Persimmon Plc (PSN) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Persimmon Plc Trading Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dean Finch, CEO. Please go ahead.

Thank you. Good morning, and thank you for joining us this morning. As usual, I'm joined by Andrew and Vicky. And I'd just like to take you through a few highlights before we open for Q&A. Our focus today is on the 2024 results. And as you can see from our statement, we've delivered a strong performance. As you can see, we have delivered growth in completions of over 7% to 10,664, increased sales rates by 21% to 0.7 per outlet per week and grown our ASP by 5% to GBP 268,500, and that is consistent quarter-on-quarter growth compared to the previous year, and that is a growth in ASP ex bulk for private over every quarter. Our PBT will come out around the upper end of consensus expectations. Against the backdrop of a difficult year, this is a great result. And I really believe this performance is testament to the hard work we have been doing over the last 3 years to reposition the business and create a strong platform for the future. From the investments in land and planning, our sales and marketing capabilities and vertical integration through to improve build quality and customer service, we've made real progress in building a better-performing business. For example, our investment in land and our improved approach to planning in recent years are showing results. During the year, we spent GBP 440 million on new land, and we achieved detailed or reserved matters on around 13,000 plots, up 21% on the prior year, with a particularly strong performance in Q4. The combination of these actions enabled us to grow outlet numbers in 2024, up by 5% to 270. That's opening over 100 outlets or 40% of the business renewed and is against an industry backdrop of decline of 4.8% and also sets us up for the future. We ended the year with GBP 260 million of net cash, having made these investments, returned GBP 192 million of cash to shareholders and having spent GBP 60 million on building safety remediation. Just to remind you, remediation work has either started or completed on over 70% of known developments. And crucially, we have just 7% of known buildings left to tender. None of this has happened by accident. It is the result of a lot of hard work, and I'm extremely grateful to our excellent teams for making this happen. While we are only a handful of trading days into the new year and it is too soon to give detailed guidance for 2025, we came into the new year in a good position, and we are happy with consensus for 2025. Our costs are well under control. Inquiries and customer interest are strong, and there is a lot of pent-up demand in the market. Our forward order book is higher than a year ago, and we have a good pipeline of new land opportunities ahead of us. With our excellent teams across the business actively pushing -- pursuing new opportunities, I believe that Persimmon is well placed as we head into the new year. So with that, I'll hand it over to questions.

Dean, just before we go to questions, could I just add a couple of my own reflections as well, given it's my first year-end close at Persimmon. So I guess, from my perspective, I knew when I joined the group, Persimmon had been investing to improve key areas. But I think what I hadn't fully appreciated until I arrived was the scale and the speed of that improvement. So the improvement in investment in build quality and customer service and what that's meant in terms of being reflected in improved sales rates, the investment in land and the improved approach to planning and what that's meant in terms of driving increased numbers of outlets against a reducing market across the whole of the U.K. So I suppose from my perspective, and I can't take any credit for it personally yet because I wasn't here, I guess I just want to reiterate that investment made in the last 2 or 3 years, I think, has put the company in a really good position as we go into 2025. So I just thought it's helpful to give those kind of first perspectives as well.

Thank you, Andrew. Any questions, please?

[Operator Instructions] And now we're going to take our first question, and the question comes from the line of Aynsley Lammin from Investec.

Happy New Year, everybody. Just 2 questions from me, please. Just firstly, obviously, you mentioned good inquiry levels is the levels. It's early in the new year, of course, but I just wondered if you could give a little bit more color. Are you seeing anything on the reservation side, just in current trading as you look into the kind of early part of this year, given what we're seeing in the kind of macro from headlines on the media newspapers, et cetera? Any kind of a bit more context around how that may be kind of coloring your view into the early part of this year would be helpful. And then secondly, just on -- I think you're flagging up maybe 2% to 4% kind of level of type of build cost inflation, what you've seen there, which costs are rising, labor, materials? Any more color there would be quite interesting as well.

