REG - MJ Gleeson Plc - Audited results for the year ended 30 June 2023
14/09/2023 07:15
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RNS Number : 3800M MJ Gleeson PLC 14 September 2023
14 September 2023
MJ Gleeson plc (GLE.L)
("Gleeson" or "the Group" or "the Company")
Audited results for the year ended 30 June 2023 ("FY2023")
Results in-line with expectations, reflecting shifting buyer demographics
Pre-emptive actions and higher selling prices ensured resilient operating
margins
Graham Prothero, CEO, commented:
"I am pleased to report a robust performance despite the impact on buyer
confidence as a result of current economic volatility. We maintained an
acceptable sales rate, supported by our first multi-unit and investor sales.
We were pleased to see growing levels of interest from purchasers who might
previously have considered more expensive homes from other developers, but who
are attracted by the combination of Gleeson's affordable price points and high
quality.
We took advantage of the quieter market to restructure Gleeson Homes,
right-sizing the business for current market conditions and, more importantly,
creating a standardised operating platform for the exciting growth which lies
ahead. We continued to secure excellent opportunities in our landbank, and we
have entered the new financial year in good shape.
Gleeson Land achieved impressive planning successes, and continues to see good
demand for consented land, with the rate of conversion partially constrained
by increased caution among developers. The business is successfully adding to
an already strong portfolio and is strengthening both its regional coverage
and research and analysis capabilities.
As set out at our recent Capital Markets Day, we are excited about the
longer-term growth opportunities for the business and look forward, as
economic conditions stabilise, to achieving our ambition for the business and
realise its medium-term potential of delivering 3,000 homes a year.
I believe we have a resilient business operating in an undersupplied market
segment, a robust balance sheet, great prospects and an excellent team to
ensure that we continue to successfully navigate the current environment and
take full advantage of the significant opportunities ahead."
Group financial highlights
2023 2022 Change
Revenue
Gleeson Homes £320.8m £334.6m (4.1%)
Gleeson Land £7.5m £38.8m (80.7%)
Total £328.3m £373.4m (12.1%)
Operating profit by division
Gleeson Homes(1) £35.0m £51.2m (31.6%)
Gleeson Land £1.0m £11.1m (91.0%)
Profit before tax and exceptional items £31.5m £55.5m (43.2%)
Exceptional items (£1.0m) (£12.9m)
Cash and cash equivalents £5.2m £33.8m (£28.6m)
EPS (pre-exceptional items)(1) 42.9p 78.1p (45.1%)
ROCE(2) 13.0% 25.4% (1,240bps)
Dividend per share (total) 14.0p 18.0p (22.2%)
(1) Stated before exceptional restructuring costs of £1.0m in 2023 and
building safety provisions of £12.9m in 2022
(2) Return on capital employed is calculated based on earnings before
interest, tax and exceptional items ("EBIT"), expressed as a percentage of the
average of opening and closing net assets after deducting deferred tax and
cash and cash equivalents net of borrowings
Divisional highlights
Gleeson Homes:
· 1,723 homes sold (2022: 2,000)
· Average selling price up by 11.3% at £186,200 (2022:
£167,300), underlying prices up 7.6%
· Gross profit margin on homes sold of 27.0% (2022:
29.0%)
· Operating profit pre-exceptional items of £35.0m
(2022: £51.2m)
· 82 build sites (30 June 2022: 87) of which 71 are
actively selling (30 June 2022: 61)
· Land pipeline up by 561 plots to 17,375 plots (2022:
16,814)
Gleeson Land:
· Three land sales completed during the year (2022: six)
· Six sites with planning or resolution to grant (2022:
three)
· Portfolio: 70 sites (2022: 71) with the potential to
deliver 17,831 plots (2022: 20,241)
· 18 sites awaiting a planning decision (2022: 16 sites)
Current trading and outlook
Economic uncertainty has continued to subdue the wider market over the summer
months. Gleeson Homes' net reservation rate for the 9 weeks to 1 September
2023 was 0.43 per site per week compared with 0.54 per site per week over the
comparable period last year. Cancellation rates of 0.10 per site per week were
unchanged from the comparable period last year.
However, with a steadying mortgage market and the implementation of a range of
sales and marketing initiatives, including the introduction of a shared
ownership package, we anticipate an increase in our net reservation rates
during the Autumn selling season. We also continue to receive interest in
multi-unit transactions, which would further strengthen sales.
Gleeson Land started the financial year in a stronger position with six
consented sites and has already completed the sale of one significant site.
Demand for consented sites remains strong and further site sales are
anticipated throughout the year.
We therefore view the current year with confidence, whilst remaining cautious
around continuing risks in the wider economy and any further impact on
customer demand. As market conditions improve, we look forward to returning to
significant growth.
Analyst presentation
A presentation by Graham Prothero, CEO, and Stefan Allanson, CFO, will be held
at 09:30 this morning at the offices of Hudson Sandler, 25 Charterhouse
Square, London, EC1M 6AE. To attend:
· by webcast, visit the company website:
www.mjgleesonplc.com/investors (http://www.mjgleesonplc.com/investors) or
access via the following link: https://brrmedia.news/GLE_FY23
(https://brrmedia.news/GLE_FY23)
· by telephone, please dial-in using the below details:
· Number: +44 (0) 808 109 0700
· Code: MJ Gleeson Full Year Results
About MJ Gleeson plc (www.mjgleesonplc.com)
MJ Gleeson plc comprises two divisions: Gleeson Homes and Gleeson Land.
Gleeson Homes is the leading low-cost, affordable housebuilder. Its
customers are typically buyers with a median income of £26,000. Its
two-bedroom homes start from £106,500. Gleeson's vision is "Building Homes.
Changing Lives", prioritising areas where people need affordable housing the
most. Our aim is to ensure that on all of our developments, a material
proportion of the homes are affordable to a couple earning the National Living
Wage. Buying a Gleeson home typically costs less than renting a similar
property. All Gleeson homes are traditional brick built semi or detached
homes. Gleeson offers a wide mix of two, three and four bedroom layouts.
Gleeson Land is the Group's land promotion division, which identifies
development opportunities and works with stakeholders to promote land through
the residential planning system.
As a high-quality, affordable housebuilder, Gleeson has strong and inherent
sustainability credentials. Its social purpose underpins the Company's
strategy and Gleeson measures itself closely against UN SDGs 5, 8, 11, 12, 13
and 15. More details on the Company's approach to sustainability can be found
at: mjgleesonplc.com/sustainability
(https://mjgleesongroupplc.sharepoint.com/sites/F/Shared%20Documents/STATS/2022-23%20Interim%20December%202022/Trading%20Update%2013%20Jan%2023/mjgleesonplc.com/sustainability/?xsdata=MDV8MDF8fGUzYWI2M2VjZTFjZTQyZGM4MjQwMDhkYjljYTkzYWU3fGEzM2JkYjE1N2UyNTQzOGFiMWZkNWM1MjNhODg2NmY5fDB8MHw2MzgyNzYwMjI4NTQ3MTM5MjB8VW5rbm93bnxWR1ZoYlhOVFpXTjFjbWwwZVZObGNuWnBZMlY4ZXlKV0lqb2lNQzR3TGpBd01EQWlMQ0pRSWpvaVYybHVNeklpTENKQlRpSTZJazkwYUdWeUlpd2lWMVFpT2pFeGZRPT18MXxMMk5vWVhSekx6RTVPbUV6TVRneU4yUmlPREUxWlRRMk0yRmhaV1ZqTXpBMFpUTm1OR1JqWWpCbVFIUm9jbVZoWkM1Mk1pOXRaWE56WVdkbGN5OHhOamt5TURBMU5EZzBNekV3fDE3YTdlMzIyM2NmODRmM2QxZmU4MDhkYjljYTkzYWU1fGM5ODNjZDZjZjU1YjQ0NDFiYWI4ODg4YjlhOGY3MDdj&sdata=STFJdDFUVXk1UEcweTI3ak9GUk9UK0k3ajZUdEcwV3JFdEhURkJWZTFKVT0%3D&ovuser=a33bdb15-7e25-438a-b1fd-5c523a8866f9%2Cmgarraway%40hudsonsandler.com)
Enquiries:
MJ Gleeson plc +44 1142 612900
Graham Prothero Chief Executive Officer
Stefan Allanson Chief Financial Officer
Hudson Sandler +44 20 7796 4133
Mark Garraway +44 7771 860938
Charlotte Cobb +44 7795 422131
Harry Griffiths +44 7860 630 046
Singer Capital Markets +44 20 7496 3000
Shaun Dobson
James Moat
Liberum
Richard Crawley +44 20 3100 2222
This announcement contains inside information. The person responsible for
arranging the release of this announcement on behalf of the Company is Stefan
Allanson, Chief Financial Officer.
