Persimmon Plc (PSN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Persimmon's Virtual Shareholder Engagement today. I'm joined here today by Dean Finch, Group Chief Executive; Mike Killoran, our Group Finance Director; and all of our nonexecutive directors have joined today by video link. I'm very sorry that the COVID-19 pandemic has again made holding the AGM in person impossible. We all very much hope the progress we seem to be making on the gradual easing of lockdown continues. Notwithstanding, I'd like to extend a very warm welcome to all of you. We've all become more familiar with these technologies and methods of communication. But we do look forward next year to the AGM being held in person. In these peculiar times, we wanted to host this event to ensure that you, our shareholders, had the chance to ask questions before casting your votes. Because this year, you are asked to cast your votes by proxy in advance of the AGM. This event is, therefore, in addition to the AGM. Which will still be held next Wednesday, but it will be more of a formal requirement and will not be interactive. However, shareholders can watch it live via the webcast. This event is being held, as I said, to provide shareholders with the opportunities to ask your Board any questions you may have on our performance plans and priorities ahead of casting your votes. You still have the opportunity to submit questions for today's events, we ask for these to be submitted in advance and are grateful for those that have been received. If there are other questions you'd like to ask, then you'll need to do so in writing using the question function on your screens. You do this by selecting the messaging icon from within the navigation bar and type your question at the bottom of the screen. To submit the question, click on the arrow icon to the right of the text box. I hope that's clear. Turning back to today's event. I will shortly hand over to our Chief Executive, Dean Finch, who will run through the 2020 performance highlights and say more about his priorities for the business. After that, I will say a few words, the Board will answer questions, but I now hand over to Dean for his Chief Executives' update.

