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Edited Transcript of PSN.L earnings conference call or presentation 20-Aug-19 8:30am GMT

Half Year 2019 Persimmon PLC Earnings Call

Fulford, york Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Persimmon PLC earnings conference call or presentation Tuesday, August 20, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David Jenkinson

Persimmon Plc - Group Chief Executive & Executive Director

* Martyn Clark

Persimmon Plc - Regional Divisional Director for Yorkshire & South East

* Michael Hugh Killoran

Persimmon Plc - Group Finance Director & Director

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Conference Call Participants

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* Ami Galla

Citigroup Inc, Research Division - Senior Associate

* Andrew Murphy

Whitman Howard Limited - Head of Research

* Arnaud Lehmann

BofA Merrill Lynch, Research Division - Head of the European Construction & Building Materials and Director

* Aynsley Lammin

Canaccord Genuity Corp., Research Division - Analyst

* Christopher James Millington

Numis Securities Limited, Research Division - Analyst

* Christopher Richard Fremantle

Morgan Stanley, Research Division - Executive Director

* David A. O'Brien

Goodbody Stockbrokers, Research Division - Investment Analyst

* Gavin Jago

Peel Hunt LLP, Research Division - Analyst

* Glynis Mary Johnson

Jefferies LLC, Research Division - Equity Analyst

* Gregor Kuglitsch

UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst

* John Messenger

Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research

* William Jones

Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research

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Presentation

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [1]

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I think it's just after half past 9, so we can start. Good morning, everybody. I'm delighted to be standing here again presenting another set of excellent financial results, which is a reflection of the group's positioning in the current market.

So what does the agenda look like for today? I'm going to pick up on the highlights and strategy, and then I've invited Martyn Clark today, which is a little bit change from tradition, who is our Divisional Director for the South East, as I thought you might find it useful to hear from a senior director within our company to talk about our customer care improvement plan on the ground. Then I intend to pick up on some operational review matters, before passing to Mike on the financial review, then I will look at current trading and provide a summary.

Persimmon now has a clear purpose: to provide long-term sustainable returns. At the core of this is a desire to build good quality homes at a range of price points across the whole of the U.K. meeting the country's housing need. We believe this will not only create and protect superior long-term returns for our shareholders but also for our customers, our workforce and the wider stakeholders.

The purpose manifests itself in the following key strategic areas: firstly, my #1 priority, which is to improve the quality of customer service. But we are also committed to meet all the housing needs across the country. These items, along with the following points, all contribute to ensuring we maintain our industry-leading financial performance.

So let's have a look at that performance. And what I'd like to draw your attention to on this slide is the change in volume, which shows a 6% drop. You might think that's strange that I'd draw your attention to that because in many people's opinion, that will be seen as a negative. However, that is not the case. This is a conscious business decision we have taken to put customers before volume, as I believe that is the right thing for the long-term future success of the business.

But despite that drop in volume, trading performance remained strong: new housing operating margin of 31%; profit before tax of nearly GBP 510 million; and return on average capital employed of 40.5%, including for land creditors. But most importantly, our shelves are now being restocked, which enables all our processes to be enhanced and followed even further, GBP 142 million additional WIP investment in the ground; 19% more equivalent units. I am delighted, once again, our industry-leading financial performance has been maintained.

Now I would like to look at my #1 priority, which is the delivery of our customer care improvement plan. I am encouraged by the improvement we continue to see in this area, particularly in our customer satisfaction rating over the last 6 months. However, in my opinion, customer satisfaction is not just about quality at handover, or even about star rating. And it's not just about increased financial investment or robust quality insurance process; it is also about improving consumer rights, improved customer communication, improved post-handover service, access to modern technology and, finally, ensuring people's homes are built safely, which I will touch on later in the presentation.

Now I'd like to pass over to Martyn who's going to update you on our customer care improvement plan.

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Martyn Clark, Persimmon Plc - Regional Divisional Director for Yorkshire & South East [2]

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Thanks. Good morning, ladies and gentlemen. Persimmon are making a significant investment in customer care. Financially, we've made a 40% increase in our customer service expenditure this period compared to last period and, more importantly, committed GBP 15 million worth of additional resource to cover customer care activities on an ongoing basis.

We have, as Dave touched on, made substantial investment in work-in-progress, GBP 142 million. That will enable us to follow our processes more consistently. Our customers will be able to buy properties in a more advanced stage, and we will be able to offer more accurate completion dates.

If we refer to the chart below, you can see that comparing H2 '19 to H2 '18, the number of staff we have in our customer care department has increased by 44%.

Persimmon have a robust quality assurance process. We have a 7-stage precompletion inspection process, which I'll refer to on the next slide. With our increased investment in work in process -- sorry, work-in-progress, we will be able to follow our processes consistently.

Our 7-stage precompletion process, a robust process. If you look at the people involved in our process, this is to the time that people actually move in. We have our site managers do the check on the quality. Our contracts managers, the line managers, the site managers check the property. The blue and green card that we refer to is our sales check. We have a director of the region check the property. And then we have an independent quality checker also review the property. This all takes place before a homeowner receives the keys.

What I'm really pleased about is our desire to empower our customers. The retention scheme was announced earlier in the year, and I'm pleased to say that from the 1st of July, all reservations that were taken, people have had the opportunity to take the retention.

However, what we can say is the retention will now -- or the retention cover will be increased to include all faults not only recorded at key release but also within the first week of occupation. That removes any criticism for rushed handovers. We will capture all defects, and we will deal with them. We are taking the lead in consumer rights. This is the U.K. housebuilding industry first.

We do, however, recognize that we constantly need to improve the customer communication. We have 11 key stages of communication with our customers from the time they reserve. We have an improved company complaints procedure. Our complaints are logged, monitored, checked. There's a clear escalation process. We are changing to exceed our customer expectations.

So what happens when a customer moves in? How do we maintain high levels of customer care post-handover? We've already touched on the retention. That will give our customers the confidence that we will deal with the defects. We have a 7-stage post-completion procedure, which I'll review briefly on the next slide. And we've also changed our maintenance operatives' working hours to enable us to react to the needs of our customers. We have an earlier start, a later finish and weekend working.

So the 7-stage post completion inspection, you can clearly see this is a robust process. It involves our site managers, our customer care managers, our directors, and it covers the period up to 2 months after a completion. We should capture all defects, and they will be dealt with.

We are a leader in access to modern technology. FibreNest is now fully established. Persimmon are the only housebuilder able to deliver their own full fiber network to new developments. By the end of the year, we should have circa 5,000 homes connected.

Later during this year, we'll have a new customer portal that will enable better digital integration with our customers. We'll be able to deal customer care, pre and post completion communication.

So in summary, with the improved disciplines and enhanced robust processes and our significant increase in capital investment in all areas of work-in-progress, people and technology, this is already resulting in improved customer care satisfaction levels, and I'm convinced this will continue to improve.

