Flagship Finance PLC Flagship Half Year Results

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Flagship Finance PLC

12 November 2021

Flagship Finance Plc

Flagship Housing Group Limited (Flagship) trading update and unaudited financial statements for the 6 months ended 30 September 2021

Flagship, the parent company of Flagship Finance Plc and a Registered Provider owning and managing 31,984 homes in the East of England, announces its half year trading highlights and summary unaudited financial results for the 6 months to 30 September 2021.

Headline results and highlights

-- Flagship, own and manage 31,984 homes (31,825 at 31 March 2021) - the largest landlord in the East of England, bringing significant regional influence

-- Flagship benefit from a G1 / V1 rating from the Regulator of Social Housing - last IDA completed 28 October 2020

   --      Flagship has maintained its credit rating of A2 (Stable) from Moody's 
   --      Financial performance remains robust with operating margin increasing from 30.0% to 33.8% 

-- Unaudited operating profit for the period was GBP47.9m Housing Properties (net of depreciation) have increased to GBP1,776m from GBP1,755m

-- Flagship has published its ESG Report, running in parallel with its Sustainable Finance Framework. Both documents are available on our website: https://www.flagship-group.co.uk/about-us/investors-hub/

Statement of Comprehensive Income to 30 September 2021 (unaudited)

 
 
                                                              Year Ended             6 Months Ended 
                                                              30.03.2021                 30.09.2021 
                                                                 GBP'000                    GBP'000 
           Turnover                                              200,150                    121,395 
           Operating costs                                     (140,530)                   (80,861) 
           Gain on disposal of property, plant 
            and equipment                                          9,353                      6,870 
           Share of operating profit in joint 
            ventures                                                 480                        484 
------------------------------------------------  ----------------------  ------------------------- 
           Operating profit                                       69,453                     47,889 
------------------------------------------------  ----------------------  ------------------------- 
           Net finance expense                                  (25,181)                   (15,275) 
           Increase / (deficit) on revaluation                     1,824                          - 
            of investment properties 
           Profit for the period                                  46,096                     32,614 
------------------------------------------------  ----------------------  ------------------------- 
 

Financial indicators as at 30 September 2021

 
           Key Performance Indicators                                       Year Ended                      6 Months 
                                                                            31.03.2021              Ended 30.09.2021 
 
           Homes in management                                                  31,825                        31,984 
           Current tenant rent arrears %                                          3.9%                          5.3% 
           Rent loss from voids as a % of income                                 1.10%                         1.33% 
           New affordable homes delivered                                          460                           249 
           First tranche shared ownership sales                                    139                           124 
           Operating margin (excluding surplus on sale 
            of housing property, plant & equipment)                              30.0%                         33.8% 
           EBITDA MRI interest cover                                              243%                          232% 
           Gearing (Debt inc Finance Lease less cash; divided 
            by Housing Properties NBV)                                           46.5%                         46.0% 
 

Half year results demonstrate strong financial performance and commitment to sustainability

David Armstrong, Chief Financial Officer at Flagship said: The first half of the year has seen COVID restrictions lifting and service getting back to normal. During this period the sector has continued to experience challenges on both labour and materials availability that have impacted on our development and repairs programmes. However, we still delivered 249 affordable homes (148 Sept 2020). Demand for both open market sales and shared ownership has remained strong and sales continue to exceed appraisal values.

At the half year point voids numbers were higher than expected but the post lockdown recovery work has already made significant inroads to get these back to expected levels. Arrears whilst higher than the yearend at 5.3% has followed a similar post summer peak to the previous year (5.1%).

Alongside our repairs work we have continued with our programme of low carbon heating installations completing 203 replacements in the first half of the year.

Despite the post COVID challenges I am delighted to report such a strong set of half year results with margins improving despite the pressure on materials prices and the catch-up of repairs work following lockdown.

Operating Performance Review

In the 6 months to September 2021 total turnover increased by 27% to GBP121.4m. (H1 20/21: GBP95.3m)

Turnover from social lettings has increased by GBP2.3m to GBP80.2m in the current year driven by the inflationary rent increases and a year-on-year increase in social housing units. Turnover from social lettings currently represents 66% of total turnover.

The demand for outright sale homes and also 1st tranche shared ownership homes has been very strong during the 6 months to September 2021, with 39 outright sales and 124 1st tranche sales completed to date. When compared to the previous year turnover from outright sales has grown by GBP10.6m to GBP11m and 1st tranche sales have grown by GBP9.4m to GBP14.4m.

