MJ Gleeson plc (GLE) Earnings Call Transcript & Summary

Good morning, and welcome to MJ Gleeson Trading Update Call. I will now hand over to Chief Executive, Graham Prothero. Please go ahead.

Good morning, ladies and gentlemen. Thanks for joining the call this morning. I'm Graham Prothero, CEO of MJ Gleeson, and I'm joined by Stefan Allanson, CFO. We've announced our trading update this morning in respect to the year ended 30th of June 2025, along with details of a series of management changes at Gleeson Homes to enhance our operational and commercial delivery. Let me give you a brief summary of what we've announced, and then we'll take your questions. So firstly, the trading update and the outlook for FY '26. So I'm pleased to confirm that the group is expected to deliver a profit before tax and exceptional items for FY '25 within current market expectations. These range from GBP 21.0 million to GBP 22.5 million. Having delivered 1,793 homes, Gleeson Homes is expected to report an operating profit within current market expectations, which range from GBP 21.7 million to GBP 23.0 million. We're encouraged with net reservation rates, which, excluding bulk sales and partnerships, increased over the last 6 months, averaging 0.64 per site per week, and that's an increase of 28% over the corresponding period last year. We're also pleased with 3 partnership deals in the second half, covering 175 homes, and that's a strong performance by the team in what's been a weak market for partnerships deals. Gleeson Land, which had a very strong June, sold 7 sites during the year and is expected to report an operating profit at the lower end of market expectations, which range from GBP 7.0 million to GBP 8.4 million. We ended the year with small net debt of GBP 800,000, and that's against a cash position last year of GBP 12.9 million. That depletion is down to timing differences. So looking ahead, Well, you won't be surprised to hear from me that the housing market still lacks confidence and remains subdued, and I don't see any short-term catalysts for a substantial improvement. But we're selling houses as reflected in our robust sales rate. We're not waiting for that enormous kicker. Continuing capacity issues in the planning system have delayed site openings and we'll be operating from fewer sites than anticipated in the current year. However, our strong pipeline and improvements in our own process give us real confidence about our ambitious growth plans. Gleeson Land's performance in FY '26 is expected to be similar to FY '25 with delivery weighted to the latter part of the year. So taking these factors into account, we expect that the profit before tax and exceptionals for FY '26 will be at or around GBP 24.5 million, which is the lower end of current market expectations. So turning to Project Transform and the management changes at Gleeson Homes we've announced this morning. Now just to be clear, the margin disappointment, which we described on the 3rd of June arose from the market headwinds we alluded to. In February, as we told you, we expected full year margins to be 1% higher than the first half. That margin recovery didn't happen for the reasons we described. But stepping back, even with the margin recovery, those levels are lower than they should be, and part of that is self-inflicted, arising from process and procedure compliance issues within the business, which were resulting in cost overruns. So we put in place some remedial actions through the course of 2024, but they didn't fully address the issues. And so last autumn, I initiated a comprehensive review of the business under the banner of Project Transform. That review identified the need for management changes, changes which will shorten reporting lines, empower the divisional leadership teams and strengthen regional management as well as reinforce controls and drive local ownership and accountability. They also substantially improve oversight of processes and compliance from the center, supported by enhanced data provision. We set out the details in the statement. We fully expect the changes will lead to a marked improvement in performance and delivery through FY '26, improving pace and quality of build and management and control of costs. Also, taking a hard look at the pace of growth in our Northwest regions, we've taken the decision to bring Greater Manchester and Merseyside and Cumbria under a single leadership team, taking advantage of operational synergies. We remain fully committed to both of those regions and will naturally maintain teams and offices in both locations, but meanwhile, save overhead and better leverage our leadership capability. So in conclusion, this was certainly a challenging year for Gleeson as well as external factors, it was clear to me that our commercial delivery was not where we needed it to be. We now have a thorough understanding of those issues and are well advanced in our plans to fix them. The changes being implemented at pace will significantly benefit the business through FY '26 and beyond, ensuring the delivery of our strategic objectives. So whilst we don't expect any significant economic recovery in the shorter term, our robust sales rate, along with our remedial actions give me real confidence that we have a stronger business, which will deliver our projections for the current year and our significant growth plans over the medium term. So thanks very much for listening, and we'll be happy now to take your questions.

[Operator Instructions] We will now take our first question from Aynsley Lammin of Investec.

