MJ Gleeson confident despite restructuring costs, legacy site provisions

(Sharecast News) - MJ Gleeson said on Friday that trading in its housebuilding business had remained resilient, but warned it would book restructuring costs and legacy site provisions as it continued to reshape the group.

The London-listed low-cost housebuilder and land promoter said Gleeson Homes achieved net reservation rates of 0.88 per site per week in the 11 weeks to 24 April, compared with 0.86 in the same period last year.

Excluding bulk reservations, the rate was 0.59 per site per week, down from 0.64 a year earlier.

The company said there had been modest build cost inflation since the start of the calendar year, while underlying selling prices on open-market and partnership sales had been broadly stable.

It said protecting margin remained a priority.

Following the implementation of Project Transform, MJ Gleeson said it continued to look for ways to improve efficiency, reduce overhead costs and focus investment on regions and locations with the best prospects for controlled growth.

From 1 July, its Yorkshire East region would be integrated into Yorkshire South and West.

The creation of a single Yorkshire region, alongside the reallocation of certain sites into the Midlands region, was expected to generate annualised regional overhead savings of �0.9m.

Related costs were estimated at up to �3.1m, comprising �0.3m of cash restructuring costs and a non-cash impairment of certain conditionally purchased land assets of between �1.5m and �2.8m.

Those would be recognised as exceptional items in the full-year accounts.

The group also said new management teams had identified issues on previously completed legacy developments, mainly in Yorkshire, requiring remedial work before roads and other statutory services could be adopted by local authorities.

MJ Gleeson said it expected to establish cost provisions of between �5.2m and �7.1m in the current financial year, with works to be carried out over the next three to four years.

The company said adjusted results for the year were expected to exclude the legacy site provisions.

In Gleeson Land, the group said it was progressing the sale of five sites, including one representing about 50% of total plots expected to be sold during the year.

It said good progress had been made on the required technical solution for that project, which had been accepted by the highways authority, although completion of the sale remained subject to formal technical approval.

With greater visibility over the spring selling season and subject to Gleeson Land completing its major land sale, the board expects adjusted group profit before tax for the year ending 30 June to be in line with market consensus of �18.2m.

Chief executive Graham Prothero said Gleeson Homes had traded resiliently in an uncertain market.

"We are pleased that Gleeson Homes' trading performance has been resilient in an uncertain market environment," he said.

"Whilst it is frustrating that further work is required on a number of legacy sites, I am pleased with the determination of our new management teams to identify and rectify legacy issues which now allows Gleeson Homes to look forward with confidence."

Prothero said it was too early to assess the extent to which the crisis in the Middle East would affect customer confidence, mortgage affordability and build cost inflation over the coming months.

He said the company had recently seen some softening in footfall and reservations, as well as limited increases in the cost of some materials.

He said those factors, together with ongoing challenges around planning and site viability, meant the group was adopting "even higher than usual caution" in managing the business, including land investment decisions, into the next financial year.

"However, following the successful implementation of Project Transform, which has driven a greater focus on operational effectiveness and efficiency, the business as a whole is now in a much stronger position to manage through this period of uncertainty and capitalise on the significant opportunities we see ahead when the market returns to growth," Prothero said.

At 0937 BST, shares in MJ Gleeson were up 5.27% at 241.07p.

Reporting by Josh White for Sharecast.com.

See latest RNS on Investegate