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Persimmon PLC
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Hello, and welcome to the Persimmon Trading Update Analyst Conference Call. [Operator Instructions] I'd now like to hand over to Dean Finch, Group Chief Executive, to begin the call. Thank you.
Good morning, everybody, and thank you for joining us. I'm joined, as usual, by Mike and Martyn. I will start with saying a few words and then hand it over to questions. I'm pleased with this excellent result for 2021, which we've delivered despite a challenging backdrop in the highly unflexible nature of the pandemic. The key points are that profit is in line with our expectations. We've built around GBP 1,000 more homes compared to the previous year. We've done so whilst also delivering an improvement in our underlying operating margin, which we expect to be around 28% for the full year. And this has been achieved while sustaining our HBF customer satisfaction score of the 5-star threshold. And we've also brought in over 20,500 new plots of land at excellent embedded margins, providing a strong platform for the future growth of our business. So we've built more, we've built better, strengthened the business and maintained our undisputed margin. That's a really strong result, and I commend our teams for achieving it in the circumstances. We did this by controlling the business well and chose to deliver a quality product, together with our high-quality margin, as well as invest in the high-quality land that will underpin our future success. Our build programs are likely to continue to be challenged in 2022 as they were in '21 as a consequence of COVID, and in particular, over the coming winter as a result of [indiscernible]. Until the pandemic is behind us, the consequences of it will continue to affect the business in ways we can't predict. But we're acting to mitigate this. Anticipating further disruption, we're planning to increase production from our own rig talent in frame factories this year as well as strengthen our resources in order to build more houses this year. Our ambition remains to increase output this year. Achieving it depends in part on our ability to successfully bring more of the sites we've acquired to the planning system into construction, and we currently have some 75 new sites that we plan to launch in the first half of 2022. During 2022, our aim is to increase the number of outlets we operate from compared to an average of 285 in the second half. But this, of course, will critically depend on local price in 2022. If we can increase this to around 320 sites for the end of the year, we will consider this to be an excellent result. And this would set ourselves very well with continued strong performance into 2023. So we expect another strong year of -- another year of strong performance because demand remains strong, and we will obviously update on the new year in March. As this performance shows, our margins are proving resilient. We have a strong management team in place to continue to drive our quality service and volume targets. Our position in the market remains a great strength. We build attractive houses that are fully priced. They are also increasing the environmentally efficient, particularly as compared to the second half market. And we continue to invest in land replacement in [ spiking ] margins providing a strong path for growth. A year ago, we led the industry in announcing that we thought no leaseholders should pick up the cost of replacing ban traveling. And over the course of the year, we got on with our commitment. The provision we made covered not just 18-meter plus buildings, but also all multi-occupancy buildings where we thought there was a risk. It's important to remember that Persimmon has built relatively few such buildings. And indeed, we estimate this to be of 28 developments. A year on, we continue to believe that we should be able to manage the resolution of our risk and exposure without the need to increase the provision whilst keeping to the commitment that we made that no lease holder should pay. We shall, of course, enter into any discussions with [ Mr. Go's ] department in a constructive way, trusting that any resolution will be fair, reasonable and proportion. Finally, I would like to pay tribute to my long and excellent service to Persimmon. Many of you have known Mike for a long time, and he's certainly been here for a long time. We thank him enormously and wish him well, all the very best for the future. His legacy of prudent leadership shall remain with Persimmon. And of course, I would like to welcome Jason, who we announced as our new Group CFO this morning. As you will see, Jason is a very experienced and an excellent appointment who we expect to be joining us by the half year, and I look forward to working with him. So thank you very much. And now we'll open to any questions.
[Operator Instructions] Our first question today comes from the line of Rajesh Patki from JPMorgan.
I've got 2 questions, please. Firstly, on outlet numbers. I think you were targeting around 350 outlets in August last year and have revised it to 320 now. Presumably, it's all related to planning delays. So just wanted to understand how you've seen the planning environment evolved through the last year. Has it gotten better? Has it gotten worse towards the end of the year? So just wanted a bit more color on that. And secondly, I think the net cash position is ahead of expectations. Could you help us with the key moving parts there and anything specific that you might want to flag?
Well, look, I think it was quite difficult for me to capture all you said there, but I think you were asking basically what's going on with planning. I mean, look, we've got some well-publicized issues that are affecting business, [ neutral ] support, ones we touched on before. I think across the southeast and the southwest was something in the order of 30,000 to 50,000 units across the country, not in the industry that's affected by that, and we have a little of that. So we've made progress in the course of '21, and we continue to make progress in the course of '22. And I gave you, I thought, a very clear indication of what our ambitions were for the course of '22.
Yes. I think the front end of the sites that we currently have under construction are being the right at the front end of that pipeline. I think we've got 37 -- 36, 37 sites that are currently under construction, where we've yet to undergo for our sales release. So I think we're now seeing the results of all our hard work through, and we're looking forward to releasing those opportunities into the spring market shortly. So -- and indeed, just a reflection on the market, we have got a lot of early interest booked against these sites that are coming through. They're going to be opened over the next few weeks. So that's quite encouraging in terms of sort of reflecting on the -- where the early spring market is. So as Dean said earlier, we're pretty confident about the demand that's out there in support of the ambition that we have to move the business forward in terms of growing the hubs -- the number of hubs that we could deliver.
And on net cash?
