Final Results

RNS Number : 3691E

Gleeson(M J)Group PLC

26 September 2008

 



Friday 26 September 2008

MJ GLEESON GROUP PLC - PRELIMINARY ANNOUNCEMENT

Gleeson (GLE.L), the urban regeneration and strategic land specialist, announces its audited results for the year to 30 June 2008. The year required the Group to respond to the worst market conditions facing the housebuilding industry in living memory. The second half of the year, in which there was a wholly unprecedented decline, month on month, in the rate of house sales, was particularly difficult. 

Key Points - Financial

• Revenue from continuing operations decreased by 51% to £94.6m, reflecting a 32% reduction in unit house sales, a 23% decrease in average selling price ('ASP') and the absence of any strategic land sales. 

• The decrease in ASP, which was expected, was driven by the Group's strategic decision, taken in 2006, to exit from high value developments in the South and an increased proportion of sales to Registered Social Landlords ('RSLs').

• The pre-tax loss was £20.8m (2007: profit of £8.3m) after exceptional charges of £17.4m and a charge of £4.1m for the settlement of a longstanding legacy issue in the former Gleeson Building Contracting Division. Excluding the exceptional charges and the settlement charge (included in announcements on 20 June 2008 and 15 May 2008), a profit before tax of £0.7m was generated.

• Of the exceptional charges, £10.6m related to downward asset revaluations, £5.2m to restructuring costs and £1.6m to a rental guarantee.

• Year end total equity attributable to equity holders of the parent company decreased to £159.2m (2007: £183.3m), representing net assets per share of 304p (2007: 351p), down 13%.

• Net cash at 30 June 2008 was £21.9m (2007: £38.0m). 

• In view of the continuing uncertainty in the housing market, the absence of visibility as to when stability will return and the Board's commitment to prioritising cash management, the Board has decided not to propose a final dividend for the year to 30 June 2008.

Key Points - Commercial 

• Gleeson Regeneration & Homes and Gleeson Strategic Land made an operating loss of £16.3m (2007: profit of £4.1m), which included exceptional charges of £15.1m (2007: £nil), on revenue of £64.0m (2007: £157.0m). House unit sales reduced to 436 from 639 and the average selling price to £149,000 from £193,000, reflecting an increased proportion of sales to RSLs and the exit from high value developments.  Gleeson Strategic Land made no sales but increased its land holding, principally held under option agreements, to 3,621 acres (2007: 3,064 acres).

• Gleeson Capital Solutions, which manages the Group's PFI investments and takes the lead on developing new PFI opportunities, had a successful year, both operationally and financially. An operating profit of £2.3m (2007: £1.6m) was made on revenue of £1.2m (2007: £0.7m).

• Powerminster Gleeson Services, the property maintenance service provider, made an operating profit of £1.1m (2007: £0.7m) on revenue of £19.5m (2007: £17.5m) and doubled its confirmed order book to £158.8m as at 30 June 2008.

Current Trading and Prospects

Dermot Gleeson, Chairman, stated 'The poor market conditions experienced during the year to 30 June 2008 have shown no improvement in the first three months of the current financial year.

The Board believes that the housing market will not improve until mortgage finance becomes more freely available and confidence returns to the wider economy. The timing of these events is not possible to predict with accuracy, but the Board does not anticipate any material improvement before 2010.  

Against this background, the Board will continue to give priority to cash management in order to ensure that medium to long-term shareholder value is maintained. The Board has already taken action to reduce the Group's cost base and will continue to keep it under very close review.'

Enquiries 

M J Gleeson Group plc	01252-360 300
Paul Wallwork (Group Chief Executive)
Chris Holt (Group Chief Financial Officer)
Bankside Consultants
Charles Ponsonby	020-7367 8851
Rose Oddy	020-7367 8853

  CHAIRMAN'S STATEMENT

The year to 30 June 2008 required the Group to respond to the worst market conditions facing the housebuilding industry in living memory. The second half of the year, in which there was a wholly unprecedented decline, month on month, in the rate of house sales, was particularly difficult.

Financial Overview

Revenue from continuing operations decreased by 51.3% to £94.6m (2007: £194.3m). £93.0m of this decrease resulted from the combined impact of a reduction in sales of 203 units (31.8%), a decrease in average selling price ('ASP') from £193,000 to £149,000 (22.8%) and the absence of any strategic land sales. The decrease in ASP, which was expected, was driven by the Group's strategic decision, taken in 2006, to exit from high value developments in the South and an increased proportion of sales to Registered Social Landlords ('RSLs').

A loss before tax from continuing operations of £20.8m (2007: profit £8.3m) was incurred. This was net of £17.4m of exceptional charges, which principally arose from the shrinking of the business in response to deteriorating market conditions and downward asset revaluations. Also, during the year a longstanding legacy issue in our former Gleeson Building Contracting Division was settled and a charge of £4.1m was recorded.  Excluding the exceptional charges and the settlement charge, a profit before tax of £0.7m was generated.

Discontinued operations produced a post-tax profit of £1.0m (2007: £22.5m).

The year end total equity attributable to equity holders of the parent decreased by 13.1% to £159.2m (2007: £183.3m), representing net assets per share of 304p (2007: 351p). Net cash at 30 June 2008 was £21.9m (2007: £38.0m).

Business Review

The Group's continuing operations comprise ongoing business units and business units in run-off.

The Group's ongoing business units - Gleeson Regeneration & Homes and Gleeson Strategic Land, Gleeson Capital Solutions and Powerminster Gleeson Services - had differing result profiles, which are set out in the Business Review and Directors' Report. 

Gleeson Regeneration & Homes and Gleeson Strategic Land bore the brunt of the deterioration in market conditions, with lower unit house sales and no strategic land sales. Positively, Gleeson Strategic Land added to its portfolio of options and now has 3,621 acres (2007: 3,064 acres) under option. Exceptional charges of £15.1m were incurred within this business, of which £4.5m related to shrinking the business and £10.6m related to a reduction in value of non-strategic land, amounts recoverable on contracts and work in progress.

