Company Announcements

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

Building an even stronger business whilst sustaining industry-leading performance

Persimmon Plc today announces its half year results for the six months ended 30 June 2022.

Highlights

Dean Finch, Group Chief Executive, said:

"Persimmon continues to perform well. We are making important progress in quality, service, land investment opportunities and efficiencies to build an even stronger business, while continuing to deliver the strong financial returns that Persimmon is renowned for. Demand for our attractively priced, high quality homes has remained robust, with our average private sales rates for the period being c.1% ahead year on year. Our customer satisfaction score³ is currently 92%. We have some exciting new sites coming into the business at industry-leading margins, with a land replacement rate for the period of over 130% and expanded production in our own brick, tile and timber frame factories, is further enhancing our supply resilience and cost efficiency, enabling us to re-iterate our guidance of 14,500 - 15,000 legal completions for the full year.

"We are on track to achieve a c.10% increase in our active outlets by the end of the current year as we work to rebuild our outlet position after a land buying pause three years ago and are tackling the on-going challenges in the planning system. We are stepping up proactive engagement with local authorities, enhancing our approach to developing attractive communities and raising the bar on design to help mitigate planning challenges. We continue to expect our volume delivery to be significantly higher in the second half of the year.

"Our combination of compelling affordability and high levels of service and build quality, coupled with our well-located sites provides a uniquely strong and sustainable customer proposition. It is by strengthening this proposition further that we will achieve our ambition of becoming Britain's best homebuilder for both customers and shareholders, consistently delivering high quality homes, excellent customer service and industry-leading financial returns."

Building an even stronger business

Robust first half performance

Placing customers at the heart of our business

Building a strong platform for success

Driving value

Our communities

Outlook

Footnotes

1 The Group's total revenues include the fair value of consideration received or receivable on the sale of part exchange properties and income from the provision of broadband internet services. Housing revenues are the revenues generated on the sale of newly built residential properties only.

2 Stated on new housing revenues of £1,633.7m (2021: £1,749.3m) and gross profits of £506.2m (2021: £540.5m).

3 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.

4 12 month rolling average calculated on underlying operating profit and total capital employed (including land creditors). Underlying operating profit is stated before goodwill impairment of £5.5m (December 2021: £6.2m).

5 Trustpilot is a digital review platform open to the public. Scores are based on all of the service reviews received on the platform.

6 A Reportable Item 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 new build homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land Registry.

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

There will be an analyst and investor presentation at 09.00 today, hosted by Group Chief Executive, Dean Finch and Chief Financial Officer, Jason Windsor.

Analysts unable to attend in person may listen live via conference call by registering using the link below:

https://register.vevent.com/register/BIeec490705a9148279d0424360eec3206

The presentation can be viewed via the webcast using the link below:

https://edge.media-server.com/mmc/p/x3tot3oz

An archived webcast of today's analyst presentation will be available on www.persimmonhomes.com/corporate  from this afternoon.

CHIEF EXECUTIVE'S REVIEW

Building an even stronger business

Overview

The business has performed well in the period. Demand has been strong, with the Group's average private weekly sales rate running at around 1% ahead year on year. In the period, we delivered 6,652 homes (2021: 7,406 homes) as we build up our outlet position whilst maintaining our disciplined approach to land investment opportunities. The Group's average selling price of £245,597 (2021: £236,199) has increased by 4% year on year resulting in housing revenue of £1.63bn (2021: £1.75bn). The Group's housing gross margin¹ was ahead of last year (31.0% vs 30.9%) as we managed the cost inflationary pressures impacting our industry effectively and underlying housing operating margin² was 27.0% (2021: 27.6%) reflecting the lower first half volumes on the rate of overhead recovery. The Group generated a profit before tax of £439.7m (2021: £480.1m) in the period.

We are continuing to deliver an industry-leading financial performance whilst building an even stronger business for the future. During the period, we delivered higher quality homes at improved levels of build efficiency. The Group's average build rates per site were around 10% higher than pre-Covid levels and our customer satisfaction survey score³ continues to achieve a five-star rating. We are identifying exciting land investment opportunities whilst maintaining our disciplined approach. Our active outlet position is growing and the business remains on track to achieve a c.10% improvement in outlet numbers by the end of the year, despite the significant delays the industry is facing in achieving planning consents. Our off-site manufacturing facilities continue to provide both efficiency and resilience in supply, augmented by a strengthened and enhanced group procurement function.