Okay. Dave?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [3]

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Thanks, Martyn. It is very important to me that our customers feel safe in their homes, so we've review our pre-start process and looked at all stages of the build from start to finish of the home buying process. We've looked at the principles of the Hackitt Review and looked to incorporate the principles of the Golden Thread which is set out within it. We believe the principal risk to the implementation of the Golden Thread is to ensure its effectiveness and policing on the ground.

So how do we intend to ensure that the Golden Thread is followed? We intend to invest in 31 independent safety and quality service inspectors. This is over and above the existing facility provided by a warranty provider. This is us taking an industry lead to ensure that things that we consider to be a principal risk, whether it be safety, whether it be a quality issue, that we can ensure that someone independent, just like health and safety, is providing an extra layer of check the checker to ensure it's complied with. This investment is intended to eliminate situations like the cavity barrier has in the future.

So now I want to talk about how we are meeting the country's housing need. The group's regional structure has been further strengthened in the year with the introduction of our South Yorkshire business, and this has supported our excellent national coverage across the U.K. of houses at the right price point and the right place with the right product.

In particular, I'd like to draw your attention to 35% of our private sales are priced below GBP 200,000. That is an area we've specifically positioned the business. I'm also particularly proud that 52% of our new homes sold are to first-time buyers. And also I'd like to draw your attention to the facts. Our average selling price is 17% lower than the national average. That hasn't just happened by chance. That is due to our positioning. 11% of our private sales are priced less than GBP 150,000, and our increase in output is greater than any other housebuilder since 2012. Persimmon is playing its part in meeting all the country's housing need.

Pricing has remained pretty firm throughout the year, but I'd like to draw your attention to the completion change. In the Persimmon South region, we have 10%; and the Charles Church at 36%. The reasons for that are 3 primarily. The first one is, that we said before, larger 4-bed houses are particularly sticky at the moment, and that is specifically in the South East division, although there is signs of that throughout the country. But I'd also like to draw your attention to the 10% in the Persimmon South because this is mainly due to our strategy of restricted release in named parts of the South where we've had to let the build catch up with the demand for sales.

And this is reflected in our average selling price. What you can see from this chart is in our core market areas, where we have the right product at the right location at the right price, our selling prices have showed reasonable growth: 4% in the North; and 5% in the South; and if you look at Charles Church at only 1%, which reflects the difficulties in that market area.

In my opinion, the company has a duty of care to our workforce. I want Persimmon to offer opportunities for all. I want Persimmon to be a company to fill your potential. As you've seen before in the last 2 years, we have promoted over 570 colleagues. And I am delighted to show in the last -- in the first half of this year, we have promoted a further 200 colleagues.

We have a trained and talented workforce. And I'd like to draw your attention because it really does make a difference to these young people's lives, we've taken another 150 apprentice, traditional apprentices on due to start in September. These young people will have the chance to develop a trade.

I also want everyone to share in the success of the company. That's why we're the first housebuilder to adopt the living wage fair wage foundation (sic) [Living Wage Foundation] payment criteria in January 2019.

We are also very aware of our duty of care to the communities which we operate and our wider stakeholders. We support over 50,000 jobs. We have contributed over GBP 255 million through affordable housing and planning contributions.

Our Building Futures campaign is now firmly established with over 3,500 applications. And I know my team take great pleasure and, in fact, we supported 150 schools with their sports days with some participation from Team GB athletes.

At the heart of Persimmon's success is how we manage our land holdings. We have a 6-year forward land supply. And I can confirm today that the land market continues to provide opportunities in line with our land holdings' current margins. Let no one be any doubt the quality of our land holdings will secure the future financial performance of the business. And I can assure you that our land holding is in very safe hands.

We continued our strategic land success, nearly 2,000 plots successfully converted in the period. And I'd also like to draw your attention to almost 16,000 acres we currently have at the 30th of June, 2019. But more importantly, within that strategic land acreage, we have nearly 18,000 plots allocated which aren't yet on our land bank. Strategic land investment remains a fundamental element of the group's business model.

Finally, I would like to touch on our off-site manufacturing. We continue to help -- to focus on self-help through innovation. We have a Brickworks factory producing nearly 25 million bricks; a Tileworks factory which will be produced in quarter 4 this year; we have Space4 providing timber frame homes. All these 3 elements are further examples of how we differentiate from our peers.

Now I'd like to pass over to Mike.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [4]

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Thanks, Dave.

Right. What we're going to do now is we're going to look at, in a bit more detail, the first half trading performance. We'll look at some of the major features of the balance sheet, and we'll look at the cash gen and returns in a bit more detail.

So first half trading. We're quite pleased with the strength of the trading through the first half. Dave has already touched on the focus on customer care and the -- holding back the sales release to later stages, so we can offer more accurate moving-in dates, et cetera. Obviously, that has impacted volume in the first half by design, but to deliver GBP 509 million pretax profit, a tad down on the comparative period, is a very strong performance, with the return on equity at 31% in the -- as at June. That's a rolling 12-month statistic, as you can see on the footnote there. So it's still a very strong financial performance supported by that 31% underlying operating margin.

So the mix on the sales have changed a bit. 21% of the sales mix are being delivered to our Housing Association partners within the Partnership business. We've already touched on private and the volume coming back a tad. But you can see there the average selling price has remained pretty firm, as Dave provided a bit of color around that. We've seen quite firm pricing conditions. And behind that, in the private market, around about 1.5% underlying inflation, probably around that mark, which has obviously supported the margin performance. So new housing revenue, around about 6% behind the comparative period.

But the quality of that revenue in terms of the margin delivery remains very strong. You can see the bridge there, the volume driver coming through. But counteracting that, the margins remain very good. So the margin improvement is encouraging.

And if we look into that in a bit more detail, we can see that a primary support is the land cost recoveries. We have incurred more cost on the customer care side, as Martyn has already touched on. That 40% increase period-on-period is around about GBP 4 million quantum in the first half of the year. Further investment in supporting customer quality and service, and that commitment, as we've touched on already, is going to continue. And we provided a GBP 15 million sort of annualized figure as an indication of what we think that will cost on a full year, fully invested position.

So the margin performance, as you can see there, at 33.8% gross, 31% operating margin, still very strong, the land recoveries being a key support to that. And looking at the land bank, you can see there at the top of the bank, if you will, in terms of the owned plots, the 13.1% cost of revenue percentage is still very strong. So we're managing to maintain the quality of that land bank, and we've done the usual sort of simple pooling of the profits embedded within the land bank there. And if you do the simple way to calculation, that gives you a figure around about 34%, which is very similar to where we were at December.

So the land bank continues to provide a very strong platform for the business moving forward. Total investment of just over GBP 2 billion; the selective land replacement, maintaining that quality, but has also led to a reduction in the land creditor. And the amortization, just to give you a bit of an insight into the land creditor, over the next 6 months, we've got about GBP 140 million to be paid down on that GBP 484 million number, and the 6 months to 30th of June next year, it's about GBP 120 million. So we've got decent amortizing tail on that land creditor number.

