Optivo Finance PLC Optivo 2019/20 unaudited preliminary results (9745N)

TIDM20SY

RNS Number : 9745N

Optivo Finance PLC

26 May 2020

OPTIVO

2019/20 UNAUDITED PRELIMINARY RESULTS

"Our immediate priority is supporting our residents, colleagues, suppliers, local authorities, NHS and community partners to manage the risk of COVID-19. In turn we're grateful for our colleagues' hard work and our residents' and partners' support. We've successfully adapted and continue to adapt our services to work with latest guidance.

Counter-cyclical investment in the housing sector will help bring our economy out of this crisis and we're ready to play our part. We've delivered full-year results in line with our previous half-year trading update. We have G1/V1 regulatory judgement, A2 Moody's credit rating and strong balance sheet with GBP800 million liquidity on tap, now covering our current committed capital expenditure 1.6 times.

We've co-created our new 2020-25 strategic plan with input from 2,200 residents and 500 colleagues. And while we set our goals before this crisis began, our aim remains true. We still intend to invest financial resources wisely, improving our existing homes, making them more energy-efficient, meeting Government's new building safety requirements, and building high quality new homes.

Unaudited results for the 2019/20 financial year are in line with our mid-year forecast, reflecting increasing fire safety works costs, higher voids, and slower first tranche sales."

Sarah Smith, Chief Financial Officer

26 May 2020

2019/20 financial highlights

 
   Income & expenditure (GBPm)      2017/18   2018/19    2019/20 
                                                         unaudited 
 Total turnover                       317       314        322 
    Non-sales turnover                295       285        291 
     Initial sales turnover            22        29         31 
 Cost of initial sales               (21)      (19)        (25) 
 Operating costs                     (199)     (204)      (224) 
 Surplus on fixed asset property 
  sales                               20        12          17 
 Operating surplus                    117       103         90 
 Net interest costs                  (42)      (42)        (48) 
 Surplus after interest               75        61          42 
---------------------------------  --------  --------  ----------- 
 
 
   Cash flows (GBPm)     2017/18   2018/19    2019/20 
                                              unaudited 
 Cash from operations      101       59          75 
 Investing activities     (113)     (223)      (173) 
 Financing activities     (28)       141        154 
 Net change in cash       (40)      (23)         56 
----------------------  --------  --------  ----------- 
 
 
     Balance sheet (GBPm)        31.3.2018   31.3.2019   31.3.2020 
                                                          unaudited 
 Total assets                      2,836       3,142       3,412 
 Total debt (excl capitalised 
  fees)                            1,089       1,281       1,478 
 Available undrawn facilities       606         380         405 
 Cash & cash equivalents            104         81          137 
------------------------------  ----------  ----------  ----------- 
 
 
       Key financial indicators           2017/18     2018/19     2019/20 
                                                                  unaudited 
 Homes in management (excl leasehold)     42,133      42,857       43,215 
 Headline social housing cost            GBP4,246    GBP4,189     GBP4,407 
  per unit 
 Net debt per unit                       GBP23,378   GBP28,000   GBP31,184 
 Net debt to turnover                       3.1         3.8         4.2 
--------------------------------------  ----------  ----------  ----------- 
 
 
   Bank loan financial covenants     2017/18   2018/19    2019/20 
                                                          unaudited 
 Interest cover ( annually > 100% 
  test )                              262%      240%        169% 
 Gearing ( <= 65% test )               35%       39%        45% 
----------------------------------  --------  --------  ----------- 
 

We delivered full year earnings in line with our mid-year forecast, which had been revised down from budget to reflect increased fire safety works costs, higher voids, and slower first tranche sales. In March we exited the loss-making Ealing Care Alliance PFI care and facilities management service contract, our last care operations activity.

Our balance sheet grew during the year in line with our long-term financial plan. We funded organic growth in housing assets by increasing our bank loans and selling our 2048 retained bonds. In early April we increased our liquidity by a further GBP300 million, through a new GBP150 million long term public bond sale and other short term financing. We continue to report housing properties at historic cost.

We've reforecast our 2020/21 budget for COVID-19 and also stress tested our liquidity to ensure we can cover a prolonged disruption. We have all the funds we need to deliver our existing investment commitments and ample financial flexibility to maintain our operations.

