Telford Homes Plc

('Telford Homes' or the 'Group')

Interim results for the six months ended 30 September 2014

Telford Homes Plc (AIM:TEF), the London focused residential property developer, today announces its interim results for the six months ended 30 September 2014.

Highlights

Jon Di-Stefano, Chief Executive of Telford Homes, commented:  "London is a fantastic place to be building homes and Telford Homes is developing in locations where people want to live and can afford to live.  We have experienced tremendous success at every single one of our sales launches over the last few months and our forward sales total more than £550 million of future revenue.  The Group has an unprecedented £1.1 billion development pipeline and has the opportunity to achieve and then sustain the ambitious targets for growth set by the Board."

- Ends -

For further information:

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.london.

CHIEF EXECUTIVE'S STATEMENT

Telford Homes is developing in one of the most attractive but undersupplied property markets in the world.  Demand for somewhere to live in London remains very strong and as a result the Group has agreed contracts for the sale of more than 600 open market homes since 1 April 2014, already well in excess of the 515 homes sold in the year to 31 March 2014.

In the last six months the Board has underpinned its expectations of sustained long term growth by increasing the Group's development pipeline to more than £1.1 billion of future revenue.  Half of this pipeline has been forward sold with both the size of the pipeline, and the scale of forward sales secured, the highest they have ever been.

Results for the six months ended 30 September 2014

The results for the year to 31 March 2015 are expected to be weighted towards the second half with a greater number of open market completions due in that period.  The number of open market completions in the six months to 30 September 2014 was 140, down from 222 last year.  This is entirely as expected and simply reflects the timing of completion of the Group's developments.  In the next six months the Group will hand over homes at a number of significant developments including Parliament House, SE1 and Lime Quay, E14.

Due to the timing of completions, revenue, including the Group's share of joint venture revenue, reduced to £65.1 million (H1 2013: £73.7 million). However a substantial increase in the gross profit margin for the period has resulted in gross profit increasing to £22.7 million (H1 2013: £20.0 million).  Gross profit is stated after expensing loan interest that has been capitalised within inventories and, adjusting for that interest, the gross profit margin achieved in the six months to 30 September 2014 was 36.6 per cent, a further increase on the 31.9 per cent reported for the year to 31 March 2014.

This increase in margin is due to a combination of factors but primarily reflects more than half of the open market completions in the period being at the Group's joint venture development, Avant-garde, E1 where price growth in the area over a number of years has pushed the profit margin above 40 per cent.  The Group's target margin when appraising new opportunities remains at 24 per cent.

House prices in London have risen significantly over the last two years and this has increased anticipated revenue across the Group's developments.  This has been partly offset by increasing labour and material costs along with sales overage payments to land vendors, which form an important part of the Group's partnership approach to working with both affordable housing providers and private land owners.  Despite this, individual development margins have been well ahead of the target margin.  The Group has already sold a significant proportion of its existing pipeline and in any case expects more modest sales price inflation in the next few years.

Inflationary pressures in labour costs and material prices are evident across the industry but the Group is placing contracts with subcontractors at an early stage wherever it can and has strong relationships, built up over many years, across its supply chain.  As a result these pressures have little impact in the short term and the anticipated longer term impact is incorporated into the Board's current forecasts.  The Board expects the reported gross profit margin over the next few years to move back towards the 24 per cent target which has been the basis of the Group's more recent acquisitions.

Administrative expenses have increased against the same period last year as a result of higher employee costs whilst selling expenses are slightly reduced.  Selling expenses are written off as incurred and are heavily influenced by the timing and success of individual sales launches.  On a typical development, selling expenses are expected to be around four per cent of total revenue and the Group's continued success in forward selling its homes means the costs are being incurred much earlier than the corresponding revenue and profit.  The operating margin before charging any interest has improved to 18.0 per cent from 17.1 per cent in the year to 31 March 2014.

Net finance costs have increased to £1.1 million (H1 2013: £0.9 million) due primarily to non-utilisation fees on the Group's £120 million bank facility where the need to drawdown loans has been reduced by the scale of deposits received on forward sales.

Profit before tax for the first six months of the year has increased to £9.4 million against £7.7 million for the same period last year and £19.2 million for the year to 31 March 2014.  Given the Group has sold almost every home that should legally complete by 31 March 2015 the Board is very confident of meeting market expectations for profits in the current year.  The Board reported on 16 April 2014 that it anticipated that cumulative profit before tax for the four financial years to 31 March 2018 would exceed £120 million and the Group is comfortably on track to achieve this substantial level of growth.

