Persimmon Plc (PSN) Earnings Call Transcript & Summary

Good morning, everybody, and thank you for joining us today. Firstly, I'm delighted to welcome Andrew to his first Persimmon results. I'm sure it won't be his last. In the space of a few weeks, he's hit the ground running and he's already proving a great addition to the team. Before handing over to Andrew to take you through the results in detail, I want to pull out some of the highlights and progress in our business. And after Andrew, I'll return to set out why we're excited and confident about the future. Given a challenging market, these are good results that demonstrate we're already growing again. I'd like to thank our fantastic teams across the business for all their hard work to deliver them. I'm really pleased with our progress and the further opportunities we have ahead of us. As I've said before, we focused on controlling what we can control. That Touchstone has delivered improvements in key areas of our business and positioned us for growth as the market recovers. Indeed, as I said a couple of years ago, it was my ambition to recover from the downturn as quickly as possible, and that remains the case. The headwinds we faced in recent years have been gale force at times, whilst affordability remains challenging, at last these headwinds appear to be moderating. There are now encouraging signs of returning consumer confidence, coupled with a pro building government and of course, last week's base rate cut by the Bank of England. So let me now turn to our results that I believe indicate our actions. Reported operating profit is up 2% to GBP 149 million. Our operating margin of 13% is ahead of consensus, but as expected, down on last year. That's due to lower ASPs in the forward order book at the beginning of January, coupled with embedded pill cost inflation washing through. With more volume in the second half, improving ASPs and negligible build cost inflation, we expect the full year margin to recover to be in line with last year. EPS is up 1% at 34.7p. Despite the challenging market conditions in the last 6 months, we've maintained our dividend. While our continued investment in land is driving an interest cost in the P&L, we expect profit growth over last year in line with market expectations. Cash generation was good and our cash balance at June was a healthy GBP 350 million. After land creditors, our net cash position was GBP 33 million. These results are the product of strong delivery. Completions of 4,445 are up 5% on last year. Private completions are up 14%. Our net private sales rate in the period was 0.71, that's up a significant 20% year-on-year and an encouraging 5% excluding bulk. I'm pleased to say sales rates improved from 0.66 in Q1 to 0.81 in Q2. And sales rates in the normally quieter summer period have remained strong since the end of June. Whilst we've done more bulk deals in the first half than we did last year for the year, we expect bulk deals will be less than 10% of total sales, more or less in line with last year. Blended ASP in the period was up 3%. We've continued to use sales incentives in a very controlled way around 4.5% of asking price. Whilst this is up from 3.2% compared to last year. Average ASPs on private gross reservations since the start of the year were also up by about 0.9% compared to the same period last year, mostly canceling out this increase. As I'll come on to later, ASPs and private reservations are markedly compared to Q4 '23. Now all these headlines have been driven by our significant operational improvements. Our continued investment in new land alongside our enhanced approach to planning has seen our owned land with planning permissions grow by 8% compared to last year. What I'm pleased with is that we've grown our total outlets by 3% compared to a 7% drop across the industry. Our HBF customer satisfaction score is now a record at over 96%. I think that's a demonstration of our strong and sustained improvements over the last few years. NHBC reportable items score is nearly 10% better than the same period last year and 43% better than 2 years ago. And I was delighted we more than doubled our Pride in the Job awards this year. Internally, that's a real boost to morale. At 30th of June, our forward order book was up GBP 1.4 billion -- up to GBP 1.4 billion, up 3% on last June. Our significant year-on-year increase in product forward sales up 22% by value at 30th of June compared to the same date last year is very encouraging and gives us confidence for the future. Last week, the Deputy Prime Minister set out her proposals for wide-ranging reforms to the planning system, along with her ambitious targets for growth over the term of this parliament. We strongly welcome these proposed reforms and look forward to working with the government to deliver on their ambitions for growth. Our strong land bank and strategic land interests coupled with improvements we've made in recent years and our capabilities to design and build exemplar, but affordable developments has, I believe, put us on the front foot to play a leading role in the government's highly ambitious plans over the coming years, and that's really exciting. I'll say more on this later, but firstly, Andrew will take you through the more -- the numbers in detail. Andrew?

