The housing
world is
changing
Contents
04
About us
10
Investing for a smarter future
12
A committed business
20
An agile business
16
A digital business
22
The outcomes
24
Our financial performance highlights
27
Risk management
Plan delivery
26
2015 was a watershed year
for housing in the UK. The
Government introduced
far-reaching changes
to national policy,
aimed at increasing
homeownership and
reducing the welfare bill.
These shifts in policy led
to fundamental changes
in the housing sector,
with major implications
on us, including a
significant reduction in
our future rental income
and a stronger focus on
the provision of affordable
homeownership products,
rather than on new
homes to rent.
Our robust response to these changes means that we will
continue to be a financially viable and effective business,
setting us up for a successful future.
In summary we are:
Implementing measures in the three years from 2016/17 to
2018/19 that will reduce our operating costs, improve value
for money and maintain our EBITDA MRI in excess of 120%
Reducing and reshaping our development programmes with
more emphasis on shared ownership and housing for open
market sale
Absorbing around a third of the rent reduction impact in
lower levels of surplus.
We’re likely to see further changes to our sector over the life of
this business plan, so we will remain adaptable and open to
opportunities. Our strong and experienced Board and executive
leadership teams have a track record of successfully managing
change and there is a depth of expertise throughout our staff
team that prepares us well for the future.
Click here to
see our Senior
Management
Team
Click here
for profiles
of our Board
Members
03
Local Authority Area
General
needs rented
Supported
housing
(excl sheltered)
Sheltered
Home
Ownership
Total
Bristol
1,477
450
51
280
2,258
Bath and North East Somerset
644
113
48
84
889
South Gloucestershire
1,049
115
57
94
1,315
North Somerset
951
138
132
286
1,507
West of England sub total
4,121
816
288
744
5,969
Mendip
766
135
0
129
1,030
Sedgemoor
702
175
0
77
954
Taunton Deane
938
194
27
158
1,317
South Somerset
551
170
0
69
790
West Somerset
110
93
0
8
211
Somerset sub total
3,067
767
27
441
4,302
Sub total
7,188
1,583
315
1,185
10,271
Other areas
736
85
16
304
1,141
Overall total
7,919
1,668
331
1,489
11,412
West of England
Somerset
About us
Knightstone is a leading provider of
affordable homes for rent and sale and
related support services in the West of
England and Somerset. We’ve been a key
player in the region for over forty years.
We’re committed to building strong, stable
and safe communities where people can
make their homes. We provide services to
over 23,000 people in 11,400 homes and
have an active development programme
which helps us play our part in solving
the UK’s housing crisis.
04
Our purpose
Rented
properties by
bedroom size
To create better futures together.
Rented
properties
by type
Our vision
To be the leading investor in homes,
people and their communities in the West
of England and Somerset, delivering great
customer service.
814 managed
by others inc
55%
65%
Two and three bedrooms
Bedsit and one
bedroom
Houses/bungalows
Flats
7%
38%
Four or more
bedrooms
32%
3%
Bedsits/single rooms
in supported housing
05
Knightstone
Housing
Group Limited
Registered Society no. 29867R
Registered Provider reg. no. L4436
Non Charitable
Group-wide
Committees
Audit and Assurance
Finance and Scrutiny
Remuneration and Nominations
Knightstone
Housing Group
structure and
governance
arrangements
Knightstone
Housing
Association Limited
Registered Society no. 29867R
Registered Provider reg. no. L4436
Charitable
Great Western
Assured
Growth Limited
Knightstone
Charitable
Housing Limited
Private Company
Limited by Shares
Registered Society
Company No. 02525892
Non charitable and
non Registered Provider
06
No. 19165R
Exempt Charity
Non Registered Provider
Knightstone
Capital Plc
Arc Developments
South West
Limited
Arc Homes
(South West)
Limited
Public Company
Limited by Shares
Private Company
Limited by Guarantee
Private Company
Limited by Shares
Company No. 08691017
Company No. 05716836
Company No. 06447504
Non Charitable
and non Registered
Provider
Non Charitable
and non Registered
Provider
Non Charitable and non
Registered Provider
(DORMANT)
07
Customer profile
Age
22.8%
Under 35
49.5%
12.8%
Not known
14.9%
74.9%
White
British
Ethnic
16.5%
origin
8.6%
Not known
Black or other
minority
ethnic origin
35-64
65 and
over
Tenants
who receive
housing benefit
Not known
40.8%
19.4%
No housing
benefit
1.5%
Full housing
benefit
60.3%
08
Partial
housing
benefit
38.3%
Household
composition
13.3%
28.9%
10.9%
Two or more adults
19.3%
Men
One adult
One adult
with child/ren
Women
39.7%
27.6%
Two or more
adults with
child/ren
Mobile
phone
Gender
Not known
Digitally 34.8%
connected
Email
address
65.3%
09
Investing
for a smarter
future
The Knightstone
of 2021
We have big plans to
transform the way we
work and engage with
our customers during the
course of this Business
Plan. To be true leaders
in the sector and a
leading business in the
West of England and
Somerset, we will ensure
we remain both relevant
and contemporary, better
connected with our staff
and customers.
