from One Heritage Group plc
One Heritage Group plc: Full year results for the year ending 30 June 2022
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One Heritage Group plc (OHG)
25 October 2022 ONE HERITAGE GROUP PLC Full year results for the year ending 30 June 2022 One Heritage Group PLC (LSE: OHG), the UK-based residential developer focused on the North of England, is pleased to announce its audited results for the year ended 30 June 2022.
Financial highlights
Operating highlights
Post Period Events
Outlook
Jason Upton, Chief Executive Officer said: “I am immensely proud of our people and the progress that the Group has made in what has been a challenging year for the industry. Our annual report provides a comprehensive view of the performance of the business and our strategy going forward with four strategic priorities outlined. Our environment is challenging, but there continues to be a lack of supply of quality residential accommodation in the UK, especially within areas of the North of England. We are particularly well-positioned to satisfy market demand in our chosen sectors, and confident in delivering upon our business strategy.”
Contacts One Heritage Group plc
Jason Upton Chief Executive Officer Email: jason.upton@one-heritage.com
Anthony Unsworth Chief Financial Officer Email: anthony.unsworth@one-heritage.com
Hybridan LLP (Financial Adviser and Broker) Claire Louise Noyce Email: claire.noyce@hybridan.com Tel: +44 (0)203 764 2341 About One Heritage Group One Heritage Group PLC is a property development and management company. It focuses on the residential sector primarily in the North of England, seeking out value and maximising opportunities for investors. In 2020 One Heritage Group PLC became one of the first publicly listed residential developers with a focus on co-living. The Company is listed on the Standard List of the Main Market of the London Stock Exchange, trading under the ticker OHG. For further information, please visit the Company’s website at https://www.oneheritageplc.com/. References to page numbers throughout this announcement relates to the page numbers within the Annual Report of the Company for the year ended 30 June 2022. Chairman’s statement I am pleased to report good progress in our second full year of trading, this despite there being a number of industry challenges, which have combined to delay and, in two instances, impair our development projects, and some internal challenges which have caused us to change the way in which we deliver our developments and co-living projects. The agile, measured and decisive way in which we responded to these challenges puts us in a very good position to continue to evolve and grow into a market leading full service residential property developer in the North and the Midlands. It is a decisive moment in the life of a relatively young property development company when it completes its first major development. This moment has arrived for us with the practical completion of Lincoln House Bolton, a former part-built office building which we have transformed into residential use, providing 88 apartments. This development marks the first of such ‘developer as principal’ project completions with three more to follow during calendar year 2023. Moreover, we have taken opportunities to add to our development pipeline in Stockport and post year end in July 2022, Eccleshill in West Yorkshire. I was also pleased to see the signing of a further development management agreement, another core part of our business, on a 129 unit project in Manchester. We now have four of these management agreements in place namely One Victoria, One Heritage Tower, North Church House and the former Oldham County Court. Ours is a people business, and from time to time, people come and people go. During the period, at senior level, we were sorry to say goodbye to our Finance Director Luke Piggin and Independent Non-Executive Director Jeffrey Pym. In their places, without delay, we hired Anthony Unsworth (Chief Financial Officer) and Jeremy Earnshaw (Independent Non-Executive Director) and welcomed both to the board of directors. Their positive influence and contributions have been immediate and impressive. We also made further key hires with a Head of Lettings, Head of Projects and an Acquisitions Lead post year end June 2022. Our team overall has expanded and strengthened to take advantage of the opportunities that lie ahead. A creative and collaborative corporate culture is fast emerging. ESG is at the heart of our business and we are continuously seeking to move forward in this area. I was delighted to agree and publish our commitments to ESG during the period under review. We now have the right foundations in place to build on this policy and expect further improvements during the calendar year 2023. I would like to thank our shareholders and other stakeholders for their ongoing support. Additionally, I appreciate the efforts of our Directors and Employees who continue to adapt to and learn from the challenges they face. I am looking forward to the next chapter in the Group’s journey but recognise these are uncertain times with rising energy prices, interest rates and the cost of living. We are well positioned to continue to execute our strategy and remain committed to providing residential accommodation and property services to the highest standard possible.
David Izett Chairman 24 October 2022 Chief Executive’s statement The Group has made positive progress with our strategy over the period, despite the challenges caused by cost pressures and labour shortages that continue to impact the industry. We have demonstrated our resilience and agility to adapt to these challenges to date but remain cautious during these uncertain times. The headline results for the Group again reflect our infancy as a business and are partly a result of our first development, Lincoln House in Bolton, being delayed until August 2022 which is post year end. With the Group due to complete a further three development projects before year end 30 June 2023, and having added new development projects to our pipeline, along with new revenue streams, we have strong foundations in place which will contribute towards further growth over the forthcoming period. Our property services division has undergone a restructure which saw the Group dispose of its shares in One Heritage Complete in July 2022 for an initial payment of £42,500 after legal costs and a further £200,000 if certain performance milestones are achieved. One Heritage Complete was a subsidiary of the Group (shareholding 47%), which provided property management, lettings, refurbishment, design, fit out and furnishing services. Following a strategic review by the Group, we decided to bring these same services in-house and they are now provided by One Heritage Property Services Limited and One Heritage Construction Limited. The Group signed a service agreement with Robin Hood Property Development Limited in January 2022 for Co-Living services. Furthermore, the Group also signed an additional Development Management agreement for a 129-unit development called One Victoria in Manchester City Centre. Both agreements demonstrate further diversification of income for the Group. At the start of the period under review, I set out a number of key strategic priorities for the Group, which I touched on in our interim results earlier this year. These objectives and the current progress against each are set out below.
