At 31 March 2023, the Group had agreed loan facilities totalling £929.6m, of which £709.5m was drawn and £220.1m undrawn at the reporting date.
Loans totalling £833.2m 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 £96.4m 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
The total loan facilities of £929.6m at 31 March 2023 are an increase on the previous year.
The increase in agreed facilities is due to the renewal of a revolving credit facility during the year with the inclusion of £25.0m additional sustainability-linked funding.
The sustainability-linked funding, with three key performance indicators linked to environmental, social and governance targets, align with our commitment to improving the lives of our customers and protecting and enhancing the communities we serve.
£50.0m of sales have occurred during the year in relation to the forward sale £100.0m bonds, with the final £50.0m completing in April 2023.
The additional sustainability-linked funding and sale of bonds, together with existing undrawn revolving facilities, provide ample liquidity as determined within the Group’s treasury management policy.
In total, £483.2m of total committed facilities have been either issued or are 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.
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.
Figure 1: Total committed funding 2022/23
The Group’s hedging activity is within the treasury management policy’s agreed parameters, with a total of 96.5 percent fixed through a combination of embedded fixed rates and standalone derivatives.
The ratio of fixed rate debt has reduced slightly during 2022/23 because of a reduction in the notional value of standalone derivatives and resultant increased variable debt, offset by an increase in fixed debt drawn.
Figure 2: Fixed vs. variable debt
Debt repayment profile
The majority of the Group’s loans have been arranged under long-term facilities with 88.6 percent of drawn facilities being for five years and beyond.
The balance of 11.4 percent consists of short-term facilities with a final repayment date of within five years. The repayment profile for the drawn and undrawn debt held across the Group is summarised in the chart below.
In total, 73.0 percent of committed facilities mature in more than five years, a majority of which relates to the two bonds maturing in 2038 (£250.0m) and 2043 (£350.0m).
Figure 3: Drawn and committed funds
At 31 March 2023, the Group had available cash of £43.8m, £170.1m of undrawn secured facilities available to draw and pre-sold retained bonds of £50m to complete in April 2023.
The Group has £25m ring-fenced security to provide collateral (in excess of agreed unsecured thresholds) to cover any mark to market positions.
Figure 4: Liquidity at 31 March 2023
Interest rate exposure
At 31 March 2023, the Group had a negative standalone interest swap exposure of £3.4m (2022: £12.3m), based on £61.5m (2022: £72.5m) 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.
The unsecured threshold of £10m covered the M2M position at 31 March 2023. There is a further £25m of uncharged security allocated, should the M2M position surpass this threshold.
The Group’s treasury management policy which is approved annually and reviewed, incorporates our objectives relating to treasury management activities together with policies and practices.
Key effects of material estimates and judgements within our financial statements
Management has assessed the carrying value of housing properties, other tangible fixed assets and intangible assets against potential indicators of impairment at the reporting 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
The Group has made provision for bad and doubtful debts based on an assessment of the different levels of customer arrears at the reporting 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 notes 2 and 3 of our Consolidated Financial Statements on pages 107 to 121.
Review of Group financial performance
The consolidated Group surplus for the year ended 31 March 2023 was £7.4m after tax, compared to a surplus of £11.7m for the same period in 2021/22.
The Group’s total turnover for the year increased from £156.1m in 2021/22 to £157.4m in 2022/23. The small increase is a result of the inflationary increase applied to rental income on an increased number of properties with 578 new rental properties completing in 2023, offset by first tranche sales performance returning to a more normal level following the increased activity in 2021/22.
The increased sales activity in 2021/22 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’, which continued throughout 2022/23.
The turnover from social housing lettings has increased year-on-year and, as a percentage of turnover, social housing lettings increased from 76.8 percent to 79.8 percent with the increased rental income and reduced first tranche sales income contributing to this. Overall, our turnover from social housing lettings was down when compared to budget with handover delays impacting upon rental income and increased voids continuing to be impacted by the repairs contract issues discussed earlier in this report.
The increase in operating costs, and deterioration in the operating margin since the prior year, is due to several factors. While the main challenge continues to be around repairs expenditure, management costs have also remained at a heightened level with repairs performance impacting upon compensations, disrepair claims, disturbance payments and void utility expenditure, and agency staff being used to cover vacancies and illness.
Total interest and financing costs for the year were £30.2m up from £29.8m the previous year. Although the cost of borrowing reduced during the year, with an average rate of 4.39% compared to 4.50% in 2021/22, the increased interest and financing costs are reflective of the increased loan balances. The net book value of the Group’s fixed assets grew by £66.0m in the year to £1.33bn at the end of March 2023. The increase in the recorded value of the fixed assets was realised through the increased investment in the provision of 578 new homes.
Total debt at the end of March 2023 increased to £721.8m from £672.3m the previous year due to the issue of the £100m retained bond via forward purchase agreement, of which £50m has been received in 2022/23, and the inclusion of an additional £25m of sustainability-linked funding on the renewal of a revolving credit facility during the year.
The pension liability has decreased to £16.6m from £20.3m due to the impact of market movements; a higher discount rate and growth of scheme assets, and lower inflation and life expectancy assumptions.
The cash flow hedge reserve reduced by £10.0m to £3.8m at the end of March 2023. 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 2023 resulting in a reduction in the Group’s Mark to Market position.
Jenny Brown, Chair 28 September 2023