preliminary results for the year ended 31 march 2009€¦ · march 2009 march 2008 revenue £106.7m...

Preliminary results for the year ended 31 March 2009

www.telfordhomes.plc.uk

108636 Telford Presentation 22/5/09 16:30

OneStratford, Stratford


Overview

• Profit before tax and exceptional items of £7.3 million up 12%(profit of £4.3 million after exceptional items)

• Continuing to achieve legal completions on properties pre-sold to the investor market

• Increased emphasis on housing association partnerships

• £57 million Homes and Communities Agency (HCA) grant programme

• Strong relationships with banks led to successful renewal of all loan facilities

• Focus on cash conservation continues with no dividend for the yearto 31 March 2009


March 2009 March 2008

Revenue £106.7m £96.8m

Gross margin adjusted for interest 20.0% 21.6%

Operating margin adjusted for interest 11.3% 10.6%

Profit before tax and exceptional items £7.3m £6.5m

Exceptional items (£3.0m) -

Profit before tax £4.3m £6.5m

EPS 8.1p 12.2p

Revenue and profit

restated


• Revenue up 10% with the number of open market completions upfrom 306 to 350

• Revenue and profit recognised on affordable homes as constructionprogresses (over 700 currently being developed)

• Gross margin before interest of 20.0% holding at historic targetlevels while homes sold in previous years are legally completed

• Increased proportion of lower risk, lower margin construction plusreduced open market prices will bring margins down in the future

• Commercial teams working to reduce costs while maintainingsupplier relationships

• Operating margin before interest of 11.3% (2008 – 10.6%)

• Exceptional items - £2.9 million of write downs to land and work in progress and £0.1 million of redundancy costs

Revenue and profit


Impact of restatement

Before Restated Before Restated

Revenue £160.4m £96.8m £104.4m £105.8m

Profit before tax £17.7m £6.5m £13.5m £17.1m

Net assets £64.2m £48.9m £54.8m £47.3m



New accounting policies

• On 25 September 2008 announced early adoption of two newaccounting standards

• Revenue and profit from sale of open market homes nowrecognised on legal completion

• Borrowing costs now capitalised within inventories and expensed incost of sales to match revenue

• As a result net assets at 31 March 2008 restated from £64.2 millionto £48.9 million

• Changes have no impact on financial health or day to dayoperations

• Corporation tax benefit of £5.2 million

• Fluctuations in future profits expected depending on timing ofdevelopment completions


Queen Mary’s Gate, Woodford


Sales

• Strategy of Telford Homes has been to pre-sell open market homesat a very early stage of construction

• Success of this strategy in the past meant there were relatively fewproperties available for sale in the past twelve months

• Market conditions affecting confidence of purchasers

• Marketing of unsold homes due to be completed in 2010 and 2011has been held back

• Efforts to secure new sales concentrated at Queen Mary’s Gateand Romford

• Sales at QMG have been slow but recent increase in activity andexpectation of steady rate of sales through the rest of this year

• Expect to sell majority of remaining homes at Romford during 2009


Number of mortgage approvals

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Seasonally adjusted monthly number of mortgage approvals for house purchases by individuals

Source: Bank of England


• 613 open market homes sold in previous years due for legalcompletion between October 2008 and March 2010

• 220 of these legally completed by 31 March 2009

• Key issues for customers are the restriction of mortgage finance forbuy-to-let investors and caution applied by valuation surveyors

• Properties continuing to attract tenants for investor customers

• Bank of England figures show the number of mortgage approvalsfell rapidly during 2008

• Recent improvement in this statistic has not yet made new sales orcompletions any easier but may be an indication for the future

Completions


Metro East, E3


• Telford Homes continues pro-active communication with eachpurchaser and this has been very successful to date

• Transparent approach to pricing to ensure major lenders have clearinformation when valuing properties

• Contracts will be rescinded where customers are unable to completeand the 10% deposit already paid will be retained

• Telford Homes will take legal action against defaulting purchasers

• Significant delays in achieving each completion and the Board isprepared for an increased number of delays and failures

• Forecast that 60 to 80 of pre-sold homes due to complete by March2010 will fail

• Contingency plans in place to mitigate impact on cash flow

• Therefore able to withstand many more failures than anticipatedwhile continuing to invest in affordable housing partnerships

Completions (continued)


St George’s Estate, E1


HCA and affordable housing

• Taking steps to maintain construction of new homes throughpartnerships with housing associations and the HCA

• Grant programme of £57 million will part finance 400 affordablehomes over three years

• Seeking to develop some sites entirely for affordable housingutilising HCA grant

• Lower margin but secured cash inflows

• Recent contract with Family Mosaic for 63 homes in Southwark to be followed by contracts with Gallions and Poplar HARCA ondevelopments in Tower Hamlets


Kira Apartments, British Estate, E3


Partnerships

• No new investment in land in last twelve months otherthan through development partnerships

