Persimmon Plc

Hello and welcome to the Persimmon 2021 full year results presentation. My name is Courtney and I'll be your coordinator for today's events. Please note that this call is being recorded and for the duration your lines will be on listen only. However, you will have the opportunity to ask questions and this can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any time, please press star zero and you will be connected to an operator. And I will now hand you over to your host, Dean Finch, Chief Executive, to begin today's conference. Thank you.

Thank you. Good morning all. I'll start by saying a few words as usual and then we can take any questions. I hope you've had the opportunity to listen to the presentation we released online earlier this morning and obviously I'll refer you to it. In 21 we saw growth in our volumes, our profit margins and the cash generation so it was a very good year. We also took significant steps to establish ourselves as a leading responsible developer and I believe we have led the industry both in terms of cladding and in resolving the CMA inquiry. We also took significant steps to improve the quality of what we build and the service we provide to customers and I'm delighted that we expect in a few weeks' time to be recognised as a five-star builder. Providing customers with outstanding value, along with outstanding service and quality, is a key strategic objective. We're investing in our business, as our land holdings demonstrate, and we're able to do this without sacrificing margin. We're also investing in our brick, tile and timber frame factories, and this will enable us to build more, build better, build faster and build greener. and we're also investing in our people. The new group operational management structure, led by internal promotions, will ensure better and more consistent delivery across the business and further consolidate Persimmon's exceptional strengths. In terms of sales, the year has started strongly, and as best as we can currently see in the full year, we expect to grow by between 4% and 7%, with margins remaining resilient at around that delivered for the full year of 2021. albeit with a slightly greater HA mix. Build cost inflation is obviously significant, but we continue to be able to pass this on with pricing holding firm. We start the year with a lower number of outlets than we would like, but plan to open more over the course of the year, with us ending the year in a much stronger position. But this will of course mean a slightly different phasing in profits between H1 and H2. We have made good progress opening outlets since the start of the year. Along with everyone else, we watch in horror the events unfolding in Ukraine, but I remain confident that Persimmon, as a responsible developer, has a strong future ahead of it as it continues to deliver industry-leading margins, growth, capital returns and a five-star product. I'm joined this morning by Mike, that's Mike Smith, Julia and Martin, I will now be happy to take any questions you might have.

Thank you. As a reminder, if you would like to ask a question on today's call, please press star 1 on your telephone keypad. Please ensure your line is unmuted locally and you will be advised when to ask your question. That was star 1 on your telephone keypad. And our first question comes in from the line of Ainsley Lemon calling from Investec. Please go ahead.

Hi, morning. Thanks. Just two questions for me, actually. It sounds as though you're very confident around kind of maintaining margins. Just wondered if you could give us your view of what bill cost inflation is likely to run out this year and maybe some, you know, a bit more colour on the labour and the building materials element of that. And then secondly, the 2% increase at the start to the end, private reservations, is that the kind of reflective, the wider, you know, strength of the wider market? Are there any funnies in there? What have you been doing for pricing? Has that impacted kind of where, you know, sales rates have gone at all in the early part of the year? So just, again, a bit more colour around the kind of start to the year. Thank you. Good morning.

Bill cost inflation, well, you know, as everybody else is saying, it is punchy. You know, we're seeing 6%, 7%. In terms of the mix of that, we're still seeing some, you know, chunky increases in some materials. Partly that, I think, is driven by, you know, well-publicized transportation costs and energy costs. And obviously... Who knows how Ukraine will impact all of that. And it's affecting some things like bricks, stairs and other things. Although I think along with others we are seeing some easing in materials compared to what we saw in the summer and spring of last year. So that of course is welcomed. But, you know, the mix has probably switched and we're seeing some, you know, chunky labour cost increases, you know, ground workers, for instance. We might be seeing double digit there. So, hence why, you know, we expect that this year we will continue to see some pretty significant pretty big numbers in terms of build cost inflation, which I've just spoken to. But, you know, as you've linked it, I mean, we obviously are continuing to monitor it very closely and we are moving our selling price forward sufficient to keep margins where they are. And that 2% increase in sales rate in the start of the year obviously reflects us having moved pricing on at the start of the year, anticipating the build cost inflation. So we are very pleased that we continue to see the market strong and holding firm, which is great news. and that should enable the margin to remain pretty resilient during the course of the year as far as we can tell at the moment. Thanks very much.