Aynsley, happy New Year to you. So look, we're a handful of days in. We've had 2 data points so far, pretty much in line with last year. Pricing is very good at the moment. So we're pleased with what we're seeing so far. And look, we're -- obviously, we see the headlines, we read the press and, obviously, saw what happened with gilts last week. But all I can tell you is there's a lot of pent-up demand in the market. And our sense overall, I mean what we saw during the course of 2024 is a picture improving consistently across the course of the year, which I thought was very encouraging. And why is that? Well, obviously, the pent-up demand. But I think it's good to step aside from the broader macro picture and realize we deal with a multitude of smaller individual markets, which each have got their own dynamics. And employment is strong and real wages actually are strong. And I think whilst the affordability challenges remain and, clearly, if interest rates don't come down as fast as projected or even go up a smidge, that is unhelpful. But I think you've got to set that against the backdrop of high employment and a strong wage growth and a desire to own, which is unabated, in my opinion. So that's all helpful. Clearly, sentiment is critically important. But I'd take you back to what we saw during the course of 2024, which is consistent quarter-on-quarter growth on the previous year and consistent ASP growth if you exclude bulk. So I think let's not get blown off by the headlines of a few days, and let's see how 2025 unfolds. We are in a very strong place. We are growing our business, and we think we will grow again into 2025. Turning to your point on build cost inflation, I actually took the time last week to meet every single one on a one-to-one basis of my opcos. And I came away from that very encouraged by what we are seeing on the ground. Costs are being strongly controlled. Across our 29 businesses, maybe 4 of them are reporting some form of cost increasing cost -- labor cost increases; the rest of them are not. And where they're encountering it, they're pushing back and retendering. So we're seeing some material increases, but nothing material, and labor costs are well under control. And I guess I'd make the point that there's a bit of self-help going on in that as well because we're growing the business, because we opened 100 outlets last year and other things being equal, we'll probably do broadly the same this year. That gives us opportunities to give more work in a market which is, at the moment, declining. As I said at the top of the call, we grew outlets by 5% last year, whereas the industry on average declined by 5%. People are hungry for work, and that puts us in a good place. So costs are well under control, very pleased with that. We're projecting, nevertheless, this year, low single digits because of the combination of national insurance increase and 1 or 2 other things of regulatory nature. But overall, we're in a very good place, and I think our businesses are very well controlled.

And the next question comes from the line of Will Jones from Redburn Atlantic.

I'll try 3, if I can, please. First, just if you could help us with the mix of HA and private in the year finished, which was less HA than I would have expected but then a better volume number and how that might affect mix in 2025, please? Second was just coming back to the consent -- the planning consent wins of 13,000. Do you think that reflects any of the momentum on NPPF? Or do you think that's really more about the company itself? And if NPPF gets going, could that 13,000 start to trend higher? And perhaps you could just tie that in with broad expectations on outlets. I think you mentioned another 100 or so for the year ahead, but maybe a view on the net figure? And then lastly, just I guess around pricing. You mentioned improving trends through the year. We can see the order book position, but there's obviously bulk and non-bulk kind of influences in there, but just where you are on like-for-like pricing as best you can describe and the tactics, I guess, as you head into spring.

Will, thank you for that. Andrew, do you want to pick up the first one?

Yes. So let me pick up the first one, Will. So I think we were about 15% HA in the year. I would say, typically, it would be 15% to 20%. It depends a bit on geographic mix. Different local authorities have got different requirements. It was a little bit higher in 2023, and that's partly because we did push it a little bit harder because the private market was a bit softer. But I think overall, that general run rate at 15% to 20% is about what we said in the past, and I suspect that's where it will be as we go forward. So I think overall, what that does show is the strength of the private sales through 2024, which, as Dean said earlier, we saw that growth quarter-on-quarter in terms of sales rate. So I think it demonstrates the strength of our private business there as well. And that's what I'd take out rather than reading too much into the lower HA number.

Okay. Thanks, Andrew. So I'll comment on the other 2. I think the answer, Will, is it's a combination of the 2. It's a strong degree of self-help, which has undoubtedly helped us being far more forensic and detailed and targeting on a case-by-case basis, almost individual-by-individual basis on planning committees, what's required, coupled with improving the product and improving the places we are building has all gone into the success in planning. But I'm not going to take all of the credit. I think it is early days with the NPPF. Look, we are delighted with what's been proposed with the NPPF and congratulate the government for the measures it has taken there. I think it's very brave, very bold and good for them. It is, in my view, the right thing to do. I think that will build through time. There's obviously a big distance between Whitehall and some of our planning committees that we deal with. And some of them have got the memo and some of them haven't got the memo. But what I would point to is a strong Q4 performance in particular in terms of planning approvals. And so I would conclude that it is a combination of the 2. I think somewhere in there, you try to gouge me into saying, I'm not going to give you a net number. No, I'm not. So that is the answer to that. And in pricing, look, we're seeing a mixed picture, it's fair to say, across the country, as I think I consistently said during the course of 2024, and that continues to be the case. So Scotland and the North, strong. The Southeast and the Southwest, weaker. But obviously, it's nuanced within that. I was encouraged towards the end of the year to see anecdotally improving affordability positions in some of our bellwether companies as I would see them at the moment, down in Thames Valley and Kent and places like that. The affordability challenges remains, but on the ground, we're seeing signs that things are improving. And obviously, we will do what is sensible within that and look at pricing and see how we will tickle things along. But as we said at the top of the call, it's too early yet to call the trends for 2025. We will be nimble as we were in 2024. I think the business was very proactive and nimble in 2024 in terms of responding to events, and so we will be again in 2025.