Gleeson Capital Solutions increased its profits as a result of successfully closing two core PFI investments in the residential sector, Avantage (Cheshire) Limited and Leeds Independent Living Accommodation Limited. Both will bring long-term value to Powerminster Gleeson Services.

Powerminster Gleeson Services increased its operating profit for a third successive year, as a result of maintaining its increased focus on the provision of property maintenance services.

The Group's business units in run-off comprise Gleeson Commercial Property Development and Gleeson Building Contracting Division within Gleeson Construction Services Limited. 

Gleeson Commercial Property Development comprises the investment and development business units which have been in run-off since March 2006 and March 2007, respectively. In the year, the final two investment properties were sold and some progress was made in liquidating the development portfolio, although deteriorating market conditions seriously hindered the execution of this strategy. In addition, a legacy issue from 2002 meant that a £1.6m exceptional charge had to be made with regard to lease guarantees provided by the Group.

Gleeson Building Contracting Division recorded a loss of £4.1m (2007: £nil) as a result of the settlement of a longstanding claim.

Group Activities (the central overhead) increased as a result of the exceptional charge of £0.7m incurred in relation to a people cost reduction programme.

Board

Throughout the year, the Board had a minimum of six members. This currently comprises two Executive Directors, three independent Non-Executive Directors and myself as Non-Executive Chairman. 

The Board was pleased to announce, on 3 December 2007, the appointment as a Non-Executive Director of Colin Dearlove, formerly Group Finance Director of Barratt Developments PLC. Colin replaced Eric Stobart, who retired from the Board on 31 January 2008. The Board would like to take this opportunity to record its appreciation of Eric's immensely valuable contribution to the Group over a nine year period.

Employees

The average number of employees reduced in the year to 394 (2007: 669), and the number at the year end was 382 (2007: 461). As a consequence of the announcement of 20 June 2008, headcount has subsequently decreased to 324. 

The Board would like to thank both continuing employees and those who left the Group during the year and subsequent to the year end for their significant individual and collective contributions, especially given market conditions.

Current trading and prospects

The poor market conditions experienced during the year to 30 June 2008 have shown no improvement in the first three months of the current financial year.

The Board believes that the housing market will not improve until mortgage finance becomes more freely available and confidence returns to the wider economy. The timing of these events is not possible to predict with accuracy, but the Board does not anticipate any material improvement before 2010.  

Against this background, the Board will continue to give priority to cash management in order to ensure that medium to long-term shareholder value is maintained.  The Board has already taken action to reduce the Group's cost base and will continue to keep it under very close review.  

Dividends

In view of the continuing uncertainty in the housing market, the absence of visibility as to when stability will return and the Board's commitment to prioritising cash management, the Board has decided not to propose a final dividend for the year to 30 June 2008.

An interim dividend of 2.0p per share (2007:1.9p) was paid on 11 April 2008.

Dermot Gleeson

Chairman

  BUSINESS REVIEW AND DIRECTORS' REPORT

The year has been one of unmatched turmoil in the housing market and the housebuilding sector in particular. The Group has responded to this by minimising overall build activity in response to declining demand and significantly shrinking the cost base, notably announcing the closure of Gleeson Regeneration & Homes South.

Group Structure

The Group comprises ongoing businesses and businesses in run-off:

Ongoing Businesses

Gleeson Regeneration & Homes and Gleeson Strategic Land - focuses on estate regeneration, housing development on predominantly brown field land and the identification and purchase of options over land with the objective of successfully expediting these options through the planning process.

Powerminster Gleeson Services - focuses on planned maintenance and emergency response work on property assets, undertaken by multi-skilled technicians.

Gleeson Capital Solutions - manages the Group's PFI investments and takes the lead on developing new PFI opportunities that bring work to Gleeson Regeneration & Homes and Powerminster Gleeson Services, together with equity returns.

Group Activities - comprises the Board, Group Operations Director, Company Secretariat, Group Finance, Human Resources and Information Technology.

Businesses in Run-off

Gleeson Commercial Property Development - engages in commercial property development.

Gleeson Engineering and Gleeson Building Contracting Divisions- the Group sold certain contracts, assets and liabilities of the Gleeson Engineering Division in October 2006 to Black & Veatch Limited and of the Gleeson Building Contracting Division in August 2005 to Gleeson Building Limited (renamed GB Building Solutions Limited in January 2008), a management buy-out vehicle. The run-off activity of the former is reported as a discontinued operation, whilst that of the latter is reported as a continuing operation.

Strategy

Gleeson is predominantly a housebuilder, focused on the regeneration sector, with particular emphasis on creating sustainable communities. 

Gleeson Regeneration & Homes' strategy is to focus on estate regeneration and brown field land development to provide new housing for RSLs and private buyers. Gleeson Strategic Land's strategy is to invest in option agreements over land and to promote these sites successfully through the planning process. These two activities have become the Group's core income stream. 

Powerminster Gleeson Services' strategy is to focus principally on social housing maintenance, both within the estates that the Group regenerates and from the wider social housing market. 

Gleeson Capital Solutions' strategy is to promote, bid, win and invest in residential PFI schemes which generate work for Gleeson Regeneration & Homes and Powerminster Gleeson Services.

The long-term intention is to achieve a balance of work between the public and private sectors which will give the Group flexibility to adapt to changes within the housing market.

Operating Risk Statement

The Group has established risk management procedures involving the identification, control and monitoring of risks at various levels within the organisation. However, there are other significant risks outside the Group's control which could affect its business, which include, but are not limited to, the following:

Risks common to the Group

Funding - Whilst the Group had net cash of £21.9m at 30 June 2008, current market conditions make cash forecasting inherently difficult. However, the Group has committed bank funding until June 2010 via a £50m facility. 

Health & Safety - It is important to ensure that the Group has adequate systems and procedures in place to mitigate the dangers inherent in the construction process.

People - Attracting into the Group and retaining the right people will be key to its long-term success. Failure to do so will lessen the Group's ability to perform in a highly competitive market place.

Insurance - It is essential that suitable insurance arrangements exist to underpin and support the many areas in which the Group is exposed to risk of loss.

