TIDM94BD
RNS Number : 4656X
Incommunities Treasury PLC
28 August 2020
Incommunities Group Limited
Financial Report for the Year Ended 31(st) March 2020
Incommunities Group Limited ('Incommunities', 'the Group') is
one of the leading providers of affordable housing in the UK and is
pleased to announce its consolidated results for the year ended
31(st) March 2020.
These results are unaudited and are for information purposes
only.
1. Headlines
1.1 During the year, the Group finalised its loan restructuring
exercise (of which the Own Name Public Issue Bond in March 2019
formed a key part) with the restructuring of a relatively small
existing bank loan. The loan restructuring exercise overall has
significantly reduced interest payable, provided funds for an
accelerated development programme, and reduced the Group's funding
risk.
1.2 Also, during the year, the Group completed a number of new
development schemes and sold all of its outstanding properties for
sale. Details of the Group's property development activities are
set out in Section 5. In addition, the Group completed the
implementation of its Dynamic Repairs Scheduling system. This will
significantly increase the efficiency with which the repairs
service is delivered and have a corresponding beneficial effect on
the future cost of the service.
1.3 Throughout the year, the Group has continued to focus and
improve its Active Asset Management systems, streamlining its void
management processes and reducing its void turnaround times leading
to a significant reduction in voids rent losses. The programmed
decommissioning of a number of the Group's 'tower blocks' continues
and forms a key part of the asset management being undertaken. Of
the Group's 11 tower blocks, three have now been demolished and the
land cleared for redevelopment.
1.4 The Group is fully aware of the potential effects of the
Covid-19 pandemic on its business, and has taken the necessary
steps to deal with this and mitigate the impacts. Details of the
Group's actions in relation to the pandemic and the potential
effects are set out in section 7.
2. Financial and Operating Highlights
2.1 The Statement of Comprehensive Income for the year ended
31(st) March 2020 and the Statement of Financial Position as at
31(st) March 2020, together with the comparatives for the prior
year are set out in Appendix 1.
2.2 Other supporting financial information for the year ended
31(st) March 2020 and the corresponding comparatives are set out in
Appendix 2.
2.3 A number of key financial performance indicators and
financial loan covenant calculations, based on the results for the
year ended 31(st) March 2020 and the corresponding comparatives are
set out in Appendix 3.
2.4 The financial and operating highlights are as follows:
Income and Expenditure
-- Turnover for the year is GBP101,351k (2019: GBP98,390k)
-- Turnover from social housing lettings for the year is
GBP93,474k (92.2%) (2019: GBP93,716k (95.2%))
-- Operating surplus for the year is GBP25,985k (2019: GBP16,732k)
-- Operating margin is 25.6% (2019: 17.0%)
-- Net interest payable for the year is GBP11,657k (2019: GBP16,210k)
-- Surplus for the year is GBP14,352k (2019: GBP144k (excl. Refinancing costs))
-- Interest cover is 2.56 (2019: 2.27)
Balances and Capital Expenditure
-- IGL owns and manages 22,991 units (2019: 23,148 units), this
includes a leasehold interest in 1,106 units (2018: 1,112
units)
-- Housing properties at cost (excluding accumulated
depreciation) are GBP614,818k (2019: GBP600,198k)
-- Investment in existing and new housing properties for the
year is GBP20,155k (2019: GBP29,734k)
-- New social housing units developed during the year is 109 (2019: 119)
-- Total loans (net of loan issue costs) is GBP298,898k (2019: GBP302,945k)
-- Gearing (Assets) is 46.4% (2019: 49.0%)
-- Net debt per unit is GBP12,579 (2019: GBP12,775)
-- Income and expenditure reserves are GBP38,652k (2019: GBP28,778k)
Other Information
-- S&P Credit Rating (March 2020) is A+ (stable)
-- Regulatory Judgement (November 2019) is G1-Governance, and V1-Financial Viability
3. Results Overview
3.1 The Group continues to generate the majority of its income
from social housing activities. Although the Group has produced a
significantly improved set of results in comparison with the prior
year, these have still been impacted by the statutory reduction in
rents of 1% for the financial year 2019/20. This is the fourth and
final year of the current rent reduction regime and results are
expected to improve further on a like-for-like basis going
forward.
3.2 The loan restructuring exercise has resulted in a
significant reduction in interest payable. This has contributed
towards a significant improvement in the surplus for the financial
year in comparison with the prior year. The surplus for the year is
significantly better than budget.
3.3 The Group's financial covenants, including Interest Cover,
Gearing (Assets) and Net Debt per Unit, all show improvement in
comparison with the prior year.
