MJGleeson Regulatory News (GLE)

15 May 2008 16:13



Thursday 15 May 2008

M J GLEESON GROUP PLC

INTERIM MANAGEMENT STATEMENT 

Gleeson is today issuing its Interim Management Statement, covering the period since 1 January 2008, as required by the UK Listing Authority's Disclosure and Transparency Rules.

The Interim Management Statement contains forward looking statements which:

have been made by the Directors in good faith based on the information available to them up to the time of their approval of this Statement; and

should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, that underlie such forward looking information.

This Interim Management Statement has been prepared for the Group as a whole. It therefore emphasises matters which are significant for the parent company and its subsidiaries when viewed as a single unit.

Our Operations

Gleeson operates as a residential housebuilder with a particular focus on the physical, social and economic regeneration of urban areas in partnership with or for public bodies. The Group has a specialist business unit that takes the lead in developing PFI opportunities that bring work to the Group's various business units. In addition, the Group operates a strategic land development business that enhances the value of land, principally held under option, through the planning process, and a facilities management business that focuses on the long-term planned and reactive maintenance programmes of housing and property owning organisations. The Group's commercial property development business, as announced in March 2007, is no longer committing to new projects and is in the process of developing out and disposing of its current portfolio in an orderly manner.

Market Conditions

In its Interim Announcement, issued on 29 February 2008, the Group stated that the half year to 31 December 2007 had been a time of extremely challenging market conditions for the housebuilding industry, mainly in consequence of the reduced availability of mortgage finance. Since this announcement, market conditions have deteriorated further. Many mortgage products have been withdrawn, mortgage rates and fees have increased and more substantial deposits are being required by most lenders. Moreover consumer confidence has also declined.

Impact On The Group's Operations

These developments have inevitably resulted in a considerably lower number of visitors to our housing sites, which are substantially north of England based (Liverpool, Manchester and Sheffield), than during the comparable period last year and a significant slowing down in the number of legal completions. This has been more pronounced on the Group's large estate regeneration projects, undertaken in collaboration with public bodies, than on its brownfield projects in the private sector. 

In order to protect shareholder value in what is likely to be a very protracted period of market uncertainty, the Group is committed to maintaining a very high priority to cash management and to the protection of the Group's strong balance sheet. Land purchases are being kept at minimum levels and construction work in progress and overheads are being subjected to rigorous review and control. Where appropriate the Group is prepared selectively to rent rather than to sell completed properties, especially flats, in order to secure higher returns in the longer term.

Turbulence in the financial markets has also meant that the disposal of the Group's remaining commercial property developments has progressed more slowly than envisaged in March 2007. None the less it is clear that the decision to withdraw from this activity, and the timing of this decision, ahead of the marked reduction in values that has occurred since March 2007, has benefited shareholders.

The Board also believes that, despite the current state of the housing market, the high and rising level of housing need in the UK combined with the public commitments by the main political parties to finding an effective solution to what they recognise to be an important social problem, means that the Group's strong focus on housing regeneration should enable it to generate substantial rewards for shareholders in the longer term.

Progress during the Period

The Group sold its remaining two investment properties in Sheffield to one investor and recorded a profit on the transaction. This brings to an end the disposal programme of investment properties by the Group as a result of the Strategic Announcement in March 2006.

The Group sold, at a profit, its investment in the non-core PFI Boldon Schools project, leaving just one non-core PFI investment, and hopes shortly to achieve financial close on the Leeds Independent Living PFI project which will yield a success fee and a long-term revenue stream from property management services. In addition the Group was appointed preferred development partner for the Rendezvous site in Margate, a substantial regeneration initiative in north east Kent. 

No strategic land sales were completed in the period under review (or since 1 July 2007).  Although the land market has weakened, the Group hopes to complete on a number of purchase and sale transactions before the end of June. However, the Board will continue to resist the temptation to sell land at a discounted value merely in order to meet year end targets.

The Group has maintained a net cash positive balance during the period and has not drawn down any of its £50m facility.

Legacy Issues

As previously disclosed, the Group retained specified assets and liabilities in relation to the disposal of its Building Contracting Division in August 2005 and its Engineering Division in October 2006. The Group continues to work on the liquidation process of these specified assets and liabilities.

In relation to one specific retained contract of the Building Contracting Division, the following update is provided. 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 by M J Gleeson Plc in June 2001 to build a substantial residential and retail complex called West One in Sheffield, which was completed in June 2004. The trial was expected to commence in the High Court in June 2008. The Group had undertaken significant work to put its defence in place and would have continued to defend the claim. Running parallel to this process, commercial negotiations were taking place with DGHL. As a result of these, a settlement has today been agreed with DGHL. The consequences of this are that a charge to the current year income statement of £4.1M will be made. Accordingly, the full year market expectations will be reduced by this amount. The Group is pleased to have finally settled this issue which removes any further risk to the Group, including significant legal costs that would have been incurred in order to bring the issue to a close via court proceedings.

The retained contracts of the Building Contracting Division are classed as part of continuing operations for accounting purposes, but are not core to the ongoing profit stream of the Group.

Outlook

Other than the adjustment for the DGHL issue described above, the Board believes that a financial outcome for the current year in line with market expectations remains achievable. However, this is crucially dependent on the Group's housing and strategic land divisions meeting their most recent forecasts.

Enquiries:

M J Gleeson Group plc 01252-360 300

Paul Wallwork (Group Chief Executive)

Chris Holt (Group Finance Director)

Bankside Consultants Limited

Charles Ponsonby 020-7367 8851