The next question comes in from the line of Rajesh Patki calling from JP Morgan. Please go ahead.

Yes, hi. Good morning, all. I've got two questions, please. Firstly, just adding on to the previous question, if you can remind us of what proportion of your brick, tile, and timber requirements are sourced in-house and the quantum of investment you are undertaking to increase brick and tile capacities and how you see the payback on this. And the second question is related to crowd intermediation. One of your competitors noted this morning that they expect 35 to 50 million additional costs in the event the HBS proposed recommendations are implemented. Could you provide your thoughts on the proposed recommendations and what kind of additional costs do you expect? Thank you.

Morning Rajesh. Well I think you're definitely right to report to the self-help we have with our own in-house facilities and clearly that helped significantly during 2021. I mean Martin do you want to come in on what the plans are for taking it forward and how we're seeing Brickenthal increase this year?

Yeah, at the moment, Morning Register, we have spare capacity with the brick factory. We can supply up to about two-thirds of our requirement and we do have spare capacity there. With the timber frame, that also has some spare capacity and we use it and are increasing to use it across the country at the moment.

And I think it's about 40% of it. It's around about 40% of the timber frame. And obviously with the new investment coming on, you know, with the new factory we're building, we're quite excited about that and that will increase over the next few years the proportion we can supply in-house. So, you know, it is, I mean, I alluded to clay bricks, we're seeing some quite chunky increases in those. So being able to help ourselves with our own concrete factory is great. On clouding, well, I'm sure we'll talk a lot about that this morning. Look, 12 months ago, we already went ahead of where HBF have announced a few weeks ago where the membership is. I think, look, cutting to the chase on clouding, frankly, I'd point you to the legislation. The amendments that have been made and are passing through the Lords at the moment are crystal clear. The government expects you to look back 30 years. It expects you to remediate your own. that you've built, not just owned, but that you've built. And it expects you not to take money from the building safety fund. Well, we were quite clear a year ago that we ticked all of those boxes. Hence why at this point in time, we feel that the provision that we've made is still the right number. Clearly, in those moving parts in the provision, there's quite a number of moving parts. You know, records going back 30 years are not always great, and so, you know, you do, people have come to us with buildings that, you know, we didn't have records on and we picked up, so we're now looking at a total portfolio of 33 buildings that are requiring remediation and they are of all heights. And we fixed four of those and we're working on all of the remaining 29. So the moving parts within the provision are the number of buildings, how much it's going to cost, what the legislation ultimately says and what we expect to recover from the supply chain, and of course we do expect to make some recoveries from the supply chain. But as we stand at the moment, the £75 million for fixing your own looks to be a good number. For those who read the legislation, then it's fairly clear that Mr Gova has indicated that he's giving himself the opportunity to extend the building safety levy to buildings of all heights if where we get to in the discussions with government still leaves a pool of orphaned buildings that require funding. So it wouldn't surprise me at all if we do see a further levy come forward during the course of the year, but I expect that will be a proportionate approach taken by government and probably we'll see applied recovery expected over a 10-year timeframe. So probably I'm plugging there that we expect to see more cost in terms of levy, but our provisions are good at the moment, but that is a moving picture. I mean, clearly we very much... expect to follow any law introduced by government and are clear that we expect from the actions that we're taking that we won't have a problem becoming a member of the building industry scheme and expect to contribute as law-abiding citizens to any levy that ultimately government decide to impose on the industry and And, you know, we expect all other developers to do the same.

