MJ Gleeson plc (GLE) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to MJ Gleeson's annual results presentation for the year to June 2026. I've hot footed it here from my Radio 4 breakfast show, I hope you're all listening. It was very exciting because Mark actually got me to go to the studio. So I sat there with Nick and Justin and my headphone is all very exciting. But then even more excitingly, following on from me, Johnny Marr walks in. So there's me and Johnny, recognizing 2 aging rock stars. And but the best bit was the text from my great old friend, Andrew Duxbury, who said what a classic BBC link to go from the housing market to The Smiths because heaven knows you're how bloody miserable now. It is certainly not the most propitious of economic backdrops against which to be presenting our results. But on the other hand, I'm actually really pleased and really excited with the changes and the improvements that we've made in Gleeson Homes this year. We can only affect what we can affect, but there's -- I will talk to you about that this morning. There's a bit to get through. So please bear with me, but I think it's worth sharing with the market and with the changes we've made, it's worth sharing that with you. So I'll try and take it at some pace, but bear with me. So I characterize the outturn as a robust performance against a challenging backdrop, and that was underpinned by good performance from Gleeson Homes selling 10% more homes than the previous year. Pleased that, that figure was augmented by -- the net reservation rate was poor at 0.51. Nobody is writing home about that. But that figure was augmented by our first partnerships completions. And of course, that's a journey we began about 2, 2.5 years ago. So great work by the team to actually get those first scores chalked on the board, and we will be looking to build on that. We also -- we did have some bulk sales as well, about 300 units. That was at an average discount of just under 16%, which is actually not bad. Nobody likes being forced into bulk sales. But I think the relatively low numbers that we're looking to put in that market and also the work that Scott and the team put in to get after that early so that we're doing our business through the year in smaller quantities rather than getting caught in the period-end carnage and some of the egregious discounts that we read about. Site openings, a bit disappointing, still constrained by slow planning. I will talk about that. And -- but as I said, we have completed that operational restructure, and I'll give you some detail on that. Gleeson Land, here was really -- the number was really defined by that continuing the slippage of the single large sale that we've talked to you about. I'll update you on that this morning. There were 2 other smaller sales, which we'd hope to complete in June, and they really ran into the developer caution that we're all well aware of that you're reading about in all the majors statements. But happily, both of those sales are expected to proceed in the current year, one to the same buyer and one to a different buyer. But all is not lost in that market. We are -- we have, as you know, a strong business, we have a great portfolio. And when we're taking our high-quality sites to market, we are still seeing good interest. So very happy that we strengthened our pipeline even further with some 13 new promotion agreements and submitting 18 planning applications realized there, which was -- so that's, as I say, strengthening the pipeline, which we're very pleased with. And pleased that we also maintained our strong balance sheet with negligible net debt at the period end and continuing low land creditors. It really was a year of intense business improvements activity in Gleeson Homes. It's been hard work. And I do want to recognize upfront the response and the support we've had from the team. They've shown real resilience. They've embraced that change. And happily, in the people survey that we completed just in the last few weeks, our engagement score, which was already strong last year, actually improved over the year and improved against the benchmark. So that's a real tribute to the team, a real -- and a strong thank you from me to the team and to the leaders that have led them through that. So very pleased with that. But we've absolutely restructured Gleeson Homes. We've massively strengthened our leadership team. We've changed process. We've significantly reformed our land buying process. We've rationalized the portfolio, and I'll give you some detail on all of that. Very pleased that we successfully completed the transition to the new -- or to our new for us, NHBC, HBF customer scoring system. You shouldn't underestimate the achievement that was for the team, particularly against the rest of the change we are bringing through. It is a very different -- the quality of the product is still good, but it's a very different way of collecting the data and a lot of different things for the team to concentrate on. So we were -- I think in -- so in calendar '25, which is our first year under that system, we achieved what I would class as a satisfactory 4-star outcome. And that is quite an achievement with that transition. Obviously, what we want to be, what we need to be is 5 star. We're not settling for anything less. In the current year, which is calendar FY '26, we are currently trading at 5 star. But of course, there are a lot of surveys to pass under the bridge before that's closed out. We