Capital structure
Total funds including long term creditors at the end of the period amounted to £ 854.620 million( 2017: £ 824.814 million), of which £ 147.529 million( 2017: £ 136.781 million) comprised the income and expenditure account reserve. The increase is due to an increase in tangible fixed assets, social housing grant, investments increased borrowing and the surplus for the year. Long term borrowings at the end of the period have increased to £ 430 million from £ 414 million in 2017. Gearing of Accord at the year-end is 46.3 %( 2017: 46.7 %) and has remained comfortably within funding covenants at all times. The Association has access to undrawn borrowing facilities and unutilised security on its statement of financial position which is sufficient to meet Accord’ s ongoing liquidity requirements for a continuing and ambitious development programme. The net movement in cash for the year was an inflow of £ 4.238 million( 2017: £ 3.558 million outflow) reflecting the net impact of our development programme, increased borrowing, increased growth linked to new developments and services and the reduction in debt management costs. The average interest rate for the year stood at 3.80 %( 2017: 4.02 %). Interest cover for the Association is 190.5 %( 2017: 190.7 %) and remains comfortably within funding covenants.
Treasury management and control
Treasury activities are controlled by the Executive Director of Resources with the assistance of external consultants as required, and are carried out in accordance with policies approved by the Board. The purpose of the treasury management function within Accord is to ensure that adequate cost-effective funding is available at all times and that exposure to financial risk is minimised. The key risks managed by the treasury function are interest rate risk and liquidity risk. Treasury management activity is subject to regular review by internal auditors and treasury specialists. Treasury activity is closely monitored on a regular basis and compliance with covenant conditions continues to be met with no breaches in the year. Quarterly monitoring information and management accounts are submitted in accordance with funder and regulatory requirements. Short, medium and longer term liquidity requirements are monitored through ongoing forecasting and the business planning process. It is the Association’ s policy to balance the cash held by repaying debt as far as possible, whilst ensuring sufficient access to funding facilities to cover investment and business development plans.
Interest rate exposure is managed via the use of interest rate fixes. Accord’ s policy is that between 60 %- 80 % of its total borrowing should be at fixed rates of interest. At the year-end, 65 %( 2017: 66 %) of borrowings were at fixed rates of interest – the levels of fixed debt remains under constant review. Accord has not used stand-alone derivative financial instruments to manage its interest rate exposure during the year. However, Accord does have the Wider Rule Change and approval from the Regulator of Social Housing to use stand-alone derivative financial instruments, and has facilities in place with three funding institutions to utilise these instruments- there have been no such facilities in place at any point throughout the financial year( 2017: nil). Continuity of funding is ensured by arranging for short term borrowings and committed facilities and by limiting the amount of debt repayable in any one year. In 2017 / 18 a further £ 25m, five year revolving credit facility was secured to further bolster the Association’ s commitment to delivering new housing supply and ensure ongoing liquidity requirements continue to be met at all times. Year-end undrawn committed facilities were £ 49.5 million( 2017: £ 57.1 million). Interest payable increased to £ 16.13 million( 2017: £ 15.73 million), and debt increased from £ 414.07 million to £ 430.33 million. Increased total funding facilities highlights Accord’ s commitment to the development of new homes and the regeneration of communities. Principal financial covenants are in respect of loan gearing and interest cover. The Board believes that the financial covenants entered into are appropriate for Accord’ s operations. The table below provides an analysis of when the debt falls due for repayment.
26 Accord Housing Association