MJ Gleeson PLC Final Results (8161Y)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Mj Gleeson Plc	LSE:GLE	London	Ordinary Share	GB00BRKD9Z53	ORD 2P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	6.00	1.22%	496.00	492.00	499.50	499.50	488.00	488.00	32,577	16:35:01

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Gen Contractor-oth Residentl	328.32M	24.17M	0.4140	12.07	291.62M

TIDMGLE

RNS Number : 8161Y

MJ Gleeson PLC

14 September 2020

   MJ GLEESON PLC                                                 14 September 2020

("Gleeson" or "the Group" or "the Company")

Audited results for the year ended 30 June 2020

Gleeson, the low-cost housebuilder and strategic land specialist, announces audited results for the year ended 30 June 2020 ("2020")

   --      2020 results reflect Covid-19 impact on historically critical Q4 period 
   --      Strong start to 2021 with record order book and work in progress, and high levels of demand 
   --      Strong platform for future growth 
   --      Board re-affirmed target to reach 2,000 units p.a. in 2022 
 
                             2020        2019       Change 
 
 Revenue                   GBP147.2m   GBP249.9m     -41% 
 
 Operating profit           GBP5.9m    GBP41.0m      -86% 
 
 Profit before tax          GBP5.6m    GBP41.2m      -86% 
 
 EPS                         8.1p        61.0p       -87% 
 
 Cash net of borrowings    GBP16.8m    GBP30.3m      -45% 
 
 ROCE                        3.1%        25.9%     -2,280bps 
 
 Dividend per share            -         34.5p        N/A

Resilient business model

Gleeson Homes:

   --      Volumes down 29.9% to 1,072 units sold (2019: 1,529 units)

-- Gross profit margin on unit sales 27.8% (2019: 30.1%) due to GBP2.9m of Covid-19 related costs

   --      Operating profit down 70.1% to GBP9.0m (2019: GBP30.1m) 
   --      Average Selling Price GBP130,900 (2019: GBP128,900)

-- Land pipeline, including conditionally purchased sites, of 13,801 plots (2019: 13,575 plots)

   --      Board re-affirmed target to reach 2,000 units p.a. in 2022 
   --      Platform for future growth put in place prior to Covid-19

Gleeson Strategic Land:

   --      Operating profit of GBP0.2m (2019: GBP13.0m) 
   --      Two land sales completed during the year (2019: nine)

-- Eleven sites with planning consent or resolution to grant with the potential to deliver 3,855 plots

-- Portfolio: 68 sites (2019: 60 sites) with the potential to deliver 23,314 plots (2019: 21,730 plots)

   --      Demand expected to return during 2021

Resilient financial position

   --      Gross cash balance GBP76.8m (2019: GBP30.3m)

o GBP60m bank loans drawn down and proceeds of GBP16.4m (gross) share placement

o GBP10m overdraft facility remained undrawn

o GBP6.6m interim dividend cancelled; no final dividend proposed

   --      Capital prioritised in short term to delivering target of 2,000 homes per annum in 2022 
   --      Dividends to resume as soon as prudent to do so

Dermot Gleeson, Chairman, commented:

"First and foremost, and on behalf of my Board colleagues, I would like to say how grateful we are to our employees, subcontractors, suppliers and customers in helping us to respond quickly to the Covid-19 crisis. These results, whilst a significant reduction on the prior year, reflect their efforts and the overall resilience of the business.

"Our unique business model is focussed on building high-quality, low-cost homes in the North of England and the Midlands and continues to deliver homes to the people who need them most. The majority of our customers are young, first-time buyers and around two-thirds are key workers, who can now benefit from our recently introduced Gleeson Key Worker Priority Programme.

"We are currently seeing strong demand and expect this to continue through the year as the demographics of our customer base and the nature and price point of our product helps to insulate us from the impacts of rising unemployment, the end of the stamp duty holiday and the forthcoming changes to the Help to Buy scheme.

"We have therefore re-affirmed our interim target of delivering 2,000 homes per annum in 2022 and will prioritise investment in the business to achieve it.

"We expect the strategic land market will continue to recover as house builders cautiously scale up their targets for the acquisition of new sites.

"The Board recognises the uncertainties arising from both the continuing pandemic and the UK's withdrawal from the EU. Nonetheless, our balance sheet remains strong and the Board is cautiously optimistic that the Group will see significant growth in the current year and beyond."

