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MJ Gleeson PLC   -  GLE   

Half-year Report

Released 07:00 13-Feb-2020

RNS Number : 8339C
MJ Gleeson PLC
13 February 2020
 

 

13 February 2020

MJ GLEESON PLC

 

Results for the half-year ended 31 December 2019

 

Strong performance from Homes | Strategic Land deal momentum into H2

Full year expectations unchanged

 

 

 

H1 19/20

H1 18/19

Change

 

 

 

 

Revenue

 

 

 

Homes

£105.0m

  £88.0m

+19.3%

Strategic Land

-

  £30.3m

-

Total

£105.0m

£118.3m

(11.2%)

 

 

 

 

Operating Profit by Division

 

 

 

Homes

£15.9m

£14.0m

+13.6%

Strategic Land

  (£0.7m)

  £9.0m

-

 

 

 

 

Profit before tax

£13.3m

£22.3m

(40.4%)

 

 

 

 

Cash balances

£30.6m

£27.8m

+10.1%

 

 

 

 

ROCE

19.1%

29.5%

(1040 bp)

 

 

 

 

EPS

19.6p

33.2p

(41.0%)

 

 

 

 

Dividend per share

12.0p

11.5p

+4.3%

 

 

 

Gleeson Homes:

·    Unit sales increased 17.4% to 811 units (H1 18/19: 691)

·    Average selling price increased 1.2% to £128,900 (H1 18/19: £127,400)

·    Gross profit increased 13.3% to £31.5m (H1 18/19: £27.8m)

·    Operating profit increased 13.6% to £15.9m (H1 18/19: £14.0m)

·    Land pipeline of 13,625 plots (June 2019: 13,575 plots)

Gleeson Strategic Land:

·    No land sales completed in H1 (H1 18/19: 3 land sales, 483 plots)

·    Strong start to H2 with three sites sold of which one unconditional

·    Four sites currently in a sale process

·    Six new sites added to the portfolio (900 plots)

·    Continued strong demand for consented sites

 

Dermot Gleeson, Chairman of MJ Gleeson plc, commented:

 

"We are delighted with the performance of our Homes division, with completions up 17.4% at 811 units. Demand remains strong, with January reservations per site up 5% on last year. We see no signs of this abating. Land remains available at sensible prices and we will be opening a significant number of new sites shortly.

 

"As previously announced, Strategic Land, which saw an exceptionally strong result for the comparator period, did not complete any sales in the first half. However, the anticipated deal flow in the second half is now materialising with three sites sold, of which one was sold unconditionally and legally completed in January. We have a substantial pipeline in place and demand for consented sites, from both large and medium-sized developers, remains very high. 

 

"The strong performance of Gleeson Homes and anticipated deal flow in Strategic Land for the second half underpin the Board's confidence that the Group's results for the full year will be in line with expectations."

 

 

 

 

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 Partners

 

Tel: +44 20 7457 2020

Mark Garraway

 

 

James Gray

 

 

 

 

 

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

 

 

As expected, following a period of no Strategic Land sales and an exceptionally strong comparator period for the division, Group profit before tax decreased from £22.3m to £13.3m for the interim period.  However, the continued strong performance in the Homes division and a return to deal flow with a healthy pipeline of demand in Strategic Land, reaffirm the Board's confidence that the Group is on track to deliver results for the full year in line with expectations.

 

Gleeson Homes

 

Gleeson Homes builds and sells low-cost homes to people on lower incomes in the Midlands and North of England. Seven out of eight customers are first time buyers who are highly motivated by the desire to own their own home in areas underserved by traditional housebuilders.

 

Revenue increased 19.3% to £105.0m (H1 18/19: £88.0m), reflecting a 17.4% rise in the total number of units sold from 691 to 811 and including two minor land sales totalling £0.5m.

 

The average selling price ("ASP") for units sold in the period increased 1.2% to £128,900 (H1 18/19: £127,400) reflecting strong price increases partly offset by plot mix and development mix.

