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Telford Homes PLC  -  TEF   

Interim Results

Released 07:00 28-Nov-2018

RNS Number : 6859I
Telford Homes PLC
28 November 2018
 

 

 

Press Release

28 November 2018

 

 

Telford Homes Plc

 

("Telford Homes" or the "Group")

 

Interim Results

 

Telford Homes Plc (AIM:TEF), the London focused residential property developer, today announces its interim results for the six months ended 30 September 2018 ("H1 2019" or the "period").

 

Highlights

·  

Total revenue in H1 2019 increased by 31 per cent to £129.6m (H1 2018: £99.3m)

·  

Total profit before tax in the period rose by 16.1 per cent to £10.1m (H1 2018: £8.7m)

·  

Increased interim dividend by 6.3 per cent to 8.5 pence (H1 2018: 8.0 pence)

·  

Remain confident in long-term strategy of delivering an increased number of much needed homes in non-prime locations of the chronically undersupplied London market

·  

Strategic shift towards build to rent over the last three years well timed and this sector is expected to form a significant part of the London market going forward

·  

Telford Homes is at the forefront of build to rent in London delivering over 1,750 homes in the sector and working with multiple institutional partners

·  

Progressing towards a full build contract with Greystar after planning secured for 894 build to rent homes at Parkside, Nine Elms

·  

Exchange of contracts expected shortly with major institutional partner for 257 homes at Equipment Works, Walthamstow

·  

Partnering with an established property owner to develop 700 homes in East London, representing a key milestone in the Group's long-term growth strategy

·  

Excellent progress made in process to identify long term institutional investment partner to accelerate build to rent activity

·  

Continuing to secure individual open market sales, particularly for homes priced under £600,000, despite short-term market uncertainty

·  

Substantial development pipeline of £1.65 billion of future revenue comprising just over 5,000 homes

 

 

 

Jon Di-Stefano, Chief Executive of Telford Homes, commented: "Telford Homes made pleasing progress during the first half of the financial year, despite an increasingly uncertain economic and political backdrop.  Our strategic shift towards purpose built rental homes sold to institutional investors continues to be beneficial to our risk profile and growth potential whilst also being well timed in terms of the changing requirements of our typical customers in London.

 

We are committed to our strategy which is built upon a fundamental undersupply of homes in non-prime locations in London and our belief that short-term market sentiment does not alter the long-term structural imbalance between housing supply and housing need. These factors, coupled with our excellent reputation as a trusted build to rent partner and the associated change in our business model, give us the confidence to look forward to more success in future years."

 

- Ends -

 

For further information:

Telford Homes Plc

 

 

Jon Di-Stefano, Chief Executive

Katie Rogers, Group Financial Director

Guy Lambert, Head of Corporate Communications

Tel: +44 (0) 1992 809 800

www.telfordhomes.london

 

 

Shore Capital - Nomad and Joint Broker

 

Dru Danford / Patrick Castle

Tel: +44 (0) 20 7408 4090

 

Peel Hunt LLP - Joint Broker

 

Charles Batten / Capel Irwin

Tel: +44 (0) 20 7418 8900

 

Media enquiries:

Buchanan

 

Henry Harrison-Topham / Stephanie Watson

Tel: +44 (0) 20 7466 5000

telfordhomes@buchanan.uk.com

www.buchanan.uk.com

 

Note: Figures in this announcement include the Group's share of joint venture results on a proportionally consolidated basis. For further details of key management information and alternative performance measures refer to note 6 and note 7.

 

 

 

CHIEF EXECUTIVE'S REVIEW

 

Telford Homes made pleasing progress during the first half of the financial year, despite an increasingly uncertain economic and political backdrop.  Our strategic shift towards purpose built rental homes sold to institutional investors continues to be beneficial to our risk profile and growth potential whilst also being well timed in terms of the changing requirements of our typical customers in London.  At £537,000, the average expected price in our development pipeline, excluding subsidised affordable housing, remains firmly under the psychologically significant £600,000.

 

We still have work to do in order to achieve our original target of exceeding £50 million of total profit before tax for the year to 31 March 2019 and Brexit brings a certain amount of unpredictability to that.  Regardless, we remain extremely confident in our long-term strategy of delivering an increased number of much needed homes in non-prime locations of the chronically undersupplied London market.

 

Strategic shift towards build to rent developments

We continue to sell homes to a diverse mix of customers including build to rent investors, housing associations, owner-occupiers and individual investors. Allowing for recent economic uncertainty and adverse tax changes for individual investors, our strategic shift towards build to rent over the last three years has been well timed and remains our core focus for three reasons:

 

Firstly, the higher return on capital achieved on build to rent transactions which require no debt and limited equity investment.  Although margins are more modest than for individual open market sales, these forward funded developments also serve to de-risk our development pipeline

 

Secondly, there continues to be significant demand from institutions looking to invest in build to rent and as a result there is no shortage of capital inflows to the sector.  These institutions want to acquire a pipeline of rental properties as quickly as possible and many need the land finding, planning and construction skills that we already have

 

Finally, we believe that the robust and undersupplied London rental market is moving in the direction of institutionally-owned, purpose-built developments.  Tenants of such properties can enjoy higher levels of service, longer and more secure tenancies, better amenities and a greater sense of community.  New generations of our customers are demanding a higher quality rental product and Telford Homes is well placed to help meet that demand.  The proportion of people renting continues to increase in London due to the greater flexibility it offers and the lack of the significant financial commitment that comes with a mortgage.  As a result, the market is starting to mirror that in many US cities where build to rent has been introduced over the last 25 years and made renting a way of life.  We expect this trend to continue in London and potentially in other areas of the UK.

