Persimmon, one of the UK’s biggest housebuilders, has been testing the limits of the phrase “safe as houses” over the past couple of years. Its share price has been up and down as it grappled with two publicity storms.
First, there was the outcry over the huge gains it made on the back of taxpayers’ largesse. The state-funded help-to-buy scheme, which helped grease the wheels of the housing market with government money, accounted for nearly half of its sales last year and was the main factor in performance that triggered massive bonus payouts to its top executives.
Persimmon initially tried to pay its former boss Jeff Fairburn a bonus of £110m before eventually agreeing to dish out a relatively miserly £75m. Taxpayers had quite understandably kicked up a stink, asking why their hard-earned cash should be helping fund such pocket-bulging deals.
Now the housebuilder is expected to report lower profits after it was forced to slow the pace at which it sells its homes in an effort to make sure it can complete them on schedule without botching the work. The company decided to cool its jets in the face of a barrage of criticism over the quality of the homes buyers were moving into. As Persimmon rushed to hand over the keys on time, customers were reporting flaws such as leaks and cracking windows. One couple claimed to have identified 700 faults in their new £280,000 home.
The York-based company could well face more brickbats over quality. More than 100,000 people – customers, suppliers, trade body representatives, council officials, employees and civil servants – are being asked for their opinions on the subject in the latest stage of a review commissioned in April by the company’s board.
Stephanie Barwise QC, who is leading the review, is conducting a survey of all stages of Persimmon’s construction and inspection process. As she said last week, an independent review of this nature is rare in the private sector, and it is hard to predict what impact it could have. The findings are expected by December.
Perhaps Persimmon did not like the opinions about its homes that were voiced on a Facebook group of disgruntled buyers, because it took control of the page. Some might call that a rather heavy-handed approach for a company that wants to improve its image; Persimmon’s spokespeople insist it was only trying to protect the privacy of the group’s members. Well they would, wouldn’t they?
In an attempt to rebuild its tarnished reputation brick by brick, Persimmon has slowed down the build-to-sale pipeline “to ensure there is less scope for disappointment on completion dates”, as analysts at Peel Hunt put it. Since July, homebuyers have also been permitted to withhold an average of £3,600 per home until any extant faults are fixed.
All of this has resulted in the company churning out homes at a lower pace. A recent trading update showed Persimmon built 7,584 homes in the first six months of the year, down from 8,072 in the same period last year. The drive to improve what customers are getting has, unsurprisingly, also dented the top line. We already know that revenues have dropped slightly, falling to £1.75bn from £1.84bn, although an increase in average selling price to £216,950 from £215,813 has cushioned the blow.
This week’s more detailed figures will offer a better glimpse behind the front door. Analysts are expecting a small drop in half-year profits when Persimmon publishes its results in greater detail on Tuesday.
For the year as a whole, they are forecasting pre-tax profits of £1.06bn, just down from last year’s record £1.09bn – the biggest ever made by a UK housebuilder.