Four Housing Group Limited
Report of the Board and Financial Statements
for the year ended 31 March 2015
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
BOARD OF MANAGEMENT:
Chair:
W Worth
Members:
H Parker
I Hunter
S Green
S Anderson
J Douglas (to 30 May 2014)
B Dennis (to 23 September 2014)
M Stewart
P Harding
C Blakey (from 23 September 2014)
A Pegg (from 23 September 2014)
SENIOR MANAGEMENT TEAM:
Group Chief Executive
P Tanney BSc (Hons), FCIH
Group Finance Director
M Axe CPFA
Group Director of Operations
D Keightley BSc, Dip M, MA
Company Secretary
M Axe CPFA
Registered office:
Three Rivers House
Abbeywoods Business Park
Pity Me
Durham
DH1 5TG
Auditor:
KPMG LLP
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
Principal solicitors:
Winckworth Sherwood
Minerva House
5 Montague Close
London
SE1 9BB
Principal bankers:
Barclays Bank plc
Barclays House
5 St Ann’s Street
Quayside
Newcastle upon Tyne
NE1 3DX
Four Housing Group Limited:
A Registered Society (under the Co-operative and Community
Benefit Societies Act 2014) No. 30554R
Registered by the Homes and Communities Agency (HCA)No.
L4531
1
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
The Board of Management presents its report and financial statements for the year ended 31
March 2015. These financial statements comprise the results of Three Rivers Housing
Association (Three Rivers) and Berwick Borough Housing (BBH). The basis of consolidation is
set out in note 1.
Operating and Financial Review
Activities
Four Housing Group (the Group) consists of Four Housing Group Limited, a non-charitable,
non-asset owning Registered Provider (RP) and a Registered Society (under the Co-operative
and Community Benefit Societies Act 2014), Three Rivers Housing Association Limited (Three
Rivers) and Berwick Borough Housing Limited (BBH), both asset owning RPs and Registered
Societies (under the Co-operative and Community Benefit Societies Act 2014) with charitable
status. All 3 entities are registered with the Financial Conduct Authority (FCA).
Three Rivers, based in Durham, was established in 1971 and is a traditional RP operating from
the Tees to the Tyne. It has over 3,200 properties spread across the North East with nearly half
being in Durham, Sedgefield and Hartlepool. It was selected in 2007 as the preferred partner for
the Berwick stock transfer of almost 2,000 properties.
The group structure was established in 2008 to facilitate the transfer of the housing stock from
the former Berwick Borough Council to a new RP, Berwick Borough Housing. The transfer
took place, and the new Group became operational on 3rd November 2008.
The precise governance and contractual arrangements between group members are laid down in
a detailed intra-group agreement (IGA) which came into effect on 3rd November 2008 and was
revised in April 2013. Four Housing Group Limited provides central services, such as Finance,
ICT, HR and Development to the two subsidiaries under the terms of the IGA and various
service level agreements.
The Group operates a number of key business streams including:
General needs housing for rent, for tenants who are unable to rent or buy at open market
rates.
Care & Support, including supported housing and care for people who need additional
housing related support or additional care and sheltered housing, particularly for the elderly.
Development and regeneration, as a partner of the Homes & Community Agency (HCA) and
a member of the Spirit Partnership, the Group develops new housing for rent and shared
ownership and supported housing schemes and provides development services to other RPs
and organisations.
Care & Repair, a handyperson service providing minor alterations and adaptations to
peoples’ homes to enable them to continue to live in their property.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
On 1 April 2013, the 3 boards implemented a new operating structure under which a virtual
single board oversees the activity of the Group’s parent and subsidiaries. This is achieved by
ensuring a complete commonality of Chair, Vice Chair, Board Members and Executive
Directors across all three Registered Providers. This change followed consultation with tenants
and stakeholders. As part of the restructure Northumberland County Council agreed to
relinquish its shareholding in BBH which enabled it to adopt the same model Rules as Three
Rivers. The Group members all operate under the same brand ‘Four Housing’.
External Influences
The housing sector continues to face a period of change and challenges brought about by the
government’s deficit reduction plans, its approach to welfare and the funding of new social
housing units. This latter issue has seen a reduction in capital grants for new housing and the
introduction of Affordable Rents (AR), aimed at generating additional rental income to
compensate for the reduction in capital subsidy. The Group continues to prepare for the impact
that the roll out of Universal Credit, and the direct payment of Housing Benefit to tenants, will
have upon both the Group and our tenants.
The Government outlined in the Queen’s speech in April 2015 and the budget in July 2015
further policy initiatives that will have a significant impact on the sector.
The next four years will see a period of unprecedented change to the funding of social housing.
This includes a real rent reduction of 1% per annum for four years from 2016/17, the extension
of the Right to Buy to traditional associations, further welfare reforms including the benefit cap
reduction and the continued roll out of Universal Credit, and further reductions in public
expenditure.
Objectives & Strategy
In 2013, the Group agreed its new corporate plan and priorities and a common set of objectives
and a strategy to drive the business forward over the period 2013 - 2018. The Group’s mission
is ‘creating homes, improving lives’ and our aim is ‘to be the provider of choice for our
customers and our partners’. The mission and aim are underpinned by 5 corporate objectives
that will enable us to achieve this by:
Innovating and striving to grow
Customers driving service development and improvement
Being passionate, professional and proud of what we do
Supporting and encouraging effective partnerships
Being financially strong and well managed
In delivering these objectives, the Group will seek to demonstrate its core values:
Leadership
•
•
•
•
•
Positively guiding own and others’ actions towards a common
goal regardless of personal positional power
Making sound and timely decisions
Being a positive role model to others
Energising and motivating yourself and others
Taking responsibility for your own and others’ decisions
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
Customer Focus
• Putting the customer first
• Going the extra mile - even at personal inconvenience
• Anticipating customer issues and needs and taking positive action
• Accepting personal responsibility for providing customer service
• Being seen as the person to ask
• Owning the customer issue until it is resolved
Innovation & Improvement
• Taking opportunities to learn from others
• Evaluating actions and activities to identify better ways of doing
things
• Pro-actively making suggestions and consulting with others before
implementing ideas
Integrity
•
•
•
•
•
•
Being trustworthy, honest and reliable
Treating others with respect and with good manners at all times
Taking responsibility and being accountable for your words,
actions and attitudes
Maintaining confidential information and others’ privacy
Demonstrating compassion and empathy for others
Being authentic, genuine and true to our values
Teamwork
•
•
•
•
•
•
Actively supports and promotes team decisions
Goes the extra mile to help and support colleagues
Takes part in cross-functional teams and actively contributes with
ideas
Respecting diversity and the views of others
Supporting team spirit and diffuses potential problems and
conflicts
Showing commitment and enthusiasm
The Group puts in place annual delivery plans that seek to meet the corporate objectives and
embed the values across the whole organisation. The Group also seeks to embed a culture of
continuous improvement and Value for Money (see pages 6 to 31) across all aspects of its work.
Performance
Key performance indicators have been identified in line with the delivery plans that will enable
the Group to measure whether the strategic objectives are being met and continuous
improvement achieved. These will form the basis of a balanced scorecard approach to
performance reporting in future years.
For the year ended 31 March 2015, the Group has measured its performance against a range of
indicators agreed to reflect the priorities of the Corporate Plan. These are summarised on the
following page:
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
Finance
Objective
Measure
- satisfy lenders' covenants
- performance against loan
covenants
- results compared to budget
- additional investment released
- achieve planned financial results
- create capacity to invest in
additional services and new
developments
Asset Management
& Development
- deliver new homes in line with
agreed programme
- maintain Decent Homes standard
- continuous improvement
- increase the value of the asset
portfolio though strategic asset
management
Operational
Services
- start on site and completions
at year end
- number of units failing
standard
- timeliness and satisfaction
performance
- HFAT sustainability model
NPV analysis
- performance orientated
- rent arrears
- rent loss from voids
- void re-let times
- gas servicing
- Care & Repair job
completions
- contact centre response times
- continuous improvement
- customer satisfaction rating
- complaint handling
The key operational performance indicators for 2014/15 are given in the Value for Money (see
pages 6 to 31) section of this report.
The Group is committed to making improvements to its services in response to the needs of its
customers and continues to review how it consults and involves customers in determining
service priorities and areas for improvement and how it will measure customer satisfaction in
the future. A key element of meeting customers’ expectations and needs is the emphasis placed
on resolving complaints and positive learning from them. The tenants’ main priorities are
maintenance and tackling anti-social behaviour.
Finance
The Group’s financial performance was in line with its budget and forecast position and reflects
the continuing strength of its business and the robust response to the challenges that Welfare
Reform is bringing. In previous years, growth has been achieved through the development of
new properties and the expansion of services. The changes to the funding regime for
development means that this is no longer a significant source of growth for Four Housing. This
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
has reinforced the need for the Group’s strategy of income maximisation and cost control and
reduction measures that it is implementing.
Strong rental growth was achieved in the year with a general increase of 2.2% as a result of the
regulator’s consumer price index based rent formula.
BBH continued its planned home improvements programme in line with its original ‘promise’
to tenants at transfer. Full compliance with the Government’s Decent Homes standard was
achieved by the agreed deadline of 31 December 2012 and this continues to be maintained.
Three Rivers has increased its investment in stock over the past few years and this was
maintained in 2014/15. Maintenance and affordable warmth are key priorities of our tenants and
our investment plans reflect this. All properties achieved or exceeded Decent Homes status.
Both subsidiaries produced results in line with their budgets and put measures in place and
allocated additional resources during the year to meet the challenges of the public sector
spending review and Welfare Reform. Further details are provided in the Value for Money (see
pages 6 to 31) section of this report.
The financial performance of both Associations meant that lenders’ loan covenants continued to
be met.
Value for Money Statement
1.0
Purpose
1.1 The purpose of this statement is to demonstrate the way in which Value for Money
(VFM) has been delivered in the 2014/15 financial year and to outline our plans for the years
ahead.
1.2 A separate review is undertaken by our tenants and is included in the Tenants’ Annual
Report, a copy of which is sent to each home. A separate VFM update to our business partners
will be included in the next edition of our e-magazine ‘Partner News’. Both publications are
available on our website (www.fourhousing.co.uk).
2.0
Approach to VFM
2.1 We approach VFM as a way of achieving more – for both our current customers and also
our future ones. To do this we need to make sure the organisation is as efficient and effective as
possible, enabling us to take advantage of opportunities to maximise income, control
expenditure and so increase the annual surplus.
2.2 We can then do more by re-investing this surplus; providing enhanced services to more of
our customers and increasing the supply of new homes.
2.3 This is particularly challenging in the current economic climate with the reduction in
grant funding, cuts in public spending and the impact of Welfare Reform on both Four Housing
and its customers.
2.4 Four Housing is committed to working in partnership with its customers in improving
efficiency and ensuring that we focus on their priorities. The more efficient that we are, the
more we are able to invest in delivering our mission of ‘creating homes and improving lives’.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
3.0
VFM Strategy
3.1 The Board of Four Housing, as the Group’s governing body, has ultimate responsibility
for ensuring that the Group provides value for money services. Value for Money is a key
consideration for Board in making any investment decision. Value for money is about cost and
quality.
3.2 The Group has established tenant scrutiny panels that consider performance data and
benchmarking information to select their topics for review. Our customer led service
improvement groups (SIGs) monitor service delivery in terms of cost and quality and work with
us to identify service improvements. The groups use performance information to carry out
‘check and challenge’ sessions with service managers. The groups also monitor progress
against the scrutiny action plans.
3.3 The Group approved a new VFM Strategy and Action Plan in 2012/13 to cover the period
2012/13 - 2015/16. The Board review progress on an annual basis and both the Audit
Committee and the Board consider and approve the annual VFM Statement. The Board will
undertake a review of the overall Strategy in the current year and progress made against the
Action Plan will be assessed.
3.4
The VFM Strategy underpins the Group’s Corporate Plan and is a cross cutting strategy.
3.5
The Group’s strategic objectives of:





Innovating and striving to grow;
Customers driving service development and improvement;
Being passionate, professional and proud of what we do;
Supporting and encouraging effective partnerships; and
Being financially strong and well managed,
all require VFM to be considered if they are to be successfully delivered. Hence a key objective
of our VFM Strategy is to embed a VFM and continuous improvement culture across the whole
organisation.
3.6
The other key aims of the strategy are to:




4.0
Understand and compare the costs and performance of the services we
provide;
Optimise the use of our assets and resources to deliver the Group’s objectives;
Establish effective procurement and partnership working;
Improve value for money through a co-regulatory approach.
Business Planning Framework
4.1 This aligns to our corporate objectives of remaining financially strong and well managed
whilst creating the resources to invest in innovation, growth, service development and
improvement. We aim to understand the financial and social return we receive for each asset
we own and/or manage and to use this to inform and prioritise investment decisions.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
4.2 The Board each year sets a minimum required operating surplus level to maintain
viability and mitigate financial risk. Where the budget shows that resources exceed this required
operating surplus, the board consider and agree the funding of any additional projects to be
undertaken or services to be provided. Funding is temporary and projects considered must be in
line with our corporate objectives and tenants priorities.
4.3 Our VFM Statement last year set out the Group’s approach to optimising the use of our
assets and resources in detail (www.fourhousing.co.uk/ValueForMoney.aspx), the main
elements being:

comprehensive financial and operational reports, identification of trends and
examination of areas for potential improvement.

30 year business plans for both subsidiaries based on prudent assumptions and
subject to stress testing.

a stock sustainability modelling tool (Hfat) which enables us to make
decisions on future investment in our homes.

a care & support delivery model assessment.

undertaking regular stock surveys to ensure that our homes meet our agreed
standard and our investment is planned, work procured and delivered in the
most effective and efficient way.

for new developments we have agreed a set of assumptions and criteria with
the Board which are used to appraise proposed schemes.

the financial impact of the development programme as a whole on the overall
financial business plan is assessed by the Board before it is approved and a
variety of stress tests are performed.

setting a threshold rate of return for any non-core activities. The required rate
of return would be expected to be commensurate with this objective and the
level of risk of the planned activity.

we regularly review the value of the homes we manage in order to ensure
efficiency in security charged and to increase our borrowing capacity to fund
new development.

benchmarking the costs and performance of our services to highlight areas for
further investigation by both officers and our Tenant Scrutiny Panel.
In June 2015 the Board approved a statement setting out our approach to Social Value
(www.fourhousing.co.uk/ValueForMoney.aspx) together with an Action Plan to take this
forward. A key action is to develop a methodology to allow us to calculate the social and wider
economic return of different capital investment options (known as social return on investment).
This will then help inform the Board in making strategic investment decisions. The Social Value
Statement and Action Plan will be incorporated into the next revision of the VFM Strategy.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
5.0
The VFM Standard
5.1 The Regulator requires that a robust self assessment is published each year which sets
out, in a way that is transparent and accessible to stakeholders, how we are achieving VFM in
delivering our purpose and objectives.
5.2
The self assessment shall:



enable stakeholders to understand the return on assets measured against the
organisation’s objectives
set out the absolute and comparative costs of delivering specific services
evidence the value for money gains that have been and will be made and how
these have and will be realised over time
A full copy of the HCA’s VFM standard is available by following the link
(www.gov.uk/government/uploads/system/uploads/attachment_data/file/419202/Value_for_Mo
ney_Standard_2015.pdf).
We believe that our VFM Strategy is consistent with the Standard.
We welcome feedback from stakeholders on the statement and how we can improve it further in
future years. Please send any comments to [email protected].
6.0
VFM Annual Review 2014/15
6.1 In April 2013 the Group adopted a virtual single organisation approach and therefore this
statement is prepared at the Group level. It covers our VFM Strategy objectives, a review of
performance in 2014/15, and our future plans.
6.2
The annual review covers the following areas:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
6.3
Major VFM initiatives in 2014/15
Understanding how we have performed and how we compare
Update on last year’s priorities
How we optimise the use of our assets
How we optimise the use of resources
Effective procurement and partnership working
Improving VFM through Customer Involvement
Summary of VFM Gains 2014/15
Future Plans
Conclusion
Major VFM Initiatives: During the year we have undertaken two major strategic
initiatives which will have a major impact on the future of the organisation and help us
to deliver our corporate objectives and VFM strategy.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
These are:


Growth; and
Mobile Working Project.
Growth: In common with all housing providers, Four Housing faces a variety of challenges
within the current and immediate social and economic climate. The continuation of Welfare
Reform will increase the volatility of our income, introducing new pressures and reducing our
capacity to develop new homes and innovate. Whilst the economy is starting to grow, public
expenditure is likely to remain highly restricted creating additional challenges for both the
sector and our customers.
The Board of Four Housing is aware that the ultimate challenge is to ensure that the business
remains on a sound financial footing, protecting its social assets, and most importantly
delivering high quality homes and associated services to our customers. We need to do this
whilst being quick to respond to change and look for additional and alternative sources of
funding to support a range of projects which will help to grow and diversify.
In the last year the Board with the support of the Executive Team has undertaken a strategic
review of its growth options and how it can best deliver its mission of ‘creating homes,
improving lives’. The Board believes that it will be best able to do this through seeking to join
in partnership with another housing association by way of a merger.
Joining in partnership means expertise, resources and costs can be shared, achieving greater
value for money through generating efficiencies and savings without reducing services. This
will enable us to deliver more in terms of improving services, building new homes, and
regenerating the communities in which we work. A merger will create an organisation that is
more robust and better able to manage the risks presented by an ever changing operating
environment and provide better safeguards against, for example, the impact of Welfare Reform.
A number of key criteria were set when considering the case for merger and the selection of a
preferred partner to ensure that the decision was based on an objective assessment of options
and will deliver the most benefit for our customers.
We assessed the potential around:
• Achieving efficiency savings through a reduction in executive and other staff
costs, procurement savings on contracts and corporate activity, office costs
and advantageous long term funding improvements.
• Service improvement, additional services and innovation through sharing best
practice within each organisation.
• Increasing the capacity to invest in additional new homes
A key criterion was to select a partner that shares our vision and values and has a strong focus
on customer service and support for the most vulnerable.
We also recognise our responsibilities as a good employer and would expect any potential
partner to demonstrate a commitment to training and development, and attracting and retaining
the very best staff and board directors.
We hope to be able to progress these discussions with our preferred partner with a view to
creating a formal partnership through merger in 2016/17. This will lead to a new Value for
Money Strategy being created by the merged organisation reflecting the efficiency savings that
we aim to achieve.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
The Board is aware that not all discussions result in a merger and therefore has an alternative
strategy in place should these discussions not be successful. This includes undertaking a
thorough review of, and updating, our existing Value for Money Strategy.
Mobile Working Project: The project which was launched on the 30th June 2014 will
mobilise the majority of the customer facing workforce. Mobilisation of workforces is one of
the biggest growth areas of IT activity in the housing sector due to well-recognised efficiencies,
financial savings and benefits to both the workforce and customer service that it delivers.
We recognised that delivering more effective and increasingly cost efficient services to
customers could be best achieved through mobilisation. The organisation has already
experienced the benefits of limited mobilisation for the DLO operatives. This project will
embed a mobilisation solution across the organisation. It will also deliver a key priority for our
tenants which is to offer appointment times for repairs.
There were a range of drivers which influenced the thinking around the project. In 2009 a
mobile working system, Limesoft, was put in place. Limesoft enabled field based operatives to
access data on a mobile device. By 2013 this software was not being effectively upgraded by the
supplier and compatible devices to operate it on were obsolete and no longer being
manufactured. The organisation had resorted to sourcing second hand replacement devices on e
Bay.
It was also recognised that other organisations were having positive culture changes and
improved efficiency through wider mobilisation. It was also the view that Four Housing should
seek to realise benefits across all departments with one system rather than taking a piecemeal
approach.
The project seeks to utilise a mix of modern platforms and devices to best suit individual’s
needs, improve significantly on the functionality currently available and deliver better interfaces
with back office systems. Work was undertaken to carefully identify the mobilisation
requirements across the organisation.
A range of options were considered including doing nothing, upgrading Limesoft and
implementing a new mobile solution. A detailed business case was developed where the
benefits from each option were considered including doing nothing. This last option would
actually require additional staff costs of £90k pa to maintain the existing level and quality of
service. The preferred option was to implement a new mobile solution.
The total project cost (capital and revenue) of this option is c£500k. The business case was
approved based on a minimum payback of three years and, once fully implemented, efficiencies
of at least £200k pa. The potential to expand the project to encompass our Care & Repair
Service was also recognised but did not form part of the original business case as there was
uncertainty over the recommissioning of the services at that time.
Phase 1 of the project went live in February 2015. It delivered:
•
•
Replacement of existing Mobile Working functionality for Asset on a largely like for like
basis, savings £90k per annum of additional resource requirements.
Development of Mobile Working functionality to deliver mobile solutions for the Arrears
Visits and Estate Visits.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
The primary goal of phase 1, was to replace the failing Limesoft system. This has not only been
fully delivered but also surpassed. The solution for the DLO is significantly simpler to use and
delivers greater benefits. The functionality available to the surveyors is incomparable to the
limited usefulness of the Limesoft solution. The DLO operatives and surveyors have voiced
very positive feedback on the devices and the solution. Minor issues encountered during live use
have been easily identified from the extensive system audit reports available and supportive
action has been taken to address issues. This has ensured a successful adoption of the correct
working practice.
Customer Service is already improved with more detailed information on operative visits now
available to the Customer Services Team and the benefit of auto generated letters confirming
results of surveyor visits (automatically emailed where emails are available).
The housing team has benefited from phase 1 with mobilised processes for the arrears and
estates visits. This removes all duplicate inputting and includes the provision of reports on
actions arising from the Total Mobile system which is accessible on demand by managers. The
housing computer system is automatically updated with the results of the visit. Paper forms
which used to be carried by officers are no longer needed as electronic forms for Direct Debits,
Financial Inclusion, Safeguarding and many others are available for electronic completion on
the device. This automatically produces a PDF output document and emails it to the correct
recipient either internally or externally. The Financial Inclusion Team is already making good
use of the mobile solution as these forms can be accessed and used even outside of an arrears
visit for their work.
Phase 2 of the project is now underway with workshops to scope out delivery requirements.
This will be followed by a programme of design, testing, sign off and implementation. Phase 2
is scheduled to go live in February 2016. Phase 2 includes:
•
•
Development of the Resource Scheduling and Repairs Management elements of the Total
Mobile Solution with the Asset Team.
Development and roll out and of the Mobile solution to all areas of Housing operations.
The full benefit of mobilisation for housing services will only be gained once all aspects of the
function have been mobilised.
6.4
Our Costs, Performance and How We Compare: This aligns to the HCA VFM
Standard requirement that we set out the absolute and comparative costs of delivering
specific services.
How Have We Performed?
6.4.1 Financial Performance: The table below shows a number of the Group’s key financial
ratios, the change over the period where relevant, and a comparison to the sector average taken
from the HCA 2014 Global Accounts analysis:
12
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
KEY FINANCIAL RATIOS
2012/13
Actual
Actual
2013/14
Sector Average
2014/15
Actual
Change
(13/14 to 14/15)
Operating Costs ( £ per unit)
Management Cost
592
684
990
711
3.9%
Routine Maintenance
875
1,017
1,015
961
-5.5%
1,668
998
913
994
-0.4%
843
870
895
2.9%
Voids for the year
1.87%
1.78%
1.80%
2.27%
Bad debts for the year
0.69%
1.04%
1.00%
0.62%
Current tenant arrears at 31 March
4.05%
4.55%
4.70%
4.77%
Growth in turnover
7.2%
1.2%
5.2%
-2.0%
Growth in total assets
7.8%
2.1%
5.3%
7.6%
Growth in total debt
4.9%
12.3%
6.4%
2.4%
Operating Margin
24.7%
23.9%
26.5%
24.6%
Operating Margin - Social Housing
33.1%
30.0%
4.6%
4.1%
4.7%
4.0%
EBITDA MRI Interest Cover
32.0%
146.0%
153.7%
162.0%
Adjusted Net Leverage
34.0%
33.0%
42.8%
35.0%
291.0%
322.0%
379.2%
337.0%
Major Repair Cost
Staff Cost (excl Care & Repair)
n/a
Operational Performance
Growth
Profitability Ratios
Effective Interest Rate
n/a
30.5%
Debt Servicing Ability
Debt to Turnover
6.4.2 Operating Costs: Management costs remain significantly below the sector average.
They increased by 3.9% in 2014/15 with the main element being an increase in staff costs. This
reflects the additional temporary staff resource employed as part of Four Housing’s response to
the issues caused by Welfare Reform. One of the aims of the mobile working project is to
improve the efficiency of our housing operations service and remove the need for this additional
support over the next two years.
Routine maintenance costs fell in 2014/15 by 5.5% and are now below the 2013/14 sector
average. This reflects both efficiencies in procurement and the stage of cyclical repairs.
Major repair costs fell slightly in the year though this is mainly due to an underspend in the
North caused by problems with a contractor. They remain above the sector average reflecting
the Group’s decision to increase its investment in the stock in line with tenants’ priorities.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
6.4.3 Operational Performance: Both voids and arrears have increased over the past year and
are above the 2013/14 sector average whilst bad debts have fallen by 40% and are below the
sector average. A key priority for the current year is to assess the effectiveness of the changes
we have made to tackle these issues including the value for money of the additional resources
we have made available. Simply increasing our low management costs may not result in a
corresponding increase in income collection.
6.4.4 Growth: Turnover has shrunk in 2014/15 reflecting the loss of a Care & Repair contract
and the reduction in funding for others. Care & Repair operates on a low margin and reduction
in the funding is a key factor in the overall increase in the Group’s operating margin. Asset
growth reflects the additional units completed in the year (note the low previous year’s figure
when only 6 units were completed). Growth in debt is relatively low as the Group obtained
£10m funding in the previous year through the Government backed Affordable Housing
Finance plc (AHF) bond to fund development this year. A larger increase is forecast in 2015/16
as a further £5m funding will be received from AHF plc.
6.4.5 Profitability Ratios: The overall operating margin has increased over the last year. The
increase reflects both the improved margin for social housing lettings and the reduction in Care
& Repair contracts which operate on a smaller margin (though high social value). The
downward trend continues in our cost of borrowing (effective interest rate) as we take advantage
of low variable rates and the low cost of funding from bonds.
6.4.6 Debt Servicing Ability: This remains strong. Interest cover has increased above the
2013 sector average. This reflects both the lower effective interest rate and the change in the
planned maintenance programme spend following completion of the Berwick decent homes
works. Net leverage continues to increase but remains below the sector average and is well
below the level that is recognised as the comfortable maximum (60%). Debt to turnover has
increased reflecting both the increase in loans and the reduced turnover.
6.5 Key Operational Performance Indicators: Four Housing has established a number of
key operational performance indicators. Targets are set annually by the board and performance
is monitored and reported throughout the year. Performance against our key indicators is set out
in the table below:
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
2012/13
Actual
2013/14
Actual
2014/15
Actual Assessment
99.33%
99.95%
100.00%
99.97%
Amber
100.00%
Emergency (24 hrs)
90.54%
98.17%
≥98.00%
99.15%
Green
99.0%
Urgent (7 days)
93.52%
97.09%
≥96.00%
98.10%
Green
97.0%
Routine (28 days)
95.13%
97.05%
≥93.00%
98.80%
Green
95.0%
Repairs: Customer Satisfaction
91.00%
91.67%
≥90.00%
94.29%
Green
≥90.00%
Amber
Target
Trend
2015/16
Target
Maintenance
% properties with valid gas safety certificate
Repair Response Time
Income *
Void Loss (excludes planned voids)
Void re-let time (general needs)
Current Rent Arrears (operating rent basis)
1.11%
1.13%
≤1.27%
1.29%
20 days
19 days
≤20 days
42 days
3.99%
3.40%
≤3.50%
3.32%
Red
Green
≤1.27%
≤20 days
≤3.50%
Customer Services
Complaints Responded to in timescale
Calls Abandoned after 1 minute
% calls answered within 20 seconds
89%
≥95%
97%
Green
≥95%
4.20%
≤3.50%
3.63%
Amber
≤3.50%
NI
69%
≥80%
68%
6
108
0
0
Green
47
77
6
102
102
Green
0
85%
4.64%
Red
≥80%
Development
Starts on Site
HCA PC Completions
Care & Repair
Jobs Completed - Handyperson
NI
29,699
25,140
29,430
Green
Jobs Completed - HIA
NI
1,041
488
518
Green
31455
402
* Internal definitions
NI = New Indicator
Operational performance was strong in the year with most indicators meeting or exceeding their
target and showing an improvement on the previous year.
On gas servicing we maintain a target of 100%. The ‘amber’ is due to a single occupant not
allowing access in time. It has since been serviced.
For the second year running, repair response times across all three categories show considerable
improvement on the previous year’s performance. Satisfaction with the service has also
increased for the second year running though it just failed to meet its target for the year.
Income performance has been mixed. Current rent areas have reduced and are below target. A
new policy and procedure to manage rent arrears was introduced last year with more resource
put into rent collection. However, void loss and re-let times are both above target and have
increased from the previous year. This is a product of increased turnover in stock as a result of
welfare reform initiatives changing the demand for properties especially in previously hard to
let areas.
In 2014/15, resources were targeted to some of our more difficult to let areas in County Durham
and Hartlepool. Show homes were created by our own staff (saving £8k) and environmental
improvements were carried out in communal areas. This work cost c£9k and directly resulted in
13 lets which equates to £57.5k pa in rental income.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
Overall staff increased their efforts to promote difficult to let properties across our entire stock
which resulted in us allocating 51 difficult to let properties during the year with an annual rental
value c£90k. This was an increase of 21 properties compared to 2013/14 when we relet 30 long
term voids. Unfortunately, the successful reletting of each long term void increases the average
relet time significantly.
Four Housing relet 663 properties in 2014/15 and had a void loss of £290k. Of these 66
properties were allocated that had been void for over 90 days mainly as a result of being in
difficult to let areas. The void loss associated with these properties totals £126k and averages
£1.9k per property. Of the remaining 567 properties the void loss totals £164k and averages
£288 per property.
Complaint handling improved for the second year running and exceeded its target this year. This
reflects the introduction of our new complaints process in April 2014 and the introduction of a
new customer insight role to provide support to staff and co-ordinate our response to
complaints. An internal audit review has given the service a ‘substantial’ level of assurance.
We continued to see an improvement in the call abandonment rate last year against a new more
challenging target of 3.5%. We did not achieve the improvements we hoped for in our
performance on answering calls within the target timescale and are taking a number of steps to
address this. We have changed shift patterns to ensure maximum staffing in our contact centre at
peak times. We are carrying out an analysis of the reasons for calls to identify improvements to
our processes that will reduce the need for some of these calls. Linked to this we have
introduced improvements to our website and launched a new mobile app to encourage more online contact.
It was a challenging year for the development team with a number of issues to deal with on site,
however they met the challenges and all 102 units achieved practical completion by the year end
thus securing the HCA grant funding of £608k. However, we did experience delays in hand over
for letting with 16 units not being available until early in 2015/16.
The Care & Repair Handyperson Service and Home Improvement Agency (HIA) services both
exceeded their targets for the year. The targets are based on the contracts awarded to Four
Housing by the local authority commissioners and therefore it does not make sense to show any
trend.
During the year we received the results of the 2014 customer satisfaction (STAR) survey.
Overall the results were broadly similar to those achieved in 2012 and where benchmarking
information was available, the vast majority of results were higher than average when compared
to other landlords. Scores were typically in the top quartile of results. However, in line with
other landlords, the scores from younger tenants were significantly lower than the average score
and a key priority for us is to investigate and understand this difference. A copy of the 2014
STAR survey is available on our website (www.fourhousing.co.uk/ValueForMoney.aspx).
6.6
How Do We Compare?
Four Housing is a member of the Housemark benchmarking club and in July 2015 we received
the report based on our draft 2014/15 statutory financial statements combined with the 2014
STAR customer survey report comparing our performance to 136 other similar Housing
Associations.
A summary 2014/15 Value for Money assessment across 7 key operational areas identified by
Housemark is provided below:
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
A more detailed report is available on our website (www.fourhousing.co.uk).
At the time of writing we had just received the Housemark report and consideration of the
results will be undertaken by officers and by our Tenant Scrutiny Panel over the coming
months. This will be used to inform our priorities in future years. The Tenant Scrutiny Panel
will use the information to inform their decisions on which areas they will undertake service
reviews on. Appropriate action plans will be developed and implemented.
We have been able to identify some initial conclusions and areas for further work:
6.6.1
Responsive Repairs and Voids – Improving the performance in responsive
repairs and void works was a key priority identified by both Four Housing and
its customers in previous years. The latest report shows good progress with
repairs, with both completion times and satisfaction rates being above the
median whilst costs are below average.
6.6.2
Rent Arrears & Collection – This is an area where we recognise we need to
improve especially with the roll out of Universal Credit (UC) and future welfare
reforms in the coming years which will create additional risks and volatility in
rent collection. We have invested additional staff resource in this area which has
made an impact but overall performance remains below our peer group.
Changes have been made over the past year and these will be monitored to
assess their effectiveness.
6.6.3
Anti-Social Behaviour – This is another area that we recognise as requiring
improvement as both resolution times and satisfaction has fallen. In 2014/15 we
have carried out a fundamental review of how we provide the service and in
2015/16 the Tenant Scrutiny Panel will review this area and the success of the
changes we have made.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
6.6.4
Major Works & Cyclical Maintenance – As with responsive repairs, our
performance is strong. Four Housing is committed to investing in the
maintenance of our stock to a standard above the government’s Decent Homes
level, to tackling affordable warmth, and to achieving VFM in the procurement
of maintenance services. Therefore we will continue to invest in our stock in
line with our tenants’ priorities and as such we do not aim to be a top quartile
(lowest cost) provider.
6.6.5
Lettings – In terms of costs, this needs to be considered alongside tenancy
management (low cost). We believe that these two results are linked and are in
part caused by how we have apportioned costs between the two services. As can
be seen from the table on page 13, the overall total management cost per
property (which includes corporate overheads) is significantly below the sector
average. However, this does not disguise the fact that we have a significantly
higher than average number of properties that are either vacant and available or
vacant and unavailable. The properties that are vacant and unavailable reflect
the decision to not let a number of properties which will be subject to potential
demolition in the future. We will review our void process and lettable standard
to determine how we can improve performance.
6.6.6
Tenancy Management – Tenancy turnover is high at 13.5% compared to the
median of 8% and last year’s performance of 11.8%. This brings its own issues
and is a factor in the level and cost of voids and arrears. Evictions are below the
median and this has contributed to our lower bad debts in the year.
6.6.7
Resident Involvement – The performance level has been brought down by the
low level of diversity information the Group holds (60% compared to the
median of 87%). Improving this is a priority for us.
6.6.8
Estate Services – The higher costs relate primarily to higher than the median
service charge expenditure. This is dependent upon the terms of the lease and is
fully recovered through our service charge income. Satisfaction is above
average.
6.7 Update On Last Year’s Priorities: The VFM Statement last year identified 6 areas for
further work. These are listed below together with an overview of progress and a cross reference
to the relevant section of this report where any further detail is provided:
•
develop further our sustainability modelling tool to facilitate informed decision making
around retain, sell or remodel options for our stock.
Good progress has been made as detailed in Section 4 below with the tool being used to inform
investment decisions.
•
provide more opportunities for customers to be involved in scrutinising activities.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
We have widened the opportunities for tenants to become involved through a range of measures
including focus groups, readers’ panels and ‘virtual’ involvement activities. Further detail is
given at Section 7 below.
•
improve communications with customers on VFM (this is linked to the priority above).
The 2014 STAR survey shows that both the number of customers satisfied with the value for
money of their rent and feel that we take their views into account are above the sector
benchmark. However, the number who said we were good at keeping them informed was below
the benchmark. Improving communication further remains a priority for us.
•
review our anti social behaviour and income collection services.
As noted above, both resolution times and satisfaction fell in 2014/15. Recognising this,
Officers, working with our Neighbourhood Service Improvement Group (SIG), carried out a
fundamental review of how we deliver ASB services and an action plan has been developed for
implementation. We revised our procedures for dealing with cases of Domestic Abuse and
introduced new procedures for tackling Hate Crime. This work ensures that we are taking a pro
active approach to supporting victims and monitoring all cases and the communities which are
impacted.
In 2015/16, we will be working with the SIG to review our performance in this area and the
Tenant Scrutiny panel will also be conducting a review to identify how else we can improve our
service.
The Tenant Scrutiny Review of how we support tenants to pay their rents was completed in
2014 and resulted in 15 recommendations being made. An action plan was developed and the
Rent Recovery Project and Financial Income team are working to deliver all the actions. To date
8 actions have been completed.
•
set priorities for improvement across service areas.
A two pronged approach has been taken to this. Firstly, our tenant scrutiny panels consider
performance data and benchmark information to select their topics for review and set priorities
for action. Secondly, the Senior Management Team presents an annual delivery plan to the
board for approval which identifies manager’s key priorities. The 2014/15 delivery plan
concentrates heavily on the mobilisation project which will delivery efficiencies across
operational housing and maintenance functions.
•
research social return on investment models.
Four Housing has set out its approach to social value in a separate document
(www.fourhousing.co.uk/ValueForMoney.aspx) and is currently collaborating with a
consultancy firm on establishing a methodology to allow us to calculate the social and wider
economic return of different capital investment options. Our project appraisal process now
includes a requirement for social value to be considered as part of the business case for a
project.
6.8
Optimising The Use Of Our Assets
6.8.1 Sustainability & Options Appraisal: In the previous year we implemented a stock
sustainability modelling tool (Hfat). It is an NPV based tool which combines financial data such
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
as rent income and repairs expenditure with operational and environmental data such as
turnover, void loss, deprivation, and energy efficiency. It uses a traffic light assessment to
categorise stock with red being a zero or negative Net Present Value (NPV). It also enables us to
analyse performance of stock type e.g. flats, within a scheme or estate.
The tool will also help us track the impact of changes in demand from welfare reform on the
long term sustainability of schemes and estates.
In 2014/15 we expanded the data analysed by Hfat to include home and neighbourhood
satisfaction ratings from the 2014 STAR survey. This will enable use to further enhance our
pre-investment assessment process helping to target valuable investment resource.
The graph below shows a summary of our general needs stock NPV by estate:
We use Hfat to ensure money is invested in the right places. Any scheme with a negative NPV
is to be taken forward for an options appraisal and the operational and environmental data is
considered and an investment (or disinvestment) strategy agreed.
Evidence of this is that the worst performing scheme in 2013/14 had a negative NPV of
£35,714. Following an agreed approach to investment works, the scheme now has a positive
NPV of £5,179.
This targeted approach to investment decisions has seen the Hfat stock profile improve
significantly from the previous year as shown below:
Hfat
NPV Analysis
Red
Amber
Green
2013/14
%
2014/15
%
15
18
67
10
6
84
Year on Year NPV assessment
Red ≤Zero NPV Amber > 0 and <£10,000 NPV Green ≥£10,000
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
There are now 426 properties falling into the Red category, a reduction of 50% from the
previous year. The average NPV has risen from £16.8k in 2013/14 to £19.4k in 2014/15.
Work on one scheme flagged as a ‘red’ has already started. This project is to develop and
implement strategic regeneration options for the North West area of Dean Bank, specifically
Stephenson Street and Faraday Street. The intention is to improve the long term impact on the
business plan and will involve working with key partners including the Local Authority and the
HCA.
6.8.2 A Revised Home Standard: During the year we undertook a project to develop a
consistent organisation wide standard for investing in our properties. The aim of the project was
to have one consistent standard for Four Housing which would replace both the Three Rivers
and the BBH standards. The focus was on producing a standard that surpassed the Decent
Homes Standard (2006) and which is affordable. The new standard needed to support the
delivery of a good quality product that helps support the vision and values of Four Housing. A
further aim was to provide a high level planning document detailing when key components will
be replaced. The scope of the project did not include detailed specification and product selection
and was caveated as being subject to affordability.
Central to the project was engagement with customers who provided considerable input into the
project and influenced the justification for the prioritisation of key components of a home.
Engagement activity included workshops with the SIG’s and online surveys with the 400
Group.
The proposed ‘Home Investment Standard’ reflects previous good practice within the
subsidiaries, but also remove inconsistencies across the organisation. It will facilitate improved
planning around investment in properties and enable investment to be more effectively targeted.
The new standard will be incorporated into future forecasting and subsequent works
programmes and Hfat will be updated accordingly. We believe the new Home Investment
Standard provides a robust basis for decision making and clarity for tenants around our
investment decisions.
6.8.3 Affordable Warmth: This is a key priority for our customers. The Asset Management
Strategy identified a project to be undertaken in 2014/15 to develop a target for the
improvement of the energy efficiency levels of our homes. By setting and delivering an energy
efficiency target we will be addressing fuel affordability and poverty issues and improve the
overall quality of our homes. The outcome of this work will also help inform our future planned
maintenance programmes ensuring that we invest our resources effectively and efficiently in
line with tenants’ priorities. Engagement with customers was a core part of the work associated
with this project.
The project used Energy Performance Certificates (EPCs) data as a measurement. A baseline
assessment established that the average EPC rating for Four Housing properties is 69 (D). This
is above the average EPC rating of 55 for a UK home but below the average of 70 for housing
associations. Our data reveals that our average hides a wide range of values.
Based on the outcome from this work the board has set a target of an average EPC rating of 71.5
points to be achieved across all stock by 2020. Poor performing stock across both Three Rivers
and BBH has been identified and action plans will be developed.
21
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
A key consideration has been to ensure that the financial impact of the energy efficiency work
and the revised Home Standard will be neutral and delivered within the financial parameters of
the business plan.
The target will be incorporated into our forecasting and subsequent works programmes.
Furthermore, a framework to identify the potential social value of investment in energy
efficiency works across different areas and income groups will be developed. This will help us
to understand where the greatest difference to fuel poverty levels amongst our tenants can be
made.
In 2014/15, to further improve energy efficiency we have:


