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L&Q sees surplus drop by 42% in ‘challenging year’
L&Q, London’s largest association, has seen its surplus drop by 42% in what it has described as a “challenging” 12 months.
According to its annual report, L&Q made a post-tax surplus of £202m for 2018/19, down 42% on last year’s figure of £350m.
The drop in surplus was matched by a fall in turnover and operating margins. The turnover was registered at £937m for 2018/19, compared with £1.02bn in 2017/18, while operating margins reduced to 33% for the year from 39% last year.
In his statement in the accounts, Aubrey Adams, chair at L&Q, acknowledged that it had been a “challenging year” but said that the organisation faced the next 12 months in a “strong financial position”.
He said: “Our decision to accelerate record amounts of investment in quality of our homes, the health and safety of our residents – coupled with the reduction in sales turnover and profit – has had a short-term impact on our operating margins and led to year-on-year reduced surplus.”
L&Q is the latest London-based association to see a drop in surplus in the past week. Yesterday, A2Dominion’s accounts revealed its post-tax surplus had dropped by 74%.
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Notting Hill Genesis reported a surplus of £105m for the year, down from £139m last year, while Clarion also posted a slight drop in surplus this week.
L&Q’s expected fall in surplus was first trailed in Inside Housing back in January, when a leaked email from chief executive David Montague to staff revealed the association was expecting its surplus to be cut in half.
In the accounts, L&Q said that its £89m reduction in turnover was largely down to “slowed sales activity in a challenging market with a flattening of house price growth driven by ongoing economic and other external activities”.
The association’s surplus was also impacted by increased investment in fire safety works and other risk mitigation across its stock.
The accounts revealed that over the year the association had removed dangerous cladding from 13 of its blocks, replaced more than 2,000 fire doors, started its sprinkler refit programme, and completed more than 2,500 fire risk assessments.
In May L&Q said it would be setting aside £50m for remediation work, with the work expected to be fully completed by the end of 2019.
Despite the surplus drop, L&Q saw a huge increase in the number of homes it started in 2018/19, with the association beginning work on 6,428 new homes. This was an increase of 138% on last year’s figure of 2,698 starts.
L&Q’s development pipeline now stands at 50,400 homes, with more than 16,000 homes already started on site.
Nevertheless, the organisation is taking steps to reduce the number of private sale homes in that pipeline. In an interview with Inside Housing this week, Fiona Fletcher-Smith, group director for development and sales at L&Q, confirmed the strategy.
She said the outright sales market is “tough” but said the shared ownership market was still “buoyant” and insisted L&Q was not changing its overall target for housebuilding numbers.
It is one of a number of large London housing associations which are revising existing development plans to cope with the difficult market conditions in the London housing market.
Last year, L&Q hit the headlines after it was found that the association had missed repairs and failed to rectify damp, mould and vermin at Portway House in south London.
In reaction to these failings, L&Q set up a taskforce to identify other challenging schemes and take steps to fix the issues. The accounts revealed that the taskforce had identified a total of 16 challenging schemes across its stock. Work on 10 of these 16 schemes is now complete, with 81% of the key work packages now finished.
The housing association did see a fall in customer satisfaction levels in 2019, with satisfaction levels hitting 70%, down on last year’s figure of 74%. The 70% is lower than the G15’s median customer satisfaction rating and well below the sector median of 87%.
Housing association financial statements 2018/19
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Metropolitan Thames Valley shared ownership surplus tumbles
Network Homes boost surplus by 62%
Notting Hill Genesis customer satisfaction rate only 65%
Paradigm’s surplus falls slightly thanks to development difficulties
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Optivo returns to surplus after refinancing
Orbit surplus falls 52% as sales income slips
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Sovereign's private sales income up 24%
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