Latest Results
Interim results for the six months ended 30 September 2012
Telford Homes Plc (AIM:TEF), the residential developer in East London today announces its interim results for the six months ended 30 September 2012.
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Highlights
- Revenue increased significantly to £78.3 million (H1 2011: £58.6 million), including 252 open market completions (H1 2011: 125)
- Considerable improvement in margins with gross margin before interest of 23.8% and operating margin before interest of 11.4% (year ended 31 March 2012: 17.6% and 6.2% respectively)
- Profit before tax more than quadrupled to £6.5 million (H1 2011: £1.5 million)
- The Group has sold over 90% of the target open market completions for the year to 31 March 2013 and over 60% for the following year
- Strong demand from both owner-occupiers and investors in the inner London locations that are now the core of the Group‚s land buying strategy
- Reduction in net debt to £31.7 million (31 March 2012: £54.6 million) and gearing to 45.7% (31 March 2012: 82.4%) with both expected to increase again over the next 12 months as sites are acquired and developed
- Corporate loan facility increased to £90 million during the period,/
- The Board is confident that profits for the year to 31 March 2013 will be in line with market expectations and anticipates significant growth in the following year
Jon Di-Stefano, Chief Executive of Telford Homes, commented: "I am very pleased to be able to report a quadrupling of profits in the first half of the year and a five percentage point increase in our operating margin. We are achieving a strong rate of sales to both investors and owner-occupiers with the Group now over 90 per cent sold for this financial year and already over 60 per cent sold for the following year. Our development pipeline represents five years of gross profit based on the current year and, with the London market remaining buoyant, the Board expects Telford Homes to continue to grow over the coming years."
Chief Executive's Statement
Telford Homes has more than quadrupled profit before tax for the first six months of the year and has sold over 90 per cent of target open market completions for the year to 31 March 2013 and over 60 per cent for the following year. Margins are significantly improved and the market for new homes in inner London has remained buoyant.
Results for the six months ended 30 September 2012
Revenue for the six months ended 30 September 2012 was significantly higher than the same period last year at £78.3 million (H1 2011: £58.6 million). This increase is primarily driven by the volume of open market completions with a total of 252 open market homes legally completed in the six months to September 2012 (H1 2011: 125 homes). The average selling price of these homes increased to £288,000 (year ended 31 March 2012: £263,000) largely as a result of different developments completing in each period but also due to higher underlying selling prices. The increased open market revenue is partially offset by a reduction in revenue from the construction of affordable housing as the Group returns to a more traditional split of open market and affordable output.
Total gross profit has increased to £16.8 million (H1 2011: £9.3 million) and this is stated after expensing loan interest, which had been capitalised within inventories, of £1.9 million (H1 2011: £1.3 million). The gross profit margin before interest of 23.8 per cent has increased by more than six percentage points compared to the full year to 31 March 2012 (17.6 per cent). This reflects a combination of increased open market prices combined with tight control of construction costs and less revenue and profit attributable to lower margin affordable housing contracts.
Administrative expenses in the period were higher at £6.0 million (H1 2011: £4.8 million) largely due to rising employee numbers required to manage the development pipeline and an anticipated growth in output over the next few years. Selling expenses have risen to £3.7 million (H1 2011: £2.0 million) due partly to the greater number of completions in the period and also as a result of the Group‚s success in pre-selling homes under construction that will be delivered, and generate profits, in future financial years. Despite higher administrative and selling expenses, the operating margin before interest increased to 11.4 per cent compared to 6.2 per cent in the last financial year.
Net finance costs have reduced to £0.5 million (H1 2011: £1.1 million) due to lower interest hedging costs and less interest being expensed directly to the income statement, which occurs only where there is no activity on a given development site.
As a result, profit before tax was considerably higher than the same period last year at £6.5 million (H1 2011: £1.5 million) and already more than double the level reported for the year to 31 March 2012. Profit before tax for the year to 31 March 2013 is expected to be in line with market expectations and therefore heavily weighted to the first half due entirely to the timing of completion of various developments.
Dividend
The Board is pleased to declare an increase in the interim dividend to 2.0 pence per share (H1 2011: 1.5 pence). The interim dividend, together with the full year dividend payable in July 2013, is expected to be consistent with the Board‚s stated intention of paying around a third of earnings in dividends each year.
The interim dividend will be paid on 11 January 2013 to those shareholders on the register at the close of business on 14 December 2012.
Sales
The Group has been achieving a strong rate of new sales and has exchanged contracts for the sale of 432 open market properties since 1 April 2012 with a further 128 currently reserved subject to contract. This compares to 460 open market contracts exchanged in the year to 31 March 2012.
