Mike Killoran’s orange and crimson patterned tie announces the arrival of a man not frequently in the City of London. The Yorkshireman and finance director of FTSE-250 housebuilder Persimmon has rarely found occasion to travel south for work, aside from today, when Financial Director has drawn him from York to the 34th floor of Moorgate’s CityPoint building.
Killoran is keen to establish what kind of individual we are talking to from the outset. A Yorkshireman through and through – “born in Leeds, still live in Leeds… I would say, family-oriented” – who studied at Sheffield University, qualified as an accountant in Leeds.
Killoran’s last role before joining Persimmon in 1996 was as subsidiary FD at smallcaps home shopping outfit Findel (which announced the departure of its chairman and the discovery of accounting regularities in one division a few weeks after Financial Director met him), based in Lancashire.
“I’ve been quite fortunate that I have not had to stray too far out of Yorkshire in terms of what I’ve done with my career. But I did get across the border there,” he says wryly.
There is something reassuring amid the current economic turmoil about an FD who comes from outside the London bubble and who returns repeatedly to Persimmon’s owner-managed culture, which prevails despite having listed 25 years ago through founder Duncan Davidson’s role as its life president, to which he switched after retiring from the business in 2006.
That might be a factor in Persimmon’s decision in March 2008 to hire Richard Pennycook, FD at Bradford-based supermarket giant Morrisons, as a non-executive director. Both characters are strikingly alike in their forthrightness, running resolutely northern businesses and living in Yorkshire – and it will not be a coincidence that Davidson was one of the first non-executive directors Morrisons ever appointed, landing the year before Pennycook (and leaving not long after). Additionally, Killoran enjoys the owner-managed flavour that has stuck around at Persimmon, speaking with unusual fondness about his chairman John White and chief executive Mike Farley.
“They were an ambitious – still are an ambitious – group of people, which struck a chord with me,” says Killoran. “They’ve made an invaluable contribution to the business. But if you toed the party line, Duncan wouldn’t have been there for the past five years, which wouldn’t have been to the benefit of Persimmon.
“You’ll never change the regulation, but you have to make sure there’s a common sense override and, perversely for an executive team, it seems to me that perhaps the shareholders are supportive of being in post a bit longer,” he says.
“They would rather have an individual who has more experience with the particular business, so long as the performance is there – certainly in our sort of business, where you live with the investments that you make today for the next 10 years. The proof of the pudding is really the performance that’s delivered based on the decisions that have been taken today, and that accountability improves with life of tenure.”
That tallies with what observers of Persimmon’s recent performance have said about Killoran’s work. He led a restructuring at Persimmon in the past year that most of the big housebuilders have also had to do to some degree. The results pleased analysts because Persimmon emerged as one of the least indebted operators in its sector.
Financially, Persimmon swung from a 2008 loss of £780m to pre-tax profit of £77.8m by the end of 2009, while group net assets increased by £68m including a post-tax reduction in its pension deficit of £1.1m.
In its interim management review, total sales were 20% up on 2009 at about £1.15bn. Its total net financing costs were reduced from £71.7m in 2008 to £50.2m in 2009 – though shareholders will receive no dividend for 2009. Killoran’s efforts to right-size the business saw him renegotiate more flexible terms on its lending agreements and bring gearing back to 16% from 2008’s level of 38% – while taking out over half its headcount, according to the FD.
“That was a painful process,” Killoran admits. “When you’re having to take those difficult decisions, you just have to keep focused on the fact that you’re looking for the business that emerges from that process, because that’s really what matters for the shareholders – to make sure that the business remains on a very sound footing to take advantage of future opportunity.”
Snapping up rivals
As one of the strongest players in its space, analysts expect Persimmon to be on the hunt for acquisitions. But it is land, not order books, that Killoran wants – while that owner-manager culture and a distinct distrust of the way the banks and investment houses have valued companies for sale seems to keep his mind off any opportunistic moves for now.
“You get quite a buzz out of doing those deals, but it has to be seen as a stepping stone – not just doing deals for deals’ sake. You can get sucked into the macho thing to a certain extent,” he says.
Has he been made offers of late? “From time to time you’re aware of the availability of certain assets. I always say, ‘how is our business going to look after we do this and what are the prizes in undertaking this transaction?’ – rather than just getting swept along in the process, doing the deal for the sake of it,” he reveals. “I suppose what shareholders don’t see is the deals you don’t do. The ones you turn down cement the value you’re creating.”
He points to the 2007 merger of rivals Taylor Woodrow and George Wimpey as one example.
“We had a very hard stare at Taylor Woodrow. For various reasons we chose not to get more involved in that. And I think we probably created more value with that negative decision than all the time we’ve said yes,” he says.
The valuation of companies added to the cost of borrowing is something on which Killoran has reflected deeply.
“In the previous decade you would say that liquidity was very, very strong and money was cheap – for the corporates, that’s like being a kid in a sweetshop. The cost of executing transactions was lower than it should have been. But you have to keep focused and disciplined. If you care a lot about what you’re doing, you will tend to make more right decisions than wrong decisions.”
That said, he is realistic about the chance of more consolidation in the sector.
“I think the industry as a whole has done a good job at restructuring itself. What comes with that is quite a clear view of what needs to be done over the next five years or so, to make sure we continue on the right path,” he says. “But personally, I don’t see consolidation any time soon. Unfortunately, we’re going to have a future where there’s a polarisation to strong employers and I think a lot of the smaller-scale developers are going to find the future quite tough because access to finance will be restricted.”
What about Killoran’s own ambitions? We have seen a number of FDs progress to the CEO role in the past 12 months – is he keen to do the same?
Persimmon does have a succession plan, he reveals. But the inner Yorkshireman rears its head to deflect the spotlight.
“I don’t think who ends up leading the business is something to be too precious about. I think it’s about having a successful team,” he says. “We all crack on, we talk to each other all the time; Mike (Farley) runs the operational line with clear instruction. In terms of what I do in the future, if I can make the same contribution to the business I’d be delighted to do that. So you never know.”
But the tenures of the incumbent management may cast something of a long shadow over the ambitions Killoran may have for a business to which he is clearly very committed.
“There are very few people who can do it for an extended period of time, going from year to year successfully – that’s quite a tricky game to pull off well,” he says. “Some chief executives can appear to be more successful, but markets may have just been right at that particular time.”
Timing is key, he says. “It depends on markets, on the industry. Different people have different skills and they are appropriate for that sort of role at a particular point in time. But if you get the timing wrong, it can be catastrophic.”
If it doesn’t happen at Persimmon, it is not easy to guess where Killoran would look to move if housebuilders remain his thing. Of the other major UK players, most are probably based a shade too far south for his liking. But it is actually rather rare to find an FD so well in tune with the quirks of their business’s culture. There is no sense that he would easily look elsewhere.
“Persimmon doesn’t get carried away with the fashionable thing,” he says. “It tries to retain the basic logic and keep things simple, to retain the main elements of the culture that made it successful. But for me it is very much about making sure we’ve got the right people in the team for now and the future. It’s about the business, not my own self-promotion.”
This article first appeared in the June issue of Financial Director.
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