That's great. Thank you very much.

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

Thanks. Good morning. Three, possibly, if I could, please. First, just actually looking back on the year finished, I think, in the by brand, there's quite a big difference in the second half year on year in Persimmon Core versus Charles Church. It looks like about a 2% increase in the gross margin of Persimmon Core and a 5% decrease in Charles Church. It's quite a variation there. Perhaps you could just help us with that. The second was maybe just around the site numbers or the outlet numbers. I think 290 in development. Could you just help us with how many of those are active for sale at the moment and where you think that number might be by the end of the year compared to, I think, the 320 you're looking to get to next year. And the last one's really just around the equivalent units, that 4,100. Again, is there a target in mind for where you'd like that at the end of the year and any implications that might carry for the WIP position, please? Thank you.

Okay, thanks, Will. Well, I'll ask Mike if he doesn't mind to pick up one and two, and Julie will pick up three. Yeah, sure. Morning, Will.

Yeah, I think in terms of the 21 performance in terms of the second half, it's the usual thing. I know you're sick of hearing us talk about mix, but we also have regional differences between North and South within our participant core and the house types we have. So I know it's a simple answer, and unfortunately it is what it is on that. In relation to the 290 sites under development, in terms of outlet numbers, we're about the 260, 270 number on that. We've obviously got a good clear pipeline of where we think they're going to grow through the year. I think we pointed to trying to open 75 in the first half of this year. Obviously, that's subject to planning delays, which we are still incurring in places. And hopefully that will drive us much more towards the 320 number in development at the end of the year. Again, it's all fingers crossed and subject to planning, successful planning being achieved and then getting the spades in the ground.

Morning, Will. In terms of the EUs, we came into the year with about 4100 and obviously that is a function of the outlet number. Dean already mentioned that it's lower than we'd have liked coming into the year. As our output number increases, our EU's will also increase. Build rates are good. They've been good this year. We're pleased with those. So we're hoping, we want to invest, obviously, in our land and working progress through the year. We're hoping, aiming for the early 5,000 exiting the year, and that will give us a really good platform into 2023.

That's great. Thank you.

Thanks.

The next question comes in from the line of Emily Biddles, calling from Credit Suisse. Please go ahead.

Morning, all. I hope you're all well. I've got three questions, please. The first one on volume, I think you said on the January call that you thought you could do sort of 95% to 100% of 2019's volumes this year. Today's 7% growth year-on-year doesn't quite get you there. I mean, do we look at this and think that anything's changed year-to-date or – Is the guidance you're giving today just tightening up where you think volumes could be and we shouldn't read too much into it? Secondly, just on house price inflation versus cost in 2021, do you think there was any positive contribution through the P&L in 21 at all? Did it have any positive contribution to margin at all? If we look at where build cost is running today and where house price inflation is in the order book, Is there any scope for that to sort of change into 2022? I appreciate those are sort of quite big assumptions at this stage, but as we stand today, is that spread positive and could it be better year on year? And finally, I just wanted any guidance you could give us on cash, land spend in 2022 at all. Thanks very much.