Yes. On the net cash side, yes, Rajesh, I think you're right in that we are blessed with great liquidity. I think that's for a number of factors. Obviously, we've traded particularly well. We achieved good price growth. And obviously, net fees go through into the net cash delivery whilst also accommodating the supply chain cost push that we've experienced over a little while now. But I think what we need to do is just recognize the priority for the team is we'll continue to be to invest in the business in terms of utilizing that cash. We would like more work in progress on the ground. As you can see in the statement, a measure of work in progress is our equivalent units of new homes constructed, which is around about 4,800 at the end of last year, which is a good position to be in, but we would like to invest more. So at an average of, say, GBP 100,000 of marginal build cost, if you will, we could -- we would love to be able to invest in other GBP 100 million, GBP 150 million of that cash in providing greater choice and availability in the market. And we think that as these new sites come through, we'll be given the opportunity with planning being supportive to invest in support of the future growth. So I think we do have a hold for that liquidity. And as Dean has already pointed to, great progress in the loan market. So some of that, again, will support that activity and always reminding ourselves the scale we are. We book and the capital structure liquidity by way that GBP 700 million number, which we've touched on a number of times before. So I think the priority is to invest in the growth of the business, and we'll be using an element of the liquidity we have to do well. Is that all right, Rajesh?
Our next question this morning comes from the line of Aynsley Lammin from Investec.
Just 2 questions from me, please. Just one point of clarity over the outcome for '21. Obviously, a very strong result, but you say expected as expected, I'm kind of reading into that. I think you'd said that completions will be 10% up back in November. And obviously, they're up 7%. So am I correct in thinking that maybe the completions are slightly short of where you thought they were -- would be in November?
Can I just jump in on that? We -- that wasn't quite what we said. We said within 10% of 19 delivery. So I think that the 10% yes, but it was coming at it from a slightly different angle. So I think we're sort of within 7%, 8% of what we delivered in '19 as using that benchmark. So I think that we're really quite pleased with the shape of what we've delivered. It's a higher-quality shape, a little -- the volume perhaps around the edge is a little light, a little bit more margin. So as a housebuilder, that shape, you take that every day, you're preserving a few plots in your land bank to fight another day with. And then particularly, when we're -- we feel we've got a good marketplace to sell those homes into and perhaps achieve a bit better value in the rising market, there's always that sort of opportunity cost in terms of the model that has to as follow. So we are particularly pleased with the shape that we've delivered because we believe it's a higher quality delivery. And just to emphasize that. We're not a business that's pursuing volume, you know? Yes, there's a balance to be achieved. But I think it's the balance of quality that we want to deliver both in terms of the bill, service levels and the returns. So I think that that's the approach we're bringing to it, and we're not particularly too worried about a few units here and there. It's about the overall balance really.
Sure. Okay. That makes sense. So from that, you're comfortable with where kind of PBT consensus? I think it's around [ GBP 9.70 ] for this year then or for '21?
Yes. So our focus is at the end of the day profits and return on capital. As Mike said, we are not chasing value. That said, we increased volume over the year, delighted with that. I'm equally delighted with the margin improvement and the improvement in the quality of the product we handed over.
Sure. Okay. That's all reassuring.
[indiscernible] for those two.
Yes. I mean, Aynsley, we know that the supply chain has demanded more from the industry through this year. When we opened this year, we were fighting 4% to 4.5% to 5% cost plus inflation. I seem to remember that people were a bit troubled when I was saying that at the time, but presto, we're nearing the 5% and the 2%, aren't we? So I think the point of me mentioning that is that the way the levels of returns that we are whilst looking after our supply chain in the way that we are is to the credit of the business and the balance within the business to still deliver the industry-leading level of returns that we do. As Dean has already said, the new one we've got coming through is geared to continue on. So I think we're very pleased with the share that we've delivered, and we can be pretty confident about how the business is set up looking forward.
Great. That's all clear. And just my second question was I wonder if you could just provide a bit more color on your expectations for build cost inflation, trends you expect in labor cost inflation and bill to materials this year?
Look, I mean, overall, whilst in general, we've seen some easing in the shortage of commodities and products across the base, we still are still experiencing challenges, and some commodities remain a problem. Fortunately for us, some of those, we can deal with, with our own internal resource, which is why I referenced the [ table bang ], brick and tile earlier, and that has been extremely valuable to us in '21 and I think will actually be more valuable to us in 2022. And we're gearing up to increase production further to have self-help. I think that's a great strength to Persimmon. Inflation remains punchy, and I don't expect that it's going to ease during the course of 2022. I think we are looking at a result at this point in time, which is going to be very similar to what we saw in 2021 at least. And look, you would appreciate that I don't think anybody [indiscernible] all on this because I don't have any supplier that is really committing to price beyond margin. So the reality is our best deal for this is about what we saw in '21 is going to come through to us in '22. And just as we have, I think, very successfully dealt with it in '21, I expect us to very successfully, at this point in time, deal with that again in 2022 based on what we know.
We now have a question from the line of Will Jones from Redburn.
I've got a couple, please, but perhaps I would start just by saying all the very best, Mike, for your retirement after...
That's very kind, Will. Thanks very much.
Superb career in Persimmon. So yes, back on to the back of the questions. Yes, first, around build, if I could, just coming back to that equivalent units number. And really, I guess the tactics for 2022 in terms of where you might want that figure to be at year-end. And should we still think -- at the moment, I think you spoke previously around building at roughly 1 a week on every kind of build side. Is that still the run rate, give or take?
Yes. I mean I think that's a good rule. The level of average outlets that we expect to have running through this year, I think we can see our way through to supporting the growth aspirations we have for '22, which, just to be clear, quickly going back to what Aynsley touched on before, just to avoid any confusion, we've said approaching 2019 levels, which just to remind everybody was 15,855, I think, it was in 2019. So again, we're not fixated about volume. It's about quality of delivery, Will, and the ability to build a pre-COVID rates of build for site, which we are managing to do despite the challenges that we've touched on is a great credit to the team. And I think that, that gives us a hell of a lot of confidence that we'll be able to continue to do that, especially with the vertical integration we've got in support.So yes, I mean, I think your rule of thumb is right. When you build the cycle sort of level, and we'd love to be able to increase that stock of EUs as one measure of working progress investment by the time we get to the end of the year. But just to remind you, in early 2020, going back to the start of the pandemic, we said it would take some time to fill the hole that sort of was created by the disruption to production in Q2 2020. So I think that is the truth of the matter, and we are working almost day and night to achieve that.
