Persimmon Plc (PSN) Earnings Call Transcript & Summary

Hello, and welcome to the Persimmon Trading Update Analyst Conference Call. [Operator Instructions] And just to remind you, this conference call is being recorded. Today, I'm pleased to present David Jenkinson, group CEO. Please go ahead with your meeting.

Thank you, Nad. Good morning, everybody, and thanks for taking the trouble to ring in. Firstly, I'd like to have a quick look back at 2019 then move on to where the company is positioned looking into 2020. In 2019, I've been delighted with the progress we have made following my strategic position to put customers before volume and with the implementation of the customer care improvement plan. Most of the moving parts of the plan are now embedded in the business, and we are starting to see tangible improvements, not simply in the HBF Star Rating but across the whole business and our relationship with our customers. I am particularly pleased that while seeing an improvement in customer service, we have been able to maintain our industry-leading financial performance, and I anticipate the group pretax profits will be in line with market consensus for 2019. This shows the fundamental financial strength of the business. Although it's too early to read anything into the impact of the general election on sales rates, the early signs are encouraging with visitor levels and website activity both ahead of this time last year. How this materializes into the spring selling season we will monitor with keen interest to ensure we achieve the correct balance between sales rate and price. But to be clear, not at the cost of our customers by selling too far ahead so we are only able to provide accurate customer moving-in dates in time to follow our customer control process. Customers will continue in 2020 to be put before volume. However, I believe we're on a very strong position to take advantage of any improvements in the market and building our strong current forward sales position if we do see some improvement. We have an excellent range of both large and small outlets throughout the country offering homes at all price points to all customers. With 20 outlets held back with active WIP taking place and a similar number with infrastructure being implemented as we talk. We have increased WIP on the ground which is getting towards optimum level. We plan to open a further 18 new outlets during half 1 of 2020. The business has strong liquidity and industry-leading land banks which gives us optionality, control and flexibility in how to deal with the future. Most importantly, we have a very strong team of committed and talented people. To be clear, it is too early to give any specific guidance for 2020 and I'm not forecasting any change to our previous guidance although then if there was a material change in the market, we have positioned the business in the best place to take advantage of it. Thank you. Now just as normal, if we want to open up to any customers now, we can go straight to the lines.

[Operator Instructions] Our first question comes from the line of Glynis Johnson from Jefferies.

Just 1 question for me, just in terms of site numbers. You, in the statement, talk about 365 developments under construction. I just want to check if that number is comparable to the average 350 you gave us back in November. I also want to check what the expectations are in terms of sites that you'll close through the first half. I'm wondering if you could give any sort of indication where you think you may end up in 6 months' time in terms of number of sites under development. And then lastly, I'm not sure if I misunderstood within -- I didn't quite catch within your opening statement. You talked about a certain number of I think sites that were under construction in addition. Forgive me, I just didn't quite hear. If you can just clarify what you said in terms of sites where you're putting infrastructure work in place.

Yes. We've got 365 sites in construction as you see it. Mike will give a bit more color to that. We have 345 active sites with sales which have taken place. On top of that, we've got another 20 sites where we got active WIP which is a quite a developed stage where we've taken the decision not to release on them where traditionally we may have. And on top of that, we have another circa 20 sites where we've got infrastructure taking place, would show as site remodeling, for example, where we haven't actually started to put any unit build in place for that. Do you want to pick up on the numbers, Mike?

Yes, I mean I think just in terms of -- I mean that really covers it there, but just in terms of the view forward, in terms of average site numbers, we'd expect to be on par with what we saw in '19, if not see a little bit strength -- a little bit of extra strength developing as we move through the year. But yes, I mean, as Dave said, we got a good pipeline, good visibility. So specifically on your closings, I think we'll be able to keep pace opening up new sites as they come through and that should provide us with a stable to slightly positive platform to support delivery to customers as we move through the year.

Okay. And just, sorry, tying it and trying to see if I can tie it into the number you gave us in the November update, which talked about an average of 350. Was that 350 a total number or does it compare to any one of the numbers?

The 350 at that point was active sales outlets. So we had the handful more at -- just at that point that were active in selling. Since then obviously, some have shut, a few have opened. So the average for the second half of this year, I think, was about 347, 345, 347. So as always, the exact timing of this, it's not precise -- exactly precise science, but it's around that sort of level.

And the next question comes from the line of Arnaud Lehmann from Bank of America.

