MJ Gleeson plc (GLE) Earnings Call Transcript & Summary

All right. Good morning, all, and welcome to the half year results for the half year ended 31st of December. I'm delighted to see you all here in person. I think this time last year, Stefan and I were facing a completely empty room broadcasting it live, so it's really good to see everyone here. I'm sure it had nothing to do with the fact that red row were before us, but it's -- delighted to see you all here. So in terms of the last 6 months, we've continued to see a really strong housing market, especially for those wanting high-quality and genuinely affordable new homes. Despite the challenge of COVID and the supply chain during the last year, we delivered 932 homes in the last 6 months. That's 14.9% up against pre-COVID levels and ahead of expectations. Selling prices were also strong. Average sales price was up 14.7% to GBP 161,200, which despite the rise has remained highly affordable, and these have helped offset the cost pressures we and the industry have incurred. We're seeing cost -- we're seeing the cost increases and the availability of materials, which was a huge challenge over the last 12 months, begin to ease, although I have no doubt we will be having to manage those for the foreseeable future. The structural drivers for the need for low-cost quality homes will not go away. It's the young people growing up needing a home to live and the shortage of a small number of people doing what we do. And we remain firmly on track for hitting our 2,000 homes for this year to June. Gleeson Land also had a very strong start for the first 6 months with 3 sites sold and 3 more currently being marketed, and we are seeing really strong demand for consented sites in the south of England, where Gleeson Land operates from the medium and large housebuilders. Challenge across both businesses remains longer, time needed to obtain planning and it's showing little sign of improving, but I do think we have been through peak pain -- and in the -- in that we will see things begin to ease. Despite that, we do remain confident for our near-term site opening plans which see us open 25 sites this year in Gleeson Homes, although that's a little bit more second half weighted than last year. With strong sales in homes and strong starts in Gleeson Land, our full year results are expected to be ahead of current consensus. And the business is well placed to drive future continued controlled growth with the operational platform in place and a robust balance sheet to support growth. In Homes, we are well progressed with the opening of our ninth office in West Yorkshire from the start of the new financial year in the first of July. And looking forward, having achieved 2,000 homes this year, we expect to announce our new medium-term growth ambitions in September. I shall pass over to Stefan to take you through the numbers, and then we'll come back to a little bit about the 2 businesses.

