Investor update 2017 Paul Gray Gosia Motler Picture location - - PowerPoint PPT Presentation

Investor update

2017

Picture location

Paul Gray Gosia Motler Chief Financial Officer Head of Treasury Contact us - Investors@bpha.org.uk

Contents

• 1. Executive summary
• 2. Operations
• 3. Strategy
• 4. Development Activities
• 5. Financials and Treasury
• 6. Conclusions
• 7. Appendices

Executive summary

Pilgrim’s House, Bedford

Executive Summary

A strong, cash generative organisation

£30.9m

Underlying surplus

508

New social homes built/acquired last year, of which 169 were shared ownership

18,186

Homes owned or managed

V1/G1

HCA viability and governance ratings

£244m

Year end facility headroom

44.5%

Operating margin on social housing lettings

£22.8m

Invested in maintaining and improving our existing homes – 100% of our homes continue to meet the Decent Homes Standard

£141m

Year end security headroom

£59.9m

EBITDA-MRI

£10.3m

First tranche shared

• wnership surplus

Risk

HANA award for risk management approach

A+

Stand alone credit profile rating from S&P maintained

Units by area

Bedfordshire - 10,187 Cambridgeshire & Peterborough - 3,568 Buckinghamshire & Milton Keynes - 1,050 Oxfordshire - 1,247 Northamptonshire - 1,201 Other - 933

A housing association that builds places and houses aspiration

bpha

• Our goal is to help people achieve

their housing aspirations in a sustainable, value for money driven manner

• We have been developing around 500

new homes a year and are one of the top 25 developing housing associations in the UK

• A simple corporate structure, shown

within Appendix 1, reflects bpha’s straightforward nature of operations.

• 94% of our turnover comes from

social housing activities

• bpha’s operations focus on developing and managing affordable homes for rent, sheltered homes,

residential care and shared ownership, operating in the arc between Oxford and Cambridge

Building locations 2016/17

Bedfordshire Cambridgeshire Oxfordshire Other

59 59 306 59 136 59 7

bpha has an excellent history of revenue and surplus growth

bpha Financial Track Record

• The last five years has seen a step change in our net surplus and this represents an important shift

in our ongoing financial performance

• This is a consequence of our strict development criteria and operational efficiencies with new units

completed being managed at incremental cost, resulting in a higher proportion of rental income flowing through to bottom line surplus

• While development has continued and the organisation has grown, our gearing level has largely

remained at the same level

Operations

Wixams, Bedfordshire

Surplus Generation

A conservative but commercial operating model

Core business is still social housing

• £84m of revenue from social housing lettings

Strong operating surplus

• Increase of 13% YoY - £54.9m surplus in 16/17
• Social housing lettings contributed £37.3m,

margin of 44.5%

• Strong margins attributable to:

❖Tight geography, high yielding area ❖47% of stock < 20 years old ❖Commercial cost control

Strong existing lettings cashflow

• Sufficient cashflow generated from existing

lettings to fund capital expenditure on existing properties and meet all finance costs, including finance costs relating to new developments

Existing Operations- asset base

A young well invested profit generating asset base

• Low maintenance costs have been retained as nearly

half of our stock is under 20 years old. The weighted average age of all our stock is less than 30 years old

• A well maintained asset base with £22.8m spent on

maintaining and improving our existing homes in 2017/18

• Our

repair and maintenance projections are underpinned by detailed stock condition data, based

• n full survey every five years
• All stock has a positive net present value

Existing Operations - Demographics

Well placed to manage a welfare reform due to favorable tenant demographics

• Our tenant demographic is well diversified with the majority of tenants being of working age and a

younger age profile than the average across the sector

• The majority of our tenants are economically active with only 21% of tenants in receipt of full

housing benefit. This means bpha has been well positioned to manage the impact of Welfare Reform

• Our strategy to cope with the Welfare Reform has been one of pro-active communication,

customer support and income protection. We will continue to provide this support. Further details can be found in appendices to this document

Value for Money

A new approach to benchmarking

Strategy

Earith, Cambridgeshire

Corporate Strategy

Operating Model

• We restructured the organisation to work

through a new operating model. We now have seven business units along with a number of support services

• We

are investing in

• ur

support infrastructure to continuously improve our customer offering and provide a foundation for future growth

• Our new business units will help inform

decisions through improved metrics, facilitate clearer reporting, and help deliver greater Value for Money during the year ahead and in years to come

