Optivo Finance PLC Trading Statement for six months to 30 Sep 2020 (0194G)

TIDM20SY

RNS Number : 0194G

Optivo Finance PLC

20 November 2020

This is Optivo's unaudited trading update for the six months to 30 September 2020

"The first half of 2020/21 has seen us all adapting to new ways of living, working and delivering essential services and I'm proud of Optivo's contribution. To our residents, colleagues and business partners - thank you.

The second half will be about consolidating what we've learned and fine-tuning our business model for the future. Here at Optivo we're well prepared with robust plans and strong finances.

We'll continue taking care of our residents, communities, staff and homes while also building more much-needed new homes in collaboration with our public and private sector strategic partners."

Sarah Smith, Chief Financial Officer

17 November 2020

Highlights

   --    Supporting thousands of residents with their wellbeing and into jobs and training 
   --    Housing operations, repairs & maintenance fully adjusted to new ways of working 
   --    All development sites are open and working safely through the second lockdown 
   --    High volume of first tranche sales enquiries and reservations, valuations are stable 
   --    New build pipeline now refocused on affordable rent and low cost home ownership 
   --    Building safety & energy efficiency costs reassessed and covered in financial plan 

-- GBP300m debt raised and GBP150m deferred bond funding agreed; GBP788m (31/3/20: GBP542m) liquidity now covers all currently forecast funding needs until 2022

   --    Moody's outlook resolved: credit rating changed from A2 (negative) to A3 (stable) 
   --    Sector-first ESG transparency report published at optivoinvestors.co.uk 
   --    G1/V1 regulatory judgement[1]. 

Key financial indicators

 
     Income & expenditure (GBPm)        FY 2019/20   H1 2019/20    H1 2020/21 
                                          audited     unaudited     unaudited 
 Total turnover                            322          162           154 
             Non-sales turnover            291          148           146 
              Initial sales turnover        31           14             8 
 Cost of initial sales                     (25)         (11)          (7) 
 Operating costs                          (224)        (107)         (100) 
 Surplus on fixed asset property 
  sales                                     17           6             7 
 Operating surplus                          90           50            54 
 Operating margin excluding sales          23%          28%           31% 
 Net interest costs                        (45)         (23)          (24) 
 Surplus after interest                     45           27            30 
          Cash flows (GBPm)             FY 2019/20   H1 2019/20   H1 2020/21 
                                          audited     unaudited    unaudited 
 Cash from operations                      108           5            45 
 Investing activities                     (206)         (15)         (66) 
 Financing activities                      155          (26)         (18) 
 Net change in cash                         57          (36)         (39) 
-------------------------------------  -----------  -----------  ----------- 
 
 
   Balance sheet (GBPm)     31.3.2020   30.9.2019    30.9.2020 
                             audited     unaudited    unaudited 
 Total assets                 3,400       3,247        3,409 
 Total debt [2]               1,485       1,366        1,492 
 Cash & cash equivalents       137          95           98 
-------------------------  ----------  -----------  ----------- 
 

Half-year earnings are in line with our revised budget, which we re-profiled for coronavirus impacts. In March we exited the loss-making Ealing Care Alliance PFI care and facilities management service contract, our last care operations activity.

Net maintenance spend is significantly down on budget and this has boosted our operating margin. But we expect to return to a full-year operating margin similar to 2019/20. Since July we've seen our teams work to catch up on the backlog of repairs and major works delayed during lockdown. We intend to have caught up on the majority of planned works by the end of the financial year subject to any further restrictions that may arise from the second 'lockdown'.

Building safety remains a priority, and we're keeping up with all new guidance and regulation. We've budgeted GBP133 million over the next six years to assess and carry out remedial fire safety works where needed.

We've stress tested our cash flows to ensure we can cover a prolonged economic disruption. We have all the funds we need to deliver our existing investment commitments and ample financial flexibility to maintain our operations.

Operations & asset management

 
 Key operational indicators [3]    FY 2019/20   H1 2019/20   H1 2020/21 
 Void rental losses                   1.6%         1.6%         1.7% 
 Overall rent arrears                 4.3%         4.7%         4.5% 
--------------------------------  -----------  -----------  ----------- 
 
 
 Resident satisfaction    FY 2019/20   H1 2019/20   H1 2020/21 
 Service                     95%          96%          89% 
 Repairs                     98%          97%          98% 
 Neighbourhoods              91%          91%          93% 
-----------------------  -----------  -----------  ----------- 
 

At the start of the coronavirus crisis nominations from our Local Authority partners virtually ceased. General needs voids performance is now showing sustained improvement and is in line with budget. Voids in our independent living schemes remain high and with the pandemic ongoing and lockdowns still a reality, these will take time to work through.