Sourced external energy efficiency funding to a value of £152,000. This
funded work to replace failed cavity insulation and was delivered to
over 180 homes.
used Renewable Heat Initiative funds to treat 8 Off Gas properties to
the value of £24,000.
6.8.4 Growth & Change: In previous years the Group has benefited from economies of scale
in both delivery and subsequent operating costs achieved through the construction of, on
average, 100 new properties per annum. This number has reduced significantly since the
reduction in grant levels available to support new affordable homes. The Group’s current 201518 development programme totals 47 units. Whilst we aim to bring additional schemes forward
over the period, it is evident that future economies of scale from new build will be limited. This
increases the need to ensure that we deliver value for money across the whole organisation.
We continue to review how we deliver our development programme and through changes in our
structure we ensure that our direct management on-costs are no more than 4% of the total
programme costs.
Although the size of our development programme has reduced, we continue to seek to deliver
VFM. As part of our 2011-15 Development Programme we were contractually obligated to the
HCA to achieve practical completion of 56 new homes in Berwick by the end of March 2015.
The conditions of HCA grant stipulated that if we failed to deliver within the timescale the
£605k of grant payable at practical completion would be lost. In response to a poorly
performing contractor and to protect the grant investment the Development Department
reorganised priorities and established an internal Berwick Project Team to provide intense
project management both on and off site. As a result of committing additional staff resource,
basing a full time Project Manager on site for a period of 12 weeks, at an estimated on cost of
£3,000 practical completion was achieved and the full grant was received.
In 2014/15, we continued to implement the recommendations from its strategic review of
supported housing portfolio. This review identified that a greater return could be generated from
our agency managed schemes than from those which were directly managed and that the
financial viability of these schemes was likely to deteriorate further in future years. The review
concluded that transferring the care and support to partner organisations would not only
improve the financial position and reduce the risk profile of the Group but that our tenants
would also benefit by care and support being provided by larger, specialist organisations. We
have now completed transferring the care and support provision for all of our directly managed
schemes to partner organisations. In total 28 staff have been transferred. We continue to own,
maintain and manage the properties.
22
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
In financial terms, the changes are expected to generate savings of over £74k pa, equivalent to
increasing our operating surplus on our supported housing service by 7%. Supported housing
remains a key part of our business and, in line with our agreed strategy we are actively seeking
to develop further agency managed schemes.
6.9
Optimising The Use Of Our Resources
6.9.1 Additional Investment: In 2014/15, additional revenue funds of £420k were allocated
with the main areas being: additional services to support tenants through Welfare Reform
including temporary posts (£160k); mobile working project (£85k); apprenticeship and trainee
programme (£35k); tenant involvement and complaints handling (£30k); community
regeneration projects (£15k). A proposed stock rationalisation project costing £100k was not
able to be funded.
6.9.2 Corporate Services: These include the provision of Finance, HR, ICT, Governance, PR
& Marketing and the Chief Executive’s office. The total revenue spend on these services
(excluding depreciation) is £1.8m pa. The Group has an efficiency target of cash limiting spend
on Corporate Services to the same level as 2011/12 for the period to 2015/16. This has been
achieved each year to date and the budget for 2015/16 shows a small reduction of £24k (1.3%)
compared to the previous year’s budget. The main elements are a reduction in PR & Marketing
and audit fees. Taking retail price inflation into account over the period from 2011/12 to date, a
reduction of c20% has been achieved.
6.9.3 Income Maximisation: The implementation of Welfare Reform and specifically
Universal Credit (UC) continues to increase cash flow volatility and reduce the amount of
income we collect. Additional funding was made available for the Financial Inclusion Team in
2014/15. The team continue to focus its efforts on raising the awareness of UC to our customers
and identifying the risks to the business as UC is rolled out.
This work has identified that 64% of working age customers will be at risk due to UC and will
need some support to manage their rent payments. The team is currently reviewing how it
operates to ensure that the right support for customers is in place at the right time to minimise
the loss to the business.
In 2014/15 the team supported 601 customers with debt and benefit advice, they dealt with 500
help line enquiries and visited over 500 customers to have detailed conversations about
Universal Credit and the impact that it will have on their income and ability to pay their rent.
This work resulted in customers claiming £771k additional income from a range of benefits and
other payments and of this amount £231k has been paid into rent accounts. Examples to
demonstrate the work of the FIT team can be seen on our website (www.fourhousing.co.uk).
A review by the Tenant Scrutiny Panel was undertaken to make sure that the methods of
payment which we offer customers were meeting their needs and also providing value for
money for the business. This work concluded that we do offer customers a wide range of
methods of payment, which they are positive about, and that the methods of payment do offer
the business value for money in terms of overall cost and the amount of officer time spent
processing the payments.
To provide additional funds to replace the reduction in grant levels for the development of new
properties, Three Rivers, our developing subsidiary, assesses each property that becomes void
23
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
for conversion to Affordable Rent (AR). During the year we converted 82 properties which will
generate an additional £52k pa in rent.
In February 2015 the housing teams were reorganised to improve the management structure and
bring consistency to the way in which we deliver services across the Group. This work achieved
a saving of £14k. Further work will take place in 2015/16 to improve our performance
monitoring arrangements across the teams and income collection targets have been revised to
reflect this.
6.9.4 Care & Repair: Four Housing Care and Repair aims to enable people to continue living
independently in the home of their choice. We assist home-owners, private tenants and social
tenants, who are older, disabled or otherwise vulnerable, to make large or small scale repairs
and adaptations to their properties. Where large scale works are involved, we advise on the
technical and practical aspects of the work, and support people through the financial process
including helping with grant applications, planning the work and dealing with building
contractors. In 2014/2015 we helped 518 customers in this way managing the delivery of £2.3m
worth of major adaptations and repairs. For small scale works, we directly employ a team of
handypersons and in 2014/2015 they carried out 29,430 jobs.
The social value of the Northumberland Handyperson service, which delivered nearly 12,000
jobs to older and vulnerable households last year, was independently assessed by Foundations,
the national organisation for HIAs and Handyperson services. For £552,000 invested
Commissioners receive a gross costed benefit return of £887,399 which equates to £1.61 return
for every £1.00 invested.
The main beneficiaries are:



