RNS Number : 3517Y
Persimmon PLC
21 August 2018
 

PERSIMMON PLC

 

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

 

Highlights

 

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·     

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·     

·     

·     

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·     

·     

·     

·     

·     

·     

 

* stated before goodwill impairment

** 12 month rolling average stated before goodwill impairment

*** net free cash generation stated before Capital Return Plan payments

For further information please contact:

 

Jeff Fairburn, Group Chief Executive                    

Simon Rigby

Mike Killoran, Group Finance Director                 

Jos Bieneman

                                                                       

Ellen Wilton

Persimmon plc                                                 

Citigate Dewe Rogerson

Tel: +44 (0) 20 7638 9571 (on 21 August 2018)    

Tel: +44 (0) 20 7638 9571

Tel: +44 (0) 1904 642199 (thereafter)

 

 

Analysts unable to attend in person may listen to the presentation live at 09:30am by using the details below:

 

Telephone number: +44 (0)330 336 9411

Password: Persimmon

Webcast link: https://edge.media-server.com/m6/p/8g4y374r

 

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

HALF YEAR REPORT - TUESDAY 21 AUGUST 2018

 

CHAIRMAN'S STATEMENT

 

 

 

 

RESULTS

 

 

 

 

 

 

 

RETURNS TO SHAREHOLDERS

 

 

 

LAND

 

 

 

CURRENT TRADING

 

 

OUTLOOK

 

 

 

Roger Devlin

Chairman

20 August 2018

* stated before goodwill impairment (2018: £4.4m, 2017: £5.4m)

** 12 month rolling average stated before goodwill impairment

 

 

PERSIMMON PLC

Condensed Consolidated Statement of Comprehensive Income

For the six months to 30 June 2018

 

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

 

(restated - note 1)

(restated - note 1)

Note

Total

Total

Total

 

 

£m

£m

£m

 

 

 

 

 

Total revenue

1, 3

1,835.8

1,753.5

3,597.8

Cost of sales

 

(1,270.7)

(1,246.2)

(2,526.1)

 

 

 

 

 

Gross profit

 

565.1

507.3

1,071.7

 

 

 

 

 

Other operating income

 

2.7

6.0

9.4

Operating expenses

 

(54.0)

(59.3)

(126.0)

 

 

 

 

 

Profit from operations before impairment of intangible assets

 

518.2

459.4

966.1

Impairment of intangible assets

 

(4.4)

(5.4)

(11.0)

 

 

 

 

 

Profit from operations

 

513.8

454.0

955.1

 

 

 

 

 

Finance income

 

9.2

9.8

24.5

Finance costs

 

(6.7)

(6.4)

(13.5)

 

 

 

 

 

Profit before tax

 

516.3

457.4

966.1

 

 

 

 

 

Tax

4

(97.4)

(88.8)

(179.2)

 

 

 

 

 

Profit after tax (all attributable to equity holders of the parent)

 

418.9

368.6

786.9

 

 

 

 

 

Other comprehensive income/(expense)

 

 

 

 

Items that will not be reclassified to profit:

 

 

 

 

Remeasurement gains/(losses) on defined benefit pension schemes

11

28.1

(1.8)

22.1

Tax

4

(4.8)

0.3

(3.7)

Other comprehensive income/(expense) for the period, net of tax

 

23.3

(1.5)

18.4

 

 

 

 

 

Total recognised income for the period

 

442.2

367.1

805.3

 

 

 

 

 

Earnings per share

 

 

 

 

Basic

5

134.9p

119.5p

255.0p

Diluted

5

130.1p

115.4p

243.1p

             

 

 

PERSIMMON PLC

Condensed Consolidated Balance Sheet

As at 30 June 2018 (unaudited)

 

 

 

30 June 2018

30 June 2017

31 December 2017

 

 

 

(restated - note 1)

(restated - note 1)

 

Note

£m

£m

£m

Assets

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

 

198.2

208.2

202.6

Property, plant and equipment

 

