Persimmon : Annual Report 2023

Persimmon Plc Annual Report 2023

In a landscape marked by economic complexities, Persimmon's approach is anchored in resilience and innovation. Our forward-thinking strategies are driven by a deep understanding of market dynamics, enabling us to navigate challenges. Embracing sustainability as a guiding principle, we're incorporating modern construction techniques that enhance efficiency and reduce environmental impact.

Together we are embracing our opportunities.

Contents

Strategic report

Highlights 02

Our strategic framework 03

At a glance 04

Investment case 05

Chairman's statement 06

Our markets 08

Our business model 10

Our value chain 12

Group Chief Executive's statement 13

Our strategy 20

Key performance indicators 22

Financial review 26

Our people and culture 29

Sustainability 34

Non-financial information 54 and sustainability statement

Section 172 statement 55

Principal decisions 58

TCFD 59

Principal risks and material issues 69

Viability statement 76

Governance

Directors' Report

79-117

Governance at a glance 79

Chairman's introduction 80 to governance

Board leadership 82

Corporate governance statement 84

Nomination Committee report 97

Audit & Risk Committee report 107

Other disclosures 114

Remuneration Committee 118 report

Statement of Directors' 145 Responsibilities

Financial statements

Independent auditor's report 146

Consolidated statement of 153 comprehensive income

Balance sheets 154

Statement of changes in 155 shareholders' equity

Cash flow statements 157

Notes to the financial statements 158

Other information 196

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Highlights

Strong performance

Financial

Sustainable

Operational

Number of homes sold

9,922

Average selling price 2023

Investment in local communities4

•9,922 new home completions in FY23, ahead of our initial guidance with strong delivery in Q4

£255,752

c.£2.3bn

2022: 14,868

•Net private sales rate of 0.58 per outlet per week in 2023, ahead of industry average

2022: £248,616

2022: £2.4bn

Owned land holdings (plots)

Construction and supply chain jobs supported2

CDP climate score

66,742

c.76,000

A-

•Underlying operating profit and margin impacted by lower volumes, build cost inflation and mix as expected in 2023 •43% improvement in NHBC reportable items to deliver our highest quality homes yet

2022: B

2022: 70,768

2022: c.92,000

•NHBC customer satisfaction score improved to 92.9%, continued five-star HBF rating

Private forward sales1

£946m

Return on capital employed ('ROCE')3

Reportable Items

•Private ASP held up well with some softening in second half, reflected in forward order book pricing

2022: £908m

10.5%

0.28

2022: 0.49

•Successfully controlled WIP investment to match demand, without compromising on investment for future growth

2022: 30.4%

•Enhanced planning approach working well with c.11,000 plots achieving detailed consent in the period, resulting in a 7% increase in 'owned plots with detailed planning'

•Net land spend of £398m including the settlement of land creditors of £253m

• 1. As at 10 March 2024 (2022 figure as at 12 March 2023).

• 2. Estimated using an economic toolkit.

• 3. 12-month rolling average calculated on operating profit before legacy buildings provision charge (2023: £nil, 2022: £275.0m) and goodwill impairment (2023: £7.6m, 2022: £6.6m) and total capital employed. Capital employed being the Group's net assets less cash and cash equivalents plus land creditors.

• 4. The value of homes delivered to housing associations, the value of discounted open market value homes plus the value of planning contributions we have made over the last five years.

Our strategic framework

Clear priorities with sustainability at the heart

Our mission

To build homes with quality our customers can rely on at a price they can afford.

Our vision

To be Britain's leading homebuilder, with quality and customer service at its heart, building the best value homes on the market in sustainable and inclusive communities.

We will invest in innovation and technology to extend our low cost strengths and enhance our five-star capabilities to enable as many people as possible to buy the homes we build.

At a glance

Empowering success through choice

Persimmon Homes is our core brand which delivers a range of traditional family housing throughout the UK in places where customers wish to live and work. With a focus on delivering value and quality for our customers, we sell most of our homes under this brand.

