Prelim Results
Gleeson(M J)Group PLC
17 October 2000
MJ GLEESON GROUP PLC - PRELIMINARY ANNOUNCEMENT
* Gleeson, the construction services, housebuilding
and property group, announces a fifth successive
year of increased profits and more promising
prospects for the current year and beyond than for a
decade:
Year ended 30th 2000 1999 Increase
June
Turnover £349.6m £298.1m 17.3%
Profit before £16.1m £13.4m 20.5%
tax
Earnings per 114.71p 94.08p 21.9%
share
Dividends per 26.50p 22.07p 20.1%
share
Net assets per £13.30 £12.38 7.4%
share
* Construction turnover increased by 21.9% to £241.1m
(1998/99: £197.8m) and operating profit by 14.1% to
£3.5m (1998/99: £3.0m), with a strong performance
from Civil and Process Engineering for the water
industry, in which Gleeson is the leading UK
contractor. Approximately 80% of the Group's £550m
forward Construction workload is now on a partnering
or PFI basis.
* Gleeson Homes increased turnover by 8.2% to £107.0m
(1998/99: £98.9m) and operating profit by 18.0% to
£8.2m (1998/99: £6.9m), with a record 720 (1998/99:
603) unit sales at an average selling price of
£124,600 - 90% on brownfield land.
* Gleeson Properties made an operating profit of £6.4m
(1998/99: £6.8m, including a £1.0m lease surrender
premium) and a profit on sale of investment
properties of £1.9m (1998/99: £nil).
* Dermot Gleeson, Executive Chairman, stated 'Against
the background of attractive conditions in all of
the major markets in which the Group operates and of
our largest ever forward order book, the Board
believes that the prospects for the current year and
beyond are more promising than for a decade. The
Board views the future with confidence'.
A presentation will be made today to institutional
investors and stockbroker's analysts at WestLB Panmure,
35 New Broad Street, EC2, commencing at 11:45am for
12:00pm.
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 020-7220 7477
Charles Ponsonby
CHAIRMAN'S STATEMENT
It is a pleasure to report both a fifth successive year
of increased profits and more promising prospects for the
current year and beyond than for a decade.
FINANCIAL OVERVIEW
In the year ended 30th June 2000, pre-tax profit
increased by 20.5% to £16.1m (1998/99: £13.4m) on
turnover 17.3% higher at £349.6m (1998/99: £298.1m).
Profits include a £1.9m profit on sale of investment
properties (1998/99: £nil) and premiums received on the
early surrenders of leases of £nil (1998/99: £1.0m).
Earnings per share were 21.9% higher at 114.71p (1998/99:
94.08p), reflecting an effective rate of taxation of
27.9% (1998/99: 28.8%).
Year end shareholders' funds increased by 7.4% to £135.9m
(1998/99: £126.6m), producing NAV per share also 7.4%
higher at £13.30 (1998/99: £12.38) - nearly double last
Friday's closing price. Year end net debt totalled £39.1m
(1998/99: £25.5m), representing gearing of 29% (1998/99:
20%).
Whilst net interest payable increased to £2.8m (1998/99:
£2.3m) as a result of the expansion of Housebuilding and
Property Development, interest cover was unchanged at 6.8
times.
DIVIDENDS
A final dividend of 21.35p per share (1998/99: 17.40p),
up by 22.7%, if approved at the AGM on 10th January 2001,
will be paid immediately thereafter to shareholders on
the register at close of business on 8th December 2000.
Together with the interim dividend per share of 5.15p
(1998/99: 4.67p) paid on 30th June 2000, dividends for
the year will total 26.50p (1998/99: 22.07p), a 20.1%
increase. The level of such dividends reflects the
Group's performance, prospects and balance sheet
strength.
OPERATING REVIEW
Construction Services
The Construction Divisions and Subsidiaries increased
their turnover by 21.9% to £241.1m (1998/99: £197.8m) and
operating profit by 14.1% to £3.5m (1998/99: £3.0m).
Margins were slightly lower at 1.4% (1998/99: 1.5%).
It is estimated that approximately 80% of the Group's
£550m forward construction workload is now on a
partnering or PFI basis.
Civil and Process Engineering
The Engineering Division turnover increased by 48% to
£129m (1998/99: £87m). Most of the work undertaken was
for the water industry, in which Gleeson is the leading
UK contractor and which is likely to remain its most
important sector for some time to come.
