22nd May 2007 07:01
Telford Homes PLC22 May 2007 TELFORD HOMES PLC ('Telford' or 'the Company') Preliminary results for the year ended 31st March 2007 Telford Homes, the London-based house builder specialising in the redevelopmentof sites within residential areas principally in East and North London, todayannounces its preliminary results for the year ended 31st March 2007. Highlights • Turnover for the year up 32% to £104.4 million (2006 - £79.3 million) • Contracts exchanged on 478 private homes at an average price of £258,000 (2006 - £245,000) along with 84 affordable homes and two commercial units • Market in East London remains strong with 197 private homes across two new developments sold following sales launches early in 2007 • Profit before tax up 35% to £13.5 million (2006 - £10.0 million) • Basic earnings per share of 30.3 pence (2006 - 23.8 pence) • Final dividend proposed of 4.9 pence per share to be paid on 13th July 2007 to shareholders on the register on 22nd June 2007 - total annual dividend of 8.9 pence per share (2006 - 7.0 pence per share) • Substantial site purchases have increased contracted development pipeline to 2,221 properties compared to 1,659 last year • This pipeline expected to provide turnover in excess of £500 million and gross profit of over £100 million, more than four years supply at current levels of profit • Current trading is healthy and the upcoming launch of Merchants' Quarter on the British Estate, E3 has received a high level of interest • Expect 2007/8 to be another record year for Telford Homes Commenting on the results, Andrew Wiseman, Chief Executive of Telford Homes,said: 'Our recent sales launches are an indication that the market remains strongdespite rising interest rates. This demand for homes in East London, thestrength of our development pipeline and our ongoing partnerships withaffordable housing providers lead me to expect 2008 to be another year of recordresults and another step forward in the development of Telford Homes.' For further information, please contact: Telford Homes PlcAndrew Wiseman, Chief Executive 01992 809800Jon Di-Stefano, Financial Director Shore CapitalGraham Shore, Alex Borrelli 020 7408 4090 CHIEF EXECUTIVE'S REVIEW Financial results Once again I can report on a year in which we have exceeded our initialexpectations. Turnover has grown by 32% to £104.4 million and profit before taxis up 35% to £13.5 million. Earnings per share have increased by 27% to 30.3p despite the dilutive effect ofthe share placing and the directors are proposing a final dividend of 4.9p,making a total of 8.9p for the year. Property sales and affordable housing Contracts were exchanged on 478 private homes, 84 affordable homes and twocommercial units making a total of 564 properties in the year. Included withinthis figure are 16 homes being constructed under joint ventures where werecognise half of the turnover and profit from the development. The number of private homes sold has increased by 45% this year with the averageselling price of those homes also increasing to £258,000 from £245,000. Priceshave continued to move ahead in East London and, where the market allows, wehave maintained our policy of selling properties at an early stage in thedevelopment process. This secures future cash flows and enables us to investfurther in our development pipeline. We have been able to secure increased bankfinance as a direct result of the volume of early sales on some sites whichoffsets the risk of increased gearing. Earlier this year we sold all 179 private homes at OneStratford our developmentin High Street, Stratford before construction had commenced. More recently wehave sold all of the 53 private homes at Metro East, E3 and the 144 privatehomes at SoBow, E3 and work is only just underway at both sites. Both of thesedevelopments went on sale in 2007 and the success we have achieved is anindication of the continuing strength of the market, particularly in EastLondon. Of the 197 private homes across these two sites 81 contracts wereexchanged in the year to March with the remainder being exchanged in the newfinancial year and all have been sold to investors. Queen Mary's Gate, South Woodford is a different marketing proposition withsales to date being largely to the owner-occupier market. Despite this the rateof sales has been impressive with handovers not due to commence until Novemberthis year. To date we have sold 123 of the 184 private homes in the firstconstruction phase. The number of affordable properties sold this year is lower than last year duesolely to the timing of some significant contracts. In March 2006 we exchangedcontracts to deliver all of the affordable homes at OneStratford and QueenMary's Gate with those 232 exchanges being recognised last year but the majorityof the profits flowing into 2007 and beyond. Partnerships with affordablehousing providers remain integral to our business and typically 35% of anydevelopment is sold for affordable