Now we'll go and take our next question, and the question comes from the line of Harry Goad from Berenberg.

I've got 2, please. So firstly, can you just remind us what your ambitions are on building the Partnerships business over the next few years and whether some of the sort of news flow we hear about, sort of funding constraints to housing associations impacts that at all in 2025? And then secondly, different topic, land prices. Do you think some of those moves we've seen on NPPF result in lower land prices as we progress through this year with more consented land coming up for sale?

I think your -- Harry, I think your real question on Partnerships is, are we okay for 2025? And yes, we are. Again, taking back to what I said, I spoke to each of the operating companies last week. The financial difficulties of the sector have been well trailed in the news. And so it is not new news to anyone. But we are well set for 2025. And where we have a handful of RPs and difficulties, we are able -- we've done the groundwork, and we are able to cascade to move to [ DONV ]. And frankly, when we do that, they fly out with all our hotcakes. So no concerns there. Over time, I mean I think the Deputy Prime Minister has made no secret of her desire to -- or her ambitions to grow the affordable sector, and we hear talk of it doubling or even trebling, which would be very ambitious indeed. And we want to be well positioned to take advantage of that and build our capabilities. In terms of land pricing, it's demand and supply, isn't it? All I can say really is that I think we did exactly the right thing over the course of the last couple of years in terms of actively pursuing land opportunities. You never buy the same piece of land twice, so you can never really tell what's going on with pricing in the land market. But I think as we look back, we bought what we saw as great opportunities at the right hurdle rate where we feel we can sell. And whilst we continue to see those opportunities, we will continue to be active in the market.

And the next question comes from the line of Ami Galla from Citi.

Just a couple of questions from me as well. First one, on just on trading in the market, what are you hearing from mortgage lenders in terms of how are they seeing the sort of current market trends and the volatility around the rates? The second one was on the government measures. Is there -- incrementally, what are you hearing from the government on potential measures for the housing market given the affordability challenges? Is there any scope for any demand side support to come through later in the year? And the last one was on the order book. Can you give us some color in terms of what's the gross margin embedded in the order book today? Or any color in terms of where does underlying pricing sit in that order book?

Andrew, do you want to take 1 and 3, and I'll come back about the government?

Yes. So in terms of mortgage products, mortgage lending, I think it comes back to the point Dean made earlier about affordability. And clearly, affordability is important, but there are more first-time buyers, 95%, 90% mortgages on the market now than there were 2 years ago, and that's helpful in terms of our customers qualifying. I think sentiment is, of course, still important, and our customers read the newspapers as much as well as we do in terms of what will happen to mortgage rates. So I think interest rates are helpful for sentiment. But I think the fact there's more products available than there were a couple of years ago is very helpful for us as well in terms of allowing our customers to qualify as they come through the door. And then in terms of -- I mean, if I cover off the demand side as well in government, I mean I think the short answer is that we're not really seeing anything at the moment. I think the government is -- Dean has referred to the supply side, the planning side, which is, I think, where we're seeing the primary focus at the moment, if you just put aside the funding for the affordable sector. Whether that will stay the case or whether the government in due course will look to do something on whether it be first-time buyers or some other kind of demand stimulus to help with affordability, we shall see. But at the moment, that's not something which we're, if you like, expecting or certainly we're talking about at the moment. So -- and then I think in terms of your third question, Ami, was on the order book. So we've set out, in the back of the statement, the split between the private and HA numbers in the order book. So you can see the private ASP in the order book is just under GBP 277,000. It's about 4% higher than this time last year. So I think that reflects some of that stronger pricing which Dean referred to. Of course, it's not the same order book. It's in different geographies and it's different products and all the rest of it. But across the piece, there's 2,360 homes there and the average selling price is 4% higher than it was this time last year. So I think that's encouraging as a start point as we go into 2024. And then we'll see how we progress pricing as we go forward from here.