Significant partnering arrangements with a number of the
major water companies are expected to yield more than
£400m worth of revenue over the next five years: namely,
with Thames Water (£170m), West of Scotland Water (£75m),
Yorkshire Water (£70m), South West Water (£50m) and North
of Scotland Water (£37m).
Highly successful though its water business is, the
Engineering Division has recognised the need to expand
into other fields and has identified the rail sector as
an area offering significant growth potential. This led
to the important acquisition in January 2000 of Mabey
Construction Co. Ltd - soon to be renamed Gleeson MCL
Limited - a contractor to Railtrack, London Underground
and Docklands Light Railway. Other areas identified as
offering opportunities for growth include power, energy
from waste, and roads, a sector which has been quiescent
for the past four or five years but which is now expected
to attract major new investment, and one in which Gleeson
has extensive experience.
Building
The Building Divisions reported a turnover of £107m
(1998/99: £95m). The Northern and Southern Divisions
both incurred losses on design and build projects which
were brought to financial completion during the year.
These contracts contained conditions on which the Group
is no longer prepared to tender.
A programme of management restructuring has led to a
stronger focus on larger projects, with some notable
successes. These include Gleeson's selection as main
contractor at Grange Park, Northampton by ProLogis
Developments, the largest developer of distribution
warehousing in the UK, the £45m design and build contract
for the new cardiothoracic and neurosciences facility at
St. George's Hospital, Tooting - the first tertiary care
facility to be procured via the PFI - and a regeneration
project in Sheffield which could eventually see the
creation of up to 1,200 homes.
The prospects for the current year are encouraging.
Amongst other opportunities, Gleeson has been short
listed for four out of the Government's six pathfinder
PFI housing schemes.
Specialist Subsidiaries
The total turnover of the Group's specialist construction
subsidiaries was £31m (1998/99: £25m).
Powerminster Limited, a mechanical and electrical service
provider, and Concrete Repairs Limited both achieved
substantial increases in profit and Powerminster won the
'Mechanical and Electrical Contractor of the Year' award
sponsored by the Electrical Times. Mabey Construction
performed as anticipated at the time of acquisition,
generating £9.8m of turnover in the five months period.
Housebuilding
Gleeson Homes increased turnover by 8.2% to £107m
(1998/99: £99m) and operating profit by 18.0% to £8.2m
(1998/99: £6.9m). The Division achieved a record 720
(1998/99: 603) unit sales at an average selling price of
£124,600 and sold its most expensive property ever, a
pair of terraced houses in Knightsbridge, London SW7, for
£1.6m each.
Gleeson Homes does not seek to become a volume house
builder. About 40% of its output is bespoke new build,
30% refurbishment and only 30% standard new build. During
the year, 60% of the 720 units sold were on brownfield
land.
Currently, Gleeson Homes' largest scheme is a £100m
village of 430 townhouses, apartments and large detached
family houses at Netherne-on-the-Hill near Coulsdon,
Surrey, the site of a former hospital.
At the end of the year, Gleeson Homes' landbank, 87% of
which is brownfield land, comprised over 2,000 plots with
planning permission, with a further 1,900 acres under
option. The spread of land and plots is fairly evenly
divided among the Division's four regions - the South
East, the South, the North West and the North East.
Property
Gleeson Properties made an operating profit of £6.5m
(1998/99: £6.8m, including £1.0m premiums on the
surrender of two leases). Additionally, a profit of
£1.9m (1998/99: £nil) arose on the sale of investment
properties.
Year end net property assets totalled £72.9m (1998/99:
£76.7m). The Group's commercial investment and owner
occupied properties were professionally revalued as at
30th June 2000 and the surplus arising of £1.5m has been
credited to reserves together with an uplift of £0.8m
following the Directors' valuation of residential
investment properties.
Property Investment
Pending reinvestment of sale proceeds, the value of the
commercial property portfolio decreased from £56.2m to
£61.4m. Gross rental income totalled £4.8m (1998/99:
£5.1m), representing a yield of 7.8% (1998/99: 8.7%).
The Group's current investment strategy is to retain,
acquire or create office and industrial investments
either where demand is likely to remain consistently high
(for example, the motorway corridors) and/or where value
can be added through active management. In February
2000, the Group took advantage of the institutions' keen
appetite for supermarket investments and sold the Safeway
store in Sheffield to Legal & General for £13.0m,
representing a yield of 5.8%. In April 2000, £6.3m was
reinvested in a 63,000 sq. ft. multi-let office
investment in Sevenoaks, which has considerable scope for
adding value through a programme of refurbishment,
improvement and development.
