Persimmon Plc (PSN) Earnings Call Transcript & Summary

Hello, and welcome to the Persimmon 2020 half year results presentation. [Operator Instructions] I will now hand over to your host, Dave Jenkinson, Group Chief Executive of Persimmon plc, to begin today's conference. Thank you.

Good morning, everyone, and welcome to our half year presentation Q&A. I hope you've had the opportunity to watch our presentation online and catch up with our trading update. I believe the presentation highlights the resilient financial performance of the business and how we have carefully managed the business through the cycle. I have numerous items I can pick out from the presentation, but in particular I would like to draw your attention to, firstly, the weekly sales rate at almost 50% above the same time last year. This has given us a forward order book of 21% increase on last year, and we currently have over 13,600 plots sold for the end of the year, with 10 settlements remaining for year-end completions based on current build programs and output. The WIP position is 14% above the same time last year. We have almost 10,500 plots which we could potentially complete for the end of the year, based on current build programs and on current output. Gross margins are proving very resilient. And if we produce a number at least similar to half 2 '19, then we will regain our operational efficiencies in relation to overhead recovery that we've lost during half 1 of this year. In the short term, we are in a very strong position, but I am well aware of the medium-term challenges associated with COVID-19, rising unemployment and Brexit. How we have managed the business over the last 2 years gives me every confidence we are ready to face into a number of future economic scenarios which may develop. Now in the normal way, I would open up to Q&A.

[Operator Instructions] The first question comes from the line of Rajesh Patki from JPMorgan London.

I've got 2 questions. First one is on the COVID-related costs, the GBP 11 million of costs that you've undertaken; and if you can talk about your decision to capitalize them while some of your peers have expensed through the P&L, if you could provide some color on that. And the second question is on land spend, if you can talk a bit about what you're seeing in the land market at the moment. And are you looking to continue with caution for the remainder of the year after adding about 1,000 -- just under 1,000 plots to your land bank in the first half?

I'll deal with question two, then I'll pass on to Mike to give you a bit more color on question one. In terms of land spend, nothing has really changed. The market shift is pretty similar to what we've seen for some time. We remain vigilant, but we're always looking for opportunities. And we are picking up 1 or 2 opportunities where we think the risk reflects the reward, but we're being very cautious and it's against a strict criteria. So there's no real change in the land market. In terms of the COVID-related costs, this we'll get to 2 parts. First bit is the COVID costs where there's no site overheads. And the second bit relates to the overheads and efficiencies from not having the same volume as what we normally associate with the business. And that was really important to us, and it was part of our decision not to furlough staff, that would led 1 or 2 inefficiencies, but we think it was a price well worth paying.

I think, Rajesh, from a technical accounting perspective, basically it's no change at Persimmon. We've continued to apply our accounting policies in a consistent manner. So what costs would normally get expensed have been expensed through the P&L account, and what costs would routinely get charged to work-in-progress inventories have been. I think, the GBP 11 million that we have incurred in terms of COVID costs, the bulk of it relates to the increase in site duration, the development time frames, because if you think about it, given a period of disruption to production, what that means for a particular site is that it lengthens the development time frame. So as a result of that, we're going to incur additional overhead over and above what the original site budget would be indicating for that site just by way of an extension of the development time frames. So we've got about 26,500 plots that are in active development at this point. So all of those active sites have been subject to some extension at this point of -- in time in terms of development time frame, and the future anticipated revenues off of those sites is about GBP 5.7 billion of future revenue. So in the context of that future revenue, we've expensed GBP 1.1 million of the GBP 11 million through P&L in the first half, being recovered against legal completions taken in the first half. The GBP 9.9 million is carried in work in progress to expense against future completions in a normal way. And so we sort of think about the disruption as -- perhaps an example of a similar set of conditions disrupting site activity would be bad weather window. If you remember, the Beast from the East a while ago, that did disrupt production for sort of 3 or 4 weeks, but we continued to apply the same accounting policies at that time. And we've done the same this time. So the margin burden, if you will, of that GBP 9.9 million moving forward is about 17 basis points over the gross development value of the sites that we've got left. And in a normal way, the team within Persimmon will be working hard to recover that value over future period. So we'll wait and see. Yes, at this point, there's a bit of additional costs there, but hopefully, over time, we'll be able to nibble away at that and get back to the original budget plan for each of those developments. Is that okay, Rajesh?

Very clear.

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

I guess, 3 quick questions on my side. Firstly, I mean, your sales rate is quite impressive. You talk about 49% increase in the beginning of July. How do you see it? Is it underlying market conditions, or do you think you're gaining significant market share? Because it seems to be much stronger than what some of your peers have reported. My second question is on your margin outlook for the second half. I mean you're kindly guiding us for a similar or higher level of completion in H2. Do you expect to be able to deliver better margin in H2 on the back of that relative to your -- to the first half? And lastly, I think in the presentation you mentioned that the net cash, which is the cash minus the land creditors, is around GBP 450 million at the end of June. Where would you expect that to develop into the second half with higher completions but also now you have this kind of small dividend payment coming? Where would you expect to land at year-end?

