persimmon and henry boot plc
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Persimmon and Henry Boot Plc – Comparison and Analysis
I. Brief Details about Henry Boot Plc and Persimmon Plc.
The two companies selected for the purpose of study and
researches are Henry Boot Plc and Persimmon Plc. Both the companies
are dealing in construction, property management and providing housing
needs to the citizens of United Kingdom.
Henry Boot Plc was established by local farmers’ son Henry Boot in
1886 to carry out modest jobbing work in Sheffield and surrounding area.
The company expanded its horizons rapidly and successfully moved into
large scale public works and housing projects. The company was
incorporated 1919 when Charles Boot took over the business after the
death of his father Henry Boot. Charles Boot headed the efforts of
company to obtain various government contracts during the war period.
It is rather an achievement that 1000 military buildings and over 50
miles of roads were constructed within one year during Great War.
During the years 1919 – 1939 inter-war period, Henry Boot built over
80,000 houses which were more than any other contractor in United
Kingdom. Henry Boot Plc under the leadership of Charles Boot
developed Pinewood Studios at Heatherden Hall, Iver, Buckinghamshire
during 1936, which was based on the layout and practice of USA film
studio. The company acquired Baldry, Yerburgh and Hutchinson Limited
and Flettons Limited and company started to undertake all types of
construction work, large and small, both for the public and private
sector. Company’s turnover continued to increase in the areas of building
and civil engineering which included long term contract for the National
Coal Board and British Steel Corporation, railway engineering
contracting, joinery manufacture and houses for sale. Henry Boot Plc
formed subsidiary in the name of Banner Building Society to offer
mortgages to general public for commercial and residential properties.
The expansion of Henry Boot Plc continued with the acquisition of a
foundry in Bingley, West Yorkshire in 1974 and during 1976 the company
saw an increase in overseas work initially with the collaboration of Hong
Kong based Gammon in supplying and laying the tracks for Mass Transit
Railway System followed by £13 million railway sub-contract on the
Kowloon-Canton Railway in Australia. Later, Henry Boot Plc acquired
Thos W. Ward (Railway Engineers) Limited of Sandiacre in order to
strengthen the group’s railway engineering activity which was followed
by the prestigious Queen’s Award for Export Achievement. The
company’s core activities are property development, land management,
construction and plant hire. Presently Henry Boot Plc is a fully listed
company on the London Stock Exchange with sound reputation and
reliability. (www.henryboot.co.uk)
Persimmon Plc, one of the UKs leading house builders, was
established by Duncan Davidson in 1972 with its head office situated at
Fulford, York. The Persimmon Homes business is their core operation;
building quality homes with best design, construction and service and in
the process building around 10,000 beautifully designed new homes per
year in more than 400 locations all over United Kingdom. The company
constructs home to suite all the lifestyles keeping in mind the needs of
customers while designing, planning and adding finishing touches to the
homes. (http://www.persimmonhomes.com) The company offers wide
array of choices to its customer with regard to quality while choosing
homes in various locations all over the country. The company was first
listed in London Stock Exchange in 1985 and has acquired some major
groups like Ideal Homes Group of Companies in 1996, Beazer Group in
2001, and Westbury Plc in 2006. The company’s business operates under
three main brands; Persimmon Homes, Charles Church and Westbury
Partnerships. In 2008, the company sold 10,202 homes with a turnover of
c.£1.76 billion. The Persimmon Homes is the core operation, while
Charles Church provides a range of more exclusive homes and Westbury
Partnerships focuses on social housing in conjunction with Space4.
(http://production.investis.com) The property projects include bungalows,
two and three bedroom terraced and semi detached house. The group
also provides services such as home adding and upgrading such as
chrome fittings, conservatories, floor coverings, fireplaces alarm systems,
turfed gardens, additional electrics, etc.
(http://wrightreports.ecnext.com) The Company is committed to
sustainable future with environmental issues by protecting and
improving local surroundings, adopting new technologies and improving
sustainability of homes. (http://production.investis.com)
Both the companies, Henry Boot Plc and Persimmon Plc are touted
to be as one of the leading house builders in United Kingdom with good
number of constructions throughout the nation. There are similarities
between both the companies in relation to their operations, area of
coverage, services offered in housing sectors and construction,
acquisitions of major groups and both of them are listed in London Stock
Exchange which makes them the eligible rivals in their own respective
market. The present paper is based on these two companies in order to
study their financial performance, their overall performance for the past
three years and prepare a report analyzing the financial statements of
both the companies. The report would be prepared using annual reports
obtained from the respective company and analyze the performance
depending on the reports.