So the continued work-in-progress investment is there to support the customer experience. It's pleasing to see that we've managed to, through a combination of continuing to push on with our construction programs and later release, deliver a more solid platform in terms of availability for customers on our sites.

That has resulted in about GBP 830 million of cash being held at June. That's after the first capital return payment of the year that we paid at the end of March, around about GBP 400 million, and a very strong return on the capital employed in the business at around about 40%. That calculation has got the land creditor in it, which is very similar to the comparative stat that we saw last year.

So the work-in-progress investment supports the quality and service that we are providing. You can see there that we maintain good liquidity. The net free cash generated by the business at GBP 180 million, and that, obviously, is after the investment in the work-in-progress.

And we can see there a bit more clearly that the cash from operations is still very strong, around about the GBP 500 million mark. And again, the investment there in the working capital is clear to see. The bulk of that going into work-in-progress, again emphasizing our focus on supporting customer moving forward.

So we've maintained strong liquidity. That's obviously important as we move through the cycle. And I think this is the facts looking backwards, the shape of that. You can see the shape of the cycle. So earnings come and go, but cash generation is a permanent fixture of how we run the business. That is a result of the combination of how we manage the balance sheet and obviously, the cash generated through trading. So selective land replacement will support the strong liquidity as we move forward.

The strong work-in-progress investment is there. Yes, it provides a bit of cover to perhaps the Brexit risks that we're facing into. It supports customer experience. And also, it will unwind quite quickly. Obviously, if the cycle does end tomorrow, we've got good support to the sales that we'd take moving into that sort of period, and the work-in-progress would unwind quite quickly, thereby generating further cash inflows.

But also just to remind everybody, we will continue to minimize financial risk through the cycle, so we're not looking to insert any structural gearing in the balance sheet. We've talked about a cash hold of perhaps GBP 700 million, GBP 750 million for the scale of business we currently are. And splitting that down, that would represent probably around GBP 400 million to cater for the annual working capital cycle amplitude together with GBP 300 million, GBP 350 million of a bit of a war chest for investing in new land. So that remains our position in terms of cash hold.

But the business scale can change obviously as the cycle unwinds. If we have a smaller business at some point in the future, then it's all about managing that process and generating the cash release out of the balance sheet through that cyclical change.

And obviously, that's a key consideration in terms of when we're sort of reflecting on capital returns -- future capital returns from the business, which I'm sure you'll all be reflecting on. The liquidity of the business, as we've seen, is a permanent feature depending on how we manage the balance sheet as well as the trading.

The capital return is split into 2. We've got a bottom slice, regular return of GBP 1.10 a share. We think that's a permanent long-term commitment. And anything over and above that represents the surplus capital that we would be returning; currently, 125p a share. We set out a 3-year view last year to deliver the GBP 1.10 and the GBP 1.25. We've met 2 years of that 3-year commitment. One year to go with that final GBP 1.25 scheduled to be paid in March next year.

So we're in a very strong position in our markets. Dave's already touched on the spread and depth of the land bank in support of our positioning across the country. And we've got strong liquidity. But we're watching and judging the cycle carefully, being mindful of the risks that we face.

That's the current Capital Return Plan. No change there. You've all seen that before. And as I say, we've got the final GBP 1.25 scheduled for next year, but we'll continue to review the surplus availability to return to shareholders and we'll be communicating that in line with our current plan when we release the final results in February next year.

So at that point, I'll hand back to Dave just to finish off and summarize.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [5]

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Thanks, Mike.

The attached table shows a strong forward sales position. It shows it to be only 3% down, which I'm delighted with when you consider decisions we've taken to put customers before volume. I would also like to draw your attention to the 1% increase in ASP. This should help offset any build cost movement in half 2.

The strong forward sales is a reflection of the encouraging summer weeks trading we've seen in the last 7 weeks. This gives me confidence for the second half when combined with: for the first time in a long time, early indications that labor and material availability is improving; also, that selling prices remain firm.

We have a strong forward sales position of over GBP 2 billion and 19% increase in equivalent units. And finally, we have quality sites throughout the country with the right product at the right price. We have positioned the business in the correct place in the current market we are experiencing.

Persimmon is a changing business. The company is very aware of its obligations to its wider stakeholders. In particular, customer satisfaction is my #1 priority. However, we should not forget the solid foundations Persimmon is built upon. We have industry-leading margins. We have industry-leading land holdings. We have industry-leading profits and returns. We have industry-leading liquidity. And most importantly to me personally, we have a highly motivated and talented workforce. Thank you.

So thanks for that. I'll go and take my seat, then we'll go through the normal questions and answers. And the hands went up pretty quickly there.

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Questions and Answers

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [1]

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Do you want to start at the front?

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William Jones, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [2]

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It's Will Jones from Redburn. Three if I could, please. First, just picking up on build costs. Can you remind us of what improvements you've made from a specification perspective this year and what, if any, you intend to do as a kind of addition maybe next year? And against that, to what extent the internal efficiencies we've seen from internal supplies or external savings might still be available next year to offset any added spec? I guess what I'm trying to get to is when we look at the 34% gross margin at land bank, to what extent do you think that's fully loaded for the changes that are coming down the track?

The second one is just around customer satisfaction. Can you remind us what line of sight you've currently got on your kind of monthly? Is it -- are you like 2 months delayed, so you can see effectively through to June completions maybe at this point? And I think, Dave, in July talked about a considerable improvement of late. I suspect the answer is no, but would you be willing to give us any quantification of how the 79% might be -- might have moved or was trending kind of more recently?

And then the last one is just thinking about, I guess, the future size of the business more medium term. But to what extent do you think the change you've made in the business influence how big you think Persimmon can be from a capacity perspective over that medium term?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [3]

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I think if you take the build cost one.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [4]

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Yes. I can do that one.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [5]

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But generally, the specification, we've done the review. We've looked at what we need to do and we see no further investment needed in that area. But I'll let Mike pick up on that in a bit more detail.

Customer satisfaction. It's normal -- it runs 8 weeks from behind the legal completion. What we do know is the current HBF reporting period finishes in October. The end results do not get published until March. And we also know that our results for last year were 79%. And we also know that we were informed we were making improvements at our last update in July, and I can confirm that improvements have continued to see across the board.

What I'm not prepared to do is go on record yet to say where we are. But what I can say is I'm pleased with the results what we're seeing. The business is completely behind the improvements that we're trying to make, and I'm confident we will get there.

I don't know if you want to add anything to that, Martyn?

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Martyn Clark, Persimmon Plc - Regional Divisional Director for Yorkshire & South East [6]

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No, no. I think the measures we're taking are definitely being incorporated across all regions.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [7]

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Good. The future size point, this is a decision we've taken of put the customers before volume, and I think it's a 6- to 12-month hiccup. I believe it's the right thing to do for -- to create long-term shareholder value, and I believe it's the right thing to do to make the capital investment in the business to give us the opportunity to ensure our processes are followed.

