Final Results
Gleeson(M J)Group PLC
12 October 2004
M J GLEESON GROUP PLC - PRELIMINARY ANNOUNCEMENT
Gleeson, the construction services, homes and property group, announces a
significant increase in pre-tax profit to £17.6m, almost double last year's
figure, in the year ended 30th June 2004. The greater part of the profit
improvement derived from the Property Division, with the Homes Division also
reporting a significantly better result.
2004 2003 Increase
Turnover (£m) 645.0 624.6 3%
PBIT (£m) 20.9 12.0 74%
PBT (£m) 17.6 9.5 86%
EPS (p) 28.1 11.6+ 142%
DPS (p) 7.6 7.0+ 9%
NAV per share (p) 313 291+ 8%
+ restated for the 5 for 1 share split effective 6th July 2004
•Gleeson Homes increased its operating profit by 35% to a record £12.3m,
an operating margin of 11.0% (2002/03: 8.8%). Despite less buoyant market
conditions, further progress ought to be possible during the current year; a
substantial increase in turnover should outweigh any decline in operating
margins.
•Gleeson Properties made an operating profit of £5.3m (2002/03: £2.6m);
also a profit on sale of investment properties of £5.5m (2002/03: £0.1m).
The planned completion and sale in the current year of a number of
development properties should ensure that Gleeson Properties once again
makes a useful contribution to Group profits.
•The Construction Services businesses increased their turnover by 1% to
£528.3m, but operating profit decreased to £1.5m from £4.6m. This represents
a disappointing operating margin of 0.3% (2002/03: 0.9%), reflecting both
unsatisfactory returns from a number of now completed design and build
projects undertaken by the Southern and Northern Building Divisions and
higher than anticipated costs associated with the withdrawal from building
(as distinct from civil engineering) in Scotland, announced last year. The
Construction Services order book at 1st October 2004 totalled £871 m, of
which over 70% related to relatively low risk partnering agreements for
either utilities or the public sector.
Dermot Gleeson, Executive Chairman, stated 'The recent slow down in the housing
market may well preclude a further significant uplift in profits in the current
year. However, the Board remains convinced that the Group's strong presence and
reputation in all of the markets in which it operates, coupled with its
continued commitment to spreading risk, bodes well for the creation of
shareholder value in the medium and longer term.'
Presentation:
A presentation will be made between 11.00 and 12.00 today at Bankside
Consultants Limited, 123 Cannon Street, London EC4N 5AU.
Enquiries:
M J Gleeson Group plc 020-8644 4321
Dermot Gleeson (Executive Chairman)
Andrew Muncey (Group Managing Director)
Colin McLellan (Finance Director)
Bankside Consultants Limited
Charles Ponsonby 020-7444 4166
CHAIRMAN'S STATEMENT
I am pleased to announce that the Group has achieved a significant increase in
pre-tax profit which has risen to £17.6m, almost double last year's figure.
FINANCIAL OVERVIEW
In the year ended 30th June 2004, on turnover up 3.2% at £645m (2002/03: £625m),
profit before interest and tax increased by 73% to £20.9m (2002/03: £12.0m) and
pre-tax profit was 85.6% higher at £17.6m (2002/03: £9.5m). Taking account of
the 5 for 1 share split which was effective from 6th July 2004 and an abnormally
low tax rate of 19.3%, earnings per share are up 142% at 28.11 pence compared to
a restated 11.61 pence in 2002/03.
The greatest part of the profit increase was generated by Gleeson Properties
with Gleeson Homes also reporting a significantly improved result. The
contribution from Gleeson Construction Services fell from £4.63m to £1.45m.
The Group continues to have a strong balance sheet. Year end shareholders' funds
totalled £161.4m (restated 2002/03: £149.0m), equivalent to NAV per share of
313p (restated 2002/03: 291p), to which yesterday's closing mid-market price of
216.5p represents a 31% discount. Year end net debt of £71.9m (2002/03: £54.2m)
equates to gearing of 45% (2002/03: 36%).
Whilst net interest payable was higher at £3.3m (2002/03: £2.6m), interest cover
increased to 6.3x from 4.7x.
DIVIDENDS
If approved at the AGM on 12th January 2005, a final dividend of 6.20p per share
(restated 2002/03: 5.65p), an increase of 9.7%, will be paid immediately
thereafter to shareholders on the register at close of business on 10th December
2004. Together with the restated interim dividend per share of 1.404p (restated
2002/03: 1.35p), paid on 30th June 2004, restated dividends for the year will
total 7.6p (restated 2002/03: 7.0p), an 8.6% increase. Dividend cover increased
to 3.7x (2002/03: 1.7x).