Two questions for me, if I may. Firstly, do you have a first view of cost inflation for 2020? Is it -- and is it more like wages-related or materials and construction? That's my first question. Secondly, if we take the view that maybe the visibility on the economy is a little bit better, the consumer confidence is improving and suddenly you were to see into the spring selling season an acceleration in demand. How would you combine that in terms of strategy with your -- the fact that you don't want to rush sales, that you've held back a few sites. So would you be ready, to some extent, like you did in 2019, to lose a little bit of market share, if I may call it this way, and to slightly underperform the market to keep focus on the customer side?

I think to deal with the first one first, I think it's important to point out that we've been saying for some time that build costs have been starting to stabilize, specifically in terms of the labor element. Although we are still seeing some cost pressures around materials, not across the board with some materials getting reasonably high increases, whether that cost is actually deflationary. So it's not one simple pattern that fits everything in terms of build costs. What I would say is looking forward, I think we're probably going to see a little bit more pressure on materials and potentially a little bit less pressure on labor, especially if we don't see any uptick in spring selling season. What we would expect to see, an increase around 2%, 2.5%, 3%, something like that for '20. But a lot will depend upon the demand for sales which drives actual demand for the construction.

And I think, one last point on that, Arnaud, is we, obviously with the exit from the EU, impact on sterling on imported elements which do form a part to a degree and future tariff ratio, it's hard to second-guess what may emerge from that. But it's something that is an aspect of how this year will develop, I guess.

And in terms of volume growth, to effectively what you're alluding to. To be clear, as I said in my opening statement, we'll continue to put customers before volume. But the business is in a bit different position than what we were 12 months ago. We do have WIP on the ground. We do have the opportunity to take advantage of that WIP if we chose to. But to be clear, we would not do that if it meant that we could not meet the criteria that we set out we were going to do in terms of giving more accurate move-in dates, better quality of houses and a better customer experience. So a lot will depend upon the demand to that effect. If it was a marginal increase, then I imagine we could absorb some volume growth. If it was to be a material increase, then I'll be quite happy to say that to lose that element of market share, as you described, in the short term. What I would point out though, and let's not forget, we have a nationwide coverage of 31 companies. And even if we took a conservative estimate of 600 units per company, it gives you a guide of what the potential would be. But my focus would be, during 2020, would be to continue as we are, WIP's at the optimum level. And if the opportunity for a bit more volume comes along, of course we would take it. But not at the cost of customers.

And the next question comes from the line of Aynsley Lammin from Canaccord.

All right. Yes, 3 questions from me if I could, please. Just firstly, consensus obviously staying in line. Just want to confirm your view. Consensus was around I think GBP 1.042 billion, seems to be on Reuters for '19 and then secondly, just on land replacement, I think you replaced around 10,000 plots. Should we read anything into that? Is that more cautious land spend in '19 given all the election and uncertainty there and would that move back up or are you kind of just willing to shrink the land bank a bit? And then thirdly, just on the independent review, of course you can't -- just because before Christmas, any change in thought to that just as you've digested what you saw there, whether it's in the cost pounds million or just the kind of priorities you'll be focusing on for 2020?

Well, do you want to deal with consensus, Mike, and I'll pick up the other 2?

Yes, I mean consensus is very straightforward, GBP 1.04 billion is where we are and I think we're fine with that for pretax profits for '19. David, I mean, do you want to cover the land side?

Yes, I'll cover the land one, yes. As we said for some time, we believe we've got the lead in land bank in the industry which has taken a long time to development, and it dates back to us -- our investment back in the bottom of the cycle. That is something which we've earned, something which we've -- puts us in a unique position to gives us optionality within the marketplace of when we need to go back into the market and when we don't. It's more about, for me, being disciplined. If we can buy land at the right rates, with the right returns, then I'm more than happy to make the investment. What we saw during 2019 that there wasn't quite as many deals available as what we hoped there would be available or to maintain what we're actually -- land replacement rates. That doesn't mean to say that's a problem. I'm quite happy to see the land bank drift back if necessary. And we'll continue to be selective in what we buy during 2020. But a lot will depend upon what happens in the market during 2020 in terms of land. Personally, I think there may be -- continue to be a little bit more demand. What we are seeing there in the market is a bit more activity from the small- to medium-sized players in the land market. And it is a little bit more difficult to buy land at our hurdle rates we look to achieve which is why the land bank's going to -- has drifted back a little bit during 2019. That could possibly happen in 2020 but I think for where we are now, I would assume that we're probably going to be slightly cash generative in our land replacement rather than cash absorption. The independent review. Well, as we said before, before we commissioned the independent review, we weren't going to wait for it to be published. We were going to get on the front foot. And if you look back to our half year results presentation in September, you will see a lot of the stuff that came out in the independent review, we were already on with in terms of the -- our customer care improvement plan. There's no doubt the independent review has given us a bit more food for thought and given a bit more energy and a bit more clarity and a bit more direction, which we will be -- which we will be accepting of, specifically the Persimmon way of building. But in terms of cost, I don't think it signals a big material change in there. There may be some extra investment around the fringes. But fundamentally, we've been front running this independent review and a lot of recommendations for some time and it's pretty much covered in the guidance we've given you previously.