What I would like to hope when our shelves are fully restocked, we can release our outlets in a sensible program. And if the market's still there, the volumes will start to move back upwards.

Mike?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [8]

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Yes. I think on the margin question, I think it's sensible to think that there's a bit of a margin fade probably as we move forward. The supply chain is still inflationary.

We are seeing some interesting changes over more recent weeks, particularly on ground works packages and costs at the front end of the development process, if you will, on off-site works, external works. But we obviously can't second-guess whether that might tighten up again or whatever, but that's slightly encouraging.

No one knows what Brexit will bring in terms of tariffs and sterling weakness, et cetera. That could impact on costs a little bit, albeit the bulk of what we use is onshore, probably a tad over 80% or so. So -- but I think the supply chain is inflationary. And the overall industry is trying to expand out per -- in line with the government's policy objectives. So as new entrants come in and perhaps we see -- at the back of the book, you've got the picture on starts which seems to have just nudged down a little bit more recently. But if the industry continues to move out but forwards successfully, then obviously, the supply chain has got to try and keep up with that.

But I think, as Dave's already mentioned, the investments we've made in Brick and Tile and Space4 does help us mitigate some of that cost pressure, as does the core house types that we're increasingly getting more coverage from. And as you know, you've got to work hard on many fronts to mitigate these issues.

The group procurement activities, we continue to make strides on that side as well. So -- but I think at the end of the day, I think it's sensible to take a view on a bit of a margin fade as we move forward over the next year or 2.

Because the line cost recoveries, depending on the sales mix, as always, is pretty good, if you will. It's in line with where the land bank sits. So moving forward, you wouldn't expect a lot of more significant support sort of period-on-period to come out of land bank because it's already delivering good support.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [9]

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Andy?

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Andrew Murphy, Whitman Howard Limited - Head of Research [10]

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Andy Murphy from Whitman Howard. Two quick questions, if I may. First of all, in terms of the GBP 15 million investment, it probably works out about GBP 1,000 a house, but I was wondering around that, if you're delaying the release of certain houses, does that in itself bring extra costs in because you're were telling the construction team to take a bit longer and take a bit more care? Therefore, is there more labor costs in terms of that extra duration?

And secondly, around the living wage that you're introducing, I just wondered to what extent -- how many employees that covers and what it will with the annualized financial increase in that cost?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [11]

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I'll deal with the first one. If you want to deal with the second one for us, Mike?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [12]

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Yes. Yes, I mean living wage is all about really the way that you approach paying the employees within the business. It's about the balance between sort of the regular payment, the basic salary and then your variable pay elements. So in actual quantum terms, the vast majority of employees in the business were already paid beyond the living wage minimum, by some margin, but it was how it was divided. Whereas the living wage is really all about delivering a stable, reliable weekly/monthly income level that people can rely on.

So what we've done is we've done quite a lot of work inside the business readjusting how people are rewarded, the balance between base salary and variable pay elements, commissions, bonuses, et cetera. And if you think about how sales staff at the front end are rewarded to a certain extent, so we've done quite a lot of detailed work readjusting that. We've obviously consulted with staff, et cetera, gone through that -- those processes, which take some time. But it's good to arrive at a point where the employees all have a regular weekly/monthly income as a base salary, if you will, which is beyond the living wage parameters with variable pay on top of that.

So it wasn't particularly much of an on-cost for us, as I said earlier. It was really the shape of how that was delivered.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [13]

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As I've said previously, one of our big problems has been completion on time, specifically because of our first-time buyer profile. People's need and desire to get into the house is a lot different when you're a first-time buyer. For example, if you're in rented accommodation compared to when you're in the existing house and 1 month's delay doesn't materially make any difference, if you have to stay in your house for a period of time.

What the additional investment does, it gives us more time and give better accurate dates. It's not an additional cost as such, the time it takes. In fact, in my opinion, I think in the medium term, it gives us more opportunity to get the house right first time. And I think that in itself will actually save money as we progress through, specifically on the back of the retention we're introducing, which I believe will change behavior within the company because there's going to be a lot more emphasis and energy around anything that's picked up at the retention process. So no, I don't think that it's actually going to cost more money for -- to have that additional time period. But I think in the short term to medium term, it'll actually save more money.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [14]

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Glynis?

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [15]

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Glynis Johnson from Jefferies. Three if I may. The first one, actually to Martyn. Thank you very much for the presentation on the customer care. Can you remind us what has changed from a year ago? Because you obviously set out these pre-checks, these post-completion checks. Where was -- what was -- what's new within that? Was it a 5-step process before? Was it a 3-step process? Just so we can understand the changes that have been made.

Second of all, in terms of the land bank. If I strip out the change in your land creditors, it appears you've spent only about GBP 175 million on land in the first half. Is that reflective of uncertainties that are out there? Is it reflective of opportunities? Is it just pure lumpiness within there?

And then lastly, just in terms of again, customer care, but this is slightly more directed towards Mike. Given all the changes that you've put in place and the 40% increase in costs, where do you think your customer care spend and service sits relative to your peers, those who do have an HBF rating, which sits in the 4 or the 5 star? Where do you think you compare now in terms of the efforts that have gone in, even if you can't tell us where the ranking may be necessarily?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [16]

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Okay. Yes I'll do that last one first. Yes, I mean, I think you've got to be careful of comparing the spend, I think, because you can be spending it for different reasons, if you know what I mean. And I think that what -- as Dave's just said, what we're trying to do is prevent issues arising. And that is going back to Dave's emphasis on the principles within the Hackitt review, which really isn't about 2, 2.5 story dwellings. It's obviously emanating from the review of -- associated with high-rise construction. But the principles remain the same in that if we pursue those in the right way, then it should eliminate issues arising. And I think that therefore, the spend on post-handover issues in terms of customer care, et cetera, should diminish.

And I think that Dave is absolutely right in that the visibility that the retention will bring within our business, the strengthening on the processes that Martyn's already touched on, they're all working towards more retention and diligence around the processes pre-handover, so that post-handover, in terms of customer care, spend as defined actually diminish.

So I think that pointing to spend being large isn't necessarily a good thing even if it comes with a 4-star rating or whatever. Yes, if something's wrong, it matters how you deal with customers to put things right, and that is caught by the recommend rating. But you could throw a huge amount of money at it post-handover and achieve a higher rating. What we're trying to do is prevent issues arising in the first place because that really accords to the principles within the Hackitt review, and that's what we're trying to do, rather than comparing ourselves to a post-handover cost pile. We don't really think that's the right thing to be doing, particularly thinking about the future and positioning the business with the right processes moving forward.

So I think the principles in the Hackitt review, we believe, will gradually be adopted throughout construction in the U.K. anyway out of necessity, and we want to position our business in that way now, and that's the process. I don't know if you want to add anything.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [17]

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No, I think I just want to reiterate it's not just about the GBP 15 million. We've made major investments in 2 areas. We made the decision to use some of that surplus cash in our balance sheet and invest GBP 142 million of it into WIP to ensure the houses are at the right stage, to ensure that the process can be followed more diligently, to ensure that our 7-point check happens.

