REG - Wrekin Housing Group - Annual Financial Report

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19/10/2022 08:15

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RNS Number : 3327D  Wrekin Housing Group Ltd (The)  18 October 2022

Wrekin Housing Group Limited

 Financial Report for the Year Ended 31(st) March 2022

Wrekin Housing Group Limited ('Wrekin', 'the Group') is pleased to announce
its consolidated results for the year ended 31(st) March 2022.

This report is for information purposes only.

 1.  Headlines

1.1  Despite the ongoing impact of the Covid-19 pandemic, the Group largely
delivered a "business as usual" service throughout 2021/22, and performed very
well in both operational and financial terms. In summary:

 

·   81.2% of all responsive repairs were completed on the day they were
reported, under the Group's flagship "same day, 7 days a week, 8am till 8pm"
repairs service;

 

·   The Group continued to provide care and support services to customers
of those services throughout the year, continuing to use COVID-secure methods
of working. Of the 13 CQC-registered sites operated by the Group, 12
maintained their CQC rating of "good" and the remaining home was rated as
"outstanding." In financial terms the provision of care and support services
continues to be a challenge, and the Group is reviewing its provision of
dementia care and learning disability care services to address this;

 

·  The Group delivered 318 new units in 2021/22 under its development
programme. This represented 84.6% of its original target, with the shortfall
accounted for by one large scheme which was slightly delayed and completed in
2022/23;

 

·   The Group's planned maintenance programme (taking revenue and capital
items together) increased from £11,907k in 2020/21 to £14,954k in 2021/22.
This was due to the fact that approximately 25% of the original 2020/21
planned maintenance programme could not be delivered during the first quarter
of 2020/21, due to the initial lockdown. In 2021/22 activity returned to more
normal levels and any "catch up" works from 2020/21 were completed in 2021/22.

 

1.2   During 2021/22 the enhanced financial reporting procedures for the
executive management team and the board, put in place at the start of the
pandemic, were maintained. The senior finance team was strengthened, bringing
in additional treasury management and business planning expertise, which
helped the Group to further refine its approach to business planning and the
stress testing of plans. The combination of those measures meant that the
Group continued to function well despite the ongoing pandemic and the
increasingly challenging macroeconomic climate, to the extent that most areas
of performance returned to, or were maintained at, pre-pandemic levels,
without the necessity to deploy any significant mitigating actions.

1.3   Income collection levels remained strong in 2021/22, as they had done
throughout the pandemic period. Year end arrears were just 0.55% of the total
rent roll for the year, maintaining the extremely high level of performance
seen in this area achieved over several years. Rent losses from void
properties reduced in 2021/22 (from 1.42% of the total rent roll to 1.13%) and
average time taken to relet properties also reduced (from 33.5 days to 31.2
days). Whilst average relet times did not return to pre-pandemic levels during
2021/22, the positive trend seen during the year has continued since the year
end.

1.4     During the year, the Group issued the final £25m of its retained
bond. The issue achieved a price of 95 basis points over gilts, providing an
all-in cost of funds of 1.962%.

1.5   Following the In Depth Assessment from the Regulator of Social Housing
the Group's regulatory judgement was reconfirmed as G1 (Governance) and V1
(Financial Viability) in April 2021. This was further reconfirmed as a result
of the Annual Stability Check by the Regulator in autumn 2021.

1.6     In August 2022 Standard and Poor conducted their annual review of
the Group's credit rating and this was reconfirmed as A (Stable).

2.  Financial and Operating Highlights

2.1    The Statement of Comprehensive Income for the year ended
31(st) March 2022 and the Statement of Financial Position as at 31(st) March
2022, together with the comparatives for the prior year are set out in
Appendix 1.

2.2   Other supporting financial information for the year ended 31(st) March
2022 and the corresponding comparatives are set out in Appendix 2.

2.3    A number of key financial performance indicators and financial loan
covenant calculations, based on the results for the year ended 31(st) March
2022 and the corresponding comparatives are set out in Appendix 3.

