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www.telfordhomes.plc.uk Interim results to 30 September 2008

Interim results to 30 September 2008 - telfordhomes-ir.london · and lower margin at QMG in Woodford • Margin before exceptional items in line with expectations • Margins will

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www.telfordhomes.plc.uk

Interim results to 30 September 2008

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 1

OneStratford, E15

Under construction 2008

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 2

• Continued deterioration in market conditions

• Lack of mortgage finance and lower property prices

• Low level of customer confidence

• Now converting pre-sales into cash receipts

• Next 12 months important period in terms of realising cash inflows - the main challenge going forward

Overview

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 3

Impact of restatement

Revenue

Profit (loss) before tax

Net assets

March 2008

Before Restated

September 2007

Before Restated

March 2007

Before Restated

£m

160.4

17.7

64.2

£m

96.8

6.5

48.9

£m

82.1

9.5

60.2

£m

11.3

(3.6)

43.5

£m

104.4

13.5

54.8

£m

105.8

17.1

47.3

12 months 6 months 12 months

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 4

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

• Revenue and profit from sale of open market homes now recognised 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 million to £48.9 million

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

• Corporation tax benefit of £5.2 million

• Fluctuations in future profits expected depending on timing of development completions

New accounting policies

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 5

Summary income statement

Revenue

Profit (loss) before taxand exceptional items

Exceptional items

(Loss) profit before tax

EPS

September 2008

£m

35.6

0.3

(1.4)

(1.1)

(2.7p)

September 2007

£m

11.3

(3.6)

-

(3.6)

(6.5p)

March 2008

£m

96.8

6.5

-

6.5

12.2p

6 months 6 months 12 months

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 6

• Revenue of £35.6 million with 119 open market homes legally completed

• Performance in line with expectations with just one contract failure in the period

• Revenue and profit from 691 affordable homes under construction recognised as work progresses

• Gross margin of 14.5% affected by the change in accounting and lower margin at QMG in Woodford

• Margin before exceptional items in line with expectations

• Margins will reduce in future as a result of market conditions

Revenue and margins

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 7

Queen Mary’s Gate, South Woodford

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 8

• Prices have fallen with localised reductions varying across our region

• Prices in some areas back to levels of late 2006 and early 2007

• Labour costs responding to market but some material costs remain high, squeezing margins

• Controlling all costs essential - including overheads and selling expenses

• Exceptional land and work in progress write down of £1.4 million

• Additional write downs may be required in the future

Prices and costs

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 9

Greenwich Creekside

Computer generated image

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 10

• Just two active sales outlets

• Sales very slow at QMG with reduced visitor levels, we arenegotiating on price to secure sales

• Good demand at Romford from customers utilising ‘My Choice Home Buy’ scheme from the Housing Corporation

• Demonstrates underlying demand stifled by lack of open market mortgage products

• Sales launch at Greenwich Creekside in the period

• Sold four apartments plus over £8 million of commercial space

Sales

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 11

St George’s Estate

Computer generated image

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 12

• Investment partner of the Housing Corporation enabling us to bid for grant funding

• Possibility of converting open market housing to affordable housing, securing revenue at a lower margin

• Pursuing grant bids to deliver affordable housing to housing transfer partners

• We may tender for complementary refurbishment work on ourestate regeneration projects

• Maintains construction activity with secured revenue and regular cash receipts

Partnerships

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 13

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Jan-

06Apr

-06

Jul-0

6Oct-

06Ja

n-07

Apr-0

7Ju

l-07

Oct-07

Jan-

08Apr

-08

Jul-0

8Oct-

08

Nu

mb

er o

f m

ort

gag

e ap

pro

vals

fo

r h

ou

se p

urc

has

es

Mortgage approvals

Source: British Bankers’ Association

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 14

• Lack of mortgage finance key issue for Company today and overthe next 12 months

• Remaining lenders charging higher fees for lower percentage ofvalue of property

• Valuation surveyors applying increasing caution with very fewcomparable transactions taking place

• Difficulties for our customers who committed to purchase newhomes in a different economic environment

• Company is managing ‘the completion process’ involving lenders,brokers, valuation surveyors and customers on every pre-sold property

