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 2013.

Highlights

Commenting on the Preliminary Results, Jon Di-Stefano, Chief Executive of Telford Homes, said: "Telford Homes has trebled profit before tax for the year to 31 March 2013 and experienced exceptional levels of demand in recent months. The Group has already sold 99 per cent of the open market properties expected to be completed in the year to 31 March 2014 and more than 50 per cent for each of the following two years.

"The business is in an excellent position with increasing margins, a significant development pipeline, enhanced financial strength and an unprecedented level of pre-sales all underpinning the Board's expectations of substantial profit growth in the next three years."

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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 the Group's website www.telfordhomes.plc.uk.

CHAIRMAN'S STATEMENT

Once again Telford Homes has exceeded the Board's expectations for both sales performance and profit levels. Strong demand from people who want to buy or rent in London has led to unprecedented sales success and the Group now has a significant forward sold position that provides an excellent platform for growing the business over the next few years.

Securing sales well ahead of build completion enables the Group to control its exposure to risk and therefore add to the development pipeline with further site acquisitions in areas that are known to be in demand. The Group's land buying strategy has remained the same with a focus on increasingly desirable locations in inner London. The Group has now acquired its first site, subject to planning, in the London Borough of Islington and is therefore continuing to mix its East London heartland with other up and coming or established areas.

The Group is always looking for opportunities to secure development land in the future and as such the Board is delighted to announce that Telford Homes has been appointed to the Greater London Authority's (GLA) London Development Panel (LDP). This panel has been established to support the delivery of housing and housing led development in the capital and to act as the procurement tool for the GLA in bringing forward development across its substantial land portfolio.

The GLA expects over £5 billion of development to be delivered though the LDP and in addition it will be available to other public sector landowners such as local authorities, housing associations and government departments. The development of sites in public sector ownership is one of the keys to addressing the chronic shortage of housing in London.

The Board has maintained its intention to pay a third of the Group's earnings each year in dividends. As a result the final dividend proposed is 2.8 pence making a total of 4.8 pence for the year (2012: 3.0 pence). The Board expects significant growth in earnings over the next three years and does not foresee a change in the dividend policy during that time.

The Board believes that there are many reasons to be positive about developing in London and the future for Telford Homes. Given the forward sales position, the healthy development pipeline and the performance of the management team, I look forward to reporting further success for the Group in the years ahead.

Andrew Wiseman

Chairman

28 May 2013

CHIEF EXECUTIVE'S REVIEW

Telford Homes has experienced exceptional levels of demand in recent months and the Group exchanged contracts for the sale of 803 open market properties in the year to 31 March 2013 (2012: 460). Nearly 600 of these were sold in the last six months of the year. Since 1 April 2013, a further 183 properties have had contracts exchanged or have been sold subject to contract. As a result the Group has already sold 99 per cent of the open market properties expected to be completed in the year to 31 March 2014 and more than 50 per cent for each of the following two years. This is an extremely strong position from which to start the new financial year and it enables the Board to be more aggressive in utilising the Group's capacity to undertake more developments in the future.

Increasing margins and profits

Strong demand for the Group's product also extended to those developments that finished during the year and as a result open market completions were ahead of expectations, and the previous year, at 374 (2012: 314). The Board is delighted to report that the Group currently has no finished homes that remain unsold, often referred to as stock units, for the first time in many years.

For the last two years the Group has focused on improving both its gross margin from development and its operating profit margin. A return to a more traditional mix of open market and affordable housing has assisted this but has been far outweighed by the impact of sales prices being achieved in excess of targets and close control of build costs. The gross margin before interest charges has increased by 6.7 percentage points to 24.3 per cent (2012: 17.6 per cent) and is now in excess of the Group's normal target margin when acquiring land. The operating margin before interest charges has increased to 9.7 per cent (2012: 6.2 per cent) tempered only by a significant increase in selling expenses caused by the cost of successful overseas marketing campaigns and agents commission on the greater number of contracts exchanged in the year.