Morning, Emily. Well, maybe I'll have a go at one and partly answer two and ask Mike to come in on two and three. I think if I remember the call in January, clearly there was maybe a slight difference of opinion between myself and the finance director. I think that we did say, I think at the time, I cautioned to a slightly different range in volume and that is where we stand at the moment. In terms of exactly where we are in the range, will depend on securing planning permission and getting consents through. We're doing well at the start of the year, but we've still got a long way to go. We as a business, as will not surprise you, are very much focused on margin and quality and quality of profit and quality of build now as well so we're not going to chase volume just for the sake of it I'd far rather deliver you less houses but at a better price and a better margin and a better return than chase some You know, 2019 numbers, the world has significantly moved on from then, is my view. You know, it is being, I think, responsible in terms of service we give customer, quality we give customer, and quality of profit and returns we give shareholders. I'll attempt to answer too but I'll ask Mike who no doubt come in with a more intelligent answer than me but you know it seems to me that we did see margin progress in last year particularly in the second half so clearly we did see a positive spread there I think there were some particular regional issues around that and some particular mix issues and some sites are coming to an end and other sites are opening which may the second half of last year particularly positive. But the new year, and we don't expect fully to repeat, but the new year has started well and margins as they come to on a weekly basis continue to be very strong and we're delighted with them. And then obviously we further have added to the strength of that because we've bought a lot of land and we've bought a lot of land very well. Indeed, as Mike referred to in his presentation, a record low cost-to-revenue percentage. But we don't have any better crystal ball than you've got. The world's gone mad. Forgive us if we're relatively cautious at this stage about the outlook for the year. And, of course, I've mentioned the levy as well. So anyway, those are my attempts at those answers and I'll ask Mike to.

Yeah, morning Emily. Just to add to that, obviously we've pointed to the embedded margin in our own land bank at around 33% and there is a spread of there and I do note it in the presentation that a third of those own plots will be hopefully delivering around a 40% margin on current costs and revenue expectations I think the other point to note in relation to 2022 and the thought is we've noted that there's going to be a slightly higher HA mix in the volume delivery and that will add an element of dilution to the margin rate but then to compensate that we've got our vertical integration and off-site manufacturing capabilities which will then support us on that. Moving on to the third point and cash and land spend. Let's go to the 2021. We've exited with 1.25 billion of cash, which is unbelievably strong. In terms of land spend, we spent £460 million on land and a part of that was serviced land creators of around £180 million. I think we've pointed out previously in previous years, we'd like to be spending and investing in land around £500 to £550 million per annum. and we'll be aiming to do something similar to that this year but we've got to be conscious that we're not just going to do any deal it's got to be the right deal and it's got to be the right margins we've got the strict criteria for acquisitions so that is the hope pointed out where we think we talk about the £700 million cash position at the end of a reporting period being the ideal scenario I think if we're slightly down, I think we're around the billion pound mark in terms of cash this time next year, I think we'll be in a great position.

That's great. Thanks, guys. The next question comes in from the line of Amy Gala calling from Citigroup. Please go ahead.

Thanks. A couple of questions from me as well. My first question was on the capex on the space for factory that you're planning to invest. I'm not sure if you'd given us a guidance previously, but just some color in terms of the capex outlay there. The second one was on the ASP in 22. Are there any mix shifts that we need to be aware of apart from the AHA mix that you have pointed out earlier? And the third one, on the private order book, if you could give us some sort of color in terms of where that stands at the end of February.

We didn't quite, I'm sorry, Amy, we didn't, something went funny with the line. We didn't quite hear the question. I think the first question was about Space 4 factory, but I'm not sure we quite heard it. No. Could you repeat it, please?

Yeah, if you could give us some guidance on the CapEx investment in the Space 4 factory.

Okay, thank you. Yeah, okay, well, Mike, do you want to take a punt? This is 40 million.

Yeah, on the capex at the moment, we're looking at it's going to be 40 million pounds over the next couple of years. It's going to take a bit of time to build the factory and then kit it out. Just moving on to then the ASP for 22. Yeah, we've delivered 237,100 in 21 years. As Dean's noted, we've been pushing prices in the early part of the year. We've not had too much of a backlash against that. So I would expect the blended ASP to be a couple of percentage points higher than where we've exited. And then on terms of the order book, we've seen good sales, as I said, in the first eight weeks. I think we've said we're around 6,200 PD forwards sold. and the average revenue of those is around $259,350. So that's slightly ahead of where we entered the year, and I think that's just a reflection of what we've seen.

That's very helpful. Thank you. And if I can have one last follow-up. Just on the planning side, is there any color that you can give in terms of are the delays quite generally broader in the industry, or are there any regional changes? or bottlenecks that you are facing in terms of planning delays?

