Persimmon Plc (PSN) Earnings Call Transcript & Summary

Thank you all for joining us today. I'm going to open with a couple of slides before handing over to Jason to take you through the numbers in detail. Today, I'll outline the key steps we've taken to manage uncertainty during this current downturn, whilst at the same time, seeking to protect both our margins and continuing to build a platform for future growth. First, let me pull out some headline figures for our first half. In keeping with Persimmon's long-term strategy, we've not chased volume, but rather we prioritized gross margin over volume and held prices wherever we can. As you can see from our results, this is playing out as we anticipated in March, with gross margin performing relatively strongly, but with fixed costs impacting operating margins. As we grow volumes through the remainder of the year, I expect this strategy to pivot back to our advantage, given that our fixed cost base is relatively lower than our peers. Our completions reflect both our pricing strategy and the weaker forward order book at the start of the year. If you look at some specific points, private average selling prices were 8% higher. Incentives were around 3% of sales price. Through the period, our sales rates recovered from the lows seen after the mini budget, but we're still down on last year. That said, our total forward order book at the end of June is up over 30% since the start of the year and it has continued to grow in July. Private forward sales are up by much more, which I'll talk about more later. Our forward sales average selling price as we came into the second half of the year was up 0.6% and it's improved since. Our sales rate of 0.59 is more or less in line with the industry average, which, of course, includes a number of bulk deals. We've had lots of interest. We've taken a selective approach to investor deals. Frankly, I've seen many that are just really very opportunistic. We'll, of course, continue to review this throughout the year and judge any opportunities on their merits. As things currently stand, I'm confident that we should deliver at least 9,000 completions this year. And as we do this, we expect our net margins will improve. So those are the key quantitative figures. I'd like to talk now about some of the qualitative improvements we've made in the first half. Since I started, we've been protecting Persimmon's strengths, whilst also focusing on improving our capabilities. With rising mortgage rates and the removal of government support, I believe that the priorities are set out 3 years ago to improve both customer service and build quality, whilst also rebuilding the reputation of our brand are even more critical in today's market. We're no longer order takers and have to work hard for the trust of our customers. So I'm really pleased with our progress on reportable items, where we're now better than the industry benchmark, following a 50% improvement over last year. When I joined the company, we were the worst performer on this measure in our peer group and we're now regularly in the top quartile. Likewise, I'm really pleased that we've improved our 5-star HBF customer satisfaction rating with our current score now at 92.3%. We've also seen a marked improvement in our Trustpilot scores, as you can see here. Turning to land. We're continuing our highly selective approach to investment, targeting those exceptional deals that maintain our stringent hurdle rates. We've added some excellent land in a targeted way during the first half. We have a good pipeline of land, both owned and coming through the system and that we're looking to bring into production at the appropriate time. Securing planning consents despite the well-versed challenges in the planning system has been a real focus. We're being proactive and we're prioritizing land we already own. We're, of course, closely monitoring the cash investment required and the timings of new site openings against demand. But we're acting now to strengthen our platform for the future in a targeted way. Our investment in a second timber frame factory and top modular manufacturer will also help here as we maximize the benefits from our existing brick and tile factories and the progress I've spoken about on our quality, customer service and sales and marketing. When the market recovers, I want Persimmon to be able to grow quickly, while delivering an industry-leading margin. I'll say more on this later. And I'll now hand over to Jason. Let me just say, I mean, obviously, this is Jason's last appearance with us. We've enjoyed working with him. Sorry he's not been here long, but we wish him all the best for the future.