Social Services £638,649 gross costed benefit return
Health
£210,664 gross costed benefit return
Police
£2,671 gross costed benefits return (typically on home security)
This is lower than reported from other studies which indicate a social value gain of £5 for every
£1 spent. These studies put a value to a customer in terms of their independence, freedom,
control and dignity by being able to remain in their own home. This would equate to a social
value gain of £11.5m from our Care & Repair work last year.
The original business case for the mobilisation project had excluded Care & Repair due to the
uncertainty at the time over some of the contracts it delivers. This has now largely been resolved
and a separate business case has been made. This shows that the cost of extending the project to
Care & Repair will be c£100k and payback will be made within one year. To date, the changes
made to operating practices to enable a mobile working solution to be successfully implemented
has seen a 32% increase in the efficiency of the handyperson service saving £40k last year. The
full implementation of mobile working in 2015/16 will bring further efficiencies. This will
enable us to continue to provide the same level of service provision despite funding cuts from
commissioners which has seen the number of handypersons fall from 11 to 8.
6.9.5 Older Persons Services: In 2014/15 a comprehensive review was carried out looking at
how we deliver services to older persons and the cost of these services to the individual and the
24
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
business. At the time Northumberland County Council (NCC) were looking to remove their
funding of £20k.
Following the review and detailed discussions with NCC it was agreed that they would continue
to fund £15k into the services for a further year and that Housing Benefit would meet the
shortfall of £5k.
In 2015/16 we will work with customers to identify additional savings that can be made. This
work will look at how we can deliver the service in the future within budget constrains whilst
allowing elderly individuals to remain safely in their homes and communities for as long as
possible.
6.9.6 Estate Inspections: In February 2014 we launched our new estate inspection process.
The aim is to minimise the risk to the business by being proactive and identifying concerns in a
neighbourhood and rectifying them promptly before they become a problem for the community.
Our new Estate Inspection process is seen as a model of best practice by Zurich our insurers and
has been shared with other housing associations across the sector. A proactive approach should
reduce the potential for claims being made against Four Housing and ultimately lead to reduced
insurance premiums.
6.10 Effective Procurement & Partnership Working
This is aligned to the HCA VFM Standard requirement to evidence the VFM gains that have
been and will be made, and how these have and will be realised over time.
In the last year we have reviewed and updated our Procurement Strategy which has identified
eight key actions to be implemented over the next five years. To deliver the overall aim of
facilitating and improving procurement within the organisation, the strategy established four
key objectives:
•
Value for Money: To achieve optimal value for money through effective
procurement and to reduce the cost of procurement.
•
Customer Focus: To ensure that procurement is aligned with the needs of our
customers and that our customers are appropriately involved in our procurement
activity.
•
Integrity & Probity: To ensure that all procurement activity is ethical and that
Four Housing and staff involved in procurement are safeguarded from actual or
perceived corrupt or fraudulent activity.
•
Sustainability & Social Value: To consider the social investment opportunities
available through our procurement activity and its potential to deliver economic,
social and environmental benefit to the communities we serve.
A copy of our Procurement Strategy is available on our website
(www.fourhousing.co.uk/ValueForMoney.aspx).
A key element of our approach to procurement is to seek to secure partnerships which can be
applied to several projects and/or work streams over a period of years to encourage delivery in
the most efficient and cost effective manner. This will see us move away from annual tender
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
competitions to save tender costs, along with locking in contractors to competitive rates to
deliver a good quality service. The length of contract supports the service provider in investing
in the service and securing the right quality staff to deliver the contract. Tenants are involved in
the process for works contracts to ensure that their priorities and concerns are addressed. We
also now include the use of employment training requirement clauses within new works
contracts and encourage all our suppliers to support the Living Wage.
6.11 Contracts & Tenders
In 2014/15 we tendered work with a value approaching £9m pa (2013/14 £1m). The Group has
an annual spend of c£6.5m on external tendered services (excluding the development
programme and Care & Repair) with the main area being maintenance at over £5m pa.
Tendering in 2014/15 has been focused on planned maintenance which accounts for the vast
majority of the works tendered. The main contract was the appointment to provide works in the
south of our area of operation for the next three years at an estimated total cost of £7m. In the
next year we will complete a tender exercise for the planned programme in the north.
The new planned maintenance contract was subject to an OJEU procurement exercise
assessment and was based on price and quality. Pricing was scored on an average of the best
three prices this reduces the risk of under-pricing and buying of work. The selection process
involved tenants at each key stage. The successful contractor scored significantly higher on
quality though they were not the lowest price. Therefore, whilst we believe the tender
demonstrates value for money, we are not expecting any cash savings from the contract.
Non-maintenance contracts tendered in the year totalled c£60k include PR, tenant scrutiny
support, tenant satisfaction surveys, and it is estimated that savings of £11k pa will be generated
from these contracts.
During 2014/15 we evaluated our membership of benchmarking groups and concluded that we
should only use Housemark to benchmark our income collection services and withdraw from
the HQN benchmarking group which resulted in a saving of £1.2k.
The main procurement exercises in 2015/16 will include planned maintenance (North) and
insurance services.
6.12 Partnerships
In July 2014 we commenced our new responsive maintenance contract that was procured in
conjunction with North Star and Two Castles. The total contract value is in excess of £13m over
a 4 year period and we estimate that this will secure Four Housing a saving of at least 10% on
our previous arrangement. It runs alongside the work our direct labour force undertakes. The
cost per property of responsive maintenance fell by 5% in 2014/15.
Four Housing continues to co-ordinate and administer the Spirit Regeneration & Development
Co. LLP on behalf of the 8 housing association members. In 2014/15, the LLP transacted £76m
of development activity and reclaimed over £280k of VAT on development schemes of which
£23k related directly to Three Rivers. To date over £2.6m of VAT has been recovered that
otherwise would not have been without this partnership originally established by Three Rivers
and Tees Valley. This is equivalent to an additional 25 homes being built.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
The Northumberland Handyperson service are partners of the Safeguarding Board’s Child
Safety Sub-Group fitting child safety equipment for children on the at risk register with referrals
from health visitors and children centres. During 2014/15 we were asked by the accident
prevention team to fit child safety equipment in the homes of teenage parents in
Northumberland. The aim of the scheme was to help reduce the risk of young children having
accidents and falls at home. By the end of 2014/15, we had visited 52 properties and delivered
285 interventions with £7k of additional funding.
The whole Care & Repair team has recently become Dementia Friends and gained an increased
understanding of what dementia is as part of Alzheimer’s Society’s awareness-raising initiative.
Knowing how many of our clients will be affected by dementia in the future we are keen to
explore more ways we can support people with dementia to live at home successfully.
Four Housing Care and Repair, was one of only 32 services nationally to successfully bid for
£5,000 of Gas Safe Funding to help vulnerable and older people to be safe in their homes. The
funding is to address the replacement, repair and servicing of dangerous, faulty or insufficient
gas appliances and installations that put the safety of older and vulnerable people at risk. It has
been made available as part of a UK wide scheme run by the Foundations Independent Living
Trust (FILT) and the Gas Safe Charity.
Through our successful partnership working with Sure Start, 56 child home safety packs were
issued to new tenants with young children in the north at a cost of £600. This project will
continue in 2015/16.
Successful partnership working also ensured that we accessed free training across the Business
for staff in our Housing (general needs and supported), Safer Communities and Financial
Inclusion teams. The training was delivered by Northumbria police, Northumberland County
Council and the voluntary sector and covered Hate Crime, Domestic Abuse, MARAC (Multi
Agency Assessment Recording) and PREVENT (one part of the Government’s Counterterrorism Strategy) agenda awareness. The cost of this training from other training providers
would have been an average of £600 per day saving the organisation £3k.
6.13 Improving VFM Through Customer Involvement
This is an area we have previously identified as requiring improvement. In 2013/14 we reported
that we had worked with tenants in reviewing and overhauling our Customer Engagement
Strategy and had established a North and a South Tenant Scrutiny Panel. A further update is
provided below.
There have now been three scrutiny reviews carried out since customer scrutiny panels in the
North and South were established in 2013. The panels appointed the Northern Housing
Consortium to collect the evidence to inform their reviews and recommendations. All
recommendations have been addressed in action plans agreed by board. The majority of the
actions in the first two reviews of customer service and reactive maintenance have already been
completed and service improvements introduced. These improvements include an increase in
the value of work contractors can do without seeking prior permission which will speed up the
completion of repairs. Customers are also now involved in contract reviews prior to
procurement. Our STAR survey carried out in August 2014 showed that satisfaction with
customer service and reactive repairs has improved since 2012 (see Key Operational
Performance table in Section 2).
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
The panels worked together to carry out their third review into rent recovery and the action plan
in response to their recommendations is now being implemented.
The panels consider performance data and benchmarking information to select their topics for
review. They also consider internal delivery plans and audit programmes to ensure that there is a
co-ordinated approach to service reviews and that they are able to effectively shape and
influence service delivery. A recent review of the scrutiny process has resulted in the
permanent merging of the two panels which will introduce further efficiencies to the scrutiny
process.
Our customer led service improvement groups (SIGs) monitor service delivery in terms of cost
and quality and work with us to identify service improvements. The groups receive performance
information in advance of their meetings and use it to carry out ‘check and challenge’ sessions
with service managers. The groups also monitor progress against the scrutiny action plans.
During the year the groups have been involved in the procurement of the planned maintenance
contract and introduced a framework for customer involvement in future procurement. They
have helped establish a new home investment standard and have been involved in setting the
new energy efficiency targets for the organisation. The groups have helped procure the contract
for customer communications achieving savings of around £4,000 per customer newsletter.
Customers have also informed our new approach to collecting continuous customer satisfaction
data in 2015/16 which is projected to improve the quality of the information collected and
achieve cash savings of around £7,000 per year.
The work of the SIGs is supported by a range of other engagement activities including focus
groups, readers’ panels and ‘virtual’ involvement activities (400 Group). We now carry out
regular on-line surveys which have led to some younger customers getting involved for the first
time. Results have informed our approach to anti-social behaviour satisfaction surveys,
priorities for our home investment standard, and the scrutiny rents review. Customers have also
helped us develop a new Smartphone App and improve our website with the aim of encouraging
more customers to access services on-line.
Involved customers meet once a year to discuss the organisations overall finances, spending
priorities and value for money as part of the budget cycle. Improvements identified through
involvement activities are communicated to all customers through our publication ‘the Bridge’
and through our website.
The 2014 STAR survey shows that 84% of our customers are satisfied with the value for money
of their rent. This is an increase of 3% from 2012 and also it is above the sector benchmark of
82%.The 2014 STAR survey also shows that 72% of customers felt that we listened and took
their views into account against a sector benchmark of 69%. However, the number who said we
were good at keeping them informed was below the benchmark (80% compared to 83%).
Understanding the reasons for this and hence improving communication further remains a
priority for us.
As reported above, the satisfaction levels of younger customers are significantly below our
overall scores and to help us to understand and respond to this, we are actively seeking to
increase involvement of young people in our scrutiny and engagement activities.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
6.14 Summary Of VFM Gains 2014/15
£k
Minor Contracts
Responsive Maintenance Contract
Reletting long term voids (net)
Energy Efficiency Funding
Renewable Heat Initiative Funding
Supported Housing transfer of care & support
FIT additional rent generated
Housing management restructure
Older Persons Services funding secured
Reducing benchmarking clubs
Gas Safe Funding
Care & Repair Working Practices
Care & Repair Child Safety Funding
Spirit Devco VAT savings
Affordable Relets
Reduction in effective interest rate
Free training
11
20
81
152
24
74
71
14
20
1
5
40
7
23
52
87
3
685
HCA AHP grant funding (net of additional costs)
605
Comments
Tendered 2013/14
From 15/16
Net of cost of additional posts
Full year effect
This funding was potentially at risk
6.15 Future Plans
Our two main priorities are to conclude the discussions regarding merger and to deliver phase 2
of the mobile working project. Both of these initiatives offer the opportunity to deliver
significant value for money gains in future years.
Other plans include:








Finalise our review of pension arrangements and consult with staff before changes
are implemented with effect from April 2016
Procure a new planned maintenance contractor for BBH including leaseholder
consultation.
Continue to ensure new contracts encourage participants to sign up for the living
wage.
Apply for further grant funding for energy efficiency work, particularly external
wall insulation.
Undertake a project to identify the full extent of our land holdings, leases and
associated liabilities.
Review of the current voids processes and lettable standard.
Implementation of the BBH garage strategy, including a demolitions programme
Partner with Durham County Council to deliver a pilot External Wall Insulation
project to Pine Street, South Moor.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015








7.0
Releasing excess security held by our current lenders to maximise our funding
capacity.
Implementing a new ICT Help Desk that meets ITIL standards for improved
service desk, better auditing and change control management.
Review development procurement in rural areas to explore contracting with smaller
/ local contractors to reduce build costs and boost the local economy.
To identify and implement measures to improve our call handling capability.
To consider strategies to encourage younger people to become involved.
Complete the review of ASB by the Tenant Scrutiny Panel.
Improve the collection of diversity information.
Review the costs and benefits of our Financial Inclusion service.
Conclusion
After taking into account the actions and initiatives outlined above, we believe Four Housing
complies with the current HCA VFM standard.
In completing this self-assessment we feel that we have demonstrated our current and future
plans and approaches to VFM and are well placed to continue this work.
Our self assessment identified that we:






have robust decision making on the use of resources
invest additional resources in line with business and tenants’ priorities
understand the rate of return on our assets
have SMART performance management and scrutiny functions
understand the costs and outcomes of delivering our services.
Achieved value for money gains of c£0.7m in 2014/15.
Welfare reform, the state of the economy, particularly in the housing and finance markets, and
the potential extension of Right to Buy are key risks to the sector and Four Housing which we
will keep under close review.
We recognise that there are areas for improvement and we will use this assessment to update our
VFM action plan to address these. Over the next 12 months we will:
1) Implement Phase 2 of the mobile working project.
2) Identify and implement measures to improve our call handling capability.
3) Consider strategies to encourage younger people to become involved.
4) Complete the review of ASB by the Tenant Scrutiny Panel.
5) Improve the collection of diversity information.
6) Review the costs and benefits of our Financial Inclusion service.
7) Review of the current voids processes and lettable standard.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
The announcement in the July 2015 budget of a four year 1% pa rent decrease for the sector is a
significant risk and will require savings to be made which won’t be available for reinvestment in
improved or additional services. The work over the next year will be to identify how and where
these savings can be made whilst protecting the core services that our customers rely on. This
may impact on our ability to deliver some of the planned improvements and changes identified
in this report.
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Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
Development
During 2014/15, the Group completed the construction of 102 affordable housing units across
Durham, Gateshead and North Northumberland as part of 2011-15 development programme.
Grant funding, from the Homes and Communities Agency as part of the 2011-15 National
Affordable Housing Programme, of £743k grants was received in the period, and £756k RCGF
grant was utilised.
In April 2014, a bid for grant funding under the 2015-18 Affordable Homes Programme to
support additional new homes was submitted through the Spirit Partnership to the HCA.
Funding was awarded to develop 47 units over the programme period. This bid was lower than
in previous years and reflects the reduced capital grant rate available to support the construction
of new homes.
Asset Management
The Decent Homes Standard is the minimum standard that the Group aims for. Three Rivers
achieved 100% compliance by 31st December 2010 and continues to maintain compliance at this
level. Maintenance budgets over successive years have increased in order to provide customers
with an excellent product that is sustainable into the future. For BBH, the major driver behind
the transfer was to enable the necessary maintenance improvements to be financed and
undertaken to provide customers with homes that are modern and warm. BBH has invested over
£33m since transfer. It will continue to invest in the stock to ensure that it remains decent homes
compliant and that the higher ‘Berwick Standard’ is met. Following the successful completion
of the ‘catch up’ repairs at BBH, it has put in place a full routine and cyclical maintenance
programme. This has led to an increase in the amount of expenditure that is expensed through
the Income & Expenditure Account and a reduction in the capitalised repair costs.
Details of significant movements in the Group’s and Association’s fixed assets are shown in
note 11 (Housing Properties) and note 12 (Other fixed assets).
Risk and Uncertainty
The main risks that may prevent the Group achieving its objectives are considered and reviewed
on an annual cycle by the Executive Team and Board as part of the corporate planning process.
The risks are recorded and scored in terms of their impact and probability. Major risks,
presenting the greatest threats to the Group, are considered on a regular basis by the Group
Audit Committee which assesses the adequacy and effectiveness of the controls put in place and
any emerging risk issues. The Group has identified the major risks to the successful
achievement of its objectives. New emerging risks have been identified and considered and
appropriate measures put in place. The major risks are considered below:
External Economic Influence – the Group is subject to a number of influences arising from
macro-economic activity. These include the residential property market where values and
demand in the North East continue to be fairly static, inflation/deflation and the availability and
cost of private sector funding. The Group is aware of the impact that the national deficit
reduction plan may have on its operations and financing and has undertaken detailed financial
planning and modelling to ensure the Group has developed appropriate strategies to meet the
impact of these economic factors.
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Four Housing Group Limited
Report of the Board of Management
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Welfare Reform - Changes were implemented in April 2013 to housing benefit in relation to
the perceived under occupancy of social housing and over the next few years benefit payments
direct to the tenant is being rolled out across the country. The impact is likely to be an increase
in arrears, bad debts and voids. The Group has established a separate risk map for these issues
and has implementing steps to mitigate the impact on the Group and its tenants. An internal
audit of the Group’s response gave a ‘substantial’ level of assurance. The assumptions on
arrears, bad debts and voids that are used to produce the Group’s 30 year business plan have
been updated for our forecast of the impact of these changes. The Queen’s speech in April
2015, included further measures in relation to welfare reform such as a reduction in the benefits
cap, and the group is putting in place appropriate mitigation.
Government Initiatives/Regulatory Change – the Group continues to monitor and evaluate
new government initiatives and any plans of the Homes & Communities Agency (HCA).
Scenario planning is being undertaken. In parallel, the Group is ensuring that it complies with
the regulatory framework and standards. The HCA introduced regulatory framework effective
from April 2015. The board has reviewed the framework and has agreed an action plan to
ensure it complies fully with the revised expectations. No significant changes are required.
Budget July 2015
The measures announced in the budget in July 2015 will see a period of unprecedented change
to the funding of social housing. This includes a real rent reduction of 1% per annum for four
years from 2016/17, the extension of the Right to Buy to traditional associations, further welfare
reforms including the benefit cap reduction and the continued roll out of Universal Credit, and
further reductions in public expenditure. This will create a challenge to income streams and
increase cashflow volatility. It will also have an adverse impact on a development funding
model that is reliant on revenue streams rather than capital grants. Capacity to develop will also
be reduced as rent decreases and Right to Buy reduces the asset base. At the same time cost
pressures are increasing in the maintenance and construction sectors, wage inflation is starting
to rise as the economy recovers and interest rates are forecast to increase from 2016 onwards.
The Group’s preliminary calculations show a cumulative reduction in rent in excess of £7m
over the next five years compared with the amount expected under the previous rent formula.
The Group is currently developing its plans to enable it to meet this challenge however it is
evident that the scale of the changes will mean that future growth and investment aspirations
will be severely affected.
Investment in the Future
The Group is committed to spending over £20m across both subsidiaries in the next 5 years to
improve the quality of its housing stock and aims to deliver at least 47 new properties between
April 2015 and March 2018, subject to financial and market forces. It also aims to improve the
services provided to customers and to increase the level of customer consultation and
involvement to ensure that their priorities are clearly identified and taken into account in
strategic planning.
These plans will need to be reassessed in the light of the July 2015 budget announcement
regarding a four year rent decrease of 1% per annum.
33
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
Accounting Policies
The Group’s principal accounting policies are set out on pages 45 to 49 of the financial
statements. The policies which are most critical to the financial results relate to the accounting
for housing properties, including cost basis of properties, capitalisation of interest and
development administration costs, housing property depreciation and impairment, and treatment
of shared ownership properties.
Capital Structure and Treasury Policy
Borrowings at the year end totalled £88m including £2.75m drawn down during the year. The
Group borrows principally from banks at both fixed and floating rates of interest with the aim to
secure approximately 70% (+/-10%) of the total borrowings at fixed rates. At the year end 74%
were at fixed rates. The fixed rates of interest range from 1.95% to 11.5% as shown in note 18.
The note also provides a maturity profile of the debt.
Each subsidiary with the advice of the Group Finance Director and the Group’s professional
treasury advisors (Beha Williams) negotiates its own facilities utilising their own security. No
Group facility or security is in place. Facilities are in place that will provide the funding for the
Group’s development programme for the next year and the full programme of major works.
During the year two new facilities were arranged, the first with Yorkshire Building Society
(£5m), the second with AHF plc (£5m). These funds will be used to finance future
developments.
The Group does not use wider rule hedging instruments and has no plans to amend its Rules to
allow their use. The Group borrows and lends only in sterling and so is not exposed to currency
risk.
Cash Flows
Cash inflows and outflows for the period under review are set out in the cash flow statement.
Net cash inflows from operating activities are from the management of housing stock. Returns
on investment and servicing of finance are due to interest income and interest charges. The net
cash outflow from capital expenditure is the spend on properties new and existing that has been
capitalised less grant less sale proceeds plus spend on other fixed assets. The net movement on
financing is the difference between loans repaid and new loans.
Current Liquidity
Cash and bank balances at the year end were £7.3m. Net current assets at the year end were
£28m. The Group has facilities and available security to borrow a further £15m.
The Board does not consider that there are any seasonal effects on the borrowing requirements.
The main influences on the amount and timing of borrowings is the pace of the capital
programme and the grant rate and terms of funding from the HCA.
34
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
Statement of Compliance
In preparing this Operating and Financial Review, the Board has followed the principles set out
in Part 2 of the 2010 SORP for Registered Providers.
Members of the Board
The members of the Board who served during the year are set out on page 1. Each Board
Member holds one fully paid up share of £1 in the Association. None of the senior officers are
shareholders.
The Board comprises up to 12 members and is responsible for the direction and overall control
of the Group’s affairs.
The Management Team
Members of the management team who served during the year are also set out on page 1.
Staff
The strength of the Group lies in the quality and commitment of its staff. The Group is
committed to providing a comprehensive training and development programme both internally
and through external training events.
The Staff Liaison Group meets on a regular basis to discuss issues relevant to staff.
Corporate Governance
The Group has adopted the NHF Code ‘Excellence in Governance’ and complies fully with it,
together with the NHF Code of Conduct 2012 document. Copies of the Group’s policies are
available on request.
A statement of the responsibilities of the Board of Management in respect of the financial
statements is given on page 39. Below is a brief description of the role of the Board followed
by a statement regarding the Group’s internal controls.
The Group recognises that good governance is a pre-requisite to excellent performance. The
Group continually reviews and benchmarks its governance arrangements to ensure that it can
comply with the highest standards of corporate governance and has systems in place to deal
effectively with governance issues as they inevitably arise.
Tenant Involvement
The Group encourages tenant involvement in all aspects of the business including individual
consultation on operational matters and tenant scrutiny panels. Service users’ opinions are
canvassed regularly on an individual basis and collectively periodically. Tenants’ scrutiny
panels and other representative forums help staff to put customer priorities into policy and
practice. Clear reporting arrangements exist between tenant groups and the boards. The Group is
35
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
committed to improving further opportunities for tenant involvement and the scrutiny of
performance.
The Board
The Board comprises members with a wide range of skills and experience who are recruited
openly by public advert.
The Board holds at least six meetings per annum, setting and monitoring the strategy and
performance, ensuring adequate funding and formulating policy on key issues. There are also
two Group committees, Audit and Remuneration, to which it has delegated some of its Board
function. Representatives from all group members sit on both committees. Day to day
management of the Group is delegated to the Four Housing Group Chief Executive and the
other executive officers. The Four Housing Group executive management team comprises the
Group Chief Executive, the Group Director of Finance and the Group Director of Operations. It
meets regularly and members attend meetings of the Boards and committees.
Audit Committee
The Group Board has constituted a separate Group Audit Committee which has delegated
authority from the Group Board. Internal and external audit matters are reported to this
Committee, and the auditor is invited to attend relevant meetings as appropriate. The
Committee and the auditors have the opportunity to meet without any officers present at least
annually.
Internal Controls Assurance
The Group Board acknowledges its overall responsibility for establishing and maintaining the
whole system of internal control and for reviewing its effectiveness for the group as a whole.
The system of internal control is designed to manage, rather than eliminate, the risk of failure to
achieve business objectives, and to provide reasonable, and not absolute, assurance against
material misstatement or loss. In meeting its responsibilities, the Board has approved an
effective framework to identify and manage the significant risks to the Group’s operations. This
risk-based approach to establishing and maintaining internal controls is embedded within day to
day management and governance processes. The approach includes the regular evaluation of
the nature and extent of risks to which the Group is exposed and is consistent with best practice.
The process for identifying, evaluating and managing the significant risks faced by the Group is
ongoing and has been in place throughout the period commencing 1 April 2013 up to the date of
approval of the annual report and financial statements. The Board receives and considers
reports from management on these risk management and control arrangements at its meetings
during the year.
The arrangements adopted by the Group Board in reviewing the effectiveness of the system of
internal control, together with some of the key elements of the control framework, include:

Identifying and Evaluating Key Risks - The Group’s risk management strategy,
setting out the Board’s attitude to risk in the achievement of its objectives, underpins
the risk management, business planning and control arrangements. These arrangements
36
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
clearly define management responsibility for the identification, evaluation, control and
reporting framework for significant risks. The Executive and Management Teams
regularly consider reports on these risks and the Chief Executive is responsible for
reporting to the Group Board any significant changes affecting key risks.

Control Environment and Internal Controls - The processes to identify and manage
the key risks to which the Group is exposed are an integral part of the internal control
environment. Such processes, which are reviewed annually and revised where
necessary, include strategic and financial planning, the recruitment of executive
directors and senior staff, regular performance monitoring, control over developments
and the setting of standards, health and safety, data protection and fraud prevention and
detection.

Information and Reporting Systems – Financial reporting procedures include detailed
budgets for the forthcoming year and a thirty-year business plan. These are reviewed
and approved by the Group Board and monitored throughout the year. The Group
Board receives reports on key performance indicators to assess progress towards the
achievement of key business objectives, targets and outcomes throughout the year.

Monitoring Arrangements – Regular management reporting on control issues
provides assurance to successive levels of management and to the Group Board. It is
supplemented by regular reviews by internal audit who provide independent assurance
to the Group Board, via the Group Audit Committee. The arrangements include a
rigorous procedure, monitored by the Group Audit Committee, for ensuring that
corrective action is taken in relation to any significant control issues. The Group has
established an assurance hierarchy to provide specific management assurances to the
Chief Executive in order that the Chief Executive can provide overall assurance to the
Group Board.

Fraud Management – A fraud register is maintained and is reviewed by the Four
Housing Group Audit Committee at each of its meetings. There were no frauds
reported in the year.
The Group Board cannot delegate ultimate responsibility for the system of internal control, but
it can, and has, delegated authority to the Group Audit Committee to regularly review the
effectiveness of the system of internal control. The Group Board receives reports from the
Group Audit Committee together with minutes of Group Audit Committee meetings.
The means by which the Group Audit Committee reviews the effectiveness of the system of
internal control include considering risk reports, internal audit reports, management assurances,
the external audit management letter and specialist reviews. The Group Audit Committee has
received the Chief Executive’s annual review of the effectiveness of the system of internal
control.
Going Concern
The Group’s business activities, together with the factors likely to affect its future development,
performance and position, its cash flows, liquidity position and borrowing facilities are
described in the Operating and Financial Review on pages 2 to 36.
The Group meets its day to day working capital requirements through the current account,
which is cash positive at the year end. The Group meets its development programme
37
Four Housing Group Limited
Report of the Board of Management
for the year ended 31 March 2015
requirements through a combination of grant and debt funding. Note 17 to the accounts
highlights the current level of debt and repayment terms. The current economic conditions
create uncertainty particularly over the longer term availability of grant and bank finance.
The Group’s forecasts and projections show that the group should be able to continue to operate
within the level of its current facilities and no matters have been drawn to its attention to
suggest that future funding may not be forthcoming on acceptable terms.
After making enquiries, the Board has a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing these financial statements.
Disclosure of information to auditor
The Board members, who held office at the date of approval of this board report confirm that, so
far as they are each aware, there is no relevant audit information of which the Association’s
auditor is unaware and each Board member has taken all steps that they ought to have taken as a
Board member to make themselves aware of any relevant audit information and to establish that
the Association’s auditor is aware of that information.
Auditor
A resolution to reappoint KPMG LLP as auditor will be proposed at the Annual General
Meeting.
The report of the Board of Management was approved on 3 August 2015 and signed on its
behalf by:
W Worth
Chair
38
Four Housing Group Limited
Statement of Board’s responsibilities in respect of the
Board’s report and the financial statements
The Board is responsible for preparing the Board’s Report and the financial statements in
accordance with applicable law and regulations.
Co-operative and Community Benefit Society law requires the Board to prepare financial
statements for each financial year. Under those regulations the Board have elected to prepare the
financial statements in accordance with UK Accounting Standards, including UK Generally
Accepted Accounting Practice.
The financial statements are required by law to give a true and fair view of the state of affairs of
the Group and the Association and of the income and expenditure of the Group and the
Association for that period.
In preparing these financial statements, the Board is required to:

select suitable accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and prudent;

state whether applicable UK Accounting Standards and the Statement of Recommended
Practice have been followed, subject to any material departures disclosed and explained in
the financial statements; and

prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Group and the Association will continue in business.
The Board is responsible for keeping proper books of account that disclose with reasonable
accuracy at any time the financial position of the Group and Association and enable them to
ensure that its financial statements comply with the Co-operative and Community Benefit
Societies Act 2014, the Housing and Regeneration Act 2008 and the Accounting Direction for
Private Registered Providers of Social Housing 2012. The Board has general responsibility for
taking such steps as are reasonably open to it to safeguard the assets of the association and to
prevent and detect fraud and other irregularities.
The Board is responsible for the maintenance and integrity of the corporate and financial
information included on the Association’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
39
Independent auditor’s report
to Four Housing Group Limited
We have audited the financial statements of Four Housing Group Limited for the year ended 31 March
2015 set out on pages 41 to 75. The financial reporting framework that has been applied in their
preparation is applicable law and UK Accounting Standards (UK Generally Accepted Accounting
Practice).
This report is made solely to the Association in accordance with section 87 of the Co-operative and
Community Benefit Societies Act 2014 and section 128 of the Housing and Regeneration Act 2008. Our
audit work has been undertaken so that we might state to the Association those matters we are required to
state to it in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Association for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of the Board and auditor
As more fully explained in the Statement of Board’s Responsibilities set out on page 39, the
Association’s Board is responsible for the preparation of financial statements which give a true and fair
view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require
us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting
Council’s website at www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion the financial statements:

give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the
state of affairs of the Group and the Association as at 31 March 2015 and of the income and
expenditure of the Group and the Association for the year then ended;

comply with the requirements of the Co-operative and Community Benefit Societies Act 2014; and

have been properly prepared in accordance with the Housing and Regeneration Act 2008 and the
Accounting Direction for Private Registered Providers of Social Housing 2012.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Co-operative and Community
Benefit Societies Act 2014 requires us to report to you if, in our opinion:

the Association has not kept proper books of account; or

the Association has not maintained a satisfactory system of control over transactions; or

the financial statements are not in agreement with the Association’s books of account; or

