MJ Gleeson plc (GLE) Earnings Call Transcript & Summary

Good morning, everybody. Thank you for making it on time. Thank you for coming. Welcome to MJ Gleeson's interim results for the 6 months to 31st of December '24. You know the format, I'll give you a quick summary. Stefan will then run you through the numbers in a bit of detail, and I'll come back and talk a bit about operations and strategy and leave plenty of time for your questions. So without further ado, I would characterize the 6 months as a solid performance in an unexciting market. No surprises there. But perhaps more importantly, I am really pleased with the progress we're making on the efforts that we're putting in still to refine and improve the operations in both parts of the business, and we'll talk a little bit about that over the next half hour or so. But as I say, pleased, our home sales, a number of homes were up at 801. Revenues were up a bit. And our net reservation rate was up some 13% on the comparable period in the prior year, although 0.44, I'm still in that market, nothing to write home about, I have to say. The margin continues to be under pressure. Gross margin was 20.6%. That's disappointing, but not disastrous. We can talk about the reasons for that. You're well aware of what they are. Very importantly, pleased that we retained our customer recommend score in every region at 5 star, and that's an important focus for us right now as we transition to the HBS new scoring system. Really importantly, made good progress on our site openings plan. We'll talk about that. That's obviously critical for the achievement of our exciting growth ambitions and still continuing to see good strong interest in our nascent partnerships business. Over in Gleeson Land, as you're aware, we didn't complete any sales in the first half. But we did make good progress on some very promising opportunities, which should come to fruition in the second half, and that gives us confidence for our forecast there. And a great January -- 3 planning consents achieved in January, which is excellent. And we -- it's really good that we're starting to see the benefit in the numbers of the restructure guy put in place and particularly seeing some good success in the land market. So overall, I'm happy that the business is very well positioned for a market recovery. Turning then just to the period since the holidays. It's fair to say, I mean, the macro backdrop has not been encouraging. I don't think any of us expected it to be much different. But we've come into the year. We had that early turmoil in the bond markets and then that was interpreted by various sections of the presses, carnage in the mortgage markets and we are seeing business and consumer's confidence surveys turning down, still looking very, very cautious. We kind of anticipated that, that would be the case. I don't think anybody thought we were going to come back and see January kick off and after the races. And so we've been working very hard and very proactively to look at -- we know the customers are out there, but they need incentivization. So we -- and there's no substitute for a real kind of granular focus. So it's hard work. It's weak site by site, it's week by week, and it's a real senior focus. And we're pushing prices where we can, but adjusting incentives where we need to, to make sure we're really on the front foot and putting our best foot forward. And so far, it would appear that we're making our own luck. We've got a -- but strong sales rate of 0.77% through January, which we're very pleased with. Just to reassure you, that doesn't mean we're giving the homes away. Our average incentives in January have been up 4.3%, which compares with 3.5% and year-to-date. So as I say, I think it's really that hard work and that targeting of the incentives more than just dumping incentives as it were. So we'll see, if that holds. But at that point, I will hand you over to Stefan to run you through the numbers.