It's Aynsley from Investec. So just 3 questions from me, please. First of all, just a bit more context around all the kind of organization and management changes. Is it right to kind of take that as being changes that the business would have naturally done as the group evolved towards its kind of strategic objectives? And something that was obviously ongoing, as you say, just to improve the commercial kind of discipline within the group. And just on those strategic objectives, you haven't mentioned explicitly, but I guess the 3,000 homes kind of medium-term target is still where you're comfortable with and where you're aiming at. So just confirmation on that. Second question, just on the sales rates. I think you said it was 0.64, 0.88 in the kind of last 6 months. Just how that's evolved? And are you still selling at a faster rate than what you'd consider to be the kind of average housebuilders or HBF rate? Just interested, any color there? And then just very briefly on the land business, that looks -- you delivered 7 deals quite impressively in the year. I guess you're still confident, lots of changes has been in Gleeson Homes, but the kind of comfort around the land business, the strong pipeline and how that business is progressing. Any color would be helpful there as well.

Thanks for those. Yes. So where should I start? Yes, let's go and what you asked. So 3,000 homes, absolutely, that remains the medium-term target. Organizational changes, would they have happened naturally? No. Go right back to when I joined, Aynsley, I said, look, we need to change this company from being a -- in order to deliver our growth ambitions, we need to change from being a large, small company to a small, large company. And we put through some significant structural change at that point through that first 6 months. But it was pretty clear to me then through that first -- through FY '24 that would have been that some of the, if you like, processes and procedure compliance within all of that was a bit ragged. And we put -- we made some changes through that year. They didn't really land to the extent that I wanted them to. So basically, in around about September, October last year, I said, right, I want to know -- I want a more fundamental look at this. I want to know kind of top to bottom, what is actually the challenge that's causing these issues. And to characterize it, the ship wasn't sinking, but it was untidy. It was ropes all over the deck, and that's what I really wanted to get my hands around. So would they have evolved naturally? No, they wouldn't. We promptly took our best people internally. I actually used a couple of guys, a couple of consultants that I trust and have known for a long time externally, and we really did a root and branch. So no, this is not evolution. They wouldn't have happened naturally. This is a pretty profound change to the way that we work. We haven't talked about it because it wouldn't have been appropriate and it would have alarmed the staff internally, and it wasn't kind of our normal stuff, but it's important, and we're ready to go. And personally, I'm really excited. I think we're in great shape going forward. Turning to the -- you asked yes, the 0.64 in the last 6 months, been a really interesting period. As we said to you in February, we set about kind of making our own luck really, and we were at 0.77 in those first couple of months. There was a definite lull after the stamp duty changes took place. April was quiet. But to be honest with you, I wasn't happy with the quiet April. So we tightened things up again, that challenge of getting closer with our sales directors, making our own luck is the phrase that I used in February, and we've done that again. And we've seen the same response. So things have definitely picked up. I think our 4-week sales rate is about 0.59 as we stand. And with regards to the rest of the industry, I mean, we look at that carefully. And so far as we can tell, currently, we're selling a bit ahead of the average for the industry. So yes, strong Jan, Feb, a bit of a dip in strong March as well, a bit of a dip in April. I could see that continuing. So we went to work hard, and we've had a much better May and June, and that's how we've come out of the 0.64. And that's what gives me confidence, Aynsley, that we'll keep doing that. Gleeson Land, yes, it was an impressive year. It was a very busy June. In fact, it was a very busy second half of June. Am I confident? I'm increasingly confident about that business, really exciting stuff going on down there. Guy has got a great team around him. It's just really good to go and sit with those guys. The buzz in that business is phenomenal. They have exchanged a good number of great sites into the pipeline. We're actually down there with the Board on Monday and Tuesday, and I'm really looking forward to that.

And we will now move on to our next question from Greg Poulton of Singer Capital Markets.

Just a few for me, please. Firstly, on partnerships, could you talk about the shift in housing association behavior since that funding has been tariffied? And then can you talk about who the partnership agreements were with in the 3 that you signed in the year and whether the improved funding environment positively impacts the pipeline for 2026? And then just adding to Aynsley's question, could you just talk a bit about the -- how the bid and win rates have evolved in Gleeson Land, please?