Thank you, James. So we've had another very good start to the year. Group revenue, group profit before tax and earnings per share are all up 22%. I'm especially pleased with the result from Gleeson Homes when compared with last year, which had been flattered by the carryover delayed completions from the lockdown, the first lockdown in 2020. Against the previous pre-COVID half year at the year to December 2019, profits were up 41.5%. That's operating profit of GBP 22.5 million against GBP 15.9 million 2 years ago. The balance sheet remains strong, closing cash balance of just over GBP 38 million, that's up GBP 6.6 million on December the previous year. And return on capital employed has recovered very strongly to almost 23%. Now I've included on this slide the results for that 6-month period 2 years ago for your reference. So turning to the income statement. As usual, I'll take you through the divisional trading results in a little more detail on the next few slides. Let me briefly touch on a couple of points. Against last half year, Gleeson Homes' operating profit is up 10% at GBP 22.5 million. Again, I would remind you, last year was flattered by the carryover from the previous year. Gleeson Land profit more than doubled to GBP 5.5 million. Also, as a reminder, group overheads now include the legacy costs from a business that we closed in 2005. We had, in previous years, been reporting these as a discontinued operations cost. They're running at about GBP 150,000 to GBP 100,000 every half year, GBP 300,000, GBP 400,000 a year. And on the tax rate, we expect a full year tax rate of about 19%. Now turning to Gleeson Homes. We did complete slightly fewer homes last year, 932 in the previous half. Again, and I'll remind you for the third and final time, the previous year was flattered by the carryover from previous lockdown, first lockdown. Selling prices were strong, so 14.7% is an underlying increase of 12.8%, and James will talk about selling prices a little bit more later on. Gross profit margin increased 110 basis points to 29.2%, driven by those strong selling prices, offset by quite high build costs which we'll talk about a little later on. Overheads were up 24%, reflecting investment in both our regional operating structure and our head office, in particular, and that's in all disciplines but in particular in our land team, commercial and technical. Now our footprint continues to grow. We opened 8 new sites in the first half, slightly fewer than we had hoped for due to continued congestion in the planning system. Despite that congestion, we expect to open many more in the second half, so 17 sites is what we expect to open in the second half. So that will bring to a total of 25 the number of sites that we open this year, and we expect to have, by the end of the year, 85 built sites. In terms of the sites we're selling on, we were selling on 60 sites at the end of December compared to 65 in December 2020. That reflects 2 things: both the late site starts that we saw in the previous year, the late build site start, but also the later launching of a site for sales. When first completions are a little more certain, we have foundations built and we can give the customer greater certainty on their completion date. It also enables us to optimize the selling price. Our sales rate in the first half was strong, 15.4 homes per site, up against the previous year of 14.7 homes per site. We continue to be able to sell pretty much everything that we can build. Now in the medium term, do continue to expect that we will open 25 new sites each year. We expect to close roughly 15 sites each year so we expect to grow our footprint by a net 10 sites per annum. And we are, from this summer, opening our ninth regional office at our West Yorkshire office. You'll remember a few years ago, we combined our South and West Yorkshire offices. That has now become quite a large region where you're splitting back into 2 regions. It currently has approximately 17 active sites. Roughly 7 of those will move into the new West Yorkshire region. And that region, therefore, will be profitable from day 1. So our pipeline of sites continues to grow. Pipeline is up almost 9% to just over 16,200 plots. The average land cost is increasing but remains remarkably low, currently about 7% of average selling price. So that pipeline represents over 9 years' worth of sales based on the last 12 months' worth of home completions. It gives us confidence that we can continue to maintain our double-digit volume growth in the medium term. Gleeson Land. We sell 3 sites. Two of these sites were larger and more profitable than usual, and 2 of them were sites that we sold as part of a joint venture with other promoters. Overhead for up at GBP 1.5 million. And as a result, we delivered profit of GBP 5.5 million for the half year against GBP 2.6 million in the previous half. Now turning to the balance sheet. Inventory was up GBP 23 million, driven by GBP 26 million more of land and build in Gleeson Homes, GBP 3 million less in Gleeson Land. Gleeson Homes increased as you have seen in previous years, there's an investment in more land so we have more in plot, almost 300 more plots but also slightly higher land cost per plot. Build WIP is up GBP 14 million, driven by more build sites and more investment on those sites, but also it reflects the higher build costs that we've seen over the last 12 months. The reduction in Gleeson Land WIP reflects the high accumulated promotion costs that were written to cost of sales on the sale of land over the last 12 months. And you'll notice that Gleeson Homes, our land creditors remain very low, GBP 9.7 million. That's roughly 11% of land assets, lower than the 14% we had a year ago. We are still largely paying for all of the land that we acquired when we acquired the land. Turning to cash flow. Operating cash flow was once again strong at GBP 17.1 million. The majority of this came from Gleeson Homes. Gleeson Land was cash generative, but there were deferred receivables on the sale of 2 of the 3 sites that we sold in the first half, which were sold in December. Tax payments increased largely, reflecting higher profits and bank interest finance cost is lower, and that largely reflects the fees and costs last year when we refinanced our banking facilities. So turning to dividends. I am pleased to announce and declare that we will be increasing our interim dividend by 20% to 6p per share. As a reminder, in September, we announced a revised capital allocation policy. Two key points from that policy. First is that we intend to maintain a higher earnings to dividend cover ratio of between 3x and 5x. And we expect to continue paying an interim dividend, that represents 1/3 of the total full year dividend. Looking forward, this means you should expect dividend growth to be more in line with earnings growth than you had seen in previous years pre-COVID. And just to be clear, the dividend will be paid on the fourth of April, shareholders on the registered close business on the fourth of March. Now I'd like to update you on our -- on progress on our sustainability targets. We announced 4 targets in September last year. In health and safety, I am very pleased to report that we have had seen significant improvement in our accident and incident rate. In fact, we recorded no widows in the first half. So the improvements we've been making on safety procedures, our safety systems and training are delivering results. We will be undertaking our annual externally-assessed independently-assessed employee engagement survey next month. And we will share those results with you in September, but we had very high employee engagement last survey. It was in the upper quartile for U.K. companies. Our also independently-assessed customer satisfaction rating, which last year was 5 star remains 5 star, and we've seen an improvement in the overall recommendation score. And we expect to maintain that 5-star rating for the full year. And finally, on carbon emissions, we are making great progress. We've completed trials on our trials air source heat pumps on 3 sites. And many of you have seen those pumps on one of our sites. And we have now plotted out our first site, which will have 100% air source heat pumps and no gas boilers. That's a 256-home site. We've been trialing a hydro-treated vegetable oil fuel in replacement of natural diesel in generators and forklift trucks a number of sites, on 8 sites, and that trial is proving highly successful. And as far as our target of reducing carbon emissions per home sold by 30% to 1.75 tonnes per home sold over 3 years. We are well on track for that and expect to achieve it next year. Thank you.

