MJ Gleeson plc (GLE.L) Earnings Call Transcript & Summary

Very good. Good morning, everybody. Welcome to MJ Gleeson's results presentation for the year to June 2025. I'm here, of course, with Stefan Allanson, CFO; and also senior leadership team is here. Guy Gusterson, MD of Gleeson Land, you know; Andy Davies, the DMD and the Northern division you also have met before. Welcome to Scott Stothard, who joins us from Vistry as the DMD of Central. And also welcome in his new role to Simon, who you have met before, but now Chief Operating Officer for Gleeson Homes. I was actually going to have -- start with my first slide as I did the Leadership Day that we had last month with a nice picture of the FA Cup and the Community Shield attractively draped in their red and blue ribbons. But then I remember that at least 2 of you are Liverpool fans. And given that you get to write the match reports, I fought shy of that. So FY '25 was in the end, a bit of a dull year, a bit of a pickup that we all saw in the spring, but nothing to write home about. And against that backdrop, I was pleased that we sold more homes and at a higher average selling price, which was encouraging. More encouraging was our net res rate, which was up 0.53 across the year, and that was up by 20% on the prior year. And actually, in the second half, I think we were at 0.64, and that was up by 28% on the prior year. So we were clearly doing something right. The net -- the result of that is that we come into the current year with a really improved forward order book. It's something like 850 or 845 units, GBP 159 million, very encouraging. A good year in partnerships with 4 transactions concluded and in fact, another 2 since the year-end and a good deal flow coming through. And we have made, I think, really good progress in addressing some of those operational challenges, which we mentioned in June and July, and I'll obviously talk about in a few minutes' time. Great year in Gleeson Land, 7 transactions in the period. But I'm actually more pleased by the progress that Guy and the team are making with the strategic restructure and that growing portfolio, and we'll spend a bit of time on that. We come into the year with 8 sites with a planning consent, and we have actually already done our -- made our first site sale in July. Profitability, clearly lower than -- it should have been lower than we were hoping. And that's all to do with margin compression in Gleeson Homes. Some of that, to be fair, is a sector-wide issue. When you have a long -- prolonged period of weak demand and flat pricing, eventually cost issues, whether they're inflation or other issues, which arise from time to time on site, they're going to hit you. They can't be absorbed. You feel every bump in the road. But some of this undoubtedly was Gleeson specific. And so Stefan will take you through the actual bridge in the margin in a few minutes' time. But it's pretty clear to me that the business was less mature than I thought when I joined. We made some early changes. We took the overhead down from the 9 regions to 6. And we stand -- we improved our standardization in a lot of areas in process, in structures, in product, in customer service and so on. It became pretty clear to me that there was -- during FY '24, I could see that there were more -- some more fundamental weaknesses, if you like, some process weakness and some poor procedural compliance that was undermining our operating effectiveness and weakening our commercial control. And this wasn't always and everywhere but sufficient to cause us those cost overrun and margin challenges. And that was exacerbated by some further historic issues, which required rectification in the year. And as I say, Stefan will break those out for you. But it was pretty clear to me that we needed to address this a bit more drastically, a bit more fundamentally. If we're going to successfully transition this business from the very large small business that I've talked about before that Gleeson was into a small, large business with controls, systems, people that we can rely on to be confident as we grow, then we needed to address this a bit more fundamentally. And so in -- well, about a year ago -- just under a year ago now, I initiated Project Transform, which you're all familiar with that name. Now I took initially a small group of our brightest and best from around the group and supplemented that with a couple of trusted external consultants just to challenge our thinking and ensure our objectivity. And we've deliberated those recommendations and thoughts back and forth and then we've moved -- we've acted decisively and quickly to implement those changes, some in the spring and some -- and a lot more as you're aware in June. So I'm really pleased, I have to say, with the early signs, we are starting to see the benefits of those changes. So what have we done? We've strengthened the leadership at both divisional and at regional level. We've standardized our reporting. So we're increasing our visibility and our accountability with standard and sharper reporting and shorter -- crucially shorter lines of reporting and communication. We're pushing hard to inculcate a culture of responsibility and ownership at regions so that our regional leadership teams are behaving more like business leaders and not just managers reporting the news up the line. And importantly, those -- that standardized reporting is also creating greater visibility for -- and -- yes, visibility of group -- our agreed group controls and standards. And that's really where Simon's role fits into the piece. We've also taken the opportunity to combine our leadership teams in the Northwest in our Cumbria and Greater Manchester regions. We remain fully committed to growing those both as independent regions. They both have great prospects for us, but it makes sense just to leverage that overhead better until we get them both up to critical mass. And all of this is designed to lay a strong foundation so that Gleeson Homes can look forward to its growth with confidence in its systems, its people, its controls and deliver on that growth opportunity that we see in front of us. And so we've got a clear -- very clear idea of the areas that we need to focus on going forward. We need to properly embed the changes under Project Transform. We still have some amendments we want to make to our land buying to optimize that process. And critically, we need to make sure that we're laser-focused on getting our sites open, and I'll talk about that in a bit. We're enhancing the house type portfolio in response to the demand that we see, and we're working hard on our partnerships strategy, which, as I say, is doing really well. And of course, in all of this, we're maintaining that, for me, exciting and unique proposition of building homes, affordable, high-quality homes for those people that need them most. Just looking at how we're doing today, I'd say, it's still -- it's a market that's lacking conviction, but it is stable. You're seeing what the press are saying, you're seeing what the RICs are saying, press articles and indeed, what other developers are telling you about the market. It's not strong, but there are customers there, very definitely for homes that are well located, well-presented and well-priced. And the onus is on us as a team to make sure that, that's exactly what we're delivering. It really is a market. You've heard me talk before about the rewards hard work. It rewards a granular focus site by site and indeed plot by plot. And against that, I think we're doing pretty well. We're looking at a sales rate since the beginning of the year of 0.54,which is up 8% on what we were achieving in the prior year. Customers need persuading. They need a deal. We're still using incentives, but not sort of at an increased or an alarming level. We're still below 5% on our incentives. So at that point, I will sit down and hand you over to Stefan to take you through the numbers. Stefan?

