ASH.L Regulatory News (ASH)

Ashley House plc

2014 Interim report and update on Fund

Ashley House plc ("Ashley House" or the "Company") the health and community care property partner today announces its interim results for the six months ended 31 October 2014.

Highlights

• Provisional agreement with M&G to provide long term debt of up to £100m to fund Extra Care schemes once completed

• A new Extra Care investment vehicle has been established

• Business expected to be profitable at the full year at EBITDA level but likely to be loss making at PBT level

• Profits may be further depressed due to newly established fund being a subsidiary in the short term

• Four schemes currently on site with others ready when finance is in place (2013: four)

• Total forward pipeline, on-site or appointed of scheme value yet to be recognised of £175.2m on 31 schemes (January 2014: 31 schemes £103.3m)

Six months ended 31 October 2014

• Revenue of £5.6m (2013: £5.5m)

• EBITDA loss of £1.2m (2013: profit of £0.02m)

• Loss before taxation £1.9m (2013: £0.8m)

• Net assets of £13.8m (2013: £18.9m)

• Net debt £2.2m (2013: £1.2m)

• £8.2m of tax losses to be carried forward (2013: £4.0m)

"2014/15 should be seen as a transitional year whilst the platform for the sustained growth of the Extra Care business is completed. The establishment and funding of the property holding vehicle for Extra Care is a significant milestone in the transition to our refocused strategy. This strategy together with appropriate financing solutions will drive the business forward and deliver long term value creation and profitable growth."

Christopher Lyons, Chairman

Enquiries:

Ashley House plc 01628 600 340

Antony Walters

Jonathan Holmes

WH Ireland

(Nominated Adviser and broker to Ashley House plc)

Adrian Hadden

Mark Leonard 0207 220 1666

Chairman's Report

In my last report to Shareholders in September, I stated that "the strategy to focus on the significant growth in the Extra Care housing market will drive the recovery of the business". The first half of this year has remained challenging. Limited activity in the Health market persists whilst significant time and energy is being invested in driving forward the Extra Care business. As previously advised, and as a consequence, the half year period regrettably but as predicted delivered a loss.

The period has however seen significant progress in building the platform for growth and longer term revenue streams in the Extra Care market. More detail is shown below, however in summary:

As previously stated, we have reached initial agreement with a major institution to create an investment vehicle, the Extra Care fund. We are delighted to announce today that that institution is M&G Investment Management Limited ("M&G"). A new investment vehicle has been incorporated, AH Supported Living Limited ("AHSL") to acquire and fund the Extra Care schemes during construction and hold the completed developments for the long term.

M&G has provisionally agreed to provide long term senior debt to AHSL of up to £100m to fund the schemes once they are completed. Ashley House initially holds the equity in AHSL but is exploring means of bringing in additional funds to dilute its holding and particularly to fund the construction phase of the schemes. The fact that there is now clear visibility of such a well-funded end buyer is an important requirement for attracting construction finance for these schemes and good progress is being made in this respect.

Historically and in line with International Financial Reporting Standards, Ashley House has recognised profit at financial close and throughout construction. Going forward, the majority of Extra Care schemes will be sold to AHSL. Whilst we anticipate additional equity investment will come into AHSL, at the current time it remains owned by Ashley House plc. As a result, for the time being AHSL will be consolidated into our group financial results and consequently no profit would be recognised until completion of construction.

The Extra Care Fund

AH Supported Living Limited ("AHSL") has been established as the investment vehicle initially as a wholly owned subsidiary of Ashley House plc. AHSL will fund the Extra Care schemes during construction and hold them once completed. Ashley House will act as the fund manager with an asset management agreement.

M&G Investment Management Limited ("M&G") has provisionally agreed to provide an initial £100m of long term debt to help fund completed schemes. M&G is very supportive of the establishment of AHSL and our business model. We have co-developed a financial model and documentation. M&G has over £5 billion invested in UK social housing and as one of the leading funders in the sector, has extensive knowledge and experience.

The Board is exploring routes to raise further equity and/or subordinated debt within AHSL, which may include listing that vehicle. We are currently holding discussions with a range of potential investors including those focused on social investment. Additionally other short term debt is being sourced to help fund the construction phase as the M&G funds will not be available until each scheme is completed. Completion of these funding arrangements is key to moving the Extra Care pipeline forward and we expect facilities to be in place to enable schemes to commence on-site prior to or around the year end.

It is anticipated that Ashley House's equity in AHSL will reduce to a holding of less than 25% in the medium term, however, whilst AHSL remains a subsidiary, it is expected that the recognition of profits on schemes sold to AHSL will be delayed until completion of those schemes as they will not have been sold outside the group. This would impact on profit recognition in the short term although will increase long term value. When Ashley House dilutes its holding and therefore no longer has control of AHSL, it is expected that future profit recognition will revert to the current basis of recognising profits partly at financial close with the remainder across the construction phase.

A number of national and local relationships have been created with established Registered Providers of Housing (RPs) to manage tenant relationships and these RPs are ready to proceed on a number of the pipeline schemes. In addition we have held discussions with the Government body, the Homes and Communities Agency (HCA), both to explore the grant regime which supports the level of rents payable by the tenants, and the feasibility of establishing AHSL itself as an RP in order to directly access grant funding for capital projects.

