Final Results
Gleeson(M J)Group PLC
06 October 2005
M J GLEESON GROUP - PRELIMINARY ANNOUNCEMENT
M J Gleeson, the homes, property and construction services group, announces
that, in the year ended 30th June 2005, the Group's operations performed well,
with the exception of general building contracting, from which the Board made
the important decision to withdraw, thereby further materially reducing risk -
albeit at a considerable one-off cost.
• Excluding the discontinued operation, on turnover up 25% at £419m,
profit before interest and tax increased by 57% to £43.7m.
• Including the discontinued operation, turnover totalled £590m (2003/04:
£645m) and, excluding exceptional restructuring costs, the loss before tax
was £5.7m. Of this loss, £8.9m resulted from overhead under-recovery
following the decision swiftly and substantially to reduce the turnover of
the building divisions.
• The total pre-tax loss for the year was £13.2m (2003/04: profit of
£17.6m) and, following a tax credit of £4.2m (2003/4: charge of £3.3m), the
loss per share was 17.6p (2003/04: earnings of 28.1p).
• Year end NAV per share totalled 292p (2003/04: 313p).
• Reflecting the Board's confidence in the continuing operations,
dividends per share of 8.0p (2003/04: 7.6p), up 5.3%, are proposed.
• As predicted a year ago, Homes and Regeneration had a good year in what
turned out to be a subdued market. On turnover 43.4% higher at £159.6m,
operating profit increased by 38.7% to a further record of £17.0m. In the
current year, throughout which the housing market is expected to remain
challenging, no significant growth is expected. However, Gleeson
Regeneration continues to strengthen its position as a leading developer and
a partner of choice for Local Authorities and has secured a number of new
opportunities.
• Property Development and Investment had an active and successful year,
making an operating profit of £5.9m (2003/04: £5.3m). In addition, taking
advantage of an unusually buoyant investment market, it made a profit of
£8.8m (2003/04: £5.5m) on the sale of a number of investment properties.
Consequently, in the current year, there will be a reduction in rental
income and a significantly lower contribution is expected from the sale of
investment properties. However, development profits are expected to
increase.
• Civil and Process Engineering enjoyed a successful year in which it
reinforced its position as a market leader in the delivery of capital
projects for the UK water and waste water sector. The Construction Services
order book at 1 October 2005 totalled over £600m, of which over 90% related
to relatively low risk partnering agreements for either utilities or the
public sector.
Dermot Gleeson, Chairman, stated 'The withdrawal from general building
contracting has very substantially reduced the Group's risk profile. The task
now is to develop to the full the profit generating potential of the Group's
continuing operations and to identify new opportunities in related sectors.'
Presentation:
Today, Thursday 6th October 2005, from 09:30 to 10:30, a presentation to
broker's analysts will be held at the offices of Bankside Consultants,
1 Frederick's Place, London EC2R 8AE.
Enquiries:
M J Gleeson Group plc 020-8644 4321
Terry Massingham (Group Chief Executive)
Colin McLellan (Finance Director)
Bankside Consultants Limited
Charles Ponsonby 020-7367 8851
charles.ponsonby@bankside.com
CHAIRMAN'S STATEMENT
In the year ended 30th June 2005, the Board made the important decision to
withdraw from general building contracting, thereby further materially reducing
risk - albeit at a considerable one-off cost. The Group's other operations
performed well.
FINANCIAL REVIEW
The figures in this paragraph exclude the discontinued building contracting
operation. In the year ended 30th June 2005, on turnover up 25% at £419m (2003/
04: £336m), profit before interest and tax increased by 57% to £43.7m (2003/04:
£27.8m).
The result for building contracting was a turnover of £171m (2003/04: £308m),
and an operating loss of £44.1m before exceptional restructuring and transaction
costs of £7.5m. Of this loss, £8.9m resulted from overhead under-recovery
following the decision, taken in the context of the restructuring of the
building divisions, swiftly and substantially to reduce their turnover.
For the Group, therefore, the result was a turnover of £590m (2003/04: £645m), a
loss before interest and tax of £7.9m (2003/04: profit of £20.9m) and a loss
before tax of £13.2m (2003/04: profit of £17.6m). The tax credit relates to a
deferred tax asset arising on losses made in the year to be carried forward and
offset against future expected profits. The loss per share was 17.6p (2003/04:
earnings per share of 28.1p).
