Value for Money Self-Assessment
Year ended 31st March 2016
Value for Money – the First Ark Group
Value maximisation is at the heart of the First Ark Group, which consists of
the following five companies:


First Ark – the parent organisation oversees the strategy and
direction for the First Ark Group, and provides Corporate Services for
the whole Group;

KHT – the Registered Provider of Social Housing, whose pioneering
work in the community addresses a wide range of social, economic
and environmental challenges;

Vivark – a social enterprise and a commercial repairs and facilities
management organisation which generates profits for reinvestment
into communities;

One Ark - a charity which aims to access external funding and
investment to deliver community projects which will make a real
difference to people’s lives;
Oriel - our housing development brand, which from 2016/17 will be
delivered through two trading subsidiaries of KHT (one of which will be
KHT Services), which will be building homes in the North West for sale and
shared ownership. Through its innovative range of financial solutions and
quality homes, Oriel will be making home ownership a reality for many
people who have aspired to own their own home but haven’t been able to
get on the housing ladder.
Each company contributes to the Group’s success in their own way, but
collectively create solutions for generating social impact and making a
difference to the lives of the people who live and work in our communities.
The First Ark business model provides a unique offer through operating
commercially, working responsibly and investing profits to create a social
‘dividend’ that can change people’s lives. Through our operating model and
business structure, we will continue to deliver many products and services,
whilst better managing risk and creating a range of partnerships and a
business culture that motivates employees to deliver positive change.
Our business case is simple: the more areas in which we operate and grow
economically and socially, the stronger the First Ark model becomes and the
greater impact we can make. As our asset base grows, our range of
customers grows, and the overall wealth and capability of the people and
places we work in grow – it’s a recipe for success.
Our customers deserve the opportunity to improve all aspects of their life: to
earn, to have more choice and to be able to live safely and securely in a
quality environment. The task though is huge and First Ark alone can’t to do
it all. We require everyone to be aligned around a joint vision, to work in
partnership and to use their capabilities to create both business and resident
opportunity and success.
Compared with the national average, the level of employment, educational
attainment, financial and digital inclusion and, therefore, opportunity is lower
in Knowsley and the Liverpool City Region. Step changes in delivering more
innovative solutions will achieve a step change in our customer’s lives, so
we need to be brave and pioneering in our offer and our solutions.
What Value for Money means to us?
We believe that social and environmental value are just as important as
economic and financial value, and this wider definition of value helps us to
assess the Total Value that we create, and underpins everything that we do.
At First Ark we are on a mission to deliver first class homes, products and
services that enable people, places and organisations to flourish. Our
strategic approach to Value for Money continues to be one of maintaining
viability whilst improving business effectiveness, customer excellence, and
maximising the total value that we create.
Our VFM strategy focusses on doing the ‘right’ things in the ‘right’ way, and
is a key element to running an effective business. To maximise the total
value that we create, we are now in the fifth year of a ‘Creating Success
through Transformation’ programme.
Since inception in 2011, the
programme has so far delivered recurring cost savings of £7.5m per annum,
and the creation of the First Ark Group business model.
The current and future phases of our transformation journey are set out
below:
1. Business transformation through our Evolve programme, creating
the roles, processes and capability to create efficiencies, realise a better
customer experience and to grow and diversify the Group – a 5 year
programme which started in 2014. The Evolve programme also includes
maintaining our long-term viability, for example our response to
Government policy changes, and other significant operating environment
changes;
2. Growing, diversifying and generating substantially increased social
value outcomes, realising the benefits of the First Ark model – this has
been a key focus from April 2015;
3. Reviewing our progress at key points along the way, checking the
robustness of the business model against the operating environment,
our risk appetite, our progress to date and refreshing our future mission
through an annual review.
Our transformation agenda is a far-reaching Value for Money strategy that
will drive value and continuous improvement, and will fundamentally change
to the way that we deliver our services to help support our mission.
The Board is confident that the transformation programme will be
successfully translated into further improved business performance and
enhanced value for money.
Our VFM aspirations
Overall we want to be as efficient as we can in providing our new ‘customerled housing offer’, which will meet the changing needs of our customer’s
homes and services to under-pin their long-term tenancies. VFM is a way
for us to check the social and economic impact the group has in the
communities in which we operate.
In delivering our strategic objectives we will develop and introduce a wide
range of products and services that enhance the customer experience, and
ensure we take control of our customer interactions to drive performance.
Our aim is to continue to focus our customers towards a digital interaction to
deliver channel shift, which will further reduce the cost of delivering services.
The Board realise that there is still some way to go to achieve our VFM
aspirations, but we feel it is the right aspiration to have for both our
customers and for our business.
How does the Board ensure the delivery of Value for Money?
During the last twelve months the Board has developed and implemented a
new and improved governance framework for the First Ark Group which will
ensure that, in the future, the Boards will have the skills and competencies
that they need to better lead and manage the delivery of the Group’s
strategic objectives. Our governance framework has the customer at its
heart – our new Customer Assurance Panel now plays a critical role in
ensuring that customers help to shape our services, and that all that we do
is to the highest standards.
Our journey of transformation in Governance will continue to provide a
platform to deliver a world class customer experience with structures at both
Non-Executive and Executive level which provide robust leadership and a
high performing Group of businesses, delivering outstanding performance.
The Board sees the setting of the corporate strategy, the allocation of
resources, and the monitoring of delivery as all linking to the effective
management of Value for Money. We deliver this through an integrated
approach including:


Setting budgets and business plans which include efficiency targets
and improvements to services based on strategic and operational
action plans;
Embedding a continuous focus on VFM within the culture of the
organisation - a value culture has been developed throughout the
Group, with staff routinely challenging themselves to consider how
they conduct business and buy goods and services as if it was their
own money;
Ensuring regular and effective monitoring of financial and operational
performance against both internal targets and benchmarks set by
other organisations and sectors;
An annual review of our VFM plans to monitor progress and ensure
the future plans are aligned to the strategic objectives;
The development of a comprehensive self-assessment document to
communicate our VFM activities and future plans to our internal and
external stakeholders.
Every member of staff is assessed against a ‘Value Competency’
during their monthly performance review to help ensure that VFM is a
key part of what everybody does, and that value maximisation is
embedded into individual work plans and objectives.




The operating environment
The areas that First Ark operates within are amongst the most deprived in
the UK – Knowsley, for example, is the third most deprived borough in the
country, so there are strong business and social reasons for First Ark to
operate as a social business.
2015 has been one of the most significant years for the housing sector.
During the year the newly elected Conservative government announced a
range of policy changes that have had a direct impact on KHT and its
customers, particularly:


Reducing social housing rents by 1% for the next 4 years (2016 to
2020) as part of a range of policy changes intended to further
reduce the welfare benefit bill by £12billion per year; and
Extending the Right to Buy to all housing association tenants.
The reduction in social housing rents will reduce KHT’s anticipated income
by £15m over a 4 year period from April 2016, and by £362m over the life of
the 30 year business plan. In addition, the roll-out of Universal Credit
started in Knowsley in June 2015, which increases the already challenging
environment for our customers, and for our staff.
The Homes & Communities Agency (HCA) recently issued new headline
unit cost indicators as part of its Value for Money assurance and selfassessment framework, which are referenced later in this self-assessment.
The HCA data included regression analysis which explained how variations
in the headline costs of managing social housing may be explained by
measured factors. The report concluded that around 50% of the variation in
headline unit costs can be explained by factors such as the types of homes
managed (i.e. the cost of managing supported housing and housing for older
people is higher than the cost of managing general needs homes), regional
wages, the type of organisation and where that organisation is up to with its
stock improvement programmes, and neighbourhood deprivation, which can
be associated with a range of factors including higher numbers of empty
homes, increased tenancy turnover and increased levels of crime and anti-
social behaviour. 12% of KHT’s homes are in neighbourhoods which are
ranked in the 1% most deprived according to the Index of Multiple
Deprivation, and 22% of the homes are in the bottom 3%.
The UK has recently voted to leave the European Union, so the country as a
whole and the housing sector now face a period of uncertainty whilst we wait
to see how the Government will manage the transition. The reaction of
sector funders to the EU referendum could result in higher funding costs as
funders re-evaluate their credit risk and seek to pass on their increased
costs of capital. The Board through their funding advisors will pay particular
attention to this as we develop the strategy to fund our growth ambitions
over the next few years.
The increasingly challenging operating environment has been anticipated in
our business planning assumptions, and through robust financial
management we continue to out-perform our business plan forecasts. The
Board will continue to stress-test the business plans to understand at what
point they may become unviable, and the stress-testing results are an
intrinsic part of our risk Early Warning System.
Rents
Between 2011 and 2015, to ensure that the impact on both directly paying
customers and on government are minimised, the KHT Board set a below
maximum rent increase for KHT tenants. In addition, our rents are also
significantly below the average market rents in Knowsley, which delivers a
combined saving to the public purse and to our customers’ disposable
income of over £24m per year. The 4 year rent reduction has forced the
Board to re-think its rents policy to ensure the business plan remains viable.
However the Board will continue to ensure the future rents strategy
maximises value by stimulating demand, and ensuring our rents are
affordable and sustainable for our customers.
With a large proportion of employment in Knowsley based on lower skill and
lower pay rates (the average earnings in Knowsley is £24,695 per annum,
3.5% lower than regional average pay and 10.3% below the average pay in
England), it is clear that these levels of savings represent a significant
benefit direct to our customer, supporting the principles of making work pay
and increasing the level of disposable income within Knowsley.
Compared to other registered providers’ properties in Knowsley, KHT rents
are 1.9% lower than the combined average weekly rent of the other
providers, and KHT average rents are now 3% below the full target rent.
How are we performing?
An established measure for understanding the financial performance of the
organisation is EBITDA (Earnings before Interest, Tax, Depreciation and
Amortisation). A good earnings margin is fundamental to ensuring the
organisation is generating sufficient funds to enable it to invest in its future
operations. The charts below show the trends in the Group’s core social
housing turnover and operating earnings over the last 5 years.
KHT Turnover and EBITDA
80
60%
60
£m
40%
40
20%
20
-
0%
2012
2013
KHT Turnover
2014
EBITDA
2015
2016
EBITDA %
The reduced earnings in 2013/14 are a result of increased repairs and
maintenance expenditure and additional improvements in our homes, which
is explained further below.
What is the value that we are delivering?
To demonstrate the value that the First Ark Group creates, we routinely
triangulate cost, performance and customer satisfaction.
a) Cost
We monitor the costs of running the business closely (the operating costs),
and we compare our costs to other organisations to help us drive continuous
improvement.
KHT’s performance against the HCA’s recently published headline cost
indicators, which are based on 2014/15 cost data, is shown below.
Unit Costs
Sector Average
Sector Average – including
HCA regression factors
applied to KHT / Knowsley
KHT
Management
& Service
Costs
£1,361
Maintenance
Costs
£986
Major
Repairs
Costs
£802
Other Social
Housing
Costs
£201
Headline
Social
Housing
Costs
£3,546
£3,817
£1,022
£1,164
£1,022
£57
£3,266
Comparison of KHT to Sector Average
£ per unit
(£339)
Total Costs (£’000)
(£4,583)
£179
£2,418
£220
£2,981
(£144)
(£1,950)
(£281)
(£3,803)
Comparison of Sector Average – including HCA regression factors applied to KHT/Knowsley
£ per unit
(£552)
Total Costs (£’000)
(£7,471)
Source: HCA Global accounts
Overall, KHT’s headline cost of managing each home is £281 below the
average for the housing sector, which equates to around £3.8m annually.
When the HCA’s regression factors are included, KHT’s headline unit costs
are £552 below the sector average, which equates to £7.5m annually.
Further analysis of the different cost categories is provided throughout the
remainder of this self-assessment.
Housing Management & Service Costs
To really understand the cost of managing and servicing our homes, we
extract the one-off costs each year to show us the true underlying and
recurring costs per home. Our underlying costs per property for the last five
years are shown below:
Source: HCA Global accounts
Between 2012 and 2015 our underlying housing management reduced by
£1.3m (9.4%) in real terms, which was despite an additional recurring
investment of £0.4m since 2013 to deal with the increased demands of
welfare reform. This demonstrates our ability to manage and control our
costs effectively.
The underlying management costs in 2015/16 increased by £1m, which was
due to planned investment associated with building the capacity for future
growth, new investment in IT, and managing the implications of additional
welfare reform changes.
Resourcing Growth & Business Development
The transformation agenda outlined above identifies Growth and
Diversification as a key strategic priority for the First Ark Group. In 2015/16
the Group reinvested some of the management cost savings from previous
years into a new Business & Service Development Team. The purpose of
the new team is to translate the Growth Strategy into specific target markets,
and to develop a pipeline of business activity to achieve the Group’s growth
and diversification objectives.
Management Costs Control
During 2015/16 a number of initiatives were undertaken to reduce the
current and on-going costs of managing the business. The initiatives
included:



