Tell me about your cash flow

Ever wondered what the person sitting next to you is thinking? Finance directors attending the National Housing Federation’s annual housing finance conference next week won’t have to ponder this question. Inside Housing can reveal all, right now, thanks to its first survey of housing’s finance chiefs. We got nosey and asked 26 finance directors from housing associations and arm’s-length management organisations across the UK some personal questions, including how much they earn and who they’re going to vote for in the general election. We also discovered how they’re planning to access funding this year, and what they expect their organisation’s turnover to be.

Finance directors balance their organisations’ books and hold their purse strings, so it’s not just fellow finance heads who need insight into what’s going on in their minds. According to our survey - conducted at the beginning of March - 38 per cent of UK housing associations and ALMOs made redundancies during the last financial year, 27 per cent introduced pay freezes and 12 per cent made pay cuts. The picture for 2010/11 is slightly different but no better. Thirty five per cent of finance directors expect their organisations to make redundancies during the coming year. The same number expects pay levels to be frozen, but only 4 per cent expect pay cuts.

Employers will be paying particular attention to the pay deals finance directors receive at other organisations, and bringing theirs into line. ‘We will ensure our salaries follow the market,’ claims one housing association finance chief.

Reflecting on these answers, Liz Curran, executive director of finance at London-based housing association Look Ahead Housing and Care, says that while they are interesting, they are not unexpected. ‘A large proportion of housing organisations are expecting to have to continue to make restructuring changes and implement pay freezes in order to respond to the tough financial climate we are anticipating,’ she adds.

By far the most popular method of cutting costs among our respondents is reducing departmental budgets. More than half say their organisations did this in 2009/10, and an equal number expect they will do so in 2010/11. One finance head reveals that central services will be targeted, another points the finger at the housing operations, estates management and repairs departments in their organisation. But the majority of finance directors (64 per cent) expect budget cuts to affect all departments. ‘All departmental cost budgets have either been reduced or maintained at the 2009/2010 level,’ notes one housing association FD.

‘Discretionary expenditure was cut across the board,’ says another of last year’s economising. The ‘key question’ when eyeing potential cost-cuts, they add, is: ‘Would you spend your last £100,000 on this?’ The close scrutiny of spending that kicked in last year is set to continue.

Onto the most troubling question occupying the current thoughts of finance directors: ‘where is funding going to come from?’ Seventy six per cent of housing association finance directors report that their organisations borrowed money from banks over the past 12 months. The average amount of funding accessed via banks was £13 million.

While nearly a quarter say their organisation is ‘extremely unlikely’ to borrow from banks over the coming 12 months, more than half believe their organisation is ‘extremely likely’ to. Banks remain the primary source of funding for housing associations, with nearly three quarters of association survey respondents answering that, aside from rental income, banking lenders will be the source of the ‘majority of funding’ for their organisations for the ‘foreseeable future’.

Despite bonds enjoying a resurgence as a form of lending just 14 per cent of the finance directors who took part in the survey see the capital markets as their primary source of funding. Twelve per cent reckon their organisation is ‘extremely likely’ to issue bonds over the next 12 months. Another 12 per cent are sitting on the fence on this matter, while the remaining 76 per cent answer that they are either ‘unlikely’ or ‘extremely unlikely’ to venture into the capital markets before next April.

Perhaps the emphasis on bank lending results from the fact that 59 per cent of housing association finance directors think it will be easier to access funding over the next 12 months than it was during the previous 12. Twenty nine per cent think bank lending will remain roughly the same as it is now.

One housing association finance director answers that their organisations’ borrowing will remain stable, ‘but only because it is from existing facilities’ - reflecting a wider reluctance to take on more debt.

Commenting on the survey’s findings, Paul Haslam, director of resources at Staffordshire-based Trent & Dove Housing, expresses surprise at the number of organisations planning to borrow from banks in 2010/11. ‘I assume this is mostly people using existing facilities rather than arranging new ones [which are likely to carry high lending costs],’ he says.

As to whether they think it will become more or less expensive to borrow money over the coming year, 23 per cent of housing association finance directors think it will be between 5 and 10 per cent less pricey; 18 per cent, however, believe the cost of borrowing will go up by the same amount. Meanwhile, more than half believe the cost of borrowing will stay the same.

When it comes to turnover - the value of business transacted - half our respondents are in a positive state of mind. They expect turnover in 2010/11 to be greater than the previous financial year. More than a quarter of finance directors expect turnover to increase by between 1 and 5 per cent and 15 per cent think it will increase by up to 10 per cent. Not everyone’s an optimist. Twenty seven per cent believe turnover will stay the same, while nearly a quarter believe it will fall.

Separating the answers given by finance directors working for housing associations and those working for ALMOs, however, presents two very different outlooks. While 70 per cent of housing association FDs expect turnover to increase, only 11 per cent of their counterparts at ALMOs are so optimistic - 56 per cent of them expect turnover to decrease, and one third expect it to fall by a rather large 11 to 15 per cent.

‘ALMOs’ turnovers are under pressure,’ says Robin Tebbutt, executive director of finance at the Housing Quality Network. ‘That is the position dictated by the housing revenue account subsidy system and the general environment for public finance.’

Although housing association finance directors seem to be optimistic that this next year will be slightly more positive than last, the wider squeeze on public finances seems to be weighing on ALMO FDs’ minds. But the pressures of the last 12 months remain for all.

Delegates at next week’s conference can be safe in the knowledge that the subjects occupying their own thoughts are very likely to be the same ones dominating those of the person sitting next to them.

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