REG - Platform HG - 3rd Quarter Results

Japan Creative Platform CoAnnouncement

16/02/2023 08:15

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RNS Number : 0491Q  Platform HG Financing PLC  16 February 2023

16 February 2023

 Platform HG Financing Plc

 Platform Housing Group's Trading Statement for the Nine Months to December
 2022

The following report provides a trading update for Platform Housing Group
(Platform), covering unaudited financial performance, development and treasury
activities.

 

Highlights

 

·   Social housing lettings turnover growth of 7.1% to £187.4m (Dec-21:
£174.9m)

·   Robust shared ownership sales margins of 20.1% / 45% on first tranche /
staircasing (Dec-21: 19.7% / 43%)

·   Total turnover growth of 2.1% to £228.5m (Dec-21: £223.8m)

·   94.7% of turnover from social housing activities (Dec-21: 96.2%)

·   Operating surpluses reduced 5.1% to £66.7m, driven in particular by
increased maintenance and energy costs

·   A+ (stable outlook) credit rating with S&P affirmed

·   Stable outlook for full year margins

 

 At or for the nine months ended 31 December         2021              2022              Change

 Turnover                                            £223.8m           £228.5m           2.1%
 Social housing lettings turnover                    £174.9m           £187.4m           7.1%
 Operating surplus((1))                              £70.3m            £66.7m            -5.1%
 New homes completed                                        971               775        -20.2%
 Investment in new homes                             £157.4m           £163.2m           3.7%
 Investment in existing homes((5))                   £9.5m             £13.8m            45.3%
 Share of turnover from social housing lettings      78.2%             82.0%             +3.8ppt
 Social housing lettings margin((2))                 36.7%             33.9%             -2.8ppt
 Current tenant arrears((3)(4))                      2.7%              3.1%              +0.4ppt
 Gearing((2)(4))                                     42.0%             43.5%             +1.5ppt
 EBITDA-MRI interest cover((2))                      196%              215%              +19.0ppt

 

Notes

(1)   Surplus excluding gains on disposal of property, plant and equipment

(2)   Regulator for Social Housing Value for Money metric; for more
information go to
https://www.gov.uk/government/publications/value-for-money-metrics-technical-note

(3)   Current tenant arrears includes all general needs tenants (this
excludes shared ownership properties)

(4)   Figures as at 31 December (as opposed to accumulated over the period
to December)

(5)   Investment in existing homes includes capital expenditure on
maintenance and decarbonisation works

 

Elizabeth Froude, Platform's CEO commented:

 

"I am pleased to share our results for quarter 3 which deliver a positive
outcome in an ever difficult environment.  The turnover in our core social
lettings business is up year on year by 7.1%, as a result of both annual
rental increases and a further 775 units coming in to management.

Costs of maintenance and investment remain high as we continue to reduce
back-logged works and absorbed ongoing cost inflation.  This has meant a
reduction in social housing lettings margin (36.7% in Dec-21 to 33.9% in
Dec-22).  As a business, we have agreed with our Board a short term reduction
to our Golden Rule of 35% as we step up the investment levels in existing
stock.  Given the current cost of living crisis, we remain committed to
energy improvement works and supporting our customers, which is a commitment
we will see carried in to the coming 2023/24 financial year.  In the nine
months to December we retrofitted approximately 200 homes, improving the
average Energy Performance Certificate rating of those homes from an E to a C.

 

Our customer Wellbeing Fund continues to be in demand and gives us a good
insight in to the difficult environment our customers are dealing with and
much of the monies paid out are focussed on much needed essentials. This has
motivated our Board to increase the total budget from £1.75m to £2.0m for
this financial year.

 

Sales of shared ownership homes remains robust with strong demand for our
well-priced homes, with both first tranche proportions and margins being above
the prior year.  We remain focussed on delivering affordable homes of all
tenures we build, and the decline in sales turnover simply reflects the
profiling of our development programme.  As at the end of December we had
only 66 unsold units, almost all of which had completed in late December.