And the next question comes from the line of Chris Millington from Numis.

A few for me, if possible. So -- you know me, Mike, it won't be that long. So first and foremost, we've heard a few comments around the start of year/end of year trends. I'm just wondering if you could flesh out a bit. It sounds like you're seeing a slightly better activity, but I just wonder if you could put a few figures on those visitor numbers or something like that, just a touch more detail. Next one's really just on where you are on stock levels. I presume you've got some sort of measure you're monitoring period-over-period. So perhaps just a little bit more that. And then I just wanted to go back quickly to Dave's comment on -- we feel we're now pretty much at the optimal WIP. So I take your point, Dave, that you probably will release a bit of cash from land investment this year. Is it fair to say we're almost on kind of an even keel with regard to WIP as well as we look through this year, obviously depending on market conditions?

Yes. I think, Chris, to be fair -- dealing with the third one first and I think it links to the second one in terms of stock levels. I think that's right. We've almost got into a neutral position where we've made probably about GBP 40 million, GBP 50 million worth of investment in the second half. As you know, my target for WIP was 32% of sales -- forward sales which I think we'll be around there, it's a bit early to be exact because the numbers haven't come together. But we feel that sort of number would be around there, which means it gives us the opportunity to provide much more accurate dates, sell at a much further stage and means that fundamentally, we can provide much better service to our customers and better quality of homes. I don't foresee a massive increase of investment beyond where we will be at the end of this year. There may be a little bit more but not material. And as you said with the land, I think at most, it will be replacement. However, I think we'll probably be a little bit more cash generative rather than absorbent.

Selective, yes.

So I think in terms of we are going to move to that neutral [indiscernible] continue to describe, so simply, what cash we produce less tax will be free cash potentially to do what we see fit with. And that gives us options and in terms of our capital returns. In terms of the year-end trends, it is very early to see. What we can say, since Christmas, there's been a lot more website activity. And it's ahead of where it was this time last year. Visitor levels have been ahead of where it was this time last year. Our sales reservation rates have been encouraging, slightly ahead of where we were last year. I think it comes with the reduced outlets. So generally, it feels quite positive. But I think we'd be foolish if we try to read too much into something too early. And I'll be misleading you to try and do that. I think we just got to wait and see. But I come back to what I said in my opening statement, if there is an upside, we've positioned this business in the best position to take advantage of it if we choose to. But we'd only choose to do that if we could do it in the right way by protecting our customers.

And the next question comes from the line of Gregor Kuglitsch from UBS.

Couple of questions, please. Firstly, can you just -- this is maybe a numbers question, what was the actual sales rate in the end for the year last year? So that's against the 0.7 for '18 just so we have that, that would be helpful. Secondly, again a bit technical, but social is very high. Can you just steer whether that was kind of abnormally so and therefore will unwind a bit in FY '20? And then I guess, a question on margins. Obviously, I think you said you haven't changed your kind of outlook. And I think before that, you're pointing to -- I think you called it a drift on margin, I believe, and I think you probably ended the year at 30.5% or something like that, if I'm not mistaken. So I just want to get a sense whether that view still holds that you have a drift and whether it's against that 30.5% or against the second half or how you're just thinking about the margin trajectory. And then finally, sorry, this is actually morphing into to 4 questions. But the land bank length, how low do you think you can go? Obviously, you frank it a bit, maybe -- I don't know, it's very marginal, maybe [ 0.1 ], and it was 6 last year. How low can that go? Can you be as low as 5 on that? Or just to give us a sense, how much was the sort of flexibilities that you've got?

Well, do you want to do the first 3, Mike, and I'll come back to the land bank question?

