Introduction
Despite the exceptional challenges presented by the Covid-19 pandemic, Group revenue has grown to £765.4 million; an increase of £2.4 million from the prior year. This increase has been driven by the Group’s social housing business, which has remained strong in the face of the pandemic, along with the growth from recent acquisitions particularly in the supported living business. This has been partially offset by reduced occupancy in the Group’s student accommodation, particularly in London where restrictions impacted international student travel. While the care business has out-performed the wider sector during the pandemic, occupancy has been impacted, which has adversely impacted revenue.
The Group operating surplus of £170.1 million is £16.1 million lower than the prior year (2020: £186.2 million), while the underlying operating surplus of £166.7 million*, adjusted to remove fixed asset sales surpluses and restructuring costs, represents a £15.9 million reduction from the prior year (2020: £182.6 million). The operating surplus from the Group’s social housing business has seen strong growth with the RSH operating margin improving to 38.4%* (2020: 37.4%) representing the return of the CPI +1% rental indexation in England along with operational efficiencies. The overall temporary decline in Group operating surplus has been driven by the effects of the reduction in occupancy in the care and student businesses falling through to the bottom line. This has been compounded by increases in temporary staffing and infection control costs within the care business. Despite the unprecedented challenges the care business has achieved a positive EBITDA and remained cash generative at an operating level.
While the operating surplus contribution from development activity was down £3.7 million from the prior year, this was the result of lockdown restrictions being in place for the early part of the year and a different sales mix compared to the prior year. The Group’s focus on rural locations within areas of high demand led to strong demand when lockdown measures eased with a solid pipeline for the year ahead.
The benefits of growth in the supported living business through acquisition and organic contract growth has delivered an increase of £2.1 million to operating surplus, with the margin increasing from 6.8% to 8.2%.
Surplus before tax of £46.9 million is £5.5 million lower than the prior year (2020: £52.4 million), with underlying surplus for the year of £39.0 million*, which is £18.4 million lower than the prior year (2020: £57.4 million). This was driven by the specific effects of Covid-19 on the care and student businesses, together with additional financing costs as the Group has sought to forward fund future development activity.
Despite the significant additional operational challenges faced this year, rent arrears improved to 3.16% (2020: 3.60%) and void losses only slightly declined to 1.6% (2020: 1.1%). Within the care business CQC scores improved to 86% (2020: 84%) and Sanctuary Supported Living CQC scores remained high at 98% (2020: 100%). These strong operational metrics have underpinned our financial performance and will continue to do so in the future.
We have revised working practices which has reduced costs and improved processes. Coupled with lowering discretionary spend these efficiencies have helped to mitigate the effects of the pandemic and will continue to deliver future benefits once the pandemic is over. Examples of this include automation in our central finance processes such as accounts payable and accounts receivable to enable touchless processing. We have commenced a rationalisation of our offices and lowered our facilities costs through investment in technology. We kept a keen eye on our cash flows resulting in healthy cash generated from operating activities of £218.5 million (2020: £244.2 million) with a solid 134.2% EBITDA MRI interest cover*. This demonstrates our ability to withstand shocks in the economy and allows us to confidently pursue reinvestment activities as well as develop new housing stock.
The Group exited the year with £494.7 million of cash (2020: £261.5 million) and undrawn facilities of £365 million (2020: nil), highlighting that we have strong liquidity. Our £1.4 billion of capacity (cash, undrawn facilities and available security), in conjunction with our strong investment grade credit ratings (A+ (Standard & Poor’s) and A2 (Moody’s)), is a further sign that we are well positioned to pursue our strategic objectives as well as mitigate the residual effects of the pandemic.
Overall, while the pandemic has had short-term adverse affects on parts of the business, the strong fundamentals of the Group’s operating financial performance and position ensures the Group will be there for tenants, residents, and all our wider stakeholders over the long-term.
