Persimmon Plc Annual Report 2023
In a landscape marked by economic complexities, Persimmon's approach is anchored in resilience and innovation. Our forward-thinking strategies are driven by a deep understanding of market dynamics, enabling us to navigate challenges. Embracing sustainability as a guiding principle, we're incorporating modern construction techniques that enhance efficiency and reduce environmental impact.
Together we are embracing our opportunities.
Contents
Strategic report
Highlights 02
Our strategic framework 03
At a glance 04
Investment case 05
Chairman's statement 06
Our markets 08
Our business model 10
Our value chain 12
Group Chief Executive's statement 13
Our strategy 20
Key performance indicators 22
Financial review 26
Our people and culture 29
Sustainability 34
Non-financial information 54 and sustainability statement
Section 172 statement 55
Principal decisions 58
TCFD 59
Principal risks and material issues 69
Viability statement 76
Governance
Directors' Report
79-117
Governance at a glance 79
Chairman's introduction 80 to governance
Board leadership 82
Corporate governance statement 84
Nomination Committee report 97
Audit & Risk Committee report 107
Other disclosures 114
Remuneration Committee 118 report
Statement of Directors' 145 Responsibilities
Financial statements
Independent auditor's report 146
Consolidated statement of 153 comprehensive income
Balance sheets 154
Statement of changes in 155 shareholders' equity
Cash flow statements 157
Notes to the financial statements 158
Other information 196
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Highlights
Strong performance
Financial
Sustainable
Operational
Number of homes sold
9,922
Average selling price 2023
Investment in local communities4
•9,922 new home completions in FY23, ahead of our initial guidance with strong delivery in Q4
£255,752
c.£2.3bn
2022: 14,868
•Net private sales rate of 0.58 per outlet per week in 2023, ahead of industry average
2022: £248,616
2022: £2.4bn
Owned land holdings (plots)
Construction and supply chain jobs supported2
CDP climate score
66,742
c.76,000
A-
•Underlying operating profit and margin impacted by lower volumes, build cost inflation and mix as expected in 2023 •43% improvement in NHBC reportable items to deliver our highest quality homes yet
2022: B
2022: 70,768
2022: c.92,000
•NHBC customer satisfaction score improved to 92.9%, continued five-star HBF rating
Private forward sales1
£946m
Return on capital employed ('ROCE')3
Reportable Items
•Private ASP held up well with some softening in second half, reflected in forward order book pricing
2022: £908m
10.5%
0.28
2022: 0.49
•Successfully controlled WIP investment to match demand, without compromising on investment for future growth
2022: 30.4%
•Enhanced planning approach working well with c.11,000 plots achieving detailed consent in the period, resulting in a 7% increase in 'owned plots with detailed planning'
•Net land spend of £398m including the settlement of land creditors of £253m
1. As at 10 March 2024 (2022 figure as at 12 March 2023).
2. Estimated using an economic toolkit.
3. 12-month rolling average calculated on operating profit before legacy buildings provision charge (2023: £nil, 2022: £275.0m) and goodwill impairment (2023: £7.6m, 2022: £6.6m) and total capital employed. Capital employed being the Group's net assets less cash and cash equivalents plus land creditors.
4. The value of homes delivered to housing associations, the value of discounted open market value homes plus the value of planning contributions we have made over the last five years.
Our strategic framework
Clear priorities with sustainability at the heart
Our mission
To build homes with quality our customers can rely on at a price they can afford.
Our vision
To be Britain's leading homebuilder, with quality and customer service at its heart, building the best value homes on the market in sustainable and inclusive communities.
We will invest in innovation and technology to extend our low cost strengths and enhance our five-star capabilities to enable as many people as possible to buy the homes we build.
At a glance
Empowering success through choice
Persimmon Homes is our core brand which delivers a range of traditional family housing throughout the UK in places where customers wish to live and work. With a focus on delivering value and quality for our customers, we sell most of our homes under this brand.
