Platform Housing Group Quarter 4 Trading Statement

26 May 2022

The following report provides a trading update for Platform Housing Group (Platform), covering unaudited financial performance, development and treasury activities.

Highlights

· Strong turnover growth of 10% to £296.9m (20/21: £269.9m)

· Increase in shared ownership sales volumes and values demonstrating robust housing market in areas of operation - year to March sales of 563 (20/21: 408)

· Impacts of Covid-19 and Brexit experienced in maintenance and development activities, affecting materials costs, labour availability and completions 

· Operating surpluses reduced by 11% to £90m (20/21: £101.2m) and net surplus reduced by 21% to £44.4m (20/21 £56.1m) driven by one-off depreciation and loan breakage costs

· Arrears performing well, little impact noted from the end of Government support measures. Moving forward arrears expected to be under pressure as customers are affected by rising inflationary pressures

· £235m sustainability linked revolving credit facility established

· A+ (stable) rating reaffirmed by S&P

· Outlook financials for the year to March 2023 expected to be in line with those for 2022

Notes

(1) Surplus excluding gains on disposal of property, plant and equipment

(2) Regulator for Social Housing Value for Money metric; for more information go to https://www.gov.uk/government/publications/value-for-money-metrics-technical-note/value-for-money-metrics-technical-note-guidance-june-2020

(3) Current tenant arrears includes all general needs tenants (this excludes shared ownership properties)

(4) Figures as at 31 March (as opposed to accumulated over the year to March)

Elizabeth Froude, Platform's CEO commented:

"Although our net surplus is down year on year, we close in a strong and stable position. The main drivers of the decrease are one off events such as debt breakage costs and re-calculation of asset life cycles, generating a one off depreciation catch up cost.

Our core business is delivering good surpluses and cash generation, and our sales team have continued to maintain a high level of reserves for any units not sold at the end of the year. We also continue to acquire development sites to facilitate our new homes aspirations and commitments to Homes England as a strategic partner.

As we close a very variable year in terms of operating environment, we, like many others, are dealing with a number of challenges and whilst clearing maintenance backlogs, are also managing increasingly difficult supply chains and cost increases for our future property investment.

We continue to invest in enhancing core systems and customer facing services whilst we are stepping up our asset investments to achieve improved energy efficiency and absorbing the increasing cost of maintenance and construction. At the same time we are maintaining compliance with our financial golden rules to protect our strong financial credit metrics.

Again I hope these results are received and seen as a good out-turn in a difficult environment."

Financial review

Turnover

In the year to 31 March 2022 total turnover grew 10% to £296.9m (20/21: £269.9m).

Social housing lettings turnover increased by 4.1% to £234.6m (20/21: £225.3m) as a result of inflationary rental increases and a year-on-year increase in social housing units. 

Shared ownership first tranche sales continue to perform strongly. Turnover from these sales was £9.3m in the quarter (20/21: 10.7m), providing a full year figure of £48.8m, £16.7m higher than the prior year (20/21: £32.1m). 

Turnover from all social housing activities of £285.2m (20/21: £259.4m) accounted for 96.1% (20/21: 96.1%) of Platform's total turnover in the period. 

Surpluses and margins

Operating surpluses excluding fixed assets sales decreased by 11.1% to £90m (20/21: £101.2m) and operating surpluses including sales decreased by 9.8% to £99.4m (20/21: £110.2m). Surpluses from social housing lettings decreased by 14.8% to £82.3m (20/21: £96.6m). 

Operating margins were 30.3% excluding fixed asset sales (20/21: 37.5%), 33.5% including sales (20/21: 40.8%) and 35.1% from social housing lettings (20/21: 42.9%). 

Operating surpluses and margins were adversely affected by one-off depreciation charges, higher maintenance expenditures and increased voids. Maintenance expenditures have been affected by a shortage of labour availability, cost inflation and an element of catch up to compensate for delayed programmes. In addition, the prior year was characterised by subdued maintenance as activity was curtailed during covid lockdowns, affecting the comparative figures. Voids have been adversely affected by unusual peaks in handbacks due to Covid lockdowns and delays in repairs caused by labour shortages. Operating margins have also been affected by a larger proportion of turnover being generated from shared ownership sales (that have relatively lower margins). 