COVID-19

We're reaching out directly to residents, especially to help older and vulnerable people cope with the crisis

Residents

We've made 29,000 pro-active wellbeing phone calls and supported hundreds with food access, benefits advice and help coping with isolation. Our rent arrears are currently stable, but we're prepared for an increase. Our financial inclusion team are busy helping residents manage money and get wider support, and our Covid Money Advice service has had 7,000 hits. We've moved more resource into this team and also into the teams supporting residents exposed to domestic violence. We're doing all we can to ensure our NHS keyworker accommodation is a safe and secure haven for NHS staff working in acute treatment hospitals.

People & culture

Most colleagues are working from home and our productivity is as high as ever. We expect to continue for some time with the arrangements we've had in place since lockdown began. Noting the Prime Minister's announcements on 10 May, it's clear that lockdown advice hasn't fundamentally changed for us, for now. We're very mindful of colleagues' own wellbeing and the need to balance work with private responsibilities. Where we've taken the decision to furlough colleagues whose normal work couldn't carry on, we've handled it sensitively and only as a last resort after redeploying colleagues wherever possible across the business.

Operations & asset management

In line with guidance we've moved to emergency-only repairs service, alongside statutory safety compliance work which is also continuing. There are instances where we're unable to gain access to a property because a resident is self-isolating or is vulnerable and needs to be shielded from exposure. We're keeping a full record of all details to share with the Regulator of Social Housing, with whom we're in regular dialogue.

We have extended our definition of emergency repairs to pick up other urgent work to maintain properties in good condition, and we're tracking our maintenance work against normal seasonal trends. This allows us to forecast and manage any backlog of repairs to address once lockdown eases. We've implemented safe working procedures. We're also monitoring our supply chain and we are reassured of continuity.

Development & sales

Two-thirds of our construction sites are currently open with safe working practices in effect, up from one third a month ago, and more sites continue to open. Sales activity is continuing through digital viewings, albeit at reduced levels. All previously approved development schemes not yet contracted are being reviewed for continuing viability. Since March all new development commitments now require Board approval.

Financing

We've reforecast our 2020/21 budget and rebuilt our long-term financial plan to accommodate this sharp economic shock. We've stress tested our income collection and working capital and increased our available liquidity headroom by GBP300 million in April. This prudent step ensures we have more than enough liquidity to manage through the crisis.

Outlook

As the full extent of disruption to our economy becomes clearer, we'll keep a prudent eye on our financial plan and development programme, and will keep under review our plan targets approved in March ahead of lockdown.

2017-20 Strategic plan results

 
          Key performance indicators            2017/18   2018/19    2019/20 
                                                                     unaudited 
 Maximise our social impact 
           New homes started                      912      1,003      1,500 
           People into jobs & training           1,045     1,122      1,256 
 Ensure a sustainable business 
            Operating margin excluding sales      31%       29%        23% 
            Sustainable Homes for Tomorrow         -       Gold        Gold 
 Provide a sector leading service 
            Residents Net Promoter Score          66        62          55 
            Residents online                      43%       54%        61% 
 Value our people 
            Staff say we are a good employer      76%       77%        80% 
            Staff feel proud to work for 
             us                                   84%       81%        79% 
---------------------------------------------  --------  --------  ----------- 
 

Operations & asset management

 
 Resident satisfaction    2017/18   2018/19    2019/20 
                                               unaudited 
 Service                    97%       96%        95% 
 Repairs                    96%       97%        98% 
 Neighbourhoods             93%       91%        91% 
-----------------------  --------  --------  ----------- 
 
 
   Key operational indicators     2017/18   2018/19    2019/20 
                                                       unaudited 
 Void rental losses                0.6%      0.9%        2.2% 
 Vacant properties re-let time    27 days   39 days    87 days 
 Overall rent arrears              4.0%      4.3%        4.2% 
-------------------------------  --------  --------  ----------- 
 

Notes:

(1) Figures based on general needs and housing for older people (HOPS)

(2) Re-let times exclude voids for major works

Our void rental losses rose due to a greater number of properties unexpectedly becoming void in year, more work needed to improve properties returned to us in poor condition, and slower Local Authority nominations to bring in new residents. Before the impact of COVID-19 we had stabilised our void position and in March had started to see an improvement. Since then, we are letting in line with guidance, and are not reletting vacant homes to older people, so we expect voids will temporarily rise again.

Our arrears performance was in line with expectations and our financial plan. Throughout the year we continued to support residents migrating to Universal Credit where applicable. We've assessed our COVID-19 exposure to rental income delays or losses and made a provision in our accounts, subject to external audit. So far, however, we have not experienced any significant increase in arrears.