Open market completions being ahead of expectations, together with significant improvements in margins have contributed to a trebling of profit before tax to £9.0 million (2012: £3.0 million). The Board anticipated a substantial increase in profits but this result has exceeded even those expectations. Given the very strong forward sold position the Board can confirm that it expects to report another substantial increase in pre-tax profits for the year to 31 March 2014 with further growth beyond that.

Sales performance

The Group's strategy is to secure sales early in the development process where this is both practical and possible. This strategy brings in early cash receipts from deposits and reduces the Group's exposure to risk.

The Group's core market is made up of two different types of customer being investors, based overseas or in the UK, and owner-occupiers. Whilst investors and owner-occupiers have different demands and different reasons for buying they are similar in terms of a desire to own a property in a location that has good transport links and provides long term value. This applies perfectly to the inner London locations in which Telford Homes is developing. The level of demand from overseas purchasers is well documented but Telford Homes is experiencing strong demand from both investors and owner-occupiers. Although the Group has undertaken a number of high profile overseas launches, with results well ahead of expectations, over 60 per cent of the sales in the year to 31 March 2013 were to UK buyers.

Overseas customers primarily attend launch events held in Hong Kong, Singapore and Malaysia. These events are held in hotels over a weekend and involve significant investment in terms of marketing materials and advertising. The Group carefully selects the developments that are launched overseas based on specific location, building design and expected rental yields to maximise the chance of a successful event.

In the year to 31 March 2013 the Group sold several major developments to the investor market, primarily overseas, but with increasing interest from investors in the UK. These developments included Stratford Plaza, near the Westfield shopping centre, where all 198 open market homes were sold and Parliament House, near Westminster, where 70 of the 73 open market homes have been sold. More recently in March 2013 the Group sold 110 of the 128 open market homes on its Cityscape development in Aldgate. All of these developments are due to be completed in the 2015 calendar year. The Group's investor customers are buying in order to let their properties when completed and therefore the homes they buy are still addressing the shortage of supply for those who want to live in London.

The rate of sales to owner-occupiers has been exceptional in the last few months through on-site sales centres and, where this is not possible, through local agents. At Bow Trinity, near Mile End, the Group expected to sell one home per week to a mix of owner-occupiers and investors and yet in the first few months of 2013 was often achieving more than ten sales per week. As a result, the Group has sold out of the 204 apartments released for sale on this development since opening a sales centre in September 2011. The final two apartment blocks will be launched later this year. In addition the Group has sold out at Greenwich Creekside, the St Georges Estate and The Panoramic and only has two apartments left for sale at Avant-garde. In late April 2013 the Group also launched Abode, a small development of 14 apartments in Bow, and has already sold 12 of these homes.

At these levels of demand there is inevitable upward pressure on prices and the Group has been able to exceed its price targets at every development in the last few months. The average price secured for the open market homes exchanged in the year to 31 March 2013 was £353,000, up from £339,000 last year. The different developments sold in each year have the most effect on this average and therefore it is not an indicator of the underlying price movement. The Board estimates that price inflation in the Group's core areas has been in excess of five per cent over the last 12 months with variations between specific locations.

The London housing market and mortgage finance

The Board monitors demand and price trends, along with statistics predicting future demand and supply in London, in order to assess land acquisitions and set its strategy for the growth of the business.

Rental demand for the Group's homes that have been purchased by investors remains very high with rising rent levels and limited voids. The increasing popularity of developing for the private rented sector is encouraging and yet institutional investment in this market is not that different to the Group's existing experience of individual investors purchasing each of the homes across a development. The finished homes end up in the rental market regardless of who owns them. Housing associations have become more involved in the private rented sector and this is a natural development given their experience of managing large numbers of homes. One of the remaining obstacles to institutional investment in the sector is their high target rate of return whilst housing associations are able to take a more balanced view of this. During the year to 31 March 2013 the Group sold two small developments, of 35 homes in total, to housing associations specifically for private rent.

