TIDM94BD
RNS Number : 4453K
Incommunities Treasury PLC
01 September 2021
Incommunities Group Limited
Financial Report for the Year Ended 31(st) March 2021
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 2021.
Incommunities Treasury PLC is a wholly owned subsidiary of
Incommunities PLC.
This report is for information purposes only.
1. Headlines
1.1 The financial year was characterised by the impact of
Covid-19 pandemic with a national lock-down being introduced just
days before the start of the financial year. In response the
Group:
-- Prioritised services to customers based on essential repairs
and health and safety maintenance adopting safe systems of work
-- Paused and then re-configured construction and other
non-essential maintenance in a safe working environment
-- Adopted changes to operations to overcome, as far as
practical, disruption to the re-letting process
-- The results include a GBP1.2m payment from the Government's Coronavirus Job Retention Scheme
-- Equipped and supported over 300 office-based staff to enable them to work from home
1.2 In May 2021 the Group's Business Plan was revised to reflect
the potential impact of the pandemic and the post-Brexit economic
environment. The forecast surplus was reduced in anticipation of
increased void losses, losses arising from difficulties in
collecting arrears and reduced surpluses on the sale of social
housing properties.
1.3 The recoverability of income was not adversely affected by
the pandemic and the void losses were only marginally higher than
the pre-pandemic forecast. Delays to routine / non-essential
maintenance reduce the overall expenditure to budget, particularly
over the first 4 months of the financial year.
1.4 During the year, the Group issued GBP25m of the GBP50m
retained bond. The issue was oversubscribed and achieved a price of
90 basis points over gilt, providing a yield of 1.785%
1.5 Also, during the year, the Group completed 115 new homes,
96% of the target for 2021/22. Details of the Group's property
development activities are set out in Section 5.
1.6 Despite the operational challenges facing the Group, it
continues to address the weakest performing housing assets and,
following an initial delay due to restrictions the planned
demolition of 5 high rise tower blocks was completed early in 2021.
By the year end 8 of the 11 high rise tower blocks earmarked for
demolition were demolished with the contractors clearing the
remaining 3 in the first quarter of 2021. The land is being cleared
for redevelopment for mix tenure housing. The cost of demolition
was provided for in the 2020/21 accounts. The programme of
reviewing weaker performing assets continues and the Group has
identified a further number of assets to be subject to formal
option appraisal in 2021/22 and has included impairment costs of
GBP3,010k to reflect this position in the 2020/21 accounts.
1.7 The Group has been 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 2021 and the Statement of Financial Position as at
31(st) March 2021, 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 2021 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 2021 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 GBP99,970k (2020: GBP101,351k)
-- Turnover from social housing lettings for the year is
GBP95,051k (95.1%) (2020: GBP93,474k (92.2%))
-- Operating surplus for the year is GBP16,429k (2020: GBP25,985k)
-- Operating margin is 16.4% (2020: 25.6%)
-- Net interest payable for the year is GBP11,481k (2020: GBP11,657k)
-- Surplus for the year before tax is GBP4,978k (2020: GBP14,351)
-- Interest cover is 1.43 (2020: 2.23)
Balances and Capital Expenditure
-- IGL owns and manages 22,651 units (2020: 22,991 units), this
includes a leasehold interest in 1,117 units (2020: 1,106
units)
-- Housing properties at cost (excluding accumulated
depreciation) are GBP618,436k (2020: GBP614,818k)
-- Investment in existing and new housing properties for the
year is GBP20,288k (2020: GBP20,155k)
-- New social housing units developed during the year is 115 (2020: 109)
-- Total loans (net of loan issue costs) is GBP289,868k (2020: GBP298,898k)
-- Gearing (Assets) is 43.7% (2020: 46.4%)
-- Net debt per unit is GBP12,132 (2020: GBP12,579)
-- Income and expenditure reserves are GBP21,629k (2020: GBP39,847k)
Other Information
-- S&P Credit Rating (March 2021) is A+ (negative)
-- Regulatory Judgement (November 2019) is G2-Governance, and V1-Financial Viability
3. Results Overview
3.1 The Group continues to generate the majority of its income
from social housing activities. The full year outturn, although
ahead of the initial projection is lower than the previous year,
reflecting a reduction of GBP1.4m in turnover. The Group has also
increased investment cost in existing stock (in line with the
long-term asset strategy and has accounted for a GBP3,010k
impairment charge for assets identified as due for option appraisal
and additional GBP281k in relation to other assets, total
GBP3,291k. In contrast 2019/20 had some impairment "write back" and
a credit in bad debts of GBP649k.
