Sovereign Housing Association Limited
Sovereign Counts
Value for money self assessment
2013/2014
Sovereign Counts
Index
Pages
1.
Executive summary1
2.
Our strategy3
3.
Our approach to value for money4
4.
Understanding our performance7
5.
Financial strength8
6. Our savings plan11
7.
Shaping communities, changing lives13
8.
Providing a great service15
9.
An efficient business18
10.
Building the homes we need19
11.
Using our assets wisely21
12.
Mitigating our environmental impact23
13.
Future focus24
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1.Executive Summary
Sovereign is a strong and effective organisation, where talented people work together to make a
real difference to people’s lives. We combine our social ethos with a forward-thinking commercial
approach which allows us to grow sustainably and provide quality homes and services for people in
housing need.
This drive to think commercially and act socially led to our value for money strategy in 2011,
challenging the business to understand its costs and make every pound work harder. We aim
to maximise our capacity and better utilise our assets to meet the needs of existing and future
residents.
Cost effective services simply makes good business sense. As a strong and effective organisation,
operating more efficiently, we can release greater value to be reinvested in new homes and services.
Since 1989 we have grown considerably. From just 7,000 homes as the third largest Scale Voluntary
Transfer (LSVT) in the country, Sovereign now owns and manages over 37,500 homes. This has
been achieved through new partnerships and mergers, stock rationalisation and an extensive
development programme. Today, we provide homes for more than 86,000 people.
Over the past five years Sovereign has steadily increased its operating surplus to more than £30m,
through structured mergers, effective asset management and a focus on tighter cost control and
efficiencies. These savings have been achieved with the support of the Residents’ Council and
regional panels, whilst maintaining high levels of customer satisfaction and employee engagement.
The economies of scale achieved through growth have enabled us to manage the increases in our
controllable cost base, despite the impact of inflation as illustrated in figure 1.
We are on track to save £20m over four years and this focus on costs, combined with sustainable
growth, gives us the financial stability to choose how we deliver our social objectives.
The economies of scale have also enabled us to provide services that support the aspirations of our
residents, invest in our communities and deliver one of the largest development programmes in the
affordable housing sector.
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Figure 1 - Growth and cost base increases %
Inflation
Units
40%
Cost base
35%
30%
25%
20%
15%
10%
5%
0%
Actual
2011/12
Actual
2012/13
Actual
2013/14
Budget
2014/15
Cumulative
including
Budget
The table compares the growth in units managed and inflation against increases in spend in the
business. Over the four years units/inflation are up 38% compared to a cost increase of 30%.
Performance highlights 2013/14
• 90%+ resident satisfaction
• 1,113 new homes built
• £31m surplus
• Rent arrears 2.83% - the lowest for four years
• £4.9m annual operating saving
• Awarded Investors in People Gold standard
• 78% Employee Engagement
• Generated more than £3m of additional match funding
• Supported 530 residents towards employment or training
We are regulated by the Homes and Communities Agency (HCA), which requires organisations to
demonstrate how it achieves value for money in meeting its strategic objectives.
This value for money statement should be read alongside our other key publications,
the Annual Report and Financial Accounts, and our Residents’ Annual Report.
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2.Our strategy
Since 2000, Sovereign’s evolution has been driven by a series of clear, focused strategies based on
two key aims – improving efficiency and providing more new homes.
Our latest Strategic Plan 2015-18 reaffirms our purpose as a social business, but one that uses
commercial knowledge and skills to meet its aims.
Great homes and communities are central to what we do, and social rented homes are crucial in
creating places of opportunity where people on low incomes can achieve their aspirations.
It is an ambitious plan; we will protect our social rented homes while continuing to provide thousands
of new homes and value-added services. It will require us to become a more independent business,
continuing to build our financial strength and having a clearer understanding of where our investment
can make the biggest difference.
Value for money is a central part of achieving our social purpose and the key strategic planks of our
approach are as follows:
•
We are transferring around 3,500 homes in our outlying areas to more local landlords over the next three years. This will release significant value for reinvestment in homes and services in our core operating area, as well as providing operational efficiencies for both Sovereign and the recipient housing association.
