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15 May 2008 16:13
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Thursday 15Β MayΒ 2008
M J GLEESON GROUP PLC
INTERIM MANAGEMENT STATEMENTΒ
Gleeson is today issuing its Interim Management Statement, covering the periodΒ sinceΒ 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 thisΒ 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 areasΒ in partnership withΒ orΒ forΒ public bodies. The Group has a specialist business unit that takes the lead in developingΒ PFIΒ 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 andΒ property owning organisations.Β The Group's commercial property development business, as announcedΒ 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finance.Β Since this announcement,Β marketΒ conditions have deterioratedΒ further.Β Many mortgage products have been withdrawn, mortgage rates and fees have increased and more substantial depositsΒ areΒ being required byΒ mostΒ lenders.Β Moreover consumer confidence has also declined.
Impact On The Group's Operations
These developments have inevitably resulted inΒ aΒ considerablyΒ lower number of visitors to our housing sites, which areΒ substantially north ofΒ EnglandΒ based (Liverpool,Β ManchesterΒ andΒ Sheffield),Β than during the comparable period last year and aΒ significantΒ slowing down in the number of legal completions.Β This has been more pronounced on theΒ Group'sΒ large estate regeneration projects,Β undertaken in collaboration with public bodies,Β than onΒ itsΒ brownfield projects in the private sector.Β
In order to protect shareholder value in what is likely to be a very protracted period of market uncertainty, the Group is committedΒ toΒ maintainingΒ a very high priority to cash management and to the protection of the Group's strong balance sheet.Β Land purchases are being kept at minimum levels and construction work in progress and overheads are being subjectedΒ to rigorous review and control.Β Where appropriateΒ the GroupΒ 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. NoneΒ theΒ less it is clear that the decisionΒ to withdraw from this activity, andΒ the timing of this decision,Β ahead of the marked reduction in values that has occurred sinceΒ March 2007, has benefited shareholders.
The Board also believes that,Β despite the current state of the housing market, the high and rising level of housing need in the UKΒ combined withΒ the public commitmentsΒ by theΒ main political parties to finding an effective solution to what they recognise to be anΒ importantΒ 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 soldΒ itsΒ remaining two investment properties inΒ SheffieldΒ to one investorΒ and recorded a profit on the transaction.Β This brings to an end the disposal programmeΒ of investment properties by the Group as a result of the Strategic Announcement in March 2006.
The GroupΒ sold,Β at a profit,Β its investment in the non-coreΒ PFIΒ Boldon Schools project, leaving just one non-coreΒ PFIΒ investment,Β andΒ hopesΒ shortlyΒ to achieve financial close on the Leeds Independent LivingΒ PFIΒ project which willΒ yieldΒ a success fee andΒ aΒ long-term revenue streamΒ fromΒ property management services.Β In additionΒ the Group wasΒ appointedΒ preferred development partner for the Rendezvous site inΒ Margate, a substantial regeneration initiative in north eastΒ Kent.Β
No strategic landΒ sales wereΒ completed in the period under reviewΒ (or sinceΒ 1 July 2007).Β Β Although theΒ landΒ market has weakened,Β the GroupΒ hopesΒ to complete onΒ a number ofΒ purchase and saleΒ transactionsΒ before the end of June. However, the BoardΒ will continue to resist the temptationΒ to sell landΒ at a discounted valueΒ 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 itsΒ Β£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 contractΒ ofΒ the Building Contracting Division,Β the following update is provided.Β In March 2007, Devonshire Green Holdings Limited (DGHL) issued a claim for damages in the High Court to the value of Β£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 inΒ Sheffield, which was completed in June 2004. The trialΒ wasΒ expectedΒ to commence in the High Court in June 2008.Β The Group hadΒ undertaken significantΒ work to put its defence in placeΒ and would haveΒ continuedΒ to defend the claim.Β Running parallel to this process,Β commercialΒ negotiationsΒ were takingΒ place with DGHL.Β As a result of these, a settlement hasΒ todayΒ been agreedΒ with DGHL. The consequences of this are that a charge to the current yearΒ income statementΒ of Β£4.1MΒ will beΒ 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 viaΒ court proceedings.
TheΒ retained contracts of the Building Contracting Division areΒ classed as part of continuingΒ operationsΒ for accounting purposes, butΒ areΒ not coreΒ to theΒ ongoing profit streamΒ ofΒ the Group.
Outlook
Other than theΒ adjustment for the DGHL issueΒ described above,Β 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 recentΒ forecasts.
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M J Gleeson Group plc Integration House RyeΒ Close AncellsΒ BusinessΒ Park Fleet Hampshire GU51 2QG |
By order of the Board Dermot Gleeson Chairman |
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
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