 

Current build to rent trading

We are progressing well with our existing build to rent projects and in August 2018 we handed over The Pavilions, our first build to rent development, which was purchased by L&Q in 2016.  We are getting closer to build completion of the two schemes we are working on with M&G Real Estate in Carmen Street and Redclyffe Road and the same applies to the build to rent block at New Garden Quarter which was sold to Folio, a subsidiary of Notting Hill Genesis.  All of our institutional partners are very pleased with progress to date.

 

In relation to new build to rent projects we are now moving towards entering a full build contract with Greystar for 894 build to rent homes at Parkside in Nine Elms and we expect to start on site early in 2019.  In addition, at the Annual General Meeting in July the Group announced that we had commenced contractual negotiations with a major build to rent investor for the sale of 257 homes at Equipment Works in Walthamstow and that process is nearly complete with a formal announcement of exchange of contracts expected shortly.  

 

In October 2018 we also announced that we have been chosen to partner a major land owner to obtain planning consent for around 700 homes on a site in East London, with a view to developing a combination of subsidised affordable housing, build to rent homes for the landowner and individual sale homes.  This partnership, on a substantial project with a respected and established property owner, is another key milestone in our build to rent strategy and we expect to announce further details in the near future once we have agreed more detailed terms.

 

Finally, with the help of Savills, we are making excellent progress towards identifying at least one institutional investor with whom we can forge a long-term partnership for future build to rent activity.  Our belief is that such a relationship could lead to more efficient ways of buying land, the ability to design bespoke build to rent schemes that match our partner's requirements and a much shorter contractual process.  The aim is to create a significant long-term build to rent pipeline to the benefit of both parties.  We anticipate being in a position to select a partner by the end of 2018 with a view to entering into a contractual arrangement and making a formal announcement early in 2019.

 

Individual open market sales

Despite lower liquidity in the market as a consequence of the uncertainty around Brexit we have continued to secure individual sales, particularly for homes priced below £600,000, on developments that are complete or close to completion.  These sales have typically been to first time owner-occupiers, many of whom have purchased under the Help to Buy scheme.  We were pleased to see the Government extend Help to Buy until 2023 although we do not see any future end to the scheme or other potential changes as a material risk to the Group given that we have only made just under 100 sales using Help to Buy over the five years since it was introduced.

 

Homes priced above £600,000 are currently more difficult to sell especially if customers already own a home and are delaying a new purchase due largely to negative market commentary and sentiment. Fortunately, this price point represents a relatively small proportion of our overall portfolio and we continue to make progress selling homes above this level albeit at a much slower rate of sale than we would normally expect.

 

Following the very successful launch of the individual open market sale homes at New Garden Quarter, Stratford, at the beginning of the calendar year, we recently held our second 'off-plan' launch of 2018.  The combined UK and overseas launch of Gallions Point, E16 resulted in 15 sales, with performance suppressed by Brexit worries and the potential risk of increased stamp duty for overseas investors.  Although we were disappointed with the outcome, the majority of the homes at Gallions Point are priced under £600,000 with completions due in 2020 and we are confident that they will be very attractive to owner-occupiers at the appropriate time.  Sales to individual investors, whether in the UK or overseas, no longer represent a significant part of our future pipeline with build to rent transactions and individual owner-occupier sales now drawing our focus instead.

 

Whilst build to rent has become our strategic focus, homes for individual open market sale remain an important part of our business model.  This was underlined by our recent purchase from Greystar of part of their site in Greenford, our first in the London Borough of Ealing. Telford Homes will deliver 194 homes for individual open market sale at an average selling price of circa £500,000 and 84 affordable homes for shared ownership.  We intend to begin work on site in mid-2019, with completion anticipated in 2022.  As well as supporting our goal of operating in a broader footprint of London boroughs, this acquisition demonstrates the strength of our relationship with Greystar and how build to rent partnerships can lead to opportunities in other areas.

 

Land acquisition and development pipeline

Alongside the projects mentioned above we are appraising several other opportunities to add to our considerable development pipeline and we are engaged in detailed discussions on two further sites.  In addition, we recently announced that Telford Homes has been selected to be on the Greater London Authority's 'London Development Panel 2' which is expected to bring forward sites currently in public ownership over the next few years.  Our current development pipeline stands at just over 5,000 homes, including Parkside in Nine Elms, and has a gross development value of £1.65 billion.

 

Interim results to 30 September 2018

Our financial results in any given period are influenced by the number of individual open market completions achieved and the timing of entering into new construction contracts with affordable housing providers and build to rent investors.  As was the case in the year to 31 March 2018, we expect a much greater number of open market completions in the second half of the financial year together with a number of new construction contracts and therefore the results for the financial year to 31 March 2019 will again be weighted towards the second half.  All relevant developments remain on track and legal completions of homes already sold are proceeding as planned.