•
We will not convert existing social rented stock to Affordable Rent. This is based on our own research programme into affordability in our operating area and concerns about the increasing reliance on higher levels of Housing Benefit for those tenants charged an Affordable Rent. Ultimately, we think this is a major risk both for the tenant and for Sovereign given planned changes to Housing Benefit and the introduction of Universal Credit.
•
We will continue our Transformation Programme following the collapse of our group structure to a single legal entity in 2011. By creating greater operational consistency and utilising the buying power of a single organisation we believe that there is more value that can be driven out of the existing business, especially where long term contracts come up for renewal.
• We will build around 3,500 new homes by 2018, in addition to the opportunities that will be delivered through our stock rationalisation programme. We believe that further focused growth in our new core operating area will achieve even better value for money in the longer term.
• We will invest in the future of our business, ensuring we have the right IT and data systems in place to help drive down costs and improve customer services.
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3.Our approach to value for money
Value for money is about maximising performance and quality of services in a cost effective manner
to ensure the delivery of business priorities and strategic objectives.
The Sovereign Board and Executive team are committed to ensuring value for money is considered in
all aspects of management and operational activity with performance continually reviewed against
objectives.
This is achieved through rigorous and robust frameworks for processes such as procurement
and contracting, and by utilising a range of tools such as performance dashboards. We have also
developed a specially designed Net Present Value (NPV) asset model, endorsed by the HCA, which
evaluates the effectiveness and return of our physical assets. This allows Sovereign to establish the
value created by each property by calculating the future cash flow, minus the cost to give a present
value.
Alongside financial data it is also essential to understand the customer perception and expectations
of quality in our services, which Sovereign measures through satisfaction surveys and the input and
scrutiny of our Resident Council and regional panels.
Measuring cost
In delivering value for money, we first need to understand our costs and what drives those costs. We
are continuing to enhance our budgeting processes, financial data and analysis to provide a greater
understanding of our cost base and enable us to make more effective decisions.
Measuring performance/quality
Benchmarking is an important part of establishing and understanding our cost base as it enables
us to compare our performance with other organisations. Sovereign brings together a range of
information and data sources to give a rounded view of our operating cost delivery, which allows us to
compare our performance against a peer group of similar organisations.
We have also developed a value for money framework to capture and compare the activities of the
business and how they represent value for money. Using the HCA guidelines, Sovereign has developed
this framework to enable the Board and stakeholders to assess value for money performance across
the business in delivering its strategic objectives.
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Measuring our social impact
Sovereign is a social business, that takes a commercial approach in order to have the greatest impact
on the lives of our residents and the communities in which they live.
While we see the benefit of our work every day, we want to quantify and evaluate the positive impact
we have on communities and demonstrate the value for money of our investment. Over the last 12
months we have been researching Social Return on Investment (SROI) models to identify an approach
which we feel is relevant and robust.
nt
VF
From 2014 we will use a ‘wellbeing valuation’ approach, developed by the Housing Association
Charitable Trust (HACT), to measure the impact of our community investment work, particularly
around employment, training and enterprise. HACT will
independently
validate the results and these
Statem
e
M
will help us to target our investments where they can have the maximum benefit.
Resident scrutiny
VF
Benchm
ment
ss
nt
We have 86,000 residents, and are committed to meeting their interests and expectations. Our
king Asse as well as an established Residents’ Council
governance structure, includes resident board members
ar
Stateme
M
and network of regional panels. This approach enables us to co-create
policies and processes,
undertake resident-led scrutiny work and ensure our decisions are informed by a resident perspective.
Benchm
tion Plan
Ac
king Asse
ar
ment
ss
Benchm
Stateme
king Asse
ar
ment
ss
M
nt
Value for Money
framework
VF
VFM Framework
tion Plan
Ac
dence
Evi
tion Plan
Ac
Supporting
Documents
Performance
Dashboard
(incl VFM)
Strategic
Plan
Management
Accounts
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NPV
Model
Individual
Director
Statements
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Our Resident’s Council helped shape our new Strategic Plan and recommended a cap on the annual
rent increase, which was implemented.
Together with our network of regional panels, our residents have undertaken business-wide scrutiny
work including how we re-let our homes. The re-let process accounts for a large spend within the
business and has a major impact on customer satisfaction. Their work has resulted in a consistent,
fair and value for money approach to this key business process.
