Merger gain sees Sanctuary grow pre-tax surplus despite impact of Swan’s finance costs

Sanctuary’s chief executive Craig Moule and chair Andrew Manning-Cox said that the housing association’s acquisition of Swan meant “tackling its significant financial difficulties”, while JJH has joined Sanctuary from a “position of strength”.

They said that the financial results have been “adversely affected” by a squeeze on Sanctuary’s finances, driven by inflation and costs increasing more than income, and by a full year of “stabilising the financial health of Swan”.

“We have made good progress in limiting the losses within this business,” Mr Moule and Mr Manning-Cox said in the results.

“That said, through careful financial stewardship and governance we remain financially and operationally robust and have strength in our financial performance and balance sheet to invest for the future.”

In the longer term, Sanctuary will see the benefits of the rescue of Swan, which has a “strong social housing business” at its core, it said.

The group said “much progress” has been made to date in stabilising Swan and limiting its losses and exposures. The provider said operational integration has already been achieved and overheads “notably reduced”.

The housing association said completion of remaining system integration activities and debt reduction, through targeted disposals of non-operational assets, will facilitate Swan transitioning to a “stable financial footing”.

A full year of Swan trading as part of the Sanctuary group saw the association and its subsidiaries contribute  £114.2m of revenue. This comprised £30.5m of development property sales and £83.7m of housing and other income. This is an increase of £76.3m over the two-month post-acquisition period in the prior year and accounted for 10.5 per cent of the group’s total revenue.

Ed Lunt, chief financial officer at Sanctuary, said that the group has “successfully navigated through the recent macroeconomic challenges and undertaken the rescue of a financially troubled peer whilst delivering record levels of reinvestment”.

Investment in homes

The housing association increased its investment in existing homes from £107.4m in 2022-23 to £121.3m in the last financial year.

Among this was £69.1m in planned reinvestment, a rise from £54.4m in the previous year, £36.5m in responsive capital and £7.3m in fire safety costs.

Mr Lunt said: “We are pleased with our financial results for the year and the group remains in robust financial health. We have delivered record investment in our customers’ homes, despite the financial pressures, and have successfully undertaken the rescue of a financially troubled peer for the benefit of residents and their homes, as well as the wider social housing sector. 

“A more stable economic landscape combined with our investment-grade credit ratings places the group in a strong, financially sustainable position to pursue our strategic objectives, deliver to our customers and fulfil our wider social purpose.”

At a group level, Sanctuary posted an operating surplus of £215.2m, a rise of 4.8 per cent from the previous year’s restated £205.3m figure.

Meanwhile, the landlord’s underlying operating surplus of £206.7m represented a 6.3 per cent increase from a restated £194.4m figure in 2022-23.

Sanctuary saw its group revenue rise by 15 per cent from 2022-23’s restated £943.8m to £1.1bn in 2023-24. The group’s affordable housing business benefited from an increase in revenue from existing homes. This, combined with additional revenue from new affordable homes, led to growth of £37.5m or 8.9 per cent.

The group’s supported living business, which excludes Swan and includes JJH, saw revenue increases of £8.6m (8.1 per cent) to reach £114.3m. Sanctuary said this was achieved through a continued focus on achieving both organic and acquisition-driven growth.

The housing association also benefited from revenue growth within the care business of £42.5m (18.8 per cent). This was driven by a full year of income from 13 operational care homes added through the acquisition of Cornwall Care in October 2022.

The group saw its operating margin drop slightly from a restated 21.8 per cent in 2022-23 to 19.8 per cent in the last financial year. Underlying operating margin fell from a restated 20.6 per cent to 19 per cent over the same period.

Sanctuary said the reduction in margin reflects inflationary cost pressures experienced throughout the sector, although efficiencies have “partially mitigated” the impact.

The group’s social operating surplus margin (as defined by the Regulator of Social Housing) dropped slightly from a restated 33.1 per cent in 2022-23 to 31.1 per cent in 2023-24.

Elsewhere, Sanctuary reported that it completed 910 new homes in 2023-24, excluding those through joint ventures, a fall from a restated figure of 978 in the previous year.

At 31 March 2024, the group had 3,218 homes in development, a decrease from a restated 4,760 homes in the previous year.

At the end of 2023-24, Sanctuary had cash and undrawn facilities of £611.3m, a slight drop from £614.1m in the previous year. Closing cash balance for the year totalled £144.3m, down from £180.1m, while undrawn facilities reached £467m, a decrease from £434m.

Gearing dropped slightly from a restated 53.7 per cent to 53.2 per cent and EBITDA MRI interest cover fell from a restated 119.4 per cent to 105 per cent.

Update: at 10.00am, 23.07.24

Corrections were made to Ed Lunt’s job title, and to the number of homes currently in management for Sanctuary. The figure is now 125,094 homes but had previously been listed as 116,000 (the number held at the time of its merger discussions with Johnnie Johnson).