Look, the problems that we experienced and we highlighted last year on some of the neutrality issues around water, nitrates and phosphates are still there. And I think, you know, until government... It's stuck between two government departments at the moment. And it is now affecting a big swathe of the country, across the South in particular. And we do have some, like other developers, caught up in that problem. And until those two government departments really get a grip of this problem, then I'm not optimistic that there's going to be much resolution there. We've highlighted in the past the... under-resourcing in some planning departments, which I think is also, you know, everybody's seeing. But having said all of that, you know, I do point to, you know, what I said, if you managed to catch it yet, on the Glenigans research, and we were the most active of all builders last year in terms of planning, application and processing. You know, 21,000 plots put us in 101 sites but it's at the top of the tree. So, you know, exactly when these consents will come through will dictate in part the volume outcome for the year. But I'm pretty optimistic and confident of the outcome. You know, we're creating a great platform for growth, and if it doesn't come through this year, it'll come through next.

Thank you. The next question comes in from the line of Arnard Lohman, calling from Bank of America. Please go ahead.

Thank you very much. Good morning, everybody. My first question is, I have two, if I may. The first one is on, let's say, all your back and forth with the government. So firstly, as an industry, you have to pay the 4% incremental tax rate. Now we're talking of a building safety levy, plus your provision, obviously, the 75%. for the building you're responsible for. So overall, you know, heavy contribution, let's say, but fair enough. I guess on your side, all of that considered, is there anything you can do to at least partly recover these extra costs, either in terms of pricing or in terms of cost efficiency? That's my first question. And my second question is on L2Buy. as you mentioned a couple of times, you know, coming to an end in about 12 months. Firstly, are you adjusting your product to take into account the end of it to buy? And secondly, considering that at the moment you're probably selling more houses than you can produce, I guess the question is, would... is it possible that if the money is slowing down, that wouldn't necessarily impact your level of completion? Does that make sense?

Thank you, Arnaud. Some good questions in there. You're right. You know, I've lived and breathed since January in particular the with government on building safety and so I'm obviously intimately familiar with it but you're right to say that it's complex and there is a broad range of moving parts. A key aspect I think on the cost aspect of just the spends on clouding and remediation is a proportionate approach taken to what will grant a homeowner an EWS-1 certificate so that it can become mortgageable and saleable. And I think, That's incredibly important and I think there is a lot more work still to be done around that. I do think that the Department and Mr Gove are fully cognisant of that, not least because I'm sure he fundamentally expects some of this cost will come out of his budget too. whether you are building towards B1, A3, A2, A1 within the definitions is incredibly important. I think what is also really important is that you own these works yourselves and that's why I'm sure like other builders we feel it's very important that you private sector is going to be better placed to more efficiently deliver the recovery and remediation work than public sector and I think that indeed is where Mr Goat in particular wants to end up in all of this so I think you're right to point to the detail of this because the devil is indeed in the detail and it will determine at the end of the day how much you're going to ultimately spend to make a building safe. So I think there's a lot more work to be done there yet. On help to buy, yes, we continually amend things We have been looking at it. Look, I think us hopefully becoming a five-star builder in a few weeks' time is a very important element of that strategy. But in terms of also the detail and the house types we are building, yes, we've extended the range to prepare ourselves for the end of Help to Buy. Obviously, we've got deposit unlock. You know, I'm sure you've heard many people say before, is it help to buy or is it help to buy bigger? I mean, certainly we saw when help to buy one came to an end last year, sales didn't seem to miss a beat. as we move to the Help to Buy 2 scheme and I think you're also right that we continue, demand significantly continues to exceed supply and so the impact of coming to the end of Help to Buy may be more muted than possibly people fear. with, I think, you know, mortgage availability still very good, increasing LTVs, products still being very affordable, you know, in terms of overall proportion of wage costs, you know, something around mortgage costs at something around 30% of overall wage costs, and we're seeing, obviously, wage inflation, then I think product still is, you know, remaining historically historically affordable and I think the positioning we've got as a group as a quality builder looking after its customers and providing a product that is 20% below average market selling price is a great place to be so we're very optimistic still of the future even if help to buy goes.