Yes. I mean on the sales rate, Gregor, as usual, it's a tale of 2 halves. Autumn is always a little bit slower than spring. That's how it panned out again this year. And just to remind you, in the first half, we did about 0.74 of a private sale per site per week. In the second half, we did about 0.62-ish, leaving the full year about 0.68. So you can see against last year, first half set PD sales rate was about 5% lower. Actually, the second half panned out almost even-stevens, if -- slightly ahead if anything, leaving our full year PD sales rate 0.68, around 2% lower than the prior year. On the mix of sales, yes, social -- the Housing Association sales are a little bit higher this time around. It's a good question in terms of how that's going to pan out this year. I suspect it might turn out to be something similar for 2020 given the direction of planning. I mean Dave is obviously more expert in this area than I am, but the general thrust of government policy, which obviously we support in full, is to deliver housing across tenure types. It'll be interesting to see how planning direction in terms of meeting housing need develops. So I could see that, that may become the new norm, if you will, in terms of a bit more affordable in our mix moving forward. But again, it's a bit early to be exactly precise about that. Margins, we still say -- we still advocate sort of a bit of a drift on margin. Nothing substantial. We've got obviously the full effect of the investment we are making in quality assurance and customer care to take account of in 2020 together with the aforementioned mix effects on social, et cetera. So I think a bit of drift. I think the land bank is in great nick. I mean it's of very high quality. And as Dave said, we're trying to defend the return levels embedded there as Dave's already mentioned. Dave, I don't know, you want to talk about the land bank in that?

Yes, I think it's important to realize what's a normal in an industry, and what's historically [ one length ] of land bank you have. The normal period of land bank, especially in this turnaround will be around 4 years. So you might ask the question why do have 6 years? And that's because we are in a cyclical industry and we look to buy land at the right time in that cycle. And I'm particularly proud that as a business, we've invested at the right times in the right cycle. We have 6 years, but in reality, that is a bit too long. We're very long on land. In reality, we'd be more than comfortable operating at 4 if necessary. My priority is to not dilute the quality of the land bank which we've got. And if necessary, if we would carry on the way we are the moment, then in by about 6 years' time, I think we'd be down to about a 4-year land bank which I'd be very, very comfortable with. The important little bit of the jigsaw which is important to point out here is also our strategic land. We have an excellent strategic land bank which isn't included in these numbers. For example, we have another 20,000 plots allocated, which isn't in our land bank numbers yet. So even if we were almost to remove completely from the land market, we would still have a good stream of strategic coming through. So what does that actually mean in reality, Gregor? It means we have options. We can play what we see. If we see good deals at the right returns with the right size, then we're happy to buy it. If we don't see the right deals at the right size, then we're happy to see it drift back.

And the next question comes from the line of Clyde Lewis from Peel Hunt.

Three if I may as well. Firstly on sort of selling prices and I suppose incentives as well as sort of -- through the back end of the year, if you could sort of give us a little bit more color about around sort of what you were seeing there in terms of whether you're able to move headline prices at all on what was happening on incentives. Second one was on regional variations. I mean you haven't really said anything so far today. Just wondering, has there been any that sort of are of note? And then lastly, really was on Help to Buy. I'm just sort of intrigued to hear how that has evolved in terms of sort of usage, again through the second half of 2019.

Okay. I'll touch on 2 and a bit of 1 and I'll let Mike pick up on 3 and 1. In terms of regional variations, nothing has really changed as yet. It's too early to tell. The market, as we've consistently been saying for the last 24 months. In the South East, it's a bit more difficult. Larger 4 beds are a bit more difficult but our core market area, the demand is very robust and there's incredibly strong demand for first-time buyers. There's no real change, and that pattern is pretty much similar across the country. If you have the right site with the right product, then there's good demand in the economy. In terms of selling prices, I think Mike can give a bit more color. But from where I am on this, I think it's too early to call. I'm not in a position where we're going to be looking to move selling prices yet. That to me would be a bit too much of a knee-jerk reaction. We're not seeing enough demand, although we have the people coming through the door, to suddenly to make us think -- that we could move selling prices and the reality of it is, selling prices are improved -- increases are a lot more difficult than what people think. You can put a selling price up but a lot of this is controlled by valuers. So if you're going to increase prices, this idea you can wake up 1 day and suddenly put GBP 20,000 on a price, it doesn't work like that in reality. What you have to do is make it small and regular if you're going to do price increases. But I don't think what I can see at the moment that the level of demand is going to be there where suddenly we'd be looking to large price increases. I think it's more likely that it's going to be a gradual thing as people become more confident in the economy and some of the investments the government's intended to make and it becomes embedded in economy. I don't know what you've got on selling prices, Mike.

