Persimmon Plc

Hello and welcome to the Persimmon 2020 half-year results presentation. Please note that for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions later on the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I'll now hand over to your host. Dave Jenkinson, Group Chief Executive of Persimmon PLC, to begin today's conference. Thank you.

Good morning, everyone, and welcome to our half-year presentation Q&A. I hope you've had the opportunity to watch our presentation online and catch up with our trading update. I believe the presentation highlights the resilient financial performance of the business and how we have carefully managed the business through the cycle. I have numerous items I could pick out from the presentation, but in particular, I would like to draw your attention to, firstly, the weekly sales rate at almost 50% above the same time last year. This has given us a forward order book of 21% increase on last year. And we currently have over 13,600 plots sold for the end of the year, with 10 selling weeks remaining. for year-end completions based on current build programs and output. The WIPP position is 14% above the same time last year. We have almost 10,500 plots which we could potentially complete for the end of the year based on current build programs and on current output. Gross margins are proving very resilient And if we produce a number at least similar to half 2019, then we will regain our operational efficiencies in relation to overhead recovery that we've lost during half one of this year. In the short term, we are in a very strong position. But I am well aware of the medium term challenges associated with COVID-19, rising unemployment and Brexit. How we have managed the business over the last two years gives me every confidence we are ready to face into a number of future economic scenarios which may develop. Now, in the normal way, I will open it up to Q&A.

If you would like to ask a question, please press star 1 on your telephone keypad. Ensure that your line remains unmuted locally. I will then prompt you when to ask your question. And I star 1. The first question comes from the line of Rajesh Patki from JPMorgan London. Please go ahead.

Yes. Good morning, everyone. I've got two questions.

Hi, Rajesh.

How are you? Yeah.

Are you well, Rajesh?

I'm very well, very well. How are you guys? Good. Yeah, fine, fine. Great. I've got two questions. First one is on the COVID-related cause, the 11 million pounds of cause that you've undertaken. And if you could talk about your decision to capitalize them while some of your peers have expense to the P&L, if you could provide some color on that. And the second question is on land spent. If you can talk a bit about what you're seeing in the land market at the moment, and are you looking to continue with caution for the remainder of the year after adding about 1,000, just under 1,000 plots to your land bank in the first half? Thank you.

I'll deal with question two, then I'll pass on to Mike to give you a bit more colour on question one. In terms of land spend, nothing's really changed. The market shape's pretty similar to what we've seen for some time. We remain vigilant. We're always looking for opportunities, and we are picking off one or two opportunities where we think the risk reflects the reward. But we're being very cautious, and it's against the strict criteria, so there's no real change in the land market. In terms of the COVID-related costs, this relates to two parts. First bit is the COVID costs released no site overheads, and the second bit relates to the overhead inefficiencies from not having the same volume as what we normally associate with the business. And that was really important to us, and it was part of our decision not to furlough staff. That led to one or two inefficiencies, but we think it was a price well worth paying.

I think, Rajesh, from a technical accounting perspective, basically it's no change at Persimmon. You know, we've continue to apply our accounting policies in a consistent manner. So what costs would normally get expensed have been expensed through the P&L account and what costs would routinely get charged to work in progress inventories have been. I think that the £11 million that we have incurred in terms of COVID costs. The bulk of it relates to the increase in site duration, the development timeframes. Because if you think about it, given a period of disruption to production, what that means for a particular site is that it lengthens the development timeframe. So as a result of that, we're going to incur additional overhead over and above what the original site budget would be indicating for that site, just by way of an extension of the development timeframes. So we've got about 26,500 plots that are in active development at this point. So all of those active sites have been subject to some extension at this point in time in terms of development timeframe. And the future anticipated revenues off those sites is about £5.7 billion of future revenue. So in the context of that future revenue, we've expensed £1.1 million of the £11 million through P&L in the first half being recovered against legal completions taken in the first half. The £9.9 million is carried in work in progress to expense against future completions in the normal way. We sort of think about the disruption as perhaps an example of a similar set of conditions disrupting site activity would be, you know, bad weather window. If you remember the beast from the east a while ago, that did disrupt production for sort of three or four weeks. But we continue to apply the same accounting policies at that time, and we've done the same this time. So, you know, the margin burden, if you will, of that 9.9 million moving forward is about, 17 basis points over the gross development value of the sites that we've got left. And in the normal way, the team within Persimmon will be working hard to recover that value over future periods. So we'll wait and see. Yes, at this point, there's a bit of additional cost there, but hopefully over time we'll be able to nibble away at that and get back to the original budget plan for each of those developments. Is that okay, Rajesh?

Very clear. Thank you very much. Thank you.

The next question comes from the line of Arnaud Lehmann from Bank of America. Please go ahead.