That's very helpful. Thank you very much.

The next question comes in from the line of Gregor Kulic calling from UBS. Please go ahead.

Hi, good morning. Thanks for taking my questions. Maybe just coming back, sorry on the cladding point, and thanks for your comments. I guess maybe two follow-ups. The first one is, if you could just share how you understand, um, an extension of the building safety levy, how that would be structured. And I guess specifically if it would apply to existing planning consents or whether you think it would only apply to future planning consents. And then, um, secondly, I mean, I guess I know that, you know, I think the government kind of said, you know, to the HBF proposal, not kind of not good enough, um, Can you maybe share with us what they want more? So what's the additional thing that I guess is not good enough or what do they want to reach an agreement? So that's sort of the first question. Sorry, it's a two-part question. Then just back on the outlet, just sort of technical clarification. So last year, I think you averaged at 285, correct me if I'm wrong. Are you saying... with reference to that, you're at $290 now or are you saying you're $260, $270? So just maybe clarify sort of what's actually sort of up for sale and what isn't maybe just a definitional point. And the other thing which I noticed looking at your land bank analysis in the slide, so I think your owned slot cost to average selling price ratio has hidden sort of new low at 11.4%. So it's down again year over year starting to become you know extremely low I guess so so maybe you can give some color around that and um you know whether you think that's sort of as good as it gets from a from a sort of block cost recovery perspective thank you thanks Gregor um uh well if I um if I uh answer one and I'll ask Mike maybe to come in on two please um

In terms of the extension of the levy, everything is still, frankly, up for grabs and remains on the table to be discussed. Could it be a levy or could it be a tax? My own personal view is that the problem with the tax for Mr Gove is that the tax will go to that nice man Mr Sunak who probably won't give it up back to Mr Gove as much as Mr Gove would like it to so I expect that in the end his preference is to a levy but those details are yet still to be worked through at least with industry but my guess is that later this year we will see a levy and The details of whether it will apply to existing consents or future again is a piece of detail still to work through, but I'm guessing at the moment that it's going to be prospective rather than retrospective. But it is still, you know, I'm afraid we can't give you clarity because those details are not there. Again, read the legislation. It's very broad. It's simply giving... the powers to apply a levy and basically allowing it to decide what and how it will apply that. And therefore, you know, clearly Mr Gove has given himself the maximum flexibility in order to solve this problem. And again, you know, I suppose in answer to your second part to your first question, what's not good enough? Well, read the legislation. You know, it goes back to what I was saying a few moments ago. It's clear. It's 30 years, and it's all buildings you developed, whether you owned it or not. That is what Mr. Gove wants. Okay.

So, Michael, thank you. Apologies for clearing up on the outlets point. What we're saying is we've got around 290 active developments at the moment which are under construction. We've then got a slightly lower, the 26270 number, which is our current sales outlets position. So we're obviously going to hope to open that differential as we move through the spring period. Yes, we're looking to open 75 new sales outlets in the first half. based on planning the 320 is an aim for sales outlets at the end of the year so I would probably say on average for the full year of 22 we'd be running around the 295-300 average outlets I would expect but I would caveat that obviously on the planning delays we hope these are going to come through when we want them to but we're getting our crystal balls out at points on that on the land bank I think to note that, yeah, 11.4 is absolutely brilliant and we're really proud on what we've done. Our experienced land and planning teams are really driven really hard on that. But to note is that we do have obviously 60,000 plots of this 88,000 are owned. So the land cost in there is embedded. It's there. It's not going to change. So if we keep seeing increases in revenue, the percentage will improve. Whether we improve and keep improving at the rates that we've seen, that's very good to be dependent on house prices and where we go. But we will be trying our utmost to keep that at the level it is or improve it as we go through 22 and into 23.

