Flagship Finance PLC Half Year Results and Change to Executive Team (9053J)

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RNS Number : 9053J

Flagship Finance PLC

15 December 2022

Flagship Finance Plc

Flagship Housing Group (Flagship) performance update covering the 6-month period to 30 September 2022

Opportunity to strengthen Executive team

With an ambitious and challenging agenda ahead we have taken the opportunity to strengthen our Executive team. David Armstrong (formerly Chief Financial Officer) will take up a new role as Chief Operating Officer with responsibility for Housing, Development, Assets, Repairs and Gasway. Jonathan McManus will step up from Group Finance Director to Interim Chief Financial Officer. The changes are effective from 1 December 2022.

Message from Chief Operating Officer

David Armstrong, Chief Operating Officer at Flagship, said: We've delivered a robust set of results for the first half of the year despite higher levels of cost inflation and increased expenditure on repairs and maintenance, demonstrating our resilient financial position underpinned by our healthy liquidity.

Maintaining compliant high-quality affordable homes within the sector has, once again, been brought into focus by recent news stories and Flagship continues to proactively invest in our housing stock to ensure that we continue to build upon our position as a responsible landlord.

Moody's has moved the wider housing sector downward to a credit negative position reflecting the sector's high exposure to weakening economic conditions including high inflation, the risk of a housing market downturn and rising interest rates. Despite challenging economic conditions, Flagship's robust financial position places us in a strong position to continue to deliver growth into 2023/24.

Our sustainability agenda remains unchanged with EPC C remaining a key focus for 2030, with investment in fabric first solutions and green technology key to delivering that target in a challenging trading environment.

Headline results and key highlights

   -      Flagship owns and manages 32,372 homes (31 March 2022: 32,192); 
   -      Flagship has completed 259 new residential homes (6 months to 30 September 2021: 302); 
   -      Turnover was GBP127m, up 4.6% on GBP121.4m for the 6 months to 30 September 2021; 
   -      Operating surplus of GBP44.1m for the 6 months to 30 September 2022; 

- Operating margin (including asset disposals and gain on joint ventures) has fallen slightly to 34.8% owing to higher levels

of cost inflation and increased repairs and maintenance expenditure;

   -      Invested GBP42.8m (up from GBP33.6m in 2021) to deliver improvements to existing homes; 
   -      Arrears have fallen year on year owing to targeted early intervention; 
   -      Gearing has fallen to 44% (6 months to 30 September 2021: 45%); 
   -      Debt per unit has remained stable at GBP29k per unit since 31 March 2022; 
   -      Social lettings interest cover has increased from 206% to 211% at 30 September 2022; and 

- Our homelessness charity Hopestead continues to support those starting a new tenancy from a place of homelessness to

create a home and maintain their tenancy.

Financial Performance

Unaudited management accounts for the six months to 30 September 2022 show a turnover of GBP127m (6-month period 21/22: GBP121.4m), delivering an operating surplus of GBP44.1m (6-month period 21/22: GBP47.9m).

Turnover growth year on year has predominantly been driven by a higher volume of market sale homes, 53 legal completions to 30 September 2022 compared to 39 to 30 September 2021. Half year to September 2022 saw lower shared ownership demand compared to the same period in the prior year, with 68 1(st) tranche sales compared to 124 in the 6-month period ending 30 September 2021. Lower revenue from 1(st) tranche sales has been offset by additional net rental income which has increased circa. GBP5m year on year.

The lower operating surplus reflects higher levels of cost inflation and increased expenditure on repairs and maintenance. Our active market sale developments are delivering a blended gross margin of approx. 14% which is also diluting operating margin as market sales account for a large proportion of revenue during the 6-month period ended 30 September 2022.

The Group continues to invest in its existing homes with expenditure of GBP42.8m during the first half of the year (6-month period ended 30 September 21: GBP33.6m). The Group is focused on identifying and reducing damp and mould issues within our properties, a topic currently gaining national attention, through targeted investment in building fabric improvements, insulation and airflow systems and monitoring through smart technology. We are proactively communicating with tenants and staff to promote awareness of damp and mould issues and to encourage reporting of damp and mould instances to help us remediate as soon as practicable.

The new build market remains challenging with material shortages, labour supply constraints and construction price inflation all impacting the delivery of new homes. The Group is monitoring its development program closely to ensure its return on investments remain attractive and enabling it to react proactively to changing economic conditions.

Social Housing property fixed assets stood at GBP1.9bn, up from GBP1.8bn at 31 March 2022. Drawn debt was GBP0.9bn at the end of the period, consistent with March 2022, and liquidity stood at GBP283m, 3x our 2-year net development commitment.

Operational Performance

Overall customer satisfaction has continued to improve year on year and our rent arrears have fallen marginally year on year from 5.29% in September 2021 to 4.82% in September 2022. Our fall in arrears has predominantly been driven by early intervention by our housing teams, enabling us to support our tenants proactively when they are experiencing hardship.

Void loss has equally fallen year on year from 1.33% in September 2021 to 1.11% in September 2022, reflecting a targeted focus on minor and major work voids enabling us to retenant properties more quickly. This explains some of the increased investment in our homes but also protects our cash inflow from our rental investments.

The Group completed 259 homes in the 6 months to 30 September 2022 (6-month period 21/22: 302), 73% for affordable tenures. This represents a 0.8% increase in our housing stock in the first six months of the year, and on course to deliver an approx. 2% increase for the full year.

Market sale and shared ownership sales generated income of GBP26.6m (6-month period 21/22: GBP25.1m), at a healthy margin of 20.7%. At 30 September 22 the Group had 73 completed properties in stock, with active sales proceeding on 64 (88%) of those homes.

Supporting our tenants and our communities

Since April 2022 our charity Hopestead has gifted over GBP0.3m in furniture, flooring and white goods to help individuals and families previously experiencing homelessness thrive in their own home. To date all of the individuals and families helped by Hopestead have remained in their tenancy demonstrating that with the right interventions we can eradicate homelessness. Hopestead is also providing GBP0.2m to Emmaus Suffolk to fund the construction of two self-contained intermediate move-on accommodation units, supporting those who have experienced homelessness to transition back into a home.

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December 15, 2022 12:08 ET (17:08 GMT)