Successful places

with homes and jobs

A NATIONAL

AGENCY

WORKING

LOCALLY

Global Accounts

and the sector’s

risk profile 2014

Mick Warner, Deputy Director

Regulatory Operations

18 March 2015

The sector’s Global

Accounts 2014

Financial highlights 1

Turnover up by 5% to £15.6 billion

Operating costs up by 4.5% to £10.6 billion

Operating margin 26.5%, up from 25.9%

Management costs per unit increased by 4%

Routine and planned maintenance per unit spend up by 2.3%

Total major repairs costs per unit fell by 7.7%

Effective interest rate slightly down at 4.7%

Financial highlights 2

EBITDA MRI interest cover 153.7% (2013 138%)

EBITDA MRI interest cover (SHL) 145.3% (2013 129.7%)

Retained surplus of £2.4 billion, an increase of £0.4 billion

Total NBV of fixed assets up by £5.6 billion to £82 billion

Total financing of £59.3 billion, up 6.4% from 2013

Gearing 93.8% (2013 92.9%)

Debt per unit £22,474 (2013 £21,313)

The key messages

A sector that remains financially robust in aggregate

Retained surplus of £2.4 billion

Impact of favourable macro-economic conditions

Growing maturity of the stock transfer sub-sector

73% of reserves invested in fixed assets

£5.6 billion of debt raised in the year

Surpluses from property sales

146

85

199

128

251

222

0

100

200

300

400

500

600

700

2014 2013

Surp

lus

on

th

e s

ale

of

fixe

d a

sse

ts (

£m

)

Shared ownership staircasing Sales to other RPs Other sales of housing properties

Income from other activities

775 795 600

757 722

814

259 231 180

724 639

604

-

500

1,000

1,500

2,000

2,500

3,000

2014 2013 2012

Oth

er

inco

me

(£

m)

First tranche shared ownership sales Other social housing Non-social housing sales Non-social housing other

Historical perspective

Interest rates and surpluses

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

0

500

1,000

1,500

2,000

2,500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Effe

ctiv

e I

nte

rest

Rat

e a

nd

Bo

E b

ase

rat

e %

Surp

lus

(£m

)

Surplus for the year (£bn) Bank of England Base Rate % Effective interest rate %

Sub-sector performance

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

-400

-200

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

EBIT

DA

MR

I %

Surp

lus

(£m

)

Traditional - surplus (£m) Stock transfer - surplus (£m) Traditional - EBITDA MRI % Stock transfer - EBITDA MRI %

Operational performance

Indicator (%) 2014 2013 2012

Voids 1.8 1.7 1.8

Bad debts 1.0 0.9 0.8

Current tenant arrears 4.7 4.8 4.8

The sector’s risk profile

Sector risk profile – the

operating context

• Board responsibility to ensure effective governance

including arrangements for managing risk

• Revised Regulatory Framework from 1st April

• The political agenda and potential policy changes

• Level of public scrutiny

Strategic and other risks

• Severance and redundancy settlements

• Health and safety obligations

• Counterparty risk

• Value for Money

Value for Money

Second self-assessment for the majority of providers

Evidence of the sector increasingly getting to grips with expectations

Generally more detailed and more evidence based

Greater degree of assurance taken by the Regulator overall despite

the bar being raised

Insufficient assurance obtained on a small number of providers

Strongest element was on understanding the cost of delivering

specific services

Improved understanding on past and future efficiency gains but still

relatively weak on future gains

Improved understanding of return on assets demonstrated but still

the weakest area

Key financial risks

Asset-related risks – development, diversification,

exposure to the housing market, maintaining existing stock

Liability-related risks – existing debt, new debt, mark to

market exposure, bond finance, accounting issues

Income-related risks – exposure to rental markets, welfare

reform, supported housing

Cost-related risks – pension costs, differential inflation

rates, other business costs

The sector’s financial

forecasts

Surpluses

All figures £m 2015 2016 2017 2018 2019

Turnover 17,692 19,617 20,680 21,401 21,872

Operating Expenditure (13,209) (14,419) (14,984) (15,418) (15,561)

Operating surplus 4,483 5,198 5,696 5,983 6,311

Profit/(loss) on the sale of fixed assets 293 290 265 269 277

Surplus before interest and Tax (SBIT) 4,777 5,487 5,962 6,252 6,588

Interest and Other finance costs (2,775) (3,041) (3,274) (3,513) (3,756)

Surplus for the year before tax 2,002 2,446 2,687 2,739 2,832

Tax (13) (16) (18) (19) (24)

Surplus for the year 1,989 2,430 2,669 2,719 2,808

Operating margins

10%

15%

20%

25%

30%

35%

2015 2016 2017 2018 2019

Op

era

tin

g m

argi

n (

%)

Overall operating margin Social housing activity

First tranche shared ownership sales Properties developed for sale

Other non-social housing activity

Development of new homes

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2015 2016 2017 2018 2019

Nu

mb

er

of

ne

w p

rop

ert

ies

General needs LCHO Other social Market rent Outright sales

Funding of new homes

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

0

2,000

4,000

6,000

8,000

10,000

12,000

2015 2016 2017 2018 2019

Ne

w p

rop

ert

ies

Spe

nd

on

ne

w p

roip

ert

ies

(£m

)

Movement in Debt Movement in Grant Current Asset Sales Other Resources Total new units

Sales income

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2015 2016 2017 2018 2019

Sale

s re

ven

ue

(£

m)

1st tranche shared ownership sales Properties developed for sale Fixed asset sales