Telford Homes Regulatory News (TEF)

Telford Homes Plc

('Telford Homes' or the 'Group')

Interim results for the six months ended 30 September 2013

Telford Homes Plc (AIM:TEF), the London focused residential property developer, today announces its interim results for the six months ended 30 September 2013.

Highlights

Jon Di-Stefano, Chief Executive of Telford Homes, commented: "During the period Telford Homes has achieved an impressive rate of sales and has secured significantly higher profit margins, resulting in growth that has been ahead of market expectations. The market in inner London remains buoyant and exceptional demand has been experienced at many of the Group's developments.

"The Board is actively working to increase the Group's development pipeline following the placing to raise £20 million in June 2013. Land is currently being acquired ahead of our forecasts and this is expected to lead to a quicker investment return on the new equity. Significant land acquisitions include two new developments in the centre of Stratford near the Olympic Park and the Westfield shopping centre. In total the Group's development pipeline has increased by 23% in the last six months.

"Telford Homes has excellent visibility over future profits and, to reflect the Board's confidence in the market and our strong development pipeline, we are pleased to increase the interim dividend by 85% to 3.7 pence."

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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.plc.uk.

CHIEF EXECUTIVE'S STATEMENT

Telford Homes has continued to perform ahead of expectations with the strength of the inner London housing market leading to an impressive rate of sales and significantly higher profit margins. The Board is confident that a long term imbalance between supply and demand for the typical Telford Homes product will underpin the Group's growth plans and the £20 million of equity raised in June 2013 is already being utilised to increase the development pipeline.

Results for the six months ended 30 September 2013

In contrast to last year the results for the year to 31 March 2014 are expected to be weighted towards the second half with a greater number of open market completions due in that period. These include the first completions at Avant-garde, the Group's joint venture development in Shoreditch, which will deliver an exceptionally high margin. The number of open market completions in the six months to 30 September 2013 was 225, down from 256 last year. The number for the full year to 31 March 2013 was 374.

Due to the timing of completions revenue has reduced slightly to £73.7 million (H1 2012: £78.3 million); however a combination of price inflation and continued cost control has resulted in gross profit increasing to £20.0 million (H1 2012: £16.8 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 2013 was 28.6 per cent, substantially ahead of the 24.3 per cent reported for the year to 31 March 2013.

House price inflation in London during the period has been well documented, as has a fundamental lack of supply, and accordingly the Group has experienced exceptional levels of demand for some of its developments. This demand has moved prices well ahead of those assumed at the time the land was purchased, 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.

Administrative expenses and selling expenses have both increased on the same period last year, the former as a result of employee costs and the latter due to the continuing success of the Group in selling its homes. Selling expenses are written off as incurred although the profit from homes being sold ahead of completion will be recognised in future years. A proportion of the total cost of £4.5 million (H1 2012: £3.7 million) is therefore effectively being invested in the Group's future profit growth. In line with the significant increase in gross margin, the operating margin before charging any interest has improved to 13.2 per cent from 9.7 per cent in the year to 31 March 2013. Given the forecast completions at Avant-garde in the second half of the year the Board expects to report further margin improvements for the full year to 31 March 2014 with the operating margin anticipated to be in excess of 15 per cent.

Net finance costs have increased to £0.9 million (H1 2012: £0.5 million) due to arrangement fees and non-utilisation fees associated with the increase in the Group's corporate facility to £120 million which was concluded in April 2013.

Profit before tax for the first six months of the year has increased to £7.7 million against £6.5 million for the same period last year and £9.0 million for the year to 31 March 2013. The Group reported on 15 October 2013 that it anticipated profits for the year to 31 March 2014 would be significantly ahead of market expectations at that time, and the Board is pleased to confirm that the Group remains on track to deliver a substantial increase in profits for the year.

Dividend

The Board is pleased to declare an 85 per cent increase in the interim dividend to 3.7 pence per share (H1 2012: 2.0 pence). The interim dividend, together with the full year dividend payable in July 2014, 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 10 January 2014 to those shareholders on the register at the close of business on 13 December 2013.

Sales

The Group has maintained a strong rate of sales with contracts exchanged on 341 open market properties in the six months to 30 September 2013 (H1 2012: 218) at an average price of £373,000, up from £353,000 for the year to 31 March 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. Including properties sold, subject to contract, the number of open market sales in the year to date is in excess of 450.

The Group's business model revolves around the fundamental strengths of London including a robust micro-economy, international reputation and a fantastic transport network. In addition London is suffering from a significant shortage of homes when compared to current demand let alone future population growth and although the supply of new homes is increasing it is unlikely to get anywhere near the estimated 40,000 plus that are required each year.

Demand has clearly been boosted in recent months by an increase in the availability of mortgage finance, with a combination of higher loan to value products and more affordable interest rates. While the government's 'Help to Buy' initiative is invaluable in some locations it is not as widely required in inner London and as a consequence Telford Homes is yet to make a single sale under this scheme or any of its predecessors. All of the Group's sales to date are to owner-occupiers who do not want or need very high loan to value mortgages or to investors who do not qualify for the schemes. The Group is therefore in a strong position where its current customers are not reliant on a scheme that is expected to have a finite life.

Given an improved economic situation and greater availability of finance at higher loan to values it is unlikely that the ability to 'own your own home' in London will get much better than it is at present, and yet still the demand for rented accommodation is incredibly high with numerous potential tenants for some properties. This is a function of the overall imbalance between supply and demand for homes and the fact that many people wishing to live in London still cannot afford to buy or simply do not want to buy. The proportion of people renting versus owning in London is likely to continue rising in the future but this will make it no different to many other global cities.