A large part of this success has been achieved through the sale of certain developments to individual investors up to three years ahead of the expected completion of the properties. These investors, who are mainly based overseas but include an increasing number of UK buyers, are all keen to invest in London and particularly the inner London locations that are now the core of the Group‚s land buying strategy.
Following a number of other successful overseas launches this year, the Group has sold an impressive 187 of the 198 open market homes at its Stratford Plaza development in the last few weeks. Of these, 140 were sold overseas and the remaining 47 were sold to UK investors. The development is adjacent to Stratford station and the nearby Westfield shopping centre and is due for completion in the second half of 2015. Not only is this an exceptional result for Telford Homes but it also demonstrates recognition of the substantial investment that has already been made in Stratford and that the area can and will benefit from the success of the Olympic Games.
Investors are generally being attracted to the strong rental yields being achieved across the Group‚s developments, which are driven by high tenant demand caused by the inability of many potential homeowners to buy their own property and a restricted supply of homes coming to the market. These buyers are stimulating the housing market in London and although institutional investment in properties for private rent has become a hot topic in recent months, this sector is already working at its most basic level through individuals acquiring small portfolios. Despite this, the Group has also agreed the sale of two smaller developments entirely for private rent to two different institutions in recent weeks. These developments comprise just 35 open market homes between them but, assuming the sales proceed to contract, this is another encouraging sign in terms of investment in residential property in London.
The mortgage market for UK buyers has seen some improvement in recent months but it seems unlikely that there will be a substantial change in the availability of finance over the next few years. However Telford Homes is developing in locations that attract buyers less affected by this restriction and therefore the Group continues to be successful in selling to those owner-occupiers who require lower loan to value mortgages. The Group has made over 200 sales to owner-occupiers since 1 April 2012 spread across a number of its developments. The rate of sales achieved has meant that the Group has not needed to become involved in some of the shared equity schemes that are assisting purchasers in other parts of the country including the recent government backed ‘NewBuy‚ scheme.
Partnerships and affordable housing
Although the proportion of affordable housing being produced by the Group has reduced since the end of the market downturn, it still accounts for up to a third of the homes on each development. The relationships and partnerships that Telford Homes has forged in the sector over many years are vital in achieving best value for new affordable housing and sourcing land opportunities.
Land buying and development pipeline
The Group‚s strategy is to acquire brownfield land within inner London boroughs excluding particularly high value ‘prime‚ areas of Central London. As expected, given the opportunities in the area, the majority of recent acquisitions have been in East London but the Group has also purchased land in Lambeth and Camden. The sites acquired predominantly have excellent links to the City, Canary Wharf or the West End and are usually in transport zones 1 and 2.
The Group is continuing to focus on sites that either already have a planning consent or can be bought subject to obtaining an appropriate consent. There remains too much uncertainty over achieving reasonable planning permissions in most London boroughs for the Group to take significant risks and consequently only smaller sites will be acquired without a consent.
A number of new sites have been acquired in the last six months with several more progressing to contract and, including those, the Group‚s development pipeline is currently expected to deliver gross profit in excess of £130 million from 1 October 2012 onwards. This is equivalent to over five years of gross profit based on market forecasts for the year to 31 March 2013, the most this has ever been in the Group‚s history. All of this development pipeline is expected to be delivered over the next three to four years.
Cash and borrowings
Total borrowings at 30 September 2012 were £47.0 million (31 March 2012: £67.0 million) and the group held cash balances of £15.3 million (31 March 2012: £12.4 million). Net debt has therefore been significantly reduced predominantly due to the number of open market completions in the period. These completions resulted in considerable cash inflows and loan repayments and outweighed the effects of on going investment in land and work in progress. As a result, gearing has been reduced to 45.7 per cent (31 March 2012: 82.4 per cent) and remains at a much lower level than usual for the Group.
Net debt and gearing are expected to increase over the next 12 months as more land is acquired and construction continues, particularly on some of the major sites acquired in the last 18 months. All land and construction costs are funded 60 per cent by debt and 40 per cent by equity.
The Group successfully increased its corporate loan facility from £70 million to £90 million during the period. This facility extends to 30 September 2014 and is funding all of the Group‚s current developments with the exception of Avant garde which is financed by a separate facility with HSBC. At 30 September 2012 there was headroom within the corporate loan facility of £51 million. This headroom is expected to fund the remaining construction costs on existing sites and further site acquisitions.