Thank you. Good morning, Dr. Lehmann. Hope you are well. Morning, Anna. Morning. I guess three quick questions on my side. Firstly, I mean, your sales rate is quite impressive. You talk about 49% increase in the beginning of July. How do you see it? Is it underlying market conditions or do you think you're gaining significant market shares? Because it seems to be much stronger than what some of your peers have reported. My second question is on your Margin outlook for the second half. I mean, you're kindly guiding us for similar or higher level of completion in H2. Do you expect to be able to deliver a better margin in H2 on the back of that relative to the first half? And lastly, I think you, in the presentation, you mentioned that the net cash, which is the cash minus the loan creditor is around 450 at the end of June. Where would you expect that to develop into the second half with higher completions, but also now you have the kind of small dividend payment coming? Where would you expect to land at year-end? Thank you.

Okay, Mick, I'll let you do two and three first, then I'll answer question one.

I mean, from the margin outlook, Arno, I think you're right, you know, your intuition around Margin for the second half improving, I think, is right in terms of direction of travel. You know, actually, on the trading update in early July, we did point out that really what we've lost as an industry is the ability to complete the planned legal completion. So we've lost revenue for a period of time. And I guess the industry is playing catch up to a degree here. to get back to a similar cumulative position over time. So what that means is that we will deliver more volume through the second half, as Dave's already pointed to, and that will improve our overhead recovery rates through the second half. So you've seen a housing operating margin in the first half of 26.6%. I think you'll see that move forward because of overhead recovery improvement, both in gross margin terms. So 31.3% housing gross margin moving ahead a bit. We don't want to give a forecast, but maybe 50 basis points improvement on a normalisation of overhead recovery through the second half And then on the OpEx line, you can see that our operating expenses as a percentage of revenue was around about 5% in the first half, whereas over recent years, you've seen around about 3% being achieved. So I think that a return to nearer 3% in the second half is a decent estimate at this point as a guide. So, you know, when you put those pieces together, you can, I guess, work out where you think the operating margin for the second half will be. In terms of cash outlook, I think, obviously, on the prognosis of quite a positive period of delivery on trading, as Dave's already pointed to in the second half, I think, you know, our cash outlook will therefore be quite strong, and particularly when you sort of think about the activity in the land market. As Dave's already said, we've been quite cautious and will continue to be because that's really a key part of managing the house building operations through the cycle. So I think it's a positive outlook in terms of cash. I don't particularly want to estimate a number, but I think if you turn the handle on on your forecasts, then I think that it's likely that we would be in an improved cash position from where we are today in terms of direction. To what extent? Well, there are a lot of moving parts to that, but I think sat here today, I think we would expect to be in an improved cash position exiting this year into next on the back of... the positive outlook we've got certainly for the second half.

Thanks a lot, mate. In terms of sales rate, I think I know it's a point well made. I do think if you look at all the stats, there's obviously a bit of activity in the marketplace. And we picked that up very early during the lockdown period because we could see from our sales staff because we had market intelligence. And there is something actually happening at Persimmon, which I put down to our actions rather than just the marketplace, though. because our sales rates are now ahead of this time last year, and importantly, our reservation rates seem to be ahead of our peers. And I put that down to primarily our decisions to invest in WIP during the lockdown and before lockdown, which has meant we have the ability to provide stock and our range of sites across the country to customers, which means we're in the best position to capture the demand that's out there.

That's great. Thank you very much. Thank you.

The next question comes from the line of Ainsley Lamming from Canaccord. Please go ahead.

Hi. Morning, Mike and Dave. Just a couple from me. First of all, I wondered if you could comment where you're on the kind of customer care journey. I mean, obviously now we're trending at a five-star rate, and are you kind of there in terms of what you set out to achieve? And then secondly, others in the industry have talked about struggling to get much close to 90% build rates. productivity, et cetera, and you're kind of signaling that you're virtually back to where you were pre-COVID with a negligible impact on margins, if I understand it correctly, looking forward. So I just wondered if you could provide a bit more color, how you can explain how you've got up to kind of 100% much faster with what you've done very well, obviously. And secondly, any guidance on the ASP for H2 completions? You obviously got good visibility on those completions. Is it going to be kind of in line with the first half 225? Thanks.