Development Activities

Wootton, Bedfordshire Wootton, Bedfordshire

Development

A strong track record of profitable sustainable development

• Organic growth from 7,280 units in 1991 to 18,186 in 2017
• We have a highly selective approach to development with strong focus on

quality of schemes

• Strict development criteria ensure profitability and balance sheet enhancement
• Extensive sensitivities carried out on new schemes to ensure robustness

Development criteria ❖ IRR must achieve a strict hurdle rate ❖ Asset value generated > net development cost ❖ Conservative assumptions including no capital appreciation ❖ 35 year NPV and no terminal value

Development Strategy

Bpha benefits from strong demand and market values in our areas of development

• We have tightened the geographical

spread of our development activities to enable us generate further operational efficiencies and drive value for money

• Across
• ur
• perating

region, high property values make it difficult for economically active aspiring home

• wners to get on the property ladder
• This ensures high demand for our

shared ownership properties which in turn supports the development

• f

much needed affordable homes

• We aim to build 600 affordable units per year
• At 31 March 2017, we were building 27 developments across 15 locations

Financials and Treasury

Longford Park, Oxfordshire

2017 Financial Statements-

Group Statement of Comprehensive Income

• The last financial year has seen bpha

achieve our strongest ever financial results against a challenging external environment

• Operating

surplus has gown from £35.5m in 2013 to £54.9m in 2017

• Our focus on strategic long term sites

and strict appraisal criteria have enhanced earnings from new developments

• Total
• perating

margin has been maintained around the 40% mark, reaching 45% in 2017

2017 Financial Statements

Group Statement of Financial Position

• Housing fixed assets have increased by £153.5m from 2013-2017
• Long term debt has increased to support our development
• programme. However, bpha’s long term loans as a multiple of

turnover has reduced from 7.5x in March 2013 to 6.1x in March 2017

Five year summary

2017 2016 2015 2014 2013 Group statement of financial position £'m £'m £'m £'m £'m Housing Fixed Assets 1,008.2 982.3 936.2 894.2 854.7 Other assets less current liabilities* 109.5 114.5 134.4 29.9 54.4 Total assets less current liabilities 1,117.8 1,096.8 1,070.6 924.1 909.2 Debt (due over one year) 737.8 752.4 698.7 613.7 592.3 Other long term liabilities 185.9 175.4 222.4 46.4 44.0 Total long term liabilities 923.7 927.8 921.1 660.1 636.3 Reserves: total 194.1 168.9 149.5 264.0 272.9 Total Long Term Funding and Reserves 1,117.8 1,096.8 1,070.7 924.1 909.2 * Includes £7.97m debt payable within 1 year. Total debt at YE was £745.77m

FRS 102 Previous UK GAAP

750m 800m 850m 900m 950m 1,000m 1,050m 5.0x 5.5x 6.0x 6.5x 7.0x 7.5x 8.0x 2012/13 2013/14 2014/15 2015/16 2016/17

Debt vs Turnover & Assets

Debt as a multiple of turnover Housing Fixed Assets

Very Strong Liquidity

• “Very strong liquidity” (Standard & Poor’s Nov

2017)

• £751m of drawn debt (Mar 17), £953m of

debt facilities in place (incl. £3m overdraft)

• 91% of drawn debt at fixed rates of interest

£100m £126m £202m £32m £56m £45m

£0m £50m £100m £150m £200m £250m 2014/15 2015/16 2016/17

Liquidity

Committed Undrawn Cash

Loan Facilities

• Maturity profile of loan facilities is spread out over

a 30 year period

• Majority of future debt expected to be raised

through capital markets with banks used for short term funding

• The maturity profile of loan facilities is shown

below, with amortisation of the syndicate facility spreading out refinance risk

bpha Credit Rating & IDA

S&P & HCA re-affirmed bpha’s ratings

In July 2017, the HCA conducted an in depth assessment (IDA) of bpha. Upon conclusion, the highest ratings for governance and viability of V1/G1 were retained.

V1/G1

A+ (Stable)

S&P

In November 2017, bpha’s A+ credit rating was re-affirmed by Standard & Poor’s.