10
Knightstone will be:
A committed business
An agile business
A digital business
These are the three key priorities we’ll
focusing on during the next five years.
be
They translate into strategic programmes
within our annual corporate plans,
supported by individual project plans.
People move with technology far faster than a business can.
But we will endeavour to keep pace to enable us to build
the strong relationships we need with our customers, our
stakeholders and our staff. We will be a leaner, more effective
business, delivering value for money services without waste.
Our staff will truly live our values of empathy, professionalism,
integrity and commitment. These values are what make us
who we are and are fundamental to the way we work. We’ll
be an organisation the right people want to work for and an
organisation the right people want to do business with.
Whilst doing all this, we will remain true to our roots of being
a great landlord and provider of housing. We’ll have built over
1500 new homes for rent and sale to help solve the housing
crisis and will have invested over £60 million in improving
our existing homes as well as investing in our communities
to make them strong, safe and stable places to live.
11
Committed
A committed
business
Investing in homes
and communities for
the long term
We will:
Develop over 1500 new homes between 2015 and 2021
through our development programmes for Knightstone,
Arc Homes and our KeyWest development partnership
Replace homes sold under the Right to Buy
our roots
are in providing
affordable homes
for people who
need them.
12
Redevelop over 500 supported housing properties
acquired through a stock swap in 2013/14, subject to
clarification of the impact of rent reduction and welfare
reform on the viability of the portfolio
Invest £60 million in our existing homes through
the delivery of our asset management and planned
maintenance programmes
Deliver a targeted programme of empowerment
activities to support at least 40 communities through
our Achieving What Matters plans, enabling an
estimated 3,750 self-reliant and connected people
to take action together
Actively manage our property assets, reviewing their
social and economic performance with a view to selling
30 underperforming properties per year. This will
generate an estimated £20 million over the next five
years which we’ll invest in new homes and regeneration.
Our roots are in providing
affordable homes for people
who need them. We are
determined to help end
the housing crisis, so, as
a leading housing provider
in the West of England and
Somerset, we’re committed
to delivering over 1500 new
homes between 2015 and
2021. We’ll develop these
new homes through our
development programmes
for Knightstone, Arc
Homes and our KeyWest
development partnership,
which includes
Alliance Homes,
United Communities
and SHAL Housing.
13
Committed
Development Programme 2015/16 - 2020/21, including Arc Homes
Local Authority Area
General
Needs
Supported
Housing
Home Ownership
Total
Outright
Sale
Overall
Total
For KHA
For KHA
For KHA
For others For KHA For others Arc Homes
Bristol
117
0
88
0
205
0
0
205
BANES
11
0
9
0
20
0
0
20
North Somerset
70
0
15
0
85
0
0
85
South Gloucs
81
8
62
0
151
0
51
202
West of England sub total
279
8
174
0
461
0
51
512
West of England
Somerset
Mendip
5
0
29
0
34
0
0
34
Sedegmoor
116
0
4
15
120
15
0
135
South Somerset
4
0
2
0
6
0
12
18
Taunton Deane
81
68
52
90
201
90
52
343
West Somerset
8
0
4
0
12
0
0
12
Somerset sub total
214
68
91
105
373
105
64
542
Unidentified
0
0
25
0
25
0
0
25
Total 2015/16 - 2017/18
493
76
290
105
859
105
115
1079
2018/19 - 2020/21
150
0
150
0
300
0
150
450
76
440
105
1159
105
265
1529
Overall total 2015/16 - 2020/21 543
We support the Government’s aim to
increase the supply of new housing
and the concept of helping people
create better futures for themselves.
These goals chime with our social
purpose. While we will continue to
provide secure, affordable rented
accommodation, we have re-shaped
our development programme and
increased the proportion of shared
ownership homes.
