Affinity Sutton Capital Markets PLC Update for the period ending 30 September 2016 (1673N)

TIDM51GC

RNS Number : 1673N

Affinity Sutton Capital Markets PLC

21 October 2016

AFFINITY SUTTON GROUP LIMITED

UPDATE FOR THE PERIOD ENDING 30 SEPTEMBER 2016

Financial Performance

The management accounts for Quarter 2 (Q2) 2016/17 show strong performance with a net surplus to date of GBP61.7 million (2015/16: GBP67.3 million). This was GBP11.5 million ahead of budget due largely to a better performance from build for sale and asset disposals, and interest rates continuing to fall inside our budget assumptions. Core social housing operations remain financially strong with an overall operating margin (excluding development for sale) of 48% (2015/16: 46%), which is 2% above budget.

Sales performance to date has generated income of GBP17.3 million (2015/16: GBP27.6 million), excluding returns from investments from joint ventures. Sales volumes were above budgeted level, with 122 units sold to date, 22% better than budget. This delivered strong margins on stock sold of 38% compared with expectations at project approval stage of 15%, and contributed GBP6.6m (11%) of the net surplus.

The Statement of Financial Position (formerly the Balance Sheet) showed Housing Fixed Assets of GBP2.8 billion, broadly unchanged from 31 March 2016.

Liquidity levels (cash and undrawn facilities) remained largely unchanged during the quarter and at the end of September stood at GBP576 million. Total facilities were GBP1.74 billion.

Our interest rate swaps are fully collateralised by property assets and at 30 September 2016 there was GBP87 million of headroom covering these positions, providing a significant buffer even if rates were to fall to zero across all maturities.

Our internal matrix of financial "Golden Rules" were all met at the end of Q2.

Operational Performance

Completion of new homes totalled 368 by September (2016: Q2 year to date 444). Total investment in new homes was GBP57 million, which was in line with expected levels.

Operational performance remains good with arrears, customer satisfaction and complaints handling all better than our internal targets. Our in-house repairs companies continue to perform well with a Repairs Satisfaction score of 90% in August (the latest month of available figures) and considerably above the 85% target. The occupancy rate has steadily improved over recent months and at 98.06% is marginally above target. A new local lettings approach, which introduced tenant incentives and updated marketing are measures which have impacted positively on lettings performance.

On development, we awarded a contract to Keepmoat in July for the construction of about 250 homes in Maida Vale, 140 of which are being developed for Westminster City Council landlord, City West Homes. And in the London Borough of Ealing a build contract was let to Lovell's for the development of the first phase of a 305 home redevelopment of a former local authority estate in West Ealing.

Merger with Circle Housing Group Limited (Circle)

Our discussions with Circle have continued with a view to merging the two groups in November. In September we secured the approval of our regulator the Homes and Communities Agency, subject to the passing of a resolution for a transfer of engagements and to obtaining all necessary lenders' consents. The necessary resolutions have been approved by the Affinity Sutton Board and the process of obtaining lender consents is now well advanced.

Merger discussions continue to be overseen by the Shadow Board which has been meeting monthly since May. Arrangements for the new merged group are in place and the Board has announced the name of the Group will be Clarion Housing Group. Over the last month we have made excellent progress in designing and populating the staffing structures for the new business, with the aim of being fully operational on day one.

Outlook and the result of the referendum on EU Membership

The new UK government was formed after the referendum vote to leave the EU in June. The first substantive opportunity to gauge its plans for residential property will be in the Autumn Statement at the end of November. The Leave vote has led to economic and political instability and uncertainty, including a significant devaluation in sterling. We will continue to watch developments over the coming months in two areas in particular: the property market and the debt capital markets. We will develop contingency plans to address potential volatility. Overall however, Affinity Sutton's strong financial position, including liquidity, means that it is well placed whatever the future economic environment might be.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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