Wrekin Hse 48 Regulatory News (67TS)

Wrekin Housing Group Limited

 Financial Report for the Year Ended 31st March 2022

Wrekin Housing Group Limited ('Wrekin', 'the Group') is pleased to announce its consolidated results for the year ended 31st March 2022.

This report is for information purposes only.

 1. Headlines

1.1 Despite the ongoing impact of the Covid-19 pandemic, the Group largely delivered a "business as usual" service throughout 2021/22, and performed very well in both operational and financial terms. In summary:

· 81.2% of all responsive repairs were completed on the day they were reported, under the Group's flagship "same day, 7 days a week, 8am till 8pm" repairs service;

· The Group continued to provide care and support services to customers of those services throughout the year, continuing to use COVID-secure methods of working. Of the 13 CQC-registered sites operated by the Group, 12 maintained their CQC rating of "good" and the remaining home was rated as "outstanding." In financial terms the provision of care and support services continues to be a challenge, and the Group is reviewing its provision of dementia care and learning disability care services to address this;

· The Group delivered 318 new units in 2021/22 under its development programme. This represented 84.6% of its original target, with the shortfall accounted for by one large scheme which was slightly delayed and completed in 2022/23;

· The Group's planned maintenance programme (taking revenue and capital items together) increased from £11,907k in 2020/21 to £14,954k in 2021/22. This was due to the fact that approximately 25% of the original 2020/21 planned maintenance programme could not be delivered during the first quarter of 2020/21, due to the initial lockdown. In 2021/22 activity returned to more normal levels and any "catch up" works from 2020/21 were completed in 2021/22.

1.2 During 2021/22 the enhanced financial reporting procedures for the executive management team and the board, put in place at the start of the pandemic, were maintained. The senior finance team was strengthened, bringing in additional treasury management and business planning expertise, which helped the Group to further refine its approach to business planning and the stress testing of plans. The combination of those measures meant that the Group continued to function well despite the ongoing pandemic and the increasingly challenging macroeconomic climate, to the extent that most areas of performance returned to, or were maintained at, pre-pandemic levels, without the necessity to deploy any significant mitigating actions.

1.3 Income collection levels remained strong in 2021/22, as they had done throughout the pandemic period. Year end arrears were just 0.55% of the total rent roll for the year, maintaining the extremely high level of performance seen in this area achieved over several years. Rent losses from void properties reduced in 2021/22 (from 1.42% of the total rent roll to 1.13%) and average time taken to relet properties also reduced (from 33.5 days to 31.2 days). Whilst average relet times did not return to pre-pandemic levels during 2021/22, the positive trend seen during the year has continued since the year end.

1.4 During the year, the Group issued the final £25m of its retained bond. The issue achieved a price of 95 basis points over gilts, providing an all-in cost of funds of 1.962%.

1.5 Following the In Depth Assessment from the Regulator of Social Housing the Group's regulatory judgement was reconfirmed as G1 (Governance) and V1 (Financial Viability) in April 2021. This was further reconfirmed as a result of the Annual Stability Check by the Regulator in autumn 2021.

1.6 In August 2022 Standard and Poor conducted their annual review of the Group's credit rating and this was reconfirmed as A (Stable).

2. Financial and Operating Highlights

2.1 The Statement of Comprehensive Income for the year ended 31st March 2022 and the Statement of Financial Position as at 31st March 2022, together with the comparatives for the prior year are set out in Appendix 1.

2.2 Other supporting financial information for the year ended 31st March 2022 and the corresponding comparatives are set out in Appendix 2.

2.3 A number of key financial performance indicators and financial loan covenant calculations, based on the results for the year ended 31st March 2022 and the corresponding comparatives are set out in Appendix 3.