housing. Our accounting policy is to recognise turnover and profit from the point ofexchange of contracts on a percentage complete basis. This means that inaddition to profit recognised from contracts exchanged in the year we also haveprofit continuing to be realised from ongoing construction at developments wherethe exchanges have been reported in previous years. Our results this yearinclude profits from, amongst others, Tequila Wharf, E14 where sales commencedin 2004 and the development was completed at the end of 2006 and Icona,Stratford where sales commenced in 2005 and development will continue into 2008. Operating performance The operational heart of our business has once again delivered outstandingquality of final product, on programme and within budget. Both Telford HomesMetro and Telford Homes Alto continue to experience substantial change in thescope of their operations and new staff have been recruited to ensure we havethe capacity to cope with expansion. In recognition of our operationalperformance we have won a number of awards in the year for design, constructionand marketing. During the year ended 31st March 2007 we handed over a total of 477 propertiesto our customers, achieving excellent standards in Customer Service. We arerated highly amongst our peers in independent surveys and our attention todetail in the handover process, together with our approach in dealing directlywith tenants where properties have been rented out, is a significant factor inour level of sales to previous customers. Health and Safety is always at the forefront of our business and this year wehave recruited a Group Health and Safety Manager who is assisting David Durant,our Group Managing Director, and the divisional Managing Directors in developingand monitoring our policies and procedures. Site acquisitions This year we have substantially increased our development pipeline purchasing,or agreeing to purchase, a number of new development sites. This has beenaccelerated by the £14.4 million net funds raised in a placing at the end of2006. Mike North has joined our land team alongside Jim Furlong and Nick Drewour Partnerships Director and Mike has already been responsible for somesignificant site acquisitions. Some of the land acquired benefited from detailed planning permission such thatdevelopment could commence almost immediately. SoBow, E3 was purchased from oneof our affordable housing partners with the benefit of a resolution to grantplanning permission for 201 homes. Development is now underway and will becompleted in 2009. We have recently purchased a site at Leyton Orient FootballClub where redevelopment adjacent to the North and South stands incorporates aplanning permission for 62 homes. A number of land acquisitions were subject to receipt of satisfactory planningpermission. These include land within the British Estate, E3 which received aresolution to grant planning permission to provide 161 new private homes inJanuary 2007. Since the share placing we have also contracted to purchase amajor site in Greenwich in a joint venture with The Royal Bank of Scotland. Thecontract is subject to receipt of planning permission for 372 homes which isexpected in the next few months. This will be our second joint venture with TheRoyal Bank of Scotland and our success together at Icona, Stratford has led usto continue our partnership on this exciting scheme. We have also added to our medium to longer term development pipeline with theacquisition of sites that we will progress through the planning process. Theformer Lesney Toys factory in Homerton Road, Hackney is expected to achieveplanning permission for over 200 homes and commercial space, includingaffordable art studios. In addition the Hannaford and Marshall site in BethnalGreen Road near Liverpool Street station has been acquired in a joint venturewith Genesis Housing Group and is expected to achieve planning permission formore than 300 homes and commercial space. Planning The planning process is more complicated than ever before with an increasingnumber of external consultants' reports being required for each application. Akey competitive advantage comes from knowing your way through the process andour knowledge of the local planning environment in East London puts us in astrong position, while not removing all of the hurdles that can be placed in ourpath. Development pipeline Our development pipeline, being properties that will produce profit in futureyears not including those built for joint venture partners, consists of 1,279properties with planning permission and 942 subject to the planning process.This is a total of 2,221 properties which are expected to provide turnover inexcess of £500 million and gross profit of over £100 million, more than fouryears supply at current levels of profit. Of this forecast gross profit in thepipeline over £24 million has been secured by contracts already exchanged andthis will be recognised as construction proceeds