TIDMPSN

RNS Number : 2885D

Persimmon PLC

02 March 2022

FULL YEAR RESULTS FOR THE YEARED 31 DECEMBER 2021

Persimmon Plc today announces Final Results for the year ended 31 December 2021.

Dean Finch, Group Chief Executive, commented:

"Persimmon's performance was strong in 2021 as we delivered more homes, built better and strengthened our platform for future growth. Maintaining build rates at pre-Covid levels, we delivered almost 1,000 additional new homes, and improved customer service such that we anticipate receiving a five-star rating in the annual HBF survey later in March 2022, a first in the company's history, whilst also improving our underlying operating margin.

"An agile approach across the business ensured we navigated the supply chain challenges posed by the pandemic, with our Brickworks, Tileworks and Space4 manufacturing facilities providing security of supply for essential materials and helping us maintain our operating efficiency. We will significantly expand production capacity at our Brickworks and Tileworks facilities this year and invest in a new Space4 timber frame facility.

"We are taking advantage of exciting opportunities in the land market, bringing in over 20,750 plots into our business last year at industry-leading embedded margins, and we expect to open around 75 new outlets in the first half of 2022.

"A year ago, we adopted an industry-leading position regarding the remediation of all cladding and fire related defects on a small number of buildings developed by Persimmon over the last 30 years, which is consistent with the recent amendments to the Building Safety Bill. We await further details including any widening in scope of those developments brought within the Building Safety Levy .

"The new year's trading has started well, with private sales rates ahead by c. 2% in the opening weeks and a robust forward sales position of GBP2.21bn. We expect to grow our outlet position in 2022 and are targeting volume growth of 4-7% on 2021 levels, whilst maintaining our industry-leading margins, although we are mindful of the growing risk of an economic impact as a result of the tragic conflict in Ukraine ."

Financial Highlights

 
                                                  2021          2020 
 New home completions                           14,551        13,575 
                                          ------------  ------------ 
 New home average selling price             GBP237,078    GBP230,534 
                                          ------------  ------------ 
 Total Group revenues                        GBP3.61bn     GBP3.33bn 
                                          ------------  ------------ 
 New housing revenues                        GBP3.45bn     GBP3.13bn 
                                          ------------  ------------ 
 Underlying new housing gross margin(1)          31.4%         31.0% 
                                          ------------  ------------ 
 Underlying profit before tax(2)             GBP973.0m     GBP863.1m 
                                          ------------  ------------ 
 Profit before tax                           GBP966.8m     GBP783.8m 
                                          ------------  ------------ 
 Cash at 31 December                       GBP1,246.6m   GBP1,234.1m 
                                          ------------  ------------ 
 Land holdings at 31 December - 
  plots owned and under control                 88,043        84,174 
                                          ------------  ------------ 
 Current number of developments                 c. 290        c. 300 
  across the UK 
                                          ------------  ------------ 
 Current forward sales position              GBP2.21bn     GBP2.27bn 
                                          ------------  ------------ 
 Net assets per share                         1,135.7p      1,102.7p 
                                          ------------  ------------ 
 Underlying return on average capital 
  employed(3)                                    35.8%         29.4% 
                                          ------------  ------------ 
 Customer satisfaction score(4)                  92.0%         89.7% 
                                          ------------  ------------ 
 

Trading performance

 
 --   Strong demand throughout the year with the Group's average 
       private weekly sales rate being c. 9% higher than 2020, 
       a year significantly impacted by pent up demand brought 
       about by the pandemic, and c. 22% ahead of 2019. 
 --   Average selling prices increased by 2.8% since 2020 reflecting 
       a combination of the mix of homes sold in the year and 
       the increased proportion of homes sold to our housing 
       association partners. 
 --   Effective supply chain management, cost control and the 
       Group's vertical integration, together with strong selling 
       prices, mitigated build cost inflation of c. 5.0% and 
       delivered an industry-leading underlying operating margin(5) 
       of 28.0% (2020: 27.6%). 
 --   Strong net cash generation of GBP1,209.8m (2020: GBP1,066.8m) 
       before capital returns of GBP749.6m and net land spend 
       of GBP447.7m. 
 

Strengthening our development pipeline

 
 --   Added over 20,750 plots of land, both from on market purchases 
       and our strategic land holdings, with industry-leading 
       embedded margins. 
 --   High quality land holdings, with 88,043 plots owned and 
       under control at 31 December 2021 (2020: 84,174 plots). 
 --   Continued investment with gross land spend of GBP460m 
       in 2021. 
 

Build quality - 'build right, first time, every time'

 
 --   An unrelenting focus on 'build right, first time, every 
       time', further enhancing the Group's build quality and 
       customer service. 
 --   Achieved pre-Covid build rates throughout the year, whilst 
       building better quality homes in line with the 'Persimmon 
       Way', the Group's construction excellence programme, which 
       is fully operational across the business. 
 --   Build rates have further improved in the early part of 
       this year as we continue to see the benefit of the Persimmon 
       Way in our build programmes and the Group's vertical integration 
       facilities 
 --   All warranty provider scores have significantly improved 
       over the last year, with a 17% year on year improvement 
       in the number of NHBC Reportable Incidents(6) . 
 

Customer service

 
 --   Achieved a 92.0%(4) customer satisfaction score for the 
       survey year ending 30 September 2021. We believe we will 
       achieve a five-star rating when the HBF's annual results 
       are published later in March 2022 for the first time in 
       the company's history. 
 --   FibreNest, the Group's ultrafast, full fibre broadband 
       service, currently supports over 21,000 of our customers 
       across over 270 developments. (2020: over 12,500 customers 
       across 198 developments). 
 

Supporting sustainable communities

 
 --   Our private average selling price of GBP259,231 for the 
       year to 31 December 2021 is over 20%(7) lower than the 
       UK national average. 
 --   Investment of GBP490m in local communities in 2021, including 
       the delivery of 2,533 new homes for lower income families 
       to our housing association partners. 
 --   Over GBP1.8m donated to local charities and community 
       groups. 
 --   Challenging science-based carbon reduction targets - net 
       zero homes by 2030 and net zero operations by 2040 - now 
       set and independently accredited by the Science Based 
       Targets initiative. 
 --   Pilot projects, utilising innovative carbon reduction 
       technologies, are underway to determine the most effective 
       methods of delivering net zero carbon homes in use at 
       scale. 
 

Legacy buildings provision

 
 --   In February 2021 the Group announced its commitment that 
       no leaseholder living in buildings it developed, would 
       pay for cladding related defects or fire related safety 
       issues. 
 --   Persimmon set aside GBP75m to pay for rectification works 
       with 33 developments identified, including all those above 
       11m. 
 --   Four of the identified developments have secured successful 
       EWS1 forms, protecting leaseholders, and are working closely 
       with the Management Companies and building owners of the 
       rest. 
 --   Persimmon will not claim from the Government's Building 
       Safety Fund. 
 --   In line with Government's request, we have extended the 
       search back 30 years but do not expect the number of buildings 
       identified to change materially. 
 

Current trading and outlook

 
 --   Persimmon is in an excellent position with strong current 
       forward sales of GBP2.21bn, a c. 2% year on year increase 
       in the Group's average private weekly sales rate for the 
       first eight weeks of 2022 and strong weekly build rates. 
 --   High quality land holdings with industry-leading embedded 
       margins. 
 --   Diverse network of c. 290 active outlets (2020: c. 300) 
       across the UK with good visibility of c. 75 new outlets 
       coming through in the first half of 2022 providing a strong 
       platform for future disciplined growth. 
 --   Investment in new Space4 factory and output increases 
       at Brickworks (+25%) and Tileworks (+50%) planned for 
       2022, enhancing security of supply and driving further 
       quality and efficiency gains. 
 --   We expect to deliver volume growth of 4-7% for the full 
       year 2022 from 2021 levels whilst maintaining the Group's 
       industry-leading margins. 
 --   We anticipate a greater proportion of completions in the 
       second half of the year relative to the first reflecting 
       a return to more typical trading patterns and the growth 
       profile of our outlet network. 
 --   We currently anticipate increases in selling prices will 
       mitigate build cost inflation. 
 

Shareholder returns

 
 --   Dividends of 125p (GBP398.7m) and 110p (GBP350.9m) per 
       share paid on 26 March 2021 and 13 August 2021 respectively. 
 --   Payment of regular annual instalment of 125p per share 
       to be made on 1 April 2022 (brought forward from July 
       2022) with payment of 110p of surplus capital in July 
       2022, subject to continuous review, in line with the Group's 
       strategy. 
 

Footnotes

1 Stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m).

2 Stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m). Profit before tax after legacy buildings provision and goodwill impairment is GBP966.8m (2020: GBP783.8m).

3 12 month rolling average calculated on underlying operating profit and total capital employed (including land creditors). Underlying operating profit is stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m).

4 The Group participates in a National New Homes Survey, run by the Home Builders Federation. The rating system is based on the number of customers who would recommend their builder to a friend.

5 Based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m) and underlying operating profit (2021: GBP966.7m, 2020: GBP862.8m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m)).

6 A Reportable Incident is an area of non-compliance with NHBC Standards. The item is rectified fully before completion of the home.

7 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 GBP259,231.

For further information please contact:

 
 Dean Finch, Group Chief Executive   Kevin Smith 
 Persimmon Plc                       Jos Bieneman 
 Tel: +44 (0) 1904 642199            Ellen Wilton 
                                     Citigate Dewe Rogerson 
                                     Tel: +44 (0) 20 7638 9571 
 

A presentation to analysts and investors will be available from 07.00 am on 2 March 2022. To view the presentation, please use the webcast link below:

Webcast link: https://edge.media-server.com/mmc/p/bxvcypb6

There will also be a Q&A session with management, hosted by Group Chief Executive, Dean Finch, Chief Commercial Officer, Martyn Clark, Group Financial Controller, Mike Smith and Julia Nichols, Group Strategy and Regulatory Director, via conference call at 9.00am. Analysts may join the call by using the details below:

Telephone number: +44 (0) 33 0551 0200

Passcode: Persimmon

An audiocast of the call will be available on www.persimmonhomes.com/corporate from this afternoon.

Chairman's Statement

Introduction

I am pleased to report that Persimmon has had a strong year. The Group has sold more homes and built them to a consistently higher standard, while improving both profit and underlying operating margin. In combining improvements in quality, customer service and financial performance we are making the broader progress we set as our objective.

Since I joined as Chairman I have been clear that there were areas for improvement in customer care and build quality especially. Dean Finch's appointment around 18 months ago recognised the need to drive both our industry-leading financial performance and enhance our capabilities in key areas to sustain our success. I am therefore delighted to note that throughout the year we have been consistently trending above five-star on the Home Builders Federation (HBF) customer satisfaction score(1) and anticipate our first ever annual five-star award will be confirmed in the coming weeks.

This is a tangible demonstration of our progress but there is of course further to go to sustain and improve on it. This remains the clear focus of the Board and the senior management team .

Trading

The UK housing market remains supportive, with strong customer demand, good mortgage availability and low interest rates. The Group saw an increase in legal completions of nearly 1,000 homes to 14,551 last year (2020: 13,575). Average private sales rates per site were around 9% ahead of 2020 and around 22% ahead of 2019. Group total revenue increased by 8% to GBP3.61bn (2020: GBP3.33bn). Our continued disciplined cost control, combined with a positive pricing environment, drove underlying operating margin(2) up to 28.0% (2020: 27.6%) and our underlying pre-tax profit(3) increased to GBP973.0m (2020: GBP863.1m). Cash generation remains strong at GBP762.1m (pre-capital return).

This is a pleasing performance and a credit to our highly experienced and agile teams right across our business. They have expertly managed the challenges presented by the pandemic, material and labour shortages, and cost inflation, to achieve it.

We have increased our land investment, bringing in over 20,750 plots into the business, whilst maintaining our industry-leading margins. This strengthens our platform for future growth.

Over a year ago, in February 2021 we announced our industry-leading commitment to protect leaseholders from having to pay towards cladding removal or fire related safety issues on any building we constructed and set aside GBP75m to fund this. Whilst accounting for less than one percent of high rise buildings constructed we wanted to protect our customers and remove uncertainty for them. With 33 developments identified, including four where successful EWS1 forms have now been secured, we are already showing leadership and protecting leaseholders and will continue to engage positively with government.

Persimmon was also the first major developer to agree voluntary undertakings with the Competition and Markets Authority ("CMA") in respect of leaseholds, extending our existing schemes to offer leaseholders an even greater discount on the purchase of their freeholds. We were also delighted to become a Living Wage Foundation accredited employer and have our carbon targets accredited by the blue ribbon Science Based Target initiative during the year.

Long term strategy and Capital Return Programme

Persimmon has delivered an industry-leading performance over many years with a well-executed strategy which recognises the cyclical nature of the housing market. Over the last 20 years, the Group's average return on capital has been c. 23% reflecting the Group's long-term performance. With an experienced management team, the Group's strong positioning in its markets, reflected in robust forward sales of GBP2.21bn, and our high quality land holdings, we are determined to sustain this for many years to come by delivering on the five key priorities Dean Finch, our Group Chief Executive, sets out in his statement. We are investing in our platform for future growth, whilst maintaining our disciplined strategy around land investment, improving the Group's operational efficiencies and placing our customers at the heart of our business.

The Board continues to consider that, under normal circumstances, cash holdings of c. GBP700m are appropriate for the business, providing the right balance between ensuring appropriate liquidity levels are maintained to cover the Group's annual working capital requirements and providing sufficient funds to take advantage of attractive investment opportunities. This cash retention policy demonstrates that we intend to continue to exercise caution through the cycle.

The Board remains committed to its well-established strategy of returning capital that is surplus to the needs of the business to its shareholders. Having assessed and concluded on the availability of surplus capital for 2021, the Board is pleased to re-iterate its intention to return 235p per share in 2022. The first payment of 125p per share will be made on 1 April 2022 (rather than July 2022 as was originally indicated) to shareholders on the register on 11 March 2022 as an interim dividend. The second payment of 110p per share will be made in July 2022 (rather than March 2022 as was originally indicated), subject to continuous assessment in line with our strategy.

Board changes

Mike Killoran retired as Group Finance Director in January 2022 after more than 25 years with Persimmon. Mike has played a key part in Persimmon's success and he leaves with our thanks and best wishes. I am delighted that we have appointed Jason Windsor as Chief Financial Officer and we expect him to join us in the summer.

The Board also welcomed Shirine Khoury-Haq who joined as a Non-Executive Director during the year. Rachel Kentleton decided to stand down from the Board during the year given other commitments and the Board thanks her for her contribution.

In what was again a very difficult year operationally, the Board would like to thank our colleagues, sub-contractors and suppliers for their hard work and determination to deliver for our customers.

Footnotes

1 The Group participates in a National New Homes Survey, run by the Home Builders Federation. The rating system is based on the number of customers who would recommend their builder to a friend.

2 Based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m) and underlying operating profit (2021: GBP966.7m, 2020: GBP862.8m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m)).

3 Stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m). Profit before tax after legacy buildings provision and goodwill impairment is GBP966.8m (2020: GBP783.8m).

Chief Executive Statement

Introduction

Persimmon has performed very strongly in 2021. I am delighted that we have delivered nearly 1,000 more legal completions and generated a 40 basis point increase in the Group's underlying operating margin(1) year on year (2021: 28.0%, 2020: 27.6%) while further improving our five-star HBF 8 week customer satisfaction score to 92.0%(2) . We are preserving Persimmon's great strengths and continuing to deliver an industry-leading performance whilst making good progress in enhancing our build quality and customer service on a consistent basis.

Trading

The Group delivered 14,551 new homes in 2021 (2020: 13,575) underpinned by a supportive housing market. Total Group revenues were GBP3.61bn, an 8% increase year on year (2020: GBP3.33bn). Our new housing revenues increased to GBP3.45bn in 2021 from GBP3.13bn in the prior year.