Dividend

The Board is pleased to declare an increase of 38% in the interim dividend to 5.1 pence per share (H1 2013: 3.7 pence).  The interim dividend, together with the full year dividend payable in July 2015, is expected to remain consistent with the Board's stated intention of paying around a third of earnings in dividends each year.  The interim dividend will be paid on 9 January 2015 to those shareholders on the register at the close of business on 12 December 2014.  The ex-dividend date is therefore 11 December 2014.

London market

The Group's business revolves around the fundamental strengths of London including its robust economy, international reputation and an excellent transport network.  London continues to suffer from a shortage of homes compared to current demand let alone future population growth and this is the primary driver of the Board's plans to increase the number of homes the Group is building over the next few years.

The measures taken by the Bank of England to maintain prudence in the mortgage market have been welcomed by the Group.  Affordability constraints will continue to act as a natural brake on rampant price inflation unless mortgage lending becomes uncontrolled as it did back in 2006 and 2007.  This is not the case today and fears of a price bubble in London are unfounded in the locations that Telford Homes is operating in, where the Group focuses on building the right product at relatively affordable prices, especially when compared to prime Central London.  As the Board predicted, the rate of price inflation has necessarily slowed as affordability constraints on both mortgage payments and rents act as a welcome restraint, however prices are certainly not falling and the Group remains confident of longer term stability in its areas of operation.

Sales

Telford Homes has experienced tremendous success at every single one of its sales launches over the last few months.  The recent launch of Stratosphere, E15, a 36 storey tower in the heart of Stratford, shows the strength of demand that exists for the Group's typical product.  Over 270 of the 307 open market apartments have now been sold with combined future revenue from those sales exceeding £110 million.  The launch commenced on 2 October 2014 with over 100 sales achieved in the UK and the remainder sold to overseas investors.

The Group continues to market its developments to investors both in the UK and overseas because the sales achieved are ensuring homes are being built for the many people who want, or need, to rent properties in London.  Rental demand remains exceptionally strong given the lack of supply of new homes and the Group's investor customers do not leave their properties empty.

Similar launches earlier this year have been equally well received including Stratford Central, where 151 of 157 open market homes have been sold and Vibe in Dalston where 79 of 81 homes in the first release were sold.  Completions across these three developments commence with Vibe in late 2016 and conclude at Stratosphere in late 2018 and therefore the sales enhance the Group's strong forward sold position many years in advance.

The Group's strategy is to target sales early in the development process to control risk, enhance profit and cash flow visibility, and to enable further investment in the development pipeline.  Forward sales of both open market homes and affordable homes total in excess of £550 million of revenue which will be recognised from 1 October 2014 onwards.  This represents nearly four times the revenue reported in the year to 31 March 2014.

The Group has also maintained a healthy rate of sales at its on-site sales centres and through smaller development launches to owner-occupiers and some investors.  As such the Group is still in a position where it is selling homes faster than it can currently build them.

Development pipeline

The Board has been actively pursuing significant development opportunities to take advantage of the market dynamics in London and the security of future revenue being derived from the Group's substantial forward sold position.

Telford Homes announced on 30 September 2014 that the Group's development pipeline had exceeded £1 billion of future revenue for the first time in its history as a result of the £16.3 million contract to progress the first of three phases of redevelopment of Poplar Business Park, E14.  The first phase has planning consent for 170 homes with total residential revenue expected to be in excess of £75 million.  This followed the purchase of a development site on Rotherhithe New Road, Southwark, SE16 earlier in the year for £19 million.  This site has a planning consent for 158 homes and two new schools.  Construction work will commence on both of these developments in 2015.

After the recognition of revenue from completions in the period to 30 September 2014 the remaining pipeline at that date and to be recognised from 1 October 2014 was £1,012 million (31 March 2014: £878 million).  Reaching £1 billion in future pipeline revenue was a significant milestone illustrating the Group's increased capacity to deliver substantial growth in both output and revenues.

On 6 November 2014 the Group announced that it had added to this pipeline in forming a 50:50 joint venture partnership with Notting Hill Housing Group, a leading London housing association.  The joint venture has exchanged contracts to purchase a significant site in Stratford, E15 for £44 million.  The 5.5 acre site has already been granted outline planning consent and the joint venture will now pursue a detailed application to create over 400 new homes.  The development is located immediately adjacent to Westfield Stratford City and the former Olympic Athlete's Village.  As a result of the Group's 50 per cent share of this acquisition the current development pipeline now exceeds £1.1 billion.