Information Technology - It is vital that the Group has suitable systems in place to ensure that, as far as possible, a smooth flow of information operates throughout the Group and that the risk of system loss is mitigated and supported by appropriate contingency plans.

Bid Costs - Substantial bid costs can be incurred in seeking to procure work, without any degree of certainty that they will be recovered.

Risks specific to Gleeson Regeneration & Homes and Gleeson Strategic Land

National and Regional Economic Conditions - The housebuilding industry is sensitive to changes in, for example, the availability and cost of mortgage finance, private and buy-to-let housing demand, interest rates, employment levels and consumer confidence.  A deterioration in any of the above conditions may have a negative impact on these business units.

Planning - The business is subject to the extensive and complex laws and regulations relating to planning. The risk is to both feasibility and timing. 

Land Supply - There is normally a shortage of land with residential planning consent. 

Risks specific to Powerminster Gleeson Services

Pricing - The correlation between services required to be delivered and the price that can be obtained is a key factor within this business unit.

Execution - To recruit, train and retain personnel to ensure that contracted service levels are consistently delivered to customers in order to avoid contract penalties, contract termination or unsuccessful competitive retendering ratios.

Risks specific to Gleeson Capital Solutions

Government Policy - The business unit is dependent upon the Government's continued commitment to PFI procurement as a means of funding regeneration projects.

Risks specific to businesses in run-off

Gleeson Commercial Property Development

Market conditions - The business' ability to run-off the remaining development sites profitably depends upon there being an improvement in the finance available to potential purchasers. 

Gleeson Engineering and Gleeson Building Contracting Divisions

Completion of residual projects - These businesses must complete the residual work within the provisions made by management.

Latent defects - The Group did not dispose of all of its historical contracts, which means that it is exposed to any latent defects that may arise in the future.

Performance

Gleeson Regeneration & Homes and Gleeson Strategic Land

The business segment's result for the year, which included exceptional charges of £15.1m (2007: £nil), were as follows: 

	2008	2007
Revenue	£64.0m	£157.0m
Operating (Loss)/Profit	£(16.3)m	£4.1m
Operating Margin	(25.5)%	2.6%

Gleeson Regeneration & Homes

Until 1 January 2008, the North and South regions were managed separately by Managing Directors reporting to the Group Chief Executive. Subsequently, the businesses were brought together and have been managed by one Managing Director. This is the final year when the two regions will be the subject of separate analysis.

Consequently, both the North and South businesses faced extremely challenging market conditions.  Consequently, the Group took the decision to focus build programmes on contractually committed onward sales to RSLs and reduce its build programme for private sale. 

North

During the year, the North continued to develop its regeneration sites in Liverpool, Manchester and Sheffield, but reduced its build programme to meet lower market demand.  One new Local Authority regeneration project was entered into at Huyton, Merseyside.  

The business' four non-regeneration projects, one of which was acquired in December 2007, also reduced their build programmes for the private development elements of the sites, due to the lack of customer demand driven by market conditions.

The business also took the decision to suspend commercial negotiations on a number of regeneration projects whilst the market outlook remains uncertain.  

It was announced on 20 June 2008 that the North West and Yorkshire regions would merge, resulting in the closure of Gleeson Regeneration & Homes' office in Sheffield. This has significantly reduced the cost base of the housing operation in Yorkshire. An exceptional charge to the Income Statement of £1.0m has been made in relation to this action. In addition, non-strategic land, housebuilding work in progress and contract debtors have been revalued and an exceptional charge to the Income Statement of £9.1m has been made. 

During the year, the business sold a total of 323 units (2007: 467 units), split into private sales of 208 (2007: 391) and sales to RSLs of 115 (2007: 76).  The ASP for private sales was £149,000 (2007: £151,000) and for sales to RSLs was £110,000 (2007: £101,000).  The reduction in private sales was a direct result of the deteriorating market that the business faced during the year.  The increased focus on build and onward sale to RSLs allowed the business to reduce its working capital requirements.

South

It was also announced on 20 June 2008 that the region, which did not enjoy the same level of market presence as its counterpart in the North, would be closed. It is intended that most of the region's net current assets, which are deployed on seven sites, will be realised for cash over the next 24 months. An exceptional charge to the Income Statement of £3.5m has been made to cover the closure of the business and a further exceptional charge of £1.5m has been made for the revaluation of work in progress and land.

The management of the Ashford regeneration project has been transferred to the North. The early phases of this project, which is predominately work for RSLs, are progressing well.

During the year, the business sold a total of 113 units (2007: 172 units), split into private sales of 60 (2007:149) and sales to RSLs of 53 (2007: 23). The ASP for private sales was £262,000 (2007: £366,000) and for sales to RSLs was £107,000 (2007: £89,000).   The decrease in private sales and their ASP was driven by the Group's strategic decision, taken in 2006, to exit from high value developments in the South.   The increase in sales to RSLs allowed the business to reduce its working capital requirements.

  Gleeson Regeneration & Homes

Unit sales as recognised in Revenue

	2008			2007
	Units		ASP	Units		ASP
	%		£000	%		£000
Private	61	268	175	85	540	210
RSLs	39	168	109	15	99	98
Total	100	436	149	100	639	193

Includes equivalent units for sites which are treated as long-term contracts

Unit sales as Handed Over

	2008			2007
	Units		ASP	Units		ASP
	%		£000	%		£000
Private	67	224	176	77	473	219
RSLs	33	110	104	23	143	89
Total	100	334	152	100	616	189

Market sector analysis

	2008			2007
	Units		ASP	Units		ASP
	%		£000	%		£000
Private - 1 & 2 beds	26	86	141	34	212	161
Private - 3 beds	30	101	168	26	159	243
Private - 4 beds	10	33	248	14	84	260
Private - 5 or more beds	1	4	530	3	18	499
RSLs	33	110	104	23	143	89
Total	100	334	152	100	616	189

  Product mix analysis

	2008			2007
	Units		ASP	Units		ASP
	%		£000	%		£000
Apartments	26	88	140	29	174	214
Three storey	9	30	171	19	117	213
Room in roof	7	23	289	6	38	390
Traditional - other	25	83	186	23	144	184
RSLs	33	110	104	23	143	89
Total	100	334	152	100	616	189

