6th Oct 2005 07:00
Gleeson(M J)Group PLC06 October 2005 M J GLEESON GROUP - PRELIMINARY ANNOUNCEMENT M J Gleeson, the homes, property and construction services group, announcesthat, in the year ended 30th June 2005, the Group's operations performed well,with the exception of general building contracting, from which the Board madethe important decision to withdraw, thereby further materially reducing risk -albeit at a considerable one-off cost. • Excluding the discontinued operation, on turnover up 25% at £419m, profit before interest and tax increased by 57% to £43.7m. • Including the discontinued operation, turnover totalled £590m (2003/04: £645m) and, excluding exceptional restructuring costs, the loss before tax was £5.7m. Of this loss, £8.9m resulted from overhead under-recovery following the decision swiftly and substantially to reduce the turnover of the building divisions. • The total pre-tax loss for the year was £13.2m (2003/04: profit of £17.6m) and, following a tax credit of £4.2m (2003/4: charge of £3.3m), the loss per share was 17.6p (2003/04: earnings of 28.1p). • Year end NAV per share totalled 292p (2003/04: 313p). • Reflecting the Board's confidence in the continuing operations, dividends per share of 8.0p (2003/04: 7.6p), up 5.3%, are proposed. • As predicted a year ago, Homes and Regeneration had a good year in what turned out to be a subdued market. On turnover 43.4% higher at £159.6m, operating profit increased by 38.7% to a further record of £17.0m. In the current year, throughout which the housing market is expected to remain challenging, no significant growth is expected. However, Gleeson Regeneration continues to strengthen its position as a leading developer and a partner of choice for Local Authorities and has secured a number of new opportunities. • Property Development and Investment had an active and successful year, making an operating profit of £5.9m (2003/04: £5.3m). In addition, taking advantage of an unusually buoyant investment market, it made a profit of £8.8m (2003/04: £5.5m) on the sale of a number of investment properties. Consequently, in the current year, there will be a reduction in rental income and a significantly lower contribution is expected from the sale of investment properties. However, development profits are expected to increase. • Civil and Process Engineering enjoyed a successful year in which it reinforced its position as a market leader in the delivery of capital projects for the UK water and waste water sector. The Construction Services order book at 1 October 2005 totalled over £600m, of which over 90% related to relatively low risk partnering agreements for either utilities or the public sector. Dermot Gleeson, Chairman, stated "The withdrawal from general buildingcontracting has very substantially reduced the Group's risk profile. The tasknow is to develop to the full the profit generating potential of the Group'scontinuing operations and to identify new opportunities in related sectors." Presentation: Today, Thursday 6th October 2005, from 09:30 to 10:30, a presentation tobroker's analysts will be held at the offices of Bankside Consultants,1 Frederick's Place, London EC2R 8AE. Enquiries:M J Gleeson Group plc 020-8644 4321Terry Massingham (Group Chief Executive)Colin McLellan (Finance Director) Bankside Consultants LimitedCharles Ponsonby 020-7367 8851 [email protected] CHAIRMAN'S STATEMENT In the year ended 30th June 2005, the Board made the important decision towithdraw from general building contracting, thereby further materially reducingrisk - albeit at a considerable one-off cost. The Group's other operationsperformed well. FINANCIAL REVIEW The figures in this paragraph exclude the discontinued building contractingoperation. In the year ended 30th June 2005, on turnover up 25% at £419m (2003/04: £336m), profit before interest and tax increased by 57% to £43.7m (2003/04:£27.8m). The result for building contracting was a turnover of £171m (2003/04: £308m),and an operating loss of £44.1m before exceptional restructuring and transactioncosts of £7.5m. Of this loss, £8.9m resulted from overhead under-recoveryfollowing the decision, taken in the context of the restructuring of thebuilding divisions, swiftly and substantially to reduce their turnover. For the Group, therefore, the result was a turnover of £590m (2003/04: £645m), aloss before interest and tax of £7.9m (2003/04: profit of £20.9m) and a lossbefore tax of £13.2m (2003/04: profit of £17.6m). The