Persimmon Plc (PSN) Earnings Call Transcript & Summary

Hello, and welcome to the Persimmon 2021 Full Year Results Presentation. My name is Courtney, and I'll be your coordinator for today's event. Please note that this call is being recorded. [Operator Instructions] And I will now hand you over to your host, Dean Finch, Chief Executive, to begin today's conference. Thank you.

Thank you. Good morning, all. I'll start by saying a few words as usual, and then we can take any questions. I hope you've had the opportunity to listen to the presentation we released online earlier this morning, and obviously, I'll refer you to it. In '21, we saw growth in our volumes, our profit margins and the cash generation. So it was a very good year. We also took significant steps to establish ourselves as a leading responsible developer. And I believe we have led the industry both in terms of trading and in resolving the CMA inquiry. We also took significant steps to improve the quality of what we build and the service we provide to customers. And I'm delighted that we expect, in a few weeks' time, to be recognized as a Firestore builder. Providing customers with outstanding value, along with outstanding service and quality is a key strategic objective. We're investing in our business as our land holdings demonstrate, and we're able to do this without sacrificing margin. We're also investing in our brick, tile and timber main factories and this will enable us to build more, feel better, build faster and build greener. And we're also investing in our people. The new group operational management structure, led by internal promotions, will ensure better and more consistent delivery across the business and further consolidate Persimmon's exceptional strengths. In terms of sales, the year has started strongly, and as best as we can currently see in the full year, we expect to grow by between 4% and 7%, with margins remaining resilient at around that delivered for the full year of '21, albeit with a slightly greater HA mix. Build cost inflation is obviously significant, but we continue to be able to pass this on with pricing holding firm. We start the year with a lower number of outlets that we would like, that plan to open more over the course of the year with us ending the year in a much stronger position. But this will, of course, mean a slightly different phasing in profits between H1 and H2. We have made good progress opening out since the start of the year. Along with everyone else, we watch in horror the events and folding in Ukraine, but I remain confident that Persimmon, as a responsible developer, has a strong future ahead of it as it continues to deliver industry-leading margins, growth, capital returns and the best tile product. I'm joined this morning by Mike, that's Mike Smith. Julia and Martyn. I will now be happy to take any questions you might have.

[Operator Instructions] And our first question comes in from the line of Aynsley Lammin calling from Investec.

2 questions from me actually. It sounds as though you're very confident around kind of maintaining margins. Just wondered if you could give us your view of cost inflation is likely to run at this year and maybe some -- a bit more color on the labor and the build materials element of that. And then secondly, the 2% increase at the start to the year in private reservations, is that kind of reflective of the wider strength of the wider market? Are there any funnels in there? What have you been doing for priced then? And has that impacted kind of where sales rates have gone up to in the early part of the year? So just, again, a bit more color around the kind of start to the year.

Build cost inflation, well, as everybody else is saying, it? It is chunky, we're seeing 6%, 7%. In terms of the mix of that, we're still seeing some chunky increases in some materials. Partly that, I think, is driven by well-publicized transportation costs and energy costs. And obviously, the issue in Ukraine will impact all of that. And it's affecting some things like bricks, stairs and other things. Although I think along with others, we are seeing some easing in materials compared to what we saw in the summer and spring of last year. So that, of course, is welcome. But the mix has probably switched and we're seeing some chunky labor cost increases, ground workers, for instance, we might be seeing double digit there. So hence, why we expect that this year we will continue to see some pretty, pretty big numbers in terms of build cost inflation, which I've just spoken to. But as you've looked it, I mean, we obviously are continuing to monitor it very closely and we are moving our selling price forward, sufficient to keep margins where they are. And that 2% increase in sales rate in the start of the year obviously reflects us having moved pricing on at the start of the year. anticipating the build cost inflation. So we are very pleased that we continue to see the market strong and holding firm, which is great news. And that should enable the margin to remain pretty resilient during the course of the year as far as we can tell at the moment.

The next question comes in from the line of Rajesh Patki calling from JPMorgan.

I've got 2 questions, please. Firstly, just adding on to the previous question. So if you can remind us of what proportion of your brick, tile and timber requirements are sourced in-house, and the quantum of investment you are undertaking to increase brick and tile capacities and how you see the payback on this. And the second question is related to trading remediation. One of your competitors noted this morning that they expect 35 million to 50 million additional costs in the event the HBF's proposed recommendations are implemented. Could you provide your thoughts on the proposed recommendations and what kind of additional costs do you expect?