The availability of mortgage finance at reasonable loan to value percentages and more affordable interest rates has been gradually improving over the last few months and this trend seems likely to continue. This has been particularly helped by the government's 'Funding for Lending Scheme'. In addition there have been a number of government inspired schemes to assist those who cannot afford the deposit typically required to access mortgage finance. The latest of these is the recently announced 'Help to Buy' scheme which will make a fundamental difference to many prospective homebuyers across the country. Whilst the Board anticipates that Telford Homes will join the Help to Buy scheme in London it has not done so to date and has not needed to participate in any of the previous government initiatives. It is therefore important to note that the exceptional demand the Group has reported in the last few months has been achieved without any government assistance.

Despite the efforts being made to increase supply, it is unlikely that the number of new homes built over the next few years will be able to keep pace with the number required in London given expected population growth and the existing shortage. This fundamental issue underpins the Board's plans to significantly increase the Group's contribution to the supply of new homes in London over the next few years.

Partnerships and affordable housing

Affordable housing accounts for around a third of the homes on each development. The relationships and partnerships that Telford Homes has forged in the sector over many years have proved to be vital in securing best value for new affordable housing and sourcing land opportunities. The Group's grant partnership with the Homes and Communities Agency and then the Greater London Authority (GLA) has resulted in over £75 million of external funding coming into the business to subsidise the construction of 639 affordable homes. In some areas this funding has also enabled regeneration work to take place on existing homes and the wider neighbourhood around the Group's new developments including Bow Trinity and the St George's Estate.

Many of the Group's development sites have been sourced from local authorities, housing associations and housing transfer organisations and the Group's appointment to the GLA's London Development Panel should ensure that Telford Homes continues to be in a position to acquire and develop land currently in public sector ownership.

Land acquisition and planning

Telford Homes has always been a London developer buying land where the opportunities exist and where there will be a market for the finished product. The Group is focusing on areas of inner London because it expects demand to remain strong in those locations, both from investors and owner-occupiers, over the next few years. The Board will remain opportunistic and acquire sites which will appeal to buyers looking for attractive developments close to excellent transport facilities.

During the year the Group has purchased, or agreed to purchase, a number of new sites and many of these have been acquired subject to receipt of a satisfactory planning consent. The Group will buy land without planning but, where there is some uncertainty regarding the outcome, a conditional purchase reduces exposure to risk. There have been some significant planning successes in the last year including permission for 131 open market homes and 59 affordable homes in a 26 storey tower at Yabsley Street near Canary Wharf and 150 new homes on the edge of Bartlett Park, E14, in partnership with two housing associations, Poplar HARCA and East Thames. The Group has excellent knowledge of the planning requirements within its area of operation, engages early with the local community and has strong relationships with the relevant authorities. All of these factors put Telford Homes in the best possible position to secure good planning permissions.

The Group's development pipeline at 31 March 2013 had increased to 2,260 properties (2012: 1,969 properties) and based on current forecasts this will produce total revenue in excess of £650 million. Currently 1,855 of the properties in the pipeline are either under construction or in detailed design and, including affordable housing contracts, over 1,300 of these have already been sold.

Operations

The more land that is added to the development pipeline and the more sales success that is achieved, then the more important becomes the Group's ability to complete the construction of its developments. The business has been structured to ensure that the process of design, construction and delivery of new homes is managed correctly and to produce first class developments that are everything a Telford Homes customer expects.

The Telford Homes brand is about the consistent delivery of high quality, desirable new homes backed up by a dedicated Customer Service team, providing product finish and service that is second to none. This focus on product and service is why, of those responding to an independent survey, 99.5% of the Group's customers who took ownership of a property in 2012 would recommend Telford Homes.

The Group could not achieve the success it has sustained over many years without its loyal and dedicated employees. The business has a very low staff turnover rate and tries to ensure that every person who works for the Group feels that they are an integral part of Telford Homes. This ethos will be even more important as the Group looks to increase output over the next few years. Yet again I pass on my sincere thanks to each and every employee for their contribution to our success in the last year.