Average selling price
£272,919
2022: £262,461
Revenue
£1,899m
2022: £2,961m
Completions
6,958
2022: 11,282
The Charles Church brand complements and differentiates itself from Persimmon by delivering larger, higher-specification homes in premium locations across the UK. We build homes under this brand tailored to local markets where our research and experience has identified a strong demand for a premium product.
Average selling price
£409,488
2022: £395,460
Revenue
£296m
2022: £353m
Completions
723
2022: 892
Westbury Partnerships is our brand with a focus on affordable social housing. We sell these homes to housing associations across the UK. This brand plays a key part in the delivery of sustainable homes for the benefit of lower-income occupiers, offering solutions to some of the country's affordable housing needs.
Average selling price
£152,852
2022: £142,017
Revenue
£343m
2022: £383m
Completions
2,241
2022: 2,694
Sustainability recognition
See Sustainability on pages 34 to 53
01 North Scotland
02 East Scotland
03 West Scotland
04 North East
05 Durham
06 Teesside
07 Lancashire
08 Yorkshire
09 West Yorkshire
10 North West
11 Nottingham
12 West Midlands
13 North Midlands
14 East Midlands
15 Anglia
16 Central
17 South Midlands
18 Midlands
19 Suffolk
20 Essex
21 West Wales
22 East Wales
23 Severn Valley
24 Wessex
25 Thames Valley
26 South East
27 South Coast
28 South West
29 Cornwall and West Devon
30 Persimmon Plc Head Office
31 Space4
32 Brickworks and Tileworks
Investment case
Building for the future
TotalTotal
Total
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Persimmon Homes | 1,899 |
Charles Church | 296 |
Westbury Partnerships | 343 |
Total | 2,538 |
Persimmon is a leading UK homebuilder and is well placed in a market where there is strong demand for new homes. We have a differentiated proposition focused on delivering high-quality homes at affordable price points for our customers, in an efficient and cost-effective manner.
We have broad market appeal with UK-wide presence across our three brands, competitive advantage through affordability, vertical integration and a commitment to sustainability. Our resilient business model, backed by experienced management and strong financial stability, paves the way for sustained growth, industry-leading shareholder returns and market leadership over the medium to long-term.
Persimmon Homes | 6,958 |
Charles Church | 723 |
Westbury Partnerships | 2,241 |
Total | 9,922 |
1 Competitive advantage
Our private average selling price is over 20% lower than the industry norm, making our homes not just accessible but genuinely affordable for a diverse range of customers, including first-time buyers.
2 National diversification
Our UK-wide presence reduces regional reliance while providing economies of scale, and our multi-brand portfolio ensures broad market appeal.
Persimmon Homes | 57,107 |
Charles Church | 9,523 |
Westbury Partnerships | 15,605 |
Total | 82,235 |
3 Growth
The long-term demand outlook for new homes is favourable. With our land holdings and operational footprint, we are well positioned for disciplined growth when market conditions improve.
4 Quality sustainable homes
Our motto is to 'Build Right First Time'. Our high-quality homes are five-star HBF rated and have strong customer satisfaction ratings. We continue to pursue our carbon reduction targets, aiming to deliver net zero homes by 2030.
5 Efficiency and resilience
Our vertical integration enhances supply chain resilience and offers opportunity for innovation. Combined with our discipline around cost control, this ensures our build costs are kept low without compromising on quality.
6 Land
We have an excellent track record of purchasing land at attractive prices reflected in our low per plot cost which, combined with our operational efficiency, underpins our ability to generate industry-leading margins and high levels of ROCE when market conditions improve.
7 Financial strength
We operate with a robust balance sheet and generate strong cash generation through the cycle.
8 Experienced leadership
The extensive sector experience of our leadership team ensures disciplined business management. We are continuously exploring solutions to meet future demands, staying ahead of the curve.
Chairman's statement
Opportunity for everyone
Introduction
2023 was always going to be a challenging year, following on from the sharp rise in mortgage rates in autumn 2022 and a general climate of economic uncertainty. The strategy we set out and the actions we took enabled us to navigate this environment well, performing ahead of expectations for the year. In particular, our programme of continuous improvement in build quality and customer care has enabled us to retain our five-star Home Builders Federation rating, as evidence of the sustainable transformation of our business.