Thank you, Dean. Good morning, everybody and I'm really pleased to be here. So before I get into my slides in detail, I thought I'd just give a few reflections on Persimmon a few weeks into my role. So since joining in mid-June, I've been to our brick and tile works, I've been to our Space4 factory, and I've been to a number of our sites and offices around the country. And I've been really impressed by the caliber and the experience of the people I've met across all disciplines as well as their energy, their pride, their focus on the customer. And I've been really impressed by the quality of the product we're delivering. I've been impressed by the adoption of digital tools on site. So I've looked at the site manager app that we've rolled out, for example. And I've been impressed by the quality of the land bank that I've seen as well. So all in all, the business is in really good shape. Of course, there's lots of opportunities to improve further, but I'm excited to have got started. I'd also just like to take the opportunity to thank Mike Smith as well for his excellent work supporting Dean and the Board before I joined and for his help to me since I've been here as well. So thank you, Mike. The strong performance in the 6 months to 30th of June that reflects the hard work of our teams up and down the country. We delivered 4,445 homes, that's up 5%, including a 14% increase in the number of private completions. That change in mix towards more private sales has helped increase the blended average selling price, up 2.7% to GBP 263,000. I'll come back to the mix in the ASP in a little more detail on the next slide. Housing revenue is up 7% with adjusted operating profit maintained at GBP 152 million. Operating margin remains industry-leading. As guided this time last year, it is down a little bit, 13%. And that reflects the mix of sales and also the residual embedded build cost inflation carried forward from last year. It's worth noting that the build cost inflation in the current year has been much more normal. It's essentially flat this year. We've continued to invest in new land as planned, and that's lowered our average cash balance, and that's resulted in increased interest costs in the period. And because of this, profit before tax has reduced to GBP 146 million, including net exceptional charges of GBP 2 million. So just to touch on those. The exceptional items are a release from our building safety provision of GBP 23 million, I'll come back to that later in the presentation. And that's offset by the GBP 25 million impairment of our investment in the TopHat modular business. So this impairment reflects the challenging volumetric market that TopHat faces. But importantly, we are continuing to work closely with TopHat on new product development, and Dean will cover that later on. We've generated GBP 165 million cash from operations before changes in working capital, and we invested GBP 195 million in land as we continue to invest in the future. Our return on capital employed is very similar to the full year 2023, which was 10.5%. The fall in the rolling 12-month figure on the slide is driven by the high ROACE in late 2022 which is still influencing the comparative figure. So I'll now come back to the sales mix and ASP in more detail. Of the total new homes delivered, 3,742 were private. That's 14% higher than last year. This included investor book sales of 524, which again is more than this time last year and partly explains the fall in private ASP with an associated gross margin reduction. These book sales are spread across a number of sites and we continue to use investor sales where we consider it appropriate for the business. And in fact, we're increasingly proactive building good long-term relationships in this key part of the market. The ASP in our forward order book at 30th of June has increased, reflecting an improved spring selling season that Dean will cover later on. Importantly, our core product remains affordable with our private average selling price 20% below the new build national average with 63% of completions below GBP 300,000 and with 31% of our completions to first-time buyers. Across the period, average incentives on completions were around 4%, that's higher than the same period last year, but similar to the second half of 2023. This slide provides a bit more color on the underlying operating profit movement. You can see the positive effect of increased volumes and increased average selling prices. As I've already said, that increase in ASP has been held by the number of bulk sales because they typically attract a higher discounts. The adverse movement in the cost line is driven by the build cost inflation seen in 2022 and 2023, and that's carried forward into the embedded margin within ongoing sites. Finally, net operating expenses have increased just GBP 1.3 million. That's a 2% increase, less than the 7% revenue increase, and that shows improved overhead efficiency driven by a real focus on cost throughout the business. So I'll now move on to the land bank. Disciplined investment into land is key to our growth ambitions, and we've continued to invest through the last year. I have to say, having just started, I am really pleased that the business had the foresight to continue to invest during the recent challenging market environment in land and in other operational capabilities. In the period, we invested GBP 195 million in land with further land spend anticipated in the second half year. And this is on top of the investment that we continue to make over the last few years. We've also had a number of planning successes. We obtained detailed planning consent in the 6 months on around 5,000 plots. At 30th of June, we had just over 38,000 plots owned with detailed planning consents. That's 8% more than this time last year, and that provides confidence for the future. In total, in the 6 months, we've added 3,745 new plots to our owned and controlled land holdings across about 20 locations. And over 40% of these new plots have been successfully pulled through from our strategic land bank. Land holdings currently show cost to assumed revenue of 11.6%. That's an important indicator of future margin potential. And it's pleasing that this has stayed pretty flat, reflecting the benefit of us having continued to buy land through the last few years. The embedded margin within our owned land holdings remains very good and we would expect 90% of our plots to deliver gross margin in excess of 20%. So this is the normal cash bridge. We told you in March that we expected cash to reduce this financial year, although that 30th of June position is very strong. The reduction is because of our continued investment. So broadly speaking, operating cash inflow is being used to fund tax dividends, building remediation spend and our investment into land and WIP. So cash reduced in the 6 months by GBP 70 million, cash inflow from operations was GBP 165 million. In the 6 months, we invested GBP 195 million in land and utilized GBP 142 million of land through cost of sales. And within that investment land creditors reduced by GBP 56 million, and we spent about GBP 85 million on new sites. That's an increase for the same period last year. Work in progress increased GBP 81 million as we build products for the second half year delivery. And we spent GBP 25 million on our building safety remediation program. Finally, it's just worth noting that the GBP 128 million final dividend for 2023 was paid in July. So that is still included in cash at 30th of June. So cash is part of an overall strong balance sheet. And during the year, we've extended our GBP 700 million RCF out to July 2029. Our balance sheet has allowed us to continue to invest in the business. Land and WIP has increased GBP 81 million since December, reflecting investment in products for delivery in the second half year. Our equivalent units at 30th of June were nearly 300 higher than at the 1st of January. We held GBP 122 million of PX stock at June. That's a really good sales tool for us. And importantly, the aging of that stock is very good, around 400 of the 593 properties held were already reserved at 30th of June with more reserves subsequently. Land creditors have fallen, which is due to the timing of contractual payment terms. We settled GBP 113 million in the period with around another GBP 100 million of deferred line creditors to settle in the second half. Our Building Safety provision stands at GBP 238 million. This is reduced due to the GBP 25 million of spend in the period. And we also revised the basis of our estimated future costs resulting in a further GBP 23 million reduction through exceptional items. The key thing here, everybody is that we are getting on with the remediation work, and we're making good progress on it. There's significant further work planned for this year and for next and the bulk of the remaining spend will be made over the next 2 years or so. As I mentioned earlier, the return on capital is similar to calendar year 2023, and net assets per share of 1,066p, a 15p higher than this time last year. This is a strong balance sheet, and it's something I've been really encouraged by since I've been in the business. Even with our investment in land and our spending on building safety. At 30th of June, we had net cash, including land creditors of GBP 33 million. That's a negative gearing of 1%. The structure of our capital allocation framework will be familiar to you. Firstly, we will maintain our strong balance sheet, and we'll maintain low leverage through the cycle. So we've deliberately continued to invest in land over the last year or so at the bottom of the cycle, around GBP 600 million invested over the last 18 months. This has reduced our current cash position but provides a really good platform for future growth. Alongside this, we are prioritizing dealing with our building safety remediation, and that will absorb around GBP 100 million this year and next year. But of course, we'll absorb a lot less after that and provide us more flexibility in late years. Just for the record in the half year, the cash spend on remediation, that equates to about 8p per share. Secondly, we'll continue to grow our number of outlets and driving our organic growth objectives. Of course, we're also open to acquisition opportunities. But given how well placed we are for organic growth, any acquisition would need to be looked at in a very disciplined way and would have to be additive. Thirdly, we'll pay a sustainable dividend well covered by profits through the cycle with a minimum 60p per year. And to be sustainable, we can't over distribute as we need to continue to invest in growth. In line with this approach, we've today declared an interim dividend of 20p per share. And of course, we remain open to returning excess cash to shareholders, if appropriate, later in the cycle. So to summarize, I'm really pleased to have joined the business, which is in great shape. We've had a very good first half year, and we've got increased confidence in our 2024 full year delivery. So today, we've increased our volume expectations. We now expect that we'll deliver around 10,500 units in the full year, which is at the top end of our previous guidance. We expect that this will be delivered and margin similar to last financial year as we indicated it would be in March. Our land spend will be GBP 300 million to GBP 500 million, as we said previously. And we now expect cash of GBP 100 million to GBP 200 million at December. That's a little bit higher than the previous guidance. All in all, this will represent a very good performance in 2024, and I'm looking forward to the second half year with confidence. And with that, I'll hand back to Dean.