Thank you, Graham. So we grew group revenue by 5.9% during the year to GBP 365.8 million, and that revenue growth was driven by both divisions growing their top line. Divisional operating performance at the bottom line was mixed, and I'll take you through the divisional performance on the next few pages, but just to highlight a few points on the group income statement. Group overheads were unchanged at GBP 3.9 million. We did incur GBP 1.3 million worth of exceptional costs for the Gleeson Homes reorganization that we announced. The numbers in this statement are all before those exceptional costs. Group operating profits were lower at GBP 25.4 million, and that was driven by lower profits of Gleeson Homes being significantly but not fully offset by a strong performance in Gleeson Land. Interest costs reduced slightly, and that was driven by lower interest rates and lower average borrowings. As a result, PBT was 11.7% lower -- sorry, I'm a little premature with my clicking here, 11.7% lower at GBP 21.9 million. Tax rate is a little higher, but still below the headline rate of 25%. We didn't incur any RPDT. You will all remember that, residential property developers tax, because the threshold wasn't triggered GBP 25 million profit threshold. As a result, EPS was 12.7% lower at 28.9p. Now turning to the divisional results. Gleeson Homes volumes, we delivered volume growth, 1.3%. The mix of sales improved actually. So open market completions were up 11.4% to 1,588 homes sold. Multiunit sales were lower at 205 completions. Average selling price was up 4.3% on a reported basis. That was due to a richer bed mix and a little bit of a regional mix and a small underlying selling price increase of 0.6%. So we got gross price increases. I think they were about 1.7%, offset by higher incentives. As a result, and including the sale of a surplus site during the year for GBP 1.2 million, revenue increased by 5.8% in Gleeson Homes to GBP 348.2 million. Gross profit was 9% lower due to the margin pressures that Graham mentioned. I will take you through a margin bridge in a few more slides. Overhead costs were very well managed during the year, well controlled. They increased by 1.6%. We did reduce headcount, which offset the inflationary pay increases that were incurred during the year. And as a percentage of turnover, they reduced by 0.6% to 14.4%. As a result, operating profit before exceptionals reduced by 26.4% to GBP 22.3 million. And operating margin reduced to 6.4% with a lower ROCE at 8.7%. Now I'm going to take you through that reduction in operating margin. So the gross margin reduced by 340 basis points. And you can see that build cost inflation was really the most significant impact, but we had some other contributory reductions. So build costs were 2.7% higher over the year. That took 1.9% off the margin. We did achieve some underlying selling price increases. Now during the year, for the purpose of this bridge, I refer to underlying selling prices on reservations, which are relevant for margin recognition, they were only up 0.3% during the year. Gross prices increased on reservations by about 1%, but incentives were higher still during the year. We talked in July about -- June and July about legacy costs. We did incur some further legacy site costs, about GBP 2.2 million that impacted margin by 0.6%. And these operational issues that Graham talked about, that had a further impact on margin of 0.9%. In addition to that, to support a strongly improved sales rate, we improved the specification on plots during the year. That typically now -- not typically in all plots. We offer now a standard turf fence and an outside tap that has an extra cost and a few other things that had an extra cost that impacted margin by 0.4%. That strong improvement in our overhead efficiency, 0.6%, offset some of that, but not fully offset the margin reduction. So as a result of our strong improvement in sales rate, we did increase the forward order book, and it was up very pleasingly 51% at the end of the year. That was driven by the new partnership agreements. We entered into 4 new partnership agreements during the year. And we increased our open market forward orders by 10%, driven by that 20% increase in open market reservation rates during the year. Now on to Gleeson Land. Gleeson Land had -- Gleeson Land is really starting to fire on all cylinders, and it had a much, much better year. They completed 7 transactions, 5 of those were straightforward promotion agreements. One was a swap of interests that we had on joint venture agreements and one was the sale of an option agreement. Gross profit more than doubled to GBP 11.1 million, and overheads increased by GBP 1 million to GBP 4.1 million, reflecting the investment that we made in the year, investment in business, we increased headcount. We put -- reopened a small office in Bristol. And of course, with that strong performance comes a little more of an incentive to our senior employees. As a result, operating profit more than tripled to GBP 7 million, delivering, I think, a rather healthy return on capital of 17.4%. Now turning to the balance sheet. The group inventories increased by GBP 35.6 million during the year. Gleeson Homes increased land width by GBP 20.7 million. That reflects site purchases during the year at a higher average selling price. The average cost of the sites that we purchased was GBP 18,600 per plot. That's higher than the average cost last year, which was around about GBP 15,000. And we charge through cost of sales quite a lot of low-cost land at around about GBP 12,900. So the impact was that the average cost per plot in the balance sheet now is higher at GBP 15,300 per plot, up from the GBP 12,800, still remains significantly below 10% of selling price, still very, very low. Build WIP was flat, up marginally at GBP 214.7 million, but average WIP at the end of the year was higher at GBP 3.2 million, up from the GBP 2.7 million we had at the end of the previous year. That reflects the build cost increases, build inflation and significant infrastructure investment on a number of sites -- a number of new sites that we'll be delivering this year didn't deliver last year. Gleeson Land increased WIP by GBP 14.3 million in total. That reflects the cost of delivering those additional promotion agreements, but most significantly, the purchase of one site for GBP 6.9 million. That was a one-off purchase connected to the option agreement that we signed and connected to the large transaction that we expect to complete this year. We referred to one particular large site sale we expected to complete this year. Other assets increased by GBP 12 million, driven by -- mostly by the deferred receipts in Gleeson Land. Land creditors in Gleeson Homes increased to GBP 13.6 million, still relatively low. We still tend to pay largely on purchase. But with some of those larger site purchases during the year, we had a few more deferred payables. Other liabilities were up almost GBP 20 million, driven by deferred payables in Gleeson Land plus deferred income on the partnership agreements that were signed up to the end of June, 5 partnership agreements. So with net assets of around about GBP 200 million and net debt of only GBP 800,000, we have a very strong balance sheet. Finally, to dividends. So we are declaring a final dividend of 7p per share. That will bring to 11p per share, the total dividend for the year. That is unchanged on last year. That dividend will be covered or is covered by earnings 2.6x. That is below the group's stated dividend policy, where earnings will cover dividends between 3x and 5x. We are quite confident in suspending that policy for this dividend. That policy does remain. That is our policy. But we wish to thank those shareholders that have stayed with us and have confidence in us, and we want to demonstrate our confidence in our medium-term outlook. Thank you, and I will hand you back to Graham.