Current trading and outlook

Trading since the start of the year has remained remarkably strong and prior to development launches later this year the Group has less than 25 homes currently on the market. In the last few weeks the Group has also increased its banking facility to £120 million and extended its term by two years to September 2016.

The business is in an excellent position with increasing margins, a significant development pipeline, enhanced financial strength and an unprecedented level of pre-sales all underpinning the Board's expectations of substantial profit growth in the next three years.

London is the right place to be developing with a robust micro-economy, an international reputation, a fantastic transport network and a significant shortage of homes when compared to current demand let alone future population growth. These fundamentals are there for the long term and this gives the Board confidence in setting a strategy that calls for doing more of the same, increasing output and growing the business over the next few years. There is little doubt that both Telford Homes and the London market have the capacity to allow that growth.

Jon Di-Stefano

Chief Executive

28 May 2013

FINANCIAL REVIEW

Telford Homes has had an excellent year with significant revenue and margin growth and a threefold increase in profit before tax to £9.0 million (2012: £3.0 million). The Group has been successful in pre-selling homes and as a result, is confident of delivering further profit and margin growth in 2014 and beyond. The Group has strong cash balances and headroom available within its new corporate loan facility to pursue land opportunities to enhance its development pipeline.

Operating results

Revenue increased by 14.5 per cent to £142.4 million (2012: £124.4 million) with gross profit of £31.4 million (2012: £18.9 million). Gross profit is stated after expensing loan interest that has been capitalised within inventories of £3.2 million (2012: £2.9 million) and before charging this interest the gross margin in the year was substantially higher at 24.3 per cent compared to 17.6 per cent last year.

The increase in revenue is due to a greater volume of open market completions, 374 properties compared to 314 in the year to March 2012, combined with a higher average selling price achieved on the properties which completed in the year. This average selling price increased by 19 per cent to £313,000 (2012: £263,000) with the increase due to the mix of properties completing in each period, together with underlying price growth. The increase in open market revenue is partially offset by a reduction in the level of affordable revenue in the year as the Group continues to return to a more normal split of output, traditionally two thirds open market and one third affordable in terms of unit volume but more heavily weighted towards open market in terms of revenue. Affordable revenue in the year was £26.0 million compared to £41.8 million in the prior year.

The improvement in gross profit margin is due to a combination of sales prices being achieved ahead of expectations and cost control. The operational teams continue to monitor and control development costs and substantial build cost savings have been achieved on developments completing in the current financial year. As a result, a number of developments are achieving profit margins that are ahead of the targets set during land purchase.

Administrative expenses have increased to £12.9 million (2012: £10.6 million) predominantly due to higher employee costs. Selling expenses have risen in the year from £3.5 million to £7.9 million as a direct result of the 75 per cent increase in the number of contracts exchanged and a greater number of open market completions. Over £3 million of the selling expenses incurred in the year relate to the successful launches of three new developments, Stratford Plaza, Parliament House and Cityscape, both overseas and in the UK. These launches generated 378 pre-sales of homes which are scheduled to complete in future financial years. However the accounting treatment for selling expenses is that they must be expensed as incurred even though profit recognition from sales occurs when each property legally completes, which can be a number of years later. The selling expenses incurred in the current year in relation to these pre-sales will reduce the level of marketing expenditure required on these developments in the future.

The Group's operating margin before interest increased to 9.7 per cent (2012: 6.2 per cent). This operating margin would have been higher had it not been for the selling costs incurred in the year in relation to pre-sales of homes. The Group will continue to focus on increasing profit margins and the Board anticipates further improvement over the next few years based on sales already achieved.

Finance costs

Finance costs actually incurred in the year have decreased to £4.1 million from £4.9 million. This is comprised of £2.2 million (2012: £3.1 million) of interest capitalised into work in progress and £1.9 million (2012: £1.8 million) of finance costs charged directly to the income statement.

