The Homes and Communities Agency's Mick Warner speaks at this week's National Housing Federation's Housing Finance Conference 2015, examining the Global Accounts and sector's risk profile.

1. Successful places
with homes and jobs
A NATIONAL
AGENCY
WORKING
LOCALLY
Global Accounts
and the sector’s
risk profile 2014
Mick Warner, Deputy Director
Regulatory Operations
18 March 2015

2. The sector’s Global
Accounts 2014

3. Financial highlights 1
 Turnover up by 5% to £15.6 billion
 Operating costs up by 4.5% to £10.6 billion
 Operating margin 26.5%, up from 25.9%
 Management costs per unit increased by 4%
 Routine and planned maintenance per unit spend up by 2.3%
 Total major repairs costs per unit fell by 7.7%
 Effective interest rate slightly down at 4.7%

4. Financial highlights 2
 EBITDA MRI interest cover 153.7% (2013 138%)
 EBITDA MRI interest cover (SHL) 145.3% (2013 129.7%)
 Retained surplus of £2.4 billion, an increase of £0.4 billion
 Total NBV of fixed assets up by £5.6 billion to £82 billion
 Total financing of £59.3 billion, up 6.4% from 2013
 Gearing 93.8% (2013 92.9%)
 Debt per unit £22,474 (2013 £21,313)

5. The key messages
 A sector that remains financially robust in aggregate
 Retained surplus of £2.4 billion
 Impact of favourable macro-economic conditions
 Growing maturity of the stock transfer sub-sector
 73% of reserves invested in fixed assets
 £5.6 billion of debt raised in the year

6. Surpluses from property sales
146
85
199
128
251
222
0
100
200
300
400
500
600
700
2014 2013
Surplusonthesaleoffixedassets(£m)
Shared ownership staircasing Sales to other RPs Other sales of housing properties

7. Income from other activities
775 795
600
757 722
814
259 231
180
724
639
604
-
500
1,000
1,500
2,000
2,500
3,000
2014 2013 2012
Otherincome(£m)
First tranche shared ownership sales Other social housing Non-social housing sales Non-social housing other

8. Historical perspective

9. Interest rates and surpluses
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0
500
1,000
1,500
2,000
2,500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EffectiveInterestRateandBoEbaserate%
Surplus(£m)
Surplus for the year (£bn) Bank of England Base Rate % Effective interest rate %

10. Sub-sector performance
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
-400
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EBITDAMRI%
Surplus(£m)
Traditional - surplus (£m) Stock transfer - surplus (£m) Traditional - EBITDA MRI % Stock transfer - EBITDA MRI %

11. Operational performance
Indicator (%) 2014 2013 2012
Voids 1.8 1.7 1.8
Bad debts 1.0 0.9 0.8
Current tenant arrears 4.7 4.8 4.8

12. The sector’s risk profile

13. Sector risk profile – the
operating context
• Board responsibility to ensure effective governance
including arrangements for managing risk
• Revised Regulatory Framework from 1st April
• The political agenda and potential policy changes
• Level of public scrutiny

14. Strategic and other risks
• Severance and redundancy settlements
• Health and safety obligations
• Counterparty risk
• Value for Money

15. Value for Money
 Second self-assessment for the majority of providers
 Evidence of the sector increasingly getting to grips with expectations
 Generally more detailed and more evidence based
 Greater degree of assurance taken by the Regulator overall despite
the bar being raised
 Insufficient assurance obtained on a small number of providers
 Strongest element was on understanding the cost of delivering
specific services
 Improved understanding on past and future efficiency gains but still
relatively weak on future gains
 Improved understanding of return on assets demonstrated but still
the weakest area

16. Key financial risks
 Asset-related risks – development, diversification,
exposure to the housing market, maintaining existing stock
 Liability-related risks – existing debt, new debt, mark to
market exposure, bond finance, accounting issues
 Income-related risks – exposure to rental markets, welfare
reform, supported housing
 Cost-related risks – pension costs, differential inflation
rates, other business costs

17. The sector’s financial
forecasts

18. Surpluses
All figures £m 2015 2016 2017 2018 2019
Turnover 17,692 19,617 20,680 21,401 21,872
Operating Expenditure (13,209) (14,419) (14,984) (15,418) (15,561)
Operating surplus 4,483 5,198 5,696 5,983 6,311
Profit/(loss) on the sale of fixed assets 293 290 265 269 277
Surplus before interest and Tax (SBIT) 4,777 5,487 5,962 6,252 6,588
Interest and Other finance costs (2,775) (3,041) (3,274) (3,513) (3,756)
Surplus for the year before tax 2,002 2,446 2,687 2,739 2,832
Tax (13) (16) (18) (19) (24)
Surplus for the year 1,989 2,430 2,669 2,719 2,808

19. Operating margins
10%
15%
20%
25%
30%
35%
2015 2016 2017 2018 2019
Operatingmargin(%)
Overall operating margin Social housing activity
First tranche shared ownership sales Properties developed for sale
Other non-social housing activity

20. Development of new homes
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2015 2016 2017 2018 2019
Numberofnewproperties
General needs LCHO Other social Market rent Outright sales

21. Funding of new homes
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
0
2,000
4,000
6,000
8,000
10,000
12,000
2015 2016 2017 2018 2019
Newproperties
Spendonnewproiperties(£m)
Movement in Debt Movement in Grant Current Asset Sales Other Resources Total new units

22. Sales income
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2015 2016 2017 2018 2019
Salesrevenue(£m)
1st tranche shared ownership sales Properties developed for sale Fixed asset sales