 

Our Statement of Financial Position metrics remain amongst the best in the
sector with the increase in debt and gearing being as a result of ongoing
investment for future new homes.

 

Damp and mould has created higher volumes of customer and stakeholder
enquiries, complaints and surveying work.  At Platform we have a solid and
clear process for dealing with these, to ensure all cases reported are tracked
to resolution and have increased resources to accommodate current levels.  We
have re-run our damp and mould training with all staff to ensure their ability
to support our customers and our in-house maintenance team are all equipped
with appropriate equipment to deal with the low level and immediate cases they
encounter."

 

Financial review

 

Turnover

In the period to 31 December 2022 total turnover increased by 2.1% to £228.5m
(Dec-21: £223.8m).

 

Social housing lettings turnover increased by 7.1% to £187.4m (Dec-21:
£174.9m) as a result of inflationary rental increases and a year-on-year
increase in social housing units.  The increase in turnover was in spite of a
slight increase in rental arrears as customers begin to be affected by the
cost of living crisis.

 

Turnover from shared ownership first tranche sales was down 29.6% to £27.8m
(Dec-21: 39.5m) due to timing of the development cycle.  The demand for
shared ownership homes remains robust, with margins and unsold homes
performing more favourably than the prior year as outlined later in this
report.

 

Turnover from all social housing activities of £216.3m (Dec-21: £215.4m)
accounted for 94.7% (Dec-21: 96.2%) of Platform's total turnover in the
period.

 

Surpluses and margins

Operating surpluses excluding fixed assets sales decreased by 5.1% to £66.7m
(Dec-21: £70.3m) and operating surpluses including fixed asset sales
decreased by 1.2% to £75.8m (Dec-21: £76.7m).  Surpluses from social
housing lettings decreased by 0.9% to £63.5m (Dec-21: £64.1m).

 

Operating margins were 29.2% excluding fixed asset sales (Dec-21: 31.4%),
33.2% including fixed asset sales (Dec-21: 34.3%) and 33.9% from social
housing lettings (SHL) (Dec-21: 36.7%).  The Platform Group Board have
accepted a temporary divergence from the golden rule for SHL margin (which
targets 35% minimum), in order to continue to invest in improving the quality
and energy efficiency of our homes and in continuing the programme for change
and improvement, at the same time as continuing to provide planned services
and support to our customers but recognising the pressure of catch up works
costs and the unprecedented levels of cost inflation incurred in the year to
date. No covenants are linked to SHL margin and all other golden rules
continue to be comfortably met.

 

Operating surpluses and margins have been adversely affected by higher
maintenance and service expenditures.  Revenue maintenance expenditures have
increased by 30% to £53.1m as a consequence of cost inflation, a shortage of
labour availability (impacting sub-contractor costs) and higher volumes of
maintenance jobs as a consequence of clearing the backlog established during
covid.  In the nine months to December over 9,000 jobs were completed from
the backlog at a cost of c£2m.

 

Service costs of £19.1m have increased at approximately twice the rate of
associated incomes as higher costs, associated in particular with energy, have
not been passed onto customers in full.  Service incomes will catch up to an
extent in the following year as new charges are set, but Platform may decide
to implement gradual increases over several years to protect customers.

 

Shared ownership sales surpluses were £5.6m, representing 7.4% of total
operating surplus (Dec-21: £7.8m / 10.2%), with associated margins of 20.1%
(Dec-21: 19.7%).

 

Staircasing sales of shared ownership properties, where a customer buys a
further stake in their home, continue to perform in line with the prior year
with surpluses and margins of £5.2m and 45% (Dec-21: £4.8m / 43%).

 

The overall net surplus after tax, which incorporates interest costs, was
£42.8m in comparison to £33.6m in the prior year due to favourable loan
breakage costs/credits in the prior/current period (£10.5m) and one-off
depreciation charges in the prior period (£5.6m).  When these are adjusted
for, surplus after tax of £26.7m is £6.9m lower than the prior year figure
of £33.6m, driven by increases to maintenance expenditures and service
charges as outlined above.