Demand was strong throughout 2021: the Group's average private sales rate per site was c. 9% ahead of 2020 and c. 22% ahead of 2019 reflecting Persimmon's positive positioning within a healthy housing market. This backdrop has supported positive pricing conditions with increased average selling prices for private sales seen across each of our regions. Our average selling price increased by 2.8% to GBP237,078 (2020: GBP230,534) reflecting a combination of the mix of homes sold in the year and the increased proportion of homes sold to our housing association partners. The Group's private average selling price increased by 3.3% to GBP259,231 (2020: GBP250,897) reflecting the mix of developments and house types sold in the year.

Our build rates were maintained at pre-Covid levels throughout 2021 as our highly experienced and responsive management teams navigated through the challenges posed by the pandemic and the supply chain restrictions experienced.

Our vertical integration, through our own Brickworks, Tileworks and Space4 timber frame manufacturing facilities were key in providing the business with security of supply of essential materials. In addition, using timber frames in our build improves on-site efficiencies and reduces our reliance on constrained skills.

The Group continues to deliver industry-leading margins, a key strength I am determined to build on. Our rigorous cost control helped mitigate material and labour cost inflation, while a disciplined approach to pricing helped more than offset its impact. Underlying operating margin(1) increased to 28.0% (2020: 27.6%), reflecting a benefit from the mix of legal completions achieved in the second half of the year.

Underlying profit before tax(3) grew to GBP973.0m (2020: GBP863.1m) and our cash generation to GBP762.1m (pre-capital return) (2020: GBP740.9m). The Group's profit before tax increased to GBP966.8m (2020: GBP783.8m).

Our increased investment in land opportunities is strengthening our platform for disciplined future growth, with over 20,750 plots brought into the business during the year, at a replacement rate of 143% of current consumption levels. Further, these opportunities were secured with attractive embedded margins, enabling Persimmon to continue to deliver leading financial performance. With this strong pipeline we will increase our UK-wide outlet position providing an excellent platform for the Group's future disciplined growth.

This strong performance was delivered whilst continuing to make good progress in bringing our customers into the heart of our business, putting them before volume, and taking important steps in recognising our role as a responsible developer. We were one of the first developers to give leaseholders a commitment they would not have to pay to remove cladding; led the industry in agreeing voluntary undertakings with the CMA on leaseholders purchasing their freeholds; and, became a Living Wage Foundation accredited employer. A new Mission, Vision and Values has been launched clearly setting out our ambitions and ways of working as a business.

Persimmon has a unique balance of strengths and skill-sets:

 
 --   Our market positioning, with an average private selling 
       price that is over 20%(4) lower than the UK national average 
       together with our role in developing communities in places 
       where people wish to live and work, uniquely positions 
       us to widen the opportunity of home ownership to our customers; 
 --   Our high quality land holdings with industry-leading embedded 
       margins - the Group increased its owned and under control 
       land holdings to 88,043 plots at 31 December 2021 supporting 
       our UK-wide outlet network and providing a strong platform 
       for disciplined growth; 
 --   Our strong and experienced management teams, a large number 
       of whom have been with the business for many years; 
 --   Our focus on all aspects of operational efficiency and 
       relentless pursuit of build cost efficiencies, including 
       our disciplined approach to land buying, our carefully 
       designed standardised house type range, rigorous master 
       planning and market mix analysis; 
 --   Our innovation and entrepreneurship resulting in us establishing, 
       for example, our own vertical integration capabilities, 
       with our Brickworks and Tileworks manufacturing facilities 
       that provide us with security of supply and our Space4 
       timber frame manufacturing facility that reduces our reliance 
       on constrained skills and increases on-site efficiencies. 
       In addition, FibreNest, our ultrafast full fibre to the 
       home broadband service, provides our customers with connection 
       from the point they move into their new home. 
 

At every stage of the process we have teams diligently focused on maximising value for customers and our business alike.

Placing customers at the heart of our business and our continuing pursuit of improvements in build quality and customer service is further strengthening our position. Our high quality land holdings, effective operational management and diverse network of sites across the UK provide an excellent platform to help deliver the homes that the country needs. Our focus on our five key priorities for the business will further enhance Persimmon's strengths and continue to drive real improvements across the Group, sustaining our industry-leading financial performance.

Delivery against our five key priorities

In short, during the year we delivered more homes, built better and strengthened our platform for future growth. As our results demonstrate, the five key priorities I set out last year are driving important progress, building on Persimmon's great strengths and enhancing our focus in certain key areas. These five key priorities will underpin and sustain our future success:

 
 --   Build quality: our ambition is to build right, first time, 
       every time; 
 --   Reinforce trust in the brand: we will be consistently 
       trusted to deliver a home to be proud of and a builder 
       customers would readily recommend to others; 
 --   Disciplined growth: through our improvements in build 
       quality and increased focus on customer care we will be 
       strengthening our capability to deliver more five-star 
       homes to meet the strong demand; 
 --   Maintaining an industry-leading financial performance: 
       sustaining our strong margins and returns and driving 
       healthy profit and cash generation; 
 --   Sustainable communities: we will play a full and active 
       role in the imperative of achieving a net zero carbon 
       economy, as well as setting new biodiversity and sustainable 
       community targets. 
 

Quality

Our focus on build quality is summed up by our determination to build right, first time, every time - the mantra of our Persimmon Way construction excellence programme. As a responsible developer, we recognise the importance of delivering high quality homes to our customers and are aligned with government's aims of enhancing quality across the industry. We welcome the introduction of the New Homes Quality Board and our ambition to be an industry leader is demonstrated by the fact we are an early signatory to the New Homes Quality Code. The code is designed to drive build quality and customer service improvements across the industry, in line with Persimmon's renewed ambition.

Last year, I made build quality my first priority, as I want Persimmon to be known for outstanding service as well as outstanding value, further securing our strong market positioning and increasing the value of the homes we build. Improving build quality will also deliver further improvements in our build costs as we increase on-site efficiencies and reduce the cost of remediation.

We have made good progress. All warranty provider scores have significantly improved over the last two years, with NHBC Reportable Incidents(5) down over 33%. Our build quality score on the HBF 8 week survey(6) has improved by 11% over the last two survey years.

We have achieved this progress by strengthening our standards, training, oversight and reward structures. To take each in turn. A new build standards guide and more exacting build tolerances which are set above prevailing industry norms have been published under our Persimmon Way programme. These are being augmented by construction excellence seminars, led by the Group Construction Director and senior local leaders, to disseminate best practice. They are already proving very popular.

Our sub-contract tendering process has been revised to emphasise quality and customer service performance alongside cost efficiency considerations. We are also seeking to become one of the first Building a Safer Future Charter Champions, recognising our renewed level of ambition for build quality and safety.

We have strengthened oversight to enhance the assurance of consistent delivery. In the last year, we have more than doubled our team of Independent Quality Controllers (IQCs) from 29 to 60. We believe this is the largest independent team of inspectors in the industry. Each key stage of development must be independently verified as complete and at the required standard before further work can continue. Our commitment to independent oversight is also demonstrated by undertaking our first external audits of the Persimmon Way's implementation both across our sites and within each of our 31 operating businesses by a leading national quality inspection consultancy. Alongside this, we are investing further in digitised site inspection, including a site manager app that provides a clear record of quality sign off and accountability as well as prompting tasking and completion of any necessary work.

To reinforce this renewed focus, our senior management bonus scheme was restructured last year to incorporate build quality and customer service targets. In the current year, this approach is being extended across the organisation, including to our site management teams. We will shortly announce the first national winner of our Construction Excellence Awards, with 31 local and five divisional winners already recognised for their build quality standards. I was also delighted to see our first NHBC Pride in the Job Awards winners in two years, recognising excellent site management practice. I look forward to many more awards in the years to come.

Reinforcing trust

Focusing on consistently delivering quality is the foundation of our renewed approach. As I said last year, Persimmon is known for outstanding value; I want us to equally be known for outstanding quality and service. Our recent progress on our HBF 8 week customer satisfaction score is therefore welcome and encouraging. From closing the 2019/2020 survey year at 89.7%, we are reporting a score of 92.0%(2) for the 2020/2021 survey year. We believe, for the first time in Persimmon's history, we will achieve a five-star rating when the results are published shortly.

I am determined to build even further on this progress. To reinforce trust we will continue to seek further improvement to both our 8 week and 9 month scores. We continue to invest in training to embed the new priorities further. For example, we have rolled out a Persimmon Site Manager Essentials course and c. 90% of our site managers have now gained an NVQ, up from 21% last January. Our Persimmon Pathway provides tailored programmes for staff and in the last year over 21,000 hours of training was delivered by our in-house team alone. We were also the first homebuilder to offer sales advisors a route to professional accreditation through a partnership with the Institute of Sales Professionals.

FibreNest continues to be a real strength for the Group, with over 21,000 customers across more than 270 developments now connected to our national ultrafast broadband network. Created to address persistent customer frustration that established internet providers were not connecting their homes from the day they moved in, FibreNest has seen a sustained improvement in day one connection rates, so they averaged over 85% during 2021, with the start of 2022 showing a further notable improvement. Customers increasingly view broadband as a key utility and FibreNest's gigabit ready, ultrafast network is therefore an important part of our service. Indeed, last year FibreNest launched a new Wholesale Services division to encourage other retail service providers to use our network and meet our ambition of expanding customer choice.

Acting as a responsible developer, over a year ago, we led the industry in making a commitment to leaseholders that they would not have to pay to remove any cladding or correct fire related safety issues on any buildings we constructed. We created a GBP75m fund to pay for this work and set up a Special Projects Team to complete the programme as quickly as possible. This team wrote proactively to the Management Companies and owners of all potentially affected buildings going back 22 years and identified 33 developments where work is required. Of the 33 developments identified, 3 are below 11 metres, 16 are between 11m and 18m and 10 are taller than 18m. The remaining four developments have already secured successful EWS1 forms. We are working with Management Companies and building owners to help expedite their programmes to provide reassurance to leaseholders as soon as possible.

In response to the Government's request we have extended the search back to 30 years but do not expect the number to change materially. We will not claim from the Government's Building Safety Fund to complete the works on these buildings and will reimburse any funding already claimed by the Management Companies involved. We hope these actions will lead to us becoming a member of the government's new Building Industry Scheme and continue to engage in positive discussions with officials.

Disciplined growth

Alongside the focus on consistent delivery of quality and service, we are determined to drive disciplined growth in the business and sustain our industry-leading performance. We have highly experienced land and planning teams in our operating businesses with in depth knowledge of their local communities' needs. In combining this with expert design and place making skills we create communities that meet our customers' needs.

In the second half of 2021 we operated from an average of 285 outlets reflecting the high sales rates achieved and some planning delays experienced. We have clear visibility on our pipeline of new outlets and, subject to planning consents, are forecasting to open around 75 new outlets in the first half of 2022. We have had some success in gaining planning consents in the early part of this year, however, the process continues to move at a slow pace. We aim to continue to grow our UK-wide outlet network to c. 320 building on this momentum through 2023 and beyond providing an excellent platform for disciplined growth.

In 2021 we invested GBP460m in land payments (including around GBP180m of deferred land creditor payments). We brought in over 20,750 plots across 101 sites into the business. This represents a land replacement rate of 143% compared to our current output level. I am delighted that we have achieved this while maintaining our industry-leading embedded margins. This investment is strengthening our platform for growth.

Industry-leading financial performance

We seek to combine our very strong platform of experienced and skilled teams and high quality land holdings with a focus on quality and re-enforcing trust in our brand to further enhance our industry-leading financial performance. I have set out above how the quality and build right, first time, every time focus helps here.

Our Space4, Brickworks and Tileworks factories have also proven crucial tools in both maintaining security and consistency of supply and securing build efficiencies, especially in a period of material and labour cost inflation. Through the bulk buying of raw materials and stable labour costs within our factories, we have been able to maintain a price advantage compared to the open market. Further, our use of Space4 timber frames in 33% of our homes built in the year, reduces our reliance on bricklayers, where labour shortages have been most pronounced.

These factories will play an increasingly crucial role in our security of supply, quality control and drive to secure cost-efficiencies. We are already looking to expand production - through increased shifts and product lines - across our Brickwork and Tilework factories. We anticipate increasing output at Brickworks by 25% and at Tileworks by over 50% this year. We also plan to start building a new Space4 factory in 2022, updating the technology and techniques to drive enhanced quality and further efficiency gains. We anticipate - for example - that the new factory's product will improve our speed of build by up to five days per house.

This focus on cost efficiency is demonstrated in our underlying operating margin(1) , which grew to 28.0% (2020: 27.6%) and further progress on the Group's underlying return on average capital employed(7) , increasing to 35.8% (2020: 29.4%).

The Group has generated net cash of GBP1,209.8m (2020: GBP1,066.8m) before capital returns of GBP749.6m and net land spend of GBP447.7m supporting investment in the future disciplined growth of the business and the sustainable delivery of our Capital Return Programme. The Board is pleased to re-iterate its intention to return 235p per share in 2022.

Sustainable communities

Persimmon is proud of the important role it plays in communities across the country. With our average selling price over 20%(4) lower than the industry average and the recent addition of smaller house types to our core product range, we are opening up the opportunity of homeownership to thousands of families who otherwise might not be able to achieve it. We provide well-paid, skilled employment across the country and have been reviewing our apprenticeship programmes to enhance our routes into employment for those who might otherwise either not consider or struggle to access construction jobs. A new innovative partnership with Bridgend College, where we have installed classroom facilities on one of our sites so the college can deliver courses to students directly, is a good example of our work in this area.

Our Community Champions and Building Futures programmes donated over GBP1.8m to local communities and good causes in 2021. Through our planning contributions we have paid GBP127m for new educational, medical and community facilities that benefit all local residents near our developments.

We recognise our important role in helping the UK achieve its climate change targets and ambitions. That is why we set stretching targets, accredited by the blue-ribbon Science Based Targets initiative. As part of a broader suite of commitments we have made pledges to have net zero carbon homes in use from 2030 and net zero operations from 2040. We have already taken action, switching all our offices and manufacturing facilities to 100% renewable energy last year. We have also introduced electric vehicle options into our car fleet and are investigating options to reduce our diesel use, including through alternative fuels trials for our construction plant and equipment.

Our new homes are already 30% more energy efficient than the second hand housing stock. We are determined to meet the demanding targets set for new build homes through the building regulations and Future Homes Standard in a cost efficient way and are running technology trials to assess options for innovation. On our Germany Beck site in York, our zero carbon home will shortly be welcoming its tenants who will live in the house as part of a joint project with the University of Salford to assess the effectiveness of its zero carbon technologies and build techniques and to discover what it is like to live in a zero carbon home.

Renewed focus and further opportunity

We have made important headway but I am determined to drive even further progress and have taken steps to achieve it.

We have recently launched our Mission, Vision and Values. They build on Persimmon's many strengths and our recent progress to strive even higher, to be Britain's leading homebuilder, with core values that demonstrate how we will achieve it. The new Mission, Vision and Values further embeds the five key priorities into how we operate as a business.

Our Mission is simple: to build homes with quality our customers can rely on at a price they can afford.

Our Vision is 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.

To achieve this we will live by our five core values: customer focused, value driven, team work, social impact and excellence always.

I am delighted that these values have been warmly embraced across the business and look forward to delivering on the ambition they set out.

Our experienced management teams

We have highly experienced management teams and are proud to provide our colleagues with rewarding career opportunities. We continue to build on our track record of promoting from within, with 177 colleagues promoted during the year.

A new senior management structure has been established to combine an even greater focus on consistent build quality and customer service with an even sharper commercial approach. These changes draw on internal experience and expertise to provide a structure that supports and challenges local teams to meet their targets and explore new opportunities for growth.

Paul Hurst (UK Managing Director), John Eynon (Deputy UK Managing Director) and Andy Fuller (Group Construction Director) together provide an operational senior management team with over 100 years of industry experience. Our regional teams will report into Paul and John, with Andy working closely alongside them, to ensure we deliver the improved consistency of standards the Persimmon Way demands throughout the business, while meeting our growth ambitions. Both Paul (Space4) and John (Brickworks and Tileworks) are also chairmen of our own factories leading our drive to deliver both enhanced products and greater efficiency.