In order to increase the supply of homes in general, particularly for prospective tenants, investors in homes to be rented out are a vital part of the London market. Where the Group's developments have already been completed the homes sold to investors are being let to tenants, they are not standing empty. Telford Homes will continue to market its homes to both UK and overseas investors, however the Group will ensure that any properties being sold overseas are available to UK based buyers at the same time and on the same terms. The Group's open market sales in the year to date are well balanced between its typical markets with 34 per cent sold to owner-occupiers, 29 per cent to UK based investors and 37 per cent to overseas investors.

The last few months have seen several successful sales launches including Horizons near Canary Wharf where 113 of the 131 open market homes have already been sold. A third of these sales were secured in the UK where investment demand has increased in recent months and the remainder were sold in the Far East, including a significant number in China. Completions at Horizons are expected between winter 2016 and spring 2017. This success followed the launch of Lime Quay, E14 earlier in the year where 49 of the 60 open market homes have been sold to a similar mix of buyers.

The Group's sales outlets have continued to see exceptional demand from both owner-occupiers and UK investors even though the developments are being marketed a year or more ahead of completion. This includes regular sell outs of limited new releases at Bow Trinity, E3 and The Boatyard, E14 and consistent sales of the residual availability at several other developments. There are several development sales launches planned for 2014 and Telford Homes will continue to build on an increasingly international brand with a reputation for high quality finished product in well-connected, affordable, inner London locations.

Development pipeline

The Group has been able to substantially increase its development pipeline over the last few months following an oversubscribed share placing in June 2013 which raised £20 million of new equity. At the time of this placing the Group anticipated allocating the proceeds over the course of one year and then taking up to a further year to secure planning consents on sites purchased subject to planning. Acquisitions to date are broadly ahead of this schedule which is expected to lead to a faster investment return on the new equity.

Some of the more significant acquisitions over the last few months include two new developments in the centre of Stratford. The Group has sold all 198 open market apartments at its Stratford Plaza development and has received multiple enquiries regarding any remaining availability or similar developments for the future. The first of the new sites is known as Broadway Chambers which has been acquired with planning consent for 342 homes across two buildings, the tallest of which is 36 storeys. The second site is on Angel Lane and forms part of Westfield's redevelopment of the area adjacent to its shopping centre. It has been acquired subject to planning and is expected to provide 181 homes. The Group has made other significant purchases subject to planning including around 180 homes on Limeharbour, Isle of Dogs and 158 homes on Caledonian Road near Kings Cross.

The Group has also continued to pursue and acquire smaller sites with a quicker capital turnaround from a combination of affordable housing and stock transfer partners, local authorities and private owners. Some of these sites are being purchased subject to planning and some unconditionally without planning but only when the Group is confident of achieving a satisfactory consent. This includes a site for circa 35 homes on Hornsey Road in Islington which the Group recently acquired within 10 days of first being introduced to the owner. Telford Homes now has the financial ability to move quickly to acquire attractive sites in a competitive market and this gives the Group a distinct advantage.

The Group has an excellent track record in obtaining planning consents in a challenging environment. 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 in buying land without planning or subject to planning. The Board is pleased to report that there have been a number of successes in the last few months including permission to build 47 homes and a new church in Frampton Park, Hackney and, with the help of the Mayor of London, to build 101 homes and a new school on Beechwood Road, Dalston. Both developments are expected to commence next year and should be completed in spring 2016 and autumn 2016 respectively.

In total the Group's development pipeline has increased by 23 per cent in 6 months to 2,790 properties at 30 September 2013 (31 March 2013: 2,260 properties) and 2,263 of these already have a planning consent (31 March 2013: 1,873).

Cash and borrowings

Despite the Group's increased development pipeline a number of the new sites have been purchased subject to planning with the actual cash and debt commitment therefore being deferred. As a result cash balances are particularly high at 30 September 2013 at £55.2 million (31 March 2013: £23.7 million) with the majority of the placing funds adding to significant receipts from sales deposits and completion proceeds. The Group completed on the purchase of Broadway Chambers for £17.5 million in October 2013.

Borrowings have reduced to £46.0 million (31 March 2013: £58.1 million) and Telford Homes is therefore in a net cash position at 30 September 2013 of £9.1 million (31 March 2013: net debt of £34.4 million) with reported gearing therefore being zero for the first time in the Group's history (31 March 2013: 47.3 per cent). The Group's increased banking facility of £120 million currently has significant headroom available within it and net debt and gearing are expected to increase over the next 18 months as more land is acquired, planning consents are achieved and construction continues.

Outlook

Telford Homes is developing in locations where prospective purchasers both want to live and can afford to live and that will continue as the Group further enhances its development pipeline. The business has been going from strength to strength with ongoing sales success, higher margins and increasing profits and this performance is underpinned by particularly strong demand for homes in London which is in excess of the current supply.

The Group is now 100 per cent sold in terms of the open market homes expected to legally complete in the year to 31 March 2014, over 80 per cent sold for 2015 and over 60 per cent sold for 2016. Together with affordable housing contracts this represents future revenue secured beyond 30 September 2013 in excess of £370 million.

This forward sales position enhances visibility over future profits and, given the current London market and plans for further investment in the development pipeline, the Board is very confident of the prospects and growth potential for Telford Homes over the next few years.

Jon Di-Stefano

Chief Executive

26 November 2013

GROUP INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013

GROUP BALANCE SHEET

AT 30 SEPTEMBER 2013

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013 (UNAUDITED)

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012 (UNAUDITED)

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2013 (AUDITED)

GROUP CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2013

NOTES

6 Borrowings

On 26 April 2013 the Group signed a new £120 million facility which extends to 30 September 2016 with the same three banks that provided the prior facility being The Royal Bank of Scotland, HSBC and Santander.

7 Equity issue

On 2 July 2013 the Company issued 8,000,000 Ordinary shares at 250p as a result of a share placing.

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