L&Q successfully navigates turbulent year to deliver solid financial results for the Financial Year ending 31 March 2020
L&Q today announces solid financial results which show how it has successfully navigated a turbulent year and made significant investment in homes, services and communities.
For the year ended 31 March 2020, L&Q performed ahead of expectations by achieving turnover of £915 million (2019: £927 million) and an underlying surplus of £179 million (2019: £202 million). L&Q’s surpluses will be re-invested back into ensuring the safety of residents, the quality of homes and services, supporting communities, and increasing the supply of new social housing.
Other highlights include:
- EBITDA was £303 million (2019: £232 million) and EBITDA Margin was 26% (2019: 21%). The year-on-year improvement in EBITDA reflects the prudent financial stabilisation measures that L&Q implemented as it continued to focus on its priorities.
- Net debt (excluding issue premium and fair value adjustments) was £5,371 million (2019: £4,821 million) with the increase representing continued investment in the new development of housing and communities.
- G1/V1 ratings, the highest possible ratings for governance and viability, were reaffirmed by the Regulator of Social Housing in March 2020.
- L&Q invested £225 million (2019: £241 million) in existing homes, with £164 million (2019: £149 million) spent on planned and reactive maintenance, and £61 million (2019: £92 million) on capital improvements. This included £37 million (2019: £24 million) implementing additional fire safety measures.
- Despite a pause on new development in September 2019, during the year L&Q completed 2,439 (2019: 2,874) new homes of which 49% are for social housing tenures. L&Q also started on site with 3,945 new build homes during the last financial year, and approved an additional 2,947 homes. This brings the total number of homes in its approved development pipeline to 29,504, of which 20,769 are currently on site, alongside a further 70,614 potential strategic land plots under our control. At least half of all the new homes L&Q builds will be for social housing, with a target of 60% in London.
- During the year L&Q invested £882 million (2019: £645 million) in new social housing, as we make progress with our ambition to tackle the housing crisis. We also invested a further £86 million (2019: £333 million) in private housing we develop ourselves and £55 million (2019: £84 million) in partnerships through joint ventures to generate profits to re-invest in the delivery of social housing.
- In October 2019 L&Q completed the acquisition of Trafford Housing Trust (THT). This opens an exciting new chapter for L&Q, unlocking £4 billion investment for 20,000 much needed new homes across the North West of England, while enabling THT to accelerate investment in existing homes and community initiatives. The acquisition results in a credit of £235 million to the statement of comprehensive income to represent the fair value of THT that brings surplus for the year to £414 million (2019: £271 million).
- L&Q continued its work with the government’s Early Adopters Group, tasked with understanding Dame Judith Hackitt’s post-Grenfell recommendations, and spearheading a vision to create an industry that puts people’s safety first. As part of this group we have helped to develop a new Building Safety Charter to promote culture change in the construction and property industries.
- A review of governance structures was carried out to recognise the need for customers to have a strong and influential voice throughout every part of the business. A new Resident Services Board, led by our Resident Board member Fayann Simpson, will be convened in the autumn.
- L&Q’s commitment to transforming communities continued with another £7 million invested through the £250 million fund made available to the L&Q Foundation. For every £1 invested in the Foundation it has created £3 of social value - helping people lead independent lives, secure employment and transforming the fabric of neighbourhoods to create thriving and sustainable communities.
- L&Q Living continued to provide care and support services to people with a wide range of needs, including older people, people with learning difficulties and mental health needs, and people affected by homelessness. The CQC rated 100% of our care schemes as outstanding or good.
Waqar Ahmed, Group Finance Director, said: “L&Q was operating in an extremely challenging and uncertain environment even before the onset of coronavirus. The true scale of vital fire safety and building remediation works was becoming clear, while the housing market remained subdued, in part due to the political stalemate over Brexit. We took the difficult decision to pause new development work in September 2019, alongside other tough financial measures, in order to focus on our customers and preserve funds for essential services.