 

As expected, the gross margin on units sold in the period returned to more normalised levels against the strong comparator period, decreasing 150 basis points to 30.1% (H1 18/19: 31.6%), reflecting cost increases arising from increased build rates and from changes in development mix. Gross profit on land sales was £0.1m (H1 18/19: £nil)

 

Operating margin on units sold decreased 90 basis points to 15.1% (H1 18/19: 16.0%), as expected, with operating profit, including land sales, increasing 13.6% to £15.9m (H1 18/19:  £14.0m). 

 

During the period, 68% (H1 18/19: 69%) of unit sales benefited from the Government's Help to Buy scheme.

 

At 31 December 2019, we were selling from 63 active sites, a decrease of four sites on the corresponding period last year. Reflecting the Board's commitment to high build quality, the number of active sites was lower as we took the opportunity to review and tighten up certain areas of our pre-start process, open sites for sales at a later stage and due to delays in obtaining implementable planning permissions. We expect to open a significant number of sites during the coming months and anticipate that the number of active selling sites will be in excess of 70 by June 2020.

 

The pipeline of owned plots increased during the period by a net 162 plots to 6,687 plots. The total pipeline of owned and conditionally purchased plots was 13,625 plots on 145 sites at December 2019 (June 2019: 13,575 plots on 144 sites). During the period 18 new sites were added to the pipeline, while 17 sites were either merged, completed or did not proceed to purchase.

 

Demand for our low-cost homes remains strong; we are actively sourcing sites in existing and new areas within our target geographic regions.

 

In July 2017 we announced our intention to double completions to 2,000 units per annum within five years. We are comfortably on track to achieve this.

 

 

Gleeson Strategic Land 

 

Gleeson Strategic Land, our land promotion business, continued to see strong demand from medium and large housebuilders for good quality residential sites in the South of England.

 

The division was expected to complete several land sales close to the period end. These are now expected in the second half, in part as greater certainty has returned to the market following the result of the General Election.

 

As a result, the operating loss for the first half was £0.7m (H1 18/19: operating profit £9.0m).

 

Three sites have already been sold, one unconditionally which completed in January and two conditionally, which are expected to complete in February. A further four sites are currently being progressed for sale including two particularly large sites which are expected to be sold in Q4 of this financial year. Combined these have the potential to deliver 1,894 plots (31 December 2018: seven sites being progressed for sale, 1,454 plots).

 

At 31 December 2019, there were ten sites in the portfolio with either planning permission or a resolution to grant permission for a total of 3,384 plots (H1 18/19: nine sites, 2,432 plots).

 

There are a further nine sites where the division is currently awaiting the determination of a planning application (H1 18/19: nine sites).

 

We continue to invest intelligently in the Gleeson Strategic Land portfolio. Six new sites with the potential to deliver a total of 900 plots were secured in the period, with a significant number of other potential sites currently being progressed.

 

At 31 December 2019 the portfolio, in which the Group has a beneficial interest of 77%, comprised 66 sites with the potential to deliver more than 22,500 plots (30 June 2019: 60 sites, 21,730 plots).

 

Dividend and Dividend Timetable

 

Considering these results and our confidence in the full year outlook, the Board is declaring an interim dividend of 12.0 pence per share, an increase of 4.3% over the prior year (H1 18/19: 11.5 pence per share).

 

The interim dividend will be paid on 3 April 2020 to shareholders on the register at close of business on 6 March 2020. The ex-entitlement date will be 5 March 2020.

 

The Board aims to maintain a progressive dividend policy in which the interim dividend represents one third of the total dividend and earnings covers the total dividend between 1.75 times and 2.75 times.

 

Summary & Outlook

 

Gleeson Homes remains comfortably on track with its growth plan. We see no signs of customer caution and demand remains robust.

 

Although Gleeson Strategic Land did not complete any site sales in the first half of the year, the division has made a strong start to the second half and expects to deliver on its full year result. We continue to see strong demand from medium and large housebuilders for good quality residential sites.

 

Against this background, the Board is confident that the full year results for the Group will be in line with expectations.

 

Financial Overview

                         

Income Statement

 

Group revenue reduced 11.2% to £105.0m (H1 18/19: £118.3m).

 

Gleeson Homes revenue grew 19.3% to £105.0m (H1 18/19: £88.0m) including two minor land sales totalling £0.5m (H1 18/19: £nil). As Gleeson Strategic Land did not complete any land sales in the first half, its revenue for the period was £nil (H1 18/19: £30.3m).