LEI: 21380064K7N2W7FD6434
Chairman's Statement
I was delighted to be appointed Chairman, succeeding Dermot Gleeson who
retired on 31 December 2022 after 47 years on the Board and 28 years as
Chairman. It was Dermot's vision that saw the business transform into the UK's
leading listed low-cost housebuilder and one that can genuinely say that it
changes people's lives. I look forward to maintaining and building on that
legacy.
Strategy
Graham Prothero, who joined the Group as Chief Executive Officer on 1 January
2023, set out in July a roadmap to significantly scale the Company's
operations over the long term. Under the banner "Putting in place the
foundations for future growth", this included broadening out Gleeson Homes'
proven model, including widening the audience of target buyers, exploring
opportunities in partnerships, and expanding Gleeson Land's footprint.
We are not complacent about the risks in the short term presented by the wider
macroeconomic environment and broader market issues including planning
constraints. However, we believe that the scale of unmet demand for affordable
and high-quality homes will underpin a swift return to growth as soon as
market conditions stabilise and confidence returns. In the interim, our focus
on cost controls allied to new sales initiatives, including attracting
purchasers who would previously have considered buying a more expensive
property, should ensure a resilient performance in the current year.
Restructuring
Gleeson Homes responded proactively to the difficult market conditions by
pausing land buying, delaying the opening of new sites and controlling build
activity on certain sites. A restructuring of Gleeson Homes operations was
completed successfully by June 2023. The business is now in a stronger
position to return to growth when conditions allow and has recommenced land
buying and site opening.
Board and succession planning
I stepped down as Chief Executive Officer on 31 December 2022, remaining on
the Board as Non-Executive Chairman following the retirement of Dermot
Gleeson. I was succeeded by Graham Prothero who joined the Group from Vistry
Group plc, where he was latterly Chief Operating Officer.
Nicola Bruce joined the Board as a Non-Executive Director with effect from 24
March 2023. Nicola is an experienced Remuneration Committee Chair, with a
background in strategy and business development.
People
I would like to thank all my Gleeson colleagues for their commitment, hard
work and resilience through these challenging times, ensuring that we were
able to deliver results in line with expectations. I am hugely proud of their
levels of engagement with the Company and with its vision of "Building Homes.
Changing Lives". In this year's independently assessed people survey our
colleagues' engagement remained in the top quartile of all companies surveyed,
despite the challenges faced.
Sustainability and our commitment to a Science Based Target
Gleeson Homes' core mission remains fully aligned with UN Sustainable
Development Goal 11, the first target of which is "access for all to adequate,
safe and affordable housing", and I am proud that a couple on the UK National
Living Wage can still afford to buy a home on any Gleeson Homes development
site.
We have had a busy year focusing on our key pillars of People, Communities and
the Environment and have employed a Senior Ecologist to further develop our
biodiversity and ecology strategies. Most significantly, I am pleased to
announce our commitment to setting a Science Based Target in line with the
Paris Agreement's goal of limiting global warming to 1.5(o)C. Gleeson has been
working hard on understanding and eliminating both emitted and embedded
greenhouse gases in its construction activities and I look forward to
confirming the targets we agree with the Science Based Targets initiative
("SBTi") well within the two year timetable.
Dividend
Subject to shareholder approval at the 2023 Annual General Meeting, in line
with the Board's stated dividend policy, the Company intends to pay a final
dividend of 9 pence per share on 24 November 2023, to shareholders on the
register at the close of business on 27 October 2023. The total dividend for
the year to 30 June 2023 will be 14 pence. The Board intends to maintain an
earnings to ordinary dividend cover ratio of between three and five times.
Outlook
We have an excellent team, robust balance sheet and strong underlying demand
both for affordable, high-quality homes and well-located land.
The Board is confident of the Group's prospects. It believes that the
business is well-placed to take full advantage of a market recovery when it
materialises and to deliver sustained, profitable growth over the medium-term.
James Thomson
Chairman
13 September 2023
Chief Executive's Statement
Overview
I am pleased to report a robust performance in a year characterised by
economic volatility, a deterioration in buyer confidence and shifting buyer
demographics. We continued to experience delays in planning, further
exacerbated by the local elections in May and uncertainties around government
policy.
We took advantage of the quieter market to implement an important
reorganisation of the business, reducing our regional overheads and
standardising the structure to facilitate efficient and controlled future
growth. We have maintained our geographic coverage whilst reducing the number
of divisions from three to two and regional management teams from nine to six,
securing £3.2m of annualised administrative cost savings. Importantly, the
restructuring has put the business in a stronger position to grow as the
market recovers. We enter the new financial year with a stronger operating
structure and have re-commenced land buying and site opening.
Since joining the Group on 1 January 2023, I have been hugely impressed with
the resilience of our teams across the Group. I would like to thank everyone
for remaining focused and committed through a challenging period. These tough
market conditions may continue for a while yet, but I know that we have a
skilled and dedicated team to navigate the business through these choppy
waters.
In anticipation of the economy stabilising and confidence returning to the
market, we are implementing a range of measures to further improve our
competitiveness and position the business to take advantage of the recovery.
At our Capital Markets Day in July we set out our strategy to deliver on what
we believe is an exciting opportunity ahead. Under the banner "Putting in
place the foundations for future growth", we described how we intend to
broaden out Gleeson Homes' proven model and expand Gleeson Land's footprint
and capabilities. We have over the medium-term a visible route to delivering
3,000 homes per annum and scaling our land promotion business, and we look
forward to reporting our progress on this over the coming months and years.
Results
Group
Group revenue was £328.3m (2022: £373.4m) and profit before tax and
exceptional items was £31.5m (2022: £55.5m). Profit before tax was £30.5m
(2022: £42.6m) after exceptional restructuring costs of £1.0m (2022: £12.9m
building safety provisions).
The Group ended the year with cash and cash equivalents of £5.2m (2022:
£33.8m) and continues to have a strong balance sheet and significant
liquidity to invest in new sites and future growth.
Gleeson Homes
Gleeson Homes sold 1,723 homes (2022: 2,000). Average selling prices increased
by 11.3% to £186,200 (2022: £167,300) due to underlying selling prices
increasing by 7.6% and changes in the mix of homes sold.
The division entered into agreements with four carefully selected partners
during the year for the sale of a total of 377 homes. The sale of 115 of those
homes was completed during the year, with revenue recognised on the plots
legally completed. The remaining 262 homes are expected to be completed in the
new financial year.
We experienced increases in material and labour costs during the financial
year with average inflationary cost increases of 3.4%. Whilst these increases
had started to ease during the second half of the year, increases in
preliminary costs, as site durations were extended, and increased sales
incentives, led to a modest reduction in gross margin of 2.0% to 27.0% (2022:
29.0%).
The division delivered an operating profit before exceptional items of £35.0m
(2022: £51.2m) reflecting the market slowdown throughout most of the
financial year.
We enter the new financial year with a stronger forward order book of 665
plots (31 December 2022: 319 plots, 30 June 2022: 618 plots).
We opened three new build sites in the year and are now building on 82 sites
across the North of England and the Midlands (2022: 87 build sites). Whilst
this was lower than we had originally anticipated due to our response to the
economic slowdown, we have retained a healthy pipeline of 173 sites at 30 June
2023, which increased by 561 plots to 17,375 plots (2022: 16,814 plots).
