REG - Sovereign Housing - 3rd Quarter Results

Moody'sAnnouncement

24/02/2023 10:45

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RNS Number : 9995Q  Sovereign Housing Capital Plc  24 February 2023

Sovereign Housing Association's Quarterly Performance Update covering Q3 year
2022/23

 

Quarter 3 Performance Update

 

Our unaudited management accounts for Q3 2022/23 show operating surplus and
overall surplus less than Q3 last year and a step-down from last quarter.

 

                    Q3 FY23  Q2 FY23  variance        Q3 FY22  variance
                    £m       £m       £m              £m       £m
 Turnover           112.5    113.3    (0.8)  (0.7%)   106.0    6.5    6.1%

 Operating Surplus  28.7     36.2     (7.5)  (20.7%)  32.5     (3.8)  (11.7%)

 Retained Surplus   14.3     22.2     (7.9)  (35.7%)  19.6     (5.3)  (26.9%)

                    units    units    units           units    units
 Sales              125      147      (22)   (15.0%)  121      4      3.3%

 Unit Completions   412      414      (2)    (0.5%)   300      112    37.3%

 

The ongoing economic challenges are continuing to impact the organisation,
including increased costs of labour, materials and energy and higher funding
costs. High levels of repairs are occurring including a current focus on damp
and mould cases. Sales and staircasing activities have been favourable.
Confidence in our Shared Ownership product remains high, with demand and
pipeline still strong. Market conditions are evolving.

The development programme has handed over 412 units during the past quarter.
We expect to achieve 1552 handovers for the year as a whole, principally
rented social units.

Sovereign has recently completed on the disposals of Stanshawe and Belmont
Private Rental units in Reading. We have secured a place on the Homes England
Delivery Partner Dynamic Purchasing System: this is a list of preferred
developers and house builders who are able to bid on land owned by the
Government's housing delivery agency. The decision paves the way for Sovereign
to bid on larger sites delivering 70+ units across the East and West regions.

Treasury and Golden Rules

Moody's published on the 30(th) January a press statement announcing rating
action against 13 HAs, with a further 6 HAs subsequently being downgraded.
Sovereign's A2 rating was downgraded to A3, at this time, reflecting the
challenging environment the sector is experiencing and our exposure to
development risk.  Although we are disappointed in this downgrade, this is
still a strong investment grade rating. Sovereign remains strong financially
and continues delivering on core social purpose by investing in our existing
homes and building new homes. The detailed credit opinion can be found on our
Investor webpage (https://www.sovereign.org.uk/investors) .

Sovereign operates within a number of Financial Golden Rules that underpin
treasury and risk management activity. A summary is shown below. Instantly
available financing has increased from £397m last quarter to £451m (equating
to 33 months of forecast liquidity), following the completion of a new ESG
linked Term loan with Natwest, a new ESG linked revolving credit facility with
ABN Amro and an "amend and extend" of an existing syndicated facility.

There is significant headroom against Interest Cover and Gearing Golden Rules,
creating protection against underlying debt facility covenants. The
performance metrics below show underperformance on operating margin, which is
set at the upper quartile of the Housing Association sector.  We do not
expect this to recover in the short term as this is driven by the combination
of continued cost pressures the business is experiencing across our property
services, and increased spend in our Transformation programme, the benefits of
which will support longer term performance improvement of the business.

 

 Protection principle             Actual     Trend  Threshold     Headroom   Definition
 Liquidity                        33 months  ˄      ˂ 18 months   15 months  18 months as a minimum, where available cash plus committed and ready-to-draw
                                                                             borrowing facilities (excluding retained bonds) must exceed forecast cash
                                                                             flows excluding all uncommitted development spend and all income from
                                                                             development sales and asset sales.
 Market risk                      16.6%      ˅      ˂ 40%         23.4%      Sales / turnover %

 Performance (Op surplus %)       29.7%      ˄      ˃ 30%         -0.3%      Operating surplus (excluding all development and asset sales) / turnover on

          rolling three year basis

 Sustainability - Interest Cover  236.4%     ˅      ˃121%         115%       10% minimum level of headroom against all lenders' interest cover covenants