	2008	2007
% of units using brownfield land	95	95

Gleeson Regeneration & Homes North

Unit sales as recognised in Revenue

	2008			2007
	Units		ASP	Units		ASP
	%		£000	%		£000
Private	64	208	149	84	391	151
RSLs	36	115	110	16	76	101
Total	100	323	135	100	467	143

Includes equivalent units for sites which are treated as long-term contracts

Unit sales as Handed Over

	2008			2007
	Units		ASP	Units		ASP
	%		£000	%		£000
Private	68	164	145	76	324	151
RSLs	32	77	101	24	103	89
Total	100	241	130	100	427	136

	2008	2007
% of units using brownfield land	100	95

  Gleeson Regeneration & Homes South    

Unit sales as recognised in Revenue

	2008			2007
	Units		ASP	Units		ASP
	%		£000	%		£000
Private	53	60	262	87	149	366
RSLs	47	53	107	13	23	89
Total	100	113	189	100	172	329

Includes equivalent units for sites which are treated as long-term contracts

Unit sales as Handed Over

	2008			2007
	Units		ASP	Units		ASP
	%		£000	%		£000
Private	65	60	262	79	149	366
RSLs	35	33	110	21	40	90
Total	100	93	208	100	189	308

	2008	2007
% of units using brownfield land	82	95

  Gleeson Strategic Land

During the year, Gleeson Strategic Land increased the number of acres held, principally under option agreements, to 3,621 (2007: 3,064), most of which are in Southern England (Kent, Surrey, Sussex, Berkshire, Oxfordshire and Wiltshire). Gleeson Strategic Land did not exercise any of its options during the year.

Regional Planning Policy

The Government's Regional Planning Policy, known as the South West, South East and East of England Regional Spatial Strategies, have advanced through the planning legislative process during the year and are now close to being adopted as Government policy.  Gleeson Strategic Land has a number of sites within the boundaries of the Spatial Strategies and has been successful in promoting these as predominately residential development or as site specific urban extensions. In total this equates to some 582 acres.

Our strategic land holdings are predominately held in Districts where the Government wishes to see an increase in housing delivery. These increased housing delivery targets will assist the future promotion of our land holdings through the planning process at the local level.

 Local Development Frameworks

At District Council level, planning policy is contained within Local Development Frameworks. These frameworks seek to implement the policy of the Regional Spatial Strategy at the local level.

Gleeson Strategic Land is actively involved in promoting the Group's land holdings within these frameworks. During the year, two of the Group's holdings have been identified in an adopted plan in Mid Sussex. These sites cover approximately 35 acres and are both currently the subject of full planning applications.

Planning Consents

During the year planning consent was secured on approximately 100 acres for predominantly residential development.  

Two planning appeals were pursued during the year, which, if successful, will deliver a further 230 acres of residential development. 

  Gleeson Capital Solutions

	2008	2007
Revenue	£1.2m	£0.7m
Operating Profit	£2.3m	£1.6m

Gleeson Capital Solutions had a successful year, both operationally and financially. The financial result benefited from the disposal of one non-core PFI investment, Boldon Schools, for a profit of £1.2m and the financial closure on two new PFI investments, Avantage (Cheshire) Limited and Leeds Independent Living Accommodation Limited, which gave rise to fee income in the year of £1.2m.

Gleeson Capital Solutions holds five PFI investments. Four are core and one is non-core. The four core investments are the two noted above plus the investments in the regeneration projects at Grove Village in Manchester and Ashford in Kent. The non-core PFI investment is in Stirling Water Seafield Holdings Limited, which the Group intends to dispose of in the current financial year.

Powerminster Gleeson Services

	2008	2007
Revenue	£19.5m	£17.5m
Operating Profit	£1.1m	£0.7m
Operating Margin	5.6%	4.0%

Powerminster Gleeson Services doubled its confirmed order book to £158.8m as at 30 June 2008, an increase of £79.8m in the year. The business has substantially increased its long-term service and repair work for RSLs and Local Authorities (LAs).  In addition, the business increased its operating profit for a third successive year. 

Contracts secured during the year include Avantage (Cheshire) Limited and Leeds Independent Living Accommodation Limited, with confirmed values of £29m and £46m, to be delivered over 30 years and 25 years respectively.

Powerminster Gleeson Services is seeking to extend its activities within the social housing sector throughout England. During the year, the business invested in business development personnel so as to generate further organic growth. 

  Gleeson Commercial Property Development

	2008	2007
Revenue	£8.3m	£16.3m
Operating (Loss) / Profit	£(1.2)m	£4.6m

Although the results of this business are included within operating profit, it is in run-off, as announced on 30 March 2007.

The business faced extremely challenging market conditions during the year and, as a consequence, has not made the progress in regard to the disposal of the portfolio envisaged in the announcement of 30 March 2007.  However, the Board believes that the decision to exit this business and curtail any further investment in the business has been to the benefit of shareholders.

As at 30 June 2008, the business had nine commercial property development sites (2007: 12), of which eight were build complete. The sole development site still under construction has been pre-sold.  Since 30 June 2008, the business has profitably sold two sites.  The remaining six comprise two office park developments, three light industrial commercial units and one distribution warehouse.

The Group announced in March 2006 that it would be discontinuing its investment property activity. During the year, the Group disposed of the remaining two investment properties and recorded a profit of £0.9m.

In 2002, the Group sold a property in Glasgow and provided a rental guarantee to the purchaser on certain floors until 30 June 2012. In 2007, a break clause was exercised by one of the building's tenants. Accordingly, the Group provided, in the year to 30 June 2007, for what it believed would be a limited period of unoccupied tenancy. A review in advance of 30 June 2008 indicated that the Glasgow office market had become weaker.  The Group therefore decided that provision should be made for the whole of the cost that will be incurred by the Group if the space remains unlet until the rental guarantee expires. The exceptional charge to the Income Statement for the year to 30 June 2008 arising from this provision is £1.6m.