Thank you, Roger, and good morning, everybody. It's great to be here, my first AGM. As Roger says, hopefully, we will be able to do this in first of next year. Nonetheless, I hope you find today's event useful. I prepared a short presentation, which I will now take you through. Firstly, I have been hugely impressed by the strength in the company. Since I joined, I have visited around half our sites and met some great teams who are really committed and colleagues, the length and breadth of the country. And it's an enormous privilege to lead the company and to work with so many great and committed colleagues. This is a company that I firmly believe plays an incredibly important role in the U.K. Persimmon has many great strengths. We buy land really well and develop it really well, whilst balancing the needs, the design and place. We have an efficient build process and one that is crucially comparable in quality terms with our peers. We are positioned very well in our markets with strong focus on first-time buyers and first-time movers. And this is all allied to a strong balance sheet and a track record of delivering strong returns to shareholders. These strengths were evident in the robust performance in 2020, despite the challenges of the pandemic. Business handled the unique challenges very nimbly, and I want to pay tribute to all my colleagues for the performance -- for this performance in very trying times. So turning to the 2020 results specifically, we completed 13,575 homes in the year at an average gross margin of 31%. Profit before tax was GBP 784 million. I believe that in the context of the pandemic, these are good results and compare very favorably with the rest of the industry. At year-end, we had over GBP 1.2 billion of cash and nearly 85,000 plots owned or under control in our land bank. This is a strong and resilient business. We entered 2021 with a strong order book with forward sales ahead of the previous year at GBP 2.27 billion. Indeed, given the successful trading result of the group in 2020 and its strong financial position, the payment of the regular dividend for the year-end December 31, 2020 of GBP 1. 25 per share was accelerated and paid as an interim dividend on the 26th of March this year rather than in early July as was previously planned. As you can see, Persimmon remains a strong business with a bright future. But I am determined that Persimmon should become an even better and bigger business, which is why I set out by priorities. There is a need for careful evolution, not revolution to ensure Persimmon maintains its market-leading positions. At its best, Persimmon is a powerful combination of very disciplined -- or a very disciplined approach to investment through the economic cycle, alongside strong cost control and a real entrepreneurial spirit that captures market opportunities. My task is to build on this and enhance our capabilities further, setting new ambitions for build quality, custom service and growth, whilst remaining nimble and responding quickly to changing market conditions. Persimmon's reputation for value is a great asset. Our average selling price is around 17% below the industry average. My -- but my mission is to secure a reputation for outstanding service as well as outstanding value. At our full year results in March, we assess our 5 key priorities to help us achieve that mission. There is a video on our corporate website, where I set them out in some detail. But I also wanted to run through them today with you. They are, first, to consistently improve our build quality and build right, first time, every time; second, to strengthen trust in our brand by putting customers at the heart of our business. Third, to grow our ability to build more quality homes. Fourth, to drive profit and cash; and fifth, is to make sure Persimmon plays a responsible role in society. If my mission is to secure a reputation for outstanding service and outstanding value, my mantra is to build right, first time, every time. And that's because I believe it starts with quality. To be a truly customer-focused business, we must provide the best quality home at the best possible price, again, delivered with outstanding service. The Persimmon Way, our group-wide set of building standards and procedures has helped improve our recent performance. On the homebuilders federation, 8-week customer satisfaction service. So we are currently trending above 5 star. I want us to achieve 5 star year in, year out. To build right, first time, every time, we are investing further in the Persimmon Way. We are adopting more exacting build tolerances than the industry standards. We will employ what we believe is the industry's largest team of independent quality controllers with power to pause building on any plant until a key stage has been completed and shared. We're investing further in training, including a pioneering NVQ assessment center, and we are investing in digital technology to support site managers in their inspections. These strength and standards and procedures are crucial, but to reinforce trust, we also need to listen to our customers and put them at the heart of everything we do. I've already mentioned that we are trending above 5 star on the HBF survey, and I know the whole business shares the commitment to achieve this consistently year in, year out. We are investing in customer service teams and to engage customers ever more closely during their purchase. A new customer portal, providing real-time digital access to every stage of their purchase has been successfully piloted and will be rolled out across the country shortly. Our industry-leading action on now Ban Clay is another example of us putting customers first. It is a clear commitment to ensure that everyone has trust in a home built by Persimmon. And I'm pleased that our commitment has been warmly welcomed within government. With the quality and trust fundamentals in place, I believe we can unlock more potential from Persimmon. Persimmon has maintained industry-leading margins achieved through strong financial performance and secured a robust balance sheet by investing strongly through the economic cycle and retaining competitive edge over its competitors. These are great assets, which must remain the hallmark of Persimmon's approach. And as we develop our capability to build quality homes at scale, we will sell more of them such as the strengthened demand. Selling more will, of course, drive growth, and I believe we can do this without compromising our margins. We have a strong land bank drawn. We will continue to adopt a disciplined approach to land investment, to capture the opportunities out there. I'm also excited by the potential of FibreNest. It is a great asset, and USP given growing demand for high-speed broadband at home. Having inherited the business with a strong financial platform, a key priority is to protect it use it effectively and ultimately to enhance it. Persimmon has had a very successful capital return program over recent years. I'm determined, we continue to deliver strong shareholder return for years to come. Indeed, that's what my priorities are aimed at securing. Our land bank provides a strong platform. By enhancing our ability to consistently deliver quality homes, we will strengthen our position in the market, but we are pursuing new efficiency opportunities as well. For example, with build right, first time, every time we should secure efficiencies as we eliminate remediation costs, and there are efficiency opportunities in our procurement programs. We are also pursuing greater efficiencies through our off-site manufacturing capability. I'm convinced that the future looks strong for Persimmon. We are a company using our strengths to perform an important role providing new homes, skilled jobs and the opportunity of homeownership. It is only right, therefore, that we are a responsible company, paying a full and active role in the society. This is why my fifth priority is sustainable communities. To play a strong and active role as a responsible builder is both the right thing to do and makes sound business sense. The Persimmon Foundation continues to make significant charitable contributions, nearly GBP 2 million last year. We recently donated GBP 250,000 to the Mail Force laptop campaign to make sure disadvantaged children don't miss out during homeschooling. All of this is important, but I want us to go further and ensure the way we act as a business makes a real difference. This is why we are now seeking living wage foundation and preservation. This is why we have signed the social mobility pledge. This is why we have set emission reduction targets in line with the Paris agreement and complemented this with net 0 commitments on new homes in use and our own operations. We are also working with Salford University and what we believe is the industry's first zero carbon home built from sand materials at our Germany back site in York. So we are making important commitments and important progress. These are themes I will return to you every year when I speak to you. So in conclusion, I'm very pleased to inherit a business with many great strengths. The opportunity to build on this platform and make Persimmon even greater is very exciting. We will do this with our refreshed priorities, renewed ambition and redoubled enthusiasm. With our focus on quality and customer I want us to become trusted to deliver both outstanding value and outstanding service while playing an important role in society. I believe it is the approach that will deliver sustained shareholder value for years to come. And it is the future I look forward to with great enthusiasm. Thank you. And I'll now hand back to the Chairman.

