“A property developer with a conscience”
Profile: Ashley House – 22nd May 2017
By Gary Mead – SSX Editor and Partner with Orwell
Ashley House SSX Profile
Ashley House is a property developer. In case the phrase ‘property developer’ sends you scurrying for your shotgun – think again. Ashley House is a property developer with a conscience; a conscience that it puts into practice in its business. Last year it won the ‘Social Impact Company of the Year’ award at the Small Cap awards. It was a founder member of the Social Stock Exchange in 2013, and it has a clear statement of its beneficial mission: “to develop the most cost-effective health and community care property solutions, through enduring partnerships and proven expertise.”
To put some flesh on the bones of this I spoke to Tony Walters, Ashley House’s CEO. I started off by asking how the company made a remarkable financial turnaround, turning an £11 million pound loss in 2015 to a small profit in 2016. “The nature of our business is lumpy. We are reliant on schemes closing and deals being done so that we can recognise income,” said Walters. “We have expanded our offering into developing affordable housing, particularly for the elderly which is funded through government housing benefit. But there was a challenge for us with the Chancellor George Osborne’s Comprehensive Spending Review of 2015, where he capped the housing benefit allowance. What the change didn’t consider was people living in specially developed housing with communal areas. For example, our purpose built elderly care development in Grimsby, of 60 apartments in one building, has communal living areas, communal kitchens, with the ability that care can be delivered directly to people’s own flats or the communal spaces. The cap on housing benefit doesn’t work in that scenario. The government recognised that after the event, and agreed it will solve this problem by top-up grant payments. But almost two years on it’s not clear exactly how this will work. There’s no question it will be sorted out – the question is how and when. It is the case that this policy change has caused a slowdown in these developments. We have a pipeline of about £170 million, particularly of those sorts of schemes like Grimsby, but the councils and registered providers (housing associations) that we partner with for those schemes find it difficult to say yes, because at the moment the way the legislation sits, it doesn’t work. The rental streams they would receive from it are not enough to justify the cost of the building. That’s meant that we have had to slow down on these developments, which in turn meant income dropped.”
One of the weaknesses of Ashley House is arguably that it has, in the past, been too reliant on government funding of projects. Which is a terrible irony because, as Walters says, “what we do in the social spectrum is absolutely what the government wants to see done, first in terms of housing provision for people with care needs, we are providing much better value and improved health outcomes than the alternative of state-run nursing homes, and second the health buildings that we deliver can make the NHS more efficient. These things tick the right boxes for government. The problem is that – because we have been totally reliant on government for our income streams – we are susceptible to governments saying, ‘actually we’ll just change this policy.”
A similar challenge occurred in 2010, when funding for local health care such as GP’s practices was suddenly whipped away by government – which also hit Ashley House’s bottom line at that time. The schemes don’t get abandoned; nobody is saying they don’t want them; they just get delayed but that challenges the business in terms of profit and cash generation.
All of which means that Ashley House, which has been around for 25 years, has had to re-think its development philosophy and move into those areas of social need that are less dependent on the whims of government policy. “We have expanded our portfolio of the type of products we are producing. Our new modular business is exactly part of that strategy, to enable us to get into areas that aren’t reliant on government in addition to improving the quality and timing of our government funded schemes. So we have diversified the business. We’re working on schools and community buildings, and the modular business has enabled us to do that.”
Earlier this year Ashley House increased its ownership of F1 Modular Limited to 76%. F1 Modular was set up to design and deliver projects using off-site construction. For more than a year now it has enabled Ashley House to win and deliver schemes. F1 Modular is entering a new lease on an 80,000 square foot factory, covering eight acres, in Newtown, Powys, mid-Wales. Walters again: “Modular housing, that’s built in a factory under factory conditions, and delivered to site, fits well for social housing. It’s quicker and the quality is far better than on-site. We work in the factory to 2mm tolerances with our modular buildings; I don’t think anybody would be able to do that in a muddy field. This also helps tackle fuel poverty. The efficiency of these buildings is far superior to ones that are breeze-block on-site. We’re able to provide housing for the people in most need and, in a typical example of our modular two-up two-down housing, the house can be heated for just over £100 a year, because the quality and insulation is so good.” The modular construction strategy is also enabling Ashley House to venture into other fields such as fire stations, classrooms for schools, kiosks – even houseboats. It’s a way of flattening out the ‘lumpiness’ of the company’s income stream and – critically – it makes it less dependent on the quirks of government policy.
Walters points out that venturing into modular production also provides an extra incentive for local authorities to consider using Ashley House as a developer: “One of the interesting thing with the modular business is we are saying to local councils, ‘you have this need, we can build houses. If you give us enough of a pipeline for houses – say 400 a year – we would put up an assembly plant in your area. Therefore we could employ local people to build your houses.’ Where this has been mooted we have got some really positive reaction.”
As a finale I talked to Tony Walters about Ashley House’s membership of the Social Stock Exchange. “We got involved with it right in the early stages,” he says. “We’re doing developments for the most vulnerable in society, and that’s important to us, for a number of reasons, not just for our socially minded investors. We’re listed on the Social Stock Exchange because it also works for us with clients. If we are talking to councils, and they see us as a nasty, stock market-listed corporate entity, trying to work in partnership with them, you get resistance. Actually to say ‘we’re not a nasty corporate, we are a proud founder member of the Social Stock Exchange, we measure and manage our impact on society’; that really helps. We see that as a real positive. And don’t forget our employees – they love the fact that we are reporting the social outcomes of our developments and making sure that everything we do has a positive social impact.”