TIDMGLE
RNS Number : 8161Y
MJ Gleeson PLC
14 September 2020
MJ GLEESON PLC 14 September 2020
("Gleeson" or "the Group" or "the Company")
Audited results for the year ended 30 June 2020
Gleeson, the low-cost housebuilder and strategic land
specialist, announces audited results for the year ended 30 June
2020 ("2020")
-- 2020 results reflect Covid-19 impact on historically critical Q4 period
-- Strong start to 2021 with record order book and work in progress, and high levels of demand
-- Strong platform for future growth
-- Board re-affirmed target to reach 2,000 units p.a. in 2022
2020 2019 Change
Revenue GBP147.2m GBP249.9m -41%
Operating profit GBP5.9m GBP41.0m -86%
Profit before tax GBP5.6m GBP41.2m -86%
EPS 8.1p 61.0p -87%
Cash net of borrowings GBP16.8m GBP30.3m -45%
ROCE 3.1% 25.9% -2,280bps
Dividend per share - 34.5p N/A
Resilient business model
Gleeson Homes:
-- Volumes down 29.9% to 1,072 units sold (2019: 1,529 units)
-- Gross profit margin on unit sales 27.8% (2019: 30.1%) due to
GBP2.9m of Covid-19 related costs
-- Operating profit down 70.1% to GBP9.0m (2019: GBP30.1m)
-- Average Selling Price GBP130,900 (2019: GBP128,900)
-- Land pipeline, including conditionally purchased sites, of
13,801 plots (2019: 13,575 plots)
-- Board re-affirmed target to reach 2,000 units p.a. in 2022
-- Platform for future growth put in place prior to Covid-19
Gleeson Strategic Land:
-- Operating profit of GBP0.2m (2019: GBP13.0m)
-- Two land sales completed during the year (2019: nine)
-- Eleven sites with planning consent or resolution to grant
with the potential to deliver 3,855 plots
-- Portfolio: 68 sites (2019: 60 sites) with the potential to
deliver 23,314 plots (2019: 21,730 plots)
-- Demand expected to return during 2021
Resilient financial position
-- Gross cash balance GBP76.8m (2019: GBP30.3m)
o GBP60m bank loans drawn down and proceeds of GBP16.4m (gross)
share placement
o GBP10m overdraft facility remained undrawn
o GBP6.6m interim dividend cancelled; no final dividend
proposed
-- Capital prioritised in short term to delivering target of 2,000 homes per annum in 2022
-- Dividends to resume as soon as prudent to do so
Dermot Gleeson, Chairman, commented:
"First and foremost, and on behalf of my Board colleagues, I
would like to say how grateful we are to our employees,
subcontractors, suppliers and customers in helping us to respond
quickly to the Covid-19 crisis. These results, whilst a significant
reduction on the prior year, reflect their efforts and the overall
resilience of the business.
"Our unique business model is focussed on building high-quality,
low-cost homes in the North of England and the Midlands and
continues to deliver homes to the people who need them most. The
majority of our customers are young, first-time buyers and around
two-thirds are key workers, who can now benefit from our recently
introduced Gleeson Key Worker Priority Programme.
"We are currently seeing strong demand and expect this to
continue through the year as the demographics of our customer base
and the nature and price point of our product helps to insulate us
from the impacts of rising unemployment, the end of the stamp duty
holiday and the forthcoming changes to the Help to Buy scheme.
"We have therefore re-affirmed our interim target of delivering
2,000 homes per annum in 2022 and will prioritise investment in the
business to achieve it.
"We expect the strategic land market will continue to recover as
house builders cautiously scale up their targets for the
acquisition of new sites.
"The Board recognises the uncertainties arising from both the
continuing pandemic and the UK's withdrawal from the EU.
Nonetheless, our balance sheet remains strong and the Board is
cautiously optimistic that the Group will see significant growth in
the current year and beyond."
This announcement contains inside information. The person
responsible for arranging the release of this announcement on
behalf of the company is Stefan Allanson, Chief Financial
Officer.
LEI: 21380064K7N2W7FD6434
Enquiries:
MJ Gleeson
plc Tel: +44 1142 612900
James Thomson Chief Executive Officer
Stefan Allanson Chief Financial Officer
Instinctif Tel: +44 20 7457 2020
Mark Garraway
Rosie Driscoll
N+1 Singer
Shaun Dobson Tel: +44 20 7496 3000
Rachel Hayes
Liberum
Neil Patel Tel: +44 20 3100 2222
Richard Bootle
Chairman's Statement
I would like to thank our employees, subcontractors, suppliers
and customers for their truly exceptional support in response to
the Covid-19 crisis. This has been invaluable in helping us to
maintain the continuity of our business.
Gleeson Homes' sites and sales offices were closed from 25 March
2020 until 14 May 2020 when we commenced a phased restart. This
resulted in a 30% drop in the number of completions during the year
to 1,072 new homes (2019: 1,529) and also in a reduction in the
number of new sites opened.
I am delighted to report that Gleeson Homes has started the new
financial year with a record forward order book and a record level
of work in progress. The Board has therefore reaffirmed its target
that Gleeson Homes will reach 2,000 unit completions per annum in
2022.
Since his appointment as Chief Executive Officer in 2019, James
Thomson has focused on ensuring that Gleeson Homes has the platform
needed to support our growth ambitions and has overseen significant
changes across our organisational, build process and sales
structures. We used the period of shutdown to review the division's
processes, resulting in further improvements to both our health and
safety regime and our operational efficiency in a number of
areas.
Gleeson Strategic Land was also adversely affected by the
pandemic, which caused the virtual closure of the land market.
However, a number of significant land sales that had been planned
for delivery during the final quarter of the year are now expected
to complete in the current financial year.
Market
Despite the continuing pandemic, the fundamentals of the housing
market remain strong. Demand for affordable new homes remains high
and we continue to see selling prices above pre-Covid-19 levels.
Mortgage finance continues to be available, supported by
historically low interest rates.
Many families living in rented accommodation re-evaluated their
housing needs during the lockdown and took the opportunity created
by limited spending opportunities to save for a deposit on a home
of their own.
Help to Buy continues to assist first-time buyers into home
ownership and we welcome the announcement of the Government's
decision to extend the deadline for buyers using the existing
scheme to 28 February 2021. The new scheme, which comes into force
from 1 April 2021, will be limited to first-time buyers and subject
to regional price caps. 84% of our customers are first-time buyers
and the selling price of almost all of our houses is below the
proposed caps.
Around two-thirds of our customers are key workers and in
recognition of the extraordinary contribution they are making we
introduced the Gleeson Key Worker Priority Programme, which offers
such workers a range of attractive benefits.
The strategic land market is seeing demand returning as medium
and large-sized housebuilders seek to replace completed
developments with good-quality consented sites.
Our people
We welcomed the support offered to businesses by the
Government's Job Retention Scheme. 456 employees (76%) of our
employees were furloughed, all of whom have now returned to
work.
The Board and senior management accepted temporary salary
reductions ranging from 5% to 30% so that more junior colleagues
could continue to receive full or near-full pay. I am very grateful
for the commitment to the Company that has been shown by all our
employees during what has been an exceptionally challenging
period.
