TIDM71HO
RNS Number : 2193J
PenArian Housing Finance PLC
14 August 2023
PenArian Housing Finance PLC
Financial Update Summer 2023
Given the challenging external conditions, ClwydAlyn has
performed well during 22/23. Its (unaudited) final year end
position shows an operating surplus of GBP10.3m against a budgeted
GBP11.1m. Final audited accounts will be presented to the board in
September.
We maintained strong liquidity and ended the year with cash
balances of GBP22m and received a further GBP16m in grant during
the first week of April. Alongside this we had an undrawn GBP25m
RCF with GBP20m subsequently received in May 23 from a deferred
bond sale with a further GBP20m due in November 23.
It was a particularly turbulent year for the company, with some
large movements in income and expenditure. However, we continued to
benefit from strong relationships with Welsh Government (WG) which
meant we supported some national initiatives and accessed
significant grants.
We were awarded GBP1.7m in-year towards decarbonisation costs
(and a further GBP4m spread over the following 2 years) along with
GBP1m to set up a 'carbon zero hub' for North Wales providing
advice and support to other housing associations and public bodies
on decarbonisation.
We were also contracted to run the Welsh Government's refugee
'Welcome Centre' in Bangor. We did this to support the re-housing
of vulnerable people in need. While the cost of GBP1.3m was fully
covered by WG, we made no surplus, pulling our operating margin
down. WG also agreed to a one-off bonus payment to all care staff
to acknowledge their efforts during Covid. We paid this to staff
and were reimbursed, but again this pulled our margin down.
We had around a dozen houses that were long-term voids and due
for disposal. WG launched a scheme to provide houses for homeless
people which offered 80% of the costs of refurbishing vacant
properties. We took up the grant and refurbished the properties.
This was a very positive outcome for us and our tenants but meant
our property sales were GBP700k below budget.
Voids continued at a higher level, partly driven by an ongoing
reluctance of families to place loved ones in care homes due to the
impact of Covid. This improved significantly during the year but
had a large initial impact. We are also seeing properties being
returned requiring more work than in previous years, delaying the
date they can return into stock. We have recruited additional
trades staff and are reviewing our processes to try to speed up the
turnaround time.
A review of our care portfolio in 21/22 concluded we should exit
the specialist nursing care market. We received an offer for our
only nursing home which was accepted and the 22/23 budget assumed
disposal at the end of Q1. However, after a protracted process the
buyer pulled out late in the day. We had to reinstate the income
and expenditure into our forecasts causing income and expenditure
to increase by GBP2m.
Our development plan had slowed significantly during Covid and
began to pick up pace during the year with around 550 properties on
site at the end of the financial year. This is significantly higher
than previous years. Wales still has generous grant levels for new
build, with grant typically 50-60% of any scheme. WG also launched
a scheme to contribute to any additional costs incurred due to high
inflation. It led to us accessing record amounts of capital grant
from WG, with GBP53m paid to us in-year (including GBP16m received
in the first week of April 23), equivalent to 18% of the total
development grant available in the whole of Wales. A further 450
new homes have been submitted for planning or are being worked up
to planning stage.
One contractor went into administration at the end of the year
who had been due to deliver 177 homes for us. These contracts are
currently being re-let.
ClwydAlyn does not rely on market sales, and other than
disposing of a few surplus assets and some staircasing sales, is
not exposed to the housing sales market. Our sales income for the
year was GBP700k.
Approximately 60% of ClwydAlyn's income is derived from
government sources - housing benefit, supporting people grant,
council-funded care home placements and other contracts, which
while being constrained by budget pressures in councils are low
risk once awarded.
This leaves 40% paid by tenants directly to the company. Of
this, 15% is paid by residents in care and extra care schemes and
25% from general needs. Given the increasing pressures we are
seeing on residents, we are offering support and advice to ensure
they can manage their rents and access benefits and other financial
support.
The current economic turmoil has significantly impacted on costs
for the business with utilities, fuel, materials and food all
seeing significant rises. The budget contained a contingency amount
to cover some of these costs and savings were identified to reduce
expenditure.
We are also stepping up our investment in decarbonisation and
have obtained over GBP1.7m of grant funding from Welsh Government
in year to support this. Our board also agreed to set up a new
joint venture company which will deliver a large part of our
retrofit works. It will directly deliver some works but is also
expected to work with the local SMEs and supply chains to grow the
local market and capacity to deliver these works on behalf of both
housing associations.
During the year we were approached by a small housing charity to
take over their portfolio of 12 houses. This was agreed and the
transfer will complete during 23/24.
Despite the pressures on our budget, the current year-end
forecast is that we will only be GBP800k below our budgeted
operating surplus of GBP11.1m.
In November the Welsh Government announced that housing
associations could raise rents for 23/24 by up to 6.5%. This is
similar to England and higher than ClwydAlyn had expected in its
business plan. This means that while 2023/24 will be challenging,
it is within the scope of existing planning scenarios.
Ratings
We were pleased that we retained our 'A Stable' credit rating
with Standard and Poor's after their review in July 23. Our Moody's
rating was reviewed in October 22 and remained at A3. Moody's
announced that it was putting most housing associations on negative
outlook due to the macro-economic climate and this included
ClwydAlyn. However, underlying financial performance remains
steady.
Treasury
ClwydAlyn was the first housing association in Wales to secure a
publicly listed bond through PenArian Finance Ltd from the capital
markets. The value of the Bond was GBP250 million of which GBP160
million refinanced existing debt with a further GBP90 million
retained for future investment.
During 2021/2022 GBP25 million was drawn from the Bond. In May
2022 a further deferred draw down was agreed with GBP20 million
received in May 2023 and GBP20 million due in November 2023. This
funding was agreed ahead of the recent surge in interest rates and
so is attractively priced.
In June 22 ClwydAlyn extended the existing bond which was due to
expire with GBP25m still undrawn. In July 2022 ClwydAlyn carried
out a tap on the Bond of GBP150 million which has increased the
overall value of the Bond to GBP400 million with GBP175 million
still available to draw.
During the year, the company's revolving credit facility was
reduced to GBP25m and the interest cover covenant amended to
exclude reference to major repairs.
Liquidity remains high with GBP32m of grant received in March /
April 23 to forward fund development projects, GBP20m bond drawn
down in May, the undrawn GBP25m RCF available and the remaining
GBP20m deferred bond sale due in November. The weighted average
cost of capital also remains low at 3.47% and all loans are at
fixed rates mitigating the increasing interest rates.
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