Thank you, Stefan. So just a quick drop through of the 2 businesses and start with Gleeson Land, which is a slide you've seen before, but I think well worth reminding of the Land business. Gleeson Land is a top 4 land promoter, up there with Gallagher, Hallum and Gladman, with obviously Gladman having been recently acquired by Barrett's. I have to say that acquisition really just reaffirmed our decision to retain Gleeson Land following the strategic review 3 years ago. And indeed, the value we placed on it at the time and indeed place on it today. And interesting to see one of the large PLCs emulating our model. The business has a strong track record that's well respected by landowners and agents of promoting land through the complex and increasingly challenging planning system with a success rate of over 95%. And indeed, unlocking value for landowners, delivering sustainable and attractive sites for new homes for housing developers. For landowners, they get the assurance of full value of selling a consented site without bearing the risk and cost of taking it through the planning system themselves, and indeed, without having seller sites to the developers at significantly lower value without planning in place. In short, they get the best price for the lowest risk. For the housebuilders that we sell to, they're able to acquire land once it has planning. And given the constraints in the planning system at the moment and the short land banks and many of the mid- and large-size housebuilders, the demand for those consented sites as open-ready sites is really strong. Indeed, 2 out of 5 large consented sites are delivered by land promoters and why we see it as a really important part of that market. Gleeson Land is core to Gleeson. We have a strong and growing pipeline in terms of the pipeline in terms of Gleeson Land and high planning success rate that I mentioned earlier. We're investing for the long-term growth in that business. It's highly profitable, has full cash conversion, is capital light and then therefore generates high returns. And indeed, the strong cash generation helps support our ability to both grow the Homes business and be a dividend payer. In terms of the pipeline, one of the challenges that we talked about is the temporary halt, at the start of COVID, of the planning system. Things have picked back up, but it remains heavily congested. And one of our real priorities in Gleeson Land is both growing the pipeline but also ripening it. We currently have 15 sites going through planning, the same as the full year in June compared to just 7 in the end of June 2020. Over the last 12 months, June '21, we made 12 -- sorry, 10 planning submissions compared to 6 in the period before. However, only 1 site achieved planning in the last 6 months, and in the previous 12 months, we only had 2. So what we're seeing is that congestion is begin to unlock, we will expect to see some more consents coming through in due course. In short, in terms of the pipeline itself, we have plenty of sites being submitted and progressing through planning. The bottleneck, I said we expect to become unclogged but the planning risk does -- is a factor in terms of current year delivery. In terms of the pipeline overview, I'm not going to spend too much time on this. 71 sites in the pipeline at the end of December compared to 70 the year before. 21,155 plots, a slightly lower number in terms of those in planning and with consent. And I think the figures probably speak for themselves. So turning to Gleeson Homes, had a really strong 6 months. 932 homes, up 14.9% against pre-COVID levels. Average sales price, GBP 161,200, that's up 14.7%. That's an underlying increase of 12.8%, and that compares with the house price inflation in the markets that we sell of 9.9%. So we're seeing an uplift of around just under 3% ahead of market growth. Seeing slightly different regional growth rates, as you might expect. In the Northeast, we saw about 8% increase in ASP; northwest, 18%; and New Yorkshire Midlands, 14%. Sales extra has been a key area of focus for us over the period. We've seen those approximately double. They're currently running at around 2,200 in the first half. I think in the second half, we'll expect that to be up more again. We've talked about historically wanting to close the price gap between Gleeson and the rest of the market. I think the graph on the right shows what we're trying to do. We have seen some closure in the market. But as the market has been extremely strong, it's been quite difficult chasing that up. But as I said earlier, we were probably 3% in terms of the period just gone, 3% stronger than the market offers further opportunity as house prices slow for us to continue to close that gap. Over the last 7.5 years, you will have seen average newbuild prices increased about 49%. We have increased about 33% in that period. And again, as we said before, a very strong correlation, which is important between national living wage and newbuild house prices. Despite the increases in average sales price, which we've seen over the last few years, our homes remain highly affordable. And the graph on the right-hand side there shows the affordability headroom between the average 2-bed Gleeson Home, which is the bottom line, and affordability for a couple on the national living wage, which is the top line. You'll see that affordability headroom actually has remained despite us pushing prices. And indeed, today, that headroom is still around GBP 34,000. Put it in other words, a couple on the national living wage today can afford to buy a home, a Gleeson Home up to about GBP 165,000. That buys them a home on any Gleeson site, in many cases, buys a 3-bedroom home on any Gleeson site, and that's with a 90% mortgage without Help to Buy. With the uplift in the living wage coming from the first of April at GBP 8.91 going up GBP 9.50, that's for a couple on the National Living Wage, can afford to buy a home up to GBP 175,000. So again, despite some of the cost living pressures people are seeing within the market, there is still a significant headroom in terms of what they can afford when they're being debt from mortgage purposes. So in terms of affordability and the mortgage market, obviously, a number of changes coming. Help to Buy is coming to an end early next year, effectively from December -- end of December this year. Has been hugely successful getting people onto the housing market. Many of our customers, it hasn't just been about affordability. Many of them have been using that to trade up from homes, 2 to 3 beds, 3 to 4 beds. We've actually seen a slight decline in the usage of Help to Buy in the last 6 months. I think that's been around 2 things, being the introduction of some of the changes we've seen limiting Help to Buy to first-time buyers. And actually, I think it's just reflective of a really strong market, shortage of housing stock and indeed are seeing a few more home-movers than first-time buyers. Just slightly doubling of the base rate from 0.25% to 0.5%, mortgage