II. Performance Analysis
The annual reports of Henry Boot Plc for the year 2008 mention
that trading profits increased by 53% to £44 million from £28.8 million in
2007. The property impairment and revaluation deficit is reported at
£22.4 million. Whereas the annual reports of Persimmon reveal that the
credit turmoil had drastic impact on the performance of the company.
The credit crisis resulted in deterioration leading to lower loan to value
ratios and weak mortgage approval levels, cancellations remained
elevated through to the end of the year at c.35% The following table
shows face to face performance of both the companies.
2006Henry Boot
2006Persimmo
n
2007Henry Boot
2007Persimmo
n
2008Henry Boot
2008Persimmo
nPre-Tax profits
£40.8m £582.1m £46.5m(+14%)
£585.1m (+1%)
£19.3m(-59%)
£126.6m (-78%)
Basic earnings per share
19.8p 137.5 24.5p 138.3p 10.8p 35.3p
Source: Annual Reports of Henry Boot and Persimmon (2006, 2007 and 2008
The above table reveals that both the companies are drastically
affected by the recent credit crisis, the cause of which is attributed to
recent housing boom. The annual performances of both the companies
are drastically deteriorating from the year 2007 itself with not more than
10 to 15% growth in pre-tax profits. The above table shows that Henry
Boot Plc reported an increase of 14% in pre-tax profits during the year
2007 at £46.5 million from £40.8 million for the year 2006. Subsequently
there is a minute 1% increase in the pre-tax profits for Persimmon Plc
from £582.1 million in 2006 to £585.1 million in the year 2007. Later in
the year 2008, both the companies showed negative results with a huge
decline of -59% (Henry Boot Plc) and -79% (Persimmon) proving that
credit crisis has a definite and strong impact on both the companies. The
basic earnings per share also decreased from 24.5p in 2007 to 10.8p in
the year 2008 for Henry Boot and 138.3p in 2007 to 35.3p in 2008 for
Persimmon.
The overall turnover of Persimmon for the year 2006 to 2008 has
been decreasing effectively due to recent credit crisis. The turnover has
been consistently over the past few years from £3141.9 million in 2006 to
£3014.9 million in 2007 which further decreased heavily to £1755.1
million. Though the revenue for Henry Boot Plc
is very low as compared
to Persimmon, it has
also witnessed huge
setback as a result of
credit crisis. The
following figure shows
that net revenue for the
year 2007 was £124.8 million decreased from £142.3 million because
higher construction revenues were offset by lower land sales as fewer
transactions were brought to market. Whereas there was a considerable
increase in revenue in the coming year 2008 at £193.7 million which was
attributed to larger land transactions and strong construction decision
activity. The gross profit of Persimmon decreased from 23.5% to 15.1%
within the years 2006 – 2009.
The gross profit has decreased
to £265.3 million from £737.7
million. Such decrease is
attributed land-bank being
aligned to lower output rates,
weaknesses in selling prices
that persisted through the year and no immediate signs of improvement.
Similarly Henry Boot Plc reported decrease in gross profits in 2007 as
compared to 2006 with £42.3 million and £50.7 million respectively.
However the company reported an increase during the year 2008 at
£58.6 million due to strong land trading activities. Both Henry Boot Plc
and Persimmon Plc are experiencing drastic fall in their sales. However
Henry Boot saw an exception in the year 2008 wherein the company
reported an increase in gross profit. The borrowings of the companies
have also decreased in the year 2008 as compared to 2007. The decrease
is almost same in terms of percentage for both the companies which can
be seen in the figure. The companies which are touted as one of the
leading property and construction organization in the United Kingdom
are facing downfall in specific areas like property and land sale, houses
and constructions.
