Final Results
Gleeson(M J)Group PLC
27 October 2006
Friday 27 October 2006
M J GLEESON GROUP PLC - PRELIMINARY ANNOUNCEMENT
Gleeson announces its unaudited results for the year to 30 June 2006, one of
rapid and far-reaching change resulting from the Board's commitment to a
radically revised corporate strategy.
KEY POINTS - FINANCIAL
• The Group's profit for the year attributable to equity holders of the
parent company (after tax), including both 'continuing'+ and
'discontinued' items as defined by IFRS, was £9.7m (2004/05: loss of
£9.8m).
• On revenue relating to 'continuing' operations of £386.7m (2004/05:
£522.4m), the Group made an operating profit of £0.9m (2004/05:
operating loss of £10.9m) and a loss before tax of £3.0m (2004/05:
£17.8m).
• The basic and diluted loss per share from 'continuing' operations was
5.10p (2004/05: 25.49p).
• Year end shareholders' funds totalled £156.2m (2004/05: £150.1m),
representing net assets per share of 303p (2004/05: 292p).
• Year end net debt totalled £14.7m, compared with £102.3m at 31 December
2005 and £60.7m at 30 June 2005, reflecting the disposal programme and
a working capital review. Since the year end, net debt has fallen further.
• A final dividend per share of 6.9p (2004/05: 6.5p), up 6.2%, is
proposed, making 8.5p (2004/05: 8.0p), up 6.3%, for the full year,
reflecting the Board's confidence in the prospects of the Group's
retained businesses.
+ 'Continuing' operations include, under IFRS, the Building Contracting Division
and the Engineering Division, despite their sale, because of retained
liabilities with regard to certain incomplete contracts.
KEY POINTS - COMMERCIAL
• The Group's new corporate strategy, which was announced on 31 March
2006, is principally designed to reduce the Group's exposure to
contracting in the construction sector and to strengthen its position
in more attractive markets where it already has a strong track record.
These are the three related areas of urban housing regeneration,
commercial property development and strategic land trading.
• During the year or subsequently, Gleeson divested substantially all of
its Construction Services. By the year-end, the majority of its holdings
of non-strategic land not yet under development and the greater part of
its investment property portfolio had been sold. The substantial
reduction in Gleeson Homes' traditional house building activities had
also commenced.
• During the year, all of the Group's retained businesses performed well
and strengthened their market positions.
• The Board believes that prospects for the Group's regeneration
activities are particularly positive. Gleeson Homes North is expected
to sell over 7,000 homes in regeneration projects during the next
10 years. The major PFI social housing scheme at Ashford in Kent is
expected to be an important first such project for Gleeson Homes South.
• At the year end, the Group's commercial property development programme,
including joint ventures, comprised 14 projects with an estimated end
value in excess of £75m.
• Traditional house building, which is being significantly scaled down,
had a deeply disappointing year, especially in the case of Gleeson
Homes South.
With regard to prospects, Dermot Gleeson (Chairman) stated 'There is much work
still to be done to deliver the transformational change which our new strategic
vision requires. However, the Board remains convinced that the refocusing of the
Group's activities will enable it to achieve a substantial and sustained
improvement in its operating performance and to deliver to shareholders higher
and more consistent returns. In particular, the Group's risk profile will be
very substantially improved by the virtual exit from both building and civil
engineering contracting, by the scaling down of traditional house building, by
the narrowing of management's focus and by the elimination of material
indebtedness.
The Group expects to remain strongly cash generative in the course of the
current financial year. An option that therefore is likely to become available
to the Board is a return of cash to shareholders. The scale and timing of any
such return will depend on our assessment of the returns that can be achieved by
our continuing businesses and their capital requirements.'
Enquiries:
M J Gleeson Group plc 020-8644 4321
Paul Wallwork (Interim Chief
Executive)
Chris Holt (Interim Finance Director)
Bankside Consultants Limited
Charles Ponsonby 020-7367 8851
CHAIRMAN'S STATEMENT
The year to 30 June 2006 was one of rapid and far-reaching change, resulting
from the Board's commitment to a radically revised corporate strategy. This is
principally designed to reduce the Group's exposure to contracting in the
construction sector and to strengthen its position in more attractive markets
where it already has a strong track record.
As stated in the announcement of the outcome of the Strategic Review, issued on
31 March 2006, simultaneous with the Interim Announcement, the Group will
henceforth concentrate primarily on three related areas: urban housing
regeneration; commercial property development; and strategic land trading. These
are all areas which are believed to offer considerable scope for sustained
growth in profits.
RESULTS
These are the Group's first annual consolidated financial statements prepared in
accordance with International Financial Reporting Standards (IFRS).
The Group's IFRS accounting policies have been applied in preparing the
consolidated financial statements for the year to 30 June 2006, the comparative
information for the year to 30 June 2005 and the preparation of an opening IFRS
balance sheet at 1 July 2004 (the date of transition from UK GAAP to IFRS).
The results show revenue relating to continuing operations of £386.7m (2004/05:
£522.4m), an operating profit of £0.9m (2004/05: operating loss of £10.9m) and a
loss before tax of £3.0m (2004/05: £17.8m). A post-tax profit from discontinued
businesses of £12.3m was derived (2004/05: £3.2m); all of the current year's
figure represents gain on disposal of Gleeson MCL and Concrete Repairs (the
Building Contracting Division and the Engineering Division being classified
under IFRS as continuing, despite their sale, because of retained liabilities
with regard to certain incomplete contracts). The basic and diluted loss per
share from continuing operations was 5.10p (2004/05: 25.49p).