rates still remain extremely competitive. And I think much of that is -- the increase we've seen have been baked into rates. And the graph on the right is really showing the affordability of a Gleeson Home. With Help to Buy, a typical 3-bed home is -- cost GBP 85 per week to buy versus GBP 152 in rent, almost half the price. And with a 90% mortgage, it's GBP 110 a week to buy, which is still around 30% cheaper than renting. Industry pressures, clearly been a lot talked about these. I think in terms of supply chain, I think last year, the focus really was around availability of materials and some of the cost pressures that we were seeing. Availability, I think, was my #1 concern to keep sites building to keep them open. We managed through that without any site closures. And indeed, in terms of costs, we've been able to absorb the cost price increases with the uplift in sales prices that we've seen. I think those cost pressures in supply chain are beginning to ease, but I think we'll be managing that certainly for the foreseeable future. And I think what we will begin to need to balance is, both the direct and indirect costs as some of the wage price inflation coming through in terms of our own employees but also our subcontractors as we move forward. But I think that will be less volatile -- well, clearly, will be lot less volatile to some of the price increases we've seen in materials. Brick stocks, which have again been a particular concern around the supply chain pressures for these despite stocks being at certainly a near-term low. Part of that is we have more stocks on site but it's also we have other options where bricks are short, swapping brick types, moving to concrete mix or even using render or artificial stone products. Cost pressures obviously remain around changes in building rigs, Part L, Part S, which is now coming in from the first of June '23 on all new sites and Part S being the EV charging points. And then the other key issue really around the industry is clearly building safety and the likely anticipated additional costs to be borne across the broader industry. In terms of Gleeson, again, you've seen this before, what we don't do, we don't do flats. We don't sell to investors. We don't do part exchange. We don't do centers. We don't do leaseholds for sure. It's 2-, 3-, 4-bedroom traditionally built homes, back gardens, front gardens in sort of urban areas. That said, as we've mentioned in our announcement many years ago, the business was in the contracting market. We exited that in 2005 with the recent letters from government. Again, we've indicated that we have disclosed 50-odd mid-rise as opposed to high-rise buildings that we were involved in. But again, just draw your attention to the fact that despite that, we've not provided against that. We don't see we've got any liability against those. So in terms of our customers, again, you'll see a few case studies before, but our customers really are at the heart of our business, and it's the part of the market we sell to is one of the real strengths of Gleeson's. So who are the 3 out of 4 first-time buyers? Last year, I probably said 4 out of 5, just showing you that slight additional increase towards home movers. Again, I think that's a short-term phenomenon. Majority are key workers, 16% nurses, social care workers. 6% bought by teachers, median age, 29, 3/4 of them, 75% under the ages of 35. On the right, again, typical recent buyer, Nicola, community nurse, bought a 3-bedroom home on our Middle Meadows site in County Durham in February last year. Single purchaser that bought a home for GBP 155,000 and paying mortgages of GBP 579 per month, coming to a couple of more case studies in a minute. The other area that's really important vis-à-vis our customers is focus on quality. As Stefan mentioned, we've been operating at 5-star levels, over 90% currently, just under 92%. Our target remains to be 5-star, every site, every region consistently. We got new homes quality code coming in this year. We're looking to register from the 1 July 2022. We're well placed for that and indeed welcome its introduction. Just couple of quick case studies. This is Louise, who's a charity worker and her partner, Maddy, 28, working an HR. They bought a 2-bedroom home in March last year on our Linkswood Park, in Rotherham, and I think some of you may have been to the site, buying that home for GBP 106,000. And that's costing them just GBP 310 a month to own their own home. And they had been previously renting a 1-bed flat at GBP 500 a month, which had no parking or garden and throughout lockdown was affecting their mental health and well-being. With their savings they are making, I think it's completely -- and owning their own home, their own space, an outdoor space has transformed their lives, their well-being and their financial position. And indeed, with the savings they're making, they are now saving for their upcoming wedding and honeymoon. Second case study, Abby and Dan. Abby is an office administrator, Dan a construction coordinator. They were living at home with Abby's parents and throughout lockdown, perhaps not surprised to say, they began to feel ready to move out as one does living in such close proximity 7 days a week. And after visiting friends and actually, a lot of our customers are word-of-mouth in the local areas, they visited a Gleeson site and inspired to buy one of our homes. They were able to save for the deposit because they've been living at home and bought a 3-bedroom home on our Barnburgh View site, which is near Barnsley, paying GBP 182,000 for that home or GBP 467 a month, about 30% cheaper than renting a similar property in the area. Clearly something to buy the Gleeson Homes, but they have since got engaged and are planning to get married. I think as I've said before, I could expect almost any of the customers who have done a similar case study. So in conclusion, we've had a really strong first 6 months performance. Volume up in Gleeson Homes, nearly 15% against pre-COVID levels, almost 15% up in average sale prices. Structural demand for our new homes is going to be here for the very, very long term. And importantly, we've got strong land pipelines in both Gleeson Homes and Gleeson Land, which we continue to grow and develop. Firmly on track to hit our 2,000 homes by [ June 22 ] this year. And the demand that we are seeing will continue to drive growth well beyond that. Again, we've got a strong balance sheet, team and organizational structures in place to support our sustainable growth ambitions, our controlled growth plan. And I know many of you will be asking, but we will be setting out our medium-term strategic ambitions at the full year results in September, which again, we'll see further to that controlled growth. Shall pause there. I will take Q&A, and I think we're going to start a Q&A in the room. We will need to use a microphone so those online can hear the question. And Aynsley, I think you got your pen up first, followed by James. Just wait for the microphone.