grasped the nettle on legacy site adoptions. I'll give you a little bit of detail on that. And now looking forward, having with transform complete, we are looking at how -- we know that we can continue to improve, and we're proactively looking at our market engagement, product, brand, et cetera, and I'll talk to you a little bit about that. We're also looking to build on the success -- of our success in partnerships, which is particularly timely given the government's recent recommitment to that mode of delivery. So how are we seeing that market in Gleeson Homes? Subdued, it definitely is. It definitely is. I've picked out 3 reasons here. I mean, Rightmove tell us continually and have been telling us for many months now that the total available properties for sale in the U.K. and England remains very high, an 11- or 12-year high, and that is clearly absorbing a lot of the demand. Mortgage rates are increasing and likely to go higher and the cost of living challenge is rearing ahead again. We're already seeing it in fuel and energy and widely expected that we're going to get some sort of spike in food inflation. And that's a particular worry for Gleeson customers at the lower end of the income band, as you've heard me say before. The bulk market is active, but pricing, as I've alluded to, is very keen. And partnership opportunities, we are seeing them. It's a competitive marketplace, but we were really pleased to see the -- announced the recent announcement of the strategic partner funding, and we have -- the phone has started to ring off the back of that. So excited for what we can achieve there. Selling price inflation, I mean, it is anemic. We got a bit last year. Currently, Stefan has done a bit of an exercise. So it's a low sample size, but we currently think we're running at about 1% annualized, which is very poor. Obviously, the bigger story is around incentives. Happily, incentives still averaged just below 5% last year. So we are keeping that fairly tight. In fact, Scott and I find ourselves in the place of kicking and saying push the incentives a bit harder. It's a balance. But as I say, we achieved what we achieved at sub-5% incentives. Build cost inflation continues to go forward. We saw about 4.5% over the year. It's currently running, we think, at about 3% to 4%. We are -- because the market is weak, we're able to resist the more aggressive requests for 7%, 8%, 9% increases. But as a residual level, let's say, we think about 3% to 4% below which we won't be able to resist. And so sadly, difficult for us to rebuild margins into that environment. Current trading, it's on the slide, really poor. August was very weak. So 0.44 in the 9 weeks to last weekend. We've seen a bit of a tentative pickup. You'd expect that since -- once people come back from their holidays. It's -- so the last couple of weeks have been better than that 0.44. We do need it to be better again. And who knows how well that holds as we run into increasing mortgage interest rates and now the looming budget. But -- so at that point, I'm going to hand you over to Stefan to run through the numbers, and then I'll come back and talk about the good things we've been up to in homes and land. Stefan?

Okay. Thank you, Graham. And as Graham said, the year to June '26, it was a robust performance by the group. We grew revenue by 12.1% to GBP 410 million, but we did deliver lower group operating profit, and that was due to -- principally due to 2 things: the significant site delays in Gleeson Land with one particularly large site sale and margin compression in Gleeson Homes. I'll take you through the divisional performance on the next few slides, just to highlight a couple of group items here. Group overheads, reduced by GBP 0.5 million. That was due to tight cost controls, lower remuneration and the unwind of a legacy construction provision. And interest costs increased by GBP 1.7 million to GBP 5.2 million, and that was due to higher average borrowings, so higher interest costs in those borrowings and also higher discounting charges under IFRS 9 for long-term payables. As a result, group adjusted PBT reduced to GBP 10.8 million and adjusted earnings per share were 14.1p. So turning to the divisional results. Gleeson Homes volumes increased by almost 10% to 1,968 homes. And that was driven by the 320 homes that we sold to partners, our first full year of partnership delivery. That represented about 16% of total volume. And we increased the number of homes that we sold to multi-unit buyers. That was 301 homes, about 15% of full year volume. Selling prices were up 3.8%, and that was driven by a 3.0% increase in underlying selling prices, a stronger house type and regional mix with a higher average number of beds and that was partly offset by the impact of the lower prices that you get from selling to multiunit buyers. Now incentives remained high. They're about 4.8% of open market selling prices. And including 2 land sales during the year, Gleeson Homes totaling GBP 4.4 million, Gleeson Homes revenue was up almost 15% to GBP 400 million. Our gross profit increased by 3.3% to GBP 74.5 million, but the benefit of -- the margin benefit from higher volume and higher selling prices was significantly mitigated by those lower gross margins. On other income, you'll notice there we introduced our own Part Exchange program in the second half of the year, and that's been very successful. We were breakeven and that helped deliver 58 additional sales during the year. Now we continue