The Group's profit for the year attributable to equity holders of the parent
company, including both 'continuing' and 'discontinued' items as defined by
IFRS, was £9.7m (2004/05: loss of £9.8m).
Year end shareholders' funds totalled £156.2m (2004/05: £150.1m), representing
net assets per share of 303p (2004/05: 292p). Net debt fell sharply in the
second half of the year, as a result of the disposal programme and a working
capital review, to £14.7m at 30 June 2006, compared with £102.3m at 31 December
2005 and £60.7m at 30 June 2005. Since the year end, net debt has fallen
further, and there is potential for the Group to be substantially cash positive
in the latter part of the current financial year.
DIVIDENDS
A final dividend of 6.9p per share is proposed, payable on 11 January 2007 to
shareholders on the register on 8 December 2006. This represents an increase of
6.2% on last year's final dividend of 6.5p per share and reflects the Board's
confidence in the prospects of the Group's retained businesses. Together with
the interim dividend of 1.6p per share (2004/05: 1.5p), paid on 30 June 2006,
dividends for the year will total 8.5p (2004/05: 8.0p) per share, an increase of
6.3%.
STRATEGIC CHANGE
Following the sale of the Building Contracting Division in August 2005, the
Board undertook a Strategic Review, which was completed in March 2006. Most of
the conclusions of this Review have now been implemented.
During the year, or subsequently, Gleeson divested substantially all of its
Construction Services (only Powerminster, now renamed Gleeson Services, being
retained):
• In August 2005, the Building Contracting Division was sold to a
management buyout (MBO) team. This transaction involved the transfer of
specific ongoing contracts, staff and certain assets. The Group retained
liabilities relating to the completion of certain contracts. In addition, the
Group has invested £1.1m in the equity of the MBO vehicle, Gleeson Building
Limited, and provided a loan of £2.5m. Under certain circumstances, the Group
may be required to make a further £3.5m equity investment. On exit, the Group
will receive 45% of the proceeds remaining after the repayment to it of loans
and the paid up capital on non-voting shares.
• In March 2006, Gleeson MCL, a business involved in railway engineering
contracts, was sold to Morgan Sindall for a cash consideration in relation to
goodwill for the business of £15.2m - a profit of £9.4m was recorded.
• In June 2006, Concrete Repairs, a structural renovation business, was
sold to an MBO team for a cash consideration in relation to goodwill for the
business of £3.0m - a profit of £2.9m was recorded.
• In October 2006, Gleeson Engineering Division, a business predominantly
involved in delivering water-related construction through alliancing with
water utility companies, was sold to Black & Veatch for a cash consideration
in relation to goodwill for the business of £36.0m. This transaction involved
the transfer of specific ongoing contracts, staff and certain assets. The
Group has retained responsibility for the completion of certain contracts.
In the last quarter of the year under review, the substantial reduction in
Gleeson Homes' activities outside the housing regeneration sector commenced. The
majority of Gleeson Homes' holdings of non-strategic land not yet under
development was sold in the year.
In June 2006, the greater part of the Group's investment property portfolio was
sold, following a competitive tender process, for £27.9m in cash, all properties
being sold at in excess of book value.
During the year, Gleeson Capital Solutions sold two non-housing PFI investments
- Sheffield Family Courts and Tiverton Healthcare Facilities - both at in excess
of book value.
The principal outstanding actions required by the Strategic Review are:
• a further substantial reduction in Gleeson Homes' activities outside
housing regeneration, mainly to be achieved in the current year;
• the sale of the Group's remaining investment property portfolio
(including owner-occupied property), which is also expected in the current
year;
• the sale of the Group's four remaining non-housing PFI investments, to
be achieved over the next two years; and
• the reduction of the Group overhead, including a move to smaller Head
Office accommodation in Fleet, Hampshire, from Cheam, Surrey (scheduled for
December 2006).
POSSIBLE OFFER BY CASTLE ACQUISITIONS
On 10 January 2006, Castle Acquisitions, a much smaller AIM-traded company,
announced a possible offer for the Company, substantially all in shares. This
possible offer was withdrawn on 31 March 2006.
BUSINESS REVIEW - RETAINED BUSINESSES
All of the Group's retained businesses performed well and strengthened their
market positions during the year. The Board believes that prospects for the
Group's regeneration activities are particularly positive.
Housing Regeneration
The Group's regeneration operations comprise: housing for sale, mainly on land
provided by local authorities and other public bodies; maintenance and
refurbishment services to social housing providers, in particular in the context
of the Government's Decent Homes Initiative; and social housing PFI projects.
During the year, these three activities were classified under Homes,
Construction Services and Homes, respectively. Each of these three areas offers
continuity of work over extended contractual periods, reliable margins, improved
returns on capital, and substantial opportunities for growth.
Housing For Sale
Gleeson Homes consolidated its position as a leading developer in urban housing
regeneration, particularly in the North of England. Gleeson Homes North alone is
expected to sell over 7,000 homes in the next 10 years.
The business model which has been adopted in this sector is designed to provide
the Group with secure long-term flows of activity arising from regeneration
schemes, which tend to be of 5-15 years' duration.