on developments over the nexttwo to three years. Gross profit in the year ended 31st March 2007 was £23.4million. Our partnership with Eastend Homes has added the homes on the British Estate toour pipeline. During the year we have been chosen as the development partner toEastend Homes on a number of other well located estates in Tower Hamlets. Wehave secured this partnership due to the quality of the Telford Homes brandwhich incorporates a straight-forward and honest approach. We are nowprogressing master plans for the regeneration of these estates and we expect toachieve planning permissions and then commence construction on all of them overthe next two years. The British Estate has set the model for this partnershipwith land payments made by Telford Homes being reinvested into the third partyrefurbishment of existing homes on the estate. People Several senior members of staff have been recruited as we continue to plan forthe future and ensure that our internal infrastructure is always one step aheadof our growth plans. We finished the year with over 120 employees and our strength in every area isevident from our performance over the last 12 months. I would like to thank eachand every one of our employees for their efforts this year. Strategy Each year the directors review the strategy of Telford Homes to ensure that weare creating maximum value for shareholders and taking advantage of all theopportunities that come our way while minimising risks in the business. There are so many opportunities in East London, and our knowledge of this marketplace is so strong, that we will largely remain focused on this region. Weexpect to continue to pre-sell a proportion of our developments, depending ontheir location, in order to secure future cash flows and minimise the fundingrisks. In doing this we will maintain organic growth at a controlled rate in order tocapitalise on the imbalance between supply and demand for properties in our areaof operation. This was part of the reasoning for the share placing last year andwill be our main driver in the future while the market remains stable. Interestrates will be a key factor in the stability or otherwise of the market and themechanics of supply and demand will also play a significant role in the comingyears. Current trading and outlook Our recent sales launches are an indication that the market in East Londonremains strong despite rising interest rates. We were extremely pleased with theresults of these sales events and the upcoming launch of Merchants' Quarter, themarketing name for the British Estate, has received a high level of interest. To date, due to contracts exchanged since 31st March 2007 and properties sold,subject to contract, we have a total of 185 private homes and 25 affordablehomes contributing to our results for 2008. The demand for homes in East London,the strength of our development pipeline and our ongoing partnerships withaffordable housing providers lead me to expect 2008 to be another year of recordresults and another step forward in the development of Telford Homes. Andrew Wiseman Chief Executive 21st May 2007 FINANCIAL REVIEW Results for the year Another year of record turnover and profits has been underpinned by increasingthe capital available to the Company through a share placing and managing thosefunds to maximise return on equity while adding a balanced portfolio of sites toour development pipeline. Operating results Turnover increased to £104.4 million from £79.3 million last year. An analysisof properties sold in the year is given in the Chief Executive's review. Gross profit has increased to £23.4 million with the margin falling to 22.4%from 23.0% last year. Each new site is appraised to achieve a gross margin of atleast 20% unless high returns on equity can be secured in exchange for lowermargins. Queen Mary's Gate in South Woodford was purchased for consideration of35% of all private sales proceeds achieved from the development. The totalexpected payments are now in excess of £35 million with only £10 million paid todate, resulting in a high rate of return on equity. The profit margin on ourshare of sales proceeds is in excess of 20% as this represents our risk in thedevelopment. However the reported margin is 13% when taking the proceeds beingpaid directly to the vendor into account, still in line with our originalexpectations for the site. The gross margin in 2007 excluding Queen Mary's Gateis 23.5% and this development will continue to depress the reported margin overthe next few years. Our forecasting and control of development costs has been excellent over thelast 12 months with fewer movements being reported in monthly cost controlmeetings. Build costs in the year were £50 million and the operational teams areclearly well set to manage this level of expenditure. The operating margin has fallen to 16.0% from 16.2% with overheads reducing as apercentage of turnover to 6.4% from 6.8% last year. Overheads have remainedunder