Planning environment

Despite positive moves to improve the planning process there are still many frustrations and the majority of these relate to the time taken to progress through each stage.  More homes could be delivered at a greater speed if planning authorities were appropriately resourced and there were short and binding deadlines for every part of the process, including planning appeals.  The Group has a number of developments that do not have a planning consent and is quite prepared to acquire more, but increasingly the Board is forced to forecast longer periods before construction can commence.

In this frustrating environment the Group has nevertheless maintained an excellent track record in obtaining planning despite the challenges.  For example, the Group has been successful during the last six months in obtaining a resolution to grant planning consent for 134 homes in a 23 storey development on Limeharbour, E14.  Knowledge of the planning process in each London borough and working in partnership with local authorities and other interested parties removes the majority of the risk involved in securing a planning consent. 

Cash and borrowings

As a result of land acquisitions in the last six months and an increase in construction activity, gross borrowings have risen to £52.2 million at 30 September 2014 (31 March 2014: £28.1 million).  Cash balances were £13.0 million leaving net debt at £39.2 million with gearing of 35.5 per cent at 30 September 2014, compared to a net cash position at 31 March 2014.  The Group's current banking facility of £120 million still has significant headroom available within it and net debt and gearing are expected to increase further as more land is acquired and construction continues.  The Board is comfortable with anticipated levels of debt within the business given the substantial security afforded by the scale of forward sales the Group has achieved.

Cash receipts have been boosted by the significant amount of deposits received from forward sales and some of these deposits have been used to pay down bank debt drawn against construction costs.  Where homes are sold far in advance of completion the Group takes a 10 per cent deposit on exchange of contracts and another 10 per cent a year later.  Total deposits received in advance of completions were £52.6 million at 30 September 2014 (31 March 2014: £45.3 million) with another £11 million currently being received in relation to the first 10 per cent deposits at Stratosphere.

Change in accounting standard and presentation of joint ventures

The Group has been required to adopt IFRS 11 'Joint Arrangements' for the year to 31 March 2015.  IFRS 11 states that joint ventures should be accounted for as equity investments rather than by proportional consolidation.  This is a change in presentation only and does not change net profits or net assets in any way.  The Group's joint ventures are however an integral part of the business and as such the Board believes that the financial results are most appropriately presented using proportional consolidation which means including the relevant share of the results of joint ventures in each line of the income statement and balance sheet.  This therefore remains the method of presentation within the Group's internal management accounts.

As a result the Board has included an income statement and a balance sheet within the interim results using proportional consolidation along with Generally Accepted Accounting Principles (GAAP) compliant versions presenting joint ventures as equity investments.  The key performance indicators and other figures within this report include the Group's share of joint venture results. The Board suggests investors follow its lead in assessing the business on the results that include a proportional share of joint ventures.  Further detail is included in note 6.

Outlook

London is a fantastic place to be building new homes.  The Group is developing in locations where people want to live and can afford to live, in an environment of chronic undersupply, and this is being clearly demonstrated by the success of every sales launch.  Telford Homes is in the incredible position of having over £550 million of future revenue forward sold.  This includes most of the homes due to complete in the years to 31 March 2015 and 31 March 2016 and many more in the following two years.

The Group has an unprecedented development pipeline and has the opportunity to achieve and then sustain the ambitious targets for growth set by the Board over the next four years and beyond.  The Board remains very confident of a bright and exciting future for Telford Homes.

Jon Di-Stefano

Chief Executive

25 November 2014

GROUP INCOME STATEMENT INCLUDING PROPORTIONAL SHARE OF JOINT VENTURE RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014

GROUP BALANCE SHEET INCLUDING PROPORTIONAL SHARE OF JOINT VENTURE RESULTS AT 30 SEPTEMBER 2014

GROUP INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014

*Prior year results are restated for the adoption of IFRS 11 'Joint arrangements', further information included in note 2.

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014

GROUP BALANCE SHEET

AT 30 SEPTEMBER 2014

* Prior year results are restated for the adoption of IFRS 11 'Joint arrangements', further information included in note 2.

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 (UNAUDITED)

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013 (UNAUDITED)

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2014 (AUDITED)

GROUP CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014

*Prior year results are restated for the adoption of IFRS 11 'Joint arrangements', further information included in note 2.

NOTES

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 has adopted IFRS 11 'Joint Arrangements' for the year to 31 March 2015 and as such joint ventures within these financial statements are accounted for as equity 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 financial statements is as follows:

- ENDS -