Aynsley Lammin from Investec. Just 2 questions. Firstly, on the margin, obviously, average selling price was up quite strongly. The margin didn't move that much. So presumably, there's some extra cost in there, maybe some investment for growth. And if you compare your margin to the wider kind of industry, normalized 18% to 20% operating margins, looking out to the medium term, is that a kind of sense of ambition for MJ Gleeson? And then secondly, just correct if my interpretation was correct, but you seem to be saying that you're kind of pleased that you kept strategic land. You're pleased with the value that buyer paid, I mean, did it not reawaken your curiosity at all as to if there's an interest out there and maybe put that under strategic review again or not?

I will start with the first question. No, and I think I was clear to point out and I point out before. Gleeson Land is absolutely core to Gleeson as a business. We see significant opportunity in the business. That's why we retained it 3 years ago. It's profitable. It generates a strong cash conversion, and it really helps support the growth of Homes whilst remaining a dividend player -- a dividend payer. So absolutely core to the business. In terms of the margins, and I'll get Stefan talk about the cost pressures. I think whilst we're in growth mode, for us, it's 30% or just above gross margin business where you'll see our gross margins gradually recover to that 30% over the next sort of 18 months, 2 years, and sort of 15% operating profit. We have been investing, as you'd expect, in overhead for growth, particularly in areas around sort of customer care, commercial and technical. And Stefan, anything you want to perhaps add just to that?

So to break it down, gross margin, as James said, we're a 30% margin business, quite confident in the medium term, we'll return to that. The increases in selling prices give us that confidence. But the cost increases have been quite significant, both the inflationary cost increases plus those that are coming through now on and the Environment Act and the Future Homes Standard, they are adding cost. We're also investing on site quality and on health and safety. So we've got new policies, the additional cost on scaffolding, for example. So that has also partly offset those higher selling prices. But we are quite confident we'll return to 30%. But you will see that return as a steady growth in the gross margin. As for pushing up from the kind of 15% operating margin to the -- was it 18%, is suggesting, look, while we are the fastest-growing housebuilder, we need to invest in overheads ahead of opening sites and delivering that extra volume. That is likely to keep the pressure on operating margin. So don't expect it to be 18% in the medium term. But we're quite confident returning to a 30% growth, 15% operating margin and to maintain that as we maintain our double-digit volume growth. James?

There's a comment in the statement about you having delayed release of a large number of plots towards the end of the first half for lease in the -- early in the second half. I just wondered, is that -- are they sort of site-specific decisions or is that part of the sort of central policy change, what was going on there?