We are building an even stronger business that will sustainably deliver the high quality homes our customers and stakeholders expect, while maintaining the industry-leading financial performance that underpins our superior shareholder returns.

Building sustained success

Earlier this year we launched a new Mission, Vision and Values statement to guide the next stage of our development. Our Mission is to build homes customers can rely on at prices they can afford. To achieve this 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. Our five Values provide the behaviours that will help us achieve this Mission and Vision: customer focused; value driven; team work; social impact; and excellence always.

We have a clear strategy to build an even stronger business while protecting Persimmon's great strengths. Reflecting the progress we have already made, I have refreshed and renewed the five priorities for the business that I launched shortly after I joined:

These enhanced ambitions and renewed priorities are not ends in themselves. They recognise that Persimmon has an important role to play in society, including as a responsible company and employer. It is by strengthening our ability to consistently deliver high quality and service that we will sustain Persimmon's industry-leading financial performance. In the next section I will explain the progress we have made and the further opportunities ahead.

Building an even stronger business

There are five key features of the business that will continue to drive our industry-leading performance and returns. First, quality and service remain our priorities and reflect our determination to bring the customer into the heart of the business. Second, a relentless focus on driving value helps underpin both our unique value proposition and strong returns. Third, our experienced management teams across the business are driving our new ambitions across the country. Fourth, our disciplined land replacement strategy is being augmented by site planning and design standards that deliver attractive communities and engagement with local authorities to drive timely outlet openings. And, fifth, maintaining the Group's strong financial position is crucial.

Customers at the heart of our business - quality and service

We are placing customers at the heart of our business and I am determined to continue to drive improvements in build quality and customer service. This is key to our continued success and will deliver efficiencies across the Group.

The Persimmon Way, the Group's construction excellence programme is fully embedded within the business and driving real results for our customers. We were delighted to be awarded a five-star rating in the annual HBF survey for the first time in Persimmon's history and have continued to track ahead of the five-star threshold for this survey year (current score: 92%³).  Further encouraging evidence of our progress is provided by our 9 month HBF customer satisfaction score³ currently indicating a 25% improvement over the last two survey years. Our Trustpilot score⁴ has also improved markedly, increasing by 30% since the start of the year.

Our team of 62 independent inspectors, which we believe to be the largest of its type in the industry, provides quality assurance at key stages of the build process for each home that we deliver. Working with the local management teams as an independent challenge they are helping to drive real improvement, with NHBC Reportable Items⁵ improving by 25% over the last eighteen months. We are embedding our new approach through independent assurance and analysis to help drive improved standards. Construction Quality Reviews (CQR) are now conducted by the NHBC, analysing the root cause of any quality issues. Our CQR score is currently running nearly 3% ahead of last year's average. We are conducting an external audit of the Persimmon Way's implementation across all of our businesses to identify key learnings and share best practice across the Group. Our 'Building a Safer Future Charter Champion' accreditation involves thorough reviews of our approach across all of our businesses and is progressing well. Three of our site managers recently achieved the NHBC's coveted Pride in the Job Awards.

Our average private selling price of £267,325 is currently c. 20%⁶ below the market average. In striving to consistently deliver high build quality and service excellence, we are seeking to offer customers best value they can trust. Our new product range, enhanced service and improved marketing is seeking to deliver options that meet customers' aspirations at whatever stage of home buying they are at. We want to earn customers' trust and then keep it through repeat sales for them and those they recommend us to.

FibreNest, our ultrafast full fibre broadband provider, continues to provide our customers with an important service. It currently has c.25,000 customers across over 310 sites.

Driving value

Alongside continually striving to build at a better quality more consistently, we are always seeking to drive value. The Group's build rates are around 10% higher than pre-Covid levels. As planned, we are expanding our vertical integration capabilities and driving efficiencies. The Group's Space4 factory provides us with an excellent advantage as timber frame homes can be built over 20% faster than traditionally built houses, and help mitigate challenges around the availability of some trades. In the period, 35% of the homes we delivered used timber frames. We have been actively reviewing where we can expand the use of timber frame construction. It is pleasing therefore that our Space4 factory has seen a 20% increase in its forward order book at the end of June, compared to the same time last year. We have recently submitted our pre-application plans to the local authority for our new Space4 factory and are targeting a full planning submission by the end of the year, to further increase production in the coming years.