Well, thank you very much, Dean, and good morning, everybody. Let me start with a little context for the trading and the financial highlights for the first half. As Dean mentioned in his opening remarks, the challenging market backdrop impacted performance as we flagged in March. And of course, none of this will take any of you by surprise. You also know that sales for the first half of 2023 started in earnest around October last year, which coincided with the now infamous mini budget. So we had a much lower order book going into January, 56% lower and a lower sales rate. This together led to volumes 36% down at 4,249 new home completions. Pricing remained resilient in the period. And overall, our average selling price was up 4%, with demand particularly firm for larger properties. Dean will talk more about the sales trends in our more recent trading in a moment. We saw a 33% decrease in new housing revenue and a reduction in the operating margin to 14%. PBT came at GBP 151 million, 66% lower. And finally, on this slide, I'd just like to highlight the dividend. The Board has declared an interim dividend of 20p per share, which is in line with the capital allocation policy we set out in March, achieving a balance of investing in the business for future growth with sustainable returns to our shareholders. So on the next slide, we'll look at the movement in operating profit. Operating profit was GBP 152 million. Two principal elements drove the reduction, lower volumes and inflation. We estimate that the reduction in volumes impacted profit by GBP 183 million compared to the first half of 2022. And while we saw some increase in our selling price overall in the period, this was more than offset by build cost inflation of around 8% to 9%, which together with a greater proportion of affordable housing led to an GBP 89 million decline in operating profit. We also had an increase in net operating expenses of GBP 16 million. This reflects the annualization of prior year investment and inflation. As outlined at the full year results, the investment we made in OpEx was to improve the quality, sales and marketing, customer service and IT, which will strengthen the business' platform into the future. We're closely managing builds and operating costs, which, of course, strengths to Persimmon and Dean will talk more about those in a moment. So I'll now walk through the key drivers behind the movement in revenue in the first half. Volumes were down 36% overall, with private completions down 41% and Housing Association only by 12%. Sales rates recovered in the early part of the year from the sharp sell-down in Q4, albeit to lower levels. In the period, we sold 3,281 private homes at an average selling price of just over GBP 288,000, which is up 8% year-on-year. It's worth noting underlying private ASP has been approximately flat since Q4. We continue to differentiate ourselves through being the most affordable major house builder, the price of our homes around 20% below the national average. The absence of Help to Buy in England, along with the affordability constraints hit first-time buyers in particular. Overall, these customers represented 34% of private completions down from 42% in 2022. Performance in partnerships was resilient with revenue only 4% down to GBP 144 million and selling price up 9% year-on-year, reflecting the great result achieved by the team. So moving on to the next slide, I'll talk a little more about our investment in land. In total, we have around 68,500 owned plots, which gives us a good platform to grow. We're working hard to convert our land holdings into active outlets. Our total 84,751 plots that are owned and under control, 41% of which are owned with detailed consent and 39% are owned with outstanding planning conditions. In total, we added 3,245 new plots to our consented land holdings and 370 of these additions came from the conversion of strategic land holdings. This is a replacement rate of 76% compared to completions and shows our cautious approach to land acquisition. Looking at the portfolio overall, land cost as a proportion of anticipated revenue of owned plots is a very competitive 11.4%, assuming no change in selling prices. So on the next slide, I want to show a little bit more detail of the new land investment. In the first half, we acquired by -- I mean, legally brought onto the balance sheet, an additional 9 sites for a consideration of GBP 40 million cash plus around GBP 50 million in deferred payments. These 9 sites are broadly distributed across the country, giving us good diversification and represent a gross development value of around GBP 550 million. Of these new sites, 8 have detailed planning permission, meaning, we will be able to get on the sites promptly and convert them into selling outlets and therefore, quickly recycle our capital. And in fact, the ninth, which was secured on outline, was very successfully achieved planning and is already selling new properties. We haven't seen much movement in the price of consented land. And we've maintained our financial discipline in line with the margin on our existing land holdings. And I'll cover that a little bit more on the next slide. So on this slide, we've again analyzed the group's land portfolio to show the breakdown of the embedded margin as we did at the full year. The anticipated margin of the owned portfolio is 31% overall based on current revenue and build cost. This is a slight reduction from the full year position and reflects the impact of higher build cost inflation in the last 6 months. The chart highlights both the value and the low risk in our landholdings with only 6% of plots owned having an embedded margin of less than 20% at June 30. 63% of our own plots have an embedded margin in excess of 30%. We believe our land portfolio is well-positioned and provides us with a good platform for the future. Just a quick final slide on land to answer an often posed question, when did you buy the land that is supporting the business today? So this slide breaks down the completions in the first half based on when the land was purchased. The slide largely speaks for itself. But you can see only 6% was purchased prior to 2011, 50% was purchased between 2016 and 2020 and 33% was purchased more recently. So each year, we're adding land that is producing new outlets and we're not reliant on all strategic sites. But there is more to do to grow the business in the medium term. I'll now change tack and I'll cover cash flow for the first half. The group entered the year with a strong cash position of GBP 862 million. As we said in March, there are a number of elements that are driving cash utilization. I'll just call out the more significant ones. First, payment of land creditors, which was GBP 182 million, WIP investment of just over GBP 200 million, with EUs up by 800 to support the second half volumes and considerable infrastructure spend associated with opening new sites. And of course, the payment of the 2022 dividend of just under GBP 200 million. So in all, that led to cash of GBP 357 million at June 30. Our guidance for you on this is a year-end cash position of GBP 300 million to GBP 500 million, with the range driven primarily by land spend, which we expect to be in the range itself of GBP 400 million to GBP 500 million for the full year and the level of WIP investment. Moving on from cash, I'll now touch on the elements of the balance sheet. The group has a robust balance sheet with net assets of GBP 3.4 billion, which is GBP 10.51 per share. The group's land asset was flat and the WIP was up, the reasons I just covered on the cash flow slide. At 30th of June, we had GBP 356 million of land creditors, which is down GBP 117 million net from the start of the year. Around a further GBP 90 million is due to be settled over the second half of the year. Part exchange stock at 30th of June is GBP 25 million higher at GBP 86 million. We continue to sell part exchange properties swiftly and we have minimal exchange minimal aged stock. In terms of liquidity, which remains strong, it has been bolstered by a new bank facility, which I'd like to cover in a little detail on the next slide. So last month, the group signed a new revolving credit facility, GBP 700 million for a 5-year term, replacing the old facility of GBP 300 million. We were very pleased with the strong support shown by the 4 major clearing banks and also adding Svenska Handelsbanken to our syndicate. The new facility has attractive borrowing costs and embeds sustainability targets, consistent with our focus on achieving net zero homes in use by 2030. In summary, those targets are a reduction in our absolute Scope 1 and Scope 2 carbon emissions, in line with our science-based targets, building sustainable homes by reducing the average dwelling emission rate and skills and development, increasing our training programs for colleagues to ensure quality delivery and career progression. The new facility will not only provide resilience for the business, but will also provide the resources to grow our land and invest in the opening of new outlets. And to finish, I'll just take a moment to remind everyone of our approach to capital allocation. Our overriding objective is to retain sufficient capital in the business to ensure we can grow sales profitably in the medium term. We've told you that we need to grow the number of outlets. And of course, this will require capital. As the group invests, our long-standing financial discipline will continue in land appraisals and the decisions to open outlets by focusing on margin and cash payback to bring good returns well into the future and leverage will be kept low. And as regard to capital return, first, let me remind you, our policy is to pay a sustainable dividend from the company's earnings, balancing those payouts with capital retained. We set this at a new baseline of 60p per share in 2022. This figure was chosen to provide a good level of cover on average, recognizing the cyclicality in our industry. For '23, the Board intends to maintain the dividend per share with a view to growing it over time. Today, we've announced an interim dividend of 20p per share, which is entirely consistent with that policy. And for completeness, in due course, we would return any excess capital to shareholders through a share buyback or a special dividend. Thank you. Now I'd like to hand back to Dean.