careful control while also allowing us to put the appropriateinfrastructure in place prior to each growth phase and ensuring our employeesare rewarded for their contribution to the success of the Company. Interest Interest paid in the year was £4.0 million up from £3.1 million last year. Thiswas mainly due to the increase in activity during the year along with risinginterest rates. Interest received in the year was £0.8 million up from £0.2 million last year asa result of higher cash balances during the year, particularly after the shareplacing. The continuing increases in the base rate are a cause for concern for thebusiness as a whole although any negative effects are yet to materialise. Interms of finance costs we monitor this carefully and forecast future rate riseson a prudent basis. Interest cover was 5.2 times in 2007 which remains wellwithin acceptable limits. Profit before tax has increased to £13.5 million from £10.0 million last year. Taxation The effective tax charge for the year is 26.3% down from 29.7% last year. Thischange is due to a prior year over provision of £178,000 and a significant taxdeduction this year in relation to the exercise of share options which reducesthe tax charge by £309,000. Dividends A final dividend of 4.9p per ordinary share has been proposed. Together with theinterim dividend of 4.0p paid in January 2007 this makes a total dividend forthe year of 8.9p which is covered 3.4 times by earnings per share. The totaldividend last year was 7.0p. The final dividend is expected to be paid on 13th July 2007 to shareholders onthe register on 22nd June 2007. Earnings per share Earnings per share increased to 30.3p from 23.8p and the weighted average numberof shares in issue was 32.8 million. The 5.8 million shares issued as a resultof the share placing diluted earnings for five months. The funds raised willmake a more significant contribution to profits in 2008 and to a greater extentin 2009 and 2010. Balance sheet Net assets have increased to £54.5 million from £32.2 million with part of thechange due to the £14.4 million raised in the share placing last year. Thenumber of shares in issue is now almost 37 million. Net assets per share at 31stMarch were 148p up from 108p last year. The placing funds have all been allocated to new land opportunities within sixmonths of the money being received and while cash held at the end of March was£17.6 million, the majority of this balance will be utilised by futureconstruction and the purchase of new development sites that are already undercontract. Some of the sites purchased will take a few years to flow completelyinto turnover and profit as a number are subject to planning or have beenacquired without planning permission. Pre-tax return on equity in the year ended 31st March 2007 was still healthy at31.2%, falling from 35.5% last year due primarily to the effect of theadditional equity raised in the year. Finance Our current bank facilities are a revolving loan facility with Allied Irish Bankof £50 million and site specific funding from The Royal Bank of Scotlandamounting to £128 million. Total facilities are therefore £178 million withactual drawn loans at 31st March 2007 being £73.2 million. In April 2007 we agreed an outline facility with Barclays Bank on one newdevelopment and we expect to gradually introduce Barclays to the business togive us another route to funds and to assist us in securing competitive debtfinance. Gearing at 31st March 2007 was 102% reduced from 193% last year. This reductionis a direct result of the cash balances held at the end of the year. We arecomfortable with higher levels of gearing as we continue to monitor thecertainty of future cash inflows against exposure to debt. Our business model ofselling properties at an early stage of construction reduces the risk ofcarrying debt as the sales revenue on a given development, secured by exchangingcontracts, will be used to repay loans specific to that development. Internally we calculate 'uncovered gearing' which excludes debt matched by thevalue of contracts exchanged on a given development. This is becoming anincreasingly important performance indicator in the business, particularly inreporting to banks. The board has determined that levels of uncovered gearingare acceptable up to 100%. Uncovered gearing at 31st March 2007 was 18% reducedfrom 60% last year. Cash flow We maintain a detailed cash flow forecast as part of our management informationsystems. This extends for a number of years into the future and is subject tocontinual re-assessment. The cash flow position is reported to the board and ourbanking partners on a monthly basis. Share price The share price on 31st March 2007 was 421.5p (31st March 2006 - 187.5p), with ahigh in the year of 422.5p and a low of 187.5p. International Financial Reporting Standards Telford Homes will adopt International Financial Reporting Standards (IFRS) forthe year ended 31st March 2008. We have already explored