Thanks, Stefan. Very good. So looking at our operations and strategy then starting first with Gleeson Homes. Just a quick capture of how I see the market right now. As I've said, lacking conviction is probably the best way I can describe it. We saw the base rate cuts in May and August. We didn't really get the bounce that you'd normally hope for from the fears of positive headlines. Mortgage availability and affordability is there. That's not really the challenge. But that third bullet, consumer confidence is definitely still fragile, whilst the inflation is generally, I mean, coming down, coming under control. If you disaggregate the elements there, food price inflation and energy price inflation is still pretty strong. And those are important for consumer perception. They're the big 2 that they see on a regular basis. And of course, we have -- there are a lot of headlines -- siren headlines around potential tax increases, particularly property tax increases coming out of the budget. And we now know that, that's going to persist right through to the end of November, which is pretty much unhelpful for our autumn selling season. Selling prices are steady. We are pushing them where we can. And in many places, they're holding. But we are, as I said before, continuing to use incentives, although not at an alarming level. Housing association is still sitting on the sidelines, really pleased with the GBP 39 billion that the chancellor announced in the comprehensive spending review. It is real money, in my view, but it has yet to fully filter through to hit the streets in terms of deals. The housing associations telling us -- or the ones that we talk to telling us kind of would expect that money to start translating into deals in the spring. And what that means is whilst the PRS investors do absolutely remain active, the competition in the market is soggy, and that means that the pricing is pretty aggressive out there. And the planning environment remains tough. We are -- as you know, we're very upbeat about the big changes to the framework that were made early in the parliament and already Guy's team seeing the benefits of those changes, although the current noise around increasing regulations and potential additional costs is unhelpful, shall we say. But the really key point is that down in the trenches, getting a ticket so that Scott and Andy can start putting a spade in the ground, that's as tough as ever. And we put that down to the continuing challenge of resourcing in local planning departments. So overall, a pretty challenging environment and difficult for me standing here now to say, well, I can see an early catalyst for a significant recovery. But as I said, it's a market that we can absolutely work with, and we're doing it. It's a stable market, and we're able to make our sales. So that's how I would characterize it. I showed you this just now. So these are areas. We're very clear on our areas of focus for Gleeson Homes for the current year, but also setting the position to deliver on our strategy as we go forward. We need to further embed transform. We need to -- there are some -- still some tweaks we need to make in on our land process from bid to build and critically, site openings, absolutely vital that we focus on that. So I'm going to take you through each of these points just briefly now. So turning into our land pipeline. Stefan has already mentioned, we've continued to buy land. It's a pretty -- it's still a very competitive market out there. So pleased to see our pipeline increasing to 19,600 units. And as Stefan said, still with an average cost per plot below GBP 16,000, which is great. We're also, I would say, sharpening the focus for our land teams. And a couple of things to mention there. And we are looking to slightly push up the amount of -- the proportion of land that we buy in faster selling suburban areas. And so for that, we're looking at improving our density and there's some elements of the design of product, which will assist with that, and I'll talk about that in a moment. And we're also tightening our hurdle rates to better align our hurdles with the planning status of the land that we're appraising. Build and sales sites, well, it's pleasing that during the year just finished FY '25, and we opened both more build sites and selling sites and so at a better rate than in FY '24. The average number of sites is actually lower because we also closed a number of older sites. But stepping back, more importantly, the number of sites that we're currently building and selling from is lower than we'd planned, lower than I had hoped and anticipated. And that's what we really need to get after. The -- I suppose the biggest reason for that slower progress is the planning system. There's no hiding from that. And we have to work as hard as we can on that, and there are things we can do. So it's important as well that we look at our own process, that we make sure we're as up to date as we can with getting those -- being ready to clear those planning conditions as soon as we get that ticket and then making sure that our own processes don't slow us up between getting the ticket and getting on site. And that's an area that Simon, Scott and Andy are really looking very hard at right now. We're having a great year -- making great progress in partnerships, Helen and the team doing a really good job in building both our book of business and our reputation. So we signed 4 transactions in the year, as I said, and a further 2 since the year-end. And behind that, there are -- in fact, the second one since the year-end was 6:00 last night. So can you imagine Stefan's face when I said, Stefan, I got to change the presentation. It's got to be in there, hasn't it? We have multiple deals that are under negotiation. But we're maintaining our approach of dealing with a select group -- a small select group of partners that we know we can rely on who share our values and our aspirations. And we continue to target a level of around 20% of the business in that diversified revenue stream. And so we're working towards that. Importantly, we don't have to force the pace and that shields us from having to be price takers from having to accept some of the more aggressive pricing that we can see out there in the market at the moment that I alluded to earlier. As I've said, we're responding to some changes in demand and opportunity that we're seeing in the marketplace. And that's -- so we're expanding our portfolio in response to that. We're seeing some demand for larger units, who knew that Gleeson would build 5-bedroom homes, but the demand is out there. And as you can see, we've got some very elegant units designed in response to that. We're continuing with the Gleeson tradition of our roll call of house types being small villages in Ireland. And I can think of one investor in particular, who will be delighted with the intriguingly named Castledermot. There we go. We're also expanding our range at the smaller end of our properties. So we now have some 1-bedroom units that we can plot. And these are going to be really important to us in that push into slightly more suburban locations where we need the density and we need