Thank you, Jason. So let me begin with current trading and some key figures. As you know, the market continues to be challenging with high mortgage rates and low consumer confidence impacting short-term demand. You can see this in our numbers. At the end of June, we were some 46% down on this time last year. But compared to January, our private order book is up over 80%. Affordability is the key issue for customers. Underlying interest is still good with a number of weekly website users continuing to exceed the equivalent weeks last year. And our product proposition is strong. We build high-quality homes at attractive prices with our Persimmon Homes ASP around 25% below market average. And that's a key figure for me, not least when our brand reputation is also improving. Mortgage providers and customers are seeking solutions to the affordability constraints. In common with others, we're finding that an increasing number are choosing to take on longer-term mortgages to manage the impact of increasing rates. Some of our brokers are seeing a 14 percentage point increase in the number of first-time buyers taking on a mortgage term of over 36 years, with 49% taking them on in 2023 versus 35% last year. We're now in the typically slow summer selling period and our sales rate of 0.41 over the last 5 weeks reflects that. But pricing has, however, remained resilient with private average selling prices up 0.9% since the start of the year. Incentives are around 3% of sales revenue. Cancellations have remained at typical levels and down valuations are low. Despite this further seasonal slowdown in recent weeks, I'm confident that we remain on track to deliver at least 9,000 completions this year as we're currently over 90% forward sold for ourselves based on this number. Now I'd like to turn to margin and provide you with some detail on the movement in our margin for the first half. I'm sure we all remember, we shared this slide or a very similar slide with you at the full year results. And the expectations that we laid out to you then have been mostly borne out as we progressed through the year. The net impact of HPI and build cost inflation of 8% to 9%, impacting the profit and loss account in the first half, has reduced our gross margins by 4.2%. The fall in sales rate and therefore, volumes has impacted by a further 2.3%. The proportion of completions that we delivered to housing associations has gone up from 17% in the first half to 23% in 2023, resulting in a 90 basis point reduction in margin. And increased incentives and marketing costs had resulted in a 2.1% reduction. All in, our margins have fallen by 950 basis points in the period to 21.5%. That's in line with what we outlined at our year-end. As we also explained at the year-end, just as these pressures have reduced our margin, so we expect a margin can and will improve as the build cost pressures ease and when the market backdrop is more favorable and sales rates improve. In the meantime, we are mitigating this margin reduction in the areas that we can through taking a disciplined approach throughout all of our operations, as I'll show you on the next slide. So we're looking at everything and asking ourselves, can we do it differently? Learning from the best in our group, can we be better? Can we be more efficient? Can we drive value enhancement? We're going through on a plot-by-plot site-by-site basis to identify opportunities. There are 4 areas of Smart Savings where we've been particularly focused. First, value engineering and identifying cost savings that do not compromise quality. Our Technical Director is leading this review with Regional Chairman and MDs to see whether we can learn from the best examples across the group to spread build efficiencies. Second, are there some specifications that customers don't value if it brings the price of their home down and makes it more affordable, using GRP canopies over front doors, for example? Overall, we think there's the potential for up to GBP 1,800 savings are plotted. Third, subcontractor pricing; with an easing on inflationary pressures, are we capturing this in pricing? In some trades, we're seeing prices coming down and we're using more regular reviews to capture that. And fourthly, overhead, Persimmon is a lean organization. But we're constantly reviewing where we can target some savings. Recruitment freeze has seen head count reduced by 300 this year, for example. We're targeting GBP 25 million of annualized savings, which will benefit our 2024 operating budget. But in doing all this, we're always looking to strike the balance between the need to manage the current uncertainty while ensuring we're well-positioned to respond quickly as the market recovers. We've been strengthening key capabilities to balance exactly that and it's to our vertical integration I'll now turn. As part of our cost focus, we've looked to further expand the use of our own factories. They remained very competitive in pricing and provide us with the security of supply. If you take brick as an example, since I joined the company, we've increased the use of our own bricks to around 55% from around 30% in 2020. We estimate it's around GBP 2,000 a plot cheaper to use our own bricks. We're also looking to strengthen our platform for growth and our own facilities have a key role here, take pace for. I've spoken before about our new timber frame factory. In June, we secured planning commission for it. It will be a state-of-the-art heavily automated factory and a real step change. It has the capacity for up to 7,000 homes a year. It will deliver complete timber frame panels with much more of the work carried out in the factory, pre-insulated, windows preinstalled and services predrilled, for example. It will also deliver build efficiencies in terms of both speed and cost, more consistent delivery of factory guaranteed quality with reduced dependence on trades where there are shortages. We'll start building next year and hope to have the first frames come off the production line in 2026. During the period, we also invested in TopHat, the country's most innovative modular manufacturer. The most exciting part for me is their excellent brick facade. When combined with our new frames, it will be yet another week forward. There is a video on our website of Andy Fuller, our Group Construction Director; and Richard Hush, the MD of Essex discussing some of the benefits they see for those who'd like to watch it. I also thought it would be useful today to talk through where we are in building safety. We're being very proactive here and are making good progress. Our dedicated team is amongst other things, holding monthly meetings with the Manco or their agents on every development to ensure progress. This table demonstrates the benefit of this approach. Works have been completed on 36% or 45% of the 80 buildings. While there are still some coming into the program, we believe this will now slow down. 4 of the 5 recently identified developments here, we believe, will only require minimal works. As you can see in the table, we are moving many developments through the various stages and still aim to have started works on all developments by the end of the year. This means the next 18 months are likely to be very busy indeed and the peak of the cash spend. We're still targeting completing the program within the 3-year time frame we set out in March. A key point on this slide for me is that we now only have 17 of the 80 developments that are progressing through a tender process, meaning that we have firm pricing for all the rest. I'd like to now take you through some of the other areas where we've been strengthening our approach and I'll start first with sales and marketing. So this is an area that Persimmon has not traditionally invested in and we've been working hard to develop in recent years. Our key objective is to drive interest and obviously convert it into sales. We're taking a -- we're targeting marketing activity on particular groups to drive interest and get more customers into the sales funnel. We're combining both national and local marketing to achieve this. Our national campaigns, Boxing Day and Easter did drive increased website visitors, as you can see from the graph. We'll be launching a new campaign soon to take advantage of the usual uptick in interest in the autumn. And we've complemented this with an always-on digital marketing capability that we simply didn't have in the past. We've invested in our staff and enhanced sales agent training and mystery shopping. And we've been disciplined with incentives and offers. With the current affordability constraints, conversions of leads to reservations is the key challenge. We've seen greater use of part exchange in the first half. And this includes more examples where existing customers are buying a new home with us. In some regions, up to 30% of the business is coming from existing Persimmon customers. This loyalty is pleasing to see. It speaks of our improving brand reputation and is something we've been looking to grow as we've improved quality and customer service. It drives repeat customer and is something we're looking to grow further. A new CRM system, YourKeys will mean we can nurture prospective customers through the sales process to drive our conversion rate. As we grow the database, it will improve our insight data enabling further targeting of our marketing. We'll start the rollout in the coming months and this system will only grow in effectiveness through time. It's again an example of how we are investing now to improve our performance and strengthening our platform for longer-term success, which ought to be secure given the relevance of both our brands and the strength of our national presence. And it's -- these 2 factors are now turned too. Persimmon has 2 core brands for the private market that are now well-placed to offer quality homes at a range of price points to suit different segments of the market. And we do that across a national network that's perhaps unrivalled. As I've mentioned, our affordability is a real strength with Persimmon's homes average selling price around 25% below the market average. And we've combined this now with a transformation in quality and service over the last couple of years. It's been my mission since I joined the company to combine our affordability with significant improvements in quality and service. And there's no doubt in my mind that this transformation in quality and service has helped drive the improvements in ASPs in England. As the map shows, we've had significant increases in the north, south and southwest. I think this is a real accomplishment not least in the market conditions. This of course -- this is, of course, a changing picture and we'll keep it under close review. The land we bought into our holdings in the period has been targeted, particularly where we see firm pricing remaining. The challenge remains getting new sites through the planning system given the well-publicized constraints. I spoke in March about how we're adopting a more proactive approach and I want to update you further on this now. Planning, of course, remains challenging. Neutrality is now stalling 145,000 homes across the country. Recent Lichfield's analysis showed only 40% of local authorities had an up-to-date local plan. And it's clearly going to be a significant political battlefield in the run-up to the next election. This political backdrop alongside the local authority capacity issue that's been well-documented elsewhere means it's taking much longer to get sites through on average. We've made this point directly to the CMA as part of their market study, whilst essentially supposed to take 13 weeks is often taking 13 months. But we've responded and upped our game. We're now much more proactive working with local authorities. We've brought together our planning teams and external affair teams to pursue both planning and communication excellence, well-designed schemes that maintain Persimmon's plotting efficiency while meeting local priorities are well-presented are more likely to get permission. If I take the site in Cranbrook; let me take Cranbrook as an example. Early engagement with the council meant that the proposed scheme met local housing priorities, delivered the desired broader community benefits and was communicated in a clear and understandable manner. It meant we met our own criteria while securing permission from the council. We're building local homes for local people built by local workers. Combined that with our Persimmon Homes average selling price of around 25% below the market average and it's a compelling message. We secured outline approval for over 1,400 homes there 6 months sooner than we thought we would. We're also taking this approach on neutrality. We are identifying on a site-by-site basis what mitigations we can pursue. This often involves working closely with the local authority to identify solutions. The challenge is obviously harder in some areas than others. Nonetheless, we've made good progress. And I hope we will see some previously block sites coming through soon. But my lesson here is that it's that the engagement works. I'd like to play a short video of Councilor Ollie Monk, the portfolio holder for Housing and Planning at Cornwall County Council. Three years ago, the council wouldn't even reply to our e-mails, let alone speak to us. It shows that beneath the national debate where developers engage in a responsible and constructive manner, there are opportunities. [Presentation]