This announcement contains inside information. The person responsible for arranging the release of this announcement on behalf of the company is Stefan Allanson, Chief Financial Officer.

LEI: 21380064K7N2W7FD6434

Enquiries:

 
 MJ Gleeson 
  plc                                        Tel: +44 1142 612900 
 James Thomson     Chief Executive Officer 
 Stefan Allanson   Chief Financial Officer 
 
 Instinctif                                  Tel: +44 20 7457 2020 
 Mark Garraway 
 Rosie Driscoll 
 
 N+1 Singer 
 Shaun Dobson                                Tel: +44 20 7496 3000 
 Rachel Hayes 
 
 Liberum 
 Neil Patel                                  Tel: +44 20 3100 2222 
 Richard Bootle

Chairman's Statement

I would like to thank our employees, subcontractors, suppliers and customers for their truly exceptional support in response to the Covid-19 crisis. This has been invaluable in helping us to maintain the continuity of our business.

Gleeson Homes' sites and sales offices were closed from 25 March 2020 until 14 May 2020 when we commenced a phased restart. This resulted in a 30% drop in the number of completions during the year to 1,072 new homes (2019: 1,529) and also in a reduction in the number of new sites opened.

I am delighted to report that Gleeson Homes has started the new financial year with a record forward order book and a record level of work in progress. The Board has therefore reaffirmed its target that Gleeson Homes will reach 2,000 unit completions per annum in 2022.

Since his appointment as Chief Executive Officer in 2019, James Thomson has focused on ensuring that Gleeson Homes has the platform needed to support our growth ambitions and has overseen significant changes across our organisational, build process and sales structures. We used the period of shutdown to review the division's processes, resulting in further improvements to both our health and safety regime and our operational efficiency in a number of areas.

Gleeson Strategic Land was also adversely affected by the pandemic, which caused the virtual closure of the land market. However, a number of significant land sales that had been planned for delivery during the final quarter of the year are now expected to complete in the current financial year.

Market

Despite the continuing pandemic, the fundamentals of the housing market remain strong. Demand for affordable new homes remains high and we continue to see selling prices above pre-Covid-19 levels. Mortgage finance continues to be available, supported by historically low interest rates.

Many families living in rented accommodation re-evaluated their housing needs during the lockdown and took the opportunity created by limited spending opportunities to save for a deposit on a home of their own.

Help to Buy continues to assist first-time buyers into home ownership and we welcome the announcement of the Government's decision to extend the deadline for buyers using the existing scheme to 28 February 2021. The new scheme, which comes into force from 1 April 2021, will be limited to first-time buyers and subject to regional price caps. 84% of our customers are first-time buyers and the selling price of almost all of our houses is below the proposed caps.

Around two-thirds of our customers are key workers and in recognition of the extraordinary contribution they are making we introduced the Gleeson Key Worker Priority Programme, which offers such workers a range of attractive benefits.

The strategic land market is seeing demand returning as medium and large-sized housebuilders seek to replace completed developments with good-quality consented sites.

Our people

We welcomed the support offered to businesses by the Government's Job Retention Scheme. 456 employees (76%) of our employees were furloughed, all of whom have now returned to work.

The Board and senior management accepted temporary salary reductions ranging from 5% to 30% so that more junior colleagues could continue to receive full or near-full pay. I am very grateful for the commitment to the Company that has been shown by all our employees during what has been an exceptionally challenging period.

This year we launched our "Vision, Mission and Values" initiative in which our employees sought, very successfully, to articulate and embed the key values that they believe should drive the Company's behaviour. The detailed outcome of this important exercise is set out in the Annual Report which is subject to approval by shareholders at the AGM.

The results of our latest employee survey show that the level of employee engagement and satisfaction with the Company is very high.

Board composition

We were delighted to appoint James Thomson as permanent Chief Executive Officer on 2 December 2019.

Andrew Coppel, CBE and Fiona Goldsmith joined the Board as Non-Executive Directors on 1 October 2019. Ross Ancell and Colin Dearlove stepped down as Non-Executive Directors on 30 June 2020. I would like to thank Ross and Colin for the many years during which they served the Company with great distinction.

Leanne Johnson was appointed Head of Legal and Company Secretary on 25 March 2020.

The Board has decided to initiate a search for an additional independent Non-Executive Director.