“As today’s results show, the decisive action taken in the last financial year has paid off. The expected stabilisation in our finances by year end gave us a firm platform to continue delivering vital services throughout the pandemic, and a springboard for the future. This will be crucial over the coming year as we carry out building safety and remediation works, improve the quality of our homes and services, support communities and help our most vulnerable residents.
“It will also help us to put environmental, social and corporate governance factors at the heart of our investment strategy, and enable us to invest in Modern Methods of Construction to achieve our ambitious growth targets and deliver more social housing.”
Mr Ahmed added: “As expected, coronavirus has caused a significant amount of disruption to our business, and we fully appreciate that our customers and colleagues have been impacted by some of the difficult but necessary decisions we’ve taken. We must remain prudent as the pandemic persists and the substantial costs of building safety work become clearer.
“However, L&Q has demonstrated resilience and flexibility to conserve cash flows, underpinned by our fundamental financial strength and the ongoing support of our banking and investment partners. Our Q1 2020-21 trading results, published on 5 August 2020, demonstrated the strength of our core operations and improving activity in the sales market. Whilst economic uncertainty still exists, we remain confident that L&Q retains the flexibility to adapt supported by our strong balance sheet and robust liquidity position.”
NOTES TO EDITORS
The following figures are selected highlights from L&Q’s Financial Statements 2020. The full statements can be downloaded at https://www.lqgroup.org.uk/about/finance-performance-and-governance/financial-statements/
- The Group spent £111 million (2019: £83 million) on reactive maintenance and a further £53 million (2019: £66 million) on the planned maintenance of the homes it owns. In addition, capital improvements to these homes amounted to £61 million (2019: £92 million) in the year.
- During the year L&Q invested £882 million (2019: £645 million) in new social housing. A further £86 million (2019: £333 million) was invested in private housing and £55 million (2019: £84 million) in partnerships through joint ventures, to generate profits to re-invest in the delivery of affordable housing.
- Turnover for the period was £915 million (2019: £937 million), of which 62% was from core social housing lettings activities (2019: 58%). The £22 million reduction in total turnover in the year is primarily due to a reduction in land sales turnover, which was in line with expectations for the year.
- EBITDA increased by £71 million in the year to £303 million. EBITDA MRI interest cover was 193% (2019: 162%), comfortably above lender covenants, and the EBITDA margin was 26% (2019: 21%).
- Core business social lettings operating margin reduced to 33% (2019: 37%) with the decrease mainly attributable to the increased expenditure on maintenance and investment in the safety and quality of existing homes.
- Total reserves stand at £5.2 billion (2019: £4.8 billion).
- The group continues to maintain a strong financial position with net assets increasing by £451 million to £5.2 billion in the year (2019: £4.8 billion).
- Gender pay gap - 1.3% (2019 – 7.6%).
- Customer satisfaction - 71% (2019 – 70%).
Financial response to coronavirus and the year ahead
During the pandemic L&Q completed a variety of stress tests and contingency planning exercises. Underlying financial strength was boosted by implementing a range of measures to steer the organisation through the crisis and to protect critical frontline services.
- Debt facilities were increased by £300 million. As at 30 June 2020, L&Q’s available liquidity (committed un-drawn revolving credit facilities plus non-restricted cash) was at £788 million.
- £66 million of non-essential operating expenditure was removed from budgets to the financial year ending 31 March 2021, and £300 million of planned capital expenditure postponed.
- Recruitment and a planned pay increase were frozen.
These mitigating measures, coupled with Government support initiatives, has helped to conserve cash flow, and allowed L&Q to enact recovery and remobilisation plans with confidence.
The implementation of an interim corporate plan covering the remainder of this financial year will ensure that, as part of this recovery, L&Q is laying the foundations for operational excellence across services, homes, people and financial performance.
Chief Executive David Montague recently announced his intention to step down from his role by the end of the current financial year, but will continue leading L&Q until a successor is appointed. He will be working with the team to develop a new five-year strategy that focuses on safety, quality and customers as L&Q prepares for its next chapter.