we have not received all the information and explanations we need for our audit.
Mick Thompson
For and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
3
August
2015
40
Four Housing Group Limited
Group income and expenditure account
for the year ended 31 March 2015
Notes
2015
£000
Turnover
2
26,066
Cost of sales
2
Operating costs (including an impairment of housing
properties of £nil (2014: £128k))
2
Operating surplus
Surplus on disposal of housing properties
Interest receivable and other income
Interest payable and similar charges
Income from other fixed asset investments
Other finance income
Gift aid
(101)
(19,545)
2014
£000
26,614
(380)
(19,871)
–––––––––––––––
–––––––––––––––
5
6,420
6,363
2
6
7
14
8
153
25
(3,124)
1,109
87
199
250
75
(3,073)
112
67
140
–––––––––––––––
————————
4,869
3,934
Surplus for the year before tax
Corporation tax
11
Surplus for the year
21
(27)
-
–––––––––––––––
————————
4,842
3,934
–––––––––––––––
–––––––––––––––
All results are derived from continuing activities.
Group statement of total recognised surpluses and deficits
for the year ended 31 March 2015
Surplus for the year
Actuarial (loss)/gain recognised in the pension scheme
2015
£000
2014
£000
4,842
(66)
3,934
310
–––––––––––––––
Total surplus recognised since last accounting period
————————
4,776
4,244
–––––––––––––––
–––––––––––––––
41
Four Housing Group Limited
Group balance sheet
at 31 March 2015
Notes
Tangible fixed assets
Housing properties – gross cost
Less: Social housing grant
Other public grants
Depreciation
Investments
Homebuy loan
Homebuy grant
Other fixed assets
Investment in associate
12
12
12
12
13
14
Current assets:
Stock
15
Debtors (including £27,318k (2014: £28,887k) due after more than one year)16
Cash at bank and in hand
Creditors: amounts falling due within one year
17
Net current assets
Pension asset
28
Total assets less current liabilities
2015
£000
2014
£000
244,842
(100,328)
(13,491)
(14,411)
––––––
116,612
231,548
(99,086)
(13,976)
(11,997)
———
106,489
222
(222)
2,391
3,313
––––––
122,316
––––––
238
(238)
2,118
2,005
———
110,612
———
654
37,644
7,259
––––––
45,557
(17,574)
––––––
27,983
516
––––––
150,815
––––––
84,315
158
31,997
13,246
———
45,401
(8,982)
———
36,419
544
———
147,575
––––––
84,282
Creditors: amounts falling due after more than one year
18
Provision for liabilities and charges
19
27,318
––––––
28,887
———
Capital and reserves
Share capital
Designated reserve
Revenue reserve
20
21
21
404
38,778
––––––
39,182
––––––
150,815
––––––
363
34,043
———
34,406
———
147,575
––––––
22
The financial statements were approved by the Board on 3 August 2015 and signed on its behalf by:
W Worth
Chair
H Parker
Vice Chair
M Axe
Secretary
42
Four Housing Group Limited
Association balance sheet
at 31 March 2015
2015
£
2014
£
16
8
––––––
8
––––––
9
———
9
––––––
20
8
––––––
9
––––––
Notes
Current assets
Debtors
Total assets
Capital and reserves
Share capital
The financial statements were approved by the Board on 3 August 2015 and signed on its behalf by:
W Worth
Chair
H Parker
Member
M Axe
Secretary
43
Four Housing Group Limited
Group statement of cash flows
for the year ended 31 March 2015
Net cash inflow from operating activities
Notes
2015
£000
2014
£000
25
6,258
10,456
–––––––––––––––
————————
Returns on investment and servicing of finance
Interest received
Interest paid
23
(3,531)
–––––––––––––––
Net cash outflow from return on investments and
servicing of finance
(3,508)
Gift aid
Capital expenditure
Acquisition and construction of housing properties
Social Housing Grants received
Other grants received
Receipts from sale of housing properties
Purchase of other fixed assets
(3,483)
————————
199
140
–––––––––––––––
(10,957)
–––––––––––––––
Net cash (outflow)/inflow before use of liquid resources
and financing
————————
–––––––––––––––
(11,940)
743
799
(559)
Net cash outflow from capital expenditure
170
(3,653)
(7,198)
610
362
896
(256)
————————
(5,586)
–––––––––––––––
(8,008)
1,527
2,750
(729)
10,000
(661)
Financing
Housing loans received
Housing loans repaid
Net cash inflow from financing
27
(Decrease)/increase in cash
27
–––––––––––––––
————————
2,021
9,339
–––––––––––––––
————————
(5,987)
–––––––––––––––
10,866
–––––––––––––––
44
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
1. Accounting policies
The Group is incorporated under the Co-operative and Community Benefit Societies Act 2014 and is a
Registered Provider. The financial statements have been prepared in accordance with applicable
accounting standards in the United Kingdom, the Accounting Direction for Private Registered Providers
of Social Housing 2012 and the ‘Statement of Recommended Practice: Accounting by Registered Social
Housing Providers (SORP)’, updated in 2010. Applicable accounting standards in the United Kingdom
have been applied on a consistent basis.
Basis of accounting
The financial statements are prepared on the historical cost basis of accounting.
Basis of consolidation
The Group was created on 3 November 2008 when Four Housing Group Limited assumed control of
Three Rivers Housing Association Limited and Berwick Borough Housing Limited. The Board consider
that the criteria under FRS 6 ‘Acquisitions and Mergers’ for the formation of the Group have been met in
respect of the Three Rivers Housing Association Limited transaction and accordingly Three Rivers
Housing Association Limited is accounted for under merger accounting.
Berwick Borough Housing Limited is accounted for under acquisition accounting and, under this method
of accounting, its results are included in the consolidated income and expenditure account.
Turnover
Turnover represents rental income receivable, fees receivable, grants receivable from local authorities,
The Department for Communities & Local Government (DCLG) and the Homes and Communities
Agency which are not capital in nature and proceeds from first tranche sales of shared ownership
properties held in current assets during the year.
Accounting for associate undertakings
Entities, other than subsidiary undertakings or joint ventures, in which the Group has a participating
interest and over whose operating and financial policies the Group exercises a significant influence are
treated as associates. In the financial statements, associates are accounted for using the equity method.
Fixed assets – housing properties
Housing properties are initially recorded at cost, less applicable grants. Grant is allocated to the
component parts of the property in the same proportion as the costs.
Amounts capitalised include the cost of acquiring land and buildings, development costs and interest
charges incurred during the development period.
Shared ownership properties, where 100% of the property is still held by the Group, are recorded at the
lower of cost and net realisable value. These assets are held as fixed assets, for the share retained or to be
retained, and current assets, for the share to be sold.
The surplus or deficit on the disposal of fixed assets, including first and subsequent tranches of shared
ownership properties, is accounted for in the income and expenditure account of the period in which the
disposal occurs.
45
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
1. Accounting policies (continued)
Fixed assets – depreciation of housing properties
Freehold land is not depreciated. Freehold properties, other than properties under construction, are
depreciated so as to write down the net book value of housing properties to their estimated residual value,
on a straight line basis over their remaining expected useful life as follows:
Housing properties held for letting
Supported housing properties
Shared ownership properties
-
over 70 - 110 years
over 70 - 110 years
over 70 – 110 years
Individual components are depreciated so as to write down the net book value of housing properties to
their estimated residual value, on a straight line basis over their remaining expected useful life as follows:
Bathroom
Electrical systems
Boilers
Heating (Mechanical & Electrical)
Kitchen
Windows
Roof
Solar Panels
-
30 years
30 years
15 years
30 years
25 years
25 years
70 years
20 years
The surplus or deficit on the disposal of fixed assets, including first and subsequent tranches of shared
ownership properties, is accounted for in accordance with the SORP 2010.
Properties are reviewed annually , if there are impairment indicators, for evidence of impairment in
accordance with FRS11. Where housing properties have suffered a permanent diminution in value, the
fall in value is recognised after taking account of any relevant grants.
Capitalisation of interest
Interest on loans financing the development programme is capitalised up to the date of practical
completion of the scheme. Interest costs are included at rates based on the Group’s weighted average cost
of borrowings.
Capitalisation of acquisition and development costs
Acquisition and development costs are capitalised in respect of direct, incremental employee costs and
overheads incurred during the development period.
Capitalisation of I.T. costs
I.T. costs are capitalised in respect of incremental time spent on the development of fixed asset software
during the period.
Other tangible fixed assets and depreciation
Other tangible fixed assets are initially recorded at cost. Depreciation of other tangible fixed assets is
charged by equal annual instalments commencing in the year of acquisition at rates estimated to write-off
their cost, less any residual value, over the expected useful lives as follows:Freehold land
Freehold office buildings
Leasehold office buildings
Computer hardware
Other computer equipment
Furniture and equipment
Fixtures and fittings
Motor vehicles
-
Nil
60 years
over the lease term
3 years
5 years
5 years
5 years
4 years
46
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
1. Accounting policies (continued)
Social Housing and similar grants
When housing developments have been financed wholly or partly by Social Housing Grant or similar
grants the cost of these developments has been reduced by the amount of grant received. Total grants
received in excess of total costs on schemes in the course of development are transferred to grants
received in advance within creditors. Grants in respect of revenue expenditure are credited to the Income
and Expenditure Account in the same period as the expenditure to which they relate.
Social Housing Grant can be recycled by the Group under certain conditions, if a property is sold, or if
another relevant event takes place. In these cases the Social Housing Grant can be used for projects
approved by the Homes and Communities Agency. However, the grant may have to be repaid if certain
conditions are not met.
Taxation
Four Housing Group Limited is considered to pass the tests set out in Paragraph 1 Schedule 6 Finance Act
2010 and therefore it meets the definition of a charitable company for UK corporation tax
purposes. Accordingly, the Association is potentially exempt from taxation in respect of income or
capital gains received within categories covered by Chapter 3 Part 11 Corporation Tax Act 2010 or
Section 256 of the Taxation of Chargeable Gains Act 1992, to the extent that such income or gains are
applied exclusively to charitable purposes.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the
balance sheet date where transactions or events that result in an obligation to pay more tax in future or a
right to pay less tax in future have occurred at the balance sheet date. This is subject to deferred tax
assets only being recognised if it is considered more likely than not that there will be suitable surpluses
from which the future reversal of the underlying timing differences can be deducted. Deferred taxation is
measured at the average tax rates that are expected to apply in the periods in which the timing differences
are expected to reverse, based on tax rates and laws that have been substantively enacted by the balance
sheet date. No discounting is applied to reflect the time value of money.
Designated reserves
Designated reserves have been established to reflect the fact that the amounts included in these reserves
are not available for general use.
Designated reserves have been established in respect of Home Improvement Agencies, Leasehold
Schemes for older people and service charges.
VAT
Income and expenditure is shown inclusive of value added tax where applicable. Amounts recovered
from HM Revenue and Customs under the provisions relating to partial exemption are credited to
expenditure.
The Group has an approved VAT Shelter Scheme operative from 3 November 2008 and lasting for 15
years from that date. There is a VAT Shelter Sharing Agreement with the Council for 10 years which was
part of the transfer agreement. As a result, the VAT incurred on the property stock improvement
programme is recoverable. The balance of VAT recoverable at the year end is included as part of the
overall net VAT current asset or current liability in the balance sheet.
47
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
1. Accounting policies (continued)
Hostels
The treatment of income and expenditure in respect of hostels depends on whether the Group carries the
financial risk.
Where the Group carries the financial risk, eg for losses from voids and arrears, all the hostel’s income
and expenditure is included in the income and expenditure account.
Where the hostel is managed by an agency and the agency bears the financial risks, the income and
expenditure account includes only that income and expenditure which relates solely to the Group.
Pension costs
The Group operates two pension schemes, with membership in the Social Housing Pension Scheme
(SHPS) which is open to new employees joining the Group and the Local Government Pension Scheme
(LGPS) which was provided for employees TUPE transferring from Berwick-Upon-Tweed Council to
Berwick Borough Housing. Both pension schemes provide benefits based upon final pensionable pay.
The assets of the schemes are held separately from those of the Group.
LGPS
Pension scheme assets are measured using market values. For quoted securities the current bid price is
taken as market value. Pension scheme liabilities are measured using a projected unit method and
discounted at the current rate of return on a high quality corporate bond of equivalent term and currency
to the liability.
The pension scheme surplus (to the extent that it is recoverable) or deficit is recognised in full. The
movement in the scheme surplus/deficit is split between operating charges, finance items and, in the
statement of total recognised surpluses and deficits, actuarial gains and losses.
The pension scheme was transferred on 3 November 2008, and is available for employees possessing
TUPE rights, transferring from Berwick-Upon-Tweed Council. On 3 November 2008, the assets and
liabilities in respect of the transferring staff were assumed by Berwick Borough Housing.
SHPS
The Group participates in an industry wide pension scheme providing benefits based on final pensionable
pay. The assets of the scheme are held separately from those of the Group. The Group is unable to
identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis
and therefore, as required by FRS 17 ‘Retirement benefits’, accounts for the scheme as if it were a
defined contribution scheme. As a result the amount charged to the income and expenditure account
represents the contributions payable to the scheme in respect of the accounting period.
Capital instruments
Capital instruments (other than share capital) are classified as liabilities if they contain an obligation to
transfer economic benefits. The finance cost recognised in the income and expenditure account in respect
of such instruments is allocated to periods over the term of the instrument at a constant rate on the
carrying amount.
Provisions
Provisions represent the Group’s liabilities to undertake the refurbishment works under the Development
Agreement entered into with Berwick-upon-Tweed Borough Council, as detailed in Note 19.
48
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
1. Accounting policies (continued)
Right to buy sales
The gains or losses on disposal of Social Housing Properties under right to buy arrangements are
calculated as being the difference between the proceeds of a sale of a property and the balance sheet value
of the property.
The gains or losses on disposal of right to buy properties are recognised in the Income and Expenditure
Account at the date of transfer of title after deducting the element of proceeds that is payable to the local
authority under the right to buy sharing arrangement.
Leased assets
Costs in respect of operating leases are charged to the income and expenditure account on a straight line
basis over the lease term.
2. Turnover, operating costs and surplus
Group
2015
Operating
surplus/
(deficit)
£000
2014
Operating
surplus/
(deficit)
£000
(12,597)
5,223
5,192
-
(2,341)
1,318
1,042
582
-
(396)
186
180
262
-
(185)
77
88
——————
——————
——————
——————
22,323
-
(15,519)
6,804
6,502
Other social housing activities:
Supporting people
contract income
493
-
(447)
46
58
Other supporting
people income
577
-
(577)
-
-
2,616
-
(3,002)
Turnover
Cost of
sales
Operating
costs
£000
£000
£000
17,820
-
3,659
Shared ownership
accommodation
Rent to homebuy
accommodation
Income and expenditure from lettings:
Housing
accommodation
Supported housing
accommodation
Other income and
expenditure
Sales of shared ownership
properties
57
——————
26,066
——————
(101)
——————
(101)
——————
——————
——————
(19,545)
——————
(386)
(300)
(44)
103
——————
——————
6,420
6,363
——————
——————
49
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
2. Turnover, operating costs and surplus (continued)
Group
Analysis of operating surplus:
Lettings
Other
2015
£000
2014
£000
6,804
(384)
6,502
(139)
_____________
Operating surplus for the year
——————
6,420
6,363
——————
——————
2015
£000
2014
£000
799
(646)
751
(501)
Sale of properties:
Proceeds
Cost of sales (including fees)
——————
Surplus
3.
——————
153
250
——————
——————
Income and expenditure from lettings
Group
General
Supported
Shared
Intermediate
2015
2014
housing
housing
ownership
rental
Total
Total
£000
£000
£’000
£’000
£000
£000
17,109
2,425
515
262
20,311
19,705
707
1,234
67
-
2,008
1,938
4
-
-
-
4
——————
——————
——————
——————
——————
Income from lettings
Rent receivable net of identifiable
service charges and voids
Service charges receivable
Charges for support services
Total income from lettings
5
——————
17,820
3,659
582
262
22,323
——————
——————
——————
——————
——————
——————
21,648
Expenditure on letting activities
Services
900
954
77
15
1,946
1,845
Management
3,029
553
138
35
3,755
3,607
Routine maintenance
4,639
343
58
57
5,097
5,357
113
21
-
4
138
226
Major repairs expenditure
1,542
64
22
9
1,637
1,156
Depreciation on housing
2,309
265
56
65
2,695
2,535
65
141
45
-
251
292
-
-
-
-
-
128
——————
——————
——————
——————
——————
——————
12,597
2,341
396
185
15,519
15,146
——————
——————
——————
——————
——————
——————
5,223
—————
1,318
—————
186
—————
77
—————
6,804
—————
6,502
—————
439
63
-
5
507
—————
—————
—————
—————
—————
Rent losses from bad debts
Lease payments and other expenditure
Impairment
Total expenditure on lettings
Operating surplus on lettings
Rent loss from voids
385
—————
The impairment on housing properties is in respect of costs previously capitalised as part of a scheme
that will no longer be developed by Berwick Borough Housing.
50
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
4. Accommodation in management
Group
The number of units for each class of accommodation is as follows:
Housing properties held for lettings
– social rent
– affordable rent
Shared ownership properties
Rent to homebuy properties
Supported housing properties
2015
No.
2014
No.
4,085
462
217
56
464
4,183
277
218
65
530
–––––––––––––––
–––––––––––––––
5,284
5,273
–––––––––––––––
–––––––––––––––
2015
No.
2014
No.
7
97
3
-
––––––––––––––
–––––––––––––––
Number of units above managed by others:
Housing properties held for lettings
– social rent
Supported housing properties
104
3
––––––––––––––
–––––––––––––––
2015
No.
2014
No.
89
108
–––––––––––––––
–––––––––––––––
The number of units in development at the year end is as follows:
Housing properties held for lettings
51
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
5. Operating surplus
Group
This is arrived at after charging/(crediting):
Planned maintenance and major repairs
Bad debts
Depreciation of other tangible fixed assets
Depreciation of housing properties
Impairment of housing properties (note 3)
Operating leases
Auditor’s remuneration:
- external audit services
- tax compliance and advice
- other
Internal auditor’s remuneration for internal audit services
2015
£000
2014
£000
1,637
138
286
2,695
164
1,156
226
266
2,535
128
188
31
7
24
48
35
11
3
42
–––––––––––––––
–––––––––––––––
2015
£000
2014
£000
6. Interest receivable and other income
Group
Bank interest receivable and similar income
25
75
–––––––––––––––
–––––––––––––––
2015
£000
2014
£000
291
297
3,250
3,221
————————
————————
3,541
3,518
7. Interest payable and similar charges
Group
Interest on loans and overdrafts repayable
wholly within five years
Interest on loans repayable in more
than five year
Less interest payable capitalised on
housing properties under construction (note 12)
(417)
————————
(445)
————————
3,124
3,073
————————
————————
Interest capitalised on housing properties under construction has been calculated using the net interest
charge from the AHF plc £10m loan and AHF plc £5m loan.
52
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
8. Other finance income
Group
Expected return on pension scheme assets
Interest on pension scheme liabilities
2015
£000
2014
£000
192
(105)
193
(126)
————————
————————
87
67
————————
————————
2015
No.
2014
No.
22
112
4
44
21
108
9
60
9. Employees
Group
Average number of employees
- expressed in full time equivalents:
Finance and administration
Housing services
Business development
Care and repair
–––––––––––––––
182
Staff costs:
Wages and salaries
Social security costs
Other pension costs (note 28)
Net recharges to associated parties
–––––––––––––––
198
–––––––––––––––
–––––––––––––––
2015
£000
2014
£000
4,844
368
625
(31)
5,404
414
635
(50)
————————
————————
5,806
6,403
————————
————————
The number of Senior Management Officers including the Chief Executive, who received emoluments
including pension contributions, is shown below:
2015
No.
3
2014
No.
3
————————
————————
53
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
9. Employees (continued)
The number of Senior Management Officers and other staff who received emoluments, including pension
contributions, in the following ranges is set out below:
2015
No.
2014
No.
2
1
2
1
————————
————————
2015
No.
2014
No.
5
2
1
2
–––––––––––––––
———————
Senior Management Officers
£110,001 - £120,000
£130,001 - £140,000
Other Staff
£60,001 - £70,000
£70,001 - £80,000
10. Directors’ emoluments
Group
The remuneration of the Senior Management Officers in the year was as follows:
2015
£000
Emoluments (including pension contributions and benefits in kind)
Emoluments (excluding pension contributions)
Total expenses reimbursed to the Officers and members of the Board
2014
£000
448
444
————————
————————
388
384
————————
————————
4
5
————————
————————
The remuneration of the Chief Executive, the highest paid Officer in the year was as follows:
Emoluments (including pension contributions and benefits in kind)
Emoluments (excluding pension contributions)
Total expenses reimbursed
2015
£000
2014
£000
136
134
————————
————————
120
118
————————
————————
-
1
————————
————————
54
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
10. Directors’ emoluments (continued)
The Chief Executive is an ordinary member of the Social Housing Pension Scheme (note 28), has no
enhanced or special pension terms and has no other pension arrangements to which the Group contributes.
The remuneration of the Board Members in the year was as follows:
2015
£000
2014
£000
42
41
————————
————————
£000
6
10
1
4
1
6
4
4
2
2
2
£000
5
6
7
4
4
4
1
4
1
1
4
-
————————
————————
Board remuneration
Remuneration for each individual Group board member in 2014 was as follows:
P Gavin
S Anderson
W Worth
S Green
I Hunter
J Douglas
D Walker
H Parker
P Harding
M Stewart
B Dennis
C Blakey
A Pegg
42
41
–––––––––––––––
–––––––––––––––
11. Taxation
Analysis of charge in period
2015
£000
2014
£000
UK corporation tax
Current tax on income for the period
27
-
Total current tax
Deferred tax
27
-
-
Tax on surplus on ordinary activities
27
-
55
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
11. Taxation (continued)
Factors affecting the tax charge for the current period
The current tax charge for the period is lower (2014: lower) than the small company’s rate of corporation
tax in the UK of 21% (2014: 23%). The differences are explained below:
2015
£000
2014
£000
Current tax reconciliation
Surplus on ordinary activities before tax
4,869
3,934
Current tax at 21% (2014: 23%)
1,022
905
Effects of:
Non taxable income
(995)
(905)
27
-
Total current tax charge (see above)
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20%
(effective from 1 April 2015) were substantively enacted on 2 July 2013. In the Budget on 8 July 2015,
the Chancellor announced additional planned reductions to 18% by 2020. This will reduce the Group’s
future current tax charge accordingly.
56
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
12. Tangible fixed assets - housing properties
Group
Housing properties held for letting
At 31 March 2014
Transfers
Additions
Disposals
Schemes completed
At 31 March 2015
Less Social Housing Grant, other grants and
other capital receipts:
At 31 March 2014
Transfers
Receivable
Disposals
Schemes completed
At 31 March 2015
Less Depreciation & Impairment:
As at 31 March 2014
Charged in the year
Disposals
At 31 March 2015
Net book value at 31 March 2015
Net book value at 31 March 2014
Supported housing
properties
Shared
ownership
Rent to
Homebuy
Completed
£000
Under
construction
£000
Completed
£000
Completed
£000
Completed
£000
Total
£000
181,942
1,232
4,383
(774)
9,662
–––––––
196,445
–––––––
2,524
9,487
(9,662)
–––––––
2,349
–––––––
29,356
183
(127)
–––––––
29,412
–––––––
11,088
(471)
647
(505)
–––––––
10,759
–––––––
6,638
(761)
–––––––
5,877
–––––––
231,548
14,700
(1,406)
–––––––
244,842
–––––––
89,093
330
(471)
1,634
–––––––
90,586
–––––––
887
1,257
(1,634)
–––––––
510
–––––––
17,657
(66)
–––––––
17,591
–––––––
3,628
44
242
(205)
–––––––
3,709
–––––––
1,797
(374)
–––––––
1,423
–––––––
113,062
1,499
(742)
–––––––
113,819
–––––––
9,870
2,309
(216)
–––––––
11,963
–––––––
93,896
––––––––
82,979
––––––––
–––––––
–––––––
1,839
––––––––
1,637
––––––––
1,506
265
(65)
–––––––
1,706
–––––––
10,115
––––––––
10,193
––––––––
445
56
–––––––
501
–––––––
6,549
––––––––
7,015
––––––––
176
65
–––––––
241
–––––––
4,213
––––––––
4,665
––––––––
11,997
2,695
(281)
–––––––
14,411
–––––––
116,612
––––––––
106,489
––––––––
57
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
12. Tangible fixed assets - housing properties (continued)
In the prior year the Group had received grant in advance of some development costs being incurred, for
assets under construction. However, when reviewing the overall programme of completed and under
construction assets, costs incurred exceeded grant received.
Shared ownership exceeded, where 100% of the property is still held by the Group, are recorded at the
lower of cost and net realisable value. These assets are held as fixed assets, for the share retained or to be
retained, and current assets for the share to be sold.
Additions to completed properties in the year were:
2015
£000
10,317
3,400
983
2014
£000
3,700
3,869
880
–––––––––––––––
–––––––––––––––
Additions to completed properties
Components capitalised
Other works to existing properties
14,700
8,449
–––––––––––––––
–––––––––––––––
Development costs capitalised in the year amounted to £186,000 (2014: £179,000).
Additions to housing properties in the course of construction during the year included capitalised interest of
£417,000 (2014: £445,000). The interest rate payable on the borrowings is 4.9%.
The total accumulated Social Housing Grant & DCLG Grant receivable to 31 March 2015 was:
Capital grants
Social housing grant
DCLG grant
Revenue grants
Social housing grant
DCLG grant
2015
£000
2014
£000
92,172
7,613
90,898
7,645
4,737
345
4,753
345
–––––––––––––––
–––––––––––––––
104,867
103,641
–––––––––––––––
–––––––––––––––
Revenue expenditure on housing properties includes routine maintenance of £5,077,000 (2014: £5,357,000)
and planned maintenance expenditure £1,637,000 (2014: £1,156,000).
The housing properties are recognised in the accounts at cost. Enhancement expenditure, where it is
considered that the works undertaken increase the value of the property, has been capitalised at cost and the
funding received from the Department of Communities and Local Government (DCLG) has been deducted
from housing properties.
There was no gap funding during the current year (2014: £nil).
58
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
12. Tangible fixed assets - housing properties (continued)