If we follow that 7-point check, be no one in any doubt, we know it works. We have 5-star businesses on our companies and those are the businesses that have got the stock on the ground. This isn't about throwing money into things, spending like a drunken sailor. This is about having the right WIP on the ground, the right processes because we know it works in the industry and we can do it.

And the third thing is to enable that to happen, I made the conscious decision to put customers before volume. We sacrificed 500 completions to make this happen. That is not something we take lightly. That is a lot of money. Let no one be in any doubt. We believe in what we're doing here, and we believe it's going to work.

In terms of land bank, I'm pleased you've asked that question because that land bank hasn't just happened by chance. That's 20 years of managing for me and Mike to ensure we've got to that position. And as I've said often, I'm not going to give that position up lightly. If the land deals aren't there, I'll not buy them. And I've also said previously, I'm happy to see the land bank come back, however, in this instance, it's not particularly that we're not seeing the land opportunities because I do think we'll be buying more land in half 2 than half 1. But if they -- the minute them opportunities aren't there, we're not going to sacrifice what we've worked hard for over 20 years.

Martyn, would you like to touch on the customer care, what's changed?

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Martyn Clark, Persimmon Plc - Regional Divisional Director for Yorkshire & South East [18]

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Well, I think that Mike and Dave in part have answered quite a bit of your question. But the 7-stage pre-completion inspection process you referred to, we are carrying out more checks this year. Not all of those items last year were necessarily being carried out on 100% of the properties because that wasn't our process. This year, our process is to make sure we do carry out those checks on 100% of the properties. The directors are more involved this year with the quality of the homes than they have been in the past.

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [19]

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Sorry, I'm going to be cheeky and do 2 follow-ups while I have the microphone. What about the post-completion? Was that there last year? Is that new?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [20]

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In the retention -- your retention, if you think about what we're doing with the retention, I mean, this is a groundbreaking move, isn't it? Who else is offering a retention in this sector and why are we doing it? There's no party working group looking at a new home ombudsman. Unfortunately, that's about compensation really. So the horse has bolted. What homebuyer really wants to enter into a process to get compensation for something that's wrong with the house that they've bought? A customer doesn't want to go in that direction.

And I think it is incumbent on the industry to recognize that that's not the solution to delivering high-quality product, is it? You've got to address the issues before they arise, if you will, to make sure that they don't arise. And that's what this retention move does. It brings a lot more visibility to ensuring that the behaviors in each of our 31 businesses become very, very focused on making sure the quality is right because they're going to be managed in line with the retention that's held by customers in their business. And it's going to be very visible.

And so they're going to be very focused on making sure it's minimized for all the right reasons. And that doesn't involve compensation. It doesn't involve throwing a lot of money at customers post completion to make them happy. It's about getting the product right so that they are genuinely pleased.

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [21]

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And sorry, my second follow-up, one of your peers talks about the cost of getting it right first time to be around 5 percentage points of margin. To be clear, when you're talking about customer care, you are only talking about the cost for the post completion, so we're talking 2 slightly different elements?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [22]

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To be fair, I don't recognize that figure at all, and we'd need more information if you'd [write] them…

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [23]

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Yes, from them.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [24]

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Separately, showing the buildup of what their spend is and what the 5% is. I'd be very, very interested to see where they're spending all their money.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [25]

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Have you got the analysis of that 5%?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [26]

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So it could be hearsay then, yes?

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Glynis Mary Johnson, Jefferies LLC, Research Division - Equity Analyst [27]

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But to be clear, when you're talking about customer service, you're talking post completion?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [28]

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Well, customer service start the journey -- it's the journey, isn't it? You rock up -- you've been on the website. You've found the particular type of home in the location you want to look at. It's just round the corner from your parents or whatever because you've got a young family. It's all about the journey that you travel from really visiting the website, isn't it, and the experience you have.

That's why the customer portal is important. We can provide a more rounded experience to customers right from the off in providing better communication, opportunity, et cetera. So it's not just post-handover. It starts from first contact. And everybody in the business has to be tuned into that process. That's why communication's very important.

But that's why it's your construction activities, how you deal with customers on a construction site. It's your health and safety around that. It's about their living environment. You've got some people already living in their new homes whilst others are being constructed. It's the whole thing. It's not just after handover. You've got to look at every part of your business in terms of delivering a more rounded, enjoyable experience. Arnaud?

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Arnaud Lehmann, BofA Merrill Lynch, Research Division - Head of the European Construction & Building Materials and Director [29]

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Arnaud Lehmann, Bank of America. Two questions, please. I mean, firstly, I guess a follow-up, Mike, on what you just explained. Did you have to invest anything to improve your brands or recover? There's been a lot of bad press, obviously, this somewhat backward-looking TV show a few weeks back, that was back in June or July. Clearly, you're investing a lot for customer care once they are a customer. But what are you doing so that people think, okay, as a choice between, in this area, a Barratt home, a Bovis and a Persimmon? And Persimmon, I remember there was a bit of bad press. I'm not an expert. What are you doing to make sure that your brand is back on track, so to say?

And just maybe one on the Help to Buy. I believe there are some price caps introduced from 2021 by region. Could you please remind us how your selling price compare with these price caps? Would you expect -- could that limit house price inflation in your view if you want to remain within the bound of Help to Buy?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [30]

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Should I do that last one?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [31]

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Okay, yes.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [32]

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I mean when we compared our average selling price of our offering across the regions, it was actually only the North East that seemed a bit tight in terms of the price cap that they were suggesting for the North East. Everywhere else, we were -- we seemed to be there or thereabouts. So whether they may have to look at that, I'm not sure, but it seemed a little low in the North East. But everywhere else, we were quite content with how that was scaled.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [33]

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In terms of the brand, I think you're quite right. A lot of the issues which have been identified, which are being covered, are what we would consider legacy issues. However, I want to treat them in that context. We are dealing with them. We've made massive progress in that process of dealing with any legacy issues. However, there's still a bit more work to be done on that. But what I can say, any customer who brings anything to us, we will resolve it, and like, with warranty, provide as standard and even further if necessary.

I think what you're really driving at is what makes the customer pick our houses, and there's various moving parts in that. And of course, customer perception of the brand is important in that. And what we have done if you think about is being industry leading. We've given for the first time anybody a retention. That empowers customers and give them rights. They know fine well if they move into our house and we haven't fixed their items, they can keep our money. To me, that gives them more confidence than any star rating. That really makes a difference to them.

And what I wonder is if all our peers are so brilliant about the houses are so perfect when they move in, they'd have even less work to be worried about and reduce their retention. We believe this will become the industry norm, and we believe we've done the right thing by introducing it. And I think our customers will benefit from it.

And also, it's one of the lovely scenarios where I think the company's behavior will be improved and to drive to get their houses better first time.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [34]

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Gregor?