Martyn Clark has become our Chief Commercial Officer, leading on all commercial aspects, including new business development and enhancing our relationships with key external partners. With a number of Group functions reporting to him, Martyn will ensure we co-ordinate our approach, so that the operational teams have the best possible opportunity to meet our targets. A key aspect of the role is to ensure that we maintain the recent progress in land buying, bringing in assets to the business at industry-leading margins, while also seeking to work with local authorities to secure faster planning permissions. Martyn will also lead our further innovation and value creation opportunities.

With this highly experienced team in place, we will continue to enhance our capability to deliver five-star performance consistently and maintain our industry-leading financial performance. Persimmon has many opportunities ahead of it and I look forward to securing the growth, quality and efficiency opportunities necessary to drive our continued industry-leading performance.

Outlook

The UK housing market remains supportive with demand continuing to exceed supply, favourable interest rates and good levels of mortgage availability. The business is in a strong position. We are leading the industry as a responsible developer; we were one of the first developers to agree voluntary undertakings with the CMA on leaseholders purchasing their freeholds and to give leaseholders a commitment they would not have to pay to remove cladding. We identified 33 developments where work is required, have already contacted relevant Management Companies and building owners to help expedite their programmes and have successfully secured EWS1 forms on four of the 33 developments.

With a new senior management structure, comprising colleagues from within the business, supporting an experienced and agile team, a growing outlet network and high quality land holdings, I expect to deliver further growth this year and through the medium term. For 2022, we are targeting 4-7% volume growth whilst maintaining our industry-leading margins. We currently anticipate increases in selling prices will mitigate build cost inflation.

We have already made a strong start to the year with GBP2.21bn of forward sales. Our private average weekly sales rate per site for the first eight weeks of 2022 is c. 2% ahead of the prior year. We anticipate a greater proportion of completions in our second half relative to our first reflecting more typical trading patterns and the growth profile of our outlet network. Group margin is expected to reflect the increased proportion of homes sold to our housing association partners. Our build rates, which were at pre-Covid levels throughout 2021, have improved in the early weeks of this year.

Some short term uncertainties remain, particularly regarding cost inflation, potentially rising interest rates and the impact of the current geo-political environment on the UK economy. The speed of achieving planning consents remains an issue and the withdrawal of the Government's Help to Buy scheme is still planned for March 2023. In addition, the recent Building Safety Bill amendments include the potential significant widening of those developments brought within the Building Safety Levy's scope.

Given our unique market positioning with attractively priced homes, our high quality land holdings and strong cash position, our focus on customers and quality, building on our existing strengths and driving further operational efficiencies (including the investment in a new Space4 factory and our Brickworks and Tileworks facilities securing build programme and cost efficiencies) the Board is confident of the Group's future success.

Footnotes

1 Based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m) and underlying operating profit (2021: GBP966.7m, 2020: GBP862.8m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m)).

2 The Group participates in a National New Homes Survey, run by the Home Builders Federation. The rating system is based on the number of customers who would recommend their builder to a friend.

3 Stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m). Profit before tax after legacy buildings provision and goodwill impairment is GBP966.8m (2020: GBP783.8m).

4 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 GBP259,231.

5 A Reportable Incident is an area of non-compliance with NHBC Standards. The item is rectified fully before completion of the home.

6 The Group participates in a National New Homes Survey, run by the Home Builders Federation. The build quality score is based on how satisfied customers are with the quality of their home.

7 12 month rolling average calculated on underlying operating profit and total capital employed (including land creditors). Underlying operating profit is stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m).

FINANCIAL REVIEW

Trading

The Group entered 2021 in a resilient position with forward sales at c. GBP1.69bn and work in progress including c. 5,600 new homes under construction. Trading through the year was strong with increased selling prices across our regions and healthy levels of customer demand, the Group's average private sales rate per site being c. 9% ahead of 2020 and c. 22% ahead of 2019.

For 2021, the Group generated total revenues of GBP3.61bn (2020: GBP3.33bn), with new housing revenue of GBP3.45bn (2020: GBP3.13bn). The Group delivered 14,551 new homes (2020: 13,575) at an average selling price of GBP237,078 (2020: GBP230,534), 2.8% higher than the prior year.

The Group delivered 12,018 new homes to private owner occupiers (2020: 11,363) at an average selling price of GBP259,231 (2020: GBP250,897). This 3.3% year on year increase largely reflecting improvements in achieved selling prices and the mix of new homes sold. The Group delivered a further 2,533 new homes to our housing association partners (2020: 2,212) at an average selling price of GBP131,976 (2020: GBP125,930).

The Group's underlying gross profit(1) for the year was GBP1,083.8m (2020: GBP969.4m) generating a new housing gross margin of 31.4%(2) (2020: 31.0%). The Group's well established land replacement strategy, the improved selling prices achieved and good management of the cost inflation we have experienced during the year continues to deliver industry-leading margins.

Underlying operating profit(3) for the Group was GBP966.7m (2020: GBP862.8m), generating an underlying new housing operating margin(4) of 28.0% (2020: 27.6%) as the second half benefitted from the particular mix of legal completions achieved.

The Group generated a profit before tax of GBP966.8m in the year (2020: GBP783.8m).

Taxation

The Group has an overall tax charge of GBP179.6m for the year (2020: GBP145.4m) and an effective tax rate of 18.6% (2020: 18.6%), marginally lower than the mainstream rate of 19.0%. Factors that may affect the Group's taxation charge include changes in tax legislation and the closure of certain open matters in the ordinary course of business in relation to prior year's tax computations.

Balance sheet strength

Net assets of GBP3,625.2m at 31 December 2021 (2020: GBP3,518.4m), including retained earnings of GBP3,055.1m (2020: GBP2,950.9m), underpin the Group's balance sheet strength. After returning GBP749.6m of surplus capital to shareholders during the year, the Group's reported net assets per share was 1,135.7p, an increase of 3% compared with the prior year (2020: 1,102.7p). Underlying return on average capital employed(5) as at 31 December 2021 was 35.8% (2020: 29.4%), further demonstrating the resilience of the business. Underlying basic earnings per share(3) for the year was 248.7p, a 12.7% increase on the prior year (2020: 220.7p).

The Group's defined benefit pension asset has increased to GBP148.8m at 31 December 2021 (2020: GBP50.6m). The increase is largely due to the recovery in markets and good asset performance combined with the actuarial benefit from the increase in discount rates through the year.

In February 2021 we pledged to support leaseholders in multi-storey developments we built that required cladding removal and in obtaining the EWS1 form they need to sell their home. As part of this pledge we created a GBP75.0m fund and have been in contact with management companies and building owners to ensure the required progress is being made. During the year works have been undertaken across a number of affected developments resulting in total spend of GBP2.3m. At 31 December 2021, the provision stands at GBP72.7m and is management's best estimate of the costs of completing works to ensure fire safety on the remaining affected buildings under direct ownership and on those under third party ownership we have developed.

The Group's land holdings

At 31 December 2021, the carrying value of the Group's land asset was GBP1,798.2m (2020: GBP1,722.1m), reflecting the Group's disciplined land replacement strategy and the strong sales performance the Group has experienced during the year. The high quality of the Group's land holdings are reflected in the Group's land cost recoveries for the year of 13.2% of new housing revenue (2020: 14.2%).

The Group increased its owned and under control land holdings to 88,043 plots at 31 December 2021 (2020: 84,174 plots) to facilitate future output growth and to support the Group's national outlet network. 67,089 plots are owned of which 39,079 have detailed implementable planning consents. A further 20,954 plots are under the Group's control, being plots where the Group has exchanged contracts to acquire the site but have yet to complete the contract due to outstanding planning conditions remaining unfulfilled.

During the year the Group's experienced land and planning teams successfully progressed c. 14,400 under control plots through the planning system, transferring them into the Group's owned land holdings. The Group's owned land holding provides excellent visibility of the near to medium term with 4.6 years of forward supply at 2021 volumes, an overall pro-forma gross margin of c. 33 % and a cost to revenue ratio of 11.4% (2020: 11.9%).

The Group continued to pursue its disciplined land replacement strategy of identifying new land in areas where people wish to live and work, providing new housing in areas where there is the most need. The Group brought over 20,750 plots into its owned and under control land holdings across 101 locations, with 10,220 of these plots converted from our strategic land portfolio. In line with our expectations, we have incurred land spend of GBP460.0m in the year, including GBP178.5m of payments in satisfaction of deferred land commitments.

During 2021, the Group acquired interests in a further 480 acres of strategic land, securing a total of c. 13,700 acres at 31 December 2021 (2020: c. 15,500 acres). This provides a long-term supply of forward plots for future development by the Group.

Work in progress

Against the backdrop of a reduced number of sales outlets, the delivery of increased volume of new homes, material and labour resource shortages we have successfully maintained our build rates at pre-Covid levels. This has resulted in our work in progress investment at 31 December 2021 of GBP1,054.1m being only c. 3% lower than the level of investment we entered 2021 (2020: GBP1,091.6m). The Group's level of work in progress of c. 4,100 equivalent units of new homes construction at the end of 2021 provides a robust opening position that will support the Group's build programmes for the first half of 2022 and deliver the new homes the country needs.

We are focused on driving strong levels of build throughout 2022, managing the continuing operational challenges we face and securing the availability of key build components through our in-house manufactured bricks, roof tiles, closed panel timber frame kits and pre-manufactured roof cassettes, whilst delivering high levels of customer satisfaction and build quality.

Cash generation and liquidity

The Group had a cash balance of GBP1,246.6m at 31 December 2021 (2020: GBP1,234.1m). During the year the Group generated GBP1,209.8m (2020: GBP1,066.8m) of cash before returning GBP749.6m of surplus capital to shareholders and net land spend of GBP447.7m. The Group's deferred land commitments have increased by GBP78.3m to GBP407.6m from GBP329.3m at 31 December 2020 reflecting the Group's increased activity in the land market throughout 2021. The Group's healthy liquidity position will provide further opportunity to support the future growth of the business. Cash generated from operations was GBP972.8m (2020: GBP993.3m).

In addition, the Group has an undrawn GBP300m Revolving Credit Facility which extends out to 31 March 2026.

The Group's shared equity loans have generated GBP18.9m of cash in the year (2020: GBP16.4m). The carrying value of these outstanding shared equity loans, reported as "Shared equity loan receivables", is GBP45.6m at 31 December 2021 (2020: GBP56.2m). The Board has reviewed the carrying value of these receivables and has concluded that the value is appropriate.

Net finance income for the year was GBP6.3m (2020: GBP0.3m) and includes GBP7.9m of gains generated on the Group's shared equity loan receivables (2020: GBP4.0m) and GBP1.8m of imputed interest payable on land creditors (2020: GBP5.4m).

Shareholders' equity, treasury policy and related risks

The Group's strategy of minimising financial risk and retaining flexibility reflects the cyclical nature of the housing market. The return of any capital that is deemed surplus to the needs of the business through the Group's Capital Return Programme remains a key element of this strategy. The Programme is continually reviewed and assessed by the Directors having regard to the progress and trading position of the business, existing economic and market conditions, the Group's current land holdings and other investment opportunities. The total value paid of the Capital Return Programme to 2021 was GBP13.00 per share, compared to the GBP6.20 per share initial commitment made by the Board in 2012.

The business maintains a robust balance sheet with an efficient capital structure and stringent controls around its working capital management. The Group's GBP300m Revolving Credit Facility provides an important element in the Group's working capital resource and flexibility. These facilities will only be used to support short-term working capital needs of the business.

The Group will continue to effectively manage its liquidity and working capital investment needs, whilst ensuring they are aligned with the Group's focus on work in progress investment to support an increase in the equivalent units of new home construction that will support good levels of stock availability and the high levels of build quality and customer service we currently deliver. The Group will continue to ensure it maintains flexibility when considering the generation of after tax earnings, and the management of the Group's equity, debt and cash management facilities. This approach will mitigate the financial risks the Group faces and maintain the Group's robust balance sheet and strong liquidity levels, securing a resilient position for the future.

Footnotes

1 Stated before legacy buildings provision of GBPnil (2020: GBP75.0m)

2 Based on new housing revenues of GBP3,449.7m (2020: GBP3,129.5m) and underlying gross profits of GBP1,083.8m (2020: GBP969.4m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m)).

3 Stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m).

4 Based on new housing revenue (2021: GBP3,449.7m, 2020: GBP3,129.5m) and underlying operating profit (2021: GBP966.7m, 2020: GBP862.8m) (stated before legacy buildings provision of GBPnil (2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m)).

5 12 month rolling average calculated on underlying operating profit and total capital employed (including land creditors). Underlying operating profit is stated before legacy buildings provision (2021: GBPnil, 2020: GBP75.0m) and goodwill impairment (2021: GBP6.2m, 2020: GBP4.3m).

6 Estimated weighted average gross margin based on assumed revenues and costs at 31 December 2021 and normalised output levels

7 Land cost value for the plot divided by the anticipated future revenue of the new home sold.

PERSIMMON PLC

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2021

 
                                                        2021         2020 
                                            Note       Total        Total 
                                                        GBPm         GBPm 
-----------------------------------------  -----  ----------  ----------- 
 
 Revenue                                     3       3,610.5      3,328.3 
 Cost of sales                                     (2,526.7)    (2,433.9) 
-----------------------------------------  -----  ----------  ----------- 
 
 Gross profit                                        1,083.8        894.4 
 
 Analysed as: 
 Underlying gross profit                             1,083.8        969.4 
 Legacy buildings provision                  9             -       (75.0) 
-----------------------------------------  -----  ----------  ----------- 
 
 Other operating income                                  6.4          5.4 
 Operating expenses                                  (129.7)      (116.3) 
-----------------------------------------  -----  ----------  ----------- 
 
 Profit from operations                                960.5        783.5 
 
 Analysed as: 
 Underlying operating profit                           966.7        862.8 
 Legacy buildings provision                                -       (75.0) 
 Impairment of intangible assets                       (6.2)        (4.3) 
-----------------------------------------  -----  ----------  ----------- 
 
 Finance income                                          9.9          8.9 
 Finance costs                                         (3.6)        (8.6) 
-----------------------------------------  -----  ----------  ----------- 
 
 Profit before tax                                     966.8        783.8 
 
 Analysed as: 
 Underlying profit before tax                          973.0        863.1 
 Legacy buildings provision                                -       (75.0) 
 Impairment of intangible assets                       (6.2)        (4.3) 
-----------------------------------------  -----  ----------  ----------- 
 
 Tax                                         4       (179.6)      (145.4) 
-----------------------------------------  -----  ----------  ----------- 
 
 Profit after tax (all attributable 
  to equity holders of the parent)                     787.2        638.4 
-----------------------------------------  -----  ----------  ----------- 
 
 Other comprehensive income/(expense) 
 Items that will not be reclassified 
  to profit: 
 Remeasurement gain/(loss) on 
  defined benefit pension schemes            12         83.3       (42.5) 
 Tax                                         4        (24.8)          6.5 
-----------------------------------------  -----  ----------  ----------- 
 Other comprehensive income/(expense) 
  for the year, net of tax                              58.5       (36.0) 
-----------------------------------------  -----  ----------  ----------- 
 
 Total recognised income for the 
  year                                                 845.7        602.4 
-----------------------------------------  -----  ----------  ----------- 
 
 Earnings per share 
 Basic                                       6        246.8p       200.3p 
 Diluted                                     6        245.6p       199.6p 
-----------------------------------------  -----  ----------  ----------- 
 
 