Gleeson Construction Services Limited

Continuing Operations

	2008	2007
Revenue	£1.6m	£2.8m
Operating Loss	£(4.1)m	£0.0m

The Group retained sufficient assets and liabilities after the disposal of its Gleeson Building Contracting Division in August 2005 such that the results of these retained assets and liabilities are classified as continuing.

The retained element of the Gleeson Building Contracting Division recorded a loss for the year of £4.1m (2007: £nil). This predominately arose in relation to one specific retained contract. In March 2007, Devonshire Green Holdings Limited (DGHL) issued a claim for damages in the High Court to the value of £9.3m plus interest. The claim was in relation to a contract entered into in June 2001 to build a residential and retail complex in Sheffield, which was completed in June 2004. The trial was expected to commence in the High Court in June 2008. Running parallel to the trial preparation process, commercial negotiations were taking place with DGHL. As a result of these, a settlement was agreed with DGHL which avoided further litigation and trial costs, but resulted in a charge to the Income Statement of £4.1m.

Discontinued Operations

	2008	2007
Revenue	£12.4m	£60.0m
Operating Loss	£(1.0)m	£(4.2)m

The Group disposed of sufficient assets and liabilities of its Gleeson Engineering Division in October 2006 such that the results of these retained assets and liabilities are classified as discontinued.

The retained element of the Gleeson Engineering Division recorded an operating loss for the year of £1.0m (2007: £4.2m) as a result of reaching agreement in principle on the disposal of its last non-core PFI investment, in Stirling Water Seafield Holdings Limited. This agreement will not only eliminate the requirement for any further investment by the Group in the PFI entity but will also substantially reduce potential liabilities on the Group's construction contract. 

Group Activities

These consist of the Board, Group Operations, Company Secretary, Group Finance, Human Resources and Information Technology. The charge for the year was £6.1m (2007: £5.4m), which includes an exceptional charge of £0.7m for redundancy costs.

  FINANCE REVIEW

Overview

The financial results for the year reflected the extremely difficult trading environment in which the Group operated.

The loss before tax from continuing operations of £20.8m (2007: profit £8.3m) included exceptional charges of £17.4m. The exceptional charges comprise:

• £10.6m non-cash charge for asset valuation write-downs; 

• £3.0m provision for surplus office space over the balance of their leases;

• £2.2m cost of redundancies;

• £1.6m provision for a rental guarantee to June 2012 on an investment property sold in 2002.

Key Performance Indicators

	2008	2007
Continuing Operations
Revenue	£94.6m	£194.3m
Operating (Loss)/Profit	£(24.3)m	£5.7m
Operating Margin	(25.7)%	2.9%

Continuing Operations

Revenue from continuing operations was £94.6m (2007: £194.3m), on which the loss before tax was £20.8m (2007: profit £8.3m).

Gleeson Regeneration & Homes and Strategic Land recorded an operating loss of £16.3m (2007: profit £4.1m) on revenue of £64.0m (2007: £157.0m).  Included within the operating loss is an exceptional charge of £15.1m, detailed as follows:

• £10.6m non-cash charge for asset valuation write-downs; 

• £3.0m provision for surplus office space over the balance of their leases;

• £1.5m cost of redundancies.

Sales comprised 436 units (2007: 639 units) at an ASP of £149,000 (2007: £193,000), of which 168 units (2007: 99 units) were to RSLs.

Gleeson Capital Solutions recorded an operating profit of £2.3m (2007: £1.6m) on revenue of £1.2m (2007: £0.7m). During the year, Gleeson Capital Solutions sold one non-core investment in Boldon Schools and achieved financial close on two PFI projects, Avantage (Cheshire) Limited and Leeds Independent Living Accommodation Limited. Both these projects generated success fees on financial close and will provide long term revenue for Powerminster Gleeson Services.

Powerminster Gleeson Services recorded a profit of £1.1m (2007: £0.7m) on revenue of £19.5m (2007: £17.5m). Operating margin improved to 5.6% (2007: 4.0%) aided by certain non-recurring events.  The confirmed order book as at 30 June 2008 was £158.8m (2007: £79.0m).

Gleeson Commercial Property Development made an operating loss of £1.2m (2007: profit £4.6m). During the year, the two remaining investment property assets, with a net book value of £2.7m (2007: £12.6m), were sold, generating an operating profit of £0.9m (2007: £2.9m). Rental income was £0.2m (2007: £0.7m), the decrease in the year being due to the sale of investment properties. Commercial property development generated a loss of £1.1m (2007: profit £2.1m); included in the loss for the year was a provision of £1.6m relating to a rental guarantee on an investment property sold in 2002 referred to above. At 30 June 2008, the nine remaining development sites had a net book value of £19.7m (2007: 12 sites with a net book value of £11.6m), of which one development site with a net book value of £3.7m (2007: £3.2m) has been pre-sold.

Gleeson Construction Services, the continuing element of which comprises the run-off of the Gleeson Building Contracting Division, recorded revenue of £1.6m (2007: £2.8m) on which the operating result was a loss of £4.1m (2007: £nil), due to the charge associated with the settlement of a longstanding dispute.

Discontinued Operations

Discontinued operations comprise those assets and liabilities of the Gleeson Engineering Division which were not sold to Black & Veatch in October 2006. During the year, revenue of £12.4m (2007: £60.0m) was recorded.  A profit after tax of £1.0m (2007: £22.5m) was generated, which included a charge of £1.0m as a result of reaching agreement in principle on the disposal of the Group's last non-core PFI investment in Stirling Water Seafield Holdings Limited and a tax credit. 

Interest

Net interest income was £3.5m (2007: £2.6m), reflecting the net cash balances maintained by the Group throughout the year.  Included in interest expense is £0.2m (2007: £0.6m) associated with banking fees.

Tax

A net tax credit for continuing operations, excluding tax for joint ventures, of £nil (2007: charge £0.8m) has been recorded in the Income Statement. The total tax credit, including tax on discontinued operations and tax attributable to joint ventures, was £1.9m (2007: charge £5.8m). The net deferred tax asset has increased to £3.6m (2007: £3.2m) and predominantly relates to losses incurred by Gleeson Regeneration & Homes and Gleeson Strategic Land, which will be carried forward and offset against future profits.