the flexibility and agility of product to make sure that we're competitive in those bids. And we're seeing good success as well with that thrust of widening the demographic of our customers and making sure our marketing is as broad as it possibly can be. And as you can see, we are very happy to welcome you on a Gleeson site, whether you're 19 or 91. You've seen this slide before, really important that, as I say, Gleeson is committed to this identity, which underpins our market opportunity of building homes for those who need -- affordable quality homes for those who need the most and maintaining that couple on the National Living Wage being able to buy a material proportion of the homes on any of our sites. A couple of things I would draw your attention to on this slide. The -- so our homes very much affordable for low-income buyers, and they are still seeing real income growth, but it is at a lower rate than -- so that real growth is at a lower rate than when I stood here a year ago and probably the year before that. And that goes to -- wage increases are slowing. I noticed there was another survey out this morning that said exactly that, and that point around inflation -- core inflation still pushing on. So that -- our customers are still aware of that cost of living pinch. And I would just mention the bottom bullet there, with a significant piece of work for us in transitioning away from our previous independent in-house survey across to the NHBC/HBF Survey. It's a bigger piece of work than you might imagine. We expect when the -- our first results are published for the current calendar year, which will be in March '26, we expect to be at 4-star, but we are seeing both our survey response rate and our scores improve, and we are absolutely focused and targeted on achieving 5-star for the calendar year '26. And just to remind you, we remain excited by -- and convinced by the opportunity to take this business to 3,000 homes per annum in the medium term. You've seen this before, but just looking at that column on the right, how do we get there? Well, if we get ourselves to 100 sites and a sales rate of 0.6 per site per annum -- per site per week, that is -- that takes us to our 3,000 homes. And the point of emphasizing that is that, that 0.6 is only just above the 0.57, which was the completion rate that we achieved in the year just gone. So this target is not based on riding the crest of some phenomenal market recovery. It's all about that second point, which is making sure we get our build sites open. And that should be in our control, he said, mindful of the planning system, but it is something that we can affect, we can control. And if we deliver on those build site openings, we will deliver this target. Turning to Gleeson Land. Well, absolutely primed for growth. You heard the excitement in Stefan's voice, and that's not something you hear very often, if I'm honest. The guys are doing a great job in delivering this strategy. And that's really all about the regional focus that Guy was talking about from day 1. It's about really exploiting our unique capability in data research and analytics, and it's about a laser focus on the experience for our customers and our wider stakeholders. We're having -- as I say, the success that, that is bringing means that we are seeing more and better opportunities. We're improving the quality of our bids, and we're improving our win rate. So those benefits very definitely beginning to be realized. As you can see, our bid rate has increased. Our win rate has doubled, now up at about 1/3 of the bids that we make. And really importantly, this hasn't come from reducing our criteria or our hurdle rates. We still put in the bin something like 9 out of 10 of the bids that we see. So -- but the portfolio -- the effect is the portfolio is growing and growing in quality. And just to pick out one stat. So in the year, we completed 7 transactions and effectively, that covered 1,200 units. We acquired some 13 new promotion agreements covering 2,700 units. So you can see that really does underline the point that I'm making about the quality and quantity of the portfolio. And really importantly, as I say, a strong focus. You can feel it when you walk into the business, a really strong focus on our stakeholders and our customers. And that brings those additional opportunities. The agent community is talking about Gleeson Land in very positive terms, and we're often winning bids when we're not the highest bidder. All of that means that there's steam coming out of the engine room in planning. The guys are working hard and working very effectively. You know that they've -- we've touched on earlier, we are seeing the benefit of the new NPPF. The Billericay site that we sold in June was the country's first gray belt site. We submitted -- we're pleased to submit 6 applications in the year just gone. But get this, we're anticipating submitting up to, I think, 18 applications in the first half alone in the current year. So as I say, steam coming out of the engine room. We were pleased with 7 consents in the year, and we come into the current year with 8 consents. So the position as we go into FY '26 is encouraging. We have planning consent for all except one of the sites that we're proposing to sell during the year, which is a much stronger position than we were in at this time last year. I would just caution that among those sites is one where we have our planning permission. We have our agreed buyer. In fact, they've already signed an option on the site and can't wait to get on there, but we're waiting for regulatory clearance from the local authority, which we're anticipating soon. Should that hit some unexpected delay, then that will derail our profit targets because it's a large site. And if that slips into July, we will feel the bump. I'm just cautioning it's not what we expect to happen. However, we are expecting one landmark moment, which is a sale in -- of a site in Oxford here, which if it happens, will be the first site that we've actually acquired, I think, Guy, since you took the reigns, which will be a landmark moment for Gleeson Land and actually lightning quick. Sadly, as, of course, you're all aware, strategic land doesn't normally turn around in 2 years, but we'll keep reminding Guy of that one. So in summary then, after what I'd characterize as a bit of a bruising period, Project Transform is already delivering a more disciplined business in Gleeson Homes, and I'm excited by what we're seeing from that. We've got a clear set of focuses to deliver on the growth that we foresee. And I'm really confident that, that reorganization is going to ensure effective delivery and start to rebuild those margins. Gleeson Land, as you've heard, absolutely primed for growth and outperformance. We've got a strengthened portfolio and the future growth opportunities in that business are increasingly secure within that portfolio. So I anticipate that the current year will be in line with our expectations and remain -- we remain really well placed for the significant growth that we anticipate from FY '27. So at that point, thank you for listening, and we'll be pleased to take your questions.