Yes, I mean, just to throw in a couple of bits of data at you, Clyde. When we look in our forward orders, on our PD, we've got about just shy of 3,300 private units forward sold at December, which is about 450 down on where we were the same point last year as we've touched on sales rates, et cetera. But when you look at the average selling price in there, we're actually about 1.7% ahead at just shy of GBP 246,500 on PD against GBP 242,000, GBP 250,000 the same time last year. So 1.7% in terms of PD ASP forward sold vis-à-vis same point last year, which demonstrates sort of resilience, a little bit of growth, as Dave says, but not dramatic. And that, I think, is a fair -- as Dave's indicating, a fair indicator of -- there probably will be some modest improvement through this year but we need to see how the market develops. On the Help to Buy side, I think it's been a similar sort of picture for us. As you know, we have positioned the business to offer homes for all, if you will, with a weighting towards first-time buyers and first-time movers. And that -- those attract those types of customers which then have the ability to choose to use the government's Help to Buy scheme to support that purchase. And I think it's interesting. We've all been provided with budgets for this year through to the end of the scheme. It will be interesting to see how that develops given the non-first-time buyers. Obviously, the scheme comes to an end for that cohort of potential purchasers. So it'll be interesting to see how the market activity around that cohort of potential customer works through this year. But again, Colin, going back to government policy, I think the discounted open market housing idea, which I know Dave has been quite a big advocate of, of some time, is again an interesting development. And that might provide good support for those types of customers moving forward.

Just one thing to point out on selling prices, just to be clear, our numbers are not dependent on selling price increase. If we were to say, get 2%, 2.5% of build cost increases, 1% inflation and revenue, then we'd probably be in a neutral position in line with what we are forecasting and what we're guidance to. If there was some big selling price increases, that would be on the upside for us.

And the next question comes from the line of Charlie Campbell from Liberum.

A couple of questions really. Just first of all on the retention scheme, just wondered if you could give us an update on how widely that -- used that is and kind of experience so far. And then I think I can probably work it out from the information you've given, but just to help us, just to give us the volume in the forward order book, that would be helpful. And perhaps you can split that out between private and socials, that'd be very helpful for sort of models and things.

You want to pick up 2, Mike, and I'll pick up 1?

Yes, no problem. Yes, I mean on the forward order side, Charlie, we have just shy of 7,700 units, new homes forward sold in the forward orders at the end of December '19. That is split, as I said, circa 3,300 on PD. The remainder on the affordable side. That compares with around about 3,700 on PD this time last year and about 4,200 on the HA. So in terms of volumes, we're up about 450 -- sorry, down about 450 on private but up about 200 on HA. So net, down about 250 overall. And I've always -- I've already referenced the ASPs in there so -- yes, I mean, if you look at the PD forward-sold position, if you take a view on, well, what could be delivered in the first half, it gives you a picture of good, strong forward sales support for the first half. So that sets us up nicely to be able to work with the market, if you will, as it develops through Brexit and the like to deliver what we'd like to deliver for the first half of the year. So yes, I mean, we feel quite sanguine about forward-sold position at this point.

And in terms of the retention, now happy to say we've got an agreement from all the major lenders. And from February 2020, we expect to be able to have our biggest lender offering it to our customers as well, so we should see an uptick in numbers. But as we sit here at the moment, we've had over 2,000 customers take advantage of the retention proposal. Over 1,000 of them have been completions. And the feedback's been positive. The most pleasing thing for me is that it's actually seen a change in focus in the business. It's a real change in culture, of people to get the houses right first time. There's a lot more focus around that part of the key release and the first week after to make sure we resolve any issues as soon as they're there rather than waiting for a longer time and let them fester. So I think it's great that we've given and -- empowered our customers and given them that flexibility and ability to take advantage of it if they choose to. But just as importantly, I think it's an important cultural signal in the business, and I'm really pleased with the impact and how people have been accepting of it, have been within the process. And we're already seeing signs that the quality of houses we're handing over is better at key release.

And the next question comes from the line of Jon Bell from Deutsche Bank.

I think I've got through 3 as well. First up, the HBF Star Ratings. You talked about 31 operating companies. I'm just interested in any trends, North versus South, Persimmon versus Charles Church, anything that you're seeing there in the business. Secondly, your brick factory, have you still got it, is it still running, that kind of thing? And thirdly, capital returns, I'm guessing we're looking ahead really at February. Could we be thinking about a change in the structure of those returns in any way?

I'll let you do capital returns and I'll pick the other 2 up then, Mike?

Just quickly on the capital return, I'm going to dead bat that, Jon. We'll update, as we normally do, in February obviously. So an issue that we're currently discussing and we'll give you the details at the prelims.