As expected at the start of the year, the number of new home completions and profit delivery of the Group was significantly down on the prior year, reflecting a difficult macroeconomic backdrop. While demand remains high, affordability and mortgage availability has been difficult for many of our customers, especially first-time buyers. Thankfully, there has been some stabilisation in recent months with mortgage rates having fallen from their peak in July 2023.
While 2024 will not be an easy year, I remain very confident of the exciting long-term prospects for the Group. There is no doubt that the country continues to face a significant housing shortage, with a growing population, continuing migration and household formation as well as a sizeable amount of old housing stock.
The operational progress we have made in the year means that we are well placed to benefit from strong pent-up demand as the housing cycle turns. Our homes are built to the highest standards and across our three brands, we are truly affordable for our customers with a private average selling price that is over 20% lower than the national average1. We are investing in expanding our outlet base with good success in obtaining planning permissions in 2023, despite the continued challenges of the UK planning system.
My colleagues have navigated the challenges of 2023 well and with impressive skill and commitment. Our mission is to build quality homes of value at a price our customers can afford. Our performance in 2023 demonstrates the considerable progress that the Group has made over the last five years.
1.
National average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land registry. Group average private selling price is £285,774.
I am convinced our long-term future is bright and we are all looking forward to working together to maintain Persimmon's industry-leading position.
Building a sustainable business for the future
Following the swift rise in interest rates at the end of 2022, the Group acted quickly to enhance its already strong investment discipline and working capital cost controls. This continued throughout 2023 to protect our cash position and in the longer-term provide the flexibility to pursue new growth opportunities. Persimmon's historical strength has been built on conservative balance sheet management and limited gearing. We continue to observe these principles and manage our cost base with prudence.
We do not currently anticipate a major improvement in market conditions in 2024, with a general election likely this year and interest rates expected to remain at current levels for some time. However, we have had good success with our sharpened approach to planning through local engagement which will allow us to grow outlet numbers in the coming year and our continued strength in land buying gives us a strong platform for growth when the market does recover. We are focused on purchasing the right land for development which will include a mix of greenfield and brownfield opportunities, recognising the Government's focus on greater use of brownfield land.
Industry leadership
We signed the English and Welsh Building Safety Remediation Agreements in the year. We are getting on with required remediation works and expect the work to be largely completed over the next two to three years.
The Company is fortunate to have three established brands and, in addition to the core Persimmon homes, we will further exploit the excellence of Charles Church which allows us to penetrate higher price points, as well as developing Westbury working in partnership with local authorities and housing associations.
Shareholder returns
We recognise the importance of returns for our shareholders and our Capital Allocation Policy, established in 2022, seeks to balance cash returns to our shareholders with investment in the business for future growth. For 2023, the Board proposes a final dividend of 40p per share to be paid on 12 July 2024 to shareholders on the register at 21 June 2024, following shareholder approval at the AGM. This dividend is in addition to the interim dividend of 20p per share, paid in November 2023, to give a total dividend per share of 60p in respect of financial year 2023. The Board's intention is to at least maintain the 2023 dividend per share in 2024, with a view to growing this over time as market conditions permit.
Board changes
During the year we had a number of changes to the Board with the appointments of Colette O'Shea and Alexandra Depledge MBE as Independent Non-Executive Directors of the Group. I am delighted to welcome both Colette and Alexandra to the Board with both adding highly relevant and complementary skills to the Persimmon Board. Simon Litherland and Joanna Place, Non-Executive Directors of the Group, both decided not to seek re-election for a further term at the AGM stepping down from the Board after six years and three years, respectively. On behalf of the Board, I would like to thank Simon and Joanna for their most valuable contributions to the Persimmon Board over recent years.
