LONDON (Alliance News) - Telford Homes PLC Wednesday reported an increase in pretax profit for the first half, as it experienced high demand for its properties due to a lack of supply in the UK capital.
The London-focused residential property developer posted pretax profit of GBP7.7 million for the period ended September 30, up from GBP6.5 million a year earlier, boosted in part by house price inflation.
Demand for properties has moved prices well ahead of those assumed at the time land was bought, Telford said, which in some cases was several years ago.
"Cost control remains important and the group has fostered long-term relationships with some of its key subcontractors in order to manage build costs as efficiently as possible," the group said.
Telford admitted it is being buoyed by the capital's chronic lack of supply. ?There is an imbalance of supply and demand in London and that isn't going to change in the future,? Chief Executive, Jon Di-Stefano, told Alliance News in a telephone interview.
?This is why we went out and raised GBP20 million [in June]. We could see that the opportunities were there; there are plenty of opportunities in the land market for things to buy and we have been doing that in the last six months so we have increased our development pipeline by 23% including some significant site acquisitions,? he added.
Its land bank stood at 2,790 plots at the end of the period, up from 2,260 a year earlier.
Earlier this year the company said it anticipated profits for the year to March 31, 2014, would be significantly ahead of market expectations. Telford said it remained on track to deliver a substantial increase in profits for the year.
Revenue, however, declined to GBP73.7 million in the first half, from GBP78.3 million a year earlier, which Telford blamed on the "timing of completions".
Telford said that, in contrast to last year, the results for the current year are expected to be weighted towards the second half, with a greater number of open market completions due in that period. This includes the first completions at Avant-garde, the group's joint venture development in Shoreditch, which Telford said will deliver an "exceptionally" high margin.
The number of open-market completions during the first half fell to 225 from 256 last year.
Despite this Telford said it maintained a strong rate of sales, with contracts exchanged on 341 open market properties compared with 217 in the first half of 2012. This was at an average price of GBP373,000, up from GBP353,00 for the year to March 31, 2013.
"The prices achieved vary depending on the specific location of each development but there is no doubt that the group has experienced double-digit price growth in some locations over the past year," it said.
Di-Stefano said the company's buyers were a mix of owner-occupiers, UK based investors, and overseas investors.
Concern has been raised that a number of housebuilders are contributing to London's housing shortage by selling to overseas investors. However Di-Stefano said this was only in isolated cases and those who bought from Telford where those wanting to live in the capital.
?The vast majority of the homes sold to overseas investors are rented out to somebody who wants to live in London so a lot of the statistics are inaccurate,? he said. ?Everybody who is buying from us, because we are not selling the multimillion pound houses where people do use them for second home, is doing it for a rental yield."
?None of the properties we have sold to an investor is empty they are all filled with someone who wants to live in London. People are queueing up for our properties,? he added.
Telford said it had not seen the benefits of the UK government's contentious mortgage financing scheme, Help to Buy.
The first phase of the Help to Buy scheme in England started in April, when buyers of newly built homes were eligible for a 20% equity loan from the government on top of their 5% deposit.
Di-Stefano said the company's buyers had shunned the scheme because they either had the capital to purchase or were put off by the risk of a high loan to value mortgage.
"[The scheme] has been undoubtedly been of some assistance to the market outside of London, particularly in areas where they have struggled to get the same level of demand. In London and particularly in the areas where we are developing, in the inner zones, there is nothing like the issues the rest of the country is facing," Di-Stefano said.
"Therefore it is not a surprise we have not made a single sale on it because we are mainly dealing with people who do not need it,? he said.
Despite signing up to the scheme, he said the company was in a good position and did not want to rely on ?something that may have a finite life.?
For the first time the company posted net cash of GBP9.1 million.
Telford raised its interim dividend to 3.7 pence per share from 2.0 pence, in line a commitment to give a third of its earnings in dividends.
The stock was trading at 365.00 pence, Wednesday afternoon, down 10.00 pence or 2.7%.
By Anthony Tshibangu; anthonytshibangu@alliancenews.com; @AnthonyAllNews
Copyright © 2013 Alliance News Limited. All Rights Reserved.
