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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
• 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
• 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
• 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