses very little energy when compared to the firing
process of manufacturing clay brick. Having the capability to
produce around two thirds of the Group's current brick
requirements, this plant will make an important contribution to
reducing the Group's indirect impact on the environment by reducing
energy usage and carbon emissions within our supply chain.
We monitor our operational efficiency and direct environmental
impact by measuring the amount of waste that we generate and
recycle for each home we build. In 2016 we again increased the
amount of waste we recycled to 93% (2015: 92%) thereby minimising
the amount of waste sent to landfill despite the amount of waste
per home built increasing a little to 6.6 tonnes (2015: 6.3
tonnes).
In 2016 we again collated data captured across the Group and
from our suppliers to identify the amount of energy used in
construction activities on our development sites. We have then used
DEFRA environmental reporting guidelines and emission factors from
DEFRA's Greenhouse Gas Conversion Factors Repository as a
methodology for calculating our emissions.
Our Scope 1 direct emissions for gas, transport and construction
site fuel use in 2016 were 28,047 tonnes CO2e (2015: 27,647 tonnes
CO2e). Our Scope 2 indirect emissions for electricity in 2016 were
4,552 tonnes CO2e (2015: 3,910 tonnes CO2e). Our total operational
carbon footprint in 2016 was 32,599 tonnes CO2e (2015: 31,557
tonnes CO2e), an increase of 3.3%. This increase is principally
attributable to the growth in number of homes built by the Group
and the accompanying level of activity throughout our business year
on year. Legal completions of new homes sold by the Group increased
by 4% over the prior year.The amount of CO2e per home sold in 2016
was 2.15 tonnes, a 0.9% decrease on the prior year (2015: 2.17
tonnes CO2e).
We have continued to review our energy use and have pursued
actions aimed at reducing our energy costs and minimising
consumption where possible. These measures include an assessment of
the cost and benefit of upgrading site machinery, the continued
reduction in the CO2 emissions from our motor fleet, and a
reduction in print and copying volumes across the business.
Our People
We believe that having a highly skilled and diverse workforce
supported by a merit-based culture is an important part of the
Group's growth and success, as well as being fundamental to
supporting the wellbeing of our workforce. Our people are key to
supporting the Group's successful growth in its operations across
the UK. The right skills to buy land, plan our developments, build
quality homes and provide good service to our customers are
critically important.
Since 2013 the Group has experienced a rapid increase in the
number of its employees in line with the acceleration of the
Group's growth as the market recovered from the downturn of
2008/2009. To support and control the Group's growth we have
continued to invest in the Group's workforce with the total number
of our employees increasing to an average of 4,526 (2015: 4,188).
Our strengthened selection, engagement, induction and training
processes provide opportunity for all our staff to fulfil their
responsibilities to the best of their ability. The opening of five
new businesses over recent years has provided the opportunity for a
good number of our staff to take on greater responsibilities as
they have mastered their skills in key functional areas of the
business. We support and mentor our talented staff to help them
realise their potential. Persimmon has a long established tradition
of promoting from within the business wherever possible. Reward for
successfully contributing to the performance of the business over
the long term is a priority for the Group and secures the human
resource platform that is instrumental in driving the business
forward.
Importantly, we have continued to support a large number of
trainees and apprentices in our business, the Group currently
employs c. 550 trainees. We are pleased with the progress we are
making with our "Combat to Construction" and "Upskill to
Construction" training programmes. These are focused on UK service
personnel leaving the armed services and more mature trainees that
wish to retrain and gain the trade skills necessary to pursue a
successful career with the Group.
We believe that all employees and subcontractors can perform to
their full potential with the right support and training. We have
again increased our training commitment for both young and mature
apprentices and trainees across all disciplines in our business,
including planning, technical, construction management and sales.
We provided over 10,500 training days to employees and our
construction workforce in 2016 (2015: 10,210) an average of 2.3
days per employee (2015: 2.4). We are keen to harness the
Government's new Apprenticeship Levy, which is introduced from
April 2017, to support our traditional apprenticeship programmes to
increase the number of skilled trades people to support the future
growth of the Group's business.
The Group is committed to having a full and active role in the
Home Building Skills Partnership, a joint initiative between the
Construction Industry Training Board and the Home Builders
Federation which aims to train over 40,000 new trades people by
2019 to help address the skills shortage that presents such a key
challenge to expanding output by the industry. This initiative
commenced in April 2016 and the initial working group is pulling
together a skills strategy and implementation objectives with
publication of this anticipated for Spring 2017.
We believe that a diverse work force supported by a vibrant
merit-based working environment is an important part of the Group's
success. As at 31 December 2016 we employed 4,483 people, 25% of
which were female. We have two female and six male directors on the
Company's Board and 19 female colleagues in our 154 strong senior
management team.
Further information on our employees and human rights can be
found on our website www.corporate.persimmonhomes.com in the
corporate responsibility section. We have no material issues to
report concerning human rights. Our Modern Slavery Statement can
also be found on this web site.
Our Wellbeing
The wellbeing, health and safety of our employees, workforce,
and customers is the top operational priority for the Group.
The Group ensures that the investment in Group Health and Safety
resources devoted to ensuring our development sites and offices
remain safe and healthy environments is appropriate. The growth of
the Group's development activities and office network has been
supported by an increase in Health and Safety department employees
to 28 staff under the direction of our Group Health and Safety
Director.
The Health and Safety team's structure and considerable
experience enables them to help each of our operational management
teams to strive to achieve high levels of health and safety
performance across all aspects of our operations, especially
recognising the significant increase in construction activity on
our development sites.
