27th Oct 2006 07:02
Gleeson(M J)Group PLC27 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 ofrapid and far-reaching change resulting from the Board's commitment to aradically 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 Divisionand the Engineering Division, despite their sale, because of retainedliabilities 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 workstill to be done to deliver the transformational change which our new strategicvision requires. However, the Board remains convinced that the refocusing of theGroup's activities will enable it to achieve a substantial and sustainedimprovement in its operating performance and to deliver to shareholders higherand more consistent returns. In particular, the Group's risk profile will bevery substantially improved by the virtual exit from both building and civilengineering contracting, by the scaling down of traditional house building, bythe narrowing of management's focus and by the elimination of materialindebtedness. The Group expects to remain strongly cash generative in the course of thecurrent financial year. An option that therefore is likely to become availableto the Board is a return of cash to shareholders. The scale and timing of anysuch return will depend on our assessment of the returns that can be achieved byour continuing businesses and their capital requirements." Enquiries: M J Gleeson Group plc 020-8644 4321Paul 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, resultingfrom the Board's commitment to a radically revised corporate strategy. This isprincipally designed to reduce the Group's exposure to contracting in theconstruction sector and to strengthen its position in more attractive marketswhere it already has a strong track record. As stated in the announcement of the outcome of the Strategic Review, issued on31 March 2006, simultaneous with the Interim Announcement, the Group willhenceforth concentrate primarily on three related areas: urban housingregeneration; commercial property development; and strategic land trading. Theseare all areas which are believed to offer considerable scope for sustainedgrowth in profits. RESULTS These are the Group's first annual consolidated financial statements prepared inaccordance with International Financial Reporting Standards (IFRS). The Group's IFRS accounting policies have been applied in preparing theconsolidated financial statements for the year to 30 June 2006, the comparativeinformation for the year to 30 June 2005 and the preparation of an opening IFRSbalance 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 aloss before tax of £3.0m (2004/05: £17.8m). A post-tax profit from discontinuedbusinesses of £12.3m was derived (2004/05: £3.2m); all of the current year'sfigure represents gain on disposal of Gleeson MCL and Concrete Repairs (theBuilding Contracting Division and the Engineering Division being classifiedunder IFRS as continuing, despite their sale, because of retained liabilitieswith regard to certain incomplete contracts). The basic and diluted loss pershare from continuing operations was 5.10p (2004/05: 25.49p). The Group's profit for the year attributable to equity holders of the parentcompany, including both "continuing" and "discontinued" items as defined byIFRS, was £9.7m (2004/05: loss of £9.8m). Year end shareholders' funds totalled £156.2m (2004/05: £150.1m), representingnet assets per share of 303p (2004/05: 292p). Net debt fell sharply in thesecond half of the year, as a result of the disposal programme and a workingcapital review, to £14.7m at 30 June 2006, compared with £102.3m at 31 December2005 and £60.7m at 30 June 2005. Since the year end, net debt has fallenfurther, and there is potential for the Group to be substantially cash positivein the latter part of the current financial year. DIVIDENDS A final dividend of 6.9p per share is proposed, payable on 11 January 2007 toshareholders on the register on 8 December 2006. This represents an increase of6.2% on last year's final dividend of 6.5p per share and reflects the Board'sconfidence in the prospects of the Group's retained businesses. Together withthe 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 of6.3%. STRATEGIC CHANGE Following the sale of the Building Contracting Division in August 2005, theBoard undertook a Strategic Review, which was completed in March 2006. Most ofthe conclusions of this Review have now been implemented. During the year, or subsequently, Gleeson divested substantially all of itsConstruction Services (only Powerminster, now renamed Gleeson Services, beingretained): • 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 inGleeson Homes' activities outside the housing regeneration sector commenced. Themajority of Gleeson Homes' holdings of non-strategic land not yet underdevelopment was sold in the year. In June 2006, the greater part of the Group's investment property portfolio wassold, following a competitive tender process, for £27.9m in cash, all propertiesbeing 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 excessof 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. Thispossible offer was withdrawn on 31 March 2006. BUSINESS REVIEW - RETAINED BUSINESSES All of the Group's retained businesses performed well and strengthened theirmarket positions during the year. The Board believes that prospects for theGroup's regeneration activities are particularly positive. Housing Regeneration The Group's regeneration operations comprise: housing for sale, mainly on landprovided by local authorities and other public bodies; maintenance