Thank you, Dean. As you can see, the business is in excellent shape. It really is a testament to the strong teams we have up and down the country that we are able to perform so strongly during such a challenging year. The Board feels the way that the business safely stopped and then restarted operations has been a real credit to all concerned. I know it's taken many, many hours of planning and extra training to make this happen smoothly. And I commend the effort that has gone in. As you can see from this presentation, the Board firmly believes Dean has hit the ground running and is accelerating many of the reforms we've discussed previously. Persimmon is on the road to redemption, but there is still much work to do. Persimmon is a business with many real strengths that have been hard won and distinguish us from our competitors. They provide a platform for our future success. The Board believes that good execution will help drive the business forward and strengthen our position with all our stakeholders. Indeed, it was notable that Robert Jenrick, the housing Secretary recently commended Persimmon for its action on cladding. It shows how actually responsibly on an issue like cladding were being only a small part of the market, we have led the industry can make a real difference. This extends across the business. As you've heard, there is further welcome progress on our customer satisfaction scores, and we are all determined to sustain the current 5 star performance. With our commitment on the living wage and emission reductions, we continue to take important steps in the right direction. Ultimately, as Dean said, it comes down to being known for delivering outstanding service and outstanding value while still playing a responsible role in society. That is the route to sustain shareholder value and is what your Board will remain focused on. I believe it is to the credit of the company that we've embarked on this cultural transformation, a renewed emphasis on build quality and customer care without unduly compromising margins and profitability. I would like to thank the whole Board for their hard work, they're wise counsel and support over the last year. On behalf of the Board, I'd also like to thank Dean, Mike and the senior management team for their leadership over this period. As I said earlier, colleagues across the business have our thanks and gratitude for the way they've dealt with the challenges posed by the pandemic. Now we're going to turn to shareholder questions.

The first one concerns zero carbon homes. And it is rather than prevaricated while the government did us and the climate gets more unpredictable, will pursue, set an example and lead the way by committing to build all new homes, zero carbon by 2025?

I think it's important to point out that we are already making a great deal of progress in this area. We're already building today to a higher standard in terms of a reduction in emissions, whether that's through air tightness, insulation, PV and other means. Simply complying with Part L of the building rigs, we'll see that by 2023, we will have reduced emissions by 31%. And by 2025, compliance with future home standards will ensure that emissions are reduced by between 75% and 80%. And of course, we've set out our ambitions in terms of aligning ourselves with the Paris agreement to reduce emissions and to achieve net zero carbon in our homes by 2030 and in our operations by 2040. So I think there's much that's actually happening much that will come. But I do think it's important that we recognize that this is a very challenging area for the business and indeed for the whole industry. Achieving this level of reduction will require a new generation of products to be brought on stream. At the moment, for instance, you take heat pumps. There's only a handful produced in the country at the moment. And by 2025, there is going to be a need for an excess of over 600,000. So much has to be done, and we have to balance commercial reality and actually the ability to deliver within the supply chain. So our ambition is there, but I think we must recognize the challenges that change is bringing. Living wage. Last year, you stated that you were working with the living wage foundation to explore whether you would become an accredited living wage in here, have you made progress with this.

Thank you, Dean. We have made a commitment to achieve living wage foundation accreditation as soon as possible. We have paid employees in line with the living wage foundation payment criteria since January of 2019, and we are now looking to go further by seeking that accreditation. We've been liaising with the living wage foundation. On how to achieve the swiftly. Due to the large number of subcontractors, we work with over 5,000, this is going to take a little time, but we do expect to achieve accreditation in the course of the next few months. And I also have a question from Mr. Machin. Will the auditors be instructed now to undertake an investigation into the initial purchase and development agreement by Persimmon of the land at Row Allen, and its more recently sale? Mr. Machin, we are sorry to hear the concerns you've raised regarding the third-party land vendor, the land acquisition and subsequent sale were completed on commercial terms with independent solicitors acting on behalf of ourselves and the vendor. Therefore, we don't intend to appoint auditors to review the transactions, I am aware that our local management team are in contact with you regarding your concerns, and our regional chair, Doug Law is overseeing this. I don't believe there are any further questions. So in that case, we will encourage shareholders to vote on the AGM resolutions. You can do this by submitting more formal proxy by post or online. Details are on the company's Investor Relations website. Thank you, ladies and gentlemen. That concludes today's event.