Our approach to health and safety is based on careful planning
and management of our construction activities on site. We emphasise
a pro-active approach with both collective and individual
responsibility for health and safety risk identification and
mitigation. All our workforce are required to obtain health and
safety certification prior to starting work on site and this
certification forms part of their application for a Construction
Skills Certification Scheme (CSCS) card.
We have continued to focus on monitoring the effective
implementation of the Group's health and safety policies as well as
ensuring detailed incident led investigations are carried out
promptly when necessary. Each operating business aims for full
compliance with Group policies and procedures with performance
above and beyond required standards being reviewed for
incorporation into future policy if appropriate. The internal risk
management framework and work implemented by the Group Health and
Safety department is verified by an external independent advisor on
a rotational basis to ensure compliance standards are maintained.
Our health and safety colleagues provide additional support to
local operating businesses to provide any bespoke training needs
and improvement actions required.
During 2016 we reported 47 incidents under the Reporting of
Incidents Diseases and Dangerous Occurrences Regulations (RIDDORS)
to the Health and Safety Executive which was level with 2015
despite our increased levels of construction activity. We managed
to reduce our Annual Incident Injury Rate marginally to 3.59
accidents per thousand workers (2015: 3.62).
Our Communities
We believe that by delivering much needed new housing whilst
also creating and improving the local environment in which our
communities live and work we help increase the sustainability of
those communities into the future. We seek to actively engage the
local community in the development process, from consultation and
feedback through the planning journey to continued communication of
the development's progress as it proceeds. We aim to sell the
majority of the new homes we build into the local community to
satisfy their housing needs. During 2016 we implemented a
consistent approach across the Group to strengthen effective and
targeted community consultation which is tailored to the local
residents' context.
We have continued to support improved sustainability by bringing
derelict and poor quality land back into use on behalf of local
communities. The Group used brownfield or previously used land to
deliver c. 45% of the new homes we legally completed in the year,
often decontaminating polluted land and regenerating old industrial
sites.
The Group's developments are designed to promote social
inclusion, incorporating housing for families with a broad span of
household incomes. In 2016 we delivered GBP237m of social housing
for lower income families (2015: GBP221m) and invested in GBP65m of
infrastructure on our developments (2015: GBP47m) to provide the
schools, new roads, open space and community facilities to support
the social and environmental development of the new communities we
create. Of the GBP65m spent on infrastructure, GBP17m related to
educational amenity provision delivering an additional 420 school
places for our local communities.
Our Community Champions initiative run by the Persimmon
Charitable Foundation provides funding for the numerous small
charities and voluntary organisations at the heart of the
communities we serve. This initiative is now well into its third
year and we have been overwhelmed with the response. In 2016 we
passed the GBP1m mark for donations made and have reached GBP1.1m
of donations by the end of the year. Charities apply to the
Persimmon Charitable Foundation (via our website
www.persimmonhomes.com/charity) for funding support up to a value
of GBP1,000 to match fundraising they have achieved themselves.
Each of our operating businesses have the opportunity of supporting
two applicants every month. Since we started the campaign, we have
supported over 1,200 different organisations in the communities we
serve right across the UK.
In addition, the company together with its employees have raised
and donated a further GBP108,000 to good causes.
Current trading outlook
Customer activity in the new build housing market through the
early weeks of the new year has been encouraging. We are offering
new homes for sale on around 4% more sales outlets than for the
same period last year and site visitor numbers are c. 7% stronger
over the first eight weeks of 2016. Consumer confidence remains
resilient, employment levels are strong and interest rates remain
low. The volume of visitors to our Persimmon and Charles Church
homefinder websites is in line with the prior year.
We have experienced the usual seasonal pick up in sales
reservations week by week. Whilst we are facing challenging
comparatives in the first quarter of 2017, reflecting the
additional activity stimulated by the tax changes introduced by the
Government from early April 2016, we anticipate a more normal
seasonal pattern this year.
The strength of the 2016 autumn sales season together with our
early spring sales have supported a 9% year on year increase in
current forward sales (including legal completions taken in 2017 to
date) to GBP1.89bn (2016: GBP1.74bn). Our private sales reservation
volumes in our forward sales are 6% ahead of last year allowing for
our weekly private sales rate per site for the first eight weeks of
the year being 4% behind the prior year at this point. The
Government has recently confirmed its support for first time buyers
through the Help to Buy scheme in the Housing White Paper and the
revamped Starter Homes initiative should assist greater numbers of
first time buyers to gain access to the market later this year.
With our attractively designed core house types offered at
affordable price points and our emphasis on site layouts which
provide a full range of products to all customers, particularly for
first time buyers and first time movers we are confident that the
Group is well positioned in its regional markets for the year
ahead. We will focus on increasing production to meet this
demand.
We believe that UK market fundamentals remain strong supported
by long term unfulfilled demand for housing, despite the
uncertainties associated with the UK's vote to leave the EU and the
challenges presented by headwinds in the wider global economy. The
Bank of England's vigilance in ensuring disciplined lending
practices continues. This oversight, together with providing
guidance and direction to lenders via the Financial Policy
Committee which complements appropriate monetary policy settings
and Government fiscal policy measures, will help support the
sustainability of the UK housing market. In turn this will create
the opportunity for the industry to continue to invest in skills,
land and new home construction to deliver the continued expansion
in output that will provide access to housing for local communities
across the UK.