Okay, Mike, I'll let you do two and three first. Then I'll answer question one.

Yes. I mean, just for the margin outlook, Arnaud, I think you're right. Your intuition around margin for the second half improving, I think, is right in terms of direction of travel. On -- actually, on the trading update in early July, we did point out that really what we've lost as an industry is the ability to complete the planned legal completion. So we've lost revenue for a period of time, and I guess the industry is playing catch-up to a degree to get back to a similar cumulative position over time. And so what that means is that we will deliver more volume through the second half, as Dave has already pointed to, and that will improve our overhead recovery rates through the second half. So you've seen a housing operating margin in the first half of 26.6%. I think you will see that move forward because of overhead recovery improvement both in gross margin terms. So 31.3% housing gross margin moving ahead a bit. And don't -- we don't want to give a forecast, but if you -- maybe 50 basis points improvement on a normalization of overhead recovery through the second half. And then on the OpEx line, you can see that our operating expenses as a percentage of revenue was around about 5% in the first half, whereas over recent years, you've seen around about 3% being achieved. And so I think that a return to nearer 3% in the second half is a decent estimate at this point as a guide. And so when you put those pieces together, you can, I guess, work out where you think the operating margin for the second half will be. In terms of cash outlook, I think -- obviously on the prognosis of quite a positive period of delivery on trading, as Dave has already pointed to, in the second half, I think our cash outlook will therefore be quite strong. And particularly when you sort of think about the activity in the land market, as Dave has already said, we've been quite cautious and will continue to be because that's really the -- a key part of managing the housebuilding operations through the cycle. So I think it's a positive outlook in terms of cash. I don't particularly want to estimate a number, but I think, if you turn the handle on your forecasts, then I think that it's likely that we would be in an improved cash position from where we are today in terms of direction. To what extent, well, there are a lot of moving parts to that, but I would, I think -- sat here today, I think we would expect to be in an improved cash position exiting this year, into next, on the back of the positive outlook we've got certainly for the second half.

Thanks a lot, Mike. In terms of sales rate, I think, Arnaud, it's a point well made. I do think, if you look at all the stats, there's obviously a bit of activity in the marketplace. And we've picked that up very early during the lockdown period because we could see from our sales staff because we had market intelligence. And a recent thing actually happening at Persimmon, which I'll put down to our actions rather than just the marketplace there -- because our sales rates are now ahead of this time last year. And importantly, our reservation rates seem to be ahead of our peers. And I put down -- that down to primarily our decisions to invest in WIP during the lockdown and before lockdown, which has meant we have the ability to provide stock and our range of sites across the country to customers, which means we are best positioned to capture the demand that's out there.

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

Just a couple from me. First of all, wondered if you could comment where you are on the kind of customer care journey. I think obviously now, they’re trending 5-star rate. And are you kind of there in terms of what you were set out to achieve? And then secondly, others in the industry have talked about struggling to get much close to 90% build rate and productivity, et cetera, and you're kind of signaling that you're actually back to where you were pre COVID, with a negligible impact on margins, if I understand it correctly, looking forward. So I just wondered if you could provide a bit more color how you can explain how you've got up to kind 100% much faster and with what you've done very well, obviously. And then secondly, any guidance on the ASP for H2 completions? You've obviously got good visibility on those completions. Is it going to be kind of in line with the first half, GBP 225,000?