Ensuring financial resilience

As soon as the impact of Covid-19 became apparent, the Board took swift action to reinforce the Group's financial position. In April we successfully completed a share placing to raise GBP16.4m (gross) in proceeds. We also took the decision to draw down GBP60m of the available GBP70m bank facility, agree to have waived and reset certain bank covenants, and to cancel the previously declared interim dividend to retain GBP6.6m. A further GBP10m overdraft facility remains undrawn and available. These actions meant that the Group finished the year with a cash balance of GBP76.8m. The Group's cash balance, net of borrowings, at 30 June 2020 was GBP16.8m (2019: GBP30.3m).

Whilst the Board is confident that the Group will see significant growth in the current year, our priority is to ensure the continued resilience of the business and to meet its interim target of delivering 2,000 homes per annum in 2022.

The Board has therefore taken the prudent decision not to propose a final dividend (2019: 23.0 pence per share) but, in line with its capital allocation policy, is committed to resuming dividend payments on a progressive basis as soon as it is prudent to do so.

Outlook and summary

Our unique business model is focussed on building high-quality, low-cost homes in the North of England and the Midlands and continues to deliver homes to the people who need them most. The majority of our customers are young, first-time buyers and around two-thirds are key workers, who can now benefit from our recently introduced Gleeson Key Worker Priority Programme.

We are currently seeing strong demand and expect this to continue through the year as the demographics of our customer base and the nature and price point of our product helps to insulate us from the impacts of rising unemployment, the end of the stamp duty holiday and the forthcoming changes to the Help to Buy scheme.

We have therefore reaffirmed our interim target of delivering 2,000 homes per annum in 2022.

We expect the strategic land market will continue to recover as house builders cautiously scale up their targets for the acquisition of new sites.

The Board recognises the uncertainties arising from both the continuing pandemic and the UK's withdrawal from the EU. Nonetheless, the Board is cautiously optimistic that the Group will resume its pre-Covid trajectory and deliver significant growth in the current year and beyond.

Dermot Gleeson

Chairman

13 September 2020

Chief Executive's Statement

The last 12 months represent my first full year at Gleeson and it is a business that I am passionate about.

Prior to lockdown, we had been focused on ensuring that the business had the platform in place to deliver our growth ambitions.

Consequently, it has been a year that has seen significant change in the organisational structure of the business to support our growth ambitions. Combined with the investment in safety, people and sites, this has given us the confidence, despite the disruptions caused by the pandemic, that we remain on track to meet the aim of delivering 2,000 homes a year in 2022.

Our ambition is to maintain growth well beyond 2022, driven by the underlying structural need for low-cost quality homes for first-time buyers - one that is driven by household formation, the aspiration to, and recognised benefits of, home ownership as well as the simple fact that it is substantially cheaper to buy a Gleeson home than to rent a similar property.

The last four months of the financial year, typically our strongest selling period, required us to focus on responding to Covid-19. In dealing with the impact of the pandemic, our first priority has been to protect our employees, subcontractors, suppliers, customers and the communities in which we operate.

For that reason, we took the decision in March to implement a controlled shutdown of all our sites and sales offices and placed 76% of employees on furlough, utilising the Government's Job Retention Scheme to protect jobs. Trading during the final quarter of the year, usually our strongest quarter, was almost entirely "lost" resulting in Gleeson Homes full year completions falling 29.9% to 1,072 (2019: 1,529) and Gleeson Strategic Land completing the sale of only two sites during the year.

Over the period of shutdown we took the opportunity to replan build programmes across all sites, prepare for new site openings and implement robust Covid-secure working practices. We recommenced build activity in May 2020 on a gradual, phased basis, with initial on-site activity in late May and June focused on site infrastructure and other groundworks ahead of returning to plot build activity on some sites from mid-June. All sites are now fully build active and all sales offices are open with strong interest seen from customers.

Strategic Land, which had been expecting to complete a number of significant land sales in the final quarter, did not complete any further sales. Whilst these sales have been delayed, we expect these will all still proceed to completion in this financial year as land activity picks back up.

Trading results

The impact of the shutdown and loss of fourth quarter completions meant that operating profit for Gleeson Homes fell by 70.1% to GBP9.0m (2019: GBP30.1m).

Average selling prices at GBP130,900 were up 1.6% driven by 3.3% higher underlying prices offset by changes in bed and site mix. Gross margin on units decreased to 27.8% (2019: 30.1%) due to the impact of Covid-19. Strategic Land had anticipated completing most of its transactions during the final quarter of the year. House building customers paused the purchase of sites during the final quarter and, as a result, the division was broadly break-even with an operating profit of GBP0.2m (2019: GBP13.0m).