It's fair to say that Anthony is really soaking, because I want to let him show you a second video, because I thought you'd be bored. But if you want to see it, I'm sure he'll share it with you. So today, we're seeing some positive early results. We secured detailed planning permission for 5,102 plots in the first half, 120% of completions. As you can see from the graphic, they've also been spread across the country. We've been particularly focusing on our owned land holdings, sweating our existing assets. This will continue in the second half. Another way of looking at our progress is the drop in refusals. Over the 5 years, 2018 to 2022, we averaged around 10 refusals a year. So far this year, we've had just 2. I now want to speak about our outlet position. We said our target is to grow our outlets back to pre-COVID levels in the medium term as long as the planning system allows. The proactive and enhanced approach I've just described is at the core of that. We have a strong pipeline with good visibility. Over the next 2.5 years, we expect to have 250 new outlets at various stages of the planning process. Over 90% of that is already owned and under control. We're doing our best on planning, but opening will depend on our success getting them through, of course. We'll also maintain our discipline. That's both in terms of our stringent investment criteria as well as rigorously assessing the cash required to opening new outlets in the current environment. We'll carefully match spend to demand and we shall obviously not press forward hard if selling prices aren't good. But we're being proactive to build a stronger platform. Despite the current weak market, we're not seeing the price of consented land fall. There remains a demand and supply in balance. And we expect that once mortgage rates begin to fall, demand will recover quickly. So in conclusion, it's clearly an uncertain market and we'll remain disciplined in our approach. Whilst these are challenging times with many negative headlines and high mortgage rates, employment remains high. We're seeing strong wage increases come through the economy and there's record levels of equity. Banks are still lending. And the fundamental long-term strength of the market remains. There is still a chronic undersupply and the ongoing aspiration and demand for homeownership endeavors. With a growing population, this is only going to become more acute. And housing and planning are likely a real battleground of the next election. And it will be interesting what this brings in terms of policy proposals. I've emphasized this morning how we're constantly looking to how we sharpen our approach, if you like, controlling the controllables. We'll remain disciplined with cash and cost control in place. I've spoken of areas of smart savings. We haven't chased volume at the expense of margin and our pricing has remained firm in this market. This has protected gross margins in the first half, but net margins have been impacted by smaller volumes. As we expect more completions in the second half than we achieved in the first, we're confident the margins will improve. We'll continue to focus our build where demand is highest. We're hungry for new opportunities and we'll seek them out where we can. We're now targeting at least 9,000 completions. If there's more opportunity out there, we'll go after it. With the improvements we made in recent years and I've spoken on the progress we've made on quality and customer service in particular, we have 2 brands with improved reputations offering a broad range of price points for customers. I'm very proud to be building quality homes at a price that customers can afford. I've spoken today about the range of investments to make us stronger for the future. You may even say we've been fixing the roof while the rain has been falling, feels like a storm to me. Persimmon has a strong record of delivering excellent returns through the cycle and we seek to maintain that. Despite the market conditions we've experienced in the period, the Board has today confirmed an interim dividend of 20p a share. With this disciplined and targeted investment, we're building a good platform for the future, which we expect will again drive strong returns through the next cycle. And on that note, let me take some questions.