 

Total revenue in the first half of the year was £129.6 million, a 31% increase on the same period last year (H1 2018: £99.3 million), mainly due to a greater number of open market residential completions.  Total profit before tax was £10.1 million, up from £8.7 million in the six months to 30 September 2017.  GAAP revenue, excluding the Group's share of joint ventures, was £118.8 million (H1 2018: £86.7 million). GAAP profit before tax was £10.2 million (H1 2018: £8.8 million). For further details refer to note 6 and note 7.

 

The adjusted gross margin for the first half was 23.2 per cent with the corresponding figure for the year to 31 March 2018 being 26.5 per cent.  This reduction was anticipated and is due mainly to a changing mix of build to rent and individual open market sales with an increasing proportion of build to rent lowering the gross margin, albeit offset by higher project specific returns on capital.  There have also been a few isolated cases of modest build cost pressures in later trades as projects complete.  However, general construction activity in London, particularly residential development, does appear to have reduced a little in recent months which tends to take some of the pressure off trades that are otherwise in high demand.

 

The adjusted operating margin for the six months to 30 September 2018 was 9.8 per cent down from 11.5 per cent in the same period last year due to the same factors impacting the gross margin.  The adjusted operating margin in the year to 31 March 2018 was 16.7 per cent with the comparable H1 performance this year affected by the mix of projects noted above and more significantly the fact that revenue will be weighted to the second half while overheads remain relatively stable throughout the year.

 

Our net debt has increased to £122.7 million (FY 2018: £103.1 million) as projected, on account of building out some of our individual sale schemes and gearing is up to 52.2 per cent at 30 September 2018 from 44.6 per cent at 31 March 2018.

 

Adoption of IFRS 15 'Revenue from contracts with customers'

The Group adopted IFRS 15 'Revenue from contracts with customers' from 1 April 2018.  This has changed the Group's accounting policy for some directly attributable sales costs which, under the new standard, are required to be prepaid and then expensed at the time of corresponding revenue and profit recognition rather than expensed as incurred.  This has resulted in a restatement of opening reserves at 1 April 2018 by an increase of £1.8 million net of deferred tax, mainly in relation to agent's commission, with a corresponding increase in prepayments held on the balance sheet.  This prepaid commission will unwind over the next few years as forward sold properties complete and profit is recognised.  The first £0.5 million of the restated prepaid commission has accordingly been expensed in the six months to 30 September 2018.

 

Dividend

The Group's dividend policy is to pay one third of earnings across each financial year.  The Board is pleased to declare an increase in the interim dividend to 8.5 pence (H1 2018: 8.0 pence).  This dividend will be paid on 11 January 2019 to those shareholders on the register at the close of business on 7 December 2018.  The ex-dividend date is therefore 6 December 2018.

 

People

As a sign of our commitment to the build to rent sector, we recently welcomed Caroline Radford to the new role of Build to Rent Development Manager.  Caroline is responsible for all existing and future build to rent relationships and contracts, and reports to our Group Financial Director, Katie Rogers.

 

As we announced in October 2018, Frank Nelson, Non-Executive Director, stepped down from the Board due to other commitments.  We are grateful to Frank for his contribution to Telford Homes since January 2015 and wish him well.  We are in the process of seeking a suitable replacement and will make a further announcement at the appropriate time. 

 

Operating responsibly

We are very proud of our record on sustainability especially since we introduced 'Building a Living Legacy', our strategy to create places with a positive long-term contribution to London's built environment, in 2016.  This is an area of increasing importance for our partners and a key factor in our ability to secure mutually beneficial partnerships.

 

Aside from our recognised environmental credentials, we play an important role in engaging with and developing communities.  The recent opening of a primary school in St. Paul's Way, Tower Hamlets brings the total number of new school places created by Telford Homes in the last three years to 1,690.  The multiple use site including the new school, 109 mixed tenure homes, a community centre / sports hall and a mosque is our third development based around building a new school and has been well received and praised by each of the stakeholders involved in the scheme.

 

Outlook

In our trading update on 10 October 2018 we reiterated our original target of exceeding £50 million of total pre-tax profit for the year to 31 March 2019.  We also identified that the greatest risk to achieving that target was approximately 90 homes that were still to be sold of which 25 were priced above £600,000.  Since that date we have made good progress and now have just under 60 sales still to achieve of which 20 are priced above £600,000.  However, the uncertainty arising from Brexit and indeed the wider political situation remains a concern across the sector making it difficult to accurately predict sales rates over the coming months.  Individual sales already secured, combined with existing construction contracts for build to rent and subsidised affordable housing and new construction contracts that are expected to be exchanged before 31 March 2019, would amount to total profit before tax in excess of £40 million.  This provides us with a strong base to work towards our £50 million target by securing further individual sales that will complete in the remainder of financial year.

 

We are committed to our strategy which is built upon a fundamental undersupply of homes in non-prime locations in London and our belief that short-term market sentiment does not alter the long-term structural imbalance between housing supply and housing need.  These factors, coupled with our excellent reputation as a trusted build to rent partner, the associated change in our business model and the new opportunities this growing sector brings, give us the confidence to look forward to more success in future years.

