Ashley House has now released their interim results for the year ending 2019.
Revenue declined by £2.2M and cost of sales were down £2.1M to give a gross profit £117K lower. Admin expenses fell by £392K but there was a £470K detrimental swing to losses from the joint venture so the operating loss widened by £202K. Interest costs fell by £227K, however, to give a loss for the period of £1.7M, broadly flat year on year.
When compared to the end point of last year, total assets declined by £1.3M driven by an £827K fall in receivables and a £595K decline in the value of investments in joint ventures, partially offset by a £192K growth in work in progress. Total liabilities increased during the period due to a £500K growth in payables. The end result was a met tangible asset level of £3.4M, a decline of £1.7M over the past six months.
Before movements in working capital, cash losses improved by £435K to £977K. There was a cash inflow from working capital and after interest payments fell by £227K the next cash from operations was £43K, an improvement of £1.2M year on year. The group spent £66K on capex to give a cash outflow of £23Kbefore financing. They repaid some loans which meant the cash outflow was £99K and the cash level at the period-end was £151K.
The development business of the group, the major part of which sits in the joint venture, is reliant on schemes reaching financial close. They have a large pipeline of schemes but the speed of financial closes has not been as fast as the board would have liked. The first Morgan Ashley scheme, on the Isle of Wight, reached financial close towards the end of the year last year and construction is now well advanced.
No financial closes were achieved during the period, however, the pipeline having been significantly affected by the Government’s threatened Local Housing Allowance Cap, which was not finally removed until August 2018. Since that time, clients have re-engaged and there has been real progress with an extra care scheme in Grimsby reaching financial close in November and further schemes are expected to reach financial close in the coming months.
Morgan Ashley’s most advanced extra care schemes include two developments in Leicester which will provide 155 extra care apartments over two sites; a 54 apartment scheme in Romsey and a 65 apartment scheme in Freshwater. In addition, contracts for an 80 bed care home in York are all but complete with the funding documents for this scheme to be signed shortly and with work on site due to start in February. Most of the extra care developments have a gross development value of around £10M.
The majority of future pipeline schemes are with parties with whom Morgan Ashley now has established contractual structures which should significantly simplify and speed up the legal process. They are also looking to further cement some of these relationships to reduce the time and cost taken to bring schemes to financial close. They find that schemes are taking a longer period to reach close than initially expected which has a knock on effect on profitability.
Since the period-end the business has won contracts for extra care schemes in Hampshire and Yorkshire with a combined GDV of £60M. Two 60 apartment schemes in New Milton and Gosport were secured in conjunction with Places for People, whilst the business worked with another major national registered provider, Home Group, to win four schemes in Leeds providing around 240 new affordable extra care apartments. These Leeds schemes have a combined GDV in the region of £40M with work on the first site starting towards the end of 2019 and all four sites to be completed and operational by 2021.
The business is currently on site in Ryde on the Isle of Wight and the scheme in Grimsby is now commencing. They are on site and building in Scarborough and Peterborough. Peterborough is a modular construction with the modules being manufactured by F1M. Furthermore on land adjoining both the Scarborough and Ryde sites, they are working up two additional schemes of bungalows for elderly occupation for private sale, thus further diversifying the activities of the business with some private sector activity.
Within F1M, this week marked the start of the transportation to site of the first modules for the 40 apartment extra care scheme in Aberdare. The scheme is for Linc Cymru Housing and is the largest scheme undertaken to date. The development consists of 36 one bedroom and four two bedroom apartments for people aged fifty and over. A total of 94 modules are being built in the factory and works have been undertaken to prepare the site for delivery of the modules. The scheme is expected to complete in summer 2019.
Since the period-end the business has completed school classrooms in Egham and retail units for Costa, Greggs and Evans Halshaw. Current schemes in the factory in addition to Aberdare and Peterborough include a second school under the Education and Skills Funding Agency framework and further Costs units to be housed in Moto service stations and a small modular housing pilot for a registered provider in North Wales. The next major scheme will be a 75 module hotel in Doncaster where the business is currently appointed to provide a pre-construction design service with the full order expected shortly.
Despite the loss in the first half, the group is expected to become profitable for the full 14 month period ending 2019, albeit uncertainty on timings of some scheme closures might result in revenue slipping in to the next year. Overall the board expects profitability to be below current market expectations.
At the current share price the shares are trading on a PE ratio of 4.1 which increases to 10.5 on the full year consensus forecast. There are no dividends on offer here. At the period-end the group had a net debt position of £1.5M compared to £3.5M at the same point of last year.
Overall then this has been a disappointing period for the group. Losses were flat due to lower interest payments, operating losses worsened. Net assets declined, but the operating cashflow did improve, albeit with no free cash being generated. The problem was no schemes reached financial close during the period and although some now seem to be coming through, they are slower than expected which is affecting future performance. This share has promised quite a bit for a while but I am losing patience of seeing much of a return. The forward PE of 10.5 isn’t too expensive but doesn’t altogether factor in the risks in my view.
On the 9th May the group released a schemes update. They have signed contracts to start works on two community care scheme and have been awarded further schemes. Financial close has been achieved on two Morgan Ashley schemes, being a 75 apartment extra care scheme on the Isle of Wight and an 80 bed care home in York.
Morgan Ashley now have four schemes contracted and on site, being Ryde, Grimsby, Freshwater and York. The group is on site with schemes in Scarborough and Peterborough. They are also working to achieve financial close in the current quarter on three more pipeline developments. Morgan Ashely has recently been awarded new schemes in two locations.
Within F1 Modular, all 94 modules have now been delivered to F1M’s 40 apartment extra care housing scheme in Aberdare and is expected to complete in late summer. They have also secured a place on the NH2 Framework for Modular Housing development operated by the procurement body LHC. This framework provides local authorities, housing associations and other social landlords with easy access to pre-qualified offsite manufacturers for use of modular construction in new build housing projects.
The board continues to be frustrated at the length of time it takes to progress schemes to financial close, however.
On the 25th June the group announced that some uncertainties remain regarding the final result for the year, predominantly centred around the timing of the financial closure of three schemes. Morgan Ashley has three extra care schemes on which it is trying to achieve financial close. They fully expect them to reach financial close but the precise timing is unclear and may fall into next year. Should these not close prior to the end of June, they will likely show a loss for the year, not meeting market expectations.
On the 5th July the group confirmed that the schemes did not reach close, although one of them is all agreed, awaiting signatures. The board believe that these schemes will provide a strong start to 2020.
On the 1st August the group advised that due to reasons outside their control, all three of the schemes have not yet reached financial close, although they are still expected to close over the next couple of months. As a result, inflows of cash are delayed and the group is managing its cash carefully. The board are exploring a number of sources of further funding to best manage this. Oh dear, this doesn’t sound good.