Sovereign Housing Capital Plc 1st Quarter Results (8195W)

TIDM56TE

RNS Number : 8195W

Sovereign Housing Capital Plc

22 August 2022

Sovereign Housing Association's Quarterly Performance Update covering Q1 year 2022/23

Quarter 1 Performance Update

Our unaudited management accounts for Q1 2022/23 show operating surplus and overall surplus in-line with Q1 last year and a step-up from last quarter. Ongoing inflation impacts continue to create headwinds throughout our supply chain and show no sign of abating.

 
                    Q1 FY23  Q4 FY22      Var.       Q1 FY22      Var. 
                       GBPm     GBPm   GBPm       %     GBPm  GBPm       % 
==================  =======  =======  =====  ======  =======  ====  ====== 
Turnover              113.8    109.0    4.8     4.4    102.7  11.1    10.8 
                    =======  =======  =====  ======  =======  ====  ====== 
Operating Surplus      37.9     26.2   11.7    44.7     37.6   0.3     0.8 
                    =======  =======  =====  ======  =======  ====  ====== 
Retained Surplus       24.2     12.4   11.8    95.2     23.0   1.2     5.2 
                    =======  =======  =====  ======  =======  ====  ====== 
                          #        #      #       %        #     #% 
                    =======  =======  =====  ======  =======  ==== ===== 
Sales                   152      141     11     7.8      116    36    31.0 
                    =======  =======  =====  ======  =======  ====  ====== 
Unit Completions        125      445  (320)  (71.9)      166  (41)  (24.7) 
                    =======  =======  =====  ======  =======  ====  ====== 
 

The war in Ukraine and ongoing cost of living challenge is having a broad range of impacts across the organisation, ranging from the obvious increased costs of materials to continued lower Customer Satisfaction scores reflecting anxiety felt by our customers. Despite these challenges we have seen favourable results from both our Sales and our Staircasing activities, suggesting the housing market remains strong.

The development programme has continued to be challenging due primarily to resource and material availability issues impacting the whole of the building sector, however we were able to add an additional 125 units during the past quarter.

Treasury and Golden Rules

We held a non-deal roadshow with a number of our Investors in Edinburgh and London providing an update on our business. This presentation is available on our website for any investors that were unable to attend. As part of this presentation, we informed our Investors that we have created a Sustainable Finance Framework Sustainable Finance Framework for any future debt issuances, with a Second Party Opinion provided by Sustainalytics.

Sovereign operates within a number of Financial Golden Rules that underpin our treasury and risk management. We have a minimum liquidity Golden Rule, instantly available financing was GBP453m which equates to 23 months of forecast headroom and we are in discussions about extending some of these existing facilities. Considering the ongoing cashflow requirements included in the latest business plan we also expect to need extra financing in 2022/23 to fund development spend and maintain liquidity in line with our Golden Rule.

There is significant headroom against our Interest Cover and Gearing Golden Rules, creating protection against our underlying debt facility covenants. However we have fallen below our internal Operating margin Golden rule, which is set at the upper quartile of the Housing Association sector. 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 which will support the long term performance of the business and recovery of operating margin above 30%.

 
 Protection        Forecast   Trend   Threshold   Headroom   Definition 
  principle 
 Liquidity         23                 18 months   5 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       16.7%              40%         23.3%      Sales / turnover 
                  ---------  ------  ----------  ---------  ---------------------------- 
                                                             Operating surplus 
                                                              (excluding all development 
                                                              and asset sales) 
                                                              / turnover on rolling 
 Performance       29.7%              30%         -0.3%       three year basis 
                  ---------  ------  ----------  ---------  ---------------------------- 
                                                             10% minimum level 
                                                              of headroom against 
                                      121%        140%        all lenders' interest 
 Sustainability                                               cover covenants 
  - interest 
  cover            261.1%              110%        151%       Tightest covenant 
                  ---------  ------  ----------  ---------  ---------------------------- 
                                                             5% minimum headroom 
                                                              against all lenders' 
                                      71.25%      26%         gearing covenants 
 
 Sustainability 
  - gearing        45.5%               75%         30%        Tightest covenant 
                  ---------  ------  ----------  ---------  ---------------------------- 
 

Corporate Affairs

CIH Southeast

Mark Washer gave a keynote address at CIH Southeast in Brighton on asset management and development alongside Osama Bhutta, Director of Communications, Policy and Campaigns at Shelter and Jessica Levy, Director of Communications at the Federation of Master Builders.

In the evening of 11 May Sovereign hosted a dinner for over 30 developers, land agents, sector leaders and members of Sovereign's SLG.

Research launch - 21 May 2022, Westminster

On 21 May Sovereign launched a new research report Retrofit for the future: tenant attitudes to decarbonising social housing in Westminster. This qualitative research examines customers' current views on the environment and climate change, and how these might influence how they engage with our decarbonisation strategy.

Lord Greenhalgh, Minister of State at the Department for Levelling-Up, Housing and Communities spoke at the launch, along with Mark Washer and Paul Massara. They were joined by guests from Sovereign, including customers who took part in the research, civil servants, academics and others from the sector.

NHF independent panel launched

The National Housing Federation has appointed an independent panel to look into quality in housing association homes, chaired by Helen Baker, chair of Shelter. Mark Washer will sit on the Quality and Trust Steering group that is overseeing the work.

The panel has been set up in response to stories, especially on ITN, focusing on poor quality homes in housing associations.

You can find our more here .

S 

For more information, please contact:

Graeme Gilbert, Treasury Director, Sovereign Housing Association 07392130856 [e-mail]

Charles Pitt, Corporate Affairs Director, Sovereign Housing Association

07887524378 [e-mail]

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 securities.

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 revise any forward-looking statements, whether as a result of new information, future developments, occurrence of unanticipated events or otherwise.

None of the Parent, any member of the Group or anyone else is under any obligation to update or keep current the information contained in the Trading Update. The information in the Trading Update is subject to verification, does not purport to be comprehensive, is provided as at the date of the Trading Update and is subject to change without notice.

No reliance should be placed on the information or any projections, targets, estimates or forecasts and nothing in the Trading Update is or should be relied on as a promise or representation as to the future. No statement in the Trading Update is intended to be an estimate or forecast. No representation or warranty, express or implied, is given by or on behalf of the Parent, any other member of the Group or any of their respective directors, officers, employees, advisers, agents or any other persons as to the accuracy or validity of the information or opinions contained in the Trading Update (and 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

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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August 22, 2022 10:45 ET (14:45 GMT)