 

 

Jon Di-Stefano

Chief Executive

27 November 2018
 

GROUP INCOME STATEMENT INCLUDING PROPORTIONAL SHARE OF JOINT VENTURE RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

 

 

 

 

Non-GAAP

6 months

ended

30 September

2018

 

Non-GAAP

6 months

ended

30 September

2017

 

Non-GAAP

Year

ended

31 March

2018

 

 

£000

£000

£000

 

Total revenue

 

 

129,624

 

99,341

 

316,241

Cost of sales

 

(101,172)

(75,660)

(236,772)

Total gross profit

 

28,452

23,681

79,469

 

 

 

 

 

Administrative expenses

 

(13,331)

(11,272)

(24,159)

Selling expenses

 

(3,982)

(2,246)

(6,548)

Total operating profit

 

11,139

10,163

48,762

 

 

 

 

 

Finance income

 

745

310

898

Finance costs

 

(1,814)

(1,775)

(3,622)

Total profit before income tax

 

10,070

8,698

46,038

 

 

 

 

 

Income tax expense

 

(1,744)

(1,607)

(8,623)

Profit after income tax

 

8,326

7,091

37,415

 

 

Key management information is presented to the Board with the Group's share of joint venture results proportionally consolidated and therefore including the relevant share of the results of joint ventures in each line of the income statement and balance sheet.

 

The Group's joint ventures are an integral part of the business and all developments are treated consistently within the business whether wholly owned or partially owned in a joint venture structure.  In addition, the proportion of results generated from joint ventures will fluctuate year to year depending on the timing of developments.

 

As such the Board believes that the financial results presented in this way are the most appropriate for assessing the true underlying performance of the business.  A reconciliation between the key management information income statement and balance sheet and Generally Accepted Accounting Principles (GAAP) compliant information, accounting for joint ventures under IFRS 11 as equity investments, is included in note 6.  The key management information presented in this way is deemed to be an alternative performance measure.  For further details on alternative performance measures, including further definitions and reconciliations, see note 7.

 

 

 

 

GROUP BALANCE SHEET INCLUDING PROPORTIONAL SHARE OF JOINT VENTURE RESULTS AT 30 SEPTEMBER 2018

 

 

 

 

Non-GAAP

30 September

2018

 Non-GAAP

30 September

2017

Non-GAAP

31 March

2018

 

 

£000

£000

£000

 

 

 

 

 

Non current assets

Goodwill

 

818

818

818

Property, plant and equipment

 

2,804

2,229

2,543

Trade and other receivables

 

6,913

3,913

5,896

 

 

10,535

6,960

9,257

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

367,646

379,119

373,859

Trade and other receivables

 

53,085

34,412

49,792

Total cash and cash equivalents

 

25,144

35,330

13,829

 

 

445,875

448,861

437,480

 

 

 

 

 

Total assets

 

456,410

455,821

446,737

 

 

 

 

 

Non current liabilities

 

 

 

 

Trade and other payables

 

(703)

(1,215)

(1,268)

Financial liabilities

 

(499)

(649)

(360)

Deferred income tax liabilities

 

(705)

(181)

(48)

 

 

(1,907)

(2,045)

(1,676)

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

(69,874)

(150,547)

(92,445)

Total borrowings

 

(147,780)

(95,215)

(116,899)

Financial liabilities

 

-

-

(200)

Current income tax liabilities

 

(1,739)

(1,830)

 (4,426)

 

 

(219,393)

(247,592)

(213,970)

 

 

 

 

 

Total liabilities

 

(221,300)

(249,637)

(215,646)

 

 

 

 

 

Net assets

 

235,110

206,184

231,091

 

 

 

 

 

Capital and reserves

 

 

 

 

Issued share capital

 

7,570

7,534

7,551

Share premium

 

108,354

107,470

108,178

Retained earnings

 

119,186

91,180

115,362

 

 

 

 

 

Total equity

 

235,110

206,184

231,091

 

 

 

 

 

 

 

 

 

GROUP INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

 

 

 

Unaudited

6 months

ended

Unaudited

6 months

ended

Audited

Year

ended

 

 

30 September

2018

30 September

2017

31 March

2018

 

Note

£000

£000

£000

 

 

 

 

 

Total revenue

 

129,624

99,341

316,241

 

 

 

 

 

Less share of revenue from joint ventures

 

(10,862)

(12,654)

(21,460)

 

 

 

 

 

Group revenue

 

118,762

86,687

294,781

 

 

 

 

 

Cost of sales

 

(92,641)

(65,379)

(220,026)

 

 

 

 

 

Gross profit

 

26,121

21,308

74,755

 

 

 

 

 

Administrative expenses

 

(13,278)

(11,218)

(24,055)

Selling expenses

 

(3,738)

(2,155)

(5,706)

Share of results of joint ventures

 

1,500

1,577

2,443

 

 

 

 

 

Operating profit

 

10,605

9,512

47,437

 

 

 

 

 

Finance income

 

630

258

773

Finance costs

 

(1,035)

(929)

(1,902)

 

 

 

 

 

Profit before income tax

 

10,200

8,841

46,308

 

 

 

 

 

Income tax expense

3

(1,874)

(1,750)

(8,893)

 

 

 

 

 

Profit after income tax

 

8,326

7,091

37,415

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

5

11.0p

9.4p

49.8p

 

 

 

 

 

Diluted

5

11.0p

9.4p

49.4p

 

 

 

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

 

 

 

 

Unaudited

6 months

ended

Unaudited

6 months

ended

Audited

Year

ended

 

 

30 September

2018

30 September

2017

31 March

2018

 

 

£000

£000

£000

Movement in derivative financial instruments hedged

 