In addition, through new analytical approaches and data-based management tools we are identifying areas for focus and opportunities for sharing best practice in build programmes across the business to continue to secure improvements.

Each of our off-site manufacturing facilities, BrickWorks, TileWorks and Space4, provide a resilience of supply alongside good cost efficiency. We are on track to expand production within BrickWorks by nearly 20% this year, with around 10% of further growth to come next year. Our TileWorks factory is projected to increase output by around 40% this year alone.

Our strengthened central procurement team has helped use our Group-wide purchasing power to secure enhanced deals with key suppliers and supported regions experiencing specific material issues by sharing available resources, including from centrally-held contingency stock on key at-risk items.

Land and planning

Our well-established strategy of disciplined land investment, acquiring sites with embedded industry-leading margins in areas of high demand, has continued. In the first six months of the year we brought 8,829 plots into the business, across 37 locations. Since 1 January 2021, we have brought around 30,000 plots across c.140 sites into our already strong land holdings, a replacement rate of around 140%. At 30 June 2022, the Group had 89,052 owned and under control plots (December 2021: 88,043), with a land cost to anticipated revenue ratio⁷ of 12.2% (December 2021: 11.9%).

While we have been strengthening our land pipeline, the combination of strong demand in 2020 and 2021, with lower land additions in 2019 and 2020, meant we were operating from a relatively low number of outlets at the start of the year. We remain on track to open around 70 outlets in the second half of the year, growing our position by around 10% over the course of the year, providing a robust platform for the future.

It remains the case, however, that the delays and increasing complexity in the planning system are impacting our ability to open new outlets as promptly as we would like. We previously highlighted the impact of Natural England's nutrient neutrality guidance across the industry, with c.120,000 plots currently stalled in England. The Government's recent statement on the issue does not appear to offer the short-term clarity the industry hoped for, so we continue to see around 1,500 of our plots affected, a number that is likely to grow until a resolution is found. Around 90% of the Group's 2023 volume delivery has planning consent, with around 75% with detailed planning permission. Our operational teams are working hard to secure the remaining consents required and this will be an important factor in determining our 2023 volume delivery.

We have stepped-up our approach to working with local authorities and communities to secure planning consents as quickly as possible. Our new housing range and 'Placemaking Framework', which sets out planning and design techniques to develop attractive communities, provide local teams with enhanced tools to meet customer needs and local planning authority requirements. A new stakeholder engagement team is proactively engaging local authorities across the country to identify how we can help them deliver their key objectives. We are offering support on nutrient neutrality to help interested local authorities identify solutions and deal with the challenge and unlock permissions.

Strong financial position

Whilst building an even stronger business, we have continued to deliver an industry-leading performance and maintained Persimmon's high quality land holdings and healthy liquidity. After returning £399m to shareholders and investing £416m in high quality land opportunities, the Group held £0.78bn of cash at 30 June 2022 (December 2021: £1.25bn) with deferred land commitments of £135m to the end of the current year, providing a robust balance sheet to support resilient shareholder returns and provide a platform for disciplined growth. Underlying return on average capital employed⁸ was 30.9% (December 2021: 35.8%), further demonstrating the strength of the business.

Experienced teams

Persimmon has highly experienced teams across the Group and the new management structure introduced at the beginning of the year is working well. We are determined to become an employer of choice and attract more of the best talent from across the industry. It is pleasing, therefore, that our recent Employee Survey's engagement score was 83%, up 5 points from last year and 11 points above our benchmark group. Our annual July pay reviews saw awards reflecting the unique cost of living challenges, with those on lower incomes receiving proportionately the highest increases.

We continue to increase our investment in training with a Learning Management System in place for all colleagues, as well as enhanced tailored training for specific areas. Around 90% of site management colleagues have received an NVQ qualification appropriate to their role (December 2020: 21%); 127 sales colleagues have completed the Sales Excellence programme in conjunction with the Institute of Sales Professionals. We were delighted to recently be recognised as a Top 100 Apprentice Employer and have invested in an academy in Bridgend alongside the local college to provide on-site classrooms for brickwork and joinery apprentices. This is a model we are looking to extend further.

