TIDM51GC
RNS Number : 9367V
Affinity Sutton Capital Markets PLC
21 April 2016
AFFINITY SUTTON GROUP
QUARTERLY PERFORMANCE UPDATE
MARCH 2016
Overview
The Quarter to 31 March 2016 saw excellent performance across
the Group and brought 2015/16 to a very positive conclusion. The
property market finished the year strongly in London and the South
East where most of our Build for Sale activity takes place. Our
core profitability from social housing lettings remains very strong
and is expected to exceed 40%. Some of the operating environment
changes that the sector is facing have still not been concluded and
we continue to monitor developments as they arise in terms of
de-regulation, Voluntary Right-to-Buy and Pay-to-Stay amongst other
things.
Financial Performance
Financial performance for the year was extremely strong,
surpassing our expectations due in large part to very strong sales
performance. At this stage figures quoted are based on management
accounts which are subject to audit and further adjustments, for
example in the area of pensions and investment property where third
party valuations are in progress. This is also the first year of
new accounting provisions under FRS102 and the Housing Statement of
Recommended Practice (SORP) 2015, and work is ongoing to finalise
figures under the new standards.
The management accounts report an annual net surplus of GBP141.6
million (2015: GBP126.2 million). This would be a record surplus
for the Group and is GBP42 million ahead of budget due largely to a
combination of better than forecast performance from Build for
Sale, and interest rates falling inside our budget assumptions. The
draft Balance Sheet showed Housing Fixed Assets at 31 March of
GBP2.8 billion, up from GBP2.7 billion in 2015 reflecting strong
development performance.
The 1 April 2016 1% reduction to regulated rents introduced by
the Government last year triggered an Impairment Review of the
carrying value of rented housing assets under the SORP. The
management accounts include a provision for an impairment charge of
GBP5 million, or 0.18% of the carrying value of the housing
stock.
Strong cashflows from sales totalling GBP175.4 million,
including returns from joint ventures, and with a margin on stock
sold of 30% compared with a budget of 19%, contributed GBP53.0
million of the net surplus.
Liquidity (cash and undrawn facilities) increased in the quarter
by around GBP74 million to finish March 2016 at GBP598 million.
This improvement was primarily due to income from sales at The
Lexicon, our joint venture at City Road in London, which was
received during the last two months of the financial year. Over the
course of the year debt levels reduced by GBP80 million to GBP1.22
billion, again in part due to strong sales performance, whilst loan
facilities were enhanced by the extension of existing revolving
credit facilities (RCFs) and the completion of a GBP75 million RCF
with a new lender to the Group. At the year end facilities stood at
GBP1.74 billion (2015: GBP1.65 billion).
During the last quarter, swap rates fell by around 50 bps which
caused adverse mark-to-market movements on our interest rate swaps,
although this is expected to have a very limited impact on our
surplus because the instruments are considered to be effective
hedges. These swaps are fully collateralised by property assets and
at March 2016 there was GBP93 million of headroom covering swap
losses, providing a significant buffer should swap rates fall any
further.
Our internal matrix of financial "golden rules" were all met at
the end of the year.
Operational Performance
Sales of property were extremely strong in the Quarter. In
particular, sales at The Lexicon saw significant completions at the
end of the Quarter. This seems in part to have resulted from the
introduction of stamp duty changes on second properties at the
start of April.
Completions of new homes totalled 912 by March (2015: 1,436), or
1,046 when the Group's share of development in joint ventures is
included. This expected reduction against 2015 was largely a result
of the end of the government's 2011/15 Affordable Homes Programme
in the previous year. Total investment was GBP153 million, slightly
under expected spend levels. The supply chain, in London and the
South East particularly, has continued to prove challenging, with
significant increases in build costs, and a challenging environment
for the acquisition of land.
In the Quarter we entered into a joint venture with Galliford
Try plc on a site in Wandsworth in central London. The scheme has a
gross development value of GBP108 million and will see over 170 new
homes built. Other schemes approved during the Quarter will create
462 new homes.
Operational performance in 2016 was consistently good and we
expect to meet our target for customer satisfaction of 80%. In
particular, customer handling and repairs all compare well to 2015.
Arrears performance remains strong at 3.8% (2015: 3.7%). As
highlighted in our December update, the one exception in the period
is that our occupancy rate is marginally lower than target. We
continue to focus on lettings performance and are actively letting
as many empty properties as possible, utilising tenant incentives
and new marketing campaigns to increase demand.
The strong performance of our new in-house repairs function
continued right up to the year end, with both voids and day-to-day
repairs now within target completion times at 10 days, and ahead of
last year's levels under an outsourced contract (at 11 days and 15
days respectively). Overall satisfaction with repairs was strong at
the period end at 89%.
Outlook
Our planned merger with Circle Housing Group will remain a key
focus for us over the coming months as we work towards completion
in the Summer. The second shadow board meeting is due to take place
in the middle of May and will consider the new Group's first
business plan in detail. After this we will prioritise meetings
with funders and investors.
Nationally, the next Quarter is likely to be dominated by the
European Referendum in June. The outcome could have significant
consequences for our sector, particularly in terms of market
volatility. With strong levels of liquidity Affinity Sutton does
not expect to access the markets in the short term. However, given
our planned merger with Circle, we will pay particular attention to
the impact on the capital markets, particularly in the event of an
"Out" vote.
From a sector perspective we expect the Housing and Planning
Bill to have passed into law. This too is likely to have a material
impact on housing associations, one which we believe will prove
broadly positive in terms of our ability to meet our core social
objectives, build new homes, and provide first rate services to our
customers.
Disclaimer
The information contained herein (the "Trading Update") has been
prepared by Affinity Sutton Group Limited (the "Parent") and its
subsidiaries (the "Group"), including Affinity Sutton Capital
Markets plc (the "Issuer") 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 Issuer 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 a pro t 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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