Telford Homes Regulatory News (TEF)

Telford Homes Plc

("Telford Homes" or the "Group")

Preliminary Results

Telford Homes Plc (AIM:TEF), the London-focused residential property developer, today announces its preliminary results for the year ended 31 March 2012.

Highlights

Jon Di-Stefano, Chief Executive of Telford Homes, commented:

"Strong sales and higher margins ensured that profits in the year to 31 March 2012 were ahead of expectations. The fundamentals of the London housing market remain robust and our forward sales position includes over 65 per cent of the open market homes expected to complete in the year to 31 March 2013. The Board has previously stated that it expects a substantial increase in profit before tax in the new financial year and this remains the case.

"London, and East London in particular, will soon be firmly in the international spotlight with the longer term benefits of the Olympics already evident in terms of transport infrastructure and new facilities. The Board is looking forward to another year of improving margins, increased profit levels and a major sporting event on the doorstep."

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Copies of this announcement are available from the Group at First Floor, Stuart House, Queensgate, Britannia Road, Waltham Cross, Hertfordshire EN8 7TF and on the Group's website www.telfordhomes.plc.uk.

CHAIRMAN'S STATEMENT

I am pleased to be reporting on another good year for Telford Homes where both sales rates and profit levels have exceeded the Board's expectations. The housing market in London has remained robust, particularly relative to the rest of the country, and the Group's activities are focused on some of the more successful locations within this market.

The Group's open market customers are split between UK buyers, both owner-occupiers and investors, and a continuing level of investment demand from overseas buyers.

Telford Homes' land buying strategy ensures that sites purchased are attractive to the Group's target markets and in locations where we expect sufficient finance to be available for buyers to purchase the homes. The overseas launch of The Panoramic, just north of Canary Wharf, earlier this month proves there is demand in the Far East for the right product in the right location with 44 of the 90 open market homes already sold.

The Group has reached the end of the two year period during which the Board anticipated profits at lower levels, due to the longer term effects of the housing downturn in 2008 and 2009, and Telford Homes is now in a strong position with available finance as well as a healthy development pipeline. This enables the Board to be confident in forecasting a significant increase in profit for the year to 31 March 2013 and continued growth beyond that.

The Board has reaffirmed its intention to pay a progressive dividend year-on-year and as such the final dividend proposed is 1.5 pence making a total of 3.0 pence for the year (2011: 2.5 pence). Looking forward the Board expects to pay around a third of its future earnings in dividends.

After ten years as Non-Executive Chairman David Holland has moved aside for me but will continue to contribute as our senior Non-Executive Director. I returned to the business on 1 January 2012 following a six month break and I have been delighted at the way that Jon Di-Stefano has managed the handover of responsibilities to his new role as Chief Executive and the success the Group has achieved since.

There are some exciting developments in our immediate pipeline and, together with the rest of the Board, I look forward to supporting Jon in the years ahead.

Andrew Wiseman

Executive Chairman

29 May 2012

CHIEF EXECUTIVE'S REVIEW

Telford Homes has exchanged contracts on 460 open market properties in the year to 31 March 2012, an increase of 25 per cent (2011: 368). As in previous years a significant proportion of these sales have been achieved ahead of build completion and there are now more than 400 pre-sold open market homes that will contribute to profit in the new financial year and beyond.

Open market completions

The number of open market properties legally completed in the year to 31 March 2012 increased to 314 (2011: 281). This was ahead of the Board's expectations mainly due to strong sales of finished homes in the last six months of the year. For the last two years the Group has been delivering a lower proportion of open market homes and has been achieving lower than normal margins due to the change in strategy required to protect the business during the downturn in the housing market.

The Board targeted margin improvement during the year and gross and operating profit margins are now moving in the right direction. The gross margin before interest charges and exceptional items has increased to 17.6 per cent (2011: 15.1 per cent) and the operating margin before interest charges and exceptional items has increased to 6.2 per cent (2011: 5.2 per cent). As a result of higher than expected sales and margin improvements, the Group has reported profit before tax and exceptional items up 20 per cent at £3.0 million (2011: £2.5 million).

All of the developments with a greater proportion of affordable housing than usual, and the open market homes achieving lower than expected sales prices as a result of the last recession, have now been substantially completed. As such it is anticipated that there will be an increased number of open market completions in the new financial year and that margins will return to more normal levels. In addition, of the open market homes expected to be handed over to customers in the year to 31 March 2013 over 65 per cent have already been sold. The Board has previously stated that it expects to report a substantial increase in pre-tax profits for the year to 31 March 2013 and this remains the case.