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4.Understanding our performance
Targeted benchmarking is an important part of establishing and understanding our cost base
and identifying areas for improvement. To do this we compare ourselves to a group of housing
associations identified as having similar characteristics, such as size, operating area and rating
agency profiles.
We have utilised Housemark’s latest performance reports for 2012/13 and the 2012/13 HCA Global
Accounts.
To give a rounded view of performance we also use Baker Tilly’s back office benchmarking for
IT, Finance, Procurement and HR costs. We complete the benchmarking by using data from the
Institute of Customer Services to compare our customer service performance with private sector
organisations such as Boots, BSkyB and Marks and Spencer.
We are performing well, both in building our financial strength and delivering services with customer
satisfaction scores over 90% across a range of areas. However, we recognise there is more we can
do to improve how we handle complaints and deal with anti-social behaviour. We have been making
good progress, but these aspects will be a focus over the next twelve months.
Our complete benchmarking tables, covering areas such as operating surplus/turnover and turnover
per social housing unit managed, are contained within our Annual Report 2013/14.
Value for Money Analysis
SHA 2012/13
SHA 2013/14
Peer Group Average
12/13
Management cost per home £
£933
£1,127
£1,128
Total maintenance costs per home
charged to I&E £
£1,218
£1,346
£1,338
Social Housing operating margin %
39%
35%
30%
Chief Executive pay per home £
£4.79
£4.92
£6.36
Current rent arrears %
2.86%
2.83%
3.62%
Rent void losses per social home
£43
£48
£73
Capital commitments as a proportion 5.6%
of fixed assets %
6.3%
12.6%
Resident satisfaction - Overall %
86%
90%
84%
Resident satisfaction - with repairs % 92%
95%
82%
Resident satisfaction – Anti-social
behaviour %
77%
76%
n/a
Resident satisfaction –
Complaints %
59%
55%
n/a
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40
35
30
25
20
15
5.Financial strength
10
5
0
Actual
2011/12
Actual
2012/13
Actual
2013/14
Budget
2014/15
Cumulative
including
Budget
We have excellent financial results, reporting a £224m turnover and a £31m surplus in 2013/14.
Our track record and approach ensures we are ranked among the strongest in the sector by rating
agencies and our regulator.
This financial strength underpins our ability to build more homes and provide the services that
enable residents to achieve their aspirations.
Operating surplus (£’000)
80,000
60,000
40,000
20,000
0
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14 *
* One off impairment added back
Key performance statistics
2012
2013
2014
180,078
197,869
224,001
15,713
19,091
22,136
Operating costs (£000’s)
104,946
106,050
129,717
Operating surplus (£000’s)
59,419
72,728
72,148
33
37
32
Turnover (£000’s)
Cost of sales (£000’s)
Operating margin (%)*
Average interest rate
4.0%
4.7%
4.3%
Housing management spend (£000’s)
20,047
16,426
18,359
Property services spend (£000’s)
52,828
52,994
57,754
Bad debts (£000’s)
533
981
1,203
Void losses (£000’s)
1,247
1,525
1,755
Rent arrears (£000’s)
6,000
6,443
5,888
* Operating margin includes all social, commercial and sale activities
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Capital structure
Sovereign is financed by a combination of capital market bonds, long-term bank debt, Social Housing
Grant (SHG) funding and retained surplus. The bank debt is provided by five principal lenders.
All Sovereign’s bonds and bank debt are secured by way of charges on properties. At 31 March 2014,
there were more than 10,000 properties available to be pledged as security for further borrowings
with a value in excess of £600m.
Total
facilities
Drawn
Undrawn
Bonds
£425m
£425m
-
Bank debt
£851m
£665m
£186m
£1,276m
£1,090m
£186m
Total funding
Source: Statutory Accounts
2011/12
2012/13
2013/14
Interest Paid
£32,789
£43,460
£43,373
Interest Received
£613
£376
£417
Properties Owned
33,337
35,622
36,703
Interest per unit
£965
£1,209
£1,170
Managing risks
The adoption of financial standards is one method by which the impact of business risks is controlled.
These define minimum or maximum financial parameters within which the business should operate.