Group profit before tax for the year fell by 86.4% to GBP5.6m (2019: GBP41.2m).

The business took swift action to protect cash at the start of the Covid-19 pandemic, including cancellation of the interim dividend, pausing build activity and land acquisition, cutting discretionary expenditure, furloughing 76% of staff, a freeze on recruitment and senior managers and directors volunteering to accept significant temporary pay cuts. The Group also drew down GBP60m of loans from its GBP70m committed bank facility and raised a further GBP16.4m of gross funds from a successful share placing in April 2020.

As a result, the business started the new financial year with a strong balance sheet and GBP76.8m of cash. This will support our growth ambitions and we expect to open a significant number of new sites in the year ahead.

Key Performance Indicators

 
 Gleeson Homes volumes    2016   2017    2018    2019    2020 
 Unit volumes             904    1,013   1,225   1,529   1,072 
                         -----  ------  ------  ------  ------

Units (homes) sold were heavily impacted by Covid-19.

 
 Gleeson Homes land    2016     2017     2018     2019     2020 
  pipeline 
 Plots                 9,284   11,588   12,852   13,575   13,801 
                      ------  -------  -------  -------  -------

Land continues to be available to buy at sensible prices.

 
 Gleeson Homes active    2016   2017   2018   2019   2020 
  build sites 
 Active sites             48     59     65     69     71 
                        -----  -----  -----  -----  -----

Gleeson Homes opened 12 sites, completed 10 sites and increased net active sites by 2 sites during the year.

 
 Gleeson Strategic     2016     2017     2018     2019     2020 
  Land portfolio 
 Plots                21,111   21,505   22,838   21,730   23,314 
                     -------  -------  -------  -------  -------

Strategic Land's portfolio represents over 12 years of normal sales activity.

Operations

Gleeson Homes strengthened its operational structure during the year by recruiting and appointing Mark Knight as Managing Director of the business. It also appointed three existing and highly experienced directors to newly created Divisional Managing Director roles for each of its newly created divisions covering the North West, the North East and Yorkshire & Midlands.

We have also invested in our Commercial, Customer Care, Marketing, HR and IT functions to strengthen the business and ensure it grows sustainably towards, and beyond, our target of 2,000 homes in 2022 which will represent a doubling of the number of homes delivered by the business in five years.

The investment that we are making in our sites is transforming their look and feel and enhancing the customer experience. Our sites, sales offices and show homes are looking better than ever.

I am pleased with the steps we have taken this year to further strengthen the business and I believe that we will emerge from this pandemic in many ways stronger than we were 12 months ago.

Quality

Buying a house is the single biggest financial transaction in most people's lives and we want our customers to be delighted with their new Gleeson home and with their experience of buying from us.

For that reason, we have invested in our Customer Care team, introduced virtual tours of our show homes, launched our new Gleeson Homes customer website, enhanced the My Gleeson portal and implemented the new Gleeson Quality Charter. This is about embedding quality across the business and into everything that we do, so we deliver what our customers want and expect from us.

We have also partnered with In-house Research, an independent customer research company, to gather feedback from our customers. Our goal is to be "five star" wherever we operate and to ensure we deliver a quality home to our customers, getting it right first time, on time. Our customer recommendation scores at 88% puts us in line with the HBF "four star" rating. Our objective is to be "five star" by the end of this year.

Sustainability

Our vision is "Building Homes. Changing Lives" and I am proud of Gleeson Homes' mission: "Changing lives by building affordable, quality homes. Where they are needed, for the people who need them the most". Our vision, mission and values were developed by colleagues across the business and embody what we do every day.

At the heart of what we do is build homes that are genuinely affordable and provide our customers with the opportunity for wealth creation through home ownership. It is substantially cheaper to buy a Gleeson home than rent with a typical three-bed Gleeson home costing as little as GBP76 per week with a Help to Buy mortgage compared to renting a three-bed home which costs around GBP138 per week in the private rental market.

A working couple on the Minimum Wage can buy a home on any Gleeson Homes development site. As a result, we believe 100% of Gleeson Homes turnover is aligned with achieving "access for all to adequate, safe and affordable housing". This is the first target of the UN's Sustainable Development Goal 11: "Sustainable Cities & Communities".