54.4

49.2

52.5

Investments accounted for using the equity method

 

3.0

3.0

3.0

Shared equity loan receivables

8

83.0

126.1

103.2

Trade and other receivables

 

7.0

7.0

7.0

Deferred tax assets

 

59.6

59.5

92.0

Retirement benefit assets

11

96.7

42.4

67.7

 

 

501.9

495.4

528.0

 

 

 

 

 

Current assets

 

 

 

 

Inventories

7

2,970.6

2,722.1

2,825.9

Shared equity loan receivables

8

21.0

6.6

14.1

Trade and other receivables

 

140.0

119.5

86.1

Cash and cash equivalents

10

1,154.6

1,120.4

1,302.7

 

 

4,286.2

3,968.6

4,228.8

 

 

 

 

 

Total assets

 

4,788.1

4,464.0

4,756.8

 

 

 

 

 

Liabilities

 

 

 

 

Non-current liabilities

 

 

 

 

Trade and other payables

 

(310.2)

(338.7)

(294.1)

Deferred tax liabilities

 

(28.9)

(20.8)

(24.0)

Partnership liability

 

(34.1)

(37.4)

(38.5)

 

 

(373.2)

(396.9)

(356.6)

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

(1,164.4)

(944.9)

(1,099.6)

Capital Return liability

 

(343.8)

(339.5)

-

Partnership liability

 

(5.4)

(5.4)

(5.4)

Current tax liabilities

 

(65.0)

(66.3)

(93.6)

 

 

(1,578.6)

(1,356.1)

(1,198.6)

 

 

 

 

 

Total liabilities

 

(1,951.8)

(1,753.0)

(1,555.2)

 

 

 

 

 

Net assets

 

2,836.3

2,711.0

3,201.6

 

 

 

 

 

Equity

 

 

 

 

Ordinary share capital issued

 

31.3

30.9

30.9

Share premium

 

14.4

11.0

13.5

Capital redemption reserve

 

236.5

236.5

236.5

Other non-distributable reserve

 

276.8

276.8

276.8

Retained earnings

 

2,277.3

2,155.8

2,643.9

 

 

 

 

 

Total equity

 

2,836.3

2,711.0

3,201.6

 

 

PERSIMMON PLC

Condensed Consolidated Statement of Changes in Shareholders' Equity

For the six months to 30 June 2018 (unaudited)

 

 

Share capital

Share premium

Capital redemption reserve

Other non-distributable reserve

Retained earnings

Total

 

£m

£m

£m

£m

£m

£m

Six months ended 30 June 2018:

 

 

 

 

 

 

Balance at 1 January 2018

30.9

13.5

236.5

276.8

2,643.9

3,201.6

Profit for the period

-

-

-

-

418.9

418.9

Other comprehensive income

-

-

-

-

23.3

23.3

Transactions with owners:

 

 

 

 

 

 

Dividends on equity shares

-

-

-

-

(732.3)

(732.3)

Issue of new shares

0.4

0.9

-

-

-

1.3

Own shares purchased

-

-

-

-

(0.1)

(0.1)

Exercise of share options/share awards

-

-

-

-

(1.0)

(1.0)

Share-based payments

-

-

-

-

8.5

8.5

Net settlement of share-based payments

-

-

-

-

(84.9)

(84.9)

Satisfaction of share options from own shares held

-

-

-

-

1.0

1.0

Balance at 30 June 2018

31.3

14.4

236.5

276.8

2,277.3

2,836.3

 

 

 

 

 

 

 

Six months ended 30 June 2017:

 

 

 

 

 

 

Balance at 1 January 2017

30.8

10.6

236.5

276.8

2,182.7

2,737.4

Profit for the period

-

-

-

-

368.6

368.6

Other comprehensive expense

-

-

-

-

(1.5)

(1.5)

Transactions with owners:

 

 

 

 

 

 

Dividends on equity shares

-

-

-

-

(416.6)

(416.6)