Will Jones from Redburn. The first one, maybe just around the market and tactics in the second half, particularly whether there's a sales rate threshold for the second half below which you would consider the need to either move incentives up more or potentially adjust gross prices? Second was just about margin. Two parts really, first, looking back at the first half in the appendices, it looks like Charles Church was only down 3 percentage points on its gross margin year-on-year, but Persimmon Core, down 11%, quite a big difference there, if you could help us understand it. And then just as we stay on margin second half versus first, I think you're saying the operating margin will be up. Will the gross margin be up second half on the first, do you think? And then last one, just around the outlet openings, that GBP 250 million number, you've given for potential openings over the next 2.5 years, do you have any context for that figure over the last 2.5 just for the backdrop to that GBP 250 million and whether it's a higher or lower number than we might have seen in the past?

Okay. Well, no, look, as -- look, first of all, we're pretty confident that the 9,000 is a good number with over 90% forward sold. The market is variable at the moment. We are seeing a summer slowdown, which is perhaps more acute than normal, but it is bouncing around. I mean, for instance, last week, we were at 0.53. So no, look, we're not -- as I said very clearly in my slides, we're not going to chase volume at the expense of value that we think is out there. Sorry, I didn't properly -- what was your second question, margin first half. Charles Church. Well, funny enough, we got asked this question at the Board yesterday. Here's the man that going to answer the question, but the reality is, don't get too hung up about it, right?

Yes. Principally, we have 2 entities that employ our staff want PLC here homes. So a lot of the overhead costs go Charles Church get an allocation of that cost on a consistent basis, we can keep it on.

I was trying to explain to Roger yesterday the final of absorption accounting, but he got bored with me. Will gross margin be up in the second half? Look, we just -- we've got to see, haven't we? I think the second half is going to be tough. There's sort of clearly, the headlines aren't good, are they? But I'll tell you why it feels a hell of a lot better than it did in Q4 of last year. So I'm looking forward to the second half. On 250 outlets, well, yes, look, that is a good number. It's how quickly we can bring it through the planning system. That represents really quite a catch-up on the past of stuff we've been doing in the last couple of years. As you well remember, we had the hiatus in '18 and '19 and '20. That is -- if you look at the chart, that's when we moved forward on land and that's now coming through the system. But we'll be, first of all, working hard to get it through the planning system. And despite -- I think we've seen some real progress in what we've done. It is obviously not one of the controllables for us. We have to work hard with the councils. And that will dictate the pace at which it comes through.