Thank you, Graham, and good morning, everyone. So we were very pleased with the first half performance in a market that remained pretty subdued up to the new year. Despite those market conditions, first half results were in line with our expectations, and we grew revenue by 4.2% to just under GBP 158 million. I will take you through the divisional operating performance on the next few slides to highlight a few points. Gleeson Homes operating profit was 10.8% lower at GBP 9.1 million for the half year. And as expected, Gleeson Land did not complete any sales in the first half and report a loss as a result, a small loss. Group overheads were slightly lower and interest costs were also slightly lower, reflecting lower average borrowings during the first half compared to the first half last year. As a result of that first half loss in Gleeson Land and lower operating margin in Gleeson Homes , the group's profit before tax was 50% lower at GBP 3.6 million. Now turning to divisional results. In Gleeson Homes, volumes grew by 4.2% to 801 homes completed, with a lower proportion coming from multi-unit sales, 95 units for multiunit sales. Pleasingly, average selling prices were up 4.8%, and that was driven by continued increases in underlying selling prices of 0.8% and 4% coming from mix, and that was a lower proportion from multiunit completions and a slightly richer house type mix. On open market sales, we continued to increase gross prices by 2.3%, but incentives were also higher. Extras were a little lower. And those higher incentives, which are currently at about 4.3% meant that underlying house prices were up only 0.8%. Gross profit in Gleeson Homes was lower at GBP 2.8 million, GBP 32.1 million, and that includes a small GBP 200,000 profit on the sale of some surplus land in East Yorkshire. You'll remember a few years ago, we would occasionally have a land sale and like most house builders, if we have a surplus site a bit too much in one region, we might sell a piece of land. So those gross margins that Graham mentioned, 20.6% in the first half. That was 390 basis points lower than the prior year, and that reflects this increase in incentives. We did see some build cost inflation over the period of 0.9%, almost 1%. We're still selling on some sites that we had hoped to close a little earlier. So we have extended prelim costs. And of course, we are still taking orders on multiunit sales, which attract a higher discount than open market sales. And so as a result, margin was lower. We do expect -- as we had flagged before, we said that margins in the first half would be at the low point. We do expect margins in the second half to recover to continue to increase. And then beyond that in future years to continue increasing. Overhead costs were 6.9% lower at GBP 23.1 million. That reflects reduced headcount. Our head count was 5.5% lower at the end of December than December the year before. And we had some other lower costs, particularly marketing costs. So for the first half, Gleeson Homes delivered operating profit of GBP 9.1 million and an operating margin of 5.8%. Now some of the detail I've just given you there isn't on this slide, if you look at the appendices, the final pages, the appendices, you'll see some of that detail and a bit more there. Now looking at Gleeson Homes forward order book. We grew that by 6.8% grew from the start of the year to 597 forward orders that was supported by another partnership agreement we entered into in the first half and some further multiunit orders. We do aim to rebuild the forward order book by the end of this financial year. And we're particularly encouraged by the strong start we've seen in the first 4 weeks of this year. Now turning to Gleeson Land. We didn't expect Gleeson Land to complete the sale in the first half. We flagged that back in September, but we are currently marketing 8 sites. And we have terms agreed on a number of those sites already. We do expect those to land somewhere between 4 and 8 completions to land in the second half. They are all likely to be in the back end of the year, all in Q4, many of them likely to be in June. So the division incurred -- without any sales in the first half, incurred just overhead costs. We had a small increase in provisions and as a result, a reported loss of GBP 1.9 million. Now turning to the balance sheet. Inventories increased GBP 12.4 million to GBP 370.5 million. With roughly 70% of that increase being in Gleeson Homes. Gleeson Homes purchased 10 sites in the first half at a good first half with just under 1,000 plots on those 10 sites. The cost of those purchases was higher than normal. It was GBP 23.5 million for those 10 sites. Now 2 of these sites were a little larger than usual and more expensive than usual, but they reflect the quite oven-ready nature of those 2 sites, much more so than our typical site. And that's quite unusual. We don't expect that to repeat. We expect the average to fall back down to more normal levels. As a result, the average land width in the balance sheet per plot acquired was higher at GBP 14,600, still significantly less than 10% of expected selling prices on those sites. The build WIP reduced by GBP 9.2 million. That reflects us building on fewer sites than we're building on in December last year. Again, we flagged that, that was likely to happen in the first half. We're building on 75 sites compared to 79 at the end of December 2023. Gleeson Land increased its WIP by GBP 3.6 million overall, that came because the portfolio is now starting to grow again. We had a portfolio of 73 sites compared to 71 a year ago. We also didn't have any sales in the first half, so there was no accumulated build WIP or WIP released to the P&L. So that remained on the balance sheet. And we continued to invest in progressing the portfolio through the site to continue to incur some costs and capitalize those costs. As usual, I would highlight Gleeson Homes land creditors, which at GBP 12.8 million, about 11% of land assets. roughly the same proportion as a year ago. And as a reminder, forgive me, we typically pay for our land -- Gleeson Homes typically pays for its land, when it buys it, doesn't tranche its payments and they have a lot of deferred payments and high creditors. We ended the year with net debt of -- the half year with net debt of GBP 18.1 million, slightly lower than a year ago, and we continue to have a strong and healthy balance sheet. So looking at operating cash flow. Operating cash outflow for the year was GBP 22.2 million higher than first half last year. There's some interesting things going on there. So Gleeson Land had an operating out -- our cash outflow of GBP 6 million compared to the operating inflow had the previous half year of GBP 9 million. That was an unusually high inflow in the first half of last year. So that's a swing of GBP 15 million, which is larger than the difference in group operating cash outflow. Gleeson Homes outflow was -- operating cash outflow was GBP 14 million, and it's quite typical as a seasonal outflow in the first half of the year and was lower than the GBP 20 million in the first half of the previous year. Interest, tax and capital expenditure are broadly in line with our expectations. And as a result, we were very pleased to see slightly lower net debt at the end of the period of GBP 18.1 million. Despite our lower earnings, we do remain quite confident of our full year outlook. In line with the group's capital allocation policy, we will be declaring an interim dividend of 4p per share, unchanged on our prior interim -- prior year -- half year interim dividend of 4p. That dividend will be paid on the 4th of April to shareholders on the register the, 7th of March. And we are reiterating once again, our dividend cover policy of earnings covering dividends, full year earnings covering dividends between 3x and 5x. Final dividend for the full year will be determined by earnings this year, and we'll remain within that 3x to 5x cover policy and very likely towards the lower end of that range. Thank you, and I will hand you back to Graham.