Well, I'll take one and two, and then I'll pass three on to Mike. Obviously, our customer care improvement plan, as you know, wasn't just about the HBF Star Rating. We have a comprehensive package and scheme, which we have a lot of moving parts to it. It's still not fully embedded in the business. And I don't think we'll ever be finished because we always want to improve constantly to provide a better service to our customers. However, what we do know, that the things we have done, the process and systems, have proven very robust. And this is also clearly [ led by one ], which is the HBF Star Rating. We're really pleased. As we sit here today, we're currently at 89.6% for the year. And really pleasing for us is, since January, we've been trending as a 5-star builder. And in events over the last couple of months it has also improved even further. So in terms of the customer care improvement plan, it looks like it's working, and the great thing for the company is we believe there's further benefit to come. And I will specifically draw your attention to the retention scheme. We're still at the moment above 40% of our customers are using it. The feedback is very, very good. And we were delighted that the consumer code recognized it as a best practice within the industry. We believe it's made a material difference to our approach not just to the customers but within the business as well. So that's another classic example of things taking place. FibreNest is another one. We're getting good results. So the customer care improvement plan, I think it's in totality more than just a star rating. In terms of the output, I couldn't be happier with the way the business has responded. You have to think why that is, and I think it's a good point. And I think it sits in 3 reasons: the first thing, what we did before lockdown; secondly, what we did during lockdown; and third, what we did after lockdown. And as you know, before lockdown, we took a conscious business decision to invest in WIP because we suspect that there will be additional demand in the market as Help to Buy was coming to an end, which placed us in a very strong position in terms of WIP [ as we entered it ]. And the second important point is you have to remember we've positioned the business that the shape of our sites and the form of our developments are normal traditional developments. We haven't got high-density city developments and high-intensity, high-volume output sites the same as some of our peers. So it's much easier to expect social distancing. And by the very nature of the sites, people generally are isolated, anyway, so it's much easier for us to comply with the social distancing rules than anybody else. [ What that big benefit of us was taking the decision not necessarily at the start ]. We not only didn't need to prepare the office for coming back to site, but having a sales presence gave us good visibility and market intelligence of what was out in the marketplace. We knew there was customers who want to reserve our houses. We knew our work site requirements were very high. We knew our requirements are off -- are through the roof, which gave us confidence not only to invest in terms of [ further and ] also gave us confidence that what they get on site [ as long as we possibly could ], it capture it. And as we've got a new management structure, it was very easy to make that happen. And finally, because we had people working, we're able to prepare for getting back to work because we knew what we wanted to achieve. And I give credit to the whole team. And I think you've picked up from Richard's presentation yesterday that the processes have been very robust, so much so that even with the relaxation, the recent government guidance, the 1 meter plus, we've continued and respect the 2 meter rule. And we're still being able to achieve the output. So we believe, even if there was a further lockdown, we are well prepared for what may happen in the next 4 to 5 months in terms of that aspect. Do you want to pick up on ASP, Mike?

Yes. I think obviously a feature of the first half is a little bit less-affordable housing delivered in the mix. So if you will, that has flattered ASP, the overall blended average selling price, for the group in the first half. We'd expect a normalization of that moving into the second half to perhaps a more normal mix which will again serve to dilute the overall group ASP in the second half. So overall I think flattish pricing outlook, albeit behind the scenes maybe a nudge forward, certainly on the PD side, given what we're seeing in the market currently. But overall, in terms of group blended ASP, maybe flattish as compared with where the first half landed. Is that okay, Aynsley?

Yes, all very clear and impressive.

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

Well, first set of questions, I suppose, is more about just exploring that recent sales strength. Could you maybe help us with the Help to Buy component of that? Maybe has it changed in the last couple of months versus, say, where you were across for the first half? And I guess any numbers within that would be useful. Again, Mike, you just hinted that you have got opportunities in [ bench ] forward price. Is it -- could -- push you a bit further maybe on what that might -- say, about, I mean, 50 basis points, or is it maybe 1% to 2%? Or is there a number maybe you could put around what you may be able to do around price? And then linking that also, what you can continue to sell at. I think 0.97 is the rate you mentioned for the last few weeks; and historically Persimmon has always talked about 0.7, 0.75 as being its optimum. I appreciate you're very well invested from a work perspective and all the rest of it, but is there a number in mind that you could keep going at for a certain period of time relative to that high, nearly 1x number? So that was all around, I guess, recent sales. And then just away from that: Could you help us on where the site numbers are currently at versus, I think, the 335 you mentioned in July; and the extent to which you think you need to be at least active, to some extent, in the land market going forward to keep that number that you think or to keep it held up?

Well, yes, that's quite a comprehensive list there, Will. We've got them all written down...

[indiscernible] sites...

Sites number, yes. You can help with that. Yes?

Yes. I mean I think site numbers have remained pretty resilient, Will. I think we're -- we enjoy quite a broad and strong site network. We're slightly down on the same point last year maybe 1% to 2%. And we've got about 340, 335, 340, at the moment active outlets. And visibility moving forward, we've got about 55 sites that we're earmarking to open through the second half, which depends on -- as you know, it depends on the rate of sale that we achieve in terms of longevity of those sites, in terms of existing sites and the replacement profile. So it's hard to predict where we'll exit this year, but I think we remain confident that we've got good visibility within the site network. And so we don't see that materially changing. We might trend through this half, at a similar level to last year or so. I don't think there's going to be any significant changes to that profile. So that's the sort of near-term outlook on site numbers. David, do you want to talk about pricing and...

Yes. I think, in terms of -- I think Mike has given you a guide on prices. I don't want to go into any more detail than that. What I would...

It's hard to assess really...

