Affinity Sutton is a UK-based not-for-profit housing association. Established in 1900, it has become one of the largest providers of affordable housing in England, managing over 57,000 homes and properties in over 120 local authority areas. Its core purpose is building and managing homes for rental for those who are unable to afford full market rates. It also now aims to make home ownership more accessible through its shared ownership scheme. In 2012/2013 it reported a £305m turnover and from that a £60m surplus.
As anyone who has ever stepped up to a full-size snooker table will know, it requires an analytical approach, the ability to take the long-term view and a steady nerve to win. As a snooker enthusiast, Matt Cooper, Director of Treasury and Corporate Finance for the UK’s largest not-for-profit housing association group, Affinity Sutton, recognises the expertise and dedication of the professional player. But whilst his call to join the pro-circuit remains as yet unanswered, he has certainly carved out a successful career in another field using the same skills demanded of snooker’s most prolific winners.
From accountancy to banking to treasury, Cooper has consistently taken a broad view of commercial financial operations and progressively applied his accumulated knowledge and analytical skills in preparation for his next big break. In his current role with Affinity Sutton, a not-for-profit organisation that traces its roots back over 100 years, he has been part of the winning formula in very testing times. The funding for such organisations in the UK has changed considerably in the last few years, forcing all to exchange a model reliant on government grants for one that calls on private debt and enterprising activity. The winners will be those with commercially astute and experienced professionals at the helm.
Leaving university armed with a degree in mathematics and a notion that ‘business’ was the right direction, in 1999 Cooper secured a place with PwC. Aiming to qualify as an accountant, he used the next three years to develop an understanding of how different businesses function and the kind of challenges they face. Having spent time with the firm’s European securitisation group, he recalls that this was the area that really got him interested in longer-term funding and structured finance.
By now a Fellow of the Institute of Chartered Accountants of England and Wales, Cooper was conscious of his lack of direct corporate experience. Departing PwC in 2003 he joined Deutsche Bank’s financial controller’s office before moving to its front office team, providing clients with structured credit finance solutions. The role of Senior Treasury Manager at international investment firm, Old Mutual beckoned in 2008. Here Cooper felt he was able to blend the “external-facing and forward-looking” function of corporate funding with the precise and analytical work of the accountant. By 2010 he was on the move again, this time as Head of Treasury for Expro, a private-equity (PE) backed oil-field services company. This gave him responsibility for all treasury functions across multiple regions managing some £2.5 billion of debt. With cash lodged in many places around the world he implemented a successful cash-pooling programme. Time spent on the global stage with Expro came to end in 2012 as Cooper moved in a new direction, taking up his current position as Director of Treasury and Corporate Finance for Affinity Sutton.
Cooper’s role here is, as his title indicates, a two-part affair. He oversees the Head of Treasury and two Treasury Analysts on one side, and the Head of Corporate Finance and a team of five analysts on the other. Corporate finance in this context is predominantly about investment appraisal, considering the assumptions, risks and values of new building schemes, and presenting findings to the board. On the treasury side the primary responsibility is for formulating and managing long-term funding strategy for the group – a strategy that is about as far removed as it is possible to be from the rapid-fire ‘instant reaction’ world of the oil and gas sector. Not that the housing sector stands still; it has seen many changes in the past few years, some of which have tested, and continue to test, the skill and judgement of Cooper’s treasury and finance functions.
Even though Affinity Sutton has a large and low-cost bank facility in place, more of its longer-term major funding is now coming through the capital markets. The split of debt funding today is 33% capital markets and 67% bank with six major UK banks and building societies providing it with £1.66 billion (“long-term and very cheap”) committed facilities.
However, banks are generally less comfortable now with the kind of long-term lending housing associations need. The good news is that investors in the fixed income space – institutional players such as pension funds and insurance companies – have been finding it harder to track down highly-rated long-term debt. This places Moody’s Aa3-rated Affinity Sutton in a very good position to secure funding, although even this is not as straightforward a decision as it may seem.
“Our asset base is property so it makes sense to have long-dated funding, but part of the risk of bond issuance is that you are never quite sure of the timing of the issue,” explains Cooper. “A bank loan is more flexible so we use revolving credit facilities from banks to help us manage that timing. As and when the bond markets are favourable we will issue and use the proceeds to repay the revolver so we are not sitting on mountains of cash.”
In the current climate the need is to find a balance between the two by retaining a flexible approach. This has included consideration of alternative sources of funding such as US private placements and even the German Schuldschein market although the UK bond market has “delivered value” so far. Affinity Sutton issued a £250m bond in 2008 which, at the time, was the largest own-name issuance by a housing association and the first AA-rated bond from the sector. Since joining the company, Cooper has raised a further £400m through a second £250m 30-year bond issue – at 4.25% the cheapest that had ever been issued in the sector – and a mix of bank debt and project finance.
With all sources of funding, treasury conscientiously looks after existing relationships with banks, investors and ratings agencies. The relationship with investors – some of the largest institutional investors in the country – is particularly important. Affinity Sutton is committed to running ‘non-deal’ roadshows. Rather as it runs annual funders’ days for its banks, the idea of the roadshow is just to meet and greet existing and potential investors, and to update them on company and sector progress. “We could do nothing and then come back in a few years’ time to issue another bond, but I like to keep the relationships going,” says Cooper. When the time is right to issue again “the investors know us so we don’t have to start again explaining what we do”.