to improve overhead efficiency. And whilst costs increased by GBP 4.5 million, which was a 9% increase compared -- that compares to a 15% increase in turnover. Those cost increases that was driven by pay increases, the impact -- the full year impact of higher national insurance rates, increased IT spend and higher recruitment costs. As a percentage of revenue, that fell to -- overhead costs fell by 80 basis points to 13.6%. Operating margins were 140 basis points lower at 5.0%. And really, that was driven by 3 things: significant build cost inflation, which is running at 4.5%, exceeded underlying selling price increases on reservations during the year, which were 2.2%, and the increase in multiunit sales, which chipped away at margin. Now we were able to mitigate about 1/3 of those -- that impact through overhead efficiencies. Now just touching on the exceptional items. We recognized GBP 13.6 million worth of exceptional items in the year. And those are listed out in the appendices just to set them out briefly here. GBP 2 million comes from the cash costs from the restructuring activities during the year, in particular, restructuring of Greater Manchester and Merseyside region and the East Yorkshire region. GBP 4.5 million noncash impairment from the impairment of 12 conditionally purchased sites and 1 owned site that we haven't developed, we won't develop. We will be selling, but we expect to sell at a loss to the purchase cost. And then GBP 7.1 million, which is a provision we booked for the legacy site adoption costs that we expect to incur over the next 3 to 4 years, and that's on 81 legacy sites. And those legacy sites date back some of them 10 years. So looking at the forward order book. So despite a weaker market, we maintained our forward order book. In fact, it was up 3 plots. Open market orders were flat, exactly the same as last year at 402 forward orders. The 8 additional partnership agreements we signed during the year increased our forward order book at the end of the year, and that offset a reduced multiunit forward order book. Now turning to Gleeson Land. The division recorded 5 site sales during the year. As we said, 3 sales were delayed to this year, one of those particularly material. The business generated -- those 5 site sales generated GBP 4.8 million of gross profit, and we booked additional provisions against the portfolio of GBP 1.4 million, meaning that we reported GBP 3.4 million of gross profit for the year. Overheads were in line with last year's overheads of GBP 4.1 million. As a result, we are -- that division reported a loss for the year of GBP 700,000. Now looking at the balance sheet. Inventories increased by GBP 35.4 million year-on-year. That was largely driven by 3 items. So build WIP in Gleeson Homes was GBP 18.8 million higher due to build cost inflation and some significant infrastructure investment on some large sites. We have GBP 7.1 million of part exchange assets on the balance sheet within the limit that we internally have set ourselves. That's 46 properties that we own, and that contributed to completions, particularly in June of the year. And we're quite confident that those like in the first half, that those will continue to be sold at profits that mean that our part exchange activity remains breakeven. And Gleeson Land inventories increased by GBP 8.3 million. And that reflects the cost of securing those 13 additional promotion agreements during the year. Significant spend on planning applications, we had a very strong year in submitting planning applications, but also the lower charge to cost of sales for the site sales that didn't happen during the year, the ones that were delayed. Land creditors remained low at GBP 15.5 million, and other liabilities increased by GBP 36.7 million. And there are a number of reasons for that, GBP 7.1 million legacy site options provision being one of them. We did have higher accruals of about GBP 11 million. Trade payables were GBP 17 million higher, reflecting the timing of payments and in particular, a very busy June build activity. Now with net assets of approximately GBP 300 million and net borrowings of only GBP 2.6 million and low land creditors, we continue to focus on the strength of our balance sheet. Forgive me, I think I skipped a slide a little prematurely there. Just on cash flow, the group generated GBP 16.9 million of operating cash flow. That was entirely driven in Gleeson Homes, GBP 22 million of operating cash flow in Gleeson Homes, offsetting a small outflow in Gleeson Land, essentially driven by the delay to those land sales and the cash flows on group overhead costs. Cash interest increased by GBP 1.1 million. That reflects the higher borrowings and the higher interest cost. CapEx was GBP 2.3 million higher. That reflects quite low spend in the last -- in the previous 2 years, but also a step-up in investments in show homes, sales arenas, compounds and equipment on site. Now to the dividend. We are proposing a final dividend of 1p per share. That is reduced on last year's final dividend. That brings to 5p, the total dividend for the year, which the Board believes is prudent in this less certain market environment and is consistent with that determination to maintain a strong balance sheet and is also more in line with our dividend cover policy, which is that earnings will cover dividends by between 3x and 5x. A 5p total dividend for the year will be covered 2.8x close. Thank you very much, and I shall hand you back to Graham.