What I would say is what we can see every week from our sales -- and we go after every single plot sale every single week, and every price gets reviewed. And we reflect the demand on that site, some forward, some backwards if we're not selling enough on a particular site. At the moment, the current trend is very positive. We are really pleased with the sales prices we are achieving. And we are picking them forwards, but it's not that simplistic way you put your finger in the air and depend upon one site. Have a much more sophisticated business than that. We would never just simply put a price increase in across the board. Each individual [ researching into ] plot is looked at in its own merits, but the trend at the moment is encouraging. Your question in terms of sales trends: I think most things in [ life ], people look for a simple answer to this. It's never that simple. It's normally a number of moving parts. Help to Buy, [ the sense ] hasn't really changed. If you want to push me for 1 or 2 key reasons what I think it is, I think the first is down to our decision to have the WIP on the ground, and we can see that in our weekly sales rate. The houses we're selling the most of is the most advanced. And I think our competition are probably struggling to provide the stock the same ways that we are. So we've got a bit of a commercial advantage. And I think there's probably no doubt we've captured a little bit of market share there. So I don't think it's down to any one particular thing. I think it's down to a lot of things and the harder you work and looking to get in terms of these type of things. So we have prepared for it. [ So it might not come the answer to that one ]. I don't think we've got any more about -- than that. Question three was how long can we continue with the sales rate. Well, I think the key element here is the WIP because you have the land. You have the outlet coverage to provide it. And what we won't do is make the same mistakes in the past of chasing volume at the cost of customers, but the great thing is, at the moment, we do have the WIP on the ground. So we don't have to make that decision. We can get the volume. We believe [ we conserve our ] benefits of our customer care improvement plan and maintain our customer care. What is very encouraging is because some of our peers are probably not investing the same amount as what we are. We are able to get labor at the moment at really attractive rates. So as long as we can gain access to the trade, we will continue to meet that demand. I think what will be the -- what will change our sales rates will be more about Persimmon's actions. This will be more to do with the market sentiment of possibly some of our peers getting more stock on the ground. And the final one, we've tested and we’ve identified the land market and have been consistent from the very start with this. As we've outlined in our presentation this morning, we have 5.5 to 6 years land supply, depending upon what -- how we measure output. We have visibility on 133,000 plots. We don't need to buy land. When you need to buy land is when you do a bad deal. And what we see at the moment, of course, we're picking up 1 or 2 deals which we think are attractive but nothing of the scales to match the replacement that we're actually absorbing, and we won't do that because we don't need to. So as we say at the moment, be vigilant. We'll continue to looking. And when that risk and reward switches, then obviously we'll go back into the land market. And we have the balance sheet to do it at the right time, and we'll make that call at the appropriate time.

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

I've got 2 questions, if I may. So the first one is just on volumes. David, I think you mentioned, maybe I misunderstood, in your first sort of introductory remarks that you think you could complete up to 10,500 units. Or was it a builds comment? It just sounded like a very high number. I just want to understand what that referred to. And I guess, related to that, on your sort of minimum flat volume guidance for last year, I'm looking here at 8,300 units, kind of how you see the risk and reward around that. So in other words, what's the limit basically given the strength of the sales rate? Essentially, I guess it's a supply build question that limits the potential there. And then the second one is perhaps a longer-term one. So we've seen the white paper from government a few weeks back. I'd like to have your perspective, if you have one, on the sort of potential planning law changes; and the impacts for Persimmon, whether that is perhaps part of the reason why buying land or whether you think it's too uncertain right now to assess. Because it looks on paper relatively radical, but I guess it's still early days, so I wanted to have your perspective on what you think about those proposals.

The second one is the easier to answer. I'm not the type of guy who makes snap judgment. And it hasn't come on very long. We'll review the documentation. We've got until the end of October to respond to that. I'll speak to the teams. I'll take external advice, and I'll form views on that at that time. To make some form of snap judgment now will be a mistake, Gregor, so I wouldn't really want to give any views until I'm certain what I think. So that's probably too early to give you any advice. In terms of volume, I think you're right. If you look at our sales rates, they're very strong, as you worked out. The comment I made was on build rather than on volume. What the point I was making was our WIP position is 14% above this time last year. And potentially, based upon our current build programs and then based upon our current output, we have the potential to build 10,500 plots for the end of the year. Well, obviously, we wouldn't achieve all them plots, but that is the build position we were in. In terms of quarter 3, we're pretty confident with visibility we've got. We're expecting to probably pick about 45% of our sales, [ hoping ], in September. And quarter 4, there's still a lot of challenges to come. We don't know exactly what's going to happen come the winter, but all things being equal at the moment, we've positioned this business in the best possible place to capture the demand. And that's not just about sales rates. That's about build. I'm not for 1 second going to say we're going to complete 10,500 units. I don't think we will. And you would never sell everything that you have available, but what we have got is stock and the infrastructure that can build that number. Because we don't want to carry forward as well, but as we sit here today, we could not be in a better position to meet the demand that's out there in the marketplace.