This year we launched our "Vision, Mission and Values"
initiative in which our employees sought, very successfully, to
articulate and embed the key values that they believe should drive
the Company's behaviour. The detailed outcome of this important
exercise is set out in the Annual Report which is subject to
approval by shareholders at the AGM.
The results of our latest employee survey show that the level of
employee engagement and satisfaction with the Company is very
high.
Board composition
We were delighted to appoint James Thomson as permanent Chief
Executive Officer on 2 December 2019.
Andrew Coppel, CBE and Fiona Goldsmith joined the Board as
Non-Executive Directors on 1 October 2019. Ross Ancell and Colin
Dearlove stepped down as Non-Executive Directors on 30 June 2020. I
would like to thank Ross and Colin for the many years during which
they served the Company with great distinction.
Leanne Johnson was appointed Head of Legal and Company Secretary
on 25 March 2020.
The Board has decided to initiate a search for an additional
independent Non-Executive Director.
Ensuring financial resilience
As soon as the impact of Covid-19 became apparent, the Board
took swift action to reinforce the Group's financial position. In
April we successfully completed a share placing to raise GBP16.4m
(gross) in proceeds. We also took the decision to draw down GBP60m
of the available GBP70m bank facility, agree to have waived and
reset certain bank covenants, and to cancel the previously declared
interim dividend to retain GBP6.6m. A further GBP10m overdraft
facility remains undrawn and available. These actions meant that
the Group finished the year with a cash balance of GBP76.8m. The
Group's cash balance, net of borrowings, at 30 June 2020 was
GBP16.8m (2019: GBP30.3m).
Whilst the Board is confident that the Group will see
significant growth in the current year, our priority is to ensure
the continued resilience of the business and to meet its interim
target of delivering 2,000 homes per annum in 2022.
The Board has therefore taken the prudent decision not to
propose a final dividend (2019: 23.0 pence per share) but, in line
with its capital allocation policy, is committed to resuming
dividend payments on a progressive basis as soon as it is prudent
to do so.
Outlook and summary
Our unique business model is focussed on building high-quality,
low-cost homes in the North of England and the Midlands and
continues to deliver homes to the people who need them most. The
majority of our customers are young, first-time buyers and around
two-thirds are key workers, who can now benefit from our recently
introduced Gleeson Key Worker Priority Programme.
We are currently seeing strong demand and expect this to
continue through the year as the demographics of our customer base
and the nature and price point of our product helps to insulate us
from the impacts of rising unemployment, the end of the stamp duty
holiday and the forthcoming changes to the Help to Buy scheme.
We have therefore reaffirmed our interim target of delivering
2,000 homes per annum in 2022.
We expect the strategic land market will continue to recover as
house builders cautiously scale up their targets for the
acquisition of new sites.
The Board recognises the uncertainties arising from both the
continuing pandemic and the UK's withdrawal from the EU.
Nonetheless, the Board is cautiously optimistic that the Group will
resume its pre-Covid trajectory and deliver significant growth in
the current year and beyond.
Dermot Gleeson
Chairman
13 September 2020
Chief Executive's Statement
The last 12 months represent my first full year at Gleeson and
it is a business that I am passionate about.
Prior to lockdown, we had been focused on ensuring that the
business had the platform in place to deliver our growth
ambitions.
Consequently, it has been a year that has seen significant
change in the organisational structure of the business to support
our growth ambitions. Combined with the investment in safety,
people and sites, this has given us the confidence, despite the
disruptions caused by the pandemic, that we remain on track to meet
the aim of delivering 2,000 homes a year in 2022.
Our ambition is to maintain growth well beyond 2022, driven by
the underlying structural need for low-cost quality homes for
first-time buyers - one that is driven by household formation, the
aspiration to, and recognised benefits of, home ownership as well
as the simple fact that it is substantially cheaper to buy a
Gleeson home than to rent a similar property.
The last four months of the financial year, typically our
strongest selling period, required us to focus on responding to
Covid-19. In dealing with the impact of the pandemic, our first
priority has been to protect our employees, subcontractors,
suppliers, customers and the communities in which we operate.
For that reason, we took the decision in March to implement a
controlled shutdown of all our sites and sales offices and placed
76% of employees on furlough, utilising the Government's Job
Retention Scheme to protect jobs. Trading during the final quarter
of the year, usually our strongest quarter, was almost entirely
"lost" resulting in Gleeson Homes full year completions falling
29.9% to 1,072 (2019: 1,529) and Gleeson Strategic Land completing
the sale of only two sites during the year.
Over the period of shutdown we took the opportunity to replan
build programmes across all sites, prepare for new site openings
and implement robust Covid-secure working practices. We recommenced
build activity in May 2020 on a gradual, phased basis, with initial
on-site activity in late May and June focused on site
infrastructure and other groundworks ahead of returning to plot
build activity on some sites from mid-June. All sites are now fully
build active and all sales offices are open with strong interest
seen from customers.
Strategic Land, which had been expecting to complete a number of
significant land sales in the final quarter, did not complete any
further sales. Whilst these sales have been delayed, we expect
these will all still proceed to completion in this financial year
as land activity picks back up.
Trading results
The impact of the shutdown and loss of fourth quarter
completions meant that operating profit for Gleeson Homes fell by
70.1% to GBP9.0m (2019: GBP30.1m).
Average selling prices at GBP130,900 were up 1.6% driven by 3.3%
higher underlying prices offset by changes in bed and site mix.
Gross margin on units decreased to 27.8% (2019: 30.1%) due to the
impact of Covid-19. Strategic Land had anticipated completing most
of its transactions during the final quarter of the year. House
building customers paused the purchase of sites during the final
quarter and, as a result, the division was broadly break-even with
an operating profit of GBP0.2m (2019: GBP13.0m).
Group profit before tax for the year fell by 86.4% to GBP5.6m
(2019: GBP41.2m).
The business took swift action to protect cash at the start of
the Covid-19 pandemic, including cancellation of the interim
dividend, pausing build activity and land acquisition, cutting
discretionary expenditure, furloughing 76% of staff, a freeze on
recruitment and senior managers and directors volunteering to
accept significant temporary pay cuts. The Group also drew down
GBP60m of loans from its GBP70m committed bank facility and raised
a further GBP16.4m of gross funds from a successful share placing
in April 2020.
As a result, the business started the new financial year with a
strong balance sheet and GBP76.8m of cash. This will support our
growth ambitions and we expect to open a significant number of new
sites in the year ahead.
Key Performance Indicators
Gleeson Homes volumes 2016 2017 2018 2019 2020
Unit volumes 904 1,013 1,225 1,529 1,072
----- ------ ------ ------ ------
Units (homes) sold were heavily impacted by Covid-19.
Gleeson Homes land 2016 2017 2018 2019 2020
pipeline
Plots 9,284 11,588 12,852 13,575 13,801
------ ------- ------- ------- -------
Land continues to be available to buy at sensible prices.