Thank you, Andrew. I now want to turn to some of the key areas where we've been deploying the business which will position us to drive future growth, and I'll start with operational capabilities. As I said earlier, with some signs of improvement in the macroeconomic backdrop and the significant planning policy reform set out by the new government, I believe we are well positioned to capture any tailwinds because of the progress we've made in building our capabilities in recent years. Despite the downturn, we've continued to be active in the land market whilst competition has been quieter and greenfield prices have been falling. As a result, we continue to invest in our already strong land bank as well as add to our strategic landholdings. We now have 82 -- around 82,000 plots owned and under control of which 38, 000 have detailed planning consent. Through an enhanced approach to planning, we're drawing on this land bank to open outlets, which, as I mentioned, is against the industry trend. So far this year, this has been 7% -- this has seen a 7% decline across the industry against our 3% increase. We've invested and innovative to speed up our build process. A push to digitize key areas of our operations is already making us much more efficient. Because we've invested in our people and our products, we're now building our best-ever quality homes and delivering our highest ever customer satisfaction scores. We prepared for the growing sustainability agenda with innovative trials and around 4,000 zero-carbon ready homes already in our pipeline, we're looking to be ahead of regulatory changes resulting in high-quality, but affordable developments. And we've been developing new markets and diversifying our product range to secure new growth opportunities while still maintaining our strict financial criteria. I think that mixed tenure developments are likely to become much more important in the future. Growth in private, affordable and mixed tenure developments will be key to our future success. And that's why we have been investing a lot of our effort in sales and marketing capabilities to which I'll now turn. We're now building well-designed and highly attractive developments. They're getting consistently strong customer recommendation scores and reviews, whether that's through the HBF surveys or Trustpilot. Our core Persimmon Homes are a compelling product in part, because they typically priced 20% below the market average. And we've been getting better at selling, not least by improving our online marketing presence and digital capabilities. We've done a lot of work to improve our online visual assets, including 3D walk-throughs for our R21 range, the use of photorealistic CGIs, the improved use of photography and the use of local area videos. The way in which Persimmon approaches marketing really has changed significantly. We work with external experts to improve our paid advertising strategy. We've continued to optimize our use of key portals, improved our search engine optimization, increased our social media presence in advertising and widened our campaign strategy and invested in the new Head of Digital Marketing. These are and will increasingly be important. The results are impressive. Website visitors increased by 35% year-on-year. Sales inquiries through website are up 13%. And the new CRM system and an upgraded website planned for rollout next year will help drive further improvements. We've invested in our sales teams with training and mystery shopping exercise to target improvements. This is helping to convert more of the increased interest into sales with a sales rate up 5% year-on-year for private deals. We've also been diversifying in response to the changed market. We've been active in new markets such as build rent and we've developed partnerships to broaden our offering. Unquestionably, these are important growth markets for the future. Investor deals continue to be used in a disciplined manner, and we're completing these earlier in the year to secure better terms and greater certainty. When investor deals are added, our sales rate is up 20%. The BTR market is a large and growing market. Given the structural challenges the industry has faced over the last 2 years, it makes sense that it represents a growing share of our mix, not least because it improves our return on investment. We're growing more sophisticated in its use moving to a planned approach with multiphase, multiunit sites where it enhances our overall returns. We're also looking at fresh partnership business, given the policy changes this government has signaled on affordable housing and mixed tenure developments. This hasn't been a core area for Persimmon in recent years, but we've been building our capabilities and our objective is to secure additional output and enhanced returns. We're pleased to already be shortlisted for our partnerships contract and to be in discussions with councils and other investors about potential multiyear opportunities, where it makes sense, given the size and strength of our land bank and the potential opportunities that might arise to unlock value earlier in light of the proposed policy changes. We've identified 23,000 plots in our land bank that deliver from 2029 that provide opportunity for accelerated delivery. Whilst the financial positions of RPs is now widely recognized as an important challenge, I'm pleased that the good relationships we've built in the sector means this year's delivery of 106 appears secure. It's also good to note that in her statement of the house last week, the Deputy Prime Minister confirm that details of future government investment in social and affordable housing will be brought forward at the next spending review, helping them to deliver their ambition of the biggest increase in affordable housing -- house building in a generation. At the premium end of the market, we've been enhancing our use of Charles Church. This area of the market has been more resilient in recent years as high-end cash buyers are less impacted by mortgage affordability, whereas we saw first-time buyers drop by 1/3 post the crush, the premium market dropped by only 6% over the same period. We think our Charles Church brand has further value potential. That's going to help us to diversify and build a stronger, more resilient business alongside the likely future growth opportunity arising from the government's affordable growth ambitions. We've reviewed our Charles Church's specification to enhance it. We've rolled this out in a limited number of our existing locations, including Litchfield through Bristol, and have been pleased with the results that have delivered considerably higher ASPs and gross margins alongside good sales rates. This has proven to us that we have pockets of strength in our existing land bank that we've underexploited so far. By identifying sites within our existing land bank as well as new sites come to the market, that would benefit from premium housing, this product diversification will help enhance our profitability and improve our resilience across the cycle, whilst, of course, retaining a strong focus on our core Persimmon brand. When an improving sales performance has added to our strong and growing land portfolio, it's a very powerful combination. So let me turn to our land bank. Persimmon's land bank has been an historic source of strength. The embedded margins remained very strong at around 29% despite our push for growth. As 30th of June, the number of plots where the margin below 10% had reduced by 22% compared to December. 