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [35]

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Gregor Kuglitsch from UBS. I've got a few questions. So the first one is just to come back on the WIP. So you've obviously invested. I think it kind of started last year in the first half. Where are we on that journey in terms of the investment? How much more do you have to invest?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [36]

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Yes, I mean the WIP, I mean we said in July that we'd like another circa 10% come December in terms of EUs, equivalent units, on the ground. So I mean another way of sort of benchmarking it, we look at a percentage of the previous 12 months' turnover. And you can see in the pack, we're back up at 30% at June, so that might tickle forward a little bit. So maybe another, I don't know, GBP 50 million come December invested, we'll see.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [37]

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The second question is on the ongoing independent review in terms of, I think, kind of root and branch analysis. I mean I appreciate it's independent so may be tough for you to comment, but what do you do if they come out and say, well, actually on the specifications side, you're not up to scratch? How would you respond to something like that?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [38]

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I think the independent review is something that we're looking at positively. It's a forward-looking thing. It's bound to be -- well, its real purpose is to be viewing our systems and processes, what we do at the moment and see if it's dealing with the problems we've had in the past. I actually welcome that, and I'd welcome the test to see what we're doing because we're pretty confident that we are dealing with the issues. But it's not for me to speculate what the review is going to actually say. We'll wait and see what happens, what the results are. If that was one of the guidance and some of the advice that came out of the independent review, of course, we'd we look at it.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [39]

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Okay. And then finally, I think in the sort of outlook statement, you hint more on volume for the second half. I don't know what you're trying to say. Are you trying to say that you'll have another year-over-year decline where you -- because we're obviously now annualizing that?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [40]

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Yes, I mean I think what we're saying is that our approach to making sure the build is more advanced at reservation after sales release, that is not going to change. Now, we are and have made strides on moving our build forward. So we've more plots, more available at more advanced stages, there's a bit more work to do on that, as we've already touched on. But I think that for the second half of this year, I would have thought that given that approach is going to be consistent, we're going to be down on the second half of last year. I think the figure was something like 8,000, 8,350-ish in the second half of last year. So we're going to be down on that, but for all the right reasons. And as Dave's already said, putting the customer first, if that leaves our volume down, then so be it.

We're very confident in terms of the quality of the returns that we'll be generating. Yes, a bit of margin drift to come through but nothing substantial. So I think the outturn will still be pretty positive, probably a bit down on last year but still a positive result. And as Dave said, if that puts a stronger platform into future delivery, well, that's a great investment. That's the way we look at it.

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Aynsley Lammin, Canaccord Genuity Corp., Research Division - Analyst [41]

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Aynsley Lammin from Canaccord. Just 3, please. First of all, on the kind of recent trading, I wonder if you could give us a bit more color there. You sounded quite positive. You expect the kind of usual seasonal bounce into the autumn, September, so just what's driving that confidence, I'd be interested in.

Secondly, part exchange, just wonder what the percentage of private completions have been sold on part exchange and the trend you see there going forward?

And then just lastly, on the GBP 15 million of customer care extra costs. Have you provided anything for any retentions you might not get back within that number?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [42]

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Well, I'll deal with the third one. If you can cover the first one, Mike?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [43]

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Yes. I mean the recent trade, it's interesting. The -- sort of the bang up to date position, the summer market is quite encouraging. Our weekly take is in terms of private sales rate per site is more or less in line with what we did in the same period last year. So that's a little bit better than we've been tracking through the first half. So that is quite encouraging. And it probably plays to the strengths of the positioning of the business that Dave was touching on earlier. So we'll just need to see how that continues to play out.

But yes, I mean, I think that -- and pricing continues to be firm. We're not seeing any spike in cancellations. We're not seeing an increase in down vals. So the broader picture is still pretty encouraging given the uncertainties that are out there.

PX is an interesting one. We are carrying a bit more PX. And indeed, it's not at the levels that we have done historically. I think in the first half, we supported about 10% of PD sales with part exchange overall, whereas back in the day, we'd have been up at 30%. So there's certainly headroom for us to support customer a bit more on that side given the secondhand market continues to be a bit slow. So we might see a bit more existing homeowner activity looking to use that PX scheme. And we're happy to do that so long as we can agree sensible pricing at the front end. So we're…

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [44]

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On the retention, it's been designed to give the consumer confidence. What we didn't want to have a process where, if they had had, I don't know, something that was -- cost more than what the retention was, that they could -- we'd just give them retention, then would lose control. It's been designed to guarantee them that the work will get done. Under no circumstances will the work not get done. And in the event they are unhappy how we've done it, it's written into the retention policy that they call upon the warranty provider, who would then come and do the work to their satisfaction. Therefore, there isn't any risk exposure in nonreturn of the retention. Where the risk would be, if it generated a lot more cost that we'd have to deal with.

But I believe firmly the fact that we are introducing this, the fact that our site manager and our staff now have more time to follow our procedures, to follow them, that we will make sure the houses are right more importantly at that key release, which means we shouldn't -- pick up date was at key release, which I believe will save them money in the long term.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [45]

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Ami?

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Ami Galla, Citigroup Inc, Research Division - Senior Associate [46]

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Ami Galla from Citi. Just 2 questions from me. The first one is on the strategic pipeline. 55% of the strategic component in H1 on -- was about 55% of the land replacement. Can you give us some color as to how is the pipeline moving forward from -- over the next 3 years? Should we expect that to continue stepping up? And connected to that, as the strategic component increases, should we also expect that the WIP investment should also increase in line with that?

My second question was on the gross margin moves in the first half on Persimmon and the Charles Church brands. They were moving in 2 different directions. Could you give us some color around that?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [47]

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Just on that last one, it's about the sales mix in the different sites. There's nothing systemic, if you will, driving that. I think it is just down to the mix, Ami.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [48]

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Strategic lands are obviously very difficult to forecast as to when it's going to hit. The planning process isn't a 1, 2, 3, 4, 5 process. It's got different moving parts that come into it. So it's very difficult to see on what the timing is going to be and when it's going to be implemented. But what I can tell you, which is really encouraging, in them acreages we've got in our strategic land bank, we have 18,000 plots of allocated land in plans. That's almost the same as a planning permission. We only move stuff onto the land bank when we secure planning permission. And a lot of that, a good percentage of it, is actually freehold and not just optional land.

And as for the WIP investment, it depends upon the nature of the sites because you're quite right, the bigger strategic sites will create a large more WIP investment. But I think the natural shape and movement will sort of balance that off. I think the biggest moving part in our WIP investment is the decision that we've taken to invest more money upfront to get more WIP in the ground rather than a big movement, further movement in externals.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [49]

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And also there's a fundamental principle that if there's a lot more external abnormals associated with the development, your land value is going to be lower anyway. So...

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [50]

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So the point in each one.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [51]

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Yes. Chris?