Rajesh. Well, I think you're definitely right to report to the self-help we have with our own in-house facilities. And clearly, that helped significantly during 2021. I mean, Martyn, do you want to comment on what the plans are for taking it forward and how we're seeing brick and tile increase this year.

Yes. At the moment, Rajesh, we have spare capacity with the brick factory, we can supply up to about 2/3 of our requirements and we do have spare capacity there. With the timber frame, that also has some spare capacity, and we use it and are increasing to use it across the country at the moment.

And I think it's about 40%.

It's around about 40% timber frame.

And obviously, with the new investment coming on, with the new factory we're building, we're quite excited about that, and that will increase over the next few years, the proportion we can supply in-house. So it is -- I mean, as I alluded to, clay we're seeing some quite chunky increases in those. So being able to help ourselves with coal and concrete factory is great. On cladding, well, I'm sure we'll talk a lot about that this morning. Look, 12 months ago, we already went ahead where HBF have announced a few weeks ago where the membership is. I think, look, cutting to the chase on cladding, frankly, I'd point you to the legislation. The amendments that have been made and are passing to the Lords at the moment are crystal clear. The government expects you to look back 30 years, it expects you to remediate your own that you've built, not just owned, but like you built, and it expects you not to take money from the building safety fund. Well, we were quite clear a year ago that we hit all of those boxes. Hence, why at this point in time, we feel that the provision that we've made is still the right number. Clearly, in those moving parts in the provision, there's quite a number of moving parts. Records going back 30 years are not always great. And so you do -- people have come to us with buildings and we didn't have records on and we picked up. So we're now looking at a total portfolio of GBP 33 billion that requiring remediation. And they are of all heights. And we fixed 4 of those, and we're working on all of the remaining 29. So the moving parts within the provision are the number of buildings, how much it's going to cost, what the legislation ultimately says and what we expect to recover from the supply chain. And of course, we do expect to make some recoveries on the supply chain. But as we stand at the moment, the GBP 75 million for fixed in your own looks to be a good number. For those who read the legislation, then it's fairly clear that Mr. [indiscernible] indicated that he's giving himself the opportunity to extend the building safety levy to buildings of all heights if where we get to in the discussions with government still leaves a pool of buildings that require funding. So it wouldn't surprise me at all if we do see a further levy come forward during the course of the year. But I expect that will be a proportionate approach taken by our government and probably we'll see applied recovery expected over a sort of 10-year time frame. So probably, I'm flagging there that we expect to see more cost in terms of levy, but our provisions are good at the moment, but that is a moving picture. I mean clearly, we very much expect to follow any law introduced by our government and are clear that we expect -- from the actions that we're taking that we won't have a problem becoming a member of the building industry scheme and expect to contribute as law-abiding citizens to any levy that ultimately government decided to impose on the industry. And we expect all other developers to do the same.

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

Three possibly if I could, please. First is actually looking back on the year finished, I think, in the appendices when you look at the gross margin by brand, there's quite a big difference in the second half year-on-year in Persimmon Core versus Charles Church, it looks like by the 2% increase in the gross margin of Persimmon Core, a 5% decrease in Charles Church. There's quite a quite a variation there. Perhaps you could just help us with that. The second was maybe just around the site numbers or the outlet numbers, I think 2019 development. Could you just help us with how many of those are active for sale at the moment? And where you think that number might be by the end of the year compared to, I think, the 320 you're looking to get to next year? And the last one was released around the equivalent unit at 4,100. Again, is there a target in mind for where you'd like that at the end of the year? And any implications that might carry for the WIP position, please?

Okay. Thanks, Will. Well, I'll ask Mike if he doesn't mind to pick up 1 and 2, and Julia will pick up 3.

Yes, Will. I think in terms of the '21 performance in terms in the second half, it's the usual theme of -- I know you're sick of hearing and talking about mix -- but we always have regional differences between North and South within our Persimmon Core and house types we have. So that's a simple answer. Unfortunately, it is what it is on that. In relation to the 290 sites under development. In terms of outlet numbers, we're just -- we're about the 2 60, 2 70 2070 number on that. We've obviously got a good clear sight of where we think they're going to grow through the year. I think we pointed to try to open 75 in the first half of this year. Obviously, that's subject to planning delays, which we are still incurring in places. And hopefully, that will drive us much more towards the 3 20 number in development at the end of the year. Again, it's all fingers crossed and subject to planning, successful planning being achieved and then getting the stage in the ground.