 

61

 

447

 

536

Movement in deferred tax on derivative financial instruments hedged

 

(12)

 

 

(85)

 

 

(102)

 

 

 

 

 

 

 

Other comprehensive income net of tax (items that may subsequently be reclassified into profit or loss)

 

49

 

362

 

434

 

 

 

 

 

 

Profit for the period

 

8,326

7,091

37,415

 

 

 

 

 

Total comprehensive income for the period

 

 

8,375

 

 

7,453

 

 

37,849

 

 

 

 

GROUP BALANCE SHEET

AT 30 SEPTEMBER 2018

 

 

 

Unaudited

30 September

2018

Unaudited

30 September

2017

Audited

31 March

2018

 

 

£000

£000

£000

 

 

 

 

 

Non current assets

Goodwill

 

 

289

 

289

 

289

Investments in joint ventures

 

68,334

56,793

54,259

Property, plant and equipment

 

2,673

2,229

2,471

 

 

71,296

59,311

57,019

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

272,284

319,411

300,008

Trade and other receivables

 

66,979

35,048

57,853

Cash and cash equivalents

 

24,617

31,925

12,808

 

 

363,880

386,384

370,669

 

 

 

 

 

Total assets

 

435,176

445,695

427,688

 

 

 

 

 

Non current liabilities

 

 

 

 

Trade and other payables

 

(703)

(1,215)

(1,268)

Financial liabilities

 

(499)

(649)

(360)

Deferred income tax liabilities

 

(922)

(454)

(193)

 

 

(2,124)

(2,318)

(1,821)

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

(58,653)

(141,246)

(77,891)

Borrowings

 

(137,550)

(94,117)

(112,259)

Financial liabilities

 

-

-

(200)

Current income tax liabilities

 

(1,739)

(1,830)

(4,426)

 

 

(197,942)

(237,193)

(194,776)

 

 

 

 

 

Total liabilities

 

(200,066)

(239,511)

(196,597)

 

 

 

 

 

Net assets

 

235,110

206,184

231,091

 

 

 

 

 

Capital and reserves

 

 

 

 

Issued share capital

 

7,570

7,534

7,551

Share premium

 

108,354

107,470

108,178

Retained earnings

 

119,186

91,180

115,362

 

 

 

 

 

Total equity

 

235,110

206,184

231,091

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018 (UNAUDITED)

 

 

Share

capital

Share

premium

Retained

earnings

Total

equity

 

£000

£000

£000

£000

Balance at 31 March 2018

7,551

108,178

115,362

231,091

IFRS 15 restatement (note 2)

-

-

1,777

1,777

Balance at 1 April 2018

7,551

108,178

117,139

232,868

Profit for the period

-

-

8,326

8,326

Total other comprehensive income

-

-

49

49

Excess tax on share options

-

-

90

90

Dividend on equity shares

-

-

(6,764)

(6,764)

Proceeds of equity share issues

19

176

-

195

Share-based payments

-

-

200

200

Sale of own shares

-

-

146

146

Balance at 30 September 2018

7,570

108,354

119,186

235,110

 

 

 

 

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2017 (UNAUDITED)

 

 

Share

capital

Share

premium

Retained

earnings

Total

equity

 

£000

£000

£000

£000

Balance at 1 April 2017

7,529

107,395

89,361

204,285

Profit for the period

-

-

7,091

7,091

Total other comprehensive income

-

-

362

362

Excess tax on share options

-

-

43

43

Dividend on equity shares

-

-

(6,378)

(6,378)

Proceeds of equity share issues

5

75

-

80

Share-based payments

-

-

191

191

Sale of own shares

-

-

510

510

Balance at 30 September 2017

7,534

107,470

91,180

206,184

 

 

 

 

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2018 (AUDITED)

 

 

Share

capital

Share

premium

Retained

earnings

Total

equity

 

£000

£000

£000

£000

Balance at 1 April 2017

7,529

107,395

89,361

204,285

Profit for the year

-

-

37,415

37,415

Total other comprehensive income

-

-

434

434

Excess tax on share options

-

-

43

43

Dividend on equity shares

-

-

(12,383)

(12,383)

Proceeds of equity share issues

22

783

-

805

Share-based payments

-

-

455

455

Purchase of own shares

-

-

(726)

(726)

Sale of own shares

-

-

763

763

Balance at 31 March 2018

7,551

108,178

115,362

231,091

 

 

 

GROUP CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

 

 

Unaudited

6 months

ended

Unaudited

6 months

ended

Audited

Year

ended

 

30 September

2018

30 September

2017

31 March

2018

 

£000

£000

£000

Cash flow from operating activities

 

 

Operating profit

10,605

9,512

47,437

 

 

 

 

Depreciation

584

350

906

Share-based payments

200

191

455

Profit on sale of tangible fixed assets

(1)

-

(2)

Decrease (increase) in inventories

30,057

(29,864)

(8,145)

(Increase) decrease in receivables

(6,908)

3,585

(19,465)

Decrease in payables

(19,298)

(9,758)

(73,150)

Share of results from joint ventures

(1,500)

(1,577)

(2,443)

 

13,739

(27,561)

(54,407)

 

 

 

 

Interest paid and debt issue costs

(3,582)

(1,336)

(6,393)

Income tax paid

(4,113)

(3,063)

(7,385)

