- Successful merger to form largest housing association in the UK
- Underlying operating cost efficiencies already realised; significant further savings planned
- Turnover of £796m
- Net surplus of £173m
- Operating margin of 36%
- Occupancy rate of 98.4%
- Pipeline of new homes up to c.8,000 homes
- Group remains committed to target of building 50,000 homes over 10 years
- 1,340 new homes constructed
- 3.5% tenant arrears
- £75m spent on existing homes and £196m on new social homes
The Group recorded a strong financial performance in the year ended 31 March 2017. Net surplus for the year was £173 million (2016: £234 million) on a turnover of £796 million (2016: £825 million). Despite absorbing one-off exceptional costs related to the successful delivery of the UK’s largest housing sector merger during the year, operating margin was excellent at 36% (2016: 37%).
Underlying operating cost per unit has already decreased in real terms (by 0.2%, excluding one-off costs in the current and prior years), driven by immediate efficiencies that the Group has realised. The Group has an excellent track record of delivering efficiencies from merger and expects to bear down on costs further as progress to integrate the legacy operations continues.
Sales turnover excluding joint ventures was £76 million (2016: £106 million), broadly in line with expectations at merger. Sales operating margin was strong at 39% (excluding joint ventures), an increase of 4%. Overall performance remains robust, reflective of a disciplined sales strategy.
The Statement of Financial Position shows Housing Fixed Assets with a net book value of £6.5 billion (2016: £6.3 billion) which incorporates a £196 million investment in new social homes (2016: £174 million) and a £75 million investment in existing social homes (2016: £83 million) during the year. On an open market basis the Group considers its housing assets to be worth in excess of £22 billion. The Group plans to leverage this inherent value to deliver its development ambitions with a key focus on affordable homes for rent and shared ownership, in particular through planned asset management.
The income and expenditure reserve ended the year at £1.7 billion (2016: £1.5 billion), another indication of the substantial financial capacity the new Group now has.
The year-on-year debt increase was minimal (£20 million) due to strong cash generation from both rental and trading sales activity, as well as some asset sales. Strong cash generation remains at the heart of Group strategy, limiting the growth in debt otherwise necessary to fund development. Strong liquidity (cash and undrawn facilities) was maintained during the year finishing at £976 million (2016: £1.09 billion), affording the Group considerable flexibility.
The Group maintains an internal set of Financial Golden Rules which serve as a prudential financial framework for performance monitoring and planning future strategy. They also ensure that long term financial resilience is maintained which is a central strand - and enabler - of the Group’s corporate strategy. All these rules were met during the year. Social Housing Interest Cover during the year was 1.5 times, exceeding the internal 1.3 times minimum, whilst EBITDA MRI Cash Interest Cover was robust at 2.0 times against an internal minimum of 1.5 times.
A key feature of the Group’s approach to managing risk is to maintain a clear corporate split between regulated and non regulated activities and specific Financial Golden Rules have been developed accordingly. All were met during the year, including “value at risk”¹ coverage which was 6.7 times against an internal minimum of 1.5 times. Commercial activities are isolated within a separate subsidiary, Latimer. As Latimer matures it will build up reserves to provide a ‘buffer’ appropriate to the risks it is exposed to. Subject to this condition being met it will provide a source of income to help fund core social housing activity.
In summary, the Group ended the year in a strong position from which to execute its future plans. It remains confident in its ongoing ability to improve services, invest in new systems and new ways of working to help realise significant efficiencies, improve financial strength and resilience and increase capacity.
The Group’s core activity ended the year with solid performance after extensive management focus to improve in several areas which, at merger, were not at a level that the new Group would normally expect. Occupancy rates remain high at 98.4% for the year whilst calls answered within target at customer contact centres rose to 86.0% across the Group at the end of the year, an increase of 8.3% on the April 2016 equivalent. Repairs completed on time increased to 95.6% (2016: 93.6%), whilst current tenant arrears were well within target at 3.5% (2016: 3.3%).
Overall customer satisfaction for the year was 76.7%. This improved in the post merger period, but is below our medium term target of 80%, mainly because of the well publicised service level challenges, especially in East London. Although this performance compares reasonably well in the sector, improvement remains a key priority. The action plan put in place following merger to transform service delivery has met its targets; the Group is taking further steps to ensure improvements are sustained.
Significant work has been undertaken to improve the way that Clarion’s customers are able to transact with the organisation and provide a consistent and efficient service. The Group is confident satisfaction rates will continue to improve.
The Group remains committed to its target to build 50,000 homes over 10 years. Significant work was undertaken to put in place the supporting resource and governance structures whilst progress towards that strategic ambition is already being made - 1,863 new homes were started and a pipeline of circa 8,000 homes had been established by the end of the year. 90% of the 1,340 new homes delivered in the year were affordable; the Group expects this proportion to be two thirds over the longer term.
During the year work started on a number of strategic partnerships which completed after year end, including a strategic partnership with the Mayor of London which will see 5,000 new homes brought forward and another with Southwark Council for 600 new homes. Other such partnerships are expected to be finalised in 2017.
Scale is key to delivery; important progress has been made in this regard. The average scheme size approved by the Group Investment Committee since merger was 74 at year end - this compares to an average current scheme size of circa 40 units. The Group has a track record of delivering complex multi-tenure, multi-phase projects which transform communities and during the year worked up plans to invest £1 billion in regeneration in the London Borough of Merton, a project which will deliver 2,800 new homes.
Helping residents to build better futures is a key merger ambition. The social value of community investment activity over the year was £85 million² with over 1,700 individuals supported into employment, demonstrating the Group’s charitable foundation’s ability to deliver the largest and most ambitious community investment programme in the sector.
Keith Exford, Chief Executive Officer, said:
"This is a very good start for the new Clarion Housing Group and an excellent set of results. One of the fundamental principles of our overall strategy is to maintain financial strength to increase both our capacity and resilience. Together with the operational improvements that we continue to make, they are proof that we are quickly establishing a solid foundation to deliver on our key merger drivers: to provide consistent customer-focused services, build more homes, deliver efficiencies, and increase the numbers of people we can support into work and training."
"Clarion’s roots can be traced back over 100 years. We have the resource, experience and determination to maintain our traditions of helping those in housing need, investing in communities and providing a quality service for our customers. As we face the challenges of an uncertain political and economic environment we will remain focussed on maintaining and protecting our financial strength, enhancing our capacity to improve services and, provide homes for those in housing need for the next 100 years."
¹The value at risk metric measures the extent to which Latimer’s equity and revenue reserves cover exposure to a 35% fall in house prices
²Calculated using the Social Value Calculator developed by the Housing Associations' Charitable Trust using Wellbeing Valuation, which seeks to value interventions on the basis of their impact on individuals’ life satisfaction. This approach is recognised by HM Treasury in its Green Book guidance on cost benefit analysis and is increasingly being applied across OECD by governments.