In terms of the EU, we came into the year with about 4,100 and obviously, that is a function of the outlet number. Dean already mentioned that it's lower than we'd have liked coming into the year. As our outlet number increases, are usual increased build rates are good. They've been good this year. We're pleased with those. So we're hoping what to invest, obviously, in our land and work in progress through the year, we're hoping, aiming for early 5,000 exiting the year, and that will give us a really good platform into '23.

The next question comes in from the line of Emily Biddulph calling from Credit Suisse.

I've got 3 questions, please. Just the first one on volume. I think you said on the January call that you thought you could do sort of 95% to 100% of 2019's volumes this year. Today's 7% growth year-on-year doesn't quite get you there. I mean do we look at this and think that anything sort of changed year-to-date? Or is the guidance you're giving today just sort of tightening up sort of where you think volumes could be and we sort of shouldn't read too much into it? Secondly, just on sort of house price inflation versus cost in 2021. Do you think there was sort of any sort of positive contribution sort of through the P&L in '21 at all? Like was it -- did it have any sort of positive contribution to margin at all? And if we sort of look at where build cost is running today and sort of warehouse price inflation is in the order book, is there any scope for that to sort of change into 2022? I appreciate those are sort of quite big assumptions at this stage. But as we stand today, is that very positive and could it be better year-on-year? And then finally, I just wanted -- any guidance you could give us on cash land spend in 2022 at all?

Emily, well, maybe I'll have a go at 1 and partly answer 2, and ask Mike to comment on 2 and 3. I think if I remember the call in January, clearly, there was some -- maybe a slight difference of opinion between ourselves and the finance directors. I think that we did say, I think, at the time, I caution to a slightly different range in volume and that is where we stand at the moment. In terms of exactly where we are in the range will depend on securing planning commission and getting consents through. We're doing well at the start of the year, but we've still got a long way to go. We, as a business, as will not surprise you, are very much focused on margin and quality and quality of profit and quality of build now as well. So we're not going to chase volume just for the sake of it. I'd far rather let it be used best houses but at a better price and a better margin and a better return than chase some 2019 numbers. The world has significantly moved on from that, is my view. It's being, I think, responsible in terms of service we give customer, quality we give customer and quality of profit and returns we give shareholders. I'll attempt to answer 2, and I'll ask Mike to, no doubt come, in with a more intelligent answer than me. But it seems to me that we did see margin progress in last year, particularly in the second half. So clearly, we did see a positive spread there. I think there were some particular regional issues around that and some particular mix issues and some sites are coming to an end and other sites are opening, which made the second half of last year particularly positive. But the new year -- and we don't expect fully to repeat. But the new year has started well and margins that have come to on a weekly basis continue to be very strong, and we're delighted with them. And then obviously, we further have added to the strength of that because we bought a lot of land and we bought a lot of land very well. Indeed, as Mike referred to in his presentation, that we're at a record low cost to revenue percentage. But we don't have any better crystal ball than you've got. The world has gone on. And we -- to give us a sort of relatively cautious at this stage of the outlook for the year. And of course, I've mentioned the levy as well. So anyway, those are my attempts at those answers, and I'll ask Mike to...

Just to add to that, obviously, we've pointed to the embedded margin in our own land bank around 33%. And there is a spread of there, and I do note it in the presentation that 1/3 of those owned plots will be hopefully delivering around a 4% margin on a concurrent cost and revenue expectations. I think the other point to note in relation to 2022 and the thought is we've noted that there's going to be a slightly higher HA mix in the volume delivery and that will add an element of dilution to the margin rate. But then to compensate that, we've got our vertical integration and off-site manufacturing capabilities, which will then support us on that. Moving on to the third point and cash and land spend. Just go to the 2021, we've exited with GBP 1.25 billion of cash, which is unbelievably strong. In terms of land spend, we spent GBP 460 million on land and part that was serviced land creditors of around GBP 180 million. I think we pointed out previously in previous years, we'd like to be spending and investing land around the GBP 500 million to GBP 550 million per annum. But -- and we'll be aiming to do something similar to that this year. But we've got to be conscious that we're not just going through any deal. It's got to be the right deal and it's got to be at the right margins. We got the strict criteria for acquisitions. So that is the hope. Point out where we think we talked about the GBP 700 million cash position at the end of the reporting period being the ideal scenario. I think if we're slightly down, I think we're around GBP 1 billion mark in terms of cash this time next year, I think we'll be in a great position.