Cash flow from operating activities

6,044

(31,960)

(68,185)

 

 

 

 

Cash flow from investing activities

Distribution from joint venture

 

 

-

 

 

8,557

 

 

20,016

Investment in joint ventures

(12,083)

(16,219)

(24,781)

Purchase of tangible assets

(786)

(1,307)

(2,105)

Proceeds from sale of tangible assets

1

-

2

Interest received

56

13

773

Cash flow from investing activities

(12,812)

(8,956)

(6,095)

 

 

 

 

Cash flow from financing activities

 

 

 

Proceeds from issuance of ordinary share capital

195

80

805

Purchase of own shares

-

-

(726)

Sale of own shares

146

510

763

Increase in bank loans

25,000

40,000

60,000

Dividend paid

(6,764)

(6,378)

(12,383)

Cash flow from financing activities

18,577

34,212

48,459

 

 

 

 

Net increase (decrease) in cash and cash equivalents

11,809

(6,704)

(25,821)

 

Cash and cash equivalents brought forward

12,808

38,629

38,629

 

Cash and cash equivalents carried forward

24,617

31,925

12,808

 

 

 

 

NOTES

 

1  Basis of preparation

 

The interim financial statements have been prepared on the basis of the recognition and measurement requirements of International Financial Reporting Standards (IFRS) in issue that are either endorsed by the EU and effective at 31 March 2019 or are expected to be endorsed and effective at 31 March 2019.

 

The interim financial statements do not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006.  They are prepared in accordance with IAS 34 interim financial reporting.  The figures for the half years ended 30 September 2018 and 30 September 2017 are unaudited.  Consistent with previous years, the Board has included within the interim results an income statement and a balance sheet using proportional consolidation for the results of joint ventures along with the Generally Accepted Accounting Principles (GAAP) compliant versions of the income statement and balance sheet which present joint ventures as equity accounted investments.

 

The interim financial statements were approved by the directors on 27 November 2018 and the GAAP compliant information has been reviewed by the auditors whose review report is unqualified and will be included in the interim report distributed to shareholders.

 

The directors have assessed the Group's projected business activities and available financial resources together with detailed forecasts for cash flow and relevant sensitivity analysis.  The directors believe that the Group remains well placed to manage its business risks successfully.  After making appropriate enquiries the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Accordingly the directors continue to adopt the going concern basis in preparing the interim financial statements.

 

The Group's statutory financial statements for the year ended 31 March 2018 were approved by the Board of directors on 29 May 2018, have been reported on by the Group's auditors and delivered to the Registrar of Companies.  The report of the auditors was unqualified and did not contain statements under Section 498 of the Companies Act 2006.

 

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates.

 

The significant judgements made by management in applying the Group's accounting policies and the key sources of uncertainty were principally the same as those applied to the Group's financial statements as at 31 March 2018.

 

 

 

2  Accounting policies

 

Accounting convention

The interim accounts have been prepared under the historical cost convention and on a basis consistent with the accounting policies in the financial statements for the year ended 31 March 2018 with the exception of the new accounting standards noted below.

 

The Group has adopted IFRS 15 'Revenue from contracts with customers' from 1 April 2018. Adoption of the new standard has had an impact on the timing of recognition of some directly attributable selling expenses which, under the new standard, are required to be prepaid and then expensed at the time of the corresponding revenue and profit recognition rather than expensed as incurred. This has resulted in a restatement of opening reserves at 1 April 2018 by an increase of £1,777,000 net of deferred tax, mainly in relation to agent's commission, with a corresponding increase in prepayment held on the balance sheet. This prepaid commission will unwind over the next few years as forward sold properties complete and profit is recognised.

 

The adoption of IFRS 15 has not had an impact on the Group's individual open market sales, revenue from which continues to be recognised on legal completion.

 

Revenue from contracts for the construction of open market homes sold under build to rent contracts or for the construction of affordable homes sold to affordable housing providers has not been impacted significantly. The new standard allows for recognition over time, from the date at which it is considered that the customer controls the asset, which was the Group's usual practice. The Group consider the asset to be controlled by the customer from the date of exchanging contracts.

 

To determine progress towards satisfying these contracts and thus the timing and proportion of revenue to be recognised, the new standard allows for revenue to be recognised based on the entity's resources consumed relative to total resources expected to be consumed. The Group consider land to be a key resource consumed in order to satisfy these contracts and as such has been included when determining the proportion of revenue to be recognised.

 

3  Taxation

 

Taxation has been calculated on the profit for the six months ended 30 September 2018 at the estimated effective tax rate of 19.0% (H1 2018: 19.0%).

 

 

4  Dividends

 

 

 

The interim dividend declared for the six months ended 30 September 2018 is 8.5 pence per ordinary share and is expected to be paid on 11 January 2019 to those shareholders on the register at the close of business on 7 December 2018.  The ex-dividend date is therefore 6 December 2018.  This dividend was declared after 30 September 2018.

 

The interim dividend paid for the six months ended 30 September 2017 was 8.0 pence per ordinary share and the final dividend paid for the year ended 31 March 2018 was 9.0 pence per ordinary share.

 

 

 

 

5  Earnings per share

 

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the Share Incentive Plan, which are treated as cancelled.  For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.