Well, I'll take one and two, and I'll pass three on to Mike. Obviously, the customer care improvement plan, as you know, wasn't just about the HBS star rating. We have a comprehensive package of scheme which has a lot of moving parts to it. It's still not fully embedded in the business. And I don't think we'll ever be finished because we always want to improve constantly to provide a better service to our customers. However, what we do know, the things we have done, the process and systems have proven very robust. And the results are clearly there by one metric, which is the HBS star rating. We're really pleased as we sit here today. We're currently at 89.6% for the year. And really pleasing for us is since January, we've been trending as a five-star builder. And if anything, over the last couple of months, the results have improved even further. So in terms of the customer care improvement plan, it looks like it's working. And the great thing for the company is we believe there's further benefit to come. And I would specifically draw your attention to the retention scheme. We're still at the moment about 40% of our customers are using it. The feedback is very, very good. And we were delighted that the consumer could recognise it as a, best practice within the industry. We believe it's made a material difference to our approach, not just to the customers, but within the business as well. So that's another classic example of things taking place. FiberNest is another one. We're getting good results. So the customer care improvement plan, I like to think in totality rather than just the star rating. In terms of the output, I couldn't be happier with the way the businesses responded. And you have to think why that is. And I think it's a good point. And I think it sits in three reasons. The first thing, what we did before lockdown. Secondly, what we did during lockdown. And third, what we did after lockdown. And as you know, before lockdown, we took the conscious business decision to invest in WIP because we suspected there would be additional demand in the market and it's helped Dubai was coming to an end, which placed us in a very strong position in terms of WIP as we entered it. And the second important point is you have to remember we've positioned the business that the shape of our sites in the form of our developments are normal traditional developments. We haven't got high density city developments and high intensity, high volume output sites the same as some of our peers. So it's much easier to respect social distancing and by the very nature of the sites people generally are isolated anyway so it's much easier for us to comply with the social distancing rules than anybody else. The other big benefit of us was taking the decision not to furlough the staff. Not only did it mean we could prepare in the office for coming back to site, but having a sales presence gave us good visibility and market intelligence of what was out in the marketplace. We knew that it was customers wanting to reserve our houses. We knew our website inquiries were very high. We knew our inquiry levels were through the roof, which gave us confidence not only to invest in terms of further, but also give us confidence to want to get on site as early as we possibly could to capture it. And as we've got a loom management structure, it was very easy to make that happen. And finally, because we had people working, we were able to prepare for getting back to work because we knew what we wanted to achieve. And I think it's a credit to the whole team, and I think you've picked up from Richard's presentation yesterday that the process has been very robust, so much so that that even with the relaxation of the recent government guidance to one metre plus, we've continued to respect the two metre rule and we're still being able to achieve the output. So we believe even if there was a further lockdown, we are well prepared for what may happen in the next four to five months in terms of that aspect. You want to pick up on the ESP, mate?

Yeah, I think obviously a feature of the first half is a little bit less affordable housing delivered in the mix so if you will that has flattered ASP you know the overall blended average selling price for the group in the first half we'd expect a normalisation of that moving into the second half to perhaps a more normal mix which will again you know serve to dilute the overall group ASP in the second half so Overall, I think, you know, flattish pricing outlook, albeit behind the scenes, maybe a nudge forward, certainly on the PD side, given what we're seeing in the market currently. But overall, in terms of group blended ASP, maybe flattish, you know, as compared with where the first half landed. Is that okay, Ainsley? Yeah.

Yeah, all very clear and impressive. Thanks very much. Thank you.

The next question comes from the line of Will Jones from Redburn. Please go ahead.

Thanks. Morning, guys. Morning, Will. The first set of questions, I suppose, is more about just exploring that recent sales strength. Could you maybe help us with the help to buy component of that maybe further? changed in the last couple of months versus, say, where you were across the first half? And I guess any numbers within that would be useful. Again, Mike, you just hinted that you have got the opportunity to nudge forward price. Is it going to push you a bit further maybe on what that might entail? Is that 50 basis points or is it maybe 1% to 2% or is there a number maybe you could put around what you may be able to do around price? And then linking that all to what you can continue to sell at. I think 0.97 was the rate you mentioned for the last few weeks. And historically, for Simmons, it was talked about 0.7, 0.75 as being its optimum. I appreciate you're very well invested from a WIP perspective and all the rest of it. But is there a number in mind that you could keep going at for a certain period of time relative to that high, nearly one times number? So that was all around, I guess, recent sales. And then just away from that, could you help us on where the site numbers are currently at versus, I think, the 335 you mentioned in July and the extent to which you think you need to be at least active to some extent in the land market going forward to keep that number moving or to keep it held up. Thanks.

Okay.

That's quite a comprehensive list there, Will.

I've got them all written down. Should I jump on the site numbers? Yeah, you can look at that, yeah. Yeah, I think site numbers have remained pretty resilient, Will. I think... We enjoy quite a broad and strong site network. We're slightly down on the same point last year, maybe 1% to 2%. We've got about 340, 335, 340 at the moment active outlets. Visibility moving forward, we've got about 55 sites that we're earmarking to open through the second half, which, you know, it depends on, as you know, it depends on the rate of sale that we achieve in terms of longevity of those sites, in terms of existing sites and the replacement profile. So it's hard to predict where we'll exit this year. But I think we remain confident that we've got good visibility within the site network. So we don't see that materially changing. We might trend through this half at a similar level to last year, say. I don't think there's going to be any significant changes to that profile. So that's the sort of near-term outlook on site numbers.