Mark Howson from Dowgate Capital. Firstly, just on Gleeson Homes, you said that the land buying needs to be optimized. I'm just trying to -- how does that marry in terms of -- when you're looking at faster selling suburban areas, I mean that land tends to be more competitive to buy. And at the same time, you're tightening your hurdle rates. So how do you marry those 2 is the first question. And the second question, I've got the microphone, just on a simple question on Gleeson Land. You said that pipeline supports growth from 2027. Are you implying that the effect of the ROCE for '26 is similar to what it's been for this -- for the year just gone before moving upwards in the following year?

Let me deal with -- good questions, Mark. Let me deal with the second one first because that's an easy yes. So this year should be broadly aligned to last and then we can start -- then we start to see things picking up thereafter. So coming back to what we're doing with land buying in homes. So I think I was -- in terms of optimization, I think, I was talking about our process from -- basically from bid to build. And we just -- we have changed that quite significantly under transform. And I just want to make sure those changes are embedded. And that's really about making -- getting strong regional ownership of the terms on which we bid and buy that land, which was slightly more separate under the old system. But you asked about the selling -- about acquiring more land in suburban areas. I really don't want the room to run away with the view that Gleeson is charging off and we're going to start building high-rise in Central Manchester. That's not the case. What I just want to do -- if I step back and look at the portfolio, it's -- I want more of a blend. So I don't want us to be edged out, if you like, further and further to the boundaries to slower selling sites on the East Coast of Lincoln -- well, Yorkshire -- actually, Yorkshire has only got on East Coast, so that was [ topology ]. But I don't want to -- we want to blend -- and this goes to the density point I was describing that if you persist with the low densities that previously characterized Gleeson and are still absolutely appropriate in Lincolnshire and Cumbria and lots of locations we build. If you confine yourself to that, then you will simply be uncompetitive in those more suburban locations, which are, let's face it, Gleeson heartland. And so we just need to be a little bit more agile, and it's about the balance in the portfolio, not transforming the portfolio.