Year end shareholders' funds totalled £150.4m (2003/04: £161.4m), equivalent to
NAV per share of 292p (2003/04: 313p). Year end net debt of £60.7m (2003/04:
£71.9m) equates to gearing of 40% (2003/04: 45%). Whilst net interest payable
was 59.5% higher at £5.3m (2003/04: £3.3m), interest cover (if discontinued
items are excluded) increased to 8.3 x (2003/04: 6.3 x).
DIVIDENDS
If approved at the AGM on 11th January 2006, a final dividend per share of 6.5p
(2003/04: 6.2p), an increase of 4.8%, will be paid on 12th January 2006 to
shareholders on the register at close of business on 9th December 2005. This
increase reflects the Board's confidence in the Group's continuing operations.
Together with the interim dividend per share of 1.5p (2003/04: 1.4p), paid on
30th June 2005, dividends per share for the year will total 8.0p (2003/04:
7.6p), a 5.3% increase.
OPERATING REVIEW
Homes and Regeneration
Gleeson Homes focuses on residential schemes in the South and North of England
and, through Gleeson Regeneration, on low cost housing and urban regeneration
schemes, in particular in the North and Midlands.
As predicted a year ago, Gleeson Homes had a good year in what turned out to be
a subdued market. On turnover 43.4% higher at £159.6m (2003/04: £111.3m),
operating profit increased by 38.7% to a further record of £17.0m (2003/04:
£12.3m). The reduced operating margin of 10.7% (2003/04: 11.0%) reflected the
softening of values and increased use of incentives.
726 (2003/04: 535) units, an increase of 35.7%, were sold during the year, at an
average selling price of £182,000 (2003/04: £177,000).
The Division won two national What House? awards in the year: Lawton Hall in
Church Lawton, Cheshire achieved Gold for Best Development and the business as a
whole won a Bronze for Best Medium Size Housebuilder.
Property Development and Investment
Gleeson Properties acquires, develops and sells commercial property. Investment
properties are actively managed to provide a steady stream of rental income and
are sold when value has been maximised, the proceeds being available for
re-investment. Development schemes are built, let and sold to make a trading
profit.
The Division had an active and successful year, making an operating profit of
£5.9m (2003/04: £5.3m) on a turnover of £4.0m (2003/04: £5.4m). This profit
included gross development profits of £2.3m (2003/04: £1.6m) and rents from
investment properties of £4.7m (2003/04: £4.6m). In addition, the Division,
taking advantage of an unusually buoyant investment market, made a profit of
£8.8m (2003/04: £5.5m) on the sale of a number of investment properties.
The Group's commercial property investment portfolio was professionally valued
as at 30th June 2005 at £29.7m and a net surplus of £2.1m (2003/04: £1.5m),
arising on this revaluation, has been transferred to capital reserves. The
investment value is split 62% offices and 38% industrial; 60% is located in the
South East.
Construction Services
During the year, Gleeson Construction Services and its subsidiaries were engaged
in civil and process engineering, building contracting and specialist
construction services, notably rail-related construction, mechanical and
electrical installation and maintenance, and the repair of concrete structures.
Construction Services reduced its turnover by 19.3% to £426m (2003/04: £528m)
and made a loss of £30.6m (2003/04: profit of £1.5m). All of the deterioration
reflected the poor performance of the now discontinued building contracting
operations.
Civil and Process Engineering
Engineering enjoyed a successful year in which it reinforced its position as a
market leader in the delivery of capital projects for the UK water and waste
water sector. The Group renewed its existing alliances with its key water supply
partners, South West Water, Thames Water and Yorkshire Water, for another five
year term. It also secured new five year alliances with Northumbrian Water and
Severn Trent Water.
The fifth and final year of Asset Investment Management Programme Three (AMP 3)
generated a strong flow of project work as programmes came to a close. A £30m
contract at Chingford, Essex to build a new water treatment plant for Thames
Water was completed to budget and delivered five weeks ahead of schedule. In
Scotland, our £100m Katrine Water project, providing a new water treatment plant
for Glasgow, made good progress. As part of Scottish Water Solutions, the Group
successfully completed over £40m of water and waste water asset improvements.