andrefurbishment services to social housing providers, in particular in the contextof 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 offerscontinuity of work over extended contractual periods, reliable margins, improvedreturns on capital, and substantial opportunities for growth. Housing For Sale Gleeson Homes consolidated its position as a leading developer in urban housingregeneration, particularly in the North of England. Gleeson Homes North alone isexpected to sell over 7,000 homes in the next 10 years. The business model which has been adopted in this sector is designed to providethe Group with secure long-term flows of activity arising from regenerationschemes, which tend to be of 5-15 years' duration. On most of these schemes, the Group works in close partnership with the localauthority and with registered social landlords. Quality homes are built for saleand rent, taking into account neighbourhood solutions, landscaping works andparks, and commercial and community facilities. The Group utilises modernmethods of construction; commits to training local labour and to using localsuppliers; and operates profit-sharing partnerships. The Group is involved inthe planning and development of these schemes from the start, helping to defineand guide the process and, where possible, securing additional investment fromcommercial 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 focusthe Group's activities in housing modernisation, service maintenance andfacilities management under one strengthened management team. Gleeson Servicesincorporates Powerminster Building Services, Propertycare by Powerminster andGleeson AssetCare, which together offer a fully integrated social housingrefurbishment 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 andit further strengthened its presence in the South East. The forward order bookis very healthy and the Group expects another year of profitable progress,driven by the long-term framework agreements and strong partnering relationshipswhich are key to this industry segment. Social Housing PFI Projects Gleeson Capital Solutions manages the Group's PFI investments and takes the leadon submissions for new opportunities, such as the Ashford PFI project. Theoverall market for housing PFI schemes remains strong, with 14 proposalssubmitted 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 BusinessPark, Luton, Bedfordshire; on industrial units at Kings Langley, Hertfordshire;and on small industrial units in Havant, Hampshire. Sites were acquired for thedevelopment 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 sqft trade-counter and business unit development in High Wycombe, Buckinghamshire.Accordingly, at the year end, the Group's development programme, including jointventures, 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 resultsare included within those of the Gleeson Homes sector. During the year, thebiggest land sale was Hellingly Hospital, near Hailsham in East Sussex. TheGroup took this former hospital site through the initial planning stages andsold 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 ofpotentially 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 discontinuedbusinesses. 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 ofGleeson MCL of £9.4m and of Concrete Repairs of £2.9m. In 2004/05, the post taxprofit contribution from these two businesses was £3.2m. The disposal of both the Building Contracting Division and the EngineeringDivision involved the transfer of specific ongoing contracts, staff and certainassets, with the Group retaining responsibility for the completion of certaincontracts. 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 scaleof work to be completed on retained contracts. Accordingly, their tradingperformance is included within continuing operations. During the year under review, and as disclosed in the Interim Report 2006, acharge of £3.7m was made in relation to the disposal of the Building ContractingDivision. The Engineering Division had a good year. In England, the first year of AssetManagement Programme 4 (AMP4) - five-year engineering alliances withNorthumbrian Water, Severn Trent Water, South West Water, Thames Water andYorkshire Water - went well, whilst the Engineering Division was selected as oneof two contractors to deliver Anglian Water's £70m "Biosolids" programme. InScotland, via its participation in the Scottish Water Solutions consortium, theEngineering Division successfully delivered a wide range of engineering projectsduring the final year of Scottish Water's "Quality and Standards 2" AssetManagement Programme and agreed participation in Scottish Water's new "Qualityand Standards 3" programme, which is valued at up to £700m over the four yearsto March 2010. Additionally, the £110m Loch Katrine Water Project, where theEngineering Division is the lead contractor, is advancing well and on schedulefor completion in mid-2007. Traditional Housebuilding In the year, regeneration and traditional housebuilding combined, Gleeson Homessold 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 - weredeeply disappointing. Much lower than anticipated sales volumes in the secondhalf of the year, construction cost overruns and the need for a substantialwrite-down of £7.5m on the carrying value of a small number of sites resulted inan overall loss for this business. Gleeson Homes will continue to build out the remainder of its non-regenerationdevelopments, mostly during the current year. The intention is that GleesonHomes South should materially replicate Gleeson Homes