Gleeson Land
The division completed the sale of three sites under promotion agreements,
with the potential to deliver 413 plots for housing development, and delivered
an operating profit of £1.0m (2022: £11.1m). The more cautious approach
adopted by housebuilders to buying land resulted in some land sales
progressing slower than anticipated particularly in the final quarter.
Gleeson Land ended the year with a stronger portfolio, having six sites
consented or with resolution to grant, which have the potential to deliver
1,400 plots for housing development (2022: three sites, 1,206 plots), and a
further 18 sites awaiting a planning decision or in appeal, with the potential
to deliver 4,285 plots for housing development (2022: 16 sites, 3,559 plots).
Under the leadership of its new Managing Director, Guy Gusterson, the business
is well positioned for growth and to expand its geographical reach. Our
investment in technology and analytics will enable the division to accelerate
growth, and is already differentiating our offering compared to other land
promoters.
The overall portfolio comprises 70 sites, with the potential to deliver 17,831
plots, and 25 acres of commercial land (2022: 71 sites, 20,241 plots, 25 acres
of commercial land). The majority of these sites are held under promotion or
option agreements.
We have a strong pipeline of sites and continue to see demand from mid-size
and regional housebuilders for well-located, consented land.
The market
The current economic backdrop has impacted buyer confidence across the market.
With first-time buyers particularly affected by the end of Help to Buy, we
were pleased to see an increase in demand from existing home-owners which
drove a significant shift in our buyer demographics. Reservations from
first-time buyers in the second half accounted for circa 50% of open-market
reservations compared to a more typical 80%, whilst over 20% of reservations
are from buyers aged over 55 years old (2022: 10%).
The average selling price of new build homes in our geographic regions was
£272,600, 46% higher than the average selling price of a Gleeson home at
£186,200. Gleeson Homes is therefore uniquely positioned to serve customers
who might previously have been considering a more expensive property but who,
faced with higher mortgage rates, are now looking at more affordable price
points. We are broadening our marketing and sales initiatives to target this
much wider audience of value-driven potential purchasers. We expect our homes
to become increasingly attractive, reinforced by cost of living pressures
which will further enhance the attractiveness of a Gleeson home. We also
expect that we will see first-time buyer interest returning to more normal
levels as confidence returns, further strengthening demand.
The UK's housing market is driven by the structural under-supply of homes in
the UK and household formation will continue to ensure strong demand. Our
starting point is the estimated nine million rented households in England, of
which just under half are in the areas in which we operate. Meanwhile, the
cost of renting in the UK continues to outpace the cost of buying a new
Gleeson home. Over the last twelve months, in our regions, rental costs for an
average three bedroom house increased by 7.7%, and the cost of buying a
Gleeson home remains comparable, if not cheaper, than renting. Moreover,
Gleeson homeowners see significant savings on their energy bills which are,
based on current energy prices, £748 lower per year on a typical 2-bed home
compared to older housing.
The market served by Gleeson Land for consented land continues to enjoy good
demand, but is seeing increased levels of caution from major housebuilders. In
their place, mid-size and regional housebuilders have seized the opportunity
to step in and bid on sites and, as a result, the demand for attractive,
well-located sites with planning permission remains robust.
Gleeson Land is one of two large land promoters whose interests are aligned to
their land owners by maximising value on open market sales and who do not sell
land to their housebuilding arm.
Strategic review
We held a Capital Markets Day in July at our Petersmiths Park development in
Nottinghamshire which, when completed, will comprise 305 homes. At the event,
which was well-attended by sell-side analysts and investors, we set out, under
the banner of "Putting in place the foundations for growth", why we are
excited about the strong growth potential across both Gleeson Homes and
Gleeson Land.
At Gleeson Homes, we have clear visibility for the delivery of 3,000 homes per
annum over the medium-term and have set out an ambition to realise the Group's
full potential over the longer-term, which could see it delivering circa
10,000 homes per annum.
Gleeson Land is well-placed to expand its regional presence and its rate of
acquisitions, using its advanced analytics and research capability, and is
expanding its capabilities to become the country's pre-eminent land promoter.
We look forward to keeping the market updated on our progress.
Building safety
The Group remains firmly committed to remediating life-critical fire safety
issues on buildings over 11 metres in which it was involved in developing over
the last 30 years. In February 2023, the Group entered into the long form
agreement with the Department for Levelling Up, Housing and Communities
(DLUHC) self-remediation terms following its initial pledge in April 2022.
We moved swiftly to carry out investigation work, intrusive surveys and fire
risk assessments where building owners and management companies permitted.
Despite our best efforts, progress has been slower than we would like but we
are committed to undertaking any remedial work as soon as agreement can be
reached. Three additional buildings were identified by Gleeson and notified to
DLUHC this year. These buildings are of masonry construction, two of which
were conversions from their previous use as mills and one of which was
previously notified to DLUHC as a single development but comprises two
separate buildings. The overall provision has been reassessed in light of
these and a further assessment of the remediation works required on the 14
buildings previously notified and, based on current estimates, the remaining
provision of £12.8m at 30 June 2023 remains appropriate for the 17 buildings.
Business restructuring
In response to the economic conditions, the Group took a number of defensive
measures early in the financial year. This included pausing land buying,
delaying the opening of new sites, and controlling build rates on certain
sites in line with demand.
In February 2023, we announced the restructuring of Gleeson Homes. This was
completed successfully by June 2023, reducing from nine regional management
teams to six and moving to a standardised operating structure. This process
had a significant impact on people in the business, and I am grateful for the
resilience and support of our colleagues during this period. This action was
necessary to reshape the organisational structure and create a strong platform
for growth as the market returns. This process resulted in a number of
redundancies, generating annualised administrative cost savings of £3.2m and
a one-off exceptional cost totalling £1.0m.
We continue to hold a strong pipeline of land and have actively resumed land
buying in the new financial year. We have also resumed opening sites,
investing in work in progress to provide a platform to accelerate sales as
market conditions return.
Immediate priorities
Following on from the restructuring of Gleeson Homes, we now have a
standardised operating structure, ensuring that we are more efficient in what
we do on a day-to-day basis.
We are rolling out a new and wider product range, including one-bedroom homes,
and refreshed elevations to ensure that we attract buyers who might not
previously have considered a Gleeson home.
We are widening our marketing and sales activities to all value-driven buyers
and placing a particular focus on systems development and training to ensure
that we have the best sales processes, to improve our buyer conversion rates.
We are considering further multi-unit sales to carefully selected partners,
taking advantage of demand in the rental market to reduce risk and maintain
our sales rate.
In addition, we are exploring opportunities to develop longer-term
partnerships with selected partners who share our values, which would offer
incremental growth, whilst moderating our open-market risk and enhancing
returns.
Current trading and outlook
Economic uncertainty has continued to subdue the wider market over the summer
months. Gleeson Homes' net reservation rate for the 9 weeks to 1 September
2023 was 0.43 per site per week compared with 0.54 per site per week over the
comparable period last year. Cancellation rates of 0.10 per site per week were
unchanged from the comparable period last year.
However, with a steadying mortgage market and the implementation of a range of
sales and marketing initiatives, including the introduction this month of a
shared ownership package, we anticipate an increase in our reservation rates
during the Autumn selling season. We also continue to receive interest in
multi-unit transactions, which would further strengthen sales.
Gleeson Land started the financial year in a stronger position with six
consented sites and has already completed the sale of one significant site.
Demand for consented sites remains strong and further site sales are
anticipated throughout the year.
We therefore view the current year with confidence, whilst remaining cautious
around continuing risks in the wider economy and any further impact on
customer demand. As market conditions improve, we look forward to returning to
significant growth.