HCA

✓ “Very strong internal liquidity” ✓ “Very strong financial policies & rigorous long-term planning” ✓ “Among the highest EBITDA margins in the sector” ✓ “Strong performance as a result of efficiency gains”

Conclusions

Glebe Farm, Cambridgeshire

Conclusion

Strongest ever financial position; £31m surplus A different proposition to 2014 Unchanged business model performing consistently well Value for money metrics demonstrate we are consistently amongst the most efficient in the sector “Very strong liquidity”

Standard & Poor’s

bpha 2017

Disclaimer

• For the purposes of the following disclaimer, references to this presentation shall mean these presentation slides and shall be deemed to

include references to any related speeches made by or to be made by the management of bpha, any questions and answers in relation thereto and any other related verbal or written communications.

• This presentation may only be communicated or caused to be communicated in the United Kingdom to persons who have professional

experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or high net worth entities who fall within Article 49(2)(a) to (d) of the Order (all such persons being referred to as “relevant persons”). Any investment or investment activity to which this presentation relates is available only to relevant persons and will be engaged only with relevant persons.

• This presentation is being directed at you solely in your capacity as a relevant person (as defined above) for your information and may not be

reproduced, redistributed or passed on to any other person or published, in whole or in part, for any purpose, without the prior written consent of bpha.

• The information in this presentation is confidential and subject to change without notice, its accuracy is not guaranteed, and it may be

incomplete and is condensed.

• These presentation slides may contain certain statements, statistics and projections that are or may be forward-looking. The accuracy and

completeness of all such statements, is not warranted or guaranteed. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Although bpha believes that the expectations reflected in such statements are reasonable, no assurance, representation or warranty can be given that such expectations will prove to be correct.

• There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such

forward-looking statements.

• This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities of the Issuer. It is an advertisement and

does not comprise a prospectus for the purposes of EU Directive 2003/71/EC and/or Part VI of the Financial Services and Markets Act 2000 of the United Kingdom or otherwise.

Appendix 1

Corporate Structure & Governance

Warburton House, Cambridge

Corporate Structure

A simple organisational structure

• bpha has a simple corporate structure reflecting the straightforward nature of our operations
• bpha Ltd owns all social housing stock and is liable for our bank debt
• bpha Finance plc is a special purpose

vehicle used to hold the £200m bond

• The joint ventures (JV) in the care

partnerships are non-asset owning companies which lease residential care homes from bpha. The income from these care homes is underwritten by contracts with local authorities

• Bushmead Homes Ltd is our build for

sale subsidiary which owns a 25% stake in Gog Magog Partnership LLP, a JV with a private house developer

• CPLhomes

provides housing management services for certain Cambridge properties

• wned

by bpha and other housing associations

Governance Structure

A modern, effective governance structure which is robust and commercially focused

• The Development Committee was established

in 2016/17 to provide additional assurance and oversight in relation to our development programme

• It comprises of three non-executive/co-opted

members

• f

the main Board and two executive members

• The Development Committee works closely

with our Finance and Treasury Committee

• This ensures that financial aspects of our

developments are sufficiently challenged and that development plans can be funded in the most effective manner

Committee Chairs

A modern, effective governance structure which is robust and commercially focused

Jill Ainscough Non-Executive Director and Chair of the Remuneration & Nominations Committee

• Jill brings over ten years of

Board experience to bpha, following a career in strategic leadership where the last post she held was Chief Operating Officer and Board member at Ofcom

• Jill lives in bpha’s operating

area and this is her first Board post in social housing

Paul High Co-opted member of the Board & Chair of the Development Committee and Bushmead Homes

• Paul brings us over 36 years’

experience in residential development and property management, the majority of which has been in the housing association sector

• He was responsible for the

strategic leadership of the Orbit Homes’ housebuilding programme for 8 years. As Executive Director of Property Investment, Paul was responsible for delivering over 1,700 new homes in the Midlands, East Anglia and the South East in 2015–16

Ian Ailles Non-executive director and Chair designate of the Audit and Risk Committee

• Ian trained as an accountant

with Ernst & Young. Following qualification, he moved to NatWest Markets as Head of Finance and then to Thomas Cook as Group Financial Controller before rising to Deputy CEO and MD

• f their Specialist Businesses
• From 2007, he worked for

Wyndham, a US company before rejoining Thomas Cook in 2011 as the UK CEO and a member of the Global Executive Committee, stepping down in 2014. He is now Director General of the House of Commons

• A main Board, consisting of

six non-executive directors, three executive directors and one co-opted member

• The Board operates

through four specialist committees

• NED appointments under

current bpha Chair

• A blend of HA sector and

commercial experience broadening bpha’s skillset

• Committees provide

greater scrutiny of bpha

• perations outside of

Board meetings

Martin Hurst Non-executive director and Chair of the Finance and Treasury Committee

