TIDM56TE
RNS Number : 5013B
Sovereign Housing Capital Plc
02 June 2023
Sovereign Housing Association's Quarterly Performance Update
covering Q4 year 2022/23
Proposed Merger with Network Homes
On Monday 13 March Sovereign Housing and Network Homes announced
their intention to merge. The decision was agreed by their
respective board meetings on Thursday 9 March. The target date for
the completion of the merger is 1 October 2023.
The new organisation, Sovereign Network Group, will be one of
the largest housing associations in the UK, with over 82,000 homes
across the South of England and in London. Subject to a formal
appointment process, it is expected that Mark Washer, CEO at
Sovereign will become the Chief Executive and Helen Evans,
currently CEO of Network Homes, will become Deputy Chief Executive.
Sovereign Chair Paul Massara will become Chair of Sovereign Network
Group and interim Chair at Network Homes, Jon Gooding, will become
Deputy Chair.
Sovereign Network Group will have an annual income of over
GBP830m in 2024-25 and will invest GBP9.2bn over the next ten
years, building 25,000 new homes - almost 4,000 more than in
current plans, as well as regenerating estates and improving the
quality of existing homes. They have also pledged to establish a
new Community Foundation to invest GBP100m in communities over a
ten-year period. Find more information about the merger in our
investor presentation [pdf, 2.29MB] .
Quarter 4 Performance Update
Our unaudited management accounts for Q4 2022/23 show operating
surplus and overall surplus lower than Q4 last year and a step-down
from last quarter. This is driven by ongoing economic challenges,
including increased costs of labour, materials, high utilities
costs and increased funding costs. High levels of repairs are
occurring including a continued focus on safety and compliance.
Provisions have been made for other costs. Sales and staircasing
activities have performed well. Confidence in our Shared Ownership
product remains high, with demand strong.
Q4 FY23 Q3 FY23 variance Q4 FY22 variance
GBPm GBPm GBPm GBPm GBPm
Turnover 108.7 112.5 (3.8) (3.3%) 109.0 (0.3) (0.2%)
Operating Surplus 21.5 28.7 (7.2) (25.0%) 27.5 (5.9) (21.6%)
Retained Surplus 5.0 14.3 (9.3) (64.8%) 22.1 (17.1) (77.2%)
units units units units units
Sales 106 125 (19) (15.2%) 141 (35) (24.8%)
Unit Completions 506 413 93 22.5% 445 61 13.7%
The development programme handed over 506 units during the past
quarter. For the full year there were 1,672 handovers, 133 more
than expected. The forward development programme equates to 5
years' worth of deliver. Sovereign has recently completed on land
at Horns Lane, High Wycombe at GBP6.9m for a further 50 homes.
Treasury and Golden Rules
S&P reaffirmed our credit rating of A+ negative outlook on
the 30(th) March following our merger announcement with Network
Homes, the report highlighted that if the merger completed,
Sovereign Network Group's creditworthiness would not materially
differ from Sovereign, reinforcing that the potential merger is a
merger of two financially strong RP's. Read the full S&P report
[pdf, 133KB] .
Sovereign operates within a number of Financial Golden Rules
that underpin treasury and risk management activity. A summary is
shown below. Instantly available financing has decreased from
GBP451m last quarter to GBP424m (equating to 27 months of forecast
liquidity).
There is significant headroom against Interest Cover and Gearing
Golden Rules, creating protection against underlying debt facility
covenants. The performance metrics below show underperformance on
operating margin, which is set at the upper quartile of the Housing
Association sector. We do not expect this to recover in the short
term as this is driven by the combination of continued cost
pressures the business is experiencing across our property services
and increased spend in our Transformation programme, the benefits
of which will support longer term performance improvement of the
business.
Protection Actual Trend Threshold Headroom Definition
principle
Liquidity 27 months 18 months 9 months 18 months as a minimum,
where available cash
plus committed and
ready-to-draw borrowing
facilities (excluding
retained bonds) must
exceed forecast cash
flows excluding all
uncommitted development
spend and all income
from development
sales and asset sales.