The net book value of housing properties comprises:
Short leasehold
Freehold
2015
£000
2014
£000
932
115,680
934
105,555
————————
————————
116,612
106,489
–––––––––––––––
–––––––––––––––
13. Tangible fixed assets – other
Group
Freehold
land
and buildings
£000
Cost:
At 31 March 2014
Additions
Disposals
At 31 March 2015
Grant:
At 31 March 2014
and 31 March 2015
Depreciation:
At 31 March 2014
Charge
Disposals
At 31 March 2015
Net book value:
At 31 March 2015
At 31 March 2014
2,081
5
-
Leasehold
property
Furniture
improve- Computer
and
ments equipment equipment
£000
£000
£000
25
-
2,997
544
(1,019)
663
10
-
Fixtures
and
fittings
£000
Motor
Vehicles
£000
50
-
2
-
Total
£000
5,818
559
(1,019)
––––
––––
–––––
–––––
–––––
–––––
2,086
25
2,522
673
50
2
5,358
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
-
20
2
2
-
-
24
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
451
73
-
5
-
519
39
-
41
3
-
1
-
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
524
5
1,811
558
44
1
––––
––––
2,660
170
(1,019)
––––
––––
––––
––––
–––––
3,676
286
(1,019)
–––––––
2,943
––––
1,562
-
709
113
6
1
2,391
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
1,630
-
335
142
9
2
2,118
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
–––––––
The net book value of the Group’s offices comprises:
Freehold
2015
2014
£000
£000
1,422
1,432
————————
————————
59
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
14. Investments
Group
£000
At 31 March 2014
Additions
Impairment reversal
2,005
696
612
–––––––––––––––
At 31 March 2015
3,313
–––––––––––––––
The investment relates to the Three Rivers Housing Association’s 49% holding in Kepier Homes LLP
(£3,307,000), the purchase of shares in Foundation (£6,000) and of the holding in Three Rivers Kepier
Homes Limited (£1). Three Rivers Kepier Homes Ltd is not a Registered Provider.
The investments were impaired during the year ending 31 March 2011 due to expected losses on assets held
by Kepier Homes LLP. The impairment is no longer considered necessary as a price has been agreed for
the sale of land at Kepier Court equivalent to the previous carrying value.
The increase in value of the investments of £1,308,000 comprises income from other fixed asset
investments of £1,109,000 and Gift Aid income £199,000.
15. Stock
Group
Shared ownership properties held for resale
Consumables
2015
£000
2014
£000
616
38
125
33
————————
————————
654
158
–––––––––––––––
–––––––––––––––
Shared ownership properties, where 100% of the property is still held by the Group, are recorded at the
lower of cost and net realisable value. These assets are held as fixed assets, for the share retained or to be
retained, and current assets for the first tranche held for sale.
60
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
16. Debtors
Group
Group
2015
£000
Amounts falling due within one year:
Arrears of rent and service charges
Less: Provision for bad and doubtful debts
Other debtors (including £27,318k (2014: £28,887k) due after more than one year)
HAPM and FARR insurance premiums paid in advance
Prepayments and accrued income
VAT recoverable
1,064
(113)
Group
2014
£000
995
(139)
————————
————————
951
35,844
213
437
199
856
30,229
256
656
-
————————
————————
37,644
31,997
–––––––––––––––
–––––––––––––––
Included within debtors is £5.8m due from AHF plc which is being held in trust on behalf of Three Rivers
Housing Association until the Association finalises security.
Association
Association Association
2015
2014
£
£
Unpaid share capital
8
9
————————
————————
8
9
–––––––––––––––
–––––––––––––––
2015
£000
2014
£000
6
170
1,322
27,318
33
190
522
28,887
————————
————————
28,816
29,632
————————
————————
Group
Amounts falling due after more than one year included above are:
Employee loans for the purchase of motor vehicles
HAPM and FARR insurance premiums paid in advance
Other debtors
Development agreement for property refurbishment (see note 19)
All employee loans are repayable within four years.
61
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
17. Creditors: amounts falling due within one year
Group
Recycled Capital Grant Fund (note 18)
Rent and service charges received in advance
Trade creditors
Loan instalments repayable within one year (note 18)
Other taxation and social security
Other creditors
Contingent consideration
Accruals and deferred income
2015
£000
2014
£000
31
388
503
2,695
1,944
209
912
10,892
760
383
809
666
184
353
1,061
4,766
————————
————————
17,574
8,982
————————
————————
The average number of days between receipt and payment of purchase invoices was 30 days (2014: 30
days).
Included within accruals and deferred income is £5.8m due from AHF plc which is being held in trust on
behalf of Three Rivers Housing Association until the Association finalises security.
18. Creditors: amounts falling due after more than one year
Group
Disposals proceeds fund (DPF)
Recycled Capital Grant Fund (RCGF)
Housing loans
At 1 April
Grants recycled
Interest accrued
New build
Less: Included in creditors falling due
within one year
At 31 March
2015
£000
2014
£000
53
107
84,155
119
84,163
———————
————————
84,315
84,282
–––––––––––––––
–––––––––––––––
2014
DPF
£000
RCGF
£000
2015
Total
£000
53
-
879
41
2
(784)
879
94
2
(784)
1,011
(141)
9
-
–––––––––––––––
–––––––––––––––
–––––––––––––––
–––––––––––––––
53
138
191
879
-
(31)
(31)
(760)
–––––––––––––––
–––––––––––––––
–––––––––––––––
–––––––––––––––
53
107
160
119
–––––––––––––––
–––––––––––––––
–––––––––––––––
–––––––––––––––
£000
62
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
Housing loans from private lenders are secured by fixed charges on individual properties.
18. Creditors: amounts falling due after more than one year (continued)
Loans from the Housing Finance Corporation Limited (THFC) are secured by a floating charge over the
assets of the Group and by fixed charges on individual properties.
Borrowings are repayable as follows:
Within one year
Between one and two years
Between two and five years
In five years or more
Less: issue costs
Less: included within creditors: amounts
falling due within one year (note 17)
2015
£000
2014
£000
2,695
5,365
9,234
70,571
666
2,694
10,980
71,441
————————
————————
87,865
(1,015)
85,781
(952)
————————
————————
86,850
84,829
(2,695)
————————
(666)
————————
84,155
84,163
————————
————————
The loans from private lenders are repaid in half-yearly instalments over the estimated life of the scheme on
which the loan is secured at fixed rates of interest ranging from 10.38% to 10.72%. The final instalments
fall to be repaid in the period 2014 to 2041.
Interest on THFC loans is payable in half-yearly instalments at fixed rates of interest ranging from 4.9% to
11.5% and at a variable rate of interest of LIBOR +0.5%. The final payments of principal fall to be repaid
in the period 2016 to 2023.
£2m of the Lloyds loan is secured at a fixed rate of interest of 5.43% until 2035. Interest on the remaining
balance is payable at variable rates of interest ranging from 1.7% to 1.71%.
All other loans are repaid in monthly instalments at variable rates of interest ranging from 0.79% to 4.9%.
The final instalments fall to be repaid in the period 2014 to 2026.
19. Provision for liabilities and charges
Group
The movement in the refurbishment provision is as follows:
At 1 April
Capitalised expenditure during the year
2015
£000
2014
£000
28,887
(1,569)
30,615
(1,728)
————————
At 31 March
————————
27,318
28,887
————————
————————
63
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
19. Provision for liabilities and charges (continued)
The provision represents the best estimate of the cost of works that Berwick Borough Housing (BBH) has
contracted to undertake under the Development Agreement for the repair and upgrading of the dwelling
properties that were subsequently acquired by BBH from Berwick-upon-Tweed Council (the Council) on 3
November 2008.
Immediately prior to entering into the stock transfer agreement between the Council and BBH, the Council
and BBH entered into a contract for BBH to perform the refurbishment works required to bring the
properties into an agreed state. The contract was for a fixed sum equal to the expected cost of the works, i.e.
£53,804,655.
At transfer BBH contracted with the Council to acquire the benefit of the agreed refurbishment works
(£53,804,655) plus the price of the properties. The nature of the works under the initial agreement has not
been specified and a right of set off exists between the contracts. These contracts have enabled BBH to
recover the VAT on repair/enhancement costs that would otherwise have been expensed.
At the time of the transfer BBH paid over a net cash amount of £nil for the properties to the Council,
representing the acquisition of the properties in their unenhanced condition and the value of the Council’s
obligation to carry out the refurbishment works (£53,804,655) less the amount due to be incurred by BBH
under the Development Agreement in relation to the anticipated costs of the repairs/improvements
(£53,804,655).
The impact of these two transactions is that whilst the Council (now Northumberland County Council as
the successor body) has a legal obligation to BBH to complete the refurbishment works, this work has been
contracted back to BBH who are also equally obligated. The underlying substance of the transaction is
therefore that BBH has acquired the housing properties in their existing condition at their agreed value and
will complete certain repairs/improvements in line with guarantees to tenants of not less that £53,804,655.
In the opinion of the Board, the commercial effect of these transactions when viewed as a whole is that
BBH has both an asset (the Council’s obligation to have the refurbishment work carried out) and a legally
binding obligation to a third party (under the Development Agreement) and these assets and liabilities
should be recognised in the financial statements.
At 31 March 2015 £27,318,000 (2014: £28,887,000) is shown in debtors: amounts falling due after more
than one year and £27,318,000 (2014: £28,887,000) in Provisions for liabilities and charges.
20. Share capital
Group and Association
2015
£
Shares of £1 each issued and fully paid at 1 April
Shares issued during year
Shares surrendered during the year
9
2
(3)
————————
At 31 March
2014
£
4
7
(2)
————————
8
9
————————
————————
The share capital is represented by one share held by each member of the Association. Shareholders have a
right to attend and vote at annual general meetings. Shareholders have no rights to a distribution on a
winding up and have no rights to dividends. No provision has been made for the redemption of shares.
64
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
21. Reserves
Group
Designated
and other
£000
At 31 March 2014
Surplus for the year
Transfers to designated reserve
Actuarial loss in the pension scheme
At 31 March 2015
Revenue
Total
£000
£000
34,043
4,842
(41)
(66)
34,406
4,842
(66)
363
41
——————
——————
——————
404
38,778
39,182
——————
——————
——————
The designated other reserve reflects surpluses generated by the Group’s Home Improvement Agencies,
Leasehold Schemes for older people and service charges.
22. Reconciliation of movements in total capital and reserves
Group
Surplus for the year
Actuarial loss in the pension scheme
2015
£000
2014
£000
4,842
(66)
3,934
310
————————
————————
4,776
4,244
Movement in the year
Opening funds
34,406
30,162
————————
————————
Closing capital and reserves
39,182
34,406
————————
————————
2015
£000
2014
£000
2,633
12,810
5,725
-
————————
————————
8,358
12,810
————————
————————
23. Capital commitments
Group
Expenditure contracted for but not
provided in the financial statements
Expenditure authorised by the Board of
Management but not contracted
Future expenditure will be funded from the Group’s existing and new loan facilities.
65
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
24. Lease commitments
Group and Association
Annual commitments under non-cancellable operating leases are as follows:
Operating leases which expire:
Within one year
In the second to fifth years
Motor
vehicles
2015
£000
Motor
vehicles
2014
£000
21
68
54
139
——————
——————
89
193
——————
——————
25. Reconciliation of operating surplus to net cash inflow from operating
activities
Group
Operating surplus
(Increase)/decrease in debtors
Increase/(decrease) in creditors
(Increase)/decrease in stock
Depreciation of housing properties
Depreciation of other fixed assets
2015
£000
2014
£000
6,420
(7,364)
4,717
(496)
2,695
286
6,363
9,745
(8,975)
522
2,535
266
————————
Net cash inflow from operating activities
————————
6,258
10,456
————————
————————
At 1
April
2014
£000
Cash
flow
£000
At 31
March
2015
£000
13,246
(84,829)
(5,987)
(2,021)
7,259
(86,850)
26. Analysis of net debt
Group
Cash at bank and in hand
Loans
–––––––––––––––
Net debt
(71,583)
–––––––––––––––
–––––––––––––––
(8,008)
–––––––––––––––
–––––––––––––––
(79,591)
–––––––––––––––
66
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
27. Reconciliation of net cash flow to movement in net debt
Group
(Decrease)/increase in cash
Increase in debt finance
2015
£000
2014
£000
(5,987)
(2,021)
10,866
(9,339)
————————
Change in debt resulting from cash flow
Net debt at 1 April
(8,008)
(71,583)
————————
Net debt at 31 March
(79,591)
————————
————————
1,527
(73,110)
————————
(71,583)
————————
28. Pension commitments
Group
The standard pension disclosure note provided by SHPS has been included; however, historic reference
dates do not apply to Berwick Borough Housing.
Three Rivers Housing Association and Berwick Borough Housing participate in the Social Housing
Pension Scheme (the Scheme). The Scheme is funded and is contracted-out of the State Pension scheme.
The Scheme is a multi-employer defined benefit scheme. Employer participation in the Scheme is subject
to adherence with the employer responsibilities and obligations as set out in the ‘SHPS House Policies and
Rules Employer Guide’.
The Scheme operated a single benefit structure, final salary with a 1/60th accrual rate until 31 March 2007.
From April 2007 three defined benefit structures have been available, namely:
Final salary with a 1/60th accrual rate.
Final salary with a 1/70th accrual rate.
Career average revalued earnings (CARE) with a 1/60th accrual rate.
From April 2010 a further two defined benefit structures have been available, namely:
Final salary with a 1/80th accrual rate.
Career average revalued earnings (CARE) with a 1/80th accrual rate.
A defined contribution benefit structure was made available from 1 October 2010.
A Career average revalued earnings (CARE) structure with a 1/120th accrual rate was made available from
1 April 2013. This structure is contracted-in to the State Second Pension scheme.
An employer can elect to operate different benefit structures for their active members and their new
entrants. An employer can operate one open defined benefit structure plus CARE 1/120th, plus the defined
contribution benefit structure at any one time. An open benefit structure is one which new entrants are able
to join.
67
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
28. Pension commitments (continued)
Both Three Rivers Housing Association and Berwick Borough Housing currently operate the final salary
scheme with a 1/60th accrual rate benefit structure for active members as at 31 March 2010 and the career
average revalued earnings with a 1/80th accrual rate benefit structure for new entrants from 1 April 2010.
This does not reflect any benefit structure change made from April 2010.
The Trustee commissions an actuarial valuation of the Scheme every three years. The main purpose of the
valuation is to determine the financial position of the Scheme in order to determine the level of future
contributions required, in respect of each benefit structure, so that the Scheme can meet its pension
obligations as they fall due. From April 2007 the split of the total contribution rate between member and
employer is set at individual employer level, subject to the employer paying no less than 50% of the total
contribution rate. From 1 April 2010 the requirement for employers to pay at least 50% of the total
contribution rate no longer applies.
The actuarial valuation assesses whether the Scheme’s assets at the valuation date are likely to be sufficient
to pay the pension benefits accrued by members as at the valuation date. Asset values are calculated by
reference to market levels. Accrued pension benefits are valued by discounting expected future benefit
payments using a discount rate calculated by reference to the expected future investment returns.
During the accounting period Three Rivers Housing Association and Berwick Borough Housing paid
contributions at the rate of 1.0% to 9.7% member contributions varied between 1.0% and 9.7%.
As at the balance sheet date there were 95 active members of the Scheme employed by Three Rivers
Housing Association, and 17 active members from Berwick Borough Housing. The annual pensionable
payroll in respect of these members was £2,817,410. Both continue to offer membership of the Scheme to
its employees.
It is not possible in the normal course of events to identify on a reasonable and consistent basis the share of
underlying assets and liabilities belonging to individual participating employers. The Scheme is a multiemployer scheme, where the assets are co-mingled for investment purposes, and benefits are paid out of
total Scheme assets. Accordingly, due to the nature of the Scheme, the accounting charge for the period
under FRS17 represents the employer contribution payable.
The last formal valuation of the Scheme was performed as at 30 September 2011 by a professionally
qualified Actuary using the Projected Unit Method. The market value of the Scheme’s assets at the
valuation date was £2,062 million. The valuation revealed a shortfall of assets compared with the value of
liabilities of £1,035 million, equivalent to a past service funding level of 67.0%.
The Scheme Actuary is currently finalising the 2014 valuation but key provisional results have been
confirmed. As at 30 September 2014, the market value of the Scheme’s assets was £3,123 million. There
was a shortfall of assets compared with the value of liabilities of £1,323 million, equivalent to a past service
funding level of 70%.
68
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
28. Pension commitments (continued)
The financial assumptions underlying the valuation as at 30 September 2011 were as follows:
Valuation Discount Rates:
Pre-Retirement
Non Pensioner Post Retirement
Pensioner Post Retirement
Pensionable Earnings Growth
Price Inflation (RPI)
Pension Increases:
Pre 88 GMP
Post 88 GMP
Excess Over GMP
% p.a.
7.0
4.2
4.2
2.5 per annum for 3 years, then 4.4
2.9
0.0
2.0
2.4
Expenses for death-in-service insurance, administration and Pension Protection Fund (PPF) levy are
included in the contribution rate.
The valuation was carried out using the following demographic assumptions:
Mortality pre-retirement – 41% SAPS S1 Male / Female All Pensioners (amounts), Year of Birth,
CMI_2009 projections with long term improvement rates of 1.5% p.a. for Males and 1.25% p.a. for
Females.
Mortality post retirement – 97% SAPS S1 Male / Female All Pensioners (amounts), Year of Birth,
CMI_2009 projections with long term improvement rates of 1.5% p.a. for Males and 1.25% p.a. for
Females.
The long-term joint contribution rates required from April 2013 from employers and members to meet the
cost of future benefit accrual were assessed at:
Benefit Structure
Final salary with a 1/60th accrual rate
Final salary with a 1/70th accrual rate
Career average revalued earnings (CARE)
with a 1/60th accrual rate
Final salary with a 1/80th accrual rate
Career average revalued earnings (CARE)
with a 1/80th accrual rate
Career average revalued earnings (CARE)
with a 1/120th accrual rate
Long-term Joint Contribution Rate
(% of pensionable salaries)
19.4
16.9
18.1
14.8
14.0
9.7
If an actuarial valuation reveals a shortfall of assets compared to liabilities the Trustee must prepare a
Recovery Plan setting out the steps to be taken to make up the shortfall.
69
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
28. Pension commitments (continued)
Following consideration of the results of the actuarial valuation it was agreed that the shortfall of £1,035
million would be dealt with by the payment of deficit contributions as shown in the table below:
A cash amount(*) equivalent to 7.5% of
From 1 April 2013 to 30 September 2020
members’ earnings per annum
(payable monthly and increasing by 4.7% per
annum each 1 April)
A cash amount(*) equivalent to 3.1% of
From 1 October 2020 to 30 September 2023
members’ earnings per annum
(payable monthly and increasing by 4.7% per
annum each 1 April)
£30,640,000 per annum
From 1 April 2013 to 30 September 2026
(payable monthly and increasing by 3% per
annum each 1 April; first increase on 1 April
2014)
(*) The contributions of 7.5% will be expressed in nominal pound terms (for each employer), increasing
each year in line with the earnings growth assumption used in the 30 September 2008 valuation (i.e. 4.7%
per annum). The contributions of 3.1% will be calculated by proportioning the nominal pound payment at
the time of the change. Earnings at 30 September 2008 (for each Employer) will be used as the reference
point for calculating these contributions.
These deficit contributions are in addition to the long-term joint contribution rates as set out in paragraph
15 above.
Employers that participate in the Scheme on a non-contributory basis pay a joint contribution rate (i.e. a
combined employer and employee rate).
Employers that have closed the defined benefit section of the Scheme to new entrants are required to pay an
additional employer contribution loading of 2.5% to reflect the higher costs of a closed arrangement.
A small number of employers are required to contribute at a different rate to reflect the amortisation of a
surplus or deficit on the transfer of assets and past service liabilities from another pension scheme into the
Scheme.
New employers that do not transfer any past service liabilities to the Scheme pay contributions at the
ongoing future service contribution rate. This rate is reviewed at each valuation and new employers joining
the Scheme between valuations up until 1 April 2010 do not contribute towards the deficit until two
valuations have been completed after their date of joining. New employers joining the Scheme after 1 April
2010 will be liable for past service deficit contributions from the valuation following joining. Contribution
rates are changed on the 1 April that falls 18 months after the valuation date.
A copy of the Recovery Plan, setting out the level of deficit contributions payable and the period for which
they will be payable, must be sent to The Pensions Regulator. The Regulator has the power under Part 3 of
the Pensions Act 2004 to issue scheme funding directions where it believes that the actuarial valuation
assumptions and/or Recovery Plan are inappropriate. For example the Regulator could require that the
Trustee strengthens the actuarial assumptions (which would increase the Scheme liabilities and hence
impact on the Recovery Plan) or impose a schedule of contributions on the Scheme (which would
effectively amend the terms of the Recovery Plan).
70
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
28. Pension commitments (continued)
As a result of pension scheme legislation there is a potential debt on the employer that could be levied by
the Trustee of the Scheme. The debt is due in the event of the employer ceasing to participate in the Scheme
or the Scheme winding up.
The debt for the Scheme as a whole is calculated by comparing the liabilities for the Scheme (calculated on
a buy-out basis i.e. the cost of securing benefits by purchasing annuity policies from an insurer, plus an
allowance for expenses) with the assets of the Scheme. If the liabilities exceed assets there is a buy-out
debt.
The leaving employer’s share of the buy-out debt is the proportion of the Scheme’s liability attributable to
employment with the leaving employer compared to the total amount of the Scheme’s liabilities (relating to
employment with all the currently participating employers). The leaving employer’s debt therefore includes
a share of any ‘orphan’ liabilities in respect of previously participating employers. The amount of the debt
therefore depends on many factors including total Scheme liabilities, Scheme investment performance, the
liabilities in respect of current and former employees of the employer, financial conditions at the time of the
cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time.
Three Rivers Housing Association has been notified by The Pensions Trust of the estimated employer debt
on withdrawal from the Scheme, based on the financial position of the Scheme as at 30 September 2014. At
this date the estimated employer debt for Three Rivers Housing Association was £21,823,534 and for
Berwick Borough Housing was £738,672.
Three Rivers Housing Association’s contributions are affected by a surplus or deficit in the scheme, but the
Association is unable to identify its share of the underlying assets and liabilities on a consistent and
reasonable basis. The total pension cost to Three River Housing Association for the year was £542,000
(2014: £548,000) and for Berwick Borough Housing was £34,000 (2014: £33,000). Three Rivers Housing
Association’s unpaid contributions at 31 March 2015 were £63,338 (2014: £44,000) and Berwick Borough
Housing’s were £3,000 (2014: £3,000).
LGPS
The disclosures below relate to the funded liabilities within the Northumberland County Council Pension
Fund (the “Fund”) which is part of the Local Government Pension Scheme. Berwick Borough Housing
participates in the Fund which provides defined benefits, based on members’ final pensionable salary. The
latest actuarial valuation was carried out at 31 March 2010 and was updated for FRS 17 purposes to 31
March 2015 by a qualified independent actuary.
Present value of funded defined benefit obligations
Fair value of plan assets
Net asset
2015
£000
(2,806)
3,322
2014
£000
(2,443)
2,987
————————
————————
516
544
————————
————————
71
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
28. Pension commitments (continued)
Movements in present value of defined benefit obligation
Present value of liabilities at 1 April 2014
Current service cost
Interest cost
Actuarial (losses)/gains
Contributions by members
Benefits paid
Past service cost
2015
£000
2014
£000
(2,443)
(49)
(105)
(235)
(12)
38
-
(2,774)
(61)
(126)
501
(14)
37
(6)
————————
At 31 March 2015
(2,806)
————————
(2,443)
————————
————————
2015
£000
2014
£000
2,987
192
169
12
(38)
2,953
193
(191)
55
14
(37)
Movements in fair value of plan assets
Present value of assets at 1 April 2014
Expected return on plan assets
Actuarial gains/(losses)
Contributions by employer
Contributions by members
Benefits paid
At 31 March 2015
–––––––––
3,322
–––––––––
2,987
————————
————————
72
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
28. Pension commitments (continued)
(Income)/expense recognised in the income and expenditure account
2015
£000
Current service cost
Interest on defined benefit pension plan obligation
Expected return on defined benefit pension plan assets
2014
£000
49
61
105
126
(192)
(193)
––––––––– –––––––––
(38)
(6)
Total
————————
————————
The (income)/expense is recognised in the following line items in the profit and loss account:
2015
£000
Operating costs
Other finance income
2014
£000
49
61
(87)
(67)
––––––––– –––––––––
(38)
(6)
————————
————————
The total amount recognised in the statement of total recognised gains and losses in respect of actuarial
movements is £66,000 loss (2014: £310,000 profit).
Berwick Borough Housing employs a building block approach in determining the rate of return on Fund
assets. Historical markets are studied and assets with higher volatility are assumed to generate higher
returns consistent with widely accepted capital market principles. The overall expected rate of return on
assets is then derived by aggregating the expected return for each asset class over the actual asset allocation
for the fund as at 31 March 2015. The assumed rate of return on each asset class is as follows:
31 March 2015
%
Equities
Property
Government bonds
Corporate bonds
Cash/Other
Other
Total
7.6
6.9
3.4
4.0
0.9
7.6
6.5
31 March 2014
%
7.6
6.9
3.4
4.0
0.9
7.6
6.5
73
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
28. Pension commitments (continued)
Principal actuarial assumptions (expressed as weighted averages) at the year end were as follows:
31 March 2015
%
Discount Rate
RPI inflation
CPI inflation
Rate of increase to pensions in payment
Rate of increase to deferred pensions
Rate of general increase in salaries
31 March 2014
%
3.2
2.9
1.8
1.8
1.8
3.3
4.3
3.4
2.4
2.4
2.4
3.9
The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based
on standard actuarial mortality tables known as PNA and include an allowance for future improvements in
longevity. The assumptions are equivalent to expecting a 65 year old to live for a number of years as
follows:

Current pensioner aged 65: 23.0 years (male), 25.2 years (female)

Future retiree upon reaching 65: 25.5 years (male), 27.8 years (female)
History of plans
The history of the plans for the current and prior periods is as follows:
Balance Sheet
Present value of scheme liabilities
Fair value of scheme assets
Surplus
31 March
2015
£000
(2,806)
3,322
31 March
2014
£000
(2,443)
2,987
31 March
2013
£000
(2,774)
2,953
31 March
2012
£000
(2,421)
2,545
31 March
2011
£000
(2,072)
2,373
––––––+–––––––––
–––––––––––––––
–––––––––––––––
–––––––––––––––
516
544
179
124
–––––––––––––––
301
–––––––––––––––
–––––––––––––––
–––––––––––––––
–––––––––––––––
–––––––––––––––
2015
£000
2014
£000
2013
£000
2012
£000
2011
£000
(235)
501
(183)
(185)
Experience adjustments
Experience adjustment on scheme
liabilities
Experience adjustment on scheme
assets
169
–––––––––––––––
(Loss)/gain
(191)
–––––––––––––––
186
–––––––––––––––
(66)
310
3
–––––––––––––––
–––––––––––––––
–––––––––––––––
(54)
–––––––––––––––
(239)
–––––––––––––––
67
(158)
–––––––––––––––
(91)
–––––––––––––––
Berwick Borough Housing expects to contribute £nil (2014:£nil) to its defined benefit plans in the next
financial year. In addition to this Strain on Fund contributions may be required.
74
Four Housing Group Limited
Notes to the financial statements
at 31 March 2015
29. Hostels
Group
Where the Group carries the financial risks of hostels the income and expenditure account of the Group
includes the income and expenditure which relates to the Group. Income and expenditure of hostels where
the Group does not bear the financial risk is excluded from the Group’s income and expenditure account.
Organisations managing units for the Group are detailed below:
Managing body
Norcare Limited
Durham Action on Single Housing
2015
No.
2014
No.
6
8
6
8
–––––––––––––––
–––––––––––––––
14
14
–––––––––––––––
–––––––––––––––
30. Contingent liability
The Group recognised a contingent liability of £789,250 in relation to recycled grant applicable to
individual housing property components within Three Rivers Housing Association Limited. This will
crystallise on disposal of the property.
31. Related party transactions
During the year there were related party transactions with Berwick Borough Housing Limited and Three
Rivers Housing Association Limited in respect of central support services provided by Four Housing
Group, financed by Three Rivers. These transactions were made under commercial terms on an arms
length basis. Balances outstanding at 31 March 2015 are eliminated upon consolidation.
Both Associations have tenant board members. Their tenancies are on normal commercial terms and they
are not able to use their position to their advantage.
Berwick Borough Housing has board members who are Council nominated members. They are not able to
use their position to their advantage.
Berwick Borough Housing Limited (BBH) purchased the housing stock of Berwick-upon-Tweed Council
(BC) (now Northumberland County Council) on 3 November 2008. As part of the purchase agreement, it
was agreed with Her Majesty’s Revenue & Customs (HMRC) that the VAT incurred by BBH in carrying
out major improvements programme would be recoverable from HMRC. It was further agreed with BC that
the VAT recovered in the first 10 years would be shared between BBH and BC such that BBH receive the
first £2,546,000 and 75% of the subsequent VAT recovered over the first 10 years of the VAT shelter.
75