Yes. Look, I mean I agree. I think until -- let's all get real about this. Until the pandemic [indiscernible] and the consequences of the pandemic [indiscernible], I don't expect we're going to be giving back footing to pre-pandemic levels of performance. I share Mike's ambition to be approaching 2019 levels of performance, and I think 95% to 100% of that level of performance during the course of the current year would be a great result. I obviously think increasing output and sales this year by 3% to 5% would be an outstanding result and a great profit delivery at great margins. And I absolutely share the ambition of increasing the number of equipment units by this time line next year. But our guys, and Martyn's in the room, are dealing with the real world in the sites we deal with day in and day out. And there is a more of a fuzzy science, I think, in the field from -- in terms of delivery than when we look at these things back in the office. So we have to deal with day-to-day realities of delivery, which I think as a business, highly successfully doing day in and day out and deliver fantastic returns for our shareholders.
Great. And then just the second one, if I could, please, just a more straightforward on around like-for-like house price inflation last year, I guess, on the private business, just how you think that third Jan to December. And if you can maybe help us well with the private selling price in the order book as you start the year.
I mean I wish I can give you a number for that because, I mean, the reality is, and I've seen Mike do it, and I'm seeing others in the business try and do it, but thinking in pairing of that. And I see all sorts of it on a daily basis being quoted as to what is the house price inflation. It really does vary site to site. And I -- and you can pick up any number, and it could be above that number or below that number in terms of what it is because it all is all down to [ Mexico ], all is where we're building in the country, what part of the country. And what we're seeing the key thing at the end of the day is margin and being able to absorb our build costs, which we have successfully done during the course of this year. And we're -- our ambition is to do the same in '22.
Because as you know, Will, just -- we've got the national footprint, obviously. We know that backwards, but the great position that we're in as a business is that we have a great hedge across the market in terms of our sales presence. We've got 31 house building businesses. If the regional market offers more opportunity, say, in the north of the country on all the markets, well, you know that the average price of a 3-bed, 70 taxed, unit in the north is a little lighter than the same products on a side further sale. So as always is these regional geographies wax and wane. Then as Dean directly say, the pricing will reflect that. And we saw a little bit of that in '20 and '21 to be fair. The headline rate of inflation is -- as Dean said is different in every region, as you know. If we're guilty of anything, we're guilty of trying to simplify things a little bit. And we look at headline average pricing, et cetera. But once you get under the skin of it, as you know, it's a lot more complex than that. But suffice to say, in '21, we've seen some great opportunity to achieve better value, and we have been doing that. And that ranges from low single digits up into double-digit underlying inflation depending on where you are that is being sized. There's the full range of engineering works.
Yes. And perhaps, I could just that private equity in the order book, Mike, which you sometimes give us.
In the private -- in the forward order book, yes, we're about GBP 254,000 average on the PD. That is a tad higher than the same point last year. But what I would say is just reflect on the fact that we are well marketed hedge, and there is a little bit more normal contact in there. So the -- as we saw in '21, that is reflected in the carryforwards as well in terms of the headline price of driver. So I wouldn't read too much into that comparison. And I think as you know, the pricing mechanisms in the market work as they do, and we achieve best pricing every week when we're releasing new homes for sale and reserving those with our customers.
We now have a question from the line of Arnaud Lehmann from Bank of America.
First question is on, I guess, cladding remediation costs and obviously the headlines from the Housing Minister 2 days ago. You provisioned, I believe, GBP 75 million a few months back. Are you comfortable that the scope of this provision is sufficient considering the announcement made by the Housing Minister and the upcoming discussion, I believe, you're going to have with him and the rest of the industry in the coming weeks? That's my first question. Secondly, well, congratulations to Mike for his retirement, I believe, happening tomorrow. And Mr. Jason Windsor will be coming in the summer, which means, if I understand well, that, Dean, you're going to be CFO for 6 months. I guess my question is does this have any implication for the timing of potential cash returns in 2022?
Well, goodness only knows how I'm going to build much, and I will fail miserably, I'm sure. So let me put that out there, so I have no basis of expectations, which I will try to follow on have no basis, whatsoever. So in terms of the cladding, we are very comfortable with the GBP 75 million covering the -- not needing to increase the GBP 75 million to address any of our [ own volition ] in return -- in respect of any building of any height. This time last year, we took, as I said at the top of the call, a fully comprehensive view of our responsibility. I think we were industry leading at the time, and I'm jolly pleased we did do that, and we've got on with it. We've dealt with a number of developments. And every day, we've got a team working on this in the business. And in addition, of course, we will shortly be paying a further 4% leavy on our corporation tax for [ Palo ]. And as I said at the outset of the call, clearly, the question that we're all interested in is the voluntary contribution that is being solved for volition that we ourselves did not cause. And you readily understand and appreciate that we are in a dialogue with [ Mr. Go ] and his department at the moment, and we can't comment on that. As I said, we will engage constructively with the department, recognizing that we are responsible corporate citizens and want to see the good for the entire industry but also recognizing that shareholders rightly expect that we spend their money wisely. And we trust that the department of [ Mr. Go ] will enter into these negotiations on a fair proportion and reasonable basis. In terms of cash returns, I am certainly not qualified to look at such high ground assets. So I absolute -- you're absolutely right. I will pass that immediately across to Jason when he returns, and I will we pass on that point without any chain. But as we always have said, we return all of our surplus cash over the course of the cycle, and that's not changing. So investors can expect that, that policy is going to continue over the coming years. As Mike alluded to a few moments ago in an answer to another question, we want to invest in the business. So we can have -- we've been delighted to have more work in progress this time next year, and some of our resources tied up in that because that will ensure that there's even greater continuation of being great returns for the future. But we are very alive to the topic of surplus cash, and it is something that the Board constantly looks at.