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

A couple of questions from me as well. My first question was on the CapEx on the Space4 factory that you're planning to invest, I'm not sure if you had given the guidance previously. But just some color in terms of the CapEx outlay there. The second one was on the ASP in '22. Are there any mix shift that we need to be aware of apart from the AT mix that you have pointed out earlier? And the third one, on the private order book, if you could give us some sort of color in terms of where that stands at the end of February.

We didn't quite -- I'm sorry, Ami, we didn't -- something went wrong with the line. We didn't quite hear the question. I think the first question was about Space4 factory, but I'm not sure we quite heard it. Could you repeat it, please?

Yes, if you could give us some guidance on the CapEx investment in the Space4 factory.

Okay. Thank you. Yes. Okay. Well, Mike, do you want to take a part of...

Yes. On the CapEx for the outlay, we're looking that it's going to be GBP 40 million over the next couple of years. It's going to take a bit of time to build the factory and then kick it out. Just moving on to the NDA piece in '22. We've delivered 237,100 in '21. As Dean noted, we've tried to -- we've been pushing prices in the early part of the year. We've not had too much of a backlash against that. So I would expect the blended ASP to be a couple of percentage points higher than where we've exited. And then in terms of the order book, we've seen a good sales, as I've said, in the first 8 weeks. I think we've said we're around 6,200 PD forward sold, and the average revenue of those is around GBP 259 million, GBP 350 million. So that's slightly ahead of where we entered the year. And I think that's just a reflection of what we've seen.

That's very helpful. And if I can have one last follow-up. Just on the planning side, is there any color that you can give in terms of are the delays quite generally broader in the industry? Or are there any regional differences or bottlenecks that you are facing in terms of planning delays?

Look, the problems that we experienced and we highlighted last year on some of the neutrality issues around water, nitrates and phosphates are still there. And I think until government -- it's stuck between 2 government departments at the moment, and it is now affecting a big swath of the country across the south in particular. And we do have some other developers caught up in that problem. Until those 2 government funds really get a grip with this problem, then I'm not optimistic that there's going to be much resolution there. We've highlighted in the past the under-resourcing in some planning departments, which I think is also everybody is seeing. But having said all of that, I do point to what I said if you managed to catch it here on the Glenigan's Research, and we were the most active of all builders last year in terms of planning, application and processing 21,000 plots for this in 101 sites put us at the top of the tree. So know exactly when these consents will come through, it will be taking part of the volume outcome for the year. But I'm pretty optimistic and confident of the app we're creating a great platform for growth. And if it doesn't come through this year or come to next.

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

Thank you very much. everybody. My first question -- I have 2, if I may. The first one is on, let's say, all your back and forth with the government. So firstly, as an industry, you have to pay the 4% incremental tax rate. Now we're talking about building safety fund, plus you've provisioned, obviously, the 75 for the building you're responsible for. So overall, a heavy contribution, let's say, but fair enough. I guess on your side, all of that considered, is there anything you can do to at least partly recover these extra costs, either in terms of pricing or in terms of cost efficiency? That's my first question. . And my second question is on Help to Buy, as you mentioned a couple of times coming to an end in about 12 months. Firstly, are you adjusting your product to take into account the end of Help to Buy? And secondly, considering that at the moment you're probably selling more houses than you can produce, I guess the question is, would -- is it possible that, first, Help to Buy demand is slowing down that wouldn't necessarily impact your level of completion? Does that make sense?