 

As a result, Group gross profit decreased 17.0% to £31.7m (H1 18/19: £38.2m). The Group's operating profit was £13.3m (H1 18/19: £22.2m). 

 

A net interest charge of £nil (H1 18/19: £0.1m income) resulted in profit before tax of £13.3m (H1 18/19: £22.3m). 

 

The tax charge for the period was £2.4m (H1 18/19: £4.0m) reflecting an effective rate of 18.5% (H1 18/19: 18.0%). The profit after tax from continuing operations was £10.9m (H1 18/19: £18.3m). Discontinued operations recorded a loss of £0.2m (H1 18/19: £0.1m loss). The profit for the period attributable to equity holders was £10.7m (H1 18/19: £18.1m).

 

Balance Sheet, Cash Flow & Return on Capital Employed

 

Total shareholders' equity stood at £202.3m at 31 December 2019 compared to £194.3m at 31 December 2018. This equates to net assets per share of 365.5 pence (31 December 2018: 355.9 pence).

 

Return on capital employed decreased by 1040 basis points to 19.1% due to the timing of land sales in Gleeson Strategic Land.

 

The Group's net cash balance at 31 December 2019 increased by £2.8m to £30.6m (31 December 2018: £27.8m) reflecting fewer site openings during the period which are now expected in the second half of the year.

 

Risks and Uncertainties

 

The Group is subject to a number of risks and uncertainties as part of its activities. The Board regularly considers these and seeks to ensure that appropriate processes are in place to identify, control, and monitor these risks. The Directors consider that the principal risks and uncertainties facing the Group are unchanged from those outlined on pages 32 to 33 of the Annual Report and Accounts for the year ended 30 June 2019.

 

 

 

Dermot Gleeson

Chairman

 

 

 

Condensed Consolidated Income Statement

for the six months to 31 December 2019

 

 

Note

 Unaudited
Six months to 31 December 2018

Audited
Year to
30 June

 2019

 

 

£000

£000

 

 

 

 

 

Continuing operations

 

 

 

 

Revenue

 

118,349 

249,899

Cost of sales

 

 (80,189)

(174,936)

Gross profit

 

 38,160 

74,963

 

 

 

 

Administrative expenses

 

 (16,123)

(34,256)

Other operating income

 

150

292

Operating profit

 

 22,187

40,999

 

 

 

 

Finance income

 

 460 

906

Finance expenses

 

 (368)

(693)

Profit before tax

 

 22,279 

41,212

 

 

 

 

Tax

3

 (4,008)

(7,648)

Profit for the period from continuing operations

 

 18,271 

33,564

 

 

 

 

Discontinued operations

 

 

 

Loss for the period from discontinued operations (net of tax)

 

 (145)

(297)

 

 

 

 

Profit for the period

 

 18,126 

33,267

 

 

Earnings per share from continuing and discontinued operations

 

              Basic

5

33.22 p

 32.85 p

60.97 p

59.84 p

              Diluted

5

 

Earnings per share from continuing operations

 

              Basic

5

33.48 p

61.51 p

              Diluted

5

33.11 p

60.37 p

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income

for the six months to 31 December 2019

 

 

 

 Unaudited
Six months to 31 December 2018

Audited
Year to
30 June

 2019

 

 

£000

£000

 

 

 

 

Profit for the period

 

18,126

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 through OCI

 

76

131

Movement in deferred tax on share-based payments taken directly to equity

 

(11)

240

 

Other comprehensive income for the period, net of tax

 

65

371

 

Total comprehensive income for the period

 

18,191

33,638

 

 

Condensed Consolidated Statement of Financial Position

at 31 December 2019

 

 

 

 

 

Note

 Unaudited
31 December 2018

Audited
30 June

 2019

 

 £000

 £000

 

 

 

 

 

Non-current assets

 

 

 

 

Plant and equipment

 1,897

2,343

Right of use assets

10

-

-

Investment properties

 

 258

257

Trade and other receivables

 

24,597

16,759

Deferred tax assets

 

2,632

2,659

 

 