 

Outlook

For the year to March 2023 turnover is expected to continue to grow in line
with new units coming into management.  Operating costs are expected to
continue to be adversely affected by higher maintenance and service costs.
Overall margins are expected to be broadly in line with those for the year to
date.

 

Development review

 

Platform's home building programme continues to produce new affordable homes
for those in need across the Midlands.  There were 775 homes completions to
December (Dec-21: 971), all of which had an EPC rating of B and above.  Of
these, 201 (26%) were built for social rent, 299 (39%) for affordable rent and
275 (35%) for shared ownership.  Development expenditures were £160m in the
period (Dec-21: £155m).  At 31 December 2022, Platform owned a total of
47,767 homes (Dec-21: 46,968).

 

The development programme has been affected by an increase in global demand
for materials, the impact of Brexit and the war in Ukraine.  These have
resulted in increases to materials and labour costs, and extended supply
times.  Most schemes on site are subject to fixed price contracts, providing
some protection from cost inflation in the short term. However, cost increase
requests for schemes on site continue to be experienced and for new schemes it
is becoming more difficult to enter into fixed price arrangements.

 

There were 279 shared ownership sales to December (Dec-21: 457).  The number
of unsold units at the end of the period was 66 (Dec-21: 124).  The majority
of these units (51 out of 66) were handed over during December 2022.

 

Outlook

Platform remains committed to developing in a prudent and sustainable manner,
without compromising financial strength.  Development cost inflation, which
is expected to persist in the short/medium term, may affect the scale of our
programme.  The projected delivery for our identified and on-site programme
for the full year is approximately 1,100 homes.

 

There are currently no signs that the unfavourable economic conditions are
adversely affecting demand for shared ownership homes.  Higher interest rates
and the cost of living squeeze may have a detrimental impact on owner occupier
housing demand going forwards, however, it is also possible that those looking
to buy a home on an outright basis might be drawn towards the more affordable
shared ownership product. Platform has no outright market sale units in its
committed development pipeline.

 

The Group does not invest in speculative land and has no actual or expected
material impairment in development sites.

 

Treasury review

 

Ratings activity

Platform retained its A+ (stable outlook) rating following S&P's annual
review shortly after the period end.  Platform is also rated A+ (negative
outlook) by Fitch, with the rating outlook aligned to the UK Sovereign rating
outlook, which was revised to negative following the UK's 'mini-budget' in
September 2022.

 

Debt and liquidity

Net debt was £1,244m (Dec-21: £1,139m).  Net debt comprised nominal values
of £882m in bond issues, £80m in private placements and £444m in term loan
and revolving credit facilities, partially offset by cash and equivalents of
£150m and non-cash accounting adjustments of £12m.

 

Platform's weighted average cost of finance was 3.32% (Dec-21: 3.28%).

 

Platform had sufficient liquidity as at 31 December 2022 (over £550m
including undrawn committed facilities and cash and cash equivalents) to meet
all its forecast needs until into 2024 (on top of maintaining 18 months of
liquidity in line with policy), taking into account projected operating cash
flows, forecast investment in new and existing properties and debt service and
repayment costs.

 

Financial ratios

Platform monitors its performance against various financial ratios, including
Value for Money metrics reported to the Regulator of Social Housing, and
ratios it is required to comply with under its financing arrangements.

 

Gearing, measured as the ratio of net debt to the net book value of housing
properties, was 43.5% at 31 December 2022 (Dec-21: 42%). Gearing has increased
in the last year due to cash and equivalents being used for development
expenditures. In addition, £25 million of treasury deposits with a maturity
in excess of three months existed in December 2022, which did not qualify as
cash and equivalents for the purposes of the gearing calculation.  Gearing
was comfortably within Platform's target of maintaining gearing below 55%.

 

EBITDA-MRI interest cover was 215% (Dec-21: 196%).  The movement from the
prior year is largely driven by one off breakage costs that adversely affected
the prior year comparative figure.  The ratio remains well above Platform's
target minimum (120%).