Sovereign’s financial standard has been designed using parameters set by reference to HCA
obligations, lender covenants and rating agency benchmarks. The individual standards are set at
levels which balance financial prudence against business constraint, and business plan scenarios are
stress tested against them.
We have recently introduced a new measure – Earnings Before Interest, Taxes, Depreciation and
Amortisation (EBITDA). This will give us a clear view of the operating surplus of the business, removing
distortions caused by the changes to accounting policy such as included in the new SORP being
introduced next year in accordance with the new Financial Reporting Standard. The measure will be
used to set a long-term performance target for value for money in the business.
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Return on Investment (ROI)
There are a number of ways in which ROI can be measured as follows.
Development investment – each scheme is evaluated to calculate the return on investment and
compliance with business plan parameters.
Projects and IT – investment is evaluated against the benefits to be achieved through aligned and
standardised processes which aim to generate future efficiencies and service enhancements.
Asset management – is a calculation of the Net Present Value (NPV) of our properties together with a
social and economic overview of the asset indicating its suitability for retention or alternative use.
Sovereign’s direct return on investment is calculated by dividing surplus after interest by opening
retained surpluses.
Source: Statutory
Accounts
3 Year Average
2011/12
2012/13
2013/14
Return on
Sovereign’s
investment net of
debt
12.8%
12.8%
12.9%
12.7%
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6. Our savings plan
Sovereign’s Board is committed to creating an efficient culture and achieving value for money in
meeting our business objectives.
Our 2011-15 strategy set an annual target of 5% efficiency saving each year and challenged the
whole business to fully understand their performance and identify improvements.
Our progress was recognised by a Housing Association National Accountancy Award, presented by
the National Housing Federation (NHF), for achievement in delivering value for money.
We wanted to ensure that we focus on improving the effectiveness and performance of our
business, rather than simply cost cutting. Therefore we measured success as doing more with the
same money, using investment to unlock proportionally greater rewards, or savings in actual cost
without deterioration in service standard.
We are on track to achieve £20m of efficiency savings in the four years to March 2015, and continue
to receive 90%+ resident satisfaction across the majority of our services.
The major components of these savings relate to:
• Bringing together the three repairs teams into one with a lower management overhead, releasing resource into direct service provision by using a more consistent and streamlined operating model.
• Establishing a central procurement function able to achieve greater economies of scale through contracting in a single organisation.
• Removing process duplication across the business through a more streamlined management structure.
• Increasing productivity with a single operating model supported by additional IT investment.
• Establishing a specialist Business Improvement team, using lean thinking processes. This end-to-end focus has made us more efficient and helped the business to absorb the additional operating costs as the business has grown through development and stock acquisition.
• A range of initiatives including salary sacrifice and a share of profit from joint ventures.
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Talented people, working together
Across the business, our talented people make a difference to our residents’ lives. They have a crucial
role in delivering our strategy and making us a more efficient and effective business.
We have enviable levels of employee engagement, and our aim is to continue to develop a culture of
challenge and support to help our people succeed.
We invest in development and have been recognised with the Investors in People Gold Standard.
We have a successful apprenticeship programme and are committed to continue to be recognised as
an employer of choice, with high performing individuals and teams, where great people develop and
build their careers.
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7.Shaping communities,
changing lives
A greater focus on value for money allows us to invest even more in achieving our core purpose, great
homes and communities.
We take a proactive approach to community support and are investing £1.3m in initiatives such as
supporting residents towards employment and training, and financial and digital inclusion.
In addition to this investment the team generated around £633k in additional or matched funding for
local projects such as specialist Community Development Workers.
Employment and enterprise
As well as our own apprenticeship programme, we work with partners to create jobs, training and work
experience opportunities.
Last year, we supported 530 residents towards employment and training, through initiatives such as
CV writing and grants to attend training courses. 66 residents secured sustainable employment and
289 took up training or voluntary work.
Next year we will be looking to generate greater social value through our supply chain and more
general business activities, including working in partnership with more social enterprises.
Financial inclusion
Following the introduction of welfare reform, the ability to budget and manage finances effectively has
become even more crucial.
With financial services and benefit applications going digital, we are introducing touch screen
computers at our offices to help residents get online with the support of locally-based digital
champions.