Net reservations per site per week (excluding multi-unit sales) 9 weeks to 9 weeks to
1 September 2023 2 September 2022
Gross reservations 0.53 0.64
Cancellations 0.10 0.10
Net reservations 0.43 0.54
Graham Prothero
Chief Executive Officer
13 September 2023
Sustainability Review
Home ownership
Our vision of "Building Homes. Changing Lives" and our mission of "Changing
lives by building affordable, quality homes, where they are needed, for the
people who need them most" supports UN Sustainable Development Goal 11
("Sustainable cities and communities") to provide access for all to "safe and
affordable housing". I am proud that a working couple on the National Living
Wage can afford to buy a high-quality home on any one of our developments.
This year 84% of the homes that we sold were either in the most deprived areas
of the country or on brownfield land in need of regeneration.
We recognise that home ownership may not be an option for some, and we have
entered into agreements with a small number of carefully selected partners to
sell homes for rent on selected developments. We will continue to explore
these opportunities where these are aligned to our mission, vision and values.
People and health and safety
Our independently-assessed people engagement score, at 87%, remained in the
top quartile of all surveyed companies this year, with a higher response rate
across the Group. It is pleasing that we have maintained our position as we
strive to make Gleeson an even better place to work. We will be responding to
the latest constructive feedback over the coming months. We place great
emphasis on the importance of personal development and training, and keep our
employee value proposition under continual review.
On health and safety performance, the number of reportable incidents rose from
one last year to six this year. This was disappointing as health and safety
has been an area of significant management priority and investment and we
continue to re-enforce our "HomeSafe" message across our sites. Whilst we
previously outsourced health and safety inspections to a third-party, this was
not yielding the quality and consistency that we expect and have, therefore,
taken the decision to bring this activity back in house. This is an important
area for us and we seek to measure ourself against best-practice in the
industry.
Climate, the environment and our commitment to a Science Based Target
Whilst we have reduced our absolute emissions from direct operations to 3,601
tonnes (2022: 3,714 tonnes), we missed the ambitious target we set in 2021 to
reduce our scope 1 & 2 carbon emissions from 2.5 tonnes to 1.75 tonnes per
home sold. Emissions per home sold in 2022 had reduced to 1.86 tonnes but
increased to 2.09 tonnes in this financial year as a result of the lower
number of homes sold.
The increasing push towards nationally described space standards ("NDSS") has
the unintended consequences of making homes larger and more expensive despite
it being clear that this is not what many customers want, and will increase
the embodied carbon emissions of an average Gleeson home over the next few
years despite the actions we are taking.
However, we are working hard to reduce all emissions and in August 2023, we
committed to the Science Based Targets initiative (SBTi) to set both a
near-term and a long-term carbon reduction target. This affirms our ambition
to deliver direct climate action through the decarbonisation of our
operations, supply chain and in use emissions. We now have a two-year period
to submit our targets and have these validated by the SBTi, which includes
setting a baseline year and developing a plan for carbon reduction. We will
announce the specific targets once we have had these validated, and report
against them in future reporting periods.
We are already taking steps to switch to lower carbon materials, where viable,
such as using concrete bricks or reconstituted stone rather than kiln-fired
clay bricks, installing air source heat pumps, and reducing fuel use on sites
through improved forklift and generator technology and HVO fuel.
In response to the Future Homes Standard and changes in Building Regulations,
we are now installing air source heat pumps in all the homes we commenced
building after 15 June 2023 which means that our homes will be net-zero ready
in preparation for the UK Grid being decarbonised by 2035.
We are supportive of the measures to improve energy efficiency and our homes
already have better energy performance ratings than most other homes, with 95%
of our homes having an EPC "B" rating or above. Customers also benefit from
living in an energy-efficient and well-insulated home. The average Gleeson
home requires 49% less energy to heat and power than existing housing, and the
average Gleeson buyer of a 2-bed home currently saves over £748 per year on
their energy bills based on actual usage data.
Build quality and customer service
Build quality remains a priority and for most of our customers buying a
Gleeson home represents the single largest financial commitment of their
lives. We are committed to meeting our customers' expectations for quality and
customer service.
We saw a marginal decrease in our overall customer "recommend" scores during
the year to 89.0% (2022: 90.7%). The movement in the score was primarily down
to a drop in customer satisfaction levels in a couple of regions, principally
at the point of handover, and our effectiveness in dealing with defects
promptly thereafter.
Following the corrective actions put in place, we have seen a significant
improvement in survey scores received in recent months with current
"recommend" scores of 93.9% in the two months to 31 August 2023.
Gleeson was one of the first housebuilders to register under the New Homes
Quality Code ("NHQC"). We fully support its principles and our processes have
been updated to meet these new requirements.
Gleeson Homes - Business Review
2023 2022
Homes sold 1,723 2,000
Average selling price £186,200 £167,300
Operating profit* £35.0m £51.2m
Operating margin* 10.9% 15.3%
*Stated before exceptional items
2023 2022
Plots owned 7,674 8,478
Plots conditionally purchased 9,701 8,336
Total plots in pipeline 17,375 16,814
2023 2022
Plots on brownfield land or areas of deprivation 13,314 13,189
Plots on greenfield land or more affluent areas 4,061 3,625
Total plots in pipeline 17,375 16,814
Results
Gleeson Homes completed the sale of 1,723 homes during the year (2022: 2,000),
a reduction of 13.9% on the previous year. Of the homes sold, 115 were to the
four carefully selected partners with whom we have entered agreements to sell
a total of 377 homes.
Revenue decreased by 4.1% to £320.8m (2022: £334.6m) as resilient selling
prices partly mitigated the impact of the reduction in the number of homes
sold. The average selling price of homes sold during the year increased by
11.3% to £186,200 (2022: £167,300), driven by higher underlying selling
prices which were up 7.6%, changes in the mix of site locations and house
types and increased customer extras.
Gross margin on homes sold decreased to 27.0% (2022: 29.0%) reflecting build
cost inflation of 3.4%, increased fixed site costs as site durations extended
due to the wider market downturn, the impact of multi-unit and affordable
sales and the higher use of incentives to secure sales. Despite the increase
in average selling prices, the decrease in the volume of homes sold and gross
profit margin resulted in gross profit decreasing by 10.7% to £86.5m (2022:
£96.9m).
Administrative expenses, which include sales and marketing costs, increased by
£5.7m to £51.8m (2022: £46.1m) driven by higher headcount, increased
advertising and selling costs and the impact of inflation. Other operating
income amounted to £0.4m (2022: £0.4m). Consequently, operating profit
before exceptional costs decreased by 31.6% to £35.0m (2022: £51.2m) and
operating margin decreased from 15.3% to 10.9%.
Market demand
The combined impact of rising interest rates, the Government's disastrous
mini-budget in September 2022 and withdrawal of Help to Buy in October 2022,
all led to a rapid slowdown in the housing market in the second quarter and a
significant fall in demand. Whilst we started to see early signs of a recovery
in January and February 2023, demand did not recover to prior year levels. As
a result, net reservation rates remained relatively weak over the second half
of the year.
Although it remains too early to call, it appears that interest rates which
are currently at 5.25%, are nearing their peak as inflation begins to fall.
Equally, mortgage rates are starting to stabilise and reduce, which we
anticipate will start to support a return in market confidence and activity.
Responding to market conditions, and restructuring for growth
We took action quickly in response to the weaker market conditions. In the
second quarter we implemented a number of defensive measures focused on
managing working capital and costs. These included slowing build rates on
certain sites in line with demand, delaying the opening of new sites, and
pausing land buying.
In February 2023, we announced the reorganisation of Gleeson Homes from three
divisions to two and from nine regional management teams to six, adjusting our
overhead to suit current volumes whilst maintaining capacity for growth. The
process necessarily put at risk a significant proportion of our colleagues,
but the final number of redundancies was kept to a minimum through some roles
being transferred and through natural attrition over the period.
Annualised administrative cost savings of £3.2m will be fully realised from
2024 onwards. Exceptional costs arising from the restructuring amounted to
£1.0m.
An important part of the reorganisation was to restructure the way that the
business operates, implementing a standard structure with consistent roles,
responsibilities, processes and reporting. This will bring enhanced control
and improved quality of both build and customer service, also ensuring that we
can confidently maintain these aspects as we grow the business.