 

Earnings per share have been calculated using the following figures:

 

Unaudited

Unaudited

Audited

 

6 months

ended

30 September

2018

6 months

ended

30 September

2017

Year

ended

31 March

2018

Weighted average number of shares in issue

75,358,206

75,061,480

75,061,664

Dilution - effect of share schemes

628,201

569,521

669,202

Diluted weighted average number of shares in issue

75,986,407

 

75,631,001

 

75,730,866

 

 

 

 

 

Profit on ordinary activities after taxation

£8,326,000

 

£7,091,000

 

£37,415,000

 

 

 

 

 

Earnings per share:

 

 

 

Basic

11.0p

9.4p

49.8p

Diluted

11.0p

9.4p

49.4p

 

 

 

 

         

 

 

 

 

 

 

 

6 Segmental reporting

 

The Group has only one reportable segment being housebuilding in the United Kingdom.  Financial analysis is presented on this basis to the chief decision makers for the Group these being the directors.

 

Management information is presented to the directors with the Group's share of joint venture results proportionally consolidated to reflect the true underlying performance of the Group.  The Group adopted IFRS 11 'Joint Arrangements' in the year to 31 March 2015 and as such joint ventures within these condensed financial statements are accounted for as equity accounted investments rather than by proportional consolidation.  A reconciliation between management information including a proportional share of joint venture results and the GAAP compliant information in the condensed financial statements is as follows:

 

 

Management

Remove share of

 

6 months ended 30 September

information

joint ventures

GAAP

2018

£000

£000

£000

 

 

 

 

Revenue

129,624

(10,862)

118,762

Cost of sales

(101,172)

8,531

(92,641)

Gross profit

28,452

(2,331)

26,121

Administrative expenses

(13,331)

53

(13,278)

Selling expenses

(3,982)

244

(3,738)

Share of results of joint ventures

-

1,500

1,500

Operating profit

11,139

(534)

10,605

Net finance costs

(1,069)

664

(405)

Profit before income tax

10,070

130

10,200

Income tax expense

(1,744)

(130)

(1,874)

Profit after income tax

8,326

-

8,326

 

 

 

 

 

 

 

 

Inventories

367,646

(95,362)

272,284

Cash and cash equivalents

25,144

(527)

24,617

Other assets

63,620

74,655

138,275

Borrowings

(147,780)

10,230

(137,550)

Other liabilities

(73,520)

11,004

(62,516)

Net assets

235,110

-

235,110

 

 

 

 

 

Management

Remove share of

 

6 months ended 30 September

information

joint ventures

GAAP

2017

£000

£000

£000

 

 

 

 

Revenue

99,341

(12,654)

86,687

Cost of sales

(75,660)

10,281

(65,379)

Gross profit

23,681

(2,373)

21,308

Administrative expenses

(11,272)

54

(11,218)

Selling expenses

(2,246)

91

(2,155)

Share of results of joint ventures

-

1,577

1,577

Operating profit

10,163

(651)

9,512

Net finance costs

(1,465)

794

(671)

Profit before income tax

8,698

143

8,841

Income tax expense

(1,607)

(143)

(1,750)

Profit after income tax

7,091

-

7,091

 

 

 

 

Inventories

379,119

(59,708)

319,411

Cash and cash equivalents

35,330

(3,405)

31,925

Other assets

41,372

52,987

94,359

Borrowings

(95,215)

1,098

(94,117)

Other liabilities

(154,422)

9,028

(145,394)

Net assets

206,184

-

206,184

 

 

 

 

 

 

 

 

 

Management

Remove share of

 

For the year ended 31 March

information

joint ventures

GAAP

2018

£000

£000

£000

 

 

 

 

Revenue

316,241

(21,460)

294,781

Cost of sales

(236,772)

16,746

(220,026)

Gross profit

79,469

(4,714)

74,755

Administrative expenses

(24,159)

104

(24,055)

Selling expenses

(6,548)

842

(5,706)

Share of results of joint ventures

-

2,443

2,443

Operating profit

48,762

(1,325)

47,437

Net finance costs

(2,724)

1,595

(1,129)

Profit before income tax

46,038

270

46,308

Income tax expense

(8,623)

(270)

(8,893)

Profit after income tax

37,415

-

37,415

 

 

 

 

Inventories

373,859

(73,851)

300,008

Cash and cash equivalents

13,829

(1,021)

12,808

Other assets

59,049

55,823

114,872

Borrowings

(116,899)

4,640

(112,259)

Other liabilities

(98,747)

14,409

(84,338)

Net assets

231,091

-

231,091

 

 

 

 

 

 

 

7 Key management information and Alternative Performance Measures

The Chief Executive's review includes both statutory and Alternative Performance Measures (APMs). The Board uses APMs which, although financial measures of either historical or future performance, financial position or cash flows, are not defined or specified by IFRS. The APMs, in management's view, better reflect the underlying performance of the business and provide a more meaningful comparison of how the business is managed and measured on a day-to-day basis.

 

Our APMs are aligned to our strategy and are used by the Board for planning, reporting, to measure the performance of the business and form the basis of the performance measures linked to remuneration. The measures are also used in discussions with the investment analyst community and current and potential shareholders.

 

The APMs used by the Board and highlighted in this report are defined and explained below.

 

Key management information including the Group's share of joint ventures result proportionally consolidated

 

Key management information is presented to the Board with the Group's share of joint venture results proportionally consolidated and therefore including the relevant share of the results of joint ventures in each line of the income statement and balance sheet as set out above.