Very good. Thanks, Stefan. So turning to kind of operations and strategy looking at firstly Gleeson Homes. A quick look at the market environment. Like I said, it's still out there, still lacking conviction still cautious. But there are buyers there. And as I say, we're really pleased with our sales rate in January. 0.77% is good, and we'll strive to keep that going. It's far too early, way too early to say, right, war is over, we're off to the races. We need to see that sort of rate of sale over kind of 3, 4 months before we start saying anything like that. But it's a good start to the new year, and we're very pleased with it. Obviously, last week's base rate cut will help although it was again interesting to see significant sections of the media prefer to concentrate on kind of the technical challenges behind the rate cut and the low GDP expectations and inflation curves and what have you. But of course -- but that isn't what gets talked about in the pub. So what we want is that we want the stronger headlines and that's what we'll start to -- start to build the confidence. And so despite what you read in the papers, actually, the mortgage markets are pretty good. There's good availability. The banks are pretty competitive with each other and mortgage rates are stable. It's not a bad time to be looking for a mortgage. We're finding that overall I'm -- so selling prices are steady. We're still pushing prices at every release. Some of those are sticking. Some are not. And again, as I said earlier, it's really important that we're keeping right in tune with that and getting the pricing right, getting the incentives level exactly right. Build cost inflation was very modest in the first half, about 1%. The big question everybody is pondering is what happens over the next 6 months with the NII increases kicking in? We are estimating 2% to 3% over that period. Really, I'm guessing, as always, with this industry and in any industry, the real impact of those NII increases on our supply chain will depend on the strength of the wider market as it always does and what's the general demand. Planning is improving slowly. I would say we are starting to see the benefits of the new NPPF. But it's interesting, different effects in the 2 businesses. So where we're seeing that benefit is more in the supply constrained very tightly constrained authorities in the south, and we'll talk a bit about that in Guy's business. In Mark's business in homes, and this is not so much about what maybe a North-South thing with -- but certainly, for the Homes business, where we're more concerned about actually getting an implementable consent and less about the actual principle of establishing the principle of development, there is still a really turgid process just to actually get the piece of paper, to get to site, to get the Section 106 signed. And so we're still seeing that shortage in resources and planning departments, which is going to take longer to solve. But I think overall, we would say a decent school report for the government for the first 6 months. They're doing the right things. Just a reminder, our unique proposition in the market, Gleeson Homes remain highly affordable. And Gleeson Homes typical customers have continued to see sort of strong increase in their disposal -- real increases in their disposable income. In April, we get another increase in the national living wage, up by 6.7%. And that's on the back of successive 10% increases. So that from April, our benchmark couple on the national living wage can afford to buy a home at GBP 226,000 against our average selling price of [ GBP 194 ]. They can buy any of our 3 beds. The average Gleeson leasing customer spends just 22% of their take-home pay on their mortgage compared to 36% nationally. And of course, the gap with the rental market continues to open out as the rental market saws away with -- it seems to be private landlords, deserting that market and institutional PRS obviously can't build fast enough to close that gap. Just looking at our operational capability, and I talked about the work that we're doing to continue -- for continuous improvement in the business. So the restructure and standardization that we put in place some 18 months ago now, well, that's settled very well. But I talked earlier about the kind of work that we're doing, the granular work that we're doing on our demand side. We're also focusing very hard on our own operations. It's really important that we continue to find those improvements in build, in the pace, the quality and the cost control. And we're also looking hard at our commercial controls. And this is really about pushing home those benefits of standardization, real compliance with process and finding those small incremental improvements. which will in turn make us more confident in our control, make sure the whole operation is more reliable such that as we stride towards that growth, we can do so in a really controlled and confident manner. And great to see the progress that we're making in that regard. And as I mentioned earlier, it's an important year for us, 2025, on the quality of our customer experience because we are kind of joining the rest of the industry in publishing our results under the HBF survey. We previously used in-house, which is no less rigorous. It's absolutely -- it's independent. So our 5 star is absolutely real. But we have to move to the new survey under the New Homes Quality Board. And that means we're transitioning. We need our team to ensure they're chasing up the HBF surveys, et cetera, et cetera. So it's a big year for us. And of course, that new survey is more comprehensive, more granular. And I think the whole industry is kind of focusing hard on that to make sure that we're in a good place. We announced our first results under that for calendar '25 in March '26, I think, Mark. Gleeson partnerships, making really good progress. You know that where we signed -- we signed 2 deals, 1 at the end of last year, 1 in the -- at the beginning of this financial year. I was on both of those sites recently in Yorkshire, really exciting to see the progress and the pace that we're making on those sites and very excited for our first completions, which will be in the summer. We're targeting, as you know, 1 partnership deal in every one of our regions by the end of the year -- and we've got some great deals under negotiation. We are also aware that we're in a bit of a hiatus with the housing associations at the moment, who are all sitting on their hands, they're keen to trade, but they're unable to commit because of the delay to the new funding settlement. The chancellor -- we'd all hoped for something back in the autumn, then it was pushed to the March spending review. That spending review has now been pushed to the summer. So right now, the housing associations are not out to play, which is -- they're keen to negotiate, but can't commit. That has the knock-on effect, but there's no urgency. There's no tension in the