---------- ------ ---------- --------- ----------------------------
Sales / turnover
Market risk 16.5% - 40% 23.5% %
---------- ------ ---------- --------- ----------------------------
Operating surplus
(excluding all development
Performance and asset sales)
(Op surplus / turnover on rolling
%) 29.2% 30% -0.8% three year basis
---------- ------ ---------- --------- ----------------------------
10% minimum level
of headroom against
121% 88% all lenders' interest
Sustainability cover covenants
- Interest
Cover 209% 110% 99% Tightest covenant
---------- ------ ---------- --------- ----------------------------
5% minimum headroom
against all lenders'
76% 26% gearing covenants
Sustainability
- Gearing 50.1% ^ 80% 30% Tightest covenant
---------- ------ ---------- --------- ----------------------------
ESG
We continue to make good progress in improvements of our
existing core stock moving from 69.2% at Dec 2022 to 70.3% as at
March 2023 of our properties at EPC C or better with 24.5% of our
core stock at EPC B or better. With a number of pilot schemes
completing next year and our successful application for GBP9.4m of
SHDF funding we expect to make strong progress on our journey
towards net zero.
We have engaged with Inspired energy, who have provided us with
our scope 1 and 2 emissions for our prior year to March 2022 and we
will be able to share our scope 1, 2 and 3 emissions in our next
quarterly update. Our total Carbon and Consumption was
11,473.58tCO2e, covering Gas, Fuel, Heat, Electricity and
Transport.
This provides an overall carbon intensity metric of 27.14tCO2e
per GBPm based against Sovereign's revenue. Read the full report -
Streamlined Energy Carbon Reporting (SECR) [pdf, 1.72MB] .
Corporate Affairs
SHDF funding
The government has awarded GBP778m of funding through the Social
Housing Decarbonisation Fund - Sovereign received our full bid's
allocation of GBP9.4m. This is the largest grant yet made to
Sovereign to invest in existing homes and will help Sovereign on
its journey to de-carbonising and retrofitting our 61,000-home
portfolio and map a pathway to net zero by 2050.
This SHDF Wave 2.1 funding round is part of the 2019
Conservative Manifesto commitment to a GBP3.8bn Social Housing
Decarbonisation Fund over a 10-year period to improve the energy
performance of social rented homes. The SHDF strategic objectives
are to deliver warm, energy-efficient homes, reduce carbon
emissions and fuel bills, tackle fuel poverty, and support green
jobs.
Cost of living - London networking dinner
Sovereign hosted dinner in London on 28 February with attendees
from HACT, Business in the Community, NHF and CIH. The focus was
how the sector can best support customers through the
cost-of-living crisis.
S
For more information, please contact:
Graeme Gilbert, Treasury Director, Sovereign Housing Association
07392130856 Graeme.Gilbert@Sovereign.org.uk
Charles Pitt, Corporate Affairs Director, Sovereign Housing
Association
07887524378 Charles.Pitt@Sovereign.org.uk
Disclaimer The information contained herein (the "Trading
Update") has been prepared by Sovereign Housing Association Limited
(the "Parent") and its subsidiaries (the "Group"), including
Sovereign Advances Ltd, Sovereign Housing Capital PLC (the
"Issuers") and is for information purposes only.
The Trading Update should not be construed as an offer or
solicitation to buy or sell any securities issued by the Parent,
the Issuers 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.
Statements in the Trading Update, including those regarding
possible or assumed future or other performance of the Group as a
whole or any member of it, industry growth or other trend
projections may constitute forward-looking statements and as such
involve risks and uncertainties that may cause actual results,
performance or developments to differ materially from those
expressed or implied by such forward-looking statements.
Accordingly, no assurance is given that such forward-looking
statements will prove to have been correct. They speak only as at
the date of the Trading Update and neither the Parent nor any other
member of the Group undertakes any obligation to update or revise
any forward-looking statements, whether as a result of new
information, future developments, occurrence of unanticipated
events or otherwise.
None of the Parent, any member of the Group or anyone else is
under any obligation to update or keep current the information
contained in the Trading Update. The information in the Trading
Update is subject to verification, does not purport to be
comprehensive, is provided as at the date of the Trading Update and
is subject to change without notice.
No reliance should be placed on the information or any
projections, targets, estimates or forecasts and nothing in the
Trading Update is or should be relied on as a promise or
representation as to the future. No statement in the Trading Update
is intended to be an estimate or forecast. No representation or
warranty, express or implied, is given by or on behalf of the
Parent, any other member of the Group or any of their respective
directors, officers, employees, advisers, agents or any other
persons as to the accuracy or validity of the information or
opinions contained in the Trading Update (and whether any
information has been omitted from the Trading Update). The Trading
Update does not constitute legal, tax, accounting or investment
advice.
www.sovereign.org.uk/investors
Note: Figures quoted in the update are based on unaudited
management accounts which are subject to review and further
adjustments, for example in the areas of pensions, investment
property valuation and taxation.
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