On most of these schemes, the Group works in close partnership with the local
authority and with registered social landlords. Quality homes are built for sale
and rent, taking into account neighbourhood solutions, landscaping works and
parks, and commercial and community facilities. The Group utilises modern
methods of construction; commits to training local labour and to using local
suppliers; and operates profit-sharing partnerships. The Group is involved in
the planning and development of these schemes from the start, helping to define
and guide the process and, where possible, securing additional investment from
commercial interests.
The principal schemes worked on during the year were:
• Grove Village in Manchester, the first substantial local authority
housing PFI, where the first phases of the scheme have sold faster than
expected. Over the life of the project, the Group will be constructing nearly
900 new homes, demolishing over 400 houses and refurbishing nearly 700
existing homes;
• Beswick in East Manchester, where there is a £80m eight year programme
to build affordable housing;
• Liverpool City Centre South Zone, where the Group is just starting on
its second site. The Group is the preferred developer in this Zone and has
produced a master plan for the development of an area totalling 1,000 acres;
and
• Norfolk Park in Sheffield, where the Group's programme to build new
homes has improved the status and quality of this estate.
Substantial projects where construction has not yet started include:
• North Huyton on Merseyside, where the Group is one of a consortium of
preferred developers for a major regeneration scheme of c.580 houses and
expects to start construction in 2007; and
• Ashford in Kent, where a Gleeson-led consortium, Chrysalis, has been
named preferred bidder for a major PFI social housing regeneration scheme.
For Gleeson Homes South, this is expected to lead to a considerable programme
of new development and refurbishment over the next five years, including
development for sale, as well as to significant long-term housing maintenance
and management contracts for Gleeson Services.
Maintenance and Refurbishment Services
Gleeson Services was formed at the start of the current financial year to focus
the Group's activities in housing modernisation, service maintenance and
facilities management under one strengthened management team. Gleeson Services
incorporates Powerminster Building Services, Propertycare by Powerminster and
Gleeson AssetCare, which together offer a fully integrated social housing
refurbishment service. It also includes Specialist Building & Services Training
(SBST), the Group's building industry training service business.
During the year, Gleeson Services enjoyed a period of strong profitable growth.
Its geographical expansion continued across the North West and the Midlands and
it further strengthened its presence in the South East. The forward order book
is very healthy and the Group expects another year of profitable progress,
driven by the long-term framework agreements and strong partnering relationships
which are key to this industry segment.
Social Housing PFI Projects
Gleeson Capital Solutions manages the Group's PFI investments and takes the lead
on submissions for new opportunities, such as the Ashford PFI project. The
overall market for housing PFI schemes remains strong, with 14 proposals
submitted by local authorities to the Government in the latest round of bidding.
Commercial Property Development
Gleeson Properties made development profits of £3.7m (2004/05: £2.3m).
The principal transactions in the year were:
• the sale in October 2005 of the final warehouse unit on the Group's
150,000 sq ft joint venture development in Redditch, Worcestershire, within
15 months of site acquisition;
• the sale in May 2006 of a 160,000 sq ft fully let industrial joint
venture refurbishment in Peterborough, Cambridgeshire; and
• the sale in May 2006 of the 250,000 sq ft Crendon Industrial Park,
Buckinghamshire, held in joint venture.
During the year, construction started on offices at Capability Green Business
Park, Luton, Bedfordshire; on industrial units at Kings Langley, Hertfordshire;
and on small industrial units in Havant, Hampshire. Sites were acquired for the
development of 12,500 sq ft of small industrial 'starter' units near Chichester,
Sussex; for an 88,000 sq ft warehouse in Swindon, Wiltshire; and for a 52,000 sq
ft trade-counter and business unit development in High Wycombe, Buckinghamshire.
Accordingly, at the year end, the Group's development programme, including joint
ventures, comprised 14 projects with an estimated end value in excess of £75m.
Strategic Land Trading
Gleeson Strategic Land manages the Group's strategic land bank and its results
are included within those of the Gleeson Homes sector. During the year, the
biggest land sale was Hellingly Hospital, near Hailsham in East Sussex. The
Group took this former hospital site through the initial planning stages and
sold it on for mixed use development.
At the year end, Gleeson Strategic Land had an interest in some 2,500 acres.
With a view to expanding this activity, the Group is in the latter stages of
potentially securing sites which comprise some 900 acres.
BUSINESS REVIEW - NON-CORE BUSINESSES
Gleeson Construction Services Limited
Both Gleeson MCL and Concrete Repairs were disposed of as share disposals.
Accordingly, under IFRS, both businesses are classified as discontinued
businesses. The profit after tax for the year from discontinued operations was
£12.3m, made up of a post tax trading profit of nil and profits on disposal of
Gleeson MCL of £9.4m and of Concrete Repairs of £2.9m. In 2004/05, the post tax
profit contribution from these two businesses was £3.2m.
The disposal of both the Building Contracting Division and the Engineering
Division involved the transfer of specific ongoing contracts, staff and certain
assets, with the Group retaining responsibility for the completion of certain
contracts. The former was sold in August 2005 and the latter in October 2006.
Under IFRS, neither business can be classified as discontinued due to the scale
of work to be completed on retained contracts. Accordingly, their trading
performance is included within continuing operations.
During the year under review, and as disclosed in the Interim Report 2006, a
charge of £3.7m was made in relation to the disposal of the Building Contracting
Division.