London housing market

The London housing market has continued to outperform the rest of the country and its fundamental strengths, in terms of being a major international centre for finance and business with a growing population and a lack of supply of new homes, suggest this is likely to continue. Not only is the population growing but projections from the Office of National Statistics indicate that 70 per cent of household growth in the next decade will be formed by single person households. The Mayor's London Plan predicts that more than 30,000 new homes are required across the capital each year for the next 20 years. The number of new build starts in London, recorded by the Department for Communities and Local Government, has been consistently below this and less than half of the required number for the last four years.

Whilst some commentators question these dynamics of supply and demand it is clear that, regardless of the inability of some purchasers to access mortgage finance, there is an increasing rental demand that is not being satisfied. As a result, rents in some parts of London rose by more than 10 per cent in 2011.

Open market sales

Where possible the Group will sell open market homes early in the development cycle, typically to investors. These investors are predominantly based overseas but there has also been demand from UK buyers, all of whom are attracted by rental yields of around six per cent.

In April and May of 2011 the Group secured 186 sales at Avant-garde, E1 its joint venture development with The William Pears Group. Of these 62 were to UK buyers. Subsequently some smaller developments have secured sales in the Far East followed more recently by the launch of The Panoramic in Poplar, E14 which took place in Hong Kong and Singapore earlier this month. The Panoramic is a striking 20 storey tower in a strong location just to the north of Canary Wharf and, as a result, 44 of the 90 open market homes have already been sold. Completions are due in late 2013. Selling nearly half of this development at this stage is a great achievement given current economic concerns across Europe and confirms that London is still regarded as a safe haven for overseas investment.

Alongside these successful overseas marketing campaigns a significant proportion of the Group's sales remain in the UK and particularly to owner-occupiers. Over 50 per cent of the open market homes completed in the year to 31 March 2012 were sold to UK buyers. There have been strong sales recorded across all of the Group's developments during the year, particularly at Bow Trinity, E3, Greenwich Creekside, SE8 and Matchmakers Wharf, E9 amongst others. All nine homes, including detached houses, at Wingfield Mews in Hendon have been sold and completed in the year and at High Cedars in Wanstead 15 out of 24 homes are already sold three to four months ahead of build completion. Additionally, there is now just one finished apartment left for sale at Queen Mary's Gate in Woodford compared to 70 at the start of the financial year.

Tight mortgage availability restricts demand from potential owner-occupiers and particularly first time buyers. Although there was some improvement in the last year, mortgage lending is still at very low levels and whilst this is unlikely to get much better in the short term, it seems equally unlikely that the situation will get any worse. Lenders continue to discriminate against new build properties by requiring higher deposits. The new Government backed 95 per cent mortgage product 'NewBuy' should assist some purchasers but the Group will monitor the level of success the scheme enjoys before deciding whether to join at a later date. The Board has ensured that the Group's land acquisitions have been in locations that appeal to owner-occupiers with greater levels of equity available, sometimes sourced from extended family, and investors that are seeking a return on their equity and are funding their purchases at lower loan to value ratios.

Partnerships and affordable housing

Despite a return to constructing a more normal proportion of open market homes, affordable housing remains a significant and important part of the business. In the year to 31 March 2012 the Group completed 542 affordable homes, handing them over to its various partners, and as a result has received the vast majority of its 2008-2011 grant allocation from the Homes and Communities Agency (HCA). The HCA in London has now become part of the Greater London Authority (GLA) and the Group has secured a grant allocation in the new 2011-2015 programme which will primarily assist the delivery of estate regeneration schemes expected to commence in the next few months.

The funding regime for affordable housing underwent significant change in the last year and this led to uncertainty in modelling the expected value of affordable homes for all concerned. As the sector has got to grips with the new regime, the Group has developed a clear understanding of the value of affordable homes to be delivered at various rent levels, including the new 'affordable rent' model where rents are charged at a proportion of market levels. In assessing these values, the Group has forged new relationships with some major housing associations keen to embrace the new funding model. This is an important aspect of remaining competitive in land acquisitions.