• Martin served as an

Economist for HM Treasury for 9 years. He was appointed as a Senior Policy Advisor to Tony Blair for Environment, Planning and Housing in 2002

• Other roles include Director
• f Water and Floods and as

Commercial Director at the Department for Environment, Food and Rural Affairs

• He has previously been the

Vice Chair of Wandle Housing Association and currently holds a number of Non- Executive Director, advisory and consultancy roles

Appendix 2

Welfare Reform

Clay Farm, Cambridgeshire

Welfare Reform

Specific Measures

• New tenancies for those under 35, will only be entitled to single room rate for Housing Benefit and those under 21 will

have no automatic entitlement

• bpha will assist affected tenants with money advice and will seek to mitigate the on income by being more flexible

with the types of tenancy we offer

• Impact is greatest in households with children. bpha has 217 households that are affected and offer them money

advice and signpost them for employment support

• Fixed term tenancies have been introduced for new tenants to help minimise risk
• As at July 17, bpha had only 505 households affected by RSRS. Tenants will be offered financial advice and the
• pportunity to downsize if they face financial difficulties
• A 1% p.a. fall in social rents until 2020 has been modelled into the 2017 Business Plan, with a CPI flat rise thereafter
• A significant portion of our income stream is not subject to the rent reduction
• Despite the impact of the rent reduction bpha is in a strong financial position
• Full roll out delayed till 2022 however already live in all areas of bpha’s operation
• As at Apr 2017, 41% of bpha households claim Housing Benefit. Of these, 20% claim benefit to cover the total amount
• f their rent and 21% claim to cover part of their rent
• The full digital roll out to all household types started in our largest area of operation in May 17
• This is unlikely to be an issue General Needs or Affordable Rented properties though does cause an issue for

Supported Housing. Latest proposals from a Government review is that the cap will not take effect until 2019. bpha is assessing the financial impact of the LHA cap on Supported Housing and will not implement a detailed strategy on supposed housing until the Government proposals are final

Reduction of the Benefit Cap from Autumn 2016 Reduction in Housing Benefit for under 35’s Rents capped at LHA (tenancies starting from April 2017) Removal of the spare room subsidy (RSRS) Universal credit Rent reduction

Appendix 3

Risk Management & Response

Little Canfield, Essex

Risk Appetite

Effective risk management- a key priority

AVOID – 0 Risk adverse. Complete Avoidance of risk is a key

• bjective

MINIMAL – 1 Accept as little as reasonably

• possible. Very safe, low degree of

risk and limited potential for reward CAUTIOUS – 2 Safe options with low inherent risk and with limited potential for reward BALANCED – 3 Balanced approach that considers acceptable levels of reward and value OPPORTUNISTIC – 4 Willingness to be innovative and take greater risk in pursuit of potentially greater gains – accepting the potential downside SPECULATIVE - 5 High levels of informed risk that take assurance from confidence in robust controls, stress-testing, and risk mitigation plans

• Our risk appetite has been defined and approved by the Board. It is measured on a

scale from zero to five and in relation to five key elements of our operations

• Our approach to risk received external recognition as we won the prestigious HANA

Risk Management Award in 2017 Our assurance framework follows the three lines of defence approach, set out in the appendix, and facilitates swift escalation of issues to the Board and senior management

Tower Blocks Strategy

Tenant safety continues to be our number one priority

• We have 6 sites in Bedford containing 14 high-rise blocks and 2 further blocks at one site

in Cambridge, built in 2013. These blocks contain 925 flats and bedsits

• Our Cambridge blocks have a limited amount of cladding. Following the outcome of

tests and inspections, Cambridge Fire & Rescue Service confirmed the blocks are safe to

• ccupy

16 blocks

• We take tenant safety extremely seriously. We are an accredited fire academy training
• rganisation and employ in house fire officers (former firemen) whose role involves

ensuring the safety of our housing stock, including the tower blocks

Training

• Our Business Plan, initially presented to Board in May 2017, proposed £32m for the

refurbishment of our Tower Blocks over a seven year period. This spend is not yet committed and each tower block will be assessed individually in detail to determine the most appropriate strategy. The Grenfell Tower tragedy of June 2017 has not necessitated any change to our Business Plan

Investment

Paul Gray Chief Financial Officer Contact us Investors@bpha.org.uk Gosia Motler Head of Corporate Finance bpha Limited Bedford Heights Manton Lane Bedford MK41 7BJ