Half-year Report

Anchor Hanover Group

01 December 2023

 

Anchor Hanover Group

1 December 2023

Anchor Trading Statement for six months to 30 September 2023

Unaudited trading update for the six months to 30 September 2023 for Anchor Hanover Group, trading as Anchor

Anchor, the largest not-for-profit operator of housing for older people and the fifth largest residential care home operator in England, announces its trading highlights and unaudited financial results for the first half of the 2023/24 financial year.

Anchor's commitment to maintaining a consistent corporate strategy supports the continued financial strength and resilience of the Group through on-going economic and political uncertainty, enabling further progress to be made against the four strategic themes of the corporate plan: more and better homes; more opportunities for colleagues; being more efficient; and being more influential on behalf of older people.

Anchor's low gearing, strong liquidity and low-cost fixed rate debt from its sustainability bond issued in July 2021 provide both stability and a strong platform for growth.

Anchor's reputation for providing high quality services, coupled with strong underlying demand has seen high and improving levels of occupancy beyond the FY23 year-end and to within 1% of pre-pandemic levels. This has supported the maintenance of steady operating margins in the first half of the year compared with the year-end.

The planned acceleration of investment in existing homes from capital works that were previously deferred due to restricted access into resident homes has seen 65% of the annual programme delivered in the first half of the year, adversely impacting EBITDA MRI and interest cover levels as at September 2023 compared with March 2023.  Activity is anticipated to slow in the second half of the year, in line with full-year programme expectations.

Significant growth in care has been achieved through the acquisition of 14 new care homes (951 beds) since November 2022, four of which are in a commissioning phase. 2,495 new, energy efficient affordable homes have been completed, are under construction or are part of a Board-approved future pipeline to deliver a total of 5,700 new homes over 10 years.

Anchor continues to work hard to alleviate the impact of the on-going cost-of-living crisis for both residents and colleagues with a broad range of initiatives to support those most in need, and continues to be a powerful voice for older people.

Anchor's commitment to colleagues who work hard to ensure that residents can love living in later life is recognised through its continued accreditation as a Living Wage Employer and achieving Gold Status from Inclusive Employers in March 2023; only the third employer in England to do so.

Inflation across the economy will continue to be challenging for all sectors including social housing and care. Anchor remains committed to improving efficiency within its operations and to meet its long-term objectives of investing in and developing more new homes for older people in a sustainable way.

Amanda Holgate, Chief Financial Officer

1 December 2023

Highlights

·    Continued strong underlying demand with high occupancy in rented housing and lower-than-sector arrears levels.

·    Care occupancy within 1% of pre-Covid levels with fee growth of 10% year-on-year.

·    14 new care homes (951 beds) acquired between November 2022 and August 2023.

·    Turnover of £308.4m up £42.3m (15.9%) on the same period in 2022, of which £16.7m (6.3%) relates to turnover from newly acquired care homes. Underlying turnover up £25.6m (9.6%) from increases in rental and service charge income, rising care fees and higher occupancy in rented housing and care.

·    Operating margins at 6.5% slightly below full year 2023 (6.8%) and down on the half year to September 2022 (9.8%), reflecting increased operational costs for newly acquired Halcyon care homes from non-cash adjustments for depreciation and amortisation of purchased goodwill.  This was alongside rising inflation and additional costs for corporate programmes that improve the affordability of services for residents.

·    Accelerated delivery of capitalised major repairs and compliance works in the first half of the year of £28.4m compared with £21.0m for the same period last year, leading to lower EBITDA MRI of £22.5m (£31.5m for September 2022).  

·    Strong liquidity with £155m of undrawn available loan facilities and cash available to fund the corporate plan.

·    Gearing maintained at a low level for the sector at 30.7% (March 2023: 28.5%).

·    Interest cover including capitalised repairs (EBITDA MRI) at 1.4x (March 2023: 1.8x).

·    A+ stable rating from S&P and G1/V1 rating from the Regulator of Social Housing maintained.

·    Third Sustainability Report published in October 2023, showing the strength of the Group's sustainability credentials, positive societal impact and strong governance principles.

Financial highlights

Figures in £m	6 months to 30 Sept 2023	6 months to 30 Sept 2022	FY to 31 March 2023
Turnover	308.4	266.1	555.5
Operating surplus before exceptional items	20.0	26.2	37.5
Operating margin before exceptional items %	6.5%	9.8%	6.8%
EBITDA MRI	22.5	31.5	46.7
Gearing	30.7%	22.0%	28.5%

Operational highlights

Anchor's strong reputation for providing high quality services, coupled with robust underlying demand has seen continued high levels of occupancy in rented housing (Sept 2023: 98.7%, March 2023: 98.7%), and improvements in care occupancy close to pre-Covid levels (Sept 2023: 88.5%; March 2023: 86.9%).

Turnover of £308.4m is up £42.3m (15.9%) on the same period in 2022, of which £16.7m (6.3%) relates to turnover from newly acquired care homes. Underlying turnover is up £25.6m (9.6%) owing to an increase in rental income, increased service charge income resulting from higher service charge costs, rising care fees and higher occupancy in both rented housing and care.

Operating margins at 6.5% were marginally below full year 2023 (6.8%) and down on the first half of 2022 (9.8%). Inflation, particularly impacting repairs and utilities, as well as the expiry of previously favourable fixed price contracts for the latter, had a dampening effect on margins.  In addition, higher investment in Anchor's corporate programme to drive efficiencies that improve the quality and affordability of services, coupled with the cost of keeping residents safe by upholding fire safety compliance, also applied downward pressure.  In total, operating costs increased between the two periods by 22.6% (September 2023: £280.2m; September 2022: £228.5m).  New care homes account for 7.9% of the increase which relates to the running costs of the homes and non-cash adjustments for depreciation and the amortisation of goodwill acquired through the Halcyon Group.