The majority of our sites are on brownfield land, often in areas of deprivation and in need of regeneration. We improve the communities in which we operate and provide the opportunity for our customers to escape the "rent trap", create wealth and have the security of owning their own home.

Our belief is that everyone who is involved in or affected by our activities has the right to remain free from harm and return home safe, every day. That is why we launched our HomeSafe brand this year: "HomeSafe - everyone, every day". It is fundamental to ensuring that not only do we meet our legal and moral health and safety duties, but that we strive to go above and beyond these standards.

We are fully committed to sustainability, and social responsibility has always been at the heart of our business. We have prepared our first report on sustainability in the pages of this year's Annual Report to demonstrate our significant ongoing commitment to this important area that is now attracting greater investor interest.

Trading and outlook

Whilst the business has been challenged this year by the Covid-19 pandemic, I remain confident that we will achieve our ambition of delivering 2,000 new homes per year in 2022. We started the new financial year with a strong forward order book up 52% on prior year and work in progress up 55% as measured in terms of unit equivalents built. Reservation rates have picked up significantly post lockdown and selling prices on new reservations are above pre-Covid levels. Build rates per site are increasing and we expect to return to pre-Covid levels of build activity by January 2021.

Whilst there remains uncertainty in the short term in relation to both Covid-19 and the UK's exit from the EU, particularly in terms of unemployment, house prices and mortgage availability, the market fundamentals for our homes remain strong. These are driven by 200,000 new households which are formed each year, many of which are young people, leaving home and having families of their own and the lack of supply of affordable new homes for first-time buyers. Two-thirds of customer reservations since May 2020 are from key workers who are those that are keeping us all safe, fed and healthy at this unprecedented time.

Our Strategic Land business enters the new financial year with a strong pipeline and, as the industry picks back up, the demand for consented land is expected to return.

As a result, we maintain our focus on strong growth in the current financial year and beyond.

James Thomson

Chief Executive Officer

13 September 2020

Gleeson Homes - Business Performance

Gleeson Homes enters the new financial year in a strong position with a forward order book of GBP145.3m on 1,033 units, work in progress well advanced and a healthy pipeline of land opportunities.

 
                        2020         2019 
 Units sold            1,072        1,529 
                    -----------  ----------- 
 Average selling     GBP130,900   GBP128,900 
  price 
                    -----------  ----------- 
 Operating profit     GBP9.0m      GBP30.1m 
                    -----------  ----------- 
 
 
                          2016     2017     2018     2019     2020 
 Unit volumes              904    1,013    1,225    1,529    1,072 
                         ------  -------  -------  -------  ------- 
 
 Land Pipeline (plots)    2016     2017     2018     2019     2020 
                         ------  -------  -------  -------  ------- 
 Owned                    4,357   5,320    6,475    6,525    6,849 
                         ------  -------  -------  -------  ------- 
 Awaiting completion      4,927   6,268    6,377    7,050    6,952 
                         ------  -------  -------  -------  ------- 
 Total                    9,284   11,588   12,852   13,575   13,801 
                         ------  -------  -------  -------  -------

Performance in the year was heavily impacted by the Covid-19 pandemic, with the division completing the sale of 1,072 homes, a reduction of 29.9% compared to the previous year (1,529 homes).

However, we enter the new financial year with our strongest ever forward sales position of GBP145.3m on 1,033 units (2019: GBP87.6m on 677 units) and work in progress, as measured in terms of unit equivalents built, up 55% on the prior year.

We opened 12 new build sites during the year and closed the year with 71 active build sites (2019: 69), of which 65 were actively selling (2019: 69). Our average active build and sales sites were 68 and 65 respectively (2019: 65 and 65). Our sales outlets are located across the North of England and the Midlands, with plans to expand our geographical reach. The business plans to open 25 sites during the new financial year, which would be a record number, and expects to have 80 active build sites by 30 June 2021.

The average selling price ("ASP") for homes sold in the year was GBP130,900 (2019: GBP128,900). The increase was influenced by a combination of factors: house price inflation, mix of site locations and the mix of two-, three- and four-bed homes sold. Our aim is to ensure that our selling prices remain affordable for young first-time buyers and low-income families.

Gross profit margin on homes sold decreased to 27.8% (2019: 30.1%) due to costs associated with responding to Covid-19.

