MJ Gleeson plc (GLE) Earnings Call Transcript & Summary

Okay. I want to take the first and third of those, Andy, thank you, and then I'll ask Stefan to talk to you about debt. So the land sales [indiscernible] so this is Gleeson Land. So really, their selection is at the point whereby we take the site on as a cycle we would promote. So this isn't Gleeson Homes disposing of land. This is Gleeson Land. And so as I say that decision is made at the outset. We don't take on anything. We take on a small proportion of the sites that we're showing and then we will put in all our efforts over the next, whatever it is, 3, 5, 10 years, to promote that site. And then that site will be brought forward the sale once we procure the planning permission. Just on interest rates, I think we're a little early. I think the very initial intelligence is that we're seeing that the buyers are not massively increased in numbers but increased in quality. So we're seeing some pretty engaged conversations on site, both between Christmas and New Year and since. But that really is very early. I mean, this is really the -- it's this week, is the sort of first week, but I think we get a good indication of whether any sort of pickup. So that really is a tentative intel, but it's absolutely up to the minutes, if you like, Andy. And I'll pass you over to Stefan to talk about the debt.

Thanks, Graham. [indiscernible] the widened mortgage market rate and availability and affordability. Actually, for [indiscernible] obviously with increase [indiscernible] particularly at the lower end of earnings range. So we see National Living Wage increased 10%. The Real Living Wage increased 10%. I think quite strong and lower in that it might not be so good at the higher end of [indiscernible] say like in the range that makes the people on this call on go increase perhaps not quite at that sense. But [indiscernible] pretty good to earnings has been increasing. Prices have been flat across the sector and not only just over the cost of the sector in the last 16 months and mortgage rates are now actually [indiscernible] by looking at a lease you're going to be looking at mortgage costs that are perhaps 30% lower than the cost of renting. Of course, the other thing rental costs are [indiscernible] So the environment should be very positive for us builders. They come back to confidence and that what we need to see coming through in spring timeframe. Just to get on to your other question about debt and plus target. So we don't want to fund our business with debt. So we're not aiming to and each year with a significant amount of debt. We had sales back in September and then repeat in November, but we would expect to end each year with a very small amount of net cash. We may end of this year, plus we had a very small amount of net debt. But we're not going to be deviating hugely from that target of being broadly net neutral on a net debt cash basis.

And our next question comes from Harry Goad from Berenberg.

My question, most of them have been addressed already. But interest, can you talk a bit about build cost inflation and whether you're yet at the point where you're seeing some benefits of that sort of moving from the big inflation of to say the last year to maybe some deflation positive income trade and subcontractors this year?

I think we're pretty much, Harry, in line with what we guided before. So we are anticipating that overall, the cost -- the build costs should be kind of down about 3% to 4% this year. And that is very much weighted towards subcontractors and material pressures continue.

And our next question comes from Clyde Lewis from Peel Hunt.

I think most of the questions have been asked, but 1 which I'd love to hear a little bit more about sort of what's been happening around recent pricing trends? I mean, clearly, some of the headline industries from Halifax, et cetera, haven't been that bad. Have you actually started to see a slightly further picture in terms of sort of pricing and incentives over the last couple of months and it'd be useful to get a bit of a view as to how the new year has started, even though we're only a week and a bit into it?

Yes. Interesting question, Clyde. The market is geographically uneven, as you know, but it's also uneven even within the north and even within certain of our regions. And so, I would characterize this as still not principally a problem of price. And what that translates to is, whilst we are accepting that we're having to provide incentives, those are not ripping our heart out, we're still manageable. And on certain sites, we're actually still putting prices up. And we've looked at -- we're looking very carefully. I mean, this is the sort of market where rewards hard work. So we are being extremely granular about our pricing strategy side by side and plot by plot, and I would say that pricing is still pretty robust, and we are selling we are -- where we're putting prices up, we're continuing to sell. We're talking price increases of the order of kind of 2% to 3%. And this is not the post-COVID stick 5% to 10% on it. But it is interesting. What it tells you that on -- and this is not 1 or 2 sites. This is a good proportion of the sites you put on 2% to 3% and the market will pay that. So a very interesting dynamic out in the market, and I can exactly see why the Halifax and the nationwide have to perhaps eat their words of a year ago and accept that pricing has remained firm.

And the start to the new year in terms of sort of visitors and people clicking on the website?