We now have a question from the line of Charlie Campbell from Liberum.
Yes. I guess sort of 2 really, and both 1 on your own business and 1 on the industry. Firstly, just on land. Clearly, you've been very successful in extending the land bank, and just wondered if you could sort of give us an idea as to whether that lands come in at margins that are consistent with the margins you're making. I mean I guess it is, but just get to that confirmed. And then secondly, just in terms of the mortgage market. So I just wondered if you had any indications yet about how lenders are going to think about fuel bills going up, cost of living going up and whether that changes their stance on mortgage availability, valuations, just what you're hearing from those lenders on those points.
Well, I mean, look, as we said in the last update and then continue [ advise ] is that the extension of the land bank and the margins are definitely consistent with our historical performance, and we're super excited about the opportunity of the future that brings to the business. It will be a continuation of the same, which is good. I commend the team for the fantastic results they do, bringing in for us.In terms of mortgage availability, well, we do expect that's going to improve this year. Indeed, we are seeing that. And availability, I think, will help us all. And a point I tried to make at my opening remarks is that I do absolutely and I take no credit for the great positioning the business finds itself in, but I absolutely believe it's fantastic. And with the potential of rising interest rate bills and burns of affordability in general, Persimmon, being the most affordable end of the market and the size of the product we build, I think, makes us even more attractive to first-time buyers and first-time movers whilst also having Charles Church in the range for those who've got a bit more of those. So I think we're in a great place.
Yes. Just to -- I mean, there is obviously some chatter, Charlie, about slide tweaks to the regulations around what the lenders can and can't do as we know. I mean you know as much as we do on that front, at this point, I would say. But we do -- as you've pointed out many times, I think the mortgage lenders appear quite keen to lend in support of families acquiring a home of their own. And I think as Dean said, we're in a great place to help them achieve those ambitions in conjunction with the primary lenders. So yes, I mean, it's -- I think looking forward to '22, I think as much as we can, we would assess that customers will be well supported. And yes, cost of living is increasing. But we feel that with -- we can't ignore the fact that there is wage inflation in the system. And on the one hand, that creates a bit more of burn in terms of cost push inflation, as we've already touched on. But actually, with the extra income being in the hands of the population at large that it does equip them to be able to mitigate the pressures that they find day-to-day in terms of energy builds and other cost-of-living pressures, which, obviously, we're acutely aware of. But we would anticipate that there's a certain amount of balance there that allows continued good participation in the market.
We now have a question from the line of Gregor Kuglitsch from UBS.
So a couple of questions. Just coming back to cladding. Can I just be clear -- and I think -- well, I probably should know this, but if you could just clarify if that -- those developments at the time you provided for include all Persimmon build. In other words, also the ones where you're no longer the freeholder. I appreciate sort of that differential. Yes. So it's everything you've -- I don't know, going back 30 years, I think it's a new threshold where that there's no issue around the freeholder to take ownership basically. Okay.And then I suppose to -- and maybe this is a difficult question for you to answer, but if you -- I think the government is kind of taking the stance of, well, we help the industry with Help to Buy. And obviously, after all, you have been a big beneficiary of that over the last, say, 9 years or so. And on that basis, you have to pay kind of regardless of whether you actually build some of these buildings. And I guess the problem with that analysis is that you're obviously, I think looking here at my spreadsheet, you're maybe 20% of the profit pool, right, of the industry. So obviously, if you take that, you'd be, I suppose, proportionately liable for 20% of the cost. So -- but obviously, the counterargument is that, well, you didn't actually build those buildings. So I guess I want to get your stance on how you think about that kind of analysis. And then perhaps back to the...
Can I just quickly pick that one off? I think the way you construct that argument is one way of constructing an argument. I'm not sure that it's the proper construct, if you will. I think that this is a particularly complex situation, as you correctly point out. And okay, yes, we are a successful business. But in the -- we take some confidence and encouragement from what [ Mr. Go ] and the department has said so far. And there has to be some sense of fairness and proportion of approach to this. So I think that at the end of the day, it's about taking responsibility initially, isn't it, for our activities that we've undertaken in the past, which seems to be pretty clear in just reminding everybody where we are on that, which is pretty fully comprehensive. Looking to the future, I don't think anybody would want to preempt the eventual outcome of the process that is underway. So I don't think we should really be debating a hypothetical answer to a hypothetical question at this point. I think that we should sort of concentrate on the discussions that we will have in a responsible manner and come up with a -- hopefully, the right, workable solution for the industry and particularly the leaseholders who we agree shouldn't be required to pay for the necessary works.
So I mean just coming in a bit on that as well, if I may. I mean I'm sure you want us to try and give you an answer. Well, we can't is the summary of what Mike is trying to say nicely. And you wouldn't expect us to, not least because [ Mr. Go ] announced this or it was leaked on his behalf on Friday evening, and we've been knee deep in conversations ever since. But the twists and turns of this are almost hourly. But just -- so I agree completely with what Mike said. But just to slightly elaborate. I think first of all, I'm sure that you will all be focused on a number because a number was put out there, which is the GBP 4 billion. Well, as you might imagine, we're all incredibly interested to understand the providence of that GBP 4 billion, and we will see where that goes to. But also just to remind you, it's about the residual because as the treasury may play, if [ Mr. Go ] can't get it from the developers, then he must fund it from his own department. And since those initial iterations, the profit pool, well, a profit pool of what? He's already said that he's talking about broadening who he's talking to, including the supply chain. I don't think we're 20% of the entire supply chain profitability, but maybe -- I don't think we are, but I don't. That seems a very large number to me. And of course, it's the residual as well, isn't it? And first and foremost, [ Mr. Go ] is interested to ensure that the many the -- it may be a slightly curious place to find our ourselves in. But Persimmon were one of those people where Mr. [indiscernible] stood up and commended in the House on Monday. And what he's really saying is let's go -- let me get after those people, if we have not taken such a commendable stance. And that's a good many. And that's a large sum of money that will reduce significantly the residual of any pool. So as you can understand from that, there is an awful lot of water flow under this bridge yet. And we really can't say any more of that at the moment.