Issue of new shares

0.1

0.4

-

-

-

0.5

Exercise of share options/share awards

-

-

-

-

(0.9)

(0.9)

Share-based payments

-

-

-

-

22.6

22.6

Satisfaction of share options from own shares held

-

-

-

-

0.9

0.9

Balance at 30 June 2017

30.9

11.0

236.5

276.8

2,155.8

2,711.0

 

 

 

 

 

 

 

Year ended 31 December 2017:

 

 

 

 

 

 

Balance at 1 January 2017

30.8

10.6

236.5

276.8

2,182.7

2,737.4

Profit for the year

-

-

-

-

786.9

786.9

Other comprehensive income

-

-

-

-

18.4

18.4

Transactions with owners:

 

 

 

 

 

 

Dividends on equity shares

-

-

-

-

(416.6)

(416.6)

Issue of new shares

0.1

2.9

-

-

-

3.0

Exercise of share options/share awards

-

-

-

-

(0.9)

(0.9)

Share-based payments

-

-

-

-

72.5

72.5

Satisfaction of share options from own shares held

-

-

-

-

0.9

0.9

Balance at 31 December 2017

30.9

13.5

236.5

276.8

2,643.9

3,201.6

 

 

PERSIMMON PLC

Condensed Consolidated Cash Flow Statement

For the six months to 30 June 2018 (unaudited)

 

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

Note

£m

£m

£m

Cash flows from operating activities:

 

 

 

 

Profit for the period

 

418.9

368.6

786.9

Tax charge

4

97.4

88.8

179.2

Finance income

 

(9.2)

(9.8)

(24.5)

Finance costs

 

6.7

6.4

13.5

Depreciation charge

 

4.5

4.1

8.4

Impairment of intangible assets

 

4.4

5.4

11.0

Share-based payment charge

 

8.7

6.7

18.8

Net imputed interest income

 

0.5

3.2

5.0

Other non-cash items

 

(2.6)

(0.4)

(1.5)

Cash inflow from operating activities

 

529.3

473.0

996.8

Movement in working capital:

 

 

 

 

Increase in inventories

 

(140.8)

(75.1)

(176.6)

Increase in trade and other receivables

 

(61.1)

(44.7)

(20.5)

Increase in trade and other payables

 

50.1

16.0

131.1

Decrease in shared equity loan receivables

 

18.9

24.0

46.6

Cash generated from operations

 

396.4

393.2

977.4

Interest paid

 

(3.2)

(3.4)

(3.9)

Interest received

 

2.9

1.8

3.4

Tax paid

 

(93.6)

(94.4)

(152.9)

Net cash inflow from operating activities

 

302.5

297.2

824.0

Cash flows from investing activities:

 

 

 

 

Purchase of property, plant and equipment

 

(6.4)

(10.3)

(18.0)

Proceeds from sale of property, plant and equipment

 

0.2

0.1

0.3

Net cash outflow from investing activities

 

(6.2)

(10.2)

(17.7)

Cash flows from financing activities:

 

 

 

 

Payment of Partnership liability

 

(3.2)

(3.0)

(3.0)

Net settlement of share based payments

 

(53.8)

-

-

Share options consideration

 

1.1

0.5

3.0

Dividends paid

6

(388.5)

(77.1)

(416.6)

Net cash outflow from financing activities

 

(444.4)

(79.6)

(416.6)

(Decrease)/Increase in net cash and cash equivalents

10

(148.1)

207.4

389.7

Cash and cash equivalents at the beginning of the period

 

1,302.7

913.0

913.0

Cash and cash equivalents at the end of the period

10

1,154.6

1,120.4

1,302.7

 

 

 

Notes

1.   Basis of preparation

The half year condensed financial statements for the six months to 30 June 2018 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard 34 Interim Financial Reporting, as adopted by the European Union.  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 2017, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

The comparative figures for the financial year ended 31 December 2017 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 2017, as described in those financial statements.