Excluding £5.6m of one-off depreciation charges, the variances in surpluses are as follows:

Shared ownership sales surpluses were £9.7m, representing 9.8% of total operating surplus (20/21: 5.5%), with associated margins of 19.8% (20/21: 19%). 

Staircasing sales of shared ownership properties, where a customer buys a further stake in their homes, had another strong quarter with 39 sales completed, (20/21: 35), earning a surplus and margin of £1.5m and 44% (20/21: £1.5m / 41%).

The overall net surplus after tax, which incorporates interest costs, was £44.4m (20/21: £56.1m), with the year-on-year variance driven by the items outlined above, in combination with one-off loan breakage costs exceeding the equivalent prior year cost by £2.3m. 

Outlook

In the coming year turnover is expected to grow in line with new units coming into management and inflationary rental increases. Sales turnover is expected to be slightly lower than the year to March 2022 due to lower volumes of homes available to sell. Voids are expected to improve, with new staff recruited to help with the backlog of maintenance required and maintenance costs are expected to remain high as the cost of materials and labour continue to be elevated. 

Development review

Developments during the fourth quarter continued to progress largely as projected, subject to minor planning and utilities delays. There were 199 homes completions in the quarter (31 March 2021: 267). Of these, 60 (30%) were built for social rent, 74 (37%) for affordable rent, 51 (26%) for shared ownership and a further 14 (7%) for other tenures (no homes were completed for outright sale). Development expenditures were £40m in the quarter (31 December 2020: £47m). At 31 March 2022, Platform owned a total of 47,123 homes (31 March 2021: 46,151).

There were 106 shared ownership sales in the quarter (31 March 2021: 136), making a total for the year of 563 (31 March 2021: 408).

Unsold shared ownership units were 70 (31 March 2021: 206) of which 47 were reserved. The level of unsold shared ownership units has reduced consistently throughout the year due to a number of successful initiatives, including earlier and more targeted marketing campaigns, clear targets and enhanced listings.

Outlook

Platform's development strategy continues to be focused on delivering quality, sustainable, land-led schemes, ensuring that homes completed are fit for future generations to come. These standards, in combination with a very competitive land market, have resulted in a moderation of growth in supply in the next year, with 1,100 to 1,200 homes expected to be completed in the year to March 2023. 

Sales are expected to continue to perform strongly, supported by high levels of reservations off plan. Total volumes of sales are expected to be lower in the coming year due to the level of completions.

The Group does not invest in speculative land and has no actual or expected material impairment in development sites.

Treasury review

Recent financing activity

Platform renewed its £1bn EMTN programme in the quarter (of which £750m is still available). The programme is supported by a Sustainable Finance Framework, enabling the Group to issue social, green and sustainability bonds. 

Shortly after the quarter end Platform completed the restructure of a £235m revolving credit facility (RCF) with Lloyds Bank. As part of the restructure the facility was linked to sustainability targets that centre on the energy efficiency of Platform's new and existing homes, and the proportion of employees enrolled in apprenticeship programmes. If these targets are achieved Platform will benefit from a margin reduction on that RCF borrowing.

Ratings activity

Platform is rated A+ (stable outlook) by both S&P and Fitch. S&P reaffirmed the rating (https://www.platformhg.com/our-ratings-) in the quarter. In addition, the EMTN programme was rated in line with the Group rating (A+) by both agencies.

Debt and liquidity

Net debt was £1,178m (20/21: £1,094m). Net debt comprised nominal values of £882m in bond issues, £80m in private placements and £490m in term loan and revolving credit facilities, partially offset by cash and equivalents of £274m.

Platform's weighted average cost of finance was 3.28% (31 March 2021: 3.40%), benefitting from the low all-in rates achieved on the two capital markets transactions in September (£250m sustainability bonds) and December (£50m retained bonds) 2021, in addition to the repayment of a £33m legacy facility, which also enhanced the flexibility and consistency of funding covenants.

Platform had sufficient liquidity as at 31 March 2022 (over £800m including undrawn committed facilities and cash and cash equivalents) to meet all its forecast needs until 2024 whilst maintaining 18 months of liquidity (in line with policy), taking into account projected operating cash flows, forecast investment in new and existing properties and debt service and repayment costs.