Yes. I think listen, delay is probably the wrong term. I mean, I think we've been making some quite -- what we have seen coming through is we've had some delayed site openings, which pushes back some of the releases. But what we've been very clear to do certainly over the last 3 years is when we open sites, what we don't do is rush to sell off sites, which was essentially the old model of putting a sales cabin on as soon as you put a spade in the ground. For us, we will only start selling on a site once we got sales show arenas set up and particularly with such a strong sales market selling early, just [ as easy as ] giving away top line. So I think that's what we're always seeing here is a managed sales release as opposed to, call it, deliberate delays, so to speak. Charlie?

Charlie Campbell, Liberum. A couple of questions from me. So on the Home side, you mentioned First Homes and starting to do that. I just wonder if that will become an important part of the business. And if so, then maybe if you could explain just how that works for us, that would be great. And then secondly, on Land, Gladman is an interesting kind of business, clearly an interesting transaction. But it does seem that your business is much more efficient than theirs, perhaps given what fewer people achieving kind of a not dissimilar result and also turning the plots faster as well. So I just wondered if that's a fair comparison and maybe just sort of what lessons we can draw from making that kind of comparison.

Thank you. So on the First Homes, that is a recent initiative by government, and it's around selling discounted homes, discounted 30% to market value. And the requirement is for up to 25% of the affordable element of homes on any particular site to be sold as First Homes, can be higher. We sort -- we welcome that. We've been part of the program that sort of pump-primed that, where existing homes are being sold as First Homes, where we've been able to apply for essentially a government grant to essentially subsidize that discount whilst the program gets up and running. But on new sites, absolutely, we would seek to do First Homes. It's something actually we've done in a slightly different way historically. We often sought to sell homes on our sites at a 20% discount to market in terms of offering affordable homes provision rather than selling to housing associations for affordable rent. So actually it's something we're sort of geared up to do, something we'd like to do. I think, works something really well with the Gleeson model. But it will always just be that 25% of the affordable element on some sites. Where we're talking to local authority landowners, we'll often give them the choice of doing a greater proportion of First Homes and/or just selling to key workers as a sort of, if you like, a bit of a partnership type offering, but on partnership in the sense that perhaps some other household has used that word. In terms of the comparison with Gladman, listen, I think they are slightly different businesses. I'm not sure I can necessarily comment particularly on whether we are a lot more efficient or not. But Stefan, have you got a...

Their management team would claim that they are a lot more productive, efficient and profitable. It is a slightly different business. So they -- we don't own land, so we don't take any speculative risk on the land value. We simply take a -- if I use the word cut, we take a fee whereas the Gladman business has a little bit more land ownership. And I would say we are quite choosy about the sites that we choose to promote. So we will look at 10 sites and we will decide not to promote 9 of them and we will promote 1 of them. And so we're very choosy, that means we're very successful. I think we do have the ability to command a slightly higher fee. And we do achieve the best possible price for our land-owning clients. So here's another way of saying, yes, I suppose it is a very...

It is. That's why I talk about well-respected business, that business delivers. If you sign up to sell your -- or to get planning through Gleeson Land, it's 95% probably, it's a bit higher than that. I'm just giving ourselves a little bit of headroom here. It's probably close to 97% success rate. That is really, really high. We're not in the game of what many of the smaller land promoters will do, which is sign up a lot of promotional optional agreements then fail to deliver on them. When we commit to taking a site through, we commit to spending money, our money at risk. And so I think that track record that demonstrates that. Adrian?

Adrian Kearsey, Panmure Gordon. Given what you said about what's happening in Yorkshire, that would indicate that Yorkshire is a very busy region. Would you sort of highlight the variations in terms of how productive currently the different offices are? Would you be able to sort of give us an indication, both in terms of number of active sites, number of completions, what the variation is region by region?

Yes. I think every region. And I think the South and West Yorkshire is -- has been slightly different for 2 reasons. One is actually back 2 years ago, we brought together 2 offices together. They were probably doing just over 200, 250 homes actually but West Yorkshire slightly smaller than the South Yorkshire business. That combined region is now doing 600 today. And I think we always said, look, when a region gets towards 550, we would split a special region, that's essentially what we are now doing. So splitting it back out, so we have an office in Sheffield, an office somewhere between Leeds and Wakefield. All of our other regions are somewhere between 200 and 300 homes per annum. But all of them have growth plans, which will soon go at slightly different rates towards maturity to 400 to 500 homes per annum. I was about to put a time frame on it, but I thought pretty good teams out there strategic plan early, so I paused there. But that's all it is. It's not so much about regional growth rates such that I think we will see good growth in all of those regional offices. Some will be a little bit slower than others. Cumbria is very different to Greater Manchester as for example.