3.4 The annual review of the S&P credit rating was announced
in March 2020 as A+ (stable). This is an improvement on the
original credit rating issued in March 2019 of A+ (negative). The
Group's Regulatory Judgement was reconfirmed in November 2019 at
the highest possible rating of G1-Governance, and V1-Financial
Viability.
4. Comments on Results and Other Matters
4.1 Greg Robinson, Assistant Chief Executive - Resources, commented:
"Incommunities is delighted to announce a solid set of results,
improving our 'bottom line' and outperforming our budget. It is
particularly pleasing to note a significant reduction in interest
payable as a result of the loan restructuring exercise carried out
over the past 18 months. Not only has this exercise reduced
interest payable, it has also provided funds for an accelerated
development programme, and reduced the Group's funding risk."
4.2 Geraldine Howley, Group Chief Executive, commented:
"We continue to improve our social housing services and the
'offer' we make to our customers. Most recently, this has been
through such initiatives as the implementation of a Dynamic Repairs
Scheduling system and an Active Asset Management system. These
innovative advances will not only improve our services and the
'offer' we make to our customers, but should also have a beneficial
effect on our financial performance. I am pleased to report that we
are already experiencing this improvement with a significant
reduction in our voids turnaround times and a resultant reduction
in voids rent losses.
"The Group is fully aware of the potential effects of the
Covid-19 pandemic on our business, and I can confirm we have taken
the necessary steps to deal with this and mitigate the impacts. We
continue to monitor the pandemic closely and make appropriate plans
and take appropriate actions.
"On a personal note, after seventeen years as the Chief
Executive of Incommunities Group Limited, I have taken the decision
to retire at the end of 2020. This has been a difficult decision
but, with the organisation in great shape following our recent
successful bond issue, the roll out of the 2040 strategic plan and
retaining the highest level of assessment from our regulator, the
time is right for me to move on to a new chapter in my career."
4.3 The Group Board has appointed Julie Lawreniuk to
Incommunities Treasury PLC, the bond issuer. Julie is a member of
the Incommunities Group Board.
5. Property Development Programme
5.1 The Group develops its housing properties through a
dedicated subsidiary, BCHT Development Company Limited. During the
year, the Company developed 113 social housing and mixed tenure
units over eight sites. Four of these units were built for outright
open market sale. The Group also commenced the development of 25
family homes at the site of a former sheltered housing scheme, as
well as the acquisition and refurbishment of two empty homes
through Homes England CME (Continuous Market Engagement) .
5.2 During this year , the Company intends to bid for 196 units
under the Homes England CME. In addition, the Company continues to
seek opportunities for land acquisition and housing development,
which has the potential to generate surpluses through outright open
market sale .
5.3 Following the loan restructuring exercise, the Group is
seeking to accelerate its future property development programme.
Further announcements on the Group's proposed future programme will
be made in due course.
6. Funding Facilities
6.1 During the year, the Group, through its subsidiary Sadeh Lok
Limited, signed off a restated facility agreement for GBP20m with
Royal Bank of Scotland. This represents the final stage of the
Group-wide debt restructuring exercise, which included the issue of
the GBP250m own name, public issue bond on 21(st) March 2019.
6.2 Total loans (net of loan issue costs) stand at GBP298,898
(2019: GBP302,945). The reduction in loans during the year
primarily represents the repayment of revolving bank facilities as
part of the Group's cash management strategy. The Group has
deliberately kept its cash balance high at the year-end as a hedge
against any unexpected consequences of the Covid-19 pandemic.