We also announced on 8 November 2023, that Andrew Duxbury would be joining the Group as Chief Financial Officer, replacing Jason Windsor who left the business in early September. Andrew has extensive experience as a finance director in the construction and housebuilding industry, which will be an invaluable asset to Persimmon as we continue to provide good quality homes for families across the UK and position the business for future growth. We look forward to welcoming Andrew to the business in due course.
In conclusion
Finally, on behalf of the whole Board I would like to thank our colleagues, subcontractors and suppliers for their hard work and determination through challenging market conditions in 2023. We are well placed to manage near-term uncertainty and are actively positioning the business for disciplined future growth. I am convinced our long-term future is bright and we are all looking forward to working together to maintain Persimmon's industry-leading position and deliver more quality homes for our customers and sustainable returns for our shareholders through the cycle.
Roger Devlin
Chairman
11 March 2024
Our markets
Opportunity for the future
Housing supply
Market trends
Our response
There is a chronic undersupply of housing, compounded by population growth and the need for replacement of existing housing stock. The Government's target of delivering 300,000 homes annually in England is not being met which is adding to the housing crisis. There is a need for high-quality homes across all tenures, not just private homes for sale. Development drives community benefits, economic activity and aligns with the broader pursuit of net zero emissions as new homes become more energy efficient.
We remain committed to delivering high-quality homes, evidenced by the delivery of our highest-ever quality homes in 2023. Delivery of homes in 2023 was impacted by the challenging market backdrop. However, as the market recovers, with a substantial portfolio of plots under our control, we are well positioned to expand our outlet network and return to volume growth to help the industry meet housing demand.
However, the industry has struggled to meet housing targets, leading to price inflation in some areas and exacerbating supply-demand imbalances. In 2023, economic uncertainty, affordability challenges, and the end of schemes like Help to Buy further impacted delivery rates. There remains near-term uncertainty, driven by factors such as an expected general election in 2024, which further complicates the landscape. Moreover, the planning environment and limited land supply pose significant barriers to development and home delivery.
Additionally, we engage proactively with policymakers to address planning constraints and advocate for measures that support sustainable development.
Overall, our response emphasises resilience, innovation, and collaboration to drive sustainable growth and address the pressing needs of the UK housing market.
300,000
Government ambition for new home additions in England
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Mortgage availability and affordability
Market trends
Our response
The housing market has faced challenges since 2022, with higher mortgage rates impacting affordability. Although UK base rates have peaked, there's ongoing uncertainty about the extent of interest rate cuts in 2024. Swap rates, though reducing from peak levels, have experienced volatility, and their trend will be crucial for restoring confidence in the housing market.
Persimmon provides diverse house types at attractive prices, enabling customers to purchase at a price they can afford. Our private average selling price of £285,774 is over 20% below the national average4 and reflects our commitment to accessible housing.
House prices in December 2023 saw a 1.8% decline compared to the previous year, marking a 4.5% decrease from the all-time high recorded in late summer 2022¹. At the end of 2023, the average two-year mortgage fix was 5.93%, significantly higher than the 2.38% average two years earlier². Despite these fluctuations, with stability in the Bank of England base rate and the average mortgage rates falling, the backdrop is improving for buyers.
We continue to adapt our strategies to mitigate economic uncertainties and affordability issues. This includes optimising sales approaches and exploring solutions such as shared ownership products.
over
20%
lower private ASP than national average4
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1. Nationwide House Price Index.
2. Moneyfacts.
This was evidenced with a recent uptick in mortgage approvals, rising from 49.3k in November to 50.5k in December 2023³. While mortgage approvals are rising, they remain notably below a 'normal' level with the first-time buyer market particularly constrained.
3. Bank of England.
4. Based on the Group's private average selling price of £285,774 for the year to 31 December 2023 compared with the national average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land Registry.
Links to key priorities
Links to principal risks
3 Disciplined growth: high quality land investmentUK economic conditionsIndustry-leading financial performance
2 Government policy and political risk
Read more on pages 20 and 21
11
Mortgage availability
Read more on pages 72 to 75
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Disclaimer
Persimmon plc published this content on 25 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 March 2024 13:53:04 UTC.