We also support and fund the Citizens Advice Bureau and other money advice partners which provide a
vital service for the whole community.
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Building resilience
We have homes in diverse neighbourhoods; every one different in size and make-up. The vast
majority of residents tell us they are satisfied with their neighbourhoods. However, there are some
that are not enabling their residents to thrive, whether because of high levels of debt,
anti-social behaviour (ASB) or vulnerability. We are focusing on improving conditions by working with
and funding a range of community partnerships.
Our Safer Communities strategy, which focuses on early intervention, is making a difference, too.
We managed 1,318 cases of ASB in 2013, with 76% of residents satisfied with how their case was
handled.
Welfare reform
One of the biggest challenges, both to our residents and to our business, is welfare reform. This
includes the under-occupancy charge, benefit cap and Universal Credit.
We invested in supporting our residents, to help them through the challenges and to limit the
damage to our business. We created a new team of 12 Tenancy Support Advisors (TSA) who
supported 1,476 residents, including 918 affected by the under-occupancy charge.
The team cost £400k pa to set up and in its first year of operation generated around £1m of
additional income to benefit residents and helped keep our overall arrears for all stock at 2.83%, well
below our target level of 3.50%.
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8.Providing a great service
Keeping our homes in great shape
The stormy weather and widespread flooding last winter contributed to a 12.6% increase in routine
repairs. Our Property Services team completed 136,010 routine repairs in total, with 7,596 additional
jobs carried out between January and March at a cost of £1.1m.
However, the large volume increase in repair jobs was mitigated by a reduction in cost of £11 per job
(8%) when compared to the budget assumption, as a result of procurement efficiencies.
Sovereign maintains its homes to a high standard with all properties meeting the Decent Homes
Standard and an above-average energy performance rating of 68 using the Standard Assessment
Procedure (SAP).
We completed 10,743 planned improvements to our properties in the year, with 94% of residents
satisfied with the planned work, cyclical programmes and quality of the home.
However, the Board, supported by the Residents’ Council, wanted to go further, and agreed to invest
an additional £2m in providing affordable warmth improvements to our least energy efficient homes.
We successfully generated an additional £626k of funding via the Energy Companies Obligation and
a further £632k of added value through procurement efficiencies. This programme has improved the
thermal efficiency of 336 homes, which in turn has supported 180 households out of fuel poverty. In
2014/15, a further £3m will be invested in supporting work to another 350 homes.
Transformational change
We are half way through a three year transformation programme for Property Services. Having
brought operations in-house, we are now delivering the repairs service at the same base and unit cost
as the outsourced contract for Hampshire, at around £505 average per property per year.
The in-house service is delivering a better and more responsive service, with repairs completions to
target at 94% compared to the outsourced model at 90%. The insourced service also generates
improved customer satisfaction at 96% compared to 94% for the outsourced model.
We are on track to deliver more savings next year, with further efficiencies expected through
productivity gains aligned to the implementation of a new contractor management IT system in 2015.
New partnerships, new contracts
Procurement savings in major component replacement programmes have also helped drive down the
cost of maintaining our properties over the past two years.
The kitchen and bathroom replacement programme was retendered during the year generating
savings in excess of £1m per annum compared to the previous contract.
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A new deal with leading builders’ merchant Travis Perkins also delivered significant cost savings while
providing a quicker and more efficient service for our residents.
This arrangement, which sees Travis Perkins become the main supply chain partner for our Property
Services team, has resulted in not only reduced costs but frees up staff to do more jobs each day
rather than sourcing materials from multiple suppliers.
The product cost reduction of 17.6% will save the business around £715k a year. When combined
with less travel and savings on van leasing and fuel, the new deal will save Sovereign around £1.25m
a year.
Sovereign has increased its percentage ownership in its joint venture with Kingfisher Building
Services. It has been a successful year for the business, reducing operating costs and winning
competitive tenders, and increasing profit from £692k to just under £1.2m in 2013/14.
With the controlling interest in the company, around £810k of profit was gift aided back to Sovereign
for re-investment in projects such as affordable warmth.