6.3 At the year end, the Group's consolidated loan portfolio is made up as follows:
Funder Facility Facility Debt Amount Available Final Repayment
Type Amount GBP'000 Amount Date
GBP'000 GBP'000
Bond Fixed Rate 250,000 200,000 50,000 21 Mar 2049
------------ --------- ------------ ---------- ----------------
Barclays Fixed Rate 40,000 40,000 0 26 Nov 2043
------------ --------- ------------ ---------- ----------------
Variable
Barclays Rate 55,000 51,000 4,000 20 Feb 2026
------------ --------- ------------ ---------- ----------------
Variable
NatWest Rate 40,000 0 40,000 8 Feb 2029
------------ --------- ------------ ---------- ----------------
Variable
RBS Rate 20,000 10,000 10,000 12 Jul 2029
------------ --------- ------------ ---------- ----------------
THFC Fixed Rate 650 650 0 31 Oct 2023
------------ --------- ------------ ---------- ----------------
Other loans Fixed Rate 278 278 0 30 Sep 2051
------------ --------- ------------ ---------- ----------------
405,928 301,928 104,000
-------------------------- --------- ------------ ---------- ----------------
Discount on
issue (1,598) 1,598 21 Mar 2049
--------- ------------ ---------- ----------------
Loan issue
costs (2,925) 2,925 21 Mar 2049
--------- ------------ ---------- ----------------
Fair value
adj. 1,493 (1,493) 30 Sep 2051
--------- ------------ ---------- ----------------
Total 405,928 298,898 107,030
--------- ------------ ---------- ----------------
6.4 Interest Cover is 2.56 (2019: 2.27) and Gearing (Assets) is 46.4% (2019: 49.0%).
7. Covid-19
7.1 As a result of the Covid-19 pandemic, the Group has
revisited its budget and business plan for 2020/21. This has
resulted in a very prudent reduction in forecast surplus for the
year of some GBP7m. This is primarily as a result of additional
provisions for voids and bad debts and the loss of income from the
sale of social housing properties. These effects are expected to
quickly reverse, and by year three of the business plan, the
effects are expected to be negligible. The medium and long-term
effects of the pandemic are judged to be minimal.
7.2 From an operational standpoint, the Group quickly arranged
for its office based staff to work from home and this is now
running smoothly. During the last few months, the Group has
primarily concentrated on delivering emergency repairs and carrying
out void repairs. This involved furloughing some of the Group's
tradespeople. The Group is now working towards reopening its
offices and reinstituting its normal repairs service.
7.3 The Group is expecting to sign-off its financial statements
for the year ended 31(st) March 2020 in August 2020.
8. Outlook
8.1 Due to the Covoid-19 pandemic there remains some uncertainty
about the future operating environment. However, the current
economic environment remains relatively benign with low interest
rates and low inflation. We anticipate that there will be some
pressure going forward on wage increases, which form a significant
element of our operating expenditure, but this should be
manageable.
8.2 The Covid-19 pandemic aside, the business outlook is
relatively positive with continuing opportunities for growth and
development and the Group's improved operational and financial
capacity to take advantage of these opportunities.
8.3 The Group is looking to sell GBP25m of its GBP50m retained
bond to support its development programme and to allow it to take
advantage of the opportunities available, where these compliment
the Group's existing activities and meet with its strict appraisal
criteria.
Enquiries: Please contact Greg Robinson, Assistant Chief
Executive - Resources, on 01274 257 013 or at
Greg.Robinson@Incommunities.co.uk
Disclaimer
The information in this announcement has been prepared by
Incommunities Group Limited and is for information purposes only.
The Results Announcement 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.
This unaudited announcement contains certain 'forward-looking'
statements reflecting, among other things, our current views on
markets, activities and prospects. Actual and audited 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. We do not undertake to
update or revise such public statements as our expectations change
in response to events.
Appendix 1
Consolidated Results for the Year Ended 31(st) March 2020
Consolidated Statement of Comprehensive 2020 2019* Movement Change
Income GBP'000 GBP'000 GBP'000 %
Turnover 101,351 98,390 2,961 3.0%
---------------------------------------- -------- -------- -------- ------
Cost of Sales (2,897) (594) (2,303) (388%)
---------------------------------------- -------- -------- -------- ------
Operating Costs:
---------------------------------------- -------- -------- -------- ------
Operating Expenditure (78,860) (84,715) 5,855 6.9%
---------------------------------------- -------- -------- -------- ------
Gain on Sale and Disposal of
Housing Properties and Other
Fixed Assets 6,391 3,651 2,740 75.0%
---------------------------------------- -------- -------- -------- ------
Operating Surplus 25,985 16,732 9,253 55.3%
---------------------------------------- -------- -------- -------- ------
Profit/(Loss) Attributable to
Joint Venture 23 (13) 36 277%