I would also like to welcome Jason Windsor, our new Chief Financial Officer. Jason joined us from Aviva in mid-July. His wealth of experience from other industries complements the deep knowledge in the existing management team, further strengthening our operational leadership. I look forward to working with Jason in the years ahead.

Our communities

We recognise that as a responsible company we have an important role to play in society. We remain proud of our leadership in pledging 18 months ago to protect leaseholders from the cost of cladding removal and five of our developments have already secured successful EWS1 certificates. While we are in active discussions with the HBF and government to convert the commitments made in April's Developer Pledge into a legal document and resolve areas of current uncertainty, we continue to proactively engage with Management Companies and their agents on works required on all other identified developments built by Persimmon.

Building on our Germany Beck project, we have recently secured planning permission for a second Zero Carbon home at a site in Malmesbury. This is an example of our determination to develop building techniques and technology that meets the sustainability challenge in a way that is cost effective for customers. Our Priory Green and Moorland Grove sites are heated through the use of air source heat pumps demonstrating our drive to improve sustainability across our business.  In addition, our homes are already around 30% more energy efficient than the existing housing stock, a gap that is likely to only increase and become even more important as cost of living pressures become ever more pressing.

Outlook

The UK housing market is strong with demand exceeding supply, relatively low interest rates (despite the recent rises) and good levels of mortgage availability. The Group's average private sales rates for the period were strong, c.1% ahead of last year. We have made a robust start to the second half; whilst the Group's average private sales rate for the first seven weeks is 11% down year on year as we return to more normal seasonal trading patterns, it is 8% up on 2019 being the most recent, more typical trading year and our cancellation levels remain low. Sales price inflation is currently mitigating the cost inflation the industry is experiencing. The current value of our forward sales is £2.32bn, with 10,542 homes (2021: 11,140), 5,992 of which are sold into the private market (2021: 6,471). The Group is over 90% forward sold for the full year. The average selling price of new homes forward sold to owner occupiers was c.£284,000, c.12% ahead of the prior year (2021: c.£253,000).

We re-iterate our year end volume expectations of delivering 14,500 to 15,000 units with forecast full year profit in line with our expectations. While risks remain, we expect to continue to grow our outlet position, opening around 70 outlets in the next six months, providing a robust platform for the future.

We are mindful of the scope for further interest rate raises as well as the broader economic challenges recently set out by the Governor of the Bank of England, alongside the wider industry challenges including the withdrawal of Help to Buy. The longer-term fundamentals of the UK housing market, however, remain strong. We will continue to focus on consistently delivering high quality homes and high standards of service, earning our customers' trust and loyalty in meeting their aspirations. Through the work we are doing in building an even stronger business, we are confident in our continued success, protecting and enhancing Persimmon's great strengths and driving sustainable industry-leading returns for shareholders.

Dean Finch

Group Chief Executive

16 August 2022

Footnotes

1 Stated on new housing revenues of £1,633.7m (2021: £1,749.3m) and gross profits of £506.2m (2021: £540.5m).

2 Stated on new housing revenue of £1,633.7m (2021: £1,749.3m) and underlying profit from operations of £440.7m (2021: £483.0m) calculated before goodwill impairment of £3.2m (2021: £3.9m).

3 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.

4 Trustpilot is a digital review platform open to the public. Scores are based on all of the service reviews received on the platform.

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

6 National average selling price for new build homes sourced from the UK House Price Index as calculated by the Office for National Statistics from data provided by HM Land Registry.

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

8 12 month rolling average calculated on underlying operating profit and total capital employed (including land creditors). Underlying operating profit is stated before goodwill impairment of £5.5m (December 2021: £6.2m).

FINANCIAL REVIEW

Strong trading

Trading has been strong in the period with good levels of customer demand and cancellation rates remaining at historic lows throughout. The Group generated total revenues¹ of £1.69bn (2021: £1.84bn), with new housing revenue of £1.63bn (2021: £1.75bn).

Legal completions, as anticipated, were lower than the prior year and reflect delays in achieving planning consents on our new outlet openings. The Group delivered 6,652 new homes (2021: 7,406) at an average selling price of £245,597 (2021: £236,199) which is 4% higher year on year, reflecting the underlying strength of demand in the UK housing market.