Thank you, Arnaud. Some good questions in there. Look, you're right. I've lived and breathed since January, in particular, the movements to government on building safety. And so obviously, intimately, you're familiar with it. But you're right to say that it's complex. There is a broad range of moving parts. A key aspect, I think, on the cost aspect of just the spend on cladding and remediation is a proportionate approach taken to what will grant a homeowner an EWS land certificate so that it can become mortgageable and salable. And I think that's incredibly important. And I think there is a lot more work still to be done around that. And I do think that the department of Mr. Go are fully cognizant of that. not least because I'm sure it fundamentally expect some of this cost will come out his budget, too. So whether you are building towards B1, A3, A2, A1 within the definitions is incredibly important. I think what is also really important is that you own these work yourselves. And that's why I'm sure like other builders, we feel it's very important that private sector is going to be better placed to more efficiently deliver the recovery and remediation work than public sector. And I think that indeed is where Mr. Go, in particular, wants to end up in all of this. So I think you're right to point to the detail of this because the devil is indeed in the detail, and we will determine at the end of day how much you're going to ultimately spend to make a building stage. So I think there's a lot more work to be done there yet. On Help to Buy, yes, we continually amend our product. We have been looking at it. Look, I think as hopefully becoming a 5-star builder in a few weeks' time is a very important element of that strategy. But in terms of also the detail and the attach we are building, yes, we've extended the range to prepare ourselves for the end of Help to Buy. Obviously, we've got deposit unlock. I'm sure you've heard many people say before, is it Help to Buy or will it Help to Buy bigger? I mean certainly, we saw when Help to Buy 1 came to an end of last year, sales didn't seem to miss a beat as we move to the Help to Buy 2 scheme. And I think you're also right that we continue -- demand significantly continues to exceed supply. And so the impact of coming to the end of Help to Buy may be more muted than possibly people fear. With I think mortgage availability is still very good, increasing LTVs. Our product still being fairly affordable in terms of overall proportion of wage costs, something around mortgage costs, that's something around 30% of overall wage costs and we're seeing obviously wage inflation, then I think the product still is remaining historically affordable. And I think the positioning we've got as a group, as a quality builder looking after its customers and providing a product that is 20% below average market selling price, is a great place to be. So we are very optimistic still of the future even if Help to Buy goes.

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

Maybe just coming back -- sorry, on the cladding point, and thanks for your comments. I guess maybe 2 follow-ups. The first one, if you could just share how you understand an extension of the building safety levy, how that would be structured. And I guess specifically, if it would apply to existing planning consent, or whether you think it will only apply to future planning consents. And then secondly, I mean, I guess I note that I think the government kind of said to the HBF proposal, kind of not good enough. Can you maybe share with us what they want more? So what's the additional thing that, I guess, is not good enough or whether they want to reach an agreement? And then -- so that's sort of the first question, sorry, it's 2-part question. Then just back on the outlet, just sort of technical clarification. So to last year, I think you averaged at 2 85, correct me if I'm wrong. Are you saying -- with reference to that, you're at 2 90 million now? Or are you saying your 2 60, 2 70? So just maybe clarify sort of what's actually sort of up for sale and what isn't maybe just a definitional point. And the other thing which I noticed looking at your land bank analysis in the slide, so I think your own loss cost to average selling price ratio has hit to the new low at 11.4%. It's down again year-over-year, starting to some extremely low, I guess. So maybe if you can give some color around that and whether you think that's sort of as good as it gets from a sort of lock cost recovery perspective.

Thanks, Gregor. Well, if I answer 1 and I'll ask Mike maybe to come in on 2, please. In terms of the extension of the levy, everything is still, frankly, up for grabs and remains on the table to be discussed. Could it be a levy or could it be a tax? My own personal view is that the problem with the tax for Mr. Go is that the tax will go to that nice now Mr. Sooner. I can probably won't give up to Mr. Go as much as Mr. Go would like it to. So I expect that in the end, his preference is to a levy. But those details are yet still to be worked through, at least with the industry. But my guess is that later this year, we will see a levy. And the details of whether it will apply to existing consents or future gains is a piece we still have to work through. But I'm guessing at the moment that it's going to be prospective rather than retrospective. So -- but it is still -- I'm afraid we can't give you clarity because those details are not there. If you, again, read the legislation, it's so broad. It's simply giving the department of powers to apply a levy and basically allowing it to decide what and how it will apply that. And therefore, clearly, Mr. Go has given himself the maximum flexibility in order to solve this problem. And again, I suppose in answer to your second part to your first question, what's not good enough? Well, rate legislation. It goes back to what I was saying a few moments ago. It's clear, it's 30 years and it's all buildings you developed, whether you owned it or not. That is what Mr. Go wants.

Okay.

So Mike on the...