(Henry Boot Plc,
Annual Report, 2006,
2007 and 2008;
Persimmon Plc,
Annual Report - 2006,
2007 and 2008)
III. Company Analysis – Henry Boot Plc and Persimmon Plc.
The Henry Boot Plc and Persimmon Plc, both, operate in the UK
property and construction sector. The key objectives as mentioned in the
annual report of Henry Boot group is to maximize long term shareholder
value through construction and plant hire activities, the development of
and investment in high quality property assets and the promotion of new
land development opportunities. (Henry Boot, Annual Report- 2008)
Persimmon, as perceived by the building community, is the number one
British private residence construction company and has been in the same
position since it acquired Beazer and Westbury. Persimmon deals in
constructing simple bungalows, luxurious penthouse, and construction of
various buildings meeting to the demands and designs of the customers.
(http://uk.finance.yahoo.com) Henry Boot group manages its segment of
property through Henry Boot Developments; land through Hallam Land
Management Limited and construction by Henry Boot Construction (UK)
Limited. Similarly, Persimmon Plc manages the same through Charles
Church, Westbury and in partnership with various public and private
enterprises. Both the companies, Henry Boot and Persimmon, prepare
their annual accounts in accordance to International Financial Reporting
Standards (IFRS) as adopted by the European Union. (Henry Boot,
Annual Report- 2008)A careful and deliberate perusal of the annual
reports and financial statements for both the companies reveal various
facts about the administration, performance and their contribution to the
overall economic of the nation.
It is revealed from the Henry Boot group strategy focuses on land
promotion, property investment, and development, with the support of
construction, PFI and plant hire activities. There are small number of
situations where the company is progressing with the construction and
refurbishing of a development site. The work on the 27,620 Sq.ft retail
warehouse scheme in Port Talbot completed during early 2009. And work
was under progress at 147 acre Priory Park development in Hull, a
123,000 sq.ft production unit for Recital (UK) Limited was completed and
a new construction of warehouse admeasuring 190,000 sq ft for
pharmaceutical distribution was scheduled to be completed in the first
half of 2009. Further work is under progress at Rotherham on a 50,000
sq ft retail warehouse unit for B&Q. ((Henry Boot, Annual Report) In
regard to Persimmon, work under progress is reducing and the future
construction sites are selected carefully and all sites are reviewed for
replanning opportunities and s106 requirements. The balance sheet of
Persimmon shows that work under progress for the last five years has
varying performance with £629.5m (2004), £579.8m (2005), £651.8m
(2006), £814.8m (2007) and £634m (2008). (Persimmon, Annual Report)
Hallam Land Management, subsidiary of Henry Boot Plc, continues
to promote and market an extensive pipeline of sites throughout the
country. As on December 2008, it held interests in 7635 acres and
inventory value of these land assets was valued at £53.9m on 130 sites
which are mostly Greenfield and for residential development. With
respect to Persimmon, the land held by the company as per the financial
records is put down at £1262.1 (2004), £1487.8m (2005), £2157.5m
(2006), £2346.1m (2007) and £1779.5m (2008) with 101% turnover for
the year 2008. The annual report reveals that net revenue for the year
2008 increased substantially to £193.7m as compared to £124.8m in
2007 which gave rise to record trading profit of £44.m as compared to
£28.8m in 2007. Whereas turnover of Persimmon Plc recorded in the
financial statements show that there has been considerable increase from
the year 2004 to 2006 after which there was decrease in the turnover
from 2007 onwards. (Persimmon, Annual Report)
Health and safety is at the top of the agenda in all the activities of
Henry Boot activities. The company is committed to achieving excellence
in safety, health and welfare management. The principles of safety
management through the group are based upon the identification on the
inherent risks associated with their activities. In order to achieve these
objectives, Henry Boot Plc and its subsidiary are required to implement
and maintain management systems to ensure effective planning,
organization, control; assess and manage the risks to the health and
safety of people, promote best practices, identify individual
responsibilities and identify training needs and provide health and safety
training to industry and nationally recognized standards. (Henry Boot,
Annual Report)
Henry Boot employed 639 people as on 31st December 2008, 4%
increase in the number of employees as compared to the year 2007. The
company recruited 124 people in the year 2008 with turnover equated to
11.13%, 7.2% of our employees worked part time as compared to 6.4% in
2007. Whereas Persimmon Plc had 5501 employees as on 31st December
2007 with further headcount reduction to c.2,300 leading to 55%
reduction in employees since the start of 2008. The reports reveal that
Henry Boot was in the process of employing more people whereas
Persimmon Plc planned to cut down the workforce by 55%. (Persimmon,
Annual Report)
Shareholder Interests
The following are the top shareholder holding shares in the
respective companies.