Sites
Gleeson Homes opened three new build sites during the year and started the new
financial year with 82 active build sites (2022: 87), of which 71 were
actively selling (2022: 61). New site openings were paused in response to the
economic conditions resulting in a reduction in active build sites. Our
average active build sites and sales sites were 85 and 68 respectively (2022:
83 and 63).
Gleeson Homes' developments are located across the North of England and the
Midlands, with plans to continue expanding in existing areas and into
neighbouring regions. The business expects to open more than 20 build sites
during the new financial year and to be building on between 80 and 85 sites
and selling on between 60 and 65 sites by 30 June 2024.
Pipeline
Land continues to be available at sensible prices. The pipeline of owned and
conditionally purchased sites increased by 3.3% to 17,375 plots on 173 sites
at 30 June 2023, representing over ten years of sales (2022: 16,814 plots on
160 sites). Of the total plots, 7,674 plots are owned (2022: 8,478 plots) and
9,701 plots have been conditionally purchased subject to receiving planning
permission (2022: 8,336 plots).
During the year, 37 new sites were added to the pipeline, whilst 24 sites were
completed or did not proceed to purchase.
Gleeson Land - Business Review
2023 2022
Sites sold 3 6
Plots sold 413 1,443
Portfolio 70 sites 71 sites
Operating profit £1.0m £11.1m
2023 2022
Plots held under option 5,512 6,188
Plots held under promotion agreement 11,830 13,564
Plots held freehold 489 489
Total plots in portfolio 17,831 20,241
2023 2022
Consented (including resolution to grant) 6 3
Awaiting planning 18 16
Allocated 6 8
Unallocated 40 44
Total sites in portfolio 70 71
Results
During the year, the business completed the sale of three sites with
residential planning permission for 413 plots (2022: six sites, 1,443 plots)
at an average of £8,800 gross profit per plot (2022: £9,550 per plot). All
sites were sold under promotion agreements.
As a result, revenue from land sales decreased to £7.5m (2022: £38.8m),
including £1.3m relating to the completion of a further phase of a legacy
site sold in 2019 (2022: £2.5m). The sites sold in the year totalled 55 gross
acres. Total gross profit for the year was £3.6m (2022: £13.8m).
Overheads for the business continued to be well controlled at £2.6m (2022:
£2.7m). As a result of the reduction in gross profit, operating profit
reduced to £1.0m (2022: £11.1m).
The results reflected a more cautious approach from housebuilders and
congestion in the planning system, exacerbated by the local elections in May,
which delayed a number of sites, particularly in the final quarter of the
financial year. However, the business ended the year with a strong portfolio,
having six sites either with planning permission or resolution to grant with
the potential to deliver 1,400 plots for housing development (2022: three
sites, 1,206 plots). Of these, one site has been sold since the year end.
Portfolio
During the year three sites (706 plots) were added to the portfolio, secured
under promotion agreements. One legacy site which was no longer viable to
promote was aborted.
At 30 June 2023, the business had a portfolio totalling 70 sites (2022: 71
sites) with the potential to deliver 17,831 plots (2022: 20,241 plots) plus 25
acres of commercial land (2022: 25 acres). The majority of the portfolio is
held under option and promotion agreements with landowners.
The portfolio, which is located in the South of England where land values are
highest, is expected to realise value over the short, medium and long-term,
driven by the planning context of each site.
The land promotion market remains highly competitive but, as one of the
largest land promoters, we continue to see opportunities to add well-located,
attractive sites to the portfolio. We carefully select sites where we see the
potential for residential development and that meet our strict internal hurdle
rates. We are making increasing use of technology and data analysis to focus
our land searches and support our bids, which improves our efficiency and
enhances our competitiveness in the bidding process.
Planning
This year Gleeson Land submitted planning applications on 11 sites with the
potential to deliver 2,014 plots (2022: 10 sites, 1,428 plots), and achieved
planning consent or resolution to grant on six sites.
The planning system remains chronically slow and this has been further
exacerbated during the course of the year by the proposed reforms from
government. This has increased uncertainty around planning policy and, in some
cases, prompted the withdrawal of housing delivery plans by local authorities.
In addition, the delays caused by Natural England's guidance on nutrient
neutrality, including phosphates and nitrates, show some signs of being
resolved but we await the outcome of the government's planned legislative
changes.
Despite these challenges, Gleeson Land has an excellent track record in
navigating the complexities of the planning system. We ended the year with 18
sites awaiting a decision on planning applications or in appeal (2022: 16
sites).
Financial Review
Introduction
The economic and market conditions during the year presented significant
challenges to demand, reducing revenue and profit for the year. Our response
to these challenges, including our defensive capital allocation plan, has
allowed us to maintain a strong balance sheet and resilient profits, leaving
us well positioned for future growth. We continued to invest heavily in
commencing the build of a substantial number of homes during the year to
ensure an orderly transition to new building regulations, which resulted in
higher than typical site work in progress, which will unwind over the next two
years, and was the principal driver for the reduced year end cash balances.
Revenue
Group revenue decreased 12.1% to £328.3m (2022: £373.4m) due to the
reduction in sales in both Gleeson Homes and Gleeson Land.
Gleeson Homes' revenue decreased by 4.1% to £320.8m (2022: £334.6m) driven
by a 13.9% decrease in the number of homes sold to 1,723 (2022: 2,000) offset
by an 11.3% increase in average selling price ("ASP") to £186,200 (2022:
£167,300). ASP increases were driven by underlying selling price increases of
7.6% and changes in the mix of sites and house types.
Gleeson Land sold three sites in the year (2022: six sites). Revenue decreased
by 80.7% to £7.5m (2022: £38.8m), largely caused by housebuilders taking a
more cautious view in response to the economic environment. This resulted in
some land sales progressing more slowly than anticipated, particularly in the
final quarter of the year. In addition, the delays in the planning system
meant that we started the year having only three sites with consent or
resolution to grant, and fewer planning applications approved during the year.
We commence the new financial year in a stronger position with six sites with
consent or resolution to grant (2022: three sites) and 18 sites awaiting a
planning decision (2022: 16 sites).
Gross profit
Pre-exceptional gross profit for the Group decreased by 18.6% to £90.1m
(2022: £110.7m), with gross profit in Gleeson Homes decreasing by 10.7% to
£86.5m (2022: £96.9m). The gross profit margin for Gleeson Homes decreased
to 27.0% (2022: 29.0%) as selling price increases began to slow, build cost
inflation continued and fixed costs increased as site durations extended.
The reduction in site sales in Gleeson Land resulted in gross profit for
Gleeson Land reducing to £3.6m (2022: £13.8m).
Administrative expenses
Administrative expenses excluding exceptional costs increased by £2.5m (4.6%)
in the year to £57.0m (2022: £54.5m) reflecting increased payroll costs,
advertising spend and office costs.
Profits for the year
Group operating profit before exceptional items was £33.6m (2022: £56.8m), a
40.8% decrease on the prior year. This was due to the 31.6% decrease in
operating profit in Gleeson Homes to £35.0m (2022: £51.2m) and the reduction
in Gleeson Land operating profit to £1.0m (2022: £11.1m). Group overheads
were £2.4m (2022: £5.5m), benefiting from a reduction in bonus and share
based payment costs including the unwind of share based payment costs charged
in prior years.
Net finance expenses increased in the year to £2.1m (2022: £1.3m) due to the
combined impact of increasing interest rates and drawdowns of our facility to
fund working capital during the year. As a result, the Group delivered profit
before tax and exceptional items of £31.5m (2022: £55.5m) and profit before
tax of £30.5m (2022: £42.6m).
Exceptional items
In February 2023, we commenced consultation on the restructure of the Gleeson
Homes business, consolidating the three divisions and nine regional management
teams to two divisions and six regional management teams. Annualised overhead
cost savings of £3.2m were partly realised in the year. The operational
restructuring leaves Gleeson Homes better positioned for growth as the market
recovers. The £1.0m cost of this restructure included redundancy costs and
termination payments, plus professional and legal fees directly associated
with the restructuring and is treated as an exceptional item.