Yes, absolutely. Writing that down so I don't forget. Interesting question, Greg, on the funding and the HA behavior. So look, what the chancellor announced was clearly positive. It's a significant settlement and the rent settlement is as important as the increased grant. But she didn't send them all a check that afternoon. It's spread over the life of -- and I'm not an expert in the detail, but the grant is not all available. It's spread out and increases over the 5-year period. So it's not all available immediately. And the housing associations are not -- are kind of waiting for the detail as to how that -- how and when and where that gets dispersed. There were some further ambitions set out by Angela Rayner this week. But the effect is undoubtedly that those housing associations that are keen to develop have definitely been on the phone. So they know that they will be able to engage with us certainly during the course of FY '26 and hopefully during the first half. But then it wasn't set out clearly on the day of the spending review exactly how that would play. So the appetite is there. They know that they're going to have funding, but they're not exactly clear yet on the terms, the types of deals on which they'll be able to apply that grant. But definitely very much more positive. The deals that we did during the year. If you'll bear with me, Greg, I'm just not sure that we have agreed what we're going to say and to whom, but these are with partners that we've worked with before, and there aren't that many, so you can work out who they are. But that same principle, we only work with partners that we choose to work with, who we think will be aligned with our values and our own brand. And a couple of those deals were signed last week, and there's probably some sort of publicity announcement, so bear with me. It's the same people we've worked with before, and we're really proud to be associated with them. But you asked whether the funding environment related to those deals, no, these are deals that Helen and the team have done really well to negotiate and pull through against that backdrop of very little funding in the market. So they've done superbly well to get anything at all across the line, in fact, in the last year. And it gives me great confidence for what they'll achieve in the current year. In fact, there are another 2 that could have made it over the line in June, but there were some capacity issues in the partners that meant that they will fall into the first quarter. So things going very well in that business exactly as we would have hoped. And turning to the -- sorry, I can't read my notes now, in Gleeson Land, the bid and win rates. Yes. So very busy on opportunities coming through. The team is flat out. We are sticking to our principles 100%. So we're still looking at -- we probably got less than 1 in 10 as we take forward. You'll remember, Greg, in February in the interim results, we talked about just how that business is really starting to fire on all cylinders, the restructuring of the business into 3 regional businesses so that the team are much closer to landowners and agents has really helped, and the use of data analytics and technology in that business has meant that they are now looking -- they were in the first half looking at twice as many land opportunities as they were in any previous period, but still dismissing maybe 90% of those and only bidding on 10%. That means that they are bidding on twice as many. And their win rate in the first half had increased to winning 1 in 3 of what they're bidding on. So that meant that they were winning 2 new promotion agreements every month. Well, that's continued in the second half. And it does take 6 to 9 months to actually turn a win into a signed promotion contract because remember, we're largely talking with farmers here. But you will see the increase in that portfolio come through during the first half of this year. You'll see some of that actually come through when we report the portfolio in September. There's been a significant increase in the portfolio. But that's really starting to succeed now in the sector.

And we will now move on to our next question from Alastair Stewart of Progressive Research.

Alastair Stewart from Progressive Equity Research here. Just one question really, Greg connected to my first one. You mentioned fewer sites than anticipated in the current year, just for the absolute avoidance of doubt, you are talking about FY '26 here. And can you put a bit of color on to why that's happened? Is it the old bugbear planning? Or are there other factors creeping in?

I'm afraid, yes, boring answer, it is the old bugbear planning in the vast majority. We have 2 aspects to it. There's the grinding through just what everybody understands getting to and then getting through committee just takes a long time, and that's principally due to lack of resource in local planning departments. But also then getting from resolution to grant to get your Section 106 signed is an increasing problem. I think the HBF published something on that a few weeks back. I think we're currently at, I think, about 8 that we're waiting for. We were at a dozen. We got 5 through, but we've since got 2 more resolutions. So probably the math is wrong there. But we've got about 8 where we're waiting for resolutions to grant. And these are taking weeks and weeks and weeks. So yes, it is simply the planning challenge that is pushing stuff out to the right. I'm sure there are other...

Sorry, just to sort of drill down a bit. Is it getting less worse? Is it getting less worse more quickly or less quickly than anticipated? Sorry, I'm sounding like Donald Trump over there.

No. I mean it really is -- the planning story is -- and you've heard me say this before. So labor has undoubtedly addressed the framework and is doing all the right things for the future of planning in this country. And Gleeson Land at the strategic end of the spectrum is really benefiting from that. And that is actually affecting one of the sites we sold in June was the site that I mentioned in January, where we got planning permission on the first Grey Belt site. So at that end of the spectrum, we're starting to see benefit from what labor has done. But the kind of nuts and bolts end of actually getting an implementable planning consent to go and put a spade in the ground isn't -- that's not the issue of the National Planning Policy Framework. That's how quickly you can grind through resource-constrained local authority planning departments. And that really -- I'm not seeing that improve.