Thank you. Maybe one follow-up on the cladding, just to be crystal clear. they're not demanding sort of voluntary contributions into some kind of fund anymore. It's essentially moving towards either a tax or some levy. Is that your understanding?

Essentially, yes. I think if you accept the principle that a levy will be applied, you know, then I think that removes the demand for a voluntary. Thank you.

The next question comes in from the line of Linus Johnson, calling from Jefferies. Please go ahead.

Morning. I just have two, actually. The first is just a clarification. You talk about Blenegood and how you've been the most active. Can I just confirm, that's in terms of sites that have been bought, or that's including sites that have come through the planning system that you've pushed through? Second one, actually, I'm going to do three, if I may. And the second one is just in terms of your intake as land last year. Can you tell us how much was from your strategic land bank and any kind of guidance you might be able to give for 2022? I appreciate it's lumpy and timing is difficult, but that would be very helpful. And then just lastly, when I put together the data on your, I'm going to call it your blob chart. It may not be doing it quite the justice, but on your blob chart of margins, it suggests that your margin has actually ticked up a little bit, which fits in terms of what you're telling us in terms of plot cost to selling price. But I'm wondering just if you can talk us through the moving parts on that. How much of that margin improvement on the land bank, I appreciate it's only a small amount, but how much of that has come through higher revenues, higher selling price, and how much has come through the contribution of the new land coming in?

Well, that's a hard question.

Well, am I looking away from you? Glendigan's is, Martin, that's the site we've applied for, isn't it?

It is. And, again, it can be a mix of all sites, to be fair. Plenty of ones that we've elaborated recently or ones that we've had under our ownership for a longer period of time.

But I think it... You know, we've really highlighted to demonstrate we've been very active and, you know, I think very successful. So we're delighted with that. In terms of... the strategic land now is about half.

Yes, it's around 10,200 of the 20,787 plots that we've brought into our consented land back have come through from our strategic land interests. I think there is a mixture. We've obviously seen increased revenues, which have mitigated the costs that we've faced through 2021. So there is an impact on the owned plots that were there in the blob graph this time last year and at June. So there is an impact from there, and we've seen margin go from 27.6 operating from 20 to 28. So there is going to be an element in there. And then in terms of what we've been buying in that's gone into the blob graph, we've been seeing that the margins have been very similar to what we've been acquiring historically. So it is a mixture. I couldn't honestly put my finger directly on the component parts and what's from the 33%, or getting to your 33.3%, I think it is. It is a mixture.

Perfect. And if I can cheaply do just one quick follow-up. In terms of the strategic land that came in last year, what proportion was already owned freehold versus what was on option?

Not much of it will have been owned. I think most of it would be the conversion of options. Yeah. Yeah. That's right.

Thank you. The next question comes in from the line of John Fraser Andrews, calling from HSBC. Please go ahead.

I'm falling deep. The first is on... John, sorry to interrupt you.

We're really having trouble hearing you. You're breaking up quite a lot. Sorry about that.

Is that better? Yes. Thank you. So two for me, please. The first is on cost efficiencies with the good news on the five star anticipated later this month. Is that now the end of investment in improvement of control of build and customer care? And might that herald, given there's been some investment there, might that herald some operational efficiencies still to come through if you're not bearing incremental costs and making incremental efficiencies. So that's the first one. And then secondly, on fire safety, very helpful, Dean, you've set that out, how you interpret that playing out. Question for me is where's the conversation in terms of other industries in the supply chain contributing to the remediation, and is the government itself accepting any culpability for some of this cladding that's on high-rise buildings, given that it regulated those buildings? So two for me, please.