market. So the private rented players have got the playground to themselves, and they can kind of sounder around and deal when they choose. So it's a bit soggy in the partnership's and markets at the moment. That may frustrate us by a few months, it's not going to impact our forecast, certainly for the current year, not really for next year given the -- the time these deals take to come to fruition. So it may delay us by a few months, but we're still going for it that one in every region. And just to remind you, the steady -- a good steady state place for our partnerships operation will be about 20% of our Homes business. We're absolutely committed to the model, but what it represents is a market risk diversification for us and a leveraging of our operating capital to enhance the growth in our core open market business. We're making good progress on opening our build and sales sites. And this is really the key to our growth, the growth in our outlets. So we were pleased to open 8 build sites in the first half and 11 new sales outlets in that 6 months. The biggest challenge to that, if you like, we're a bit behind where we want. So we've made good progress. We're a bit behind where we wanted to be. And that comes down to the P-word, planning, as I say, grinding out those implementable consents is hard work. But we are pleased with the progress. We're making good progress, and we're not letting up the pressure at all. Just to -- you can see the trajectory on the bar chart, the severe kind of drop post [ trashonomics ] and that market weakness and then the budgeted and planned increase coming out this year and in the following years. And just to be clear, the bar chart does slightly mask, what's going on because -- the -- in FY '25, you can see the 65 outlets there. That number should be lower in a -- that contains a number of kind of tail-end sites with just a handful of units and pretty low choice left for our customers. So those sites in a normal market would have sold out sooner. The point I'm making is the trough would be more marked, would be deeper. The 65 is slightly overstated. Whereas the 67 sites, the vast majority for -- 67 sites for FY '26, the vast majority of those are newer sites with a full range -- with the new product and crucially a full range of choice for our customers. And very importantly, that's the trajectory for the site openings, and we have the land to support that. Our land -- we're continuing to buy. Land market's been tougher, I would say, over the past calendar year. It's definitely as people have returned to the market, but we're doing well, and we have a great pipeline of some kind of 19,000 plots on 174 sites. So the land we need is in our control. And as Stefan said, the average cost per plot in there is well below 10% of our average selling price. So we're in a really good place with our land bank. You've seen this before, but as I say, crucial to achieving those growth ambitions is getting the sites open. The arithmetic shows you that if we can get up to that important 100 sites -- 100 outlets, then even a relatively modest sales rate of 0.6 per site per week gets us to our medium-term target. So turning then to Gleeson Land. The disappointing, I would say, not to have made any sales in the first half, but absolutely not disastrous. -- and we did make good progress on a number of deals we're bringing through and very exciting to have achieved 3 consents in January. One more than we were expecting, actually, we got an earlier one than we thought. So that gives us good confidence that we will complete between 4 and 8 sales in the second half, and that underpins our confidence for our forecast for the full year. We are starting to see the -- as I said, the benefits of the new NPPF. So those 3 consents, 2 were a committee, one came through by appeal. But the 2 that came through from committee were both in authorities that basically looked at the NPPF as it was coming through and said, hang on a minute, we are going to need some numbers in order to stay in control of our own local plan process and they encouraged us to bring forward those applications. So just underlines, I think that Gleeson Land is really well placed to benefit from those positive changes. Was there one other thing I wanted to say, no, I think we're good. So turning then to the strategy and the benefits that I said, really -- we're pleased that we're starting to see the benefits of the excellent strategy changes that Guy's made. And this was all -- if you recall, all about the regionalization of our land team. So we now have our land in 3 regions, boots on the ground. And that's really important because it means that they're there understanding the local authorities well and crucially making the network and the contacts within their regions. And then they're strongly supported by our excellent -- our unique data research and analysis and capability, which really empowers them in terms of identifying the sites and making the proposals. And then the whole underpinned by our fantastic planning and technical teams, which continue to be based centrally in fleet. And the effect of that is that we're seeing a wider range of opportunities, so more opportunities coming across our desk. We're still maintaining our discipline. So we still only bid on maybe 1 in 10 of the opportunities that we actually see. But we're also winning a higher proportion of the bids that we're making. Up to about 1/3 of the bids we've been successful on in this period. And I put that down to really the quality of our proposals and our growing reputation on high levels of customer satisfaction. So that's really positive. Just to reassure you, we're absolutely not winning those bids by dropping our hurdles. We're maintaining our disciplines, maintaining our hurdle rates, it's absolutely not about reducing our profitability or increasing our risk profile. And so you can see, as a result of that, we expect to increase by net 5 sites in our portfolio in the current year and then further 10 net sites next year. So in summary, we are seeing the early signs of a bright start to the second half, which is underpinning our confidence for the full year, but still lots to do, of course. Gleeson Homes, well positioned for growth. We have the land, we have the products, we have the process, and we have the people. And our site openings are accelerating as planned. And we expect our gross margins to start to improve to start to climb back from the second half as lower margin sites complete and we anticipate the build cost inflation will stay reasonably restrained. And in Gleeson Land, I'm just really pleased that we're seeing that strategy start to deliver. We expect between 4 and 8 sales in the second half. We anticipate quite aggressive growth in the portfolio, and we are well placed to benefit from the new NPPF. So overall, I would characterize us as very strongly positioned for that market recovery. And at that point, we'll be pleased to take your questions.