We increased our provision for bad debts at the end of 2019/20. We are supporting our residents through difficult adjustments in household budgets and we now have over 8,600 residents on Universal Credit - an increase of over 1,500 since April. While we've seen a slight increase in arrears as anticipated this year, they are stable at around 4.54% against 4.5% target at 30 September. By 30 October arrears had reduced to 4.44%.

We're working hard to regain the ground we lost on resident satisfaction scores during the first lockdown and we're better prepared now for the second lockdown. We've launched phase 2 of our Residents' Resilience Project and in the last six weeks we've made 16,000 support calls to residents helping those who may be furloughed, looking for a new job, or struggling with money. We've also launched an online campaign, called 'We Can', to help our residents findnew jobs, improve their CV and access vital benefits.

Development & sales

 
 Investment in new homes (GBPm)    FY 2019/20   H1 2019/20   H1 2020/21 
                                     audited     unaudited    unaudited 
 Spent during the period              183          132           76 
 Future spend in contract             512          377          583 
--------------------------------  -----------  -----------  ----------- 
 
 
           New homes             FY 2019/20   H1 2019/20   H1 2020/21 
                                   audited     unaudited    unaudited 
 Started in the period             1,500         652          193 
 Completed in the period            838          145           89 
 In contract at the reporting 
  date                             2,558        2,734        2,828 
 Number of sites in contract         36           43           37 
------------------------------  -----------  -----------  ----------- 
 
 
  New homes available for sale     31.3.2020   30.9.2019    30.9.2020 
                                    audited     unaudited    unaudited 
 Open market sales                     0           0            8 
 Shared ownership first tranche       279         222          258 
   Unsold over six months              83          170          208 
--------------------------------  ----------  -----------  ----------- 
 

Interest in shared ownership remains strong, there is demand for viewings and reservations of homes, although progress to completion is taking longer than usual. Valuations remain high and we are working hard to take advantage of the market while it's strong. But with a second lockdown, the market not operating for a period and delayed handovers, we're not expecting to hit the number of sales budgeted this year.

We continue to monitor sales performance of all development sites. We have converted a further 120 homes in our development pipeline from open market sale to shared ownership. This leaves us with just 288 (10%) open market sale homes from a total committed programme of 2,828.

We've moved the focus of our new financial plan even further towards grant-funded affordable homes.

Financing

 
            Key metrics              31.3.2020    30.9.2019    30.9.2020 
                                       audited     unaudited    unaudited 
 Cash and cash equivalents (GBPm)       137           95           98 
 Available debt facilities (GBPm)       405          515          690 
 Interest rate profile: 
   % of net debt on fixed basis          85%          92%          94% 
   Weighted average duration           13 years     14 years     12 years 
   Weighted average debt cost           3.79%        3.94%        3.79% 
   Derivative mark-to-market           GBP171m      GBP172m      GBP174m 
----------------------------------  -----------  -----------  ----------- 
 

In April we increased our liquidity by GBP300 million through a new GBP150 million 2035 public bond sale and GBP150 million participation in the Bank of England's Covid Corporate Financing Facility (CCFF).

In September we tapped our 2043 bond and agreed a sale of GBP100 million in notional amount, which will raise GBP150 million proceeds in March 2022, to refinance the CCFF.

We have GBP100 million further 2035 retained bonds and GBP50 million 2043 retained bonds available for sale and welcome enquiries for sale on a deferred settlement basis.

External ratings

 
                                      31.3.2020      30.9.2019     30.9.2020 
 RSH governance judgement                 G1             G1            G1 
 RSH financial viability judgement        V1             V1            V1 
 Moody's credit rating                    A2             A2            A3 
                                       (negative)     (negative)     (stable) 
----------------------------------  -------------  -------------  ----------- 
 

In October Moody's updated our credit rating from A2 (negative outlook) to A3 (stable outlook)[4] and again confirmed our rating after their action to downgrade the UK sovereign credit rating. Moody's identify our profitable core business, market position, strong balance sheet and unencumbered asset position, financial policies, stress testing, grant flexibility and liquidity as credit strengths.

Calendar

Financial year end 31 March 2021

   Full year trading update                                                                 May 2021 
   Audited financial statements                                                         July 2021 
   Property security valuations for listed bonds                              by 31 July 2021 

More information

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://optivoinvestors.co.uk/

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.

[1] Regulator of Social Housing's in-depth assessment is in progress and their updated judgement is due later this year.

[2] Excluding capitalised debt arrangement costs

[3] Figures based on general needs and housing for older people (HOPS)

[4] https://optivoinvestors.co.uk/getmedia/f1aa0550-e580-4efd-9277-5b0d32ff4016/credit-rating-oct-2020-published.pdf.aspx?ext=.pdf

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.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

TSTKBLBLBFLZFBD

(END) Dow Jones Newswires

November 20, 2020 04:53 ET (09:53 GMT)