Ilke Homes in race to pull in more funding

Modular housebuilder Ilke Homes is in a race to pull in further funding in the next month or see its auditors draw attention to financial risks in the business when it publishes its latest accounts.

The £28m turnover firm, which is more than two months late in filing its accounts, has been told by auditors that the current economic environment means it needs more funding than previously expected to get a financial clean bill of health, despite closing a £100m fundraising in December.

Ilke, which builds modular homes from a 250,000 sq ft factory in Knaresborough, North Yorkshire, told Building’s sister title Housing Today that Companies House had given it a time extension to file its accounts until at least the end of the month, in which time it was aiming to secure additional funding. Ilke’s accounts for the year to 31 March 31 2022 were due to be filed on at the end of March this year but still have not been published.

The issues emerged after Companies House began action last Wednesday to strike the firm off the register of companies, given its late filing of accounts, before then saying on Friday that this action had been “discontinued”.

Ilke chief financial officer Patrick Bergin said Companies House had apologised to Ilke for issuing the “notice for compulsory strike-off”, which he said had occurred in error despite Ilke having agreed a time extension “to the end of June” with the official business registration body.

Bergin said Ilke had always been aiming to close a further funding deal on top of its successful £100m fundraise which closed late last year, but that the proposed partner had pulled out for its own internal reasons shortly before the deal was due to be completed in March this year.

He said the accounts of the start-up modular builder, which reported a loss of £41m in the prior year to March 2021 on turnover of £28m, were ready to be published but that the auditor wanted to include a “caution” in the wording of the report, given the economic climate, if Ilke was unable to secure additional funding.

Bergin said: “We can file, the accounts are ready, [but] the final conversation with the auditor is around whether they include a caution in the audit report that references the severe but plausible downside scenario. I’m shooting for the cleanest outcome.”

He said he was “engaged in the process” of securing more funding within the next month, but declined to put a figure on the amount necessary, beyond saying it was less than the £100m already secured.

He said there was no question the auditors would “qualify” their audit opinion, but said that if no further funding was secured, they would likely include an “emphasis of matter” comment that there was a material uncertainty about the business continuing to be a going concern in certain downside scenarios.

Bergin said: “My simple anxiety with that expression is it’s not particularly helpful. This is part of the start-up battle. It’s very unhelpful for a start-up business to have anyone hinting at uncertainty.”

The delay to Ilke’s accounts comes at a time of significant uncertainty in the modular housebuilding sector following the closure of L&G Modular earlier this year, and the collapse of Urban Splash’s venture with Sekisui last year.

>> See also L&G Modular’s closure shows there’s a limit to the patience of slow capital

>> See also What does the closure of L&G’s flagship factory mean for the future of modular in the UK?

Bergin said this requirement for more funding came because of auditors requiring more stringent stress testing of the business in the wake of the market turmoil seen in recent months. He said: “Now they’re asking as a plausible downside scenario, ‘What if inflation is 15%? What would be the buffer capital you need?’”

Bergin described Companies House’s issuing of the strike-off notice as “hugely frustrating”, given Ilke had agreed a time extension to file its accounts. “They’ve issued an apology but it’s hard to get the genie back in the bottle,” he said.

He said all of this was occurring despite strong operational performance of the business, which he said delivered around 700 homes in the financial year to March 2023 and had built a pipeline of 4,000 homes worth more than £1bn in turnover.

He said the accounts, when published, would show that Ilke’s revenue topped £100m in the year to March 2022 – well over triple the previous year’s turnover – but that the business was still loss-making. He said: “You need an operation that can do scale, and you need an operation that can generate pipeline, and we have managed to do those two things. Thereafter its largely about execution.

“We’re clearly carrying a significant growth overhead in this business. We do need to be at greater scale to break even.

“But this business has hyper growth dynamics about it and has to. We know we need get to scale and we need to get to scale quickly. We don’t run vanity projects, we concentrate and really stick to the knitting, and produce a house that any housebuilder is pleased to take.”

A Companies House spokesperson said: “We accept on this occasion the strike off notice in respect of this company was issued in error and we’ve taken steps to rectify this.

“More generally however we encourage companies to avoid instances such as this by filing their accounts on time.”