56% of our plots in our land bank are now generating a margin over 29%. The cost to revenue ratio embedded within our land bank remains strong at 11.6%. As you can see from the slide, we've continued to invest in land in recent years, while prices were falling. We've invested GBP 1.3 billion in land and utilized GBP 880 million (sic) [ GBP 881 million ] of it, giving a strong investment to utilization ratio. That positions us well for the future. Our strategic landholdings remain an important driver of value for the business. During the period, 41% of plots were brought into the business came from our strategic land bank. Also during the business, we secured options on a further 1,929 new plots. We're converting our land bank into more, open outlets allowing us to grow them from 258 December to 266 at June. In the second half, we plan to open at least another 50 outlets, and we're currently progressing over 40 new outlet opportunities for the spring 2025 selling season that could see us growing our out that network by a further 3% to 5% by April of next year. How quickly this convert into completions for next year obviously will depend on the prevailing market at the time. Planning does remain difficult, but we've been working for the last 2 years to improve our own performance in our engagement with local authorities and our design quality. That secured more permissions more quickly. The planning reforms the government has announced, including last week's update to the NPPF, have the potential to add further to this growing position in the coming years albeit the changes will take time to effect delivery. However, it's clear that the new government is already having a positive effect on planning consents. On 1 day, 2 weeks ago, we secured reserve matters on nearly 1,100 plots across 4 labor-led authorities. That's nearly 10% replacement of this year's completions in an evening. Our continued investment over the last 18 months or so means that we can remain disciplined and only target land opportunities that pass our stretching criteria. When taken together, we have the compounding benefit of an improving sales rate and the growing outlet base. And as our build improvement show, we're delivering high-quality homes more efficiently on our sites to which I'll now turn. Our investment and innovation here is already making a real difference. We're now building timber frame houses a week quicker this year compared to last. And we're investing and innovating further to secure additional efficiencies. A new automated line in our Space4 factory will be operational next year, manufacturing frames more efficiently. The photo on the slide shows the trial house we've erected as an experiment at our Space4 factory this year. Using our timber frame and roof tiles, coupled with TopHat's brick facade product, we went from slab to water tight in 5 days. Just to put this into context, it normally takes 12 weeks, requiring skilled and scarce bricklayers. This is really exciting and shows the opportunity further innovation has for greater efficiencies to come. Given an average site overhead costs of GBP 13,000 per EU the financial prize of even one extra week of saving in build time is significant. At our planned Loughborough factory, the combination of larger frames with closed panels could secure a further 2 weeks of build efficiency. Our own Brick and Tile factories remain -- equally remain an asset. They provide security of supply for high-quality products cost effectively. That benefit will only grow as market conditions improve. Our vertical integration strengths and innovation and build efficiency is squarely aligned with the new government's targets to rapidly increase supply. Indeed, I believe that moves to increase our site manufacturer will be the only way to deliver these targets efficiently. Having taken you through our operational improvements, I'll show you how this is reflected in our current trading and where we stand now. This slide shows the forward order book at 30th of June compared with a year ago. I also wanted to show the movement in the forward order book since the start of the year. Compared to a year ago, the total value of our forward order book is 3% higher. Within this, our private forward order book is 22% higher by value, with volumes up around 18% and ASP up by 3%. Since December, the total order book is up 34%, real progress. Since the start of the year, the private order book is up strongly at 73% with ASPs up 9%, reflecting the weakness in the December forward order book that we flagged in March. In the 5 weeks since the period close, our underlying sales rate is up 34% year-on-year. So our message for the first half is simple. We've delivered a good set of results. We're growing and have enhanced our key operational capabilities. We have an expanding outlet network and strong landholdings that we've continued to invest in. We're selling better from more sites, and we're building our homes more efficiently. And really importantly, all of these areas have more improvements to come. We are very well placed to benefit from an upturn through the next cycle. Persimmon is now a growing company with growing opportunities. The reform set out by the new government show that they're looking to achieve an unprecedented acceleration in the delivery of new housing. And there's a significant focus on affordable housing within that, which is one of our sweet spots. But at the heart of their agenda is a presumption that developments will be of a high standard. Persimmon's well placed to deliver this. The work that we've been doing over the last 4 years has prepared us well to meet these expectations of higher standards. And our continued investment in land means that we're immediately ready respond to the new government's agenda, opening the opportunity of homeownership to thousands of families a year. We're also delivering the broader community infrastructure that the government rightly demands. In recent years, our new homes have funded thousands of new school places to local communities, for example, amongst many other local benefits. So we already have a strong base to build from. And our three strong brands and unique vertical integration capabilities mean we're well placed to deliver even more as the reforms take effect. Our core Persimmon homes offer uniquely affordable opportunities for home ownership with prices 20% below the market average. Our new house type range is also attractive to the growing BTR and partnership market. Our Westbury Partnership business has established stronger relationships, and we're looking to grow in the coming years as we did diversify our business and a renewed focus on Charles Church is delivering high-value homes in a market segment that appears resilient. The key operational credentials we've worked hard to strengthen in recent years mean we're now well placed to meet the government's growth ambitions. We have strong land holdings that we continue to invest in. We're growing outlets and with the announced policy changes, there's opportunity to grow faster. These changes also mean we're actively reviewing our strategic land portfolio to identify opportunities to accelerate any sites of the planning system to open them earlier than previously anticipated. We're delivering our homes more efficiently and investing and innovating to driving greater improvements in the coming years and our unique vertical integration provides security of supply to respond nimbly and efficiently to an upturn. Our strong forward order book and improving sales rates are giving us increasing confidence in future delivery. Whilst I'm sure we'll face many challenges ahead, there is, for the first time in a number of years, an exciting opportunity that Persimmon can play a key part of. But of course, we'll remain disciplined, keeping a sharp focus on margin and returns. We will maintain a prudent balance sheet and recognize that our shareholders look forward to a growing dividend return over the coming years. So in summary, the key points to the first half are: we have maintained the embedded gross margin in our land bank at 29%. ASPs have remained resilient compared to a year ago, but are growing from the lows we saw at the end of last year. Sales rates improved from Q1 to Q2 and remained strong in Q3 so far. Taking all this together for this year, we expect completions to be at the upper end of our previous guidance. And this is positioning us for a clear return to growth this year. Also, as I said, when I started this morning, we expect margins to recover in the second half, bringing us back into line with last year. Over time, we believe that margins and returns can recover to at least 20%, which, given the structural challenges the industry has faced, our need to improve quality, increase regulation and the change in nature of the market would be a considerable achievement. Added to this, we have a high-quality land bank, which we've continued to invest in. With 38,000 plots owned with detailed planning, we're very well positioned to respond immediately to the new government's plans to deliver a near unprecedented increase in housing supply as well as this providing excellent visibility to 2025 delivery. Persimmon is a strong vertically integrated multi-brand business with private ASPs over 20% below the market average and a market-leading land bank delivering excellent returns over the long run. We are a growing business with growing opportunities, and I'm excited to capture them. On that note, let's turn to questions.

