gleeson MJ GLEESON PLC ANNUAL REPORT AND ACCOUNTS2019 BUILDING HOMES CHANGING LIVES MJ GLEESON PLC ANNUAL REPORT AND ACCOUNTS 2019 INTRODUCTION MJ Gleeson plc specialises in low-cost house building and strategic land promotion. MacDonald Park, Farnworth, Greater Manchester StrATEGIC REPort GoVErnANCE FINAnciAL STATEMEnts OTHER InforMAtion CONTENTS Strategic Report Financial Statements Financial Highlights 1 Statement of Directors’ Responsibilities 72 What We Do 2 Independent Auditors’ Report 73 How We Operate 4 Consolidated Income Statement 78 Chairman’s Statement 6 Statement of Financial Position 79 Market Overview 8 Statement of Changes in Equity 80 Chief Executive’s Statement 10 Statement of Cash Flows 82 Business Model 14 Notes to the Financial Statements 83 Strategy 16 Business Review 18 Other Information Corporate Social Responsibility 22 Five Year Review 103 Non-financial Reporting 26 Further Information 104 Financial Review 28 Corporate Directory 104 Risk Management 32 Shareholder Information 104 Financial Calendar 104 Governance Our Website 104 Board of Directors 36 Chairman’s Introduction 38 Governance Report 39 Directors’ Report 44 Audit Committee Report 48 Remuneration Committee Report 54 Remuneration Policy Report 56 Annual Report on Remuneration 64 FINANCIAL HIGHLIGHTS REVENUE CASH & CASH EQUIVALENTS +27.0 % £30.3m 2019: £249.9m, 2018: £196.7m 2018: £41.3m PROFIT BEFORE TAX DIVIDEND FOR THE YEAR +11.4% +7. 8 % 2019: £41.2m, 2018: £37.0m 2019: 34.5p, 2018: 32.0p EARNINGS PER SHARE RETURN ON CAPITAL EMPLOYED +9.7% 25.9% 2019: 61.0p, 2018: 55.6p 2018: 26.6% Cover: Ammie and Harper, Woodthorpe Park, Chesterfield, Derbyshire MJ Gleeson PLC Annual Report and Accounts 2019 1 WHAT WE DO BUILDING HOMES CHANGING LIVES We employ people with outstanding skills which we bring together to build new homes and communities for the benefit of our customers, our shareholders and society at large. WE SOURCE WE DEVELOP LOW-COST SITES UNUSED LAND We acquire land often in areas where no one else wants to Our developments are located in areas where there is often build and that helps to keep our land costs low. This is an a need for social and economic regeneration; typically important first step in keeping our homes affordable. We are brownfield sites that would otherwise remain derelict or increasing the number of sites in our existing areas and unused. Last year we invested approximately £150m in our expanding into neighbouring regions such as Lincolnshire and development sites, creating attractive and well planned new the West Midlands. homes for sale. NUMBER OF PLOTS IN THE PIPELINE NUMBER OF ACTIVE SITES 13,575 69 2018: 12,852 2018: 65 Photo: Canal Walk, Burnley, Lancashire Photo: Keats Court, Worksop, Nottinghamshire 2 MJ Gleeson PLC Annual Report and Accounts 2019 StrATEGIC REPort GoVErnANCE FINAnciAL STATEMEnts OTHER InforMAtion WE BUILD WE CREATE AFFORDABLE HOMES COMMUNITIES The cost of buying a Gleeson home is less than renting for We sell our homes to local people and many of our buyers many buyers and can be as low as £56 per week for one of our already live close to one of our sites. We do not build average 2 bed semi-detached homes. More than 4 out of 5 of apartments and we are opposed to leasehold. We are about our customers are first-time buyers and their mortgage creating safe communities where people want to live. We build commitments remain sensibly low at less than 2.9 times traditional brick homes using local suppliers and employ local household income versus the market average of 3.3 times. trades on our sites, bringing jobs and investment to the community. AVERAGE SELLING PRICE £128,900 2018: £125,200 Photo: The Black family, Cradock Court, Sheffield Photo: Barnburgh View, Goldthorpe, South Yorkshire MJ Gleeson PLC Annual Report and Accounts 2019 3 HOW WE OPERATE CONTINUING TO GROW OUR GEOGRAPHICAL FOOTPRINT MJ Gleeson plc specialises in low-cost house building and strategic land promotion. We have two distinct but complementary businesses: house building on brownfield land in the North of England and the Midlands and strategic land promotion in the South of England. BREAKDOWN BY DIVISION OUR OPERATING AREAS Revenue £52.9m £249.9m Total £197.0m Operating profit £13.0m £41.0m* Total £30.1m Gleeson Homes Gleeson Strategic Land * After Group costs of £2.1m 4 MJ Gleeson PLC Annual Report and Accounts 2019 StrATEGIC REPort GoVErnANCE FINAnciAL STATEMEnts OTHER InforMAtion GLEESON HOMES We build and sell low-cost homes to people predominantly on low incomes in areas of industrial decline and social and economic deprivation. By establishing strong relationships with local authorities, Gleeson Homes acquires and redevelops sites where there is an obvious need for social and economic regeneration and builds new homes at affordable prices. We deliver a unique social benefit by helping people to escape from housing poverty caused by the “rent trap” and into home ownership and wealth creation. Our homes are affordable enough to be sold to a couple on the current National Living Wage and mortgage HOMES SOLD repayments are often less than local council house rents. We invest in the areas in which we build, ensuring that 1,529 we leave a thriving community once our developments 1,225 are complete. 