Harry Goad, Berenberg. You talked, Stefan, about the margin headwind from increasing some of the plots specifications in the year. Is that going to be the new normal in terms of that spec? And should we think about that being a margin headwind lingering? Do you start buying land on increased cost per plot sort of basis?

It's a good question. I mean, are we still going to -- are we forever going to turf fence and put an outside cap and things like that in our standard plot spec. I suspect, yes. And we've costed that into our site valuations. And when we bid for land now we fully cost that in. So the -- really -- where do I see the big margin recovery? Because whilst we have new sites are at higher margin, they haven't suffered from some of these legacy issues that we -- some of our older sites have. Actually, what will really drive margin is when we get -- we're able to start reducing the incentives, and we can get some really strong underlying selling price increases. So as I say, at the moment, where incentives are running at about 4.7% of the selling price just under 5%, slightly higher in the second half than the first half. The last couple of months, they're about unchanged. But a few years ago, our average incentives were running at less than 1%. So if we -- when we get back to a position where we don't have to incentivize customers with cash and noncash incentives, we will see then some significant step-up in margin. That's really what's going to drive. I think for all the house builders, what's going to drive the biggest part of the margin recovery.

Aynsley, just I think 3 for me, actually. On the planning, obviously, this year, lower number of sites, kind of when you look into FY '27, what's the trigger to the expectation you get more sites through? Is it just the legislation comes through, you're seeing positive kind of movement on a longer-term view from what government are trying to do? Just any color around that. And then just 2 straightforward ones, I think, just on the land sale -- the land business, you said there's one significant potential sale with the technical issues to resolve. Is that -- how big is that relative to the GBP 7 million or whatever you expect for this year? Is it half, 1/3? And on the Homes business, any land sales you expect in that business for FY '26 as well?

