The accounts demonstrate the sector delivered a solid year of balance sheet growth, underpinned by a strong financial operating performance. The value of housing properties increased by £7.1 billion, to £138 billion. Debt increased by £4.1 billion. A surplus of £3.0 billion was recorded in the year.
The £7.1 billion growth in the value of housing properties is predominantly driven by the development of new properties. The growth in housing properties was funded primarily through debt and the re-investment of operating surpluses supplemented by grant of £0.5 billion.
Capital investment in major repairs in existing properties was £1.9 billion. Housing properties with a book value of around £1.2 billion were sold, reducing the value of the properties on the balance sheet, but providing significant cash receipts for reinvestment.
The strength of the housing market has underpinned a significant proportion of the 2014/15 surplus supporting the sector’s new build activity for shared ownership and outright sale. Development for-sale has increased considerably in 2015 with turnover of over £2 billion. For the first time, the Global Accounts publication includes analysis of the delivery of market supply through providers’ unregistered subsidiaries, showing the full extent of the sector’s diversification into a range of commercial activity. In addition, the surplus on sales of fixed assets was over 20% of the overall reported surplus.
The total balance of drawn debt was £63.4 billion. This debt is primarily in the form of bank loans, with new debt increasingly being raised in the capital markets. As a result of the increase in debt, there was a modest increase in gearing.
Sector turnover increased by 4.1% to over £16 billion. The majority of the increase came from the core social housing lettings activity, which was responsible for 84% of turnover. The operating margin also increased from 26% to 28% as costs increased by less than revenues.
Fiona MacGregor, HCA’s Director of Regulation said:
The accounts illustrate that the strong performance of the sector in 2013-14 continued into 2014-15.
The sector has benefitted from a range of favourable macroeconomic conditions in recent years and it is encouraging to see that the sector overall remained in a solid financial position. Crucially, this meant that providers were able to focus on the delivery of their key objectives, directing their surpluses and additional private finance into delivery of around 46,500 new homes and investing almost £2 billion into the existing housing stock.
However, whilst financial performance is strong in aggregate the performance of individual providers inevitably varies, and there have been a range of changes to the operating environment, such as the rent reductions announcement, since providers completed these 2015 accounts. As the environment changes, the regulator will continue to monitor the sector as a whole and engage with individual providers to gain assurance that those changes can be effectively managed and mitigated, ensuring that providers are financially viable and well governed.