Introduction

Sanctuary has recorded another strong financial performance. Group revenue has grown to £763.0 million for the year, with an enhanced development programme and acquisitions more than offsetting the impact of the fourth year of the one per cent social housing rent reduction in England.

Although the operating surplus of £186.2 million is lower than the prior year (2019: £203.7 million), the underlying operating surplus of £182.6 million represents a £1.6 million improvement over the prior year (2019: £181.0 million) – a good result particularly in the context of a further year of rent reductions, compliance expenditure, increased staff costs and an impact from Covid-19 in the final part of the year. These pressures have had a downward pressure on margins though we have kept the increase in operating expenditure in line with revenue growth to deliver the improved underlying operating surplus performance.

This solid financial operating performance is the product of improved operational metrics including rent arrears of 3.6 per cent (2019: 3.8 per cent), good satisfaction scores, a CQC score of 84 per cent (2019: 81 per cent) and void loss at a low of 1.1 per cent (2019: 1.1 per cent).

Surplus before tax of £52.4 million is lower than the prior year (2019: £76.9 million). However, the underlying surplus for the year is £3.2 million ahead of last year (£57.4 million in 2020 compared to £54.2 million in 2019), with an improved underlying net margin of 7.5 per cent (2019: 7.4 per cent), reflecting the good underlying operating performance in conjunction with a lower interest burden.

We took the opportunity to repay a tranche of legacy debt during the year, which will lower the interest cost to the business in the long-term even after taking into account the £8.6 million loan break costs.

The healthy cash generated from operating activities of £244.2 million allows us to confidently pursue reinvestment activities as well as develop new housing stock.

The Group exited the year with £261.5 million of cash (2019: £150.1) which was augmented further by the £350 million bond issue undertaken in early April 2020. Our £1.4 billion of capacity (cash, undrawn facilities and available security), in conjunction with our strong credit ratings (A+ (Standard & Poor’s) and A2 (Moody’s)), is a further sign of our balance sheet strength.

Overall these results demonstrate the Group’s continued financial strength and leave us well positioned to face the current short-term challenges and volatility presented by Covid-19 while still moving towards our longer-term strategic aims.

Investment in Our Assets

The Group continually reinvests in its existing asset base to ensure that homes are well maintained and pleasant places to live, that they are compliant with relevant safety standards and that they are maximised for energy efficiency. Capital spend on existing properties during the year totalled £80.3 million and a further £20.7 million was spent on non-capital planned maintenance of social housing properties.

The Group also remains committed to increasing housing supply through the development of new affordable homes and during the year spent £180.2 million to develop new properties; 5,642 properties were on-site and in development at the reporting date.

Five year summary

  2020 (£m) 2019 (£m) 2018 (£m) 2017 (£m) 2016 (£m)
Statement of Comprehensive Income          
Revenue 763.0 735.4 708.1 670.9 669.0
Cost of sales and operating exp. (excl. restructuring) (584.8) (557.5) (519.5) (478.6) (485.5)

Share of profit of joint ventures

4.4

3.1

0.5

0.1

-

Underlying operating surplus

182.6

181.0

189.1

192.4

183.5

Restructuring costs

(2.6)

-

-

-

-

Pension exit costs

-

-

-

-

(8.2)

Other gains and losses

6.2

22.7

9.6

3.0

17.7

Operating surplus

186.2

203.7

198.7

195.4

193.0

Net interest payable in respect of loans

(124.3)

(125.8)

(124.0)

(130.0)

(131.4)

Loan break costs

(8.6)

-

(1.3)

(4.0)

(6.4)

Other finance costs

(0.9)

(1.0)

(2.6)

(2.3)

(2.4)

Surplus for the year before tax

52.4

76.9

70.8

59.1

52.8

 

 

 

 

 

 

Surplus for the year before tax

52.4

76.9

70.8

59.1

52.8

Adjustments for:

 

 

 

 

 

Restructuring costs

2.6

-

-

-

-

Pension exit costs

-

-

-

-

8.2

Other gains and losses

(6.2)

(22.7)

(9.6)

(3.0)

(17.7)

Loan break costs

8.6

-

1.3

4.0

6.4

Underlying surplus for the year

57.4

54.2

62.5

60.1

49.7

 

 

 

 

 

 

Statement of Financial Position

 

 

 

 

 

Non-current assets

4,002.1

3,750.0

3,656.3

3,486.1

3,434.6

Current assets

457.5

337.8

286.4

283.9

434.0

Total

4,459.6

4,087.8

3,942.7

3,770.0

3,868.6

 

 

 

 

 

 

Current liabilities

239.3

254.1

295.0

278.2

271.4

Loans and borrowings and other payables

3,065.7

2,747.5

2,634.8

2,500.8

2,647.0

Provisions, pensions and derivatives

33.2

48.5

52.6

138.4

80.0

Reserves

1,121.4

1,037.7

960.3

852.6

870.2

Total

4,459.6

4,087.8

3,942.7

3,770.0

3,868.6

Statement of Cash Flows

 