Average selling price

£272,919

2022: £262,461

Revenue

£1,899m

2022: £2,961m

Completions

6,958

2022: 11,282

The Charles Church brand complements and differentiates itself from Persimmon by delivering larger, higher-specification homes in premium locations across the UK. We build homes under this brand tailored to local markets where our research and experience has identified a strong demand for a premium product.

Average selling price

£409,488

2022: £395,460

Revenue

£296m

2022: £353m

Completions

723

2022: 892

Westbury Partnerships is our brand with a focus on affordable social housing. We sell these homes to housing associations across the UK. This brand plays a key part in the delivery of sustainable homes for the benefit of lower-income occupiers, offering solutions to some of the country's affordable housing needs.

Average selling price

£152,852

2022: £142,017

Revenue

£343m

2022: £383m

Completions

2,241

2022: 2,694

Sustainability recognition

See Sustainability on pages 34 to 53

• 01 North Scotland

• 02 East Scotland

• 03 West Scotland

• 04 North East

• 05 Durham

• 06 Teesside

• 07 Lancashire

• 08 Yorkshire

• 09 West Yorkshire

• 10 North West

• 11 Nottingham

• 12 West Midlands

• 13 North Midlands

• 14 East Midlands

• 15 Anglia

• 16 Central

• 17 South Midlands

• 18 Midlands

• 19 Suffolk

• 20 Essex

• 21 West Wales

• 22 East Wales

• 23 Severn Valley

• 24 Wessex

• 25 Thames Valley

• 26 South East

• 27 South Coast

• 28 South West

• 29 Cornwall and West Devon

• 30 Persimmon Plc Head Office

• 31 Space4

• 32 Brickworks and Tileworks

Investment case

Building for the future

TotalTotal

Total

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Persimmon Homes	1,899
Charles Church	296
Westbury Partnerships	343
Total	2,538

Persimmon is a leading UK homebuilder and is well placed in a market where there is strong demand for new homes. We have a differentiated proposition focused on delivering high-quality homes at affordable price points for our customers, in an efficient and cost-effective manner.

We have broad market appeal with UK-wide presence across our three brands, competitive advantage through affordability, vertical integration and a commitment to sustainability. Our resilient business model, backed by experienced management and strong financial stability, paves the way for sustained growth, industry-leading shareholder returns and market leadership over the medium to long-term.

Persimmon Homes	6,958
Charles Church	723
Westbury Partnerships	2,241
Total	9,922

1 Competitive advantage

Our private average selling price is over 20% lower than the industry norm, making our homes not just accessible but genuinely affordable for a diverse range of customers, including first-time buyers.

2 National diversification

Our UK-wide presence reduces regional reliance while providing economies of scale, and our multi-brand portfolio ensures broad market appeal.

Persimmon Homes	57,107
Charles Church	9,523
Westbury Partnerships	15,605
Total	82,235

3 Growth

The long-term demand outlook for new homes is favourable. With our land holdings and operational footprint, we are well positioned for disciplined growth when market conditions improve.

4 Quality sustainable homes

Our motto is to 'Build Right First Time'. Our high-quality homes are five-star HBF rated and have strong customer satisfaction ratings. We continue to pursue our carbon reduction targets, aiming to deliver net zero homes by 2030.

5 Efficiency and resilience

Our vertical integration enhances supply chain resilience and offers opportunity for innovation. Combined with our discipline around cost control, this ensures our build costs are kept low without compromising on quality.

6 Land

We have an excellent track record of purchasing land at attractive prices reflected in our low per plot cost which, combined with our operational efficiency, underpins our ability to generate industry-leading margins and high levels of ROCE when market conditions improve.

7 Financial strength

We operate with a robust balance sheet and generate strong cash generation through the cycle.

8 Experienced leadership

The extensive sector experience of our leadership team ensures disciplined business management. We are continuously exploring solutions to meet future demands, staying ahead of the curve.