The reduction in the volume of homes sold resulted in gross profit decreasing by 34.1% to GBP39.1m, which included GBP0.1m in relation to land sales (2019: GBP59.3m, GBPnil land sales), and operating profit decreasing by 70.1% to GBP9.0m, including GBP0.1m in relation to land sales (2019: GBP30.1m, GBPnil land sales). Operating margin decreased from 15.3% to 6.4%.

We continue to acquire land at sensible prices. The pipeline grew by 226 plots to stand at 13,801 plots at 30 June 2020. Of these plots 6,849 are owned (2019: 6,525) and 6,952 plots are conditionally purchased (2019: 7,050). The number of sites in the land pipeline totalled 149 at year end, being five sites higher than the prior year end; 27 new sites were added to the pipeline, while 22 sites were completed or did not proceed to purchase. In addition to owned and conditionally purchased plots, there are a further 798 (2019: 473) plots which are being actively considered for acquisition but will only proceed if they meet our strict criteria.

The Government's Help to Buy scheme remains popular with many of our customers, with 66% of the homes sold during the year utilising the scheme (2019: 68%). We also continue to provide our own range of bespoke packages to assist potential customers to become homeowners and recently launched our Key Worker Priority Programme, providing a range of benefits to show our support for key workers looking to purchase a new home.

Gleeson Strategic Land - Business Performance

Whilst the financial performance of the division was severely impacted by the Covid-19 crisis, we have continued to invest sensibly in our land portfolio and advance existing sites through the planning system. The business comes into the new financial year with a strong pipeline of sites ready for sale.

 
                      2020       2019 
 Plots sold            195      1,755 
                    --------  --------- 
 Land portfolio 
  (plots)            23,314     21,730 
                    --------  --------- 
 Operating profit    GBP0.2m   GBP13.0m 
                    --------  --------- 
 
 
 Land Portfolio          2020     2019 
  (sites) 
 Planning consented       11       9 
                       -------  ------- 
 Planning submitted       7        6 
                       -------  ------- 
 Allocated sites          9        8 
                       -------  ------- 
 Not allocated            41       37 
                       -------  ------- 
 Total                    68       60 
                       -------  ------- 
 
 Land portfolio          2020     2019 
  (plots) 
                       -------  ------- 
 Freehold                770      770 
                       -------  ------- 
 Held under option      7,760    8,553 
                       -------  ------- 
 Promotion agreement    14,784   12,407 
                       -------  ------- 
 Total                  23,314   21,730 
                       -------  -------

Revenue from Gleeson Strategic Land fell to GBP6.3m (2019: GBP52.9m) generated from the sale of two small sites during the year. The sites sold totalled 26 acres with the potential to deliver 195 plots.

A number of large transactions were delayed as a result of the Covid-19 pandemic and are now expected to complete in the new financial year. As a result, operating profit of GBP0.2m was significantly down on the previous year (2019: GBP13.0m).

As the land market takes tentative steps towards recovery, we are seeing demand returning with enquiries from a broad range of housebuilders. The land market, particularly for sites in prime locations in the South of England, is expected to recover strongly.

At 30 June 2020, we had a portfolio totalling 68 sites (2019: 60 sites) with the potential to deliver 23,314 plots (2019: 21,730 plots) plus 44 acres of commercial land (2019: 44 acres). During the year, we secured planning permissions for five sites and acquired interests in nine new sites. These new sites contributed a further 1,888 plots to the portfolio.

Despite the impact of Covid-19, we continue to see opportunities to add well-located, strategic sites to the portfolio where we see potential for future residential development and where we can deliver maximum value for stakeholders.

Our Strategic Land team is based in Fleet, Hampshire and the portfolio continues to have a geographic bias towards the South of England. Sites in the portfolio are expected to realise value over the short, medium and long term driven by the planning context of each individual site.

Financial Review

Despite the significant challenge surrounding the Covid-19 pandemic, we responded swiftly and decisively to protect value and ensure that we have the working capital needed to finance our growth plans.

Key Performance Indicators

 
 Divisional operating     2016       2017       2018       2019      2020 
  profit* 
 Gleeson Homes          GBP19.5m   GBP22.8m   GBP26.2m   GBP30.1m   GBP9.0m 
                       ---------  ---------  ---------  ---------  -------- 
 Gleeson Strategic      GBP10.2m   GBP12.0m   GBP12.6m   GBP13.0m   GBP0.2m 
  Land 
                       ---------  ---------  ---------  ---------  --------

* Gleeson Homes operating profit includes profit on land sales of GBP0.1m in 2020, GBPnil in 2019; GBPnil in 2018; GBP1.0m in 2017; and GBPnil in 2016.