Our spring sales will be supported by the 90 new sales outlets
we plan to open in the first half of 2017, of which we have already
opened 51 new outlets so far. Gross margins in our forward order
book indicate that, for 2017, margins are set for some modest
improvement over 2016 as we open our new sites and we continue to
work hard to secure further operational gains.
We intend to continue to invest in new land during 2017 to
support the further growth of our regional businesses towards
optimal sustainable scale. We will remain focused on ensuring our
land replacement activity secures attractive returns and payment
terms whilst we retain our flexibility to react to changing
conditions. We are excited by the prospects of converting more of
our strategic land as planning authorities identify their preferred
locations to satisfy housing needs as incorporated in their five
year plans. We believe our strong balance sheet and excellent free
cash generation will support this land replacement activity whilst
also providing confidence in the delivery of the Capital Return
Plan to our shareholders.
The Group has performed particularly well in 2016 due to the
hard work of the entire Persimmon team. We remain confident that
this team has the focus, expertise, drive and vision to continue to
deliver for our customers and shareholders. We believe the UK new
build housing market will provide great opportunities for those
companies with the correct strategic aims, operational capabilities
and balance sheet strength to navigate future changes in trading
conditions as they unfold. We thank all our loyal employees and
supply chain partners for their dedication and continued
contribution to the Group's success.
Jeff Fairburn Mike Killoran
Group Chief Executive Group Finance Director
24 February 2017
* 12 month rolling average and stated before goodwill
impairment
**stated before goodwill impairment of GBP8.0m (2015:
GBP8.3m)
PERSIMMON PLC
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
2016 2015
Note
Total Total
GBPm GBPm
------------------- ------ ---------------------------------------------------------------------------------------- ----------
Revenue 3,136.8 2,901.7
Cost of sales (2,265.4) (2,164.4)
------ ----------------------------------------------------------------------------------------
Gross profit 871.4 737.3
Other operating
income 6.8 11.6
Operating expenses (107.7) (122.7)
Profit from operations
before
impairment of intangible
assets 778.5 634.5
Impairment of
intangible assets (8.0) (8.3)
------------------- ------ ---------------------------------------------------------------------------------------- ----------
Profit from
operations 770.5 626.2
Finance income 19.8 22.1
Finance costs (15.5) (18.8)
------------------- ------ ---------------------------------------------------------------------------------------- ----------
Profit before tax 774.8 629.5
Tax 2 (149.5) (107.6)
------------------- ------ ---------------------------------------------------------------------------------------- ----------
Profit after tax
(all attributable
to equity
holders of the
parent) 625.3 521.9
------------------- ------ ---------------------------------------------------------------------------------------- ----------
Other
comprehensive
(expense)/income
Items that will not be
reclassified
to profit:
Remeasurement
(losses)/gains
on defined
benefit pension
schemes 8 (23.4) 7.5
Tax 2 4.4 (1.1)
------------------- ------ ---------------------------------------------------------------------------------------- ----------
Other comprehensive
(expense)/income
for the year, net of tax (19.0) 6.4
--------------------------- ---------------------------------------------------------------------------------------- ----------
Total recognised
income for
the year 606.3 528.3
Earnings per share
Basic 4 203.0p 170.3p
Diluted 4 197.0p 166.4p
------------------- ------ ---------------------------------------------------------------------------------------- ----------
PERSIMMON PLC
Consolidated Balance Sheet
As at 31 December 2016
----------------------------------------------------------------
2016 2015
Note GBPm GBPm
------------------------------- ------- ---------- ----------
Assets
Non-current assets
Intangible assets 213.6 221.6
Property, plant and equipment 43.0 37.4
Investments accounted for
using the equity method 3.0 3.0
Available for sale financial
assets 148.7 177.9
Trade and other receivables 8.8 10.1
Deferred tax assets 42.5 46.6
Retirement benefit assets 8 23.3 18.0
------------------------------- ------- ---------- ----------
482.9 514.6
------------------------------- ------- ---------- ----------
Current assets
Inventories 5 2,645.0 2,645.3
Trade and other receivables 103.7 91.5
Cash and cash equivalents 7 913.0 570.4
------------------------------- ------- ---------- ----------
3,661.7 3,307.2
Total assets 4,144.6 3,821.8
------------------------------- ------- ---------- ----------
Liabilities
Non-current liabilities
Trade and other payables (333.3) (372.6)
Deferred tax liabilities (17.7) (18.3)
Partnership liability (41.7) (44.6)
(392.7) (435.5)
------------------------------- ------- ---------- ----------
Current liabilities
Trade and other payables (935.0) (846.8)
Partnership liability (5.4) (5.4)
Current tax liabilities (74.1) (78.3)
(1,014.5) (930.5)
Total liabilities (1,407.2) (1,366.0)
Net assets 2,737.4 2,455.8
Equity
Ordinary share capital issued 30.8 30.7
Share premium 10.6 9.3
Capital redemption reserve 236.5 236.5
Other non-distributable
reserve 276.8 276.8
Retained earnings 2,182.7 1,902.5
Total equity 2,737.4 2,455.8
------------------------------- ------- ---------- ----------
PERSIMMON PLC
Consolidated Statement of Changes in Shareholders'
Equity
For the year ended 31 December 2016
---------------------------------------------------------------------------------------------------------------
