TIDM56TE
RNS Number : 9995Q
Sovereign Housing Capital Plc
24 February 2023
Sovereign Housing Association's Quarterly Performance Update
covering Q3 year 2022/23
Quarter 3 Performance Update
Our unaudited management accounts for Q3 2022/23 show operating
surplus and overall surplus less than Q3 last year and a step-down
from last quarter.
Q3 FY23 Q2 FY23 variance Q3 FY22 variance
GBPm GBPm GBPm GBPm GBPm
Turnover 112.5 113.3 (0.8) (0.7%) 106.0 6.5 6.1%
Operating Surplus 28.7 36.2 (7.5) (20.7%) 32.5 (3.8) (11.7%)
Retained Surplus 14.3 22.2 (7.9) (35.7%) 19.6 (5.3) (26.9%)
units units units units units
Sales 125 147 (22) (15.0%) 121 4 3.3%
Unit Completions 412 414 (2) (0.5%) 300 112 37.3%
The ongoing economic challenges are continuing to impact the
organisation, including increased costs of labour, materials and
energy and higher funding costs. High levels of repairs are
occurring including a current focus on damp and mould cases. Sales
and staircasing activities have been favourable. Confidence in our
Shared Ownership product remains high, with demand and pipeline
still strong. Market conditions are evolving.
The development programme has handed over 412 units during the
past quarter. We expect to achieve 1552 handovers for the year as a
whole, principally rented social units.
Sovereign has recently completed on the disposals of Stanshawe
and Belmont Private Rental units in Reading. We have secured a
place on the Homes England Delivery Partner Dynamic Purchasing
System: this is a list of preferred developers and house builders
who are able to bid on land owned by the Government's housing
delivery agency. The decision paves the way for Sovereign to bid on
larger sites delivering 70+ units across the East and West
regions.
Treasury and Golden Rules
Moody's published on the 30(th) January a press statement
announcing rating action against 13 HAs, with a further 6 HAs
subsequently being downgraded. Sovereign's A2 rating was downgraded
to A3, at this time, reflecting the challenging environment the
sector is experiencing and our exposure to development risk.
Although we are disappointed in this downgrade, this is still a
strong investment grade rating. Sovereign remains strong
financially and continues delivering on core social purpose by
investing in our existing homes and building new homes. The
detailed credit opinion can be found on our Investor webpage .
Sovereign operates within a number of Financial Golden Rules
that underpin treasury and risk management activity. A summary is
shown below. Instantly available financing has increased from
GBP397m last quarter to GBP451m (equating to 33 months of forecast
liquidity), following the completion of a new ESG linked Term loan
with Natwest, a new ESG linked revolving credit facility with ABN
Amro and an "amend and extend" of an existing syndicated
facility.
There is significant headroom against Interest Cover and Gearing
Golden Rules, creating protection against underlying debt facility
covenants. The performance metrics below show underperformance on
operating margin, which is set at the upper quartile of the Housing
Association sector. We do not expect this to recover in the short
term as 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, the
benefits of which will support longer term performance improvement
of the business.
Protection Actual Trend Threshold Headroom Definition
principle
Liquidity 33 months 18 months 15 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.
---------- ------ ---------- ---------- ----------------------------
Sales / turnover
Market risk 16.6% 40% 23.4% %
---------- ------ ---------- ---------- ----------------------------
Operating surplus
(excluding all development
Performance and asset sales)
(Op surplus / turnover on rolling
%) 29.7% 30% -0.3% three year basis
---------- ------ ---------- ---------- ----------------------------
10% minimum level
of headroom against
121% 115% all lenders' interest
Sustainability cover covenants
- Interest
Cover 236.4% 110% 126% Tightest covenant
---------- ------ ---------- ---------- ----------------------------
5% minimum headroom
against all lenders'
76% 24% gearing covenants
Sustainability
- Gearing 52.5% 80% 28% Tightest covenant
---------- ------ ---------- ---------- ----------------------------
ESG
We have engaged with our energy broker Inspired Energy to
support us on measuring Scope 1, 2 and 3 emissions. We expect to
publish our Scope 1 and 2 emissions data for Year ending 2021/22
shortly and are targeting publishing our scope 3 emissions
information in the summer as part of our ESG report
publication.
We are also making good progress in improvements of our existing
stock with 69.2% of our properties at EPC C or better with 24.4% of
our core stock at EPC B or better as at end of Dec 2022.
Corporate Affairs
Autumn Statement
On 17 November the Chancellor of the Exchequer gave the Autumn
Statement, which included plans to cap social housing providers
rent at a maximum increase of 7%. Following negotiations between
the National Housing Federation and Michael Gove, the Secretary of
State for Levelling-Up, Housing and Communities, it was agreed that
housing associations would voluntarily cap rent for shared owners
at 7% as well. Given the range of options for the government, this
outcome was better than it could have been, while still having a
significant impact on our business plan.
Damp and Mould
Following the coroner's verdict in tragic case of Awaab Ishak,
political and media coverage of this issue has been very intense.
In December Michael Gove wrote to all social housing providers to
remind us of our obligations to customers. He has also started
naming and shaming those he sees as the worst offenders. Mr Gove is
taking a personal interest in this issue and our corporate affairs
team are working closely with operational teams to ensure we can
respond to media enquiries on this issue. We have written to the
Regulator of Social Housing setting out in detail how we are
handling cases of damp and mould and have kept our local MPs and
local authorities informed.
Retrofit networking dinner
Sovereign hosted dinner in London on 29 November with attendees
from Green Finance Initiative, NHF and CIH and representatives from
BEIS. The focus of the dinner was retrofitting social housing. We
explored how government, policy makers and the sector can ensure
that we have the focus, skills and resources to roll-out
decarbonisation of social housing.
S
For more information, please contact:
Graeme Gilbert, Treasury Director, Sovereign Housing Association
07392130856 Graeme.Gilbert@Sovereign.org.uk
Charles Pitt, Corporate Affairs Director, Sovereign Housing
Association
07887524378 Charles.Pitt@Sovereign.org.uk
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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END
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