tax credit relates to adeferred tax asset arising on losses made in the year to be carried forward andoffset against future expected profits. The loss per share was 17.6p (2003/04:earnings per share of 28.1p). Year end shareholders' funds totalled £150.4m (2003/04: £161.4m), equivalent toNAV per share of 292p (2003/04: 313p). Year end net debt of £60.7m (2003/04:£71.9m) equates to gearing of 40% (2003/04: 45%). Whilst net interest payablewas 59.5% higher at £5.3m (2003/04: £3.3m), interest cover (if discontinueditems are excluded) increased to 8.3 x (2003/04: 6.3 x). DIVIDENDS If approved at the AGM on 11th January 2006, a final dividend per share of 6.5p(2003/04: 6.2p), an increase of 4.8%, will be paid on 12th January 2006 toshareholders on the register at close of business on 9th December 2005. Thisincrease reflects the Board's confidence in the Group's continuing operations. Together with the interim dividend per share of 1.5p (2003/04: 1.4p), paid on30th June 2005, dividends per share for the year will total 8.0p (2003/04:7.6p), a 5.3% increase. OPERATING REVIEW Homes and Regeneration Gleeson Homes focuses on residential schemes in the South and North of Englandand, through Gleeson Regeneration, on low cost housing and urban regenerationschemes, in particular in the North and Midlands. As predicted a year ago, Gleeson Homes had a good year in what turned out to bea subdued market. On turnover 43.4% higher at £159.6m (2003/04: £111.3m),operating profit increased by 38.7% to a further record of £17.0m (2003/04:£12.3m). The reduced operating margin of 10.7% (2003/04: 11.0%) reflected thesoftening of values and increased use of incentives. 726 (2003/04: 535) units, an increase of 35.7%, were sold during the year, at anaverage selling price of £182,000 (2003/04: £177,000). The Division won two national What House? awards in the year: Lawton Hall inChurch Lawton, Cheshire achieved Gold for Best Development and the business as awhole won a Bronze for Best Medium Size Housebuilder. Property Development and Investment Gleeson Properties acquires, develops and sells commercial property. Investmentproperties are actively managed to provide a steady stream of rental income andare sold when value has been maximised, the proceeds being available forre-investment. Development schemes are built, let and sold to make a tradingprofit. The Division had an active and successful year, making an operating profit of£5.9m (2003/04: £5.3m) on a turnover of £4.0m (2003/04: £5.4m). This profitincluded gross development profits of £2.3m (2003/04: £1.6m) and rents frominvestment properties of £4.7m (2003/04: £4.6m). In addition, the Division,taking advantage of an unusually buoyant investment market, made a profit of£8.8m (2003/04: £5.5m) on the sale of a number of investment properties. The Group's commercial property investment portfolio was professionally valuedas at 30th June 2005 at £29.7m and a net surplus of £2.1m (2003/04: £1.5m),arising on this revaluation, has been transferred to capital reserves. Theinvestment value is split 62% offices and 38% industrial; 60% is located in theSouth East. Construction Services During the year, Gleeson Construction Services and its subsidiaries were engagedin civil and process engineering, building contracting and specialistconstruction services, notably rail-related construction, mechanical andelectrical installation and maintenance, and the repair of concrete structures. Construction Services reduced its turnover by 19.3% to £426m (2003/04: £528m)and made a loss of £30.6m (2003/04: profit of £1.5m). All of the deteriorationreflected the poor performance of the now discontinued building contractingoperations. Civil and Process Engineering Engineering enjoyed a successful year in which it reinforced its position as amarket leader in the delivery of capital projects for the UK water and wastewater sector. The Group renewed its existing alliances with its key water supplypartners, South West Water, Thames Water and Yorkshire Water, for another fiveyear term. It also secured new five year alliances with Northumbrian Water andSevern Trent Water. The fifth and final year of Asset Investment Management Programme Three (AMP 3)generated a strong flow of project work as programmes came to a close. A £30mcontract at Chingford, Essex to build a new water treatment plant for ThamesWater was completed to budget and delivered five weeks ahead of schedule. InScotland, our £100m Katrine Water project, providing