OPERATING REVIEW
Gleeson Construction Services Limited
Gleeson Construction Services and its subsidiaries are engaged in civil and
process engineering, building and specialist services, notably rail-related
construction, mechanical and electrical installation and maintenance, and the
repair of concrete structures.
The Construction Services businesses marginally increased turnover to £528m
(2002/03: £521m), but operating profit decreased to £1.5m (2002/03: £4.6m). This
represents a disappointing operating margin of 0.3% (2002/03: 0.9%), reflecting
both unsatisfactory returns from a number of now completed design and build
projects undertaken by the Southern and Northern Building Divisions and higher
than anticipated costs associated with the withdrawal from building (as distinct
from civil engineering) in Scotland.
The Engineering Division confirmed its position as market leader in the water
sector. During the year, the Division signed a contract with Scottish Water to
become part of Scottish Water Solutions, a groundbreaking partnership between
private and public sectors, which was established to deliver a £1bn programme of
improvements over the next four years. Also in Scotland, major construction
works started on the £100m Katrine Water Project, designed to improve Glasgow's
water supply.
South of the border, strategic alliances with Yorkshire Water, Thames Water,
South West Water and Wessex Water all out-performed expectations.
Gleeson MCL, which specialises in construction work for the rail sector,
principally in relation to London Underground stations, celebrated its 25th
anniversary with another impressive performance. Its principal clients are
London Underground's infrastructure companies, namely Tubelines, Metronet Rail
BCV and Metronet Rail SSL.
Concrete Repairs Limited, the UK market leader in the repair of concrete
structures, once again achieved record profits. At the end of an operationally
challenging three year upgrade of Pilgrim Hospital in Boston, Lincolnshire, the
company was awarded the accolade of 'The UK's Most Considerate Site for 2004'.
Powerminster Limited, whose business is mechanical and electrical installation
and maintenance, had a mixed year resulting in a fundamental review of its
sectoral priorities.
Gleeson Homes Limited
Gleeson Homes focuses on speculative residential schemes in the South and North
of England. On turnover 7.8% higher at £111.3m (2002/03: £103.3m), operating
profit increased by 35.6% to a record £12.3m (2002/03: £9.1m), representing an
operating margin of 11.0% (2002/03: 8.8%).
496 (2002/03: 489) units were sold during the year, at an average selling price
of £186,000 (2002/03: £195,000). This total was less than targeted, with some 70
units deferred into 2004/05. In addition, Gleeson Regeneration (which was
established in February 2002 to enable the Group to focus more closely on low
cost housing and urban regeneration schemes, in particular in the North and the
Midlands) sold its first 39 units at an average selling price of £66,000.
The fall in average selling price was a consequence of the Division's absence
from the market for homes priced over £1m. If such homes are removed from the
comparison, the average selling price rose from £175,000 in 2002/03 to £186,000
in 2003/04.
Gleeson Properties Limited
Gleeson Properties acquires and sells office, retail and industrial/warehouse
property. Investment properties are actively managed to provide a steady stream
of rental income, and are sold when value has been maximised, the proceeds being
available for re-investment. Development schemes are developed, let and sold to
make a trading profit.
The Division made an operating profit of £5.3m (2002/03: £2.6m) on a turnover of
£5.4m (2002/03: nil). This reflected gross rents from investment properties of
£4.6m (2002/03: £4.6m) and profits on the sale of developments.
Taking advantage of a property investment market which has remained buoyant over
the last 12 months, the company sold industrial investments in Carlisle, South
London and a retail site adjacent to Hamilton Academicals' football ground was
sold to Morrison Supermarkets. A profit of £5.5m was made on these sales. A
12,000 sq ft office investment with further development potential was acquired
on an established business park close to Junction 4 of the M3 motorway at Fleet
in Hampshire.
The Group's commercial property investment portfolio were professionally valued
at 30th June 2004 at £57.8m and a net surplus of £1.5m (2002/03: deficit of
£0.7m) arising on these revaluations has been transferred to capital reserves.
The investment value is split 57% offices and 43% industrial; 61% is in the
Midlands, the South and in Paris and 39% is located in the North and Scotland.