We’d previously planned that 85% of our new homes
would be for affordable rent and 15% for shared ownership.
We’ll now be building 43% shared ownership and this will
increase to 50% by 2018/19.
14
We’ll build the majority of these homes
as part of the Homes and Communities
Agency’s 2015/18 development
programme. From April 2018, Knightstone
will deliver a minimum development
programme of 100 new homes per year
(50 for rent and 50 for shared ownership).
Arc Homes will deliver 115 new homes by
2017/18 and 50 per year thereafter.
The profit from Arc Homes’ commercial
activity will provide an essential
contribution to subsidising the
development of affordable homes for
rent and shared ownership. In 2016/17,
for example, we expect Arc Homes to
contribute 13% of our Group turnover and
10% of our net profit.
We’ll replace every home sold under the
Right to Buy with another, although not
necessarily with one of the same tenure
or in the same location. Our sales and
replacement programme will be informed
by the findings of national pilots.
Investing in our existing
homes and communities
is an important priority,
for our residents and for
the long term health of
our property assets.
We’ll complete our 2014/19 Asset
Management Strategy and develop our
2019/24 investment strategy. In doing
so, we’ll be investing £60 million in our
existing homes between 2016 and 2021.
Due to the rent reductions, we’ve scaled
back and reprioritised our investment
plans. We’ll continue to deliver more
than the basic decent homes standard.
In addition, we’ll invest any extra
available resources in health and safety
improvements, such as installing hard
wired smoke and CO2 detectors. By
prioritising these features we won’t be able
to make some of the improvements that
residents have requested, such as energy
efficiency measures and showers. We’ll
reinstate those programmes later, if we
can afford to.
In 2016, we’ll re-profile our
properties to reflect the
impact of rent reduction and
other changes to property
performance.
Each year between 2016 and 2021 we’ll sell
30 properties that are no longer socially or
economically viable, unless there’s a compelling
reason to keep them. We expect to achieve gross
proceeds of £20 million, which we’ll use to build
new homes or regenerate existing ones.
Our investment in our properties
is for the long term, so we make
sure that the communities we
create are places people want to
live and remain.
We’ll achieve this by helping residents in
new communities to establish themselves
and by working with residents in higher risk
communities to address issues and make
improvements. We’ll deliver a targeted
programme of activity of this kind throughout
the life of this plan.
In 2013/14, as part of a wider stock swap, we
acquired 507 properties in the West of England
and Somerset that provide accommodation
for people with learning difficulties. These
homes had suffered from under investment
for many years. So, subject to clarity on the
financial impact of rent reduction and other
welfare policy changes, we’ll carry out a
major programme of remodelling, repairs,
redevelopment and new development to
upgrade the portfolio. We’ll fund this in part
by selling over 100 of the properties. The
programme will take eight years to complete.
15
Agile
An agile
business
Adapting to an
ever-changing
world
We will:
Proactively manage the risks associated with changing
national policies, and the impacts they’ll have on our
customers and our business. For example, Right to Buy,
Pay to Stay, rent reductions and welfare reforms
Critically evaluate the services we deliver and the way
we work to drive value for money and efficiency savings
throughout the business
Develop our approach to partnership-working and
actively explore opportunities to expand our services and
introduce new products that have potential to help us
deliver our purpose more efficiently and effectively
Transform our culture to become more agile,
experimental and flexible, really living by our one
team, one purpose ethos and enabling staff to feel more
empowered and to take greater personal ownership
Improve how we communicate internally with each
other and externally with residents and partners,
better promoting what we do to key stakeholders
and opinion shapers.
16
The world in which we operate is
constantly changing. Our business must
be agile. We will adapt to remain relevant
and contemporary and to thrive in this
challenging environment. The need to
cut our costs gives us the opportunity to
seek better, more efficient ways of doing
things and to deliver better value to our
customers.
We will proactively manage
the risks associated with
changing national policies,
and the impacts they’ll have
on our business.
We’ll deliver our rent reduction plans,
in line with the targets in our Internal
Financial Framework. These plans are
designed to deliver a £5 million a year
improvement in our operating costs.
We’ll continue to review the savings
required and will reflect these in future
iterations of our Long Term Financial Plan.
The world in
which we operate
is constantly
changing.
our business
must be agile.