Gleeson Homes active 2016 2017 2018 2019 2020
build sites
Active sites 48 59 65 69 71
----- ----- ----- ----- -----
Gleeson Homes opened 12 sites, completed 10 sites and increased
net active sites by 2 sites during the year.
Gleeson Strategic 2016 2017 2018 2019 2020
Land portfolio
Plots 21,111 21,505 22,838 21,730 23,314
------- ------- ------- ------- -------
Strategic Land's portfolio represents over 12 years of normal
sales activity.
Operations
Gleeson Homes strengthened its operational structure during the
year by recruiting and appointing Mark Knight as Managing Director
of the business. It also appointed three existing and highly
experienced directors to newly created Divisional Managing Director
roles for each of its newly created divisions covering the North
West, the North East and Yorkshire & Midlands.
We have also invested in our Commercial, Customer Care,
Marketing, HR and IT functions to strengthen the business and
ensure it grows sustainably towards, and beyond, our target of
2,000 homes in 2022 which will represent a doubling of the number
of homes delivered by the business in five years.
The investment that we are making in our sites is transforming
their look and feel and enhancing the customer experience. Our
sites, sales offices and show homes are looking better than
ever.
I am pleased with the steps we have taken this year to further
strengthen the business and I believe that we will emerge from this
pandemic in many ways stronger than we were 12 months ago.
Quality
Buying a house is the single biggest financial transaction in
most people's lives and we want our customers to be delighted with
their new Gleeson home and with their experience of buying from
us.
For that reason, we have invested in our Customer Care team,
introduced virtual tours of our show homes, launched our new
Gleeson Homes customer website, enhanced the My Gleeson portal and
implemented the new Gleeson Quality Charter. This is about
embedding quality across the business and into everything that we
do, so we deliver what our customers want and expect from us.
We have also partnered with In-house Research, an independent
customer research company, to gather feedback from our customers.
Our goal is to be "five star" wherever we operate and to ensure we
deliver a quality home to our customers, getting it right first
time, on time. Our customer recommendation scores at 88% puts us in
line with the HBF "four star" rating. Our objective is to be "five
star" by the end of this year.
Sustainability
Our vision is "Building Homes. Changing Lives" and I am proud of
Gleeson Homes' mission: "Changing lives by building affordable,
quality homes. Where they are needed, for the people who need them
the most". Our vision, mission and values were developed by
colleagues across the business and embody what we do every day.
At the heart of what we do is build homes that are genuinely
affordable and provide our customers with the opportunity for
wealth creation through home ownership. It is substantially cheaper
to buy a Gleeson home than rent with a typical three-bed Gleeson
home costing as little as GBP76 per week with a Help to Buy
mortgage compared to renting a three-bed home which costs around
GBP138 per week in the private rental market.
A working couple on the Minimum Wage can buy a home on any
Gleeson Homes development site. As a result, we believe 100% of
Gleeson Homes turnover is aligned with achieving "access for all to
adequate, safe and affordable housing". This is the first target of
the UN's Sustainable Development Goal 11: "Sustainable Cities &
Communities".
The majority of our sites are on brownfield land, often in areas
of deprivation and in need of regeneration. We improve the
communities in which we operate and provide the opportunity for our
customers to escape the "rent trap", create wealth and have the
security of owning their own home.
Our belief is that everyone who is involved in or affected by
our activities has the right to remain free from harm and return
home safe, every day. That is why we launched our HomeSafe brand
this year: "HomeSafe - everyone, every day". It is fundamental to
ensuring that not only do we meet our legal and moral health and
safety duties, but that we strive to go above and beyond these
standards.
We are fully committed to sustainability, and social
responsibility has always been at the heart of our business. We
have prepared our first report on sustainability in the pages of
this year's Annual Report to demonstrate our significant ongoing
commitment to this important area that is now attracting greater
investor interest.
Trading and outlook
Whilst the business has been challenged this year by the
Covid-19 pandemic, I remain confident that we will achieve our
ambition of delivering 2,000 new homes per year in 2022. We started
the new financial year with a strong forward order book up 52% on
prior year and work in progress up 55% as measured in terms of unit
equivalents built. Reservation rates have picked up significantly
post lockdown and selling prices on new reservations are above
pre-Covid levels. Build rates per site are increasing and we expect
to return to pre-Covid levels of build activity by January
2021.
Whilst there remains uncertainty in the short term in relation
to both Covid-19 and the UK's exit from the EU, particularly in
terms of unemployment, house prices and mortgage availability, the
market fundamentals for our homes remain strong. These are driven
by 200,000 new households which are formed each year, many of which
are young people, leaving home and having families of their own and
the lack of supply of affordable new homes for first-time buyers.
Two-thirds of customer reservations since May 2020 are from key
workers who are those that are keeping us all safe, fed and healthy
at this unprecedented time.
Our Strategic Land business enters the new financial year with a
strong pipeline and, as the industry picks back up, the demand for
consented land is expected to return.
As a result, we maintain our focus on strong growth in the
current financial year and beyond.
James Thomson
Chief Executive Officer
13 September 2020
Gleeson Homes - Business Performance
Gleeson Homes enters the new financial year in a strong position
with a forward order book of GBP145.3m on 1,033 units, work in
progress well advanced and a healthy pipeline of land
opportunities.
2020 2019
Units sold 1,072 1,529
----------- -----------
Average selling GBP130,900 GBP128,900
price
----------- -----------
Operating profit GBP9.0m GBP30.1m
----------- -----------
2016 2017 2018 2019 2020
Unit volumes 904 1,013 1,225 1,529 1,072
------ ------- ------- ------- -------
Land Pipeline (plots) 2016 2017 2018 2019 2020
------ ------- ------- ------- -------
Owned 4,357 5,320 6,475 6,525 6,849
------ ------- ------- ------- -------
Awaiting completion 4,927 6,268 6,377 7,050 6,952
------ ------- ------- ------- -------
Total 9,284 11,588 12,852 13,575 13,801
------ ------- ------- ------- -------
Performance in the year was heavily impacted by the Covid-19
pandemic, with the division completing the sale of 1,072 homes, a
reduction of 29.9% compared to the previous year (1,529 homes).
However, we enter the new financial year with our strongest ever
forward sales position of GBP145.3m on 1,033 units (2019: GBP87.6m
on 677 units) and work in progress, as measured in terms of unit
equivalents built, up 55% on the prior year.
We opened 12 new build sites during the year and closed the year
with 71 active build sites (2019: 69), of which 65 were actively
selling (2019: 69). Our average active build and sales sites were
68 and 65 respectively (2019: 65 and 65). Our sales outlets are
located across the North of England and the Midlands, with plans to
expand our geographical reach. The business plans to open 25 sites
during the new financial year, which would be a record number, and
expects to have 80 active build sites by 30 June 2021.
The average selling price ("ASP") for homes sold in the year was
GBP130,900 (2019: GBP128,900). The increase was influenced by a
combination of factors: house price inflation, mix of site
locations and the mix of two-, three- and four-bed homes sold. Our
aim is to ensure that our selling prices remain affordable for
young first-time buyers and low-income families.
Gross profit margin on homes sold decreased to 27.8% (2019:
30.1%) due to costs associated with responding to Covid-19.
