Trading update

18 April 2013

Telford Homes Plc (AIM:TEF), the London focused residential property developer, is pleased to give the following trading update ahead of its preliminary results for the year ended 31 March 2013 which will be released on 29 May 2013.

Highlights

• Exceptional levels of demand with contracts exchanged for the sale of 803 open market properties in the year to 31 March 2013 (2012: 460)
• Strong demand from overseas investors for London property; however over 60 per cent of the exchanges in the year were sold to UK buyers
• Already 94 per cent pre-sold for the year to 31 March 2014 and over 50 per cent pre-sold for each of the two following years
• Significant improvement in both gross and operating margins
• Profit before tax for the year to 31 March 2013 will be ahead of market expectations
• Net debt reduced significantly to under £35 million (2012: £54.6 million)
• Credit committee approval for corporate loan facility increase to £120 million and extension by two years to 30 September 2016, to enable the Group to further enhance the development pipeline

Sales

Telford Homes has experienced exceptional levels of demand in recent months such that the Group exchanged contracts for the sale of an unprecedented 803 open market properties in the year to 31 March 2013 (2012: 460) with over 580 of these achieved in the second half of the year. In addition, at 31 March 2013 the Group had a further 121 open market properties reserved subject to contract.

These sales include a number of major developments which were launched both overseas and in the UK during the year including The Panoramic in Poplar (88 of 90 sold), Stratford Plaza (all 198 sold), Parliament House near Westminster (70 of 73 sold) and more recently Cityscape in Aldgate (110 of 128 sold).

Whilst there is strong demand from overseas investors for London property, sales to UK buyers at these developments and sales to owner-occupiers in the UK across the remainder of the Group’s developments represented over 60 per cent of the open market properties on which contracts were exchanged in the year. One example of this success is Bow Trinity in Mile End where 96 contracts were exchanged throughout the year and at 31 March 2013 there were a further 56 properties reserved, subject to contract, which have all been sold in the last few weeks. The Group originally targeted a sales rate of one home per week at this development.

Profit is recognised on open market completions and these were also ahead of expectations at 374 in the year to 31 March 2013 (2012: 314) with the difference between the number of contracts exchanged in the year and the number of properties being completed adding to the Group’s significant forward sales position.

At 31 March 2013 contracts had been exchanged on over 775 open market properties that will contribute to profit from 1 April 2013 onwards. As a result of this, and including sales progressing to contract, the Group is already 94 per cent sold for the year to 31 March 2014 and over 50 per cent sold for each of the years to 31 March 2015 and 31 March 2016.

Margins and profits

Selling prices are being achieved ahead of expectations and build costs are under strong control such that the Group expects to report an increase in gross margin of over five percentage points (2012: 17.6 per cent) and an increase in operating margin in excess of three percentage points (2012: 6.2 per cent) tempered only by increased sales costs due to the contracts exchanged in the year.

As a result of the number of open market completions, some major affordable housing contracts signed in the year and increased margins, the Group will report profit before tax for the year to 31 March 2013 ahead of market expectations.

Debt and bank finance

Due to the strength of the London market, and a number of land purchase opportunities that would enhance an already strong development pipeline, the Group has negotiated a further increase in its corporate loan facility from £90 million to £120 million and an extension of the term of this facility from 30 September 2014 to 30 September 2016. These changes have been credit approved and are now subject to formal documentation.

The agreed increase in the facility limit and extension by two years will give the Group significant strength in terms of long term security of finance and its ability to operate successfully in the land purchase market.

Gross borrowings at 31 March 2013 reduced to £58.1 million (2012: £67.6 million) and net debt at 31 March 2013 was less than £35 million (2012: £54.6 million).

Outlook

The London property market remains encouraging and the Group’s forward sales position, increasing margins, healthy development pipeline and enhanced financial strength are all reasons to look forward to the next few years.

The Board is confident that substantial growth in profit levels can be achieved over the next three years from the existing pipeline and has a long term strategy to further this growth, in London, over the next five to ten years.

Jon Di-Stefano, Chief Executive of Telford Homes, commented: "Exceptional levels of demand from buyers both in the UK and overseas has put Telford Homes in an extremely strong position. Profit before tax will be ahead of market forecasts for the year to 31 March 2013 and the Group is already 94 per cent pre-sold for the year to 31 March 2014.

"We are increasing and extending our corporate loan facility which will enable the Group to add to the development pipeline and target further substantial growth over the coming years."

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