Dave did you want to talk about pricing and yeah I think in terms of I think Mike's given you a guide on prices I don't want to go into any more detail on that it's hard to assess really what I would say is what we can see every week from our sales and we go through every single plot sale every single week and every price gets reviewed and we reflect the demand on that site some forwards some backwards if we're not selling enough on a particular site at the moment the current trend is very positive We're really pleased with the sales prices we are achieving, and they are tickling forwards. But it's not that simplistic where you can put your finger in the air, depend upon one side. A much more sophisticated business than that, we would never just simply put a price increasing across the board. Each individual reason, each individual plot is looked at in its own merit, but the trend at the moment is encouraging. A question in terms of sales strength. It's like most things in life, people look for a simple answer to this. It's never that simple. It's normally a number of moving parts. How to buy to sense hasn't really changed. If you want to push me for one or two key reasons what I think it is, I think the first is don't have our decision to have the whip on the ground. And we can see that in our weekly sales rate, the houses we're selling the most of is the most advanced. And I think our competition are probably struggling to provide the stock. the same way as what we have, so we have a bit of a commercial advantage, and I think there's probably no doubt we've captured a little bit of market share there. So I don't think it's down to any one particular thing. I think it's down to a lot of things, and the harder you work, the luckier you get in terms of these type of things, so we have prepared for it. So I think that probably answers that one. I don't intend to go on any more about that. Question three was how long can we continue with the sales rate? Well, I think the key element here is the WIP, because we have the land, we have the outlet coverage to provide it, And what we won't do is make the same mistakes in the past of chasing volume at the cost of customers. But the great thing is at the moment, we do have the whip and the ground, so we don't have to make that decision. We can get the volume, we believe, when we consider the benefits of our customer care improvement plan and maintain our customer care. What is very encouraging is, because some of our peers are probably not investing the same amount as what we are, we are able to get labour at the moment. at reasonably attractive rates. So as long as we can gain access to the trades, we'll continue to meet that demand. I think what will change our sales rates will be not about persimmons actions. It'll be more to do with the market sentiment or possibly some of our peers getting more stock on the ground. And the final one, and you've tested me here, I will, with five, is the land market. And I've been consistent from the very start with this. As we've outlined in our presentation this morning, we're having a five and a half to six years land supply, depending upon how you measure output. We have visibility on 133,000 plus. We don't need to buy land. When you need to buy land is when you do a bad deal. Now, what we see at the moment, of course, we're picking up one or two deals which I think are attractive, but nothing of the scale to match the replacement that we're actually absorbing. And we won't do that because we don't need to. So as we said at the moment, we'll be vigilant. We'll continue to look in. And when that risk-free reward switches, then obviously we'll go back into the land market and we have the balance sheet to do it at the right time and we'll make that call at the appropriate time. Understood. That's great.

Thank you.

The next question comes from the line of Gregor Kuglitz from UBS. Please go ahead.

Hi. Good morning. Can you hear me well? Yeah, great. It's fine, yeah.

I'm doing well. I hope you guys are doing well, too. I've got two questions, if I may. So the first one is just on volumes. Dave, I think you mentioned, maybe I misunderstood in your first introductory remarks, that you think you could complete up to 10,500 units, or was it a build comment? It just sounded like a very high number. I just want to understand... what that referred to. And I guess related to that, on your sort of minimum flat volume guidance last year, I'm looking here at 8,300 units, kind of how you see the risk and reward around that. So in other words, what's the limit basically, given the strength of the sales rate? Essentially, I guess it's a supply build question that limits the potential there. And then the second one is perhaps a longer term one. So we've seen the white paper from government a few weeks back. I'd like to have your perspective, if you have one, on the sort of potential planning law changes and the impacts for persimmon, whether that is perhaps part of the reason why, you know, buying land or whether you think it's too uncertain right now to assess, because it looks on paper relatively radical, but I guess it's still early days. I wanted to have your perspective on what you think about those proposals. Thank you.

The second one is easiest to answer. I'm not the type of guy to make snap judgment. It hasn't come out very long. We'll review the documentation. We've got until the end of October to respond to that. I'll speak to the teams. I'll take external advice and I'll form reviews on it at that time. To make some form of snap judgment, that would be a mistake, Greg. I wouldn't really want to give you any reviews until I'm certain what I think. So that's probably too early to give you any advice. In terms of volume, I think you're right. If you look at our sales rates, they're very strong. as you worked out. The comment I made was on build rather than on volume. What the point I was making is our WIP position is 14% above this time last year. And potentially, based upon our current build programs and based upon our current output, we have the potential to build 10,500 plus for the end of the year. Now, obviously, we wouldn't achieve all them plus, but that is the build position we were in. In terms of quarter three, we're pretty confident what visibility we've got. And we expect to probably pick up about 45% of our sales up until September. In quarter four, there's still a lot of challenges to come. We don't know exactly what's going to happen come the winter. But all things being equal at the moment, we've positioned this business in the best possible place to capture the demand. And that's not just about sales rates. That's about build. I'm not for one second going to say we're going to complete 10,500 units, because I don't think we will. And you would never sell everything that you have available. But what we have got is stock and infrastructure to build that number, because you'd want to carry forward as well. But as we sit here today, we could not be in a better position to meet the demand that's out there in the marketplace.