It's Harry Goad from Berenberg. I've got two, please. Firstly, on partnerships, interesting comments you made there. You probably won't, but could you give us a feel for maybe what sort of proportion of annual completions we could expect from partnerships over the medium term? And second partnerships, you alluded to the positive indications on returns, but should we think about some considerations on margins on the other side? The second one was around M&A interesting that you just made a comment on it. When you think about M&A, is that to simply boost the land holdings in the business? Or do you think about it in terms of diversifying maybe the product offering?

So I think we -- unquestionably, we'll see an increasing proportion of partnerships going forward, which is driven by the government's desire to increase the affordable housing program. It's difficult to comment precisely at the moment. We need to see what the government's plans are when they make their statement in the autumn and how they plan to fund that program. But I think it's heartening to see the direction of travel there. So because it will probably be an increased proportion of our mix, you're right, in terms of headline Persimmon margin, group margin, it will be impacted. However, returns will improve, which is why I drew out in my speech the work we've already done on looking at our land bank and in particular, the focus on the 23,000 plots we know we've got in it for delivery from '29 onwards. That's a long way out. And so the way we're looking at it is if there is an opportunity there, is to deliver additional profit over and above what we're already planning to deliver and to deliver incremental improvements to returns. So I can't be clear on precise numbers at this stage, but I think the direction of travel will inevitably be driven by the government's agenda. Looking at our land bank, looking at a strategic land bank where we do see there's opportunities that we sip that through and shake that out, grey belt and so on. Of course, it depends on the viability on a site-by-site basis. But there's clearly opportunities there. I think, in terms of M&A, look, the first point I'd make is we don't need to do it. You've seen that this morning, 82,000 plots in our land bank. We've got a strong strategic land bank. And I think crucially, in the short term, nearly 40,000 plots with are in a detailed planning. But if we were to do it, it would, first of all, critically need to stand up financially on its own merits. It would need to be additive and not dilutive and it would need to be complementary for us through land holdings, through diversification, as you pointed out and through synergies. Thank you.