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2018:

 

·     

IFRS 9 Financial Instruments

·     

IFRS 15 Revenue from Contracts with Customers

·     

Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions

·     

Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

·     

Annual Improvements to IFRS Standards 2014-2016 Cycle

·     

Amendments to IAS 40 Transfers of Investment Property

·     

IFRIC 22 Foreign Currency Transactions and Advance Consideration

With the exception of IFRS 15, Revenue from Contracts with Customers, the effects of the implementation of these standards have been limited to presentational and disclosure amendments.

 

Following the implementation of IFRS 15, Revenue from Contracts with Customers, revenues reported in the Consolidated Statement of Comprehensive Income will now include the fair value of consideration received or receivable on the sale of part exchange properties, in addition to the previously reported fair value of the consideration received or receivable on the legal completion of a newly built residential property sale.  As a result of the change revenue and cost of sales for the year ended 31 December 2017 has been increased by £175.5m (six month period to 30 June 2017 has increased by £91.3m).  For the current period, revenue is £93.8m higher than it would have been prior to the implementation of IFRS 15.  There is no change to the reported profit from operations and there is no impact on the Group's cash flows.

 

The effect of implementing IFRS 15 is as follows:

 

 

Six months to 30 June

2018

Six months to 30 June 2017

Year to 31 December 2017

Revenue from the sale of new housing (pre IFRS 15)

£1,742.0m

£1,662.2m

£3,422.3m

Revenue from the sale of part exchange properties

£93.8m

£91.3m

£175.5m

Total revenue (post IFRS 15)

£1,835.8m

£1,753.5m

£3,597.8m

 

 

 

 

New housing gross profit (pre IFRS 15)

£565.1m

£507.3m

£1,071.7m

Statutory gross profit (post IFRS 15)

£565.1m

£507.3m

£1,071.7m

 

 

 

 

New housing gross margin (pre IFRS 15)

32.4%

30.5%

31.3%

Statutory gross margin (post IFRS 15)

30.8%

28.9%

29.8%

 

 

 

 

New housing operating profit (pre IFRS 15)

£513.8m

£454.0m

£955.1m

Statutory operating profit (post IFRS 15)

£513.8m

£454.0m

£955.1m

 

 

 

 

New housing operating margin (pre IFRS 15)

29.5%

27.3%

27.9%

Statutory operating margin (post IFRS 15)

28.0%

25.9%

26.5%

 

 

 

 

New housing underlying operating profit * (pre IFRS 15)

£518.2m

£459.4m

£966.1m

Statutory underlying operating profit * (post IFRS 15)

£518.2m

£459.4m

£966.1m

 

 

 

 

New housing underlying operating margin * (pre IFRS 15)

29.7%

27.6%

28.2%

Statutory underlying operating margin * (post IFRS 15)

28.2%

26.2%

26.9%

 

* stated before goodwill impairment

 

IFRS 9 Financial Instruments came into effect on 1 January 2018 replacing IAS 39 Financial Instruments: Recognition and Measurement and requires changes to the classification and measurement of certain financial instruments from that under IAS 39.  On review the majority of the Group's financial assets and liabilities will continue to be accounted for on an identical basis under IFRS 9 as they were under IAS 39.

 

The exception to this is the Group's shared equity loan portfolio.  These were held under IAS 39 as Available for Sale Financial Assets.  This classification is no longer available under IFRS 9 and the assets have been reclassified as Fair Value Through Profit and Loss and reported as "Shared equity loan receivables" in the Balance Sheet.  The fair value of the assets is unchanged following this reclassification and there is no impact on the Profit or Loss or Balance Sheet in the current or comparative periods.  In implementing this change we have more appropriately reflected the ageing of the Shared equity loan receivables and have analysed the receivable between non-current and current for the reported period end and its comparative period ends.  There has been no impact on profits or cash flows in the current or previous periods as a result of this re-analysis.