North, which nowpredominantly 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 agofollowing 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 Boardand 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 Groupin its new form. In order to make this possible, two Executive Directors, Steve Davies, theManaging Director of Gleeson Properties, and Tony Collins, the Managing Directorof the Engineering Division, both resigned from the Board (but not the Company)in April 2006. In addition, Malcolm Selsdon retired, after 12 years as anon-executive Director, in July 2006 and John McKenna has announced hisresignation as a non-executive director with effect from 31 October 2006. Iwould like to thank all four for their considerable contributions to theCompany. Paul Wallwork joined the Group in January and succeeded Colin McLellan asFinance Director on Colin's retirement after the AGM, later that month, after 27years with the Group, the last 17 of them as Finance Director. Paul was formerlyat Inchcape, where he was the Managing Director of a business unit of a similarsize to the restructured Gleeson Group, having originally trained as anaccountant with Arthur Young, qualifying as an ACA. As announced in July 2006,Paul assumed the role of Interim Group Chief Executive on the resignation ofTerry Massingham. In August 2006, Edwin Lawrie, who remains as Company Secretary, was appointed anInterim Executive Director. Finally, as regards the Board, I am pleased to be able to welcome two newnon-executive directors. Ross Ancell ACA(NZ), whose appointment was effectivefrom 1 October 2006, is the Executive Chairman of Churngold (a groundworks,construction and recycling business), and from 1981 to 1996 was with GeorgeWimpey, latterly as Managing Director, Wimpey Minerals, and a member of theWimpey Group Management Board. Terry Morgan, whose appointment is announcedtoday and becomes effective on 1 November 2006, is the CEO of Tube Lines andpreviously was Group Managing Director - Operations (2001-02) and Group HRDirector (1996-2001) at BAe Systems. Both have extensive expertise andexperience relevant to the development and implementation of the Group's newstrategy. EMPLOYEES The disruption and uncertainty that have accompanied the extensive changes thathave 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 indifficult circumstances. PROSPECTS There is much work still to be done to deliver the transformational change whichour new strategic vision requires. However, the Board remains convinced that therefocusing of the Group's activities will enable it to achieve a substantial andsustained improvement in its operating performance and to deliver toshareholders higher and more consistent returns. In particular, the Group's riskprofile will be very substantially improved by the disposal of both building andcivil engineering contracting, by the scaling down of traditional housebuilding, by the narrowing of management's focus and by the elimination ofmaterial indebtedness. The Group expects to remain strongly cash generative in the course of thecurrent financial year. An option that therefore is likely to become availableto the Board is a return of cash to shareholders. The scale and timing of anysuch return will depend on our assessment of the returns that can be achieved byour 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 2 386,740 522,412Cost 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 2,218projects Profit on sale of investment and 6,641 8,843owner-occupied properties Valuation gains on investment 585 2,072properties Share of loss of joint ventures (net of (110) (718)tax) Operating profit/(loss) 867 (10,898) Financial income 2,380 362Financial expenses (6,260) (7,274)Loss before tax (3,013) (17,810) Income tax 402 4,844Loss for the year from continuing (2,611) (12,966)operations Discontinued operations Profit for the year from discontinued 3 12,263 3,164operations 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 £000Non-current assets Property, plant and equipment 4,825 20,602Investment properties 5,010 33,053Goodwill - 4,794Investments in joint ventures and associates 1,890 1,876Loans and other investments 7,393 4,123Inventories 30,238 79,705Trade and other receivables 549 -Deferred tax assets 4,816 5,499 54,721 149,652 Current assets Inventories 103,957 96,905Trade and other receivables 100,762 129,114UK corporation tax 3,502 -Cash and cash equivalents 53 70Assets 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 1,029Share premium account 3,974 3,762Capital redemption reserve 120 120Revaluation reserve 2,742 2,715Retained earnings 148,347 142,501 Total equity attributable to equity holders 2 156,215 150,127of the parent UNAUDITED CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2006 Notes 2006 2005 £000 £000Cash flows from loss before tax Loss before tax (3,013) (17,810)Depreciation of property, plant and 2,902 5,421equipment 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 2,647Valuation gains on investment properties (585) (2,072)Share of loss of joint ventures (net of 110 718tax) 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 12,962Increase 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 - 2,071undertakings 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 46,259occupied properties Proceeds on sale of other property, plant 10,267 1,599and equipment Proceeds on disposal of investments in PFI 757 2,058projects Increase in loans and other investments (5,700) (3,743)Disposal or repayment of loans and other 1,289 1,832investments Net cash flows from