a new water treatment plantfor Glasgow, made good progress. As part of Scottish Water Solutions, the Groupsuccessfully completed over £40m of water and waste water asset improvements. Specialist Construction Services Gleeson MCL, which specialises in construction work for the rail sector,principally in relation to London Underground stations, enjoyed another year ofgrowth and increased profitability. Refurbishments and modernisations werecarried out at several stations on the Piccadilly line. A three-year programmeto rebuild Hounslow East station while maintaining a full train and passengerservice was completed, as was a three-year project of civil engineering works tothe new ticket hall at King's Cross. Concrete Repairs Limited, the UK market leader in the repair of concretestructures, achieved further growth, despite slow market conditions. Powerminster Limited, whose business is mechanical and electrical maintenance,had a difficult year but a new management team has positioned it for an improvedperformance in 2005/06. Building Contracting The Board concluded that the low margins available in general buildingcontracting did not justify the significant associated risks and decided towithdraw from this activity. Further, following a review of exit options, itconcluded that the most appropriate option for reducing the Group's exposure tobuilding risk was to restructure the Group's building operations and transferthem to a management buy-out company (the MBO) with sufficient financialresources to enable it to complete the ongoing contracts and to develop aportfolio of new contracts independently from the Group. In the absence of thirdparty funding, this company (Gleeson Building Limited) was funded by the Groupalongside the directors of the MBO. On exit, the Gleeson Group will receive 45%of the proceeds remaining after the repayment to it of loans and the paid upcapital on non-voting shares. The transaction was approved by the Group'sshareholders on 29th July 2005. Building contracting incurred a loss of £44.1m before exceptional restructuringand transaction costs of £7.5m on a turnover of £171m (2003/04: £309m). Of thisloss, £8.9m related to overhead under-recoveries caused by the decision toreduce in building turnover. The greater part of the balance related to a smallnumber of large and complex design and build projects undertaken by the SouthernConstruction Division Capital Solutions Formed during 2004/05 to manage the Group's PFI investments and the biddingprocess on new schemes, Capital Solutions negotiated the sale of two investmentsand also achieved Financial Close on a PFI scheme to build a school in Bolden,Tyne & Wear. The sales generated a surplus of £2.2m over the book values of theinvestments. PROSPECTS Homes and Regeneration In the current year, throughout which the housing market is expected to remainchallenging, no significant growth is expected. Gleeson Homes has continued its policy of reducing its exposure to theconstruction of developments involving large numbers of apartments. The Divisionmostly sells within the £80,000 - £300,000 range; and over 85% of Gleesondevelopments are built on brownfield sites. The number of plots with planning permission owned at the year end increased to2,720 (2003/04: 1,710). A specialist team, Gleeson Land, has been established toacquire further sites and develop the Group's strategic land bank. There were afurther 2,542 (2003/04: 2,287) acres of land owned directly or held underoption. Gleeson Regeneration is also able to draw on substantial additionalacreage, under its long-term regeneration agreements. Gleeson Regeneration continues to strengthen its position as a leading developerand partner of choice for Local Authorities. It is well into the firstconstruction phases at Beswick and Grove Village in Manchester, at Norfolk Parkin Sheffield, and in central Liverpool. As activity increases, these schemeswill make an increasing contribution to the Group's results. Further phases,which will start shortly, will provide the Group with a secure flow of activityfrom these schemes for five to 15 years. Gleeson Regeneration has also secured a number of new opportunities. It is partof a consortium that has been appointed preferred developer for a 1,500 newhomes scheme at North Huyton on Merseyside; and it has been selected to join theNational Developer Panel with which English Partnerships proposes to develop itsextensive portfolio of NHS sites across the country. Property