 

Amendments to IFRS 2 Classification and Measurement of Shared-based Payment Transactions was endorsed by the EU during the year and is effective for periods commencing on or after 1 January 2018.  The amendment has been applied in the period and had no impact on prior periods.

 

The Group has not early adopted the following new standard, and amendment to standard, which are EU endorsed but are not yet effective:

 

·     

IFRS 16 Leases

·     

Amendments to IFRS 9 Prepayment Features with Negative Compensation

We do not expect the adoption of these new standards to have a material effect on our reported consolidated results as explained in Note 1 to the Group's annual financial statements for the year ended 31 December 2017.

Going concern

 

After making due enquiries, and in accordance with the FRC's "Guidance on Risk Management, Internal Control and Related Financial and Business Reporting" issued in 2014, 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 yearly condensed financial statements requires management to make judgements and estimations of uncertainty at the balance sheet date.  In preparing these half yearly condensed financial statements the significant judgements and estimations of uncertainty made by management were principally the same as those applied and included in Note 3 to the Group's consolidated financial statements for the year ended 31 December 2017.

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

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

Revenue from the sale of new housing

1,742.0

1,662.2

3,422.3

Revenue from the sale of part exchange properties

93.8

91.3

175.5

Total revenue

1,835.8

1,753.5

3,597.8

 

4.   Tax

Analysis of the tax charge for the period

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

Tax charge comprises:

 

 

 

UK corporation tax in respect of the current year

97.4

86.5

187.1

Adjustments in respect of prior years

(1.6)

-

(8.4)

 

95.8

86.5

178.7

Deferred tax relating to origination and reversal of temporary differences

1.6

2.3

1.0

Adjustments recognised in the current year in respect of prior years deferred tax

-

-

(0.5)

 

1.6

2.3

0.5

 

97.4

88.8

179.2

 

Deferred tax recognised in other comprehensive income

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

Recognised on remeasurement charges on pension schemes

4.8

(0.3)

3.7

 

Tax recognised directly in equity

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

Arising on transactions with equity participants

 

 

 

Current tax related to equity settled transactions

(30.8)

-

(6.3)

Deferred tax related to equity settled transactions

31.0

(15.9)

(47.4)

 

0.2

(15.9)

(53.7)

At 30 June 2018, with the exception of equity settled transactions, the Group has recognised deferred tax assets on deductible temporary differences at 17%, the rate enacted at the end of the reporting period.

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 trusts and any treasury shares, all of which are treated as cancelled) which were 310.6m (June 2017: 308.5m; December 2017: 308.6m).

 

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 322.0m (June 2017: 319.4m; December 2017: 323.7m).

 

Underlying earnings per share excludes goodwill impairment.  The earnings per share from operations were as follows:

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

Basic earnings per share

134.9p

119.5p

255.0p

Underlying basic earnings per share

136.3p

121.2p

258.6p

Diluted earnings per share

130.1p

115.4p

243.1p

Underlying diluted earnings per share

131.5p

117.1p

246.5p

 

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

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

Underlying earnings attributable to shareholders

423.3

374.0

797.9

Goodwill impairment

(4.4)

(5.4)

(11.0)

Earnings attributable to shareholders

418.9

368.6

786.9

 

At 30 June 2018 the issued share capital of the Company was 312,957,713 ordinary shares (31 December 2017: 308,856,430 ordinary shares)

 

6.   Dividends/Return of capital

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

Amounts recognised as distributions to capital holders in the period:

 

 

 

2017 dividend to all shareholders of 25p per share

-

77.1

77.1

2017 dividend to all shareholders of 110p per share

-

-

339.5

2018 dividend to all shareholders of 125p per share

388.5

-

-

Total capital return to shareholders

388.5

77.1

416.6

 

On 29 March 2018 a capital return payment of 125p per share (or £388.5m) was paid as an interim cash dividend.

 

As at 30 June 2018 the Group balance sheet included a capital return liability of £343.8m in relation to the future capital return payment of 110p per share.  This was paid as a final dividend in respect of the financial year 31 December 2017 after the balance sheet date on 2 July 2018.