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

A couple of questions from me. Firstly, on the dividend, obviously 40p is declared. It looks like you're leaving the door very much open to the full 110p. Should we interpret that as you're waiting for the autumn selling season to start to play out before you'll update us on that number? And the second question is on build costs. I think we're seeing some pressure on lumber prices over in the U.S. I wonder whether you're seeing anything similar here or anything else that you want to flag on the supply chain.

I'll pick up on two and one, and I'll let Mike have his comment on one as well. In terms of build costs, what we are seeing at the moment is very encouraging, but we're really pleased with the tenders that's currently coming in. We've had -- the fact we got back to work so early and the fact we kept our subcontractors busy and kept them in employment and the fact we paid them on time, they really appreciate that. And we know we've got the sales ahead of us. Some of them want to work for us at the moment as -- those people coming out of the woodwork at the moment really came and work for us because they know we pay on time and pay -- they know we've got the work. So I'm really encouraged what I've seen in terms of build costs. We're not seeing any sort of pressures in terms of material costs. We're not seeing any coming down, but we're not seeing them going up, although we have done 1 or 2 good deals where we've improved the quality for the same price. But the labor costs are very encouraging, what we're seeing there. Obviously that maybe change as time develops on, but at the moment, we've got no real pressures in terms of build costs. If anything, it's looking favorable rather than negative. In terms of the dividend, I think your observations is quite right. We take very seriously managing our house business through the cycle, and we would never do anything that affected the long-term future of the business. That's why we -- what we wanted to do was make a modest payment what we thought we could afford based on what we could see in quarter 3's performance. However, we wanted to keep our options open to see how quarter 4 develops. As we outlined, we're obviously in a great position potentially for the end of the year, our sales position and our build position, but we don't quite yet know what could happen in the next 2 or 3 months. And you would never jeopardize the long-term future of the business by doing something which you're going to regret. So I think the judgment is really, really well. I think it's fair comment. If we get the result we are hoping to get, then our cash position would be very, very strong and that will give us options. And the Board will make a review of that come November. I'm not sure if you want to add to that, Mike.

Yes. I mean I think just a final observation, Jon, on the divi is that obviously at the time of the prelims in February just gone we did outline what we thought the bottom-slice in-perpetuity element of the dividend would be. And obviously we're currently talking about the final dividend that was postponed from July. We're paying 40p on account of that. So we're sort of paying down that GBP 1.10 final dividend for the year 2019. We're paying that down, if you will, partly by the 40p. And as Dave said, we'll continue to assess whether we can pay down the -- a further amount or the rest of that as we move through the rest of this year, but it's important to note that also at the prelims in February we did point out that the bottom slice of the capital return would move forward from GBP 1.10 to GBP 1.25, again to be paid in early July each year. So that's still intended to be at this point, the final dividend on account of the current year 2020 paid in July '21. And whether or not there's any surplus capital on top of that and then as Dave has already said, we'll continue to review that. And I guess, at the next prelims in February next year, we'll be able to update the market in our -- in terms of our views on any top slice of capital return that would normally get paid in early April. But unfortunately, last time around, we had to cancel given the prognosis, the immediate prognosis, for the market. So is that clear, Jon?

Yes, very clear.

The next question comes from the line of Ami Galla from Citigroup.

Just 2 questions from me. Firstly, on the reservations, when you see the sort of trends that you have reported in July, are there any regional areas that pop out in terms of strength, areas of strength? My second question is a follow-up on the cash element. Are there any -- were there any same investments that you have taken in H1 that we need to think about in terms of H2 for cash outflow?

Well, I'll do one's, and then I'll pass two on to Mike. In terms of reservations, this isn't just until July. This is until in August as well. We've seen this sort of several-, 6-, 7-week period we're talking about here, yes, not just the 4 weeks of July. Just to be clear. And on regional patterns, not really. The only exception is Scotland, where a bit -- with the lockdown, but apart from that, it's across the board. Do you want to pick on the question two, Mike?

Yes. I mean, in terms of cash profile, I think, actually you do raise an important point, Ami. In the first half of this year, for the corporate U.K., not just Persimmon, obviously the legislation has changed on corporation tax payments. So the first half of this year has seen an acceleration of cash-out with respect to corporation tax payments, which amounts to about GBP 90 million for ourselves. That's an additional cash outflow in the first half of this year compared with last year. Moving on to your question which is the second half of this year, there's not really any sort of one-off-y type cash outflows. I think, as we've always said, as Dave has already touched on, that we will continue to adhere to the disciplines of running the business according to our cyclical playbook, if you will, which means that, as Dave has already indicated, our land replacement strategy will continue to be pretty cautious. And that obviously moves the overall cash generation position, or can do, but you do have to recognize we'll continue to pay down our land creditor tail. I think there's about GBP 130 million of additional land creditor payments to go out in the second half of this year. So those obligations will be met. And indeed that's a positive for the business because it opens up more headroom in terms of additional capacity to invest at the right time in the cycle, as we've already explained. So I -- over and above that, I don't think -- I mean, from a work in progress point of view, I think we'd want to continue to invest quite strongly in work in progress. So I think we're probably nearing full investment in WIP at the moment. We may see a little bit more go into work in progress, but it's not going to turn the dial massively from this point. Dave, I don't know if you want to add...