At the year-end, 66% (1998/99: 48%) by value of the
portfolio was located in London and South East England,
with London offices appreciating significantly.
Property Development for Sale
During the year, two warehouses in Milton Keynes and a
retail scheme in Grantham were sold for a total of £6.8m
and a 15,000 sq. ft. office development in Guildford was
completed. Since the year-end, completions comprised
63,000 sq. ft. of offices in central Glasgow and a 40,000
sq. ft. warehouse at Banbury.
STRATEGY
A fifth consecutive year of record profits reflects the
continuing success of the Group's strategy, which is
based on four key policies:
(i) to maintain an unusually comprehensive 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 substantial growth across the whole
range of the Group's trading operations, taking
advantage of a much more stable macro-economic climate
in the UK than for many years;
(iii) to ensure that a very high proportion of the
Construction workload is undertaken on a partnering or
similar basis, so as to reduce risk; and
(iv) to generate a sizeable and stable stream of
additional income by investing in rent producing
commercial properties and in a portfolio of PFI equity
stakes.
PROSPECTS
General
Against the background of attractive market conditions in
all the major markets in which the Group operates, the
Board believes that the prospects for the current year
are more promising than for a decade.
Construction
The Group's Construction Division has its largest ever
forward order book and should also benefit substantially
over the next few years from the increased spending in
the road, rail, social housing and education sectors
announced in the Comprehensive Spending Review.
Moreover, the further rise in the proportion of work
undertaken on a partnering or PFI basis, currently
standing at over 80%, coupled with an end to the losses
caused by the traditional design and build contracts that
have held back Construction profits in the last two
years, should ensure that higher volumes are accompanied
by higher margins.
Housebuilding
Although there has been some reduction in the rate of
house price inflation, housing demand remains at
satisfactory levels in most areas. Moreover, Gleeson
Homes' success in establishing itself as a leading
brownfield developer, particularly at the upper end of
the market, means that it is well placed to take
advantage of the growing market for distinctively
designed, high quality urban homes.
Even more importantly, the release of an increased level
of strategic land acquired at favourable prices should
help to improve the Division's operating margins. The
Netherne-on-the-Hill development - the first new village
in Surrey since the War - has the potential to be
particularly important in this respect.
Property
The success of Gleeson Properties in achieving a much
higher market profile over the last year or so has helped
it to secure a number of attractive investment and
development opportunities. This has been particularly
true in the office sector, which is benefiting from
strong growth in the service industries, and in the
industrial sector, where there is still a shortage of
good modern accommodation.
There has been a good level of letting interest in the
current year to date which should make it possible to
ensure a significantly larger profit contribution from
development sales for the year as a whole. The current
development programme has an anticipated end value of
£70m.
Conclusion
Accordingly, the Board views the future with confidence.
Dermot Gleeson 17th October 2000
Executive Chairman
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 June 2000
1999/2000 1998/99
£000 £000
Turnover:
Continuing operations 339,987 298,103
Acquisitions 9,620 -
-------- --------
Group turnover 349,607 298,103
Cost of sales (316,915) (271,305)
-------- --------
Gross profit 32,692 26,798
Investment property income 5,968 7,278
Net operating expenses (22,556) (18,946)
-------- --------
Operating profit on
continuing activities:
Continuing operations 15,614 15,130
Acquisitions 490 -
------- ------
-
16,104 15,130
Share of results of joint 872 529
ventures
Profit on sale of investment 1,912 -
properties
Goodwill amortisation (128) -
-------- -------
Profit on ordinary
activities before interest 18,760 15,659
Interest receivable 215 522
Interest payable (2,868) (2,813)
------- ------
(2,652) (2,291)
-------- -------
Profit on ordinary
activities before taxation 16,107 13,368