Land acquisition

During 2011 the Board reviewed its land acquisition strategy and as a result made some small changes to the Group's area of operation. The focus of the Group's land buying remains predominantly in East London but is now concentrated on the areas in and around the City and Canary Wharf where demand is stronger and less reliant on mortgage constrained buyers. These areas are also benefiting from transport improvements as a result of the Olympics, the £16 billion investment in Crossrail and new facilities such as the Westfield shopping centre in Stratford.

As a result of reducing the scope for acquisition in the outer boroughs of East London, the Board has widened its focus into adjoining areas of North and Central London where higher priced properties are in demand both from investors and owner-occupiers. The Group has purchased its first development site in Lambeth, near the Albert Embankment, to provide 101 homes in a new 24 storey tower and also acquired its first site in the London Borough of Camden.

It is highly likely that this change in focus will increase the average price of the properties being developed by the Group in the next few years. In the year to 31 March 2012 the average price of the open market homes sold was £339,000, a significant increase on £259,000 last year. However this was heavily influenced by the sales achieved at Avant-garde which has a much higher price point and excluding this development the average price of the remaining sales was £266,000.

In total Telford Homes has agreed to acquire nearly £50 million of new land opportunities since securing a long term bank facility in March 2011. All of these acquisitions have been purchased on the basis of an appropriate expected profit margin and return on capital. The majority have a full planning consent or are contracted subject to achieving a satisfactory consent and all of them are on 'brownfield' land. The Group has, and will, purchase smaller sites without a planning consent where the risk of not achieving a consent is assessed to be very low. Despite excellent relationships within the Group's area of operation the planning environment remains challenging and, whilst any attempts to improve this are welcome, it remains to be seen what impact the new 'National Planning Policy Framework' will have. Telford Homes has secured some significant planning consents in the last year, including estate regeneration schemes, and these can only be achieved by continuous engagement with both the local authority and the local community.

The development pipeline at 31 March 2012 included 1,969 properties (2011: 1,904 properties) of which 1,949 have a detailed planning consent. This total includes sites under option contracts within the control of the Group. There are 1,487 properties under construction with the remainder expected to commence within the next year. As the business returns to a more normal mix of open market and affordable housing, the balance of the pipeline is changing. The number of open market homes has increased to 1,677 compared to 1,338 last year. In total the development pipeline is expected to deliver more than £100 million of gross profit over the next four years.

Operations

The Board has always taken great pride in the quality of construction undertaken by Telford Homes and the level of customer service the Group provides. This year that quality was recognised with four NHBC 'Pride in the Job' awards and Greenwich Creekside went on to achieve the honour of winning the national NHBC 'Pride in the Job Supreme Award' in the multi-storey category. In addition, for the second successive year, more than 97 per cent of the Group's customers would recommend Telford Homes to others and this demonstrates both the quality of the product and the service the customers receive at the point of sale, on handover and beyond.

Despite the cost of changes in building regulations and the Group's own efforts to remain as environmentally friendly as possible there have been some significant cost savings identified in the last year which are helping to improve margins both now and going forward. In addition the Health and Safety record of the Group was once again excellent this year with only a small number of accidents, well below the industry average.

It has been a year of some changes in terms of the Board of Telford Homes. I remain delighted to have been given the chance to build on the decade of success already behind us and to help take the Group forward as Chief Executive. I am particularly grateful to Andrew Wiseman for providing me the space to take on the challenge but equally I am pleased to have his support and continuing guidance as Executive Chairman. We have also welcomed Katie Rogers and David Campbell to the Board during the last year. Katie has built on her previous roles within Telford Homes to take full control of the financial side of the business and the key banking relationships. David has been a more recent appointment as Group Sales and Marketing Director but has already achieved some excellent results and has the necessary experience to build on the strong platform that his predecessor, Sheena Ellwood, left behind.

The Group has taken on an in-house legal department during the year and the Board has welcomed the contribution already made by Richard Ellis as Director of Legal Services, along with his team. The ethos of Telford Homes remains largely unchanged and employee retention rates are high due partly to a supportive environment but also to the quality and dedication of each employee.

Current trading and outlook

The strong sales performance in the year to 31 March 2012 has continued into the first few months of the new financial year. Coupled with recent overseas success, both visitor numbers and reservation rates from UK buyers have been well ahead in the first few months of 2012 compared to 2011.

The Board will continue to monitor the economic situation to be aware of any change in sentiment but the fundamental strengths of the London housing market and the Group's forward sales position are reasons to be positive. East London will soon be firmly in the international spotlight and the longer term benefits of the Olympics are already evident in terms of transport infrastructure and new facilities. The Board is looking forward to another year of improving margins, increased profit levels and a major sporting event on the doorstep.