Capital Other
Share Share redemption non- Retained
capital premium reserve distributable earnings Total
GBPm GBPm GBPm reserve GBPm GBPm
GBPm
--------------------------------- ---------- ---------- ------------ --------------- ----------- --------
Balance at 1 January
2015 30.6 103.4 136.7 281.4 1,640.5 2,192.6
Profit for the year - - - - 521.9 521.9
Other comprehensive
income - - - - 6.4 6.4
Transactions with owners:
Allotment of B/C shares - (95.2) - (4.6) - (99.8)
Redemption and cancellation
of B/C shares - - 99.8 - (99.8) -
Dividends on equity
shares - - - - (191.3) (191.3)
Issue of new shares 0.1 1.1 - - - 1.2
Exercise of share options/share
awards - - - - (0.6) (0.6)
Share-based payments - - - - 24.8 24.8
Satisfaction of share
options from own shares
held - - - - 0.6 0.6
--------------------------------- ---------- ---------- ------------ --------------- ----------- --------
Balance at 31 December
2015 30.7 9.3 236.5 276.8 1,902.5 2,455.8
--------------------------------- ---------- ---------- ------------ --------------- ----------- --------
Profit for the year - - - - 625.3 625.3
Other comprehensive
income - - - - (19.0) (19.0)
Transactions with owners:
Dividends on equity
shares - - - - (338.3) (338.3)
Issue of new shares 0.1 1.3 - - (0.1) 1.3
Own shares purchased - - - - (1.0) (1.0)
Exercise of share options/share
awards - - - - (1.0) (1.0)
Share-based payments - - - - 13.3 13.3
Satisfaction of share
options from own shares
held - - - - 1.0 1.0
--------------------------------- ---------- ---------- ------------ --------------- ----------- --------
Balance at 31 December
2016 30.8 10.6 236.5 276.8 2,182.7 2,737.4
--------------------------------- ---------- ---------- ------------ --------------- ----------- --------
The other non-distributable reserve arose prior to transition to
IFRSs and relates to the issue of ordinary shares to acquire the
shares of Beazer Group Plc in 2001.
PERSIMMON PLC
Consolidated Cash Flow Statement
For the year ended 31 December 2016
-----------------------------------------------------------------
2016 2015
Note GBPm GBPm
------------------------------------ ------- -------- --------
Cash flows from operating
activities:
Profit for the year 625.3 521.9
Tax charge 2 149.5 107.6
Finance income (19.8) (22.1)
Finance costs 15.5 18.8
Depreciation charge 8.0 7.1
Impairment of intangible
assets 8.0 8.3
Share-based payment charge 14.0 11.2
Net imputed interest income 3.9 1.3
Other non-cash items (3.9) (0.5)
------------------------------------ ------- -------- --------
Cash inflow from operating
activities 800.5 653.6
Movements in working capital:
Decrease/(increase) in inventories 7.8 (232.0)
Increase in trade and other
receivables (18.3) (27.8)
Increase in trade and other
payables 11.1 196.5
Decrease in available for
sale financial assets 44.6 35.6
------------------------------------ ------- -------- --------
Cash generated from operations 845.7 625.9
Interest paid (4.0) (4.4)
Interest received 3.1 1.2
Tax paid (146.6) (128.3)
------------------------------------ ------- -------- --------
Net cash inflow from operating
activities 698.2 494.4
------------------------------------ ------- -------- --------
Cash flows from investing
activities:
Purchase of property, plant
and equipment (14.7) (11.1)
Proceeds from sale of property,
plant and equipment 0.8 1.3
------------------------------------ ------- -------- --------
Net cash outflow from investing
activities (13.9) (9.8)
------------------------------------ ------- -------- --------
Cash flows from financing
activities:
Financing transaction costs (0.9) -
Payment of Partnership Liability (2.8) (2.7)
Own shares purchased (1.0) -
Share options consideration 1.3 1.2
B Share Redemption 3 - (99.8)
Dividends paid 3 (338.3) (191.3)
------------------------------------ ------- -------- --------
Net cash outflow from financing
activities (341.7) (292.6)
------------------------------------ ------- -------- --------
Increase in net cash and
cash equivalents 7 342.6 192.0
Cash and cash equivalents
at the beginning of the
year 570.4 378.4
------------------------------------ ------- --------
Cash and cash equivalents
at the end of the year 7 913.0 570.4
------------------------------------ ------- -------- --------
Notes
1. Basis of preparation
The results for the year have been prepared on
a basis consistent with the accounting policies
set out in the Persimmon Plc Annual Report for
the year ended 31 December 2016.
The preparation of the financial statements in
conformity with the Group's accounting policies
requires the Directors to make estimates and
assumptions that affect the reported amounts
of assets and liabilities, the disclosure of
contingent assets and liabilities at the balance
sheet date and the reported amounts of revenue
and expenses during the reported period. Whilst
these estimates and assumptions are based on
the Directors' best knowledge of the amount,
events or actions, actual results may differ
from those estimates.
The financial information set out above does
not constitute the Group's statutory accounts
for the years ended 31 December 2016 or 2015,
but is derived from those accounts. Statutory
accounts for 2015 have been delivered to the
Registrar of Companies, and those for 2016 will
be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters
to which the auditor drew attention by way of
emphasis without qualifying their report and
(iii) did not contain statements under Section
498(2) or (3) of the Companies Act 2006.
Whilst the financial information included in
this announcement has been computed in accordance
with IFRS as adopted by the European Union, this
announcement does not itself contain sufficient
information to comply with IFRS. The Company
expects to send its Annual Report 2016 to shareholders
on 20 March 2017.
