Financial Performance 2017-18

Ensuring the financial sustainability of the Mid-Wales Housing Group

The Association has had another successful year. We have achieved the budget surplus, and have complied with all the financial requirements of the banks and Welsh Government.

The Association’s financial plans continue to be guided by two principles; only borrow to invest in providing new homes and generate surpluses. The surpluses provide the funds for investing in the Association’s existing homes (for replacing components like kitchens and bathrooms), and increasing the financial strength of the Association to support the new borrowing. The borrowing to invest ensures that new properties can be provided to meet local housing need.

The budget surplus was achieved despite the Association facing some significant financial pressures. These arose from delays in key developments entering management and incurring higher repair and maintenance costs. Through active management, the Association was able to make savings and reduce expenditure on other areas that completely offset these additional cost pressures.

While the surplus generated was lower than the last couple of years, this performance is still very strong, with an operating margin that remained near 30% as outlined in the table below.

The summary Income and Expenditure statement position for the Group over the last five years is given below:

­Five year summary Actual Actual Actual Actual Actual
2017/18 2016/17 2015/16 2014/15 2013/14
£’000 £’000 £’000 £’000 £’000
Turnover 8,603 8,570 8,110 7,836 6,861
Operating costs -6,131 -5,822 -5,478 -5,540 -4,824
Operating surplus 2,472 2,748 2,632 2,296 2,037
Exceptional 0 0 0 0 0
Interest & Other -1,776 -1,730 -1,759 -1,613 -1,471
Surplus for year 696 1,018 873 683 330
Operating margin 28.7% 32.1% 32.4% 29.3% 29.7%

The operating income increased year-on-year due to rental income rises from annual rent increases along with new properties coming into management. The operating costs also increased, but at a slower rate. This lower rate of increase in costs occurs because the overhead costs don’t necessarily increase because the number of homes in management increase. In reality, there are stepped increases, for example, each 250 new houses may require one extra Community Housing Officer. Therefore, costs only increase by the marginal cost of adding another property to the housing stock. This is then reflected in an increase in the operating margin.

The operating margin in 2017/18 dipped due to lower rental income, and higher repair and maintenance costs, mentioned above. If the Association had not experienced the delays in developments entering management, the operating surplus would have been 30.2%.

The Association has been progressing a number of projects where the costs to date have been written off to the income and expenditure account. The external costs of these were almost £200,000 in 2017/18. Many of the costs relating to such projects can be capitalised and in the case of the Cylch Caron Extra Care scheme, attract grants, should they prove viable and go ahead. However, until such time they are confirmed as a viable project they are a pressure on resources, albeit a budgeted cost.

The steady rise in surpluses in previous years has seen an equivalent rise in component replacement. Spend on components is treated as capital expenditure and as such, not disclosed in the figures earlier in this article. It is important to generate sufficient free cash to pay for such component spend from rents rather than paying for them from loan finance. For ease, the comparison between increased surpluses and the increase in component spend is given below:

­From previous year 2017/18 2016/17 2015/16 2014/15
£’000 £’000 £’000 £’000
-Fall/Rise in Surplus -322 145 190 353
Rise/-Fall in component spend -146 106 -118 809

During the year £7.3m was raised in Rent & Service Charges. Each £1 raised was spent in the following way:

Financial performance chart

In addition to the running costs of the Association, we continue to invest in providing more homes and improving our existing homes.

One of the key aims of the Association is to provide more homes. To pay for these new properties the Association applies for grants from the Welsh Government along with borrowing money from banks and building societies.

Last year the Association spent £5.5 million on our assets as illustrated in the following graph. This level of spend on providing new homes was lower than £5.5 million in the previous financial year due to fewer developments.

Financial performance chart

Carl Leah
Finance Manager

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