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