2.4 The financial and operating highlights are as follows:

Income and Expenditure

· Turnover for the year is £97,496k (2021: £95,709k)

· Turnover from social housing lettings for the year is £77,170k (79.2%) (2021: £76,242k (79.7%))

· Operating surplus for the year is £26,609k (2021: £26,289k)

· Operating margin is 27.3% (2021: 27.5%)

· Interest payable for the year is £15,724k (2021: £15,955k)

· Surplus for the year before tax is £10,904k (2021: £10,399k)

· Interest cover is 2.01 (2021: 2.00)

Balance Sheet and Capital Expenditure

· Wrekin owns and manages 13,115 units (2021: 13,041 units). It also retains the residual freehold interest in 629 properties previously disposed of under the Right to Buy or Right to Acquire provisions (2021: 648)

· Housing properties at cost (excluding accumulated depreciation) are £824,574k (2021: £764,528k)

· Investment in existing and new housing properties for the year is £70,085k (2021: £55,832k)

· New social housing units developed during the year is 318 (2021: 277)

· Total debt is XXX (2021: £489,649k)

· Gearing (Assets) is 57.1% (2021: 59.7%)

· Net debt per unit is £36,092 (2021: £35,212)

· Income and expenditure reserves are £54,557k (2021: £34,868k)

3. Results Overview

3.1 Turnover increased by 1.9% in 2021/22, to £97,496k from £95,709k, but operating costs increased by 3.7%, from £73,604k in 2020/21 to £76,335k in 2021/22. Gains on the sale of housing properties increased by 67% as more customers exercised their options under the Right to Buy and Right to Acquire legislation. Hence, operating surplus increased from £26,289k (a margin of 27.3%) to £26,609k (a margin of 27.5%). The Group booked an impairment charge of £1,720k in 2021/22 in respect of a large housing scheme that has been earmarked for demolition and redevelopment.

3.2 There has been a significant year on year reduction in the pension fund deficit with the Shropshire County Pension Fund, an LGPS pension, of £5,197k, largely as a result of an actuarial gain of £8,856k (2020/21: actuarial loss of £7,316k). This was due to shifts in actuarial assumptions regarding higher future inflation expectations and a fall in the discount rate.

3.3 Surpluses on disposal of housing assets (which covers properties sold under the Right to Buy and Right to Acquire provisions) increased from £1,664k in 2020/21 to £2,786k in 2021/22. The number of Right to Acquire and Right to Buy sales rose from 38 in 2020/21 to 53 in 2021/22, and average sale values also increased, leading to the overall increase in the surplus.

3.4 In 2020/21 the Group booked an increase in the fair value of assets of £2,662k (2020/21: £2,520k). This relates to the Group's small portfolio of market rent properties which were revalued by an independent external valuer during the year.

3.5 The Group met its financial loan covenants (interest cover and gearing) and its asset cover covenants with a considerable degree of headroom against funders' requirements.

4. Property Development Programme

4.1 The Group has an ambitious development programme which aims to deliver just over 2,300 new homes over the period from 2020/21 to 2024/25, with the majority of those homes being developed via the Group's development subsidiary, Strata Housing Services Limited. The Group is on track to deliver this plan, having completed 318 new homes in 2021/22, mostly for rent at affordable and social rent levels, together with a small number of shared ownership properties, and a further 1,721 forecast to be completed over the next 3 years. 

4.2 During 2021/22 the Group continued to deliver its Asset Renewal Strategy, under which older, uneconomic properties are sold on the open market as they become void, with the proceeds reinvested to support the development programme. 77 properties were sold in 2021/22 under this strategy, which was the 17th year of its operation. The aim of the strategy at its inception was to ensure that the Group added three new properties for every two disposed of under the strategy. In fact, it has been considerably more successful than this, with an average of 2.73 new properties added for each property sold.

5. Funding Facilities

5.1 During the year, the Group issued the final £25m of the £50m retained bond. The issue achieved a price of 95 basis points over gilts, providing an all-in cost of funds of 1.962%.

5.2 Total loans (net of loan issue costs) stand at £505,027 (2021: £489,649). The increase in debt was due to funding being drawn down to fund the Group's development programme.

