Final Results

Gleeson(M J)Group PLC 15 October 2002 M J GLEESON GROUP plc - PRELIMINARY ANNOUNCEMENT â€¢ Gleeson, the construction services, homes and property group, announces that, following six successive years of increases at a compound average annual rate of 13.2%, Group pre-tax profits have fallen, as forewarned in the Interim Statement in March - mainly in consequence of problems at Gleeson Homes which are being vigorously addressed by new management. â€¢ In the year ended 30 June 2002, on turnover 35.6% higher at Â£572.8m, pre-tax profit was 20.1% lower at Â£15.1m whilst earnings per share were 24.5% down at 101.5p. â€¢ Year end shareholders' funds increased by 2.5% to Â£150.0m, equivalent to NAV per share of Â£14.43, in addition to which year end gearing reduced to 25% from 35%. â€¢ Dividends per share total 32.5p, a 4.8% increase, covered 3.1x by earnings per share. â€¢ Construction Services increased its operating profit by 28.2% to Â£10.0m on turnover up 45.4% at Â£428.2m, much of it for the health, education and water sectors. The operating margin of 2.35% would have increased over 2000/01's 2.65% but for losses on a Â£32m JV contract to construct a cement works. â€¢ Gleeson Homes suffered a reduction in operating profit to Â£0.5m (2000/01: Â£10.2m), whilst turnover fell to Â£112.9m (2000/01: Â£123.4m). The reduced profit followed a strategic review by Terry Massingham, who was appointed MD of Gleeson Homes in October 2001, and reflected a number of substantial cost overruns on developments completed in 2000/01, the decision to abort two significant projects, and the deferment of 192 units from the budgeted 2001/ 02 turnover. â€¢ Gleeson Properties made an operating profit of Â£10.7m (2000/01: Â£5.9m) from a mixture of investment and development. â€¢ Dermot Gleeson, Executive Chairman, stated 'The changes introduced by the new management team should ensure a much improved performance by Gleeson Homes in the current year. However, it is important to recognise that the scope for increasing the Group's overall profits is likely to be constrained by the softening of the property market, by a deferment of construction revenue caused by a slower than originally planned release of new projects by a number of the Group's partnering clients in the water sector, and by much higher insurance costs.' Enquiries: M J Gleeson Group plc 020-8644 4321 Dermot Gleeson (Executive Chairman) David Eyre (Group Managing Director) Colin McLellan (Finance Director) Bankside Consultants Limited Charles Ponsonby 020-7444 4166 CHAIRMAN'S STATEMENT Following six successive years of increase at a compound average annual rate of 13.2%, Group pre-tax profits have, as I forewarned in my interim statement, fallen - mainly in consequence of problems at Gleeson Homes which have been vigorously addressed by new management. FINANCIAL OVERVIEW In the year ended 30th June 2002, on turnover 35.6% higher at Â£572.8m (2000/01: Â£422.5m), profit before interest and tax reduced by 22.9% to Â£18.1m (2000/01: Â£23.5m), whilst pre-tax profit was 20.1% lower at Â£15.1m (2000/01: Â£18.9m). Earnings per share were 24.5% down at 101.5p (2000/01: 134.4p), reflecting an effective tax rate of 32.3% (2000/01: 28.6%). Year end shareholders' funds increased by 2.5% to Â£150.0m (2000/01: Â£146.4m), equivalent to NAV per share of Â£14.43 (2000/01: Â£14.20). Year end net debt totalled Â£37.2m (2000/01: Â£50.5m), representing gearing of 25% (2000/01: 35%). Net interest payable decreased to Â£3.0m (2000/01: Â£4.6m), whilst interest cover increased to 6.0x (2000/01: 5.1x). DIVIDENDS If approved at the AGM on 8th January 2003, a final dividend of 26.0p per share (2000/01: 25.0p), up by 4.0%, will be paid immediately thereafter to shareholders on the register at close of business on 6th December 2002. Together with the interim dividend per share of 6.5p (2000/01: 6.0p), paid on 28th June 2002, dividends for the year will total 32.5p (2000/01: 31.0p), a 4.8% increase, covered 3.1x (2001/01: 4.3x) by earnings per share. OPERATING REVIEW Construction Services The Construction Services Divisions and subsidiaries increased their turnover by 45.4% to Â£428.2m (2000/01: Â£295.1m), and operating profit increased by 28.2% to