PERSIMMON PLC

Consolidated Balance Sheet

As at 31 December 2021

 
                                                2021        2020 
                                    Note        GBPm        GBPm 
---------------------------------  -----  ----------  ---------- 
 Assets 
 Non-current assets 
 Intangible assets                             175.6       181.8 
 Property, plant and equipment                  99.0        90.4 
 Investments accounted for using 
  the equity method                              0.3         2.1 
 Shared equity loan receivables      8          35.7        41.7 
 Trade and other receivables                     0.6         4.0 
 Deferred tax assets                             9.7         7.7 
 Retirement benefit assets           12        148.8        50.6 
---------------------------------  -----  ----------  ---------- 
                                               469.7       378.3 
---------------------------------  -----  ----------  ---------- 
 
 Current assets 
 Inventories                         7       2,920.7     2,901.3 
 Shared equity loan receivables      8           9.9        14.5 
 Trade and other receivables                   123.9        86.6 
 Current tax assets                             21.4         8.3 
 Cash and cash equivalents           11      1,246.6     1,234.1 
---------------------------------  -----  ----------  ---------- 
                                             4,322.5     4,244.8 
---------------------------------  -----  ----------  ---------- 
 
 Total assets                                4,792.2     4,623.1 
---------------------------------  -----  ----------  ---------- 
 
 Liabilities 
 Non-current liabilities 
 Trade and other payables                    (203.4)     (179.3) 
 Deferred tax liabilities                     (54.6)      (22.9) 
 Partnership liability                        (23.8)      (27.8) 
---------------------------------  -----  ----------  ---------- 
                                             (281.8)     (230.0) 
---------------------------------  -----  ----------  ---------- 
 
 Current liabilities 
 Trade and other payables                    (807.0)     (794.2) 
 Partnership liability                         (5.5)       (5.5) 
 Legacy buildings provision          9        (72.7)      (75.0) 
                                             (885.2)     (874.7) 
---------------------------------  -----  ----------  ---------- 
 
 Total liabilities                         (1,167.0)   (1,104.7) 
---------------------------------  -----  ----------  ---------- 
 
 Net assets                                  3,625.2     3,518.4 
---------------------------------  -----  ----------  ---------- 
 
 Equity 
 Ordinary share capital issued                  31.9        31.9 
 Share premium                                  24.9        22.3 
 Capital redemption reserve                    236.5       236.5 
 Other non-distributable reserve               276.8       276.8 
 Retained earnings                           3,055.1     2,950.9 
---------------------------------  -----  ----------  ---------- 
 
 Total equity                                3,625.2     3,518.4 
---------------------------------  -----  ----------  ---------- 
 

PERSIMMON PLC

Consolidated Statement of Changes in Shareholders' Equity

For the year ended 31 December 2021

 
                                       Share      Share       Capital   Other non-distributable    Retained     Total 
                                     capital    premium    redemption                   reserve    earnings 
                                                              reserve 
                                        GBPm       GBPm          GBPm                      GBPm        GBPm      GBPm 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 Balance at 1 January 
  2020                                  31.9       19.2         236.5                     276.8     2,693.9   3,258.3 
 Profit for the year                       -          -             -                         -       638.4     638.4 
 Other comprehensive 
  expense                                  -          -             -                         -      (36.0)    (36.0) 
 Transactions with owners: 
 Dividends on equity 
  shares                                   -          -             -                         -     (350.7)   (350.7) 
 Issue of new shares                       -        3.1             -                         -           -       3.1 
 Exercise of share options/share 
  awards                                   -          -             -                         -       (0.2)     (0.2) 
 Share-based payments                      -          -             -                         -         7.7       7.7 
 Net settlement of share-based 
  payments                                 -          -             -                         -       (2.4)     (2.4) 
 Satisfaction of share 
  options from own shares 
  held                                     -          -             -                         -         0.2       0.2 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 Balance at 31 December 
  2020                                  31.9       22.3         236.5                     276.8     2,950.9   3,518.4 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 Profit for the year                       -          -             -                         -       787.2     787.2 
 Other comprehensive 
  income                                   -          -             -                         -        58.5      58.5 
 Transactions with owners: 
 Dividends on equity 
  shares                                   -          -             -                         -     (749.6)   (749.6) 
 Issue of new shares                       -        2.6             -                         -           -       2.6 
 Share-based payments                      -          -             -                         -         8.1       8.1 
 Balance at 31 December 
  2021                                  31.9       24.9         236.5                     276.8     3,055.1   3,625.2 
---------------------------------  ---------  ---------  ------------  ------------------------  ----------  -------- 
 

The other non-distributable reserve arose prior to transition to IFRSs and relates to the issue of ordinary shares to acquire the shares of Beazer Group Plc in 2001.

PERSIMMON PLC

Consolidated Cash Flow Statement

For the year ended 31 December 2021

 
                                                    2021      2020 
                                          Note      GBPm      GBPm 
---------------------------------------  -----  --------  -------- 
 Cash flows from operating activities: 
 Profit for the year                               787.2     638.4 
 Tax charge                                4       179.6     145.4 
 Finance income                                    (9.9)     (8.9) 
 Finance costs                                       3.6       8.6 
 Depreciation charge                                14.5      14.1 
 Impairment of intangible assets                     6.2       4.3 
 Legacy buildings provision                9           -      75.0 
 Share-based payment charge                          6.4       6.4 
 Net imputed interest income/(expense)               6.1     (1.4) 
 Other non-cash items                              (7.9)     (7.3) 
---------------------------------------  -----  --------  -------- 
 Cash inflow from operating 
  activities                                       985.8     874.6 
 Movements in working capital: 
 (Increase)/decrease in inventories                (9.8)     265.0 
 Increase in trade and other 
  receivables                                     (59.5)    (45.8) 
 Increase/(decrease) in trade 
  and other payables                                37.4   (116.9) 
 Decrease in shared equity loan 
  receivables                                       18.9      16.4 
---------------------------------------  -----  --------  -------- 
 Cash generated from operations                    972.8     993.3 
 Interest paid                                     (3.7)     (4.1) 
 Interest received                                   1.9       4.7 
 Tax paid                                        (186.2)   (228.4) 
---------------------------------------  -----  --------  -------- 
 Net cash inflow from operating 
  activities                                       784.8     765.5 
---------------------------------------  -----  --------  -------- 
 Cash flows from investing activities: 
 Joint venture net funding movement                  1.8         - 
 Purchase of property, plant 
  and equipment                                   (20.9)    (18.9) 
 Proceeds from sale of property, 
  plant and equipment                                0.9       0.8 
---------------------------------------  -----  --------  -------- 
 Net cash outflow from investing 
  activities                                      (18.2)    (18.1) 
---------------------------------------  -----  --------  -------- 
 Cash flows from financing activities: 
 Lease capital payments                            (3.3)     (3.6) 
 Payment of Partnership liability                  (3.8)     (3.6) 
 Net settlement of share-based 
  payments                                             -     (2.4) 
 Share options consideration                         2.6       3.1 
 Dividends paid                            5     (749.6)   (350.7) 
---------------------------------------  -----  --------  -------- 
 Net cash outflow from financing 
  activities                                     (754.1)   (357.2) 
---------------------------------------  -----  --------  -------- 
 Increase in net cash and cash 
  equivalents                              11       12.5     390.2 
---------------------------------------  -----  --------  -------- 
 Cash and cash equivalents at 
  the beginning of the year                      1,234.1     843.9 
---------------------------------------  -----  --------  -------- 
 Cash and cash equivalents at 
  the end of the year                      11    1,246.6   1,234.1 
---------------------------------------  -----  --------  -------- 
 

Notes

1. Basis of preparation

The results for the year have been prepared on a basis consistent with the accounting policies set out in the Persimmon Plc Annual Report for the year ended 31 December 2021.

The preparation of the financial statements in conformity with the Group's accounting policies requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reported period. Whilst these estimates and assumptions are based on the Directors' best knowledge of the amount, events or actions, actual results may differ from those estimates.

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2021 or 2020, but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies, and those for 2021 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

Whilst the financial information included in this announcement has been computed with international accounting standards in conformity with the requirements of the Companies Act 2006 and UK adopted International Accounting Standards , this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to send its Annual Report 2021 to shareholders on 21 March 2022.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report in the Annual Report and the financial statements and notes. The Directors believe that the Group is well placed to manage its business risks successfully. The principal risks that may impact the Group's performance and their mitigation are outlined in Note 13. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to fund its operations for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the annual financial statements.

Adoption of new and revised International Financial Reporting Standards (IFRSs) and Interpretations (IFRICs)

The following relevant UK endorsed new amendments to standards are mandatory for the first time for the financial year beginning 1 January 2021:

 
            --   Amendments to IFRS 4 Insurance Contracts 
            --   Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest 
                  Rate Benchmark Reform - phase 2 
            --              Amendments to IFRS 16 Leases: Covid-19 Related Rent Concessions 
                             beyond 30 June 2021 
 

The effects of the implementation of these amendments have been limited to disclosure amendments where applicable.

The Group has not applied the following new amendments to standards which are not yet effective:

 
            --   Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant 
                  and Equipment; IAS 37 Provisions, 
                  Contingent Liabilities and Contingent Assets; and Annual Improvements 
                  2018-2020 
            --   IFRS 17 Insurance Contracts; including Amendments to IFRS 17 
 

The Group is currently considering the implication of these amendments with the expected impact upon the Group being limited to disclosures if applicable.

Going concern

The Group has performed well in the twelve months ended 31 December 2021. Persimmon's long-term strategy, which recognises the risks associated with the housing cycle by maintaining operational flexibility, investing in high quality land, minimising financial risk and deploying capital at the right time in the cycle, has equipped the business with strong liquidity and a robust balance sheet.

The Group delivered a strong trading performance in the twelve months to 31 December 2021, completing the sale of 14,551 new homes (2020: 13,575; 2019: 15,855) and generating a profit before tax of GBP966.8m (2020: GBP783.8m; 2019: GBP1,040.8m). At 31 December 2021, the Group's strong financial position included GBP1,246.6m of cash (2020: GBP1,234.1m; 2019: GBP843.9m), high quality land holdings and land creditors of GBP407.6m (2020: GBP329.3m; 2019: GBP435.2m). In addition, the Group has an undrawn Revolving Credit Facility of GBP300m, which extends out to 31 March 2026.

The Group's forward order book, including legal completions taken so far in 2022, is 3% weaker year on year with new home forward sales of c. GBP2.2bn. We have over 6,200 new homes sold forward into the private owner occupier market with an average selling price of over GBP259,350. The cumulative average private sales reservation rate for the first 8 weeks of the year is c. 2% ahead of last year.

The Directors have carried out a robust assessment of the principal risks facing the Group, as described in note 13. The Group has considered the impact of these risks on the going concern of the business by performing a range of sensitivity analyses, covering the period to 30 June 2023, including severe but plausible scenarios materialising together with the likely effectiveness of mitigating actions that would be executed by the Directors. For further detail regarding the approach and process the Directors follow in assessing the long-term viability of the business, please see the Viability Statement in note 13.

The scenarios emphasise the potential impact of severe market disruption, for example including the effect of a pandemic, on short to medium term demand for new homes. The scenarios' emphasis on the impact on the cash inflows of the Group through reduced new home sales is designed to allow the examination of the extreme cash flow consequences of such circumstances occurring. The Group's cash flows are less sensitive to supply side disruption given the Group's sustainable business model, flexible operations, agile management team and off-site manufacturing facilities.

In the first scenario modelled, the combined impact is assumed to cause a c. 45% reduction in volumes and a c. 11% reduction in average selling prices through to 30 June 2023. The combined impact results in a c. 57% fall in the Group's housing revenues. The assumptions used in this scenario reflect the experience management gained during the Global Financial Crisis ('GFC') from 2007 to 2010, it being the worst recession seen in the housing market since World War Two.

A second, even more extreme, scenario assumes a significant and enduring depression of the UK economy and housing market causing a reduction of c. 47% in new home sales volumes and a c. 37% fall in average selling prices through to 30 June 2023. As a result of these factors, the Group's housing revenues were assumed to fall by c. 67% during this period.

In addition, the Directors have assessed the impact of a complete shutdown of the housing market from the date of this announcement to 30 June 2023 on the resilience of the Group. This scenario assumes that the Group does not receive any further sales receipts for the period whilst maintaining its current level of fixed costs.

Throughout this scenario, the Group maintains substantial liquidity with a positive cash balance and no requirement to access the Group's GBP300m Revolving Credit Facility.

The Group has been increasingly assessing climate related risk and opportunities that may present to the Group. During the period assessed for going concern no significant risk has been identified that would materially impact the Group's ability to generate sufficient cash and continue as a going concern.

Having considered the continuing strength of the UK housing market, the sales rates being achieved by the Group, the resilience of the Group's average selling prices, the Group's scenario analysis as detailed above and significant financial headroom, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.

2. Segmental analysis

The Group has only one reportable operating segment, being housebuilding within the UK, under the control of the Executive Board. The Executive Board has been identified as the Chief Operating Decision Maker as defined under IFRS 8 Operating Segments.

3. Revenue

 
                                                                            2021                 2020 
                                                                            GBPm                 GBPm 
-----------------------------------------------------------  -------------------  ------------------- 
            Revenue from the sale of new housing                         3,449.7              3,129.5 
            Revenue from the sale of part exchange 
             properties                                                    155.4                196.2 
            Revenue from the provision of internet 
             services                                                        5.4                  2.6 
            Revenue from the sale of goods and services 
             as reported in the statement of comprehensive 
             income                                                      3,610.5              3,328.3 
-----------------------------------------------------------  -------------------  ------------------- 
 

4. Tax

Analysis of the tax charge for the year

 
                                                                           2021               2020 
                                                                           GBPm               GBPm 
------------------------------------------------------------  -----------------  ----------------- 
            Tax charge comprises: 
            UK corporation tax in respect of the current 
             year                                                         181.2              148.5 
            Adjustments in respect of prior years                         (8.3)              (6.4) 
------------------------------------------------------------  -----------------  ----------------- 
                                                                          172.9              142.1 
------------------------------------------------------------  -----------------  ----------------- 
            Deferred tax relating to origination and 
             reversal of temporary differences                              5.4                2.6 
            Adjustments recognised in the current year 
             in respect of prior years deferred tax                         1.3                0.7 
------------------------------------------------------------  -----------------  ----------------- 
                                                                            6.7                3.3 
------------------------------------------------------------  -----------------  ----------------- 
            Tax charge for the year recognised in Statement 
             of Comprehensive Income                                      179.6              145.4 
------------------------------------------------------------  -----------------  ----------------- 
 

The tax charge for the year can be reconciled to the accounting profit as follows:

 
                                                                           2021               2020 
                                                                           GBPm               GBPm 
------------------------------------------------------------  -----------------  ----------------- 
            Profit from continuing operations                             966.8              783.8 
------------------------------------------------------------  -----------------  ----------------- 
 
            Tax calculated at UK corporation tax rate 
             of 19% (2020: 19%)                                           183.7              148.9 
            Accounting base cost not deductible for 
             tax purposes                                                   0.2                0.3 
            Goodwill impairment losses that are not 
             deductible                                                     1.2                0.8 
            Expenditure not allowable for tax purposes                      0.2                0.2 
            Effect of change in rate of corporation 
             tax                                                            2.7                0.9 
            Enhanced tax reliefs                                          (1.3)                  - 
            Adjustments in respect of prior years                         (7.1)              (5.7) 
------------------------------------------------------------  -----------------  ----------------- 
            Tax charge for the year recognised in Statement 
             of Comprehensive Income                                      179.6              145.4 
------------------------------------------------------------  -----------------  ----------------- 
 

The Group's overall effective tax rate of 18.6% has been reduced from the mainstream rate of 19.0% by a prior year tax credit arising from the removal of some uncertainties regarding the Group's prior year tax computations.

The applicable corporation tax rate remains at 19% in line with corporation tax rates effective from 1 April 2017. On 10 June 2021, the Finance Act 2021 was enacted into law, introducing a new higher rate of corporation tax of 25% coming into effect from 1 April 2023. Consequently, the expected tax rate for the full year includes the effect of revaluing deferred tax assets and liabilities at this higher rate where these are expected to be realised or settled on or after 1 April 2023.