The Group's business activities, together with
the factors likely to affect its future development,
performance and position are set out in the Strategic
Report in the Annual Report and the financial
statements and notes. The Directors believe that
the Group is well placed to manage its business
risks successfully. The principal risks that
may impact the Group's performance and their
mitigation are outlined in note 9. After making
enquiries, the Directors have a reasonable expectation
that the Group has adequate resources to fund
its operations for the foreseeable future. For
this reason, they continue to adopt the going
concern basis in preparing the annual financial
statements.
Adoption of new and revised International Financial
Reporting Standards (IFRSs) and Interpretations
(IFRICs)
The following new standards and amendments to
standards are mandatory for the first time for
the financial year beginning 1 January 2016:
* Amendments to IFRS 10, IFRS 12 and IAS 28: Investment
Entities - Applying the Consolidation Exception
* Amendments to IAS 27: Equity Method in Separate
Financial Statements
* Amendments to IAS 1: Disclosure Initiative
* Annual Improvements to IFRSs 2012-2014 Cycle
* Amendments to IAS 16 and IAS 38: Clarification
of Acceptable Methods of Depreciation and Amortisation
* Amendments to IFRS 11: Accounting for Acquisitions
of Interest in Joint Operations
* Amendments to IAS 16 and IAS 41: Bearer Plants
The effects of the implementation of these standards
have been limited to disclosure amendments.
The Group has not applied the following amendments
to standards which are EU endorsed but not yet
effective:
*IFRS 15: Revenue from Contracts with Customers
*IFRS 9: Financial Instruments
The Group is currently considering the implication
of these standards. IFRS 15 Revenue from Contracts
with Customers will be effective from 1 January
2018 and replaces IAS 18 Revenue. IFRS 15 is
more prescriptive in relation to what should
be included within revenue. IFRS 15 will require
all defined sources of income to be included
within revenue. Whereas the Group currently includes
income from the sale of new houses within revenue,
on adopting IFRS 15 income from sales transactions
such as relating to part exchange properties
and land will also be included. This will result
in an increase to both revenue and costs of sales
but will not impact the reported profit from
operations. It is anticipated the impact of the
other standards on the financial position and
performance of the Group will be minimal and
effects will principally relate to amendment
and extension of current disclosures.
Whilst not yet EU endorsed it is currently anticipated
that IFRS 16 Leases will be effective for the
Group from 1 January 2019. The key effect of
this standard will be to require the company
to create a long term depreciating "right of
use" asset and corresponding lease liability
for leases currently classified as operating
leases and charged over the lease term in accordance
with the current standard IAS 17 Leases. The
net effect on profits in a given year is not
anticipated to be significant. The Group operate
a number of such operating leases, principally
in relation to office properties and vehicles.
2. Tax
2016 2015
GBPm GBPm
------------------------------------------------- ------- --------
Tax charge comprises:
UK corporation tax in respect of
the current year 153.6 132.2
Adjustments in respect of prior
years (11.3) (21.5)
------------------------------------------------------ ------- --------
142.3 110.7
------------------------------------------------------ ------- --------
Deferred tax relating to origination
and reversal of temporary differences 3.0 (2.1)
Adjustments recognised in the current
year in respect of prior years deferred
tax 4.2 (1.0)
------------------------------------------------------ ------- --------
7.2 (3.1)
------------------------------------------------------ ------- --------
149.5 107.6
------------------------------------------------------ ------- --------
The charge for the year can be reconciled to
the accounting profit as follows:
2016 2015
GBPm GBPm
------------------------------------------------- ------- --------
Profit from continuing operations 774.8 629.5
------------------------------------------------------ ------- --------
Tax calculated at UK corporation
tax rate of 20% (2015: 20.25%) 155.0 127.5
Accounting base cost not deductible
for tax purposes 0.1 0.8
Goodwill impairment losses that
are not deductible 1.6 1.7
Expenditure not allowable for tax
purposes 0.1 0.2
Effect of change in rate of corporation
tax (0.2) (0.1)
Adjustments in respect of prior
years (7.1) (22.5)
------------------------------------------------------ ------- --------
Tax charge for the year recognised
in profit 149.5 107.6
------------------------------------------------------ ------- --------
The Group's overall effective tax rate of 19.3%
has been reduced from the mainstream rate of
20% by a prior year tax credit arising from the
removal of some uncertainties regarding the Group's
prior year tax computations.
The applicable corporation tax rate has reduced
from 20.25% in the prior year to 20% in line
with corporation tax rates effective from 1 April
2015. In relation to the Group's deferred tax
calculations, further corporation tax rate changes
enacted on 18 November 2015 effective from 1
April 2017 (19%) and enacted on 15 September
2016 effective from 1 April 2020 (17%) have been
used.
In addition to the amount recognised in profit,
deferred tax of GBP4.4m was credited directly
to other comprehensive (expense)/income (2015:
charge of GBP1.1m), and a GBP0.7m charge was
recognised in equity (2015: credit of GBP13.7m).
The Group has recognised deferred tax liabilities
of GBP4.0m (2015: liabilities of GBP3.2m) on
retirement benefit assets of GBP23.3m (2015:
assets of GBP18.0m).
3. Dividends/Return of capital
2016 2015
GBPm GBPm
-------------------------------------------- ------- -------
Amounts recognised as distributions
to capital holders in the period:
2015 return of capital to B shareholders
of 95p per share - 99.8
2015 dividend to C shareholders
of 95p per share - 191.3
2016 dividend to all shareholders 338.3 -
of 110p per share
-------------------------------------------- ------- -------
Total capital return 338.3 291.1
------------------------------------------------- ------- -------
The Directors propose to return 25p of surplus
capital to shareholders for each ordinary share
in issue held at 6.00pm on 10 March 2017 with
payment made on 31 March 2017. This is an additional
payment of surplus capital over and above the
previously announced Capital Return Plan schedule.