 

Where revenue and profit metrics include the Group's share of joint venture results proportionally consolidated, they are defined and referred to as set out below.

 

Total revenue - Total revenue is defined as IFRS revenue plus the Group's share of revenue from its joint ventures.

 

 

6 months

6 months

Year

 

ended

ended

ended

 

30 September

30 September

31 March

 

2018

2017

2018

 

£000

£000

£000

Revenue

118,762

86,687

294,781

Share of joint venture revenue

10,862

12,654

21,460

Total revenue

129,624

99,341

316,241

 

 

 

Total gross profit - Total gross profit is defined as IFRS gross profit plus the Group's share of gross profit from its joint ventures.

 

 

6 months

6 months

Year

 

ended

ended

ended

 

30 September

30 September

31 March

 

2018

2017

2018

 

£000

£000

£000

Gross profit

26,121

21,308

74,755

Share of joint venture gross profit

2,331

2,373

4,714

Total gross profit

28,452

23,681

79,469

 

 

 

Total operating profit - Total operating profit is defined as IFRS operating profit plus the Group's share of operating profit from its joint ventures.

 

 

6 months

6 months

Year

 

ended

ended

ended

 

30 September

30 September

31 March

 

2018

2017

2018

 

£000

£000

£000

Operating profit

10,605

9,512

47,437

Share of joint venture operating profit

534

651

1,325

Total operating profit

11,139

10,163

48,762

 

Total profit before tax - Total profit before tax is defined as IFRS profit before tax plus the Group's share of profit before tax from its joint ventures.

 

 

6 months

6 months

Year

 

ended

ended

ended

 

30 September

30 September

31 March

 

2018

2017

2018

 

£000

£000

£000

Profit before tax

10,200

8,841

46,308

Share of joint venture profit before tax

(130)

(143)

(270)

Total profit before tax

10,070

8,698

46,038

 

 

Adjusted margins

 

The Board reviews margins at a gross and operating level before the inclusion of any interest costs capitalised within work in progress and subsequently expensed through cost of sales.  This is consistent with the approach used by the business when appraising land and therefore allows comparability to the original site purchase viability and also comparability across the sector as many of the Group's peers do not capitalise interest per IAS 23.

 

Adjusted gross margin - is calculated as the IFRS gross profit plus the Group's share of gross profit from its joint ventures (total gross profit), adjusted for interest expensed through cost of sales, divided by total revenue, expressed as a percentage.

 

 

 

6 months

6 months

Year

 

ended

ended

ended

 

30 September

30 September

31 March

 

2018

2017

2018

 

£000

£000

£000

Total gross profit

28,452

23,681

79,469

Adjust for interest expensed within cost of sales

1,573

1,258

4,180

Adjusted total gross profit

30,025

24,939

83,649

Total revenue

129,624

99,341

316,241

Adjusted gross margin

23.2%

25.1%

26.5%

 

 

 

Adjusted operating margin - is calculated as the IFRS operating profit plus the Group's share of operating profit from its joint ventures (total operating profit), adjusted for interest expensed through cost of sales, divided by total revenue, expressed as a percentage.

 

 

6 months

6 months

Year

 

ended

ended

ended

 

30 September

30 September

31 March

 

2018

2017

2018

 

£000

£000

£000

Total operating profit

11,139

10,163

48,762

Adjust for interest expensed within cost of sales

1,573

1,258

4,180

Adjusted total operating profit

12,712

11,421

52,942

Total revenue

129,624

99,341

316,241

Adjusted operating margin

9.8%

11.5%

16.7%

 

 

Other APMs

 

The other APMs and KPIs used by the Group are defined below.

 

Total finance costs incurred

 

Total finance costs incurred, including the Group's share of joint venture finance costs, consist of interest on development financing, non-utilisation fees and amortised arrangement fees. Interest on development financing is capitalised into work in progress as required by IAS 23 and all other fees are charged directly to the income statement.

 

 

6 months

6 months

Year

 

ended

ended

ended

 

30 September

30 September

31 March

 

2018

2017

2018

 

£000

£000

£000

Non-utilisation fees

1,107

1,284

2,445

Amortisation of arrangement fees

439

436

905

Other finance costs

268

55

272

Interest capitalised within work in progress

3,277

2,234

5,175

Total finance costs incurred

5,091

4,009

8,797

 

Gearing - Gearing is calculated as net debt (total borrowings less total cash), including the Group's share of joint venture debt and cash proportionally consolidated, divided by net assets expressed as a percentage.

 

 

30 September

2018

30 September

2017

31 March

2018

 

£000

£000

£000

Total borrowings

147,780

95,215

116,899

Total cash

(25,144)

(35,330)

(13,829)

Net debt

122,636

59,885

103,070

Net assets

235,110

206,184

231,091

Gearing

52.2%

29.0%

44.6%

 

 

 

Development pipeline

 

The development pipeline is defined as revenue under the Group's control, including the Group's share of joint venture revenue, to be recognised in future years.

 

For a full list of the Group's KPIs and APMs refer to the 2018 Annual Report.

 

- ENDS -

 

 

Copies of this announcement are available from the Group at Telford House, Queensgate, Britannia Road, Waltham Cross, Hertfordshire EN8 7TF and on our website www.telfordhomes-ir.london 

 


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