29,384

22,018

Current assets

 

 

 

Inventories

 

178,992

183,121

Trade and other receivables

 

21,300

45,795

UK corporation tax

 

-

-

Cash and cash equivalents

 

27,827

30,306

 

 

228,119

259,222

 

 

 

 

Total assets

 

257,503

281,240

 

 

 

 

Non-current liabilities

 

 

 

Trade and other payables

 

(9,759)

(8,774)

Lease liabilities

10

-

-

Provisions

 

(110)

(130)

 

 

(9,869)

(8,904)

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

(50,358)

(65,068)

Lease liabilities

10

-

-

Provisions

 

(49)

-

UK corporation tax

 

(2,954)

(3,372)

 

 

(53,361)

(68,440)

 

 

 

 

Total liabilities

 

(63,230)

(77,344)

 

 

 

 

 

 

 

 

Net assets

 

194,273

203,896

 

 

 

 

Equity

 

 

 

Share capital

 

 1,092

1,092

Retained earnings

 

193,181

202,804

Total equity

 

194,273

203,896

 

 

 

 

 

Condensed Consolidated Statement of Changes in Equity

for the six months to 31 December 2019

 

 

 

 

 

Note

 

 

 

 

 

 

At 1 July 2018 (audited)

 

         1,092

              187,007

     188,099

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

Profit for the period

 

-

18,126

18,126

Other comprehensive income

 

-

65

65

Total comprehensive income for the period

 

-

18,191

18,191

 

 

 

 

 

 

Transactions with owners, recorded directly in equity

 

 

 

 

Contributions and distributions to owners

 

 

 

 

Sale of own shares

 

-

51

51

Share-based payments

 

-

487

487

Dividends

4

-

(12,555)

(12,555)

Transactions with owners, recorded directly in equity

 

-

(12,017)

(12,017)

 

 

 

 

 

At 31 December 2018 (unaudited)

 

1,092

193,181

194,273

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

Profit for the period

 

              -  

      15,141

       15,141

Other comprehensive income

 

              -  

306

            306

Total comprehensive income for the period

 

              -  

       15,447

       15,447

 

 

 

 

 

Transactions with owners, recorded directly in equity

 

 

 

 

Contributions and distributions to owners

 

 

 

 

Purchase of own shares

 

              -  

   (19)

           (19)

Share-based payments

 

              -  

            473

            473

Dividends

4

              -  

      (6,278)

    (6,278)

Transactions with owners, recorded directly in equity

 

-

(5,824)

(5,824)

 

 

 

 

 

At 30 June 2019 (audited)

 

 

 

Total comprehensive income for the period

 

Profit for the period

 

Other comprehensive income

 

Total comprehensive income for the period

 

 

 

Transactions with owners, recorded directly in equity

 

Contributions and distributions to owners

 

Share issue

 

Purchase of own shares

 

Share-based payments

 

Reserves adjustment for initial recognition of IFRS 16

10

Dividends

4

Transactions with owners, recorded directly in equity

 

 

 

At 31 December 2019 (unaudited)

 

 

 

 

Condensed Consolidated Statement of Cash Flow

for the six months to 31 December 2019

 

 

 Unaudited
Six months to 31 December 2018

Audited
Year to
30 June

 2019

 

 £000

 £000

 

 

 

Operating activities

 

 

 

Profit before tax from continuing operations

22,279

41,212

Loss before tax from discontinued operations

(145)

(264)

 

22,134

40,948

 

 

 

Depreciation of plant and equipment

508

1,108

Share-based payments

487

960

Profit on redemption of shared equity receivables

(119)

(226)

Loss on disposal of plant and equipment

24

152

Finance income

(460)

(906)

Finance expenses

368

693

Operating cash flows before movements in working capital

22,942

42,729

 

 

 

Increase in inventories

(18,475)

(22,604)

Decrease / (increase) in receivables

(13,198)

(27,133)

(Decrease) / increase in payables

10,837

21,820

Cash generated from operating activities

2,106

14,812

 

 

 

Tax received

-

37

Tax paid

(2,877)

(5,944)

Interest paid

(211)

(314)

Net cash flow surplus / (deficit) from operating activities

(982)

