"This has been another strong year for the Group, both operationally, with our activity delivering healthy growth in revenues, profit and net asset value, as well as strategically as we continue to pivot the business towards a more robust, diversified and adaptable model."
We have had yet another very good year of further growth which has once again generated solid financial results, as management continues with the implementation of our expansion strategy and the diversification of the Group's revenue streams.
Over the last three years, we have built a highly accomplished construction division, now comprising 79 employees, which has the ability and experience to take on the most complex brownfield projects. Our core skillset at Inland Homes has always been the ability to source attractive land opportunities and secure planning permissions from challenging sites, for which key management has a successful, 25-year unbroken track record. By adding the building operations to our existing land platform, we have created a winning formula for the delivery of our new homes and, importantly, the capability to provide "turnkey" land and building partnerships to Housing Associations, PRS funds and local authorities. This element of our business is gathering momentum and we have circa £100m of Housing Association contracts in place for the delivery of over 500 affordable homes over the next five years. The total number of units under construction, including both private and partnership homes, at the year end was over 680, a record for the Group.
Inland Homes has always taken an entrepreneurial approach to the growth of the business and we have a history of looking at things differently, focusing our efforts on finding and creating new opportunities where they seldom existed before. We have an outstanding track record over the last decade of managing schemes through the complex UK planning process and of tackling challenging sites, where our expertise can be deployed to the benefit of the wider community.
With this in mind, my job as Chief Executive of the Group is to execute the strategy formulated by the Board and to deliver it effectively, ultimately generating value for our shareholders. This time last year, I stated that our Group strategy continues to focus on the following four strategic goals:
- Increasing the size of our strategic land bank, including brownfield sites where residential development is expected; the tactical acquisition of sites which unlock future potential; and locations which will become key housebuilding terrain in the future.
- Adding value to our land bank by navigating what are often complex sites through the planning system, requiring a unique skillset, and selling them to other developers, realising attractive short term margins and generating cash to fund our operations.
- Maximising the value from our land bank through housing development and direct sales, as well as providing housebuilding services to other landowners.
- Ensuring a strong and flexible balance sheet by maintaining borrowings at a manageable level through a focus on cash management and with a maturity profile appropriate to our potential future cash flows.
In a changing environment it is important that the strategy evolves to take account of wider economic factors as well as specific industry issues, including affordability and efficient delivery, which are at the forefront of our thinking. Against this backdrop, the key components of our strategy include:
New homes for sale
Maintain our focus on providing affordably priced (average sales price of £293,000), high quality homes, in those locations in the South and South-East of England.
Continue our policy of selling consented plots to third parties to generate cash and profitability, with a bias towards sales where our building division can secure the construction contract.
Delivery of homes for Housing Associations where contract income will provide a regular positive cash flow and a contribution towards profit.
Grow our land bank year-on-year through a mix of unconditional brownfield purchases and strategic land options.
Improve the short term letting income from our residential and commercial assets whilst sites are going through the planning process.
Strategy evolution in action
In line with our efforts to consistently evolve our strategy against this changing market backdrop, we have two new embryonic businesses, established this year following significant research and viability assessments, that we believe will support our ambitions for sustainable growth.
As announced on 22 August 2018, Rosewood Housing, a wholly owned subsidiary of Inland Homes, has been registered as a for profit provider of social housing by Homes England, the Regulator of Social Housing, following a two-year qualification period. This registration opens up the opportunity for Rosewood to develop, hold and manage certain section 106 homes, comprising a mix of rented and shared ownership units that need to remain within the regulated sector whilst owned by a Registered Provider.
In particular, the company expects to generate visible and attractive income from the "staircasing" of shared ownership homes, whereby residents can buy further shares in their property once they have lived in it for a certain period of time.
Once we have achieved critical mass in this specialist sub-sector, it may be appropriate for us to partner with an institutional investor to help deliver further portfolio growth. This activity will be highly complementary to our develop-to-sell strategy and will leverage the capabilities of our rapidly growing in-house construction division.
Based on current trends more than 100,000 homeless families in England will be living in temporary accommodation soon. Since 2010, the number has grown by 61% and in 2016 alone local authority spend on this form of housing - which is often in unsuitable and cramped bed and breakfast or hostel accommodation, with no stability - was a cost to the taxpayer of £845m, with many councils having to subsidise the accommodation beyond the local housing allowance.