7.   Inventories

 

 

30 June 2018

30 June 2017

31 December 2017

 

£m

£m

£m

Land

2,132.3

1,970.8

2,010.6

Work in progress

749.6

676.1

723.9

Part exchange properties

45.8

32.2

45.2

Showhouses

42.9

43.0

46.2

 

2,970.6

2,722.1

2,825.9

 

At 30 June 2018 the Group conducted a further review of the net realisable value of its land and work in progress portfolio.  Our approach to this review has been consistent with that conducted at 31 December 2017 and was fully disclosed in the financial statements for the year ended on that date.  Net realisable value provisions held against inventories at 30 June 2018 were £40.1m (2017: £45.2m).  Following the review, £22.9m of inventories are valued at fair value less costs to sell rather than historical cost (2017: £29.1m).

8.   Shared equity loan receivables

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

Shared equity loan receivables at beginning of period

117.3

148.7

148.7

Settlements

(18.9)

(24.0)

(46.6)

Gains

5.6

8.0

15.2

Shared equity loan receivables at end of period

104.0

132.7

117.3

 

All gains/losses have been recognised through finance income in profit and loss for the period of which £1.8m was unrealised (June 2017: £2.6m; December 2017: £4.9m).

 

9.   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:

 

 

30 June 2018

30 June 2017

31 December 2017

 

Level 3

Level 3

Level 3

 

£m

£m

£m

Shared equity loan receivables

104.0

132.7

117.3

Shared equity loan receivables

 

Shared equity loan receivables represent shared equity 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 10 years (2017: 10 years) and a discount rate of 9% (2017: 8%) 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.

 

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

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

(Decrease)/increase in net cash and cash equivalents in cash flow

(148.1)

207.4

389.7

Net cash at beginning of period

1,302.7

913.0

913.0

Net cash at end of period

1,154.6

1,120.4

1,302.7

 

The Group has generated free cash before capital returns of £240.4m (2017: £284.5m). This reflects an additional net investment in working capital year on year of over £50m, primarily in land and work in progress, and the payment of c. £70m to HMRC with respect to the taxation of the exercise by participants of the first vesting of the 2012 LTIP together with net settlement of the options.

 

11.  Retirement benefit assets

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

 

 

Six months to 30 June 2018

Six months to 30 June 2017

Year to 31 December 2017

 

£m

£m

£m

Current service cost

1.0

1.2

2.3

Administrative expense

0.5

0.4

0.7

Pension cost recognised as operating expense

1.5

1.6

3.0

Interest cost

7.1

8.0

15.9

Return on assets recorded as interest

(7.9)

(8.3)

(16.9)

Pension cost recognised as a net finance credit

(0.8)

(0.3)

(1.0)

Total defined benefit pension cost recognised in profit or loss

0.7

1.3

2.0

Remeasurement (gains)/losses recognised in other comprehensive income/(expense)

(28.1)

1.8

(22.1)

Total defined benefit scheme (gain)/loss recognised

(27.4)

3.1

(20.1)

 

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

 

 

30 June 2018

30 June 2017

31 December 2017

 

£m

£m

£m

Fair value of pension scheme assets

646.3

637.1

649.1

Present value of funded obligations

(549.6)

(594.7)

(581.4)

Net pension asset

96.7

42.4

67.7

 

12.  Share Based Payments

The final vesting of the 2012 LTIP options occurred on 2 July 2018 and they are now eligible for exercise. In line with the Board's assessment, and normal practice, it has been decided to net settle these options.  The value of the liabilities arising from this will be determined by the Company's share price on the date the participants choose to exercise their options together with the prevailing tax and national insurance contribution rates at the time.

 

There are 13.0m option entitlements under the 2012 LTIP held by all participants that have vested but are unexercised as at 2 July 2018.  For illustration, looking forward, this might be expected to give rise to a further payment of around £133m to HMRC if all participants exercise their entitlements in full and assuming a constant share price to that at which the Company closed on 2 July 2018.  The 13.0m outstanding options would reduce to c.6.0m issued shares in these circumstances.