I appreciate that. And then maybe sort of coming back to your outlook, if that's okay. So just sort of summarizing it all. I mean, essentially, you're saying, okay, volumes may be 95 to 100 of the 2019 sort of bar margins. If I interpret correctly flattish or I don't know...
Yes, I think 28% underlying EBIT margin struck off the housing revenue is a good place to be, Gregor. For '22 because there's -- as you know, there's a lot of moving parts. And I think that we are -- to achieve that this year, we're absolutely delighted for '21 as we're sort of trying to point out. We're really pleased with the shape, the higher quality shape of delivery for '21. And if we can replicate that in '22, to be honest, I'd say that now with the challenges that the industry faces. And I'm sure you would do, too. But if we can do a bit better than that, well, great. But as Dean said, there's a lot of water to flow under the bridge, and there's a lot of moving parts.
Thank you. We now have a question from the line of Emily Biddulph from Crédit Suisse.
I just have 2 follow-ups, please, on sort of ASP mix for 2022. I think you said in the statement that you expect to sort of deliver further growth to sort of housing associations. Like I'm conscious that the mix of affordable is still relatively low. Like if we look at 2019, it was 21%. Like does the mix head back towards that sort of level for this year?
Yes. I think it is right in terms of direction only, Emily. I think exactly where we're going to end up. Well, again, that we can't be absolutely precise at this point, but we're well forward sold on the affordable business, as you know, as usual, at around 4,100 homes sold forward to our HA partners. So we've got great visibility on that. We've got new outlets coming through, which provide us with greater opportunities. So I think for those reasons, we can be optimistic about delivering a few more to our HA partners. And therefore, I personally think that the mix is likely to tick up a little bit from the 7 -- just over 17% that we've achieved in '21. So that might grow to maybe 18%, maybe even a little bit more, as we move forward. So as I say, it's hard to be absolutely precise. But the trend -- the direction of chart, I think you're right in terms of what we'll see in '22.
Okay. Great. And then the comment that you made about sort of the negative mix effect from more northern in the order book, presumably we should be sort of playing that through all of our numbers for all of the year. And is there more of that to come? Should we be factoring in a negative sort of mix effect on ASP?
Yes. I mean in the -- just a bit of detail on that and obviously Dean can maybe comment on the overall positioning of this business. But just to pick up a little bit of detail on that, yes, that is true. I think that when you look at the outlet distribution and the positioning, we do have a few more outlets the further north you travel.So I think, again, it comes back to this market hedging and risk management within the business in the -- this is by design in the -- where one market is going to a little bit more heated, a bit more competitive, which generally speaking, it is the case. The further south you travel, generally speaking, then we can play a slightly different tune by pursuing opportunities elsewhere. And I think that our selectivity in terms of maintaining the quality around land replacement guides us in terms of where we do invest for the future growth. And I think we're blessed with strong positions across the country, but with a bit more availability currently, a little bit further north. So generally speaking, again, you put your finger on a good point. And I think that your observation is right.
We now have a question from the line of Ami Galla from Citigroup.
Just a few follow-ups from me as well. The first one was on Help to Buy, if you could give us some color in terms of what is the proportion of mix in the reservations on Help to Buy? And how do you see that moving by the year-end? And the second one really was on the construction work in progress. Do you think that the current level is more or less normal now? And could you give us some color on how that level stood at the start of 2020 and '21?
That's actually 5%. Yes.
Yes.
Yes. Yes. No, look, we're just a bit lower than that, which recognize that we -- as we -- Mike and I said to you before, we are finally a victim of our own success here. And it's time to take this into our hands. And obviously, that has a knock-on impact to build. I mean, the build we have to hold I think is well distributed across our outlets. So that's a good starting point from us to build from this year. But as we said earlier this morning, I mean, we want to get on with investments. And whatever Mike talked about, [indiscernible] certainly be very keen to see us do that. If not more, yes, indeed.
I mean the EUs are only one elements of the work in progress, Ami, as we've touched on before, that is really concentrating on as we call it, plot unit build in terms of individual home construction. There's a lot more work that's done in terms of off-site works, enabling works. But we are actively pursuing -- we referenced earlier, I think have 40 new sites under construction, where we're yet to release the sale. Well, the investment that we're putting in -- the cash investment we're putting into that work in progress doesn't show up on EUs at this point. The EU count is nearer building the actual home rather than being an overall reflection of the investment we're making in the ground. So we are -- as you can imagine, we intensively manage this. We've got great visibility. As Dean has already said, where team has fostered to get more investment in the ground so that we can give more choice to our customers. Because we see a market opportunity, obviously, to do so. And as we all recognize the shortage of supply needs addressing, and we're committed to helping address that.
Our next question now comes from the line of Gavin Jago from Barclays.
Just a few points of clarity. I think I missed the Help to Buy answer just a moment ago. Do you said it was 25% of price in the order book? Yes. Okay, that's great. So the other question I had, please, with just on, I guess, your view at this stage on the potential split of volumes. And I guess the timing and outlook growth at 320 you're looking to get to potentially by the end of this year. Would that be kind of a fairly smooth line? Or are you seeing maybe more of an H2 weighting in that? And then the final one is just around the land market, just then, I guess, any commentary about appetite for land and what sort of replenishment rate you might be aiming for in the current year?