Chairman's statement

Opportunity for everyone

Introduction

2023 was always going to be a challenging year, following on from the sharp rise in mortgage rates in autumn 2022 and a general climate of economic uncertainty. The strategy we set out and the actions we took enabled us to navigate this environment well, performing ahead of expectations for the year. In particular, our programme of continuous improvement in build quality and customer care has enabled us to retain our five-star Home Builders Federation rating, as evidence of the sustainable transformation of our business.

As expected at the start of the year, the number of new home completions and profit delivery of the Group was significantly down on the prior year, reflecting a difficult macroeconomic backdrop. While demand remains high, affordability and mortgage availability has been difficult for many of our customers, especially first-time buyers. Thankfully, there has been some stabilisation in recent months with mortgage rates having fallen from their peak in July 2023.

While 2024 will not be an easy year, I remain very confident of the exciting long-term prospects for the Group. There is no doubt that the country continues to face a significant housing shortage, with a growing population, continuing migration and household formation as well as a sizeable amount of old housing stock.

The operational progress we have made in the year means that we are well placed to benefit from strong pent-up demand as the housing cycle turns. Our homes are built to the highest standards and across our three brands, we are truly affordable for our customers with a private average selling price that is over 20% lower than the national average1. We are investing in expanding our outlet base with good success in obtaining planning permissions in 2023, despite the continued challenges of the UK planning system.

My colleagues have navigated the challenges of 2023 well and with impressive skill and commitment. Our mission is to build quality homes of value at a price our customers can afford. Our performance in 2023 demonstrates the considerable progress that the Group has made over the last five years.

1.

National average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land registry. Group average private selling price is £285,774.

I am convinced our long-term future is bright and we are all looking forward to working together to maintain Persimmon's industry-leading position.

Building a sustainable business for the future

Following the swift rise in interest rates at the end of 2022, the Group acted quickly to enhance its already strong investment discipline and working capital cost controls. This continued throughout 2023 to protect our cash position and in the longer-term provide the flexibility to pursue new growth opportunities. Persimmon's historical strength has been built on conservative balance sheet management and limited gearing. We continue to observe these principles and manage our cost base with prudence.

We do not currently anticipate a major improvement in market conditions in 2024, with a general election likely this year and interest rates expected to remain at current levels for some time. However, we have had good success with our sharpened approach to planning through local engagement which will allow us to grow outlet numbers in the coming year and our continued strength in land buying gives us a strong platform for growth when the market does recover. We are focused on purchasing the right land for development which will include a mix of greenfield and brownfield opportunities, recognising the Government's focus on greater use of brownfield land.

Industry leadership

We signed the English and Welsh Building Safety Remediation Agreements in the year. We are getting on with required remediation works and expect the work to be largely completed over the next two to three years.

The Company is fortunate to have three established brands and, in addition to the core Persimmon homes, we will further exploit the excellence of Charles Church which allows us to penetrate higher price points, as well as developing Westbury working in partnership with local authorities and housing associations.

Shareholder returns

We recognise the importance of returns for our shareholders and our Capital Allocation Policy, established in 2022, seeks to balance cash returns to our shareholders with investment in the business for future growth. For 2023, the Board proposes a final dividend of 40p per share to be paid on 12 July 2024 to shareholders on the register at 21 June 2024, following shareholder approval at the AGM. This dividend is in addition to the interim dividend of 20p per share, paid in November 2023, to give a total dividend per share of 60p in respect of financial year 2023. The Board's intention is to at least maintain the 2023 dividend per share in 2024, with a view to growing this over time as market conditions permit.

Board changes

During the year we had a number of changes to the Board with the appointments of Colette O'Shea and Alexandra Depledge MBE as Independent Non-Executive Directors of the Group. I am delighted to welcome both Colette and Alexandra to the Board with both adding highly relevant and complementary skills to the Persimmon Board. Simon Litherland and Joanna Place, Non-Executive Directors of the Group, both decided not to seek re-election for a further term at the AGM stepping down from the Board after six years and three years, respectively. On behalf of the Board, I would like to thank Simon and Joanna for their most valuable contributions to the Persimmon Board over recent years.