2.4    The financial and operating highlights are as follows:

          Income and Expenditure

·     Turnover for the year is £97,496k (2021: £95,709k)

·     Turnover from social housing lettings for the year is £77,170k
(79.2%) (2021: £76,242k (79.7%))

·     Operating surplus for the year is £26,609k (2021: £26,289k)

·     Operating margin is 27.3% (2021: 27.5%)

·     Interest payable for the year is £15,724k (2021: £15,955k)

·     Surplus for the year before tax is £10,904k (2021: £10,399k)

·     Interest cover is 2.01 (2021: 2.00)

Balance Sheet and Capital Expenditure

·    Wrekin owns and manages 13,115 units (2021: 13,041  units). It also
retains the residual freehold interest in 629 properties previously disposed
of under the Right to Buy or Right to Acquire provisions (2021: 648)

·     Housing properties at cost (excluding accumulated depreciation) are
£824,574k (2021: £764,528k)

·     Investment in existing and new housing properties for the year is
£70,085k (2021: £55,832k)

·     New social housing units developed during the year is 318 (2021:
277)

·     Total debt is XXX (2021: £489,649k)

·     Gearing (Assets) is 57.1% (2021: 59.7%)

·     Net debt per unit is £36,092 (2021: £35,212)

·     Income and expenditure reserves are £54,557k (2021: £34,868k)

 

 

3.  Results Overview

3.1     Turnover increased by 1.9% in 2021/22, to £97,496k from
£95,709k, but operating costs increased by 3.7%, from £73,604k in 2020/21 to
£76,335k in 2021/22. Gains on the sale of housing properties increased by 67%
as more customers exercised their options under the Right to Buy and Right to
Acquire legislation. Hence, operating surplus increased from £26,289k (a
margin of 27.3%) to £26,609k (a margin of 27.5%). The Group booked an
impairment charge of £1,720k in 2021/22 in respect of a large housing scheme
that has been earmarked for demolition and redevelopment.

3.2   There has been a significant year on year reduction in the pension fund
deficit with the Shropshire County Pension Fund, an LGPS pension, of £5,197k,
largely as a result of an actuarial gain of £8,856k (2020/21: actuarial loss
of £7,316k). This was due to shifts in actuarial assumptions regarding higher
future inflation expectations and a fall in the discount rate.

3.3    Surpluses on disposal of housing assets (which covers properties
sold under the Right to Buy and Right to Acquire provisions) increased from
£1,664k in 2020/21 to £2,786k in 2021/22. The number of Right to Acquire and
Right to Buy sales rose from 38 in 2020/21 to 53 in 2021/22, and average sale
values also increased, leading to the overall increase in the surplus.

3.4     In 2020/21 the Group booked an increase in the fair value of
assets of £2,662k (2020/21: £2,520k). This relates to the Group's small
portfolio of market rent properties which were revalued by an independent
external valuer during the year.

3.5     The Group met its financial loan covenants (interest cover and
gearing) and its asset cover covenants with a considerable degree of headroom
against funders' requirements.

4.       Property Development Programme

4.1    The Group has an ambitious development programme which aims to
deliver just over 2,300 new homes over the period from 2020/21 to 2024/25,
with the majority of those homes being developed via the Group's development
subsidiary, Strata Housing Services Limited.  The Group is on track to
deliver this plan, having completed 318 new homes in 2021/22, mostly for rent
at affordable and social rent levels, together with a small number of shared
ownership properties, and a further 1,721 forecast to be completed over the
next 3 years.

4.2  During 2021/22 the Group continued to deliver its Asset Renewal
Strategy, under which older, uneconomic properties are sold on the open market
as they become void, with the proceeds reinvested to support the development
programme. 77 properties were sold in 2021/22 under this strategy, which was
the 17(th) year of its operation. The aim of the strategy at its inception was
to ensure that the Group added three new properties for every two disposed of
under the strategy. In fact, it has been considerably more successful than
this, with an average of 2.73 new properties added for each property sold.

5.  Funding Facilities

5.1    During the year, the Group issued the final £25m of the £50m
retained bond. The issue achieved a price of 95 basis points over gilts,
providing an all-in cost of funds of 1.962%.

5.2    Total loans (net of loan issue costs) stand at £505,027 (2021:
£489,649).  The increase in debt was due to funding being drawn down to fund
the Group's development programme.

