Gleeson margins to take hit in wake of legacy costs

Housebuilder and land trader Gleeson has revealed that its full year gross margins are falling below expectations by between 1.5% to 2% as it battles “legacy issues”.

In a trading update for the half-year ending 31 December 2023, Gleeson said it completed the sale of 769 homes, 14% fewer than the same period in 2022.

The group, which is due to publish its interim results on 15 February, reported net debt of £18.7m at the half year, compared to its full year on 30 June 2023 when it had £5.2m net cash.

“We’re seeing a number of effects on our margins. Most of those are market-wide but we’ve got another element which is tidying up some costs on older sites,” Gleeson chief executive Graham Prothero told Building’s sister title Housing Today.

“We’re having to address some of the features of the older Gleeson. Some quite aggressive interpretations on planning were made.

“Last year we put in new management teams, who have dealt with some of these issues.

“Building doesn’t always go to plan but when you get a series of legacy hits from decisions taken years ago, you’ve got nowhere else to go so we had to draw attention to them.”

These issues are understood to include problems with cost forecasts made at a regional level and efforts to keep costs lower that ended up being more expensive to remediate.

Gleeson said it entered the second half of the financial year with a forward order book of 586 plots, compared to 319 for the same period in 2022.

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 in autumn 2022.

Net reservation rates during the first half were 0.41 per site per week, up from 0.36 per site per week in the six months to December 2022. “Our net reservation rate might be unexciting [for the financial period] but it is better than last year and is broadly what we expected,” Prothero said.

He said he “expects a pick up into spring” supported by better mortgage rates. “Affordability is in a better place for our buyers than it has been,” he said.

Gleeson, which has a medium term strategy to grow completions from 1,723 to 3,000 homes per annum, said in September that the share of first-time buyers acquiring its homes had dropped from 80% to 50% in the first half of 2023 given the cancellation of Help to Buy and rising mortgage costs.