Financial ratios

Platform monitors its performance against various financial ratios, including Value for Money metrics reported to the Regulator of Social Housing and ratios it is required to comply with under its financing arrangements.

Gearing, measured as the ratio of net debt to the net book value of housing properties, was 42.4% at 31 March 2022 (31 March 2021: 41.9%). Gearing has increased in the last year due to new funding required for development expenditures. Gearing was comfortably within Platform's target of maintaining gearing below 50%.

EBITDA-MRI interest cover was 205% (31 March 2022: 218%). The movement from the prior year is largely driven by increases to maintenance costs due to high inflation and a catch up in repairs. The ratio remains well above Platform's guideline minimum (120%).

Outlook

Gearing and EBITDA-MRI interest cover ratios are expected to remain well within Platform's targets. Some upwards pressure in gearing and downwards pressure to interest cover is expected as Platform pushes ahead with its strategic development and maintenance objectives. 

For more information please contact:

Investor enquiries

Ben Colyer - +44 7918 160990 / +44 1684 579 566

[email protected]

Media enquiries

[email protected]

Disclaimer

These materials have been prepared by Platform Housing solely for use in publishing and presenting its results in respect of the nine months ended 31 March 2022. 

These materials do not constitute or form part of and should not be construed as, an offer to sell or issue, or the solicitation of an offer to buy or acquire securities of Platform Housing in any jurisdiction or an inducement to enter into investment activity. No part of these materials, nor the fact of their distribution, should form the basis of, or be relied on or in connection with, any contract or commitment or investment decision whatsoever. Neither should the materials be construed as legal, tax, financial, investment or accounting advice. This information presented herein does not comprise a prospectus for the purposes of Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (withdrawal) Act 2018 (the UK Prospectus regulation) and/or Part VI of the Financial Services and Markets Act 2000.

These materials contain statements with respect to the financial condition, results of operations, business and future prospects of Platform Housing that are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including many factors outside Platform Housing's control. Among other risks and uncertainties, the material or principal factors which could cause actual results to differ materially are: the general economic, business, political and social conditions in the key markets in which Platform Housing operates; the ability of Platform Housing to manage regulatory and legal matters; the reliability of Platform Housing's technological infrastructure or that of third parties on which it relies; interruptions in Platform Housing's supply chain and disruptions to its development activities; Platform Housing's reputation; and the recruitment and retention of key management. No representations are made as to the accuracy of such forward looking statements, estimates or projections or with respect to any other materials herein. Actual results may vary from the projected results contained herein.

These materials contain certain information which has been prepared in reliance on publicly available information (the "Public Information"). Numerous assumptions may have been used in preparing the Public Information, which may or may not be reflected herein. Actual events may differ from those assumed and changes to any assumptions may have a material impact on the position or results shown by the Public Information. As such, no assurance can be given as to the Public Information's accuracy, appropriateness or completeness in any particular context, or as to whether the Public Information and/or the assumptions upon which it is based reflect present market conditions or future market performance. Platform Housing does not make any representation or warranty as to the accuracy or completeness of the Public Information.

These materials are believed to be in all material respects accurate, although it has not been independently verified by Platform and does not purport to be all-inclusive. The information and opinions contained in these materials do not purport to be comprehensive, speak only as of the date of this announcement and are subject to change without notice. Except as required by any applicable law or regulation, Platform Housing expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any information contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any such information is based.

None of Platform Housing, its advisers nor any other person shall have any liability whatsoever, to the fullest extent permitted by law, for any loss arising from any use of the materials or its contents or otherwise arising in connection with the materials. No representations or warranty is given as to the achievement or reasonableness of any projections, estimates, prospects or returns contained in these materials or any other information. Neither Platform nor any other person connected to it shall be liable (whether in negligence or otherwise) for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in or omission from these materials or any other information and any such liability is expressly disclaimed.

Any reference to "Platform" or "Platform Housing" means Platform Housing Group Limited and its subsidiaries from time to time and their respective directors, representatives or employees and/or any persons connected with them.