Gregor Kuglitsch from UBS. Can I come back to the sort of the 300 sites, which I think has sort of been a long-standing target, you're kind of flagging maybe you can grow 3%, 4%, if things go well, this time next year. So kind of doing the math, are you sort of thinking this is a 3-, 4-year program or you think you can accelerate that? And then I suppose coming back to partnerships, is it just sort of principal idea that whatever you generate from that would be on top of that? Or is it sort of in that already? And then maybe a third question on margins. So you reiterated the 29% growth. I think in your final remark, you said -- quoted a 20%-plus, which I guess is EBIT. So I guess the question is, does that take into account the 20%-plus margin ambition sort of a dilution from partnerships? Is that sort of baked in there to sort of reconcile from the '29, and what you quote in the land bank and what you're thinking on EBIT medium term?

You want me to take that? Yes. Okay. So I think, Gregor, thank you. In terms of outlets, yes, so look, we're looking to grow, as Dean said, 50 or more new outlets this year, another 40 or so in the first half of next year, that's gross outlets, obviously. So -- but that's all about growing the overall net outlets. So we would expect to see the net outlets growing. So we expect -- we are looking to grow back to 300. I don't think we want to put a precise time on that because it will depend on so many factors in terms of the market and sales rates and so on, but we're absolutely growing outlets and growing net outlets, and that's the target we've set ourselves. So in terms of margins, I mean, the 20% target that Dean talked about, that does incorporate a change of mix. So we've talked about partnerships already. We've already talked in the presentation about additional investor sales and book sales. Obviously, they have a different margin play in the private development as well. And there's also various challenges around regulatory costs, future home standards. We don't know what will happen with nutrient neutrality, what that will mean in terms of costs as well. So there's various kind of things which are playing into the margin progression, which is why, although we're confident of increasing our margins, I'm not sure I necessarily see a kind of straight line growth. I think there may be some, may be a little bit flatter with -- as we faced some of those initial challenges and still have the carryforward inflation from a couple of years ago. But those targets do factor in the various mix that we see coming through the business as we go forward.

There is partnership, as additional?

We see partnerships as additional and complementary. Yes. Yes. And look, we're checking out -- I think we what identified 20 potential additional outlets, sites that could come forward, but there's a lot of work to do on that. And government funding is what they say in these autumn statement is key.

Ami Galla from Citi. Just a few questions from me. The first one was just on the NPP reforms that we've heard so far. And even just the assumption that the process, the planning system starts improving and time taken to get planning permissions is meaningfully better. At what point do you really see that benefit come through? I mean, from a time line perspective, if you could give us some guide there. The second question, more like clarification. You gave us an example of mitigation of neutrality, issues that you had on your side. Is the mitigation the route out? Or do you expect further proposals or regulatory changes from the government to fix the nutrient neutrality issues across sites? And the last one is more on the Charles Church spec changes that you've talked about. Is that a factor to think about the gross margin, i.e., does that come at an additional cost? And when we look at the H1 gross margin from Charles Church, the reduction over and above the group average. Was that just mix or that's just additional costs going to the product?

Shall I have a go? And in terms of planning and reforms, I think we will start to see it really stepping into gear in terms of delivery of output from 2026. And I would expect the pace of that to continue to accelerate given what we've seen so far. What we've seen so far is extremely welcome. Clearly, there is an intent to be interventionist. And that is resulting in planning consents coming through much faster than we've seen before. I mean, I think we haven't even seen one in 13 weeks, which I mean, certainly, in my time here, I haven't seen that. So we're starting -- in terms of nutrient, it don't -- look, it's clearly on the agenda, but we'll have to pay for it. The housing -- the housing minister doesn't want to legislate for it, but maybe you'll have to -- so he's hoping that everyone plays nicely at the moment. We'll see but it's a backstop option to make it happen, but you should expect -- I suspect a tariff system, and that tariff system will be escalatory in charge scales. So -- which is pretty much really what we're doing within the business now anyway to bring things forward. And then in Charles Church spec changes, no. I mean, the cost in the first half didn't impact the numbers. But the opportunity, where it's deployed appropriately. And I think there's a bit of our own confidence issue here where we've done it, we've seen a 3:1 payback ratio on revenue to cost. And it's a unique feature about our land bank that I don't think -- I've done a particularly good job at selling to you, but we have some great diversity in our sites and quality of sites that can cope with partnerships and cope with a higher product spec as well. And the Bristol and Truro sites that I mentioned are great examples of that where we can sell GBP 1 million houses, not that we do many of those, but we can sell them and we can earn a good return on them and critically where we've chosen to put them so far. It hasn't impacted sales rate and therefore, return on capital. So we've been impressed with what we've done so far. Andrew has been to one of them so far.

I've been through those and it's impressive. And as Dean says, actually, when you talk to the guys on site, the extra cost of the investment in the spec has more than paid for itself in the sales prices they're getting.

Yes, yes. So look, we're excited by it. It's a good additional tool for us, and it's underexploited so far in the business, I think.

Will Jones from Redburn Atlanti. Try three if I can, please. First, perhaps you could just talk us through how you've approached the first half from a price perspective and price tactics and whether you think the auto market is ready for either price up or incentives down. The second, maybe, Andrew, you mentioned about potentially a flatter initial trajectory on margins ahead of the medium-term aim. But if we look to '25, and I appreciate too early for guidance, but if volumes increase, I think, by high single digit also, that consensus thinks they will. Would you imagine that to be a gross margin positive year? And perhaps just as you come into the business and think about the balance sheet and appropriate capital structure, what's your view on that? And therefore, what would make for surplus capital in time?