Aynsley Lammin from Investec. I think I've just got 3 actually. First of all, on the slide, I think it was 9 where you had the 9 sites that you've required with detailed planning, lots of those in kind of Scotland, Wales, not many in the Shire, eastern, western region. Is that because it's just more difficult to buy land or with detailed planning that you've kind of heard where it's gross margin? Have you got more coming from strategic, just interested in a bit more color there? And then secondly, I guess on the margin, that chart you showed at the previous results meeting where you have the kind of volumes get back to 14,000, 15,000 stats CHPI mitigating the cost inflation. Do you still expect -- is the message still that you expect Persimmon to be able to deliver a structurally margin that's the premium tester that it was historically? And thirdly, just interested to hear your thoughts on your expectations what the government might do ahead of general election, Help to Buy and/or would you guarantee any kind of thoughts or developments there you've seen?

Thank you. Look, on the first question, I wish we were that brilliant. Obviously, these things come through at pace and deals depend on individual landowners. I mean, look, yes, some of it, the Banbury site, which was the one which was outlined, that was a win autumn year before, very happy with that, got it through outline to RM in record time. We haven't even got showed home open there yet. So we're selling from a cabin and it's selling really well. So I'm absolutely delighted with that one. That was a good work win. Some of the other ones up in Scotland, well, Scotland a bit of a mixed picture at the moment, out on the West Coast, there's a bit of weakness, but in East, particularly around Edinburgh, really strong still. So that reflects some of that. Look, everything we do at Persimmon is about value. And we're really focused on -- we're really proud of that. We keep our headline average price below 300,000 for a Persi product. Everything we do from buying land to developing the site to building it out to the supply chain to our vertical integration is focused on that goal. And I think the team are really, really, really good at it. So I am confident that Persimmon will continue to command a premium margin to the sector in the medium to long term as volumes recover, as market conditions become more benign. I'm really confident about that. Obviously, we can only control the controllables. Mortgage rates will remain high, I suspect, for longer than we all would wish for. But the market is clearly correcting itself. There's been a -- probably by the end of this year, there'll probably be a real term reduction in housing prices of about 20%, even if nominally, it's fairly flat for us at least. So that is already course correcting, I think. And with strong wage growth, there's no shortage of demand, absolutely no shortage of demand, can they get mortgages? That's the issue. Can they afford to buy the product? But I think with our price point, we're bang on the right spot. I think is exactly where we need to be. So yes, I do think the margins will recover over time. And I think I'm confident Persimmon will continue to be leading the pack. We're not planning. We have no expectation that the government will introduce something like Help to Buy in the run-up to the election. I mean, if you heard [ Mr. Gobe's ] speech or Kings Cross a couple of weeks ago, I can't remember any of you were there. But he was hinting at some sort of support. I think -- I'm not sure it will be -- I didn't get the impression it was going to be focused exclusively on our sector, but perhaps more broadly this time, but we'll have to wait and see like everybody else. Rajesh, I think Rajesh has got a question here.

Rajesh Patki from JPMorgan. I've got 3, please. First one is how do you plan to strike a balance between your aim to grow outlets over the medium term and the restructuring plan that you've announced today?

Sorry, what was that again, Rajesh? Strike the balance between growing outlets and...

And the restructuring plan for delivering GBP 25 million savings? Second one is in bulk sales. If you could add some more color on the growing importance, seems to be about 5% of reservations. Is it a similar proportion in the order book? And lastly, you've included 7 more buildings within the scope of cladding remediation, but remained comfortable with the provision. Does this reflect over-conservatism in the initial provision? Or is it very minimal work required in the new buildings?

Look, we are -- we start from a low cost base anyway. It's interesting what we heard last week, very -- Persimmon well ahead of that anyway. What we don't want to do? Look, these are tough times. We have to -- we already manage the cost base very tightly. But we're -- day in, day out, we're hunting the ledger to keep a tight control of costs day in, day out. That is in the Persimmon DNA. But what I absolutely don't want to do in our hunger to control costs is to impede our ability to grow back quickly when the market recovers. So we're going to manage that very, very, very carefully. We had 74 invested plots sold in the first half. The current forward order book to my knowledge doesn't include any investor sales in it. There's probably a handful here and there, but no more than that at this stage in that number. I think the cladding provision movement or lack of movement reflects 2 things. I haven't been stunned once. Of course, we were pretty cautious next time around. I don't say that if the order is known. But obviously as well, there's ups and downs. We've been unpleasantly surprised by the cost of some buildings, but very pleasantly surprised by the cost of others that we've got provided for. And that's provided a net win so far within the portfolio. The new ones that are coming in, bar one don't look as though they're going to cost very much at all to get remediated. So as far as we can tell at the moment, we're in good shape. But look, we gave you a lot of transparency in those numbers. It shows you, I hope that this is a moving beast, with lots of ups and downs that we're having, to manage all of the time. We do hope -- the rate of new buildings popping out at the Ether at us is now going to dry up, but we don't know, alongside everybody else.

It's Charlie Campbell at Liberum. I've got 3, 2 detailed and one may be more philosophical. You've very kind of given us a GBP 25 million target for overhead savings, but you gave us 3 other categories of cost savings. So just wonder if there's a number around those similar order of magnitude or lower? Secondly, on land appraisals. I just wondered what sort of view you take on the sales rate in that? Do you -- was your appraising land think about more normal sales rates? Or do you use the current ones? And then the last one is the philosophical one. You said that you thought that affordability was the main problem at the moment. But I wonder if it's also uncertainty and whether or not actually sales rates might start to pick up, just if we start to get some stability in mortgages, we don't necessarily see mortgage rates go down. But we just -- I think consumers maybe need to understand where they are for some period of time. Just wondering your thoughts on that and what you're hearing from your sales offices around the country?