5.3 At the year end, the Group's loan portfolio was made up as follows:

6. Outlook

6.1 The organisation has managed the continuing impact of the pandemic well and the outlook is relatively positive with continuing opportunities for growth through the Group's development programme, although cost pressures on development costs are starting to have an impact on the viability of potential schemes, meaning that the Group is becoming more selective in those that it pursues.

6.2 The Group is only impacted to a limited degree by the implementation of the new fire and building safety regulations. It only has 3 high rise blocks in its portfolio, none of which present any issues with regard to cladding, and a programme of works required to improve compartmentation and upgrade some fire doors has been undertaken, and any ongoing cost implications of increased fire safety measures have been incorporated into future budgets for planned maintenance.

6.3 As a result of its long-standing, significant development programme and Asset Renewal Strategy, the Group is also well-placed to ensure that all its properties meet at least EPC Band C energy ratings by 2030 and the expenditure to achieve this has again been factored into future planned maintenance budgets. Achieving the net zero carbon target by 2050 presents a significant challenge to the Group, as it does to the sector as a whole, particularly against the backdrop of inflationary pressures on construction and repairs materials and shortages of skilled labour. The Group has continued to develop its approach in this area and has undertaken some pilot projects (e.g. fitting solar PV systems coupled with onsite battery storage into a number of its properties, developing a small number of modular and "off grid" Passiv Haus properties to assess their performance and financial viability).

6.4 Maintenance of both the Group's strong regulatory judgement and its strong credit rating were significant achievements over the last few months and a recognition of the robustness of the Group's current position.

6.5 Going forward the Group, in common with the whole housing sector, is faced with cost pressures (particularly relating to energy costs, insurance, development, repairs materials, pay costs and interest costs) coupled with having to deal with the impact of a rent cap. However, work is well advanced to rework the Group's business plan to mitigate these impacts and ensure that the Group maintains its robust financial position.

The Group signed its financial statements for the year ended 31st March 2022 in September 2022. These are available on the Investor Information section of the Wrekin Housing Group website at https://www.wrekin.com/Pages/Corporate/investor-information.

Enquiries: Please contact Jon Lamb, Executive Director of Finance, on 01952 217059 or at jon.lamb@wrekin.com

Disclaimer

The information in this announcement has been prepared by Wrekin Group Limited and is for information purposes only. The Results Announcement should not be construed as an offer or solicitation to buy or sell any securities issued by any 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.

This unaudited announcement contains certain 'forward-looking' statements reflecting, among other things, our current views on markets, activities and prospects. 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. Forecast financial results quoted are unaudited. We do not undertake to update or revise such public statements as our expectations change in response to events.

Appendix 1

Consolidated Results for the Year Ended 31st March 2022

Appendix 2

Other Financial Information for the Year Ended 31st March 2021

Appendix 3

Key Financial Performance Indicators and Financial Covenants for the Year Ended 31st March 2021

Notes

1 Turnover from social housing lettings / Turnover

2 Operating surplus on social housing lettings / Turnover from social housing lettings

3 Revenue and capital social housing costs (excl. Depreciation and amortisation) / Total units owned and managed

4 Operating surplus / Turnover

5 Adjusted operating surplus / Net interest payable

(Adjusted operating surplus = operating surplus + depreciation of housing properties + depreciation of other assets - capitalised major repairs - amortisation of government grants)

6 Surplus / (Deficit) for the year (excl. Refinancing costs) / Turnover

7 Operating surplus / Total assets less current liabilities

8 Adjusted operating surplus / Net interest payable

(Adjusted operating surplus = operating surplus + depreciation of housing properties - capitalised major repairs - amortisation of government grants)

9 Net financial indebtedness / Historic cost of properties (excl. accumulated depreciation)

(Net financial indebtedness equals total loans - cash and cash equivalents)

10 Net financial indebtedness / Total units owned