Following consultation by HM Treasury to implement a Residential Property Developer Tax ("RPDT") on profits arising from residential property activity, on 27 October 2021, the Chancellor of the Exchequer announced new legislation and an RPDT rate of 4% on all annual residential property profits in excess of GBP25m, effective from 1 April 2022. This additional rate once enacted will add to the standard rate of corporation tax of 25% effective from 1 April 2023, as noted above.

As the RPDT was not substantively enacted prior to 31 December 2021, the additional 4% tax rate is not reflected in the valuation of the Group's deferred tax assets and liabilities at that date. The estimated impact on the Group's deferred tax balances as at 31 December 2021 would be to increase the net deferred tax liability by GBP7m with a corresponding charge to the Statement of Comprehensive Income/Statement of Shareholders Equity.

Deferred tax recognised in other comprehensive income

 
                                                                  2021               2020 
                                                                  GBPm               GBPm 
----------------------------------------------------  ----------------  ----------------- 
            Recognised on remeasurement gain/(loss) 
             on pension schemes                                   24.8              (6.5) 
----------------------------------------------------  ----------------  ----------------- 
 

Tax recognised directly in equity

 
                                                                              2021               2020 
                                                                              GBPm               GBPm 
---------------------------------------------------------------  -----------------  ----------------- 
            Arising on transactions with equity participants 
            Current tax related to equity settled transactions                 0.1              (1.1) 
            Deferred tax related to equity settled 
             transactions                                                    (1.8)              (0.2) 
---------------------------------------------------------------  -----------------  ----------------- 
                                                                             (1.7)              (1.3) 
---------------------------------------------------------------  -----------------  ----------------- 
 

5. Dividends/Return of capital

 
                                                                          2021               2020 
                                                                          GBPm               GBPm 
-----------------------------------------------------------  -----------------  ----------------- 
            Amounts recognised as distributions to capital 
             holders in the period: 
            2019 dividend to all shareholders of 40p 
             per share paid 2020                                             -              127.5 
            2019 dividend to all shareholders of 70p 
             per share paid 2020                                             -              223.2 
            2020 dividend to all shareholders of 125p                    398.7                  - 
             per share paid 2021 
            2020 dividend to all shareholders of 110p                    350.9                  - 
             per share paid 2021 
            Total capital return to shareholders                         749.6              350.7 
-----------------------------------------------------------  -----------------  ----------------- 
 

The Directors propose to return 125p of surplus capital to shareholders for each ordinary share held on the register on 11 March 2022 with payment made on 1 April 2022 as an interim dividend in respect of the financial year ended 31 December 2021. The Directors intend to return surplus capital of 110p per ordinary share as an interim dividend with respect to the financial year ended 31 December 2021. This distribution to shareholders is anticipated to be made in July 2022 subject to continuous Board assessment in line with the Group's strategy. The total anticipated distributions to shareholders is 235p per share (2020: 235p per share) in respect of the financial year ended 31 December 2021.

6. Earnings per share

Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year of 319.0m shares (2020: 318.8m) which excludes those held in the employee benefit trust and any treasury shares, all of which are treated as cancelled.

Diluted earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares in issue adjusted to assume conversion of all potentially dilutive ordinary shares from the start of the year, giving a figure of 320.2m shares (2020: 319.9m).

Underlying earnings per share excludes the legacy buildings provision charge and goodwill impairment. The earnings per share from continuing operations were as follows:

 
                                            2021     2020 
---------------------------------------  -------  ------- 
 Basic earnings per share                 246.8p   200.3p 
 Underlying basic earnings per share      248.7p   220.7p 
 Diluted earnings per share               245.6p   199.6p 
 Underlying diluted earnings per share    247.6p   219.9p 
---------------------------------------  -------  ------- 
 

The calculation of the basic and diluted earnings per share is based upon the following data:

 
                                                                            2021                2020 
                                                                            GBPm                GBPm 
-------------------------------------------------------------  -----------------  ------------------ 
            Underlying earnings attributable to shareholders               793.4               703.5 
            Legacy buildings provision (net of tax)                            -              (60.8) 
            Goodwill impairment                                            (6.2)               (4.3) 
-------------------------------------------------------------  -----------------  ------------------ 
            Earnings attributable to shareholders                          787.2               638.4 
-------------------------------------------------------------  -----------------  ------------------ 
 

At 31 December 2021 the issued share capital of the Company was 319,206,474 ordinary shares (2020: 319,071,261 ordinary shares).

7. Inventories

 
                                                      2021                 2020 
                                                      GBPm                 GBPm 
-------------------------------------  -------------------  ------------------- 
            Land                                   1,798.2              1,722.1 
            Work in progress                       1,054.1              1,091.6 
            Part exchange properties                  24.8                 40.9 
            Showhouses                                43.6                 46.7 
-------------------------------------  -------------------  ------------------- 
            Inventories                            2,920.7              2,901.3 
-------------------------------------  -------------------  ------------------- 
 

The Group has conducted a further review of the net realisable value of its land and work in progress portfolio at 31 December 2021. Our approach to this review has been consistent with that conducted at 31 December 2020 and was fully disclosed in the financial statements for the year ended on that date. The key judgements and estimates in determining the future net realisable value of the Group's land and work in progress portfolio are future sales prices, house types and costs to complete the developments. Sales prices and costs to complete were estimated on a site by site basis. There is currently no evidence or experience in the market to inform management that expected selling prices used in the valuations are materially incorrect.

Net realisable value provisions held against inventories at 31 December 2021 were GBP18.6m (2020: GBP25.4m). Following the review, GBP4.1m of inventories are valued at net realisable value rather than historical cost (2020: GBP5.9m).

8. Shared equity loan receivables

 
                                                                          2021                2020 
                                                                          GBPm                GBPm 
----------------------------------------------------------  ------------------  ------------------ 
            Shared equity loan receivables at 1 January                   56.2                68.6 
            Settlements                                                 (18.9)              (16.4) 
            Gains                                                          8.3                 4.0 
----------------------------------------------------------  ------------------  ------------------ 
            Shared equity loan receivables at 31 December                 45.6                56.2 
----------------------------------------------------------  ------------------  ------------------ 
 

All gains/losses have been recognised in the statement of comprehensive income. Of the gains recognised in finance income for the period, GBP4.2m (2020: GBP1.5m) was unrealised.

9. Legacy buildings provision

 
                                               2021   2020 
                                               GBPm   GBPm 
-------------------------------------------  ------  ----- 
 Legacy buildings provision at 1 January       75.0      - 
 Additions to provision in the year               -   75.0 
 Provision utilised in the year               (2.3)      - 
-------------------------------------------  ------  ----- 
 Legacy buildings provision at 31 December     72.7   75.0 
-------------------------------------------  ------  ----- 
 

In the prior year we made a commitment that no leaseholder living in a building we had developed, including all those above 11 metres, should have to cover the cost of cladding removal. As part of this commitment, we created a GBP75.0m provision to cover the cost of any necessary works. Work has been ongoing throughout 2021 at a cost of GBP2.3m. The provision at 31 December 2021 remains management's best estimate of the costs of completing works to ensure fire safety on the remaining affected buildings under direct ownership and on those under third party ownership we have developed. As a result no further charge to the Statement of Comprehensive Income has been made in the year. These estimates may change over time as further information is assessed, remedial works progress and the interpretation of fire safety regulations further evolves. This is a highly complex area with judgements and estimates in respect of the cost of the remedial works and the scope of the properties requiring remedial works may change should regulation further evolve.

10. Financial instruments

In aggregate, the fair value of financial assets and liabilities are not materially different from their carrying value.

Financial assets and liabilities carried at fair value are categorised within the hierarchical classification of IFRS 7 Revised (as defined within the standard) as follows:

 
                                    2021    2020 
--------------------------------  ------  ------ 
                                   Level   Level 
                                       3       3 
                                    GBPm    GBPm 
--------------------------------  ------  ------ 
 Shared equity loan receivables     45.6    56.2 
--------------------------------  ------  ------ 
 

Shared equity loan receivables

Shared equity loan receivables represent loans advanced to customers and secured by way of a second charge on their new home. They are carried at fair value. The fair value is determined by reference to the rates at which they could be exchanged by knowledgeable and willing parties. Fair value is determined by discounting forecast cash flows for the residual period of the contract by a risk adjusted rate.

There exists an element of uncertainty over the precise final valuation and timing of cash flows arising from these loans. As a result the Group has applied inputs based on current market conditions and the Group's historic experience of actual cash flows resulting from such arrangements. These inputs are by nature estimates and as such the fair value has been classified as level 3 under the fair value hierarchy laid out in IFRS 13 Fair Value Measurement.

Significant unobservable inputs into the fair value measurement calculation include regional house price movements based on the Group's actual experience of regional house pricing and management forecasts of future movements, weighted average duration of the loans from inception to settlement of ten years (2020: ten years) and discount rate 5% (2020: 5%) based on current observed market interest rates offered to private individuals on secured second loans.

The discounted forecast cash flow calculation is dependent upon the estimated future value of the properties on which the shared equity loans are secured. Adjustments to this input, which might result from a change in the wider property market, would have a proportional impact upon the fair value of the loan. Furthermore, whilst not easily accessible in advance, the resulting change in security value may affect the credit risk associated with the counterparty, influencing fair value further.

11. Reconciliation of net cash flow to net cash and analysis of net cash

 
                                                                       2021                 2020 
                                                                       GBPm                 GBPm 
------------------------------------------------------  -------------------  ------------------- 
            Cash and cash equivalents at 1 January                  1,234.1                843.9 
            Increase in net cash and cash equivalents 
             in cash flow                                              12.5                390.2 
------------------------------------------------------  -------------------  ------------------- 
            Cash and cash equivalents at 31 December                1,246.6              1,234.1 
            IFRS 16 lease liability                                   (8.8)                (9.6) 
------------------------------------------------------  -------------------  ------------------- 
            Net cash at 31 December                                 1,237.8              1,224.5 
------------------------------------------------------  -------------------  ------------------- 
 

Net cash is defined as cash and cash equivalents, bank overdrafts, lease obligations and interest bearing borrowings.

12. Retirement benefit assets

As at 31 December 2021 the Group operated four employee pension schemes, being two Group personal pension schemes and two defined benefit pension schemes. Remeasurement gains and losses in the defined benefit schemes are recognised in full as other comprehensive income within the consolidated statement of comprehensive income. All other pension scheme costs are reported in profit or loss.

The amounts recognised in the consolidated statement of comprehensive income are as follows:

 
                                                    2021     2020 
                                                    GBPm     GBPm 
-----------------------------------------------  -------  ------- 
 Current service cost                                2.0      1.9 
 Past service cost                                     -      0.5 
 Administrative expense                              0.6      0.6 
-----------------------------------------------  -------  ------- 
 Pension cost recognised as operating expense        2.6      3.0 
-----------------------------------------------  -------  ------- 
 Interest cost                                       8.9     11.7 
 Return on assets recorded as interest             (9.6)   (13.4) 
-----------------------------------------------  -------  ------- 
 Pension cost recognised as net finance credit     (0.7)    (1.7) 
-----------------------------------------------  -------  ------- 
 Total defined benefit pension cost recognised 
  in profit or loss                                  1.9      1.3 
 Remeasurement (gain)/loss recognised in other 
  comprehensive income                            (83.3)     42.5 
-----------------------------------------------  -------  ------- 
 Total defined benefit scheme (gain)/loss 
  recognised                                      (81.4)     43.8 
-----------------------------------------------  -------  ------- 
 

The amounts included in the balance sheet arising from the Group's obligations in respect of the Pension Scheme are as follows:

 
                                           2021      2020 
                                           GBPm      GBPm 
-------------------------------------  --------  -------- 
 Fair value of Pension Scheme assets      751.9     694.4 
 Present value of funded obligations    (603.1)   (643.8) 
-------------------------------------  --------  -------- 
 Net pension asset                        148.8      50.6 
-------------------------------------  --------  -------- 
 

The increase in the net pension asset to GBP148.8m (2020: GBP50.6m) is largely due to an increase in long-term corporate bond yields increasing the discount rate assumption applied to scheme obligations to 1.9% (2020: 1.4%).

13. Principal Risks and Viability Statement

In line with the UK Corporate Governance Code, the Group defines its principal risks as those considered to have a potentially material impact on its strategy and business model, including its future performance, solvency, liquidity and reputation. The Group's strategy focuses on minimising financial risk and deploying capital at the right time in the housing market cycle, recognising the inherent risks and cyclical nature of the housing market. This, together with an agile, experienced and responsive management team, and robust risk management framework, has established a highly resilient business able to address a range of future economic scenarios.