8,591

 

 

 

Investing activities

 

 

Proceeds from redemption of shared equity receivables

599

995

Proceeds from disposal of investment properties

-

1

Interest received

91

72

Purchase of plant and equipment

(691)

(1,866)

Net cash flow deficit from investing activities

(1)

(798)

 

 

 

Financing activities

 

 

Proceeds from issue of shares

-

-

(Purchase) / sale of own shares

51

32

Dividends paid

(12,555)

(18,833)

Net cash flow deficit from financing activities

(12,504)

(18,801)

 

 

 

 

 

 

Net increase / (decrease) in cash and cash equivalents

(13,487)

(11,008)

 

 

 

Cash and cash equivalents at beginning of period

41,314

41,314

 

 

 

Cash and cash equivalents at end of period

27,827

30,306

 

 

 

Notes to the Condensed Consolidated Financial Statements

for the six months to 31 December 2019

 

1. Basis of preparation and accounting policies

 

The Interim Report of the Group for the six months ended 31 December 2019 has been prepared in accordance with IAS 34 "Interim Financial Reporting", International Financial Reporting Standards ("IFRS") and IFRS Interpretations Committee ("IFRC IC") interpretations as adopted for use in the European Union ("EU") and in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority.

 

The Interim Report does not constitute financial statements as defined in Section 434 of the Companies Act 2006 and is neither audited nor reviewed. It should be read in conjunction with the Annual Report and Accounts for the year ended 30 June 2019, which is available either on request from the Group's registered office, 6 Europa Court, Sheffield Business Park, Sheffield, S9 1XE, or can be downloaded from the corporate website www.mjgleesonplc.com.  

 

The comparative figures for the financial year ended 30 June 2019 are not the Group's statutory accounts for that financial year.  Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies.  The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters which the auditor drew attention to by way of emphasis without qualifying their report and (iii) did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.

 

The preparation of condensed half-yearly financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may subsequently differ from these estimates. In preparing these condensed consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual consolidated financial statements for the year ended 30 June 2019.

 

Except as described below, the accounting policies, method of computation, and presentation adopted are consistent with those of the Annual Report and Accounts for the year ended 30 June 2019, as described in those financial statements. 

 

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 July 2019:

 

·      IFRS 16 "Leases" (issued January 2016)

·      IFRS 9 (Amended) "Financial Instruments" (issued October 2017)

·      Annual Improvements Issued 2015 - 2017 (issued December 2017)

 

Note 10 sets out the impact of IFRS 16 "Leases". The remaining standards and amendments have had no material impact on the financial statements as explained in note 1 to the Group's Annual Report and Accounts for the year ended 30 June 2019.

 

Going concern

 

The Directors have, at the time of approving the interim accounts, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for at least twelve months from the date of approval of the Interim Report. Thus they continue to adopt the going concern basis of accounting in preparing the Interim Report.

 

 

 

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:

 

 

 

 Unaudited
Six months to 31 December 2018

Audited
Year to
30 June

 2019

 

Note

 £000

 £000

Revenue

 

 

 

 

Continuing activities:

 

 

 

 

Gleeson Homes

 

88,042

197,034

Gleeson Strategic Land

 

30,307

52,865

Total revenue

 

118,349

249,899

 

 

 

 

Profit / (loss) on activities

 

 

 

Gleeson Homes

 

14,046

30,068

Gleeson Strategic Land

 

9,019

13,013

 

 

23,065

43,081

Group activities

 

(878)

(2,082)

Finance income

 

460

906

Finance expenses

 

(368)

(693)

Profit before tax

 

22,279

41,212

Tax

3

(4,008)

(7,648)

Profit for the period from continuing operations

 

18,271

33,564

 

 

 

 

Loss for the period from discontinued operations (net of tax)

 

(145)

(297)

 

 

 

 

Profit for the period

 

18,126

33,267

 

The revenue in the Gleeson Homes segment relates to the sale of residential properties and land. All revenue for the Gleeson Strategic Land segment is in relation to the sale of land interests.