Thank you. That was clear. Thank you. Thanks, Gregor.

The next question comes from the line of John Bell from Deutsche Bank. Please go ahead.

Yeah, morning, Dave. Morning, Mike.

Hope all well. Hi, John.

A couple of questions from me. Firstly, on the dividend, obviously 40p declared. It looks like you're leaving the door very much open to the full 110p. Should we interpret that as you're waiting for the autumn selling season to to start to play out before you update us on that number. And the second question is on build costs. I think we're seeing some pressure on lumber prices over in the US. I wonder whether you're seeing anything similar here or anything else that you want to flag on the supply chain. Thank you.

I'll pick up on two and one and I'll let Mike have his comment on one as well. In terms of build costs, what we're seeing at the moment is very encouraging. we're really pleased with the tenders that's currently coming in the fact we got back to work so early and the fact we kept our subcontractors busy and kept them in employment and the fact we paid them on time they really appreciate that and they know we've got the sales ahead of us and they want to work for us at the moment there's people coming out of the woodwork at the moment really keen to work for us because they know we pay on time and they know we've got the work so I really encourage what we're seeing in terms of build costs We're not seeing any sort of pressures in terms of material costs. We're not seeing anything coming down, but we're not seeing them going up, although we have done one or two good deals where we've improved the quality for the same price. But the labour costs are very encouraging, what we're seeing there. Obviously, that may change as time develops on, but at the moment, we've got no real pressures in terms of build costs of anything that's looking favourable rather than negative. In terms of the dividend, I think your observations is quite right. We take very seriously managing a house business through the cycle, and we would never do anything that affected the long-term future of the business. That's why what we wanted to do was make a modest payment, what we thought we could afford, based on what we could see in quarter three's performance. However, we wanted to keep our options open to see how quarter four develops. As I've outlined, we're obviously in a great position, potentially for the end of the year, our sales position, our bills position, but we don't quite yet know what could happen in the next two to three months. And we would never jeopardise the long-term future of the business by doing something which we later regretted. So I think the judgment's really, really wrong. I think it's fair comment. If we get the result we're hoping to get, then our cash position would be very, very strong, and that would give us options, and the board would make a review of that come November. I'm not sure anyone out there might make it.

Yeah, I mean, I think just a final observation, John, on the divvy is that... Obviously, at the time of the prelims in February, just gone, we did outline what we thought the bottom slice in perpetuity element of the dividend would be. And obviously, we're currently talking about the final dividend that was postponed from July. We're paying 40p on account of that. So we're sort of paying down that £1.10 final dividend for the year 2019. We're paying that down, if you will, partly by the 40p. And as Dave said, we'll continue to assess whether we can pay down a further amount or the rest of that. as we move through the rest of this year. But it's important to note that also at the prelims in February, we did point out that the bottom slice of the capital return would move forward from £1.10 to £1.25, again, to be paid in early July each year. So that's still intended to be, at this point, the final dividend on account of the current year, 2020, paid in July 21. And whether or not there's any surplus capital on top of that, then as Dave's already said, we'll continue to review that. And I guess at the next prelims in February next year, we'll be able to update the market in terms of our views on any top slice of capital return that would normally get paid in early April. that unfortunately last time around we had to cancel given the prognosis, the immediate prognosis for the market. So is that clear, John?

Yeah, very clear. Thanks, gents.

Thanks, John.

The next question comes from the line of Amy Gaia from Citigroup. Please go ahead.

Good morning, guys. Just two questions from me. Firstly, on the reservations, when you see the sort of trends that you have reported in July, are there any regional areas that pop out in terms of areas of strength? My second question is a follow-up on the cash element. Were there any payment deferrals that you had taken in H1 that we need to think about in terms of H2 cash outflow? Thank you.

I'll do one, and I'll pass two on to Mike. In terms of reservations... This isn't just until July. This isn't until in August as well. We've seen sort of a six, seven week period we're talking about here. Not just the four weeks of July. Just to be clear. And the regional patterns, not really the only exceptions to Scotland, where they were a bit later with the lockdown. But apart from that, it's across the board. Do you want to pick on the question too, Mike?

Yeah, I mean, in terms of cash profile, I think, actually, you do raise an important point, Ami, in that The first half of this year, for the corporate UK, not just Persimmon, obviously the legislation has changed on corporation tax payments. So the first half of this year has seen an acceleration of cash out with respect to corporation tax payments, which amounts to about £90 million for ourselves. That's an additional cash outflow. in the first half of this year compared with last year. Moving on to question, which is the second half of this year, there's not really any sort of one-offy type cash outflows. I think, as we've always said, as Dave's already touched on, that we'll continue to adhere to the disciplines of running the business and according to our cyclical playbook, if you will, which means that, as Dave's already indicated, our land replacement strategy will continue to be pretty cautious. And that, you know, obviously moves the overall cash generation position, or can do. But you do have to recognise we'll continue to pay down our land creditor tail. I think there's about £130 million of additional land credit payments to go out in the second half of this year. So those obligations will be met. And indeed, that's a positive for the business because it opens up more headroom in terms of additional capacity to invest at the right time in the cycle, as we've already explained. So Over and above that, I don't think... I mean, from a work-in-progress point of view, I think we'd want to continue to invest quite strongly in work-in-progress. So I think we're probably nearing full investment in WIP at the moment. We may see a little bit more go into work-in-progress, but it's not going to turn the dial massively from this point. Dave, I don't know if you want to... No, I think that's exactly right, Mike.

