32 | The Business Plan 2014 to 2018 | Wales & West Housing Wales & West Housing | The Business Plan 2014 to 2018 | 33 Financial position Our strong ďŹ nancial position is enabling us to borrow substantial sums of money to ďŹ nance growth of our housing stock, making a diďŹ€erence to peoplesâ€™ lives and providing economic stimulus in their communities. Our eďŹƒcient operations and low cost of ďŹ nance is also contributing to healthy annual surpluses and cash ďŹ‚ows which are reÂinvested into the business. We expect to achieve year on year increases in surpluses even after absorbing the bad debts and additional costs of helping residents to pay what will arise from changes to welfare beneďŹ ts. Over the ďŹ ve year period to 2018 we will reÂinvest ÂŁ36 million in our current housing stock, keeping them compliant with the Welsh Housing Quality Standard which has already been achieved. This not only includes new kitchens, bathrooms and other replacement assets, but also additional services such as free WiFi for many residents where communal installations are feasible. All of this together with existing contractual loan repayments due will be paid for from our income and by careful management of expenditure. We will be investing ÂŁ139 million over the next ďŹ ve years, building and acquiring more than 1,000 homes, of which around 200 will be under the Housing Finance Grant scheme where the equivalent of Social Housing Grant is received in instalments over 30 years. This means that we will be borrowing a greater amount upÂfront compared with more traditional grant funded schemes. Whilst grants are conďŹ rmed for most schemes in the ďŹ rst two years of the plan, the Governmentâ€™s ability to award grants beyond 2016 is less certain. We will develop using grant whenever available as that will maximise the delivery of aďŹ€ordable rental homes and make the greatest diďŹ€erence to peoplesâ€™ lives and communities. Where grant is not available we will still develop homes and charge rents at a higher level than social rents so that schemes are viable and at least 1,000 units can be delivered over the period of ďŹ ve years. From a planning perspective we have assumed we will receive ÂŁ46m in grant receipts, and will be raising ÂŁ60m of new loans, in addition to existing facilities as at July 2013 and a further ÂŁ25m expected to be raised in the second half of 2013 under the â€œWelsh Bondâ€? arrangements linked with the Housing Finance Grant scheme. We expect at least 750 of the badly needed homes to be at social housing rents with the remainder being at intermediate or market rent levels. We also intend to build a further 90 homes for market sale through our Castell Homes subsidiary, further stimulating the economy and delivering proďŹ t which will be reinvested in providing additional homes for rent. The generation of surpluses enables us to build up our reserves though our gearing ratio of borrowings to net worth will still rise from 37% at the end of 2012 to 48% by 2018 due to developments either without grants or with deferred grant receipts. At this level we will remain within the lowest gearing covenant constraint of 50% imposed by two of our lenders and comfortably meet lender interest cover requirements. Whilst there is still much uncertainty around the implementation and eďŹ€ect of Welfare Reform on debt management, our plan prudently allows for a higher level of working capital and additional resources to work with residents. 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