The reduction in the volume of homes sold resulted in gross
profit decreasing by 34.1% to GBP39.1m, which included GBP0.1m in
relation to land sales (2019: GBP59.3m, GBPnil land sales), and
operating profit decreasing by 70.1% to GBP9.0m, including GBP0.1m
in relation to land sales (2019: GBP30.1m, GBPnil land sales).
Operating margin decreased from 15.3% to 6.4%.
We continue to acquire land at sensible prices. The pipeline
grew by 226 plots to stand at 13,801 plots at 30 June 2020. Of
these plots 6,849 are owned (2019: 6,525) and 6,952 plots are
conditionally purchased (2019: 7,050). The number of sites in the
land pipeline totalled 149 at year end, being five sites higher
than the prior year end; 27 new sites were added to the pipeline,
while 22 sites were completed or did not proceed to purchase. In
addition to owned and conditionally purchased plots, there are a
further 798 (2019: 473) plots which are being actively considered
for acquisition but will only proceed if they meet our strict
criteria.
The Government's Help to Buy scheme remains popular with many of
our customers, with 66% of the homes sold during the year utilising
the scheme (2019: 68%). We also continue to provide our own range
of bespoke packages to assist potential customers to become
homeowners and recently launched our Key Worker Priority Programme,
providing a range of benefits to show our support for key workers
looking to purchase a new home.
Gleeson Strategic Land - Business Performance
Whilst the financial performance of the division was severely
impacted by the Covid-19 crisis, we have continued to invest
sensibly in our land portfolio and advance existing sites through
the planning system. The business comes into the new financial year
with a strong pipeline of sites ready for sale.
2020 2019
Plots sold 195 1,755
-------- ---------
Land portfolio
(plots) 23,314 21,730
-------- ---------
Operating profit GBP0.2m GBP13.0m
-------- ---------
Land Portfolio 2020 2019
(sites)
Planning consented 11 9
------- -------
Planning submitted 7 6
------- -------
Allocated sites 9 8
------- -------
Not allocated 41 37
------- -------
Total 68 60
------- -------
Land portfolio 2020 2019
(plots)
------- -------
Freehold 770 770
------- -------
Held under option 7,760 8,553
------- -------
Promotion agreement 14,784 12,407
------- -------
Total 23,314 21,730
------- -------
Revenue from Gleeson Strategic Land fell to GBP6.3m (2019:
GBP52.9m) generated from the sale of two small sites during the
year. The sites sold totalled 26 acres with the potential to
deliver 195 plots.
A number of large transactions were delayed as a result of the
Covid-19 pandemic and are now expected to complete in the new
financial year. As a result, operating profit of GBP0.2m was
significantly down on the previous year (2019: GBP13.0m).
As the land market takes tentative steps towards recovery, we
are seeing demand returning with enquiries from a broad range of
housebuilders. The land market, particularly for sites in prime
locations in the South of England, is expected to recover
strongly.
At 30 June 2020, we had a portfolio totalling 68 sites (2019: 60
sites) with the potential to deliver 23,314 plots (2019: 21,730
plots) plus 44 acres of commercial land (2019: 44 acres). During
the year, we secured planning permissions for five sites and
acquired interests in nine new sites. These new sites contributed a
further 1,888 plots to the portfolio.
Despite the impact of Covid-19, we continue to see opportunities
to add well-located, strategic sites to the portfolio where we see
potential for future residential development and where we can
deliver maximum value for stakeholders.
Our Strategic Land team is based in Fleet, Hampshire and the
portfolio continues to have a geographic bias towards the South of
England. Sites in the portfolio are expected to realise value over
the short, medium and long term driven by the planning context of
each individual site.
Financial Review
Despite the significant challenge surrounding the Covid-19
pandemic, we responded swiftly and decisively to protect value and
ensure that we have the working capital needed to finance our
growth plans.
Key Performance Indicators
Divisional operating 2016 2017 2018 2019 2020
profit*
Gleeson Homes GBP19.5m GBP22.8m GBP26.2m GBP30.1m GBP9.0m
--------- --------- --------- --------- --------
Gleeson Strategic GBP10.2m GBP12.0m GBP12.6m GBP13.0m GBP0.2m
Land
--------- --------- --------- --------- --------
* Gleeson Homes operating profit includes profit on land sales
of GBP0.1m in 2020, GBPnil in 2019; GBPnil in 2018; GBP1.0m in
2017; and GBPnil in 2016.
2016 2017 2018 2019 2020
Group profit before GBP28.2m GBP33.0m GBP37.0m GBP41.2m GBP5.6m
tax
--------- --------- --------- --------- ---------
Total dividend 14.5p 24.0p 32.0p 34.5p nil
--------- --------- --------- --------- ---------
Cash balance GBP23.2m GBP34.1m GBP41.3m GBP30.3m GBP76.8m
--------- --------- --------- --------- ---------
Return on capital
employed* 23.2% 25.4% 26.6% 25.9% 3.1%
--------- --------- --------- --------- ---------
Normalised earnings
per share 42.6p 48.5p 55.6p 61.0p 8.1p
--------- --------- --------- --------- ---------
* Return on capital employed is calculated based on earnings
before interest and tax ("EBIT") from continuing and discontinued
operations before exceptional items expressed as a percentage of
the average of opening and closing net assets after deducting
deferred tax balances and cash net of borrowings.
Covid-19 impacted results
As a result of the Covid-19 pandemic, the results for the Group
are significantly below those reported for the previous financial
year. Revenue reduced by 41.1% to GBP147.2m (2019: GBP249.9m).
Gleeson Homes revenue fell 28.5% to GBP140.9m (2019: GBP197.0m)
with its final quarter of completions almost entirely wiped out. As
a result, there was a 29.9% decrease in the number of homes sold to
1,072 (2019: 1,529). Selling prices, however, held up strongly with
an increase to average selling price ("ASP") for the year to
GBP130,900 (2019: GBP128,900).
Gleeson Strategic Land sold only two small sites during the year
generating revenue of GBP6.3m (2019: GBP52.9m). The land sales that
were planned in the final quarter are now expected to complete in
the new financial year.
Gross profit for the Group fell by 46.1% to GBP40.4m (2019:
GBP75.0m). The gross profit of Gleeson Homes decreased by 34.1% to
GBP39.1m (2019: GBP59.3m). Gross profit margin also reduced, as
expected, from 30.1% to 27.8%. The impact of Covid-19 related costs
and provisions totalled GBP2.9m. This includes non-productive site
overhead costs incurred during the controlled closure and lockdown
period which would otherwise have been added to work in progress;
additional costs incurred due to extended site durations resulting
from reduced productivity levels impacting site margins; and
increased provisions for abortive land bid costs on sites not yet
owned which may no longer be viable to purchase as a result of
heightened uncertainty and additional costs associated with
operating under Covid-19 guidelines. The gross profit achieved on
sales in Gleeson Strategic Land was GBP1.3m (2019: GBP15.7m).
Administrative expenses increased by GBP0.2m (0.5%) in the year
as investment to support the underlying growth of the business
continued. This investment was partially offset by GBP1.4m furlough
grant income under the Government's Job Retention Scheme during the
months of April to June 2020.