Thanks, Stefan. Okay. Operations and strategy, looking first at Gleeson Homes then. And a couple of minutes on Project Transform. It's -- we have done a huge amount of work on this. We significantly strengthened the leadership in the team. As you know, Scott joined us as Divisional Chair on the 1st of July last year. Scott is now responsible for running the whole of the Gleeson Homes business. As you're aware, we've restructured into 4 principal operating regions. We have 3 new regional managing directors supporting Scott. So 2 of those are experienced external hires, one is an internal promotion. And we've made multiple experienced recruitments at regional and divisional director level. It really is a strengthened team. And this is really about moving away from that overly centralized, overly dependent structure that was -- we had in the group before that really isn't effective for a volume home builder. So what we've done then is to empower our regions so that those guys are very much owners of their budgets, owners of their profit and loss account. They have the ability to make decisions, to be entrepreneurial in their local environment. Quite clearly, remaining very short reporting line to Scott, who's very close with all of them, and they're working to very clear targets, KPIs and reporting -- regular reporting, et cetera. We've also reinvigorated but clarified the role of our group central functions, which are absolutely vital. So we've slightly reduced the center, but as I say, reinvigorated it. And the role of those guys, they're sort of functional leaders and their role is providing expertise and setting the standards by which our regions operate, and that's how we maintain control. That's how we maintain quality. So significantly improving the integration between center and the regions. We completely reformed our land buying. So we've moved land buying away from a centrally controlled operation and embedded that in the regions. And the critical thing there is that the regional management teams, you're getting full buy-in to every bid at bid stage before, as I say, it was too centrally directed. We've also refocused -- importantly, refocused our land buyers onto areas of -- more chimney pot areas as we call them, more densely populated areas, suburban areas reversing that trend, that drift that we -- the group has seen, I think, over the past 5 or 6 years into buying, frankly, too many rural and coastal -- too many rural and coastal locations. So we've definitely sharpened that focus. We've also strengthened the process around our land buying. So we said that we've been much more specific on our requirements on the appraisal, on layouts, on planning the actual development itself and on planning our completion and exit. And that's all about really sharpening the technical control of the land bidding and buying process. And that's aimed at mitigating that kind of dissipating -- disappointing situation whereby you commit to the site at one margin. By the time you bring it to commencement budget, the margins dropped and then it drops again through development. And that's just not something that we can -- that's not a way for the business to prosper. So I'm very pleased with what we've achieved in land buying. We've also taken -- as you're aware, we've rationalized the regions, as I mentioned, into 4 principal regions. We've taken the opportunity to rationalize the land portfolio as well. So we're walking away from about 13 sites in the Northwest and on the East Coast of Yorkshire that just no longer fit with our criteria or our hurdle rates. So a huge amount of work. And that really is a very short summary of what we've done. I'm convinced that the business is in much better shape than it was when I stood here 12 months ago. And I'm convinced -- I'm excited for how we can take that forward. And it really -- that is really expediting that process that I've talked to you about before of changing Gleeson from an overly large small business into a well-controlled and efficient volume house builder. Legacy sites. So I talked to you briefly about this before, but this is basically an issue that, frankly, should have been dealt with before. We're looking at something like 80 sites completed variously over the last 10 years, some 1 or 2 even older than that in parts of the country we don't even work in. These are sites where we haven't secured the adoption. Why? Because in most cases, they require some sort of rectification. I'll give you -- the most common example is actually where we've installed gravel drives actually in line with our planning permission and meeting with regulations, but the high-rise engineers don't like them. Why? Because the gravel spills on to the road. That means the road gets more damaged, has to be maintained more, cost them more. So the high-rise engineer looks at you and says, I can't adopt that. It's not a standard. We could have the fight. We've been advised. It's not worth it. We need to get on and get these roads into a state where they can be adopted. It's interesting, actually, just last week, the HBF has brought out our latest sort of protest on behalf of the industry, which is around the transparency and objectivity and the time taken to get roads adopted. That was very timely. But we haven't -- I can't whinge about it. We've got to get on and deal with it. I'm not going to make the -- we can't kick the gravel down the road joke. And so that's going to -- it's going to take us 3 or 4 years. We've hired the best guy in the business really, an adoptions engineer to lead a small team. It will take us 3 or 4 years to deal with that. During the year, we were operating from an average of 67 build sites and 56 sales outlets. As we've said, that both of those will be slightly lower this year. Our prospective site numbers are frustratingly lower than I would like, and that's for 3 reasons: One, the continuing challenge of slow planning. So -- and it's the same story. The government, I think, is absolutely doing the right things at national policy level, but that is still -- that is