The housing team continue to manage the backlog of voids caused by the Covid related lockdown, year to date void loss is running at 1.3%, compared to 1.1% in 2020/21. Operating profit including profit on asset disposals and profit from joint ventures grew by 23% to GBP47.9m. (H1 20/21: GBP39.0m) which is ahead of expectations.

During the period of March to September 2020 the level of maintenance spend was impacted by Covid restrictions, resulting in a year on year increase of GBP3.7m when compared to the current year, this has offset the increase seen in social lettings turnover.

Operating profit from outright sales and 1st tranche sales have increased by GBP1.6m and GBP4m respectively due to the higher sales volumes and expected sales values being exceeded due to the continued demand for both products.

The first 6 months of 2021/22 has also seen a higher level of asset disposals, right to buy sales and shared ownership Staircasing. The result of this is an increased level of profit, increasing GBP3.3m year on year to GBP6.9m.

The Operating Margin excluding surplus on asset disposals is currently 33.8%, which is above the 2020/21 full year and Budget expectations.

Net Profit (after Interest and finance costs) of GBP32.6m is GBP5.8m higher than the comparative period in the previous year and 5.3% higher than the expected Budget.

It is expected that Net Profit will finish in line with Budget as the current upside from housing sales will be reduced in the second half of the year.

Since the end of the last financial year we have issued a GBP250m public bond (GBP100m retained) at a coupon of 1.875%.

Net Debt at the end of the period is GBP800m and immediately available liquidity was GBP355m consisting of GBP102m cash/cash equivalent, GBP162m of revolving credit facilities and GBP91m of retained bond that has security placed against it.

EBITDA-MRI interest cover at the end of September 2021 was 232% (243% at the end of March 2021) which is well above the tightest financial covenant of 120% within Flagship's loan arrangements.

Gearing (debt inc finance leases less cash; divided by housing properties net book value) at the end of September 2021 was 46.0%, this is slightly lower than the end of the previous financial year and is well within the target of maintaining gearing below 50%.

Development Review

Flagship is an experienced developer having delivered 1,486 affordable homes over the last three financial years and with a strong focus on social housing tenures. Flagship completed 302 new homes in the six months to 30 September (478 in the year ended 31 March 2021). 249 new homes are social properties and 53 properties to be sold on the open market.

Our growth strategy delivers a balanced portfolio of residential development and improvements to our existing housing stock. To serve the needs of a range of tenants and private customers, we will put our finances to good use by maintaining and improving our stock as well as adding to our asset base. We will build the right homes in the right places and now expect to deliver 755 homes in the year to 31 March 2022. This is an increase of 275 new homes when compared to the year ended 31 March 2021.

Flagship has a development plan targeting 4,000 new Affordable Homes over the next five years and 51% of development pipeline is already secured.

ESG

Our Environmental, Social and Governance (ESG) report gives Flagship the opportunity to showcase

the positive impact of its work. The Group has an ambitious programme to deliver c.4,000 affordable homes over the next five years and it wants to build them to high environmental standards. Flagship knows that a decent safe home has a positive impact on its tenant's quality of life. The Group is committed to tackling the environmental agenda and plans to retrofit c.2,000 of our existing homes every year through a fabric-first programme, focusing on thermal improvements, digital heating controls and installing renewable heating technology.

Tenants are at the heart of Flagship's decision making and through our green investment plans, it will make its homes safer and cheaper to run, which ultimately tackles fuel poverty and enhances quality of life for its tenants.

During the 6 months to September 2021, Flagship has installed 203 Air Source Heat Pumps in its properties.

Other

As part of our compliance programme we have undertaken a detailed review all of our buildings above 11 metres. During this process we identified that one of our 6 storey buildings was over 18m in height. This single block contains a total of 25 flats and has no cladding.

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Enquiries

All enquiries in relation to this trading update should be directed to:

Alex Fitzgerald, Head of Treasury and Regulation

Tel: [phone]

email: [e-mail]

Disclaimer

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

This announcement contains certain forward-looking statements reflecting, among other things, our current views on markets, activities and prospects. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. 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. Financial results quoted are unaudited. We do not undertake to update or revise such public statements as our expectations change in response to events. Accordingly, undue reliance should not be placed on forward looking statements.

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November 12, 2021 09:56 ET (14:56 GMT)