Latest Results
Interim results for the six months ended 30 September 2011
Telford Homes Plc (AIM:TEF), the residential developer in East London today announces its interim results for the six months ended 30 September 2011.
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Highlights
- Revenue for the six months ended 30 September 2011 was £58.6 million
(H1 2010: £58.2 million) including 125 open market completions (H1 2010: 133) - Strong sales achieved with contracts exchanged on 288 open market properties in the first six months of the year, a 30% increase compared to the same period last year
- Gross profit margin before exceptional items and interest increased to 18.2% (year ended 30 September 2011: 15.1%)
- Operating margin before exceptional items and interest increased to 6.6% (year ended 30 September 2011: 5.2%)
- Profit before tax and exceptional items of £1.5 million in line with expectations and consistent with prior half year
- Interim dividend up by 20% to 1.5 pence per share (H1 2010: 1.25 pence)
- Over 70% reduction in the number of unsold finished open market homes since 1 April 2011
- Terms agreed on over £30 million of land purchases since 1 April 2011 with cash resources and bank funding to make further land acquisitions
- On target to achieve full year profits similar to the previous year and a significant increase expected in the year to 31 March 2013
Jon Di-Stefano, Chief Executive of Telford Homes, commented: "Telford Homes has increased the number of open market properties sold in the first half of the year by 30% with many of these sales securing profits to be recognised in the future. Profit margins are improving and land is being acquired utilising the bank facility signed earlier this year. The London market has remained strong and East London will continue to benefit from regeneration and transport improvements with the Olympics providing an increased focus on the region in 2012. The Group remains on target to achieve full year profits in line with market expectations with a significant increase anticipated in the year to 31 March 2013."
Chief Executive's Statement
In the six months to 30 September 2011 Telford Homes has been successful in securing sales to both UK and overseas buyers despite restricted mortgage finance and an unsettled economic climate. The Board is focused on increasing profit margins and delivering higher levels of net profit and the Group is actively acquiring land to add to the development pipeline.
Results for the six months ended 30 September 2011
Revenue for the six months ended 30 September 2011 was marginally higher than the same period last year at £58.6 million (H1 2010: £58.2 million) with a total of 125 open market homes legally completed (H1 2010: 133 homes). The average selling price of these open market homes increased to £269,000 (year ended 31 March 2011: £261,000) due partly to the mix of developments completed in each period but also to the robustness of the London property market.
Gross profit before exceptional items was 26 per cent higher than last year at £9.3 million (H1 2010: £7.4 million). This is stated after expensing loan interest, which had been capitalised within inventories, of £1.3 million (H1 2010: £1.4 million). Gross profit margin before exceptional items and interest for the period to 30 September 2011 was 18.2 per cent which is significantly improved compared to 15.1 per cent for the year to 30 September 2011.
The increase in gross profit margin was driven by a combination of slightly higher prices for open market homes and construction cost savings achieved across a number of developments in the last six months. In addition, the Group's reliance on a greater proportion of affordable housing over the last two years is now being reduced in favour of open market homes which typically generate a higher profit margin.
Higher administrative expenses in the period are mainly due to rising employee numbers including the recruitment of an in-house legal department and the indirect costs associated with increased construction activity, which in turn will increase the output of completed homes in the future. In addition selling expenses have risen primarily as a result of overseas marketing activity and the Group's success in pre-selling some of the homes now under construction. Despite this, the operating margin before exceptional items and interest increased to 6.6 per cent compared to 5.2 per cent for the year to 30 September 2011.
Net finance costs of £1.1 million are higher than the previous half year due to bank charges and non-utilisation fees associated with the three and a half year loan facility signed on 30 September 2011. As a result, profit before tax and exceptional items is as expected, and consistent with the prior half year at £1.5 million.
During 2008 and 2009 the Group did not acquire new land which reduced potential output for the calendar years 2010 and 2011 and therefore the number of open market homes available for sale and legal completion. In addition profit margins have been reduced by an increase in the proportion of lower risk affordable housing being delivered and the completion of open market developments purchased prior to the recession.
From early 2012 the vast majority of developments with lower margins will have been completed and the Group expects to move back to normal operating levels both in terms of output and profit margins over the next two years. Pre-sales are being secured on higher margin developments and the business is returning to a more traditional mix of open market versus affordable homes, generally two thirds open market to one third affordable.
Dividend
The Board continues to maintain a progressive dividend policy in keeping with longer term earnings expectations and is pleased to declare a 20 per cent increase in the interim dividend which will be 1.5 pence per share (H1 2010: 1.25 pence). The interim dividend is expected to be paid on 13 January 2012 to those shareholders on the register at the close of business on 16 December 2011.