 

Balance sheet analysis of business segments:

 

           Unaudited 31 December 2019

 

 

 

Gleeson Homes

Gleeson Strategic Land

Group activities / discontinued operations

Net cash

 

 

 

 

 

 

           Unaudited 31 December 2018

 

Assets

Liabilities

Net assets

 

£000

£000

£000

 

 

 

 

Gleeson Homes

162,821

(32,214)

130,607

Gleeson Strategic Land

66,393

(28,907)

37,486

Group activities / discontinued operations

462

(2,109)

(1,647)

Net cash

27,827

-

27,827

 

257,503

(63,230)

194,273

 

2. Segmental analysis (cont.)

 

 

          Audited 30 June 2019

 

Assets

Liabilities

Net assets

 

£000

£000

£000

 

 

 

 

Gleeson Homes

171,608

(41,755)

129,853

Gleeson Strategic Land

78,861

(33,520)

45,341

Group activities / discontinued operations

465

(2,069)

(1,604)

Net cash

30,306

-

30,306

 

281,240

(77,344)

203,896

 

 

3. Tax

 

The results for the six months to 31 December 2019 include a tax charge of 18.5% of profit before tax (31 December 2018: 18.0%; 30 June 2019: 18.8%), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period.

 

Reductions in the UK corporation tax rate from 19% to 17% (effective 1 April 2020) were substantively enacted into law before the balance sheet date. However, following the result of the General Election in December 2019, the headline rate of corporation tax is expected to remain at 19%.

 

4. Dividends

 

 

 Unaudited
Six months to 31 December 2018

Audited
Year to
30 June

 2019

 

 £000

 £000

Amounts recognised as distributions to equity holders:

 

 

 

 

 

 

 

Final dividend for the year ended 30 June 2018 of 23.0p per share

12,555

12,555

Interim dividend for the year ended 30 June 2019 of 11.5p per share

-

6,278

Final dividend for the year ended 30 June 2019 of 23.0p per share

-

-

 

12,555

18,833

 

On 12 February 2020 the Board approved an interim dividend of 12.0 pence per share at an estimated total cost of £6,640,000. The dividend has not been included as a liability as at 31 December 2019.

 

5. Earnings per share

 

The calculation of the basic and diluted earnings per share is based on the following data:

 

Earnings

 Unaudited
Six months    to 31 December 2018

Audited
Year to
30 June

 2019

 

£000

£000

 

 

 

 

Profit from continuing operations

18,271

33,564

Loss from discontinued operations

(145)

(297)

 

 

 

Earnings for the purposes of basic and diluted earnings per share

18,126

33,267

 

 

 

 

 

 

 

5. Earnings per share (cont.)

 

 

 

 

 

Number of shares

 31 December
2018

30 June 2019

 

No. 000

No. 000

 

 

 

Weighted average number of ordinary shares for the purposes of

 

 

basic earnings per share

54,566

54,566

Effect of dilutive potential ordinary shares:

 

 

Share-based payments

611

1,027

 

 

 

Weighted average number of ordinary shares for the purposes of

 

 

 

diluted earnings per share

55,177

55,593

 

 

 

 

 

 

 

 

 

Continuing operations

Six months to 31 December
2018

 Year to

30 June
2019

 

pence

pence

 

 

 

 

Basic

33.48

61.51

Diluted

33.11

60.37

 

 

 

 

 

 

 

 

Continuing and discontinued operations

 

 

 

 

 

 

Basic

 33.22

60.97

Diluted

32.85

59.84

 

 

6. Financial instruments

 

The fair value of the Group's financial assets and liabilities are not materially different from the carrying values. The following summarises the major methods and assumptions used in estimating the fair values of financial instruments.

 

Shared equity receivables at fair value through other comprehensive income (FVOCI)

 

 

Unaudited

31 December
2018

 

Audited

 30 June
2019

 

 

 £000

 £000

 

 

 

 

Balance at start of period

4,997

4,997

Redemptions

(415)

(679)

Unwind of discount (finance income)

40

77

Fair value movement recognised in other comprehensive income

10

41

Balance at end of period

4,632

4,436

 

Shared equity receivables at FVOCI 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 period of shared equity receivables carried at £464,000 (H1 18/19: £415,000) generated a profit on redemption of £105,000 (H1 18/19: £119,000) which has been recognised in other operating income in the consolidated income statement.