In line with the previously announced schedule,
the Directors propose to return a further 110p
of surplus capital to shareholders for each ordinary
share in issue held at 6.00pm on 16 June 2017
with payment made on 3 July 2017 being a total
return of 135p per share (2016: 110p).
4. Earnings per share
Basic earnings per share is calculated by dividing
the profit for the year attributable to ordinary
shareholders by the weighted average number of
ordinary shares in issue during the year, excluding
those held in the employee benefit trusts and
any treasury shares, all of which are treated
as cancelled, which were 308.0m (2015: 306.4m).
Diluted earnings per share is calculated by dividing
the profit for the year attributable to ordinary
shareholders by the weighted average number of
ordinary shares in issue adjusted to assume conversion
of all potentially dilutive ordinary shares from
the start of the year, giving a figure of 317.5m
(2015: 313.6m).
Underlying earnings per share excludes goodwill
impairment. The earnings per share from continuing
operations were as follows:
2016 2015
------------------------------------------------- ------- -------
Basic earnings per share 203.0p 170.3p
Underlying basic earnings per
share 205.6p 173.0p
Diluted earnings per share 197.0p 166.4p
Underlying diluted earnings per
share 199.5p 169.1p
------------------------------------------------- ------- -------
The calculation of the basic and diluted earnings
per share is based upon the following data:
2016 2015
GBPm GBPm
-------------------------------------------- ------- -------
Underlying earnings attributable
to shareholders 633.3 530.2
Goodwill impairment (8.0) (8.3)
Earnings attributable to shareholders 625.3 521.9
------------------------------------------------- ------- -------
5. Inventories
2016 2015
GBPm GBPm
----------------------------------------- ----------- --------
Land 1,946.4 2,046.7
Work in progress 617.2 517.9
Part exchange properties 37.1 38.3
Showhouses 44.3 42.4
---------------------------------------------- ----------- --------
2,645.0 2,645.3
---------------------------------------------- ----------- --------
The Group conducted a further review of the net
realisable value of its land and work in progress
portfolio during 2016. Our approach to this review
has been consistent with that conducted at 31
December 2015. This review gave rise to a reversal
of GBP7.7m (2015: GBP9.8m) of provision on inventories
that were written down in a previous accounting
period and an impairment of land and work in
progress of GBP7.7m (2015: GBP9.8m). This reversal/charge
arose due to forecast selling prices and development
costs on individual sites being higher or lower
than previously estimated by management as a
result of changing conditions, and/or development
plans. Net realisable provisions held against
inventories at 31 December 2016 were GBP48.5m
(2015: GBP62.9m).
The key judgements in estimating the future net
realisable value of a site were the estimation
of likely sales prices, house types and costs
to complete the developments. Sales prices and
costs to complete were estimated on a site by
site basis based upon existing market conditions.
If the UK housing market were to improve or deteriorate
in the future then further adjustments to the
carrying value of land and work in progress may
be required. Following the 2016 review, GBP34.1m
(2015: GBP54.4m) of inventories are valued at
fair value less costs to sell rather than at
historical cost.
6. Financial instruments
In aggregate, the fair value of financial assets
and liabilities are not materially different
from their carrying value.
Financial assets and liabilities carried at fair
value are categorised within the hierarchical
classification of IFRS 7 Revised (as defined
within the standard) as follows:
2016 2015
Level 3 Level
3
GBPm GBPm
----------------------------------------- ----------- --------
Available for sale financial
assets 148.7 177.9
---------------------------------------------- ----------- --------
Available for sale financial assets
Available for sale financial assets represent
shared equity loans advanced to customers secured
by way of a second charge on their new home.
They are carried at fair value. The fair value
is determined by reference to the rates at which
they could be exchanged by knowledgeable and
willing parties. Fair value is determined by
discounting forecast cash flows for the residual
period of the contract by a risk adjusted rate.
There exists an element of uncertainty over the
precise final valuation and timing of cash flows
arising from these assets. As a result the Group
has applied inputs based on current market conditions
and the Group's historic experience of actual
cash flows resulting from such arrangements.
These inputs are by nature estimates and as such
the fair value has been classified as level 3
under the fair value hierarchy laid out in IFRS
13: Fair Value Measurement.
Significant unobservable inputs into the fair
value measurement calculation include regional
house price movements based on the Group's actual
experience of regional house pricing and management
forecasts of future movements, weighted average
duration of the loans from inception to settlement
of 10 years (2015: 10 years) and discount rate
8% (2015: 8%) based on current observed market
interest rates offered to private individuals
on secured second loans.
The discounted forecast cash flow calculation
is dependent upon the estimated future value
of the properties on which the available for
sale financial assets are secured. Adjustments
to this input, which might result from a change
in the wider property market, would have a proportional
impact upon the fair value of the asset. Furthermore,
whilst not easily accessible in advance, the
resulting change in security value may affect
the credit risk associated with the counterparty,
influencing fair value further.