Apologies, I wasn't clear enough on the last point. Yes, we've got -- what we're saying is we've got around 290 active developments at the moment, which are under construction. We then got slightly lower the 260, 270 number, which is our current sales outlets position. So we're obviously going to hope to open that differential as we move through the spring period. Yes, we're looking to open 75 new sales outlets in the first half due to -- based on planning. And 320 is an aim for sales outlets at the end of the year. So I would probably say, on average for the full year of '22, we'll be running around the 295, 300, average outlets, I would expect. But I'd like to -- I would caveat that, obviously, on the planning delays. We hope these are going to come through when we want them to. But we're -- again our crystal balls out at points on that. On the land bank, I think just to note that 11.4% is absolutely brilliant. And we're really proud on what we've done, and our experienced land and planning teams are really driven really hard on that. But to note is that we do have obviously 60,000 plots of this 88,000 are owned. So the land cost in there is embedded. It's there. It's not going to change. So if we keep seeing increases in revenue, the percentage will improve. Whether it improves or keep improving at the rates that we've seen, that's pet be dependent on house prices and where we go. But we will be trying our utmost to keep that at the level it is or improve it as we go through '22 and into '23.

Maybe one follow-up on the cladding. Just to be crystal clear, they're not demanding sort of voluntary contributions into some kind of funds anymore, it's essentially moving towards either a tax or some levy. Is that your understanding?

Essentially, yes. I think if you accept the principle that a levy will be applied, then I think that removes the demand for a voluntary.

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

I just have 2, actually. The first is just a clarification. You talked about Glenigan and Home, you've been the most active. Can I just that in terms of sites that have been bought or that's including sites that have come through the planning system that you've pushed through? Second one -- actually, I'm going to do 3, if I may. Second one is just in terms of new intake at land last year. Can you tell us in what was from the strategic land bank? And any kind of guidance you might be able to give for 2022. I appreciate it's lumpy and timing is difficult, but that would be very helpful. And then just lastly, when I put together the data on your -- I'm going to call it your blob chart, you may not be doing it quite justice. But on your blob chart of margins, it suggests that your margin has actually picked up a little bit, which fits in terms of what you're telling us in terms of plot cost to selling price. But I'm wondering just if you can talk us through the moving parts on that. How much of that margin improvement on the land bank -- I appreciate it's a small maybe, how much of that has come through higher revenues, higher selling price? And how much has come through the contribution of the new land coming in?

Well, that's a hard question. Well, Mike is looking away. But I'm still going to ask you because I don't know. Our [indiscernible], isn't it?

It is. And again, it can be a mix of all sites to be fair. [indiscernible] recently or the ones that have had under our ownership for a longer period of time. But I think we've really highlighted to demonstrate we've been very active, and I think very successful. So we're delighted with that. In terms of the strategic [indiscernible].

Yes, yes. It's around 10,200 of the 20,787 plots that we brought into our consented land bank have come through from our strategic land interests.

Yes, I think there's a mixture. We've obviously seen increased revenues which have mitigated the cost that we faced through '21. So there is an impact on the owned plots that were there in the blob graph this time last year and at June, so there is an impact from that. And we've seen margin go from 27.6% operating from 20% to 28%. So there is going to be an element in there. And then in terms of what we've been buying in that's gone into the blob graph, we've been seeing that the margins have been very similar to what we've been acquiring historically. So it's in the mixture, I couldn't honestly put my finger directly on the component parts and what's what from the 33% or getting to 33.3%, I think it is. It is, yes, mix.

Perfect. And if I can quickly do just one quick follow-up. In terms of the strategic land that came in last year, what proportion was already owned freehold versus what was an on option?

Not much of it will have been owned. I think most of it would be the conversion of options.

Yes. Yes. That's right. .

The next question comes in from the line of John Fraser-Andrews calling from HSBC.

The first is on [indiscernible].

John, sorry to interrupt you. We're really having trouble hearing, you're breaking up quite a lot. Sorry about that.

Is that better?

Yes. Thank you.

So 2 for me, please. The first is on cost efficiencies with the good news on the 5 star anticipated later this month, is that now the end of investments in improvement of control of build and customer care? And might that held -- given there's been some investment there, might that held some operational efficiencies still to come through if you're not bearing incremental costs and making incremental efficiencies? So that's -- that's the first one. And then secondly, on fire safety, very helpful theme, you've set that out how you interpret that playing out. Question for me is, where is the conversation in terms of other industries in the supply chain contributing to the remediation? And is the government itself accepting any capability for some of this cladding that's on high-rise buildings given that it regulated those buildings? So 2 for me, please.