Sales
The Group has achieved strong sales in the first six months of the financial year exchanging contracts on 288 open market properties, a 30 per cent increase compared to the equivalent period last year. Since 30 September, a further 58 sales have been secured by exchange of contracts. There were 373 pre-sold open market homes under construction at 30 September 2011 of which over 300 are due for completion after 31 March 2012.
The restricted availability of mortgages for new-build apartments and especially for buyers requiring a higher loan to value is still constraining effective demand, however the Group is continuing to achieve a healthy rate of sales due to the on going shortage of supply of new homes, high demand from prospective tenants and the resilience of the London property market. The recent announcement of a new Government backed 95 per cent loan to value mortgage scheme for buyers of new homes who cannot afford more than a five per cent deposit is a positive move and should enable many potential purchasers, including first time buyers, to enter the market.
Off-plan investor demand, particularly from overseas, across a number of developments has been a key component in the Group's success since 1 April 2011 coupled with a steady rate of sales to owner-occupiers. The launch of Avant-garde, E1 was the most significant contributor in the first half of the year with an excellent 186 sales achieved in total, 124 of which were secured across three overseas marketing events with a further 62 sales to London buyers. These homes are not expected to complete until the year ending 31 March 2014.
The Group launched a further five new developments in the first half of the year, offering a total of 75 open market homes. These sites were individually assessed and launched in the most suitable market either in the UK, overseas, or both depending on the product on offer and the specific location of each development. To date 51 of the homes have been sold.
There has been a continued reduction in the number of unsold finished open market homes with only 38 remaining across three developments. This represents a 73 per cent reduction since 1 April 2011. The Group has also exchanged contracts for the sale of £2.8 million of commercial space since the start of the financial year.
Land buying
The Group has been pursuing new land opportunities since securing a £70 million bank facility in March 2011 which extends to 30 September 2014. This facility had headroom of £39 million at 30 September 2011 and cash balances were £14.6 million, a large proportion of which will be invested in further land acquisitions to add to the development pipeline. Since the start of the financial year, the Group has purchased, or agreed terms to purchase, eight sites with a combined value in excess of £30 million to develop over 600 units.
The majority of the sites being purchased have a full planning consent or are subject to achieving a satisfactory consent and all of them are on ‘brownfield' land. The Group will purchase smaller sites without planning but only where the risk of not achieving a consent is assessed to be low. Despite excellent relationships with all of the boroughs in East London the planning environment has been and remains challenging and the Government's attempts to improve this process through the ‘National Planning Policy Framework' are welcome.
The focus of the Group's land buying remains predominantly in East London but is increasingly concentrated on the areas in and around the City and Canary Wharf where demand is stronger and less reliant on mortgage-constrained buyers. These areas will also benefit from the investment in infrastructure for the Olympics and the new Westfield shopping centre. In addition to this core area the Board has widened its focus into adjoining areas of North and Central London where higher priced properties are in demand both from investors and owner-occupiers.
Development pipeline
The development pipeline at 30 September 2011 stands at 1,891 properties, all of which have a detailed planning consent (30 September 2011: 1,904 properties). This total includes sites under option contracts within the control of the Group but does not include sites where terms have been agreed subject to exchange of contracts. There are 1,523 properties under construction with development of the remaining 368 properties expected to commence within the next year. Over 55 per cent of the units under construction had been secured by contracts exchanged either for open market sale or for affordable housing at 30 September 2011.
Partnerships and affordable housing
Telford Homes is a grant partner of the Homes and Communities Agency and to date has received £58.3 million out of a total grant allocation for 2008-2011 of £72.9 million. The vast majority of the remaining grant will be received by March 2012 as affordable homes are completed in accordance with their construction programmes.
The size of the grant programme was unprecedented for Telford Homes due to the Group developing more affordable housing over the last few years. New sites are being acquired with a normal mix of open market and affordable housing such that grant funding is not required in most cases. Despite this the Group has received a small grant allocation in the 2011–2015 programme which will be used to undertake future estate regeneration schemes.
Cash and borrowings
Total borrowings at 30 September 2011 were £60.2 million (30 September 2011: £64.9 million) and the Group has funding available to develop out all existing sites and to invest in new site acquisitions.
