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L&Q sees surplus drop a quarter after ‘challenging’ schemes and fire safety costs take toll
G15 landlord L&Q has seen its annual surplus fall by a quarter after it recorded higher than estimated write-downs of £90m due to rising construction costs and extra fire safety work.
The 107,000-home association reported a post-tax surplus of £154m in the year to the end of March 2022, compared with £208m the previous year. Turnover increased 6% to £1.11bn.
L&Q said it had initially estimated an impairment of £76m, but this increased following an audit.
Around 80% of the impairment was attributable to three “challenging schemes” and reflected “increased build costs” and “programme delays”, the association’s annual report said. Landlords across the sector have been struggling with rising material and labour costs in the face of Brexit, the pandemic and the war in Ukraine.
Like its G15 peers, L&Q is facing significant ongoing costs due to the post-Grenfell building safety crisis. In its most recent full-year, the landlord reported a provision of £24m for build defect liabilities. This increased by £11m as L&Q said “further inspections have taken place identifying additional works required”.
The annual report said the association has made provision for construction build defects “where there is an obligation to correct substandard works at schemes which were built by the group”.
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L&Q has previously said the full cost of fire safety work will be £450m.
Turnover in its social housing unit edged up 3% to £613m. However, this produced a reduced operating surplus of £189m after its margin was cut from 31% to 39%. This was partly due, L&Q said, to an increase in maintenance spend due to catch-up work post-pandemic.
Spending on capital works for its social housing doubled to £70m, while investment on planned and reactive maintenance rose nearly a third to £191m.
Writing in the annual report, Aubrey Adams, chair of L&Q, said: “Financial performance on non-sales activities continues to reflect our stated objectives of more focus on and investment in the safety of our colleagues and residents, to increase investment in residents’ homes, and to focus on delivering reliable, repeatable and consistent services.”
As a result of the impairment, L&Q reported an operating loss of £22m for open market sales despite a revenue of £145m. For shared ownership, it recorded turnover of £117m, but a loss of £3m.
L&Q’s overall operating margin fell to 24%, compared with 29% the previous year.
On completions, as the landlord reported in May, these hit a “record” 4,157 in its last financial year, up 54% from the prior year. Of the total, 61% were social housing tenures and 39% classed as market tenures.
Despite the strong performance, L&Q said it is maintaining its “longer-term” aim to be building 3,000 homes a year after slashing its target by 70% last year.
Waqar Ahmed, group finance director at L&Q, said: “At least half of the homes we build will be affordable and any profit we make on open market sales will support our core social purpose. We believe in, and will provide, mixed communities.”
Rent arrears in its social housing division were 6.31% at year-end, compared with 5.03% at the same point last. L&Q said the increase was “not unexpected considering the current economic climate”.
The association reported net debt of £5.26bn at year-end – a slight fall on last year’s figure of £5.33bn. Gearing was 49%, compared with 48% the previous year.
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