MTVH increases development after gaining certainty over building safety costs, amid £80m loss

Ms Nanda told Social Housing the increase in development this year followed a pause on development through the COVID-19 period, and then again when the group recalibrated its business plan when there was a “sharp increase” in interest rates and costs in 2022.  

She said MTVH also reduced its development at the time in order to invest more into its existing homes.

However, in 2023-24, MTVH delivered over 200 more homes than in the previous year and spent £246m in new development, net of grant received. This marked an increase from £177m in 2022-23.

Ms Nanda said that now the landlord has certainty on its building safety costs, with £109.9m in fire safety provisions reported for 2023-24 as announced in January this year. She said that as a result of this certainty, the provider has been able to invest more in development.

Ms Nanda told Social Housing: “Now we’ve got certainty on building safety costs, so we’re very clear on our cost base and we’ve been able to then look at our plan. We’ve got our strategic partnerships and we’ve been able to invest back into our development programme, not to where it was, but up to 1,000 homes per year.

“Building safety is a massive part of this. If we didn’t have the cost of building safety within the business plan, we’d be back up to our original delivery programme. But having spent a good amount of time really focusing on what those costs are, and ensuring we’ve got good negotiations with developers and contractors who are looking at the remediation programme, we’ve got more certainty around those costs.

“So therefore, we’ve got more certainty around our business plan and what we can put into our existing and new homes.”

Balancing investment in new and existing homes

MTVH’s total spend on existing homes rose from £138m in 2022-23 to £149m last year. This included £31m in property improvements, the same amount as in the previous year, and fire safety spend of £18m, up £5m year on year.

Ms Nanda told Social Housing that MTVH is not developing at the level that it had planned in its original plan, after reducing development to invest more in its existing homes to meet its requirements. But she reiterated that the provider is committed to delivering 1,000 homes per year.

Ian Johnson, chief financial officer at MTVH, said that in 2023-24 the housing association tried to balance the two competing priorities of building new homes and investing in existing stock.

“The two are not mutually exclusive, they are related and obviously we want to invest as much as we can, but we do it very efficiently,” he told Social Housing.

“It’s a priority for MTVH and the board to keep that development programme and meet our partnership commitments as far as we can. The business plan balances those competing priorities, but it’s not a mutually exclusive issue by any means.”

Building safety costs

MTVH posted total non-recurring/fire safety costs for the year of £109.9m. This largely relates to fire safety provisions in respect of leaseholder remediation in blocks over 11 metres tall.

MTVH made a £64m financial provision for the estimated cost of remediating blocks, while a further £32m relates to associated asset write-downs for two decommissioned high-rise blocks. MTVH said that both are non-cash adjustments and do not “adversely impact” its liquidity position.

The landlord has committed to protect leaseholders from building safety costs.

Mr Johnson told Social Housing that the landlord has the “full support” of all its investors to deliver its building safety programme.

He said that while MTVH is becoming “more confident” in terms of its ability to recover remediation from third parties towards building safety costs, its business plan has “very limited” assumptions on this.

Finances

The £109.9m in one-off building safety costs impacted MTVH’s results. The group posted a loss before tax of £80.2m in 2023-24, compared to a pre-tax surplus of £33m in the previous year.

Operating costs rose from £300.2m to £431.5m and operating margin dropped from 28 to four per cent.

Stripping out the non-recurring and fire safety costs, operating expenditure was six per cent higher than last year at £319m and underlying operating margin was 30.1 per cent, a slight drop from 31.4 per cent in 2022-23.

MTVH posted a turnover from core social housing of £351m in 2023-24, a nine per cent rise from £321m in the previous year. The landlord said this reflected the seven per cent rent uplift under the sector’s rent settlement.

Revenue increased by nine per cent from £389m to £423m and underlying operating surplus, before non- recurring and fire safety costs, improved by over four per cent from £121.7m to £126.6m.

Turnover from sales, including first tranche sales, remained the same at £30m. This was despite sales rising from 231 units in 2022-23 to 287 units in the last financial year.

“This is an excellent performance against a backdrop of rising inflation and interest rates over the year, which put upward pressure on both operating and interest costs,” Ms Nanda said in the results.

“The performance reflects the decisions taken over recent years to lower the risk in our development programme, and to boost overall productivity through investment in new IT systems and the skills of our people.”

Ms Nanda told Social Housing that the de-risking was around MTVH’s market sales programme, which was reduced because of the risks involved in market sales.

Leaving MTVH

This is likely the last full year of results under Ms Nanda’s leadership. The chief executive is stepping down in September this year after 16 years in charge of the landlord in its various forms. The landlord announced earlier in May that she will be replaced by Nottingham City Council chief Mel Barrett.

Ms Nanda told Social Housing she has had a “brilliant time” at MTVH and will be leaving the housing association in a “strong position”.

She said: “We’ve got great people here who work tirelessly and are so passionate and committed to what they do, we’ve got a strong financial position and we have a great board, so it’s a really well-led organisation as well.”

Cash flow

In the trading update, MTVH said it had a “strong cash performance” in 2023-24, with cash flow generated from operating activities unchanged at £268m. This included total proceeds from the sale of properties in the year of £140m, a rise from £110m in the previous year.

At 31 March 2024, MTVH had £807m in available liquidity, an increase from £725m in the same period last year, and total drawn debt of £1.91bn, a slight drop from £1.94bn.

The report added: “This robust cash position supports our strategy to continue to invest in our customer experience, our existing properties, and the development of the new homes our country so desperately needs.”