Development and Investment Following the property investment sales, there will be an inevitable reductionin rental income in the current year. There will also be a significantly lowercontribution from the sale of investment property. However, profit from the saleof development projects is expected to increase. Construction Services The Construction Services order book at 1st October 2005 totalled over £600m, ofwhich over 90% related to relatively low risk partnering agreements for eitherutilities or the public sector. The Group's Engineering Division moved into the year with long term allianceswith six of the major water companies. The Group is also working directly withScottish Water, building its largest single capital investment project, the£100m Katrine water project, to improve drinking water in the City of Glasgow.The Group continues to seek opportunities, both inside and, increasingly,outside the water industry, where its partnering design and engineering skillscan be employed to greatest effect. As a result of its 25 years' rail industry experience and successful projectdelivery, Gleeson MCL has been chosen by London Underground to be one of itsthree direct alternative providers for building and civil engineering works.This is a five-year framework agreement outside of the programme alreadycontracted to the London Underground PPPs, with a potential £1 billion ofconstruction works. A restructuring of the management team has taken place at Powerminster, theGroup's mechanical and electrical services provider, and the benefits areexpected to flow through in 2005/06. The forward order book is at record levelsand has a significantly lower risk profile. Speedy Hire plc On 1st July 2005, a supply agreement was entered into under the terms of whichthe Group now outsources the vast majority of the Group's hire plantrequirements to a subsidiary of Speedy Hire plc. This transaction has had noimpact on the results for 2004/05 but it is expected to provide operationalefficiencies and financial benefits in subsequent years. Summary The withdrawal from general building contracting has very substantially reducedthe Group's risk profile. The task now is to develop to the full the profitgenerating potential of the Group's continuing operations and to identify newopportunities in related sectors. Dermot GleesonChairman 6th October 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT Year Ended 30th June 2005 Continuing Discontinued Total Year Year Year Year ended ended ended ended 30th 30th 30th 30th June June June June 2005 2005 2005 2004 £000 £000 £000 £000Turnover: group and share ofjoint ventures --- --- --- ---Existing operations 426,850 171,277 598,127 657,087Acquisitions 5,754 - 5,754 -Less: share of jointventures' turnover (14,013) - (14,013) (12,091) --------- ---------- ------- ---------Group turnover 418,591 171,277 589,868 644,996---------------------- --------- ---------- ------- ---------Continuing 418,591 - 418,591 336,253Discontinued - 171,277 171,277 308,743---------------------- --------- ---------- ------- ---------Cost of sales (363,286) (199,683) (562,969) (592,596) --------- ---------- ------- ---------Gross profit/(loss) 55,305 (28,406) 26,899 52,400Investment propertyincome 4,743 - 4,743 4,599Net operating expenses (27,067) (15,747) (42,814) (41,652) --------- ---------- ------- ---------Operating profit/(loss): 32,981 (44,153) (11,172) 15,347---------------------- --------- ---------- ------- ---------Existing operations 31,635 (44,153) (12,518) 15,347Acquisitions 1,346 - 1,346 ----------------------- --------- ---------- ------- ---------Exceptional restructuringcosts - (7,456) (7,456) -Share of results ofjoint ventures (363) - (363) 80Profit on saleof properties 8,843 - 8,843 5,467Profit on saleof investments 2,218 - 2,218 - --------- ---------- ------- ---------Profit/(loss) on ordinary activitiesbefore interest 43,679 (51,609) (7,930) 20,894---------------------- --------- ---------- ------- ---------Continuing 43,679 - 43,679 27,811Discontinued - (51,609) (51,609) (6,917)---------------------- --------- ---------- ------- ---------Interest receivable 697 - 697 1,063Interest payable (5,952) - (5,952) (4,357) --------- ---------- ------- ---------Profit/(loss) on ordinary activitiesbefore taxation 38,424 (51,609) (13,185) 17,600 --------- ----------Taxation on profit onordinary activities 4,235 (3,392) ------- ---------(Loss)/profitafter taxation (8,950) 14,208Dividends (4,080) (3,870) ------- ---------Retained (loss)/profitfor the financial year (13,030) 10,338 --------- ---------- ------- ---------earnings per share (17.59p) 28.11pearnings per share - fully diluted (17.44p) 27.85p --------- ---------- ------- --------- SEGMENTAL ANALYSIS Year Ended 30th June 2005 Year Year ended ended 30th June 30th June 2005 2004 £000 £000Analysis of turnover on operations:ContinuingConstruction:United Kingdom 254,236 217,278Jersey 797 2,234 ------------- ------------- 255,033 219,512Homes - United Kingdom 159,559 111,298Property - United Kingdom 3,999 5,443 ------------- ------------- 418,591 336,253 ------------- -------------Discontinued:Construction:United Kingdom 171,277 308,743Jersey - - ------------- ------------- 171,277 308,743Homes - United Kingdom - -Property - United Kingdom - - ------------- ------------- 171,277 308,743 ------------- -------------Operating profit/(loss) on activities:Continuing:Construction 13,525 8,370Homes 17,037 12,280Property 5,859 5,263Central costs (3,440) (3,649) ------------- ------------- 32,981 22,264 ------------- -------------Discontinued:Construction (44,153) (6,917)Homes - -Property - -Central costs - - ------------- ------------- (44,153) (6,917) ------------- ------------- CONSOLIDATED BALANCE SHEET As at 30th June 2005 2005 2004 £000 £000 Fixed assets Intangible assets 4,487 4,794 Tangible assets 53,655 84,834 Total investments 6,265 4,635 ----------- ---------- 64,407 94,263 Current assets Stock and work in progress 179,224 182,096 Debtors 147,155 133,423 Bank and cash balances 70 87 ----------- ---------- 326,449 315,606 Creditors Amounts falling due within one year (240,440) (248,478) ----------- --------- Net current assets 86,009 67,128 ----------- ---------- Net assets 150,416 161,391 ----------- ---------- Capital and reserves Called up equity share capital 1,029 1,029 Share premium 3,762 3,762 Capital redemption reserve fund 120 120 Revaluation reserves 4,841 8,821 Profit and loss account 141,467 148,533 Own shares reserve (803) (874) ----------- ---------- Shareholders' funds 150,416 161,391 ----------- ---------- CONSOLIDATED CASH FLOW STATEMENT Year ended 30th June 2005 Notes 2005 2005 2004 2004 £000 £000 £000 £000 Cash flow from operating activities 1 (15,640) (19,187) Returns on investments and servicing offinanceInterest received 697 1,063Interest paid (4,837) (4,172)Rents received 4,743 4,599 ------- ------- 603 1,490TaxationUK corporation tax paid (4,248) (4,483) Capital expenditure and financialinvestmentPurchase of tangible fixed assets (7,183) (9,817)Sale of tangible fixed assets 1,599 4,478Sale of investment properties 46,259 12,436Sale of investments 2,058 -Net investment receipts/(loans) (1,911) 189 ------- ------- 40,822 7,286Acquisitions and disposalsPurchase of investment in joint ventures (25) (4)Purchase of subsidiary undertakings (8,467) -Net cash acquired with subsidiaryundertakings 2,071 - ------- ------- (6,421) (4) Equity dividends paid (4,002) (3,495) ------- ------- Cash inflow/(outflow) before use ofliquid 11,114 (18,393)resources and financing FinancingPurchase of own shares - -Proceeds from issue of shares - 317Sale of own shares 71 328 ------- ------- Net cash inflow from financing 71 645 ------- ------- Increase/(decrease) in cash in the year 2 11,185 (17,748) ------- ------- Reconciliation of net cash flow tomovement in net debt Increase/(decrease) in cash in the year 11,185 (17,748) Net debt at 1st July (71,934) (54,186) ------- ------- Net debt at 30th June 2 (60,749) (71,934) ------- ------- CONSOLIDATED CASH FLOW STATEMENT Year ended 30th June 2005 1. Reconciliation of operating (loss)/profit to net cash inflow from operatingactivities 2005 2004 £000 £000 Operating (loss)/profit (11,172) 15,347Investment property income (4,743) (4,599)Depreciation charges 5,421 6,664Restructuring costs (4,252) -Amortisation of goodwill 308 308Profit on sale of tangible fixed assets (583) (2,047)Decrease/(increase) in stock and work in progress 13,202 (58,861)Increase in debtors (9,441) (7,014)(Decrease)/increase in creditors (4,380) 31,015 ---------- ----------- (15,640) (19,187) ========== =========== At 1st July At 30th June2. Analysis of net debt 2004 Cashflow 2005 £000 £000 £000 Cash at bank and in hand 87 (17) 70Overdrafts (72,021) 11,202 (60,819) ---------- ---------- -----------Net debt (71,934) 11,185 (60,749) ========== ========== =========== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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