not feeding through for various reasons, that is not feeding through to pace and reliability of decisions at local level. So planning very much still an issue. In addition, we've rationalized the portfolio. As I say, we have taken the proactive decision to walk away from a number of sites that no longer fit our criteria. And the third thing is that, I suppose, like others and I think very sensibly, we're managing our balance sheet. This is a market where it pays us to be cautious. We absolutely want to protect the integrity of the balance sheet. So we're upping our risk aversion, if you like, in the appraisals we're bringing through. That's not to say we've stopped buying land. I've just talked to you about what we've done with that process, and we are still very much in the market, but we're being more cautious in the approach we're taking. And so combining those 3 reasons, our site opening profile is going to be slower than I would like, certainly this year and almost certainly into FY '28. So it is a difficult market, but we're absolutely convinced that there are things that we can do better. And it's vital that both in a weak market now and into any upturn, we're the best that we can be. So with the -- we've got the people and process fixed. I was talking to you, I spoke about that just now. And I kind of see that as fixing the factory. What we're getting after now is the way we engage with the market, so our product and our customer experience. We're going to -- we absolutely want to build on the success of our partnership strategy, and I'll talk about that in a moment. I've talked about refocusing our land buying to make sure we're getting the right sites. And now we're looking proactively and at pace at our product, at our customer experience and that our brand and brand perception. This is -- we're trying to be absolutely rigorous, absolutely objective and make this data back. So we've got hand-picked teams from around the organization looking at each of those, each of those teams led by a member of the ELT. We're actually using an AI data site of every piece of customer feedback that we've had because the -- if you aggregate that, we'll pick up the themes and we'll pick up some good ideas, I'm absolutely convinced. And we're also commissioning focus groups from our website users, both those who've gone on and bought a Gleeson Home and those who haven't, so that we're getting the best information that we can to combine with our own expertise. Scott and the team, we -- as I say, that strengthening has brought in a lot of experience as well from elsewhere. And so -- on product, we just -- we want to make absolutely sure that we're delivering the product that our customers want our open market customers. We've also taken the decision to design a specific partnerships range. And so that -- I think that we're working on that right now, that should be available to us in the second half. And that's avoiding that compromise because partners do have certain slightly different requirements for the units, and they're looking for a long-term rental product. And it's always a compromise if you're trying to use the same units for the open market. So no, we'll have a separate range effectively making it easier for partners to select Gleeson to work with. On the customer experience, we're looking at that from -- right through from marketing through the customer journey through sale and are also looking at the way that we're providing after-sales service. And we know that we can improve in all of those areas. So quite exciting to see those ideas coming through. And on brand, we know what it is. You know what it is that we do. We build a high-quality product that's affordable to customers at lower end of the income spectrum. But we get -- we listen, we get feedback. We bump into deep in the market. We don't think people are very clear on that, particularly that point that we are -- we build a high-quality product. And so it's really important that all of our stakeholders understand what it is we, Gleeson does today. And that includes the market. So land agents, for instance, recruiters, prospective partners. It includes our own people. That's absolute absolutely vital. And of course, critically, it includes our customers. It's vital that we're listening to what the market is telling us and that we're led by the customers we serve. So yes, it is a difficult market, but there are absolutely things we know we can do to improve our performance, and we're working hard at that. Just to touch on partnerships. I'd say really pleasing to see those first units at first completions coming through. For me, the pleasing thing, we've established our credibility in the partnership space now. And just pausing on that, that's not a [ gimmick ], that's not a no-brainer. If you put yourself in the shoe -- it's not just a question of turning up at the conference and pulling up your stand and saying, come and sign here for deals. If you put yourselves in the shoes of the investor, he's got quite a bit of due diligence to do on a new firm offering themselves as a development partner. Who are these guys? Do -- what's the quality of their product? How will it stand up as a long-term rental product? Can they actually build at the pace and to the quality that I need? Will they do what they say? Do I trust them? All of that is -- you have to build that. We accept that. And so I'm really pleased that with those first completions and the feedback that we're receiving from our partners, I think we've established our credibility. And certainly, that seems to be how it's playing for us. The market appetite is certainly continuing. It was great to hear Matthew Pennycook at the conference in Liverpool last week, absolutely endorsing that this mode of delivery is and will continue to be important for the U.K. homebuilding market. As I say, very much encouraged by the announcements under the SAHP last week. So what we need to do now, what we're focused on, if you like, is to evolve to the next generation of partnership deals. So coming back to that