1 year ago

Keepmoat Annual Report 2020

  • Text
  • Lease
  • Keepmoat
  • Strategic
  • Annual
  • Income
  • Assets
  • Limited
  • Homes
  • Statements
  • October
Keepmoat has released its Group financial results for the year ending 31 October 2020.


CHIEF FINANCIAL OFFICER’S REVIEW Chief Financial Officer’s review Our financial performance this year has been impacted by the COVID-19 pandemic with delivery volumes significantly reduced and margins eroded by programme disruption and the costs of operating with COVID-19 working practices and social-distancing. The resilience of our multi-tenure partnership business model, the immediate action taken by the Board, our recent balance sheet strengthening and our strong forward order book position us well to return to our planned growth in the medium term. Financial performance The Group delivered a resilient performance in the year given that COVID-19 resulted in the suspension of activities at our sites and sales offices from the start of April in line with the Government’s guidelines. The Group’s sites remained closed until the 11th May when twenty-four sites were reopened with limited construction activities commencing on plots at an advanced stage of build, with a further thirty-three sites opening during the month. By August we were operating on all our developments. Whilst we kept our sales centres open virtually through the lockdown period, demonstrating the effectiveness of our digital sales capabilities, we nevertheless experienced a reduced level of reservations during this period given that in person sales office and show home visits were not possible. Our sales offices in England were reopened on the 29th May, with those in Scotland following on the 12th June. Despite the impact of COVID-19, the Group delivered total completions of 2,460 homes in the year to 31 October 2020 (“FY20”), down 39.0% on the prior year (2019: 4,035 homes). As a result, revenue fell by 37.5% to £406.0m (2019: £649.8m). The average selling price of completions increased by 2.5% to £165k (2019: £161k). Our delivery to Registered Providers & the Private Rented Sector made up 30.3% of the Group’s volume (2019: 33.8%) reflecting the focus on our mixed tenure partnership model and providing resilience in the long term. Year ended 31 October 2020 Year ended 31 October 2019 £’000 £’000 Revenue 406.0 649.8 Contribution (1) 64.7 119.6 Adjusted EBITDA (2) 16.0 62.4 Adjusted EBIT (3) 11.4 61.1 Adjusted operating profit (4) 7.8 58.0 (Loss)/profit before tax (19.5) 37.7 Operating cash flows 35.7 39.6 Plots sold 2,460 4,035 (1) Contribution is gross profit adjusted for acquisition fair value adjustments (a reconciliation of gross profit to contribution is provided in note 3). (2) Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and impairment of investments and is calculated before exceptional items and acquisition fair value adjustments (a reconciliation of operating profit to Adjusted EBITDA is provided in note 3). (3) Adjusted EBIT is earnings before interest, tax, amortisation and impairment of investments and is calculated before exceptional items and acquisition fair value adjustments (a reconciliation of operating profit to Adjusted EBIT is provided in note 3 (4) Adjusted operating profit is stated before exceptional items, amortisation of acquisition intangible assets and the acquisition fair value adjustment to new homes work in progress (a reconciliation of operating profit to adjusted operating profit is shown on the face of the consolidated income statement). 60 KEEPMOAT.COM

STRATEGIC REPORT Our contribution reduced by £54.9m to £64.7m (2019: £119.6m) with the decline primarily reflecting the reduction in completion volumes, and COVID-19 related costs, including disruption to site build programmes, site overhead inefficiency during remobilisation, and increased provisions in relation to pre-development work in progress on a limited number of sites, reflecting the evolving risk profile in the wider market. This year we delivered an adjusted EBIT of £11.4m (2019: £61.1m) largely as a result of the COVID-19 impact on both volumes and costs. The Group’s adjusted EBIT margin reduced to 2.8% (2019: 9.4%) reflecting the lower contribution margin and the non-recurring impact of non-productive site overhead costs of £5.7m that would normally be capitalised to WIP which were instead expensed during the period of lockdown. These effects were partially mitigated through receipt of £3.5m of grants from the Governments CJRS for those employees furloughed during the period of the temporary closure of the Group’s operations and the effect of COVID-19 on the Group’s discretionary annual bonus schemes for which nothing was payable for this financial year. Net financing costs at £24.7m were £3.6m higher than the prior year due to the levels of borrowing during the year and the cost of increasing our facilities. As a result, the Group delivered a loss before tax of £19.5m (2019: profit before tax £37.7m) for the year. In order to provide clearer visibility of the underlying performance of the Group, the Board elect to measure profits on an adjusted basis alongside other key KPIs. These can be seen in the table on page 60. Exceptional items During the year the Group announced a restructuring exercise to streamline the Group’s regional operations at a cost of £1.3m. As part of this exercise the Group’s North West regional presence was consolidated into a single regional office and the South West office will now operate as a satellite to the West Midlands region. Aligned with these regional changes, the business has simplified its divisional structure with the regions now reporting through two Divisions covering the North & South of the UK. Exceptional restructuring costs relate to redundancy costs and other costs associated with these actions. During the year ended 31 October 2020, the Group incurred professional advisor costs of £1.1m relating to refinancing and corporate finance matters. Cashflow and financial position At 31 October 2020 the Group had net assets of £101.7m (2019: £108.5m) a decrease of 6.3% (£6.8m) compared to the prior year. Inventories have increased by 14.4% to £466.8m (2019: £407.9m), primarily as a result of additional inventory carried at year end arising from the delayed completion of homes due to construction delays caused COVID-19. Land inventory represents approximately half of the inventory balance (2019: approximately half). The Group was cash generative, with £37.3m generated from operations before tax (12 months to 31 October 2019: inflow £44.3m) after releasing £27.2m from working capital in the year, with the Group ending the year with net cash (including bank overdrafts) of £56.8m (2019: £35.2m). Financing through the COVID-19 period In response to the emergence of COVID-19 and the decision to close our sites, sales offices and show homes in April, the Group took immediate action to preserve cash in the business, prudently managing the Group’s liquidity position. These actions included a reduction in pay of 20% for the Group’s Executive board, Regional Directors and Senior Leaders in the business for a period whilst our sites remained closed. We also negotiated an increase of the Group’s senior term loan and super senior revolving credit facility, which alongside a further capital investment from the Group’s shareholders ensure the strong liquidity of the Group and evidence the good relationships that Keepmoat Homes has with its banking partners. The components of the increased facilities and capital investments were secured in the following tranches: On 18 March 2020, the Group increased its super senior revolving credit facility by £5.0m, bringing the total limit to £60.0m. The terms of the additional limit are in line with the existing facility. On the 12 June 2020, the Group signed agreements to increase its super senior revolving credit facility by a further £15.0m, bringing the total limit to £75.0m, this £15.0m facility matures on 12 December 2021. On the same day the Group entered into an agreement to increase its existing term loan facility by £7.5m on the same terms as the existing facility. This brings the total term loan facility to £157.5m. On the 3 July 2020, the Group drew down on the £7.5m term loan and the £15.0m of super senior revolving credit facility became available to the Group. ANNUAL REPORT & FINANCIAL STATEMENTS 2020 61