Specialist Construction Services
Gleeson MCL, which specialises in construction work for the rail sector,
principally in relation to London Underground stations, enjoyed another year of
growth and increased profitability. Refurbishments and modernisations were
carried out at several stations on the Piccadilly line. A three-year programme
to rebuild Hounslow East station while maintaining a full train and passenger
service was completed, as was a three-year project of civil engineering works to
the new ticket hall at King's Cross.
Concrete Repairs Limited, the UK market leader in the repair of concrete
structures, achieved further growth, despite slow market conditions.
Powerminster Limited, whose business is mechanical and electrical maintenance,
had a difficult year but a new management team has positioned it for an improved
performance in 2005/06.
Building Contracting
The Board concluded that the low margins available in general building
contracting did not justify the significant associated risks and decided to
withdraw from this activity. Further, following a review of exit options, it
concluded that the most appropriate option for reducing the Group's exposure to
building risk was to restructure the Group's building operations and transfer
them to a management buy-out company (the MBO) with sufficient financial
resources to enable it to complete the ongoing contracts and to develop a
portfolio of new contracts independently from the Group. In the absence of third
party funding, this company (Gleeson Building Limited) was funded by the Group
alongside the directors of the MBO. On exit, the Gleeson Group will receive 45%
of the proceeds remaining after the repayment to it of loans and the paid up
capital on non-voting shares. The transaction was approved by the Group's
shareholders on 29th July 2005.
Building contracting incurred a loss of £44.1m before exceptional restructuring
and transaction costs of £7.5m on a turnover of £171m (2003/04: £309m). Of this
loss, £8.9m related to overhead under-recoveries caused by the decision to
reduce in building turnover. The greater part of the balance related to a small
number of large and complex design and build projects undertaken by the Southern
Construction Division
Capital Solutions
Formed during 2004/05 to manage the Group's PFI investments and the bidding
process on new schemes, Capital Solutions negotiated the sale of two investments
and also achieved Financial Close on a PFI scheme to build a school in Bolden,
Tyne & Wear. The sales generated a surplus of £2.2m over the book values of the
investments.
PROSPECTS
Homes and Regeneration
In the current year, throughout which the housing market is expected to remain
challenging, no significant growth is expected.
Gleeson Homes has continued its policy of reducing its exposure to the
construction of developments involving large numbers of apartments. The Division
mostly sells within the £80,000 - £300,000 range; and over 85% of Gleeson
developments are built on brownfield sites.
The number of plots with planning permission owned at the year end increased to
2,720 (2003/04: 1,710). A specialist team, Gleeson Land, has been established to
acquire further sites and develop the Group's strategic land bank. There were a
further 2,542 (2003/04: 2,287) acres of land owned directly or held under
option. Gleeson Regeneration is also able to draw on substantial additional
acreage, under its long-term regeneration agreements.
Gleeson Regeneration continues to strengthen its position as a leading developer
and partner of choice for Local Authorities. It is well into the first
construction phases at Beswick and Grove Village in Manchester, at Norfolk Park
in Sheffield, and in central Liverpool. As activity increases, these schemes
will make an increasing contribution to the Group's results. Further phases,
which will start shortly, will provide the Group with a secure flow of activity
from these schemes for five to 15 years.
Gleeson Regeneration has also secured a number of new opportunities. It is part
of a consortium that has been appointed preferred developer for a 1,500 new
homes scheme at North Huyton on Merseyside; and it has been selected to join the
National Developer Panel with which English Partnerships proposes to develop its
extensive portfolio of NHS sites across the country.
Property Development and Investment
Following the property investment sales, there will be an inevitable reduction
in rental income in the current year. There will also be a significantly lower
contribution from the sale of investment property. However, profit from the sale
of development projects is expected to increase.
Construction Services
The Construction Services order book at 1st October 2005 totalled over £600m, of
which over 90% related to relatively low risk partnering agreements for either
utilities or the public sector.
The Group's Engineering Division moved into the year with long term alliances
with six of the major water companies. The Group is also working directly with
Scottish Water, building its largest single capital investment project, the
£100m Katrine water project, to improve drinking water in the City of Glasgow.
