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L&Q ‘nimble enough’ to ride out extended UK recovery

News04 Jun 2020Luke Cross

L&Q is “nimble enough to take corrective action” should the UK’s economic recovery from the COVID-19 pandemic continue for an extended period, its group finance director said.

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The 113,000-unit provider strengthened its core financial metrics in the 12 months to March 2020, according to unaudited results. It completed 2,439 homes in the year, which is around 400 fewer than in 2018/19.

 

Among the COVID-19 mitigations since March 2020 have been an extra £300m of committed loan facilities, taking liquidity to more than £800m, the removal of £66m of non-essential operating expenditure for the current financial year ending 31 March 2021, and postponement of £300m of capital expenditure.

 

Waqar Ahmed, group finance director at L&Q, told Social Housing: “Currently, the focus has been on managing the crisis.

 

“We will start managing the recovery as soon as we know we are coming out of lockdown and we will issue a new financial plan that supports the new corporate plan, and that will be based on what expectations are for 2021.”

 

That will determine how quickly L&Q can accelerate areas such as its land-buying programme, with a clearer forecast expected in June, based on three months of results.

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In the meantime, it has scenario-tested for V, U and L-shaped economic recoveries, including sales restarting in Q4 and into the next financial year.

 

Mr Ahmed said L&Q is “nimble enough to take corrective action if and when we need to”, ensuring the financial position remains within single A credit rating metrics.

 

“This isn’t a financial crisis. There are banks still well capitalised, there’s capacity out there to lend, interest rates have come down, mortgage providers have told us they’re not seeing a fall in demand.”

 

The group said 47 per cent of projected residential sales have completed, achieving 50 per cent of projected profits, demonstrating “continued demand supported by the ability to sell homes remotely”.

Mr Ahmed said he expects housing to become an even bigger priority, particularly for “people who have served this country during this difficult time”, including NHS workers, refuse collectors and supermarket employees.

 

Where grant is not available, he said the sector can be looking to more flexible solutions such as partnerships and equity deals from the likes of Homes England and the Greater London Authority.

In numbers: L&Q 2019/20

£914m

Turnover – down from £937m

 

134%

EBITDA social housing lettings interest cover – up from 111%

 

6%

Rise in planned and reactive maintenance spend – to £168m

 

Since the pandemic outbreak in the UK, L&Q has booked a £3m bad debt provision in the 2019/20 results. It reported 957 payment deferral requests from residents on a portfolio of 113,525 units, while its rolling four-week arrears increased from 5.04 per cent to 5.43 per cent, equating to £3m between 31 March and 7 May 2020.

 

Meanwhile, it rolled out a recruitment freeze and a pause on pay increases. It confirmed at an earlier date that it had furloughed around 100 staff members.

 

L&Q reported surplus after tax of £202m to March 2020, which is at the lower end of a forecast that had been revised down from £250m-£270m to £200m-£220m during the period.

 

EBITDA social housing lettings interest cover rose from 111 per cent to 134 per cent, and the net sales margin edged up from eight to 10 per cent.

 

The latest numbers follow a £148m fall in surpluses a year earlier, along with increased pressure on margins, as L&Q responded to the fire safety and quality agendas, while taking a hit on sales.

 

Mr Ahmed said he expects fire safety works to continue at around £35m per year for the next five years, including as the group addresses blocks below 18m in height.

 

Including joint ventures, L&Q is operating from 158 active sites. It confirmed it has begun remobilising the schemes it owns outside London, but continues with efforts around social distancing and safety rules in the capital.

 

Fewer Section 106 deals and more land-led development schemes means L&Q – which started more than 6,400 homes in 2018/19 – is expecting longer build-out times, as it continues on its ambition to deliver 100,000 homes.

 

More than half of L&Q’s 526 unsold homes – worth £133m – have been stalled for up to six or 12 months.

 

Mr Ahmed said one key part of this has been block sales, including a stalled deal for PRS units on one site to a housing association.

 

The group is now talking to other investors.

CoronavirusDevelopmentFinanceHousing Association/RPLenderLondonSouth East
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