In addition to the £70 million corporate facility signed in March 2011, a £43.1 million loan facility was signed in July 2011 with HSBC to fund the development of Avant-garde, E1, which is a joint venture with The William Pears Group. The facility was partially used to refinance the existing £15 million loan with Allied Irish Bank with the remainder available to fund development costs.
At 30 September 2011 net debt was £45.7 million (31 March 2011: £46.0 million) and gearing remained historically low at 69.8% (31 March 2011: 71.2%) although this is expected to increase in the future with land and development expenditure funded by 60 per cent debt and 40 per cent equity.
Outlook
The London market has remained strong despite economic uncertainty and the Group's core area of East London will continue to benefit from regeneration and transport improvements with the Olympics providing an increased focus on the region in 2012. A strong balance sheet and a reputable brand put Telford Homes in an excellent position to take advantage of site acquisition opportunities as they arise and to generate higher profits and continue to improve margins over the next few years.
The Group remains on target to achieve full year profits in line with market expectations and at a similar level to the previous financial year but with a significant increase anticipated in the year to 31 March 2013.
Jon Di-Stefano
Chief Executive
30 November 2011
Group Income Statement
For the six months ended 30 September 2011
| Note | Unaudited 6 months ended |
Unaudited 6 months ended |
Audited Year ended |
|
| 30 September 2011 |
30 September 2010 |
31 March 2011 |
||
| £000 | £000 | £000 | ||
| Revenue | 58,603 | 58,170 | 121,071 | |
| Cost of sales before exceptional item | (49,291) | (50,720) | (105,709) | |
| Exceptional item | 3 | - | 511 | 511 |
| Gross profit | 9,312 | 7,961 | 15,873 | |
| Administrative expenses | (4,780) | (4,156) | (9,255) | |
| Selling expenses | (2,022) | (1,383) | (2,725) | |
| Operating profit | 2,510 | 2,422 | 3,893 | |
| Finance income | 78 | 149 | 249 | |
| Finance costs | (1,134) | (567) | (1,108) | |
| Profit before income tax | 1,454 | 2,004 | 3,034 | |
| Analysed as: | ||||
| Profit before income tax and exceptional item | 1,454 | 1,493 | 2,523 | |
| Exceptional item | 3 | - | 511 | 511 |
| 1,454 | 2,004 | 3,034 | ||
| Income tax expense | 4 | (420) | (422) | (742) |
| Profit after income tax | 1,034 | 1,582 | 2,292 | |
| Earnings per share: | ||||
| Basic | 6 | 2.1p | 3.3p | 4.8p |
| Diluted | 6 | 2.1p | 3.3p | 4.7p |
All activities are in respect of continuing operations.
Group Statement of Comprehensive Income
For the six months ended 30 September 2011
| Unaudited 6 months ended |
Unaudited 6 months ended |
Audited Year ended |
|
| 30 September 2011 |
30 September 2010 |
31 March 2011 |
|
| £000 | £000 | £000 | |
| Movement in excess tax on share options | (2) | (9) | (12) |
| Other comprehensive expense net of tax | (2) | (9) | (12) |
| Profit for the period | 1,034 | 1,582 | 2,292 |
| Total comprehensive income for the period | 1,032 | 1,573 | 2,280 |
Group Balance Sheet
At 30 September 2011
| Unaudited 30 September 2011 |
Unaudited 30 September 2010 |
Audited 31 March 2011 |
||
| £000 | £000 | £000 | ||
| Non current assets | ||||
| Property, plant and equipment | 421 | 394 | 358 | |
| Deferred income tax assets | - | 29 | 50 | |
| 421 | 423 | 408 | ||
| Current assets | ||||
| Inventories | 129,294 | 139,217 | 125,181 | |
| Trade and other receivables | 14,850 | 9,469 | 14,211 | |
| Income tax receivable | 108 | - | - | |
| Cash and cash equivalents | 14,557 | 21,987 | 18,837 | |
| 158,809 | 170,673 | 158,229 | ||
| Total assets | 159,230 | 171,096 | 158,637 | |
| Non current liabilities | ||||
| Hire purchase liabilities | (11) | (27) | (19) | |
| Deferred income tax liabilities | (12) | - | - | |
| (23) | (27) | (19) | ||
| Current liabilities | ||||
| Trade and other payables | (32,604) | (30,719) | (28,554) | |