Inland Homes has been working on a new modular housing product for some time, www.hugghomes.co.uk, based on a concept that provides high quality modular homes, offering a flexible and responsive solution to the housing shortage through bespoke temporary accommodation that is focused on sustainability and a commitment to design and manufacturing excellence.
Hugg Homes is based on a principle of using land that would be otherwise inactive during the planning process, enabling "pop up" developments in key locations. It will give local authorities the agility to react quickly to emerging temporary local housing requirements and ensure that vacant land is efficiently utilised in support of social needs.
The first temporary consents have been secured in Southampton, Hampshire and Cheshunt, Hertfordshire for a total of 76 units with the first installation expected to be complete and occupied by the end of this calendar year.
The units will be let to local authorities for a three to five-year period and the Company has an agreement with an experienced manufacturer that has the capacity to service our requirements. The Hugg units have an estimated 60-year lifespan and at the end of each lease period are transportable on a lorry to a new suitable location.
We believe this new business will provide an additional significant and reliable income stream to our Group, whilst providing good quality homes for people in need at a significant saving to the taxpayer. They will be particularly attractive to local authorities where estate regeneration is taking place and where residents can be temporarily relocated within their own communities while works are completed.
First Rosewood Home; The Pheasant, Amersham
Hugg Home show unit
The Portfolio review will provide a detailed account of many of our projects, but I would like to comment on two key projects in particular:
Wilton Park, Beaconsfield, Buckinghamshire
Despite our 100% record in securing permissions, unfortunately the UK planning system continues to present challenges to us in certain instances.
The 100-acre site at Wilton Park, described by Savills as "the best residential development opportunity in Southern England" has an allocation for 350 homes and 2,100m2 of commercial space. We have now owned the site for over five years, guiding the project through to an adopted planning brief and a subsequent planning application, which has now been submitted for over a year. Developers are required to build Affordable Housing, as defined by local authority policy - in this case 40% of all homes built - unless it can be demonstrated through a Financial Viability Assessment (FVA) that it would not be viable to do so. While our FVA, which demonstrated that the delivery of the decreed 40% Affordable Housing at Wilton Park would be unviable due to heavy infrastructure costs, was signed off by a source approved by the Council, the Council has refused to accept the findings. It subsequently commissioned a further viability assessment which took six months to prepare and came to a similar conclusion, which, frustratingly, the Council is again refusing to accept.
Inland Homes is making every effort to engage with the Council to resolve this matter to everyone's satisfaction and discussions are continuing. Such delays caused by arguments over the level of affordable housing are one of the biggest causes of delays in the delivery of new homes in the UK; the battle continues!
Cheshunt Lakeside, Hertfordshire
This is the largest project in the Inland portfolio where a planning application has been submitted for a new community of 1,853 homes and 200,000 sqft of commercial space, comprising a significant part of the former Tesco headquarters in Cheshunt, Hertfordshire together with other land we have assembled on this large scale brownfield opportunity. The local authority at Broxbourne are very supportive of our proposals and we are anticipating an early approval.
This development will provide some significant project delivery opportunities to work on, alongside major PRS funds and Housing Associations as well as private sales. This scheme is held in a joint venture where there is an ability to buy out our partners, which is the current intention.
Aerial view of Wilton Park site
Cheshunt Lakeside, Hertfordshire
Underpinning our overall strategy is the ongoing chronic shortage of housing across the UK, at various price points, and whilst this situation remains, we are confident that housebuilders like ourselves, as well as other stakeholders who are committed to solving this problem, will continue to be supported in their activities. We anticipate that any changes to the Help-to-Buy scheme come 2021 will impact those who are not first-time buyers and those looking at properties towards the higher end of the bracket and we'd expect the favourable borrowing environment to persist for the foreseeable future. Whilst the Greater London property market continues to be impacted by wider political uncertainty, values and demand in the Home Counties remains robust, supported by improving infrastructure investment and evidence of wage growth returning in the UK economy.
2018 has been another busy year for Inland and we have made considerable strides which, importantly, are reflected in our full year results. I firmly believe that the component parts of this business are well balanced and provide a cohesive strategy for continuing and sustainable growth in the more uncertain environment over the short to medium term. Whilst there are challenges, we see great opportunities for us at Inland going forward.
Finally, I would like to extend my heartfelt thanks to the entire team at Inland Homes, without which the building of such a dynamic and successful business would not have been remotely possible.
19 September 2018
Abbey Wharf, Alperton