The Engineering Division had a good year. In England, the first year of Asset
Management Programme 4 (AMP4) - five-year engineering alliances with
Northumbrian Water, Severn Trent Water, South West Water, Thames Water and
Yorkshire Water - went well, whilst the Engineering Division was selected as one
of two contractors to deliver Anglian Water's £70m 'Biosolids' programme. In
Scotland, via its participation in the Scottish Water Solutions consortium, the
Engineering Division successfully delivered a wide range of engineering projects
during the final year of Scottish Water's 'Quality and Standards 2' Asset
Management Programme and agreed participation in Scottish Water's new 'Quality
and Standards 3' programme, which is valued at up to £700m over the four years
to March 2010. Additionally, the £110m Loch Katrine Water Project, where the
Engineering Division is the lead contractor, is advancing well and on schedule
for completion in mid-2007.
Traditional Housebuilding
In the year, regeneration and traditional housebuilding combined, Gleeson Homes
sold 487 (2004/05: 726) units at an average selling price of £193,000 (2004/05:
£182,000).
As forewarned in trading statements in May and July, Gleeson Homes'
non-regeneration operations - which are being substantially reduced - were
deeply disappointing. Much lower than anticipated sales volumes in the second
half of the year, construction cost overruns and the need for a substantial
write-down of £7.5m on the carrying value of a small number of sites resulted in
an overall loss for this business.
Gleeson Homes will continue to build out the remainder of its non-regeneration
developments, mostly during the current year. The intention is that Gleeson
Homes South should materially replicate Gleeson Homes North, which now
predominantly operates in broadly-based regeneration projects.
Property Investment Portfolio
In the year, rents from investment properties totalled £2.4m (2004/05: £4.5m),
this reduction being predicted in the Preliminary Announcement a year ago
following substantial disposals in late 2004/05, and an operating profit of
£6.6m (2004/05: £8.8m) was made on the sale of investment properties.
BOARD CHANGES
Following the Strategic Review, it was decided to reduce the size of the Board
and to ensure that henceforth its Non-Executive Directors are in a majority;
also to reshape the Board to enhance its ability to lead and control the Group
in its new form.
In order to make this possible, two Executive Directors, Steve Davies, the
Managing Director of Gleeson Properties, and Tony Collins, the Managing Director
of the Engineering Division, both resigned from the Board (but not the Company)
in April 2006. In addition, Malcolm Selsdon retired, after 12 years as a
non-executive Director, in July 2006 and John McKenna has announced his
resignation as a non-executive director with effect from 31 October 2006. I
would like to thank all four for their considerable contributions to the
Company.
Paul Wallwork joined the Group in January and succeeded Colin McLellan as
Finance Director on Colin's retirement after the AGM, later that month, after 27
years with the Group, the last 17 of them as Finance Director. Paul was formerly
at Inchcape, where he was the Managing Director of a business unit of a similar
size to the restructured Gleeson Group, having originally trained as an
accountant with Arthur Young, qualifying as an ACA. As announced in July 2006,
Paul assumed the role of Interim Group Chief Executive on the resignation of
Terry Massingham.
In August 2006, Edwin Lawrie, who remains as Company Secretary, was appointed an
Interim Executive Director.
Finally, as regards the Board, I am pleased to be able to welcome two new
non-executive directors. Ross Ancell ACA(NZ), whose appointment was effective
from 1 October 2006, is the Executive Chairman of Churngold (a groundworks,
construction and recycling business), and from 1981 to 1996 was with George
Wimpey, latterly as Managing Director, Wimpey Minerals, and a member of the
Wimpey Group Management Board. Terry Morgan, whose appointment is announced
today and becomes effective on 1 November 2006, is the CEO of Tube Lines and
previously was Group Managing Director - Operations (2001-02) and Group HR
Director (1996-2001) at BAe Systems. Both have extensive expertise and
experience relevant to the development and implementation of the Group's new
strategy.
EMPLOYEES
The disruption and uncertainty that have accompanied the extensive changes that
have been made to the Group have tested the commitment of all of our employees.
The Board would like to thank them for their resilience and patience in
difficult circumstances.
PROSPECTS
There is much work still to be done to deliver the transformational change which
our new strategic vision requires. However, the Board remains convinced that the
refocusing of the Group's activities will enable it to achieve a substantial and
sustained improvement in its operating performance and to deliver to
shareholders higher and more consistent returns. In particular, the Group's risk
profile will be very substantially improved by the disposal of both building and
civil engineering contracting, by the scaling down of traditional house
building, by the narrowing of management's focus and by the elimination of
material indebtedness.
The Group expects to remain strongly cash generative in the course of the
current financial year. An option that therefore is likely to become available
to the Board is a return of cash to shareholders. The scale and timing of any
such return will depend on our assessment of the returns that can be achieved by
our continuing businesses and their capital requirements.