Aynsley, straight off the blocks.

Aynsley Lammin from Investec. Just 2 from me, please. Just interested to hear a bit more maybe on the recent trade in, kind of how much of that do you think the efforts you've been making around the business and sales? Or is it just the market is actually a bit better than what people had feared. And secondly, on the Gleeson Land business, obviously, the win rate and the kind of bid rate has increased quite a lot. Just interested to hear the likelihood that, that also translates to more planning permission over the -- is that an indication of the pipeline, I guess, that's coming through in that business? And just generally in the land business interest here, any color on kind of house builder interest, so they increase in hurdle rates, just given maybe a view on the recoveries a bit tempered to interest in that?

Okay. I might ask Guy to give you a bit more color on land in one second. But -- so to sales in January, it's interesting. We obviously get to see the HBF level. So we get a bit of insight into the market. I think -- as I said, I do think we're making our own luck, a jump of 45% over our performance in the same period last year is significant. And I think that, that has to do with some of the kind of longer-term efforts we've been putting in, in making sure our sales teams are right on it. And we've been doing a lot of training, and that takes time over many months. And so a lot of work with our sales teams, but then also no substitute, as I say, for sleeves rolled up -- lot of early morning calls, Mark's on them, Stefan's on them, Mayers on them, the sales directors on them, and he is also doing the same with the sales directors. This is a market when you work hard, and that's not a complaint but we are making sure that every site, every plot is appropriately positioned and targeted for -- as a balance between price and incentives and absolutely presentation, et cetera. So hard work, really. Whether it's a wider market upturn, we'll hear from others today and over the next few days, and we'll obviously see more into the spring. I would love it to be a wider market upturn, but we will see. Gleeson Land, as I say, I'll get -- I'll ask Guy to comment on that, but I would stress that this is really about the -- I think the win rate -- this is a positive circle, if you like. So we are building our reputation. Undoubtedly, the combination of the people that Guy's hired, the fact that we have a regionalized land business, the fact that we have this superb data research capability, which -- it's pretty damn impressive and our clients see that as well. And then the service that they receive, we've had some excellent customer feedback. The market, it's quite a tight market that gets talked about and our reputation is growing. Guy, I don't know, if you want to add to that?

Yes. I think all those things are absolutely pertinent. So I think it's a reflection of the fact that as part of the strategy, as Graham says, regionalized, invested in our land team, invested in our research and analytics team. And if I take the land team as an example, that additional resource landed January and March. So just sort of 12 to -- 9 to 12 months ago, clearly, the first 3 or 4 months is getting used to the new operating structure, getting out to the market. But I've seen and what we've definitely seen in the last 6 months then is the fruits of that labor coming through with regard to the number of bids that we are submitting, because we've got those boots on the ground and better engagement with the market and the success rate increasing as a result of all the points that Graham's made. So I see that as really encouraging. I think, I'll let Stefan talk about how that translates to our projections as a business. But I think the other point you asked about was about the land market and demand. So I'll touch on that briefly. I've been encouraged. We've got a number of sites, as Graham has alluded to, that are either in legals or out to market at the moment or where we've actually just received offers. And I'm encouraged by the demand that we're seeing. If I take an example of that, we had offices in on a site last week, which I would say was in a secondary location rather than in a prime location. I think the demand for prime location lands has been strong consistently even though it's been a more challenging environment over the last 18 months, but we've definitely seen in that secondary market tailing off and housebuilders being a lot more selective about where they choose to invest in land. But on the site that we took to market had offers in, I was encouraged by the number of bids that we had in and secondly, the value ascribed in them as well. Clearly, that's early days. We need to know go through a process, get into legals and transact. But certainly, as a sign of the market, that seems to be stronger than it was 6 months ago.

Greg. Sorry.

Can you just talk a bit about customer demographics through the first half and whether you've seen them change in the new year. Is that just first-time buyers coming back to market post-Christmas? And then secondly, on the Gleeson Land, can you talk about the consistency of that bids and win rates and where you think you could get to?

So we are seeing -- I don't know whether we've got the actual January analysis or not. We are seeing a gradual increase in first-time buyers. They're back up over 50% of our buyers. Do we have the January analysis? We may not yet.

I've seen the numbers, but there's such a small sample. You can't really take much of it, but it's kind of consistent with 55%. You remember that we were 80% a few years ago, we had an obsession with first-time buyers many years ago. And we decided to widen our offering so that customers who weren't young, low-income first-time buyers were also able to buy our homes. And so we saw the proportion of buyers fall to still a high-ish proportion, but 45% -- was 55% over the last 6 months. So it's recovered a little bit. And what's really interesting is the demographics now is quite spread. So 20% of our customers are, I'm going to say, old. That's over 55 years old. So 20% are now at that demographic. But we still have -- we had -- we've got a customers, forklift truck driver, he is 18 years old. He bought a home in East orchard in the first half we have a customer who is 87 years old.