The Group delivered 5,553 new homes to its private owner occupier customers (2021: 6,104) at an average selling price 3.5% higher than a year ago (2022: £267,325; 2021: £258,220), reflecting both improvement in selling prices achieved and the mix of homes sold in the period. To supplement this, the Group delivered 1,099 homes to our housing association partners (2021: 1,302) at an average selling price of £135,813 (2021: £132,959).

The increased prices achieved in the period have mitigated the impact of cost inflation of around 8 - 10%, with an increase in the  Group's housing gross margin² compared with 2021 (2022: 31.0%; 2021: 30.9%).  The Group's gross profit delivery for the period of £506.2m (2021: £540.5m) continues to be supported by the Group's well established land replacement strategy, with land cost recoveries³ of 11.9% of new housing revenue for the period (2021: 14.1%).

Underlying housing operating margin⁴ of 27.0% has been impacted by operating deleverage due to the reduced levels of completions (2021: 27.6%). Underlying operating profit⁵ for the Group was £440.7m (2021: 483.0m).

The Group generated a profit before tax of £439.7m in the period (2021: £480.1m).

Robust balance sheet

The Group has a robust balance sheet with high quality land holdings, strong levels of work in progress investment and healthy levels of liquidity. The Group remains committed to investing in its future with, since 31 December 2021, land investment increasing by £304.6m to over £2.10bn and work in progress investment increasing by £172.0m to £1.23bn at 30 June 2022.

At 30 June 2022, the Group had work in progress of c.4,400 equivalent units of new home construction (December 2021: c.4,100), reflecting our c.10% increase in build rates compared with pre-Covid levels and with a focus on improving our stock position to increase availability and choice for our customers. The Group remains in a strong position to deliver a resilient closing stock position at the end of 2022 whilst achieving its targeted growth in output.

The Group's defined benefit net pension asset has increased to £209.4m at 30 June 2022 (December 2021: £148.8m) mainly reflecting gains through changes in assumptions to discount and inflation rates that have decreased the value placed on the schemes liabilities offset in part by falling asset values. Total equity decreased to £3,613.8m from £3,625.2m at 31 December 2021. Reported net assets per share of 1,131.7p represents a 0.4% decrease from 1,135.7p at 31 December 2021. Underlying return on average capital employed⁶ as at 30 June was 30.9% (December 2021: 35.8%), demonstrating the resilience of the business and the investment made to support future growth and returns. Underlying basic earnings per share⁵ for the first six months of 2022 was 107.5p, a 13.2% decrease compared to the prior period (2021: 123.8p).

High quality land holdings

The Group has continued to maintain its disciplined approach to land investment, identifying opportunities to acquire land in areas where new housing is most needed and in areas where people wish to live and work.

During the period the Group increased its owned and under control land holdings to 89,052, from 88,043 plots at 31 December 2021, with 37,771 of these plots benefitting from a detailed planning consents and are under development.

The Group brought 8,829 plots into the business across 37 locations throughout the UK with 3,626 of these plots converted from our strategic land portfolio. At 30 June 2022, Persimmon's owned land holdings of 72,036 plots (2021: 66,708 plots) have an overall proforma gross margin⁷ of c.33% and a cost to revenue ratio of 11.8%⁸ (2021: 11.4%).

To supplement these land holdings, the Group has c.13,300 acres of strategic land in its portfolio with the potential to deliver up to 100,000 new homes. This includes excellent visibility over c.30,500 plots of which c.21,050 being plots held under option that are proceeding through planning. The remaining c.9,450 plots are controlled and allocated in local plans.

During the period the Group incurred land spend of £415.9m, including £137.4m of payments in satisfaction of deferred land commitments.

Healthy liquidity

The Group had a cash balance of £0.78bn at 30 June 2022 (December 2021: £1.25bn) with land creditors of £493.8m (December 2021: £407.6m), of which £135.2m is expected to be paid by the end of the year. The Group generated £451.1m of cash from operating activities in the period (2021: £491.8m), before returning £399.0m surplus capital to shareholders and investing £387.7m in working capital (being principally c.£215m in net land and £172.0m in net work in progress).  This investment in land and work in progress along with the Group's healthy liquidity will provide further opportunity to continue to support the future growth of the business.

In addition, the Group has an undrawn Revolving Credit Facility of £300m which has a 4 year term out to 31 March 2026.