Okay. Thank you. I can give you the answer for or a stable the answer for plot costs and value engineering, which is about GBP 25 million, we reckon at the moment for the course of the next 2 years. There could be more scope in that opportunity. As we scrape hard at it on -- I can't give you a view at the moment on subcontractor costs. Well, I feel -- sorry, I can't give you an answer on subcontractor costs. I can tell you what I feel about subcontractor costs, which is clearly, build cost inflation has and is continuing to moderate. You can see that across the industry. And now we're post the Part L implementation, which I think caused an artificial spike in the first half. Rates are coming down a bit faster than they were. It's not -- its variable across the country. But I think we've definitely seen that we're passing a turning point on this at the moment. We need to go after it and we are up. And we're working hard with all of our subcontractors, recognizing that they've got a business too. But we helped them out when the market had gone wild and they need to show a bit of a look back and we're very clear about that. Our approach to land appraisals is always the current market, always the current market. So could there be an opportunity in that? Yes, it could be. Yes. And look, I think you're clearly right. I mean, uncertainty is a factor. But what I see with customers and talking to our sales advisers, people aren't waiting -- they're not thinking well, I'll wait another few months because I think the price is coming, that going to come down. They don't see that's going on so much. And the other feature now is if you've got a lead, it's much more certain, much more certain. There's a much more committed buyer now than perhaps we've seen in the past. So if you've got a lead, it's gold does, you hang on to it and you drive it to completion. So I'm sure there's something in what you're saying. But our view is that it is affordability, is trying to get their -- afford on the mortgage. And customers will go through every sort of hoop to try and get there. Bank of Mum and Dad, we think in our case, the Bank of Mum and Dad is probably about 25% of -- probably about 1 and 4 of our customers are using the Bank of Mum and Dad. I talked about the lengths that people are going now in terms of mortgage terms. So every permutation is being tried by our customers. And we try and help them too, to get the foot on the housing.

Ami Galla from Citi. First, a few questions on cash from me. One was on cladding provisions. Could you give us some color in terms of the time line as to how the cash outflow would work? The second one was on PX Investments. Have you achieved this sort of normalization in PX or the sort of investment in PX? And is this a normal level to look forward from? Or do we expect further investment in part exchange from here onwards? Another one was really on the land mix slide on Slide 11 that you've given. Can you give us a similar color of how that sort of tenure sits across your land bag of how much land is pre-'15 and how much is post? And in terms of a technical one, when you -- how does the timing of strategic drawdowns work when you kind of try and give us a color of the timing of land? Is it at the time of the contract? Or is it at the time of the drawdown of the strategic pipeline? And connected to that is from -- when we kind of think about the volumes coming through in the pipeline over the next 3 years, is it reasonable to expect that bulk of it would be coming from land bought post-2015?

Well, lots of questions there. Jason, do you want to have a pump at the cladding one?

Sure. So in the -- I haven't got the statement in front of me, but you can see in the statement that's the cladding provision split between current and noncurrent liabilities. It's about GBP 100 million a year for 3 years, approximately across the board. We spent slightly less than we expected during the first 6 months, partly because of the BSF, we've not refunded. We've got about GBP 40 million, GBP 50 million to refund to BSF. So that will be the majority of what we'll do. So you can see that. Okay, growing. PX, I think, probably has about normalized around that level. We've ramped up. So there won't be a big contribution into cash going forward, but it remains an important feature, but as we've stepped up the percentage across that period. On the land mix slide, I know I'd get more question. The problem putting something out because you get more questions on it and sort of fair enough. I think on the -- it won't be dissimilar as it goes through across the board. And the strategic is where it gets drawn down. I think your question is when do we pull the strike through into? I mean, I think there's every different type of opportunity there. Some of it is quite old. Some of it's quite recent. It does take quite a long time to go from true strategic, which may just even be allocated or not even. So it could be up to 5 years to bring it all the way through into actually usable outlet. So -- but there's a whole range of stuff within that. As I just try to say there, the pre-2011 stuff is quite limited going through that overall. So I think that's the -- I think that was it. Anything I missed? I think so. I'd probably have to do a bit more analysis to give you a better answer, but I can't. Mike doesn't think it's going to be different.

I would expect it to be -- we will be -- the volumes will be driven from the land that we've acquired over the last 2 or 3 years. Yes, there will be some tailing sites or old sites, but we'll get to the tail-end of those and they will deliver a diminishing number of plots.

I think Jason and Mike had said before this -- I keep getting asked. I got the mountain of strategic land out there, which is propping up cement margin. Well, if we are in -- found it because we've been here 3 years now, so I don't know where it is, so it's not. And I think Jason clearly shows that, clearly shows that in that slide. Another one here, please.

I've got a couple, if possible. Just going back on land in terms of you picking up volume or growing rapidly, so assuming the market improves, can you give us some comments about the breadth of the land bank? And obviously, the depth is pretty impressive. But do you have enough sorts of shots on goal to take if and when the market improves in terms of reservation rates probably kind of picking up going forward? And then secondly, I take your point around the in-price of the land going forward and the margins you can make assuming no improvement in the planning backdrop for the next 3 to 5 years. Do you have to just kind of structurally increase the asset base of the business to feed the machine going forward to get back to 16,000 units?