So as we put in the statement, I mean, we are going to be opening 75 new, we hope, during the course of the spring. And as Mike said, about 36 that are in the course of construction. We're having -- we were at 290 at the year-end, which is -- we're very pleased with that. We're as you might imagine I mean enthusiastic to get them open and the released for sale. And you can be certain that we will be pressing and encouraging vigorously to get that moved on as quickly as possible because we want to capture the strength that we anticipate in the stream. But we -- there's only so much of this is in our control. And it is also, obviously, forgive me for saying the obvious, but it also depends on how quickly we eat through the existing sites. So the net position is difficult for us to predict. I do think there will be a degree of second half weighting in this. But what I would also point to is if Help to Buy does and at the -- as it's currently scheduled to do, then you could logically expect it to be quite a push on demand in the second half of the year. And obviously, we need to see where that goes to, but that would obviously be helpful to the business if we have a slightly greater weighting to net new outlets opening up in the second half.
I think that is -- Gavin, when you think about that trade-off between timing and value -- I think we said in November or back in August, if we owned a few sites a little later into the spring, later on in the first half, well again, as long as we deliver what we deliver, which we have, that's in the rearview mirror. We've got more strength looking forward. So I think that being said, we're really nicely positioned to take advantage of the anticipated market that we think will be there. Now trade-off in terms of timing and value comes into sharper focus. And I think that -- and these are finer judgments. But I would say, as always, Dean is reflecting on this and managing it with the wider team in terms of timing those releases and the delivery. These are the sort of the finer detail and the finer judgments that we undertake week by week. Yes, we hold off release. We didn't release a few sites pre-Christmas, for example, because we wanted to work for the spring. And that timing value trade-off is very important because we -- as you know, we can only sell them once.
Well, indeed. Could I just have one brief follow-up. I think it was Aynsley, who was maybe trying to get at right at the start of the call. Just a reference back to November's trading update when I think you were expecting to deliver 10% increase in 2021 completions over the prior year, but you've come in at 7%. Can you point to anything in particular between that delta of the 10% and 7% that...
Yes. I think obviously, there's a misunderstanding somewhere there. I don't think we said that. I'd have to check the transcript, but...
I think I'm reading it now. It's one of the bullet points on the statement, sorry, back in November.
Is what we -- well, maybe that was -- that's our fault...
Okay. Okay. So it's a reference more to the '19 number then basically is that what we should be thinking about?
We've always guided to within 10% of 2019 in '21, and maybe we should have been a bit clearer about that. But even having said that, disregarding any specific guidance, I think the principle is the thing that matters, I think you would agree with that in the -- or tell me if you agree with that perhaps. But actually in the housebuilding model, if you can deliver quality, both in terms of the homes that you're delivering to the customer as well as the industry-leading level of returns that we do, that is what we should be shooting for. Now in terms of the result of '21, well, obviously people can get a little bit twisted up around the exact numbers. But if you look at the profitability of the business, it's going to be in line with expectations. We're particularly pleased with the shape -- the high-quality shape that we've delivered, as we've said. And I think the guidance for next year, just to be very clear, we've said approaching 2019. And we touched on that earlier on in the call. So hopefully, whether that's [ 15.73 to 15.9 ], well, who knows. But in a way, I go back to the principle, it doesn't really matter as long as the quality is there.
Let's be honest about this. I mean to try and land this vast machine on -- in hand over number during the midst of a pandemic is challenging. I think though every day of the week, we will take profits and returns over volume. And I am very focused on profits and returns and not volume. And we've not lost those sales, those appear in January and February. And what we've handed over as a result of it is a high-quality product and giving our shareholders a high-quality profit. And I think that -- many of you has asked me this morning about cladding. Well, cladding is about safety, but it's also about quality, isn't it? And we're in an environment and an increasingly media-savvy and media-connected customer base that is incredibly rightly demanding of quality and service, and that's what we're about. And that's what we're going to deliver. And if that means, for me, a few marginal units at year-end are not delivered well, I'll take that every day and hand over the customer the products that we feel proud of and they love and are willing to pay for.
We now have a question from the line of Jon Bell from Deutsche Bank.
Mike, I also wish you well. Don't spend all your time at Eland Road. Suspect the seat you've got these days is a little nicer than the one you started out at, but there we are. .
That's an exciting journey as well, Jon. So...
Indeed. I've got 2 questions. I'll be as quick as I can. First one, vertical integration, you've probably done more than any of your peers along those lines. What's next? You've done bricks, you've done roof tiles. Is there anything else that you can help your own production.
Going in, in February. Yes.
And the second one is one of your peers said this morning that you got 2 sites where ground workers have gone bust. I don't know whether there's a particular issue there or just these things happen. But have you seen anything along those lines?
No, not across -- not that I'm aware of. I've not picked up ground work is going bust. Look, I think ground work is under pressure. I mean we're certainly picking that up, and we're seeing that come through in the pricing across the business, because labor's tight, right? And they're getting squeezed and that's impacting us also. I'm kind of not surprised to hear what you're saying. But no, it's -- I've not picked anything up at the moment to [ mapping ] our business.