Operating profit from continuing operations was GBP5.9m (2019:
GBP41.0m), a reduction of 85.6% on the previous year. Gleeson Homes
contributed GBP9.0m (2019: GBP30.1m) and Gleeson Strategic Land
contributed GBP0.2m (2019: GBP13.0m), with Group overheads being
GBP3.3m.
Net finance expenses of GBP0.4m (2019: GBP0.2m income) consisted
of finance expenses of GBP1.1m (2019: GBP0.7m) being interest
payable on bank facilities, bank charges and the unwinding of
discounts on deferred payables partly offset by finance income of
GBP0.7m (2019: GBP0.9m) consisting of the unwinding of discounts on
deferred receivables on land sales and shared equity
receivables.
As a result, the Group delivered profit before tax of GBP5.6m
(2019: GBP41.2m).
Tax
A total tax charge, including discontinued operations, of
GBP0.7m (2019: GBP7.7m) has been recorded, reflecting an effective
rate of tax of 14.1% (2019: 18.8%). This reflects a lower profit
before tax, the use of Land Remediation Relief available to the
Group and the impact of the change in the tax rate from 17% to 19%
on the value of deferred tax assets.
Deferred tax assets relating to unused tax losses have been
recognised to the extent that it is probable that taxable profits
will be available against which the asset can be utilised. The
Group now has GBP12.7m (2019: GBP13.0m) of gross tax losses, of
which GBP3.8m (2019: GBP4.1m) are recognised in calculating the
deferred tax asset. The deferred tax asset recorded within the
consolidated statement of financial position totals GBP2.2m (2019:
GBP2.7m).
Discontinued operations
Discontinued operations incurred a loss after tax of GBP0.3m
during the year (2019: GBP0.3m). This related to the costs of
Gleeson Construction Services Limited, whose activity is limited to
resolving claims from the legacy businesses that were sold in 2005
and 2006. The level of claims has now reduced to an insignificant
level.
Profit for the year
The profit after tax for the year was GBP4.5m (2019:
GBP33.3m).
Earnings per share
Reported basic earnings per share from continuing and
discontinued operations decreased by 86.7% to 8.1 pence (2019: 61.0
pence).
Return on capital employed
Return on capital employed reduced to 3.1% (2019: 25.9%)
reflecting significantly lower returns this year due to the impact
of Covid-19.
Dividends
In response to the Covid-19 crisis, the Board took the decision
in March 2020 to cancel the interim dividend of 12.0 pence per
share (2019: 11.5 pence per share). The interim dividend would have
equated to GBP6.6m.
As a result of the ongoing uncertainty and the impact of
Covid-19, the Board has also taken the decision not to propose a
final dividend for the year (2019: 23.0 pence per share) but, in
line with its capital allocation policy, is committed to resuming
dividend payments on a progressive basis as soon as it is prudent
to do so.
Despite the remaining uncertainties and the impact of Covid-19
on this year's result, the Board maintains its interim target that
Gleeson Homes will deliver 2,000 homes per annum in 2022. The
Group, as a whole, expects to return to delivering significant
growth in the current year and beyond.
Statement of financial position
During the year to 30 June 2020, shareholders' funds increased
by 4.3% to GBP212.6m (2019: GBP203.9m). Net assets per share
decreased to 366 pence, a reduction of 2.1% year on year (2019: 374
pence).
In the year, non-current assets decreased by 7.7% to GBP20.3m
(2019: GBP22.0m). Property, plant and equipment balances increased
in the year mainly due to the recognition of right-of-use assets
under IFRS 16 "Leases", but this increase was more than offset by
the reduction in long-term debtors (GBP4.6m) and deferred tax
assets (GBP0.5m).
Current assets increased by 16.4% to GBP301.7m (2019:
GBP259.2m), with inventories increasing by GBP33.2m to GBP216.3m
and trade and other receivables decreasing by GBP37.5m to GBP8.3m.
Cash balances of GBP76.8m include the funds received from drawing
down GBP60m of the Group's GBP70m committed bank facility in March
2020, which remained drawn at 30 June 2020.
Total liabilities increased by 41.5% to GBP109.4m (2019:
GBP77.3m). Trade payables are significantly lower than in the
previous year at GBP25.4m (2019: GBP49.3m) reflecting the reduced
level of build activity during May and June. In addition, GBP3.1m
of lease liabilities have been recognised under IFRS 16 (2019:
GBPnil).
Cash flow
The Group's cash outflow before financing activities was
GBP15.9m, compared to cash generated in 2019 of GBP7.8m.
In March 2020, in response to the Covid-19 crisis, the Group
drew down GBP60m from its GBP70m committed bank facility. In April
2020, the Group undertook a successful share placing to add a
further GBP15.9m, net of costs, to cash reserves.
After payment of the final dividend for 2019 (GBP12.6m) in
December 2019, the Group generated GBP46.5m of cash flow.
Bank facilities
In October 2019, the Group increased its bank facility from
GBP40m to GBP70m and extended its maturity to October 2024. Of the
facility, GBP60m was fully drawn at the balance sheet date with the
GBP10m of overdraft facility remaining unutilised and
available.
As set out in note 1 of the financial information on pages 18
and 19, the bank facilities contain two covenants that are aligned
to profit generation on a 12-month rolling basis. As a result of
the financial modelling and risks to profitability against budget,
the Group has sought and agreed a waiver for certain covenant test
dates in the next 12 months. In their place a liquidity covenant
has been introduced.
Pension
The Group contributes to a defined contribution pension scheme.
A charge of GBP1.0m (2019: GBP1.0m) was recorded in the
consolidated income statement for pension contributions. The Group
has no exposure to defined benefit pension plans.