Dermot Gleeson
Chairman 27 October 2006
UNAUDITED CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2006
2006 2005
Notes £000 £000
Continuing operations
Revenue 2 386,740 522,412
Cost of sales (356,855) (494,847)
Gross profit 29,885 27,565
Staff costs and other expenses (36,918) (50,878)
Profit on sale of investments in PFI 784 2,218
projects
Profit on sale of investment and 6,641 8,843
owner-occupied properties
Valuation gains on investment 585 2,072
properties
Share of loss of joint ventures (net of (110) (718)
tax)
Operating profit/(loss) 867 (10,898)
Financial income 2,380 362
Financial expenses (6,260) (7,274)
Loss before tax (3,013) (17,810)
Income tax 402 4,844
Loss for the year from continuing (2,611) (12,966)
operations
Discontinued operations
Profit for the year from discontinued 3 12,263 3,164
operations and gain on sale of
discontinued operations (net of tax)
Profit/(loss) for the year attributable
to equity holders of the parent company 9,652 (9,802)
Loss per share from continuing
operations
Basic and diluted 5 (5.10)p (25.49)p
UNAUDITED CONSOLIDATED BALANCE SHEET
at 30 June 2006
2006 2005
Notes £000 £000
Non-current assets
Property, plant and equipment 4,825 20,602
Investment properties 5,010 33,053
Goodwill - 4,794
Investments in joint ventures and associates 1,890 1,876
Loans and other investments 7,393 4,123
Inventories 30,238 79,705
Trade and other receivables 549 -
Deferred tax assets 4,816 5,499
54,721 149,652
Current assets
Inventories 103,957 96,905
Trade and other receivables 100,762 129,114
UK corporation tax 3,502 -
Cash and cash equivalents 53 70
Assets reclassified as held for sale 16,453 12,252
224,727 238,341
Total assets 279,448 387,993
Current liabilities
Bank overdrafts (14,706) (60,819)
Trade and other payables (108,430) (137,829)
UK corporation tax - (5,598)
Liabilities directly associated with assets (97) (33,620)
reclassified as held for sale
Total liabilities (123,233) (237,866)
Net assets 2 156,215 150,127
Equity
Share capital 1,032 1,029
Share premium account 3,974 3,762
Capital redemption reserve 120 120
Revaluation reserve 2,742 2,715
Retained earnings 148,347 142,501
Total equity attributable to equity holders 2 156,215 150,127
of the parent
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 2006
Notes 2006 2005
£000 £000
Cash flows from loss before tax
Loss before tax (3,013) (17,810)
Depreciation of property, plant and 2,902 5,421
equipment
Profit on sale of investment and owner (6,641) (8,843)
occupied properties
Profit on sale of other property, plant and (3,791) (583)
equipment
Profit on sale of investments in PFI (784) (2,218)
projects
Profit on discontinued operations 1,199 2,647
Valuation gains on investment properties (585) (2,072)
Share of loss of joint ventures (net of 110 718
tax)
Financial income (2,380) (362)
Financial expenses 6,260 7,274
Operating cash flows before movements in (6,723) (15,828)
working capital
Decrease in inventories 43,000 12,962
Increase in receivables (2,891) (10,247)
(Increase)/decrease in payables (15,377) 2,138
Cash generated/(used) from operating 18,009 (10,975)
activities
Income taxes received/(paid) 188 (4,248)
Interest paid (7,293) (4,837)
Net cash flows from operating activities 10,904 (20,060)
Cash flows from investing activities
Purchase of investments in joint ventures - (25)
Purchase of subsidiary undertakings - (8,467)
Net cash acquired with subsidiary - 2,071
undertakings
Disposal of net assets held for sale (15,898) -
Disposal of subsidiary undertakings 3 24,677 -
Net cash disposed of with subsidiary 3 (5,482) -
undertakings
Interest received 1,635 697
Purchase of property, plant and equipment (6,846) (7,183)
Proceeds on sale of investment and owner 34,397 46,259
occupied properties
Proceeds on sale of other property, plant 10,267 1,599
and equipment
Proceeds on disposal of investments in PFI 757 2,058
projects
Increase in loans and other investments (5,700) (3,743)
Disposal or repayment of loans and other 1,289 1,832
investments
Net cash flows from investing activities 39,096 35,098
Financing activities
Proceeds from issue of shares 215 -
Sale of own shares - 71
Dividends paid 4 (4,119) (3,924)
Net cash used in financing activities (3,904) (3,853)
Net increase in cash and cash equivalents 46,096 11,185
Cash and cash equivalents at beginning of (60,749) (71,934)
year
Cash and cash equivalents at end of year (14,653) (60,749)
NOTES TO THE PRELIMINARY ANNOUNCEMENT
for the year ended 30 June 2006
1. Principal accounting policies
M J Gleeson Group plc is a company incorporated in the UK.
The Group financial statements consolidate those of the Company and its
subsidiaries (together, referred to as the 'Group') and equity account the
Group's interest in joint ventures.
The Group financial statements have been prepared and approved by the Directors
in accordance with International Financial Reporting Standards as adopted by the
EU ('Adopted IFRSs'). The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimated is revised if the revision affects only that period, or
in the period of the revision and future periods if the revision affects both
current and future periods.
Basis of accounting
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) for the first time. The financial
statements have also been prepared in accordance with IFRS adopted for use in
the European Union and therefore comply with Article 4 of the EU IAS Regulation.
IFRS 1 grants certain exemptions from the full requirements of IFRS in the
transition period. The following exemptions have been taken in these financial
statements:
* Fair value or revaluation as deemed cost - at the date of transition, 1 July
2004, fair value has been used as deemed cost for properties previously
measured at fair value
* Business combinations - business combinations that took place prior to 1 July
2004 have not been restated. As a result, goodwill arising from past business
combinations remains stated under UK GAAP in the opening balance sheet at
1 July 2004
* The Group has elected to apply IFRS to relevent share-based payment
transactions only where rights were granted after 7 November 2002 and not
vested as at 1 January 2005.