And I'd just like to pick up on the tax point that Mike makes. It was really important to us, not just to support our staff, but to support wider society, and we made a conscious business decision very early that we pay our tax on time. We believed we could afford it, and we didn't look to defer it like some. So where we are at the moment, we've played our part in wider society as well. It was really important to us.

Okay, Ami. Thank you. The next question comes from the line of Charlie Campbell from Liberum. Please go ahead.

Morning, Dave. Morning, Mike.

Morning, Charlie. Morning, John.

Yes, just a couple of sort of detailed questions, really. Just on slide 41, I just wanted to explore, there's a couple of negative price movements there. I just wanted to make sure that was mixed rather than any market effects. And also to understand why the social is down more than the private. I thought that's maybe a bit surprising.

and then so a second question really is just on whether you've seen anything changing in terms of down valuations or cancellations in the second half no not at all in terms of question two which I'll pick up down valuation full mortgage market has been pretty solid and pretty steady our cancellations this week I think were about 16% so in line with our historic rates so nothing materially changed people are able to get a mortgage out there at the moment It may take a little bit longer for them to get the mortgage and get through the contract process. But where we are at the moment, there's no real issues in terms of mortgage availability at all. No cancellations.

Yeah, I mean, when you look at the pricing movements, it is subject to mixed changes, Charlie. So I can reassure you there. I mean, you're probably looking at Charles Church and thinking, have they been discounting heavily to get rid of the five bedders? That is not the case. We can categorically say that it is down to mix. We're not having to incentivise increasingly in this environment. Pricing, if anything, is nudging forward as we've indicated. So I think that actually when you look at the performance of the Charles Church we're quite pleased with that in terms of how it's performed. And it is down to mix. And again, in the south, Persimmon South, well, again, there's been obviously sites rolling off and new sites coming on with perhaps more affordable product coming through a little bit more strongly, which we're quite pleased with at this point in the cycle because it serves to further strengthen our offering at lower price points in the market. So I don't think there's anything in there that we're particularly concerned about. If anything, there's a slight strengthening of our market positioning because of the new sites coming on. Is that okay, Charlie? Yeah, thank you very much. Thank you. Thank you, Charlie.

The next question comes from the line of Glynis Johnson from Jefferies. Please go ahead.

Morning, James. Morning, Liz. I did promise Mike only one question, but I do have two clarifications.

It's not a five. It's not a five-parter, at least.

Not so far, anyway. You talked about hoping for an improved cash position at the end of the year versus first half. Can we just confirm that's including the 40 pence dividend, or is that including... 110 pence potential. Second of all, just in terms of that dividend, should we take the 40 pence interim as part of that 110, or should we use it 40 pence as an excess and the 110 is still a final dividend? And then lastly, actually, what was my question is actually about next year. Are you already selling for next year? Do you have any visibility on that? If you just do completions at least the same second half this year versus last year. Will you still go into next year with your build equivalent units being up? I'm not quite sure when you started really building that WIP on site year on year.

Do you want to do questions one and two, mate?

I'll pick up question three. Yeah, I mean, on the cash position, I think rather than being too scientific about does it include the 40p, doesn't it include the 40p, I would say that the direction of travel, Glynis, is a positive direction of travel. I think, you know, we're positive about the trading outlook, first point, but We continue to be cautious, as Dave's indicated, on land replacement because we've got fundamentally a very strong, high-quality landholding position, as you know. And you can see that in the margins and the forward visibility that Dave's already touched on. So I think the direction of travel on the cash book is positive. And I wouldn't particularly want to get into pre-divvy, post-divvy type sort of conversation because there are a lot of moving parts, as you can imagine, except, as I said earlier on, in answer to another question, that I think we'd expect to be an improved position come the end of the year. Obviously, we've not decided... to pay down the £1.10 any further. So moving on to the second aspect of the cash flow on the divvy, the £1.10 is the final dividend on account of 2019. We had to postpone that a short while ago. It was due to be paid in early July, 6th of July We've now stepped forward and said, look, on the back of the strength of the performance of the business through the first half, we're pleased to be able to pay down 40p of that £1.10 in a modest step forward. And we'll continue to review the prospects for paying... the further element of that £1.10. So obviously there's 70p left. Are we able to pay some or all of that at some point in the future before we get to December? And as Dave's already said, I think probably the time we would communicate our view to the market on that would perhaps be our November trading update. So just to be clear, 40p is part of the £1.10. and the remainder of that £1.10 will continue to be reviewed as we move through the second half of the year. I'll just hand back to Dave to talk about the prognosis for the opening position for the next year.