Okay, John. Thank you. On cost efficiencies, well, In terms of our investment, no. We're still going to be continuing to improve the product because standards are increasing all the time. You know, I think Persimmon has done, has motored over the last couple of years to really improve. But the industry itself continues to improve. So, you know, we are... We have caught it up, but that bar continues to go up. And we're very conscious of that. But what we do see is that, you know, it does save us costs. Costs of waste is costs of remediation. And some of those costs, you know, those are day works. It can be a chunky number. You know, you can be talking about a couple of percent of... cost wasted, if you like, in there, which, as you do get it right first time, or increasingly get it right first time, that's a bucket of costs to go at, that we are going at, to, you know, improve our bottom line. And, you know, I think you saw that last year with the margin. The margin did go up, despite the fact we put a lot of investment into improved products. And that wasn't all just the fact that it was selling price inflation because we needed that to cover some eye-popping build costs. It was that we were building better and that is saving costs and I expect that will continue over time. So hopefully that answers that. As we build a better product, you know, the value of the product we're building becomes better and better it helps it sell more and it helps it sell for more money so as it becomes more valuable on fire safety you may or may not be familiar I don't know again because I'm intimately familiar with it now I assume everybody else is and clearly there's a lot here and it's probably wrong of me to assume that but There is this principle of waterfall that GOV has established and the legislation has established and developers and manufacturers are at the top of the waterfall. It then tears down the waterfall to three holders and then ultimately these holders are at the bottom of the tier if there is nobody left to pick up that building. And, you know, clearly that is why he's focused on, you've got to fix your own fellas. And, you know, he has given himself pretty Dekronian powers to make sure that those who don't fix their own won't play a part in this industry. And I have no doubt he means that. No doubt. And if some developers stop building, whilst that might have been unthinkable in the past, I don't think he thinks that now. so we and manufacturers are top of the tree in terms of top of the waterfall in terms of who we expect to pay this in terms of government well you're right to point to the fact government is there is a culpability in government there they know it just like any negotiation isn't it I mean the more they get off of us the less he has to pay out of his own budget and that's a fact of life and you know, given he's granted himself Henry VIII powers, and we are law-abiding citizens, and ultimately you'll have to obey the law. But I think, you know, we are seeing a sensible approach, personally, I think, from government in terms of being proportionate and trying to fix this problem.

Thanks, Dean. Just a quick follow-up. Is there any evolution in the 4 billion number that was included in the letters?

I've seen the basis for the £4 billion and my view of it is pretty sketchy. HPF have done a great piece of work, done their own survey work, drawn from their own membership, and that is producing an order of magnitude lower cost. and smaller number of buildings involved. So, you know, our view of this is very simple, really, which is if whole industry fixes its own and we get some real numbers about what is the size of the pot, then, you know, you're ending up with a much more sensible figure for the balance that is going to be covered by the levy. Great. Thanks, Dean.

The final question comes in from the line of Charlie Campbell calling from Liberum. Please go ahead.

Morning, everyone. Just two quick questions from me. Just in terms of the HA part of the business, are we still right in thinking that that becomes 21% of the business as it was in 19, trends back towards that level? And then secondly, just on the sales per site per week, You've reported up 2% year on year. I suspect others might kind of report stronger results as we go through the results season. I just sort of wonder if there's anything there in mitigation. Perhaps you've taken maybe a more aggressive stance on price to slow that down a bit, or perhaps it's just mix. Just to get a view on that. Thank you very much.

I think on affordable, yeah, over time we expect it to be around the average you said. So, yeah, that's right. There's no changes from us there. In terms of... I think you're right to allude to the fact that we're not chasing volume and we don't. And we want to protect margin. But I'd also point out that we probably start from I see the numbers that are reporting and they're below our numbers, so we start from a higher base anyway. Thank you.

That was the final question in the queue, so I shall turn the call back across to yourself, Dean, for concluding remarks.

Brilliant. Okay, well, thank you very much all. Sorry, I know it's a busy day, and I'm sure you need to get off to history now, so good luck with that. And obviously, Mike, Julie, and I are around with Martin for any follow-up questions you might have.

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