• Eastend Homes and Poplar HARCA have both chosen Telford Homes as their development partner on a number of regeneration schemes

• British Estate, E3 set the model for the partnership withEastend Homes with land payments reinvested into third party refurbishment of existing homes on the estate

• Now building 54 affordable homes on the St George’s Estate, E1 with options to acquire land to build 139 open market homes from 2010 onwards

• Plans continue for five other estates with construction expected to commence on 74 affordable homes on the Bede Estate inautumn 2009

• Together these development partnerships are expected to add over1,000 homes to the development pipeline


Greenwich Creekside


Development pipeline

• Total pipeline of properties not yet legally completed of 2,635 at 31 March 2009 including sites under option contracts

• Of these 2,400 have planning permission

• Plans are being progressed on the two developments without a permission with the aim of receiving approvals during 2009

• A number of important permissions have been achieved during the year including the St George’s, Bede and Holland Estates

• There were 1,503 properties under construction at the year end and 1,115 of these were secured by contracts exchanged

• Open market pre-sales contracts totalled £128.4 million at 31March 2009 although some of these will fail to complete

• Affordable housing revenue contracted but not yet recognised was £34.6 million at 31 March 2009 secured through futurepayments from housing associations


Borrowings

140

120

100

80

0Mar Apr May June Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May08 08 08 08 08 08 08 08 08 08 09 09 09 09 09

Total borrowings in £ million by month


• All bank facilities have been successfully extended, renewed or refinanced over the last few months

• Competitive interest rates have been secured recognising longterm relationships with each bank and the quality of the informationprovided to them

• Facilities are sufficient to cover funding requirements in the foreseeablefuture and include appropriate general and financial covenants

• Borrowings of £112 million at 31 March 2009 subsequently reduced to under £100 million

• Gearing of 206.6% at the year end with uncovered gearing, allowing for debt covered by secured contracts, at 80.7%

• Focus on generating operating cash inflows will result in further reductions in the level of debt and gearing over the next 12 months

• This will be partly offset by new funding for projects where the future revenues can be secured

Borrowings



Non current assets £0.6m £0.9m

Inventories £177.9m £179.1m

Other current assets £14.3m £22.0m

Borrowings (£112.0m) (£101.4m)

Other liabilities (£30.5m) (£51.7m)

Net assets £50.3m £48.9m

Net assets per share 130p 130p

Group balance sheet

restated


Balance sheet and cash flow

• Net assets increased to £50.3 million

• Net assets per share constant at 130p due to increased number ofshares in issue

• Exceptional write down to land and work in progress of £2.9 millionin the year to 31 March 2009 is less than 2% of the value ofinventories

• No dividend in relation to the year to 31 March 2009

• Dividend will be re-instated as soon as the Board considers it prudent to do so

• Detailed month by month cash flow forecast is maintained over a five year period and subjected to sensitivity testing

• The forecast and the sensitivity testing are reviewed by the Board and made available to all three banks on a monthly basis


Stadthaus, N1


Operations

• In December 2008 expectation that number of employees wouldreduce by between a quarter and a third before the end of 2009

• This was dependent on success in securing projects that did notrequire a cash investment

• The HCA grant programme and expectation of constructingaffordable housing on several developments gives confidence thatthe number of redundancies will be less than feared

• Pay has been frozen and no bonuses are being paid

• Continuing to produce well designed and well built developments

• Quality of the finished product continues to be ensured by theCustomer Service team

• The delivery of a first rate home is a fundamental step in thecompletion process


SoBow, E3


Current trading

• Focus remains on maximising positive cash flows including achievinglegal completions

• Since 1 April 2009 over 50 more open market homes have beenlegally completed and progress remains encouraging

• Continuing to work on securing contracts to construct affordablehousing supported by the HCA grant programme

• Expect to draw up to 60% of total grant allocation by March 2010 partly for land purchases from development partners

• Sales and marketing activity remains concentrated on Queen Mary’sGate and Romford and will turn to other sites again when marketconditions are right


0

10,000

20,000

30,000

40,000

50,000

60,000

First quarter 2007 First quarter 2008 First quarter 2009

New home starts

New housing starts

The number of new homes starts recorded in January to March of each year

Source: NHBC


Outlook

• Across the country construction of new homes has reached anew low for recent years

• This will lead to an increased shortage of new homes

• Telford Homes will be ready to meet the challenge of satisfyingdemand and East London will be at the forefront of increasingsupply in London as regeneration continues

• Board is cautiously optimistic due to increased activity at QueenMary’s Gate and legal completions progressing well

• HCA grant programme and partnerships with affordable housingproviders will underpin performance in the next few years

• Business is in a strong position and is well placed to benefit froma future improvement in market conditions


preliminary results for the year ended 31 march 2009€¦ · march 2009 march 2008 revenue £106.7m...

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