The easy one first, the brick factory, yes, we've still got it. Yes, we're building -- doing approximately 50 million bricks a year from there. We have reviewed the detail of the bricks in terms of how they look a little bit. So we've widened the range we have available throughout the company to sort of make a wider use of them. Yes, the brick factory is firmly established. We're happy with how it's working and it continues to supplement the clay bricks we buy from our main supplier. In terms of HBF Star Rating, what we have seen is that the poorer companies have improved, but that's not a geographical trend. As we've always said, it's been a demand-led trend, it's been where we've seen the highest demands. So it then places where the biggest demand for first-time buyers is and that's -- and their businesses are spread throughout the country, ironically rather than just in the South, how we may have thought. But I'm really pleased, the actions we've taken and then businesses where we're -- where they were unable to release until they got the roof has made a material change in their businesses. We're nearly through the backlog of the reservations we'd taken previously before we changed the policy. By the time we get through quarter 1 of 2020, I think there should be no legacy plots left, which should make a difference to our rating moving forward. So there's no real trend other than it's specific really to where we had the highest demand.

Okay. I think as you dead batted one of my questions, I might ask a cheeky additional one, if that's possible then.

Go ahead, Jon.

The discounted open market housing idea, you said Dave's a big advocate, could you just talk us through how that might impact the split of private and affordable and the ASPs at affordable. What are the kind of...

I'm not going to answer that question because it'll depend upon how planning policy gets developed in terms of how -- and what the percentage of it is, how it comes along, if that provides additionality, et cetera. But what I will say, and this is why I've been advocating this for some time and I thoroughly support the government in it, it will provide people who can't at the moment, to get on the housing ladder due to their salary. It's -- a completely new group of people would be able to access the market. We do quite a bit of this in the North and it's very, very successful. What I personally would like to say that goes a little bit further, the big problem with this kind of market value housing at the moment is it doesn't qualify for Help to Buy. So you still need a reasonable deposit which means the cost can be quite high. Personally, I believe if you want to provide discounted market value housing with Help to Buy, it could be a real game changer, enable a lot more people in society, they have people there at the moment are just missing out, to access the housing market, specifically in the South East. You've quite cleverly, you gone to what that means for the business but I think it will be too early to see it. But what I am sure is I think it will be good for society and I think it will be good to get more people on the housing ladder.

But it bears the distinction, Jon, obviously discounted open market sales are what it says on the tin. If -- in a way, those are sales into the private market, albeit there is a restriction in terms of sort of market value in terms of the discount attached. But...

Increases your purchaser profile in effect, but we don't want to what extent yet. There's no doubt you've got more purchasers that you get to provide houses for, just slightly less revenue. But we don't actually know how it's going to materialize yet. But I think it's a positive for housing sector.

And the next question comes from the line of Andy Murphy from Whitman Howard.

I'm going to break with tradition and just go with 2 questions if I may. First of all, on the forward sales, has there been any change to the -- sort of the distance out that you'd take your forward sales up until either a shorter or longer -- I don't know how the -- one of your competitors has perhaps changed that one. Wonder how you were thinking about how that might change going forward given what you've done around the quality issues. And secondly, on PRS and bulk sales, were there any in 2019 and how do you feel about 2020? Are there likely to be some -- are you likely to go down the route of [indiscernible] sales?

You do 1 and I'll do 2 then, Mike.

Yes. I mean in terms of selling forward, which I think is the essence of what your question is, if I understand it correctly.

Correct, yes.

With the discipline on sales release, we've actually shortened the period to which we would forward sell. Because obviously, we want to provide greater accuracy of prospective moving-in dates as part and parcel of delivering on the improved customer service package. So I think we've actually shortened that approach. I haven't got exact days or weeks, but it is a significant change from perhaps where we were in '17/'18 that we introduced in, really from the off in '19. So directionally, it is shorter. Dave, I don't know if you want to...

Is that likely to change, do you think?

What, sorry?

Is it -- are you likely to change that position?

No. I don't think -- to be clear, we will not be changing our pattern to take reservations early just to give us confidence in our forward sales book. We believe we have the right sites in the right locations and then sites where we have the biggest problems is the ones with the strongest demand. I'm absolutely convinced for this business, it's the right thing to do, to hold sites back to a more developed stage so we can give more accurate dates to customers and let them have a -- and provide a better quality of housing time to do that. The only reason you would do that earlier is if you thought you could not sell them and we're pretty confident with our range of outlets, the product we've got there and what history tells us and what we see in terms of demand that there is no need to change that. In terms of bulk sales, it's linked to the same point, I suppose, Andy. My focus during 2019 was to actually get more WIP on the ground, to have more stock on the ground rather than sell it at a discount. We see good demand for our houses. We have been able to put more WIP in the ground. And it just doesn't make sense for us to do bulk deals when we can sell them in the open market for bigger margin. We've done no real bulk deals of any size to any investors during 2019 and I don't see that really changing in 2020.

