Treasury management
At 31 March 2022, the Group has agreed loan facilities totalling £911.0m of which, £668.2m was drawn. Loans totalling £810.6m are managed through the Group’s special purpose vehicles: Libra (Longhurst Group) Treasury plc and Libra (Longhurst Group) Treasury No 2 plc, with the balance of £100.4m being held directly within the Group. In line with the Group’s approved treasury strategy, all new funding is arranged through one of our special purpose funding vehicles.
Group loan facilities
At 31 March 2022, the Group had total loan facilities available of £911.0m of which, £242.8m remained undrawn at the balance sheet date. The increase in agreed facilities is due to the issue of £100m of retained bonds, which have been pre-sold through a forward purchase agreement. £50m of sales are occurring in 2022/23 and the remaining £50m is completing at the start of the 2023/24 financial year.
Contractual capital repayments were made during 2021/22 and the Group’s development programme was funded during the year via free cash reserves.
The forward sale of £100m retained bonds, together with existing undrawn revolving facilities, provide ample liquidity as determined within the Group’s treasury management policy.
In total, £460.6m of total committed facilities has either been issued or is managed under Group loan facilities by Libra (Longhurst Group) Treasury plc and £350m by Libra (Longhurst Group) Treasury No 2 plc.
Our treasury management strategy is to maintain our hedging activity within flexible parameters, as defined within the treasury management policy.
Total committed funding 2021/22
The exact proportion of fixed rate borrowings (where the rate is fixed for 12 months or more) is set each year when the Board agrees the Group’s annual treasury strategy.
The level of fixed rate debt is determined by analysing how sensitive the Group’s cashflow forecast is to fluctuations in prevailing market interest rates, but subject always to the Group having at least 70 percent of its net position subject to fixed rates of interest, on a rolling five-year average basis. The Group ensures that no more than 100 percent of its net exposure is fixed at any time.
Hedging activity
The Group’s hedging activity is within the treasury management policy’s agreed parameters, with a total of 97.18 percent fixed through a combination of embedded fixed rates and standalone derivatives. The ratio of fixed rate debt has remained consistent during 2021/22 because of a reduction in the notional value of standalone derivatives and maturity of embedded fixed rates, offset by a reduction in variable debt due to contractual capital repayments related to amortising facilities.
Debt repayment profile
The majority of the Group’s loans have been arranged under long-term facilities with 87 percent of drawn facilities being for five years and beyond. The balance of 13 percent are short-term facilities with a final repayment date of between two and five years. The repayment profile for the drawn and undrawn debt held across the Group is summarised in the chart below. In total, 75 percent of committed facilities mature in more than five years, a majority of which relates to the two bonds maturing in 2038 (£250m) and 2043 (£350m).
Liquidity
At 31 March 2022, the Group has available cash of £54.1m and £142.8m of undrawn secured facilities available to draw with two days’ notice.
There are also £100.0m of pre-sold retained bonds, £25m agreed to be sold in April 2022, £25m in August 2022 and a further £50m in April 2023.
The Group has £25.0m ring-fenced security to provide collateral (in excess of agreed unsecured thresholds) to cover any mark to market positions.
LIBOR to SONIA
During the year, the Group transitioned from LIBOR to SONIA in respect of variable rate loans and standalone derivatives. The lender discussions and legal amendments were completed to enable the transition to successfully complete from 1 January 2022.
Interest rate exposure
At 31 March 2022, the Group had a negative standalone interest swap exposure of £12.3m (2021: £19.9m), based on £72.5m (2021: £75.5m) of notional paying fixed rate/receiving three-month SONIA swaps. All of the Group’s interest rate swaps allow for the mark to market (M2M) position to be covered by either property assets or cash.
At 31 March 2022, the Group’s position was covered by property security of £2.3m for the M2M position in excess of the agreed threshold. The Group’s treasury management policy approved annually and reviewed, incorporates our objectives, relating to treasury management activities, together with policies and practices.