Outlook
London has a strong international reputation and is widely regarded as a safe haven for investment of all kinds. The housing market in London has remained buoyant and the Group‚s area of operation fits with some of the locations that are in most demand. In addition, a persistent shortage of supply of new homes underpins this demand from both tenants and owner occupiers.
Along with being over 90 per cent sold against expectations for the year to 31 March 2013 the Group has exchanged contracts for the sale of more than 450 open market properties that will complete in the following three financial years. Profit before tax in the first six months of the year has increased more than fourfold and the operating margin has improved by over five percentage points against the last full year results. The Board is confident that profits for the year to 31 March 2013 will be in line with market expectations and anticipates significant growth beyond this given sales already secured and the Group‚s substantial development pipeline.
Jon Di Stefano
Chief Executive
Group Income Statement
For the six months ended 30 September 2012
| Unaudited 6 months ended |
Unaudited 6 months ended |
Audited Year ended |
||
| 30 September 2012 |
30 September 2011 |
31 March 2012 |
||
| Note | £000 | £000 | £000 | |
| Revenue | 78,324 | 58,603 | 124,352 | |
| Cost of sales | (61,549) | (49,291) | (105,432) | |
| Gross profit | 16,775 | 9,312 | 18,920 | |
| Administrative expenses | (5,993) | (4,780) | (10,637) | |
| Selling expenses | (3,716) | (2,022) | (3,533) | |
| Operating profit | 7,066 | 2,510 | 4,750 | |
| Finance income | 62 | 78 | 127 | |
| Finance costs | (602) | (1,134) | (1,832) | |
| Profit before income tax | 6,526 | 1,454 | 3,045 | |
| Income tax expense | 3 | (1,547) | (420) | (759) |
| Profit after income tax | 4,979 | 1,034 | 2,286 | |
| Earnings per share: | ||||
| Basic | 5 | 10.2p | 2.1p | 4.7p |
| Diluted | 5 | 9.9p | 2.1p | 4.6p |
All activities are in respect of continuing operations.
Group Statement of Comprehensive Income
For the six months ended 30 September 2012
| Unaudited 6 months ended |
Unaudited 6 months ended |
Audited Year ended |
|
| 30 September 2012 |
30 September 2011 |
31 March 2012 |
|
| £000 | £000 | £000 | |
| Movement in excess tax on share options | 164 | (2) | 54 |
| Other comprehensive income (expense) net of tax | 164 | (2) | 54 |
| Profit for the period | 4,979 | 1,034 | 2,286 |
| Total comprehensive income for the period | 5,143 | 1,032 | 2,340 |
Group Balance Sheet
At 30 September 2012
| Unaudited 30 September 2012 |
Unaudited 30 September 2011 |
Audited 31 March 2012 |
|
| £000 | £000 | £000 | |
| Non current assets | |||
| Property, plant and equipment | 413 | 421 | 381 |
| Deferred income tax assets | 328 | - | 155 |
| 741 | 421 | 536 | |
| Current assets | |||
| Inventories | 124,473 | 129,294 | 135,810 |
| Trade and other receivables | 8,824 | 14,850 | 16,861 |
| Income tax receivable | - | 108 | - |
| Cash and cash equivalents | 15,275 | 14,557 | 12,419 |
| 148,572 | 158,809 | 165,090 | |
| Total assets | 149,313 | 159,230 | 165,626 |
| Non current liabilities | |||
| Hire purchase liabilities | - | (11) | (3) |
| Deferred income tax liabilities | - | (12) | - |
| - | (23) | (3) | |
| Current liabilities | |||
| Trade and other payables | (29,796) | (32,604) | (31,937) |
| Borrowings | (46,997) | (60,210) | (66,983) |
| Current income tax liabilities | (1,563) | (900) | (484) |
| Hire purchase liabilities | (11) | (16) | (16) |
| (78,367) | (93,730) | (99,420) | |
| Total liabilities | (78,367) | (93,753) | (99,423) |
| Net assets | 70,946 | 65,477 | 66,203 |
| Capital and reserves | |||
| Issued share capital | 4,960 | 4,900 | 4,950 |
| Share premium | 37,581 | 37,075 | 37,503 |
| Retained earnings | 28,405 | 23,502 | 23,750 |
| Total equity | 70,946 | 65,477 | 66,203 |
Group Statement of Changes in Equity
For the six months ended 30 September 2012(unaudited)
| Share capital |