Five year summary
| 2021 (£m) | 2020 (£m) | 2019 (£m) | 2018 (£m) | 2017 (£m) | |
|---|---|---|---|---|---|
| Statement of Comprehensive Income | |||||
| Revenue | 765.0 | 763.0 | 735.4 | 708.1 | 670.9 |
| Cost of sales and operating exp. (excl. restructuring) | (600.8) | (584.8) | (557.5) | (519.5) | (478.6) |
|
Share of profit of joint ventures |
2.1 |
4.4 |
3.1 |
0.5 |
0.1 |
|
Underlying operating surplus |
166.7 |
182.6 |
181.0 |
189.1 |
192.4 |
|
Restructuring costs |
(1.8) |
(2.6) |
- |
- |
- |
|
Other gains and losses |
5.2 |
6.2 |
22.7 |
9.6 |
3.0 |
|
Operating surplus |
170.1 |
186.2 |
203.7 |
198.7 |
195.4 |
| Net gain from acquisitions | 4.5 | - | - | - | - |
| Fair value movement on derivatives | 0.7 | (0.1) | (0.1) | 1.1 | 0.1 |
|
Net interest payable in respect of loans |
(128.5) |
(124.3) |
(125.8) |
(124.0) |
(130.0) |
|
Loan break costs |
- |
(8.6) |
- |
(1.3) |
(4.0) |
|
Other finance costs |
0.1 |
(0.9) |
(1.0) |
(2.6) |
(2.3) |
|
Surplus for the year before tax |
46.9 |
52.4 |
76.9 |
70.8 |
59.1 |
|
|
|
|
|
|
|
|
Surplus for the year before tax |
46.9 |
52.4 |
76.9 |
70.8 |
59.1 |
|
Adjustments for: |
|
|
|
|
|
|
Restructuring costs |
1.8 |
2.6 |
- |
- |
- |
|
Other gains and losses |
(5.2) |
(6.2) |
(22.7) |
(9.6) |
(3.0) |
| Net gain from acquisitions | (4.5) | - | - | - | - |
|
Loan break costs |
- |
8.6 |
- |
1.3 |
4.0 |
|
Underlying surplus for the year |
39.0 |
57.4 |
54.2 |
62.5 |
60.1 |
|
|
|
|
|
|
|
|
Statement of Financial Position |
|
|
|
|
|
|
Non-current assets |
4,064.0 |
4,002.1 |
3,750.0 |
3,656.3 |
3,486.1 |
|
Current assets |
753.1 |
457.5 |
337.8 |
286.4 |
283.9 |
|
|
4,817.1 |
4,459.6 |
4,087.8 |
3,942.7 |
3,770.0 |
|
|
|
|
|
|
|
|
Current liabilities |
585.7 |
239.3 |
254.1 |
295.0 |
278.2 |
|
Loans and borrowings and other payables |
3,046.1 |
3,065.7 |
2,747.5 |
2,634.8 |
2,500.8 |
|
Provisions, pensions and derivatives |
77.0 |
33.2 |
48.5 |
52.6 |
138.4 |
|
Reserves |
1,108.3 |
1,121.4 |
1,037.7 |
960.3 |
852.6 |
|
|
4,817.1 |
4,459.6 |
4,087.8 |
3,942.7 |
3,770.0 |
|
Statement of Cash Flows |
|
|
|
|
|
|
Operating surplus |
170.1 |
186.2 |
203.7 |
198.7 |
195.4 |
|
Depreciation, amortisation and impairment |
78.6 |
73.0 |
67.3 |
60.3 |
63.9 |
|
EBITDA |
248.7 |
259.2 |
271.0 |
259.0 |
259.3 |
|
Working capital movements |
(22.9) |
(4.4) |
(30.0) |
(85.0) |
(28.3) |
| Other adjustments | (7.3) | (10.6) | (25.8) | (10.1) | (9.6) |
|
Cash generated from operating activities |
218.5 |
244.2 |
215.2 |
163.9 |
221.4 |
|
Financing and returns on investments |
(134.8) |
(142.5) |
(133.0) |
(128.8) |
(143.8) |
|
Investing - capital expenditure and investment |
(184.9) |
(307.2) |
(190.9) |
(288.1) |
(253.2) |
|
Investing - capital grants and sales proceeds |
65.8 |
59.0 |
85.0 |
55.7 |
136.2 |
|
Pension deficit payment |
- |
- |
- |
(40.0) |
- |
|
Net cash flow from financing activities |
268.6 |
257.9 |
78.1 |
156.0 |
(128.3) |
|
|
233.2 |
111.4 |
54.4 |
(81.3) |
(167.7) |
|
|
|
|
|
|
|
|
Cash and cash equivalents at start of year |
261.5 |
150.1 |
95.7 |
177.0 |
344.7 |
|
Cash and cash equivalents at end of year |
494.7 |
261.5 |
150.1 |
95.7 |
177.0 |
Key Performance Indicators
| 2021 | 2020 | 2019 | 2018 | 2017 | |
|---|---|---|---|---|---|
|
Satisfaction - monitoring quality of service delivery |
|
|
|
|
|
|
Care - resident satisfaction % |
96 |
96 |
96 |
97 |
98 |
|
Resident satisfaction - services % |
73 |
80 |
81 |
83 |
83 |
|
Satisfaction - maintenance % |
95 |
94 |
93 |
94 |
92 |
|
First stage complaints responded to on target % |
68 |
92 |
94 |
90 |
85 |
|
|
|
|
|
|
|
|
Compliance - measurement against standards prescribed by regulating bodies |