Connect and customer service
As part of our commitment to providing a great customer service experience, we have aligned our
contact centres, called Connect, across just three hubs. A new Customer Interaction Management
system (CIM), implemented this year, means the advisors can help with any enquiry from any resident,
anywhere. This new system also identifies peak times, allowing us to ensure appropriate resources
are available to meet demand.
Whilst we will continue to keep a regional presence, this approach is cutting waiting times and
improving the service when people get through.
We recognise that our residents often prefer to call to pay a bill or arrange a repair – we answered
647,802 calls last year. However, we are increasing the options for customers to do more business
with us via email, text message, our new mobile app and through Facebook. Since its launch, more
than 10% of our residents have registered to use our online MySovereign service.
Having brought all of our contact channel management together over the last year, we are now
developing our understanding of how and when our customers want to engage with us. This is an
ongoing area of focus and we will continue to adapt and improve our service to meet these changing
needs and expectations.
As well as the Survey of Tenants and Residents, run every two years, we carry out real-time
telephone surveys to gather immediate feedback on how we’ve dealt with a resident’s question,
request or complaint. We use this information and benchmarks to track performance and identify
areas for improvement.
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Our performance in real time
Service
Satisfaction
2013/14
Gas
98%
Moving in
96%
Planned repairs
96%
Aids and adaptations
95%
Repairs
94%
Mutual exchange
94%
Shared ownership
92%
Defects
90%
Tenancy ends
89%
ASB
76%
Complaints
55%
Whilst we are pleased that the vast majority of residents are happy with Sovereign as their landlord,
we recognise that we need to take action to improve how we handle complaints and tackle anti-social
behaviour.
We are rolling out a new complaints handling process as well as a development programme for
employees, based on the Institute of Customer Service principles, to put the customer’s needs first
and to ‘own’ a problem through to resolution.
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9.An efficient business
Corporate performance
As well as a more streamlined governance structure, we have created substantial operating
efficiencies since we collapsed the group structure in 2011. We are continuing to realise greater value
and improved services from this transformation.
We have also refreshed our staffing structures to ensure they remain fit for purpose and have
embedded a framework which links pay progression to individual performance. This enables us
to have greater control over our salary budget because there is no automatic entitlement to pay
increases.
Finally, by bringing together services which were previously managed in the four companies with
differing IT systems we have been able to remove overheads and create a standardised and scalable
model.
Procurement and investment
In 2011 Sovereign established a centralised procurement function. A Supply Chain Management
strategy has brought procurement activities across the business together to utilise the buying power
of the combined organisation, while establishing an effective control environment.
Procurement activity identified savings of £3.3m last year, on top of £4.2m in 2012/13. Which
contribute towards our £20m target.
A core part of the strategy is the reduction and management of the supply base. To date we have
reduced our suppliers from more than 3,500 two years ago, to around 1,450 today, with further
reductions planned.
The Board has agreed to invest in more back office business support services to enable further
transformation and enhanced customer focus. The investment includes a number of major IT projects
which will improve performance and align and standardise processes in Housing, Property Services
and at our contact centre, Connect, hence making them more efficient.
We have implemented a new telephony system, called Microsoft Lync, replacing expensive and
outdated systems with an online communications platform. Internal calls are now free and we are
seeing greater collaboration and increased productivity among employees. We are forecasting around
£25k of cost savings this year, rising to £100k in 2015.
The move from our three legacy housing systems to one will be completed in 2015, providing
operating efficiencies and an enhanced service to residents.
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10. Building the homes we need
Development and commercial
We have one of the largest development programmes in the housing association sector, underpinned
by our strong operating surplus. Last year we built more homes than ever before, with 1,113 new
homes completed. This included 257 shared ownership properties and 26 for outright sale.
Development programme
Our new business plan includes allowance for a long term development programme of 750 units per
year from 2016/17 with a higher level before then. The table below shows progress in meeting our
target level of schemes.
2014/15
2015/16
2016/17
2017/18
2018/19
Total
Committed Schemes –
approved
987
263
78
27
0
1355
Uncommitted Schemes
– approved
90
207
23
16
0
336
Future approvals
0
580
649
707
750
2686
Our development strategy agreed by the Board in 2013/14 sets out the type, location and tenure
of the homes we will build. Each potential site goes through a rigorous financial appraisal process to
ensure maximum value for money in a market characterised by increasing costs and reduced grant
availability.