I'm trying to persuade Stefan to buy one that will push the average age up a little bit, but just coming to your second question around -- I mean I do anticipate that the levels of bids and -- the level of opportunities depends on the wider market. We are seeing a good level at the moment. This is in Gleeson Land. I do expect that our bid rates will push up because, as I say, because of the restructure, because of the way that we're now working. And I think our win rate will hold and that is because it's underpinned by -- it really is the quality of what we're doing. I can't stress enough. We're not reducing our hurdles. It isn't worth us putting in the time, effort and premium to make a small amount of profit. So we're turning away. We see some eye-watering bids out there at the moment. And really interestingly, we had one come back to us. [ Sean ] mention locations or names but one of our peers had just put in an eye watering bid and they clearly got cold feet. And so that one's come back to us. And again, that's reputation. They came back and they said, well, Gleeson Land do what they say and do what they say. So we stick to our levels. We won't get pulled up into the higher bid levels. But if we make our bid, we deliver, and that's what the market is starting to see. Charlie?

Charlie Campbell at Stifel. Just a couple, actually. Just on the land, I mean you've given us, I think, 2 years of forecast. I have sort of heard I think an old number of sort of a medium-term target of getting up to 100 sites. Is that still the sort of ambition? Or could it grow further given the kind of momentum. And the second question was just to try and help us, I suppose, think through the evolution of gross margin in homes. Just wondering kind of what sort of proportion of the drop in margin came from the extended prelims and how quickly those reverse out? Just I suppose help us sort of understand how quickly gross margins can improve from here?

Yes, absolutely. So I'll let Stefan talk about margin. In terms of the -- so the 100 sites is illustrative and no more than that. What it demonstrates is the kind of trajectory that we need to achieve to hit that medium-term target of 3,000 units. So we I mean -- so in terms of I don't think we've got forecasts out there beyond '28, but we've talked about medium term approximately 5 years from a standing start to get us to 3,000. We have -- we've got the land in the pipeline. Being precise on numbers for anything much beyond the next couple of years gets difficult because of that planning system. However, one would hope that the planning is not going to get more difficult from here with an average time from submission to permission of something in excess of 24 months in Gleeson Homes. And you'd hope that it would start to improve from here, and we have seen 1 or 2 that have come through a bit more quickly recently. So -- but that's why we're not too specific -- we can't be so specific on the precise trajectory out beyond the next couple of years. But for the next couple of years, we can see those permissions coming. We can see that growth. We're pleased with the progress we've made to date, and we expect to continue on the trajectory to hit that 3,000 in the time horizon we've suggested. Stefan, did you want to pick up on the gross margin?

Yes. I mean the -- we had -- we've been flagging for a while that our gross margins would kind of follow the sector, which is to be lower. And we do think that this first half is the low point for our gross margins. And I'll come back in a second to why that is. But proportionately, what does that lower gross margin come from? It really comes from 4 things. So it is extended prelims. So if you're on a site for another month, that's another, what, GBP 35,000, you're spending on that sight, so it's your fixed costs. It comes from build cost increases where we had 1% over the last 6 months in a period, where whilst underlying completion prices were higher, actually, the underlying prices on reservations were flat. So you get build cost inflation, that's going to slightly chip away your margin. We did have -- we have some older sites where we had -- remember, a year ago, some higher costs. Those older sites are still working their way through. As in we haven't yet finished completing those sites. But then, of course, there is the impact of multi-unit transactions. So whilst we have to do multi-unit transactions, we have to offer them at perhaps higher incentives than we offer our open market customers. So all of those are having an impact. And the bulk impact is quite significant as well. In terms of why do I think margins will recover? Well, because I've done the math and it's pretty clear. We've got higher margin sites coming through from those that we're closing. What do I expect -- what do I expect underlying selling prices to do compared to build cost inflation. Well, that's a good question. We are expecting somewhere between 2% and 3% over the next 6 months. I would hope that we can fairly soon start reducing the amount of incentives that we're offering. And we can increase our gross prices at a faster pace than we currently are. We are increasing our gross prices still. So I'd hope that we could increase in the faster pace and thereby reducing incentives, we would also stimulate higher extras. Of course, if you give customer higher incentives, they have less need to spend more on extras. So I would hope that we'd be able to recover that, but we'll wait and see over the next 6 months.

So just to follow up. The 100 sites, things on the homes is also a question on the land side as well. No, no, that's fine. I don't think it was very clear. So yes, do you think Gleeson Land can get to sort of to 100 plots in the portfolio? Is that a ceiling? Or what do you think that it can go further as business grows and...

Definitely not a ceiling. So we can get there. And I mean, the capacity in that business is -- well, I don't think we put a limit on it. In the structure that we have, we're now covering probably half the country, am I overstating that. And so we're just testing that potential ourselves. I mean, privately between you and me, Guy's already knocking on my door saying, Graham, I can't -- I'm going to struggle to process this. We're making good headway and our reputation is really preceding us. And the nature of that market is that as the reputation grows, the agents start to come to you, this is the beauty of the regional structure that Guy's put in place. So we're excited by the pace at which it's growing. And as I said, we just we're pretty high -- the overhead is pretty highly leveraged. So we can put on a lot more sites for bringing in a handful more people, and that's certainly what we've got to contemplate over the next 6 to 12 months. Harry?

