REG - MJ Gleeson Plc - Final Results
14/09/2020 07:00
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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 £147.2m £249.9m -41%
Operating profit £5.9m £41.0m -86%
Profit before tax £5.6m £41.2m -86%
EPS 8.1p 61.0p -87%
Cash net of borrowings £16.8m £30.3m -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
£2.9m of Covid-19 related costs
· Operating profit down 70.1% to £9.0m (2019: £30.1m)
· Average Selling Price £130,900 (2019: £128,900)
· 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 £0.2m (2019: £13.0m)
· 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 £76.8m (2019: £30.3m)
o £60m bank loans drawn down and proceeds of £16.4m (gross) share
placement
o £10m overdraft facility remained undrawn
o £6.6m 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 £16.4m (gross) in proceeds. We also took
the decision to draw down £60m of the available £70m bank facility, agree to
have waived and reset certain bank covenants, and to cancel the previously
declared interim dividend to retain £6.6m. A further £10m overdraft
facility remains undrawn and available. These actions meant that the Group
finished the year with a cash balance of £76.8m. The Group's cash balance,
net of borrowings, at 30 June 2020 was £16.8m (2019: £30.3m).
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 £9.0m (2019: £30.1m).
Average selling prices at £130,900 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 £0.2m (2019: £13.0m).
Group profit before tax for the year fell by 86.4% to £5.6m (2019: £41.2m).
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 £60m of loans from its £70m committed bank facility and raised a
further £16.4m 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 £76.8m 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 pipeline 2016 2017 2018 2019 2020
Plots 9,284 11,588 12,852 13,575 13,801
Land continues to be available to buy at sensible prices.
Gleeson Homes active build sites 2016 2017 2018 2019 2020
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 Land portfolio 2016 2017 2018 2019 2020
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 £76 per week with a Help
to Buy mortgage compared to renting a three-bed home which costs around £138
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 £145.3m 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 price £130,900 £128,900
Operating profit £9.0m £30.1m
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 £145.3m on 1,033 units (2019: £87.6m 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 £130,900
(2019: £128,900). 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 £39.1m, which included £0.1m in relation to land sales (2019:
£59.3m, £nil land sales), and operating profit decreasing by 70.1% to
£9.0m, including £0.1m in relation to land sales (2019: £30.1m, £nil 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 £0.2m £13.0m
Land Portfolio (sites) 2020 2019
Planning consented 11 9
Planning submitted 7 6
Allocated sites 9 8
Not allocated 41 37
Total 68 60
Land portfolio (plots) 2020 2019
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 £6.3m (2019: £52.9m) 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 £0.2m was significantly down on the previous year
(2019: £13.0m).
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 profit* 2016 2017 2018 2019 2020
Gleeson Homes £19.5m £22.8m £26.2m £30.1m £9.0m
Gleeson Strategic Land £10.2m £12.0m £12.6m £13.0m £0.2m
* Gleeson Homes operating profit includes profit on land sales of £0.1m in
2020, £nil in 2019; £nil in 2018; £1.0m in 2017; and £nil in 2016.
2016 2017 2018 2019 2020
Group profit before tax £28.2m £33.0m £37.0m £41.2m £5.6m
Total dividend 14.5p 24.0p 32.0p 34.5p nil
Cash balance £23.2m £34.1m £41.3m £30.3m £76.8m
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 £147.2m (2019: £249.9m).
Gleeson Homes revenue fell 28.5% to £140.9m (2019: £197.0m) 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 £130,900 (2019: £128,900).
Gleeson Strategic Land sold only two small sites during the year generating
revenue of £6.3m (2019: £52.9m). 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 £40.4m (2019: £75.0m). The gross
profit of Gleeson Homes decreased by 34.1% to £39.1m (2019: £59.3m). Gross
profit margin also reduced, as expected, from 30.1% to 27.8%. The impact of
Covid-19 related costs and provisions totalled £2.9m. 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 £1.3m (2019: £15.7m).
Administrative expenses increased by £0.2m (0.5%) in the year as investment
to support the underlying growth of the business continued. This investment
was partially offset by £1.4m furlough grant income under the Government's
Job Retention Scheme during the months of April to June 2020.
Operating profit from continuing operations was £5.9m (2019: £41.0m), a
reduction of 85.6% on the previous year. Gleeson Homes contributed £9.0m
(2019: £30.1m) and Gleeson Strategic Land contributed £0.2m (2019: £13.0m),
with Group overheads being £3.3m.
