MJ Gleeson Reports Profit Decline Despite Revenue Growth in FY2025 Results
Why we think this is bad
The financial results show a concerning trend of declining profitability despite revenue growth. Operating profit decreased by 16% to £24.0m, while profit before tax fell 17.3% to £20.5m. The basic EPS also dropped 18.2% to 27.11p. These declines in profitability are particularly worrying as they occurred alongside a 5.9% increase in revenue, indicating margin pressure. The operating margin in Gleeson Homes decreased significantly from 9.2% to 6.4%, and the gross margin fell from 24.1% to 20.7%. Additionally, the cash position deteriorated, moving from a net cash position of £12.9m to net borrowings of £0.8m. The negative operating cash flow of £3.9m, compared to a positive £18.0m in the previous year, is a red flag. While there are some positive aspects, such as improved net reservation rates and expectations for future growth, the current financial performance and market challenges outweigh these factors. The company is facing headwinds from a challenging housing market, planning system delays, and cost inflation pressures. Despite the negative sentiment, it's worth noting that the company maintains a significant unused credit facility and expects improvements in FY2026, which could provide some stability.
Key Points
- Revenue increased 5.9% to £365.8m
- Profit before tax decreased 17.3% to £20.5m
- Basic EPS fell 18.2% to 27.11p
- Gleeson Homes operating margin declined from 9.2% to 6.4%
- Net borrowings of £0.8m, compared to net cash of £12.9m last year
- Forward order book improved to 845 plots (2024: 559)
- Net reservation rates increased to 0.71 per site per week (2024: 0.52)
- Plans to open 20-30 new build sites in FY2026
- Unused credit facility of £127.7m available
- Medium-term objective to deliver 3,000 homes per annum
Summary
MJ Gleeson's FY2025 results reveal a mixed performance with revenue growth of 5.9% to £365.8m, but a significant decline in profitability. Profit before tax fell 17.3% to £20.5m, and basic EPS decreased 18.2% to 27.11p. The company faced margin pressures, with Gleeson Homes' operating margin dropping from 9.2% to 6.4%. Despite these challenges, there were some positive indicators, including an improved forward order book and higher net reservation rates. The company's cash position deteriorated, moving to net borrowings of £0.8m from a net cash position of £12.9m last year. Looking ahead, management expects a stronger performance in FY2026, with plans to open 20-30 new build sites. The company maintains a £135m credit facility with £127.7m unused, providing financial flexibility. While facing short-term challenges, including planning system delays and cost inflation, the company remains optimistic about its medium-term objective of delivering 3,000 homes per annum, which could potentially triple profitability.