And just to maybe put a little bit of color on it but not quite the numbers you were looking for. On Slide 41, you can see what our platform is. Yorkshire, roughly Yorkshire, the Yorkshire and Midlands division, which is now 3 regions, it's the same roughly as the Northeast region, which is Northeast division, which is 3 regions. Northwest is also 3 regions, slightly lower volumes there, the Cumbria region is a newer region. And Merseyside and Manchester, slightly smaller regions.

It reflects the maturity of the business rather than growth rates as much as anything else.

I have 2 more questions, if I may. Given what you said about Gleeson Land and about not taking speculative direct ownership, is that a policy you're going to continue? You're not sort of looking at your balance sheet tempted to spend?

No. I mean, it's -- historically, the business did take some speculative risk. I think there are 3 sites that sort of still sit in the portfolio, very modest sort of relatively modest land values. But now, we will stick to the capital-light model works for us and I wouldn't want to vary from that.

Last 1 for me. The plot of or sort of the land that you've taken on within the Homes division, are you finding that you're having to incur more remediation costs or is it pretty much sort of as it has been? I mean, obviously, differs site by site, but is it broadly in line with where it has been historically?

I'd say it's broadly in line. And as you said, it varies enormously from site to site. And it's not always as simple as sort of greenfield versus brownfield. Some brownfield sites will be buying from landowners who have remediated land or have done the remediation themselves. So yes, it's a huge spread is the answer.

Sam Cullen from Peel Hunt. I've got a couple. First 1 is kind of an extension of Adrian's first question. I'm conscious we're in February, not September, but if I look at the 8 divisions and your 500 units per division number, and what did you say, 30 homes per site, is kind of 16 sites per division, which would imply sort of 130-odd sites. If you're growing at 10 a year, is 5 years a mad framework to be thinking of 8 times 500 equals 4,000?

We'll announce our new medium-term target in September.

Okay. The second 1 is on the house price gap. How do you think about -- let's assume you closed that [ 35,000 ] gap or whatever it is. How do you think about your customers' ability to raise the additional cash for the deposit in that situation, given Help to Buy is dropping away? And secondly, as the house prices increase, are you at risk of needing but more affordable homes or for what content onto your sites?

So I think I'll start. I mean, I think 2 things. So I'll start with your first question actually. When we talk about closing the gap, what we're not necessarily trying to do here is close that affordability headroom for a customer. Affordability remains really, really important. What we're trying to do is close, if you like, the gap where we were underpricing homes on sites. And those are not sort of mutually, I think [indiscernible] quite the right word. In terms of affordability gap, the key thing for us is ensuring that when we buy sites, we are pricing those homes at the right price from the very start. Important we're buying sites where there is -- where we know that we will have homes that are affordable for our customers, and that's the key thing. And that's continuing to focus on those really difficult sites in areas of deprivation, regeneration brownfield sites rather than being tempted to simply do what a lot of the other housebuilders do, which is find those nice, much easier sites in slightly sort of better areas. So the affordability is about buying the right size, the right location. Closing the pricing gap is just making sure we sell them for market value. And I would expect that affordability headroom to a large extent to remain I think that's really important.

Just to add up on the deposit question, if you look at those customers that used a, let's call it, a non-Help to Buy mortgage, which is the vast majority of non-Help to Buy customers, cash buyers are quite small for Gleeson Homes. The average deposit was 17.5%. So our customers can generate that deposit. And our customers tend to be more working class. They tend to be paid overtime. And the work is out there, and they can pretty much work as much over time as they're willing to work. So 9 months, a young couple working a couple of days and half a day the weekend overtime, they save their deposit. So we are not finding our customers are struggling with deposits at all.

And Sam, just remind me of your second question.

If prices do increase, do you then start having to put more affordable content on to your site?

I thought what I would say -- I would say no. No, I mean, I think, listen, we -- the affordability really is driven -- sorry, having an affordable homes on sites are driven around, driven by sort of local policy that's driven by site viability. And whether -- all sites will have an affordability requirement, we will either seek to have that removed because of site viability, where we have to do affordable homes, we will -- we would look to do a discounted market for sale, which as we've always done historically or First Homes or shared equity products. And then the sort of final piece of that, that we would then do would be affordable for rent to housing associations. But I mean, those are very, very low number. We have a -- we want to promote homeownership wherever possible on our sites, even if it's at a market discount or through shared ownership. But there are increasing pressures, but I don't think it's going to -- you won't see that mix substantially change in the near term.