 

 

 

6. Financial instruments (cont.)

 

In addition, a net change in value of shared equity receivables at FVOCI of £30,000 (H1 18/19: £76,000) has been recognised in other comprehensive income. This is made up as follows:

 

 

Unaudited

31 December
2018

Audited

 30 June
2019

 

 £000

 £000

 

 

 

 

Fair value movement recognised in other comprehensive income

10

41

Fair value recycled through profit and loss

66

90

Total movement recognised in other comprehensive income

76

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 period.

 

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%

 

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:

 

Change in assumption

Forecast regional house price inflation - increase by 1%

194

Average period to redemption - increase by 1 year

(221)

Discount rate - decrease by 1%

185

 

7. Group pension scheme

                                               

The Group operates a defined contribution pension plan. The assets of the pension plan are held separately from those of the Group in funds under the control of the trustees.

                                   

The total pension cost charged to the consolidated income statement in the six months to 31 December 2019 of £466,000 (six months to 31 December 2018: £431,000) represents contributions payable to the defined contribution pension plan by the Group at rates specified in the plan rules. At 31 December 2019, contributions of £179,000 (31 December 2018: £114,000) due in respect of the current reporting period had not been paid over to the pension plan. Since the period end, this amount has been paid.       

 

 

 

8. Related party transactions

                                   

During the year to 30 June 2019 the Group entered into a conditional agreement to purchase an area of land from Hampton Investment Properties Ltd ("HIPL"). HIPL is a company in which North Atlantic Smaller Companies Investment Trust plc ("NASCIT"), which is a substantial holder in the company, holds a majority investment. 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. Shareholder approval to proceed with this purchase was given at the AGM on 5 December 2019.

 

Other than as disclosed above, there have been no material changes to the related party arrangements as reported in note 27 of the Annual Report and Accounts for the year ended 30 June 2019.

 

9. Seasonality

 

Reservations in Gleeson Homes are largely unaffected by seasonal variations and tend to be driven more by the timing of site openings than by seasonality. However, the number of completions in the second half of the financial year tends to be higher than the first half.

 

There is no seasonality in the Gleeson Strategic Land division.

 

10. 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%.

 

The lease term comprises the non-cancellable period of the contract, together with periods covered by an option to extend the lease where the Group is reasonably certain to exercise that option. Subsequently, the carrying value of the lease liability is increased to reflect the interest on the lease liability and reduced to reflect the lease payments made. The lease liability is remeasured if the Group changes its assessment of whether it will exercise an extension or termination option.

 

Right of use assets are initially measured at cost, comprising the initial measurement of the lease liability, plus any initial direct costs and an estimate of asset retirement obligations, less any lease incentives. Subsequently, right of use assets are measured at cost, less any accumulated depreciation and any accumulated impairment losses, and are adjusted for certain remeasurements of the lease liability. Depreciation is calculated on a straight-line basis over the length of the lease.

 

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; and

 

 

 

10. Adoption of new accounting standards (cont.)

 

-     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 £3,598,000 of right of use assets and £3,706,000 of lease liabilities. The net difference of £108,000 has been recognised in retained earnings.

 

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

 

 

Operating lease commitments at 30 June 2019 as previously reported

Discounted at the Group's incremental borrowing rate at 1 July 2019

Other*

Lease liability recognised as at 1 July 2019

 

*Primarily attributable to short-life leases that do not meet the criteria for capitalisation under the practical expedients detailed above.

 

 

 

Statement of Directors' Responsibility

for the six months to 31 December 2019

 

The Directors confirm that, to the best of our knowledge:

 

a)   the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim financial reporting" as adopted by the European Union;

b)   the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c)   the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

 

 

The Board

 

The Board of Directors of MJ Gleeson plc at 30 June 2019 and their respective responsibilities can be found on pages 36 and 37 of the MJ Gleeson plc Annual Report and Accounts 2019. Fiona Goldsmith and Andrew Coppel were appointed to the Board as Non-Executive Directors on 1 October 2019.

 

By order of the Board,

 

 

 

Stefan Allanson

Chief Financial Officer

12 February 2020


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