Yes. I mean, really, minimal evidence as you obviously know, Clyde. But as I've said just now, I think we are seeing not massively increased activity, but better quality and activity is what I would, how I characterize it. But it really needs kind of the next 2 or 3 weeks to tell us how January plays out. And we'll update you much more on that when we speak in February. But yes, if you like, the intel that I'm getting back when I talk to the sites and the M&A and MD is that probably not a massive increase in numbers but a better quality, a more engaged level of buyer, which is not untypical following the holiday, people make those decisions and actually say, right, I want to get on with this now.

[Operator Instructions] And next, we take Sam Cullen from Peel Hunt.

I just got 1 possible 1 is a little bit kind of backward looking. Just in terms of this today's statement versus prior 1 at the AGM for 7 weeks ago. What changed in the past 7 weeks? Is it the issues you've seen on those older prices getting worse or you decided to grow a line under them and get us quicker than you perhaps were? Or is that a recovery in the newer sites in the sales side, some of these new sites not being as rapid as you might 6, 7 weeks ago just trying to, you have touched I guess, in perhaps [indiscernible] question, but just trying to gauge where you are on those 2.

Yes. Thanks, Sam. Fair question. So what changed? Nothing changed. Let's be clear. So what happened -- if you think of the nature of these items, they are individually not material but they aggregate to a significant number, as we've disclosed, impact of 1 last to 2% on the margin. So we've known about these sites with these characteristics for many months. And kind of not in my nature to come in as a new chief exec and start 1 to blame everything in the past. And you'll note that I haven't used the word legacy because I always think that's a cop-out. But -- so just to ride is on 1 site, you find it on other site, and you find it on -- you find something similar on another site or the new management team that we put in place finds these features. And although individually non-material over time, the cumulative effect is material. Now in a market -- in a normal market, obviously, we would go through site. We would have a contingency in our cost expectations for those sites you get a bit of payout from increasing selling prices and a bit of good luck here and there. And you were the odd overspend that happens, that's part of life. But in the current market, we have contingencies used up. And the other aspects of this market that we've already discussed, the bulk discounts, the incentives, et cetera, use up any slack that you have in your margin. So it just -- it seems sensible when we have this other element, which is really, as I say, it is kind of historic typical -- I think I may have already given an example on the call. But if you -- someone has entered the site and quite aggressively decided and I'm going back several years, made the decision to implement planning conditions to fulfill them in a way that is not in line with what the plan has requested, you take the example of a sound bond on a particular site, whereby the decision was made while we can get the same effect with our cheaper solution. When you discover not just months, but years into that site, actually, you know the plan is not going to accept that solution. And not only are they not going to accept it, they want it ripped out and they want their solution put in. Suddenly, you're staring down the barrel of the stick end of GBP 0.5 million rework on that site. And if you've got several 1 example of that, you can wear it and you've got several examples of that, then it starts to become a number that you think, well, hang on, that is something which I think we should disclose otherwise you're going to be looking at us and saying, your margin is sagging. And why should you be sagging any more than anyone else. And so that's the reason for just sharing this other element, which, as I say, I think we've got a pretty good gross of it now, and the team is getting on top of it. It will take us this year and a bit of next year to work this stuff through, but I'm pretty confident that we know what needs -- where we know what needs to be done. We know which the sites are, and we just need to tie that up. So hopefully, Sam, that gives you a little bit more color. And the reason -- so at what point, this isn't really -- you just covered this between the AGM and now. It's at what point you make the decision that, look, this is now cumulatively a material number, which we should help people by disclosing that and saying, look, this is a significant element of what's depressing the margin. And of course, it's at the end of the period when you start to pull together your accounts will [indiscernible] in this case, the half year that you do that analysis more carefully. You're obviously not doing that on a month-by-month basis. So that's why this turns up in a half year trading update rather than just -- rather than AGM update when you wouldn't typically be doing a more granular work on your margins. Does that give you a bit more color, Sam, on what it is and why now?

Yes, very helpful.

And as there are currently no further questions, I would like to hand the call back over to you, Graham, for any additional or closing remarks.

Great. Thank you very much. Well, ladies and gents, thanks very much for attending the call. Hopefully, we've made clear the reason why, obviously, this -- it's not huge number we're discussing here. But day and age, we felt that it was important that we didn't sit on that information. So apologies for surprising you with the early update this morning, but always disappointing to have news like that to get out, but it's not to be darker and as I say, very much all to play bore in the second half. So we will look forward to giving you a better update in February. And let's all hope that when we talk to you in February, we're talking about a decent uplift in the spring selling market. And I think we're seeing some of you later in the week. So I will look forward to catching up with you on, I believe that's the state. Many thanks for your time, and have a good day.

Thank you. Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.