And the next question comes from the line of John Fraser-Andrews from HSBC.

I'll get back to -- yes, I'll get back to 3 if I may. So on the first one, the completions in half 2 came in a lot better than half 1 in terms of the decline. Is it fair to say, given what you said on sales rates, that a few more got into the year-end and that might be why the forward sales book is slightly lower? So that's the first question. The second is on build costs. Dave, could I ask you to clarify? I think you said labor's stabilizing. So within the 2.5% to 3% projection, is labor sort of next to nothing in your outlook and materials, therefore growing somewhat more than the 2.5% to 3%? And the final question is on the customer service satisfaction and service build quality, noting your improvement to a strong 4-star rating and what you said earlier about not seeing significant additional cost as a result of your independent review. Perhaps you could just sort of say how much of the GBP 15 million is still to come to get up to that annual run rate in 2020 and give a little bit more color on how much more might be needed to make you fully satisfied.

Just on that last bit, just jump in there, John. I think if you took a view that maybe 1/3 of the GBP 15 million was taken in '19. And obviously, the full run rate would be included in 2020. Maybe 40-60 split is about the right sort of level.

In terms of your first question, John, I think your assessment is perfect. A little bit more volume did come in half 2. We were pleased to deliver it. The businesses responded and we were more than happy because the quality was right. To be clear, if the quality hadn't been right in -- for half 2, we wouldn't have let it go over. So that did affect our forward sales a little bit. But the real driver in our forward sales business are to just know how far forward we want to sell and our discipline about when we are releasing on these sites, and that'll be continuing during 2020. In terms of build costs, I think you're right. It'll be naïve to think that there'll be no labor increase. You're probably -- but it has stabilized, so maybe 1%. With material, maybe hit 3%, maybe a touch more on labor. I think you're going to be seeing much more increase in terms of materials, maybe 1% to 3%, something like that, averaging around about 2%. Maybe a bit more than that, maybe 1.5%, 3.5%, or 1%, 3%. Not all the deals. We pretty much got good visibility on the materials yet but labor's much more fluid. And it's not the same across the board. It depends upon demand and where we are in the country. But I think for your guidance and for your modeling, I think the guidance we gave previously is probably about right.

Just 1 follow-up, if I may.

Four, you see, John.

Well, it was back on the brick factory.

Yes?

And -- so what sort of -- so levels of inflation do you think you're incurring there and how that's comparing with the wider market?

Well, in terms of the brick factory, I think our costs have been pretty stable. I don't think the input cost is going to change very much at all this year. In fact, as we produce a few more, we think we may get a little bit more operational efficiencies. In terms of the outside world, I'm not going to go into the commercial deals we've done, but we are happy with the deals we've done in terms of bricks. I don't think there are big pressure points in terms of the materials and in terms of bricks, it's in other materials where you're seeing a lot more pressure.

And the next question comes from the line of Will Jones from Redburn.

I'll relieve you and go back to 2. The first is just exploring the -- just some of the numbers behind the customer satisfaction scores. We can see, I think since you last spoke, we've seen by the HBF, the 12 months or completions I think for 12 months to June, I think you were at 82.9 for that measure having been at 80.1 for the 12 months to March. So there's quite a big delta basically for an annualized score in only a 3-month period. So you could argue from that it implied actually in that latest quarter, the latest 3 months, you're probably close to 5-star than 4-star. I don't know if that -- is that how we might read the color of the change in the maths on that figure that we see externally? And then the other one was just coming back to an earlier comment around, if you were to reduce the land bank length over the next number of years, how would you encourage us to think about the possible impact on active site numbers? Obviously, it hasn't -- the active count prior to last year at least didn't really move upwards as you grew the land bank. So should we expect the active sites might come down a bit if that happened over the next number of years or would you maybe buy smaller sites to I guess offset that issue in terms of sales fronts?