The £12.9m exceptional item in the prior year related to the building safety
provisions for life-critical fire-safety remediation costs on buildings over
11 metres that the Group had involvement in developing over the last 30 years.
The provision has been re-assessed throughout the year as investigations and
intrusive surveys have been carried out. As a result of these investigations
three additional buildings were identified and notified to the Department for
Levelling Up, Housing and Communities (DLUHC). Following the re-assessment of
all other provisions at the year end there has been no further impact on
profit and the remaining provision of £12.8m is considered appropriate.
Further information can be found in note 3 to the financial statements.
Tax
The pre-exceptional tax charge was £6.5m which represents an effective tax
rate of 20.7% against the headline rate of 20.5%. This followed the change in
the corporation tax rate from 19% to 25% from 1 April 2023. A tax credit of
£0.2m was recognised in respect of the exceptional cost (2022: £2.5m),
resulting in a total tax charge for the year of £6.3m (2022: £7.5m).
Included in the tax charge is £0.3m relating to residential property
developers tax ("RPDT"), which was effective from 1 April 2022 and applies to
profit from residential property development activity on profits over £25.0m.
Whilst the RPDT charge has been low this year due to subdued trading, the levy
continues to create an additional tax burden on the industry.
Profit after tax
Pre-exceptional profit after tax for the year decreased by 45.1% to £25.0m
(2022: £45.5m) and reported profit, net of the exceptional charge, decreased
31.1% to £24.2m (2022: £35.1m).
Earnings per share
Pre-exceptional basic earnings per share decreased by 45.1% to 42.9 pence
(2022: 78.1 pence). Reported basic earnings per share after exceptional items
decreased to 41.5 pence (2022: 60.2 pence).
Return on capital employed
The pre-exceptional return on capital employed decreased 1,240 basis points to
13.0% (2022: 25.4%) caused by the reduction in profit and increases in working
capital at 30 June 2023.
Balance sheet
During the year to 30 June 2023, shareholders' funds increased by 5.1% to
£286.0m (2022: £272.2m). Net assets per share increased to 490 pence, an
increase of 4.9% year on year (2022: 467 pence).
Non-current assets decreased during the year by 14.2% to £12.1m (2022:
£14.1m). This was due to a reduction in non-current trade and other
receivables of £5.0m as a result of the deferred land payments in Gleeson
Land all now being due within one year, offset by an increase in property,
plant and equipment of £3.0m as a result of additions to plant and machinery,
show homes and leased property and equipment.
Current assets increased by 3.1% to £364.3m (2022: £353.5m). Inventories
increased by £57.7m to £344.6m of which approximately £30m was invested on
site infrastructure and build starts in preparation for the transition to new
building regulations on 15 June 2023 and will unwind over the next two years.
Trade and other receivables decreased by £15.3m to £13.9m as a result of net
receipts of deferred monies in Gleeson Land of £5.0m, reduction in VAT
receivables and Help to Buy monies that were outstanding at the end of last
year in Gleeson Homes. The remainder was a result of the reduction in cash,
which reduced to £5.2m (2022: £33.8m) due to the investment in inventories
and property plant and equipment in the year.
Cash and bank facilities
The Group ended the year with cash of £5.2m (2022: £33.8m). In July 2023,
the Group successfully refinanced its club borrowing facility with Lloyds Bank
plc and Santander UK plc. The facility was increased from £105m to £135m and
extended to October 2026 plus two uncommitted one-year extension options. The
increased facility provides the Group with additional liquidity to invest in
new sites and support future growth.
Dividends
In line with the Board's stated dividend policy, the Company intends to pay a
final dividend of 9 pence per share at a total cost to the Company of £5.2m.
The dividend will be paid on 24 November 2023 to shareholders on the register
at the close of business on 27 October 2023. Combined with the interim
dividend of 5 pence per share paid in April 2023, the total dividend for the
year will be 14 pence, representing a decrease of 22.2% on the prior year
(2022: total dividend per share 18.0p) and is covered 3.06 times.
The Board intends to maintain an earnings to ordinary dividend cover ratio of
between three and five times.
Stefan Allanson
Chief Financial Officer
13 September 2023
AUDITED CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2023
2023 2023 2023 2022 2022 2022
Pre-exceptional items Exceptional items (note 3) Total Pre-exceptional items Exceptional items (note 3) Total
£000 £000 £000 £000 £000 £000
Revenue 328,319 - 328,319 373,409 - 373,409
Cost of sales (238,228) - (238,228) (262,753) (12,867) (275,620)
Gross profit 90,091 - 90,091 110,656 (12,867) 97,789
Administrative expenses (56,952) (1,022) (57,974) (54,543) - (54,543)
Other operating income 420 - 420 684 - 684
Operating profit 33,559 (1,022) 32,537 56,797 (12,867) 43,930
Finance income 191 - 191 172 - 172
Finance expenses (2,261) - (2,261) (1,482) - (1,482)
Profit before tax 31,489 (1,022) 30,467 55,487 (12,867) 42,620
Tax (6,508) 210 (6,298) (9,976) 2,445 (7,531)
Profit for the year attributable to the equity holders of the parent 24,981 (812) 24,169 35,089
45,511 (10,422)
Earnings per share
Basic 42.89 p 41.49 p 78.12 p 60.23 p
Diluted 42.86 p 41.47 p 77.92 p 60.08 p
AUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2023
2022
2023 2023 2023 2022 2022 Total
Pre-exceptional items Exceptional items (note 3) Total Pre-exceptional items Exceptional items (note 3)
£000 £000 £000 £000 £000 £000
Profit for the year 24,981 (812) 24,169 45,511 (10,422) 35,089
Other comprehensive (expense)/income items that may be subsequently
reclassified to profit or loss
Change in fair value of shared equity receivables at fair value (148) - (148) 120 - 120
Other comprehensive (expense)/ income for the year (net of tax)
(148) - (148) 120 - 120
Total comprehensive income/(expense) for the year 24,833 (812) 24,021 35,209
45,631 (10,422)
AUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2023
2023 2022
£000 £000
Non-current assets
Property, plant and equipment 11,206 8,112
Trade and other receivables 51 5,051
Deferred tax assets 797 941
12,054 14,104
Current assets
Inventories 344,626 286,882
Trade and other receivables 13,947 29,243
UK corporation tax 542 3,565
Cash and cash equivalents 5,159 33,764
364,274 353,454
Total assets 376,328 367,558
Non-current liabilities
Trade and other payables (8,171) (9,703)
Provisions (8,206) (12,049)
(16,377) (21,752)
Current liabilities
Trade and other payables (68,662) (72,291)
Provisions (5,273) (1,339)
(73,935) (73,630)
Total liabilities (90,312) (95,382)
Net assets 286,016 272,176
Equity
Share capital 1,167 1,166
Share premium 15,843 15,843
Own shares (743) (471)
Retained earnings 269,749 255,638
Total equity 286,016 272,176
AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2023
Share capital Share premium Own shares Retained earnings Total
equity
£000 £000 £000 £000 £000
At 1 July 2021 1,165 15,843 - 227,923 244,931
Profit for the year - - - 35,089 35,089
Other comprehensive income - - - 120 120
Total comprehensive income for the year - - - 35,209 35,209
Share issue 1 - - - 1
Transfer of own shares - - (136) 136 -
Purchase of own shares - - (403) - (403)
Utilisation of own shares - - 68 268 336
Share-based payments - - - 1,568 1,568
Movement in tax on share-based payments taken directly to equity - - - (128) (128)
Dividends - - - (9,338) (9,338)
Transactions with owners, recorded directly in equity 1 - (471) (7,494) (7,964)
At 30 June 2022 1,166 15,843 (471) 255,638 272,176
Profit for the year - - - 24,169 24,169
Other comprehensive expense - - - (148) (148)
Total comprehensive income for the year - - - 24,021 24,021
Share issue 1 - - - 1
Purchase of own shares - - (330) - (330)
Utilisation of own shares - - 58 (58) -
Share-based payments - - - (307) (307)
Movement in tax on share-based payments taken directly to equity - - - 362 362
Dividends - - - (9,907) (9,907)
Transactions with owners, recorded directly in equity 1 - (272) (9,910) (10,181)
At 30 June 2023 1,167 15,843 (743) 269,749 286,016
AUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2023
2023 2022
£000 £000
Operating activities
Profit before tax 30,467 42,620
Depreciation of property, plant and equipment 3,972 3,124
Share-based payments (307) 1,568
Profit on redemption of shared equity receivables (285) (375)
Increase in provisions including exceptional items 91 13,129
Loss on disposal of property, plant and equipment 305 403
Finance income (191) (172)
Finance expenses 2,261 1,482
Operating cash flows before movements in working capital 36,313 61,779
Increase in inventories (57,744) (46,921)
Decrease/(increase) in receivables 19,337 (8,165)
(Decrease)/increase in payables (7,490) 13,244
Cash (used)/generated from operating activities (9,584) 19,937
Tax paid (2,770) (7,059)
Finance costs paid (2,066) (1,043)
Net cash flow (deficit)/surplus from operating activities (14,420) 11,835
Investing activities
Proceeds from disposal of shared equity receivables 1,279 1,566
Interest received 7 20
Purchase of property, plant and equipment (4,441) (3,684)
Net cash flow deficit from investing activities (3,155) (2,098)
Financing activities
Net proceeds from issue of shares 1 1
Purchase of own shares (330) (403)
Dividends paid (9,907) (9,338)
Principal element of lease payments (794) (564)
Net cash flow deficit from financing activities (11,030) (10,304)
Net decrease in cash and cash equivalents (28,605) (567)
Cash and cash equivalents at beginning of year 33,764 34,331
Cash and cash equivalents at end of year 5,159 33,764
NOTES TO THE FINANCIAL INFORMATION
for the year ended 30 June 2023
1. Accounting policies
Statement of compliance
The Group Financial Statements have been prepared and approved by the
directors in accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
Notes on the preliminary statement
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 30 June 2023 or 2022, but is derived
from those accounts. Statutory accounts for 2022 have been delivered to the
Registrar of Companies, and those for 2023 will be delivered in due course.