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [52]

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Chris Millington at Numis. First one I wanted to ask was on fire safety. Kind of where are you on that review? Is there any costs associated to it? So could you just give us an overview first and foremost?

Next one is just outlet closures in H2. I know it's difficult to predict sales rates but kind of best guess there?

And then the final one, something Dave has commented on in the past and it was a feature of the Capital Markets Day, and that's senior management retention post the payout of the LTIP. Perhaps again, just an update there?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [53]

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Okay. Senior management retention, I don't think we've seen much material change. I think the biggest moving part was obviously Jeff leaving. I'm not sure how you describe that one. But what it has given is an opportunity to reorganize our senior management. We've now a 5 divisional regional chairmen, and Martyn is one of them. And I'm delighted it's given opportunities to get more people to fulfill their potential throughout the company. I don't think it's a material risk. The exodus, which has been described, hasn't happened. We've reasonable stability in terms of in senior managers.

In terms of the cavity barriers, as you know, we made a provision for that last year. We expect to spend in remediating needs, which isn't an expensive item, to be within that provision we made last year. We've now inspected over 10,000 properties throughout the country, and we continue to follow the data. What I can tell you is we are adopting a zero-tolerance approach to this because we believe this is an industry issue. But we're not leaving any margin of error on this. If we find a tiny gap, we are replacing the cavity barriers, and we'll continue to do that. We'll continue to follow the data.

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [54]

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Are is there many more homes you'd like to inspect from here or...

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [55]

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Well, that's the problem. We don't know the exact figure because it'll depend what the data and the failure is and it's different for different sites. Some sites, we have…

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [56]

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They're okay.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [57]

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No problem at all. And other sites, we'll have a reasonable failure rate. But what I can assure you is, one, we believe we have made a big enough provision to deal with it; two, we've given commitment and energy to deal with it, with over -- nearly 10,000 properties being inspected; and thirdly, where we'll make sure that all houses are inspected where we believe there's an issue.

In terms of outlet closures, Mike?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [58]

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Yes, I mean, again, it's hard to determine, Chris. I mean it depends on your sales rates, doesn't it, so how long is a piece of string? But I think we've got good visibility the new sites coming through. So I think we've said maybe the thick end of 90 sites to open in the second half. And I think we're off currently about 345 released sites with around about thick end of 20 held back, beavering away on the construction side. And I think the shape of that probably is going to be similar through the second half probably.

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Christopher James Millington, Numis Securities Limited, Research Division - Analyst [59]

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I.e., a continuation of the 345?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [60]

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Yes, yes. And obviously, as construction advances on the sites that we're holding back from first release, as they come through and hit the right stage, is it 40%, 55% build complete, then they will come into the released sites. But as new sites coming through, they will be replaced probably with 1 or 2 that we'll continue to advance build without sale -- [release on sale].

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [61]

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I think the moving part in that is as we get enough WIP in the ground and we become -- the shelves become fully stocked, that we'll see a lot of the sites where we're holding back release because it's not just you may have a site where you're holding a certain product back, where you have 4 beds available where we're taking a view not to release the 2 beds too far down the road. So I don't think that number falls until another possibly the end of the year but maybe it's even at the start of half 1 '20.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [62]

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Chris?

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Christopher Richard Fremantle, Morgan Stanley, Research Division - Executive Director [63]

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Chris Fremantle from Morgan Stanley. I know you've talked a lot about the near-term measures you're taking on margins and WIP, et cetera. Just wanted to redirect the discussion slightly towards the medium term. You talked about saying it's sensible to assume a margin fade, given the cost inflation outlook. I just wanted to talk a little bit about Help to Buy.

You've obviously still got 60% of your volumes roughly using Help to Buy. And now that, that first change in Help to Buy is starting to come into view in the forecast horizon, what do you think is sensible to assume for the impact of that change on your top line, revenues, selling prices?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [64]

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Do you want to do -- I can deal with the second one first?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [65]

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Yes.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [66]

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It's interesting, Help to Buy, because we've positioned ourselves at that entry level point on purpose. So 52% of our customers won't be affected by the introduction of 2021.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [67]

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Because they're first-time buyers.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [68]

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Which is obviously different than what our peer's is. That's something we're very aware of and what's happened hasn't happened by chance.

The second thing I'd point out with Help to Buy, the mortgage market is becoming much more sophisticated again. And all right, the interest rates, what you can get available for the larger house if you've got some equity, there's very little difference now between Help to Buy mortgage and what you can get if you've got some equity. So the financial compelling bit is the difference that you don't pay in equity rather than the interest rates.

And the best advice or the best picture we have of what's happened in a poorest Help to Buy world, I think's in Scotland, because I don't know if you know, but Scotland has a price threshold on their Help to Buy at GBP 200,000. And I don't know if many of you know Edinburgh and our East Scotland office. In our East Scotland office, I can assure you there's not many houses that we sell for GBP 200,000. So what's been the impact of effectively a faded reduction of Help to Buy in the East Scotland office? And the truth is nothing. The market's remained incredibly resilient. We've not seen sales rates drop. We've not seen revenues drop. And we've not seen the land market disappear from our peers. So I'm pretty encouraged that the mortgage market would step into the gap and help supplement that. And I'm also confident because of where we've positioned ourselves, that the impact will not be too big on the business.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [69]

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I think it depends on what the future holds in terms of the wholesale cost of funding. All these big global issues, it's hard to see through that because interest rates are low, aren't they, and look like they're going to remain low for some time to come, which is a big sort of plus for the consumer and enables the mortgage lenders to provide pretty compelling product to support customer choice. And as Dave said, the mortgage market has matured, hasn't it, over recent years. Higher LTV products being introduced and at good pricing. But as we've seen in the past, that could change.

So it depends on if things are going to change, how do they change, but if you take the view low interest rates are going to remain for some time, then that's quite a supportive backdrop for the market.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [70]

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And I think in terms of medium-term margin, so I think we'll probably have to finish soon, as I keep saying, while we may see a big drift back in margin, but what gives me confidence is our land bank. It's taken us 20 years to get the land bank to where it is. We're not going to let that drift back. And we know as long as we manage that land bank, we're sensible how we add to it, we're sensible how we bring a strategic land bank, that we know our margins will be there and thereabouts. Yes, it could drift back, but you're not going to see massive movements and margins suddenly dropping 5, 6 percentage points because we know the margins in the forward land bank.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [71]

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I suppose the exception to that is a cyclical jolting end to the present cycle, isn't it? If that -- if pricing gets squeezed for whatever reason, that'd be a different set of circumstance.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [72]

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Of course it will be, yes. Thanks, Chris.

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David A. O'Brien, Goodbody Stockbrokers, Research Division - Investment Analyst [73]

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David O'Brien from Goodbody. Sorry to bring you back to the customer care measures again. But I guess the customer feedback seems to be pretty upbeat. Just wondering what kind of interactions have you had with the government on these measures and what feedback, if any, have they given you?