Shall I do the first two and we'll maybe share the second one and you take the third. So as we highlighted, the incentives are still a feature of the market. Look, affordability is, without question, still our biggest challenge. But it's improving, and we see it will continue to improve. If we look at -- if I think about some of our hardest press regions, if we go back to the depths of the downturn in the Autumn of '22. Then in our worst affected regions, less than one in three of our customers could secure mortgages. Now in those same regions today, it's better than one and two and customers can't get. So there's been a mortgage and pass affordability test. So there's been a -- whilst there remains an issue there has been a clear improvement. I think the recent rate cut and small improvements in mortgage rates is more important to sentiment than it is to the overall affordability calculator, but as we get more rate cuts, I think affordability will then clearly improve. I think also, we think in terms of looking at the strength of wage increases, and that's 5% to 6%. Another feature which I won't say is unique to Persimmon, but it very much features in our business is that a lot of our customers are key workers, doctors, nurses, policemen and so the recent pay awards, good news for us, and are to come. We sell to a number of junior doctors. So a 22% pay award was cheered on by us. So clearly, the market is still tough, affordability is still a challenge. Incentives are still very much a feature of the business. I highlighted it in my speech, they've gone up nearly 130 basis points. But -- whilst price increases aren't quite offsetting them yet, they're pretty close to. You can see in the forward order book as at 4th of August, I think it is that ASP in the forward book is up 1.5%. Private ASP is up 1.5% compared to a year ago. So we are seeing increasing ability to price. And whilst not all parts of the country are at the same level of strength at the moment, mostly, they're traveling in the same direction of travel. So that is clearly good news. So I would expect and hope that over the course of the Summer and Autumn, the quantum of incentives will reduce but there's no doubt about it. Every customer that comes in the door wants a deal at the moment. So we just need to be -- we just need to think about that. In terms of margin for '25, I mean, we do expect it to be a positive gross margin year. A point I would pick out in the results of the first half is that we have had to invest in cost of sale in terms of selling, and we will continue to have to do that. And I think it cost us about 120 bps of margin in the first half. But we're confident we're getting a return on that. And I think a real opportunity for us is to get to a proper digital marketing platform and a proper CRM system. We're getting much better at getting customers into the door. I just don't want to let them out the door until they bought something. So we need to get better at that, and we need to invest in that. So we will see margin progression. I think what Andrew means in terms of the trajectories, personally, I think it will be bumpy. I think we will see -- I thin,k, I'm confident over time our margin will improve. You see the balance in our first half. Again, the negative impact of high build cost inflation is still coming through and weak ASPs, that's what dented our margin in the first half. Reverse that out and margin will grow. So there's potential there for good growth. And critically, we've kept our operational capabilities in place so that we can grow our volumes. And the vertical integration we keep banging on about is critical to that. So though, as you look ahead, I think regulatory changes, particularly around future home standards, which we still don't know what they are. They will, I think, see bump in the road in margins when they come forward in the year, but we'll move on quickly from that.

I'll just pick up on the capital structure. So what I tried to talk about in the presentation. So my view is it's right to look at this through the cycle. So the business, I think, has done exactly the right thing. Over the last couple of years, in the trough, we've continued to invest in capabilities, as Dean's talked about, and they've continued to invest in land. And that's put us into a really good place, ready, well positioned for the improving market. So I think that's exactly the right thing to have done. And what that means is the balance sheet is -- has a little bit more leverage, the cash is lower than it would otherwise have. But that's the right thing to do at that point in the cycle. So I think it's right to look at it across the cycle. I think, the challenge in terms of at what point and what's the trigger for how much is too much from when you get to access. I mean, kind of let the market improve a little bit first, would be my first kind of at the start of the improving cycle. And we'll see how the cycle plays. It will be a different cycle to the last one. I mean, every cycle is different. So -- but I think the important thing is that we want to keep the balance sheet sustainable through the cycle to make sure that we are distributing at the bottom, but we don't over-distribute later on in the cycle. So we just keep that nice balance on that sort of medium-term view. So I'm not going to get kind of drawn on to a particular threshold or figure, I think it's too early to do that. But I think it's that balance between just looking at this across that longer-term view of long-term lens.

Glynis Johnson, Jefferies. I'm going to go with four. Apologies. Firstly, can you just confirm or deny, the new land that you're bringing into land bank, is it matching the embedded margin of what's already in there? Number two, just in terms of your land going forward. I'm just wondering what do you think is going to be the proportion of strat land versus open market land. One of your peers earlier in the week, has talked about, for example, the number of plots that sit in strategic land, which have active planning, which have sort of been put forward on the basis of a more sensible planning environment, I'm wondering if you could give us a comparable number or even relative to where you've been before? Next, just in terms of partnerships, forgive me. Are we talking about just forward selling more of the product on sites you already own? Or are you talking about buying sites specifically for a greater proportion of affordable, the definition of partnerships is quite a varied one. I wonder if you can clarify what your vision of partnerships are? And will they be confined to new town sites where the affordable requirement is high? Or is it going to be more proactive? And then the last one, Andrew. Welcome. Your predecessor came in and put a number of investments in place to change a number of the way things work, you've come in, what do you think needs to be done still? What do you think has been completed? Where -- what should we anticipate in terms of what you do in the role?

Do you want to start with that?

Well, shall I start with that first. So look, I've come in, I said, I've actually been really impressed by what I've seen. Look, the business has invested in the last few years. But I think there is good opportunity to do more. I think we can do more on digital, on data. We can do more on automating some of the functions internally, and that will help drive efficiency and better support for the business and particularly as we go into a hopefully, a growing market that will allow the back office, if you like, to be more supportive of the front office. So some of the investments that we've made in sales and marketing that Dean talked about, I think there's similar opportunities in some of the back-office functions as well. So that's the kind of area where I think we can make a big difference quite quickly. So -- but as I say, for me, the key thing is that the people that I met around the business, as I said, in all disciplines are good, are enthused, are proud of what they're doing here, and I'd much rather start with that and then focus on investing in systems and processes than the other way around. So that's a really good start point for me.