 

 

13.  Principal risks

The Board have assessed the Principal Risks as disclosed in the 2017 Annual Report & Accounts and have determined that there has been no change in risks faced or risk rating at 30 June 2018.  The principal risks which may affect the business and the future performance of the Group are set out below: 

 

Risk

Impact

Mitigation

Residual Risk Rating

UK's exit from the EU

As the UK negotiates the terms of its exit from the European Union, there remains a degree of uncertainty on the outlook for the UK economy.  Ongoing economic uncertainty may reduce consumer confidence, impacting on demand and pricing for new homes and affecting revenues, profits and cash flows and may result in the impairment of asset values.

Potential legislative changes on freedom of movement may also restrict the availability of skilled construction workers and impact on costs and build activity.  In addition, potential further relative devaluation of the UK currency as a result of Brexit could increase costs of materials.

 

We continue to closely monitor the impact of the increased uncertainty on the UK economy and the housing market through the review of external information and changes in the behaviour of our customer base.  Close management of work in progress levels matching supply to demand will continue and land investment decisions will continue to be assessed, including measures to ensure exposure to market disruption is mitigated.  The overall shortage of supply of housing in the UK may provide a degree of support to the housing market should these circumstances arise.  Action taken by the Government to adjust policy to support UK economic performance may provide further mitigation as might any response with respect to interest rates by the Bank of England.

We will continue to employ robust tendering processes to maintain strong cost control over Group sourcing.  In addition, we will remain focused on our training initiatives to improve the supply of the necessary construction skills the Group requires.

High

Government policy

Government policy has the potential to influence various aspects of our strategy, operations and overall performance.  Changes in Government policy are considered as a new principal risk due to increased uncertainty in the political environment.

Potential changes in Government policy, such as changes to the planning system, changes in the tax regime, or the amendment of the Help to Buy scheme could have an adverse effect on industry revenues, margins and asset values.  Government initiatives to encourage house building through social housing or the SME sector could also increase the demand for, and costs of, scarce material and labour resources.

We monitor Government policy in relation to house building very closely. Consistency of policy formulation and application is very supportive of the industry, encouraging continued substantial investment in land, work in progress and skills to support output growth.  We actively manage our land investment decisions and work in progress commitments to mitigate exposure to external influences.

Both major political parties in the UK continue to support the Help to Buy scheme which is scheduled to remain in place until 2021.

 

High

National and regional economic conditions

The housebuilding industry is sensitive to changes in unemployment, interest rates and consumer confidence.  Any deterioration in economic conditions may decrease demand and pricing for new homes, which could have a material effect on our business revenues, margins and profits and result in the impairment of asset values.

We control the level of build on site by closely managing our work in progress levels.  We carry out extensive due diligence prior to our land investment decisions.  We monitor our geographical spread to mitigate the effects of local microeconomic fluctuations.  We continually monitor lead indicators on the future direction of the UK housing market so as to manage our exposure to any future market disruption.

High

Mortgage availability

Any restrictions in the availability or affordability of mortgages for customers could reduce demand for new homes and affect revenues, profits and cash flows.  Early withdrawal of the Government sponsored Help to Buy scheme is likely to impact on the availability of associated mortgage lending and could reduce demand for new homes from  first time buyers, impacting revenues, profits, and cash flows.

We monitor Bank of England commentary on credit conditions.  We ensure that our investment in land and work in progress is appropriate for our level of sales and our expectations for market conditions.  We monitor the Council of Mortgage Lenders' monthly reports and lenders' announcements for trends in lending.  The Government's Help to Buy scheme, which currently is anticipated to remain available until 2021, supports customers to gain access to the housing market across the UK with competitive mortgage rates.

High

Health and safety

The health and safety of our employees, subcontractors, home owners and visitors to our construction sites is of paramount importance to us.  Accidents on our sites could lead to reputational damage and financial penalties.