 

5.3     At the year end, the Group's loan portfolio was made up as
follows:

 Funder                             Fixed/Variable  Facility Amount  Drawn Amount  Undrawn Amount  Final Repayment Date
                                    £'000                            £'000         £'000
 Bond                               Fixed Rate      250,000          250,000       0               22/10/2048
 Nat West                           Fixed Rate      21,560           21,560        0               29/03/2040
 Nat West                           Fixed Rate      25,640           25,640        0               31/03/2036
 Santander                          Fixed Rate      70,000           70,000        0               22/10/2029
 Nat West                           Variable Rate   50,000           2,500         47,500          22/10/2029
 AIB                                Variable Rate   40,000           22,000        18,000          22/10/2026
 Nat West                           Fixed Rate      23,800           23,800        0               31/03/2026
 Lloyds                             Variable Rate   75,000           70,000        5,000           22/10/2025
 First Abu Dhabi Bank               Variable Rate   50,000           0             50,000          22/10/2024
 Total                                              606,000          485,500       120,500
 Discounts/Premiums on issue (net)                                   1,594
 Fair value adj.                                                     17,933
 Total                                                               505,027

 

6.  Outlook

6.1     The organisation has managed the continuing impact of the pandemic
well and the outlook is relatively positive with continuing opportunities for
growth through the Group's development programme, although cost pressures on
development costs are starting to have an impact on the viability of potential
schemes, meaning that the Group is becoming more selective in those that it
pursues.

6.2    The Group is only impacted to a limited degree by the implementation
of the new fire and building safety regulations. It only has 3 high rise
blocks in its portfolio, none of which present any issues with regard to
cladding, and a programme of works required to improve compartmentation and
upgrade some fire doors has been undertaken, and any ongoing cost implications
of increased fire safety measures have been incorporated into future budgets
for planned maintenance.

6.3     As a result of its long-standing, significant development
programme and Asset Renewal Strategy, the Group is also well-placed to ensure
that all its properties meet at least EPC Band C energy ratings by 2030 and
the expenditure to achieve this has again been factored into future planned
maintenance budgets. Achieving the net zero carbon target by 2050 presents a
significant challenge to the Group, as it does to the sector as a whole,
particularly against the backdrop of inflationary pressures on construction
and repairs materials and shortages of skilled labour. The Group has continued
to develop its approach in this area and has undertaken some pilot projects
(e.g. fitting solar PV systems coupled with onsite battery storage into a
number of its properties, developing a small number of modular and "off grid"
Passiv Haus properties to assess their performance and financial viability).

6.4   Maintenance of both the Group's strong regulatory judgement and its
strong credit rating were significant achievements over the last few months
and a recognition of the robustness of the Group's current position.

6.5   Going forward the Group, in common with the whole housing sector, is
faced with cost pressures (particularly relating to energy costs, insurance,
development, repairs materials, pay costs and interest costs) coupled with
having to deal with the impact of a rent cap. However, work is well advanced
to rework the Group's business plan to mitigate these impacts and ensure that
the Group maintains its robust financial position.

The Group signed its financial statements for the year ended 31st March 2022
in September 2022. These are available on the Investor Information section of
the Wrekin Housing Group website at
https://www.wrekin.com/Pages/Corporate/investor-information.

Enquiries: Please contact Jon Lamb, Executive Director of Finance, on 01952
217059 or at jon.lamb@wrekin.com (mailto:jon.lamb@wrekin.com)

Disclaimer

The information in this announcement has been prepared by Wrekin Group Limited
and is for information purposes only.  The Results Announcement should not be
construed as an offer or solicitation to buy or sell any securities issued by
any member of the Group, or any interest in any such securities, and nothing
herein should be construed as a recommendation or advice to invest in any such
securities.

This unaudited announcement contains certain 'forward-looking' statements
reflecting, among other things, our current views on markets, activities and
prospects.  Actual and audited outcomes may differ materially.  Such
statements are a correct reflection of our views only on the publication date
and no representation or warranty is given in relation to them, including as
to their completeness or accuracy or the basis on which they were prepared.
Forecast financial results quoted are unaudited. We do not undertake to update
or revise such public statements as our expectations change in response to
events.

