Also this year, Arhag’s Board reviewed the useful economic lives of the components of the Stratford office with a consequent reduction in the overall annual depreciation charge. Arhag has maintained a prudent approach to the risk of resident debt not being fully recoverable. However, having increased the impairment in the carrying value of resident debt in 2021 we have not needed to increase it further this year. OperatingMargins As a consequence of improving our underlying financial performance, Arhag has improved its operating margin on social housing lettings from 12% to 21% and our overall margin (including the surplus on disposal of assets) has improved from 12% to 16%. Disposal of fixed assets Arhag is not financially reliant on disposing of properties to support its business model, although it should be noted that the decision of the Board to focus operations more in north and east London rather than south of the river has resulted in disposals of 10 units in 2021 and a further 5 units in 2022 to a local registered provider. With the social housing grant on the units transferring with the properties, these sales were able to deliver strong surpluses and contribute to greater geographical and operational efficiencies. Net Interest During 2020/21 Arhag removed £2.00m of loan facility with RBS/NatWest and this year we have repaid £1.25mwith no additional refinancing being required. As a consequence of the combination of this and the ending of a fixed interest rate on two of our loan tranches, our net financing costs during the year decreased. The majority of our outstanding debt is held on fixed interest rates and this has mitigated the risk of rising Bank of England lending rates as experienced recently. Where our debt is variable there are minimum lending rates built into the loan agreements which have not yet been breached. Debt and Liquidity Arhag’s loan facilities are held with four banks, against which we carry a cash reserve of £3.09m (2021: £2.55m). At the end of the financial year, our net debt had reduced from £25.15m to £23.36m, of which £1.25m is repayable within one year and £1.14m the following year. Our total liquidity as of 31 March 2022 of £3.09m (2021: £2.55m) comprises immediately available bank deposits and payments that have been made by residents to our 3rd party payment system provider and which is in transit to Arhag. We have reviewed and updated our medium and long-term financial forecasts and shared these with our lenders to understand and identify our funding requirements. Annual Report 2021-2022 29
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