|
|
|
|
|
|
Care Quality Commission rating % (Care) |
86 |
84 |
81 |
82 |
85 |
| Care Quality Commission rating % (SSL) | 98 | 100 | - | - | - |
|
Care Inspectorate rating % (Scotland) |
75 |
88 |
73 |
82 |
- |
|
Properties with valid gas safety certificate % |
99.7 |
99.9 |
99.9 |
99.6 |
99.9 |
|
RSH governance |
G1 |
G1 |
G1 |
G1 |
G1 |
|
RSH viability |
V2 |
V2 |
V1 |
V1 |
V1 |
|
|
|
|
|
|
|
|
Operational - evaluation of operational efficiency and effectiveness |
|
|
|
|
|
|
Occupancy - Sanctuary Care % |
83 |
91 |
90 |
95 |
95 |
|
Occupancy - Student % |
79 |
94 |
95 |
97 |
99 |
|
Rent arrears % |
3.16 |
3.60 |
3.80 |
4.31 |
4.95 |
|
Homes in management |
105,219 |
102,686 |
101,218 |
101,114 |
99,481 |
|
Void loss % |
1.6 |
1.1 |
1.1 |
1.4 |
1.4 |
|
Group procurement savings (aggregate) £m |
22.9 |
21.5 |
20.8 |
19.0 |
17.5 |
|
RSH social housing cost per unit £ |
4,218 |
4,499 |
4,584 |
4,208 |
4,172 |
|
Average weekly fee rates - Care £ |
840 |
807 |
761 |
751 |
682 |
|
|
|
|
|
|
|
|
Debt - ability to service debt and secure funding |
|
|
|
|
|
|
Interest cover (excluding loan break costs) - times |
1.95 |
2.09 |
2.15 |
2.09 |
1.99 |
|
RSH EBITDA MRI interest cover % |
134.2 |
119.3 |
121.3 |
128.4 |
120.9 |
|
Gearing % |
49.6 |
50.6 |
49.3 |
49.6 |
47.3 |
|
RSH gearing % |
51.9 |
53.1 |
51.9 |
52.2 |
50.3 |
|
Capacity £m |
1,442.0 |
1,408.8 |
1,131.1 |
1,024.1 |
1,059.6 |
|
% of debt under fixed interest rates |
96.0 |
82.7 |
87.0 |
92.3 |
93.8 |
|
Standard & Poor’s credit rating |
A+ |
A+ |
A+ |
A+ |
A+ |
|
Moody's credit rating |
A2 |
A2 |
A2 |
A2 |
A1 |
|
|
|
|
|
|
|
|
Profitability - measurement of financial performance |
|
|
|
|
|
|
Underlying operating surplus margin % |
21.8 |
23.9 |
24.6 |
26.7 |
28.7 |
|
RSH operating surplus (social) % |
38.4 |
37.4 |
38.5 |
40.1 |
41.8 |
|
RSH operating surplus (overall) % |
21.3 |
23.0 |
24.2 |
26.7 |
28.7 |
|
Operating costs as % of revenue |
74.8 |
73.0 |
72.9 |
71.4 |
68.7 |
|
Underlying net margin % |
5.1 |
7.5 |
7.4 |
8.8 |
9.0 |
|
Total divisional EBITDA £m |
250.6 |
260.1 |
260.8 |
266.8 |
269.5 |
|
Total divisional EBITDA % |
32.7 |
34.1 |
35.5 |
37.7 |
40.2 |
|
|
|
|
|
|
|
|
Maintenance - investment in assets and how efficiently they are maintained |
|
|
|
|
|
|
Average repair cost per home £ |
1,186 |
1,257 |
1,262 |
1,254 |
1,173 |
|
Reinvestment spend per home £ |
609 |
782 |
827 |
675 |
691 |
|
RSH reinvestment % |
3.4 |
4.0 |
3.1 |
6.3 |
4.0 |
|
Average cost per responsive repair £ |
139 |
122 |
119 |
115 |
118 |
|
|
|
|
|
|
|
|
Asset efficiency - the returns generated from the Group’s assets |
|
|
|
|
|
|
RSH Return on capital employed % |
2.7 |
3.1 |
3.5 |
3.5 |
3.7 |
|
Development - delivery of new properties |
|
|
|
|
|
|
Homes on-site and in development |
5,130 |
5,642 |
6,002 |
6,019 |
4,686 |
|
RSH new supply delivered (social) % |
0.7 |
0.6 |
0.9 |
0.7 |
0.5 |
|
RSH new supply delivered (non-social) % |
0.3 |
0.1 |
0.1 |
0.1 |
0.1 |
|
Homes completed (excluding joint ventures and consortia) |
620 |
604 |
941 |
773 |
456 |
Treasury
The Group’s overall treasury management strategy seeks to maintain continued financial strength through polices which support strong cash and liquidity management (including cash flow forecasting), prudent interest rate and credit risk management, the management and monitoring of its debt obligations (including covenant compliance), and the securitisation of the assets utilised in support of those debt obligations. This includes sourcing and structuring liquidity to meet the Group’s future cash flow requirements by reference to the long-term financial projections.
