L&Q revises down 2020 surplus forecast by £50m amid pause on new schemes
Operating costs have risen 22 per cent at L&Q in the first half of 2019/20, while sales income fell 37 per cent year-on-year with 545 of unsold units on its books.
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Posting a half-year trading update for the period ending 30 September 2019 this morning, London-based L&Q confirmed it has paused new scheme approvals and is “re-appraising existing commitments”.
The 105,000-home provider also said it has revised its surplus after tax projection for the 2019/20 financial year from £250m to £270m to “in the range of £200m to £220m”.
However, the group said its long-term ambition to deliver 100,000 homes over 10 years remains intact.
Turnover for the period was £383m, compared with £418m a year before, while operating surplus was £130m, down from £157m.
Costs are up from £177m to £216m, predominantly in relation to maintenance spend, which rose by £22m as L&Q continues to focus on investing in the safety and quality of its homes.
Waqar Ahmed, group finance director, said “the whole housing association sector is facing one of the most challenging environments in recent history”.
He said as market conditions remain challenging, the association continues to be more selective about the scale and pace of new business opportunities.
“We have paused any new scheme approvals and are re-appraising existing commitments while keeping a close watch on our sales pipeline. The strength of our balance sheet and our ability to service debt means that our long-term ambitions are unchanged.”
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L&Q has completed 1,505 residential homes, up from 1,445 a year earlier, during the six-month period. This includes through joint ventures. Social housing tenure completions are down from 762 to 656, with market tenures up from 683 to 849 homes.
It has approved an extra 1,591 residential units, bringing total units in the approved development pipeline to 50,300. The housing association has a £6.9bn pipeline, of which £5.2bn (75 per cent) is currently committed.
As at 30 September 2019, L&Q, including joint ventures, held 545 completed units as unsold stock with a projected value of £137m. Of these, 19 per cent have been held as stock for less than one month.
L&Q is the largest owner of high-rise towers in the sector, and in the aftermath of the Grenfell Tower tragedy has committed to a five-fold increase on its original £50m of safety spend. The plan means an extra £250m on its £1.1bn of investment over five years.
Meanwhile, its sales income was down by 37 per cent from £122m to £76m, albeit the sales margin is improved year-on-year, with a gross margin – including joint venture sales – of 14 per cent compared with 12 per cent a year earlier.
The group’s EBITDA margin was 23 per cent, compared with 30 per cent, as the margin excluding sales fell from 48 per cent to 37 per cent.
L&Q has over £5bn in debt, and its EBITDA interest cover was down from 209 per cent to 162 per cent, with social housing lettings interest cover falling from 158 per cent to 121 per cent.
Mr Ahmed said: “The cost of additional building safety measures, coupled with the downturn in the housing market, caused by political and economic uncertainty is having a major impact on the sector’s finances.
“L&Q faces these challenges from a position of financial strength, but we are also implementing prudent measures that will protect our financial strength and enable us to focus on our immediate priorities. These priorities are the safety of our residents, the quality of homes and services we provide, and protecting jobs.”
L&Q also completed the acquisition of Trafford Housing Trust on 1 October 2019.
Mr Ahmed added: “Despite the challenges presented to us, we are confident that the excellent progress that we have made against our current priorities, our ability to adapt where necessary and to act prudently will ensure that our long-term corporate objectives remain achievable.”
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