LONDON (Alliance News) - Telford Homes PLC Tuesday said its profit more than doubled in its last financial year, driven by under supply of new homes and strong demand from owner occupiers and investors in London.
The housebuilder posted pretax profit of GBP19.2 million for the year to March 31, up from GBP9.0 million a year earlier, as it kept tight control on costs across its developments and experienced stronger-than-expected sales prices.
Revenue, however, was slightly down at GBP140.8 million, from GBP142.4 million. Revenue is driven by open market completions along with affordable housing contracts, said the company, and although the number of open market completions increased to 492 from 374, a total of 244 were within joint ventures where only 50% of the revenue and profit is recognised, it said.
Telford Homes said the average selling price of an open market completion during the year rose to GBP329,00 from GBP313,00, and it exchanged contracts for the sale of 515 open market properties, boosting its overall forward sold position. At the period-end, the firm said it was 98%-sold in terms of the open market homes expected to be legally complete for the year to March 31, 2015, over 70% sold for 2016, and 25% sold for 2017.
The company, which has developments in east London, now expects pretax profit to double again by March 2018 and for cumulative pretax profit to be in excess of GBP120 million over the next four years.
Chief Executive Jon Di-Stefano said the firm did not currently envisage any problems that may hinder its predictions for 2018.
“There is a lot of talk in the press about a bubble in London and we are just not seeing that happen. We have seen prices go up but equally the main thing we are seeing is a total lack of supply when set against the number of people who want to buy or want to rent a property, especially in the locations that we are building in,” he told Alliance News.
“We are pretty confident about the long-term stability of the London market because of that huge imbalance between supply and demand. We are not seeing people struggling to buy our properties, we typically have less than an 80% loan to value, we are not using Help to Buy and we don't think interest rates are going to go crazy. Obviously interest rates will go up at some point over the next four years, but I think it will be in a controlled way as the economy improves,” Di-Stefano added.
Including contract revenue from affordable housing, Telford said the total value of secured but unrecognised revenue at the period-end was GBP341 million, compared with GBP280 million a year earlier.
London-focused Telford said gross margin before selling expenses rose to 31.9% compared with 24.3% a year earlier. Operating margin increased to 17.1%, from 9.7% in the corresponding period.
The AIM-listed company said it has also benefited from robust control of construction costs over the last 12 months resulting in a number of savings on the developments completed in the year.
"Whilst inflationary pressures on construction costs will undoubtedly become more evident as activity across London increases, the group retains excellent relationships with its key contractors and suppliers and is budgeting for such inflation particularly where success on achieving forward sales is fixing the future revenue from each scheme," Telford said.
The residential property developer said it continues to strengthen its development pipeline, utilising the GBP20 million of equity it raised in a share placing in June. At the period-end, Telford Homes said its development pipeline is expected to deliver future revenue of over GBP875 million, up from GBP627 million a year ago.
Telford Homes also responded to negative commentary rife in recent months, regarding the issue of marketing London properties to overseas investors, while UK buyers have struggled to get onto the property ladder.
“People need homes in London and there is an awful lot of tenant demand from people who cannot afford to buy or for whatever reason don't want to buy and would rather rent. There's always going to be tenants; somebody needs to be the owner of the property and it doesn't really matter who that is as long as people are not leaving properties empty. All the apartments we are selling are being rented out,” Di-Stefano said.
Telford saw its split of sales change during the year, with overseas investor sales making up 32% of sales during the year, down from 39%, while UK-based investor sales rose to 33% from 28%. Owner-occupier sales also increased during the year to 35% from 33%.
On the back of its strong performance, the firm increases its final dividend to 5.1 pence, from 3.0 pence, making a total dividend of 8.8 pence compared with 4.8 pence a year earlier.
Telford Homes shares were quoted up 2.6% at 298.60 pence Wednesday morning.