Our first development reached practical completion in August 2022, Lincoln House, Bolton. Acquired in March 2020, this part-built office building had been left unfinished and vacant for nine years. Following our successful planning application in April 2021, we have transformed it into residential use providing 88 apartments with net revenue of £10 million. We are expecting our Liberty House (Bank Street), Sheffield development, a former courthouse with Grade II listed status being converted into 23 apartments, to finish within the first half of 2023. As announced in our interim results, the Group terminated its build contract with the principal contractor Emerald Construction (North West) Limited (“Emerald”), due to poor performance. They have since entered liquidation. It is important to add that the Group had no cash tied up in Emerald. The outstanding works are now being completed in-house by One Heritage Construction. However, inflationary increases and additional works being required due to the historic nature of the building, have meant a significant increase in development costs. This cost increase has regrettably resulted in an impairment of the asset. Our Oscar House, Manchester development (27 Apartments) and our St Petersgate, Stockport development (18 Apartments and one Commercial Unit) are also forecasted to finish behind schedule in the first half of 2023. Oscar House has experienced delays to date due to design changes and procurement challenges, but recent progress and the quality of work have been encouraging. Our St Petersgate development is being delivered in-house by One Heritage Construction due to the smaller size of the project (18 Apartments), however, along with Liberty House, has seen cost challenges arising from inflationary increases in materials and design changes which has also resulted in an impairment of the asset. The absence of a principal contractor and a fixed cost contract on both our Liberty House and St Petersgate projects has been the sole contributing factor in the impairment of these projects. Despite these setbacks, it is encouraging to see progress on all our construction sites and the way in which the team have overcome technical challenges. Our greatest test continues to be mitigating against industry-wide cost pressures in respect of building materials, which has consequently impacted two of our developments (Liberty House and St Petersgate). Cost increases, to some extent, have been offset by increases in values. For example, value appreciation influenced our decision to remarket 47 units at Lincoln House when a bulk purchaser failed to commit to the purchase. The increase in property prices in the area, and the reduced construction risk for buyers as the development is now completed, means we should be able to increase GDV by around £600,000. The Group had two outstanding planning applications awaiting determination at the start of the year. St Petersgate, Stockport was granted approval in February 2022 and Churchgate, Leicester was granted approval in August 2022 following several extensions of time requests by the planning authority. An application was also submitted in June 2022 for the Group’s Seaton House, Stockport development and a decision is expected later this year. In July 2022, the Group announced the acquisition of land on Victoria Road, Eccleshill, West Yorkshire. The land has planning approval for 24 homes and will be the Group’s first new build housing development. We are pleased to add some diversification to our development pipeline. The location of Eccleshill, between Bradford and Leeds, is well suited for new build housing and demand is already demonstrated with Barratt and Keepmoat having new build housing developments close by. Below is a current summary of our existing development projects as of 5 October 2022:
*Expected Net Revenue defined as expected Gross Sales less Selling Costs 1 As at RNS Announcement in a Trading Update on 15th July 2022 Overall we have experienced delays across all of our projects for a variety of reasons. Those projects within the construction phase have primarily seen delays due to design changes and procurement challenges, whereas projects pre-construction have been impacted by planning delays. Considering the current economic and market conditions, we are taking a cautious approach on our projects that are yet to start construction. As such, Churchgate, Seaton House and Victoria Road will commence construction later than hoped. It is expected that we will invest further time and resource in the design and procurement of these projects to mitigate against the risk of future cost challenges. Further to the above, we have made good progress with the developments where we are acting as Development Manager. In April 2022, the Group signed its fourth Development Management agreement for a 129-apartment development named One Victoria in central Manchester. Works are expected to commence in Q4 2022 with completion in Q3 2024. The project has a gross development value of £43.3 million. This development is in addition to development management projects at One Heritage Tower, Salford (542 apartments), Former Court House, Oldham (42 apartments) and Queen Street, Sheffield (58 apartments). We are delighted to continue to expand our development management services over the period and to secure additional sources of revenue. As a result, projects under our management have a Gross Development Value totalling £215 million.