 
                          2016       2017       2018       2019       2020 
 Group profit before    GBP28.2m   GBP33.0m   GBP37.0m   GBP41.2m   GBP5.6m 
  tax 
                       ---------  ---------  ---------  ---------  --------- 
 Total dividend          14.5p      24.0p      32.0p      34.5p       nil 
                       ---------  ---------  ---------  ---------  --------- 
 Cash balance           GBP23.2m   GBP34.1m   GBP41.3m   GBP30.3m   GBP76.8m 
                       ---------  ---------  ---------  ---------  --------- 
 Return on capital 
  employed*              23.2%      25.4%      26.6%      25.9%       3.1% 
                       ---------  ---------  ---------  ---------  --------- 
 Normalised earnings 
  per share              42.6p      48.5p      55.6p      61.0p       8.1p 
                       ---------  ---------  ---------  ---------  ---------

* Return on capital employed is calculated based on earnings before interest and tax ("EBIT") from continuing and discontinued operations before exceptional items expressed as a percentage of the average of opening and closing net assets after deducting deferred tax balances and cash net of borrowings.

Covid-19 impacted results

As a result of the Covid-19 pandemic, the results for the Group are significantly below those reported for the previous financial year. Revenue reduced by 41.1% to GBP147.2m (2019: GBP249.9m).

Gleeson Homes revenue fell 28.5% to GBP140.9m (2019: GBP197.0m) with its final quarter of completions almost entirely wiped out. As a result, there was a 29.9% decrease in the number of homes sold to 1,072 (2019: 1,529). Selling prices, however, held up strongly with an increase to average selling price ("ASP") for the year to GBP130,900 (2019: GBP128,900).

Gleeson Strategic Land sold only two small sites during the year generating revenue of GBP6.3m (2019: GBP52.9m). The land sales that were planned in the final quarter are now expected to complete in the new financial year.

Gross profit for the Group fell by 46.1% to GBP40.4m (2019: GBP75.0m). The gross profit of Gleeson Homes decreased by 34.1% to GBP39.1m (2019: GBP59.3m). Gross profit margin also reduced, as expected, from 30.1% to 27.8%. The impact of Covid-19 related costs and provisions totalled GBP2.9m. This includes non-productive site overhead costs incurred during the controlled closure and lockdown period which would otherwise have been added to work in progress; additional costs incurred due to extended site durations resulting from reduced productivity levels impacting site margins; and increased provisions for abortive land bid costs on sites not yet owned which may no longer be viable to purchase as a result of heightened uncertainty and additional costs associated with operating under Covid-19 guidelines. The gross profit achieved on sales in Gleeson Strategic Land was GBP1.3m (2019: GBP15.7m).

Administrative expenses increased by GBP0.2m (0.5%) in the year as investment to support the underlying growth of the business continued. This investment was partially offset by GBP1.4m furlough grant income under the Government's Job Retention Scheme during the months of April to June 2020.

Operating profit from continuing operations was GBP5.9m (2019: GBP41.0m), a reduction of 85.6% on the previous year. Gleeson Homes contributed GBP9.0m (2019: GBP30.1m) and Gleeson Strategic Land contributed GBP0.2m (2019: GBP13.0m), with Group overheads being GBP3.3m.

Net finance expenses of GBP0.4m (2019: GBP0.2m income) consisted of finance expenses of GBP1.1m (2019: GBP0.7m) being interest payable on bank facilities, bank charges and the unwinding of discounts on deferred payables partly offset by finance income of GBP0.7m (2019: GBP0.9m) consisting of the unwinding of discounts on deferred receivables on land sales and shared equity receivables.

As a result, the Group delivered profit before tax of GBP5.6m (2019: GBP41.2m).

Tax

A total tax charge, including discontinued operations, of GBP0.7m (2019: GBP7.7m) has been recorded, reflecting an effective rate of tax of 14.1% (2019: 18.8%). This reflects a lower profit before tax, the use of Land Remediation Relief available to the Group and the impact of the change in the tax rate from 17% to 19% on the value of deferred tax assets.