Taxation on profit on (4,497) (3,846)
ordinary activities
-------- -------
Profit after taxation 11,610 9,522
Dividends (2,682) (2,234)
-------- -------
Retained profit 8,928 7,288
===== =====
Earnings per share 114.71p 94.08p
===== =====
Earnings per share - fully 114.62p 94.04p
diluted
===== =====
Dividends per share 26.50p 22.07p
===== =====
CONSOLIDATED BALANCE SHEET
As at As at
30 June 2000 30 June 1999
£000 £000
Capital employed
Share capital 1,022 1,022
Share premium 1,657 1,657
Capital redemption reserve 100 100
Capital reserve 20,471 25,677
------- 23,250 ------ 28,456
Profit and loss reserve 112,640 98,118
------- -------
Total capital employed 135,890 126,574
====== ======
Employment of capital
Fixed assets:
Goodwill 6,025 -
Owner occupied properties 11,520 9,478
Investment property 61,351 67,203
Plant 6,088 4,986
Transport 845 716
Motor cars 3,102 3,312
------- 88,931 ------ 85,695
Investments 5,745 3,089
------- -------
94,676 88,784
Current assets:
Stock and work in progress 119,888 94,502
Amounts recoverable on 47,737 31,030
contracts
Debtors 8,488 12,114
Cash and bank balances 1,609 1,338
------- 177,722 ------ 138,984
Current liabilities:
Bank overdraft 40,711 26,803
Creditors 72,165 58,142
Payments on account 18,005 12,038
Current taxation 3,771 2,705
Proposed dividends 2,161 1,761
------- 136,813 ------ 101,449
------- -------
Net current assets 40,909 37,535
Total assets less current 135,585 126,319
liabilities
Provisions for liabilities 305 255
and charges
------- -------
Net assets 135,890 126,574
===== =====
CONSOLIDATED CASHFLOW STATEMENT
year ended 30 June 2000
Notes 1999/2000 1998/99
£000 £000 £000 £000
Operating activities
Net cash (outflow) from
operating activities 1 (5,941) (11,588)
Dividends from joint - 489
ventures
Returns on investments and
servicing of finance
Interest received 215 599
Interest paid (2,877) (2,675)
Rents received 5,968 7,278
------ ------
Net cash inflow from returns
on investments and servicing 3,306 5,202
of finance
Taxation
UK corporation tax paid (4,056) (3,160)
Capital expenditure
Purchase of tangible fixed (12,268) (6,132)
assets
Sale of tangible fixed 786 2,368
assets
Sale of investment 14,126 -
properties
Purchase of investments (2,152) -
Sale of investments 625 -
Net investment loans - 2,208
------ ------
Net cash outflow from
capital expenditure 1,117 (1,556)
Acquisitions and disposals
Purchase of investment in (500) (2,030)
joint ventures
Purchase of subsidiary (6,383) -
undertakings
Net cash acquired with
subsidiary undertakings 1,102 -
------ (5,781) ------ (2,030)
Equity dividends paid (2,282) (2,052)
------ ------
Net cash outflow before (13,637) (14,695)
financing
Management of liquid 282 5,978
resources
Financing
Deferred income - (4,946)
------ ------
Net cash outflow from - (4,946)
financing
------ ------
Decrease in cash 2 (13,355) (13,663)
====== =====
Reconciliation of net cash
flow to movement in net debt
Decrease in cash in the year (13,355) (13,663)
Cash outflows from increase
in liquid resources (282) (5,978)
Cash outflow from increase in - 4,946
debt
------ ------
Change in net debt resulting
from cash flows (13,637) (14,695)
Finance charge on BES loans - (107)
------ ------
Movement in net debt during (13,637) (14,802)
the year
Net (debt) as 1st July (25,465) (10,663)
------ ------
Net (debt) at 30th June (39,102) (25,465)
===== =====
CONSOLIDATED CASH FLOW STATEMENT
year ended 30 June 2000
1 Reconciliation of operating profit to
net cash inflow from operating
activities
1999/2000 1998/99
£ £
Operating profit 17,888 15,130
Investment property income (5,968) (7,278)
Depreciation charges 4,489 3,960
Amortisation of goodwill 128 -
Profit on sale of tangible fixed (2,462) (767)
assets
Increase in stock and work in (25,386) (30,030)
progress
Decrease in properties held by BES - 3,947
companies
(Increase) in debtors (10,004) (6,869)
Increase in creditors 15,374 10,319
----- ------
(5,941) (11,588)
===== =====
2 Analysis of net debt As at 1 Cashflow Non As at 30
July cash June
1999 changes 2000
£000 £000 £000 £000
Cash at bank and in 1,338 271 - 1,609
hand
Less deposits treated
as liquid resources (282) 282 - -
Overdrafts (26,803) (13,908) - (40,711)
------- ------- ------ --------
Cash (25,747) (13,355) - (39,102)
Liquid resources:
Deposits included in
cash at bank 282 (282) - -
Deferred income - - - -
------ ------ ---- ------
(25,465) (13,637) - (39,102)
===== ===== ===== =====
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