Net finance expenses of £0.4m (2019: £0.2m income) consisted of finance
expenses of £1.1m (2019: £0.7m) being interest payable on bank facilities,
bank charges and the unwinding of discounts on deferred payables partly offset
by finance income of £0.7m (2019: £0.9m) 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 £5.6m (2019: £41.2m).
Tax
A total tax charge, including discontinued operations, of £0.7m (2019:
£7.7m) 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 £12.7m (2019: £13.0m) of
gross tax losses, of which £3.8m (2019: £4.1m) are recognised in calculating
the deferred tax asset. The deferred tax asset recorded within the
consolidated statement of financial position totals £2.2m (2019: £2.7m).
Discontinued operations
Discontinued operations incurred a loss after tax of £0.3m during the year
(2019: £0.3m). 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 £4.5m (2019: £33.3m).
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 £6.6m.
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
£212.6m (2019: £203.9m). 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 £20.3m (2019: £22.0m).
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 (£4.6m) and
deferred tax assets (£0.5m).
Current assets increased by 16.4% to £301.7m (2019: £259.2m), with
inventories increasing by £33.2m to £216.3m and trade and other receivables
decreasing by £37.5m to £8.3m. Cash balances of £76.8m include the funds
received from drawing down £60m of the Group's £70m committed bank facility
in March 2020, which remained drawn at 30 June 2020.
Total liabilities increased by 41.5% to £109.4m (2019: £77.3m). Trade
payables are significantly lower than in the previous year at £25.4m (2019:
£49.3m) reflecting the reduced level of build activity during May and June.
In addition, £3.1m of lease liabilities have been recognised under IFRS 16
(2019: £nil).
Cash flow
The Group's cash outflow before financing activities was £15.9m, compared to
cash generated in 2019 of £7.8m.
In March 2020, in response to the Covid-19 crisis, the Group drew down £60m
from its £70m committed bank facility. In April 2020, the Group undertook a
successful share placing to add a further £15.9m, net of costs, to cash
reserves.
After payment of the final dividend for 2019 (£12.6m) in December 2019, the
Group generated £46.5m of cash flow.
Bank facilities
In October 2019, the Group increased its bank facility from £40m to £70m and
extended its maturity to October 2024. Of the facility, £60m was fully drawn
at the balance sheet date with the £10m 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
£1.0m (2019: £1.0m) 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
£000 £000
Continuing operations
Revenue 147,181 249,899
Cost of sales (106,744) (174,936)
Gross profit 40,437 74,963
(257) -
Impairment losses
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
Diluted 8.04 p 59.84 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
£000 £000
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
£000 £000
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 (60,000) -
Loans and borrowings
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 capital Share premium Retained earnings Total equity
£000 £000 £000 £000
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
£000 £000
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 £60m
revolving credit facility, which remained fully drawn at year end resulting in
a cash balance of £76.8m. In addition, the Group has a £10m overdraft
facility which remained unutilised. In April 2020, the Group also completed a
successful placing of shares that raised £15.9m 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
£000 £000
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
£510,000 relating to land sales (2019: £nil). 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: £26,521,000
from one single customer).
Balance sheet analysis of business segments:
2020 2019
Assets Liabilities Net assets Assets Liabilities Net assets
£000 £000 £000 £000 £000 £000
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 operations Discontinued operations Total
2020 2019 2020 2019 2020 2019
£000 £000 £000 £000 £000 £000
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
£000 £000
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% 999 7,780
(2019: 19%)
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
£000 £000
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
£000 £000
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 30 June 2020 of £nil (2019: 11.5p) per - 6,278
share
Final dividend for the year ended 30 June 2019 of 23.0p (2018: 23.0p) per 12,567 12,555
share
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 £000 £000
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 55,583 54,566
basic earnings per share
Effect of dilutive potential ordinary shares:
- - share-based payments 625 1,027
Weighted average number of ordinary shares for the purposes of 56,208 55,593
diluted earnings per share
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
£000 £000
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
£793,000 (2019: £679,000) generated a profit on redemption of £223,000
(2019: £226,000) 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
£13,000 (2019: £131,000) has been recognised in other comprehensive income.
This is made up as follows:
Group
2020 2019
£000 £000
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) in fair value Increase / (decrease) in fair value
£000 £000
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
£1,200,000. 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 £3,419,000 of right-of-use assets and £3,527,000 of
lease liabilities. Additionally, a deferred tax asset of £21,000 was
recognised and the net difference of £87,000 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 £000
liabilities
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
£000
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 (http://www.mjgleesonplc.com) and
sent out to those shareholders who have elected to continue to receive paper
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