Yeah, I think it's a point well made, Glynis. Obviously, where we are at the moment with our build position, as you could expect, we're still able to sell for this year. We're not really having to sell into next year. And one thing I know with a house building business, you have to capture the demand when it's there. And you have to meet that demand when it's there. Because if you can't capture and meet that demand when it's there, somebody else will take it or they'll buy a second-hand house. So where we are at the moment with potentially 10,500 plus we could complete for the end of the year, we're not really having to sell into half one, 21 because our build position is so good. As we move across into the year then obviously that will change because it will be much more difficult because we'll choose not to take some of them 10,500 houses through and we may choose to hold them at a different stage which will affect the ability to complete them for the end of the year. I think the important thing for us is as long as we can see the demand in the marketplace we'll continue to meet that demand with our WIPP And I think we're probably in a sweet spot in terms of WIP now. As Mike's outlined, we don't probably need to make any net increase on WIP, but we need to maintain what we've got on the demand we see at the moment. And as long as we can meet the demand we see at the moment with our WIP, then we're very confident that we'll capture the forward sales for half 1.21 at the right time. But the biggest moving factor on what half 1.21 looks like will depend upon the number of completions we take in half two. So I'll let you model that yourself, Glynis, how many you think you can take between 10,500 and 8,300. But whatever your view is on that, I'll give you an idea what the forward salesperson is going to be into half one, 20 plus what you think we can complete afterwards. Does that make sense?

Yes, that's great. Thank you.

As a reminder, if you like to ask a question, please press star one on your telephone keypad. And the next question comes from the line of John Fraser Andrews from HSBC. Please go ahead.

Thank you. Thank you. Good morning, James. Is he all right? Yeah, good. Thanks, Mike. The first question is just to continue this theme of what volume you can do in the second half. I mean, clearly you're not going to do the sort of 27% increase of the 10.5%, but at the same extent, what's to stop you doing your WIP increase, which is a 14% rise? So that's the first question. And the second is on the management, the CEO handover to Dean Finch. That's coming into sight, obviously, in the next trading period. So perhaps you could Just outline what the details of that are, please. Thanks.

Well, I'll pick up on both of them. The second one's easy. We don't know when Dean's coming yet. So we don't really know in terms of what the handover procedure is going to be. What I can say is, and I hope you can see it in the results, that I'm incredibly committed to the company. The whole team's worked incredibly hard to produce these results. So the uncertainty hasn't affected the business up to now. And I'm sure when Dean comes over, he'll be inheriting a very strong business with a very strong team. In terms of volume, John, I'm not going to give you any more colour than you've actually got. A lot will depend upon how the year develops, what challenges come in quarter four. We're pretty confident in quarter three because we've got good visibility of that and the build is advanced. But in quarter four, there's too many moving parts to give you the exact figure. I think I'll let you model it yourself somewhere between the numbers you've actually described, John, but I think What I can tell you is we'll be trying to produce the best performance we possibly can, as always, Bob, because customers need us to finish their houses by certain dates we've given them.

I think, you know, the position into next year, John, obviously, as Dave's already indicated, you know, the sales cutoff for this year, you know, let's say end of September, for example, We would normally continue to sell into this year beyond that, but I'm just using it by way of example. In terms of build, we continue to build right through to Christmas. So that naturally puts strength into the forward build position for next year. So, I mean, that's just a couple of overview comments in terms of, you know, the... the WIP position, which you were talking about for next year, really. But it does depend on the legal completions we take this year, which Dave's already pointed out.

I think normally, when you've got such a good forward service, it's much easier to target which plots you actually want to do. We normally sell up until the end of October, beginning of November. We're very confident we take a reservation and complete a house buy. And we target certain houses to take through what we call the option plots. so for customers who want to complete before Christmas, and we'll continue to do that, and we'll continue to build safely on site, and most importantly, we'll continue to ensure the quality of houses we produce are of appropriate standard, because we don't want to undermine the improvement, the benefits of the customer care improvement plan. As someone certainly on Q4, John, I think it would be inappropriate to give you a figure. I think you'll have to take your own view on where that figure is, but as I said to Glynis, we'll be trying our best choose the best performance you can because we've given gifts to customers.

I think that's an important point that Dave points out in that Q3 we expect an unusually strong Q3 really because obviously we haven't delivered what we'd expected to deliver in Q2 because of the disruption to site. So Dave's pains to point out that there's a hangover if you will of delivery into Q3. So, you know, surprise, surprise, we're going to have a different shape on delivery this year compared to normal. And that puts the cash book in an even stronger position, you know, come the end of September. So, you know, that, you know, it's a bit obvious, but it shouldn't get lost, really.

No, well, that makes sense. And I'm also mindful that there's some government incentives where the windows finish in March. So I imagine a lot of customers are wanting to complete as soon as they can before that window. But, John, that's – I think that's a point well made, John.