3.2 There has been a significant year on year increase in the
pension fund deficit with West Yorkshire Pension Fund, an LGPS
pension. The primary causes of this increase relate to the pension
fund actuarial assumptions used for the valuation of pension fund
liabilities. These included a reduction in the discount rate,
increases in future salary growth, inflation expectations and an
increase in fund membership longevity. These changes are a
reflection of the rate of return on pension investments, the
current economic outlook and demographic assessments.
3.3 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
better than budget.
3.4 The Group's financial covenants, including Interest Cover,
Gearing (Assets) and Net Debt per Unit, are well within the
funders' requirements.
3.5 The annual review of the S&P credit rating was announced
in March 2021 as A+ (negative). This is a deterioration to the
rating issued in March 2020 of A+ (stable), reflecting the
challenges facing the sector and the Group relating to future
investment requirements for Health and Safety compliance and the
push for carbon reduction.
3.6 The Regulator of Social Housing published two Regulatory
Judgements for the Group during 2020/21. In October 2020, the Group
was downgraded from G1 to G2 for failing to implement Rule changes
correctly for its two housing subsidiaries, the judgement was
affirmed by the Regulator in December 2020. The Group self-reported
the error to the Regulator. In response the Group engaged KPMG to
advise on steps to strengthen risk management and assurance and the
Board has orchestrated a comprehensive review of assurance
frameworks with a view to achieving G1/V1 at the earliest
opportunity.
4. Comments on Results and Other Matters
4.1 Greg Robinson, Assistant Chief Executive - Resources, commented:
"Incommunities is pleased to announce a solid set of results, in
what has been an exceptional year. The issue of our GBP25m retained
bond was a success and provides increased long term, low-cost fixed
rate capital to support the Group in its objective to invest in
existing housing stock and provide more new homes for our
customers."
4.2 Rachael Dennis, Group Chief Executive, commented:
"The past year was undoubtedly overshadowed by the pandemic and
lockdown restrictions, and our top priority throughout has been to
ensure our colleagues, customers and communities are safe; whilst
continuing to ensure continuity of much-needed services to our
customers. As an organisation, our business continuity plans were
quickly deployed, and colleagues worked closely with partner
organisation to deliver services and support to our customers in
difficult circumstances.
"The Covid-19 pandemic accelerated our move to more agile ways
of working and our response gives us firm foundations on which to
develop new ways of supporting and engaging with colleagues and
customers.
"Despite the economic and sector challenges of the past year, we
are well positioned to tackle both short-term uncertainty and
long-term growth. This is an exciting time to lead Incommunities as
we move forward with aligning our strategic aims and business
focus, alongside mapping and developing our workplace culture."
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 115 social housing and mixed tenure
units over seven sites. None of the units were built for outright
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 has a development target of
188 units. As part of the Homes England Affordable Homes Grant
Funding Programme 2021-26, the Group has submitted a bid for over
600 units via Strategic Partnering with Together Housing. The Group
has also submitted a joint bid via Thirteen Housing Group for 207
units, 105 of which are designated for Incommunities within the
partnership.