establishing your credibility, they might get to the point where they'll take their units from you, but will they trust you with the cash upfront? Well, you need to prove a little bit more before they'll do that. So the first deals that we did, effectively, yes, you're sacrificing a bit of margin, but the benefit and the only benefit we were getting was the diversifying our market risk. So it was a forward sale. You're certain that those 40 units are going to go to that partner, tick. But they're paying them for you -- when you're paying for them when you deliver them. We've now evolved that model. So within that 320 units was our first 60-odd under the golden brick model. Now that's better because that's when you're getting -- starting to get paid during the construction period. So that -- you're then getting the benefit not just of the forward sale, but now starting to improve your return because you're getting paid sooner. The next evolution where we'll really mature is when we increase the proportion of forward funding. So we start to work with partner cash at the implementation of infrastructure. You can immediately see that, that starts to really sing from a return perspective. And of course, the absolute maturity is when they'll join you at the land acquisition point. So pleased to see -- those are the kinds of conversations we're now having and a real opportunity for us. And you can tell, I think we're excited about the progress that we've made in that area. So turning to Gleeson Land then. I'll start with the market headwinds. No secrets here, but probably 2 elements that I would bring out. So planning is a constant story isn't it. It's always something slightly different. So following the specific that I'm referring to here -- following the local elections, obviously, the biggest shift was away from labor control. So a number of authorities where labor -- where it either moved away from labor completely or it's moved to no overall control. What that does is creates a fracture between national policy and the local implementation of that policy. The no longer -- the committee less willing to embrace because you've now reopened that sort of democratic competition of I can win votes by resisting national planning policy. So not moving the local plan through at pace or and trying to resist the NPPF direction on their numbers or, for instance, resisting Grey Belt, et cetera, et cetera, et cetera. So the effect of that is that where we had previously hoped that we might get a committee decision, now there's a good chance that it will be filibuster, we won't get the local decision. What do we have to -- it doesn't mean we can't get it because in the end, 9 times out of 10 national policy will prevail, but it means you've got to go to appeal, it takes longer and it's more expensive. So that's the planning drag that I'm referring to. The developer caution, I've mentioned it already, you're all well aware of that. All of the majors are referring to it. And that is restricting appetite for some bids. I don't want to give you the impression that the market is dead. It's absolutely not. As you know, we have a high-quality portfolio. And when we put those sites out to the market, we're still getting good interest, and we are seeing bids. The pricing has definitely moderated a bit. The technical due diligence process is being elongated, always will in a buyer's market. We're seeing a lot of bids conditional on registered provider partner participation, and that's all to do with the hiatus in the Section 106 market and obviously, people asking for deferred payment terms. So what's the impact on leasing land? Well, I've said not if, but when, and that really is that we are still seeing the demand. But predicting the actual timing of completions is difficult. Just to touch on FY '26 was obviously -- the biggest single impact was the deferral of the large deal, which I've talked about in just 1 minute on that. So we are -- you shouldn't see this as -- well, it's a big standoff and the local authorities just don't want this. That's not the situation we're in. We are working very closely with the prospective buyer of the site and actually, alongside the local authority and their advisers, but it's a massively complex technical resolution that we need. The number of sort of open items gets ever smaller. I think I've said to you before, it's a bit like when your phone updates and that bar goes across, you can plan, it must be finished now. But it's a bit like that with this technical consent. We fully expect, I'm looking at Guy that we will get that technical consent this calendar year, and that should trigger the -- well, that does trigger the terms in the option. Remember, we sold an option to the buyer of the site in June '25. They've got about 6 to 8 weeks post that technical resolution to exercise that option. So I'm hopeful that we will say, get that technical resolution before the year-end. I've certainly learned more about roads, signs, drains and what have you than I ever imagined I would need to learn about. So as I've said, both planning and transactions are taking longer. And what that does, it makes -- the effect for us sitting here scratching our heads is it makes the timing -- calling the timing of completions even more difficult than normal in that business. It's just the way it is. So as I stand here this morning, we've got over 9 months of the year still to go. We've been -- we do this regularly. We've been through every site. No reason to say to you, we're not going to make our numbers in Gleeson Land. And so we're standing by the numbers that you have, but it has to come with that heavy note of caution. Given that, as I said, there is very much still a market. And having said what I've said about planning, the national planning policy framework remains favorable. They have done the right things. And so we are working very hard to take advantage of that. Steam coming out of the planning team, and they've got -- they did really well. That's a record number of applications. It's a small team. That was a hell