Net interest charges for the six months to September 2023 of £16.1m were £5.1m higher than the six months to September 2022.  This is primarily due to higher finance lease interest arising on the 10 care homes acquired from Halcyon Care Homes Topco Limited which are operated on 35-year leases, and an underlying increase from c. 5% of the loan book which is neither fixed nor hedged and therefore held at variable rates of interest.

EBITDA MRI for the six months to September 2023 of £22.5m (September 2022: £31.5m) is comparatively low as a result of delivering more capitalised major repairs than was possible in the same period last year (MRI spend September 2023: £28.4m; September 2022: £21.0m). Delivering a greater proportion of the annual programme in the first six months of the year accounts for the majority of the movement in EBITDA MRI between years.

Development and acquisitions

Anchor has plans to build 5,700 energy efficient homes for older people over ten years with 45% of the programme designated to social and affordable rented homes, 45% for sale on a shared ownership basis and up to 10% for outright sale.

Anchor's new developments are designed to achieve Energy Performance Certificate (EPC) ratings of B or better as part of Anchor's ongoing commitment to sustainability. To date, 2,495 affordable homes have been completed, are under construction or are part of a Board-approved pipeline.

Liquidity

Liquidity remains strong with undrawn available loan facilities and cash of £155m, together with the retained bond capacity of £100m nominal value, positioning Anchor well to deliver on its strategic objectives.

At 30.7%, gearing remains low relative to the sector (March 2023: 28.5%) but higher than September 2022 (22.0%) due to funding care growth.  Interest cover including capitalised repairs (EBITDA MRI/Interest) of 1.4x (September 2022: 2.9x) remains strong but is lower than the comparative period owing to the impact of the finance leases acquired with the Halcyon transaction as well as the acceleration of the capital works programme in the first half of the year.  Capital works are anticipated to slow in the second half of the year, in line with full-year programme expectations, with interest cover expected to increase accordingly by the end of the year.

Credit and regulatory ratings

Anchor has retained its credit rating of A+ with a stable outlook from S&P in the March 2023 review (first issued March 2021) and its G1/V1 rating from the Regulator of Social Housing (reaffirmed 15 November 2022). These ratings reflect the Group's strong balance sheet position, strong debt profile, high levels of liquidity and robust business plans, set within a highly effective risk control framework and supported by conservative financial policies.

Unaudited Financial Statements for the six months to September 2023

Comparatives are with Anchor's consolidated, audited year end results to 31 March 2023 and unaudited results for the six months ended September 2022.

	Group Statement of Comprehensive Income
Figures in £m		Six months ended 30 September 2023	Six months ended 30 September 2022	Year ended 31 March 2023
Turnover from ongoing operations		300.3	255.0	530.8
Turnover from property sales		8.1	11.1	24.7
Turnover		308.4	266.1	555.5
Operating costs from ongoing operations		(280.2)	(228.5)	(496.6)
Cost of sales - property sales		(9.0)	(11.5)	(24.4)
Surplus on disposal of fixed assets		0.8	0.1	3.1
Operating surplus before exceptional items		20.0	26.2	37.6
Exceptional items		-	-	-
Operating surplus after exceptional items		20.0	26.2	37.6
Net interest costs		(16.1)	(11.0)	(26.2)
Taxation		-	-	0.8
Surplus for the period		3.9	15.2	12.2
Operating margin before exceptional items, goodwill amortisation and excluding property sales contribution		8.5%	10.4%	7.7%
Operating margin before exceptional items and goodwill amortisation		8.0%	9.8%	7.4%
Operating margin		6.5%	9.8%	6.8%
EBITDA MRI1		22.5	31.5	46.7
EBITDA MRI - Interest cover2		1.4x	2.9x	1.8x

1.     Group operating surplus including property proceeds, less amortisation of social housing grant, less Government capital grants taken to income, add back depreciation and impairment attributed to retirement housing to let and residential care homes, add back goodwill amortisation, less improvements to existing properties capitalised

2.     EBITDA MRI including property proceeds, divided by interest and financing costs less interest receivable

Comparatives are with Anchor's consolidated, audited year end results to 31 March 2023 and unaudited results for the six months ended September 2022.

	Group Statement of Financial Position
Figures in £m		As at 30 September 2023	As at 30 September 2022	As at 31 March 2023
Goodwill		34.4	-	39.0
Tangible fixed assets		1,400.3	1,192.8	1,413.8
Other investments		0.1	0.9	0.7
Total long-term assets		1,434.7	1,193.7	1,453.5
Properties held for sale		272.1	231.6	192.7
Cash		15.4	61.8	34.3
Other current assets		65.1	55.8	56.8
Total current assets		352.6	349.2	283.8
Loans		(595.3)	(500.7)	(548.6)
Finance lease obligations		(242.6)	(97.4)	(240.7)
Grants		(207.4)	(223.0)	(215.5)
Pension liabilities		-	(8.2)	-
Other liabilities		(145.0)	(124.6)	(140.5)
Total liabilities		(1,190.4)	(953.9)	(1,145.3)
Total net assets		596.9	589.0	592.0
Reserves		596.9	589.0	592.0
Gearing3		30.7%	22.0%	28.5%

3.     Net debt divided by historical cost of completed properties

Anchor Hanover Group                                

Derya Filiz

Head of External Communications

The Heals Building Suites A & B, 3^rd Floor

22-24 Torrington Place

London

WC1E 7HJ

07713 085004

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