Earnings / (Loss) per Share

Basic and diluted loss per share was 38.0p (2007: basic earnings of 57.8p, diluted earnings of 56.8p). For continuing operations only, the basic and diluted loss per share was 39.9p (2007: basic earnings of 14.3p, diluted earnings of 14.1p).

Balance Sheet

At 30 June 2008, shareholders' funds totalled £159.2m (2007: £183.3m).  Non-current assets decreased to £45.6m (2007: £46.2m), whilst net current assets decreased to £118.3m (2007: £137.5m).

Cash Flow, Treasury Risk Management and Bank Facilities

The Group recorded a cash outflow for the year of £16.2m (2007: inflow £52.7m), resulting in a net cash balance at 30 June 2008 of £21.9m (2007: £38.0m).  

Operating cash flows before working capital movements utilised £28.4m (2007: £1.4m) whilst working capital movements generated £4.4m (2007: £23.7m). Net taxes paid were £1.5m (2007: net receipts £1.0m) and cash inflows from investing activities were £14.2m (2007: £34.7m). Net cash flows from financing activities utilised £4.8m (2007: £4.0m) of which dividends paid represented £4.9m (2007: £4.6m).

The Group's cash balances are centrally pooled and invested, ensuring the best available returns are achieved consistent with retaining sufficient liquidity for the Group's operations. The Group only deposits funds with financial institutions which have a minimum credit rating of AA.

As the Group operates wholly within the UK, there is no requirement for currency risk management.

In June 2007, a three year £50m revolving credit facility was signed with a consortium of banks comprising HSBC Bank plc (the Group's principal banker), Barclays Bank plc and Allied Irish Bank plc.

Pension

The Group operates a defined contribution pension scheme.  A charge of £0.9m (2007: £1.3m) was recorded in the Income Statement for pension contributions. The Group has no exposure to defined benefit pension plans.

Going Concern

After making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group and the Company have adequate resources to continue to trade for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.

CONSOLIDATED INCOME STATEMENT for the year ended 30 June 2008
	2008	2008	2008	2007
	Before Exceptional Items	Exceptional Items
		Note 4
	£000	£000	£000	£000
Continuing operations
Revenue	97,969	(3,376)	94,593	194,252
Cost of sales	(87,318)	(8,884)	(96,202)	(171,069)
Gross profit/(loss)	10,651	(12,260)	(1,609)	23,183
Administrative expenses	(22,100)	(5,180)	(27,280)	(22,760)
Profit on sale of investments in PFI projects	1,194	-	1,194	2,281
Profit on sale of investment and owner occupied properties	1,868	-	1,868	3,274
Valuation gains on investment properties	1,290	-	1,290	50
Share of profit/(loss) of joint ventures (net of tax)	218	-	218	(327)
Operating (loss)/profit	(6,879)	(17,440)	(24,319)	5,701
Financial income	4,044	-	4,044	4,028
Financial expenses	(551)	-	(551)	(1,462)
(Loss)/profit before tax	(3,386)	(17,440)	(20,826)	8,267
Tax	1	-	1	(830)
(Loss)/profit for the year from continuing operations	(3,385)	(17,440)	(20,825)	7,437
Discontinued operations
Profit for the year from discontinued operations and gain on sale of discontinued operations (net of tax)	975	-	975	22,521
(Loss)/profit for the year attributable to equity holders of the parent company	(2,410)	(17,440)	(19,850)	29,958
(Loss)/earnings per share attributable to equity holders of parent company
Basic			(38.03)	57.76
Diluted			(38.03)	56.83
(Loss)/earnings per share from continuing operations
Basic			(39.90)	14.34
Diluted			(39.90)	14.11

CONSOLIDATED BALANCE SHEET at 30 June 2008
	2008	2007
	£000	£000
		Restated
Non-current assets
Property, plant and equipment	1,875	2,413
Investment properties	4,813	5,454
Investments in joint ventures	3,050	2,830
Loans and other investments	21,860	22,419
Trade and other receivables	10,139	9,469
Deferred tax assets	3,889	3,571
	45,626	46,156
Current assets
Inventories	81,667	81,882
Trade and other receivables	67,225	91,587
UK corporation tax	2,130	-
Cash and cash equivalents	21,875	38,042
Assets classified as held for sale	-	2,739
	172,897	214,250
Total assets	218,523	260,406
Non-current liabilities
Provisions	(4,364)	-
Deferred tax liabilities	(328)	(352)
	(4,692)	(352)
Current liabilities
Trade and other payables	(51,326)	(74,610)
Provisions	(3,266)	(850)
UK corporation tax	-	(1,272)
	(54,592)	(76,732)
Total liabilities	(59,284)	(77,084)
Net assets	159,239	183,322
Equity
Share capital	1,047	1,044
Share premium account	5,611	5,465
Capital redemption reserve	120	120
Revaluation reserve	-	638
Retained earnings	152,461	176,055
Total equity	159,239	183,322

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 30 June 2008
	2008	2007
	£000	£000
(Loss) / profit for the year attributable to equity holders of the parent company	(19,850)	29,958
Deferred tax on owner occupied property	90	-
Net income recognised directly in equity	90	-
Total recognised (loss) / income for the year attributable to equity holders of the parent company	(19,760)	29,958

CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2008
	2008	2007
	£000	£000
Operating activities
(Loss)/profit before tax from continuing operations	(20,826)	8,267
Loss before tax from discontinued operations	(955)	(4,216)
	(21,781)	4,051
Depreciation of property, plant and equipment	1,016	1,090
Share-based payments	492	1,111
Profit on sale of investment and owner occupied properties	(1,868)	(3,274)
(Profit)/loss on sale of other property, plant and equipment	(30)	129
Profit on sale of investments in PFI projects	(1,194)	(2,281)
Loss on disposal of investments in joint ventures	-	301
Valuation gains on investment properties	(1,290)	(50)
Share of (profit)/loss of joint ventures (net of tax)	(218)	327
New ground rents capitalised	(25)	(286)
Financial income	(4,044)	(4,028)
Financial expenses	551	1,462
Operating cash flows before movements in working capital	(28,391)	(1,448)
Decrease in inventories	215	49,187
Decrease/(increase) in receivables	21,230	(11,285)
Decrease in payables	(17,092)	(14,174)
Cash (utilised)/generated from operating activities	(24,038)	22,280
Tax received	1,139	3,548
Tax paid	(2,594)	(2,567)
Interest paid	(98)	(1,310)
Net cash flows from operating activities	(25,591)	21,951
Investing activities
Proceeds from disposal of net assets held for sale	3,743	-
Proceeds from disposal of subsidiary undertakings, net of cash disposed	-	4,016
Proceeds from disposal of investments in joint ventures	-	71
Proceeds from disposal of assets and liabilities - Engineering Division	3,100	15,900
Proceeds from disposal of investment and owner occupied properties	3,075	15,882
Proceeds from disposal of other property, plant and equipment	160	43
Proceeds from disposal of investments in PFI projects	1,898	4,442
Interest received	2,511	1,779
Purchase of property, plant and equipment	(861)	(542)
Net decrease/(increase) in loans to joint ventures and other investments	613	(6,885)
Net cash flows from investing activities	14,239	34,706
Financing activities
Proceeds from issue of shares	149	1,503
Purchase of own shares	(109)	(900)
Dividends paid	(4,855)	(4,565)
Net cash flows from financing activities	(4,815)	(3,962)
Net (decrease)/increase in cash and cash equivalents	(16,167)	52,695
Cash and cash equivalents at beginning of year	38,042	(14,653)
Cash and cash equivalents at end of year	21,875	38,042

  NOTES

1. Accounting policies

Statement of Compliance

Both the Company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('IFRSs').  

Basis of preparation

Assets and liabilities in the financial statements have been valued at historic cost except where otherwise indicated in these accounting policies. 

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRSs that have significant effect on the financial statements and estimates include the carrying value of land held for development, investment property, work in progress, amounts recoverable on contracts and the recoverability of trade receivables.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The following restatements have been made:

- reclassification of £352,000 in the prior year from Deferred tax asset to Deferred tax liabilities. 

- reclassification of £850,000 in the prior year from Trade and other payables to Provisions. 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and all its subsidiary undertakings. Joint Ventures are accounted for using the equity method of accounting. 

Revenue recognition

Revenue represents the fair value of work done on contracts performed during the year on behalf of customers or the value of goods and services delivered to customers. Revenue is recognised as follows:

• Revenue from Construction services activities represents the value of work carried out during the year, including amounts not invoiced.

• Revenue from Property sales is recognised at the earlier of when contracts to sell are completed and title has passed or when unconditional contracts to sell are exchanged. 

• Revenue from Homes sales, other than construction contracts, is recognised when contracts to sell are completed and title has passed.

• Revenue from rental income from investment properties is recognised as the Group becomes entitled to the income.

Revenue and margin on construction contracts are recognised by reference to the stage of completion of the contract at the accounts date. The stage of completion is determined by valuing the cost of the work completed at the accounts date and comparing this to the total forecasted cost of the contract. Full provision is made for all forecasted losses. Variations in contract work, claims and incentive payments are included to the extent that it is probable that they will result in revenue and that they are capable of being reliably measured.

Prudent provision against claims from customers or third parties is made in the year in which the Group becomes aware that a claim may arise. 

Exceptional items

Items that are both material in size and unusual or infrequent in nature are presented as exceptional items in the income statement. The Directors are of the opinion that the separate recording of exceptional items provides helpful information about the Group's underlying business performance. Examples of events that may give rise to the classification of items as exceptional are the restructuring of existing and newly-acquired businesses, gains or losses on the disposal of businesses or individual assets and asset impairments, including land, work in progress and amounts recoverable on construction contracts.

Restructuring costs

Restructuring costs are recognised as exceptional items in the income statement when the Group has a detailed plan that has been communicated to the affected parties. A liability is accrued for unpaid restructuring costs.

Inventories

Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Deferred land purchases are included in inventories at their net present values at original purchase date.

Amounts due from construction contract customers

Amounts  due  from construction contract customers represent the value of work carried out at the balance sheet date, less a provision for foreseeable losses less progress billings (see revenue recognition accounting policy).   2. Segmental analysis    

For management purposes, the Group is organised into five operating divisions, Gleeson Regeneration & Homes and Gleeson Strategic Land, Gleeson Capital Solutions, Powerminster Gleeson Services, Gleeson Commercial Property Developments and Gleeson Construction Services. The divisions are the basis on which the Group reports its primary segment information.

Segment information about the Group's continuing operations, including joint ventures, is presented below:

		2008	2007
		£000	£000
Revenue
	Continuing activities:
	Gleeson Regeneration & Homes and Gleeson Strategic Land	64,015	156,991
	Gleeson Capital Solutions	1,200	679
	Powerminster Gleeson Services	19,538	17,483
	Gleeson Commercial Property Developments	8,250	16,290
	Gleeson Construction Services	1,590	2,809
		94,593	194,252
	Discontinued activities:
	Gleeson Construction Services	12,385	59,982
	Total revenue	106,978	254,234
(Loss)/profit on activities
	Gleeson Regeneration & Homes and Gleeson Strategic Land	(16,296)	4,072
	Gleeson Capital Solutions	2,338	1,649
	Powerminster Gleeson Services	1,088	722
	Gleeson Commercial Property Developments	(1,196)	4,612
	Gleeson Construction Services	(4,130)	-
		(18,196)	11,055
	Group Activities	(6,123)	(5,354)
	Financial income	4,044	4,028
	Financial expenses	(551)	(1,462)
	(Loss) / profit before tax	(20,826)	8,267
	Tax	1	(830)
	(Loss) / profit for the period from continuing operations	(20,825)	7,437
	Profit for the period from discontinued operations and gain on sale of discontinued operations (net of tax)	975	22,521
	(Loss) / profit for the period attributable to equity holders of the parent company	(19,850)	29,958

All rental incomes of £399,000 (2007: £682,000) are reported within the Gleeson Commercial Property Developments segment, with the balance of the Gleeson Commercial Property Developments segment revenue being provision of goods.  