all currentinternational standards that may have an impact on the accounting policiesemployed by the Company. There are no material issues expected to arise from thestandards already in place other than presentational changes. Internationalstandards are evolving over time and new standards will be appraised as and whenthey are issued. We have already started the process of converting the 2007results into the international format, including all of the disclosure changesthat will be required. These can then be used as comparatives for the first fullyear of adoption in 2008. Jonathan Di-Stefano Financial Director 21st May 2007 PROFIT AND LOSS ACCOUNT Note Year ended Year ended 31st March 2007 31st March 2006 restated (note 1) £000 £000 Turnover 104,407 79,280Cost of sales (81,040) (61,060) Gross profit 23,367 18,220Administrative expenses (6,676) (5,373) Operating profit 16,691 12,847Interest receivable 794 201Interest payable and similar charges (3,980) (3,083) Profit on ordinary activities before taxation 13,505 9,965Taxation on profit on ordinary activities 2 (3,557) (2,964) Profit on ordinary activities after taxation 9,948 7,001Dividends paid 3 (2,867) (1,809) Retained profit for the year 6 7,081 5,192 Earnings per share:Basic 4 30.3p 23.8pDiluted 4 29.4p 23.3p All activities are in respect of continuing operations. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year ended Year ended 31st March 2007 31st March 2006 £000 £000 Retained profit for the year 7,081 5,192 Prior year adjustment (note 1) (71) Total gains and losses recognised since the last 7,010annual report BALANCE SHEET Note As at As at 31st March 2007 31st March 2006 restated (note 1) £000 £000Fixed assetsTangible assets 851 871 Current assetsStocks and work in progress 70,174 45,547Debtors 56,128 59,454Cash at bank and in hand 17,617 7,211 143,919 112,212 Creditors - amounts falling due within one year (90,079) (80,711) Net current assets 53,840 31,501 Total assets less current liabilities 54,691 32,372 Creditors - amounts falling due after more than (96) (75)one year Provision for liabilities (71) (136) Net assets 54,524 32,161 Financed by: Capital and reserves Called up share capital 6 3,694 2,981Share premium 6 28,641 12,656Profit and loss account 6 22,189 16,524 Equity shareholders' funds 7 54,524 32,161 CASH FLOW STATEMENT Note Year ended Year ended 31st March 2007 31st March 2006 restated (note 1) £000 £000 Cash flow from operating activities 8 860 (25,940) Returns on investments and servicing of financeInterest received 794 201Interest paid (3,885) (3,072)Hire purchase interest (15) (11) (3,106) (2,882) Taxation (3,554) (2,264) Capital expenditurePurchase of tangible fixed assets (182) (589)Sale of tangible fixed assets 38 351 Equity dividends paid (2,867) (1,809) Cash outflow before financing (8,811) (33,133) FinancingIssue of ordinary share capital 15,895 425Expenses of share issue (627) -Purchase of own shares (365) -Sale of own shares 180 128Increase in bank loans 4,257 35,837Capital element of hire purchase payments (123) (113) 19,217 36,277 Increase in cash 10,406 3,144 Reconciliation of net cash flow to movement in netdebtIncrease in cash 10,406 3,144(Increase) in bank loans (4,257) (35,837)Capital element of hire purchase payments 123 113Decrease (increase) in debt arising from cash flow 6,272 (32,580)Inception of hire purchase agreements (162) (133)Movement in net debt in the year 6,110 (32,713) Net debt brought forward (61,912) (29,199) Net debt carried forward 9 (55,802) (61,912) The prior year balances have been reanalysed for comparative purposes. NOTES 1 Basis of preparation The financial information set out above does not constitute statutory accountswithin the meaning of section 240 of The Companies Act 1985. Statutory accountsfor the year ended 31st March 2007 will be delivered to the Registrar ofCompanies and sent to all shareholders shortly. An unqualified audit report hasbeen given on the accounts. The results for the year ended 31st March 2006 andthe balance sheet of that date are an extract from the statutory accounts forthat year, which have been filed with the Registrar of Companies and on whichthe Company's auditors also gave an unqualified report. The Company has adopted Financial Reporting Standard 20 'Share-based payment'for the year ended 31st March 2007. As a result of this, a charge is made to theprofit and loss account to reflect the calculated fair value of employee shareoptions over and above the exercise price paid by employees. This charge iscalculated at the date of grant of the options and is charged equally over thevesting period. The corresponding adjustment to reserves is made directly to theprofit and loss reserve. The Company has used the Black-Scholes-Merton formula to calculate the fairvalue of outstanding options. Individual calculations have been performed forgroups of share options with differing exercise prices and dates. Disclosure ofthe assumptions applied to the