 
      1. Pandemic risk 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     The potential for                                            The Group           Whilst the 
  Residual risk      increased rates                                              maintains           industry 
  rating: High       of transmission,                                             business            continued 
                     further variants                                             continuity          to face ongoing 
  Risk trend         of Covid-19 or a                                             plans and can       operational 
  assessment         new pandemic occurring                                       draw                and economic 
  Overall: No        in the UK, could                                             upon extensive      challenges 
  change             have significant                                             Board               from the 
  Impact: No         impacts across the                                           and management      pandemic, 
  change             Group's operations.                                          experience          particularly 
  Likelihood: No     These could include:                                         from the response   as the Omicron 
  Change              *    Increased health and safety risk to our workforce,     to the initial      outbreak 
                           our customers and the wider public.                    Covid-19            unfolded late in 
                                                                                  outbreak.           the 
                                                                                                      year, the Group 
                      *    Disruption to build programmes and delays in sales,    Robust and          continued 
                           due to staff absences and material and labour supply   comprehensive       to manage these 
                           issues.                                                policies and        ongoing 
                                                                                  procedures          challenges 
                                                                                  have been           effectively. 
                      *    Economic downturn, with reduced consumer confidence,   developed 
                           demand and pricing for new homes, thereby affecting    under the           The 
                           revenues, margins, profits and cash flows and          supervision         comprehensive 
                           impairment of asset values.                            of the Health,      suite 
                                                                                  Safety              of measures 
                                                                                  and Environment     established 
                                                                                  Department. These   at the start of 
                                                                                  procedures allow    the pandemic, 
                                                                                  for safe            including our 
                                                                                  continuity          robust 
                                                                                  of operations       Covid-19 
                                                                                  under               policies and 
                                                                                  various pandemic    procedures, have 
                                                                                  conditions.         been 
                                                                                                      continually 
                                                                                  Remote working      adapted to 
                                                                                  capabilities        reflect all 
                                                                                  are in place,       government 
                                                                                  facilitated         and industry 
                                                                                  through enhanced    guidance 
                                                                                  use of              and good 
                                                                                  technology.         practice, and 
                                                                                  This supports       have enabled a 
                                                                                  continuity          strong 
                                                                                  of operations in    degree of 
                                                                                  the event of        continuity 
                                                                                  ongoing             in our 
                                                                                  or future           operations. We 
                                                                                  pandemic            continue to 
                                                                                  conditions. The     maintain 
                                                                                  risks associated    the two-metre 
                                                                                  with increased      social 
                                                                                  use                 distancing 
                                                                                  of remote working   protocols 
                                                                                  are mitigated       across our 
                                                                                  through             sites. 
                                                                                  a combination of 
                                                                                  IT controls and     The Group's 
                                                                                  user awareness      strong balance 
                                                                                  training.           sheet, high 
                                                                                                      liquidity 
                                                                                  Potential           and robust 
                                                                                  disruption          financial 
                                                                                  of supply is        disciplines 
                                                                                  mitigated           ensure we 
                                                                                  through             are well placed 
                                                                                  centralised         to manage 
                                                                                  procurement and     the ongoing 
                                                                                  management of key   challenges 
                                                                                  materials. The      of the pandemic. 
                                                                                  vertical 
                                                                                  integration 
                                                                                  afforded 
                                                                                  by use of our own 
                                                                                  Brickworks, 
                                                                                  Space4 
                                                                                  and Tileworks 
                                                                                  production 
                                                                                  provides further 
                                                                                  mitigation for 
                                                                                  some 
                                                                                  critical 
                                                                                  materials. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      2. Strategy 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     The Group's strategy                                         The Group's         Our 
  Residual risk       has been developed                                          strategy            well-established 
  rating: Low         by the Board as                                             is agreed by the    strategy 
                      the most appropriate                                        Board at an         continues to 
  Risk trend          approach to successfully                                    annual              reflect a firm 
  assessment          deliver the Group's                                         strategy meeting.   understanding 
  Overall: No         purpose and ambition                                        The strategy        of the risks 
  change              and generate optimal                                        undergoes           associated 
  Impact: No          sustainable value                                           a continuous and    with the 
  change              for all stakeholders.                                       iterative process   economic cycle 
  Likelihood: No      As political, economic                                      of review and       and the housing 
  change              and other conditions                                        adaptation          market. 
                      evolve, the strategy                                        at Board meetings   Through 
                      currently being                                             and in response     minimising 
                      pursued may cease                                           to the evolution    associated 
                      to be the most appropriate                                  of conditions in    financial risk 
                      approach.                                                   which the Group     and judging 
                      If the Group's strategy                                     operates.           the deployment 
                      is not effectively                                          The Board engages   of capital 
                      communicated to                                             with all            at the right 
                      our workforce and                                           stakeholders        time in 
                      / or engagement                                             to ensure the       the cycle, the 
                      and incentive measures                                      strategy            Group 
                      are inappropriate,                                          is understood and   has safeguarded 
                      operational activities                                      effectively         its strong 
                      may not successfully                                        communicated.       balance sheet 
                      deliver the Group's                                         For example, an     and maintained 
                      strategic objectives.                                       Employee            its positioning 
                                                                                  Engagement          for continued 
                                                                                  Panel, Diversity    future success. 
                                                                                  and Inclusion 
                                                                                  Council 
                                                                                  and employee 
                                                                                  engagement 
                                                                                  surveys are in 
                                                                                  place 
                                                                                  to monitor the 
                                                                                  cultural 
                                                                                  health of the 
                                                                                  organisation 
                                                                                  and ensure 
                                                                                  strategy 
                                                                                  is understood and 
                                                                                  implemented. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      3. National and regional economic conditions 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     The housebuilding                                            As noted above,     The Board and 
  Residual risk       industry is sensitive                                       the Group's         our operational 
  rating: High        to changes in the                                           long-term           management teams 
                      economic environment,                                       strategy is         have 
  Risk trend          including unemployment                                      focused             continued to 
  assessment          levels, interest                                            on the cyclical     monitor 
  Overall: No         rates and consumer                                          nature of the       the economic 
  change              confidence.                                                 housing             environment 
  Impact: No                                                                      market and          closely 
  change              Deterioration in                                            minimising          throughout the 
  Likelihood: No      economic conditions,                                        financial risk,     year, with 
  change              resulting from the                                          maintaining         particular 
                      ongoing Covid-19                                            operational         focus on the 
                      pandemic or continued                                       and financial       impact of 
                      impact of the UK's                                          flexibility         the disruption 
                      withdrawal from                                             and judging the     caused 
                      the EU for example,                                         timing of capital   by the pandemic 
                      could affect demand                                         deployment          and the 
                      and pricing for                                             through             UK's exit from 
                      new homes, with                                             the cycle.          the EU. 
                      resultant effects                                                               Despite these 
                      on our revenues,                                            Lead indicators     challenges, 
                      margins, profits                                            on the future       market 
                      and cash flows and                                          direction           conditions 
                      potential impairment                                        of the UK housing   remained 
                      of asset values.                                            market are          positive, with 
                                                                                  monitored           strong 
                      Economic conditions                                         to enable           demand for 
                      in the land market                                          informed            housing and 
                      may adversely affect                                        management of       continued 
                      the availability                                            exposure            resilience 
                      of a sustainable                                            to potential        of selling 
                      supply of land at                                           market              prices. 
                      appropriate levels                                          disruption. 
                      of return.                                                  Pricing 
                                                                                  structures are 
                                                                                  regularly 
                                                                                  reviewed to 
                                                                                  reflect 
                                                                                  local market 
                                                                                  conditions. 
                                                                                  The Group's 
                                                                                  geographical 
                                                                                  spread is 
                                                                                  continuously 
                                                                                  monitored to help 
                                                                                  mitigate the 
                                                                                  effects 
                                                                                  of regional 
                                                                                  economic 
                                                                                  fluctuations. 
 
                                                                                  In line with the 
                                                                                  Group's strategy, 
                                                                                  levels of build 
                                                                                  on site are 
                                                                                  closely 
                                                                                  monitored and 
                                                                                  land 
                                                                                  investment 
                                                                                  decisions 
                                                                                  are subject to 
                                                                                  comprehensive 
                                                                                  due diligence 
                                                                                  processes 
                                                                                  to ensure 
                                                                                  effective 
                                                                                  deployment of 
                                                                                  capital. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      4. Government policy 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     Changes to government                                        Government policy   Our assessment 
  Residual risk       policy have the                                             in relation to      has identified 
  rating: High        potential to impact                                         the                 an overall 
                      on several aspects                                          housing market is   increase in 
  Risk trend          of our strategy                                             monitored           risk likelihood, 
  assessment          and operational                                             closely.            reflecting 
  Overall: No         performance. For                                            Consistency of      recent 
  change              example, the forthcoming                                    policy              government 
  Impact: No          withdrawal of the                                           formulation and     actions 
  change              Help to Buy scheme                                          application         affecting the 
  Likelihood:         in 2023, amendments                                         remains             industry, 
  Increase            to planning regulations                                     supportive of the   such as the 
                      and the recent government                                   housebuilding       introduction 
                      requirement to pay                                          industry            of the 
                      a contribution to                                           as a whole,         Residential 
                      a fund to cover                                             encouraging         Property 
                      the cost of fire                                            continued           Developer Tax, 
                      safety remediation                                          substantial         the potential 
                      works, could have                                           investment in       introduction of 
                      an adverse effect                                           land,               the Building 
                      on revenues, margins,                                       work in progress    Industry Scheme, 
                      tax charges and                                             and skills to       changes 
                      asset values.                                               support             to the stamp 
                                                                                  output growth.      duty regime 
                      The Department for                                          Our                 and the 
                      Levelling Up, Housing                                       mission to build    forthcoming 
                      and Communities                                             homes with          withdrawal 
                      (DLUHC) has demanded                                        quality             of the Help to 
                      that residential                                            our customers can   Buy Scheme 
                      property developers                                         rely on at a        in 2023. 
                      take a lead in the                                          price               Government 
                      funding and rectification                                   they can afford     continues 
                      of unsafe cladding                                          and our strategic   to recognise the 
                      and fire safety                                             objectives, are     need 
                      issues on buildings                                         aligned with        for increased 
                      over 11 metres in                                           government          construction 
                      height constructed                                          priorities to       of new homes, 
                      in the last 30 years.                                       increase            however, 
                      The government want                                         housing stock.      providing a 
                      developers to pay                                                               broadly 
                      for all the necessary                                       Land investment     supportive 
                      remediation on buildings                                    decisions and       environment for 
                      they constructed                                            levels              the industry. 
                      as well as make                                             of work in 
                      additional contributions                                    progress 
                      to an industry-wide                                         are tightly 
                      scheme that protects                                        controlled 
                      all leaseholders                                            in order to 
                      from paying towards                                         mitigate 
                      any works.                                                  exposure to 
                                                                                  external 
                      To reinforce this                                           influences. 
                      demand, the government 
                      has introduced amendments                                   Persimmon is 
                      into the Building                                           taking 
                      Safety Bill, which,                                         part in ongoing 
                      if passed, will                                             discussions with 
                      require membership                                          government to 
                      of a 'Building Industry                                     identify 
                      Scheme'. Membership                                         an effective 
                      of this scheme will                                         solution 
                      be determined by                                            to the funding 
                      the government,                                             and 
                      based on the developer's                                    rectification of 
                      commitments and                                             unsafe cladding 
                      actions to rectify                                          and fire safety 
                      cladding and fire                                           issues on 
                      safety related issues                                       buildings 
                      on buildings it                                             over 11 metres 
                      has developed. The                                          and 
                      government has indicated                                    ensure 
                      they would use the                                          leaseholders 
                      powers conferred                                            are protected. 
                      through the amendments                                      Persimmon 
                      to block planning                                           led the industry 
                      and building control                                        in committing 
                      permissions for                                             that 
                      developers that                                             leaseholders 
                      are not members                                             should 
                      of the scheme.                                              not have to pay 
                                                                                  for such works on 
                                                                                  any buildings we 
                                                                                  constructed. Last 
                                                                                  year, a GBP75m 
                                                                                  legacy 
                                                                                  buildings 
                                                                                  provision 
                                                                                  was created to 
                                                                                  fund 
                                                                                  necessary work on 
                                                                                  these buildings. 
                                                                                  In light of 
                                                                                  DLUHCs 
                                                                                  request, we are 
                                                                                  reviewing 
                                                                                  buildings 
                                                                                  we constructed 
                                                                                  over 
                                                                                  the last 30 years 
                                                                                  but do not 
                                                                                  believe 
                                                                                  that this will 
                                                                                  result 
                                                                                  in a material 
                                                                                  increase 
                                                                                  to the 33 
                                                                                  developments 
                                                                                  already 
                                                                                  identified. 
                                                                                  In addition, 
                                                                                  Persimmon 
                                                                                  will not claim 
                                                                                  from 
                                                                                  the Government's 
                                                                                  Building Safety 
                                                                                  Fund. We hope 
                                                                                  these 
                                                                                  actions will lead 
                                                                                  to us becoming a 
                                                                                  member of the 
                                                                                  government's 
                                                                                  new Building 
                                                                                  Industry 
                                                                                  Scheme and 
                                                                                  continue 
                                                                                  to engage in 
                                                                                  positive 
                                                                                  discussions with 
                                                                                  officials. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      5. Health, safety and environment 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     In addition to the                                           The Board retains   The effective 
  Residual risk       human impacts of                                            a very strong       management 
  rating: High        any accident, there                                         commitment          of health, 
                      is the potential                                            to health and       safety and 
  Risk trend          for reputational                                            safety              environmental 
  assessment          damage, construction                                        and managing the    risks has 
  Overall: No         delays and financial                                        risks in this       remained a 
  change              penalties as a result                                       area                critical area 
  Impact: No          of any health, safety                                       effectively. This   of focus for the 
  change              or environmental                                            is implemented by   Board 
  Likelihood: No      incident.                                                   comprehensive       and our 
  change                                                                          management          management teams 
                                                                                  systems and         throughout the 
                                                                                  controls,           year. 
                                                                                  managed by our 
                                                                                  highly              As noted above, 
                                                                                  experienced         our 
                                                                                  Health,             comprehensive 
                                                                                  Safety and          suite of 
                                                                                  Environment         Covid-19 
                                                                                  Department, which   mitigation 
                                                                                  includes detailed   measures, 
                                                                                  training and        including our 
                                                                                  inspection          robust policies 
                                                                                  programmes to       and procedures, 
                                                                                  minimise            have been 
                                                                                  the likelihood      continually 
                                                                                  and                 adapted to 
                                                                                  impact of           reflect 
                                                                                  accidents           government 
                                                                                  on our sites.       and industry 
                                                                                  While               guidance 
                                                                                  all reasonable      and good 
                                                                                  steps               practice, and 
                                                                                  are taken to        have enabled a 
                                                                                  reduce              strong 
                                                                                  the likelihood of   degree of 
                                                                                  an incident, the    continuity 
                                                                                  potential human,    in our 
                                                                                  reputational and    operations. 
                                                                                  financial impacts 
                                                                                  of any such         Environmental 
                                                                                  incident            management 
                                                                                  are considered      has been an area 
                                                                                  high.               of particular 
                                                                                                      focus in the 
                                                                                                      year, with 
                                                                                                      senior 
                                                                                                      appointments 
                                                                                                      made 
                                                                                                      to support 
                                                                                                      ongoing 
                                                                                                      development 
                                                                                                      in this area. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      6. Skilled workforce, retention and succession 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     Shortages of skilled                                         Access to an        The demand for 
  Residual risk       labour, driven in                                           appropriately       labour 
  rating: High        part through the                                            skilled workforce   within the 
                      effects of the UK's                                         and experienced     construction 
  Risk trend          exit from the EU                                            management team     sector has 
  assessment          and from increased                                          is essential in     remained high 
  Overall:            UK housebuilding                                            maintaining         throughout the 
  Increase            activities, create                                          operational         year, 
  Impact: No          risks of increased                                          performance and     driven by a 
  change              costs and delays                                            ensuring the        number of 
  Likelihood:         and disruption to                                           successful          factors. This is 
  Increase            build programmes.                                           delivery of the     reflected 
                                                                                  Group's strategy.   in an overall 
                                                                                                      increase 
                                                                                  The Group           in our 
                                                                                  operates            assessment of 
                                                                                  a range of          this risk. 
                                                                                  apprenticeships 
                                                                                  and in-house        The Group has 
                                                                                  training            continued 
                                                                                  programmes, under   to invest in its 
                                                                                  the supervision     people 
                                                                                  of the Group        and processes to 
                                                                                  Training            mitigate 
                                                                                  department, in      this risk. 
                                                                                  order               Notable 
                                                                                  to support an       developments 
                                                                                  adequate            within the year 
                                                                                  supply of skilled   include 
                                                                                  labour. In          an expansion of 
                                                                                  addition,           the resource 
                                                                                  the Group is        within our Group 
                                                                                  committed           Training 
                                                                                  to supporting       department and 
                                                                                  industry            the further 
                                                                                  initiatives to      development of 
                                                                                  address             the 'Persimmon 
                                                                                  the skills gap.     Pathway', a 
                                                                                  The Group's         structured 
                                                                                  Space4              training 
                                                                                  manufacturing       programme and 
                                                                                  facility,           career pathway 
                                                                                  which produces      for key 
                                                                                  timber              disciplines. 
                                                                                  frames, highly 
                                                                                  insulated 
                                                                                  wall panels and 
                                                                                  roof cassettes, 
                                                                                  improves build 
                                                                                  efficiency 
                                                                                  and requires less 
                                                                                  on-site labour 
                                                                                  than 
                                                                                  a traditionally 
                                                                                  built home, 
                                                                                  mitigating 
                                                                                  some labour 
                                                                                  shortage 
                                                                                  risk. 
 
