Capital & treasury management

Abri has a comprehensive treasury policy with tests that apply to the Group as a whole. The policy requires the Group to maintain a minimum level of liquidity such that there is:

• sufficient cash and cash equivalents to cover the next six months forecast cash requirement;
• sufficient liquidity to cover the next 18 months net cash requirement before funding (including uncommitted but not aspirational development or any staircasing cashflows); and,
• no over-reliance placed on any one counterparty, whether through cash holdings or available facilities.

At 31 March 2021 Group borrowings amounted to £1,125.3m of nominal drawn debt (2020: £1,143.1m) of which £7.5m (2020: £17.9m) is due to be paid within the next year.

Our own-named bonds are issued by Radian Capital plc and Yarlington Treasury Services plc, with proceeds received being on-lent to Yarlington Housing Group. During the financial year £19.6m of proceeds were received from the 2057 bond. At the year-end the Group sold our remaining £60m retained of the 2057 bond, with proceeds contracted to be deferred and received in May 2021. £70m nominal remains retained of our 2044 bond; we will consider selling this in the future to raise funding, if necessary. A summary profile of our own named bonds is found below:

The Group has a number of bonds which are repayable in both single and multiple instalments and which are subject to fixed nominal rates of interest of between 2.9% and 11.1%. The Group also has various bank loans which are repayable in both single and multiple instalments, which are subject to nominal rates of interest linked to LIBOR and SONIA. Additionally, the Group has two Homes England loans which are repayable as single instalments and are subject to an increasing fixed nominal rate of interest.

• Interest rate risk is the risk that the Group is unable to service its loans and borrowings due to rises in interest rates. The Group manages interest rate risk through the requirements laid out in the Group treasury policy, including entering into interest rate swaps to fix a proportion of floating rate debt;
• Liquidity risk is the risk that the Group is unable to service its loans and borrowings, or meet repayment liabilities as they fall due, owing to insufficient cash. The Group manages liquidity risk through the requirements laid out in the Group treasury policy, including requirements for minimum levels of cash or immediately available facilities;
• Counterparty credit risk is the risk that the Group is unable to access cash deposits due to failure of counterparties. The Group manages counterparty credit risk by regularly monitoring and reviewing the credit rating of counterparties through the requirements laid out in the Group treasury policy;
• Market risk is the risk that the Group is unable to refinance loans and borrowings at an acceptable interest rate as they mature. The Group manages market risk by modelling the impact of interest rate rises in its long-term forecast and identifying mitigating actions; and,
• Currency risk is not applicable as the Group borrows and invests surplus funds only in sterling.

Most of the Group’s borrowings consist of fixed rate bonds and bank funding at both fixed and floating rates of interest. A subset of our bank loans have embedded interest rate swaps that run for all or part of the loan term. During the year, finance costs totalling £27m were incurred breaking interest rate swaps. These costs were incurred to offset changes to funding arrangements, including increases to interest margins, resulting from restructuring the Group.

There is also one standalone interest rate swap arrangement with Lloyds Bank which was entered into during the year and replaced a previous standalone swap held with Lloyds. This swap remains within Yarlington Housing Group and was taken out to cover variable rate borrowing, it is considered an effective hedge with fair value movements are taken through cash flow reserve.

Total debt of £1,125.3m nominal at 31 March 2021 consisted of 90% fixed and 10% variable rate debt. Of our 90% fixed rate debt, £553.1m was fixed interest bonds, £439.5m was made up of embedded interest rate swaps, £15.0m was from the standalone interest rate swap and £0.6m to fixed rate Homes England loans. The interest rate swaps run for all or part of the loan term. There are no options in our portfolio.

Financial loan covenants are primarily measured by EBITDA MRI interest cover, gearing ratios, intra-group support, asset cover based on property asset values and debt service and income tests. Covenants are continually monitored and reported to the Executive Board and Treasury and Investment Committee. There were no breaches of financial covenants during the year.