No, that's exactly right, Mike. And I'd just like to pick up on the tax point, if I may, next, and what's really important to us not just to support our staff but to support, right, the society. And we made a conscious business decision very early that we pay our tax on time. We believe we could afford it, and we didn't look to defer it like so. So where we are at the moment, we've cleared our pathway to society as well, which is really important to us.

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

Yes, just a couple of sort of detailed questions really. Just on Slide 41, I just wanted to explore this. There's a couple of negative price movements there. I just wanted to make sure that was mix rather than any market effects and also to understand why the social is down more than the privates. I thought that's a little bit surprising. And then the sort of second question really is just on whether you've seen anything changing in terms of down valuations or cancellations in the second half.

No, not at all, in terms of question two, which I'll pick up. Down valuations for the mortgage market has been pretty solid and pretty steady. Our cancellations this week, I think, were about 16%, so in line with our historic rates. So nothing materially changed. People are able to get their mortgage out there at the moment. It may take a little bit longer for them to get them all. We can get through the contract process, but where we are at the moment, there's no real issues in terms of mortgage availability at all, or cancellations.

Yes. I mean, when you look at the pricing movements, it is subject to mix changes, Charlie. So I can reassure you that -- I mean you're probably looking at Charles Church and thinking, "Have they been discounting heavily to get rid of the side bettors?" That is not the case. We can categorically say that it is down to mix. We're not having to incentivize increasingly in this environment. And pricing, if anything, is not [ chewing ] forward, as we've indicated. So I think that, actually when you look at the performance of the Charles Church brand, we're quite pleased with that in terms of how it's performed. And it is down to mix. And again, in the South, Persimmon South, well, again there's been obviously sites rolling off and sites -- new sites coming on, with perhaps more affordable product coming through a little bit more strongly, which we're quite pleased with at this point in the cycle because it serves to further strengthen our offering at lower price points in the market. So I don't think there's anything in there that we're particularly concerned about. If anything, there's a slight strengthening of our market positioning because of the new sites coming on. Is that okay, Charlie?

Yes.

The next question comes from the line of Glynis Johnson from Jefferies.

I did promise Michael only 1 question, but I think I have 2 clarifications...

It's [ not 5 ]. It's not [indiscernible].

Not too far, anyway. You've talked about hoping for improved cash position at the end of the year versus first half. Can we just confirm that's including the 40p dividend? Or is that including really the sort of 110p potential? And second of all, just it's in terms of that dividend. Should we take the 40p interim as part of that -- say, that 110p, or should we view that 40p as an excess and the 110p is still the final dividend? And then lastly, actually what was my question is actually about next year. Are you already selling for next year? Do you have any visibility on that? If you just do conclusions at least at the same second half this year versus last year, will you still go into next year with your build equivalent units being up? I'm not quite sure when you started really building that WIP on site year-on-year.

Do you want to deal with questions one and two, Mike? I'll take up question three.

Yes. I mean, on the cash position, I think, rather than being too scientific about does it include the 40p, doesn't it include, so I would say that the direction of travel, Glynis, is a positive direction of travel. I think we're positive about the trading outlook, first point. We continue to be cautious, as Dave has indicated, on land replacement because we've got fundamentally a very strong, high-quality land holding position, as you know. And you can see that in the margins and the forward visibility that Dave has already touched on. So I think the direction of travel on the cash book is positive. And I wouldn't particularly want to get into a pre-divi, post-divi type sort of conversation because there are a lot of moving parts, as you can imagine, except as I said earlier on in answer to another question, that I think we'd expect to be in improved position come the end of the year. And obviously we've not decided to pay down the GBP 1.10 any further. So moving on to the second aspect of the cash flow on the divi: The GBP 1.10 is the final dividend on account of 2019. We have to postpone that a short while ago. It was due to be paid in early July, 6th of July. We've now stepped forward and said, look, on the back of the strength of the performance of the business through the first half, we're pleased to be able to pay down 40p of that GBP 1.10, in a modest step forward. And we'll continue to review the prospects for paying the further element of that GBP 1.10, so obviously the 70p left. Are we able to pay some or all of that at some point in the future before we get to December? And as Dave has already said, I think probably the time we will communicate our view to the market on that would perhaps be on November trading update. And so just to be clear: 40p is part of the GBP 1.10, and the remainder of that GBP 1.10 will continue to be reviewed and as we move through the second half of the year. I'll just hand back to Dave to talk about the prognosis for opening -- or the opening position for the next year.