I think, again, a little bit of extra detail, Jon. I think it's a very good point that you raised in terms of fragility of supply chain. And I think that, as always, at Persimmon, we do think about these things as you can imagine. For example, in our sort of West tolling business in Wales, we -- over recent years, we have taken a little bit more control over the ground working front end in terms of opening sites and getting line of level, so to speak. So we have in house a certain element of capability there, which does again help. Now that's not right across the country. I don't want to misrepresent what our position there is in terms of in-house capability. But we have got some very exciting, large positions in Wales. And we thought it was the right step to take for -- I think it's 4 years ago, to exercise a bit more control over that. Because, obviously, as you point to, Jon, those activities start at the start of [ New York ] site and get cracking once you've got your detailed consent. So they are very important enabling works to move things forward. So we do already have a little bit of virtual integration on the capability, which has produced a lot and continues to do so. But going back to your broader question, which I asked -- answered with the ridge tile line. I mean that is going to be an important vision for us. But as I said at the top of the call, the increase in the brick in-house capability this year where we're increasing shift working and the hours we're working, that's going to be significant for us, as is the extension of -- further extension of our manufactured tiles to deal with our ambition to grow volumes this year. And also the quality, we will also improve the quality of the brick that we're producing, which I think is significant for us and it's great for us. And also investing further in timber frame, which we produce in-house. And we're doing a lot of that work in that regard. We do expect to extend in-house production of timber frame this year, and also experimenting with new skins and brick slips as well and producing close systems to extend our panel range. So there's an awful lot that we are doing quietly to further enhance our own vertical integration capability.
We now have a question from the line of Andy Murphy from Edison Research.
And I've got sort of follow-up that, might be sort of a little bit interrelated. But just first of all, on customer service, now you're 5 star just considering the Persimmon Way. I was just wondering if you could sort of try and put a figure on what additional cost per dwelling that might have -- or have added to the overall cost base. And secondly, just thinking about sort of the new homes on Persimmon quality code, future home standard. Just wondering, again, around that, what additional costs this might have on a per dwelling basis, is it material? And then also sort of allied to that, around the sort of a net-zero homes initiative, what additional cost is that likely to add, and is that material? And then finally, just talk about your own operations in terms of supplies. I know it's hard to quantify, but the tiles and the bricks and space for -- and over the last year or so when things have been difficult, getting hold of products and the cost of products. I was just wondering if you could discuss a little bit how that has helped you versus your competitors, and whether you are able to put any sort of figures or color around the advantage that you have that they don't?
Well, I'll have a go and Mike can step in, but you -- just on that last point. I mean the key thing is security of supplies. That's absolutely the key thing for us. It does give us a cost advantage, which contributes to the margin we've got. But first and foremost for us is the security of supply, and that will continue. I think we've given you cost before about net zero in terms of tile cost being, for example in 5 square foot is our estimate and the numbers around future home standards where we still got to see future home standards. I think the additional cost of [ GBP 10,000 ], we talked about before is probably right at the moment, but I fully expect that cost will come down. So we've got nothing new to say in that regard. We -- on the government's Energy Net Zero Council and that whole industry across the U.K. is focused on making sure the supply chain is ready for that in '25 and '26. I think in terms of new homes quality code, we will be registering about later this week, looking to activate it in the second half of the year. Look, I'm not expecting the material costs coming from that for us because we've invested to give us that improvement in quality as we -- as you've seen coming through in our 5-star rating, which I very much hope will be confirmed in March and is what we expect to be confirmed at the end of the sort of a year as we see things at the moment. You've seen what's happened to the margin in the last couple of years. But I think what's really important, and I reemphasize the fact that over the course of this year, we've seen margin expand, despite the fact we've invested more in the product and improved the quality of the product. And I think many have feared that we would be on a -- we've become volume junkies and trash the margin in order to improve quality. But we haven't done that, and nor shall we do that. The specifics of the new home quality codes is that customer needs complaint resolution within 30 days. Well, we're pretty much internally with that target anyway at the moment. There's a bit of training we need to do to make sure that both customer services and sales staff are trained and equipped to deal with the new regime. I think it's very much in line with what we aspire to be delivering anyway. So as I said, I'm not expecting a material cost, I mean you will read the column, you will see that customers have the right to an independent standing survey. But we focus an awful lot on inspections, key stage inspections, mystery shoppers and everything else, which we've invested in over the course of the last year. So I'm highly hopeful that it won't result in much material cost.
Was there a -- same on the customer service, the 5-star Persimmon Way or not?
Well, we've doubled the number of inspectors. But it's -- that's a minor payroll cost over the course of the year.
And I think, Andy, we would fully expect that the science here, the science behind this really is about getting more emphasis on -- earlier on the value chain. And I think that -- as we've said before, I think if we manage to eliminate the need for reworking and replacement and get the construction quality bolt-on, then that should naturally reduce the amount of first handover activity that we have to support customers with. So it's a matter of investing further up the value chain to yield benefits further down, downstream, so to speak. And I think that, yes, we've got that expectation still. We're still in the process of implementing those improvements. But we are seeing good early signs and that is most encouraging. And I think that, yes, every home builder will have a certain amount of first handover activity in terms of customer care snagging or however you want to describe it. But if we get the science -- if you get the front end right in terms of control of construction and finishing, then I guess in a perfect world, your after care becomes a lot more just handholding and reassurance rather than actually having to do any work thereafter. So that's the theory, and we're seeing good early signs of the investments that we've made.
Yes, Mike is right. Look, the payback from, we see repeated examples of the payback from the building right first time. But there is the other side of this as well, which is as we become proud and prouder of our product and increase the value of our product, the value of our brand goes up and you're going to track that in terms of pricing. Again, you see that in the margin delivery we're doing.
We now have a question from the line of John Fraser-Andrews from HSBC.
Two for me, if I may. The first is on completions. Just coming back to what's said in the statements about Omicron delaying some of the handovers, some on the customer side, some on, it sounds like subcontractors, absenteeism. So sort of how many are you taking into the current year to give you a boost in completions? And on those for '22, there's been various numbers on the call. I've heard the -- heard well the 57% to 59%, which obviously is both very close, but also heard 95%. So just wondered if you could clarify what visibility is at this stage on completions, appreciate its value around volume, but what is that volume visibility? And then secondly, on outlets, the 290 been, I think you referenced being your year-end number of outlets, does that include the 35 to 40 where you're under construction and not yet released? So what visibility you -- I think you said you're still targeting 310 for the second half. So some color behind how you get there would be very helpful.