 

Outlook

Some upwards pressure in gearing and downwards pressure to interest cover is
expected as Platform pushes ahead with its strategic development and
maintenance objectives.  However, gearing and EBITDA-MRI interest cover
ratios are expected to remain well within Platform's targets.

 

For more information please contact:

 

Investor enquiries

Ben Colyer - +44 7918 160990 / +44 1684 579 566

investors@platformhg.com (mailto:investors@platformhg.com)

 

Media enquiries

media@platformhg.com

 

 

Disclaimer

These materials have been prepared by Platform Housing solely for use in
publishing and presenting its results in respect of the nine months ended 31
December 2022.

 

These materials do not constitute or form part of and should not be construed
as, an offer to sell or issue, or the solicitation of an offer to buy or
acquire securities of Platform Housing in any jurisdiction or an inducement to
enter into investment activity. No part of these materials, nor the fact of
their distribution, should form the basis of, or be relied on or in connection
with, any contract or commitment or investment decision whatsoever. Neither
should the materials be construed as legal, tax, financial, investment or
accounting advice. This information presented herein does not comprise a
prospectus for the purposes of Regulation (EU) 2017/1129 as it forms part of
domestic law by virtue of the European Union (withdrawal) Act 2018 (the UK
Prospectus regulation) and/or Part VI of the Financial Services and Markets
Act 2000.

 

These materials contain statements with respect to the financial condition,
results of operations, business and future prospects of Platform Housing that
are forward-looking statements. By their nature, forward-looking statements
involve risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of factors
that could cause actual results and developments to differ materially from
those expressed or implied by these forward-looking statements, including many
factors outside Platform Housing's control. Among other risks and
uncertainties, the material or principal factors which could cause actual
results to differ materially are: the general economic, business, political
and social conditions in the key markets in which Platform Housing operates;
the ability of Platform Housing to manage regulatory and legal matters; the
reliability of Platform Housing's technological infrastructure or that of
third parties on which it relies; interruptions in Platform Housing's supply
chain and disruptions to its development activities; Platform Housing's
reputation; and the recruitment and retention of key management. No
representations are made as to the accuracy of such forward looking
statements, estimates or projections or with respect to any other materials
herein. Actual results may vary from the projected results contained herein.

 

These materials contain certain information which has been prepared in
reliance on publicly available information (the "Public Information").
Numerous assumptions may have been used in preparing the Public Information,
which may or may not be reflected herein. Actual events may differ from those
assumed and changes to any assumptions may have a material impact on the
position or results shown by the Public Information. As such, no assurance can
be given as to the Public Information's accuracy, appropriateness or
completeness in any particular context, or as to whether the Public
Information and/or the assumptions upon which it is based reflect present
market conditions or future market performance. Platform Housing does not make
any representation or warranty as to the accuracy or completeness of the
Public Information.

 

These materials are believed to be in all material respects accurate, although
it has not been independently verified by Platform and does not purport to be
all-inclusive. The information and opinions contained in these materials do
not purport to be comprehensive, speak only as of the date of this
announcement and are subject to change without notice. Except as required by
any applicable law or regulation, Platform Housing expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
information contained herein to reflect any change in its expectations with
regard thereto or any change in events, conditions or circumstances on which
any such information is based.

 

None of Platform Housing, its advisers nor any other person shall have any
liability whatsoever, to the fullest extent permitted by law, for any loss
arising from any use of the materials or its contents or otherwise arising in
connection with the materials. No representations or warranty is given as to
the achievement or reasonableness of any projections, estimates, prospects or
returns contained in these materials or any other information. Neither
Platform nor any other person connected to it shall be liable (whether in
negligence or otherwise) for any direct, indirect or consequential loss or
damage suffered by any person as a result of relying on any statement in or
omission from these materials or any other information and any such liability
is expressly disclaimed.

 

Any reference to "Platform" or "Platform Housing" means Platform Housing Group
Limited and its subsidiaries from time to time and their respective directors,
representatives or employees and/or any persons connected with them.

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