Optivo Finance PLC

Optivo 2019/20 unaudited preliminary results

RNS Number : 9745N
Optivo Finance PLC
26 May 2020
 

OPTIVO

2019/20 UNAUDITED PRELIMINARY RESULTS

 

"Our immediate priority is supporting our residents, colleagues, suppliers, local authorities, NHS and community partners to manage the risk of COVID-19.  In turn we're grateful for our colleagues' hard work and our residents' and partners' support.  We've successfully adapted and continue to adapt our services to work with latest guidance.

Counter-cyclical investment in the housing sector will help bring our economy out of this crisis and we're ready to play our part.  We've delivered full-year results in line with our previous half-year trading update.  We have G1/V1 regulatory judgement, A2 Moody's credit rating and strong balance sheet with £800 million liquidity on tap, now covering our current committed capital expenditure 1.6 times.

We've co-created our new 2020-25 strategic plan with input from 2,200 residents and 500 colleagues.  And while we set our goals before this crisis began, our aim remains true.  We still intend to invest financial resources wisely, improving our existing homes, making them more energy-efficient, meeting Government's new building safety requirements, and building high quality new homes.

Unaudited results for the 2019/20 financial year are in line with our mid-year forecast, reflecting increasing fire safety works costs, higher voids, and slower first tranche sales."

Sarah Smith, Chief Financial Officer
26 May 2020

 

2019/20 financial highlights

 

Income & expenditure (£m)

2017/18

2018/19

2019/20 unaudited

Total turnover

317

314

322

  Non-sales turnover

  Initial sales turnover

295

22

285

29

291

31

Cost of initial sales

(21)

(19)

(25)

Operating costs

(199)

(204)

(224)

Surplus on fixed asset property sales

20

12

17

Operating surplus

117

103

90

Net interest costs

(42)

(42)

(48)

Surplus after interest

75

61

42

 

Cash flows (£m)

2017/18

2018/19

2019/20 unaudited

Cash from operations

101

59

75

Investing activities

(113)

(223)

(173)

Financing activities

(28)

141

154

Net change in cash

(40)

(23)

56

 

Balance sheet (£m)

31.3.2018

31.3.2019

31.3.2020 unaudited

Total assets

2,836

3,142

3,412

Total debt (excl capitalised fees)

1,089

1,281

1,478

Available undrawn facilities

606

380

405

Cash & cash equivalents

104

81

137

 

Key financial indicators

2017/18

2018/19

2019/20 unaudited

Homes in management (excl leasehold)

42,133

42,857

43,215

Headline social housing cost per unit

£4,246

£4,189

£4,407

Net debt per unit

£23,378

£28,000

£31,184

Net debt to turnover

3.1

3.8

4.2

 

Bank loan financial covenants

2017/18

2018/19

2019/20 unaudited

Interest cover ( annually > 100% test )

262%

240%

169%

Gearing ( <= 65% test )

35%

39%

45%

 

We delivered full year earnings in line with our mid-year forecast, which had been revised down from budget to reflect increased fire safety works costs, higher voids, and slower first tranche sales.  In March we exited the loss-making Ealing Care Alliance PFI care and facilities management service contract, our last care operations activity.

 

Our balance sheet grew during the year in line with our long-term financial plan.  We funded organic growth in housing assets by increasing our bank loans and selling our 2048 retained bonds.  In early April we increased our liquidity by a further £300 million, through a new £150 million long term public bond sale and other short term financing.  We continue to report housing properties at historic cost.

 

We've reforecast our 2020/21 budget for COVID-19 and also stress tested our liquidity to ensure we can cover a prolonged disruption.  We have all the funds we need to deliver our existing investment commitments and ample financial flexibility to maintain our operations.

 

COVID-19

 

We're reaching out directly to residents, especially to help older and vulnerable people cope with the crisis

 

Residents

We've made 29,000 pro-active wellbeing phone calls and supported hundreds with food access, benefits advice and help coping with isolation.  Our rent arrears are currently stable, but we're prepared for an increase.  Our financial inclusion team are busy helping residents manage money and get wider support, and our Covid Money Advice service has had 7,000 hits.  We've moved more resource into this team and also into the teams supporting residents exposed to domestic violence.  We're doing all we can to ensure our NHS keyworker accommodation is a safe and secure haven for NHS staff working in acute treatment hospitals.