Measurement convention
Assets and liabilities in the financial statements have been valued at historic
cost except where otherwise indicated in these accounting policies. The
principal accounting policies for the purposes of adopting IFRS unless stated
otherwise applied consistently to all periods and in the preparation of the
opening balance sheet at 1 July 2004 are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and all its subsidiary undertakings.
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that are currently exercisable or convertible
are taken into account. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control commences until
the date that control ceases.
On acquisition, the assets and liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition. Any
excess of the fair value of consideration given for the acquisition over the
fair values of the identifiable net assets acquired is recognised as goodwill.
In circumstances where the fair values of the identifiable net assets exceed the
cost of acquisition, the excess is immediately recognised in the income
statement.
The results of subsidiaries acquired or disposed of during the year are included
in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate.
Revenue recognition
Revenue represents the fair value of work done on contracts performed during the
year on behalf of customers or the value of goods and services delivered to
customers. Revenue is recognised as follows:
* Revenue from Construction Services activities represents the value of work
carried out during the year, including amounts not invoiced
* Revenues from Homes and Property sales are recognised at the earlier of when
contracts to sell are completed and title has passed or when unconditional
contracts to sell are exchanged.
* Revenues from rental income from investment properties are recognised in
accordance with the applicable rental contracts.
Revenue and margin on fixed price contracts are recognised by reference to the
stage of completion of the contract at the accounts date. The stage of
completion is determined by valuing the cost of the work completed at the
accounts date and comparing this to the total forecasted cost of the contract.
Full provision is made for all forecasted losses. Variations in contract work,
claims and incentive payments are included to the extent that it is probable
that they will result in revenue and that they are capable of being reliably
measured.
Prudent provision against claims from customers or third parties is made in the
year in which the Group becomes aware that a claim may arise.
Leasing
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to
the income statement on a straight-line basis over the period of the lease.
Owner occupied property, plant and equipment
Owner occupied properties are carried at fair value at Directors' valuation. The
following assumptions have been used to determine the fair value:
i) a review of the current prices of similar properties in the same location
and condition,
ii) a review of the current and future rental income for current and future
leases (for investment properties) and the cash outflows that are expected
in respect of these properties,
iii) a review of submitted offers where the properties were being marketed for
sale.
Gains or losses arising from changes in the fair values of owner occupied
properties are taken to equity. Plant, machinery and equipment are stated at
cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off cost or valuation of assets, other
than land which is not depreciated, over their estimated useful lives, using the
straight-line method, on the following basis:
Owner occupied - freehold properties between 25 and 50 years
Owner occupied - leasehold properties period of the lease
Plant and machinery between 3 and 6 years
Motor vehicles 3 years
Depreciation of these assets is charged to income.
Investment properties
Investment properties, which are properties held to earn rentals and/or for
capital appreciation, are stated at their fair values at the balance sheet date.
Gains or losses arising from changes in the fair values of investment properties
are included in the income statement in the period in which they arise.
The Group's freehold and long leasehold commercial investment and owner occupied
properties are carried at Directors' valuation. The following assumptions have
been used to determine the fair value:
i) a review of the current prices of similar properties in the same location
and condition,
ii) a review of the current and future rental income for current and future
leases (for investment properties) and the cash outflows that are expected
in respect of these properties,
iii) a review of submitted offers where the properties were being marketed for
sale.
The Group's freehold and long leasehold commercial investment and owner occupied
properties in the United Kingdom were valued by external valuers, Cushman &
Wakefield Healey & Baker, Real Estate Consultants, as at 30 June 2005. This
external valuation has been prepared as a Regulated Purpose Valuation in
accordance with the Practice Statements contained in the RICS Appraisal and
Valuation Standards, 5th Edition, published by The Royal Institution of
Chartered Surveyors in May 2003 (as amended) ('the Red Book'). The basis of
valuation was Market Value as defined in the Red Book.
Goodwill
In accordance with IFRS 3 Business Combinations, goodwill is no longer amortised
but stated at cost less any provision for impairment in value. Goodwill is
reviewed annually for any impairment in its value or at such time that there is
an indication that its value has been reduced, if sooner.
Where on acquisition the Group's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities acquired exceeds the
cost of the business combination, the Group reassesses the identification and
measurement of the acquiree's identifiable assets, liabilities and contingent
liabilities and the measurement of the cost of the combination; and recognises
immediately in profit or loss any excess remaining after the reassessment.
Joint ventures
A joint venture is an entity over which the Group is in a position to exercise
joint control through participation in the financial and operating policy
decisions of the venture. The joint venture entity operates in the same way as
other enterprises, except that a contractual arrangement between the venturers
establishes joint control over the economic activity of the entity. Joint
ventures are accounted for using the equity method of accounting. The Group's
share of the results of joint ventures is reported in the income statement as
part of the operating profit and the net investment disclosed in the balance
sheet. Revaluation gains and losses, which arise on investment properties, are
recognised in the income statement net of any related deferred tax.
Loans and other investments
Loans are stated at amortised cost less impairment. Other investments are
classified as being available for sale and are stated at fair value, with any
resultant gains or losses taken to equity.
Inventories
Inventories are valued at the lower of cost and net realisable value. Net
realisable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale. Deferred land purchases are included in inventories
at their net present values.
