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