Councillors look for re-assurance after East Cambs Council’s trading arm posts £500,000 loss
- Credit: Archant
The trading arm of East Cambridgeshire District Council made a loss of £500,000 last year – with the coronavirus pandemic being partly blamed for a slowdown in the housing market in the early part of the year.
The report of the East Cambs Trading Company (ECTC) was debated by the council’s finance and assets committee.
Director Emma Grima said that “the auditors have pointed out that these are unprecedented times for everybody.
“There is still large uncertainty over the economy as a whole and at this stage nobody can predict the full effects with any certainty”.
She said forecasts produced by ECTC show that given the added time to complete the projects now agreed, it would enable the business to become profitable and repay loans when they fall due. Nigel Ankers, finance manager of Palace Green Homes – one of the companies within the trading arm – agreed these are “unprecedented times with uncertainty over the economy as a whole”.
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He said: “No one can predict what can happen and may have implications for forecasts.”
Mr Ankers said it was still valid to produce accounts on a going concern basis given the added time to complete projects that will be become profitable in the future “and repay all the loans when they become due”.
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He said the accounts “unfortunately” show a loss of £513,000 when a profit had been forecast in the original business plan.
That had shown a profit based on expected revenues of £10.4m for Palace Green Homes to include the receipt for a project at Kennett and the sale of 24 homes.
“Unfortunately, the Kennett receipt didn’t happen and only five homes were sold were sold; that reduction we planned.”
Cllr Charlotte Cane said the year-end accounts showed trade creditors totalling £742,000 – twice the amount of the cash the company had in hand.
“How do the directors feel this matches with statement that the policy to ensure adequate liquidity? What is the net position now,” she said?
Cllr Cane queried insolvency rules and expressed “surprise at quite how large the impact has been on these impacts of Covid-19 on these accounts and would like to explained it more fully”.
She said lockdown began on March 23 and the accounts were to the end of March – she queried why the situation changed to dramatically in just eight days.
Mr Ankers explained that the company had sufficient loans facility (£5m) and had only drawn down £2.92m to date “more than enough capacity to pay those liabilities as they fall due”.
He also added that margins on new build homes at Barton Road, Ely, and those in Soham completed in 2018/19 were a lot higher than the company was seeing now. He quoted the lower margins on two of the former MoD homes in Ely as an example.
He said: “We have plans in place and shown the auditors how loans will be repaid.”
He added that the housing market slowed January to March 2020 because of factors other than Covid
Cllr Josh Schumann said the forecast shows more time for projects to complete and to allow the business to become profitable and repay the loans.
“We have re-modelled the business plan to reflect fewer number of houses they expect to sell,” he said.
Ms Grima said the assumptions based on income going forward looked positive.
Phil Rose, managing director of Palace Green Homes, said: “We have taken a deliberately cautious approach and consideration of key challenges likely to affect business this year and next.”
The business plan, revised from February, expects wider uncertainty and “the negative impact on our local housing market later this year and into next.”
He expected slower sales but if demand changes the company could” respond positively” to build more homes quickly.
Cllr Simon Harries said opposition councillors raised issues as “critical friends” and it should be seen as “coaching not criticism”.
He also wanted details of the contractual arrangements for the MoD site in Ely.
“We have to take your collective word we are obliged to approve certain actions because of the contract,” he said.
Mr Rose said sales faced delay in conveyancing and mortgages and building societies were “swamped” which meant delays and lenders were “tightening up”. He added: “There is a risk and we are seeing that.”