---------------------------------------- -------- -------- -------- ------
Net I nterest Payable and F
inance Costs (11,657) (16,210) 4,553 28.1%
---------------------------------------- -------- -------- -------- ------
Refinancing Costs - (24,846) 24,846 100%
---------------------------------------- -------- -------- -------- ------
Surplus/(Deficit) Before Tax 14,351 (24,337) 38,688 159%
---------------------------------------- -------- -------- -------- ------
Taxation 1 (365) 366 100%
---------------------------------------- -------- -------- -------- ------
Surplus/(Deficit) for the Year 14,352 (24,702) 39,054 158%
---------------------------------------- -------- -------- -------- ------
Actuarial (Loss)/Gain on Pension
Schemes (4,478) 9,014 (13,492) (150%)
---------------------------------------- -------- -------- -------- ------
Total Comprehensive Income
/ (Expense) for the Year 9,874 (15,688) 25,562 163%
-------- -------- -------- ------
Consolidated Statement of Financial 2020 2019 Movement Change
Position GBP'000 GBP'000 GBP'000 %
Fixed Assets 440,072 438,059 2,013 0.5%
-------------------------------------- --------- --------- -------- -------
Current Assets 22,282 17,754 4,528 25.5%
-------------------------------------- --------- --------- -------- -------
Current Liabilities (12,861) (20,256) 7,395 36.5%
-------------------------------------- --------- --------- -------- -------
Net Current Assets / (Liabilities) 9,421 (2,502) 11,923 477%
-------------------------------------- --------- --------- -------- -------
Total Assets Less Current Liabilities 449,493 435,557 13,936 3.2%
-------------------------------------- --------- --------- -------- -------
Longer Term Liabilities (372,760) (378,390) 5,630 1.5%
-------------------------------------- --------- --------- -------- -------
Pension Schemes Liabilities (38,081) (28,389) (9,692) (34.1%)
-------------------------------------- --------- --------- -------- -------
Total Net Assets 38,652 28,778 9,874 34.3%
-------------------------------------- --------- --------- -------- -------
Income and Expenditure Reserve 38,652 28,778 9,874 34.3%
-------------------------------------- --------- --------- -------- -------
Total Reserves 38,652 28,778 9,874 34.3%
--------- --------- -------- -------
*Comparatives making up the operating surplus have been changed
to correspond with the current year's presentation
Appendix 2
Other Financial Information for the Year Ended 31(st) March
2020
Other Financial Information 2020 2019 Movement Change
GBP'000 GBP'000 GBP'000 %
Turnover from Social Housing
Lettings 93,474 93,716 (242) (0.3%)
Surplus on Social Housing Lettings 21,929 18,147 3,782 20.8%
Amortisation of Government Grants 822 784 38 4.8%
Depreciation of Housing Properties (17,521) (17,309) (212) (1.2%)
Depreciation of Other Assets (741) (774) 33 4.3%
Capitalised Major Repairs 12,831 7,369 5,462 74.1%
Investment in New Build Properties 7,324 22,365 (15,041) (67.3%)
New Social Housing Units Developed 109 119 (10) (8.4%)
Total Units Owned and Managed
(Units) 22,991 23,148 (157) (0.7%)
Total Units Owned (Units) 22,656 22,814 (158) (0.7%)
Historic Cost of Properties
(excl. Accumulated Depreciation) 614,818 600,198 14,620 2.4%
Cash and Cash Equivalents 13,903 11,500 2,403 20.9%
Total Loans (net of Loan Issue
Costs) (298,898) (302,945) 4,047 1.3%
----------------------------------- --------- --------- -------- -------
Appendix 3
Key Financial Performance Indicators and Financial Covenants for
the Year Ended 31(st) March 2020
Key Financial Performance Indicators 2020 2019
Turnover from Social Housing Lettings (1) 92.2% 95.2%
Operating Margin on Social Housing Lettings
(2) 23.5% 19.4%
Social Housing Costs per Unit (GBP) (3) GBP2,911 GBP2,836
Operating Margin (4) 25.6% 17.0%
EBITDA-MRI to Net Interest (5) 2.62 1.64
Net Margin (6) 14.2% 0.1%
Return on Capital Employed (7) 5.8% 3.8%
-------------------------------------------- -------- --------
Financial Covenants 2020 2019
Interest Cover (8) 2.56 2.27
Gearing (Assets) (9) 46.4% 49.0%
Net Debt per Unit (10) GBP12,579 GBP12,775
----------------------- --------- ---------
Notes
1 Turnover from social housing lettings / Turnover
2 Operating surplus on social housing lettings / Turnover from social housing lettings
3 Revenue and capital social housing costs (excl. Depreciation
and amortisation) / Total units owned and managed
4 Operating surplus / Turnover
5 Adjusted operating surplus / Net interest payable
(Adjusted operating surplus = operating surplus + depreciation
of housing properties + depreciation of other assets - capitalised
major repairs - amortisation of government grants)
6 Surplus / (Deficit) for the year (excl. Refinancing costs) / Turnover
7 Operating surplus / Total assets less current liabilities
8 Adjusted operating surplus / Net interest payable
(Adjusted operating surplus = operating surplus + depreciation
of housing properties - capitalised major repairs - amortisation of
government grants)
9 Net financial indebtedness / Historic cost of properties (excl. accumulated depreciation)
(Net financial indebtedness equals total loans - cash and cash
equivalents)
10 Net financial indebtedness / Total units owned
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