I think if we deal with the first one first, it's impressive how you got to the numbers so quickly and it is quite right. I think it's a bit of both. I think the period we had previously for that quarter to the June wasn't so good. So we had a big material movement which did make the number increase quite a lot in that period. And it is right, we're probably closer to the 5-star than we are to the 4-star. Not massively closer, but we are trending closer to the 5 star. The encouraging thing for me, since we've taken over in January, we've seen a step change in the business. Now obviously, the HBF rating's only 1 indicator but we have been seeing material improvement. And I'm pleased with where we're trending. We still have more to do. We'd like to get to the 5-star builder. But it's not the be-all and end-all of everything. It's more important for us to be a quality builder and provide a quality service and provide a lot of other things we set out in our customer care improvement plan back in September. So we are pleased where we are and we started pretty well in terms of the recent -- the new one which has come off in October, those results are encouraging. So it is positive. And we have made good improvement. In terms of the land bank length, you have to remember, we still have the ability to bring other sites in. I don't think it necessarily follows because we're not buying more land that we'd have less outlets. If that was to happen, then we have options. We could top it up with 1 or 2 smaller sites. As we sit here at the moment, even with our land bank drifting back, we don't believe there will be a material change in our outlet numbers, and I think it's more that because we still have the opportunity to grow if we chose to with 31 businesses, 600 units per company. So the land bank length supports the demand, underpins our optionality in what we choose to do.

And I think -- just giving you sort of a general feel for the recent data, I mean, the issue with outlet numbers, they do take quite a while to come through obviously if you're promoting at a strategic, et cetera, et cetera than getting them through into production, but if you look at '19, we have acquired over 9,900 plots on -- in 60 locations. So simple maths, about 160 plots per site, on average. This is very much on average, which is actually a bit lower than last year. My figures here tell me around about 200 plots on average for last year. So we have, on average, done a few more smaller sites actually in '19 which actually helps our volume. We're not becoming overdependent upon a lower volume of larger sites which you do -- you raise an important point, Will, because you do have to remain focused on that because you can find that your sales activity becomes polarized or concentrated which means that you have to adopt perhaps a slightly different approach in the market than having a wider distribution footprint, which really refers back to Dave's early comments in terms of having the 31 businesses across the regions which puts us in a very strong position -- balanced position, if you will, across the market.

I suppose the key thing, Will, is how far you're looking ahead, what we do know and what the model and what we've done and what we've seen in the land bank, which we've got. We're very confident in our position for 2020/2021 for our outlets. If there was to be a material change in the market for example, and we were only buying 3,000 plots a year, then potentially you're right, we may have to buy some smaller sites to top that up. But that extremes. We're not seeing that at the moment. We're seeing a reasonable land model where we're able to get what we need. If there was a material change in the land market, then that can be something we'd have to look at. But as we sit here at the moment, we don't see it as a particular problem.

But also, I think, Will, just -- I mean, it's a good point because it goes to the very heart of strategy in that we're in a cyclical industry, cyclical business. And as Dave says, we filled our boots back in the early part of the recovery phase more than anyone last time around. And as you can see on the balance sheet, we are in a great position to be able to take advantage of market opportunity, should those sorts of conditions arise, which is great for building sustainability into the business.

[Operator Instructions] And the next question comes from the line of Sam Cullen from Berenberg.

[indiscernible] from me, really. Following on from the HBF ratings and Will's question. I guess when you -- in the release, you talk about going far beyond the -- a focus on the HBF satisfaction survey. How are we meant to view that from outside the company? And are you going to be really thinking of other metrics for us to look at and track how you think you guys are doing? Or how are you guys thinking about that?

Well, I think that's obviously -- we'd have to look at that and I still need to digest what it is. But customer care, to me, has always been more than just about the star rating. For example, we were really proud to be the first people who empower our customers, we've used a retention scheme, we give them rates that other people aren't prepared to give them. We're really proud that we -- just what work we're doing around our team, we're really proud in terms of the independent inspectors improving safety and quality in the houses. We're really proud that we offer more people opportunity to get in the housing ladder than anybody else, 52% of our completions. So to me, it's a too-narrow indicator to assess your relationship with and your customer just to base it on a star rating at any one particular time. Saying that, it is important and we are focused on it and we're pleased with the improvement. But we're just as pleased with also the other changes we're making within the business. Some of these things are subjective, they're qualitative assessments rather than quantifiable assessments. But we're digesting some of the stuff on the independent review and one of the advices on that was maybe looking at other indicators to assess how we are changing rather than simply using a star rating and that is something we'll be looking at.

And as there are no further questions, I'll hand it back to Dave.

Thank you, everybody. Finally, I'd just like to say how proud I am of the whole Persimmon team and making the step change in the direction of the company while maintaining the enthusiasm and commitment you've come to expect from Persimmon's staff. I'd like to put on public record how much I appreciate how open-minded they have been to the change in this important part of the Persimmon evolution. Thanks for everybody for ringing in. Thank you.

Thanks very much.

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.