 

People & culture

Most colleagues are working from home and our productivity is as high as ever.  We expect to continue for some time with the arrangements we've had in place since lockdown began.  Noting the Prime Minister's announcements on 10 May, it's clear that lockdown advice hasn't fundamentally changed for us, for now.  We're very mindful of colleagues' own wellbeing and the need to balance work with private responsibilities.  Where we've taken the decision to furlough colleagues whose normal work couldn't carry on, we've handled it sensitively and only as a last resort after redeploying colleagues wherever possible across the business.

 

Operations & asset management

In line with guidance we've moved to emergency-only repairs service, alongside statutory safety compliance work which is also continuing.  There are instances where we're unable to gain access to a property because a resident is self-isolating or is vulnerable and needs to be shielded from exposure.  We're keeping a full record of all details to share with the Regulator of Social Housing, with whom we're in regular dialogue.

 

We have extended our definition of emergency repairs to pick up other urgent work to maintain properties in good condition, and we're tracking our maintenance work against normal seasonal trends.  This allows us to forecast and manage any backlog of repairs to address once lockdown eases.  We've implemented safe working procedures.  We're also monitoring our supply chain and we are reassured of continuity.

 

Development & sales

Two-thirds of our construction sites are currently open with safe working practices in effect, up from one third a month ago, and more sites continue to open.  Sales activity is continuing through digital viewings, albeit at reduced levels.  All previously approved development schemes not yet contracted are being reviewed for continuing viability.  Since March all new development commitments now require Board approval. 

 

Financing

We've reforecast our 2020/21 budget and rebuilt our long-term financial plan to accommodate this sharp economic shock.  We've stress tested our income collection and working capital and increased our available liquidity headroom by £300 million in April.  This prudent step ensures we have more than enough liquidity to manage through the crisis. 

Outlook

As the full extent of disruption to our economy becomes clearer, we'll keep a prudent eye on our financial plan and development programme, and will keep under review our plan targets approved in March ahead of lockdown.

 

2017-20 Strategic plan results

 

Key performance indicators

2017/18

2018/19

2019/20 unaudited

Maximise our social impact

 

 

 

 New homes started

912

1,003

1,500

 People into jobs & training

1,045

1,122

1,256

Ensure a sustainable business

 

 

 

 Operating margin excluding sales

31%

29%

23%

 Sustainable Homes for Tomorrow

-

Gold

Gold

Provide a sector leading service

 

 

 

 Residents Net Promoter Score

66

62

55

 Residents online

43%

54%

61%

Value our people

 

 

 

 Staff say we are a good employer

76%

77%

80%

 Staff feel proud to work for us

84%

81%

79%

 

Operations & asset management

 

Resident satisfaction

2017/18

2018/19

2019/20 unaudited

Service

97%

96%

95%

Repairs

96%

97%

98%

Neighbourhoods

93%

91%

91%

 

Key operational indicators

2017/18

2018/19

2019/20 unaudited

Void rental losses

0.6%

0.9%

2.2%

Vacant properties re-let time

27 days

39 days

87 days

Overall rent arrears

4.0%

4.3%

4.2%

Notes:

(1) Figures based on general needs and housing for older people (HOPS)

(2) Re-let times exclude voids for major works

 

Our void rental losses rose due to a greater number of properties unexpectedly becoming void in year, more work needed to improve properties returned to us in poor condition, and slower Local Authority nominations to bring in new residents.  Before the impact of COVID-19 we had stabilised our void position and in March had started to see an improvement.  Since then, we are letting in line with guidance, and are not reletting vacant homes to older people, so we expect voids will temporarily rise again.

 

Our arrears performance was in line with expectations and our financial plan.  Throughout the year we continued to support residents migrating to Universal Credit where applicable.  We've assessed our COVID-19 exposure to rental income delays or losses and made a provision in our accounts, subject to external audit.  So far, however, we have not experienced any significant increase in arrears.