PROSPECTS
Gleeson Construction Services Limited
The Construction Services order book at 1st October 2004 totalled £871m, of
which over 70% related to relatively low risk partnering agreements for either
utilities or the public sector.
The Engineering Division continues to abstain from bidding for traditionally
procured work. This important strategic change has substantially reduced the
Division's exposure to construction risk. Thames Water, Yorkshire Water, South
West Water and Severn Trent Water have all appointed the Engineering Division as
preferred bidder for their forthcoming five year capital investment programmes,
providing a substantial and secure workload until 2010.
The Building Divisions have a strong forward order book across the health,
education, leisure, mixed commercial/retail and city centre residential sectors,
and are well placed to take advantage of continued high levels of public sector
spending. Henceforth, however, the Divisions will adopt a much more selective
approach to new work, with a particular emphasis on securing long term framework
agreements. There is also an urgent need for substantial improvements in supply
chain and design management.
Gleeson MCL has a healthy level of work in hand, including a substantial
partnership agreement with Tube Lines for the Piccadilly Line station
modernisation programme and a number of work packages with Metronet Rail.
Further steady growth is expected from Concrete Repairs, whilst Powerminster,
following the strategic review of its markets referred to earlier, is poised to
take advantage of the opportunities afforded by the Government's 'Decent Homes'
initiative in social housing refurbishment.
Gleeson Homes Limited
Despite less buoyant market conditions, further progress ought to be possible
during the current year. A substantial increase in turnover should outweigh any
decline in operating margins.
In the current year, unit sales (excluding Regeneration) are expected to be
approximately 700 (2003/04: 496). However, the market has now slowed
significantly, in particular for units priced at more than £250,000, and sales
volume has become more dependent on incentives. Nonetheless, buyers remain.
The land bank at the year end comprised 1,627 (2002/03: 1,761) owned plots with
planning permission, and at the year end the Division had exchanged conditional
contracts on a further 183 (2002/03: 23) plots. An additional 2,287 (2002/03:
1,085) acres are owned or are held under options exercisable on receipt of
planning permission.
In addition, Gleeson Regeneration's land bank at the year end comprised 1,659
(2002/03: 729) plots with planning permission. Gleeson Regeneration is a
consortium member on the £60m Grove Village, Manchester scheme, the first
substantial PFI project for housing in the city, and has been appointed as
Liverpool City's preferred partner for its 'Inner Core' redevelopment programme.
The Board believes that Regeneration is likely to be one of the Group's
strongest areas of growth over the next few years.
Gleeson Properties Limited
The property investment market remains strong and, after a period of weakness,
tenant demand is gradually improving.
The planned completion and sale in the current year of a number of development
properties should ensure that Gleeson Properties once again makes a useful
contribution to Group profits.
Summary
The recent slow down in the housing market may well preclude a further
significant uplift in profits in the current year. However, the Board remains
convinced that the Group's strong presence and reputation in all of the markets
in which it operates, coupled with its continued commitment to spreading risk,
bodes well for the creation of shareholder value in the medium and longer term.
Dermot Gleeson
Executive Chairman 12 October 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 June 2004
Year ended Year ended
30 June 30 June
2004 2003
£000 £000
Turnover: group and share of joint
ventures
Existing operations 657,087 633,030
Less: share of joint
ventures' turnover (12,091) (8,466)
------- -------
Group turnover 644,996 624,564
Cost of sales (592,596) (575,906)
------- -------
Gross profit 52,400 48,658
Investment property
income 4,599 4,613
Net operating expenses (41,652) (40,045)
------- -------
Operating profit 15,347 13,226
Share of results of
joint ventures 80 (1,275)
Profit on sale of
properties 5,467 95
------- -------
Profit on ordinary
activities before
interest 20,894 12,046