| Borrowings | (60,210) | (75,585) | (64,877) | |
| Current income tax liabilities | (900) | (320) | (431) | |
| Hire purchase liabilities | (16) | (15) | (16) | |
| (93,730) | (106,639) | (93,878) | ||
| Total liabilities | (93,753) | (106,666) | (93,897) | |
| Net assets | 65,477 | 64,430 | 64,740 | |
| Capital and reserves | ||||
| Issued share capital | 4,900 | 4,865 | 4,900 | |
| Share premium | 37,075 | 36,837 | 37,075 | |
| Retained earnings | 23,502 | 22,728 | 22,765 | |
| Total equity | 65,477 | 64,430 | 64,740 |
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 30 September 2010 (unaudited)
| Share capital |
Share premium |
Retained earnings |
Total equity |
|
| £000 | £000 | £000 | £000 | |
| Balance at 1 April 2010 | 4,978 | 37,357 | 20,745 | 63,080 |
| Profit for the period | - | - | 1,582 | 1,582 |
| Total other comprehensive expense | - | - | (9) | (9) |
| Dividend on equity shares | - | - | (621) | (621) |
| Share-based payments | - | - | 147 | 147 |
| Sale of own shares | - | - | 166 | 166 |
| Write down in value of own shares | - | - | 71 | 71 |
| Dividend paid on consideration shares | - | - | 14 | 14 |
| Cancellation of own shares | (113) | (520) | 633 | - |
| Balance at 30 September 2010 | 4,865 | 36,837 | 22,728 | 64,430 |
Group Statement of Changes in Equity
For the six months ended 31 March 2011 (audited)
| Share capital |
Share premium |
Retained earnings |
Total equity |
|
| £000 | £000 | £000 | £000 | |
| Balance at 1 April 2010 | 4,978 | 37,357 | 20,745 | 63,080 |
| Profit for the year | - | - | 2,292 | 2,292 |
| Total other comprehensive expense | - | - | (12) | (12) |
| Dividend on equity shares | - | - | (1,227) | (1,227) |
| Proceeds of equity share issues | 35 | 238 | - | 273 |
| Share-based payments | - | - | 264 | 264 |
| Purchase of own shares | - | - | (273) | (273) |
| Sale of own shares | - | - | 191 | 191 |
| Write down in value of own shares | - | - | 138 | 138 |
| Dividend paid on consideration shares | - | - | 14 | 14 |
| Cancellation of own shares | (113) | (520) | 633 | - |
| Balance at 31 March 2011 | 4,900 | 37,075 | 22,765 | 64,740 |
Group Cash Flow Statement
For the six months ended 30 September 2011
| Unaudited 6 months ended |
Unaudited 6 months ended |
Audited Year ended |
|
| 30 September 2011 |
30 September 2010 |
31 March 2011 |
|
| £000 | £000 | £000 | |
| Cash flow from operating activities | |||
| Operating profit | 2,510 | 2,422 | 3,893 |
| Depreciation | 91 | 89 | 175 |
| Write down in value of own shares | 64 | 71 | 138 |
| Share-based payments | 83 | 147 | 264 |
| Profit on sale of tangible fixed assets | (14) | (49) | (49) |
| Increase in inventories | (2,856) | (18,512) | (3,580) |
| Increase in receivables | (639) | (1,831) | (6,573) |
| Increase in payables | 4,022 | 3,462 | 1,510 |
| 3,261 | (14,201) | (4,222) | |
| Interest paid | (2,363) | (1,033) | (2,683) |
| Income tax paid | - | (902) | (1,135) |
| Cash flow from operating activities | 898 | (16,136) | (8,040) |
| Cash flow from investing activities | |||
| Purchase of tangible assets | (154) | (59) | (109) |
| Proceeds from sale of tangible assets | 14 | 52 | 52 |
| Interest received | 78 | 149 | 249 |
| Cash flow from investing activities | (62) | 142 | 192 |
| Cash flow from financing activities | |||
| Proceeds from issuance of ordinary share capital | - | - | 273 |
| Purchase of own shares | (5) | - | (273) |
| Sale of own shares | 174 | 166 | 191 |
| Increase in bank loans | 25,431 | 28,624 | 64,438 |
| Repayment of bank loans | (30,099) | (23,825) | (70,347) |
| Dividend paid | (611) | (621) | (1,227) |
| Capital element of hire purchase payments | (6) | (5) | (12) |
| Cash flow from financing activities | (5,116) | 4,339 | (6,957) |
| Net decrease in cash and cash equivalents | (4,280) | (11,655) | (14,805) |
| Cash and cash equivalents brought forward | 18,837 | 33,642 | 33,642 |
| Cash and cash equivalents carried forward | 14,557 | 21,987 | 18,837 |
Notes
Notes to the Financial Statements are available in the printable PDF version