We take a balanced approach in scrutinising future developments to ensure they meet the needs of
our residents, take account of the social impact, environmental implications and enable the business
to operate as efficiently as possible.
The Development team have begun projects to improve post-completion reviews and management
information. These are aimed at providing better trend and cost analysis which can be combined with
non-financial “lessons learned” information to drive additional value from our activities.
As part of our strategy we are embarking on joint ventures with commercial partners, utilising
their commercial experience and buying power for mixed tenure sites including sites identified for
redevelopment through our asset management programme.
A recent joint venture with David Wilson Homes is regenerating the Sovereign owned site at Kersey
Crescent in Newbury, Berkshire. While retaining 23 social homes on the site, the partnership allows
us to release value to cover the internal subsidy requirements for 100 more social rented homes
elsewhere.
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During 2013/14, we established a business plan to grow our market rent portfolio to 1,000 properties
from an historic base of around 300 homes. As part of this project we’ve reviewed our existing market
rent stock to ensure suitability for retention and are selling non-viable properties with receipts
reinvested in new supply.
Sovereign also has a portfolio of 91 commercial properties with an annual rent roll of £1.76m. The
properties are proactively managed and achieved an 8.4% return on investment in 2013/14 with an
indicative market value of £11.8m. We continue to monitor the stock to enhance its value and consider
alternative use when appropriate.
We also run South West Help to Buy in partnership with Westward Housing Group, supporting people in
buying a home with the Government’s Help to Buy equity loan. We took 2,459 reservations through to
completion in 2013/14.
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11. Using our assets wisely
In 2011 all Strategic Asset Management (SAM) activity was brought under a single director to
more effectively manage the assets we own, develop an understanding of their contribution to the
business and establish a methodology for how we maximise the value.
Portfolio
Market
value£m
Historic
Cost
Turnover
£m
Operating
Surplus £m
Operating
Margin %
Gross
yield %
Social lettings
4,941
1,239
176
63
35
3.6
Shared
ownership
322
133
10
3
31
3.2
Market rent
properties
Market
value
£m
Historic
Cost
£m
Turnover
£m
Operating
Surplus
£m
Operating
Margin
%
Gross yield
%
80
71
8
7
87
9.6
Capital
14%
Growth
Key to understanding the value of our properties has been the development of a stock profiling
model which brings together the various pieces of data held on each property to calculate its Net
Present Value (NPV) to the business.
The Value for Money Assessment Tool, developed jointly with SDS (Shelton Development Services)
also provides a social and environmental overview of each asset.
The tool combines financial assessment (NPV) including and future liabilities associated with the
maintenance, property specific data (tenancy support matrix) and the social value (social impact
assessment) of the asset.
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These insights inform our decision making, enabling us to understand the long-term value of each
property and the return it generates. It enables us to identify outliers where properties do not
meet criteria for long-term retention for various reasons such as investment needs, desirability and
location.
The output results demonstrate that 95% of our homes make a positive contribution to our business
plan. However, around 5% provide a low value return, and are therefore being evaluated as to their
suitability for retention or alternative use.
The net returns from our asset management programme including disposals are ring fenced for
investment in the provision of additional homes. In 2013/14, proactive asset sales produced a surplus
of £423k after costs.
The approach has been endorsed by the HCA and the Value for Money Assessment Tool has had
considerable interest from other housing associations and local authorities. Since the launch in
May 2014, organisations have undertaken an assessment on the approach and a number are at
negotiation stage to purchase the tool from SDS. We receive 7.5% of the sale proceeds for use to reinvest in building more homes.
Stock rationalisation
A key part of managing Sovereign’s activities effectively is to understand the geography in which we
operate. In order to provide a high standard of service cost-effectively, we have undertaken a number
of acquisitions or stock swaps with other associations in recent years. We have developed a detailed
methodology to understand values in stock transfers and have undertaken ten transactions involving
4,591 properties to date with a value of around £226m.