Interest receivable 1,063 493
Less: interest payable (4,357) (3,054)
------- -------
(3,294) (2,561)
------- -------
Profit on ordinary
activities before
taxation 17,600 9,485
Taxation on profit on
ordinary activities (3,392) (3,666)
------- -------
Profit after taxation 14,208 5,819
Dividends (3,870) (3,519)
------- -------
Retained profit for the
financial year 10,338 2,300
------- -------
Earnings per share 28.11p 11.61p *
------- -------
Earnings per share -
fully diluted 27.85p 11.55p *
------- -------
Dividend per share
Interim - paid 1.40p * 1.35p *
Final - proposed 6.20p 5.65p *
------- -------
7.60p 7.00p *
------- -------
* Restated following 5 for 1 share split
CONSOLIDATED BALANCE SHEET
As at As at
30 June 2004 30 June 2003
£000 £000
CAPITAL EMPLOYED
Share capital 1,029 1,024
Share premium 3,762 3,450
Capital redemption reserve 120 120
Capital reserve 8,821 9,480
Own shares reserve (874) (1,306)
------ ------
12,858 12,768
Profit and loss reserve 148,533 136,248
------ ------
TOTAL CAPITAL EMPLOYED 161,391 149,016
------ ------
EMPLOYMENT OF CAPITAL
Fixed assets
Goodwill 4,794 5,102
Owner occupied properties 9,537 11,840
Investment property 61,661 64,341
Plant 12,047 12,874
Transport 966 1,125
Motor cars 623 3,410
------ ------
89,628 98,692
Investments 4,635 3,172
------ ------
94,263 101,864
Current assets
Stock and work in progress 188,684 130,013
Amounts recoverable on contracts 66,003 83,519
Debtors 49,479 37,802
Cash and bank balances 122 150
------ ------
304,288 251,484
Current liabilities
Bank overdraft (72,021) (54,336)
Creditors (143,039) (129,565)
Payments on account (18,662) (13,041)
Corporation tax (208) (4,535)
Proposed dividends (3,230) (2,855)
------ ------
(237,160) (204,332)
------ ------
Net current assets 67,128 47,152
------ ------
NET ASSETS 161,391 149,016
------ ------
CONSOLIDATED CASHFLOW STATEMENT
year ended 30 June 2004
2003/2004 2002/2003
£000 £000 £000 £000
Cash flow from operating activities (18,831) 6,882
Dividends from joint ventures and associates 387 -
Returns on investments and servicing of
finance
Interest received 1,063 493
Interest paid (4,050) (2,915)
Rents received 4,599 4,613
------- -------
Net cash inflow from returns on investments
and 1,612 2,191
servicing of finance
Taxation
UK corporation tax paid (5,053) (5,885)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (9,899) (16,343)
Sale of tangible fixed assets 4,501 1,418
Sale of properties 12,518 661
Sale of investments 432 809
Net investment loans (198) (1,294)
______ ______
7,354 (14,749)
Acquisitions and disposals
Purchase of investment in joint ventures (4) (37)
Purchase of subsidiary undertaking - (825)
_____ _____
(4) (862)
Equity dividends paid (3,495) (3,296)
______ ______
Net cash outflow before use of liquid
resources (18,030) (15,719)
and financing
Financing
Purchase of own shares - (1,568)
Proceeds from issue of shares 317 327
______ ______
Net cash inflow/(outflow) from financing 317 (1,241)
------ -------
Decrease in cash in the year (17,713) (16,960)
------ -------
CONSOLIDATED CASHFLOW STATEMENT
year ended 30 June 2004
2003/2004 2002/2003
£000 £000
Reconciliation of operating
profit to net cash
(outflow)/inflow from operating
activities
Operating profit 15,347 13,226
Investment property income (4,599) (4,613)
Depreciation charges 6,664 6,874
Amortisation of goodwill 308 307
Profit on sale of tangible
fixed assets (2,033) (937)
Increase in stock and work in
progress (65,450) (3,258)
Decrease/(increase) in debtors 5,131 (5,853)
Increase in creditors 25,801 1,136
-------- --------
(18,831) 6,882
-------- --------
Analysis of net debt As at 1 Cashflow Non-cash As at 30
July 2003 Changes June 2004
£000 £000 £000 £000
Cash at bank and in hand 150 (28) - 122
Overdrafts (54,336) (17,685) - (72,021)
------- ------ -------- --------
(54,186) (17,713) - (71,899)
------- ------ -------- --------
NOTES
Segmental analysis
Year ended Year ended
30 June 30 June
2004 2003
£000 £000
Analysis of turnover on continuing operations:
Construction
United Kingdom 526,021 517,165
Jersey 2,234 4,128
------- -------
528,255 521,293
Homes - United Kingdom 111,298 103,271
Property - United
Kingdom 5,443 -
------- -------
644,996 624,564
------- -------
Operating profit on continuing activities:
Construction 1,453 4,634
Homes 12,280 9,053
Property 5,263 2,639
Central costs (3,649) (3,100)
------- -------
15,347 13,226
------- -------
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