Yes. And I think it's a point we have made, Glynis. And obviously, where we are at the moment with our build position, as you could expect, where still you have to sell for this year, we're not really having to sell into next year. And one thing I know with the housebuilding business, you have to capture the demand when it's there. And you have to meet that demands when it's there because, if you can't capture that demand when it's there, somebody else will take them. And they'll buy a secondhand house. So where we are at the moment with potentially 10,500 plots we could complete for the end of the year, we're not really having to sell into half 1 '21 because our build position is so good. As we move across into the year, then obviously that will change because it will be much more difficult because we'll choose not to take something like 10,500 houses through and when they choose to hold them in a different stage, which will affect the ability to complete them for the end of the year. I think the important thing, if I will say, is as long as we can see the demand in the marketplace, we'll continue to meet that demand with our WIP. And I think we're probably in a sweet spot in terms of WIP now. As Mike has outlined, we don't commit any net increase in it, but we need [ and obtain ] what we've got on the demand we see at the moment. And as long as we can create the demand we see at -- meet the demand we see at the moment on WIP, then we're very confident that we'll capture the forward sales for half 1 '21 at the right time. But the biggest moving factor in what half 1 '21 looks like will depend upon the number of completions we'll take in half 2. So I'll let you model that yourself, Glynis, to how many you think you can take between 10,500 and 8,300, but whatever your view is, I'll not give you an idea what the forward sales picture is going to be into [ half 1 20 ], plus what you think we can complete afterwards. Does that makes sense?

Yes, that's good.

[Operator Instructions] And the next question comes from the line of John Fraser-Andrews from HSBC.

Two from me [indiscernible]. The first question is just to continue this theme of what volume you can do in the second half. I mean clearly you're not going to do the sort of 27% increase of the 10,500, but at the same extent, what's to stop you doing your WIP increase, which is a 14% rise? So that's the first question. And the second is on the management, the CEO handover to Dean Finch that's coming into sights, obviously, in the next trading period. So perhaps you could just outline what the details of that are, please.

Well, I'll pick up on both of them. The second one is easy. We don't know when Dean is coming yet, so we don't really know in terms of what the handover procedure is going to be. What I can say is, and I hope you can see it in the results, that I'm incredibly committed to the company. I mean the whole team has worked incredibly hard to produce these results. So it certainly hasn't affected the business up to now. And I'm sure, when Dean comes over, he's inheriting a very strong business with a very strong team. In terms of volume, John, I'm not going to give you any more color than you've actually got. A lot will depend upon how the year develops, what challenges come in quarter 4. We're pretty confident in quarter 3 because we've got good visibility on that and the build has advanced, but on quarter 4, a lot are still many moving parts to give you an exact figure. And I think I'll let you model it yourself somewhere between the numbers you've actually described, John, but I think at least what I can tell you is we'll be trying to produce the best performance we possibly can, as always, for Persimmon because customers need us to finish their houses by certain periods we've given them.

And I think the WIP position into next year, John. Obviously, as Dave has already indicated, the sales cutoff for this year, let's say, end of September, for example, we don't -- we would normally continue to sell into this year beyond that, but I'm just using it by way of example. In terms of build, we continue to build right through to Christmas. So that naturally puts strength into the forward build position for next year. So I mean that's just a couple of overview comments in terms of the WIP position which we're talking about for next year really, but it does depend on the legal completions we take this year, which Dave has already pointed out.

Well, I think, normally when you've got such a good forward sales, it's much easier a target which plots you actually want to do. We normally sell-off until -- up until the end of October and beginning of November. We're very confident we'll take a reservation and complete a house buy. And we target certain houses to take through what we call option plots, so for customers who want to complete before Christmas. And we will continue to do that and we'll continue to build safely on site. And we'll -- most importantly, we'll continue to ensure the quality of houses we produce are of the appropriate standards because we don't want to undermine the improvement or -- the benefit of the customer care improvement plan. Assume uncertainty on Q4, John. I think it would be inappropriate to give you a figure. I think you have to take your own view and where that figure is. And as I said to Glynis, we'll be trying our best to produce the best performance we can because we've given [ deals ] to customers.

I think that's the important point that Dave points out in that, Q3, we expect an unusually strong Q3 really because obviously we haven't delivered what we'd expected to deliver in Q2 because of the disruption to sites. So there's pains to point out that there's a hangover, if you will, of delivery into Q3. So surprise, surprise. We're going to have to differentiate on delivery this year compared to normal, and that puts the cash book in an even stronger position from the end of September. So that is it's a bit obvious, but it shouldn't get lost really.

Yes, well, that makes sense. And I mean I'm also mindful that there are some government incentives where the windows finish in March, so I imagine that a lot of customers are wanting to complete, well, as soon as they can before that window...

But John, that...

I think that's a point well made, John. And it's obviously that's part of the reason the company is in such a strong position, because we anticipated that and we invested in the WIP to capture some of that demand. I think COVID probably accentuated it a little bit and brought it forward, but this was going to happen, anyway, John. I think it's an observation really, really well made.