 

Appendix 1

Consolidated Results for the Year Ended 31(st) March 2022

 Consolidated Statement of Comprehensive Income       2022      2021      Movement

£'000
£'000
£'000
 Turnover                                             97,496    95,709    1,787
 Operating Costs                                      (76,335)  (73,604)  (2,731)
 Gain on Sale and Disposal of Housing Properties      2,786     1,664     1,122
 Movement in the fair value of assets                 2,662     2,520     142
 Operating Surplus                                    26,609    26,289    320
 Interest Receivable and similar income               19        65        (46)
 Interest payable, financing and similar costs        (15,724)  (15,955)  231
 Surplus/(Deficit) Before Tax                         10,904    10,399    505
 Taxation                                             (71)      (122)     51
 Surplus/(Deficit) for the Year                       10,833    10,277    556
 Actuarial (Loss)/Gain on Pension Schemes             8,856     (7,316)   16,172
 Total Comprehensive Income / (Expense) for the Year  19,689    2,961     16,728

 

 Consolidated Statement of Financial Position  2021                        2020       Movement

£'000
£'000
£'000
 Fixed Assets                                       727,217                675,701    51,516
 Current Assets                                       43,898               45,426     (1,528)
 Current Liabilities                                (30,048)               (25,055)   (4,993)
 Net Current Assets                                   13,850               20,371     (6,521)
 Total Assets Less Current Liabilities         741,067                     696,072    44,995
 Longer Term Liabilities                           (630,222)               (599,719)  (30,503)
 Pension Schemes Liabilities                         (55,442)              (60,639)   5,197
 Total Net Assets                                     55,403               35,714     19,689
 Restricted Reserve                                        846             846        0
 Income and Expenditure Reserve                       54,557               34,868     19,689
 Total Reserves                                       55,403               35,714     19,689

 

Appendix 2

Other Financial Information for the Year Ended 31(st) March 2021

 Other Financial Information                                   2021       2020                          Movement

£'000
£'000
£'000
 Turnover from Social Housing Lettings                         77,170     76,242                        928
 Surplus on Social Housing Lettings                            18,838     20,139                        (1,301)
 Amortisation of Government Grants                             1,074      982                           92
 Depreciation of Housing Properties                            (13,350)   (12,663)                      (687)
 Depreciation of Other Assets                                  (717)      (685)                         (32)
 Capitalised Major Repairs                                     7,274              6,159                 1,115
 Investment in New Build Properties                            62,811            49,673                 13,138
 New Social Housing Units Developed                            318                    277               41
 Total Units Owned and Managed (Units)                         13,115            13,041                 74
 Total Units Owned (Units)                                     13,051            12,970                 81
 Historic Cost of Properties (excl. Accumulated Depreciation)  824,574         764,528                  60,046
 Cash and Cash Equivalents                                     33,990            32,944                 1,046
 Total Debt                                                    (505,027)      (489,649)                 (15,378)

 

Appendix 3

Key Financial Performance Indicators and Financial Covenants for the Year
Ended 31(st) March 2021

 Key Financial Performance Indicators              2021      2020
 Turnover from Social Housing Lettings (1)         79.2%     79.7%
 Operating Margin on Social Housing Lettings (2)   24.4%     26.4%
 Social Housing Costs per Unit (£) (3)             £3,984    £3,803
 Operating Margin (4)                              27.3%     27.5%
 EBITDA-MRI to Net Interest (5)                    2.06      2.05
 Net Margin (6)                                    11.1%     10.7%
 Return on Capital Employed (7)                    3.6%      3.8%
 Interest Cover (8)                                2.01      2.00
 Gearing (Assets) (9)                              57.1%     59.7%
 Net Debt per Unit (10)                            £36,092   £35,212

 

 

Notes

1     Turnover from social housing lettings / Turnover

2     Operating surplus on social housing lettings / Turnover from social
housing lettings

3     Revenue and capital social housing costs (excl. Depreciation and
amortisation) / Total units owned and managed

4     Operating surplus / Turnover

5     Adjusted operating surplus / Net interest payable

(Adjusted operating surplus = operating surplus + depreciation of housing
properties + depreciation of other assets - capitalised major repairs -
amortisation of government grants)

6     Surplus / (Deficit) for the year (excl. Refinancing costs) /
Turnover

7     Operating surplus / Total assets less current liabilities

8     Adjusted operating surplus / Net interest payable

(Adjusted operating surplus = operating surplus + depreciation of housing
properties - capitalised major repairs - amortisation of government grants)

9     Net financial indebtedness / Historic cost of properties (excl.
accumulated depreciation)

(Net financial indebtedness equals total loans - cash and cash equivalents)

10   Net financial indebtedness / Total units owned

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