Arhag Annual Report 2019/2020

We have seen an overall reduction in our rental income resulting from the reduction of properties during the year, in addition to the year-on-year rent reductions required by central government. We plan to increase our income with additional units in the future as well as the CPI + 0.5% rent increase in the new year, and we seek to do this with as little impact on our fixed operating costs as possible. We want to demonstrate value for money so that our residents, lenders and other stakeholders are satisfied that expenditure on our existing properties and service charges ensures our stock is of a good standard, and that we have the financial strength to grow in the future. There are opportunities to drive efficiency savings via a review of our supply chain, as well as a better understanding of our data and the key drivers behind what and where we spend our money. Our social housing cost per property cost has decreased year-on-year, but we still have a way to go. During the year, we incurred one-off costs relating to the fitting out and relocation to our Stratford Office, which has enabled us to move forward with our “go-to” agenda for migrants and refugees. We welcomed partners into our office, and we support the work they do to further assist our residents and non-resident migrants and refugees in our community who require help. Our reinvestment in new supply has reduced whilst we (a) concentrated on bringing the properties acquired last year, by way of a property transfer, up to an acceptable standard and (b) as we sought to reduce our stock in South London to re-set and focus on increasing our units in North and East London. We have maintained investment in our existing properties to ensure our properties meet the Decent Homes Standard. During the year, we recognised the reduction of properties from a Stock Swap with One Housing completed in the previous financial year. The Board will review the next steps to move forward, which will best fit with our strategy, and provide the best housing solutions for the residents in the boroughs we operate in. The Gearing Ratio illustrates a strong balance sheet, as well as the headroom available for Arhag to consider future financing strategies for future reinvestment and new supply. We have been operating in a volatile setting. We do not know what financial and non-financial impacts Covid-19 and Brexit will bring. We also incurred costs in relation to the office relocation to Stratford, yet we have managed to improve our EBITDA MRI year on year when we remove the impact of sales and disposals of housing properties. We are still committed to further reducing our property and overhead costs, as we want to drive down our operating costs per unit and further improve our controls around expenditure. We are set to review our income and expenditure management overall in order to secure a more stable financial position and platform for us to embark on our future growth plans. Our underlying cost per unit is set to improve in the coming year as follows: • We will work to better define our planned repairs and component replacement programmes, so that we are able to capitalise more than we did this year. • We want to change the way in which we plan and procure our component replacement, compliance, and responsive repair programmes, so that our work is more effective and preventative rather than reactive, and overall enhances the quality and value of our stock. • We want to ensure that the difficulties faced by a smaller organisation in terms of economy of scale does not deter us from providing a good standard of service delivery and compliance, and that we are in control of the resources we employ to manage our organisation. Our overall operating margin remains in a comfortable position; we generate a surplus which is added to our reserves for the future benefit of our organisation. We incurred a small deficit with the sale of three units in Siva Court. However, we now benefit from the additional rental generated from the full year effect of the remaining seven units and the properties acquired by way of a stock transfer in the previous financial year. Our social housing operating margin rate highlights that we are able to operate without reliance on sales but we must continue to strengthen our position, particularly with a backdrop of political and economic uncertainty and the ever-growing need for housing in our community. This will be done by growing our income and ensuring our cost base is right. We want to ensure that through driving efficiencies and generating better returns on the use of our assets, we improve services to residents and support our wider social purpose. Annual Report 2019-2020 17