Amounts due from construction contract customers
Amounts due from construction contract customers represent the value of work
carried out at the balance sheet date, (see revenue recognition accounting
policy) less a provision for foreseeable losses less progress billings.
Trade receivables
Trade receivables are measured at initial recognition at fair value. Appropriate
allowances for estimated irrecoverable amounts are recognised in the income
statement when there is objective evidence that the asset is impaired. The
allowance recognised is measured as the difference between the asset's carrying
amount and the present value of estimated future cash flows discounted at the
effective interest rate computed at initial recognition.
Financial instruments
Derivative financial instruments (Interest Rate SWAPS) are used in joint
ventures to hedge long term interest rate risk. These are recorded at fair
value. The fair value of interest rate swaps is the estimated amount that the
Group would receive or pay to terminate the swap at the balance sheet date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties. The gain or loss on remeasurement to fair value is
recognised immediately in profit or loss. However, where derivatives qualify for
hedge accounting, recognition of the effective part of the hedge of any gain or
loss on the derivative financial instrument is recognised directly in the
hedging reserve. Any ineffective portion of the hedge is recognised immediately
in the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, other
short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value and
bank overdrafts and borrowings. Bank overdrafts are shown within borrowings in
current liabilities on the balance sheet.
Assets held for sale and discontinued operations
An asset or a group of assets containing non-current assets (a disposal group)
is classified as held for sale if its carrying amount will be recovered
principally through sale rather than through continuing use, if it is available
for immediate sale and if the sale is highly probable within one year.
The comparative balance sheet is not restated.
On initial classification as held for sale, non-current assets and disposal
groups are measured at the lower of their previous carrying amount and fair
value less costs to sell with any adjustments taken to profit or loss. The same
applies to gains and losses on subsequent remeasurement.
A discontinued operation is a component of the Group's business that represents
a separate major line of business or geographical area of operations or is a
subsidiary acquired exclusively with a view to resale, that has been disposed
of, has been abandoned or that meets the criteria to be classified as held for
sale.
Discontinued operations are presented in the income statement (including the
comparative period) as a single line entry recording the post tax gain or loss
of the discontinued operation and the post tax gain or loss recognised on the
remeasurement to fair value less costs to sell. If the discontinued operations
are sold, the net post tax gain or loss from the sale is also recognised in the
single line entry.
Trade and other payables
Trade and other payables are initially measured at fair value and are
subsequently measured at amortised cost using the effective interest rate
method.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying values of
assets and liabilities for financial reporting purposes and the values used for
taxation purposes. The following temporary differences are not provided for: the
initial recognition of goodwill; the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit other than in a
business combination, and differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the foreseeable future and the
Group can control the timing of the reversal. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
Employee benefits
Obligations for contributions to defined contribution pension schemes are
charged to the income statement in the period to which the contributions relate.
Share based payments
The share option programme allows employees to acquire shares of the ultimate
parent Company; these awards are granted by the ultimate parent Company. The
fair value of options granted is recognised as an employee expense with a
corresponding increase in equity. The fair value is measured at grant date and
spread over the period during which the employees become unconditionally
entitled to the options. The fair value of the options granted is measured using
the Black-Scholes valuation model, taking into account the terms and conditions
upon which the options were granted. The amount recognised as an expense is
adjusted to reflect the actual number of share options that vest except where
forfeiture is due only to share prices not achieving the threshold for vesting.
Own shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are included in the Group
financial statements. The trust's purchases of shares in the Company are debited
directly to equity.
Dividends
Interim dividends are recorded in the Group's financial statements when paid.
Final dividends are recorded in the Group's financial statements in the period
in which they receive shareholder approval.
Guarantees
The Group has not adopted amendments to IAS 39 and IFRS 4 in relation to
financial guarantee contracts which will apply for periods commencing on or
after 1 July 2006. The Group does not expect the amendments to have any impact
on the financial statements for the period commencing 1 July 2006.
Where the Group enters into financial guarantee contracts, the Group considers
these to be insurance arrangements, and accounts for them as such. In this
respect, the Group treats the guarantee contract as a contingent liability until
such time as it becomes probable that the Group will be required to make a
payment under the guarantee.
Adopted IFRS not yet applied
The following Adopted IFRSs were available for early application but have not
been applied by the Group in these financial statements.
* IFRS 7 Financial Instruments: disclosure applicable for year
commencing on or after 1 January 2007.
The application of IFRS 7 in the current year would not have affected the
balance sheet or income statement as the standard is concerned only with
disclosure. The Group plans to adopt it in the financial statements for year
ending 30 June 2007.
2. Segmental analysis
For management purposes, the Group is organised into three operating
divisions: Homes, Property and Construction Services. The divisions are the
basis on which the Group reports its primary segment information.