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 GBP289,868
(2020: GBP298,898). 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 Amount Date
GBP'000 GBP'000 GBP'000
------------- -------------- ----------
Bond Fixed Rate 250,000 225,000 25,000 21-Mar-49
------------ ------------- -------------- ---------- ----------------
Barclays Fixed Rate 40,000 40,000 0 26-Nov-43
------------ ------------- -------------- ---------- ----------------
Variable
Barclays Rate 55,000 9,000 46,000 20-Feb-25
------------ ------------- -------------- ---------- ----------------
Variable
NatWest Rate 40,000 0 40,000 08-Feb-29
------------ ------------- -------------- ---------- ----------------
Variable
RBS Rate 20,000 10,000 10,000 12-Jul-29
------------ ------------- -------------- ---------- ----------------
THFC Fixed Rate 650 650 0 31-Oct-23
------------ ------------- -------------- ----------------
Other loans Fixed Rate 276 276 0 30-Sep-51
------------ ------------- -------------- ----------------
Total 405,926 284,926 121,000
------------- -------------- ----------------
Discount on issue 0 (1,564) 1,564 21-Mar-49
------------- -------------- ---------- ----------------
Premium on issue 0 8,039 (8,039) 21-Mar-49
------------- -------------- ----------------
Loan issue costs 0 (2,864) 2,864 21-Mar-49
------------- -------------- ---------- ----------------
Fair value adj. 0 1,331 (1,331) 30-Sep-51
------------- -------------- ----------------
Total 405,926 289,868 116,058
------------- -------------- ---------- ----------------
6.4 Interest Cover is 2.06 (2020: 2.56) and Gearing (Assets) is 43.7% (2020: 46.4%).
6.5 The Group signed its financial statements for the year ended
31(st) March 2021 in September 2021. These are available on the
Investor Portal on the Incommunities Webste
https://www.incommunities.co.uk/
8. Outlook
8.1 The Covid-19 pandemic aside, the business outlook is
relatively positive with continuing opportunities for growth and
development. Following the Governance Downgrade the Group has
embarked on a comprehensive review of risk management and
assurance. In addition, it has decided to consolidate the Group
parent with the two housing subsidiaries to simplify the Group
structure.
8.2 The appointment of a new Chief Executive in February 2021
has been followed by a review of the corporate strategy with an
emphasis on developing core business efficiency and enhancing the
Group's performance culture. The Group recognises the challenge
raised by future stock investment and meeting the challenge of
environmental sustainability and is equally committed to ensuring
the development programme is progressed.
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 2021
Consolidated Statement of Comprehensive 2021 2020 Movement Change
Income GBP'000 GBP'000 GBP'000 %
Turnover 99,970 101,351 (1,381) (1.4%)
---------------------------------------- -------- -------- -------- --------
Cost of Sales (514) (2,897) 2,383 (82.3%)
---------------------------------------- -------- -------- -------- --------
Operating Costs:
---------------------------------------- -------- -------- -------- --------
Operating Expenditure (85,090) (78,860) (6,230) 7.9%
---------------------------------------- -------- -------- -------- --------
Gain on Sale and Disposal of
Housing Properties and Other
Fixed Assets 2,063 6,391 (4,328) (67.7%)
---------------------------------------- -------- -------- -------- --------
Operating Surplus 16,429 25,985 (9,556) (36.8%)
---------------------------------------- -------- -------- -------- --------
Profit/(Loss) Attributable to
Joint Venture 30 23 7 30.4%
---------------------------------------- -------- -------- -------- --------
Net I nterest Payable and F
inance Costs (11,481) (11,657) 176 (1.5%)
---------------------------------------- -------- -------- -------- --------
