TIDM56TE
RNS Number : 9086G
Sovereign Housing Capital Plc
18 November 2022
Sovereign Housing Association's Quarterly Performance Update
covering Q2 year 2022/23
Quarter 2 Performance Update
Our unaudited management accounts for Q2 2022/23 show operating
surplus and overall surplus in-line with Q2 last year - however,
this is a small step-down from last quarter. Ongoing inflation
impacts continue to create headwinds throughout our supply chain
and show no sign of abating.
The war in Ukraine and ongoing cost of living challenge are
having a broad range of impacts across the organisation, ranging
from the obvious increased costs of materials and services to
continued lower Customer Satisfaction scores reflecting the general
anxiety felt by customers. Despite these challenges we have seen
continued favourable results from both Sales and Staircasing
activities, Economic uncertainty arises from budget announcements
and interest rate increases are likely to be a drag on performance
in the second half of the year.
Development projects are being challenged by resource and
material availability issues impacting the whole of the building
sector. Nevertheless 418 units were handed over in the past
quarter. Sovereign recently completed on the purchase of Princes
Mead shopping centre in Farnborough for GBP17.6m with plans to
build 350 homes. There are also plans to demolish the former
Sovereign office at Saxon Court in Basingstoke and build 43
apartments.
Treasury and Golden Rules
An annual credit rating review with S&P has been competed
which reaffirmed our A+ credit rating while revising the outlook to
Negative this reflects the UK Sovereign outlook being revised to
Negative. This is seen as a positive endorsement of the financial
strength of our business. Please find details in this link to the
final report: S&P credit ratings report October 2022
Sovereign operates within a number of Financial Golden Rules
that underpin treasury and risk management activity. A summary is
shown in accordance below. Instantly available financing is GBP397m
which equates to 20 months of forecast headroom. Terms are being
finalised on GBP175m of new facilities. Existing facilities of
GBP250m that is due to mature in June 2024 is being renewed
improving liquidity.
There is significant headroom against Interest Cover and Gearing
Golden Rules, creating protection against underlying debt facility
covenants. The performance metric shows 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 which will
support the long term performance of the business.
Protection Actual Trend Threshold Headroom Definition
principle
Liquidity 20 18 months 2 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 16.5% 40% 23.5% %
------- ------ ---------- --------- ----------------------------
Operating surplus
(excluding all development
and asset sales)
/ turnover on rolling
Performance 29.5% 30% -0.5% three year basis
------- ------ ---------- --------- ----------------------------
10% minimum level
of headroom against
121% 186% all lenders' interest
Sustainability cover covenants
- Interest
Cover 307.2% 110% 197% Tightest covenant
------- ------ ---------- --------- ----------------------------
5% minimum headroom
against all lenders'
76% 27% gearing covenants
Sustainability
- Gearing 49.4% 80% 31% Tightest covenant
------- ------ ---------- --------- ----------------------------
Corporate Affairs
On Tuesday 15 November, the Regulator of Social Housing
downgraded the viability ratings of several large housing
associations, Sovereign, Clarion, L&Q and Riverside were among
those downgraded from V1 to V2 as the housing sector faces a very
challenging economic environment.
A rating of V2 is compliant and the Regulator's statement says
that Sovereign's "financial plans are consistent with, and support,
its financial strategy" and that Sovereign "has an adequately
funded business plan, sufficient security, and is forecast to
continue to meet its financial covenants."
The Regulatory Judgement confirms Sovereign's existing compliant
governance rating at G2 and acknowledges that Sovereign has
developed a governance improvement plan that it continues to
progress. The full judgement can be read here.
Annual report and AGM
On 28 July 2022 Sovereign published its 2021/22 Annual
Report.
The report, which has been published on the back of a very
challenging economic and social period shows the housing
association is continuing to deliver for its customers, despite
increasing demand on its services. You can read the report in full
here.
CIH South West
Nicole Sharp, Chief Customer Officer, gave a keynote address at
the CIH South West Conference in Bristol on Putting customers at
the heart of communities alongside speakers from Soha Housing and
Coastline Housing.
On 21 September Sovereign hosted a dinner for 20 developers,
land agents, sector leaders and members of Sovereign's SLG.
Party Conferences
Sovereign was represented on panels at Labour Party Conference
in Liverpool and Conservative Party Conference in Birmingham,
talking about the role housing associations can play in supporting
levelling up. Mark Washer and Tom Titherington also met with
Michael Gove MP at a fringe meeting on housing.
Consultation responses
Sovereign has submitted a formal response to the government's
consultation on a proposed rent cap, calling for flexibility to
allow housing associations to invest in stock and new homes as well
as protecting customers from rent rises. We continue to work
closely with the NHF on rents and rents for shared owners. We have
also submitted responses on compulsory purchase orders and
electrical safety.
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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