Our new strategic plan includes a focus on achieving a new core operating area where we are able to
provide services more consistently and cost effectively. As a result a number of our current operating
areas have been identified for review with a plan to transfer around 3,500 homes in our outlying areas
to more local landlords over the next three years. Our preference is to seek stock swaps wherever
possible as this will provide benefits to both organisations through achieving greater concentration
of stock in their operating area. If this is not possible we will explore management agreements or
disposal with proceeds received being available for re-investment in our core area.
We continue to actively seek stock rationalisation opportunities, enabling us to grow our portfolio in
our core area cost effectively.
Our experience of stock rationalisation including our approach and the benefits it brings for both
purchaser and seller are captured in our publications, Stock Exchange and Trading Places, available
from our website.
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12. Mitigating our
environmental impact
At Sovereign we understand the importance of our wider responsibly and the impact of our work.
Through our Environmental Sustainability strategy, called Sustainable Homes, Responsible Business –
it’s in our nature, we are delivering real value across our key themes including Energy, Carbon, Climate
Change, Pollution, Biodiversity and Engagement.
An initial programme has been put in place to claim funding (Feed in Tariff and Renewable Heat
Incentive) with a target net cash flow of £100K in 2013/14 and ongoing for the following four years.
This number is likely to increase following the outcome of a planned strategic review of renewables
and low carbon technologies to inform our decision making.
Our refreshed Environmental Management System with certification to ISO 14001 seeks to assure
legislative compliance and associated costs and disruption, drive efficiency and provide a foundation
for demonstrating our systematic approach when seeking commercial opportunities. The cost of this
exercise is negligible as Sovereign has operated multiple systems for some time and the benefits are
already materialising through our fleet and fuel, waste and office refurbishment specification.
We are also taking action to improve the energy efficiency of our homes. We invested in improving
the thermal efficiency of 336 homes last year, lifting 180 households out of fuel poverty. We have
committed to spend a further £3m to support work to another 350 homes in 2014/15.
Looking further ahead, a key piece of work will be around Climate Change Resilience and our
understanding of risk, preparedness, response and recovery relating to flood and extreme weather
events. It is anticipated that this study will support protection from costs associated with such
events and support driving value in future negotiations around insurance premiums.
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13. Future focus
As we enter the final year of our current four year efficiency programme we are on track to achieve
our £20m savings target.
OUR SAVINGS PLAN
2011-13
£11.4m
2013/14
£4.9m
2014/15
£3.7m
TOTAL
£20m
This has been achieved through a combination of procurement savings, greater productivity, lean
systems methodology applied to operating procedures, mergers of separate operating entities and by
reviewing the governance structure of the association.
In the autumn, as part of planning the delivery of our new strategy, the Board will be making choices
on the allocation of resources. The debate will include establishment of a new set of targets for value
for money within the business predicated on achievements to date and the framework now in place
to facilitate the delivery of future savings.
Priorities for the future
We have made good progress and delivered significant savings so far. We have achieved a greater
insight into our business and our assets, and we believe we are making the right investment in the
people, processes and systems that will make us more efficient whilst helping us do more for our
residents and the communities in which they live.
However there is still more that we can do and our future priorities are:
• Achieving our £20m savings target over the four year life of our current strategy. This requires a further £3.7m to be delivered in 2014/15.
• Delivering a further 3,500 homes by 2018 to meet housing need and to improve operating efficiency.
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• Delivering the planned stock rationalisation programme, transferring the ownership
and/or management of over 10% of our homes to other housing associations.
• Implementing a more sophisticated system to evaluate our various income streams to establish their value to the business based on the return achieved. This information will help us target resources better and shape future investment decisions.
•
Quantifying and benchmarking the social dividend (SROI) within our business, allowing us to measure and improve the positive impact we have on our residents and our communities from a quantitative and qualitative perspective. The first steps will be to build upon the Housing Association Charitable Trust (HACT) theoretical ‘wellbeing valuation’ model in order to
gain those measures of our impact.
• Continuing to invest in modernising our IT systems in order to meet changing resident and business requirements for accessibility and greater efficiency.
How we will deliver these priorities is captured in our detailed Action Plans. This internal document
ensures we remain on track to deliver our efficiency savings and is monitored by the Board.
As part of our commitment to transparency, we will continue to report on our progress in our
Annual Report 2014/15 and within our Value for Money statement in September 2015.
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