Borrowings have reduced from £67.0 million to £58.1 million during the year and therefore interest capitalised into work in progress is lower than the previous year. Finance costs charged directly to the income statement are predominantly non-utilisation fees, arrangement fees and hedging costs. The Group has signed a new corporate loan facility for £120 million and as a result, the amortisation of arrangement fees associated with the previous facility has been accelerated resulting in an additional expense of £510,000 in the year to 31 March 2013. In the prior year one-off hedging costs were incurred and therefore finance costs charged directly to the income statement are similar year on year.

Dividend

The Board has proposed a final dividend of 2.8 pence which, together with the 2.0 pence interim dividend paid on 11 January 2013, makes a total dividend for the year of 4.8 pence (2012: 3.0 pence). The increased dividend compared to the prior year is due to higher earnings per share and is in line with the Board's stated intention of paying around a third of earnings in dividends each year. The final dividend is expected to be paid on 19 July 2013 to those shareholders on the register at the close of business on 21 June 2013.

Balance sheet and cash

Net assets at 31 March 2013 were £72.7 million, increased from £66.2 million last year. This is equivalent to net assets per share of 144.7 pence (31 March 2012: 133.7 pence).

Cash balances at 31 March 2013 of £23.7 million (2012: £12.4 million) were unusually high for the Group although a large proportion of this has been committed to future land and development costs. In addition to cash inflows arising from open market completion proceeds in the year, significant cash inflows have been generated from pre-sales and the associated deposits received on exchange of contracts. Typically this is 10 per cent of the contract value but on schemes sold overseas this increases to 20 per cent with 10 per cent payable on exchange and a further 10 per cent due approximately one year later. At 31 March 2013, deposits received in advance of completion included on the balance sheet totalled £20.1 million (2012: £13.2 million).

Borrowings

Net debt at 31 March 2013 was £34.4 million (31 March 2012: £54.6 million) with gearing of 47.3 per cent (2012: 82.4 per cent) due to the combination of reduced borrowings and higher cash balances. Loan drawdowns against site acquisitions and development costs of £37.1 million were more than offset by repayments of £46.5 million made from open market sales proceeds.

The Board continues to monitor 'uncovered gearing' which excludes debt which would be repaid by the value of contracts already exchanged on each development. Due to the Group's significant pre-sold position, there is no debt that is not either covered by the value of contracts exchanged or by cash held on the balance sheet and therefore uncovered gearing was zero at 31 March 2013 (2012: 37.9 per cent).

Both net debt and gearing are expected to increase over the coming months as the Group reinvests the equity of the business, together with the headroom in the corporate facility, into existing and new developments. The Group remains active in the land market and continues to pursue land opportunities at target margins within its core area of operation.

The Group has been successful in increasing its corporate loan facility from £70 million to £90 million during the year and subsequently to £120 million in April 2013. The term has also been extended by two years and the facility now runs to 30 September 2016. This facility is provided by the Group's existing banking partners, being The Royal Bank of Scotland, HSBC and Santander and funds all current developments, with the exception of Avant-garde. 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. At 31 March 2013, Telford Homes had utilised £46 million of the facility leaving a significant unutilised balance.

In addition to the corporate facility, Telford Homes (Creekside) Limited, a wholly owned subsidiary, had a £57.7 million loan facility with The Royal Bank of Scotland in relation to its Greenwich Creekside development. At 31 March 2012, £14.6 million was outstanding in relation to this loan and this has now been repaid in full from sales proceeds received in the year. 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. At 31 March 2013, Bishopsgate Apartments LLP had utilised £29.8 million of this facility (2012: £19.8 million). The loan is repayable by September 2014 however it is expected to be repaid well ahead of the expiry date from completion proceeds with handovers commencing later this year.

The increased corporate loan facility together with the Bishopsgate Apartments LLP facility ensures 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

28 May 2013

GROUP INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2013

All activities are in respect of continuing operations.

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2013

GROUP BALANCE SHEET

AT 31 MARCH 2013

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2013

GROUP CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 MARCH 2013

NOTES

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