                                                                             Tightest covenant

                                                    ˃110%         126%
 Sustainability - Gearing         52.5%      ˅      ˂76%          24%        5% minimum headroom against all lenders' gearing covenants

                                                    ˂80%          28%        Tightest covenant

 

ESG

We have engaged with our energy broker Inspired Energy to support us on
measuring Scope 1, 2 and 3 emissions.  We expect to publish our Scope 1 and 2
emissions data for Year ending 2021/22 shortly and are targeting publishing
our scope 3 emissions information in the summer as part of our ESG report
publication.

We are also making good progress in improvements of our existing stock with
69.2% of our properties at EPC C or better with 24.4% of our core stock at EPC
B or better as at end of Dec 2022.

 

Corporate Affairs

Autumn Statement

On 17 November the Chancellor of the Exchequer gave the Autumn Statement,
which included plans to cap social housing providers rent at a maximum
increase of 7%. Following negotiations between the National Housing Federation
and Michael Gove, the Secretary of State for Levelling-Up, Housing and
Communities, it was agreed that housing associations would voluntarily cap
rent for shared owners at 7% as well. Given the range of options for the
government, this outcome was better than it could have been, while still
having a significant impact on our business plan.

Damp and Mould

Following the coroner's verdict in tragic case of Awaab Ishak, political and
media coverage of this issue has been very intense. In December Michael Gove
wrote to all social housing providers to remind us of our obligations to
customers. He has also started naming and shaming those he sees as the worst
offenders. Mr Gove is taking a personal interest in this issue and our
corporate affairs team are working closely with operational teams to ensure we
can respond to media enquiries on this issue. We have written to the Regulator
of Social Housing setting out in detail how we are handling cases of damp and
mould and have kept our local MPs and local authorities informed.

 

Retrofit networking dinner

Sovereign hosted dinner in London on 29 November with attendees from Green
Finance Initiative, NHF and CIH and representatives from BEIS.  The focus of
the dinner was retrofitting social housing.  We explored how government,
policy makers and the sector can ensure that we have the focus, skills and
resources to roll-out decarbonisation of social housing.

ENDS

For more information, please contact:

Graeme Gilbert, Treasury Director, Sovereign Housing Association
07392130856 Graeme.Gilbert@Sovereign.org.uk (about%3Ablank)

Charles Pitt, Corporate Affairs Director, Sovereign Housing Association

07887524378 Charles.Pitt@Sovereign.org.uk
(mailto:Charles.Pitt@Sovereign.org.uk)

 

Disclaimer The information contained herein (the "Trading Update") has been
prepared by Sovereign Housing Association Limited (the "Parent") and its
subsidiaries (the "Group"), including Sovereign Advances Ltd, Sovereign
Housing Capital PLC (the "Issuers") and is for information purposes only.

The Trading Update should not be construed as an offer or solicitation to buy
or sell any securities issued by the Parent, the Issuers or any other 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
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Statements in the Trading Update, including those regarding possible or
assumed future or other performance of the Group as a whole or any member of
it, industry growth or other trend projections may constitute forward-looking
statements and as such involve risks and uncertainties that may cause actual
results, performance or developments to differ materially from those expressed
or implied by such forward-looking statements. Accordingly, no assurance is
given that such forward-looking statements will prove to have been correct.
They speak only as at the date of the Trading Update and neither the Parent
nor any other member of the Group undertakes any obligation to update or
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future developments, occurrence of unanticipated events or otherwise.

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not purport to be comprehensive, is provided as at the date of the Trading
Update and is subject to change without notice.

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whether any information has been omitted from the Trading Update). The Trading
Update does not constitute legal, tax, accounting or investment advice.

www.sovereign.org.uk/investors (http://www.sovereign.org.uk/investors)

Note: Figures quoted in the update are based on unaudited management accounts
which are subject to review and further adjustments, for example in the areas
of pensions, investment property valuation and taxation.

 

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