 

 

 

 

Operating surplus

186.2

203.7

198.7

195.4

193.0

Depreciation, amortisation and impairment

73.0

67.3

60.3

63.9

56.5

EBITDA

259.2

271.0

259.0

259.3

249.5

Capital adjustments

(10.6)

(25.8)

(10.1)

(9.6)

(26.2)

Working capital movements

(4.4)

(30.0)

(85.0)

(28.3)

(15.9)

Cash generated from operating activities

244.2

215.2

163.9

221.4

207.4

Financing and returns on investments

(142.5)

(133.0)

(128.8)

(143.8)

(133.4)

Investing - capital expenditure and investment

(307.2)

(190.9)

(288.1)

(253.2)

(213.3)

Investing - capital grants and sales proceeds

59.0

85.0

55.7

136.2

131.2

Pension deficit payment

-

-

(40.0)

-

-

Net cash flow from financing activities

257.9

78.1

156.0

(128.3)

180.0

 

111.4

54.4

(81.3)

(167.7)

171.9

 

 

 

 

 

 

Cash and cash equivalents at start of year

150.1

95.7

177.0

344.7

172.8

Cash and cash equivalents at end of year

261.5

150.1

95.7

177.0

344.7

 

Key Performance Indicators

  2020 2019 2018 2017 2016

Satisfaction - monitoring quality of service delivery

 

 

 

 

 

Care - resident satisfaction %

96

96

97

98

96

Resident satisfaction - services %

80

81

 83

83

81

Satisfaction - maintenance %

94

93

 94

92

90

Satisfaction - rent is VfM %

90

90

 87

83

81

First stage complaints responded to on target %

92

94

90

85

80

 

 

 

 

 

 

Compliance - measurement against standards prescribed by regulating bodies

 

 

 

 

 

Care Quality Commission rating % (new regime)

84

81

82

85

80

Care Inspectorate rating % (Scotland)

88

73

82

-

-

Properties with valid gas safety certificate %

99.9

99.9

99.6

99.9

99.8

RSH governance

G1

G1

G1

G1

G1

RSH viability

V2

V1

V1

V1

V1

 

 

 

 

 

 

Operational - evaluation of operational efficiency and effectiveness

 

 

 

 

 

Occupancy - Sanctuary Care %

91

90

 95

95

94

Occupancy - Student %

94

95

97

99

96

Rent arrears %

3.60

3.80

 4.31

4.95

2.79

Homes in management

102,686

101,218

101,114

99,481

100,160

Void loss %

1.1

1.1

 1.4

1.4

1.3

Group procurement savings (aggregate) £m

21.5

20.8

19.0

17.5

16.0

RSH social housing cost per unit £

4,499

4,584

4,208

4,172

4,314

Average weekly fee rates - Care £

807

761

751

682

661

 

 

 

 

 

 

Debt - ability to service debt and secure funding

 

 

 

 

 

Interest cover (excluding loan break costs) - times

2.09

2.15

 2.09

1.99

1.90

RSH EBITDA MRI interest cover %

119.3

121.3

128.4

120.9

117.9

Gearing %

50.6

49.3

 49.6

47.3

47.7

RSH gearing %

53.1

51.9

52.2

50.3

50.6

Capacity £m

1,408.8

1,131.1

1,024.1

1,059.6

918.7

% of debt under fixed interest rates

82.7

87.0

92.3

93.8

93.5

Standard & Poor’s credit rating

A+

A+

A+

A+

A+

Moody's credit rating

A2

A2

A2

A1

A1

 

 

 

 

 

 

Profitability - measurement of financial performance

 

 

 

 

 

Underlying operating surplus margin %

23.9

24.6

 26.7

28.7

27.4

RSH operating surplus (social) %

37.4

38.5

40.1

41.8

38.0

RSH operating surplus (overall) %

23.0

24.2

26.7

28.7

27.4

Operating costs as % of revenue

73.0

72.9

 71.4

68.7

69.6

Underlying net margin %

7.5

7.4

8.8

9.0

7.4

Total divisional EBITDA £m

260.1

260.8

 266.8

269.5

254.9

Total divisional EBITDA %

34.1

35.5

 37.7

40.2

38.1

 

 

 

 

 

 

Maintenance - investment in assets and how efficiently they are maintained

 

 

 

 

 

Average repair cost per home £

1,257

1,262

 1,254

1,173

1,168

Reinvestment spend per home £

782

827

 675

691

694

RSH reinvestment %

4.0

3.1

6.3

4.0

3.8

Average cost per responsive repair £

122

119

 115

118

119

 

 

 

 

 

 

Asset efficiency - the returns generated from the Group’s assets

 

 

 

 

 

RSH Return on capital employed %                      

3.1

3.5

3.5

3.7

3.7

           

Development - delivery of new properties

 

 

 

 

 

Homes on-site and in development

5,642

6,002

6,019

 4,686

    4,381

RSH new supply delivered (social) %

0.6

0.9

0.7

0.5

2.3

RSH new supply delivered (non-social) %

0.1

0.1

0.1

0.1

0.2

Homes completed (excluding joint ventures and consortia)

604

941

773

        456

    1,608

Treasury

The Group had total borrowings of £3,105.7 million (2019: £2,810.9 million).