Â£10.0m (2000/01: Â£7.8m). Margins reduced to 2.35% (2000/01: 2.65%). Some 70% of work was executed on a partnering or negotiated basis. Building Substantial increases in orders - particularly in the health and education sectors, which are benefiting from high levels of government spending - resulted in a 65% increase in Building Division turnover to Â£213m (2000/01: Â£129m). The three principal contributors to turnover in the year were the Â£46m PFI contract at St. George's Hospital, Tooting, the Â£35m Devonshire Green, Sheffield residential development and the Â£17m Highland Schools PFI project. Significant building contracts won include the Â£42m Evelina Children's Hospital at St. Thomas' Hospital, Lambeth, a Â£38m commercial development in North London, a Â£15m residential development project in Leeds and the Â£14m Blyth Community College in Northumberland. Civil and process engineering In October 2001, the Division won the 'Civil Engineering Contractor of the Year 2001' award. Engineering Division turnover was up 26% to Â£154m (2000/01: Â£122m). Most of the work undertaken was again for the water industry, one of the busiest sectors in the UK construction market, in which Gleeson is the leading UK contractor. The Division has partnering agreements with most of the leading water service providers in the UK, including Scottish Water, Thames Water, Yorkshire Water, Wessex Water and South West Water. Outside the water utilities sector, the Division completed the Â£5m Ribble Link project near Preston for British Waterways, the first new canal to be built in Britain for 100 years, and progressed a Â£32m cement works project in Buxton, Derbyshire - a contract which has, unfortunately, generated serious losses. The project will be the subject of a significant claim for additional payment. Specialist subsidiaries The total turnover of the Group's specialist construction subsidiaries was Â£69m (2000/01: Â£61m). Powerminster Limited, the Group's mechanical and electrical services provider, reported turnover lower than expected as a result of a downturn in Local Authority spending in the first half. Increasing volumes of work from Gleeson's Building Divisions, especially in the South and the Midlands, made a useful contribution to Powerminster's work load and included its largest construction contract to date, worth some Â£3.3m, for the mechanical and electrical installations at Farnham Hospital. Concrete Repairs Limited, the UK market leader in the repair of concrete structures, achieved second half results which compensated for a disappointing first half. Major assignments included extensive repair work to a 1930s residential block owned by the London Borough of Tower Hamlets and waterproofing of more than 22,500 sq metres of car park decking at the new global headquarters of GlaxoSmithKline in West London. Gleeson MCL Limited, which specialises in construction work for the railway sector, reduced profit slightly following substantial investment in anticipation of considerable future growth. Much of the work undertaken during the year was for London Underground's infrastructure companies, major assignments including continuing work at Hounslow East and Knightsbridge on the Piccadilly Line and term maintenance contracts on the Northern, Metropolitan and Circle Lines. Homes Gleeson Homes suffered a reduction in operating profit to Â£0.5m (2000/01: Â£10.2m), whilst turnover fell to Â£112.9m (2000/01: Â£123.4m). Following his appointment as Managing Director of Gleeson Homes in late October 2001, Terry Massingham conducted a rigorous review of the Division's operations. A number of substantial cost overruns on developments completed in 2000/01 were identified and the decision to abort two significant projects was taken. The other major factor which contributed to the reduction in turnover and gross margin related to the re-appraisal of the sales forecast, resulting in the deferment of 192 units from the 2001/02 turnover. 