Cash and Liquidity Management
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 £218.5 million of cash from operating activities (2020: £244.2 million). At 31 March 2021, the Group had a cash balance of £494.7 million (2020: £261.5 million).
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, ensuring that existing cash and available facilities cover at least 18 months of future committed spending requirements.
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.
Debt Management
At 31 March 2021 the Group had total borrowings of £3,377.3 million (2020: £3,105.7 million), made up of bank loans, senior notes and debenture stock and lease liabilities.
Undrawn facilities at 31 March 2021 totalled £365 million (2020: Nil).
In the year to March 2021 the Group has raised £700 million of new facilities, including a £350 million 30-year secured bond at a coupon of 2.375%, issued in April 2020, 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.
In addition, the Group put in place a further £350 million of facilities during the year, comprising a £40 million revolving credit facility, a £10 million loan, and £300 million from the Bank of England’s Covid Corporate Financing Facility (CCFF). The Group accessed the CCFF in March 2020, but this has been subsequently repaid in May 2021.
The weighted average duration of drawn debt across the Group is 16.8 years (2020: 17.2 years). Our funding strategy is designed to monitor the debt maturity profile and thereby manage the refinancing risk across the Group ensuring that there is not a concentration of refinancing risk in any 12-month period.
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 has limited refinancing risk of 22.5% (£759.4 million) of existing drawn loans in the next five years (2020: 22.1%, £680.2 million). 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.
Covenant Compliance
The Group monitors loan covenants taking into consideration the headroom against them, 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 and were within the parameters of the Group’s risk appetite hurdles, metrics, and trigger points; covenants will continue to be met based on our latest projections.
Interest Rates
The Group operates an interest rate policy designed to reduce volatility in cash flow and debt service costs. Wherever possible, bank borrowing and long-term debt market facilities are structured to include interest payments on a fixed or hedged basis. The Group’s policy is to ensure that a minimum of 75% of all debt is held on a fixed basis. At 31 March 2021, 96.0% of debt was fixed (2020: 82.7%) and 4.0% floating (2020: 17.3%).
Net finance costs on borrowings totalled £128.5 million (2020: £124.2 million before loan break costs); an increase of £4.3 million due to additional borrowing.
The Group’s cost of borrowing has reduced to 3.91% (2020: 4.16%). Interest cover remains strong at 1.95 (2020: 2.09 before loan break costs). The EBITDA MRI interest cover 31 March 2021 was 134.2% (2020: 119.3%), which is well above the Golden Rule hurdle of 100%.
Sanctuary has one stand-alone interest rate swap, entered into as part of a legacy project finance arrangement, which swaps a variable interest rate to a fixed rate. At the reporting date, a £2.8 million liability (2020: liability of £3.5 million) was recognised in respect of this derivative financial instrument. The requirement to collateralise this derivative is limited to the assets already securitised under this ring-fenced arrangement.
At 31 March 2021, the Group had US dollar denominated debt with an aggregate value of $80 million (2020: $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 £20.6 million at the reporting date (2020: asset of £41.5 million).
Property Securitisation
The Group primarily utilises its assets as security (collateral) for its debt obligations in line with individual borrowing agreements. Assets secured across a variety of these debt obligations support £2.6 billion of the Group’s overall debt.
The Group’s primary security pool contains 39,560 units with an aggregate value of £2.9 billion. The collateralised assets represent a broad geographical cross section of the Group’s housing properties across all of its key geographical locations. This pool supports all the debt issued by Sanctuary Capital PLC via the debt capital markets, together with other bank funding put in place via Sanctuary Treasury Limited, including the Group’s available Revolving Credit Facilities. The pool also comprises 841 unallocated units with an aggregate value of £64.7 million.
For all other secured borrowings, the Group undertakes regular revaluations of the security and (where funding arrangements allow) excess security is released from charge adding to the Group’s pool of unencumbered assets, for future use as security. The available security makes up a significant part of our £1.4 billion of capacity (2020: £1.4 billion) (also includes cash and undrawn facilities), against the Group’s Golden Rule hurdle of £500 million.
Credit Risk Management
It is the Group’s policy not to take or place funds with any financial institution that is not investment grade, requiring regular monitoring of credit ratings of all counterparties. Sanctuary continues to have strong investment grade credit ratings A+ (Standard & Poor’s) and A2 (Moody’s)).