We ensure that the Board's health and safety strategy is implemented by our comprehensive management systems and controls, overseen by our Group Health and Safety Department to minimise the likelihood and impact of accidents on our sites.

High

Regulatory compliance

Our business is subject to extensive and complex laws and regulations relating to areas such as planning and the environment.  Our obligations to comply with legislation can result in delays causing us to incur substantial costs and prohibit or restrict land development and construction.  Non-compliance could also result in damage to the Group's reputation or imposition of financial penalties.

We operate comprehensive management systems to ensure regulatory and legal compliance, including anti-bribery policies.

We engage extensively with planning stakeholders to reduce the likelihood and impact of any delays or disruption.  We also hold a land bank sufficient to provide security of supply for short to medium term land requirements.

Low

Materials

Expansion in UK housebuilding has driven an increase in demand for materials which may continue to cause availability constraints and/or costs to increase.

Prices for key materials may also be affected by currency movements as the Brexit process continues.

We closely monitor our build programmes and our supply chain enabling us to manage and react to any supply chain issues.  We build good relationships with suppliers to ensure consistency of supply and cost efficiency.

We have invested in our expanding off-site manufacturing capability to help security of supply.  Our own brick plant was commissioned in 2017 and is supplying a significant proportion of the bricks we use.  In addition we have taken the decision to manufacture our own roof tiles and are establishing a new facility at our manufacturing hub at Harworth near Doncaster. This complements our existing offsite manufacturing capability at Space4, which produces timber frames and highly insulated wall panels and roof cassettes as a modern method of constructing new homes. We continue to examine further investment in Space4 technology.

Medium

Labour

Having an appropriately skilled workforce is a key requirement for house building.  Expansion in UK house building activity has increased demand for skilled labour.  This may continue to create site resourcing shortfalls and/or increased labour costs ahead of our expectations with particular regional shortages.  The availability and quality of labour resources may be further tightened depending on the nature of arrangements as the UK exits the European Union.

A skilled management team is required to enable effective implementation of the Group's strategy.  Loss of a number of key senior management could disrupt the business.

Close monitoring of our build programmes enables us to manage our labour requirements effectively.  We operate in-house apprentice and training programmes, including our Combat to Construction (C2C) programme, to supply the Group with skilled labour.

We are committed to playing a full and active role in external initiatives to address the skills shortage such as the Home Building Skills Partnership, a joint initiative of the Construction Industry Training Board and the Home Builders Federation.

Where appropriate, we also use the Group's Space4 modern method of construction which reduces the site based skilled labour required in the construction of our homes.

The Executive Directors undertake regular succession planning reviews.  The Board have conducted a detailed review of succession planning with particular regard to the 2012 LTIP.

Medium

Strategy

The Board has adopted its strategy as it believes it is the one most likely to add the greatest sustainable value for shareholders and stakeholders.  It is possible that, with time, factors become known that indicate that the strategy currently being pursued is not the most effective or efficient and that alternative strategies may be more appropriate.

The Group's strategy is agreed by the Board at an annual strategy meeting and thereafter regularly reviewed at Board meetings and by the Executive Directors.  The Board engages with management and employees to ensure the strategy is communicated and understood and that all employees have a clear understanding of the potential benefits and risks of the strategy.  Further information is included in the Strategic Update as disclosed in the 2017 Annual Report & Accounts.

Low

 

 

 

 

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

We confirm that to the best of our knowledge:

 

·     

the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial reporting as adopted by the EU

·     

the Half Year Report includes a fair review of the information required by:

 

DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

 

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

 

Jeff Fairburn                           

Mike Killoran

 

 

 

 

 

INDEPENDENT REVIEW REPORT TO PERSIMMON PLC

 

Introduction

 

 

Directors' Responsibilities

 

 

Our Responsibility

 

 

Scope of Review

 

 

Conclusion

 

 

 

 

Ernst & Young LLP

London

20 August 2018


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