Plots acquired each year? 17,092 in 84 locations. Once consent is granted, land is worth more. The total value of the land bank is now about £2bn. Of the 99,088 plots, about half of them are being developed, and another quarter are being driven through the planning process – enough to build on for another six years even if no more land is acquired. How many plots have been acquired since 2012? 133,000. And new homes provided? 97,175. And they’re being built faster all the time. Or in the vernacular: “This has been achieved while maintaining greater velocity of asset-turn supporting superior levels of returns for our shareholders”.
16,449 homes sold in a year. How’s that done? Through a range of core house types. This avoids reinventing the architectural wheel, which results in a certain blandness, but also “choice and affordability for our customers”. Some are sophisticated pre-fabs (the “Space4 timber frame system”). Bricks are made in-house out of concrete – and tiles too. Concrete absorbs carbon dioxide from the atmosphere. That ticks an environmental box. It’s called carbonation. (True the land would absorb more carbon from the atmosphere if it wasn’t built on in the first place, but let’s gloss over that.) This vertical integration provides “a strong focus on build quality” and “control over our construction costs and work in progress”. And: we “have a dedicated and skilled sales and customer care teams across the UK" to provide “excellent levels of service and customer care”.
Papering over the cracks
The figures and quotes above come from Persimmon’s 2018 annual report, published almost a year ago. The tone is reassuringly positive. The word “quality” appears 91 times, and the word “high” precedes it on 31 occasions. But behind that confident prose, the reality was somewhat different. Either the directors were blissfully unaware of the company’s problems, or they were glossing them over.
The report noted that, based on “the number of customers who would recommend their builder to a friend”, Persimmon’s scored 79 per cent in the annual Home Builders Federation’s (HBF) customer satisfaction survey. That was “just below a four star rating (the threshold for which is 80 per cent)” and in line with the previous year. Not bad, you might think – that’s near enough four out of five satisfied customers. The target was to achieve a four star rating. What wasn’t mentioned was that three stars rated Persimmon as the lowest of all the major housebuilders.
Something got through because in April, shortly before its annual meeting, Roger Devlin, who chairs Persimmon (and, by the way, also William Hill), announced an independent review. This was to be led by a barrister, Stephanie Barwise QC (who specialises in commercial and construction law) supported by a leading law firm. The mandate was to assess the effectiveness of Persimmon’s focus on “rapid change and improvement of its customer care culture and operations, and on eliminating cases of poor workmanship”.
Annus horribilis
That same April, Persimmon was one of 17 companies suspended from the Government’s Prompt Payment Code for failing to pay suppliers on time.
Then, in July, the Channel 4 Dispatches programme commissioned an inspection of a new Persimmon home. It found 295 defects (or “snags”) with 70 per cent of them so serious that they fell outside building regulation tolerance limits.
Disgruntled customers now find outlets on social media. The website uk.trustpilot.com alone has over a thousand Persimmon reviews and to be fair, 40 per cent are positive. Most are not. They complain of pressurised sales, poor workmanship and complaints being fobbed off. “Do not buy flats built by Persimmon... the partition walls are like they are made of cardboard,” reads a recent one. “I hear my neighbours opening and closing their doors... and their footsteps every day...” That was in a housing association flat built three years ago. There’s a similar complaint from the owner of a six-month old semi-detached house.
People feel let down, disillusionment growing as the initial euphoria at moving into a dream home evaporates. “I would advise others to seriously get an independent survey before buying,” another says. “Various faults or shoddy work discovered since purchased. Discovered the roof wasn’t laid correctly and eventually failed, leaking water into the bedroom... now fixed by another roofing company.” Another was ground down by “a year of hell”.
True, we have to be wary of social media. But even if only half of these are valid, they suggest that the issues at Persimmon run deep.
Home truths
The board published Ms Barwise’s report a week before Christmas. It makes rocky reading. Quite frankly, it implies that Persimmon’s directors have been kidding themselves. “If the Board wishes Persimmon to be a builder of quality homes, meeting all relevant build and safety standards, then it should reconsider Persimmon’s purpose and ambition,” the report says politely.