2018: GLEESON STRATEGIC LAND We are a specialist land promoter that enhances the value of land by securing mainly residential planning consents. We focus on sites in the South of England that are appealing to a wide range of developers. Gleeson Strategic Land has a team of highly skilled planning, technical and land specialists who identify development opportunities and work with stakeholders to promote the land through the planning system. We have a long history of delivering value through securing planning consents that not only achieve best value but ultimately help to deliver attractive residential development in areas where housing STRATEGIC LAND shortage issues are often acute. PORTFOLIO (PLOTS) We invest intelligently in our land portfolio and work closely with landowners, land agents, local authorities and communities to secure residential planning 21,73 0 consents that are sustainable and sensitive to 2018: 22,838 local needs. MJ Gleeson PLC Annual Report and Accounts 2019 5 CHAIRMAN’S STATEMENT Overview I am pleased to report our highest annual The Group had an excellent year. Gleeson Homes delivered its largest annual volume growth, selling 1,529 homes, an increase of growth in homes sold and another year of 304 homes (24.8%) on the prior year’s total of 1,225. During the year we opened 19 new sites across the North of England and the double-digit growth in profit. Our unique Midlands and had on average 65 sales outlets (2018: 61). model continues to bring substantial Gleeson Strategic Land also performed strongly. Nine land sales benefits to our customers and to society were completed during the year, with the potential to deliver 1,755 more widely by helping predominantly new homes in the South of England. The business added a further eight sites to its portfolio, which at the year end comprised 60 young, first-time buyers and people on low sites (2018: 61 sites). incomes into home ownership. Review of Strategic Land In April 2019, the Board announced that it had appointed advisers Dermot Gleeson to explore a range of options for the Group’s Strategic Land Chairman business. The Board also confirmed that a number of third parties had expressed interest in acquiring Strategic Land. Meanwhile, there is no evidence that the prospect of Brexit is Having considered the options and expressions of interest, the undermining the confidence of our actual and prospective Board has now concluded that the Group will derive greater customers. long-term value from retaining Strategic Land than from selling it. The business is extremely well positioned to continue delivering Gleeson Strategic Land continues to attract multiple bidders for strong profits and cash, with a healthy portfolio of sites and a land in the South of England, where demand for high-quality sites highly skilled team. remains strong from both medium-sized and large housebuilders. This demand is underpinned by the continued need for new homes Market context in areas of housing shortage. Despite the uncertainties surrounding Brexit, the demand for our low-cost homes from young first-time buyers and low-income Employees families in the North of England remains robust. Mortgage finance The average number of employees during the year increased to 550 is available to our customers on attractive terms and many of them (2018: 480). The actual number of employees at the year end was are also benefiting from the Government’s Help to Buy Scheme. 552 (2018: 509). We are supportive of this Scheme, but we believe that it should be amended so that it provides greater assistance to those who need Towards the end of the year, the Group launched its new employee it most, in particular young people on low incomes. engagement survey “Your Voice”. The results of this are being collated and will provide us with a better understanding of how we The Board believes that Gleeson Homes is less exposed to the can work together to develop the structure, ways of working and potential problems arising from a no-deal Brexit than other large culture of our business. This will be fundamental to the next phase housebuilders. We operate predominantly in the North of England of our growth, which will be driven by the engagement of our and employ small, locally-based suppliers and subcontractors on people and a shared understanding of the “Gleeson Way”. our development sites and do not rely on foreign labour. Our largest and most critical suppliers are well prepared for a no-deal The Group’s strong performance during the year would not have Brexit.