477 units were sold during the year, compared with 571 in 2000/01, at an unchanged average selling price of Â£182,000. A re-evaluation of Gleeson Homes' largest development site, at Netherne-on-the-Hill in Surrey, has led to the sale of some 15 acres to other housebuilders, the proceeds have been invested in projects expected to produce more satisfactory returns. Property Gleeson Properties made an operating profit of Â£10.7m (2000/01: Â£5.9m). Additionally, a profit of Â£0.5m (2000/01: Â£0.9m) arose on the sale of investment properties. Property investment Gross income from Investment Properties totalled Â£7.13m (2000/01: Â£6.2m) and included a Â£1.97m (2000/01: Â£Nil m) premium on the surrender of a commercial lease. The Group's commercial property investment portfolio was valued at 30th June 2002 at Â£57.1m, compared with Â£46.3m at the end of the previous financial year, and a net deficit of Â£4.0m (2000/01: Â£0.6m) arising on the revaluation of existing properties has been transferred to Capital Reserves. Gleeson Properties is continuing to restructure the Group's investment portfolio, the proceeds from disposals being reinvested in properties with good growth potential. New investments in the year included a Â£5.4m industrial unit, and two office buildings with a combined cost of Â£10.0m. Property development for sale In addition to managing the Group's portfolio, Gleeson Properties undertakes office, industrial and retail development for letting and sale. During the year, a profit of Â£4.5m was made (2000/01: Â£0.7m) on disposals with a consideration of Â£31.6m (2000/01: Â£4.0m). Offices in Glasgow and Guildford were sold, for Â£15.6m and Â£4.9m respectively, the former being subject to a limited leaseback to the Group on the vacant space for which provision has been made. In Thame, 85% of a 113,000 sq ft industrial development was let within six months of completion and the development was sold for a total of Â£9.6m. Board As previously reported, Tony Collins (46) (Managing Director of the Engineering Division), Terry Massingham (50) (Managing Director of Gleeson Homes and formerly Managing Director of Alfred McAlpine Southern) and Andrew Muncey (46) (Managing Director of the Southern Construction Division) joined the Board during the year. Two executive directors, Bob Jukes and David Kay, and one non-executive director, Win Bruce, retired. STRATEGY This continues to be based on four key policies: i. to maintain a broad range of services in the construction and property sectors, so as to spread risk, create valuable internal synergies and enable the Group to respond to its customers' needs throughout the entire life cycle of their infrastructure and property assets; ii. to pursue significant overall growth in the Group's trading operations; iii. to ensure that a very high proportion of the construction work load continues to be undertaken on a partnering or similar basis, so as to reduce risks; and iv. to generate a sizeable additional income by investing in rent producing commercial properties and in a portfolio of PFI equity stakes. PROSPECTS Construction Services The Construction Services order book at 1st October 2002 totalled Â£742m of which Â£450m related to relatively low risk four to seven year partnering contracts. The Group anticipates that the present buoyant trading conditions enjoyed by its Building Divisions will be sustained for some time, not least by the Government's plans for 100 new hospitals scheduled to be built by 2010 and some Â£1.5 billion to be spent in the education sector in the next five years. In the current year, the results of the Engineering Division are expected to suffer from a deferment of revenue caused by a slower than originally planned release of new projects by a number of water companies and authorities with which the Company has four to five year partnering agreements. The Division is seeking opportunities in a number of areas outside water supply, including road construction, where partnering is becoming an increasingly favoured procurement route. All of the Construction Divisions are faced with the prospect of substantial increases in insurance costs, particularly in relation to design liabilities. Homes Following Terry Massingham's review, new build, as distinct from refurbishment, will represent a higher proportion of the Division's activities, although Gleeson Homes will still be involved in inner city development and brown field sites and will continue