of a lot of work to get those 18 applications in. We've got 24 sites currently awaiting a decision. And as I say, all towards strengthening that portfolio. And to the same point, we were delighted to exchange some 15 new promotion agreements in the year. 2 of those are conditional. And so -- and just to stress, that absolutely does not come from relaxing our standards. In fact, in this market, we're probably pushing up our risk aversion as you would expect. But this comes from the effectiveness of the local team, the local structure that Guy is put in place that really has upped our game and also backed by our fantastic market-leading data research and analysis team, which really does strengthen the bid and also strengthens our ability to get the planning permission as well in front of the local authority. So not relaxing our standards. We're still only bidding kind of -- we're rejecting 95% of the sites that we see -- that we're shown, they go straight to the bin. But because of the quality of the team and the data research, we are winning about 1/3 of the bids that we actually make. So really pleased to see that portfolio strengthening. So in terms of characterizing we are absolutely confident for the medium-term future of the Gleeson Land business, just have to put caution on there and what you're expecting in each 6-month period as we always do. So summary and outlook. We delivered a robust performance in the year. Project Transform has overhauled Gleeson Homes into a much improved business. We've got a dual focus now on managing the business as efficiently as we can in anticipation of that continuing subdued market. But we're pursuing a number of strategic initiatives to enhance our own performance and so far as we can mitigate that margin attrition. Gleeson Land continues to face a more cautious land market. So the timing of land sales lacks the visibility we'd hoped for, but the quality of the portfolio continues to attract strong interest. And the Board, therefore, expects to deliver an overall result in FY '27 in line with current market expectations. I'll read you the quote because I think it's fair. Following a year of intense activity, implementing fundamental business change, we now have a homes business that's operationally much stronger and a land business well placed to meet the needs of developers for high-quality consented sites. With a focused and disciplined approach we're now taking, we're confident for the future prospects of the group. Thank you for bearing with me on that, and we'll now be pleased to take your questions.

[Operator Instructions] Our first question is, you delivered nearly 10% more homes this year. How much further can volumes grow from here?

Yes. Thank you for that. So I mean we've talked in the past about a medium-term target of 3,000 homes. We strongly believe in the open market potential of this business. So there's really no cap. The cap on the where we can take the volumes is really to do with our ability to grow the business in a controlled manner, and that is absolutely our focus. And perhaps the only shift that you would hear in my tone from -- in answering that question today as opposed to perhaps a year ago, is that with the continuing drag on the market, which is really a global macro and customer confidence issue, we are, along with most in our sector, paying particular attention to the integrity of the balance sheet right now. It's strong today, and we want to keep it strong. And with uncertainty of take-up -- or pace of take-up in the market. We're obviously elevating our risk aversion in terms of the pace at which we're investing in sites. So no, in my view, no kind of challenge to the medium- and longer-term demand for homes in our part of the market. But we're probably slowly -- looking at slowing that pace of growth until we can be a little bit more confident of the outlook and confident that we can relax the purse strings and start going back into site acquisitions at pace. We haven't stopped, but we're being more cautious.

Next, we have Gleeson's key differentiator has always been affordability in the current mortgage environment, how affordable is the typical lease and home compared with renting the equivalent property?

Well, I'll let Stefan give you the detailed stats, but what I would say is that I think whilst we're focusing on mortgage rates increasing and you're absolutely right to raise that and the -- if you like, the headlines and the conversation on the train is about rates rising. But over in the rental market, things are getting pretty tough as well because a lot of rent ex rental stock is being landlords are walking away. It's all got too difficult in the renters Rights Act is kind of the last straw to a catalog of additional costs and relief -- tax reliefs taken away from the rental market. So the rental stock is shrinking and the cost of renting is going up as well. So -- but Stefan, do you want to just touch on the maths.

Yes, absolutely. I mean the cost of renting a typical 3-bed house in our regions is about GBP 280 per week. And as Graham said, that cost rental costs are -- rental increases are accelerating. The cost of a typical 3-bed Gleeson Home on a 90% mortgage is currently about GBP 240. So it's GBP 40 a week cheaper to buy a 3-bed Gleeson Home than it is to rent the equivalent. And that's a smaller gap than it was a year or so ago, but it is still a real saving on top of the savings that you get in maintenance costs and energy bills. I would also add that as a proportion of take-home pay, the amount that a first-time buyer spends of their take-home pay on mortgage payments is -- in our region is about 25%, and that's unchanged on the average over the last 40 years. It has been when there were really -- when it was a really strong market with high interest rates -- with very high interest rates. That has risen to about 37%, but it's averaged 25% over the last 40 years, and that's exactly where we are at the moment. So on the math of buying a home, it is as affordable now as it has been on average for the last 40 years.

