Persimmon CEO - Mike Farley
Ousted from FTSE 100 index of leading companies
Persimmon has lost its prestigious FTSE 100 index listing and relegation to the FTSE 250 index in the June 2008 reshuffle.
- Number of homes built down 29.3% from 13,239* in 2006 to 9,360 homes built in 2011. (*excludes 3,462 homes from Westbury acquisition)
- Turnover down 51%, from £3,142m in 2006 to £1,540m in 2011
- Operating Profit down 76.5%, from £652.7m (21.6%) in 2006
to £153.0m (10%) in 2011
- Dividend down 78.5% from 46.5p per share in 2006 to 10p per
share in 2011
- Earnings per share down 72% from 137.5p in 2006 to 38.3p in 2011
- Average selling price down 11% to £188,129 in 2006 to £166,142
in 2011
- Landbank reduced 21% from 80,085 in 2006 to 63,300 in 2011
Is the housing market or the economy to blame?
Persimmon’s fortunes and that of all major house builders are said to be directly linked to the health of the housing market and the availability of mortgage finance. These have been used as an 'explanation' for the poor performance during the post 2008 "difficult economic climate" and "challenging conditions".
However, Persimmon's average selling price is down just 11% since it peaked in 2006 and the number of new homes completed has fallen by just 29.3%. These during a period when other key company financial performance indicators have plunged an average of 70%. It should also be noted that the company has also cashed-in on the value of its land bank during Farley's reign, with a reduction of 16,785 plots. Most of a house builder's value is aligned to its land bank. Persimmon is trading (at 29 September 2012) on a multiple of 1.2 times net asset value (£1.9bn at June 2012).
Shareholders' return of cash announced
Persimmon’s 2011 results included a statement that they intend to return a total of £1.9bn to shareholders between 2013 and 2021 - worth around 620p per share. To do this house prices would need to be higher increasing the book value of the land bank. This also presumes people are going to be able to afford even higher house prices than they currently are in 2012. At present, Persimmon is lending money to around 25% of its buyers, as shared equity becomes a large contingent of the company’s balance sheet, which may prove unsustainable in the longer term.
Galliford Try show how to succeed in the "challenging conditions"
Are large house builders' fortunes so linked to the general housing market and economic circumstance beyond the influence of the CEO? We think not. During the same economic conditions between 2006 and the 2011 Galliford Try plc annual results show: Turnover up 51%; operating profit up 12%; EPS up 373%; dividend increased by 640%; and the landbank has swelled 250%. During the period the number of new homes built by the company also increased 205%. The share price is down 38% since December 2006, even after a 7 for 6 share consolidation and £125m rights issue in late 2009 to buy land.
Has the quality of Persimmon's new homes got any better since 2006?
NHBC Quality awards - Persimmon won just 21 NHBC Quality Awards for the 9,360 new homes it built in 2012. Since 2006, the number of awards has fallen each year and the average won per year is just 30. In comparison, Barratt won 73 Quality Awards in 2012 and have average 70 a year over the same six-year period.
Mike Farley - CEO of Persimmon plc
Mike Farley, CEO of Persimmon Homes joined the company in 1983 and took over the reigns from retiring CEO, John White in 2006. Farley has overseen a marked downturn in the company's fortunes since he has been in control. However, despite the company's poor performance since 2006, Farley was paid a total of £1,900,000 in 2011. He also owns 1,147,753 shares in the company worth around £8,837,700 as of September 2012.
Persimmon share price tumbles
Persimmon's share price has plunged from an all-time high in December 2006 of 1520 to a low of sub 200 in 2008. The share price (along with the other equities) has recovered with the shares trading at 770 at 29 September 2012 – but still 49% down on its 2006 high.
Persimmon's CEO Mike Farley: Is he worth the money?
(29 September 2012)
HBF star rating - Persimmon is one of just three large house builders to be rated '4 stars' in the HBF Customer Satisfaction (2012) Survey. The other 13 major house builders listed were all rated five stars. Indeed, the average HBF star-rating since Farley became CEO has been 3.16. Barratt in comparison, average 4.16 and have been rated 5 stars for the last three years.
Under Farley, have Persimmon:
- Launched innovative designs making the company's homes more attractive to buyers?
- Improved customer satisfaction and after-sales service?
- Provided great value for money, well-built new homes, in great locations?
- Launched new innovative ideas to increase sales and margins over their rivals?
In fact did Persimmon shareholders getting good value for the £1.9million their CEO was paid in 2011? It would take one of his 21 NHBC Quality Award-winning site managers, around 42 years to get earn what Farley was paid just last year.
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