We also announced on 8 November 2023, that Andrew Duxbury would be joining the Group as Chief Financial Officer, replacing Jason Windsor who left the business in early September. Andrew has extensive experience as a finance director in the construction and housebuilding industry, which will be an invaluable asset to Persimmon as we continue to provide good quality homes for families across the UK and position the business for future growth. We look forward to welcoming Andrew to the business in due course.

In conclusion

Finally, on behalf of the whole Board I would like to thank our colleagues, subcontractors and suppliers for their hard work and determination through challenging market conditions in 2023. We are well placed to manage near-term uncertainty and are actively positioning the business for disciplined future growth. I am convinced our long-term future is bright and we are all looking forward to working together to maintain Persimmon's industry-leading position and deliver more quality homes for our customers and sustainable returns for our shareholders through the cycle.

Roger Devlin

Chairman

11 March 2024

Our markets

Opportunity for the future

Housing supply

Market trends

Our response

There is a chronic undersupply of housing, compounded by population growth and the need for replacement of existing housing stock. The Government's target of delivering 300,000 homes annually in England is not being met which is adding to the housing crisis. There is a need for high-quality homes across all tenures, not just private homes for sale. Development drives community benefits, economic activity and aligns with the broader pursuit of net zero emissions as new homes become more energy efficient.

We remain committed to delivering high-quality homes, evidenced by the delivery of our highest-ever quality homes in 2023. Delivery of homes in 2023 was impacted by the challenging market backdrop. However, as the market recovers, with a substantial portfolio of plots under our control, we are well positioned to expand our outlet network and return to volume growth to help the industry meet housing demand.

However, the industry has struggled to meet housing targets, leading to price inflation in some areas and exacerbating supply-demand imbalances. In 2023, economic uncertainty, affordability challenges, and the end of schemes like Help to Buy further impacted delivery rates. There remains near-term uncertainty, driven by factors such as an expected general election in 2024, which further complicates the landscape. Moreover, the planning environment and limited land supply pose significant barriers to development and home delivery.

Additionally, we engage proactively with policymakers to address planning constraints and advocate for measures that support sustainable development.

Overall, our response emphasises resilience, innovation, and collaboration to drive sustainable growth and address the pressing needs of the UK housing market.

300,000

Government ambition for new home additions in England

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Mortgage availability and affordability

Market trends

Our response

The housing market has faced challenges since 2022, with higher mortgage rates impacting affordability. Although UK base rates have peaked, there's ongoing uncertainty about the extent of interest rate cuts in 2024. Swap rates, though reducing from peak levels, have experienced volatility, and their trend will be crucial for restoring confidence in the housing market.

Persimmon provides diverse house types at attractive prices, enabling customers to purchase at a price they can afford. Our private average selling price of £285,774 is over 20% below the national average4 and reflects our commitment to accessible housing.

House prices in December 2023 saw a 1.8% decline compared to the previous year, marking a 4.5% decrease from the all-time high recorded in late summer 2022¹. At the end of 2023, the average two-year mortgage fix was 5.93%, significantly higher than the 2.38% average two years earlier². Despite these fluctuations, with stability in the Bank of England base rate and the average mortgage rates falling, the backdrop is improving for buyers.

We continue to adapt our strategies to mitigate economic uncertainties and affordability issues. This includes optimising sales approaches and exploring solutions such as shared ownership products.

over

20%

lower private ASP than national average4

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• 1. Nationwide House Price Index.

• 2. Moneyfacts.

  This was evidenced with a recent uptick in mortgage approvals, rising from 49.3k in November to 50.5k in December 2023³. While mortgage approvals are rising, they remain notably below a 'normal' level with the first-time buyer market particularly constrained.

• 3. Bank of England.

• 4. Based on the Group's private average selling price of £285,774 for the year to 31 December 2023 compared with the national average selling price for newly built homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land Registry.

Links to key priorities

Links to principal risks

• 3 Disciplined growth: high quality land investmentUK economic conditionsIndustry-leading financial performance

2 Government policy and political risk

Read more on pages 20 and 21

11

Mortgage availability

Read more on pages 72 to 75