investing activities 39,096 35,098 Financing activities Proceeds from issue of shares 215 -Sale of own shares - 71Dividends 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 11,185Cash 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 itssubsidiaries (together, referred to as the "Group") and equity account theGroup's interest in joint ventures. The Group financial statements have been prepared and approved by the Directorsin accordance with International Financial Reporting Standards as adopted by theEU ("Adopted IFRSs"). The estimates and underlying assumptions are reviewed onan ongoing basis. Revisions to accounting estimates are recognised in the periodin which the estimated is revised if the revision affects only that period, orin the period of the revision and future periods if the revision affects bothcurrent and future periods. Basis of accounting The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) for the first time. The financialstatements have also been prepared in accordance with IFRS adopted for use inthe 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 thetransition period. The following exemptions have been taken in these financialstatements: * 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 historiccost except where otherwise indicated in these accounting policies. Theprincipal accounting policies for the purposes of adopting IFRS unless statedotherwise applied consistently to all periods and in the preparation of theopening balance sheet at 1 July 2004 are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and all its subsidiary undertakings. Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Grouphas the power, directly or indirectly, to govern the financial and operatingpolicies of an entity so as to obtain benefits from its activities. In assessingcontrol, potential voting rights that are currently exercisable or convertibleare taken into account. The financial statements of subsidiaries are included inthe consolidated financial statements from the date that control commences untilthe date that control ceases. On acquisition, the assets and liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the fair value of consideration given for the acquisition over thefair values of the identifiable net assets acquired is recognised as goodwill.In circumstances where the fair values of the identifiable net assets exceed thecost of acquisition, the excess is immediately recognised in the incomestatement. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Revenue recognition Revenue represents the fair value of work done on contracts performed during theyear on behalf of customers or the value of goods and services delivered tocustomers. 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 thestage of completion of the contract at the accounts date. The stage ofcompletion is determined by valuing the cost of the work completed at theaccounts 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 probablethat they will result in revenue and that they are capable of being reliablymeasured. Prudent provision against claims from customers or third parties is made in theyear 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 areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are charged tothe 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. Thefollowing 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 occupiedproperties are taken to equity. Plant, machinery and equipment are stated atcost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off cost or valuation of assets, otherthan land which is not depreciated, over their estimated useful lives, using thestraight-line method, on the following basis: Owner occupied - freehold properties between 25 and 50 yearsOwner occupied - leasehold properties period of the leasePlant and machinery between 3 and 6 yearsMotor vehicles 3 years Depreciation of these assets is charged to income. Investment properties Investment properties, which are properties held to earn rentals and/or forcapital appreciation, are stated at their fair values at the balance sheet date.Gains or losses arising from changes in the fair values of investment propertiesare included in the income statement in the period in which they arise. The Group's freehold and long leasehold commercial investment and owner occupiedproperties are carried at Directors' valuation. The following assumptions havebeen 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 occupiedproperties in the United Kingdom were valued by external valuers, Cushman &Wakefield Healey & Baker, Real Estate Consultants, as at 30 June 2005. Thisexternal valuation has been prepared as a Regulated Purpose Valuation inaccordance with the Practice Statements contained in the RICS Appraisal andValuation Standards, 5th Edition, published by The Royal Institution ofChartered Surveyors in May 2003 (as amended) ("the Red Book"). The basis ofvaluation was Market Value as defined in the Red Book. Goodwill In accordance with IFRS 3 Business Combinations, goodwill is no longer amortisedbut stated at cost less any provision for impairment in value. Goodwill isreviewed annually for any impairment in its value or at such time that there isan indication that its value has been reduced, if sooner. Where on acquisition the Group's interest in the net fair value of theidentifiable assets, liabilities and contingent liabilities acquired exceeds thecost of the business combination, the Group reassesses the identification andmeasurement of the acquiree's identifiable assets, liabilities