Share premium |
Retained earnings |
Total equity |
|
| £000 | £000 | £000 | £000 | |
| Balance at 1 April 2012 | 4,950 | 37,503 | 23,750 | 66,203 |
| Profit for the period | - | - | 4,979 | 4,979 |
| Total other comprehensive income | - | - | 164 | 164 |
| Dividend on equity shares | - | - | (738) | (738) |
| Proceeds of equity share issue | 10 | 78 | - | 88 |
| Share-based payments | - | - | 71 | 71 |
| Sale of own shares | - | - | 191 | 191 |
| Purchase of own shares | - | - | (72) | (72) |
| Write down in value of own shares | - | - | 60 | 60 |
| Balance at 30 September 2012 | 4,960 | 37,581 | 28,405 | 70,946 |
Group Statement of Changes in Equity
For the six months ended 30 September 2011 (unaudited)
| Share capital |
Share premium |
Retained earnings |
Total equity |
|
| £000 | £000 | £000 | £000 | |
| Balance at 1 April 2011 | 4,900 | 37,075 | 22,765 | 64,740 |
| Profit for the period | - | - | 1,034 | 1,034 |
| Total other comprehensive expense | - | - | (2) | (2) |
| Dividend on equity shares | - | - | (611) | (611) |
| Share-based payments | - | - | 83 | 83 |
| Sale of own shares | - | - | 174 | 174 |
| Purchase of own shares | - | - | (5) | (5) |
| Write down in value of own shares | - | - | 64 | 64 |
| Balance at 30 September 2011 | 4,900 | 37,075 | 23,502 | 65,477 |
Group Statement of Changes in Equity
For the six months ended 31 March 2012 (audited)
| Share capital |
Share premium |
Retained earnings |
Total equity |
|
| £000 | £000 | £000 | £000 | |
| Balance at 1 April 2011 | 4,900 | 37,075 | 22,765 | 64,740 |
| Profit for the year | - | - | 2,286 | 2,286 |
| Total other comprehensive income | - | - | 54 | 54 |
| Dividend on equity shares | - | - | (1,348) | (1,348) |
| Proceeds of equity share issue | 50 | 428 | - | 478 |
| Share-based payments | - | - | 157 | 157 |
| Sale of own shares | - | - | 217 | 217 |
| Purchase of own shares | - | - | (510) | (510) |
| Write down in value of own shares | - | - | 129 | 129 |
| Balance at 31 March 2012 | 4,950 | 37,503 | 23,750 | 66,203 |
Group Cash Flow Statement
For the six months ended 30 September 2012
| Unaudited 6 months ended |
Unaudited 6 months ended |
Audited Year ended |
|
| 30 September 2012 |
30 September 2011 |
31 March 2012 |
|
| £000 | £000 | £000 | |
| Cash flow from operating activities | |||
| Operating profit | 7,066 | 2,510 | 4,750 |
| Depreciation | 115 | 91 | 196 |
| Write down in value of own shares | 60 | 64 | 129 |
| Share-based payments | 71 | 83 | 157 |
| Loss (profit) on sale of tangible fixed assets | 6 | (14) | (13) |
| Decrease (increase) in inventories | 12,502 | (2,856) | (7,452) |
| Decrease (increase) in receivables | 8,006 | (639) | (3,516) |
| (Decrease) increase in payables | (2,148) | 4,022 | 3,511 |
| 25,678 | 3,261 | (2,238) | |
| Interest paid | (1,872) | (2,363) | (4,851) |
| Income tax paid | (477) | - | (757) |
| Cash flow from operating activities | 23,329 | 898 | (7,846) |
| Cash flow from investing activities | |||
| Purchase of tangible assets | (154) | (154) | (220) |
| Proceeds from sale of tangible assets | - | 14 | 14 |
| Interest received | 62 | 78 | 127 |
| Cash flow from investing activities | (92) | (62) | (79) |
| Cash flow from financing activities | |||
| Proceeds from issuance of ordinary share capital | 88 | - | 478 |
| Purchase of own shares | (72) | (5) | (510) |
| Sale of own shares | 191 | 174 | 217 |
| Increase in bank loans | 14,928 | 25,431 | 63,618 |
| Repayment of bank loans | (34,771) | (30,099) | (60,932) |
| Dividend paid | (738) | (611) | (1,348) |
| Capital element of hire purchase payments | (7) | (6) | (16) |
| Cash flow from financing activities | (20,381) | (5,116) | 1,507 |
| Net increase (decrease) in cash and cash equivalents | 2,856 | (4,280) | (6,418) |
| Cash and cash equivalents brought forward | 12,419 | 18,837 | 18,837 |
| Cash and cash equivalents carried forward | 15,275 | 14,557 | 12,419 |
Notes
Notes to the Financial Statements are available in the printable PDF version