to use traditional forms of construction. The Division has slimmed down from four regionally based units to two, Northern and Southern, and a number of important new senior appointments and changes in systems have been made. It is intended to increase unit sales from just under 500 in the year under review to approximately 900 in 2004/05. The land bank at the year end comprised 1,200 owned plots with planning permission (2000/01: 1,526, excluding 270 plots transferred to the new Regeneration Division) and the Division had exchanged conditional contracts on a further 351 plots (2000/01: 267). A further 750 acres are contracted through options exercisable on receipt of planning permission. For the current financial year, Gleeson Homes is assuming that there will be no increase in selling prices, although it believes that prices are unlikely to fall. Sites secured with planning permission cover 98% of the Division's requirements for 2002/03 and 70% for 2003/04. Property In most parts of the country, the property sector is experiencing softening tenant demand. This is already having an adverse effect on rents and may well lead to a reduction in capital values. Against this background, considerable caution has been exercised with regard to new development opportunities and only a modest level of property sales is forecast for the current year. Gleeson Regeneration Gleeson Regeneration Ltd was formed in February 2002 to enable the Group to focus more closely on social housing and urban regeneration schemes. The Company is already on site at its first major project, the development, in joint venture with The Miller Group, of over 1,000 new homes at Norfolk Park, Sheffield, which has a construction value of Â£80m, and is also involved in the Â£60m Grove Village, Manchester PFI project, for which a consortium including the Group has been appointed preferred bidder. Summary The changes introduced by the new management team should ensure a much improved performance by Gleeson Homes in the current year. However, it is important to recognise that the scope for increasing the Group's overall profits is likely to be constrained by the softening of the property market, by a deferment of construction revenue caused by a slower than originally planned release of new projects by a number of the Group's partnering clients in the water sector, and by much higher insurance costs. Dermot Gleeson Executive Chairman 15 October 2002 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 June 2002 2002 2001 Audited Audited Â£000 Â£000 Turnover: Existing operations 580,634 428,455 Less: share of joint ventures' turnover (7,792) (5,985) --------- --------- Group turnover 572,842 422,470 Cost of sales (525,797) (378,002) --------- --------- Gross profit 47,045 44,468 Investment property income 7,133 6,168 Net operating expenses (35,597) (28,742) --------- --------- Operating profit on continuing activities: 18,581 21,894 Share of results of joint ventures (619) 291 Profit on sale of investment properties 457 900 Profit on sale of investments - 709 Goodwill amortisation (308) (308) --------- --------- Profit on ordinary activities before interest 18,111 23,486 Interest receivable 523 191 Less: Interest payable (3,557) (4,814) --------- --------- (3,034) (4,623) --------- --------- Profit on ordinary activities before taxation 15,077 18,863 Taxation on profit on ordinary activities (4,864) (5,398) --------- --------- Profit after taxation 10,213 13,465 Dividends (3,288) (3,101) --------- --------- Retained profit 6,925 10,364 ========= ========= Earnings per share 101.50p 134.41p ========= ========= Earnings per share - fully diluted 100.78p 134.02p ========= ========= Interim dividend - paid 6.50p 6.00p Final dividend - proposed 26.00p 25.00p --------- --------- Total dividends per share 32.50p 31.00p ========= ========= CONSOLIDATED BALANCE SHEET As at As at 30 June 2002 30 June 2001 Â£000 Â£000 Â£000 Â£000 Capital employed Share capital 1,040 1,031 Share premium 3,127 2,427 Capital redemption reserve 100 100 Capital reserve 10,676 16,284 --------- 14,943 --------- 19,842 Profit and loss reserve 135,051 126,548 --------- --------- Total capital employed 149,994 146,390 ========= ========= Employment