Okay, John, thank you. On cost efficiencies, well, in terms of our investment, no, that we're still going to be continuing to improve the product because standards are increasing all the time. I think Persimmon has done as noted over the last couple of years to really improve, but the industry itself continues to improve. So we have caught it up, but that bar continues to go up, and we're very conscious of that. But what we do see is that it does save us costs, cost of waste is cost of remediation. And some of those costs, a day works, it can be a chunky number. You can be talking about a couple of percent of cost waste, if you feel like in there, which as you do get it right first time or increasingly get it right first time. That's a bucket of costs to go out that we are going out to improve our bottom line. And I think you saw that last year with the margin. The margin did go up despite the fact we've got a lot of investment in improved products. And that wasn't all just the fact that if we're selling price inflation because we needed that to cover semi-open build costs. It was that we were building better and that is saving costs, and I expect that will continue over time. So hopefully, that answers that. As we build a bad product, Persimmon becomes -- the value of the product we're building become better and better, it helps us sell more, and it helps itself for more money. So as it becomes more valuable. On fire safety, you may or may not be familiar. I don't know, again, because I'm intimately familiar with it now, I assume everybody else is and clearly, there's a lot here, and it's probably wrong of me to assume that. But there is this principle of waterfall that government has established and the legislation has established and developers and manufacturers are at the top of that waterfall. It then tiers down the waterfall to freeholders. And then ultimately, leaseholds at the bottom of the tier if there is nobody left to pick up that building. And clearly, that is why it's focused on -- you've got to fix your own pallets, and he has given himself pretty diconium powers to make sure that those who don't fix their own, won't play a part in this industry. And I have no doubt he means that, no doubt. And if some developers stop building, whilst that might have been unthinkable in the past, I don't think he thinks that now. So we -- our manufacturers are top of the tree in terms of -- top of the waterfall in terms of who we expect to pay this. In terms of government, well, you're right to point to the fact, government is -- there is a capability in government there. They know it. It's like any negotiation, isn't it? I mean, the more they get up, the less he has to pay out of his own budget, and that's back to life. And given he's gone hit himself in the 8 hours, we are lower buying citizens and ultimately, we'll have to obey the law. But I think we are seeing a sensible approach personally, I think, from government in terms of being proportionate and trying to fix this problem.

Just a quick follow-up. Is there any evolution in the GBP 4 billion number that was included in the letters?

So I think that's a very good question, right. I think that the basis for the GBP 4 billion, and my view of its pretty sketchy. HBF have done a great piece of work, done their own survey work, drawn from their own membership. And that is producing an order of magnitude lower cost and smaller number of buildings involved. So our view of this is very simple, really, which is if whole industry fixes its own. And we get some real numbers about what is the size of the path, then you're ending up with a much more sensible figure for the for absolute -- for the balance that is going to be covered by the levy.

The final question comes in from the line of Charlie Campbell calling from Liberum.

Just 2 quick questions from me. Just in terms of the HA part of the business, are we still right in thinking that, that becomes 21% of the business as it was in '19, trends back towards that level? And then secondly, just on the sales per site per week, you've reported up 2% year-on-year. I suspect others might kind of report stronger results as we go through the results season. I just sort of wonder if there's anything there in mitigation, perhaps you've taken them maybe a more aggressive stance on price to slow that down a bit or perhaps it's just mix. Just to get a view on that.

I think on affordable, yes, over time, we expect it to be around the average you said. So yes, that's right. There's no changes from us there. In terms of -- so well, I think you're right to allude to the fact that we're not chasing volume and we don't, and we want to protect margin. But I'd also point out that we probably start from -- I see the numbers that the others are reporting, and they're below our numbers. So we start from a higher base anyway.

That was the final question in the queue. So I shall turn the call back across to yourself, Dean, for concluding remarks.

Brilliant. Okay. Well, thank you very much all. So I know it's a busy day, and I'm sure you need to get off the [ vistry ] now. So good luck with that. And obviously, Mike, Julia and I are around -- or Martyn Clark for any follow-up questions you might have.

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