Building safety remains a priority. We have 102 blocks over 18 metres or 6+ storeys, as well as 3,367 lower-rise blocks. We've budgeted GBP80 million over the next six years to cover higher-rise block remediation where needed, Hackitt review and Grenfell inquiry phase 1 recommendations, and actions arising from our own fire risk assessments. We're currently studying the cost implications of Government's new approach to building safety announced in April, which includes bringing lower-rise buildings in scope for more work.

Development & sales

 
        New homes           2017/18   2018/19    2019/20 
                                                 unaudited 
 Started in the year          912      1,003      1,500 
 Completed in the year        470       985        693 
 In contract at year end     2,014     2,096      2,558 
 On site at year end         1,375     1,393      2,200 
 Number of sites              n/a       40          36 
-------------------------  --------  --------  ----------- 
 
 
  New homes available for sale     31.3.2018   31.3.2019   31.3.2020 
                                                            unaudited 
 Open market sales                     0           0           0 
 Shared ownership first tranche       65          262         279 
   Unsold over six months              7           27          83 
--------------------------------  ----------  ----------  ----------- 
 
 
  Investment in new homes (GBPm)     2017/18   2018/19    2019/20 
                                                          unaudited 
 Spent during the year                 156       245        258 
 Future spend in contract at year 
  end                                  356       404        512 
----------------------------------  --------  --------  ----------- 
 

Early in 2019 we moved our financial plan focus even more towards grant-funded affordable homes. Wherever feasible we took open market sales risk out of our plans.

In the latter part of 2019 Board reviewed our sales exposure and agreed to convert 43 homes to rental tenures. With development diversified across a number of sites and adequate liquidity already in place, we have the financial flexibility to review each site and make decisions on a site-by-site basis. Further reviews of sites is ongoing.

Financing

 
            Key metrics              31.3.2018    31.3.2019    31.3.2020 
                                                                unaudited 
 Cash and cash equivalents (GBPm)       104           81          137 
 Debt facilities (GBPm)                1,675        1,661        1,938 
   Drawn                                1,089        1,281        1,478 
   Available                             606          380          460 
 Interest rate profile: 
   % of net debt on fixed basis         101%          76%          85% 
   Weighted average duration           13 years     10 years     13 years 
   Weighted average debt cost           4.42%        4.24%        3.79% 
   Derivative mark-to-market           GBP146m      GBP148m      GBP171m 
----------------------------------  -----------  -----------  ----------- 
 

During the year we sold GBP100 million remaining 2048-maturity retained bonds and arranged GBP250 million new funding of which GBP75m was unsecured.

After the financial year end, on 7 April 2020, we completed a new GBP250 million 15 1/2 year public bond issue. We immediately repurchased and retained GBP100 million for future sale within 3 years. We also agreed GBP150 million unsecured short term funding from other sources, taking total liquidity to GBP800 million.

External ratings

 
                                     31.3.2018    31.3.2019      31.3.2020 
 RSH governance judgement                G1           G1            G1 
 RSH financial viability judgement       V1           V1            V1 
 Moody's credit rating                   A2           A2       A2 (negative) 
                                       (stable)     (stable) 
----------------------------------  -----------  -----------  -------------- 
 

The Regulator of Social Housing (RSH) was due to conduct an In-Depth Assessment (IDA) with us during 2020. RSH have notified us they are deferring their IDA programme for now, due to COVID-19 disruption.

In March Moody's announced our rating was unchanged after their periodic review.

Calendar

   Audited financial statements                                                       July 2020 
   Property security valuations for listed bonds                              by 31 July 2020 

Half-yearly trading update after 30 September 2020

More information

Optivo owns and/or manages homes across London, the South East and the Midlands. Optivo is registered in England with limited liability under the Co-operative and Community Benefit Societies Act 2014 (with registered number 7561) and is a Registered Provider of Social Housing whose activities are regulated by the Regulator of Social Housing (with registered number 4851). As such, Optivo has charitable status but is exempt from registration with the Charity Commission.

Optivo Finance plc (company number 07933814) is a wholly owned subsidiary of Optivo and is an issuer of GBP public bonds listed on the London Stock Exchange.

https://www.optivo.org.uk/about-us/investors.aspx

Tariq Kazi

Head of Treasury

[e-mail]

020 8036 2293

IMPORTANT NOTE

This update contains certain 'forward-looking' statements reflecting, among other matters, our current views on markets, activities and prospects. Actual 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. No reliance should be placed on the information contained within this update. We do not undertake to update or revise such public statements as and when our expectations change in response to events. This update is neither recommendation nor advice. This is not an offer or solicitation to buy or sell any securities.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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May 26, 2020 11:19 ET (15:19 GMT)