And it's obviously – that's part of the reason the company's in such a strong position because we anticipated that. And we invested in the whip to capture some of that demand. I think COVID probably accentuated it a little bit and brought it forward. But this was going to happen anyway, John. I think it's an observation really, really well made.

Yeah, it is. So would it be fair to assume that the increase in the forward order book, that the lion's share of that, the very high lion's share of that, you anticipate delivering on before the year ends?

I think what you can see, I've given you the dates when we could, and we've given you a long stop and an up stop. I think the potential is there to do more and to produce our best ever result. If we produce our best ever result, which I'm hopeful we will, for a half, combined with the numbers we've done in half one, I think that probably doesn't just make us the most profitable business, but it'll probably make us the biggest as well. So I'll let you come to your own conclusion. What we will be doing, We'll be doing the right thing. We'll be meeting the demand in the marketplace. We'll have the whip to meet it. We've given dates to customers for the end of the year. And we're trying to get the best result we can. Because the one thing I'm certain of, if we don't capture the demand when it's there, it will be lost to somewhere else. You can't try and manage the delivery. You have to meet the demand when it's there. And that means we have a big half two and we have a big half two. But we will meet the demand that's there.

Very good. Thanks, Steve. Mike.

Thanks, John. The next question comes from the line of Andrew Murphy from Panmure. Please go ahead.

Morning, Dave. Morning, Mike.

Morning, Andy. Hi, Andrew. Hi.

I've got a couple of questions left because clearly lots have been answered already. I was just interested to explore FiberNest a little bit. You said you've got 8,000 people signed up. I was wondering if you could give us a flavour for what the income per... per user is on that and how quickly that's growing and to what extent households are taking up on any individual site. And secondly, I was interested in your carbon reduction plan. Didn't see too much detail in the statement, but just wondering if you could flesh out a little bit of detail about how you're going about that particular initiative. Thanks.

So on the first question, I'll ask, make the deal on FiberNest. And Richard Stenhouse, who's done the presentation, who's here with us, he'll give an update on our carbon reduction strategy.

Yeah, on FiberNest, Andy, it's still embryonic. We've got a business there that is gradually maturing. The average revenue per customer is currently running around... around 28, 29 pounds per month. So that's gradually improving. Interesting, you know, we offer six different packages on Fibonacci, different speeds at different price points. We've got the cheapest entry point in the market. But what we've seen as you probably second guess, you know what I'm going to say already, but during lockdown, a lot of people working from home and there's a lot of schooling being done remotely, etc. The demand for high quality fibre connections to the home has translated into A migration towards our top packages, so 500 meg, again, which is one of the most, I think it is the most competitive offering in the market in terms of those speeds and reliability and service. And, you know, we see that coming through customer feedback, increasingly customers are appreciating the reliability and the speed that's being offered. So penetration, if you will, take up is gradually improving, you know, around about 90% now. The other element that is gradually growing and is a bit delayed is into the affordable market space. As you can appreciate, we deliver... a certain proportion of our sales to housing associations for their clients. So when it comes to FiberNest delivery to the clients of housing associations, it's once removed, if you will, because they're customers of the housing association rather than our direct customers. But that's gradually building as well. It's an opportunity for us to continue to work on it's all wired in and it's available it's just whether or not those customers are aware of the facility and wish to take it up which as I say we're working on so I think that the prognosis for FiberNest is positive and just to remind you it's our network we're investing in that network and it's a valuable asset that we're growing within the persimmon stable, if you will, for the future. And I'm sure there'll be a number of future opportunities to come from that investment as we move forward. So I'll hand over to Richard now to talk about our approach to carbon reduction.

Richard. Thank you very much, Mike. Morning, everybody. We've invested, I think Dave mentioned in the presentation yesterday, we've now invested in actual bespoke resource to look at the wider sustainability agenda. And obviously we appreciate the importance of this. And in terms of carbon reduction, during the second half, we'll be undertaking some work with external advisors to establish a science-based target for carbon reduction. Also, with regards to the future home standard and what have you, we've got a working group and we've got people, expertise in the group, to assess the impact on Persimmon as and when those final announcements are made. So it's a work in progress at the moment. We've got a clear focus strategy and looking at our carbon reduction and wider sustainability issues and the ESG type agenda and we'll be pushing that forward with momentum from the second half through the second half, sorry.

Is that okay Andy?

That's very helpful, thank you very much.

Thanks, Andy.

We have no further questions, so I'll hand back over to the host of the call for any concluding remarks.

Thanks, everyone. This will be my last presentation, and I'm really pleased about what we've achieved over the last two years, especially when you consider the challenges we have faced. This is a credit to our people and our culture. And I hope the update today shows what a special company Persimmon is. I would like to thank all our staff for their support and commitment. I have absolute belief in them. And this gives me confidence we will continue to deliver the country's new homes and deliver for all stakeholders as we face into the potentially uncertain economic future. Thanks everybody. Thank you.

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