Well, I suppose my best guarantee to just move to what we have said today and we're the guys that won't be around to deliver it. So it is very difficult at this point, 10 days into the New Year to give you much additional guidance that we've got to give you because we don't have much of a way to go about.We have started the year very well. The outlets do include the 36 in construction or 290 figure that we gave you. There's a small marginal number of units we will carry into the course of this year. We'll give you a greater update on the guidance in March.
And when you look at the forward order book, John, we've got just over 4,300 private sales already sold forward into next year, or into this year at the end of December. So we're in a good forward sold position together with, as I've already said, around about 4,100 forward sold units on the affordable business side. So 8,400 overall forward sold, which is a pretty good position to carry forward into the new year. And then we've got a great network already open. We've got new outlets coming through to our tune up with good early interest registered. So I think that we can see our way through to delivering the sort of level that we've touched on. But as you already recognized, it's the quality of the shape of what you deliver, not the volume. And we're not chasing volume. That is part of our strategy.
On the outlet side, I guess, your base actually is 285 in '21 from what's been announced. So obviously, you're pushing a few more. But it seems like you'll definitely be more than 285. So your build rate per site doesn't have to be anything different, could even be slightly lower given what happens on outlet to achieve the...
That's why we're playing -- I think the key data point is that sort of pre-COVID levels, rent to build, I think we touched on earlier, I think with Will's question, but I think that's key for us. This sort of 1 new whole cycle lead type metric is a good, sort of average fee. Albeit that there is a seasonal shape to it as you can appreciate, John, in the dark days of winter with the weather, et cetera. And then you throw a bit of skirmishing around supply chain and Omicron or whatever, then it can be a little bit tighter at times. But as you move into the middle of the year, longer days, better weather, that's when we hit our straps and we'd look to go beyond that average of 1. So I think that the -- we are nicely positioned to be able to support the ambition that we've described today.
It's done last year, we guided you because I did think we remember saying that we were going to be at 90% to 95% in 2019, and we come in towards the top end of that in terms of profit. Now we hope to achieve the same again in the coming year.
Sure. And just a follow-up on the sites. I think, Dean, you said there were 30 across your business that have been caught up in this planning authority moratorium...
I didn't say that. We've got a handful that I think caught up in water, it's low single digits, but they affect the business.
Right. And is it -- just the last one then. Is it just planning delays, which are affecting sites? Is it the staffing resources and authorities?
That clearly does have an impact on gaining consents. We are seeing local authorities are suffering, if you talk to any planning person in the business or any planning authority in the country, and they are struggling with resourcing and what they are paying for these people because the market has moved on. And I think that is impacting. We are certainly seeing that impact, impacting the availability of planning offers and authorities to deal with our applications.
But John, we're happy to go that extra mile to support planning offers. We -- on occasion, we do help them with their reports and what have you to try and lighten their load and do everything we can to help. Because obviously, the planning authorities want to get there as well. They've got communities that they're keen to support. So -- they're working from home disciplines and the constraints that Dean points to, I think the whole industry would say it has slowed down at the time.
Mike, congratulations on a tremendous career and best wishes.
We now have our final question on today's call, and the question comes from the line of Sam Cullen from Peel Hunt.
So in terms of the fall order book, how far ahead are you selling? Or more to the point, I guess, has that changed materially versus last year or 2019 that was a kind of a more normalized level? That's question #1. And then question #2, if you could waiver one, then -- and get rid of all the planning issues that I think we talked about this morning, how confident would you be on kind of deploying that extra GBP 100 million in [indiscernible], i.e. are there things in the supply chain that are still concerning you around getting that with number up?
I don't think there's any change in the shape of the order book. I think we're pleased with the start of the year, and we see that extending even already now in the second half. Yes. So that's brilliant. Yes, supply chain issues are still with us. I mean, look at the newspapers, I mean it just talked about how the pandemic has affected the entire country and everybody in it in unpredictable ways from the Prime Minister down, I think, and we're not immune from that. And so of course, it is affecting us on-site and in the supply chain. And we're a very big business with very many sites right across the U.K. And that is affecting the efficiency of our build. The fact that the guys deliver what they delivered is, I think, close to a miracle and at fantastic margins. So if I could make a -- wave a magic wand and get all the volume tomorrow, then we got a lot of outlets out there, and that would be brilliant. And we've been very, very bullish about our numbers. But there would still be issues affecting supply chain, which I think is going to take some time to still work through, as Omicron is still in the system isn't it?
An associated question as well for how long, I guess, and you think, well, who knows. As Dean says, it is unfortunately unpredictable, isn't it? I mean -- we all heard this is -- we're through this quite quickly and see on the side of it, but -- you've then got -- you point to the secondary constraints in terms of supply chain tightness, and that's what we wrestle with every day. But I think we're still confident that we can achieve the build that we're choosing for.
All questions have now been answered. So I'll hand back to yourselves, Dean and Mike, if I may, for any final remarks.
Thank you all very much for your interest. Thank you all for your expressions of goodwill towards Mike. He rightly deserve the praise and we shall miss him. But again, we wish him all the very best in retirement, thank him, a heartfelt thanks to him, an enormous contribution and a lifetime contribution to the success of Persimmon.
Thanks, Dean. I'd just like to say thank you for the expression of the best wishes from everybody. So no doubt I'll be speaking to 1 or 2 regardless of whether we're starting the season. But I wish everybody all the luck and best wishes moving forward.
Thank you very much, everybody, for joining today's Persimmon conference call. You may now disconnect your lines. Speakers, please stay connected.