Footnotes

1 The Group's total revenues include the fair value of consideration received or receivable on the sale of part exchange properties and income from the provision of broadband internet services. New housing revenues are the revenues generated on the sale of newly built residential properties only. 

2 Stated on new housing revenues of £1,633.7m (2021: £1,749.3m) and gross profits of £506.2m (2021: £540.5m).

3 Land cost value for the plot divided by the revenue of the new home sold.

4 Stated on new housing revenue of £1,633.7m (2021: £1,749.3m) and underlying profit from operations of £440.7m (2021: £483.0m) calculated before goodwill impairment of £3.2m (2021: £3.9m).

5 Stated before goodwill impairment of £3.2m (2021: £3.9m).

6 12 month rolling average calculated on underlying operating profit and total capital employed (including land creditors). Underlying operating profit is stated before goodwill impairment of £5.5m (December 2021: £6.2m).

7 Estimated weighted average gross margin based on assumed revenues and costs at 30 June 2022 and normalised output levels.

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

PERSIMMON PLC

Condensed Consolidated Statement of Comprehensive Income

For the six months to 30 June 2022 (unaudited)

PERSIMMON PLC

Condensed Consolidated Balance Sheet

As at 30 June 2022 (unaudited)

PERSIMMON PLC

Condensed Consolidated Statement of Changes in Shareholders' Equity

For the six months to 30 June 2022 (unaudited)

PERSIMMON PLC

Condensed Consolidated Cash Flow Statement

For the six months to 30 June 2022 (unaudited)

Notes

1. Basis of preparation

The half year condensed financial statements for the six months to 30 June 2022 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with UK adopted International Accounting Standard ("IAS") 34 Interim Financial Reporting. The half year financial statements are unaudited, but have been reviewed by the auditors whose report is set out at the end of this report. This report should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2021, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and UK adopted IFRS.

The comparative figures for the financial year ended 31 December 2021 are not the company's statutory accounts for that financial year.  Those accounts have been reported on by the company's auditors and delivered to the Registrar of Companies.  The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2021, as described in those financial statements.

The following relevant UK endorsed new amendments to standards are mandatory for the first time for the financial year beginning 1 January 2022:

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 endorsed but not yet effective:

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 six months ended 30 June 2022. 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 6,652 new homes (2021: 7,406) and generated profit before tax of £439.7m (2021: £480.1m) in the period. At 30 June 2022, the Group had a strong balance sheet with £782.0m of cash (2021: £1,315.2m), high quality land holdings and land creditors of £493.8m (December 2021: £407.6m). In addition, the Group has an undrawn Revolving Credit Facility of £300m, which has a four year term out to 31 March 2026.

The Group's forward order book, including legal completions taken in the second half, is c.4% stronger than 2021.

The Directors have reviewed the Group's principal risks, see note 13 of this announcement, and determined that there are no new principal risks facing the business to those disclosed in the financial statements for the year ended 31 December 2021. The Directors considered the impact of these risks on the going concern of the business when approving these full year financial statements for the Group.

Given the Group's trading performance during the first six months of the year, together with its strong sales rates and forward sales position, the Directors believe that the comprehensive review performed for the viability statement included in the Group's Annual Report 2021 remains relevant and valid.

In addition, the Directors have assessed the impact of a severe but plausible downside scenario for the housing market, from the date of this announcement to 31 December 2023, on the resilience of the Group.  This scenario assumes a c.44% reduction in volumes and a c.14% reduction in average selling prices through to 31 December 2023 along with the likely effectiveness of mitigating actions that would be executed by the Directors.  The combined impact results in a c.51% fall in the Group's housing revenues.  The assumption used in this scenario reflects the experience management gained during the Global Financial Crisis from 2007 to 2010, it being the worst recession seen in the housing market since World War Two.  Throughout this scenario, the Group maintains substantial liquidity with a positive cash balance and no requirement to access the Group's £300m Revolving Credit Facility.

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 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 condensed consolidated half year financial statements.

Estimates and judgements

The preparation of these half year condensed financial statements requires management to make judgements and estimations of uncertainty at the balance sheet date.  The key areas where judgements and estimates are significant to the financial statements are land and work in progress (see note 7), shared equity loan receivables (see note 8 and note 10), goodwill, brand intangibles, provisions and pensions as disclosed in note 3 of the Group's annual financial statements. The estimates and associated assumptions are based on management expertise and historical experience and various other factors that are believed to be reasonable under the circumstances.