Jon Di-Stefano

Chief Executive

29 May 2012

FINANCIAL REVIEW

Telford Homes has had a successful year exceeding expectations in terms of profits and sales. As a result of improving profit margins, increasing open market output and pre-sales already secured, a substantial increase in profit before tax is expected in the year to 31 March 2013. The Group's corporate banking facility has enabled it to invest heavily in land in the year and together with equity, this facility ensures that Telford Homes has funding available to develop existing sites and invest in more land, facilitating further growth in the future.

Operating results

Revenue increased to £124.4 million (2011: £121.1 million) with gross profit before exceptional items of £18.9 million (2011: £15.4 million). Gross profit is stated after expensing loan interest that has been capitalised within inventories of £2.9 million (2011: £2.9 million) and before charging this interest the gross margin in the year was 17.6 per cent compared to 15.1 per cent last year.

The increase in revenue is due to a greater volume of open market completions partially offset by a reduction in the level of affordable revenue. During the recession, the Group switched a number of developments to affordable housing and as a result the output of the Group became more heavily weighted towards affordable homes than in pre-recession years. Most of the affected developments completed during the year to 31 March 2012 and the Group expects to return to a more normal output going forward as new sites are acquired with a traditional mix of housing, usually around two thirds open market and one third affordable.

The improvement in gross profit margin is driven by a greater proportion of the completions in the year being at developments less affected by the housing downturn compared to the prior year together with build cost savings. The operational teams continue to monitor and control development costs with a focus on identifying cost savings wherever possible and significant build cost savings have been achieved, some of which were recognised in the year to 31 March 2012 with the remainder to be recognised in future years.

Administrative expenses have increased to £10.6 million (2011: £9.3 million) essentially due to higher employee costs. Employee numbers have gradually risen over the last 18 months, necessary to manage the growing level of construction activity and resulting support services required, which in turn will deliver higher output levels in the future. The year to 31 March 2012 was the busiest since Telford Homes was formed with 1,769,707 man-hours recorded across the business compared to 1,456,837 in 2011. Additional employee and administrative costs were incurred in relation to the set-up of the in-house legal department recruited in the year which reduces external legal costs and will result in a net benefit to the Group in future years.

Selling expenses have risen in the year from £2.7 million to £3.5 million broadly in line with the increase in contracts exchanged in the year. A proportion of the selling expenses incurred in the year were in relation to successful launches of new developments. These launches generated a significant number of pre-sales of homes which are scheduled to complete, and therefore deliver profits, in future financial years. However the accounting treatment for selling expenses is that they must be expensed as incurred even though profit recognition from any sales is when the property legally completes, which can be a number of years later.

Despite this, the operating margin before exceptional items and interest increased to 6.2 per cent compared to 5.2 per cent for the year ended 31 March 2011. Profit margins are expected to continue to improve back to more normal levels in the year to 31 March 2013.

Finance costs

Finance costs incurred in the year have increased to £4.9 million from £2.7 million. This is comprised of £3.1 million (2011: £1.6 million) of interest capitalised into work in progress and £1.8 million (2011: £1.1 million) of finance costs charged directly to the income statement, predominantly non-utilisation fees, arrangement fees and hedging costs.

The increased finance costs were anticipated as the corporate banking facility attracts a higher rate of interest compared to previous borrowings being LIBOR plus a margin of 3.5 per cent and also non-utilisation fees at 1.75 per cent. Additionally, the arrangement fee is being expensed over the life of the facility and therefore £232,000 has been charged in the year to 31 March 2012.

For the first time, the Group has taken out some protection against future interest rate rises in the form of interest rate caps. Although the Board does not believe significant rate rises are likely in the near future the cost of interest rate protection has been quite low for the same reason and as such it is worth investing a small amount to protect the business and ensure that interest cover covenants remain achievable. The interest rate caps are individually fair valued at each period end with any movement in the value being charged or credited to the income statement and this has resulted in some hedging costs in the year to 31 March 2012.

The Board believes the security of having longer term bank funding outweighs the increased finance costs in the year and considers the rates being charged are competitive in the current market.

Dividend

The Board has proposed a final dividend of 1.5 pence which, together with the 1.5 pence interim dividend paid on 13 January 2012, makes a total dividend for the year of 3.0 pence, a 20 per cent increase compared to the prior year (2011: 2.5 pence). This increased dividend is in line with the Board's stated intention of paying a year-on-year progressive dividend. The final dividend is expected to be paid on 20 July 2012 to those shareholders on the register at the close of business on 22 June 2012.