17
Agile
We’ll review who we house, in line with
the changing environment in which we
work. For example, we’ll continually
monitor our ability to deliver supported
housing services, based on whatever
rent and welfare benefit restrictions
the Government introduces for these
customers. Delivering services to
these residents is an important part of
delivering our social purpose and we will
continue doing so in ways we can afford.
We will monitor the continued viability of
these services and our capacity to sustain
them in the medium and longer term.
Going the extra mile is
embedded in our culture,
often taking us beyond
the strict scope of our
tenancy agreements
and regulatory
requirements.
Delivering
services
to these residents
is an important
part of delivering
our social
purpose.
18
This can be costly, so we’ll develop a
more rigorous definition of what we do
and don’t do, critically re-evaluating
our products, services and our service
standards. We’ll also assess the social
impact of our services. Reviewing our
work in this way will provide clarity
on the relative costs and benefits of
the services we offer. This will enable
us to make informed decisions on the
future scope and shape of our services,
delivering what matters most for our
customers more efficiently.
We’ll review how we work to ensure we are efficient and
have the skills and expertise we need to thrive in the new
housing era. Our ongoing programme of systems thinking
service reviews will be crucial to this, as will our 2016/17
organisation and management review. This review will see
us better align our organisation and management structures
with our objectives, facilitating a more collaborative style of
working. We will reduce the number of managers we have and
the layers of management between the customer and senior
decision-makers. The review will also lead to changes in our
management style and organisational culture.
By introducing new ways of working
internally and with other organisations,
we can reduce costs and improve
services. So, we’ll develop our approach
to partnerships and will actively explore
opportunities that have serious potential
to help us deliver our purpose more
efficiently and effectively. This will
include exploring the benefits and risks
of expanding our in-house maintenance
service in advance of re-procuring our
maintenance contracts in 2018/19.
19
Digital
A digital
business
Transforming the
way we work
We will:
Transform our culture and services for digital delivery,
enabling residents, customers and staff to be
better connected
Implement strategies to encourage residents to embrace
our digital services and to do more for themselves at any
time and from any device
Collect and use customer and property data intelligently
to help us plan, design and personalise services.
We have ambitious plans to modernise our service. This
transformational programme has twin aims: improving our
customers’ experience and reducing the costs of delivering our
core services.
Our operating environment will be increasingly challenging.
So, to carry on delivering additional support to individuals and
communities, we need to cut the costs of delivering our core
landlord services. At the same time, we want our customers to
get a better service, to be able to carry out the majority of their
transactions and get answers to most of their enquiries online,
at any time of day and from any device.
Delivering our digital vision will require a wholesale
transformation of our business and our culture. The work needed
is substantial. Staff will need to think differently, bringing digital
delivery and data management to the forefront of their minds.
20
We’ll redesign our processes for seamless,
end-to-end digital delivery, fully
integrating the front and back ends of our
systems. We will develop a data strategy
that will encourage better ownership, use
and pro-active management of data across
the organisation.
Our customers will benefit from a service
designed with them at the heart of it.
We’ll offer choice in a way we’ve not been
able to before. Our digital services will be
designed mobile-first in response to trends
in customer behaviour. By transforming
our service delivery model, we’ll be able
to reallocate resources to support those
customers who may not be able to access
services digitally and to handle more
complex enquiries that will always need
a conversation.
Our staff will also benefit
with easier access to data,
systems and functions from
any location.
Our aim will be to give them a more
complete view of every customer and
tenancy at the touch of a button. Delivering
integrated data and systems will reduce
costs at the same time as improving
customer service.
our
customers
will benefit from
a service designed
with them at the
heart of it.
21
Delivering
what matters
most for customers
and reducing our
operating costs
by £5 million
a year.
The
outcomes
we’ll deliver
By delivering all of this, by 2021,
We will have:
Helped to solve the housing crisis by building over
1500 new homes for rent, shared ownership and sale
and replacing homes sold under the Right To Buy with
new properties
Improved the efficiency and value for money of our
services, delivering what matters most for customers
and reducing our operating costs by £5 million a year
Invested in our existing homes and communities
to protect our property portfolio and make sure our
communities remain places where people want to live
and make their homes
Transformed our business by redesigning our services
for digital end-to-end delivery, ensuring that our culture,
systems, processes and approach enable us to thrive in a
new housing era
Evidenced that we continue to be a financially viable
and resilient business that has successfully absorbed
the impact of government policy changes and is fully
compliant with our Internal Financial Framework.