7. Reconciliation of net cash flow to net cash and
analysis of net cash
2016 2015
GBPm GBPm
----------------------------------------- ----------- --------
Increase in net cash and
cash equivalents in cash
flow 342.6 192.0
Net cash at 1 January 570.4 378.4
---------------------------------------------- ----------- --------
Net cash at 31 December 913.0 570.4
---------------------------------------------- ----------- --------
8. Retirement benefit assets
As at 31 December 2016 the Group operated four
employee pension schemes, being two Group personal
pension schemes and two defined benefit pension
schemes. Remeasurement gains and losses in the
defined benefit schemes are recognised in full
as other comprehensive (expense)/income within
the consolidated statement of comprehensive income.
All other pension scheme costs are reported in
profit or loss.
The amounts recognised in the consolidated statement
of comprehensive income are as follows:
2016 2015
GBPm GBPm
------------------------------------------ -------- --------
Current service cost 2.4 3.0
Administrative expense 0.7 0.9
Pension cost recognised as operating
expense 3.1 3.9
----------------------------------------------- -------- --------
Interest cost 17.9 17.9
Return on assets recorded as interest (18.7) (17.9)
----------------------------------------------- -------- --------
Pension cost recognised as net finance (0.8) -
credit
------------------------------------------ -------- --------
Total defined benefit pension cost
recognised in profit or loss 2.3 3.9
Remeasurement losses/(gains) recognised
in other comprehensive (expense)/income 23.4 (7.5)
----------------------------------------------- -------- --------
Total defined benefit scheme loss/(gain)
recognised 25.7 (3.6)
----------------------------------------------- -------- --------
The amounts included in the balance sheet arising
from the Group's obligations in respect of the
Pension Schemes are as follows:
2016 2015
GBPm GBPm
------------------------------------------ -------- --------
Fair value of Pension Scheme assets 605.6 512.0
Present value of funded obligations (582.3) (494.0)
----------------------------------------------- -------- --------
Net pension asset 23.3 18.0
----------------------------------------------- -------- --------
9. Principal risks
Risk Impact Mitigation
UK's exit Following the referendum We continue to closely
from the vote on 23 June 2016 monitor the impact
EU and the decision of this increased
to leave the European uncertainty on the
Union, uncertainty UK economy and the
surrounding the outlook housing market through
for the UK economy the review of external
has increased. Such information and changes
uncertainty may reduce in the behaviour
consumer confidence of our customer base.
such that demand Close management
and pricing for new of work in progress
homes may be impacted levels matching supply
affecting revenues, to demand will continue
profits and cash and land investment
flows and may result decisions will continue
in the impairment to be assessed, including
of asset values. measures to ensure
In addition, the exposure to market
devaluation of the disruption is mitigated.
UK currency and a The overall shortage
possible tightening of supply of housing
of the availability in the UK may provide
of construction skills a degree of support
due to potential to the housing market
changes to legislation should these circumstances
governing free movement arise. Action taken
of labour may impact by the Government
costs and build activity. to adjust policy
to support UK economic
performance may provide
further mitigation
as might any response
with respect to interest
rates by the Bank
of England.
We will continue
to employ robust
tendering processes
to maintain strong
cost control over
Group sourcing. In
addition, we will
remain focused on
our training initiatives
to improve the supply
of the necessary
construction skills
the Group requires.
National The housebuilding We control the level
and regional industry is sensitive of build onsite by
economic to changes in unemployment, closely managing
conditions interest rates and our work in progress
consumer confidence. levels. We carry
Any deterioration out extensive due
in economic conditions diligence prior to
may significantly our land investment
decrease demand and decisions to capture
pricing for new homes, best returns. We
which could have monitor our geographical
a material effect spread to mitigate
on our business revenues, the effects of local
margins and profits microeconomic fluctuations.
and result in the We monitor lead indicators
impairment of asset on the future direction
values. of the UK housing
market so as to manage
our exposure to any
future market disruption.
Mortgage Any restrictions We monitor Bank of
availability in the availability England commentary
of mortgages for on credit conditions.
our customers could We ensure that our
reduce demand for investment in land
our homes and affect and work in progress
revenues, profits is appropriate for
and cash flows. Early our level of sales
withdrawal of the and our expectations
Government sponsored for market conditions.
Help to Buy scheme We monitor the Council
could reduce demand of Mortgage Lenders'
from first-time buyers monthly reports and
and other customers lenders' announcements
impacting revenues, for trends in lending.
profits, and cash The Government's
flows. Help to Buy scheme,
which currently is
anticipated to remain
available until 2021,
supports customers
to gain access to
the housing market
across the UK with
very competitive
mortgage rates.
Health and The health and safety We ensure that the
safety of our employees, Board's health and
subcontractors, home safety strategy is
owners and visitors implemented by our
to our construction comprehensive management
sites is of paramount systems and controls,
importance to us. overseen by our Group
Accidents on our Health and Safety
sites could lead Department to minimise
to reputational damage accidents on our
and financial penalties. sites.
Regulatory Our business is subject We operate comprehensive
compliance to extensive and management systems
complex laws and to ensure regulatory
regulations relating compliance. We hold
to planning and the a land bank sufficient
environment. Our to provide security
obligations to comply of supply for short
with legislation to medium term requirements
can result in delays and engage extensively
causing us to incur with planning stakeholders.
substantial costs
and prohibit or restrict
land development
and construction.
Non compliance could
also result in damage
to the Group's reputation.
Materials Expansion in UK housebuilding We closely monitor
has driven an increase our build programmes
in demand for materials and our supply chain
and may cause availability enabling us to manage
constraints and/or and react to any
costs to increase supply chain issues.
ahead of our expectations. We build good relationships
with suppliers to
maintain consistency
of supply and management
of costs. To strengthen
our control over
brick supply and
cost, we have recently
constructed our own
brick plant, which
will be commissioned
in Q1 2017. This
complements our existing
offsite manufacturing
capability at Space4,
the Group's business
producing timber
frames and highly
insulated wall panels
and roof cassettes
which provides a
modern method of
constructing new
homes.