Stefan Allanson
Chief Financial Officer
13 September 2020
AUDITED CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2020
2020 2019
GBP000 GBP000
Continuing operations
Revenue 147,181 249,899
Cost of sales (106,744) (174,936)
--------------- ----------
Gross profit 40,437 74,963
Impairment losses (257) -
Administrative expenses (34,533) (34,256)
Other operating income 282 292
--------------- ----------
Operating profit 5,929 40,999
Finance income 708 906
Finance expenses (1,071) (693)
--------------- ----------
Profit before tax 5,566 41,212
Tax (758) (7,648)
--------------- ----------
Profit for the year from continuing operations 4,808 33,564
Discontinued operations
Loss for the year from discontinued operations
(net of tax) (289) (297)
Profit for the year attributable to the equity
holders of the parent 4,519 33,267
=============== ==========
Earnings per share from continuing and discontinued
operations
Basic 8.13 p 60.97 p
59.84
Diluted 8.04 p p
=============== ==========
Earnings per share from continuing operations
Basic 8.65 p 61.51 p
Diluted 8.55 p 60.37 p
=============== ==========
AUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2020
2020 2019
GBP000 GBP000
Profit for the year 4,519 33,267
Other comprehensive income
Items that may be subsequently reclassified
to profit or loss
Change in value of shared equity receivables
at fair value 13 131
Movement in tax on share-based payments taken
directly to equity 265 240
-------- -----------------
Other comprehensive income for the year, net
of tax 278 371
-------- -----------------
Total comprehensive income for the year 4,797 33,638
======== =================
AUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2020
2020 2019
GBP000 GBP000
Non-current assets
Property, plant and equipment 5,913 2,343
Investment properties - 257
Trade and other receivables 12,238 16,759
Deferred tax assets 2,176 2,659
20,327 22,018
========== =========
Current assets
Inventories 216,336 183,121
Trade and other receivables 8,328 45,795
Cash and cash equivalents 76,807 30,306
UK corporation tax 253 -
301,724 259,222
========== =========
Total assets 322,051 281,240
========== =========
Non-current liabilities
Trade and other payables (11,866) (8,774)
Provisions (200) (130)
---------- ---------
(12,066) (8,904)
========== =========
Current liabilities
Loans and borrowings (60,000) -
Trade and other payables (37,365) (65,068)
Provisions (15) -
UK corporation tax - (3,372)
(97,380) (68,440)
========== =========
Total liabilities (109,446) (77,344)
========== =========
Net assets 212,605 203,896
========== =========
Equity
Share capital 1,161 1,092
Share premium 15,843 -
Retained earnings 195,601 202,804
Total equity 212,605 203,896
========== =========
AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2020
Share Share Retained Total
capital premium earnings equity
GBP000 GBP000 GBP000 GBP000
At 1 July 2018 1,092 - 187,007 188,099
Total comprehensive income for
the year
Profit for the year - - 33,267 33,267
Other comprehensive income - - 371 371
Total comprehensive income for
the year - - 33,638 33,638
=============== ========= ========== =========
Transactions with owners, recorded
directly in equity
Contributions and distributions
to owners
Sale of own shares - - 32 32
Share-based payments - - 960 960
Dividends - - (18,833) (18,833)
Transactions with owners, recorded
directly in equity - - (17,841) (17,841)
=============== ========= ========== =========
At 30 June 2019 1,092 - 202,804 203,896
=============== ========= ========== =========
Adjustment on adoption of IFRS
16 on 1 July 2019 - - (87) (87)
Total comprehensive income for
the year
Profit for the year - - 4,519 4,519
Other comprehensive income - - 278 278
Total comprehensive income for
the year - - 4,797 4,797
=============== ======= ========= =========
Transactions with owners, recorded
directly in equity
Contributions and distributions
to owners
Share issue 69 15,843 - 15,912
Purchase of own shares - - (63) (63)
Share-based payments - - 717 717
Dividends - - (12,567) (12,567)
Transactions with owners, recorded
directly in equity 69 15,843 (11,913) 3,999
=============== ======= ========= =========
At 30 June 2020 1,161 15,843 195,601 212,605
=============== ======= ========= =========
AUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2020
2020 2019
GBP000 GBP000
Operating activities
Profit before tax from continuing operations 5,566 41,212
Loss before tax from discontinued operations (307) (264)
--------- ------------
5,259 40,948
Depreciation of property, plant and equipment 2,289 1,108
Share-based payments 717 960
Profit on redemption of shared equity receivables (223) (226)
Loss on disposal of property, plant and equipment 254 152
Impairment of investment properties 257 -
Finance income (708) (906)
Finance expenses 1,071 693
Operating cash flows before movements in working
capital 8,916 42,729
Increase in inventories (33,215) (22,604)
Decrease/(increase) in receivables 42,207 (27,133)
(Decrease)/increase in payables (28,236) 21,820
Cash (used)/generated in operating activities (10,328) 14,812
Tax received - 37
Tax paid (3,596) (5,944)
Finance costs paid (728) (314)
Net cash flow (deficit)/surplus from operating
activities (14,652) 8,591
========= ============
Investing activities
Proceeds from disposal of shared equity receivables 1,065 995
Proceeds from disposal of investment properties - 1
Interest received 64 72
Purchase of property, plant and equipment (2,410) (1,866)
Net cash flow deficit from investing activities (1,281) (798)
========= ============
Financing activities
Increase in loans and borrowings 60,000 -
Net proceeds from issue of shares 15,912 -
(Purchase)/sale of own shares (63) 32
Dividends paid (12,567) (18,833)
Principal element of lease payments (848) -
Net cash flow surplus/(deficit) from financing
activities 62,434 (18,801)
========= ============
Net increase/(decrease) in cash and cash equivalents 46,501 (11,008)
Cash and cash equivalents at beginning of year 30,306 41,314
Cash and cash equivalents at end of year 76,807 30,306
========= ============
NOTES TO THE FINANCIAL INFORMATION
for the year ended 30 June 2020
1. Accounting policies
Statement of compliance
The Group financial statements have been prepared and approved
by the Directors in accordance with International Financial
Reporting Standards ("IFRS") and IFRS Interpretations Committee
("IFRS IC") interpretations as adopted by the European Union.
Notes on the preliminary statement
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 30 June 2020 or
2019, but is derived from those accounts. Statutory accounts for
2019 have been delivered to the Registrar of Companies, and those
for 2020 will be delivered in due course. The auditors have
reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
Cautionary statement
This Report contains certain forward-looking statements with
respect to the financial condition, results, operations and
business of MJ Gleeson plc. These statements and forecasts involve
risk and uncertainty because they relate to events and depend upon
circumstances that will occur in the future. There are a number of
factors that could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements and forecasts. Nothing in this Report should be
construed as a profit forecast.
Directors' liability
Neither the Company nor the Directors accept any liability to
any person in relation to this Report except to the extent that
such liability could arise under English law. Accordingly, any
liability to a person who has demonstrated reliance on any untrue
or misleading statement or omission shall be determined in
accordance with section 90A of the Financial Services and Markets
Act 2000.
Basis of preparation
The accounting policies adopted in the preparation of these
accounts are consistent with those described in the Annual Report
and Accounts for the year ended 30 June 2019 with the exception of
the accounting policy for leases. This policy has been updated
following the implementation of IFRS 16 "Leases". Further details
can be found in Note 8.
Going concern
During the year, the Group took a number of actions in response
to the Covid-19 pandemic in order to protect liquidity. This
included cancellation of the interim dividend, pausing build
activity and land acquisition, cutting discretionary spend, and
implementing temporary pay cuts.
The Group also took the prudent step of fully drawing its
unutilised GBP60m revolving credit facility, which remained fully
drawn at year end resulting in a cash balance of GBP76.8m. In
addition, the Group has a GBP10m overdraft facility which remained
unutilised. In April 2020, the Group also completed a successful
placing of shares that raised GBP15.9m after fees.
Current forecasts are based on the latest three-year budget
approved by the Board in July 2020. This incorporated the impact of
Covid-19 on current operations and reflected a cautious view on
recovery with a corresponding impact on volumes and selling
prices.
These forecasts were then subject to a range of sensitivities
including a severe but plausible scenario together with the likely
effectiveness of mitigating actions. The assessment considered the
impact of a number of realistically possible, but severe and
prolonged, changes to principal assumptions including:
-- second Covid-19 lockdown during which time minimal activity occurs;
-- reduction in Gleeson Homes volumes of approximately 20%;
-- reduction in Gleeson Homes selling prices by 7.5%; and
-- prolonged impact on the timing of Gleeson Strategic Land transactions and land values.