The auditors have reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
Cautionary statement
This Report contains certain forward-looking statements with respect to the
financial condition, results, operations and business of MJ Gleeson plc. These
statements and forecasts involve risk and uncertainty because they relate to
events and depend upon circumstances that will occur in the future. There are
a number of factors that could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking statements
and forecasts. Nothing in this Report should be construed as a profit
forecast.
Directors' liability
Neither the Company nor the Directors accept any liability to any person in
relation to this Report except to the extent that such liability could arise
under English law. Accordingly, any liability to a person who has demonstrated
reliance on any untrue or misleading statement or omission shall be determined
in accordance with section 90A of the Financial Services and Markets Act 2000.
Basis of preparation
The accounting policies adopted in the preparation of these accounts are
consistent with those described in the Annual Report and Accounts for the year
ended 30 June 2022.
Going concern
In July 2023, the Group renegotiated its committed facility with Lloyds Bank
plc and Santander UK plc. The facility has a limit of £135m (previously
£105m), which expires in October 2026 with two further optional one-year
extensions.
The Group ended the year with cash and cash equivalents of £5.2m (30 June
2022: £33.8m).
Current forecasts are based on the latest three-year budget approved by the
Board in July 2023. This reflected a cautious view on the trading outlook
based on the current market conditions and the degree of macro-economic risk.
These forecasts were then subject to a range of sensitivities including a
severe but plausible scenario together with the likely effectiveness of
mitigating actions. The assessment considered the combined impact of a number
of realistically possible, but severe and prolonged changes to principal
assumptions from a downturn in the housing and land markets including:
· reduction in Gleeson Homes volumes of approximately
20%;
· permanent reduction in Gleeson Homes selling prices by
5%; and
· a delay on the timing of Gleeson Land transactions and
15% fall in land selling values.
Under these sensitivities, after taking certain mitigating actions, the Group
continues to have a sufficient level of liquidity, operate within its
financial covenants and meet its liabilities as they fall due.
Based on the results of the analysis undertaken, the Directors have a
reasonable expectation that the Company and the Group have adequate resources
available to continue in operation for the foreseeable future and operate in
compliance with the Group's bank facilities and financial covenants. As such,
the financial statements for the Company and the Group have been prepared on a
going concern basis.
2. Segmental analysis
The Group is organised into the following two operating divisions under the
control of the Executive Board, which is identified as the Chief Operating
Decision Maker as defined under IFRS 8 "Operating Segments":
· Gleeson Homes
· Gleeson Land
All of the Group's operations are carried out entirely within the United
Kingdom. Segmental information about the Group's operations is presented
below:
2023 2023 2022 2022
Pre-exceptional items Exceptional items 2023 Pre-exceptional items Exceptional items 2022
Total
(note 3) (note 3) Total
£000 £000 £000 £000 £000 £000
Revenue
Gleeson Homes 320,848 - 320,848 334,571 - 334,571
Gleeson Land 7,471 - 7,471 38,838 - 38,838
Total revenue 328,319 - 328,319 373,409 - 373,409
Divisional operating profit
Gleeson Homes 35,045 (1,022) 34,023 51,227 (12,867) 38,360
Gleeson Land 1,032 - 1,032 11,061 - 11,061
36,077 (1,022) 35,055 62,288 (12,867) 49,421
Group administrative expenses (2,518) - (2,518) (5,491) - (5,491)
Finance income 191 - 191 172 - 172
Finance expenses (2,261) - (2,261) (1,482) - (1,482)
Profit before tax 31,489 (1,022) 30,467 55,487 (12,867) 42,620
Tax (6,508) 210 (6,298) (9,976) 2,445 (7,531)
Profit for the year 24,981 (812) 24,169 45,511 (10,422) 35,089
All revenue in the Gleeson Homes segment relates to the sale of residential
properties. All revenue for the Gleeson Land segment is in relation to the
sale of land interests. There is no revenue relating to Group activities.
No single customer accounts for more than 10% of revenue (2022: no single
customer).
Balance sheet analysis of business segments:
2023 2022
Assets Liabilities Net assets/ (liabilities) Assets Liabilities Net assets/ (liabilities)
£000 £000 £000 £000 £000 £000
Gleeson Homes 326,722 (86,033) 240,689 280,481 (85,170) 195,311
Gleeson Land 43,207 (1,733) 41,474 49,230 (5,869) 43,361
Group activities 1,240 (2,546) (1,306) 4,083 (4,343) (260)
Cash and cash equivalents 5,159 - 5,159 33,764 - 33,764
376,328 (90,312) 286,016 367,558 (95,382) 272,176
3. Exceptional items
Restructuring
In February 2023, we announced the restructuring of Gleeson Homes from nine
regional management teams to six and moved to a standard operating structure
with consistent roles, responsibilities, processes and reporting. The
restructuring impacted a significant proportion of our colleagues, but the
final number of redundancies was kept to a minimum.
The restructuring expense of £1,022,000 consists of redundancy costs of
£975,000 and professional fees of £47,000. The amount, combined with the
number of colleagues directly and indirectly impacted by the restructure, and
the fact that this was a one-off cost, make this an exceptional item in the
year.
Building safety
In the prior year, the Group established an exceptional provision for the
costs estimated to remediate life-critical fire-safety issues on buildings
over 11 metres in which the Group was involved in developing over the last 30
years. In February 2023, the Group entered into the long form agreement of the
Department for Levelling Up, Housing and Communities (DLUHC) self-remediation
terms following its initial pledge in April 2022.
We continue to carry out investigation work, intrusive surveys and fire risk
assessments. As a result of these investigations, three additional buildings
were identified by Gleeson and notified to DLUHC this year. These buildings
are of masonry construction, two of which were conversions from their previous
use as mills and one of which was previously notified to DHLUC as a single
development but comprises two separate buildings. The overall provision has
been reassessed in light of these and a further assessment of the remediation
works required on the 14 buildings previously notified.