Labour Having an appropriately We closely monitor
skilled workforce our build programmes
is a key requirement to enable us to manage
for housebuilding. our labour requirements.
Expansion in UK housebuilding We operate in-house
has increased demand apprentice and training
for skilled labour programmes to supply
which may create the Group with skilled
site resourcing shortfalls labour.
and/or increase labour We are committed
costs ahead of our to playing a full
expectations. and active role in
external initiatives
to address the skills
shortage such as
the Home Building
Skills Partnership,
a joint initiative
of the Construction
Industry Training
Board and the Home
Builders Federation.
Where appropriate
we use the Group's
Space4 modern method
of construction which
reduces the site
based skilled labour
required in the construction
of our homes.
Strategy The Board has adopted The Group's strategy
its strategy as it is agreed by the
believes it is the Board at an annual
one most likely to strategy meeting
add the greatest and thereafter regularly
sustainable value reviewed at Board
for shareholders meetings and by the
and stakeholders. Executive Directors.
It is possible that, The Board engages
with time, factors with management and
become known that employees to ensure
indicate that the the strategy is communicated
strategy currently and understood and
being pursued is that all employees
not the most effective have a clear understanding
or efficient and of the potential
that alternative benefits and risks
strategies may be of the strategy.
more appropriate.
Viability Statement
The Directors have assessed the longer term prospects of the
Group in accordance with provision C.2.2 of the UK Corporate
Governance Code 2014.
The Directors have assessed the viability of the Group over a
five-year period, taking into account the Group's current position
and the potential impact of the principal risks facing the Group.
Based on this assessment, the Directors confirm that they have
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period
to the end of the Capital Return Plan on 31 December 2021.
A key feature of the Group's strategy launched in early 2012 and
documented in the Strategic Report is the Group's commitment to
maintain capital discipline over the long term through the housing
cycle. On launch, this commitment was reinforced with the
announcement of the Group's Capital Return Plan. This Capital
Return Plan initially committed to return GBP1.9bn of surplus
capital over the following ten financial years. On 23 February 2016
the Directors strengthened that commitment with a c. 45% increase
in the value of surplus capital to be returned, an additional c.
GBP860m, or GBP2.80 per share. As explained in the Chairman's
Statement, the Directors are further strengthening that commitment
to the Capital Return Plan with an additional payment of 25 pence
per share, or c. GBP77m to be paid on 31 March 2017, increasing the
total amount to be returned to shareholders over the Capital Return
Plan period to GBP9.25 per share.
The Group has now completed five years of this Capital Return
Plan. Therefore the Directors have determined that the remaining
five years of this Capital Return Plan ending 31 December 2021 is
an appropriate period over which to provide this Viability
Statement.
The use of a longer time horizon reflects the business model of
the Group, new land investments generally taking at least five
years to build, sell and for the development infrastructure to be
adopted by local authorities.
In making this statement, the Directors have carried out a
robust assessment of the principal risks facing the Group and how
the Group manages those risks, including those risks that would
threaten its strategy, business model, future operational and
financial performance, solvency and liquidity.
On an annual basis the Directors review financial forecasts used
for this Viability Statement. This review includes both five-year
business plans constructed from the bottom up and ten year
projections built from the top down. These forecasts incorporate
assumptions about the timing of legal completions of new homes
sold, average selling prices achieved, profitability, working
capital requirements and cash flows, and are designed to test the
Group's ability to fulfil its strategic objectives.
The forecasts are subjected to sensitivity analysis, involving
the flexing of key assumptions reflecting severe but plausible
scenarios. A range of scenarios are modelled to reflect changing
circumstances with respect to the principal risks facing the Group
together with the likely effectiveness of mitigating actions that
would be executed by the Directors. These scenarios include
consideration of the impact of reduced sales rates together with
lower average selling prices resulting from an assumed
deterioration in consumer confidence, reduced affordability and a
contraction in mortgage lending.
Statement of Directors' Responsibilities
The Statement of Directors' Responsibilities is made in respect
of the full Annual Report and the Financial Statements not the
extracts from the financial statements required to be set out in
this Announcement.
The 2016 Annual Report and Accounts comply with the United
Kingdom's Financial Conduct Authority Disclosure Guidance and
Transparency Rules in respect of the requirement to produce an
annual financial report.
We confirm that to the best of our knowledge:
--the Group and Parent Company financial statements, contained
in the 2016 Annual Report and Accounts, prepared in accordance with
the applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included in the
consolidation taken as a whole; and
--the Strategic Report includes a fair review of the development
and performance of the business and the position of the issuer and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report and Accounts taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
The Directors of Persimmon Plc and their functions are listed
below:
Nicholas Wrigley Chairman
Jeff Fairburn Group Chief Executive
Mike Killoran Group Finance Director
David Jenkinson Group Managing Director
Jonathan Davie Senior Independent Director
Marion Sears Non-Executive Director
Rachel Kentleton Non-Executive Director
Nigel Mills Non-Executive Director
By order of the Board
Jeff Fairburn Mike Killoran
Group Chief Group Finance
Executive Director
24 February 2017
The Group's Annual financial reports, half year reports and
trading updates are available from the Group's website at
www.corporate.persimmonhomes.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BCGDDIDDBGRS
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