As at 31 March 2021 the Group had £767.0m unsecured completed housing properties not required for charging to existing debt facilities. These are sufficient to raise over £723.7m of future new debt on asset cover ratios of: 105% for Existing Use Value as Social Housing (EUV-SH) and 120% for Market Value Subject to Tenancies (MV-T).

Based on our current development programme, we also expect to complete more than 900

properties in the period to 31 March 2022, which will in turn provide additional security.

As at 31 March 2021, the Group had £297.0m in available funds. This comprised £139.7m of immediately available cash and cash equivalents and £157.3m in revolving credit facilities. The Group had £70.4m of deferred bond proceeds, including premium and accrued interest, contracted and received in May 2021 in addition to another £70m of retained bonds held for future sale. This is sufficient to fund the Group over the 25 months from the date of this report. It will cover all committed and pipeline developments including the affordable rent programme.

We did not experience any material impact from the current Covid-19 pandemic, and we consider our financial strength and high levels of liquidity puts us in a strong position to navigate through the impact that may arise from the global pandemic.

In January 2021, following their review, Moody’s confirmed the Group’s credit rating remained unchanged at A3 stable. In their review Moody’s highlighted our moderate gearing, solid liquidity and supportive institutional framework, giving us both resilience to challenges and leaving us well placed to achieve our financial objectives.

No Group entities have been party to the acquisition of shares in fellow subsidiaries in the current or prior year.

In May 2021, the sale of £60m nominal of the retained Yarlington Treasury Services 2057 bond, at a premium of £10m, was completed with proceeds on-lent to Yarlington Housing Group. At the signing date, the Group has therefore fully sold and received all proceeds for its 2057 bond.

On 30 June 2021 Yarlington Housing Group was the subject of a Transfer of Engagements to Abri Group Limited. On the same day, employees of Inspired to Achieve, a social enterprise subsidiary of Yarlington Housing Group, transferred to a fellow Group subsidiary, The Swaythling Housing Society, as part of a process of novating the trade and assets of Inspired to Achieve to the Society.

At the date of signing, Yarlington Housing Group and Inspired to Achieve are in the process of being wound down, subject to the settlement of all obligations.

The length of the Covid-19 pandemic and the measures taken by the UK Government to contain it are outside of our control and increase uncertainty when planning for the future. The first national lockdown in Spring 2020 had a significant and overt impact on our financial performance and day-to-day operations, as all but critical repairs were paused and the property market stagnated. Subsequent lockdowns proved less disruptive on the organisation as new ways of working were adopted, which remained in place for the rest of the financial year.

Post year-end, despite the easing of lockdown restrictions and the continued rollout of the vaccination programme, we remain acutely aware of the risks that prevail, especially from emerging variants, and the possible need for localised, targeted and seasonal lockdowns which will continue to impact the organisation and its financial results. The associated impact of the pandemic on the economy also remains a key concern, effecting people’s ability to pay their rent or finance a mortgage. Aside from Covid-19, the Group is also operating in a post-Brexit environment and in a sector where regulations surrounding fire safety and the environment, and continued reforms around ownership models will affect the organisation on a day-to-day basis in the future.

Such factors are all key considerations in setting our budgets for the financial year ahead, and more significantly in our long-term planning, covering the next 30 years. The assumptions in our business plans – interest rates, inflation, demand for property and legislative impact amongst others – are subjected to a range of stress testing, to identify areas of risk or concern, with a particular focus on continued covenant compliance and appropriate mitigation, such as fixing interest rates or exploring new methods of delivery of housing supply, where possible. Our forecasting incorporates the impact of restructuring both our legal entity structure and our portfolio of loans, bonds and other borrowing.

Given the strength of our financial position and availability and liquidity of undrawn loan facilities, the Board believes that, while uncertainty exists, this does not pose a material uncertainty that would cast doubt on the Group’s ability to continue as a going concern as we are well placed to absorb the impact of changes that lay ahead. The Board, therefore, considers it appropriate for the accounts to be prepared on a going concern basis for the 12 months from the signing date.