Harry Goad, Berenberg. I've got 3 questions nevertheless, they -- so the first one, just on build cost. Can you remind us where we're at on things like future homes and building regulations, energy efficiency, just whether there's any more cost inflation to come through in the next couple of years on a sort of like-for-like template of a standard house type. And then the second one separate question is you alluded to funding issues for housing associations, social housing, is there a moment -- sort of is there a date this year, we can look forward to it that gets rectified -- or is there a possibility that just gets delayed as we progress through the year into maybe next year?

Okay. Thanks, Harry. Yes. So well, let's take that second one first. I mean, obviously, for the quality of Berenberg's got all sorts of high-level contacts, any word you can have. Listen, the chancellor could come out tomorrow is where I'm getting to and say, I am bringing forward an element of that settlement in order to fire up the housing associations because it's inevitable that any CSR, any comprehensive spending review, there's going to be a budget for homes. So it's -- a slight mystery to me is to I realize she doesn't want to give the exact allocation to that part of the market. She wants to sort our entire budget before she sought any of it. But inevitably, there's going to be a budget for homes. So why not bring forward an element now and just deduct it from the total, when you make the announcement in the summer. But that's an idea. The position is that we can -- there's not a date for the comprehensive spending review. She hasn't said you've got to wait for the CSR. I'm assuming that's when it will be. And whenever we get the CSR, June, July, who knows, I'm hopeful that there will be funding for the housing associations. And we're very close to a number of quite significant associations and they're ready to rumble, but they got -- they need to know that they've got the funding to commit. So as I say, it can't be any clearer than that we live in hope. Back to your question on build costs coming through from future homes. So we're fully provided and budgeted for everything that is currently in law, if you like. So obviously, and the biggest element remains the heat pumps, air source heat pumps and what have you, the whole heating piece, which is in the rearview mirror now. We're building them. They're in the budgets. That's sorted. So the next kind of -- the next big step is the FH '25. And the big question in there is what is -- what will be the final settlement on Photovoltaic, PV. And so we're still -- and there is no decision on that as yet. But that's key. I do we have to -- it's likely that we will have to install an element of PV. Point us getting into the pros and cons of that? I mean what is that element before it -- how much PV relative to the floor space in the house, do we have to install and that's what will drive the costs. But Mark, I don't think there's anything -- I think that's the key uncertainty at the moment, isn't it? Yes. And just making sure that the material aspects of how to spend is in line in terms of insulation, which is set up for.

Yes, but that's not going to add significantly to the cost. So that's the only uncertainty. And -- but it's not of the order of the portal transition that we all went through kind of 2, 3 years ago. Clyde, sorry.

I think I've got 2 Graham, if I may. Help to Buy, there's been a bit of speculation we might get version 2, I'd be interested on your take on that. And also, how do you think your business would be prepared? I mean if it was brought in this year, are you ready to -- to really benefit from that? That's the first one. The second question really was aimed at sort of asset turn for the business. Clearly, partnerships is going to help your asset turn. What else are you doing within homes and within land to try and improve that side of the equation for generating that better ROCE, ROE?

Very good. Thank you. So -- well, Help to Buy -- what was the phrase your mouth to God's ear or something. I mean, look, it was a highly successful device, which serve not only stimulated the market extensively. It helps an awful lot of people who get onto the ladder. Do we expect -- I -- personally, I don't expect it, not because it wasn't -- I mean, it benefited government, as we all know, they made profits out of it, but they do have to fund it. So I would have thought, if we do see any kind of new generation Help to Buy, they'll probably ask the house builders because, of course, we're cash machines. We've got endless reserves to pay for everything. They'll ask us to contribute. We'll take a look at it. So are we -- but are we prepared -- if we got Help to Buy 2 tomorrow, are we prepared? Absolutely, we're prepared. We would react very, very quickly. On Sunday, Angela Rene reiterated that they're offering to support the market. Is the mortgage guarantee scheme. Those have never -- there's never been great take-up for the mortgage guarantees from things like guarantee schemes and normally the banks step in and so we're here this morning, they can comment. Normally, they step in and say, when you're taking eating our lunch, very much, we'll deal with that. So -- but we're absolutely -- our plans don't rest on. We're not -- as you heard me say, we're not sitting here, jumping our fingers on the table waiting for assistance from government. If we get it great and Boy, oh boy, are we ready to use it, yes. But we'll see. So turning to asset turn. I mean the key, and I'll let Stefan comment specifically, but the key to that is the -- is that numerator or the denominator -- it's the numerator is getting -- is getting the profits up. And that will drive in getting the margin back and getting the volumes back up and getting the profits up, that's what will drive our asset term. But Stephen, I don't know if you want to.