of capital Fixed assets: Goodwill 5,410 5,717 Owner occupied properties 11,618 11,736 Investment property 59,102 50,432 Plant 11,022 8,620 Transport 1,143 899 Motor cars 4,284 3,372 --------- 92,579 --------- 80,776 Investments 5,810 5,709 --------- --------- 98,389 86,485 Current assets: Stock and work in progress 115,672 144,065 Amounts recoverable on contracts 76,736 54,575 Debtors 24,590 33,057 Cash and bank balances 146 436 --------- 217,144 --------- 232,133 Current liabilities: Bank overdraft (37,372) (51,024) Creditors (111,842) (90,093) Payments on account (11,686) (24,372) Corporation tax (2,368) (4,497) Proposed dividends (2,631) (2,504) --------- (165,899) --------- (172,490) --------- --------- Net current assets 51,245 59,643 Total assets less current liabilities 149,634 146,128 Provisions for liabilities and charges 360 262 --------- --------- Net assets 149,994 146,390 ========= ========= CONSOLIDATED CASHFLOW STATEMENT year ended 30 June 2002 Notes 2002 2001 Â£000 Â£000 Â£000 Â£000 Operating activities Net cash inflow/(outflow) from operating activities 1 38,333 (8,681) Returns on investments and servicing of finance Interest received 523 191 Interest paid (3,386) (4,867) Rents received 7,133 6,168 --------- --------- Net cash inflow from returns on investments and servicing of finance 4,270 1,492 Taxation UK corporation tax paid (7,271) (5,517) Capital expenditure Purchase of tangible fixed assets (30,566) (10,861) Sale of tangible fixed assets 1,085 1,097 Sale of investment properties 10,503 12,392 Purchase of investments - (456) Sale of investments - 1,538 Net investment loans (540) (33) --------- --------- Net cash (outflow)/inflow from capital expenditure (19,518) 3,677 Acquisitions and disposals Purchase of investment in joint ventures - (61) --------- --------- - (61) Equity dividends paid (3,161) (2,758) --------- --------- Net cash inflow/(outflow) before financing 12,653 (11,848) Management of liquid resources - - Financing Proceeds from issue of shares 709 779 --------- --------- Net cash outflow from financing 709 779 --------- --------- Increase/(decrease) in cash 2 13,362 (11,069) ========= ========= Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash in the year 13,362 (11,069) Net (debt) as 1 July (50,588) (39,519) --------- --------- Net (debt) at 30 June (37,226) (50,588) ========= ========= CONSOLIDATED CASH FLOW STATEMENT year ended 30 June 2002 1 Reconciliation of operating profit to net cash inflow/ (outflow) from operating activities 2002 2001 Â£000 Â£000 Operating profit 18,730 21,586 Investment property income (7,133) (6,168) Depreciation charges 5,820 5,163 Amortisation of goodwill 308 308 Profit on sale of tangible fixed assets (1,182) (674) Decrease/(increase) in stock and work in progress 28,393 (14,501) Increase in debtors (15,666) (25,739) Increase in creditors 9,063 11,344 --------- --------- 38,333 (8,681) ========= ========= 2 Analysis of net debt As at Cashflow As at 30 June 1 July 2001 2002 Â£000 Â£000 Â£000 Cash at bank and in hand 436 (290) 146 Overdrafts (51,024) 13,652 (37,372) --------- --------- --------- (50,588) 13,362 (37,226) ========= ========= ========= NOTES 1. SEGMENTAL ANALYSIS 2002 2001 Audited Audited Â£000 Â£000 Analysis of turnover on continuing operations: Construction United Kingdom 424,813 291,562 Africa - 500 Jersey 3,417 3,003 --------- --------- 428,230 295,065 Homes - United Kingdom 112,970 123,419 Property - United Kingdom 31,642 3,986 --------- --------- 572,842 422,470 ========= ========= Operating profit on continuing activities: Construction 10,053 7,826 Homes 575 10,208 Property 10,730 5,874 Central costs (3,085) (2,322) Goodwill 308 308 --------- --------- 18,581 21,894 ========= ========= Net assets: Construction 23,309 15,341 Homes 87,836 83,117 Property 69,248 88,900 Joint venture investments 3,696 3,594 Centre 7,770 12,765 --------- --------- 191,859 203,717 Tax (2,008) (4,235) Dividends (2,631) (2,504) --------- --------- 187,220 196,978 Net debt (37,226) (50,588) --------- --------- 149,994 146,390 ========= ========= This information is provided by RNS The company news service from the London Stock Exchange

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