Under these sensitivities, after taking mitigating actions, the
Group continues to have a sufficient level of liquidity to continue
in operation and meet its liabilities as they fall due.
The Group's bank facilities contain a covenant relating to the
ratio of EBIT (Earnings Before Interest and Tax) on a 12-month
rolling basis to interest costs (interest cover) together with a
covenant relating to the ratio of net debt to EBITDA (Earnings
Before Interest, Tax, Depreciation and Amortisation) on a 12-month
rolling basis.
As a result of the financial modelling and risks to
profitability against the budget, the Group has sought and agreed a
waiver for certain covenant test dates in the next 12 months. In
their place a liquidity covenant has been introduced.
Based on the results of the analysis undertaken and the covenant
waiver agreed with the bank, the Directors have a reasonable
expectation that the Company and the Group have adequate resources
available to continue in operation for the foreseeable future and
operate in compliance with their bank facilities. As such the
financial statements for the Company and the Group have been
prepared on a going concern basis.
2. Segmental analysis
The Group is organised into the following two operating
divisions under the control of the Executive Board, which is
identified as the Chief Operating Decision Maker as defined under
IFRS 8 "Operating Segments":
-- Gleeson Homes
-- Gleeson Strategic Land
All of the Group's operations are carried out entirely within
the United Kingdom. Segment information about the Group's
operations is presented below:
2020 2019
GBP000 GBP000
Revenue
Continuing activities:
Gleeson Homes 140,860 197,034
Gleeson Strategic Land 6,321 52,865
Total revenue 147,181 249,899
======== ========
Divisional operating profit
Gleeson Homes 8,960 30,068
Gleeson Strategic Land 229 13,013
-------- --------
9,189 43,081
Group administrative expenses (3,260) (2,082)
Finance income 708 906
Finance expenses (1,071) (693)
-------- --------
Profit before tax 5,566 41,212
Tax (758) (7,648)
-------- --------
Profit for the year from continuing operations 4,808 33,564
Loss for the year from discontinued operations
(net of tax) (289) (297)
Profit for the year 4,519 33,267
======== ========
The revenue in the Gleeson Homes segment primarily relates to
the sale of residential properties. In addition, within revenue for
Gleeson Homes is GBP510,000 relating to land sales (2019: GBPnil).
All revenue for the Gleeson Strategic Land segment is in relation
to the sale of land interests. There are no revenues relating to
Group activities.
No single customer accounts for more than 10% of revenue (2019:
GBP26,521,000 from one single customer).
Balance sheet analysis of business segments:
2020 2019
Assets Liabilities Net Assets Liabilities Net
assets assets
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gleeson Homes 198,201 (37,082) 161,119 171,608 (41,755) 129,853
Gleeson Strategic Land 45,902 (9,831) 36,071 78,861 (33,520) 45,341
Group activities/discontinued
operations 1,141 (2,533) (1,392) 465 (2,069) (1,604)
Net cash/(borrowings) 76,807 (60,000) 16,807 30,306 - 30,306
-------- ------------ -------- -------- ------------ --------
322,051 (109,446) 212,605 281,240 (77,344) 203,896
======== ============ ======== ======== ============ ========
3. Tax
Continuing Discontinued
operations operations Total
2020 2019 2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Current tax:
Current year expense 647 6,397 - - 647 6,397
Adjustment in respect of
prior years 91 (28) - - 91 (28)
Current tax expense for the
year 738 6,369 - - 738 6,369
------- ------- ------- ------- ------- -------
Deferred tax:
Current year (income)/expense (7) 1,350 - 37 (7) 1,387
Adjustment in respect of
prior years 113 (118) - - 113 (118)
Impact of rate change (86) 47 (18) (4) (104) 43
Deferred tax expense/(credit)
for the year 20 1,279 (18) 33 2 1,312
------- ------- ------- ------- ------- -------
Total tax charge/(credit) 758 7,648 (18) 33 740 7,681
======= ======= ======= ======= ======= =======
Corporation tax has been calculated at 14.1% of assessable
profit for the year (2019: 18.8%). The applicable UK corporation
tax rate is 19%, which has been effective from 1 April 2017.
The charge for the year can be reconciled to the profit per the
consolidated income statement as follows:
2020 2019
GBP000 GBP000
Profit before tax on continuing operations 5,566 41,212
Loss before tax from discontinued operations (307) (264)
Profit before tax 5,259 40,948
======= =======
Profit before tax multiplied by the standard
rate of UK corporation tax 19% (2019: 19%) 999 7,780
Tax effect of:
Expenses not deductible for tax purposes 7 4
Relief for share-based payments 7 -
Non-qualifying depreciation 19 -
Land remediation relief (182) -
Impact of change in tax rate (105) -
Impact of rate differences - 43
Adjustments in respect of prior years - current
tax (118) (28)
Adjustments in respect of prior years - deferred
tax 113 (118)
Total tax charge for the year 740 7,681
======= =======
Tax recognised directly in equity 2020 2019
GBP000 GBP000
Current tax related to equity-settled share-based
payments 767 -
Deferred tax related to equity-settled share-based
payments (502) 240
Total tax recognised directly in other comprehensive
income 265 240
======= =======
4. Dividends
2020 2019
GBP000 GBP000
Amounts recognised as distributions to equity
holders in the year:
Interim dividend for the year ended 30 June
2020 of GBPnil (2019: 11.5p) per share - 6,278
Final dividend for the year ended 30 June 2019
of 23.0p (2018: 23.0p) per share 12,567 12,555
12,567 18,833
======== ========
There are no dividends paid or proposed for the year ended 30
June 2020 (2019: 34.5p).
5. Earnings per share
Continuing and discontinued operations
The calculation of the basic and diluted earnings per share is
based on the following data:
2020 2019
Earnings GBP000 GBP000
Profit from continuing operations 4,808 33,564
Loss from discontinued operations (289) (297)
Profit for the purposes of basic and diluted
earnings per share 4,519 33,267
======== ========
2020 2019
No. 000 No. 000
Number of shares
Weighted average number of ordinary shares
for the purposes of
basic earnings per share 55,583 54,566
Effect of dilutive potential ordinary shares:
* share-based payments 625 1,027
Weighted average number of ordinary shares
for the purposes of
diluted earnings per share 56,208 55,593
======== ========
2020 2019
p p
Continuing operations
Basic earnings per share 8.65 61.51
Diluted earnings per share 8.55 60.37
======== ========
Continuing and discontinued operations
Basic earnings per share 8.13 60.97
Diluted earnings per share 8.04 59.84
======== ========
6. Financial instruments
The fair values of the Group's financial assets and liabilities
are not materially different from the carrying values. Shared
equity receivables are measured at fair value through other
comprehensive income ("FVOCI"). The following summarises the major
methods and assumptions used in estimating the fair values of
financial instruments.