and contingentliabilities and the measurement of the cost of the combination; and recognisesimmediately 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 exercisejoint control through participation in the financial and operating policydecisions of the venture. The joint venture entity operates in the same way asother enterprises, except that a contractual arrangement between the venturersestablishes joint control over the economic activity of the entity. Jointventures are accounted for using the equity method of accounting. The Group'sshare of the results of joint ventures is reported in the income statement aspart of the operating profit and the net investment disclosed in the balancesheet. Revaluation gains and losses, which arise on investment properties, arerecognised in the income statement net of any related deferred tax. Loans and other investments Loans are stated at amortised cost less impairment. Other investments areclassified as being available for sale and are stated at fair value, with anyresultant gains or losses taken to equity. Inventories Inventories are valued at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness less the estimated costs of completion and the estimated costsnecessary to make the sale. Deferred land purchases are included in inventoriesat their net present values. Amounts due from construction contract customers Amounts due from construction contract customers represent the value of workcarried out at the balance sheet date, (see revenue recognition accountingpolicy) less a provision for foreseeable losses less progress billings. Trade receivables Trade receivables are measured at initial recognition at fair value. Appropriateallowances for estimated irrecoverable amounts are recognised in the incomestatement when there is objective evidence that the asset is impaired. Theallowance recognised is measured as the difference between the asset's carryingamount and the present value of estimated future cash flows discounted at theeffective interest rate computed at initial recognition. Financial instruments Derivative financial instruments (Interest Rate SWAPS) are used in jointventures to hedge long term interest rate risk. These are recorded at fairvalue. The fair value of interest rate swaps is the estimated amount that theGroup would receive or pay to terminate the swap at the balance sheet date,taking into account current interest rates and the current creditworthiness ofthe swap counterparties. The gain or loss on remeasurement to fair value isrecognised immediately in profit or loss. However, where derivatives qualify forhedge accounting, recognition of the effective part of the hedge of any gain orloss on the derivative financial instrument is recognised directly in thehedging reserve. Any ineffective portion of the hedge is recognised immediatelyin the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value andbank overdrafts and borrowings. Bank overdrafts are shown within borrowings incurrent 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 recoveredprincipally through sale rather than through continuing use, if it is availablefor 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 disposalgroups are measured at the lower of their previous carrying amount and fairvalue less costs to sell with any adjustments taken to profit or loss. The sameapplies to gains and losses on subsequent remeasurement. A discontinued operation is a component of the Group's business that representsa separate major line of business or geographical area of operations or is asubsidiary acquired exclusively with a view to resale, that has been disposedof, has been abandoned or that meets the criteria to be classified as held forsale. Discontinued operations are presented in the income statement (including thecomparative period) as a single line entry recording the post tax gain or lossof the discontinued operation and the post tax gain or loss recognised on theremeasurement to fair value less costs to sell. If the discontinued operationsare sold, the net post tax gain or loss from the sale is also recognised in thesingle line entry. Trade and other payables Trade and other payables are initially measured at fair value and aresubsequently measured at amortised cost using the effective interest ratemethod. Taxation Tax on the profit or loss for the year comprises current and deferred tax. Taxis recognised in the income statement except to the extent that it relates toitems 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, andany adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying values ofassets and liabilities for financial reporting purposes and the values used fortaxation purposes. The following temporary differences are not provided for: theinitial recognition of goodwill; the initial recognition of assets orliabilities that affect neither accounting nor taxable profit other than in abusiness combination, and differences relating to investments in subsidiaries tothe extent that they will probably not reverse in the foreseeable future and theGroup can control the timing of the reversal. The amount of deferred taxprovided is based on the expected manner of realisation or settlement of thecarrying amount of assets and liabilities, using tax rates enacted orsubstantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Employee benefits Obligations for contributions to defined contribution pension schemes arecharged 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 ultimateparent Company; these awards are granted by the ultimate parent