                                                                                  A range of 
                                                                                  measures 
                                                                                  have been 
                                                                                  deployed 
                                                                                  to ensure high 
                                                                                  levels 
                                                                                  of retention 
                                                                                  across 
                                                                                  the workforce. 
                                                                                  These 
                                                                                  include increased 
                                                                                  focus on employee 
                                                                                  engagement, 
                                                                                  further 
                                                                                  development of 
                                                                                  performance 
                                                                                  management 
                                                                                  frameworks, 
                                                                                  career 
                                                                                  management, 
                                                                                  and financial 
                                                                                  incentives. 
                                                                                  At the most 
                                                                                  senior 
                                                                                  level, the 
                                                                                  Nomination 
                                                                                  Committee 
                                                                                  oversees 
                                                                                  these processes 
                                                                                  and promotes 
                                                                                  effective 
                                                                                  succession 
                                                                                  planning. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      7. Materials and land purchasing 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     Materials availability                                       Materials           Sustained growth 
  Residual risk       Ensuring access                                             availability        in UK 
  rating: High        to the right quantity                                       Our build           housebuilding 
                      and specification                                           programmes          activities, 
  Risk trend          of materials is                                             and our supply      and supply chain 
  assessment          critical in delivering                                      chain               disruption 
  Overall:            high quality homes.                                         are closely         caused by a 
  Increase                                                                        monitored           combination 
  Impact: Increase    Heightened levels                                           to allow us to      of the Covid-19 
  Likelihood:         of demand for materials                                     manage              pandemic 
  Increase            may cause availability                                      and react to any    and issues 
                      constraints and                                             supply chain        associated 
                      increase cost pressures.                                    issues              with the UK's 
                      Furthermore, build                                          and to help         exit from 
                      quality may be compromised                                  ensure              the EU, has 
                      if unsuitable materials                                     consistent high     increased 
                      are procured leading                                        quality             pressure on the 
                      to damage to the                                            standards.          supply 
                      Group's reputation                                          We build strong     chain. This has 
                      and customer experience.                                    relationships       resulted 
                                                                                  with                in increased 
                      Land Purchasing                                             key suppliers       lead times 
                      Land may be purchased                                       over                and inflationary 
                      at too high a price,                                        the long term to    pressures 
                      in the wrong location                                       ensure              in some 
                      and at the wrong                                            consistency         materials. 
                      time in the housing                                         of supply and 
                      market cycle.                                               cost                These pressures 
                                                                                  efficiency. Our     have 
                                                                                  Group Procurement   been reflected 
                                                                                  team works with     in an 
                                                                                  our operating       increased 
                                                                                  businesses          overall risk 
                                                                                  to ensure the       rating. However, 
                                                                                  Group's             the 
                                                                                  suppliers provide   Group continues 
                                                                                  materials to the    to benefit 
                                                                                  expected            from its 
                                                                                  specification       vertical 
                                                                                  and quantities.     integration 
                                                                                                      through our 
                                                                                  The Group's         Brickworks, 
                                                                                  off-site            Tileworks and 
                                                                                  manufacturing hub   Space4 
                                                                                  at Harworth, near   manufacturing 
                                                                                  Doncaster,          facilities, 
                                                                                  provides            and the current 
                                                                                  a significant       positive 
                                                                                  proportion          sales pricing 
                                                                                  of the bricks and   conditions 
                                                                                  roof tiles used     continue to 
                                                                                  across our sites,   mitigate 
                                                                                  providing           effects of cost 
                                                                                  security            inflation. 
                                                                                  of supply. This 
                                                                                  complements our     In respect of 
                                                                                  existing off-site   land, we 
                                                                                  manufacturing       have maintained 
                                                                                  facility            our 
                                                                                  at Space4, which    well-established 
                                                                                  produces timber     disciplined 
                                                                                  frames, highly      approach 
                                                                                  insulated           to replacement 
                                                                                  wall panels and     whilst 
                                                                                  roof cassettes.     continuing to 
                                                                                                      take advantage 
                                                                                  Land Purchasing     of exciting 
                                                                                  The Group           opportunities 
                                                                                  maintains           in the market. 
                                                                                  strong land         During 
                                                                                  holdings.           the year, our 
                                                                                  All land            land replacement 
                                                                                  purchases           has exceeded 
                                                                                  undergo             current 
                                                                                  comprehensive       consumption. 
                                                                                  viability 
                                                                                  assessments 
                                                                                  and must meet 
                                                                                  specific 
                                                                                  levels of 
                                                                                  projected 
                                                                                  returns, taking 
                                                                                  into account 
                                                                                  anticipated 
                                                                                  market conditions 
                                                                                  and sales rates. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      8. Climate change 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     The effects of climate                                       The Group takes     The likelihood 
  Residual risk       change and the UK's                                         a range of          assessment 
  rating: Medium      transition to a                                             measures            of this risk has 
                      lower carbon economy                                        to monitor and      increased 
  Risk trend          could lead to increasing                                    improve             compared to the 
  assessment          levels of regulation                                        its operational     prior 
  Overall: No         and legislation,                                            efficiency and      year as 
  change              as seen with the                                            direct              increasing 
  Impact: No          Future Homes Standard.                                      environmental       awareness 
  change              These may in turn                                           impact,             and desire for 
  Likelihood:         result in planning                                          including           action, 
  Increase            delays, increased                                           measuring           in part 
                      costs and competition                                       CO(2) emissions     following COP26, 
                      for some materials.                                         and the amount of   is likely to 
                                                                                  waste we generate   result in 
                      Changes in weather                                          for each home we    a more urgent 
                      patterns and the                                            sell.               transition 
                      frequency of extreme                                                            to a lower 
                      weather events,                                             The Group           carbon economy. 
                      particularly storms                                         maintains 
                      and flooding, may                                           a detailed          Within the year, 
                      increase the likelihood                                     climate             the 
                      of disruption to                                            change risk         Group has set 
                      the construction                                            register,           science 
                      process. The availability                                   which ensures       based carbon 
                      of mortgages and                                            that                reduction 
                      property insurance                                          the management      targets, in line 
                      may reduce in response                                      and                 with 
                      to financial institutions                                   mitigation of the   the Paris 
                      considering the                                             risk is embedded    Agreement, 
                      possible impacts                                            within the          which were fully 
                      relating to climate                                         Group's             accredited 
                      change.                                                     risk management     by the Science 
                                                                                  process.            Based 
                                                                                                      Targets 
                                                                                  We systematically   Initiative. We 
                                                                                  consider the        have set 
                                                                                  potential           ambitious 'net 
                                                                                  impacts of          zero' targets, 
                                                                                  climate             aiming 
                                                                                  change throughout   to deliver 'net 
                                                                                  the land            zero' 
                                                                                  acquisition,        homes in use to 
                                                                                  planning and        our customers 
                                                                                  build               by 2030 and 
                                                                                  processes and       become 'net 
                                                                                  work                zero' in our 
                                                                                  closely with        operations 
                                                                                  planning            by 2040. 
                                                                                  authorities and 
                                                                                  other statutory     The Group has 
                                                                                  bodies to manage    already 
                                                                                  and mitigate        made good 
                                                                                  these               progress on 
                                                                                  risks.              its carbon 
                                                                                                      reduction 
                                                                                  The government's    roadmap with a 
                                                                                  'Future Homes       number 
                                                                                  Standard'           of projects to 
                                                                                  will be             research 
                                                                                  introduced          the most 
                                                                                  by 2025. To plan    effective method 
                                                                                  for and manage      of delivering a 
                                                                                  the                 'net 
                                                                                  transition to low   zero' home in 
                                                                                  carbon homes, a     use and 
                                                                                  low carbon homes    engaging a third 
                                                                                  working group       party 
                                                                                  (consisting         expert to 
                                                                                  of members from     measure the 
                                                                                  across the          embodied carbon 
                                                                                  Group's             of our 
                                                                                  various             homes. Our homes 
                                                                                  disciplines)        are 
                                                                                  has been            already 
                                                                                  established.        significantly 
                                                                                  The Group engages   more energy 
                                                                                  proactively with    efficient 
                                                                                  the housebuilding   than existing 
                                                                                  industry and the    housing 
                                                                                  Government to       stock and our 
                                                                                  develop             pathway 
                                                                                  industry wide       to 'net zero' 
                                                                                  solutions           homes in 
                                                                                  to meet the         use by 2030 has 
                                                                                  requirements        clear 
                                                                                  of the Future       interim 
                                                                                  Homes               milestones. 
                                                                                  Standard. 
                                                                                                      Operationally, 
                                                                                  We continually      the Group 
                                                                                  seek                has introduced 
                                                                                  to strengthen our   electric 
                                                                                  supply chain, for   vehicle options 
                                                                                  example, our        into 
                                                                                  off-site            its fleet, is 
                                                                                  manufacturing       now purchasing 
                                                                                  facilities          100% renewable 
                                                                                  provide us with     energy 
                                                                                  greater assurance   for its offices 
                                                                                  of quality and      and 
                                                                                  supply,             manufacturing 
                                                                                  and use modern      facilities and 
                                                                                  methods             continues 
                                                                                  of construction     to investigate 
                                                                                  and technology to   methods 
                                                                                  assist the          of reducing the 
                                                                                  mitigation          Group's 
                                                                                  of climate change   red diesel 
                                                                                  related risks.      consumption 
                                                                                  The                 and increasing 
                                                                                  Group Procurement   the use 
                                                                                  team maintain       of alternative 
                                                                                  strong              fuels. 
                                                                                  links with our 
                                                                                  suppliers 
                                                                                  delivering value 
                                                                                  through our 
                                                                                  supply 
                                                                                  chain by regular 
                                                                                  engagement and 
                                                                                  robust 
                                                                                  tendering 
                                                                                  processes. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      9. Reputation 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     Damage to the Group's                                        Management          The Persimmon 
  Residual risk       reputation could                                            Supervision         Way, our 
  rating: Medium      adversely affect                                            The Group is        end-to-end 
                      its ability to deliver                                      committed           consolidated 
  Risk trend          its strategic objectives.                                   to ensuring an      construction 
  assessment          If governance, build                                        appropriate         process, 
  Overall: No         quality, customer                                           culture and         is now in 
  change              experiences, operational                                    maintaining         operation across 
  Impact: Increase    performance, management                                     the high quality    the business, 
  Likelihood: No      of health and safety                                        of its              and supporting 
  change              or local planning                                           operations.         our desire to 
                      concerns fall short                                         This is subject     'build 
                      of our usual high                                           to oversight from   right, first 
                      standards, this                                             the Board.          time, every 
                      may result in damage                                                            time'. 
                      to customer, commercial                                     Build quality and 
                      and investor relationships                                  re-enforcing        Persimmon 
                      and have a detrimental                                      trust               formally 
                      impact on financial                                         in the brand are    commenced 
                      performance.                                                key priorities      the registration 
                                                                                  for                 process 
                                                                                  the Group.          for the New 
                                                                                  Significant         Homes Quality 
                                                                                  investment has      Code (NHQC) on 
                                                                                  been                14 January 
                                                                                  made in these       2022, one of the 
                                                                                  areas,              first 
                                                                                  for example         housebuilders to 
                                                                                  through             do so. 
                                                                                  the Persimmon       We welcome the 
                                                                                  Way,                introduction 
                                                                                  including           of the NHQC, 
                                                                                  expanding           which aims 
                                                                                  the Group's team    to drive up 
                                                                                  of Independent      quality and 
                                                                                  Quality             customer service 
                                                                                  Controllers         across 
                                                                                  (IQCs)              the industry 
                                                                                  and addressing      together 
                                                                                  the                 with the 
                                                                                  Group's legacy      appointment 
                                                                                  quality             of a New Homes 
                                                                                  issues.             Ombudsman 
                                                                                                      Service. 
                                                                                  Senior 
                                                                                  appointments        The Group 
                                                                                  have been made at   continues to 
                                                                                  Group level to      invest in its 
                                                                                  promote             people 
                                                                                  and enforce         and processes, 
                                                                                  compliance          driving 
                                                                                  with policies and   operational 
                                                                                  procedures as       improvements. 
                                                                                  well                These 
                                                                                  as to provide the   enhancements 
                                                                                  Board with          reduce 
                                                                                  assurance           the probability 
                                                                                  on their            of operational 
                                                                                  effective           issues and the 
                                                                                  implementation.     consequent 
                                                                                                      reputational 
                                                                                  Stakeholder         damage they 
                                                                                  Relationships       can cause. 
                                                                                  We take actions 
                                                                                  to maintain 
                                                                                  positive 
                                                                                  relationships 
                                                                                  with 
                                                                                  all of our 
                                                                                  stakeholders 
                                                                                  to minimise the 
                                                                                  risks of 
                                                                                  reputational 
                                                                                  damage and aim to 
                                                                                  comply with best 
                                                                                  practice in 
                                                                                  corporate 
                                                                                  governance. 
 
                                                                                  We actively 
                                                                                  support 
                                                                                  local communities 
                                                                                  in addressing 
                                                                                  housing 
                                                                                  needs, in 
                                                                                  creating 
                                                                                  attractive 
                                                                                  neighbourhoods 
                                                                                  and employing 
                                                                                  local 
                                                                                  people, both on 
                                                                                  our sites and in 
                                                                                  the supply chain. 
                                                                                  Significant 
                                                                                  contributions 
                                                                                  are made to local 
                                                                                  infrastructure 
                                                                                  and 
                                                                                  good causes 
                                                                                  within 
                                                                                  the communities 
                                                                                  in which the 
                                                                                  Group 
                                                                                  operates. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      10. Regulatory compliance 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     The housebuilding                                            Comprehensive       The assessment 
  Residual risk       industry is subject                                         management          of the 
  rating: Medium      to extensive and                                            systems are in      likelihood of 
                      complex laws and                                            place               this risk 
  Risk trend          regulations, particularly                                   to ensure           has increased 
  assessment          in areas such as                                            regulatory          within 
  Overall: No         land acquisition,                                           and legal           the year. This 
  change              planning, building                                          compliance,         reflects 
  Impact: No          regulations and                                             including a suite   the continuing 
  change              the environment.                                            of policies and     increase 
  Likelihood:         Ensuring compliance                                         procedures          in the volume 
  Increase            in these areas can                                          covering            and complexity 
                      result in delays                                            key areas of        of regulatory 
                      in securing the                                             legislation         requirements, 
                      land required for                                           and regulation.     and the 
                      development and                                             Additional          financial and 
                      in construction.                                            oversight           reputation risks 
                      Any failure to comply                                       is in place         associated 
                      with regulations                                            through             with any 
                      could result in                                             the Group-level     failures to 
                      damage to the Group's                                       functions and       manage 
                      reputation and potential                                    cross-functional    regulatory 
                      imposition of financial                                     steering groups     compliance 
                      penalties.                                                  for key areas,      effectively. 
                                                                                  such 
                                                                                  as GDPR             Key regulatory 
                                                                                  compliance.         areas 
                                                                                  Where these         of focus within 
                                                                                  systems             the year 
                                                                                  identify            have included 
                                                                                  inconsistencies     planning 
                                                                                  in adherence to     conditions, with 
                                                                                  agreed processes,   the 
                                                                                  corrective          Group, in common 
                                                                                  actions             with 
                                                                                  are swiftly         the wider 
                                                                                  taken.              industry, 
                                                                                                      continuing 
                                                                                  We engage           to experience 
                                                                                  extensively         delays 
                                                                                  with planning       to outlet 
                                                                                  authorities         openings due 
                                                                                  and other           to the delays 
                                                                                  stakeholders        within 
                                                                                  to reduce the       the planning 
                                                                                  likelihood          system. 
                                                                                  and impact of any 
                                                                                  delays or           Persimmon 
                                                                                  disruption.         formally 
                                                                                  In respect of       commenced 
                                                                                  land,               the registration 
                                                                                  the Group           process 
                                                                                  controls            for the NHQC on 
                                                                                  sufficient          14 January 
                                                                                  holdings            2022. The aims 
                                                                                  to provide          of the 
                                                                                  security            Code and its 
                                                                                  of supply for       supporting 
                                                                                  medium              process are 
                                                                                  term trading        consistent 
                                                                                  requirements.       with the Group's 
                                                                                  Our land needs      own 
                                                                                  and                 focus on further 
                                                                                  potential           improving 
                                                                                  acquisitions        build quality 
                                                                                  are subject to      and customer 
                                                                                  extensive           service 
                                                                                  due diligence to    standards. 
                                                                                  manage planning 
                                                                                  risks and 
                                                                                  uncertainties 
                                                                                  and maintain an 
                                                                                  effective 
                                                                                  pipeline. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      11. Cyber and data risk 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     The Group relies                                             The Group           Within the year, 
  Residual risk       on its IT systems                                           operates            the 
  rating: Medium      being consistently                                          centrally           assessment of 
                      available and secure.                                       maintained          the risk 
  Risk trend          Failure of any of                                           IT systems with     impact and 
  assessment          the Group's core                                            a fully tested      likelihood 
  Overall: No         IT systems, particularly                                    disaster            remain 
  change              those in relation                                           recovery            unchanged. 
  Impact: No          to customer information                                     programme.          However, 
  change              and customer service                                        All                 cyber and data 
  Likelihood: No      could result in                                             infrastructure      risks 
  change              significant financial                                       is highly           continue to be 
                      costs, reputational                                         resilient,          an area 
                      damage and business                                         with                of growing focus 
                      disruption.                                                 geographically      for 
                                                                                  diverse             the Group, 
                                                                                  datacentres         reflecting 
                                                                                  and a series of     the increase in 
                                                                                  backup              the use 
                                                                                  arrangements.       of technology in 
                                                                                                      supporting 
                                                                                  The Group           the Group's 
                                                                                  maintains           operations. 
                                                                                  dedicated cyber 
                                                                                  security resource   The Group has 
                                                                                  to manage and       continued 
                                                                                  oversee             to strengthen 
                                                                                  security            its mitigation 
                                                                                  controls,           measures in 
                                                                                  benchmarked to      respect of 
                                                                                  external            cyber risk, 
                                                                                  sources of good     under the 
                                                                                  practice such as    supervision of 
                                                                                  the NCSC's 'Ten     the Information 
                                                                                  Steps to Cyber      Security 
                                                                                  Security'.          Steering Group 
                                                                                  Periodic            (ISSG) and 
                                                                                  penetration         through the 
                                                                                  testing is          work of the 
                                                                                  carried             Group IT 
                                                                                  out through         department. 
                                                                                  external 
                                                                                  security partners   To develop 
                                                                                  to test the         controls 
                                                                                  security            further, 
                                                                                  of our perimeter    an externally 
                                                                                  network. In the     led review 
                                                                                  event of an         of the Group's 
                                                                                  incident,           cyber 
                                                                                  the Group has a     security 
                                                                                  defined Cyber       measures has 
                                                                                  Incident            been 
                                                                                  Response Plan.      commissioned. 
                                                                                                      This 
                                                                                  Training and        will build on an 
                                                                                  regular             earlier 
                                                                                  communications      assessment by 
                                                                                  are                 the same 
                                                                                  delivered to all    external partner 
                                                                                  users to increase   in 2020, 
                                                                                  awareness of        and will ensure 
                                                                                  cyber-risks,        the Group's 
                                                                                  with particular     approach to 
                                                                                  focus on risks      cyber risk 
                                                                                  associated          remains 
                                                                                  with remote and     appropriate and 
                                                                                  hybrid working.     reflects best 
                                                                                                      practice. 
                    -----------------------------------------------------------  ------------------  ----------------- 
      12. Mortgage availability 
 Risk assessment     Risk description                                             Approach to risk    Developments in 
                                                                                   mitigation         2021 
                    -----------------------------------------------------------  ------------------  ----------------- 
                     Reduced availability                                         We monitor Bank     The fundamentals 
  Residual risk       or affordability                                            of England          of the 
  rating: High        of mortgages for                                            commentary          UK housing 
                      customers could                                             on credit           market remain 
  Risk trend          reduce demand for                                           conditions          strong, with 
  assessment          new homes and affect                                        including the       robust consumer 
  Overall: No         sales prices, revenues,                                     monthly             demand and 
  change              profits, cash flows,                                        approvals for       confidence. 
  Impact: Decrease    and asset values.                                           house               We continue to 
  Likelihood:                                                                     purchases,          see good 
  Increase                                                                        reports             levels of 
                                                                                  from UK Finance,    mortgage 
                                                                                  and lenders'        availability 
                                                                                  announcements       and continued 
                                                                                  for trends in       low interest 
                                                                                  lending.            rates, 
                                                                                  We ensure that      encouraging 
                                                                                  our                 affordability 
                                                                                  investment in       for new homes. 
                                                                                  land 
                                                                                  and work in 
                                                                                  progress 
                                                                                  is appropriate 
                                                                                  for 
                                                                                  our level of 
                                                                                  sales 
                                                                                  and our 
                                                                                  expectations 
                                                                                  of the current 
                                                                                  market 
                                                                                  conditions. The 
                                                                                  government's Help 
                                                                                  to Buy scheme, 
                                                                                  which 
                                                                                  is scheduled to 
                                                                                  remain in place 
                                                                                  until 2023, 
                                                                                  supports 
                                                                                  customers to gain 
                                                                                  access to the 
                                                                                  housing 
                                                                                  market across the 
                                                                                  UK with 
                                                                                  competitive 
                                                                                  mortgage rates. 
                    -----------------------------------------------------------  ------------------  ----------------- 
 