Yes, yes, it is.

So would it be fair to assume that the increase in the forward order book, that the lion's share of that, the very high lion's share of that, you anticipate delivering on before the year-end?

I think what you can see -- I've given you the dates when we could, and we've given you [ long stock and up stock ]. And I think the potential is there to do more and to produce our best-ever results. If we produce our best-ever results, which I'm hopeful we will, for a half, combined with the numbers we've done in half 1, I think that probably -- it doesn't just make us the most profitable business, but it will probably make us the biggest as well. So I'll let you come to your own conclusion what we will be doing. We'll be doing the right thing. We'll be meeting the demand in the marketplace. We have the work we needed. We've given dates till Christmas, for the end of the year, and we'll try and get the best result we can. Because the one thing I'm certain of, if we don't capture the demand when it's there, it will be lost to someone else. You can't try and manage the delivery. You have to meet the demand when it's there, and that means we have a big half 2, another big half 2, but we will meet the demand that's there.

The next question comes from the line of Andrew Murphy from Panmure.

I've got a couple of questions left because clearly lots have been answered already but also interested to explore FibreNest a little bit. You said you've got 8,000 people signed up. I was wondering if you could give us a flavor for what the income per user is on that and how quickly that's growing and to what extent households are taking up on any individual site. And secondly, I was just interested in your carbon reduction plan, didn't see too much detail in the statement but just wondering if you could flesh out a little bit of detail about how you're going about that particular initiative.

Yes, to start just on the first question. And I'll ask Mike to the deal with FibreNest. And Richard Stenhouse, [ who opened the ] presentation, is here with us. He will give detail on our carbon reduction strategy.

Yes. On FibreNest, Andy, it's still embryonic. We've got a business there that is gradually maturing. The average revenue per customer is currently running around GBP 28, GBP 29 per month. So that's gradually improving. Interesting. We offer 6 different packages on FibreNest. And that's different speeds at different price points. We've got the cheapest entry point in the market, but what we've seen, as you'd probably second guess, you're probably going to -- you know what I'm going to say already, but during lockdown, there are a lot of people working from home. And there's a lot of schooling being done remotely, et cetera. The demand for high-quality fiber connections to the home has seen -- has translated into a migration towards our top packages, so 500 meg, again which is one of the -- I think it is the most competitive offering in the market in terms of [ real ] speeds and reliability and service. And you -- we see that coming through customer feedback. Increasingly, customers are appreciating the reliability and the speed that's being offered. And so penetration, if you will, takeup, is gradually improving. We're around about 90% now. The other element that is gradually growing and is a bit delayed is into the affordable market space. As you can appreciate, we deliver a certain proportion of our sales to housing associations for their clients. So when it comes to FibreNest delivery to the clients of housing associations, it's once removed, if you will, because they're customers of the housing association rather than our direct customers, but that's gradually building as well. It's an opportunity for us to continue to work on and to -- it's all wired in and it's available. It's just whether or not those customers are aware of the facility and wish to take it up, which we're -- as I say, we're working on. So I think that the prognosis for FibreNest is positive. And just to remind you: We -- it's our network. We're investing in that network, and it's a valuable asset that we're growing within the Persimmon stable, if you will, for the future. And I'm sure there will be a number of future opportunities to come from that investment as we move forward. So I'll hand over to Richard now to talk about our approach to carbon reduction. Richard?

Thank you very much, Mike. We've invested -- I think Dave mentioned in the presentation yesterday, we've now invested in actual resource, [ physical ] resource, to look at the wider sustainability agenda. And obviously, we appreciate the importance of this. And in terms of carbon reduction, during the second half, we'll be undertaking some work with external advisers to establish a science-based target for carbon reduction. Also, with regards to the Future Homes Standard and what have you, we'll be -- we've got a working group and we've got people expertise in the group to assess the impacts on Persimmon as and when those final announcements are made. So it would be -- it's a work in progress at the moment. We've got a clear, focused strategy; and looking at our carbon reduction and wider sustainability issues and the ESG-type agenda. And we'll be pushing that forward with momentum from the second half -- through the second half, sorry.

Yes. Is that okay, Andy?

Yes. That's very helpful.

We have no further questions, so I'll hand back over to the hosts of the call for any concluding remarks.

Thanks, everyone. This will be my last presentation; and I'm really pleased over what we have achieved over the last 2 years, especially when you consider the challenges we have faced. This is a credit to our people and our culture, and I hope you will see it today. It shows what a special company Persimmon is. I would like to thank all our staff for their support and commitment. I have absolute belief in them, and this gives me confidence we will continue to deliver the company's new homes and deliver for all stakeholders as we face into the potentially uncertain economic future. Thanks, everybody.

Thank you.

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