Very good. So the FY '27 -- actually, that's just our pipeline, Aynsley. So we've got good -- as you know, we've got a strong land bank and good visibility of our timetable, properly caveated with the number of months we expect for letters to pass back and forth. So we have clear visibility of the sites that we're anticipating bringing through, obviously, in the current year and into '27 and a good number beyond that. So the risk there is not whether we get the sites, is when we get the planning. So that really is all about we sit there. We go through this at least monthly, and we're trying to get good visibility from the guys. But do you get the odd curve ball? I'm not going to give you examples now, but I could. How on earth are we here, and that's another 3 months we've lost. But across the piece, we just need to make sure that we're doing our level best to get those through. So that's the planning piece. So no, I'm not in that factoring in that suddenly the whole North of England is going to have another -- how many planning offices, and they're all going to start turning in their planning consents tomorrow. These are all based on like what we're currently experiencing, but you can still get further disappointments from that if you see what I mean that's the risk. The land, the technical issue. So I mean, basically, what that is, Stefan alluded to it. So normally, Gleeson Land does not acquire land. But we have some -- in the portfolio, we have some historic options. So this is a site, obviously, Guy and I and the team had decisions to make around whether are we confident to exercise that option and what the team cleverly did was to exchange -- was to secure the buyer and exchange a sale option in the same breath as exercising the purchase option so that I didn't have to sit in front of the Board and explain to them why Gleeson Land was suddenly becoming the biggest landowner in the South of England. So we've got the sale locked in. The challenge, I mean, you won't believe it. So the planning permission is -- has been around for quite a while on that site. And the -- am I allowed to say the road regs of flipping change since it was written. So we've got our solution, but obviously, then that's got to go through the local authority to sign off the new. So I know more about deflections and roundabouts Aynsley than I ever dreamt possible. But -- so we'll get -- we should get that sorted in plenty of time and then the option will be exercised and the site we sold this year. But if it slips into next year, I think that's probably half the gross profit for the year. So that's the risk I'm flagging because it won't be a huge failure. It won't be Gleeson lands and gone apart. It will be no XYZ local authority took an early Christmas holiday. So hopefully, that's what you were driving us on that point. Gleeson Homes land sales, I think, there is a small one, but...

Small site sale. I mean we don't typically -- we don't have many land sales, but all housebuilders will optimize their portfolio and they're fine. They'll have maybe a bit too much land here and not enough there, and so they'll swap or they'll sell a site. And we had a small site in -- it was in East Yorkshire, which we sold -- was actually sold in the first half. We did actually report at the interims, but we didn't have any other sale in the second half.

Having said that, into full transparency at this time last year, we didn't anticipate the land sale that then didn't happen. So where we have an embarrassment of riches, you're always open to negotiation. That's how these things. It's not selling the family silver. It's just balancing out the portfolio.

Gregory Poulton from Singer Capital Markets. Just 3 for me, please. Firstly, just on the timing of land sales within Gleeson Land. Just thinking about what the H1, H2 split might look like there. And then the next 2 just on partnerships. On the 2 that you've signed in the year-to-date, given the more competitive pricing environment, have you had to offer greater discounts to those providers? And related to that, how does that influence the pipeline of partnerships and the timing of those landing this year?

Okay. Thanks, Greg. I'm going to just check with Stefan that I'm right on the timing of that. So the -- was that specific? Or was it just are we more second half weighted?

Just understanding, I guess, the first half the split was quite like and...

Yes, you're absolutely right. So if everything lands, as it's written in the plan today, then we'll have a better first half than we did last year and a better first half, second half split. But I still think, because the large one, that we were talking about just now is going to be second half. It will still be first half, second half weighted. The really important thing, Greg, and I have to look, as Guy does all of the time at managing this business optimally and over kind of 3 and 5 years, a strat land business on a 6-month by 6-month is very difficult. So I'm guiding -- we guide as best we can on where we think things will land. What I can say, importantly, the underlying portfolio is in much better shape than it was when Guy joined and indeed when I joined. The -- so better quantity, better quality. The visibility of that plan is improving. So we come into this year with more consents than we did last year, but not all of them. The nirvana is to have all of them, but we're all bar one this year and plus, of course, that technical approval. So I expect that we will have a better first half and a better balanced H1 and H2, but please don't quote me back of that if I sit here with them. But we have got one -- we've got one in the bag that we did in July. So partnerships, yes -- no is the answer. So we've got a good pipeline. But that point I made around not having to force the pace and working with partners that we know and trust, we don't -- we are shielded from the hailstorm of some really aggressive pricing that we can see out there. So we are selective about who we'll deal with. And the 2 that we've just concluded, obviously, I'd like them to be -- we'd always like to get more, but we are very happy with the lower price that they're paying.

It's Charlie Campbell at Stifel. Just a couple of questions. And the first one is really about sites. So if I look back to your chart about site openings, there's an average of 69 sites in the '27 financial year. You're opening sort of 20 to 30 this year and next. So that would imply sort of, I don't know -- roughly 2/3 of the sites in '27 will be new sites, which I guess have in-built higher margins and also probably higher sales rates. Is that the right way of thinking about that?