Goodwill and brand intangibles

The key sources of estimation uncertainty in respect of goodwill and brand intangibles are disclosed in notes 3 and 13 of the Group's annual financial statements for the year ended 31 December 2021.

The goodwill allocated to the Group's acquired strategic land holdings is further tested by reference to the proportion of legally completed plots in the period compared to the total plots which are expected to receive satisfactory planning permission in the remaining strategic land holdings, taking account of historic experience and market conditions.  This review resulted in an underlying impairment charge of £3.2m recognised during the period. This impairment charge reflects ongoing consumption of the acquired strategic land holdings and is consistent with prior years.

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

4. Tax

Analysis of the tax charge for the period

The Group's overall effective tax rate for the period of 22.2% is higher than the mainstream corporation tax rate of 19%, and reflects the additional 4% Residential Property Developer Tax ("RPDT") on profits arising from residential property activity with effect from 1 April 2022.  This additional tax rate was enacted in the current period and accordingly the effective tax rate includes the effect of revaluing deferred tax assets and liabilities at this higher rate.  The RPDT will add to the increased mainstream corporation tax rate of 25% which is legislated to take effect from April 2023.

Deferred tax recognised in other comprehensive income

Tax recognised directly in equity

5. Earnings per share

Basic earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period (excluding those held in the employee benefit trust) which were 319.2m (June 2021: 319.0m; December 2021: 319.0m).

Diluted earnings per share is calculated by dividing the profit for the period 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 period, giving a figure of 320.8m (June 2021: 320.2m; December 2021: 320.2m).

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

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

At 30 June 2022 the issued share capital of the Company was 319,317,641 ordinary shares (30 June 2021: 319,100,222; 31 December 2021: 319,206,474 ordinary shares).

6. Dividends

On 1 April 2022 125p per share (or £399.0m) of surplus capital was returned to shareholders as an interim cash dividend in respect of the financial year 31 December 2021.

On 8 July 2022 110p per share (or £351.1m) of surplus capital was returned to shareholders as an interim cash dividend in respect of the financial year 31 December 2021.

In total, 235p per share of surplus capital has been returned to shareholders during 2022 in respect of the financial year 31 December 2021.  There will be no further distributions to shareholders in relation to the financial year 31 December 2021.

7. Inventories

The Group has conducted a further review of the net realisable value of its land and work in progress portfolio at 30 June 2022. Our approach to this review has been consistent with that conducted at 31 December 2021 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 30 June 2022 were £15.0m (30 June 2021: £20.3m; 31 December 2021: £18.6m).  Following the review, £3.8m of inventories are valued at fair value less costs to sell rather than historical cost (30 June 2021: £4.6m; 31 December 2021: £4.1m).

8. Shared equity loan receivables

All gains/losses have been recognised through finance income in profit and loss for the period of which £0.2m was unrealised (June 2021: £0.4m; December 2021: £4.2m).

9. Legacy buildings provision

In 2020 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 £75.0m provision to cover the cost of any necessary works.  Work has been ongoing throughout 2022 at a cost of £3.4m (2021: £2.3m).  The provision at 30 June 2022 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 period.  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:

Shared equity loan receivables

Shared equity loan receivables represent loans advanced to customers 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 assets.  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 (2021: ten years) and a discount rate of 5% (2021: 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 asset.  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

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

12. Retirement benefit assets

As at 30 June 2022 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:

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

The increase in the net pension asset to £209.4m (December 2021: £148.8m) is largely due to an increase in long-term corporate bond yields increasing the discount rate assumption applied to scheme obligations to 3.9% (December 2021: 1.9%) offset by falling asset values.

13. Principal risks

Statement of Directors' responsibilities in respect of the Half Year Report

We confirm that to the best of our knowledge:

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

By order of the Board

16 August 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

INDEPENDENT REVIEW REPORT TO PERSIMMON PLC

Conclusion

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Shareholders' Equity, the Condensed Consolidated Cash Flow Statement and the related notes 1 to 13.  We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Basis for Conclusion

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with UK adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting".

Conclusions Relating to Going Concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.

Responsibilities of the directors

The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Victoria Venning

Ernst & Young LLP

Leeds

16 August 2022