HENRY BOOT PLC % of issued
PERSIMMON PLC % of issued
Rysaffe Nominees 15.6
5
Lloyds TSB Group Plc: 9.11
FMR Corp/FIL Limited 14.9
4
AXA SA: 5.46
Hermes Specialist UK Focus Fund 7.16 Prudential plc 5.14
J P Morgan Asset Management (UK)
Limited
5.39 D H Davidson and
family:
4.86
The Fulmer Charitable Trust 4.41 Fidelity Investment Services
4.18
Source : Henry Boot, Annual Report and Yahoo Finance, UK, Persimmon
Profile.
Financial Statement
According to the financial report, Henry Boot Plc cost of sales was
amounted to £193.6 million from £124.7 million in the year 2007 and
£142.2 in the year 2006. Whereas the Persimmon Plc reported year end
forward sales reduced from £163,735 in 2007 to £133,908 in 2008, a
decrease of 18%. The cash flow statements show that profit from
operations for the Persimmon decreased from 671.3 million to 195
million in 2008. The reduction in profit from operations is very drastic for
Persimmon as compared
to Henry Boot where the
profit from operations
decreased from £50.3
million to £22.1 million in
2008. (Henry Boot,
Annual Report)
Financial Highlights – Henry Boot Plc
The turnover has decreased to £67 million in 2009 from £119.3
million due to sale of Milton Keynes. The trading profit came down
drastically to £3.7 million from £30.2 million in 2008. The interest in land
it acquires may be though outright purchase, option or as agent. The
detailed planning application has been submitted at St. Albans
comprising of 150 units, outline applications at Monmouth for 245 units,
Bolsover for 250 units, and site for 100 units sold at Chudleigh, Devon,
land sales of 15 acres in 2009 as compared to 265 acres during the same
period last year. Henry Boot Developments capital values down by 50%
from peak and development properties in Falkirk, Port Talbot and
Saltwood brought into valuation at £11.2 million with a deficit of £4.3
million. (Henry Boot, Annual Report)
It is revealed by the financial statements that though the income
for the year 2008 has increased to £193.7 million from £124.7 million,
there has been no investment in property and development, while land
development has increased to £35.4 million in 2008 from £22.7 million in
2007, construction to £9.3 million in 2008 from £8.4 million in 2007
which resulted in overall operating profit at £22.1 million in the year
2008, a drastic decrease from £50.3 million in the year 2007. The overall
profit for the year was £15.6 million in 2008 as compared to £32.8 million
in the year 2007 and £26.7 million in the year 2006. (Henry Boot, Annual
Report)
Persimmon Plc
The annual report states that credit crisis resulted in major
deterioration in overall performance of the company throughout the year
2008. The market performance further decreased through cancellations
which remained elevated through to the end of the year at c.35% and
volumes ended the year at 36% down on 2007 which was 41% down in
the second half. The company had completed 10,202 units in the year
2008 as compared to 15,905 units in the year 2007, a negative change of
-36%. The average selling price decreased by 9% to £172,994. The crisis
further resulted in the need for additional exceptional asset impairment
and land bank reduced to 69,279 plots, sales 36% lower at c.850 units
and outlets reduced to c.420 sites and debt reduced to c. £600 million.
(Persimmon Plc, Annual Report,2008)
The financial statements of Persimmon Plc reveal that the group
has strived hard to accomplish its objectives by completing the units in
ever increasing phase except the period during crisis, 2007 – 2008, when
the completion projects decreased. The basic EPS also decreased from
ever increasing 113.5p in 2004, then 118.4p (2005), 137.5p (2006),
138.5p (2007) to 35.3p in the year 2008, the credit of which goes to the
recent credit crisis. Moreover dividend per share also decreased from
27.50p (2004), 31.00p (2005), 46.50p (2006), 51.20p (2007) to mere
5.00p in the year 2008 which is a matter of concern for a group which
has a long history and considers itself as the number one in the housing
industry. (Persimmon Plc, Annual Report,2008)
The financial reports of both the companies, Henry Boot and
Persimmon, reveal that even during the financial crisis, Henry Boot
registered a growth in total profit as compared to Persimmon which
stated decrease in its annual total profit as compared to that of previous
year. The share price of Persimmon as listed on London Stock Exchange
is 408.70p whereas Henry Boot share price is 96.89p as on February 12,
2010. (uk.finance.yahoo.com)
Both the company which regard themselves as leading and number
one in the housing sector has been going through bad phase because of
credit crisis. Yet, Henry Boot reported an increase in total profit for the
year 2008 but the developments were low or nil as compared to the
previous year. John White, Group Chairman, Persimmon Plc, states that
many house builders made some mistakes by believing the volume story
and setting overhead, expanding land bank without considering the effect
of shortcomings of mortgage, created too many high density schemes to
meet government targets. (resi.propertyweek.com)
Recommendations
The above analysis of financial statements of both the companies
for the past three years reveals that company’s performance was better
before the credit crisis. It is further revealed that though Henry Boot Plc
has reported an increase in total profit for the year 2008, there was
decline in the number of property investments, land developments.