I think it's fair to say a few years ago, we were very margin focused, and our sales rate was we were probably holding ourselves back. And what I think will drive a return to a very healthy return on capital and a healthy asset turn is when the market recovers and we see a consistent strong sales rate. And we are building the pace at which we can sell. Now interestingly in the last 4 weeks with the encouraging start and perhaps touchwood, cross our fingers and our toes that may continue, and that will be the start of it. I think also, importantly, the partnership strategy really does -- and you mentioned this, it really does, I think, help significantly. And I think thirdly, when we see a return to strong profit levels in Gleeson Land, which is a high return on capital business because it doesn't own the land. It's just got capitalized promotion costs on the balance sheet, which are reasonably modest. I think that will also help. So I think we're -- I mean we're at a low point in terms of profit margins. sales, pace of sales and at the start of our partnership strategy. So I think the combination of delivering on those is going to see the asset turn improve and then work you follow it.

And really, the other really important graph that whatever it was, Slide 21, don't forget that, that 19,000 units in Gleeson Homes land bank is not paid for. I mean, we run a good model of holding back the completion of the land until we -- until we're ready to go. So that also helps. I don't -- Alastair. Morning.

Alastair Stewart from Progressive. Just a quick follow-up question on build costs. it was going to be 2% to 3% in the next 6 months. Just for the avoidance of doubt, is that an annualized 2% to 3% during the first 6 months -- sorry, the next 6 months? Or is it during the next 6 months. And so where is that coming from? Are there any areas that are seeing particular hikes and falls?

Stefen's got it in the piece of paper.

If I can read it through these classes, yes. So it is 2% to 3% absolute. It's not an annualized, it's not 1% to 1.5% for those 6 months period. And listen, that 2% to 3% is it's a bit of a guess, actually. So we don't really know how much of the NII impact is going to be passed through. If you work it out all the way down the chain, that's 1%. So that would be taking -- if we saw underlying 2%, then it would take it to 3%. And -- so where do we expect it over there.

Where are you seeing it right just now? Basically...

Well, we were expecting in labor. So I mean, the last -- in labor, particularly in labor, lesser in materials. So the last 6 months, there was more increase in labor than materials and especially in ground workers. Now we did see some material cost increases over the last 6 months, particularly plaster material and bricks. Going forward, I would say the pressure really is on labor. So as volumes start to increase with the skilled labor force perhaps not increasing at the same pace. I think we'll see that come through in labor rates, particularly ground workers will...

On what sort of inflation all of the ground workers at just now?

Usually one point just start about 20%.

When did the...

It's a negotiation isn't it? Well, it's no I mean it's driven by the strength of the market. You've I know you're only a boy, but you've seen as many cycles with me, the ground it starts with land. And so the benefit the strength of the market that Guy is seeing is a pain for Mark because it's harder work in Mark's business. Very quickly, the groundworkers follow-on. The other market is coming back to life after that long period of downturn. And the groundworkers are getting busy again. And guess what next, it will be the brickies. Great. Coming around again. Please may I have some more.

Yes. One follow-up on partnerships -- you've obviously stuck to your target to have 1 per region by the by the year-end. Does that require any clarity on government funding policy for housing associations. Or...

Does it rely on?

Yes.

Well, good question. Undoubtedly, if we get the -- if we were to get the government funding in March, I think we'd be home and host. I'm just putting pressure on my team there. I don't think we'll get the funding in March, and so it will depend on when it comes. I would say to get all 6. We probably do need that to happen. But the team are fantastic, great enthusiasm. They talk to the whole market, and I wouldn't put it past them to achieve it, even if we don't see the CSR, but that's stretching them. Very good. Do we have any questions online. Harry is waving at me.

We've; got a couple of questions from Andy Murphy from Edison. First question is on leasing land -- where bid and win rates doubled, -- what has changed deliberately increasing offer prices or other reasons?

What was the very last bit? What has changed...

What's changed deliberately increasing offer prices or other reasons?

Yes. No, just to stress and probably we've mentioned that since the question was asked, but -- we're absolutely not changing our hurdles. Guy, Stephan and I go through every bid at in detail -- we -- because it's a lot -- having said, we leverage our overhead, once we take a site on, there's a hell of a lot of work to bring that through. So we need to know there's a minimum level of profit in each site. And we need to manage our risk. So we're absolutely not dropping our hurdles. The bid rate and the win rate is all a consequence, as I say, of having people on the ground in the regions, building our reputation and building that reputation for delivering and offering great customer satisfaction.

Great. Next question was about sales outlets, which are to grow by 10% PA. What is the key driver of confidence in achieving this level of expansion?

So our confidence is because we have the land, we have the plans and we have the people, what's the -- so we can clearly see the route to getting those outlets open. We also importantly have the capital. The biggest drag remains getting the planning -- getting the implementable planning conditions. So right now, I mean absent an asteroid hitting in another market crash, we are striding towards that increase in outlets and output. But as I say, we can only actually on the ground, run as fast as the local authorities let us.

There are no further questions on the webcast. So I'll hand back over to you.

Thank you very much. Well, thanks again for -- to you all for coming. Nice to see you, and we look forward to catching up with some of you over the next few days. Many thanks.