John Fraser-Andrews, HSBC. Three for me, please. The first 1 is on land. Do you see the current heat in the market calling to most companies, seeing that the new competitors are coming to your regeneration sites? And perhaps you could just outline for my benefit who typically are your competitors on those sites. Secondly, in Gleeson Homes, the differences that you're outlining there with Gladman, could you just give me an indication of where your sweet spot is regionally and size of a site you choose to promote? And then finally, on building safety, the 50 buildings you've identified, you've not provisioned against. Can you say, as a contractor, if you're becoming embroiled in the conversation with government?

So I'll start with the last. So as the government has started to look back over a period now of 30 years, it's perhaps very surprised we've come into scope. We exited the business in -- exited construction in 2005. Those buildings that we are disclosing are all essentially mid-rise, they were all built to building safety regulations at the time. They're all signed off, and actually, since their construction have all passed fire safety assessments regularly, typically every 3 years. So we don't believe we've got any liability in respect of those buildings. And accordingly, we haven't made any provision in relation into those buildings. We do expect there to be a cost to the industry as a whole, and that includes ourselves. The government is talking about that GBP 4 billion number. I think there are many in the industry and elsewhere, we think that is a somewhat overinflated figure. And we've been advocating and I think it will end up going there being some sort of a fiscal solution in terms of the monies that have been raised. So we are already subject to that 4% RPD e-tax on top of our corporation tax rate above [ 25 ] -- profits of GBP 25 million from April. My expectation is we will see something incremental to that coming through. In terms of the Gleeson Land where it operates, it really operates across the sort of Southeast down into the Southwest, almost sort of south of the line from Essex through Oxfordshire sort of across there. A typical site size is -- I'm sorry, what it doesn't do is it tends -- it doesn't do sort of city centers so it's everything outside the end of [ 25 ]. So it's larger housing sites near of urban areas. [ Double site ] size, I mean, varies from anything from 50, 70 homes up to about sort of 500 homes. The midsize and larger sizes are the focus, but it doesn't mean we won't have some of those smaller sizes or indeed, seek to lock in some of those smaller sites under promotional option agreements. And then on the other question on the land markets. Certainly, in Gleeson Homes, we are seeing more competition for sites and -- but we're not -- we are seeing more being paid for -- certainly bid for some of those sites. Our average land cost the last 3 years has gone from just under GBP 10,000 to GBP 10,900 today. We have been securing closer to GBP 13,000. We are seeing some increase in the -- what we're paying per plot. I've seen even before this, we were expecting to see that. So obviously we're seeing really significant pressure on that. I think what we will see, I think, for a period is there's quite a lot of, I suppose, hot capital out there, sort of investors as opposed to housebuilders or housing associations bidding for sites. Does make it more challenging, hasn't stopped us getting sites at the right hurdle rates. And I don't expect that to -- I think some of those pressures will drop off when you see some of that house price inflation soften, but I think it's something we're going to have to manage for the short term. On Gleeson Land, I guess we have almost the opposite effect in terms of the prices we're achieving for land is -- gives us some quite positive momentum and want to get planning consent. We're seeing a lot of competition for those sites and some really strong prices being paid. Any more? Any online questions?

Yes, we've got a couple of questions from the webcast. The first question is from Andy Murphy from Edison Research. Dividend. What determines where in the 3 to 5x cover range leasing settles at the end of the year?

Dividend, Stefan.

Earnings. So...

[ I am right to answer those ] question.

Well, I think it what determined and it will be principally earnings. So 6p dividend per share based on the analyst's current forecast, assuming, therefore, a full year dividend of 18p, I think would be covered at 3.7x. So I'd take what's going to drive that cover level will be -- what will drive the earnings will be -- the dividend will be earnings. And we will stay within that 3 to 5x range. I don't think we're going to move around that range wildly. And so I'd expect dividend to follow earnings growth and, therefore, to remain around the mid-level between 3 and 5x.

Andy Murphy, second question, from Edison Research. Air-sourced heat pumps. What is the additional cost of an air source heat pump versus conventional gas boilers dwellings -- [ product dwelling ], sorry. And is it expected to fall dramatically over time?

So we -- at the moment, it's about sort of GBP 5,000 per home. It's not just obviously the cost there, sort of, the pump that everything that's required to put that into place. I think we, like the industry, expect it to fall. I think it's perhaps a question then by how much and over what time. I think it will probably halve but I think it may take 2 or 3, possibly 4 years to do that. And a lot of that will be around supply chain capacity.

Thanks. No further questions at the moment, so I'd like to hand back to you, James for closing remarks.

Thank you. So I think if there are no more questions, we will be around for a few minutes to throw any other bits and pieces, but thank you for attending. Again, great to see you all in person. Thanks very much.