Until a few years ago, the cost of a housing development for Affinity Sutton was made up of 50% government grant, the remainder coming from long-dated bank funding. As part of the government’s ‘austerity measures’, grants for housing association developments have been slashed. This effectively pushed up the cost of development and the rents had to rise to partially fill the gap as providers were forced to exchange a capital subsidy model for a revenue subsidy model. Rent revenue is derived throughout the life of the asset not in one payment so the gap still has to be funded. “We want to grow our business and the way we have managed that is by developing more build-for-sale properties, giving us a cross-subsidy for the social housing,” explains Cooper. Debt now accounts for 59% of funding, with government grants providing 28%, but around 13% come from the sale of housing stock and built-for-sale properties, the latter often constructed in partnership with a commercial building firm and going straight onto the open market.
The group’s surplus from built-for-sale subsidises its social housing function. Indeed, in his foreword for the 2012/2013 Annual Statement, Group Chairman and CEO, Neil Goulden, wrote that “every penny of this surplus is directly applied to investment in new and our existing homes, and for the benefit of our communities”. The current focus of built-for-sale is on the super-heated London market. As part of his finance role, Cooper sits on the board of one of the group’s current ‘built-for-sale’ joint ventures. “This really gets me close to the business so I can see where the money is going,” he comments. But the team is aware that this market may slow down at any time and has been “de-risking” by selling some properties off-plan (eg before they are built). The number is limited, in case the market fails to cool.
Increased commercial activity means risk assessment of each new housing scheme involves “a lot of modelling and scenario-testing” by Cooper’s team as the group tries to understand the impact of market changes on requirements. A negative report can see a project delayed or even cancelled and so has to be executed with precision. This places a lot of responsibility at the feet of finance and treasury.
When the heat is on, the professional treasury team can really come into its own and the rapid turn of events at the start of the financial crisis “thrust treasurers into the limelight”, notes Cooper. The biggest impact for many was the sudden pressure on cost and availability of traditional sources of funding. “As treasurers we had to deal with that, demonstrating that we have the knowledge and the expertise to be able to add value to the business.”
A deeper consideration of risk management, both internally and externally, has been much in evidence too. Some of Affinity Sutton’s suppliers – particularly the builders – have been less well-placed to stave off the recession. This has meant rigid adherence to treasury’s due diligence programme – one which it had in place “even before the financial world started to fall apart”. Although it often uses performance bonds (guarantees against failure to meet obligations) as a risk mitigation tool, every new relationship established requires the corporate finance team to investigate and report to a sub-committee of the board to get approval for that deal.
It has never been lost on Affinity Sutton that banks could also be a source of counterparty risk. At the lowest point of the crisis it moved some of its cash into short-term gilts, purely for safety’s sake, and even drew down on some of its facilities. As Cooper comments, “you never want to be in a position where you can’t get your hands on the funds”. Although now working with the main UK banks, his team remains aware of the risk, monitoring bank ratings, CDS spreads and market activities. “Generally, treasury is in a good position not just to provide the data but also to offer strong analytical skills. In fact, I think treasurers in general have done a good job promoting their skills.”
With funding and risk management now central to the strategy of many firms Cooper feels there is a lot more focus on giving treasury a voice in the boardroom. He attributes a part of ‘the rise of the treasurer’ to the progressive “professionalisation” of the role. As a member of the Association of Corporate Treasurers in the UK, he firmly believes in the value of professional study and always encourages members of his teams who have not yet done so to take the exams. They’re not only “very relevant to the job”, but also lend a certain gravitas to the work of the treasurer. “It gives you a piece of paper that shows you know what you are doing and are serious about it.”
The need for skilled treasury personnel holds true at all levels. Seniority can distance some people from the operational work but Cooper is not averse to rolling up his sleeves and digging in when required. However, he does feel that it is important to give junior employees the opportunity to shine. “As long as you give people guidance and support it’s good to see what they can do. You can’t do it all yourself because others will not learn and develop; it’s a balancing act that depends on the different skills and experience within the team.”
One way to enable treasury and finance staff to focus on adding value for the rest of the business rather than just processing work is through technology. On the treasury side, Excel is still a common currency, admits Cooper. “It works, but we spend a lot of time gathering data from various systems and putting it into reports. There is a balance to be found between having controls in place and driving efficiency, but if we can get a system that can automate most of the basic functions it will allow us to spend more time analysing and understanding data, rather than just producing it.”
Given the increased responsibility of Cooper’s team, it comes as no surprise that it is part of a group-wide effort to design, scope and plan the roll-out of an ERP system. The go-live date is yet to be confirmed but Cooper, who sits on the project team, is hoping for as much integration of treasury and finance with asset management and other core functionality as possible. This will, he believes, improve data extraction and put in place better controls across the whole business.
With so many fundamental changes in such a short timeframe, major investor focus is now on how the group manages the social and commercial strands of the business. Commercial development has typically been managed through 50/50 joint ventures with other builders. It works because it spreads the risk and shares the knowledge base. But having quickly accumulated an understanding of the commercial sector, Affinity Sutton has created an in-house development team that functions alongside Cooper’s treasury and finance specialists. This puts solo build-for-sale projects firmly on the agenda. Cooper is adamant that the group has not forgotten its roots; it has put in place a “Golden Rule” preventing sales exceeding 30% of overall turnover, a move which simultaneously safeguards the business against overexposure to the vagaries of the housing market.
As that market continues to evolve, so treasury has responded. In doing so it is demonstrating the knowledge and expertise of the team. The fact that Cooper has guided the operation successfully into the strong positon it holds today is indicative of the value of his broad-based approach to the role. Whilst the snooker pro-circuit is yet to come knocking – “and probably never will” – he has exploited a broadly similar skillset to build a career of note. In doing so, he has hopefully gone a long way towards setting up Affinity Sutton for the next 100 years of serving the community; surely the treasury equivalent of a maximum break.