Surplus/(Deficit) Before Tax 4,978 14,351 (9,373) (65.3%)
---------------------------------------- -------- -------- -------- --------
Taxation (159) 1 (160) 16000.0%
---------------------------------------- -------- -------- -------- --------
Surplus/(Deficit) for the Year 4,819 14,352 (9,533) (66.4%)
---------------------------------------- -------- -------- -------- --------
Actuarial (Loss)/Gain on Pension
Schemes (23,037) (3,283) (19,754) (601.7%)
---------------------------------------- -------- -------- -------- --------
Total Comprehensive Income
/ (Expense) for the Year (18,218) 11,069 (29,287) (264.6%)
-------- -------- -------- --------
Consolidated Statement of Financial 2021 2020 Movement Change
Position GBP'000 GBP'000 GBP'000 %
Fixed Assets 438,498 440,072 (1,574) (0.4%)
-------------------------------------- --------- --------- -------- -------
Current Assets 26,530 22,282 4,248 19.1%
-------------------------------------- --------- --------- -------- -------
Current Liabilities (14,162) (12,861) (1,301) 10.1%
-------------------------------------- --------- --------- -------- -------
Net Current Assets / (Liabilities) 12,368 9,421 2,947 31.3%
-------------------------------------- --------- --------- -------- -------
Total Assets Less Current Liabilities 450,866 449,493 1,373 0.3%
-------------------------------------- --------- --------- -------- -------
Longer Term Liabilities (364,946) (372,760) 7,814 (2.1%)
-------------------------------------- --------- --------- -------- -------
Pension Schemes Liabilities
and other provisions (64,291) (36,886) (27,405) 74.3%
-------------------------------------- --------- --------- -------- -------
Total Net Assets 21,629 39,847 (18,218) (45.7%)
-------------------------------------- --------- --------- -------- -------
Income and Expenditure Reserve 21,629 39,847 (18,218) (45.7%)
-------------------------------------- --------- --------- -------- -------
Total Reserves 21,629 39,847 (18,218) (45.7%)
--------- --------- -------- -------
*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
2021
Other Financial Information 2021 2020 Movement Change
GBP'000 GBP'000 GBP'000 %
Turnover from Social Housing
Lettings 95,051 93,474 1,577 1.7%
Surplus on Social Housing Lettings 15,944 21,929 (5,985) (27.3%)
Amortisation of Government Grants 832 822 10 1.2%
Depreciation of Housing Properties (16,089) (17,521) 1,432 (8.2%)
Depreciation of Other Assets (754) (741) (13) 1.8%
Capitalised Major Repairs 8,086 12,831 (4,745) (37.0%)
Investment in New Build Properties 12,202 7,324 4,878 66.6%
New Social Housing Units Developed 115 109 6 5.5%
Total Units Owned and Managed
(Units) 22,651 22,991 (340) (1.5%)
Total Units Owned (Units) 22,280 22,656 (376) (1.7%)
Historic Cost of Properties
(excl. Accumulated Depreciation) 618,436 614,818 3,618 0.6%
Cash and Cash Equivalents 19,570 13,903 5,667 40.8%
Total Loans (net of Loan Issue
Costs) (289,868) (298,898) 9,030 (3.0%)
----------------------------------- --------- --------- --------------- -------
Appendix 3
Key Financial Performance Indicators and Financial Covenants for
the Year Ended 31(st) March 2021
Key Financial Performance Indicators 2021 2020
Turnover from Social Housing Lettings (1) 95.1% 92.2%
Operating Margin on Social Housing Lettings
(2) 16.8% 23.5%
Social Housing Costs per Unit (GBP) (3) GBP3,133 GBP2,944
Operating Margin (4) 16.4% 25.6%
EBITDA-MRI to Net Interest (5) 2.12 2.62
Net Margin (6) 4.8% 14.2%
Return on Capital Employed (7) 3.6% 5.8%
-------------------------------------------- -------- --------
Financial Covenants 2021 2020
Interest Cover (8) 2.06 2.56
Gearing (Assets) (9) 43.7% 46.4%
Net Debt per Unit (10) GBP12,132 GBP12,579
----------------------- --------- ---------
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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