22
23
Our financial
performance
Our highlights:
A fully covenant compliant long term financial plan,
after we’ve mitigated the rent reductions
A strong balance sheet with relatively low gearing
A well-secured loan and derivative portfolio with good
levels of headroom to protect against changes in house
prices and long term interest rates
A substantial pool of unencumbered properties to
secure future borrowings of approximately £176 million
Healthy liquidity levels of £40 million at the end of
March 2016, plus £49 million receivable in November
2017 via a deferred bond. This is sufficient to cover our
borrowing requirements for at least the next 18 months
Our long term financial plan
demonstrates that, by delivering our
rent reduction plans, we will remain a
financially strong organisation. We will
be fully covenant compliant, and deliver
a strong surplus position, with significant
headroom above lender covenants.
In particular, our performance against our gearing covenant shows
balance sheet and asset strength, especially when combined with
the significant numbers of unencumbered properties we own and
the availability of our £49 million deferred bond proceeds in 2017.
Another of our financial strengths is that 97% of our charged loan
security is valued on a Market Value Subject To Tenancies (MVSTT)
basis. At the time of writing, the value of property being used to
secure our existing loans is £459 million and the headroom above
our lender asset cover requirements is £134 million. We have over
2,000 unencumbered properties, (2000 rented and 675 shared
ownership) which are suitable for charging. We estimate these
will support additional borrowings of approximately £176 million.
We will recalibrate our
financial plan on a regular
basis to reflect both
positive and negative
changes in our financial
position and in the
external environment.
In March 2016 the HCA awarded us its
highest rating for financial viability, V1.
Our October 2015 Financial Forecast Return to the Homes and
Communities Agency (HCA) was subject to detailed scrutiny.
The Brixx model on which our long term forecast is built was
externally verified by Altair and the forecast was independently
stress tested by our treasury advisers, TradeRisks, using a variety
of agreed scenarios.
Although the impact of rent
reductions is significant, our
mitigating action means it
does not materially impair
our financial position and
we’ll continue to exceed all
lenders’ covenants.
Long standing relationships with the main housing
sector lenders
A strong track record of delivering promised
efficiency savings
A south west heartland location in an attractive and
economically active part of the UK.
24
25
Risk
management
We have a medium appetite for risk. This sets the context
for our business and financial planning decisions, where the
aim is to balance acceptable levels of headroom above our
lender covenants with the resources we allocate to delivering
services. With the exception of our modest commercial
development programme, our diversified activity is minimal.
We have robust systems to identify
and manage risk at both a strategic and
operational level. Our Board carries out a
full review of the corporate Risk Register
twice a year, with interim reviews by the
Audit and Assurance Committee and our
Senior Management Team.
We have mitigation plans for the most serious strategic
risks and control measures for all identified risks. Our
auditors, Mazars, independently test the effectiveness of
our control measures, through a programme of business
assurance reviews. Mazars also provide advice and challenge
to our Senior Management Team and Audit and Assurance
Committee on the adequacy and completeness of our risk
management process.
We’ve based our Internal Financial Framework on prudent
assumptions and we measure and report performance against
it on a monthly basis. Our preferred measure for assessing
financial risk is EBITDA MRI interest cover, as this is our
tightest covenant. The measure includes first tranche shared
ownership sales but not open market sales.
26
Our Internal Financial
Framework has a
minimum EBITDA MRI
requirement on this
basis of 120% with an
aspiration of 130%.
The assumptions underpinning our long
term financial plan are in line with the
market. The plan has been independently
tested to breaking point by Trade Risks
under a series of single and multiple
scenarios. The scenarios were designed
to show what combinations of extreme
circumstances will result in covenant
breaches and when those breaches
will first arise. The results of the stress
testing scenarios show that our main
vulnerabilities come from a scenario of
high costs and a scenario of high interest,
low inflation.
The stress testing results assume that
the Board doesn’t take mitigating action.
In reality, if these scenarios looked likely
to happen, we would deploy a range of
identified mitigating actions to manage
the impact.
Plan
delivery and
monitoring
Our strategic Business Plan
programmes are broken
down into annual corporate
and project plans. The
Senior Management Team
and Board monitor delivery
of the programmes on a
quarterly basis and adjust
priorities if necessary.
The principal risks to delivery of the
Business Plan are the impact of any
future changes in government policy
or significant adverse changes to the
economic environment. These and other
emerging risks will be closely monitored by
the Board and Senior Management Team.
The Business Plan is underpinned by
supporting strategies: Treasury, Value for
Money, IT, HR and Communications,
approved by the Board.
27