Persimmon delivered an excellent performance in 2017.
The Group continued to successfully execute its long term strategic plan, concentrating on delivering disciplined high quality growth. We delivered 16,043 new homes to customers across the UK, an increase of 872 new homes compared to last year. These homes had an average selling price of £213,321 (2016: £206,765). To support this growth we opened our sixth new operating business in three years on 2 January 2018, which takes the total number of Group housebuilding businesses to 30.
The new build housing market experienced robust site visitor numbers in 2017. The market was supported by resilient consumer confidence and a competitive but disciplined mortgage market. Total revenues for the period increased by 9% to £3.42 billion (2016: £3.14 billion). Underlying profit before tax* increased by 25% to £977.1 million (2016: £782.8 million) and cash balances of £1,302.7 million were held at 31 December 2017 (2016: £913.0 million).
The Group’s underlying operating margin* improved by 340bps to 28.2% in the year ended 31 December 2017 (2016: 24.8%). This is the result of our continuous drive to invest in high quality land, opening up these new sites as promptly as possible and growing our regional businesses’ build and sales delivery whilst exercising strong control over our costs.
The Group’s return on average capital employed** for 2017 increased by 31% to 51.5% (2016: 39.4%) and underlying basic earnings per share* increased by 26% to 258.6p (2016: 205.6p).
At the start of 2012 Persimmon launched a new strategy focused on mitigating the risks to sustainable shareholder value creation inherent in the UK housing market by maintaining capital discipline and delivering strong free cash generation to shareholders through the housing cycle.
With strong operational execution, our strategy recognises the potential for the Group to generate surplus capital. The Board therefore made a long term commitment in early 2012 to deliver £1.9bn (£6.20 per share) of surplus capital to shareholders over ten years to 2021 (“the Capital Return Plan”). The value of the Capital Return Plan was similar to the market capitalisation of the Group at the time the plan was launched.
Since the launch of the new strategy in 2012, Persimmon has made a significant contribution to increasing housing supply across the UK by investing £3.18bn in land, opening 1,189 new sales outlets, and delivering 80,726 new homes to the market by increasing annual production by over 70%.
Given the strong performance and financial position of the Group, the Board announced a further increase in the Capital Return Plan in February 2018 to £13.00 per share to 2021.
The Group has made excellent progress in establishing its brick manufacturing plant at our Harworth manufacturing hub, near Doncaster, and deliveries to site have commenced, providing support to our build programmes. Additionally, we have decided to manufacture roof tiles and expect to establish a new plant at Harworth during 2018 with the intention of commencing Group supply the following year. Space4 continues to make an important contribution to our expanding in-house manufacturing capability and we anticipate making further investment in the Space4 technology over the coming years. These initiatives, in combination with our increased investment in the team’s skill base, both on site, and in each of our regional management teams across the UK, will help the Group deliver further growth.
* stated before goodwill impairment
** 12 month rolling average stated before goodwill impairment