MJ Gleeson profit drops 43%

Housebuilder and land trader MJ Gleeson has reported a 43% drop in its pre-tax profit for the year to June 30 as “difficult market conditions” hit sales of both homes and development sites.

The low-cost housebuilder said pre-tax earnings fell to £31.5m from £55.5m in 2022 as turnover dropped by over 12% to £328m.

The firm added it had seen “subdued” sales over the summer since the end of the financial year, but now expected reservations to pick up in the autumn, given a “steadying” mortgage market, sales and marketing initiatives, and bulk sales.

Gleeson had already reported in June that the number of homes sold in its 2023 financial year dropped by 14% to 1,723 after the fall out from the economic turmoil in the wake of the mini budget. It said today that turnover in the housebuilding arm fell 4% to £321m, with the drop in completions partly offset by a rise in average sales prices.

However, today’s results showed that the impact on Gleeson’s land trading business was even more severe, with turnover at Gleeson Land dropping by 81% to £7.5m, causing profit to plummet by 91% to just £1m. Gleeson said the drop was due to “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.”

The firm said net reservations in the nine weeks to September 1 had fallen to 0.43 per site per week, down from 0.54 in the same period last year, as “Economic uncertainty has continued to subdue the wider market”.

Gleeson said today that a restructuring exercise conducted earlier this year, in which the firm’s nine regions were cut down to just six, will save the company £3.2m a year, at a one-off cost of £1m.

It said the “steadying” of the mortgage market and “implementation of a range of sales and marketing initiatives, including the introduction of a shared ownership package” meant “we anticipate an increase in our net reservation rates during the Autumn selling season”.

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However, Gleeson said it remained confident of “medium term” growth in the business, which would take housebuilding completions to 3,000 per year. It said: “As market conditions improve, we look forward to returning to significant growth.”

Gleeson did not say what proportion of its reservations over the summer came from bulk sales, but said it was considering further multi-unit sales in order to reduce risk and maintain its sales rate.

It also said it was “exploring opportunities to develop longer-term partnerships with selected partners”, which it said would offer “incremental growth, whilst moderating our open-market risk and enhancing returns.”

These comments follow the decision by Gleeson’s larger peer Vistry to turn into a wholly partnerships housing-focused developer earlier this week, an announcement which was well-received by the City, with its share price jumping by over 10%.

Gleeson, which has traditionally sold 80% of its homes to first time buyers, said the increase in mortgage rates and the cutting of Help to Buy meant that it was increasingly selling homes to existing home-owners, with just 50% of its purchasers first time buyers in the second half of the last financial year.

Graham Prothero, Gleeson CEO, said he was pleased by the firms’ “robust” performance despite current economic volatility.

He said: “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.”

Analysts said the results were in line with market expectations, with Greg Poulton, analyst at Singer Capital Markets, describing the comments on outlook as “reassuring”. He said: “We anticipate a return to growth, noting that this does not assume a significant improvement in market conditions.

“We continue to believe Gleeson’s niche focus on affordable housing, which has historically underpinned a premium rating, justifies a higher share price.”