We continue to experience positive demand for our properties but have adjusted our sales strategy over the period to delay some sales to achieve a better balance between reducing sales risk (by securing sales early) and selling later when values could be higher. On reflection, both our Liberty House, Sheffield and St Petersgate, Stockport developments were sold out too soon and, as a result, we failed to fully benefit from sales price increases offsetting rising development costs. In light of this, we have now implemented new internal processes and controls to improve how we launch a development for sales in the future. At Lincoln House, Bolton we agreed to sell 47 units to a fund in Q4 2021 but due to their failure to commit contractually, we decided to re market these units in June 2022. The increase in property values, along with the reduced construction risk for buyers with the development near completion, indicated that around £600,000 of additional revenue could be generated increasing Net Revenues from £9.4 million to £10 million. Our sales network also expanded and partnerships strengthened during the period. This has created a larger pool of buyers, from Hong Kong to the Middle East and Africa. Whilst we continue to experience the highest demand from Hong Kong due to the wider One Heritage network, we will continue to build our network and reputation overseas. In a time of rising interest rates, we benefit from the fact that the majority of our purchasers are cash buyers. Additionally, weak sterling has increased the purchasing power of our overseas investors.
It was hugely disappointing that One Heritage Maintenance and One Heritage Design, two subsidiaries of One Heritage Complete, became insolvent in September 2021. The Group owned a 47% stake in One Heritage Complete. We have subsequently taken steps to undertake a strategic review and decided to bring the same services in house and in so doing, incorporating One Heritage Property Services and One Heritage Construction. Additionally, further steps were taken to protect investors and landlords against further consequential issues, which our majority shareholder supported directly. Following a restructure, we agreed a sale of our 47% ownership of One Heritage Complete in July 2022 for an initial £42,500 after legal fees, which could generate a further £200,000 if certain performance milestones are achieved. We made some key hires within our property services division during the period under review appointing a Property Operations Director, and more recently in August 2022 a Head of Residential Lettings. Both will oversee growth of our property services activity. The Group already has in excess of 250 co-living rooms under management and we will recruit further to effectively manage the units from our completed developments. Our presence in Hong Kong and recent demand from Hong Kong nationals for UK residential property as a second residence, for future migration or as investment, means the Group is well positioned to support this demand. Operating under the brand ‘Red Brick’, the Group has been providing a property sourcing service to Hong Kong nationals and is seeing a steady month on month increase in requests. This sourcing service is tailored to an individual’s requirement and identifies property across the whole of the UK, with the Group receiving a fee for an initial search, and fee for any properties purchased. We are looking forward to further expansion of our property services offer over the forthcoming period with more properties under management and new opportunities being identified to generate and diversify sources of income. Our new property services website is due to be launched later in the year and further enhancements to our services continue to be made as we aim to provide a first-class service to both landlords and tenants.
We have added some exceptional talent during the period and have increased our headcount resulting in a move into larger office space in July 2021. Further hires are anticipated over the forthcoming period as we refine our delivery particularly in our development team as we bring in-house certain outsourced services such as project management and enhance our acquisition resource to enable us to grow our pipeline. Two key development hires have been made post year end namely a Head of Projects, as we place more emphasis on delivery and closer control in the face of rising cost pressures, and an Acquisitions Lead, to give greater emphasis on our long-term development pipeline. With the volume of workload and the number of financial transactions increasing as a result of bringing more services in-house, our finance function has also evolved. In June 2022 our Finance Director, Mr Luke Piggin tendered his resignation. The board were quick to react to identify and secure his replacement by appointing Mr Anthony Unsworth who we were delighted to see join us on 01 August 2022 as Chief Financial Officer. Anthony brings a wealth of finance and industry experience having been Divisional Finance Director, Partnerships North at Countryside Properties PLC for 3 and a half years, and Finance Director North West for Barratt Developments PLC for 11 years. Further appointments have been made to our Finance Team in an experienced Financial Controller and a Management Accountant. We know that our new recruits will add significant value to the company. However, at the same time, we continue to focus on our cost base to ensure that we are operating cost-effectively whilst sustaining performance levels.
Grow the pipeline of new development opportunities It has been pleasing to add two new developments to our pipeline with the acquisition of Seaton House, Stockport, and post year end in July 2022, Victoria Road, Eccleshill, West Yorkshire. The delays to our existing developments and industry challenges have meant that we have remained cautious as to not over commit or commit too early to acquisitions without the security of successfully completing our existing projects. As we are expecting to have completed four of our developments within the financial year end 30 June 2023, we have recently appointed an Acquisitions Lead as we look to secure new projects to build our pipeline.
2023 STRATEGIC OBJECTIVES The Group has evolved well over the period under review and objectives will remain broadly similar for the forthcoming period. We continue to focus on our developments including our pipeline, delivery and sales, along with growing additional revenue streams. With resource added and a solid infrastructure in place the Group’s objectives are focused on delivery to leverage the capacity now available. The following four objectives will be in place for the forthcoming period.
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