So in terms of your other questions Glynis. In terms of new land, it's broadly in line, some up, some down. You'd expect that. It's the nature of the flow. But as you can see, the margin overall is maintained. The apartment has improved a little bit. So we're happy with that. I think the Strat line question is a really interesting one, because -- you can see just a 40% came in this year that's in line, that's what we normally do. I do wonder whether -- and we need to do the work, and we need to see whether that might increase as a result of government proposals, but we can't answer that question at the moment. I don't know. In terms of partnerships, I think it's both. It's sites we own and it's also maybe new sites that we might buy. If the returns criteria are right, risk and return isn't it? And if we can cycle, I guess what really excites me is if we can cycle those sites fast, particularly with when we get the new line and we get the new factory and we hope we can perfect the top half brick facade and it's accepted in the market. So I know there's a lot there, but that's what it's about, isn't it? It's about experimenting and innovating. Then that could be really interesting and exciting opportunity for the business. It won't be high margin, but it will be high return. And I think we're well placed to take advantage of that.

It's Charlie Campbell at Stifel. I've got two unrelated, I'm afraid. But the first one is on first-time buyer. I just wonder what the sort of mood music is from first-time buyers and whether you're very kind of given us a split of completions to first-time buyer, but just wondering if that mix is running a bit richer in the reservations? I'm obviously aware that rents are going up really quite fast and that you would have thought might tilt first-time buyers to making more decisions more quickly. And the second question is on the new government. I think a lot of investors are sort of worried that labor might get greedy in terms of asking for more social on just general sites around the place. That seems to be a common concern. Just wonder what your view would be on that question?

Thank you. In terms of first-time buyers, I mean, the appetite is on a basis, but the issue is affordability. I do expect that will improve. We've been flat in the period. Affordability is almost always affecting our first-time buyers. They are almost always the people that aren't qualifying. So, it remains challenging, and it's particularly pronounced in the Southeast. So it remains an issue. I think it will improve, as I said a few moments ago, but it is where it is at the moment. Clearly, the risk is there that a greater mix of affordable will be required. They've been quite specific, though, at the moment in terms of saying, look, it's 50% from Greenbelt and it's 40% for new settlements that they define new settlements. And clearly, us like everybody else in the industry, we'll need to look at that and figure out whether that's viable for us on a case-by-case basis. In cases it will be in other cases, it won't be. My discussions with them so far, they seem very level-headed about that. They seem to understand that. So I'm not concerned at this stage, but I recognize the concerns but I'll come back to repeat what I've said, which is that we watch with interest the Autumn statement.

Sam Cullen from Peel Hunt, I've just got two. Going back to the plots with planning, 8% increase year-on-year, I think very slightly down versus December this year completions have gone up. If you ignore kind of the greater proportion of whether it's built to rent or affordably you might do out of that land bank, would you expect your land bank in years to continue to shrink over the coming years as outlet numbers increase? Or do you need to kind of reinvest capital into the land portion of the balance sheet? That's the first one. And then the second one is in terms of your strategic land bank, do you have a number of what portion of that is in green belts at the moment?

In terms of your first question, I mean, I'm sorry, that's really crystal ball gazing. The beauty of having a strong land bank means that we don't have to do every deal. And you just can't look from period to period and say, it's gone up or it's gone down. You've got to look at the overall strength of it. So I don't know, we're pretty secure. We've got a good glide path of supply, and it really will depend on market conditions and deals we're doing on a case-by-case basis. I can't answer the green belt, gray belt question at the moment because that's work in progress. So we'll have to come back to you in due course about that, but we will have an answer in due course.

Zaim Beekawa from JPMorgan. Just one question for me. What is it pretty excited about the labor plans? But obviously, there probably is a skill shortage. So if there's anything you can give on your conversations with the government that you expect to sort of remediate those concerns?

Well, and that's why I've said, I think off-site manufacturer is absolutely crucial to the future. There is a school shortage and it's something the industry repeatedly has to grapple with as numbers ramp up, off-site manufacturer is going to be the only answer to it.

Steven Robinson from [ Pride Value. ] Just a quick question about moving forward, I mean, in terms of margins, Persimmon was getting 29%, 30% operating margins at the peak and ROACE in excess of 40%. Is there -- do you see that happening in the future? And if so, would there be a political kick back to that, which might cause further policy changes of the style that Charlie alluded to earlier on. I mean, is there a board discussion in and around that whole area of what is and acceptable ROACE and acceptable gross margin moving forward -- net margin, sorry, moving forward? And are you mindful of that and how the government might therefore change policy to adapt to others who are prepared to accept a lower margin?

I don't think the government has enough players in the industry to be choosy about what, who's going to build. I mean, when I speak to them, certainly, the Housing Minister, he's very well aware of the enormity of the target that has been set for him. And needs the industry to pay along with that.

So you're saying that you could be get moving back up to 30% operating margin. You gave me a political answer.

Sorry, but I think that, my dealings with them so far, very sensible and recognize that they need the private sector to play a full role in the delivery they are looking for. On that, no, I think we've killed every question. So look, thank you very much for joining us today. Delighted to have Andrew on board. As you can see he's really been transformational for us already. We've done a lot of work to improve our capabilities. We're in good shape for this year, and we're excited about the future. So thank you very much for joining us this morning.