Shared equity receivables at FVOCI
Group
2020 2019
GBP000 GBP000
Balance at 1 July 4,436 4,997
Redemptions (793) (679)
Unwind of discount (finance
income) 61 77
Fair value movement recognised in other comprehensive
income (36) 41
Balance at 30
June 3,668 4,436
======= =======
Shared equity receivables represent shared equity loans advanced
to customers and secured by way of a second charge on the property
sold. They are carried at fair value which is determined by
discounting forecast cash flows for the residual period of the
contract. The difference between the nominal value and the initial
fair value is credited over the deferred term to finance income,
with the financial asset increasing to its full cash settlement
value on the anticipated receipt date.
Redemptions in the year of shared equity loans carried at fair
value of GBP793,000 (2019: GBP679,000) generated a profit on
redemption of GBP223,000 (2019: GBP226,000) which has been
recognised in other operating income in the consolidated income
statement.
In addition, a net change in the value of shared equity
receivables of GBP13,000 (2019: GBP131,000) has been recognised in
other comprehensive income. This is made up as follows:
Group
2020 2019
GBP000 GBP000
Fair value movement recognised in other comprehensive
income (36) 41
Fair value recycled through profit and loss 49 90
Total movement recognised in other comprehensive
income 13 131
======= =======
Forecast cash flows are determined using inputs based on current
market conditions and the Group's historic experience of actual
cash flows resulting from such arrangements. These inputs are by
nature estimates and as such the fair value has been classified as
Level 3 under the fair value hierarchy laid out in IFRS 13 "Fair
value measurement". There have been no transfers between fair value
levels in the financial year.
Significant unobservable inputs into the fair value measurement
calculation include regional house price movements based on the
Group's actual experience of regional house pricing and management
forecasts of future movements, the anticipated period to redemption
of loans which remain outstanding and a discount rate based on
current observed market interest rates offered to private
individuals on secured second loans.
The key assumptions applied in calculating fair value as at the
balance sheet date were:
-- Forecast regional house price inflation: 2.0%
-- Average period to redemption: 5 years
-- Discount rate: 8%
6. Financial instruments (cont.)
The sensitivity analysis of changes to each of the key
assumptions applied in calculating fair value, whilst holding all
other assumptions constant, is as follows:
2020 2019
Change in assumption Increase / (decrease) Increase /
in fair value (decrease)
in fair value
GBP000 GBP000
Forecast regional house price inflation
- increase by 1% 181 218
Average period to redemption -
increase by 1 year (204) (246)
Discount rate - decrease by 1% 173 208
7. Related party transactions
In the prior year, the Group entered into a conditional
agreement to purchase an area of land from Hampton Investment
Properties Ltd ("HIPL") for GBP1,200,000. HIPL is a company in
which North Atlantic Smaller Companies Investment Trust plc
("NASCIT"), which is a substantial shareholder in the Company,
holds a majority interest. In addition, Christopher Mills, a
Non-Executive Director of the Company, is considered a related
party by virtue of his interest in and directorship of NASCIT and
his position as a Director of HIPL. The land, if purchased, will
form part of a new Gleeson Homes site being developed in the
ordinary course of business. Approval of this purchase was granted
by the majority of shareholders at the AGM in December 2019.
As announced during the year, a settlement agreement was reached
with the former Chief Executive Officer, Jolyon Harrison, on the
terms of his departure.
Other than disclosed above, there were no other transactions
with key management personnel in either the current or prior
year.
8. Adoption of new accounting standards
IFRS 16 "Leases"
IFRS 16 "Leases" applied to the Group from 1 July 2019,
replacing IAS 17 "Leases" and IFRIC 4 "Determining whether an
arrangement contains a lease". The new standard has been adopted
using the modified retrospective approach, under which the
cumulative effect of the initial application is recognised in
retained earnings at 1 July 2019. Comparative information has not
been restated.
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
operating leases under IAS 17. These liabilities are initially
measured at the present value of the remaining lease payments,
discounted using the Group's incremental borrowing rate as of 1
July 2019. The weighted average incremental borrowing rate applied
to lease liabilities on 1 July 2019 was between 3.0% and 3.5%
In applying IFRS 16 for the first time, the Group has used a
number of practical expedients permitted by the standard:
- The use of a single discount rate to a portfolio of leases
with reasonably similar characteristics.
- The accounting for leases with a remaining lease term of less
than 12 months from the date of initial application as short-term
leases.
- The exclusion of initial direct costs from the measurement of
right-of-use assets at the date of initial application.
- The use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
- The election to not separate non-lease components (e.g.
maintenance) from lease components on specific classes of assets,
namely vehicles.
The impact on transition to IFRS 16 at 1 July 2019 was that the
Group recognised an additional GBP3,419,000 of right-of-use assets
and GBP3,527,000 of lease liabilities. Additionally, a deferred tax
asset of GBP21,000 was recognised and the net difference of
GBP87,000 has been recognised in retained earnings.
8. Adoption of new accounting standards (cont.)
A reconciliation between operating lease commitments previously
reported in the financial statements for the year ended 30 June
2019 discounted at the Group's incremental borrowing rate and the
lease liabilities recognised in the balance sheet on initial
application of IFRS 16 is shown below.
Reconciliation of operating lease commitments disclosure
and IFRS 16 lease liabilities GBP000
Operating lease commitments at 30 June 2019 as previously
reported 4,261
Discounted at the Group's incremental borrowings
rate at 1 July 2019 (527)
Leases agreed but not yet commenced (191)
Other* (16)
------------
Total lease liabilities as at 1 July 2019 3,527
============
*Primarily attributable to short-life leases that do not meet
the criteria for capitalisation under the practical expedients
detailed above.
30 June 2020
GBP000
Impact of IFRS 16 on consolidated income statement
Depreciation
- Property (475)
- Plant and equipment (286)
-------------
(761)
Interest expenses included as finance cost (119)
-------------
(880)
=============
Statements of Directors' Responsibilities
The Statement of Directors' Responsibilities is made in respect
of the full Annual Report and the financial statements not the
extracts from the financial statements required to be set out in
the Announcement.
The 2020 Annual Report and Accounts comply with the United
Kingdom's Financial Conduct Authority Disclosure Guidance and
Transparency Rules in respect of the requirement to produce an
annual financial report.
We confirm that to the best of our knowledge:
-- the Company financial statements, contained in the 2020
Annual Report and financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Company;
-- the Group financial statements, contained in the 2020 Annual
Report and financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group; and
-- the Strategic Report, contained in the 2020 Annual Report and
financial statements, includes a fair review of the development and
performance of the business and the position of the Group and
Company, together with a description of the principal risks and
uncertainties that it faces.
The Directors consider that the Annual Report and financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group and Company's position and performance, business model
and strategy.
By order of the Board
James Thomson Stefan Allanson
Chief Executive Officer Chief Financial Officer
13 September 2020
The 2020 Annual Report and financial statements is to be
published on the Company's website at www.mjgleesonplc.com and sent
out to those shareholders who have elected to continue to receive
paper communications. Copies will be available from The Company
Secretary, 6 Europa Court, Sheffield Business Park, Sheffield, S9
1XE.
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