Jeff Fairburn’s £75m bonus at Persimmon is infamous, and here’s the ugly twist. Some of the homes the company was building in the bonus-accumulation period were shoddy.
That damning finding comes via an independent review that reads as genuinely independent, which isn’t always the case with board-commissioned reports. Stephanie Barwise, a QC at Atkin Chambers, and representative of some of the Grenfell Tower victims, set the tone with this arresting line: “Persimmon has traditionally been more of a land assembler and house-seller rather than a housebuilder.”
That, of course, is not how Persimmon describes itself, but the distinction between “house-seller” and “housebuilder” is informative. It explains how the company could have committed so many of the failures identified by the report – box-ticking practices, poor systems and an approach “which increases the risk of build defects”. The most serious was a “systemic nationwide failure” to install the correct cavity barriers to stop the spread of fire. That’s serious.
Barwise’s broad conclusion followed from the above: if Persimmon wishes to build quality homes, its board should re-consider the company’s “purpose and ambition”.
Roger Devlin, Persimmon’s chairman, promises to do exactly that. Specific problems, such as the cavity barrier defects, are already being addressed. He probably deserves praise for ordering the report and honouring a commitment to publish the findings. Other chairmen would have shied away.
One can draw two wider conclusions, though. First, the quality-ranking system used by the Home Builders Federation (HBF) looks flawed. Companies with four of five stars, based on customer feedback, tend to parade their status as a great accolade, but here’s Barwise’s view: there is “a disconnect between the award of stars via the HBF Survey and true (as opposed to perceived) build quality”.
That’s not quite the same as saying companies are gaming the HBF system, but the trade body now has an issue of credibility.
Second, how would Persimmon’s rivals emerge if subjected to the same scrutiny? Does the entire housebuilding sector, plump with help to buy profits, have questions to answer over the quality of the houses it has been building during the government-sponsored boom years?
Boris Johnson’s administration should find out. An audit of quality standards in the housebuilding industry would be useful in its own right. It would also fit well with the new interventionist mood in Westminster.
Unilever misses on sales
Managements only set sales targets they are confident of meeting. This rule is not always reliable, but it normally holds in the world of multinational consumer goods companies, which tend to be so broadly spread that the odd upset can be lost in the mix.
Unilever’s miss on sales is therefore embarrassing. It is the first since the autumn of 2016 and new-ish chief executive Alan Jope said only last month that the Dove-to-Marmite group would deliver an uplift within the usual 3%-5% range, albeit towards the lower end. That’s now not going to happen. Unilever now expects to slip slightly below 3%.
One could take the view that it matters little. After all, we’re talking about a difference of €50m-€100m (£42m to £85m) in the context of a group with annual revenues of €54bn. Unilever’s explanation of the shortfall also made sense. Economic growth in India has slowed sharply; Pakistan and Bangladesh are also weaker; trading conditions in Nigeria and Ghana continue to be “difficult”.
On the other hand, Unilever suddenly looks the laggard among a peer set that includes Nestlé and Procter & Gamble. The greater exposure to India etc doesn’t help the comparison, but such excuses won’t be tolerated by investors indefinitely. One of the reasons they own Unilever is to enjoy predictable performance.
It is why the share price reaction on Tuesday – a fall of 7% – was sharp. In fact, the shares have now come rattling back from £53 to £43 since September. Nobody doubts Jope’s ability to produce the promised 20% profit margins in 2020, but he’s now under a little pressure to find some sales growth.
Muddy Waters on attack
Muddy Waters, the wonderfully named US short-selling outfit, is on the attack again. It popped up on Tuesday to say it has “serious doubts” about the finances of NMC Health, one of the more obscure members of the FTSE 100 index. Cue a 32% plunge in NMC’s share price.
NMC, which operates private hospitals, primarily in the Middle East, was clearly unprepared. It took hours before its chairman managed a line about how “we hold ourselves to the highest standards”. You’ve got to do better than that. Assaults by Muddy Waters may be self-interested, but the only effective counter is a point-by-point response.
