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TopHat still three years from seeing a profit as losses widen

9 Aug 23 Volumetric house-builder TopHat Industries saw its sales revenue fall and losses widen last year.

TopHat Industries lost more than £20m before tax last year on barely £10m of sales. It doesn't just lose money, it loses more than it makes – twice as much.

Sister company TopHat Communities, which is responsible for deployment of modules on customer sites, lost a further £5.1m before tax.

The problems of the prefab housing sector have been well documented this year with the demise of Ilke Homes and Legal & General shutting its factory.

TopHat was set up by Jordan Rosenhaus in 2016 and substantially acquired by Goldman Sachs the following year. There was much government encouragement for the offsite sector amid a rampant orthodoxy that building houses in factories was the way to solve the housing crises – building them faster, better and cheaper, it was argued.

However, difficulties with planning, finance and quality issues have stymied the growth of the sector. Ilke and Legal & General decided to cut and run, not to throw any more good money after bad. TopHat, however, has deep pockets and is determined to stay the course until the market comes good.

This time last year, its 2021 annual accounts, TopHat said that it was three years from making a profit.  This week it filed its 2022 accounts – and repeated that it was still three years from making a profit.

In the year to 31st October 2022 TopHat Industries (the manufacturing business) doubled its production but saw revenue decrease from £12.4m to £10.2m, due to rules about revenue recognition – until the homes are actually sold, rather than just shipped, they cannot count as revenue.

In the same period, operating loss widened from £17.1m to £18.6m. The loss before tax was £20.4m, up from £18.0m in fiscal 2021.

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With average employee numbers increasing during the year from 127 to 212 in 2022, staff costs rose from £4.0m to £6.9m.

TopHat shareholders, principally Goldman Sachs but also Persimmon and Aviva, have put in more than £150m to date – £200m including accrued interest.

A lot of the money is going into a new 650,000 sq ft factory under construction at Corby’s new Magna Park industrial estate.

The current factory in Dove Valley Park, in Foston near Derby, is 125,000 sq ft factory with capacity to produce 800 homes a year. The Corby factory will have capacity for an additional 4,000 homes a year. It just needs steady orders to keep the production lines moving. Already the start of production has slipped. Until recently the company was saying that Corby would be “delivering its first homes by the end of 2023”. It now says that it will open sometime in 2024.

Sister company TopHat Communities increased turnover from £7.1m to £13.4m. The increase was attributed to customer JG Chatham, another TopHat sister company, received and installed modules for phase two of its Kitchener Barracks development in Kent (which TopHat Industries cannot yet account as a sale).  But TopHat Communities’ operating costs have trebled. The previous year’s operating profit of £10.3m became an operating loss of £1.8m in 2022. The pre-tax result for TopHat Communities was a £5.1m loss (2021: £7.8m profit).

Chief executive Jordan Rosenhaus said: “The group is not yet profitable or cash generative, due to this investment in future growth and innovation. The delivery of the second factory, in particular, will enable TopHat to deliver strong profitability and cash flow within the next three years.”

He said the continued investment in future growth, increasing the cost base of the company ahead of its existing operations, was all part of the plan.

“The directors feel that this investment in overhead is a key strategic initiative to deliver the future business plan,” he said. “The directors are confident in the TopHat business plan, underpinned by the development of the second factory and the strong pipeline.”

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