I guess sales rates, Charlie, will always be market dependent. So I wouldn't say there's -- that the sales rate is necessarily higher on the newer sites. But certainly, the margin should be cleaner, yes, although some of those have been in the portfolio for a while. So I'm not going to sit here and say they're all 5% better than what we're currently building. But yes, I think as a general trend, those will have better margins. But Stefan, do you want to...

Yes. I mean, definitely better margins, although remember, we suffered 2.7% build cost inflation over the year and that doesn't just come off existing sites. It will come off future sites because it's now 2.7% more expensive to build on those sites and revenues are unlike -- essentially 0.3% higher. So there's been -- those new sites are at lower margins than we would have expected a year ago, but they are still higher margin than current sites. I would -- in the danger of repeating myself, real margin recovery in this industry will come when confidence returns. We get -- the industry is selling at a decent sales rate and is no longer having to incentivize customers. And as a consequence of that, extras will increase. And therefore, you will see a strong margin recovery. And we will see margin recovery anyway because those sites are at higher margin. The real recovery will come when the sector recovers -- when demand recovers.

Sort of corollary then is build cost inflation? And how you'd see that in the FY '26 financial year? And any general comments around materials and labor?

So I've looked at some of the other recent announcements and everybody is using the same phrase, kind of low single digit. I'm not going to be a pundit today and predict what's going to happen. So I'm quite happy to trot out that same low single digit. We don't see huge pressure at the moment, is probably what I would say. I think that will come, if we were to see a strong recovery in housebuilding volumes. We will start to see that, particularly on labor rates, as you would expect. But actually, we don't see any pressure at the moment -- any excessive pressure.

Ground workers and brickies are very alert to sales rates.

Sam Cullen from Peel Hunt. I've just got one really. If we go to the 3,000 unit ambition, how should we think about the balance sheet evolving to hit that target? What do you need to put in the ground in terms of WIP from here? And can you release land from your land bank? Or do you need to maintain the land bank length going forward?

Do you want to take that one?

Yes. First of all, I'd say we don't have a land bank. We've had land pipeline. So half of that pipeline is conditionally purchased. We don't own it yet. We have, I think, 11 sites that we own not yet build active. And I would actually point to the GBP 3.2 million average build per site, which is higher -- significantly higher than it was a year ago, GBP 2.7 million. I would look at this. I would expect that GBP 3.2 million to fall as an average because this year-end -- at June '25, we had a number of large sites that we put significant infrastructure investment in. And so the average was higher. I would expect it to fall and then settle down and increase with inflation, if you like. Now the average cost per plot is increasing. You've seen that every year, and it's probably increasing -- well, it is increasing more than inflation. But it is still relatively low. And I don't think we're going to -- well, we're not going to get to a traditional housebuilder position where land costs 20%, 25%, can be 30% of selling price. It will remain below 10%, and it will take some time to get to 10%. So can we manage that growth to a medium-term trajectory of target of 3,000 units and not burn cash? Absolutely, we can. Now I would just add one small qualification. This year, we expect Gleeson Land to be very strongly cash generative, but I do expect a little bit further investment in working capital in Gleeson Homes and Gleeson Homes actually to have -- maybe have a slight negative operating cash flow this year. It had a very strong operating cash flow in the year we just reported. But thereafter, I would expect Gleeson Land to get back to the typical way in which it grows, which is with -- whilst growing at double-digit volumes, opening significantly more sites, it will generate operating cash flow.

Okay. So I don't think there are any more questions in the room. Do we have any questions online, please?

Yes. We've got a couple of questions on the webcast. So first question from Andy Murphy at Edison Research. Restructuring, what were the biggest surprises to the upside and downside of the initiative?

So what were the -- say that again?

Biggest surprises to the upside and downsides of the initiative.

I don't think there -- I think it wasn't so much surprise. This was -- if you like, a situation that I saw evolving over that kind of first 12, 18 months that I was there, Stefan and I and the team had discussed it. And I think that we would -- we just -- it was just that realization -- that actually the standardization that we put in place needed to be underpinned with something a little more fundamental. As I say, there was a bit of process weakness, a bit of lack of procedural discipline and probably insufficient consequence for that lack of discipline. So it just needed a bit of tightening on the ropes, some stronger leadership, which I think we've definitely got in place. So an evolving perception, if you like, of what we needed to do. We've been on with that now for a year, and I'm much happier with -- if I look at the ship today than I would have been this time last year.

Great. Thank you. We have actually no further questions on the webcast. So I'll hand over to you for any closing remarks.

Great. There's clearly no questions in the room. So thanks very much for your time, and I will look forward to having a coffee with you in a moment. Many thanks all.