VIABILITY STATEMENT

Persimmon's prospects and viability

The long-term prospects and viability of the business are a consistent focus of the Board when determining and monitoring the Group's strategy. The identification and mitigation of the principal risks facing the business, which have been updated to reflect current UK economic conditions and uncertainties (including the ongoing impacts of the Covid-19 pandemic and the UK's exit from the European Union), also form part of the Board's assessment of long-term prospects and viability*.

Assessing Persimmon's long-term prospects

Persimmon has built a strong position in the UK's house building market over many years, recognising the potential for long-term growth across regional housing markets. The Board recognises that the long-term demographic fundamentals of continued positive population growth and new household formation, together with the requirement to replace and improve the quality of the country's housing stock, provide a long-term supportive backdrop for the industry. However, the Board and the Group's strategy recognises the inherent cyclical nature of the UK housing market. The Group has therefore been able to maintain a position of strength with good liquidity, high quality land holdings and a strong balance sheet throughout the disruption of the Covid-19 pandemic. The future impacts of the pandemic, and other factors creating uncertainty within the UK economy and the Group's sales and construction programmes, remain uncertain. The Board has considered these potential impacts in depth when assessing the long-term prospects of the Group.

Whilst this uncertainty remains, Persimmon possesses the sound fundamentals required to realise the Group's purpose and ambitions and deliver sustainable success:

 
            --              talented teams focused on consistently delivering good quality homes 
                             for our customers; 
            --              high quality land holdings that allow us to create attractive places 
                             in areas where people wish to live and work; 
            --              strong customer and local community relationships; 
            --              continued investment in the training and development of our teams; 
            --              market knowledge, expertise and industry know-how; and, 
            --              long-term healthy supplier engagement. 
 

By continuing to build on these solid foundations through, for example, the Persimmon Way and our ongoing investments in the customer experience, the Group aims to help create sustainable and inclusive communities through continued investment in its people, its land, and its development sites and in its supply chain, creating enduring value for the communities we serve. The Group's materiality assessment, ensures that a thorough review of stakeholder interests are incorporated within the assessment of the Group's long-term prospects.

The Group adopts a disciplined annual business planning regime, which is consistently applied and involves the management teams of the Group's 31 house building businesses and senior management, with input and oversight by the Board. The Group combines detailed five-year business plans generated by each house building business from the "bottom up", with ten year projections constructed from the "top down" to properly inform the Group's business planning over these longer-term horizons. Zero-based annual budgets are established for each business twice a year.

This planning process provides a valuable platform, which facilitates the Board's assessment of the Group's short and long-term prospects. Consideration of the Group's purpose, current market position, its strategic objectives and business model, and the risks that may challenge them are all included in the Board's assessment of the prospects of the Group.

Key Factors in assessing the long-term prospects of the Group:

1. The Group's current market positioning

 
 --   Strong sales network from active developments across the UK providing geographic diversification 
       of 
       revenue generation 
 --   Three distinct brands providing diversified products and pricing deliver further diversification 
       of sales 
 --   Imaginative and comprehensive master planning of development schemes with high amenity value 
       to support sustainable, inclusive neighbourhoods which generate long-term value to the community 
 --   Disciplined land replacement reflecting the extent and location of housing needs across the 
       UK 
       provides a high quality land bank in the most sustainable locations supporting future operations 
 --   Long-term supplier and subcontractor relationships providing healthy and sustainable supply 
       chains 
 --   Sustained investment to support higher levels of construction quality and customer service 
       through the implementation of initiatives such as the Persimmon Way 
 --   Strong financial position with considerable cash reserves and with additional substantial 
       working capital credit facilities maturing March 2026 
 

2. Strategy and business model

 
 --   Strategy focuses on the risks associated with the housing cycle and on minimising financial 
       risk and maintaining financial flexibility 
 --   Focusing on constructing new homes for our customers to the high quality standards that they 
       expect and helping to create attractive neighbourhoods 
 --   Strategy recognises the Group's ability to generate surplus capital beyond the reinvestment 
       needs 
       of the business 
 
 --   Substantial investment in staff engagement, training and support to sustain operations over 
       the 
       long-term 
 --   Approach to land investment and development activity provides the opportunity to successfully 
       deliver much needed new housing supply and create value over the long-term 
 --   Differentiation through vertical integration, achieving security of supply of key materials 
       and 
       complementary modern methods of construction to support sustainable growth 
 --   Simple capital structure maintained with no structural gearing 
 

3. Principal risks associated with the Group's strategy and business model include:

 
 --   Disruption to the UK economy, including the impacts arising from the Covid-19 pandemic and 
       the 
       UK's exit from the EU, adversely impacting demand for new homes and construction 
       programmes, or contributing to inflationary pressures 
 --   Changes in government policy affecting the housebuilding sector, such as withdrawal of the 
       Help 
       to Buy scheme, and the recent government requirement to pay a contribution to a fund to cover 
       the cost of fire safety remediation works 
 --   Market impacts related to reduced consumer confidence due to regional economic uncertainties 
 --   Reduction in mortgage funding availability and/or affordability due to reduced lender risk 
       appetite 
       and/or regulatory change 
 --   Response required to mitigate the impact of climate change 
 --   Team, skills and talent related risks regarding retention and change management 
 

See above for the full list of principal risks together with detailed descriptions.

Disciplined strategic planning process

The prospects for the Group are principally assessed through the annual strategic planning review process conducted towards the end of each year. The management team from each of the Group's house building businesses produce a five-year business plan with specific objectives and actions in line with the Group's strategy and business model. These detailed plans reflect the development skill base of the local teams, the region's housing market, strategic and on market land holdings and investments required to support their objectives. Special attention is paid to construction programmes and capital management through the period to ensure the appropriate level of investment is made at the appropriate time to support delivery of the plan. Emerging risks and opportunities in their markets are also assessed at this local level.

Senior Group management review these plans and balance the competing requirements of each of the Group's businesses, allocating capital with the aim of achieving the long-term strategic objectives of the Group. The five-year plans provide the context for setting the annual budgets for each business for the start of the new financial year in January, which are consolidated to provide the Group's detailed budgets. These budgets are updated after six months, for the following twelve months, which are then replaced by the new strategic planning and budget setting cycle. The Board review and agree both the long-term plans and the shorter-term budgets for the Group.

The outputs from the business planning process are used to support development construction planning, impairment reviews, for funding projections, for reviews of the Group's liquidity and capital structure, and identification of surplus capital available for return to shareholders via the Group's Capital Return Plan, resulting in the payment of dividends to shareholders.

Assessing Persimmon's viability

The Directors have assessed the viability of the Group over a five-year period, taking into account the Group's current position and the potential impact of the principal risks facing the Group.

The use of a five-year period for the purpose of assessing the viability of the Group is considered the most appropriate time horizon, as it reflects the business model of the Group, with new land investments generally taking at least five years to build and sell through, and for the development infrastructure to be adopted by local authorities. This is already in alignment with anticipated evolutions in corporate reporting from the BEIS consultation on 'restoring trust in audit and corporate governance', such as the resilience statement requirement.

A key feature of the Group's strategy documented in the Strategic Report is the Group's commitment to maintain capital discipline over the long-term through the housing cycle. This commitment is reinforced by the Group's Capital Return Programme ("CRP"). The CRP initially committed to return GBP1.9bn of surplus capital over the following ten financial years to 2021, or GBP6.20 per share. The Group has exceeded this initial commitment and has paid GBP13.00 per share, or GBP4.1bn back to shareholders over this period. On 2 March 2022, the Directors announced the scheduled Capital Return Programme payments in respect of the financial year ended 31 December 2021, to be paid in 2022. Further details can be found in the Chairman's statement earlier in this announcement.

On an annual basis, the Directors review financial forecasts used for this Viability Statement as explained in the disciplined strategic planning processes outlined earlier. These forecasts incorporate assumptions on issues such as the timing of legal completions of new homes sold, average selling prices achieved, profitability, working capital requirements and cash flows. They also include the CRP. The Directors have made the assumption that the Group's revolving credit facility is renewed during the period having again extended the maturity of the facility out to 31 March 2026.

The Directors have also carried out a robust assessment of the principal and emerging risks facing the Group and how the Group manages those risks, including those risks that would threaten its strategy, business model, future operational and financial performance, solvency and liquidity. This risk assessment was also informed by the performance of the Group's materiality assessment, incorporating views from the Group's key stakeholders. The Directors have considered the impact of these risks on the viability of the business by performing a range of sensitivity analyses to a Base Case, including severe but plausible scenarios materialising together with the likely effectiveness of mitigating actions that would be executed by the Directors.

The scenarios emphasise the potential impact of severe market disruption including, for example, the ongoing effect of economic disruption from the Covid-19 pandemic on the short to medium-term demand for new homes. The scenarios' emphasis on the impact on the cash inflows of the Group through reduced new home sales is designed to allow the examination of the extreme cash flow consequences of such circumstances occurring. The Group's cash flows are less sensitive to supply side disruption given the Group's sustainable business model, flexible operations, agile management team and off-site manufacturing facilities.

In the first scenario modelled, the combined impact is assumed to cause a 44% reduction in volumes and a c.14% reduction in average selling prices through to 2023. As a result of these factors, the Group's housing revenues were assumed to fall by c. 51% during this period. The assumptions used in this scenario reflect the experience management gained during the Global Financial Crisis ('GFC') from 2007 to 2010, it being the worst recession seen in the housing market since World War Two. The scenario assumes a subsequent recovery occurs over a similar extended period as in the GFC.

A second, even more extreme, scenario assumes a significant and enduring depression of the UK economy and housing market over the next five years causing a reduction of c. 45% in new home sales volumes and a c. 40% fall in average selling prices through to 2023. As a result of these factors, the Group's housing revenues were assumed to fall by c. 67% during this period. It assumes that neither volumes nor average selling prices recover from this point through to 2026.

In each of these scenarios, cash flows were assumed to be managed consistently, ensuring all relevant land, work in progress and operational investments were made in the business at the appropriate time to deliver the projected new home legal completions. The Directors assumed they would continue to make well-judged decisions in respect of capital return payments, ensuring that they maintained financial flexibility throughout.

Based on this assessment, the Directors confirm that they have reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to the end of 31 December 2026.

* The Directors have assessed the longer-term prospects of the Group in accordance with provision 31 of the UK Corporate Governance Code 2018.

Statement of Directors' Responsibilities

The Statement of Directors' Responsibilities is made in respect of the full Annual Report and the Financial Statements not the extracts from the financial statements required to be set out in the Announcement.

The 2021 Annual Report and Accounts comply with the United Kingdom's Financial Conduct Authority Disclosure Guidance and Transparency Rules in respect of the requirement to produce an annual financial report.

We confirm that to the best of our knowledge:

 
 --   the Group and Parent Company financial statements, contained in the 2021 Annual Report and 
       Accounts, prepared in accordance with the applicable set of accounting standards, give a true 
       and fair view of the assets, liabilities, financial position and profit or loss of the Company 
       and the undertakings included in the consolidation taken as a whole; and 
 --   the Strategic Report includes a fair review of the development and performance of the business 
       and the position of the issuer and the undertakings included in the consolidation taken as 
       a whole, together with a description of the principal risks and uncertainties that they face. 
 

We consider the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

The Directors of Persimmon Plc and their function are listed below:

 
 Roger Devlin         Chairman 
 
 Dean Finch           Group Chief Executive 
 
 Nigel Mills          Senior Independent Director 
 
 Simon Litherland     Non-Executive Director 
 
 Joanna Place         Non-Executive Director 
 
 Annemarie Durbin     Non-Executive Director 
 
 Andrew Wyllie        Non-Executive Director 
 
 Shirine Khoury-Haq   Non-Executive Director 
 

By order of the Board

 
 Dean Finch 
 
 Group Chief Executive 
 1 March 2022 
 

The Group's Annual financial reports, half year reports and trading updates are available from the Group's website at www.persimmonhomes.com/corporate.

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END

FR JBMLTMTBMBAT

(END) Dow Jones Newswires

March 02, 2022 02:00 ET (07:00 GMT)

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