That target of a four-star HBF rating? Forget it. It’s just an opinion survey based on customers’ perceptions eight weeks after each legal completion. It’s hardly a true measure of sustained “quality and safety of the build”.
What the report describes is a company managed by financially-driven senior executives who assume that the company is running smoothly. They rely on regional and local management to deliver new-builds on time and on budget – and to keep them informed of issues. While local knowledge can help in acquiring land and forging strong relationships with sub-contractors, the lack of group-wide policies in some areas, such as checking work-in-process (and presumably checking what middle management is telling the executives), results in patchy standards across the country.
There are centrally controlled processes, such as the seven quality checks that take place immediately before and after each sale. That’s too many. The number nudges people into rushing them, expecting a later inspection to pick up any faults that they’ve overlooked. There’s also an unrealistic reliance on external warranty providers (rather than Persimmon employees). The process has been reduced to a box-ticking exercise.
One nationwide systemic problem was a “lack of cavity barriers (or their incorrect installation)” particularly in timber frame properties. These help to prevent the spread of fire. And, believe it or not, the worst offender was one of Persimmon’s HBF five-star rated businesses – punching home that disconnect between what customers initially perceive and what quality really is.
People management is a problem too. Training is regionally managed and is inconsistent across the group. Performance is appraised for some categories of employee, but not for others. Employee engagement has been neglected. And maybe the directors should look at themselves too. Of the four non-executives, not one has expertise in housebuilding or construction. Nobody on the board had HR or proper pay experience. Claire Thomas was recruited last August to bridge that gap. She resigned last week.
The £100m+ duo
One view is that the problems have worsened since 2012, when the company introduced an inappropriate share option scheme. A prudent valuation of land prices gave it a low baseline. The corporate culture that developed had a focus on buying as much land as possible and quickly building and selling the houses, without paying enough attention to the quality.
Lobbying by housebuilders has resulted in emasculated planning authorities; zero-rated VAT on new builds but not renovations; and currently, proposals to lower thermal insulation standards. Often at the expense of the environment (see footnote). The charge is that Persimmon failed to appreciate that there’s more to pursuing shareholder value than just maximising profits.
Anyone who bought Persimmon’s shares for 715p in early 2013 would have since had all that 715p returned as dividends. Boosted by the short-sighted Help-to-Buy scheme, the share price has now almost quadrupled, which landed the chief executive, Jeff Fairburn, with £75m from that ill-advised option scheme. The hostile reaction to the scale of it led to the resignations of Nicholas Wrigley, who was chairing the board, and Jonathan Davie, who headed the remuneration committee. Mr Fairburn followed 10 months later.
The furore of publicity that surrounded Mr Fairburn diverted attention from the other senior executives. Dave Jenkinson, the current chief executive, joined Persimmon in 1997. He received £20,369,424 in 2017 and £24,986,383 in 2018. Mike Killoran, the finance director, has been in his current role for over two decades. In the same two years, he received £36,690,433 and then £25,964,376.
Time to ring the changes
There’s something to be said for seamless internal promotions. Incumbents bring consistency and an understanding of the culture that means that they know how to make change happen. But too much entrenchment can narrow horizons and lead to complacency. The external review highlighted structural issues that the executive directors should have been aware of. The directors are now revising the company’s policy and purpose. That’s a start.
In its trading update for 2019, Persimmon reported a 4 per cent decline in sales as it tried to improve build quality. But without more decisive internal controls to confront and remedy the raft of specific customer complaints, the efforts so far could just be scratching the surface. The onus is on management to demonstrate that it has these under control. Getting to that point might involve financial provisions and personnel changes. Managing down expectations might blow froth from the share price, but it would set a more responsible baseline for the future.
A revised strategy has been promised for the April 2020 annual meeting. Those expecting reform will be looking in the 2019 annual report to see whether Persimmon can demonstrate that it’s less of a land speculator and house-seller, and more the reliable builder of quality homes that it wishes it was.