  2020 (£m) 2019 (£m)

Bank loans and mortgages

1,446.6

1,253.8

Senior notes and debenture stock

1,482.6

1,411.6

Lease liabilities under IFRS 16 (2019: finance lease liabilities under IAS 17)

176.5

145.5

Total

3,105.7

2,810.9

Debt Repayment Profile and Cost of Borrowing

Net finance costs on borrowings, before loan break costs, totalled £124.2 million (2019: £125.7 million), a decrease of £1.5 million. Loan break costs of £8.6 million (2019: £nil) were incurred during the year, relating to the early repayment of a number of historical loans held with one funder. The debt has subsequently been re-financed with lower fixed rates, which has also simplified the financing structure.

The Group’s cost of borrowing is 4.16 per cent (2019: 4.56 per cent) and interest cover before loan break costs is 2.09 (2019: 2.15). The weighted average duration of drawn debt across the Group is 17.2 years (2019: 19.2 years). Our funding strategy is designed to monitor the debt maturity profile and thereby manage the refinancing risk across the Group.

The Group has always maintained an ability to refinance and this forms part of our normal Treasury operations. The Group will refinance 22.1 per cent (£680.2 million) of existing drawn loans in the next five years. The Group is confident its financial strength will allow it to refinance existing loans and finance the current business plan commitments at competitive rates. The Group anticipates funding this through a mix of fixed and variable interest rate facilities, operating activities, cash generated from property sales and Government grants.

Sanctuary Group Debt Maturity Profile

The Group applied IFRS 16 leases from 1 April 2019, resulting in recognition of an additional £36.8 million of lease liabilities. These liabilities are included within the debt maturity profile above.

Working Capital and Liquidity Management

The Group manages liquidity by preparing and monitoring cash forecasts on a daily, weekly, monthly and longer-term basis to ensure that short and medium-term cash requirements are met. The forecasts are updated regularly to include sensitivity and scenario planning. Loan drawdowns are carefully managed to ensure funding is available when required and ensure debt finance costs are minimised. Sanctuary utilises revolving credit facilities to meet short-term fluctuations in cash flow, including capital expenditure on new housing for shared ownership or for sale where cash receipts are received in the short to medium-term. Longer-term funding requirements utilise term-loan facilities and debt capital market issues where necessary.

During the year the Group secured an additional £150 million of facilities, made up of a £75 million bond and a £75 million revolving credit facility. The Group also renewed £50 million of revolving credit facilities for another three years.

Just after year end the Group issued a £350 million 30-year secured bond at a coupon of 2.375 per cent, demonstrating the confidence investors have in Sanctuary and its long-term strategic aims. The bond proceeds will support investment plans to enhance our current stock, develop new affordable homes, and deliver services in line with our social purpose of providing housing and care to those in need.

Interest Rates

  2020 (£m) 2019 (£m)

Finance income

(3.6)

(3.5)

Finance costs – borrowings other than leases

117.4

120.3

Finance costs - leases

10.4

8.9

Net finance costs before loan break costs

124.2

125.7

Loan break costs

8.6

-

Net finance costs on borrowings

132.8

125.7

The Group operates an interest rate policy designed to reduce volatility in cash flow and debt service costs where possible. At 31 March 2020, 82.7 per cent of debt was fixed (2019: 87.0 per cent) and 17.3 per cent floating (2019: 13.0 per cent). The change is due to an increased use of revolving credit facilities to fund the Group’s development programme.

Sanctuary has one stand-alone interest rate swap, entered into as part of a project finance arrangement, which swaps a variable interest rate to a fixed rate. At the reporting date, a £3.5 million liability (2019: liability of £3.4 million) was recognised for this derivative financial instrument. The requirement to collateralise this derivative is limited to the assets already securitised under this ring-fenced arrangement.

Foreign Currency Management

At 31 March 2020, the Group had US dollar denominated debt with an aggregate value of $80 million (2019: $80 million). A cross currency interest rate swap is in place to hedge the risk of currency rate volatility in the future. This derivative is recognised at fair value on the Statement of Financial Position; an asset of £41.5 million at the reporting date (2019: asset of £22.3 million).

Covenant Compliance

The Group monitors loan covenants on a continual basis and these are reported to Group Board, Group Audit and Risk Committee and subsidiary boards as appropriate. Key covenants include interest cover, gearing ratios and asset cover. All covenants on loan facilities have been met during the financial year.

Cash Collection and Generation

The cash position of the Group remains strong, with sufficient cash in hand and facilities to fund operations and capital expenditure through the next financial year and beyond, to act as a buffer. The Group generated £244.2 million of cash from operating activities (2019: £215.2 million). At 31 March 2020, the Group had a cash balance of £261.5 million (2019: £150.1 million).