Okay. Thank you. Yes, look, we do. We're not -- obviously, we've got some big sites in the land bank. But we're very focused on making sure, as you put it to use your language, a number of shots on goal because that's what you've got to have to get it through. So we don't have very -- we bought 2 really big sites since I've been here, which are about 2,000 units, so each 1, 3. That's it. The rest are probably on average 250, something like that, 200 might be. Yes. Look, I think unfortunately, you're right in the point you make there. Structurally, I mean, who's going to win the next general election? I don't know. If it's a conservative as well, they're going to be in on a Nimbi podium. So that's not going to get fast if it's labor liberals, well, they're trying to poach seats off of the tours by not building, aren't they? So that was going to be probably pretty hard. So it's only labor at the moment that are saying they're going to build on the green belt and I guess, what are they going to say when they get to office? Who knows? So yes, I think it's going to -- we don't expect planning consents to get easier, which is why we've upped the game. And there is something in that. It's a bit like dealing with your customers and given what you want and hey, they might buy. Likewise, we've got to treat the local authorities as customers and remember that the local politicians as well, local homes, local people, local jobs, that really resonates well. So you give them a development, which ticks the environmental box. We just got one through in Sweden in -- confusing lye called just Wyndham Farm that we were in a consortium. We're not now, we've moved forward on recognizing environmental emergency as they declared it and we've got consent. Our competitor hasn't done that. They don't have consent. So you've just got to be nimble, right? And that will be a great market. It will sell well. Techy questions, at least I'm going to have to answer them.

Glynis Johnson, Jefferies. I'm going to sweep up with a few actually. You can always trust me to do this. You say on the slides, you signed the [ Scott Safety Accord ]; others haven't done it as yet. How do the costs in Scotland compare to the costs in England on a sort of per building basis now every building is different? But just some sort of color on about how Scotland differs from England. Slide 9, where you showed there's sites that you've actually taken onto the balance sheet, looks like a total price of GBP 90 million on 9 sites for GBP 550 million GDV. That looks like a plot cost of selling price of 16%. Is that just about mix? Or has that changed since when you first agreed to buy them? Slide 10, land margin at normalized delivery. What is normalized delivery in either selling rate per site per week or in total number of deliveries? Then, definition of medium term, trying to get back to pre-COVID levels of sites, is medium term 3 years, 5 years, 10 years? And then one just -- or 2 more, actually, sorry, the increase in the RCF, GBP 700 million. What does that tell us about how your use of your debt facilities work intra period? Is that you're seeing bigger swings in terms of WIP investment and so on? And then lastly, the POP cost to ASP through the P&L in the first half versus what's in the land bank. It's actually quite a bit lower in absolute terms, about percentage points lower relative to the selling price. Do we need to be thinking about mix of what you're actually delivering through second half of next year in terms of the underlying profitability? Or again, is that just come to that in the wash?

I'll have a go at some and then Jason, Mike, if I can put over to you. Scottish Accord, look, it is -- the Scottish government is inevitably taking a different approach to in than Wales and they have yet to define exactly what their approach is going to be. So that is a bit of a frustration. But we are nevertheless just getting on with it because we think that is the right thing to do. Could that mean more cost to come? Yes, possibly, as they finally decide what they're going to do. But the exposure is not great for us. I wrote down 16% on the balance sheet. What was that about? It's just mix. It's because we've got Banbury in there.

It's not normal. It's very weighted toward that Banbury side.

They range between about 8% and 20%, those sort of things.

Normalized delivery, you said on Page 10.

Well, look, I think it is not that far out as far as I'm concerned. I mean, next year, I think it's going to be pretty tough. But I think mortgage rates will recover. We want to be back in the game in '25, '26.

Yes, 3 to 5 years what I said in March for the outlets. I don't think that's changed. We're 6 months into that, so it's reasonable.

On the RCF, look, I am cautious and we're not going to run off and spend all that money.

We doubt we'll dip into it this year. We think we might dip into it next year between periods. It depends, obviously, on a number of factors. But it gives us some resilience and some options. And if we want to move faster, we've got that opportunity to do so.

Yes, the GBP 11.2 million that we've obviously put through has got a high port from in there. So you could say it slightly.

And we probably -- we sold slightly better in the north and slightly worse in the south and southwest. So you see a slight mix change there just because of where sales rates are. Yes. Okay. Thank you. There's one -- is on -- yes.

Anthony Manning from Bank of America. Just 2 from me, please. Could you just give us a quick update on when we can expect the benefits from the space for factory to come through? And is there a certain amount of volumes when those benefits of the virtual integration really start to impact? And then secondly, in terms of your customer mix as rates remain higher for longer, are you seeing with your price points some customers trading down from maybe what they were targeting before? And is that something you'll continue to benefit from?

Thank you. Yes, '26 is when we expect the factory to open. I'm really pleased we've got planning concern, get on build it now, but '26 is when it will come into production. And look, if God -- if we'd have had that last year, we would have all slept easier at night. I just really -- I'm really excited about it. Obviously, timber fines go expenses than trade. But in a buoyant market, I think, is absolutely a central part of the toolkit. And what we can -- we look online at the website because Andy is --- about. But I do urge you to look at that because he explained it very well, I think and it's worth looking at, but I think it could be a real game-changer for us. Yes, we are. On customer mix, there's -- obviously, there's 2 aspects of that. Was helped by or was it helped to buy bigger? Clearly, yes, but also, I think, downsizes as well. I was at one of our sites on Sunday. And we had a 3 bed to sell. They were retiring. They wanted 2 bed. Why don't -- we're going to have lots of 2 beds here. So look, we're seeing it both in first-time buyers and also downsizes. That's a big slug of our market and they're cash buyers as well, so that's really, really interesting. Yes. I think that -- with our price point, we will see more of that come through. Okay. Thank you very much all.