Balance sheet

Net assets at 31 March 2012 were £66.2 million, increased from £64.7 million last year. This is equivalent to net assets per share of 133.7 pence (31 March 2011: 132.1 pence).

Cash balances at 31 March 2012 of £12.4 million remain relatively high although down from £18.8 million last year. At 31 March 2011, £6.1 million of the cash balance related to grant monies held for future expenditure on specific sites. This has been fully expended in the year on the relevant sites and therefore the cash balance at 31 March 2012 is freely available for operational purposes. Since 1 April 2011, final grant tranches totalling £21.3 million have been received on the completion of specific affordable housing units.

Cash management and cash flow forecasting

Control of cash remains important to the Group and a detailed month-by-month cash flow forecast is maintained as part of the management information system. This enables continuous monitoring of the forecast and actual cash flows over a five year period. The forecasts are necessarily subject to a number of assumptions and judgements and these are regularly analysed for reasonableness. The forecasts are reviewed by the Board in detail on a monthly basis.

The Group has invested heavily in land since 1 April 2011 and has purchased or committed to spend £47 million on new site acquisitions. Significant cash inflows are expected over the coming months from a high volume of open market completions on recently finished developments and a number of these are on developments where the loan has already been repaid in full from completions to date. The Group remains active in the land buying market and will continue to reinvest the equity of the business, together with the headroom in the corporate facility, into new developments.

Borrowings

Gross borrowings at 31 March 2012 were £67.6 million (31 March 2011: £64.9 million) and net debt was £54.6 million (31 March 2011: £46.1 million). At 31 March 2012 gearing was 82.4 per cent (2011: 71.2 per cent). The Board monitors 'uncovered gearing' which excludes debt which would be repaid by the value of contracts already exchanged on each development. Uncovered gearing is significantly lower than actual gearing at 37.9 per cent due to our success in pre-selling properties (31 March 2011: 24.0 per cent).

As expected, borrowings, net debt and gearing have increased year-on-year due to utilisation of the new corporate bank facility. Since 1 April 2011, loan repayments of £61 million have been made from open market residential sales proceeds and loan drawdowns against site acquisitions and development costs total £64 million.

All developments, with the exception of Greenwich Creekside and Avant-garde, are funded by the corporate facility provided by a club of three banks being The Royal Bank of Scotland, HSBC and Santander which extends to 30 September 2014. At 31 March 2012, Telford Homes had utilised £46 million of the facility leaving an unutilised balance of £24 million. Funds are advanced at 60 per cent of cost and site specific funding under the overall facility umbrella is repaid from the first 65 per cent of the open market residential proceeds on each site. The facility includes a number of site specific loan to value covenants along with corporate covenants concerning net asset value, gearing and interest cover. The Board monitors performance against these covenants on a monthly basis and has had no issues in relation to compliance.

In addition to the corporate facility, Telford Homes (Creekside) Limited, a wholly owned subsidiary has a loan facility with The Royal Bank of Scotland in relation to its Greenwich Creekside development. The development is now complete in terms of construction and to date over £47.0 million of the original £57.7 million facility has been repaid from sales proceeds.

Bishopsgate Apartments LLP, a joint venture with The William Pears Group signed a £43.1 million loan facility with HSBC in July 2011 to fund the development of Avant-garde. William Pears became the new joint venture partner to Telford Homes in Bishopsgate Apartments LLP in May 2011 when they purchased a 50 per cent interest from Genesis Housing Group. The new facility was partially used to refinance the existing £15 million land loan with Allied Irish Bank with the balance available to fund development costs over the course of construction.

At 31 March 2012, Bishopsgate Apartments LLP had utilised £19.8 million of this facility leaving an unutilised balance of £23.3 million. The loan is repayable by September 2014 and interest is charged at LIBOR plus a margin of 3.5 per cent.

Together these facilities ensure that the Group has sufficient bank finance available for all existing schemes and headroom within the corporate facility to purchase and develop new sites over the next few years.

Katie Rogers

Financial Director

29 May 2012GROUP INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2012

All activities are in respect of continuing operations.

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2012

GROUP BALANCE SHEET

AT 31 MARCH 2012

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2012

GROUP CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 MARCH 2012

NOTES

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