Whilst the estimated remediation costs were increased for the three new
buildings identified during the year, this was offset by reductions in the
estimated costs associated with the 14 existing buildings based on the work
carried out during the year and latest information. As such, no further
exceptional costs were recognised in the year for life-critical fire-safety
remedial works (2022: £12,867,000).
4. Tax
2023 2022
£000 £000
Current tax
Current year expense 5,834 7,571
Adjustment in respect of prior years (42) (165)
Current tax expense for the year 5,792 7,406
Deferred tax
Current year expense 495 253
Adjustment in respect of prior years (53) (165)
Impact of rate change 64 37
Deferred tax expense for the year 506 125
Total tax charge 6,298 7,531
Corporation tax has been calculated at 20.7% of assessable profit for the year
(2022: 17.7%). The applicable UK corporation tax rate is 20.5% - representing
a rate of 19% to 31 March 2023 and 25% effective from 1 April 2023.
4. Tax (continued)
The charge for the year can be reconciled to the profit per the consolidated
income statement as follows:
2023 2022
£000 £000
Profit before tax 30,467 42,620
Profit before tax multiplied by the standard rate of UK corporation tax 20.5% 6,246 8,098
(2022: 19%)
Tax effect of:
Expenses not deductible for tax purposes 42 13
Non-qualifying depreciation 128 82
Relief for share-based payments 111 84
Capital allowances super deduction (131) (161)
Land remediation relief (354) (412)
Impact of rate differences 64 37
Adjustments in respect of prior years - current tax (42) (165)
Adjustments in respect of prior years - deferred tax (53) (165)
Residential property developers tax 287 120
Total tax charge for the year 6,298 7,531
Tax recognised on equity-settled share-based payments 2023 2022
£000 £000
Current tax related to equity-settled share-based payments - (39)
Deferred tax related to equity-settled share-based payments (362) 167
Total tax recognised on equity-settled share-based payments (362) 128
5. Dividends
2023 2022
£000 £000
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 30 June 2023 of 5.0p (2022: 6.0p) 2,911 3,507
per share
Final dividend for the year ended 30 June 2022 of 12.0p (2021: 10.0p) 6,996 5,831
per share
9,907 9,338
A final dividend of 9.0 pence per share has been proposed for the year ended
30 June 2023, equating to £5,241,000 (2022: £6,999,000). This is subject to
approval by shareholders at the AGM on 16 November 2023 and has not been
recognised in these financial statements.
6. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
2023 2022
Earnings £000 £000
Profit for the year 24,169 35,089
Exceptional items (note 3) 1,022 12,867
Tax on exceptional items (210) (2,445)
Profit for the year - pre-exceptional items 24,981 45,511
2023 2022
No. 000 No. 000
Number of shares
Weighted average number of ordinary shares for the purposes of 58,246 58,259
basic earnings per share
Effect of dilutive potential ordinary shares:
- Share-based payments 41 145
Weighted average number of ordinary shares for the purposes of 58,287 58,404
diluted earnings per share
2023 2022
p p
Basic earnings per share 41.49 60.23
Diluted earnings per share 41.47 60.08
Basic earnings per share - pre-exceptional items 42.89 78.12
Diluted earnings per share - pre-exceptional items 42.86 77.92
7. Financial instruments
The fair values of the Group's financial assets and liabilities are not
materially different from the carrying values. Shared equity receivables are
measured at fair value through other comprehensive income ("FVOCI"). The
following summarises the major methods and assumptions used in estimating the
fair values of financial instruments.
Shared equity receivables at FVOCI
2023 2022
£000 £000
Balance at 1 July 1,485 2,522
Redemptions (849) (1,071)
Shared equity provision 70 -
Unwind of discount (finance income) 16 35
Fair value movement recognised in other comprehensive income (293) (1)
Balance at 30 June 429 1,485
Shared equity receivables represent shared equity loans advanced to customers
and secured by way of a second charge on the property sold. They are carried
at fair value which is determined by discounting forecast cash flows for the
residual period of the contract. The difference between the nominal value and
the initial fair value is credited over the deferred term to finance income,
with the financial asset increasing to its full cash settlement value on the
anticipated receipt date.
7. Financial instruments (continued)
Redemptions in the year of shared equity loans carried at fair value of
£849,000 (2022: £1,071,000) generated a profit on redemption of £285,000
(2022: £375,000), which has been recognised in other operating income in the
consolidated income statement.
In addition, a net decrease in the value of shared equity receivables of
£148,000 (2022: increase of £120,000) has been recognised in other
comprehensive income. This is made up as follows:
2023 2022
£000 £000
Fair value movement recognised in other comprehensive income (293) (1)
Fair value recycled through profit and loss 145 121
Total movement recognised in other comprehensive income (148) 120
Forecast cash flows are determined using inputs based on current market
conditions and the Group's historic experience of actual cash flows resulting
from such arrangements. These inputs are by nature estimates and as such the
fair value has been classified as Level 3 under the fair value hierarchy laid
out in IFRS 13 "Fair value measurement". There have been no transfers between
fair value levels in the financial year.
Significant unobservable inputs into the fair value measurement calculation
include regional house price movements based on the Group's actual experience
of regional house pricing and management forecasts of future movements, the
anticipated period to redemption of loans which remain outstanding and a
discount rate based on current observed market interest rates offered to
private individuals on secured second loans.
The key assumptions applied in calculating fair value as at the balance sheet
date were:
· Forecast regional house price inflation: 0%
· Average period to redemption: 6 years
· Discount rate: 12%
The sensitivity analysis of changes to each of the key assumptions applied in
calculating fair value, whilst holding all other assumptions constant, is as
follows:
2023 2022
Change in assumption Increase/(decrease) Increase/(decrease)
in fair value in fair value
£000 £000
Forecast regional house price inflation - increase by 1% 51 107
Average period to redemption - increase by 1 year (103) (116)
Discount rate - decrease by 1% 45 102
8. Related party transactions
During the year ended 30 June 2021, the Group exchanged contracts on a
conditional agreement to purchase an area of land from Hampton Investment
Properties Ltd ("HIPL") for £1,050,000. HIPL is a company in which North
Atlantic Smaller Companies Investment Trust plc ("NASCIT"), a substantial
shareholder in the company, holds a majority investment. In addition,
Christopher Mills, a Non-Executive Director of the Company, is considered a
related party by virtue of his interest in and directorship of NASCIT and his
position as a Director of HIPL. The land, if purchased, will form part of a
new Gleeson Homes site being developed in the ordinary course of business.
Approval of this purchase was granted by the majority of shareholders at the
AGM in December 2019.
Other than disclosed above, there were no other transactions with key
management personnel in either the current or prior year.
Statements of Directors' Responsibilities
The full Statement of Directors' Responsibilities is made in respect of the
Annual Report and Accounts and the financial statements, not the extracts from
the financial statements as set out in this announcement.
The 2023 Annual Report and Accounts comply with the United Kingdom's Financial
Conduct Authority Disclosure Guidance and Transparency Rules in respect of the
requirement to produce an annual financial report.
We confirm that to the best of our knowledge:
· the Group and Company financial statements, contained in the 2023
Annual Report and Accounts, which have been prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the
Companies Act 2006, give a true and fair view of the assets, liabilities,
financial position and profit of the Group and loss of the Company; and
· the Strategic Report, contained in the 2023 Annual Report and
Accounts, includes a fair review of the development and performance of the
business and the position of the Group and Company, together with a
description of the principal risks and uncertainties that it faces.
The Directors consider that the 2023 Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group and Company's position and
performance, business model and strategy.
By order of the Board
Graham Prothero
Stefan Allanson
Chief Executive Officer
Chief Financial Officer
13 September 2023
The 2023 Annual Report and Accounts is to be published on the Company's
website, mjgleesonplc.com, in due course and sent out to those shareholders
who have elected to continue to receive paper communications. Copies will be
available from The Company Secretary, 6 Europa Court, Sheffield Business Park,
Sheffield, S9 1X
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