MJ Gleeson plc (GLE) Earnings Call Transcript & Summary

Hello, and welcome to the MJ Gleeson Trading Update Call. My name is Saska, and I will be your coordinator for today's event. Today's call is being recorded. [Operator Instructions] I will now hand you over to Graham Prothero, CEO, and Stefan Allanson, CFO, to begin today's conference. Please go ahead.

Thank you, Saska. Good morning, everybody. This is Graham Prothero, CEO of MJ Gleeson plc. You'll forgive me if I'm a little hoarse this morning. I'm joined as ever by CFO, Stefan Allanson. You can't see us, but Stefan is looking resplendent this morning in his England shirt. Let me quickly summarize this morning's trading update and the news regarding our first partnership agreement, and then we'll be pleased to take your questions. Overall, we're pleased with our robust performance in still quite challenging markets. Gleeson Homes completed the sale of 1,772 new homes during the period, up 2.8% over last year, and we expect the division to report an operating profit of circa GBP 30 million, which is ahead of market expectations. As a result of our strong focus on quality, we were pleased to achieve 5-star recommendation status in all 6 of our operating regions. You'll also see that we hold a forward order book of 559 plots. That's a lower number than last year, but actually a higher proportion of that was for open market sales. And despite continuing challenges in the planning system, Gleeson Land was pleased to complete the sale of 4 sites. Although owing to the timing of the general election, one significant disposal has been pushed out of the year. Frustratingly, therefore, our Gleeson Land is expected to report an operating profit of circa GBP 2 million. Pleasingly, however, we finished the period with net cash of some GBP 12.9 million, which compares with just GBP 5.2 million last year. So all in all, we anticipate reporting results for the year that are broadly in line with market expectations. Separately, we're delighted to announce that we've now entered our first partnership agreement, and we're very excited about the additional partnerships we expect to announce over the coming months. We'll host a full briefing on Gleeson partnerships in due course. And looking ahead, we were pleased with the comments made by the Chancellor in her first speech. The measures she announced are essential if we're to get close to delivering the number of new homes this country needs, and we're encouraged by the determination we've seen since the election to get things done. Against this backdrop, we're even more confident of delivering on Gleeson's medium-term objectives. In summary, we expect demand for our affordable new homes to strengthen throughout FY '25 with growth accelerating into FY '26. Thank you. And Stefan and I will now be pleased to take your questions.

[Operator Instructions] And first up, we have Aynsley Lammin from Investec.

I have three from me, I think. Just firstly, I wonder if you give a bit more color on the partnership deal that you're -- you've signed the agreement and what the pipeline looks like just in terms of product mix, type of sites and maybe the cash profile you'd expect from some of those deals going forward? And then secondly, just on the net cash, obviously, quite a bit better than we expected. What were the key drivers around that? And I guess just on Gleeson Land, the confidence that, that significant land sale completes in FY '25. Obviously, you didn't manage to do it in previous financial year, but confident that, that completes soon.

Thanks for that. So I'll take the first and third, and I'll pass over to Stefan to talk to you about cash. So perhaps I'll start with your third question, Gleeson Land, just to deal with that. So yes, I mean, the challenge what you've seen, as you know, Gleeson Land operates in the sort of greenfields of Surrey and Sussex, which is where they are excellent at obtaining planning. Those are the very high-value areas. The problem is against the febrile political environment in an election year. They're particularly subject to planning games as it were. And so yes, we did see at least 1 site that was kind of a specific victim of those games. And so that's been bumped out of the year. It's -- the reality is it's ready to go, has full recommendation, but we don't yet have planning on that site. So we would hope that we will be able to complete that in this year. But I mean, just to give you the context on that, it was bumped from 7 successive planning committees. You tell me that that's not political. So yes, as I say, as we go into the new year, we have, I think, 7 sites we're planning. So we would be confident of turning to a more normal performance in FY '25. The partnerships deal. We're not actually announcing the details of that this morning. Aynsley, as you know, we will put that into a sort of more comprehensive update sometime hopefully during the summer. But very pleased with that transaction. It's on a site that we have owned for a while, but it's -- the key features of this, what's delighted me is this was a site that was challenging for us because required -- it's a largest site but required significant reprofiling and remediation, and it's the partnership deal that's enabled us to get that site going in a situation where we might have otherwise been reticent to commit if it were pure open market sales. But because of the deal that we've been able to sign with a major blue-chip housing association, the [indiscernible] are on site and we're reprofiling and looking forward to seeing the units going up during the year. So fantastic and exactly the sort of partnership deal that we want to do, which is both valuable to the business in itself and also enhances obviously, our core open market business. Stefan, did you want to talk about cash?

