2009 review
Robust financial performance
The Affordable Housing division performed robustly during 2009, maintaining revenue at £374m (2008: £377m) and achieving an operating profit of £14.9m (2008: £21.0m). Margin fell to 4.0% (2008: 5.6%) due to a higher volume of lower margin new build and refurbishment work undertaken to offset lower levels of volume and profitability from the open market housing sector.
Residential sales recovered
Residential property prices stabilised during the second half of 2009 and this led to a tentative recovery in open market sales of affordable homes. Although the availability of mortgage finance remains tight, the division increased the number of open market house sales by around 50% in 2009 compared with the previous year, albeit at lower average sales prices, largely due to the success of the shared equity scheme launched by Lovell in 2008.
PFI success offers market opportunities
Affordable Housing's first major PFI scheme, the £230m Miles Platting Neighbourhood Project in Manchester, performed strongly during 2009. The refurbishment contract began in 2007 and is due to run until 2011, covering houses, flats and seven multi-storey blocks. The high levels of customer satisfaction and operational performance being achieved on this project provides the division with an excellent platform for the next wave of PFI projects coming to market in 2010 and beyond.
Strategic developments to extend service offering
Clients are increasingly bringing responsive and planned maintenance into a single contract. In early 2009 the division acquired BMS, a responsive maintenance business, which has been rebranded as Lovell Respond. This has allowed the division to offer a responsive maintenance service to its public sector clients and further extends its service offering.
Strong cash management principles
The Affordable Housing division responded to the challenging trading conditions by strengthening its working capital management and taking tighter control of overheads. Increased open market sales and a higher volume of contracting business enabled the division to trade positively in 2009 and reduce the level of work in progress. Having a strong balance sheet, along with relevant expertise and an established track record, are key elements in securing mixed tenure opportunities as the market recovers.
Outlook
Well placed to deliver long-term growth
The division will benefit from the recent improvements in the housing market and house prices, as its expertise in mixed tenure regeneration means it is well positioned to take advantage of regeneration opportunities. The refurbishment market will continue as the Government's Decent Homes programme extends well beyond the original 2010 target date. New build affordable housing remains a priority for any future Government. Through its strong relationship with the Homes and Communities Agency, the division is well placed to benefit from further Government funding that becomes available.
Secured work for 2010 and beyond
The division's forward order book at the start of 2010 was maintained at £1.3bn (2008: £1.3bn).
BelowLovell
Client
Birmingham City Council
Location
Rea Valley, Birmingham
Completed homes with a nearby children's play area at the affordable and shared ownership properties constructed at Rea Valley in Birmingham. The Rea Valley was identified by the City Council as needing complete transformation and following demolition of the existing stock Lovell carried out the design and build of the two and three-storey homes to the EcoHomes Excellent standard.
BelowLovell
Client
Partnership Development
Location
Nottingham
In partnership with Tarmac and the University of Nottingham, Lovell built two houses to Level 6 and 4 of the Code for Sustainable Homes. This demonstrated that the highest level of the Code for Sustainable Homes can be achieved in a cost-effective way using traditional masonry. These homes have the potential to be built across the UK.