Deferred tax assets relating to unused tax losses have been recognised to the extent that it is probable that taxable profits will be available against which the asset can be utilised. The Group now has GBP12.7m (2019: GBP13.0m) of gross tax losses, of which GBP3.8m (2019: GBP4.1m) are recognised in calculating the deferred tax asset. The deferred tax asset recorded within the consolidated statement of financial position totals GBP2.2m (2019: GBP2.7m).

Discontinued operations

Discontinued operations incurred a loss after tax of GBP0.3m during the year (2019: GBP0.3m). This related to the costs of Gleeson Construction Services Limited, whose activity is limited to resolving claims from the legacy businesses that were sold in 2005 and 2006. The level of claims has now reduced to an insignificant level.

Profit for the year

The profit after tax for the year was GBP4.5m (2019: GBP33.3m).

Earnings per share

Reported basic earnings per share from continuing and discontinued operations decreased by 86.7% to 8.1 pence (2019: 61.0 pence).

Return on capital employed

Return on capital employed reduced to 3.1% (2019: 25.9%) reflecting significantly lower returns this year due to the impact of Covid-19.

Dividends

In response to the Covid-19 crisis, the Board took the decision in March 2020 to cancel the interim dividend of 12.0 pence per share (2019: 11.5 pence per share). The interim dividend would have equated to GBP6.6m.

As a result of the ongoing uncertainty and the impact of Covid-19, the Board has also taken the decision not to propose a final dividend for the year (2019: 23.0 pence per share) but, in line with its capital allocation policy, is committed to resuming dividend payments on a progressive basis as soon as it is prudent to do so.

Despite the remaining uncertainties and the impact of Covid-19 on this year's result, the Board maintains its interim target that Gleeson Homes will deliver 2,000 homes per annum in 2022. The Group, as a whole, expects to return to delivering significant growth in the current year and beyond.

Statement of financial position

During the year to 30 June 2020, shareholders' funds increased by 4.3% to GBP212.6m (2019: GBP203.9m). Net assets per share decreased to 366 pence, a reduction of 2.1% year on year (2019: 374 pence).

In the year, non-current assets decreased by 7.7% to GBP20.3m (2019: GBP22.0m). Property, plant and equipment balances increased in the year mainly due to the recognition of right-of-use assets under IFRS 16 "Leases", but this increase was more than offset by the reduction in long-term debtors (GBP4.6m) and deferred tax assets (GBP0.5m).

Current assets increased by 16.4% to GBP301.7m (2019: GBP259.2m), with inventories increasing by GBP33.2m to GBP216.3m and trade and other receivables decreasing by GBP37.5m to GBP8.3m. Cash balances of GBP76.8m include the funds received from drawing down GBP60m of the Group's GBP70m committed bank facility in March 2020, which remained drawn at 30 June 2020.

Total liabilities increased by 41.5% to GBP109.4m (2019: GBP77.3m). Trade payables are significantly lower than in the previous year at GBP25.4m (2019: GBP49.3m) reflecting the reduced level of build activity during May and June. In addition, GBP3.1m of lease liabilities have been recognised under IFRS 16 (2019: GBPnil).

Cash flow

The Group's cash outflow before financing activities was GBP15.9m, compared to cash generated in 2019 of GBP7.8m.

In March 2020, in response to the Covid-19 crisis, the Group drew down GBP60m from its GBP70m committed bank facility. In April 2020, the Group undertook a successful share placing to add a further GBP15.9m, net of costs, to cash reserves.

After payment of the final dividend for 2019 (GBP12.6m) in December 2019, the Group generated GBP46.5m of cash flow.

Bank facilities

In October 2019, the Group increased its bank facility from GBP40m to GBP70m and extended its maturity to October 2024. Of the facility, GBP60m was fully drawn at the balance sheet date with the GBP10m of overdraft facility remaining unutilised and available.

As set out in note 1 of the financial information on pages 18 and 19, the bank facilities contain two covenants that are aligned to profit generation on a 12-month rolling basis. As a result of the financial modelling and risks to profitability against budget, the Group has sought and agreed a waiver for certain covenant test dates in the next 12 months. In their place a liquidity covenant has been introduced.

Pension

The Group contributes to a defined contribution pension scheme. A charge of GBP1.0m (2019: GBP1.0m) was recorded in the consolidated income statement for pension contributions. The Group has no exposure to defined benefit pension plans.

Stefan Allanson

Chief Financial Officer

13 September 2020

AUDITED CONSOLIDATED INCOME STATEMENT