Whereas Persimmon Plc reported a decrease in annual total profit for the
year 2008 which was supported by the decreasing unit constructions and
property investment and land development. However, it is further
reported by Permission Plc that in its trading update for the year ended
31 December 2009, that 2010 forward sales is 40% ahead of the year
2009 at about GBP 640 million. The group stated that it has completed
8976 new homes generating a turnover of about GBP 1.4 billion.
(www.rttnews.com) On the other side, Henry Boot Property Development
group stated that it had increased its trading profit by 53% due to land
sales but the pre-tax profits dropped by 59%.
(http://workinproperty.blogspot.com) In order to overcome the present
turmoil, cash flows should be strictly controlled, extreme caution on
investment should be taken, small easy sites should be given preference
over large sites, constructing more houses and lesser apartments while
continuously focusing on the costs by reduction in payrolls like bonus and
headcount, cash generation by taking profits wherever possible,
protecting balance sheet position and cash in difficult economic
background and dividend should be reviewed, recovery in land sales,
cash flows and trading profits are the key to future increases in dividend.
With the emerging trend of zero carbon homes, it has become necessary
for the construction companies to built homes that comply with the
standards of Category A of the Green Guide. However Henry Boot has
already in the forefront in the approach in the development of green
homes. It is necessary for the companies to take appropriate measures to
increase the dividend which is subject to shareholder approval. Henry
Boot and Persimmon, both, are one of the UK’s leading construction
companies which need restructuring in its financial and administrative
policies to remain one amongst the leaders. The above suggestions might
improve the numerical analysis in the financial statement of both the
companies.
References
1. A Brief History of the Henry Boot Group of Companies, Henry Boot,
http://www.henryboot.co.uk/pdf/HenryBoot%20History.pdf
2. About Persimmon Homes, Persimmon Plc,
http://www.persimmonhomes.com/about-persimmon-homes.aspx
3. Henry Boot Plc reports good results, 25 March 2009,
http://workinproperty.blogspot.com/2009/03/henry-boot-plc-
reports-good-results.html
4. Henry Boot Plc, Annual Report and Financial Statements 2006,
www.hernybook.co.uk
5. Henry Boot Plc, Annual Report and Financial Statements 2007,
www.hernybook.co.uk
6. Henry Boot Plc, Annual Report and Financial Statements 2008,
www.hernybook.co.uk
7. Henry Boot Plc, Company Profile, http://uk.finance.yahoo.com/q/pr?
s=PSN.L
8. Persimmon Plc, - Company Profile Snapshot, Wright Reports,
http://wrightreports.ecnext.com/coms2/reportdesc_COMPANY_C82
619030
9. Persimmon Plc, Company Profile, http://uk.finance.yahoo.com/q/pr?
s=PSN.L
10. Persimmon Plc. 2008 Persimmon Sustainability Report, Practical
Sustainability,
http://production.investis.com/psn/csr/stakeholder/2008/csr2008/cs
r2008.pdf
11. Persimmon says 2010 forward sales 40% ahead Y-o-Y Update,
http://www.rttnews.com/ArticleView.aspx?Id=1173121
12. Persimmons Plc – Results Presentation 2006,
http://production.investis.com
13. Persimmons Plc – Results Presentation 2007,
http://production.investis.com
14. Persimmons Plc – Results Presentation 2008,
http://production.investis.com
15. Resi 09, Re-building the market, Presentation by John White, Group
Chairman, Persimmon Plc, http://resi.propertyweek.com/wp-
content/uploads/2009/09/John-White-Persimmon-plc.pdf
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