1. Successful places with homes and jobs A NATIONAL AGENCY WORKING LOCALLY The sector’s financial position and risk profile NHF Finance Conference Mick Warner, Deputy Director Regulatory Operations 19 March 2014

2. My brief today  The Social Housing Regulator’s Global Accounts for the year to 31 March 2013  The risks facing the sector  Lessons learnt from regulatory judgements

3. Global Accounts: key messages  A sector that remains financially robust in aggregate (masking a wide range of performance) …  … but which needs to be prepared for the challenges which lie ahead  Retained surplus of £1.9 billion  Inflation linked rent increases, effective cost base management and sales performance all factors in improved surpluses (as last year)  82% of reserves invested in fixed assets

4. Financial highlights  Turnover up by 8.1% to £14.9 billion  Operating costs up by 4.6% to £11.0 billion  Operating margin 25.9%, up from 23.4%  Management costs per unit increased by 4.8%  Routine and planned maintenance per unit spend up by 1.4%  Total major repairs costs per unit fell by 3.8%  Effective interest rate slightly down at 5.1%  EBITDA MRI interest cover 138.0% (2012 115.7%)  Retained surplus of £1.9 billion, an increase of £0.1 billion  Total NBV of fixed assets up by £5.2 billion to £76.4 billion  Increase in debt of £3.6 billion including £3.2 billion of bond finance  Gearing 86.8% (2012 85.9%)

5. Sub-sector performance

6. Stock transfer major repairs

8. Low interest rate environment

9. Increase in social housing lettings turnover

10. Non-social housing income

11. Operational performance Indicator (%)201320122011 Stock failing the DHS1.01.92.4 Voids1.71.8 Bad debts0.90.80.7 Current tenant arrears4.8 5.1

13. Historical perspective

14. Sector risk profile  Asset-related risks – development, diversification, exposure to the housing market, maintaining existing stock  Liability-related risks – existing debt, new debt, mark to market exposure, accounting issues  Income-related risks – exposure to rental markets, welfare reform, supported housing  Cost-related risks – pension costs, differential inflation rates Board responsibility to ensure effective governance including arrangements for managing risk

16. Surpluses to keep on growing. £ million20142015201620172018 Turnover16,17817,89818,98919,21119,640 Operating expenditure(12,251)(13,386)(13,907)(13,885)(14,031) Operating surplus3,9284,5125,0835,3265,610 Profit/(loss) on the sale of fixed assets332238232222221 Surplus before interest & tax (SBIT)4,2604,7495,3155,5485,830 Interest and other finance costs(2,626)(2,862)(3,168)(3,366)(3,528) Surplus for the year before tax1,6341,8872,1462,1822,302 Tax(9)(10)(13)(15) Surplus for the year1,6251,8802,1342,1692,288

17. Operating margins forecast to increase (but at lower levels) …

18. … on all activities

20. Operating costs

21. Type and levels of debt

22. LIBOR forecasts

23. Housing market sales

24. Development activity

25. Welfare reform indicators

27. Regulatory judgements – the scores on the doors GovernanceViability G1/V1203208 G2/V23336 G3/V391 G4/V400 Total245

28. Viability – the exposures  Development programmes  Housing market risk  Availability of finance  Threat of re-pricing  Interest rate risk  Delivery of savings  Welfare reform  Supported housing

29. Governance – the issues  Diversification  Board skills, experience, refresh and renewal  Board and executive remuneration  Business and financial planning  Treasury management  Assurance and risk management frameworks  Transparency  Value for Money