L&Q completes a record number of new homes on the back of strongest ever financial results
Its 2016 Financial Statements show that L&Q invested £580m to complete over 2,500 new homes for people on a wide range of incomes. This is a 24% increase on the previous year, and means that L&Q now owns or manages 73,100 homes, housing some 180,000 people across London and the South East.
Over the course of just one year, L&Q also trebled its development pipeline from 13,500 to 40,000 new homes.
Fuelled by its financial strength, L&Q also invested £45m in existing properties last year, helping to ensure that customers live in safe, warm and quality homes. More than 8,250 planned improvements were carried out during the year, providing 1,600 new kitchens and 940 new bathrooms.
An additional £88m was spent carrying out 150,500 reactive repairs and 59,500 planned maintenance jobs, with L&Q’s Direct Maintenance team being rolled out more widely to generate further efficiencies, provide a better service and help increase overall customer satisfaction to 79.4%.
L&Q also used its strong finances to directly support 16,000 people in local communities last year. The L&Q Foundation invested £7m to provide training and employment opportunities, tackle financial exclusion and reach out to young people. By targeting investment more effectively, the social value of the Foundation’s work has been calculated as £28m last year.
L&Q’s 1,700 staff remain pivotal to everything the organisation does, and this was recognised once again with the Investors in People Gold Award.
L&Q’s achievements were only possible because of its record financial results and highest ever surplus. Total equity reserves reached £3.9bn and the net surplus increased by 27% to £274m (£215m in 2015).
L&Q continues to be a net investor of cash and every penny of the surplus was reinvested in its social mission.
Waqar Ahmed, Group Director of Finance, said: “Our unrivalled balance sheet and financial results have created significant capacity, enabling us to invest record levels in homes and communities.
“Our highest ever surplus was achieved by beating targets on commercial activities, driving efficiencies on our core rental activities to increase operating margins to nearly 50%, and taking advantage of our strong credit profile through lower cost of borrowings.
"This year’s surplus has allowed for additional investment of £277m in building new homes for social rent or shared ownership, £45m in improving existing homes, and £303m in properties for market sale and private rent.
“We have also increased our investment in joint ventures and new build work in progress stock by £214m.”
In April 2016, L&Q entered into merger talks with The Hyde Group and East Thames Housing Group, with the new organisation set to embark on the most ambitious journey in housing association history.
The new organisation will have increased capacity aiming to deliver 100,000 homes over 10 years, making it London’s largest developer and one of the top home builders in the UK.
Mr Ahmed said: “L&Q has solid financial foundations and we know that we can deliver our goals alone, however we also believe we can achieve even more by joining forces with other like-minded organisations.
“We will of course monitor market conditions and flex our model accordingly to give us the best chance of delivering on those ambitions; we are committed to meeting our efficiency targets and are maintaining strong relations with our investors. Our intention is that 50% of these homes will be genuinely affordable to people on low and intermediate incomes.”
Additionally, £250m will be set aside for a ground-breaking community investment programme, and £5m will be added to existing training and apprentice budgets to create a brand new training academy, helping local communities and residents into construction and housing-related jobs to support the house-building programme.
Mr Ahmed added: “By bringing our three organisations together, we can increase our capacity to build, house and help – far more so than we could individually. We will be able to deliver more new homes, better services, increase investment in communities as well as increased employment and training initiatives for staff and residents.”
Until there is a single plan for the new organisation, L&Q will be delivering its four-year corporate plan – L&Q Reimagined – which focuses on four key themes: improving the customer experience; building the homes we need; engaging our people; maintaining the bottom line.
Value for money
A key driver for the proposed merger with Hyde and East Thames is value for money – achieving more for less money. Combining the three organisations will create capacity to build an additional 30,000 homes, while at the same time driving efficiency savings of £50m a year within five years. This will be in addition to the efficiencies already identified as part of plans to address the impact of new housing policies and rent reductions across the sector.
L&Q already has a very strong track record in delivering value for money and a detailed VfM statement is published today alongside the financial accounts. You can download a PDF of the statement here.
Highlights from the VfM statement are included in Appendix 1.
Following Britain’s vote to leave the EU and the announcement that S&P’s had downgraded its rating on the UK sovereign to ‘AA’ from ‘AAA’ with a negative long-term rating, whilst Moody’s had changed the outlook on UK’s sovereign rating to negative from stable (Aa1), L&Q’s credit ratings have been impacted, but not on a material scale.
L&Q’s ratings have changed from AA negative outlook to AA- stable outlook (S&P) and from A1 stable outlook to A1 negative outlook (Moody’s). The change has no effect on the balance sheet as at 31 March 2016.
Mr Ahmed said: “We have shown that we can respond to significant challenges over the past year. Our balance sheet remains resilient, our people are skilled and we can adapt to changing market conditions, so we are confident of delivering our objectives despite any challenges ahead. Indeed, whilst we will not place our social housing assets at risk, we are also alert to opportunities that may now arise.
“Maintaining the confidence of banks and investors is vital to our plans and our two recent successful bond issuances demonstrate that the financing community recognises L&Q’s strong financial performance and management team, they understand the rationale for our merger discussions, and they can see that we are delivering on the transparency agenda.”
Appendix 1 - Financial highlights and Value for Money
• L&Q’s £321m operating surplus (£277m in 2015) was generated by increasing operating surplus through growth, procurement and operational efficiencies in the core business from £185m to £197m, increasing surplus from sales (open market sale, first tranche shared ownership sales) from £68m to £83m and increasing surplus from asset disposals from £24m to £41m.
• During the year L&Q completed the development of 2,510 new homes. Completions include 1,364 (2015: 993) homes for sub-market tenures (social housing and shared ownership) and 1,146 (2015: 1,038) homes for market tenures (outright sale and market rent).
• The overall number of homes owned and managed increased to 73,100 (71,500 in 2015).
• Quadrant Construction Services, the in-house construction business, continued to expand and saved L&Q £13m in VAT during the year.
• Turnover increased to £720m (£665m in 2015). This comprised £451m from rent and service charges and £269m from sales.
• The operating margin on social housing lettings increased from 46% to 49% and increased our overall margin from 42% to 45% - amongst the best in the sector.
• Maintenance costs were reduced by £152 per unit, whilst at the same time increasing satisfaction with the repairs service.
• Agile working is being deployed to remove the need for two new offices, saving £5 million over the next five years.
• Rent arrears reduced to 3.3% on general needs provision (L&Q’s lowest-ever level) through a proactive approach to revenue collection and managing the risks of welfare reform.
• Gearing being net debt over total reserves and grant is well within internally set parameters at 40% and interest cover including disposals is 548% (431% in 2015). Our loan facilities stand at £2.5bn.
• Revenue reserves stand at £4.0bn.
• The estimated open market value of housing property assets increased to £17.5bn, with a book value of £7.7bn.