Retained bonds
During the year, the Group issued and retained a further £100m of bonds as part of the 2043 bonds held within Libra (Longhurst Group) Treasury No 2 plc. The Group entered into a forward purchase agreement in August 2021 to sell the bonds over three intervals.
The agreed deferred sales are £25m in April 2022, £25m in August 2022 and £50m in April 2023. At 31 March 2022, the bonds are fully secured, ready to proceed.
Key effects of material estimates and judgements within our financial statements
Impairment
We have reviewed the carrying value of housing properties and other fixed assets and assessed these against potential indicators of impairment at the Balance Sheet date.
Where there has been an indicator of a potential impairment, a detailed assessment of the carrying value and associated cash generating units is compared to the recoverable amount of the asset.
Where the recoverable amount of an asset is lower than its carrying value, an impairment is recorded through a charge to Statement of Comprehensive Income.
Provision for bad and doubtful debts
We have made a provision for bad and doubtful debts based on an assessment of the different levels of customer arrears at the Balance Sheet date.
Defined Benefit Pension Scheme
The assumptions used in the defined benefit pension scheme valuation have been reviewed by management to ensure the assumptions used on inflation, salary growth and discount rate are appropriate for our business.
Capitalisation of development costs
Costs associated with the construction of new homes under our development programme have been capitalised. This includes the cost of acquiring land, constructions costs, interest incurred during the development period and administration costs directly incurred during the development period.
Further details on our key judgements and material estimates can be found in our Accounting Policies on pages 18–25 of our Consolidated Financial Statements.
The consolidated Group surplus for the year ended 31 March 2022 was £11.7m after tax, compared to a surplus of £8.5m for the same period in 2020/21.
The Group’s total turnover for the year increased from £152.8m in 2020/21 to £156.1m in 2021/22 because of first tranche sales income exceeding budget significantly. The increased sales activity was a result of catching up, following delays during the height of the Coronavirus pandemic, and increased demand for property, with an increasing number of sales being made ‘off-plan’.
The turnover from social housing lettings has increased year-on-year and, as a percentage of turnover, social housing lettings increased from 75.0% to 76.8% with increased rental and care contract income contributing to this. Overall, our turnover from social housing lettings was down when compared to budget with handover delays impacting upon rental income, increased voids continuing to be impacted upon by the repairs contract issues discussed earlier in this report and delays in receiving nominations from local authorities in matching potential Care and Support customers with suitable homes.
The increase in operating costs, and lack of improvement in the operating margin since the prior year, is due to several factors. While the main challenge faced in 2021/22 is around the repairs contract issues, increasing management costs have also had a significant impact particularly around staffing costs, due to departmental restructures and agency costs incurred to cover vacancies and illness.
Total interest costs for the year were £29.8m down from £30.2m the previous year. The decrease in interest costs reflects a reduction in the cost of borrowing during the year due to embedded fixed rate loans maturing and reduction in the Group’s Swap portfolio.
The net book value of the Group’s fixed assets grew by £53.5m in the year to £1.29bn at the end of March 2022. The increase in the recorded value of the fixed assets was realised through the increased investment in the provision of 679 new homes.
Total debt at the end of March 2021 reduced to £672.3m from £687.9m the previous year due to the repayment of revolving credit facilities and contractual loan repayments. This will increase over the coming year with draw downs taking place following the issue of the £100m retained bond via forward purchase agreement.
The pension liability has decreased to £20.3m from £21.6m due to the impact of market movements; with the impact of a higher discount rate and growth of scheme assets, netting off against higher inflation rate assumptions.
The cash flow hedge reserve reduced by £8.2m to £13.8m at the end of March 2022. The decrease is due to a combination of a reduction in the Group’s swap portfolio and an increase in swap rates at the end of March 2022 resulting in a reduction in the Group's Mark to Market position.
© Longhurst Group Limited
Longhurst Group Ltd is a charitable housing association registered in England as a community benefit society (Reg. No. 8009) and registered with the Regulator of Social Housing (No. L4277).
Registered Office: 1 Crown Court, Crown Way, Rushden, Northamptonshire NN10 6BS. VAT Reg No. 326 0270 36. A member of the National Housing Federation.