The Group continues to seek opportunities, both inside and, increasingly,
outside the water industry, where its partnering design and engineering skills
can be employed to greatest effect.
As a result of its 25 years' rail industry experience and successful project
delivery, Gleeson MCL has been chosen by London Underground to be one of its
three direct alternative providers for building and civil engineering works.
This is a five-year framework agreement outside of the programme already
contracted to the London Underground PPPs, with a potential £1 billion of
construction works.
A restructuring of the management team has taken place at Powerminster, the
Group's mechanical and electrical services provider, and the benefits are
expected to flow through in 2005/06. The forward order book is at record levels
and has a significantly lower risk profile.
Speedy Hire plc
On 1st July 2005, a supply agreement was entered into under the terms of which
the Group now outsources the vast majority of the Group's hire plant
requirements to a subsidiary of Speedy Hire plc. This transaction has had no
impact on the results for 2004/05 but it is expected to provide operational
efficiencies and financial benefits in subsequent years.
Summary
The withdrawal from general building contracting has very substantially reduced
the Group's risk profile. The task now is to develop to the full the profit
generating potential of the Group's continuing operations and to identify new
opportunities in related sectors.
Dermot Gleeson
Chairman 6th October 2005
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year Ended 30th June 2005
Continuing Discontinued Total
Year Year Year Year
ended ended ended ended
30th 30th 30th 30th
June June June June
2005 2005 2005 2004
£000 £000 £000 £000
Turnover: group and share of
joint ventures --- --- --- ---
Existing operations 426,850 171,277 598,127 657,087
Acquisitions 5,754 - 5,754 -
Less: share of joint
ventures' turnover (14,013) - (14,013) (12,091)
--------- ---------- ------- ---------
Group turnover 418,591 171,277 589,868 644,996
---------------------- --------- ---------- ------- ---------
Continuing 418,591 - 418,591 336,253
Discontinued - 171,277 171,277 308,743
---------------------- --------- ---------- ------- ---------
Cost of sales (363,286) (199,683) (562,969) (592,596)
--------- ---------- ------- ---------
Gross profit/(loss) 55,305 (28,406) 26,899 52,400
Investment property
income 4,743 - 4,743 4,599
Net operating expenses (27,067) (15,747) (42,814) (41,652)
--------- ---------- ------- ---------
Operating profit/(loss): 32,981 (44,153) (11,172) 15,347
---------------------- --------- ---------- ------- ---------
Existing operations 31,635 (44,153) (12,518) 15,347
Acquisitions 1,346 - 1,346 -
---------------------- --------- ---------- ------- ---------
Exceptional restructuring
costs - (7,456) (7,456) -
Share of results of
joint ventures (363) - (363) 80
Profit on sale
of properties 8,843 - 8,843 5,467
Profit on sale
of investments 2,218 - 2,218 -
--------- ---------- ------- ---------
Profit/(loss) on
ordinary activities
before interest 43,679 (51,609) (7,930) 20,894
---------------------- --------- ---------- ------- ---------
Continuing 43,679 - 43,679 27,811
Discontinued - (51,609) (51,609) (6,917)
---------------------- --------- ---------- ------- ---------
Interest receivable 697 - 697 1,063
Interest payable (5,952) - (5,952) (4,357)
--------- ---------- ------- ---------
Profit/(loss) on
ordinary activities
before taxation 38,424 (51,609) (13,185) 17,600
--------- ----------
Taxation on profit on
ordinary activities 4,235 (3,392)
------- ---------
(Loss)/profit
after taxation (8,950) 14,208
Dividends (4,080) (3,870)
------- ---------
Retained (loss)/profit
for the financial year (13,030) 10,338
--------- ---------- ------- ---------
earnings per share (17.59p) 28.11p
earnings per share -
fully diluted (17.44p) 27.85p
--------- ---------- ------- ---------
SEGMENTAL ANALYSIS
Year Ended 30th June 2005
Year Year
ended ended
30th June 30th June
2005 2004
£000 £000
Analysis of turnover on operations:
Continuing
Construction:
United Kingdom 254,236 217,278
Jersey 797 2,234
------------- -------------
255,033 219,512
Homes - United Kingdom 159,559 111,298
Property - United Kingdom 3,999 5,443
------------- -------------
418,591 336,253
------------- -------------
Discontinued:
Construction:
United Kingdom 171,277 308,743
Jersey - -
------------- -------------
171,277 308,743
Homes - United Kingdom - -
Property - United Kingdom - -
------------- -------------
171,277 308,743
------------- -------------
Operating profit/(loss) on activities:
Continuing:
Construction 13,525 8,370
Homes 17,037 12,280
Property 5,859 5,263
Central costs (3,440) (3,649)
------------- -------------
32,981 22,264
------------- -------------
Discontinued:
Construction (44,153) (6,917)
Homes - -
Property - -
Central costs - -
------------- -------------
(44,153) (6,917)
------------- -------------
CONSOLIDATED BALANCE SHEET
As at 30th June 2005
2005 2004
£000 £000
Fixed assets
Intangible assets 4,487 4,794
Tangible assets 53,655 84,834
Total investments 6,265 4,635
----------- ----------
64,407 94,263
Current assets
Stock and work in progress 179,224 182,096
Debtors 147,155 133,423
Bank and cash balances 70 87
----------- ----------
326,449 315,606
Creditors
Amounts falling due within one year (240,440) (248,478)
----------- ---------
Net current assets 86,009 67,128
----------- ----------
Net assets 150,416 161,391
----------- ----------
Capital and reserves
Called up equity share capital 1,029 1,029
Share premium 3,762 3,762
Capital redemption reserve fund 120 120
Revaluation reserves 4,841 8,821
Profit and loss account 141,467 148,533
Own shares reserve (803) (874)
----------- ----------
Shareholders' funds 150,416 161,391
----------- ----------
CONSOLIDATED CASH FLOW STATEMENT
Year ended 30th June 2005
Notes 2005 2005 2004 2004
£000 £000 £000 £000
Cash flow from operating activities 1 (15,640) (19,187)
Returns on investments and servicing of
finance
Interest received 697 1,063
Interest paid (4,837) (4,172)
Rents received 4,743 4,599
------- -------
603 1,490
Taxation
UK corporation tax paid (4,248) (4,483)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (7,183) (9,817)
Sale of tangible fixed assets 1,599 4,478
Sale of investment properties 46,259 12,436
Sale of investments 2,058 -
Net investment receipts/(loans) (1,911) 189
------- -------
40,822 7,286
Acquisitions and disposals
Purchase of investment in joint ventures (25) (4)
Purchase of subsidiary undertakings (8,467) -
Net cash acquired with subsidiary
undertakings 2,071 -
------- -------
(6,421) (4)
Equity dividends paid (4,002) (3,495)
------- -------
Cash inflow/(outflow) before use of
liquid 11,114 (18,393)
resources and financing
Financing
Purchase of own shares - -
Proceeds from issue of shares - 317
Sale of own shares 71 328
------- -------
Net cash inflow from financing 71 645
------- -------
Increase/(decrease) in cash in the year 2 11,185 (17,748)
------- -------
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash in the year 11,185 (17,748)
Net debt at 1st July (71,934) (54,186)
------- -------
Net debt at 30th June 2 (60,749) (71,934)
------- -------
CONSOLIDATED CASH FLOW STATEMENT
Year ended 30th June 2005
1. Reconciliation of operating (loss)/profit to net cash inflow from operating
activities
2005 2004
£000 £000
Operating (loss)/profit (11,172) 15,347
Investment property income (4,743) (4,599)
Depreciation charges 5,421 6,664
Restructuring costs (4,252) -
Amortisation of goodwill 308 308
Profit on sale of tangible fixed assets (583) (2,047)
Decrease/(increase) in stock and work in progress 13,202 (58,861)
Increase in debtors (9,441) (7,014)
(Decrease)/increase in creditors (4,380) 31,015
---------- -----------
(15,640) (19,187)
========== ===========
At 1st July At 30th June
2. Analysis of net debt 2004 Cashflow 2005
£000 £000 £000
Cash at bank and in hand 87 (17) 70
Overdrafts (72,021) 11,202 (60,819)
---------- ---------- -----------
Net debt (71,934) 11,185 (60,749)
========== ========== ===========
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