Segment information about the Group's continuing operations, including joint
ventures, is presented below:
2006 2005
Revenue Operating Revenue Operating
Continuing Discontinued profit/ Continuing Discontinued profit/
(loss) (loss)
£000 £000 £000 £000 £000 £000
Homes 138,413 - (11,673) 157,318 - 14,568
Property 2,896 - 11,310 8,502 - 16,689
Construction 245,431 51,845 7,045 356,592 69,718 (38,696)
Services
386,740 51,845 6,682 522,412 69,718 (7,439)
Group (5,815) (3,459)
activities
Operating 867 (10,898)
profit/(loss)
Finance income 2,380 362
Finance (6,260) (7,274)
expenses
Loss before (3,013) (17,810)
tax
Tax 402 4,844
Loss for the year from continuing
operations and gain on sale of
discontinued operations (net of tax) (2,611) (12,966)
Profit for the year from discontinued
operations and gain on sale of
discontinued operations (net of tax ) 12,263 3,164
Profit/(loss) for the year 9,652 (9,802)
Discontinued relates to the trading activities and the net sale proceeds of Gleeson MCL
Limited and Concrete Repairs Limited (see Note 3)
Balance sheet analysis of business
segments:
2006 2005
Assets Liabilities Net Assets Liabilities Net
assets assets
£000 £000 £000 £000 £000 £000
Homes 162,617 (32,202) 130,415 201,411 (27,287) 174,124
Property 42,482 (701) 41,781 72,734 (4,202) 68,532
Construction 65,959 (75,578) (9,619) 99,874 (140,050) (40,176)
Services
Group activities 8,337 (46) 8,291 13,904 (5,508) 8,396
Net debt - (14,653) (14,653) - (60,749) (60,749)
279,395 (123,180) 156,215 387,923 (237,796) 150,127
Other information:
2006 2005
Capital Capital
additions Depreciation additions Depreciation
£000 £000 £000 £000
Continuing operations
Homes 1,822 532 1,577 725
Property 2,308 105 2,223 103
Construction services 2,255 2,036 3,274 4,310
6,385 2,673 7,074 5,138
Discontinued Operations
Construction services 461 229 110 283
6,846 2,902 7,184 5,421
All the Group's operations are carried out in the United Kingdom and the
Channel Islands
3. Discontinued operations
In March 2006, the Group disposed of Gleeson MCL Limited and, in June 2006, the
Group disposed of Concrete Repairs Limited. Assets and liabilities relating to
these operations were not classified as held-for-sale as at 30 June 2005, as
they did not qualify under IFRS 5 'Non-Current Assets Held for Sale and
Discontinued Operations' for such treatment, as these assets were not held for
sale at that date.
Certain assets and liabilities of the Building Contracting Division were
classified as held for sale at 30 June 2005 under IFRS 5; these assets and
liabilities were sold on 1 August 2005. The trading activities of these assets
and liabilities prior to the sale date, together with the retained contracts of
the Building Division, were accounted for as continuing operations during the
year.
2006 2005
£000 £000 £000 £000
Revenue 51,845 69,718
Cost of sales (47,006) (62,930)
Gross profit 4,839 6,788
Staff costs and other (3,640) (4,141)
expenses
Operating profit 1,199 2,647
Gain on disposal of 12,320 -
discontinued operation
Financial expenses 203 335
Profit before tax 13,722 2,982
Tax expense
Tax on profit from the
ordinary activities of
the discontinued (1,459) 182
operation for the period
Tax on gain or loss on - -
discontinuance
(1,459) 182
Profit for the period
from discontinued
operations 12,263 3,164
The post tax gain on discontinued operations was determined
as follows:
2006
£000 £000
Consideration received:
Cash 24,677
Less net assets
disposed:
Property, plant and 661
equipment
Trade and other 13,684
receivables
Cash and bank 5,482
Trade and other payables (12,264)
Goodwill 4,794
(12,357)
Pre tax gain on disposal of 12,320
discontinued operations
Related tax expense -
12,320
The net cash inflow
comprises:
Cash received 24,677
Cash and bank disposed (5,482)
of
19,195
The cash flow statement includes the following relating to profit on
discontinued operations:
2006 2005
£000 £000
Operating activities 1,199 2,647
Investing activities 203 335
1,402 2,982
4. Dividends
2006 2005
£000 £000
Amounts recognised as distributions to equity holders
in the period:
Final dividend for the year ended 30 June 2005 of 3,308 3,152
6.50p (2004: 6.20p) per share
Interim dividend for the year ended 30 June 2006 of 811 772
1.60p (2005: 1.50p) per share
4,119 3,924
Proposed final dividend for the year ended 30 June 3,576 3,308
2006 of 6.90p (2005: 6.50p) per share
The proposed final dividend is subject to approval by equity holders at the
Annual General Meeting and has not been included as a liability in these
financial statements.
5. Earnings per share
From continuing and discontinued operations
The calculation of the basic and diluted earnings per
share is based on the following data:
Earnings 2006 2005
£000 £000
Earnings for the purposes of basic earnings per
share, being net profit
attributable to equity holders of the parent
Loss from continuing operations (2,611) (12,966)
Profit from discontinued operations 12,263 3,164
Earnings for the purposes of basic and diluted 9,652 (9,802)
earnings per share
Number of shares
2006 2005
No. 000 No. 000
Weighted average number of ordinary shares for the 51,173 50,873
purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options 555 455
Weighted average number of ordinary shares for the 51,728 51,328
purposes of diluted earnings per share
From continuing operations
2006 2005
p p
Basic and diluted (5.10) (25.49)
From discontinued operations
2006 2005
p p
Basic 23.96 6.22
Diluted 23.71 6.16
6. Statutory accounts
This preliminary announcement does not represent the statutory accounts of the
Group, which will be sent to shareholders in due course.
The statutory accounts for the year ended 30 June 2005 for which the audit
report was unqualified were filed with the Registrar of companies following
approval at the Annual General Meeting in January 2006.
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