Yes. So end of the year with I think, a very healthy cash balance, was a little higher than I think a number of people were expecting. A couple of reasons for that. So our control of working capital on the Gleeson Homes site has been strong. But also we did acquire and open fewer sites than we had expected. So where I'd be guiding cash going forward is to expect that we end the year with a cash surplus perhaps in the single digit millions.

Our next question now comes from Sam Cullen from Peel Hunt.

Just two questions for me, really. The first one being on price and what you can tell us on kind of pricing trends and the delta between price and build costs and how sales rates kind of flow into that, the usual sort of question on that one on the homes business. And then the second one really on the land business, obviously, outlined kind of the challenges you've had over the last couple of years in that business looking forward with a bit more kind of positivity maybe in a constructive backdrop kind of politically. What scope do you see for that business to kind of increase and improve its cadence of deals over the medium term?

Okay. So just on your homes question. It's very, very interesting, actually. So I think ASP will be -- they're all there about the same as last year, about -- I think it's about 0.3 -- 185.8 or 185.9 or something as opposed to 186.1 or 186.2, that close. But it's a very interesting shift in there. So we did see -- so pricing held up well. In fact, if you like, at the gross level, we're -- I think we have kind of 4%, 5% improvement in selling prices. But then we've given a lot of that back because incentives have increased, and in fact, extras have come off a little bit. And as Stefan rightly pointed out to me last night, that's because we're giving some of that away. So the net pricing that we've achieved is up about 1.5% in actual pricing levels. But so -- but then the mix has brought the average selling price down a little bit. So I think actually there's good news in there. We're continuing to see that dynamic that we are consciously pushing prices where we can. And the market is taking that. It's not as if -- there's absolutely no sign of a challenge or anything like capitulation in selling prices. So that's kind of the story on pricing. And on build costs, yes, I mean, the reality, I think -- and we're still bottoming this because, as you can imagine, a number of moving parts. I'm not going to give you a number this morning because we're still working that through. Broadly flat, I would say, is the position on our building costs. But if you say materials, several -- a lot of areas you'll be aware of which are still pushing up. But we are working hard, and I think I told you in February or March on our procurement deals. And so we're sort of holding back. We're not being impacted by all of those increases that the commercial team are doing a great job in that regard. And then subcontractors, as always, I'm trying to rebuild their margins into any sign of strength. So not a clear pattern, but broadly flat, I suspect, when we've actually bottomed out the numbers. But we will give you [indiscernible] on that in September when we're happy with the arithmetic. And on Gleeson Land, yes, I mean it's interesting. And it's been the perpetual challenge for that business that it is a -- it's lumpy in the way that it brings forward its profits and timing is just some -- I mean trying to time it into 6 months and 12 months chunks, is not impossible. We are very confident in the portfolio we have in that business. Something like 70 sites, 17,000 homes. As I say, we've got planned permission on several of those sites and several more lined up, which hopefully will benefit both with -- into, as I say, we're moving on from the election year and also more generally with the new government that we're pleased to see is promising to deliver on its commitment to make planning more predictable and more effective, I suppose, to more efficient. And we'll see how that plays out. I suppose -- what I'd also say is we're kind of taking -- I mean, Guy, since he's taken on that business, has really stepped back and looked at how do we build a portfolio that is more predictable. Now the reality, Sam, as you know, is that we can't deliver on -- we can't sort of wave the magic wand and deliver on a different portfolio in 12 months. But what I would say is the team is in great shape, the structure of the team, which we did talk to you a little bit about in March is [ betting ] down really well, the regional focus, the presence in each of the 3 areas, Southern, Western and Central and that's really starting to work. We've brought in 5 excellent sites during the year, and there are more about to drop into that portfolio. So the position today, I would say, is -- I'm much happier with it than when I first arrived. I think Guy feels exactly the same. I'm not going to promise that that's going to -- we're going to go straight to a flat level of delivery from '25 and '26 onwards. But for sure, '25 will be stronger than '24. And hopefully, we'll start to achieve on that. And then you'll see get back to a steadier level of delivery.

And up next, we have Alastair Stewart from Progressive Equity Research.

A couple of questions on the land side. The -- can you put a bit more color on the underlying demand for land, at least a couple of the house builders recently have signaled that they're back in the land market quite significantly. So a bit of color there, as should say. And second question was on the deferred sites. Unless I misheard you earlier, Graham, you said tell me that that's not political. Again, could you provide a little bit of color, obviously, discreetly. But that area -- those sort of counties have been in the past notoriously obfuscating in terms of planning. Anything you can point us towards?

Well, I'm mindful Alastair, we're not in the pub over a pint. So I will be careful what I say. But look, let's...