Metropolitan

Metropolitan Housing Trust (MHT) trading update and unaudited financial results for the six months ended 30 September 2017

| Corporate

MHT, one of the UK’s leading providers of affordable housing and care and support services, announces a trading update for the first six months of the financial year 2017/18.

Highlights

  • New CEO, Geeta Nanda, joined October 2017
  • 261 new homes completed (2016: 293) and on track to complete 650 new homes in the full year
  • In-house contractor, Metworks, mobilised in London
  • Clapham Park regeneration – detailed planning application for 2,535 new homes submitted July 2017
  • Revenues up 17% at £141m (2016: £120m)
  • Total surplus down 2.6% at £34.4m (2016: £35.4m)
  • More than £308m of available liquidity

Geeta Nanda commented:

“Having been through a successful financial turnaround, we are now entering into an exciting new phase – from the turnaround to the transformation of Metropolitan. The objective is to focus on our principal aim of making things better for our people: our customers, colleagues and communities.

“As part of this new phase, I have recently reshaped the structure of the organisation so it is refocused on two key areas: customer service and property maintenance. The directorates of Housing Services and Care and Support have been integrated into two new directorates called ‘Customer Services’ and ‘Property’.

“The Customer Services Directorate consists of teams providing services to customers from across the business – whether that’s vulnerable older people or general needs residents – and is led by Ann Gibbons, former Executive Director of Care and Support. The Property Directorate brings together all of Metropolitan’s teams responsible for property maintenance. It will be led by Mark Everard, currently a Housing Director within Capita Real Estate & Infrastructure, a role in which he focuses on affordable housing. He will join Metropolitan on 11 December.

“We remain deeply committed to ensuring the safety of our residents and employees. Following the tragic fire at Grenfell Tower in June, Metropolitan, like other housing associations, carried out a thorough review of its fire safety procedure – including a full technical review of its tall buildings. This resulted in a revised and updated fire safety procedure in which we have set ourselves higher standards than ever before to keep our customers and employees safe. There have been some one-off costs associated with undertaking work identified in the review, and with the introduction of the new procedure.

“Despite external challenges and changes for the sector in the first half of FY18, revenues are up 17% – and we remain on track to deliver a surplus of around £60m.”

Results overview

Turnover from housing services (including supported housing) is up 2.4% year-on-year as a result of volume and service charge increases, although overall operating margins (which include disposal profits) declined to 40.4% (2016: 50.5%). Sales revenues are up by more than 200% as our development programme has begun to deliver. Demand for homes under £1m remains strong, supported by Help to Buy but, while prices above that point are holding steady, sales rates are lower than originally anticipated. The sales mix during the first six months of 2017/18 has included more recently-acquired developments, such that sales margins have fallen to around 20% (2016:30%), in line with our expectations.

Operating surplus (which now includes profits from disposals) is £4.2m lower than last year at £56.7m (2016: £60.9m), reflecting a slow-down in staircasing and redemption transactions as well as some increased maintenance costs. In particular, the tragic Grenfell Tower fire in the summer of 2017 has resulted in an acceleration of some fire safety expenditure as well as an increase in related costs following a review of our fire safety management procedures. The care and support sector remains challenging and Metropolitan has exited some non-profitable contracts. Also, we mobilised Metworks, our in-house contractor, across London during the first quarter of 2017, which resulted in some additional mobilisation costs.

Operating cashflow remains strong, with more than £146m (2016: £97m) invested in new development projects YTD and an expected £127m (2016: £99m) projected in the second half of the year. Underlying net interest costs (excluding mark to market movements in derivatives) are consistent with last year but below budget, due to re-phased capital expenditure and the use of recycled capital grand funding rather than the sale of the retained bonds.

The organisation completed 261 homes during the first half of 2017/18 (YTD 2016: 293) and remains on track to deliver 650 (2016: 758) new homes in FY18.

Unaudited financials

 

Statement of comprehensive income

 

£000’s 6 months ended:   30 Sep 2017   30 Sep 2016   YoY %
Rent and service charge income 101,751 99,407 2.4
Care and support income 8,324 9,166 (9.2)
Outright/first tranche sales 26,032 7,913 229
Fees 5,044 3,913 28.9
Total turnover   141,151   120,399   17.2
Outright/first tranche cost of sales (21,624) (6,069) 256
Operating costs (49,670) (47,473) 4.6
Depreciation (9,437) (8,025) 17.6
Overheads (14,838) (12,295) 20.6
Profits on disposals 11,086 14,316 (22.6)
Operating profit (after disposals)   56,668   60,853   (6.9)
Net interest (23,662) (24,755) (4.5)
Fair value movements and other instrument revaluations 1440 (734)
Profit before tax   34,446   35,364   (2.6)

Sales margin 20.4% (30.4%)

Operating margin 40.1% (50.5%)

 

Statement of financial position

 

£000’s 6 months ended:   30 Sep 2017   30 Sep 2016   YoY %
Tangible fixed assets 3,002,472 2,821,907 6
Homebuy and investments 160,031 222,409 (28)
Current assets 197,947 182,388 9
Creditors – amounts falling due within one year (115,848) (145,942) 20
Total assets less current liabilities   3,244,602   3,080,762   5
Creditors due after more than one year 1,528,099 1,489,886 3
Provisions and pension obligations 34,847 43,524 (20)
Reserves 1,681,656 1,547,352 9
Total funding   3,244,602   3,080,762   5

 

Cashflow

£000’s 6 months ended:   30 Sep 2017   30 Sep 2016  
Net cashflow from operations 37,888 47,474
Sales proceeds 26,454 8,107
Dividends 2,000
Development expenditure (145,603) (97,053)
Total net cashflow from operations   (119,149)   (39,471)  
Disposal proceeds 31,624 31,806
Major repairs (17,549) (17,542)
Other (8,214) 15,855
Net drawdown (repayment) of debt 68,025 (36,818)
Net interest/fees (25,444) (26,205)
Net cash movement in period   (32,818)   (48,076)  
Opening cash

Restricted cash

88,301

25,790

182,283

 

Closing cash   81,273   109,895  

 

At 30 September 2017 we had more than £308m of available liquidity and total debt of £1,125m (2016: £1,071m). Metropolitan’s Standard &Poor’s credit rating was confirmed at A+ (negative outlook) during the summer.

Outlook

Looking forward, full year revenues are expected to be around 15% higher than last year with a total operating surplus around £60m (2016: £75.6m).

The confirmation of the revised rent-setting policy from 2020 (CPI+1%) and the reversal of the plan to cap housing benefit at local housing allowance (LHA) levels has provided greater certainty for the sector, albeit this is offset by concerns over Right to Buy and Universal Credit. The core housing business continues to perform well but some lower sales margins and the increased fire safety costs have reduced management’s expectations of the final outturn. Liquidity remains strong.

 

Changes to the Metropolitan Executive Team

The following changes have been made to the Executive Team:

 

Geeta Nanda – Appointed Chief Executive

Kerry Kyriacou – Appointed Interim Executive Director of Development

Jenny Danson – Resigned as Executive Housing Services Director

Mark Everard – Appointed Interim Executive Director of Property

 

Enquiries

Please contact Donald McKenzie, Head of Corporate Finance, on 020 3535 4434.

 

Notes

Operating margin is operating surplus/turnover

Disclaimer

The information in this preliminary results announcement has been prepared by the Metropolitan Housing Trust group 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. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results to differ materially from those expressed or implied by those statements. 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. Accordingly undue reliance should not be placed on forward looking statements.