All revenue for the Gleeson Construction Services segment is in relation to long term contracts. In addition, £22,194,000 (2007: £35,097,000) of long term contracts are reported within Gleeson Regeneration & Homes and Gleeson Strategic Land segment with the balance of that segment being the provision of goods. Service revenues are reported by Gleeson Capital Solutions and Powerminster Gleeson Services.

3. Discontinued operations

The Group disposed of certain assets and liabilities of the Gleeson Engineering Division of Gleeson Construction Services to Black and Veatch Limited ('B&V') in a prior period and treated this as a Discontinued Operation. A small number of contracts were legally retained but the operations were taken over by B&V on the Group's behalf on a cost plus basis. Consequently, the Group has no involvement in the day to day running of these contracts and acts as an intermediary. At the time of the sale, the remaining costs to complete the contracts were considered insignificant in relation to the separately identifiable division as a whole.

	2008	2007
	£000	£000
Revenue	12,385	59,982
Cost of sales	(12,877)	(62,244)
Gross loss	(492)	(2,262)
Staff costs	-	(576)
Other expenses	(463)	(1,378)
Operating loss	(955)	(4,216)
Gain on disposal of discontinued operations	-	31,250
(Loss)/profit before tax	(955)	27,034
Tax	1,930	(4,513)
Profit for the period from discontinued operations	975	22,521

4. Exceptional costs

Impairment of inventories

At 30 June 2008, the Group conducted a review of the net realisable value of its land and work in progress carrying values of its sites in the light of the current deterioration in the UK housing market. Where the estimated future net present realisable value of the site is less than its carrying value within the balance sheet, the Group has impaired the land and work in progress value.

Impairment of amounts due from construction contracts

At 30 June 2008, the Group conducted a review of the net realisable value of amounts due from construction contracts in the light of the current deterioration in the UK housing market. Where the estimated future net present realisable value is less than its carrying value within the balance sheet, the Group has impaired the carrying value.  

Onerous contract

At 30 June 2008, the Group accrued £1.6m to cover lease guarantees that are expected to be claimed on a vacant investment property.

Restructuring costs

During the year, the Group incurred £5.2m of costs in relation to reorganising and restructuring the business, including redundancy costs of £2.2m where existing employees could not be retained within the Group. 

These exceptional costs may be summarised as follows:

						2008	2007
						£000	£000
Impairment of inventories						7,284	-
Impairment of amounts due from construction contracts						3,376	-
Onerous contract						1,600	-
Restructuring costs						5,180	-
						17,440	-

5. Tax

	Continuing operations		Discontinued operations		Total
	2008	2007	2008	2007	2008	2007
	£000	£000	£000	£000	£000	£000
Current tax:
Corporation tax	-	(475)	-	4,668	-	4,193
Adjustment in respect of prior years	251	(331)	(1,930)	-	(1,679)	(331)
	251	(806)	(1,930)	4,668	(1,679)	3,862
Deferred tax:
Current year (credit)/expense	(252)	1,636	-	(155)	(252)	1,481
Corporation tax (credit)/expense for the year	(1)	830	(1,930)	4,513	(1,931)	5,343
Joint ventures tax expense for the year	49	414	-	-	49	414
Total tax	48	1,244	(1,930)	4,513	(1,882)	5,757

The prior year adjustment of £1,930,000 for Discontinued operations relates to the carry back of losses.

Corporation tax was reduced from 30% to 28% on 1 April 2008. The weighted average tax is calculated at 29.5% (2007: 30%) of the estimated assessable profit for the year.

The charge for the year can be reconciled to the profit per the income statement as follows:

	2008	2007
	£000	£000
Profit before tax on continuing operations	(20,826)	8,267
Add joint venture tax for the year	49	414
	(20,777)	8,681
Profit before tax from discontinued operations	(955)	27,034
Profit before tax	(21,732)	35,715
Tax charge at standard rate	(6,411)	10,714
Tax effect of:
Non taxable profits on disposal of discontinued operations	(352)	(3,704)
Non taxable profits on disposal of PFI investments	-	(684)
Expenses that are not deductible in determining taxable profits	356	185
Tax reliefs not recognised in the income statement	(301)	(340)
Losses arising in the year not utilised	4,917	-
Utilisation of tax losses not previously recognised	-	18
Non taxable profits on property sales	(321)	(225)
Adjustments in respect of profits not subject to UK tax	-	(67)
Changes in tax rates	(21)	191
Adjustments in respect of prior years	251	(331)
Tax (credit)/charge and effective tax rate for the year	(1,882)	5,757

6. Dividends

	2008	2007
	£000	£000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 30 June 2007 of 7.30p (2006: 6.90p) per share	3,811	3,576
Interim dividend for the year ended 30 June 2008 of 2.00p (2007: 1.90p) per share	1,044	989
	4,855	4,565
There is no final dividend for the year ended 30 June 2008 (2007: 7.30p per share)	-	3,810

  7. 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
	2008	2007
	£000	£000
Earnings for the purposes of basic earnings per share, being net profit
attributable to equity holders of the parent company
(Loss)/profit from continuing operations	(20,825)	7,437
Profit from discontinued operations	975	22,521
(Loss)/earnings for the purposes of basic and diluted earnings per share	(19,850)	29,958
Number of shares
	2008	2007
	No. 000	No. 000
Weighted average number of ordinary shares for the purposes of basic earnings per share	52,197	51,865
Effect of dilutive potential ordinary shares:
Share options	574	853
Weighted average number of ordinary shares for the purposes of diluted earnings per share	52,771	52,718
From continuing operations
	2008	2007
	p	p
Basic	(39.90)	14.34
Diluted	(39.90)	14.11
From discontinued operations
	2008	2007
	p	p
Basic	1.87	43.42
Diluted	1.85	42.72
From continuing and discontinued operations
	2008	2007
	p	p
Basic	(38.03)	57.76
Diluted	(38.03)	56.83

 

END

 

 

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