 

Building safety remains a priority.  We have 102 blocks over 18 metres or 6+ storeys, as well as 3,367 lower-rise blocks.  We've budgeted £80 million over the next six years to cover higher-rise block remediation where needed, Hackitt review and Grenfell inquiry phase 1 recommendations, and actions arising from our own fire risk assessments.  We're currently studying the cost implications of Government's new approach to building safety announced in April, which includes bringing lower-rise buildings in scope for more work.

 

Development & sales

 

New homes

2017/18

2018/19

2019/20 unaudited

Started in the year

912

1,003

1,500

Completed in the year

470

985

693

In contract at year end

2,014

2,096

2,558

On site at year end

1,375

1,393

2,200

Number of sites

n/a

40

36

 

New homes available for sale

31.3.2018

31.3.2019

31.3.2020 unaudited

Open market sales

0

0

0

Shared ownership first tranche

  Unsold over six months

65

7

262

27

279

83

 

Investment in new homes (£m)

2017/18

2018/19

2019/20 unaudited

Spent during the year

156

245

258

Future spend in contract at year end

356

404

512

 

Early in 2019 we moved our financial plan focus even more towards grant-funded affordable homes.  Wherever feasible we took open market sales risk out of our plans. 

 

In the latter part of 2019 Board reviewed our sales exposure and agreed to convert 43 homes to rental tenures.  With development diversified across a number of sites and adequate liquidity already in place, we have the financial flexibility to review each site and make decisions on a site-by-site basis. Further reviews of sites is ongoing.

 

Financing

 

Key metrics

31.3.2018

31.3.2019

31.3.2020 unaudited

Cash and cash equivalents (£m)

104

81

137

Debt facilities (£m)

  Drawn

  Available

1,675

1,089

606

1,661

1,281

380

1,938

1,478

460

Interest rate profile:

  % of net debt on fixed basis

  Weighted average duration

  Weighted average debt cost

  Derivative mark-to-market

 

101%

13 years

4.42%

£146m

 

76%

10 years

4.24%

£148m

 

85%

13 years

3.79%

£171m

 

During the year we sold £100 million remaining 2048-maturity retained bonds and arranged £250 million new funding of which £75m was unsecured.

 

After the financial year end, on 7 April 2020, we completed a new £250 million 15½ year public bond issue.  We immediately repurchased and retained £100 million for future sale within 3 years.  We also agreed £150 million unsecured short term funding from other sources, taking total liquidity to £800 million.

 

External ratings

 

 

31.3.2018

31.3.2019

31.3.2020

RSH governance judgement

G1

G1

G1

RSH financial viability judgement

V1

V1

V1

Moody's credit rating

A2
(stable)

A2
(stable)

A2 (negative)

 

The Regulator of Social Housing (RSH) was due to conduct an In-Depth Assessment (IDA) with us during 2020.  RSH have notified us they are deferring their IDA programme for now, due to COVID-19 disruption.

 

In March Moody's announced our rating was unchanged after their periodic review.

 

Calendar

 

Audited financial statements  July 2020

 

Property security valuations for listed bonds    by 31 July 2020

 

Half-yearly trading update    after 30 September 2020

 

More information

 

Optivo owns and/or manages homes across London, the South East and the Midlands.  Optivo is registered in England with limited liability under the Co-operative and Community Benefit Societies Act 2014 (with registered number 7561) and is a Registered Provider of Social Housing whose activities are regulated by the Regulator of Social Housing (with registered number 4851).  As such, Optivo has charitable status but is exempt from registration with the Charity Commission.

 

Optivo Finance plc (company number 07933814) is a wholly owned subsidiary of Optivo and is an issuer of GBP public bonds listed on the London Stock Exchange.

 

https://www.optivo.org.uk/about-us/investors.aspx

 

Tariq Kazi

Head of Treasury

[email protected]

020 8036 2293

 

IMPORTANT NOTE

This update contains certain 'forward-looking' statements reflecting, among other matters, our current views on markets, activities and prospects. Actual 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. Financial results quoted are unaudited. No reliance should be placed on the information contained within this update. We do not undertake to update or revise such public statements as and when our expectations change in response to events. This update is neither recommendation nor advice.  This is not an offer or solicitation to buy or sell any securities.


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