• Demanding exercise but worthwhile to date

Completion process

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 15

Merchants’ Quarter and Metro East

Merchants’ Quarter Metro East

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 16

• From October 2008 entered a period where over 600 pre-sold homesbecome due for legal completion in the next 12 to 15 months

• Represent revenue of £156 million with net cash inflows, afterrepayment of debt, in excess of £45 million

• Expect good rate of success but there will be failures

• Since start of October made good progress with no contract failures

• Those contracts that are overdue are left in place while thepurchaser continues to arrange finance

Legal completions

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 17

Papermill Place (Vellum)

Computer generated image

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 18

• Uncertainty over rate of success on completions

• Focus on careful management of cash

• No investment in new land

• Investment in work in progress only where revenue substantiallysecured or where significant stage payments being received onaffordable housing

• Submitted claim for repayment of corporation tax following change in accounting policies and received £3.7 million in October

• Directors believe it is prudent to retain cash in the short term and have decided not to pay an interim dividend

• Payment of final dividend will be considered in light of trading and cash flows in the next six months

Cash management

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 19

Debt and gearing

Bank debt at 30 Sept 08 £127.5 million

Gearing 265%

Like for like gearing* 200%

Reported at 31 March 08** 144%

Uncovered gearing 91%

*Ignoring impact of new accounting policies

**Before restatement

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 20

• Bank debt at peak level with several developments reachingcompletion in a short timeframe

• Levels of debt expected to significantly reduce over the next year as aresult of the 600 forthcoming completions

• Accounting policy changes had a direct impact on reported gearingand uncovered gearing

• Excellent relationships with all banks resulting in covenants affected bythe change in accounting being waived

• Some site specific facilities and revolving facility with AIB due forreview in next six months

• Preliminary discussions on required funding along with expectedpricing and covenants result in confidence that all facilities will besuccessfully renewed

Bank finance

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 21

Lanrick Road, E14

Computer generated image

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 22

Planning permissions

• Recently achieved planning permission on three developments

• All of our sites now benefit from planning permission except Lesney site and Chepstow in Wanstead

• Both refused on appeal but clear direction given to enable submission of new schemes this year

• Bethnal Green Road has full planning permission but objectors to scheme have requested judicial review of the planning process

• Achieving planning permission underpins value of sites but construction not expected to start on any of these developments in the short term

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 23

Development pipeline

0 500 1,000 1,500 2,000 2,500 3,000

Underconstruction

Units withplanning

Total pipeline Units with planning

Under construction Not started

Secured contracts Unsold

Number of properties

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 24

• Significant proportion of properties under construction secured by contracts exchanged

• Forward sales at 30 September 2008 of £214 million, this is secured revenue not yet recognised in the income statement

• Progressing regeneration of other Eastend Homes estates following the success of British Estate (Merchants’ Quarter)

• First handovers at Merchants’ Quarter with buy to let landlordshaving immediate success in letting properties

• Next project will be St George’s Estate just north of St Katherine’s Dock

• Other estates are going through the planning process

• Land values on future estates will reflect current market conditions

Development pipeline

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 25

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 26

• Expect pre-selling to be more difficult in the future

• Gearing levels will have to reduce if revenue cannot be secured at anearly stage

• Reduced ability to invest capital in land and work in progress

• Currently pursuing projects that are cash positive, including acting asa contractor, to mitigate reduced investment and levels of activity

• Expect to reduce number of people employed by Telford Homes by between a quarter and a third over the next 12 months

• Scale of Company one year from now will depend on success insecuring projects that do not require a cash investment

Strategy

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 27

New housing starts

100,000100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

2002/03 2003/04 2004/05 2005/06 2007/08

Housing starts - year to 30 SeptemberSource: Department of Communities and Local Government

2006/07

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 28

Outlook

• Collapse in confidence in off plan purchases

• But interest rate reductions and lower prices have improvedaffordability for purchasers and equity yields for investors

• Coupled with continuing demand for places to live this will helpmaintain attraction of our product in medium to longer term

• Cannot plan future investment and prudent control of cash is main objective

• Concentrating on ensuring completions are successful rather than on timeand this may impact on results for full year to 31 March 2009

• Continuing regeneration in East London and partner of the Housing Corporation

• Company well placed for a successful future when the housingmarket and economy begin to recover

106159 Telford Presentation Nov 08 28/11/08 14:37 Page 29