Secondly, in the outlook statement, you allude to a reduction in your returns on capital employed. Just kind of think -- in our heads what's a reasonable level for us to keep in mind going forward?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [74]

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I think the first one is that we've reported the capital employed differently. Mike, if you want to provide a bit of detail on that one?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [75]

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Yes. I mean the capital employed, I think the fact that we are going to be carrying more work in progress moving forward leads to a view that the returns are going to be diluted to a certain extent. But the other driver is your op margin. Your basic calc is it's your operating profit over the capital employed in your business, isn't it? So at the sort of scale of business we are, at the sort of margins we're delivering, then your numerator is going to be quite strong still. Your denominator's expanded a bit because we're putting the customer first, if you will, more so in terms of the WIP investment.

But again, as Dave's already said, the land investment side is one that's got to be judged carefully, and that could come back a little bit. We are 6 years, and there's capacity for us to do -- to have that coming back a little bit as we move through depending on the risk profile. So yes, I mean, I think the return outlook still is very positive, albeit it's going to come back a little bit.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [76]

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As for the customer care, as you can imagine, we have regular engagement with the government. We keep them abreast of what the improvements are in our customer care. We also have regular invites, where we invite MPs and ministers to our sites. And that's an area where I think the relationships improved in the last few months. They don't say where they pass a comment whether they're happy with our results if that's what you're driving at. But what I can assure you is that the results are material, and we are happy with what we're seeing.

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David A. O'Brien, Goodbody Stockbrokers, Research Division - Investment Analyst [77]

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If I could follow up, have they influenced any of the measures you've taken?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [78]

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Sorry?

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David A. O'Brien, Goodbody Stockbrokers, Research Division - Investment Analyst [79]

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Have they directly influenced any of the measures you've taken?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [80]

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No. That's not -- the conversations aren't that type.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [81]

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Gavin?

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Gavin Jago, Peel Hunt LLP, Research Division - Analyst [82]

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Gavin Jago from Peel Hunt. Just a couple. Just coming back on the 7-stage pre-inspection. The way that was set up, do you see that as kind of an industry norm now? Or do you think it's more rigorous than what your peers in the industry are doing?

And then kind of linked to that, the retention policy, is there any remuneration kind of linked to that positively or negatively? And if so, how kind of deep into the organization would it go?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [83]

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To be honest, I'll deal with the first one first. And it is a good point. And no, there isn't, but I think it's something worth looking at. Our energy at the moment has been about driving its delivery. And I can assure you, it's been quite difficult. They aren't reduced and it's took a lot of drive and commitment by my team, whom I'm immensely proud of, have made this happen in the industry when there's a lot of barriers put in the place. But I think you raise a fair point. I'm sure it's something the Board would look at whether we should be linking that somehow because I think that's -- I'd take that as positive feedback.

Do you want to pick up on 7-point section, Martyn?

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Martyn Clark, Persimmon Plc - Regional Divisional Director for Yorkshire & South East [84]

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The question being is that industry norm?

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Gavin Jago, Peel Hunt LLP, Research Division - Analyst [85]

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Yes.

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Martyn Clark, Persimmon Plc - Regional Divisional Director for Yorkshire & South East [86]

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I don't think so, to the level that we actually carry out these checks. The time that we've got, the 21-day period, my understanding is that's not industry norm. We can't think of any more checks that we could positively do than what we've added. So no, I think it is industry leading.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [87]

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John?

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John Messenger, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [88]

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Sorry to stick with it, John Messenger from Redburn. Just can I just understand it? As part of this process, when we think about a typical housebuilder and yourselves doing 7,500 units, would it be right to think that, historically, you've probably completed 1,000 a month for the first 5 months and then done 2,500 in that final month? Just to understand it now. And is that...

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [89]

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Yes. There's seasonality, John, yes.

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John Messenger, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [90]

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Yes, exactly. And that point around build programs and everything else, but as part and parcel of all this, I'm just thinking physically for the 31 guys, the directors, the 21-day sign-off, doing all that in December or June…

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [91]

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Well, that's part of…

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John Messenger, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [92]

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Number one, is it mandatory? And number two, is part of this going to be that, that profile of completions will become much more even, in that some of your peers have moved that way to try and move away from the June and December? Because it just looks like it will be physically quite difficult for 31 guys to do the sign-offs at 100 a day?

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [93]

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I think to be fair, I think you make a very valid point, and you've hit it on the nail. That's exactly why we're putting more WIP in the ground, to try and even that profile out, to give us time to follow the process. But the 31 inspectors we are taking are different to the inspectors in the completion process. These ones in these completion process, we have a number of them throughout the country. And what they are, they are people who look at it from the eye of the customer, so we have decent access to them.

But what we know is, and you are right, what we're trying to avoid is that rush at the end. And we know because we know if we get enough time and we follow our process, we'll have 5-star builders. And what we hope is development done. It'd be totally naïve for me to say that suddenly we're going to get them all equally spread over a month. We know we're going to still have a bit of a squeeze at the end, and that's something I think the industry will always have. But what I can tell you is just like in June this year, if we believe the quality of houses aren't right, this handover will not be taken to completions at the year-end.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [94]

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And then, I mean, the other part of the equation is getting the -- bringing the build forward, isn't it?

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John Messenger, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [95]

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Absolutely, yes.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [96]

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Yes. So you can do the checks. You can do the inspections earlier. And that's a WIP carry for a relatively short period of time.

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John Messenger, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [97]

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And then just on the financing, because you mentioned earlier GBP 400 million plus GBP 350 million of kind of war chest, Mike. That GBP 400 million, would that have been GBP 650 million a couple of -- would that have -- yes, 1.5 years ago? Because I'm just thinking part of this is that the WIP has gone up, that becomes steady state, effectively, rather than having the year-end up and down. That GBP 400 million, is that maybe actually a bit high on what you might need going forward because you are -- effectively, you've switched it into WIP? Just to understand that shape of things. Is that being too optimistic?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [98]

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Yes, I think it's a valid observation. I think we need to review the sort of amplitude of that carry now over the next sort of year, 18 months. If that gives cause us for us to take a slightly different view on the sort of GBP 400 million number, we'll -- I guess we'll be talking about that in February.

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John Messenger, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [99]

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And just back on the retentions, have all lenders signed up? Or is there an issue there in terms of just how many mortgage lenders are prepared to?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [100]

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Well, the bulk are already there. There's 1 or 2 just sort of finally looking at the detail, but…

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John Messenger, Redburn (Europe) Limited, Research Division - Partner of Construction & Building Materials Research [101]

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Is that more process for them as in just referencing?

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [102]

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It is process, yes, in terms of how it works, understanding the finer detail. So there's certainly good support for it.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [103]

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Okay, everybody? Well, thanks for coming. I hope we've answered all your questions, and enjoy the rest of your day.

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Michael Hugh Killoran, Persimmon Plc - Group Finance Director & Director [104]

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Thank you very much.

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David Jenkinson, Persimmon Plc - Group Chief Executive & Executive Director [105]

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Thank you.