Company. Thefair value of options granted is recognised as an employee expense with acorresponding increase in equity. The fair value is measured at grant date andspread over the period during which the employees become unconditionallyentitled to the options. The fair value of the options granted is measured usingthe Black-Scholes valuation model, taking into account the terms and conditionsupon which the options were granted. The amount recognised as an expense isadjusted to reflect the actual number of share options that vest except whereforfeiture 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 Groupfinancial statements. The trust's purchases of shares in the Company are debiteddirectly 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 periodin which they receive shareholder approval. Guarantees The Group has not adopted amendments to IAS 39 and IFRS 4 in relation tofinancial guarantee contracts which will apply for periods commencing on orafter 1 July 2006. The Group does not expect the amendments to have any impacton the financial statements for the period commencing 1 July 2006. Where the Group enters into financial guarantee contracts, the Group considersthese to be insurance arrangements, and accounts for them as such. In thisrespect, the Group treats the guarantee contract as a contingent liability untilsuch time as it becomes probable that the Group will be required to make apayment under the guarantee. Adopted IFRS not yet applied The following Adopted IFRSs were available for early application but have notbeen applied by the Group in these financial statements. * IFRS 7 Financial Instruments: disclosure applicable for yearcommencing on or after 1 January 2007. The application of IFRS 7 in the current year would not have affected thebalance sheet or income statement as the standard is concerned only withdisclosure. The Group plans to adopt it in the financial statements for yearending 30 June 2007. 2. Segmental analysis For management purposes, the Group is organised into three operatingdivisions: Homes, Property and Construction Services. The divisions are thebasis on which the Group reports its primary segment information. Segment information about the Group's continuing operations, including jointventures, is presented below: 2006 2005 Revenue Operating Revenue Operating Continuing Discontinued profit/ Continuing Discontinued profit/ (loss) (loss) £000 £000 £000 £000 £000 £000Homes 138,413 - (11,673) 157,318 - 14,568Property 2,896 - 11,310 8,502 - 16,689Construction 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 362Finance (6,260) (7,274)expenses Loss before (3,013) (17,810)tax Tax 402 4,844Loss 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 £000Homes 162,617 (32,202) 130,415 201,411 (27,287) 174,124Property 42,482 (701) 41,781 72,734 (4,202) 68,532Construction 65,959 (75,578) (9,619) 99,874 (140,050) (40,176)Services Group activities 8,337 (46) 8,291 13,904 (5,508) 8,396Net 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 £000Continuing operations Homes 1,822 532 1,577 725Property 2,308 105 2,223 103Construction services 2,255 2,036 3,274 4,310 6,385 2,673 7,074 5,138Discontinued 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, theGroup disposed of Concrete Repairs Limited. Assets and liabilities relating tothese operations were not classified as held-for-sale as at 30 June 2005, asthey did not qualify under IFRS 5 'Non-Current Assets Held for Sale andDiscontinued Operations' for such treatment, as these assets were not held forsale at that date. Certain assets and liabilities of the Building Contracting Division wereclassified as held for sale at 30 June 2005 under IFRS 5; these assets andliabilities were sold on 1 August 2005. The trading activities of these assetsand liabilities prior to the sale date, together with the retained contracts ofthe Building Division, were accounted for as continuing operations during theyear. 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 £000Consideration received: Cash 24,677Less 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 - 12,320The net cash inflow comprises: Cash received 24,677Cash 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 £000Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 30 June 2005 of 3,308 3,1526.50p (2004: 6.20p) per share Interim dividend for the year ended 30 June 2006 of 811 7721.60p (2005: 1.50p) per share 4,119 3,924 Proposed final dividend for the year ended 30 June 3,576 3,3082006 of 6.90p (2005: 6.50p) per share The proposed final dividend is subject to approval by equity holders at theAnnual General Meeting and has not been included as a liability in thesefinancial 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 £000Earnings 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 50,873purposes of basic earnings per share Effect of dilutive potential ordinary shares: Share options 555 455Weighted average number of ordinary shares for the 51,728 51,328purposes of diluted earnings per share From continuing operations 2006 2005 p pBasic and diluted (5.10) (25.49) From discontinued operations 2006 2005 p pBasic 23.96 6.22 Diluted 23.71 6.16 6. Statutory accounts This preliminary announcement does not represent the statutory accounts of theGroup, which will be sent to shareholders in due course. The statutory accounts for the year ended 30 June 2005 for which the auditreport was unqualified were filed with the Registrar of companies followingapproval at the Annual General Meeting in January 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
MJGleeson