Next, we have build cost inflation is running ahead of selling price increases. How much scope do you realistically have to rebuild margins if affordability prevents you from pushing prices materially higher?

Yes. I mean, welcome to our daily challenge. So the -- I suppose what I would say is we are still seeing very modest price inflation, very modest, but currently, it's running, we think about an annualized 1%. The point is it's not deflating, which I think you're seeing in some areas in the South and Southeast. So we've got something to work with. The North is not absolutely flat. And don't forget that build cost inflation, it's not a straight 1 for 1 because price inflation is on the whole of the revenue and build cost inflation is only on the build costs. And it only in the year impacts those elements of the build costs that we haven't forward secured, if you like. So we don't -- so that -- I mean, I think your rule of thumb, Stefan, is about 1% of revenue inflation covers 2% to 2.5% of build cost inflation, that sort of ratio, but obviously, it fluctuates. So -- but back to your question, you're absolutely right, with build cost inflation running hotter than sales price inflation, you're not going to see margins rebuild anytime while that's the case. And we are facing into that now. I think what I was trying to get over is that it should be at the moment, it's feeling like a reasonably steady relationship, i.e., the one is canceling out the other as of today. But yes, you're not going to see the margin growing whilst we're in the -- the situation that we're in.

And I would add in the short term, we -- so the -- if you look at the analyst forecast for gross margin, they are expecting they are expecting gross margins to be similar this year to FY '26, the year we're reporting. FY '26, we had some additional margin impacts -- we don't expect those again. I would also say that the mix of sites is going to be slightly different. So we have perhaps a bit more confidence on the margin this year. But as Graham said, the mixture of underlying house price increases that we can achieve and build cost inflation will drive either improvement in margin or a flat or let's hope not, but a little bit further margin deterioration.

Our next question is at what level of volumes does Gleeson Home has become significantly more profitable.

Good question. I suppose that -- so if you step back, if you go back a couple of years, I think the -- when I joined the -- the business had -- the overhead was too high. The business had too many regions for the number of units it was selling 9 regions, selling, I think, just on 2,000 units. That's too many. With that -- so what the absolute imperative to get the business efficient is to -- was to well, reduce the regions, but get each of those regions up to an efficient optimal operating level. And we're not there yet. So you've heard -- if you've been following the story, you all have heard me refer to growing into the overhead because it's not -- once you've opened those regions, it's not a simple matter of closing them until you've got the right number of regions for the number of outlets you have because then the regions won't be in the right place. And the worst thing you can do is leave sites too far away from the office that's looking after them because guess which -- if you've got a site that's 40 minutes from the office and a site that's 2.5 hours from the office, guess which one doesn't get visited very often and then guess which one goes wrong. So you need to maintain the coverage at the most efficient level you can, but whilst trying to grow into that overhead. So we still have too many -- too much overhead for the regions we're producing. And so where I'm going with that answer is that if I can get -- we currently have 4 regions and kind of 2 satellites that's as tight as we've been able to get it. An efficient region should be doing kind of 500, 550 units, that's a good number and 600 if they have a particularly busy year. So at our current output, we should be covering that kind of 2,000 units, we should be covering that with 4 regions. Now in a growing business, you'll always grow a bit ahead. So that should take us up to kind of 5 regions. So where we should be today with the business that we have, we should be doing kind of 2,500, 2,600, something like that. So as we push on towards 3,000, you'd expect us to open out again. But -- so an efficient level for our current business would be about 2,500 units. We're currently just under 2,000. So I hope that kind of -- I think that answers the question you're asking.

Our next question is the recent reservation rates has fallen from 0.44 to 0.55. Is this mainly a week August? Or are you seeing a more fundamental deterioration in first-time buyer confidence?

My view, obviously, I can only give you a view, I would be very surprised if 0.44 is what we're staring at into the future. That looked at looked and felt very much like just an even sleepier version of a normal sleepy August. And indeed, I know it was because I know what the last few weeks have done. So nothing -- there is nothing that says to me that we've got a sort of fundamental collapse of confidence of first time or any other buyers. What we have is a lot of caution. You have a lot of negatives out in the market. In the presentation, I called out mortgage rises and increases in the cost of living, which undoubtedly disproportionately troubled leasing customers because the lower end of the income range. But we're not seeing an absolute collapse in demand at all. We saw a weak sales rate through August. It's picking up. We've got to make sure that we are getting our fair share of the demand that's out there. But there is definitely still a market. It's just a market that's lacking conviction and confidence.