Keepmoat saw £62 million in pre-tax profits turn into a £31m loss in an “eventful” year in which it acquired Apollo for nothing.
The housebuilder and regeneration firm was hit with £17m in losses on housing contracts due to low tendering in the West Midlands, according to its accounts to 31 March 2012.
Despite the loss, new chief executive Dave Sheridan said the outlook for the merged company “is much more positive than it would have been for any of our businesses individually”.
Mr Sheridan took the helm last month after the departure of Ian Sutcliffe, who left after nine months in the job.
A major refinancing deal saw Keepmoat’s ownership pass to Lloyds and the Keepmoat management team, cutting group debt from £648m to £300m and increasing its credit facility by £50m to £125m.
Keepmoat’s accounts include just a week of Apollo trading, but give a pro forma revenue of £1.04 billion. It said the acquisition of Apollo “was completed at a nil consideration value”.
The company also flagged a “significant reduction of work stemming from the government’s Decent Homes initiative replaced by lower-margin, tendered design-and-build contracts, a number of which became loss making”.
It said the “exceptional contract losses” relate to “a small number of contracts arising in the West Midlands business unit, where significant issues associated with procurement and delivery have resulted in contract losses of such significance that they warrant a separate presentation as exceptional items”.
These were “tendered at low margin and became loss making”, it said.
“We have taken steps and put in place measures to prevent that situation re-occurring,” it stated.
“Notwithstanding the above issues, Keepmoat’s core business remains strong and profitable.”
The company has expanded into sustainability work to counter the end of the Decent Homes programme.
Group chairman Peter Warry said the last 18 months have been “eventful” following Keepmoat’s merger with Apollo, its refinancing deal and “underperformance” in two divisions.
Keepmoat’s restructuring included costs on vacated properties and charges in relation to asset impairment and a £29m goodwill impairment.
It also included the closure of in-house hire division Keepmoat Site Services, £1.3m in legacy costs for the wind down of joint venture offsite modular unit manufacturing division Evolve, and dismantling its photovoltaic installation business after the government cuts to the Feed-in Tariff.
Mr Sheridan said Keepmoat “will continue to deliver the benefits of the merger through efficiencies and best practice to ensure that we remain competitive”.
The firm added: “Market conditions remain challenging; however, we have a focused strategy, a significantly strengthened balance sheet, a strong reputation built on trust and delivery and a highly capable team.”
The company said the market is showing “some signs of improvement”, and welcomed initiatives such as the government’s £10bn of guarantees, building more affordable homes and injection of extra money into FirstBuy.
Keepmoat experienced the pre-tax loss in the year to 31 March 2012 after goodwill amortisation and exceptional items of £62.2m (2011: £5.4m), including the contract losses and £7.7m in redundancy and restructuring costs and wind-down of businesses.
The company said its underlying strength has been retained, proven by its EBITDA before exceptional costs of £56.6m (2011: £93.5m).
In terms of the Apollo acquisition, it recorded expenses of £2m and places £160.2m in goodwill on the acquisition, which values the Apollo business as an intangible asset, based on elements such as the brand value and customers relationships.
Keepmoat – performance
Keepmoat operates through four core business areas: new-build homes, community regeneration, responsive maintenance and sustainability.
As well as the Apollo takeover, it has also seen the integration of FHM, Bramall Construction, Milnerbuild and Keepmoat Homes under the Keepmoat brand.
Last year they built, refurbished or repaired almost 260,000 properties.
Keepmoat has a social housing regeneration order book of £1.5bn.
The new-build homes business delivered a record 1,570 units (1,220 in 2011) and has secured a land bank of 16,478 plots.
Keepmoat Homes achieved turnover of £161.6m (1,570 units) (2011: £126.0m (1,220 units), representing 23.9 per cent (2011: 19 per cent) of total group turnover.
The regeneration division achieved a turnover of £514.5m (2011: £551.1m).
Partnership agreements in Sheffield, Newcastle and Scarborough and Preferred developer on 18 individual schemes.
Keepmoat employs 3,200 people; there were 200 redundancies on the back of the merger.
Keepmoat Limited is a wholly owned subsidiary of Lakeside 1 Limited, the ultimate holding company of the Keepmoat Group.
During the year the company acquired 100 per cent of the share capital of Conquest Bidco Limited for £1,984,000 and a further 4 in Milnerbuild Limited for £73,000.
The directors who held office during the year and up to the date of signing the financial statements are given below:
D Sheridan (Appointed 03/09/12)
J Thomson (Appointed 03/09/12)
D Bridges (Appointed 03/09/12)
P Hindley (Appointed 01/07/07)
I Sutcliffe (Appointed 12/01/12; Resigned 22/10/12)
J Thirlwall (Resigned 22/10/12)
T Allison (Resigned 23/03/12)
D Blunt (Resigned 10/07/12)
C Bovis (Resigned 23/03/12)
A Hickling (Resigned 23/03/12)
D Cowie (Resigned 23/03/12)