Results

The Company made a loss of £1.2m at EBITDA level in the first half of 2014/15 (2013/14: profit £0.02m) leading to a loss before taxation of £1.9m (2013/14: £0.8m) following interest and the expected non-cash impairment of the LIFTCo intangible of £0.5m. This reflects both the ongoing challenges in the Healthcare business and the significant investment made in Extra Care. Whilst the Board expects that, subject to the potential change to the ability to recognise revenue as stated above, the business will be profitable at the full year at EBITDA level, it is likely to be loss making at PBT level.

Net debt

The table below shows net debt of £2.2m at 31 October 2014 (2013: £1.2m). Whilst the Company has an overdraft facility with Lloyds Bank of £0.5m this was not utilised at the period end. All of the debt at the end of October relates to and is secured on amounts incurred on scheme related expenditure. This is largely land purchased for future schemes which stood at £3.8m (2013: £2.6m) as shown in work in progress in the balance sheet at the end of October.

Pipeline

Ashley House's current pipeline as at January 2015 is shown in the table below, analysed as "Extra Care" and "Health" for clarity.

Within Extra Care the quality and value of schemes is increasing. Two new schemes in Essex have brought the number of appointed schemes to 16 with a value of £119.7m compared to 15 and £102.1m at September with a further scheme currently on site. We have either successfully secured planning consent or have planning applications registered and being assessed by Planning Departments on 11 of the 18 schemes. The first scheme in Grimsby is nearing completion; a scheme in Harwich, which is likely to be the first for AHSL is commencing on site and agreement has been reached to develop a scheme in Nottinghamshire on a partnership basis outside AHSL.

Within Health, work is commencing on our third pathology laboratory, and construction has commenced on a GP surgery in Danbury, Essex. Finally, a GP development in West London secured through one of our LIFT company partners, has been recently handed over to a pleased NHS client.

There has not been any noticeable upturn in NHS approvals for new GP surgeries. GPs across the country have been approached by NHS England in recent weeks seeking applications for projects to spend the £250 million per annum allocated in the next four years. Whilst an impressive number, this is spread across 8,000 GP practices in England and is likely to drive an increase in minor works from which we expect to benefit to some extent, but not the substantial renewal of the primary healthcare building programme that many consider necessary.

Outlook 

Whilst much progress has been made, it has taken longer than the Board anticipated to progress our Extra Care developments due to the time being taken to raise the required funding, which is reflected in the result for the period, the outlook for the rest of the year and in the performance of the share price. We are very grateful to our shareholders for their forbearance.

2014/15 should be seen as a transitional year whilst the platform for the sustained growth of the Extra Care business is completed. The establishment and funding of the property holding vehicle for Extra Care is a significant milestone in the transition to our refocused strategy. The funding raise for that company and in particular the securing of development finance for our growing pipeline is our immediate focus along with the management of cash resources.

The Board continues to monitor and assess the Health market for opportunities arising from recent announcements by NHS England relating to the development of Primary care and GP Surgeries. The election in May will mean that activity with Government bodies, especially contract signings during the run up to the election, will inevitably slow and the Board is therefore expecting that the EBITDA result for the year may not reflect the progress being made.

It is clear however that the Extra Care market is both growing and sustainable over the long term. In addition to all the population predictions, Local Authorities and Government are concerned at the imbalance in housing stock provision for the growing elderly population and a variety of vulnerable and disadvantaged groups. Our belief remains that there is a real opportunity for Ashley House. In order to meet the changing needs of local populations, we have a unique offering of design and build for health and social care infrastructure projects. This strategy together with appropriate financing solutions will drive the business forward and deliver long term value creation and profitable growth.

Christopher Lyons

29 January 2015

* Adjusted EBITDA = EBITDA plus adjustment for exceptional items and tax credit

* In the previous Interim Report for the 6 months to 31 October 2013, the Group recorded a loss of £1,340,000 against the special reserve. In the Group's results reported for the year to 30 April 2014, £60,000 profits earned by subsidiary companies, which had been previously included within the £1,340,000 recorded against the special reserve, were re-classified to retained earnings. The Consolidated Statement of Changes in Equity for the 6 months to 31 October 2013 shown above is restated accordingly.

1 Nature of operations

The principal activity of the Group is the supply of design, construction management, consultancy and asset management services, primarily working with providers of healthcare and social care on infrastructure developments from project inception to completion of construction and beyond.

Ashley House's condensed consolidated interim financial statements (the interim financial statements) are presented in pounds sterling (£), which is also the functional currency of the parent company. These interim financial statements were approved for issue by the Board of directors on 29 January 2015.

The financial information set out in these interim financial statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 30 April 2014 have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498(2) of the Companies Act 2006.

2 Basis of preparation

These interim financial statements are for the six months ended 31 October 2014. They have been prepared following the recognition and measurement principles of IFRS. They do not include all of the information required for full annual financial statement and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 April 2014.

These interim financial statements have been prepared on the going concern basis, under the historical cost convention, except for the revaluation of certain financial instruments which are carried at fair value.

These interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 30 April 2014.

3 Earnings per share

The calculation of the basic earnings per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period.

* Adjusted EBITDA = EBITDA plus adjustment for exceptional items and tax credit.

4 Investments in joint ventures and associates

LIFTCo investment

The Group holds interests in seven NHS LIFT companies (Local Improvement Finance Trust). The exclusivity periods of these arrangements which underpin the value of the investment have a further ten years to run on average.

Impairment

The carrying value of the LIFTCo investment was reviewed at 31 October 2014, and an impairment of £505,000 was recorded. A full impairment review of the LIFTCo investment will be performed prior to 30 April 2015.