Black-Scholes-Merton formula and of outstandingoptions and their exercise price is made in the annual report each year. The charge calculated up to 31st March 2005 is £43,000 with a correspondingdeferred tax asset at that date of £13,000. The profit and loss reserve istherefore restated by the deferred tax credit of £13,000 from £11,056,000 to£11,069,000. The charge calculated for the year ended 31st March 2006 is £59,000 with acorresponding deferred tax asset of £18,000 recognised in the year. The profitand loss reserve is therefore restated by cumulative deferred tax credits of£31,000 from £16,493,000 to £16,524,000. The charge calculated for the year ended 31st March 2007 is £90,000 with acorresponding deferred tax asset of £27,000 recognised in the year. 2 Taxation Taxation has been calculated on profit for the year ended 31st March 2007 at theestimated effective rate of tax adjusted for prior year over or under provisionsand movements in deferred tax. 3 Dividends paid Year ended Year ended 31st March 2007 31st March 2006 £000 £000 Final dividend paid in July 2006 of 4.6p (July 2005 - 1,391 1,0933.7p)Interim dividend paid in Jan 2007 of 4.0p (Jan 2006 - 1,476 7162.4p) 2,867 1,809 The final dividend proposed for the year ended 31st March 2007 is 4.9p perordinary share. This dividend was declared after 31st March 2007 and as such theliability of £1,808,000 has not been recognised at that date. 4 Earnings per share Year ended Year ended 31st March 2007 31st March 2006 restated (note 1) Weighted average number of shares in issue 32,781,546 29,356,371Dilution - effect of share options 1,054,146 727,290Diluted weighted average number of shares in issue 33,835,692 30,083,661 Profit on ordinary activities after taxation £9,948,000 £7,001,000 Earnings per share:Basic 30.3p 23.8pDiluted 29.4p 23.3p 5 Share capital As at As at 31st March 2007 31st March 2006 £000 £000 Authorised100,000,000 ordinary shares of 10p each 10,000 10,000 Allotted, called up and fully paid36,940,475 (29,807,472) ordinary shares of 10p each 3,694 2,981 6 Reserves Share capital Share premium Profit and loss Total account £000 £000 £000 £000At 1st April 2006 as 2,981 12,656 16,493 32,130previously reportedAdjustment for FRS 20 - - 31 31At 1st April 2006 restated 2,981 12,656 16,524 32,161Shares issued under the 55 1,375 (1,430) -Deferred Payment SharePurchase PlanOther issues of shares during 658 15,237 - 15,895the yearCosts arising from shares - (627) - (627)issuedShare-based payments - - 90 90Purchase of own shares - - (365) (365)Sale of own shares - - 180 180Write down in value of own - - 109 109sharesRetained profit for the year - - 7,081 7,081At 31st March 2007 3,694 28,641 22,189 54,524 The change in accounting policy as a result of the adoption of FRS 20 (note 1)is reflected in the restated figures as at 1st April 2006. 7 Equity shareholders' funds £000Profit for the year 9,948Dividends paid (2,867) 7,081Other issues of shares during the year 15,895Costs arising from shares issued (627)Share-based payments 90Purchase of own shares (365)Sale of own shares 180Write down in value of own shares 109 22,363 At 1st April 2006 restated (note 1) 32,161 At 31st March 2007 54,524 8 Reconciliation of operating profit to cash flow from operating activities Year ended Year ended 31st March 2007 31st March 2006 restated (note 1) £000 £000Operating profit 16,691 12,847 Depreciation 360 312Write down in value of own shares 109 76Share-based payments 90 59Profit on sale of tangible fixed assets (34) (37)Increase in stocks and work in progress (24,627) (16,971)Decrease (increase) in debtors 3,323 (19,402)Increase (decrease) in creditors 4,948 (2,824) Cash flow from operating activities 860 (25,940) 9 Analysis of change in net debt At 1st April Cash flows Non-cash changes At 31st March 2006 2007 £000 £000 £000 £000Cash at bank and in hand 7,211 10,406 - 17,617Bank loans (68,953) (4,257) - (73,210)Hire purchase liabilities due (95) 123 (141) (113)within one yearHire purchase liabilities due (75) - (21) (96)after more than one year (61,912) 6,272 (162) (55,802) Non-cash changes comprise inception of finance leases and transfers between hirepurchase liabilities due within one year and hire purchase liabilities due aftermore than one year. _______________________________________________________________________________ 10 Annual report and AGM Copies of this announcement are available from the Company at First Floor,Stuart House, Queensgate, Britannia Road, Waltham Cross, Herts, EN8 7TF and onour website www.telfordhomes.plc.uk. The Company's annual report for the year ended 31st March 2007 will be posted toshareholders in early June. The Annual General Meeting will be held at the Registered Office of the Companyon 5th July 2007 at 12.30pm and a notice of the meeting will be sent out withthe annual report. _________________________________________________________________________________ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Telford Homes