Delivering the savings from Phase 1 of the Evolve Transformation
programme – in May 2015 new organisation design was introduced,
which resulted in £0.9m recurring salary savings across the Group;
Closed the final salary pension scheme - the closure removed a
£16m liability from the KHT balance sheet, and reduced the on-going
pension contribution costs across the Group by £0.5m per year. As
a result of efficiencies and cost savings made to date, we were able
to pay the £10.5m exit costs in full, which has reduced the on-going
interest charges from the pension fund and removed the requirement
for an expensive pension bond;
Introduced a group-wide cost reduction programme to off-set the
impact of the 1% rent reduction. The Group’s annual management
costs will reduce by around £2m from April 2016, and by making the
savings early we will further reduce our unit costs and strengthen the
financial capacity of the Group.
Repairs & Maintenance Costs
A significant element of the Group’s annual expenditure is invested back into
the housing stock to maintain and improve the value of the assets. An
analysis of the Repairs & Maintenance expenditure over the last 5 years is
shown below.
The chart above shows that the cost of repairing and maintaining our homes
has historically been low. However, our costs increased significantly in 2013
and 2014 following a planned improvement to our empty homes standard to
attract and retain new customers, combined with an increase in the number
of empty homes as a result of the bedroom tax. However, through proactive
management and changes made through our transformation programme, we
have been able to reduce our costs again over the last 2 years to be closer
to the sector average.
The cost of repairing our tenanted homes has reduced by 1% (£73k) in ‘realterms’ since 2012, which highlights the financial value that Vivark brings to
the Group through a combination of competitive rates and internal VAT
savings. The Repairs & Maintenance contract with Vivark includes a price
freeze, which is anticipated to reduce the repairs costs by an additional £1m
over the next 2 years in real terms.
We are continuing to invest in our empty homes to improve our property
offer for new tenants. This has resulted in an overall increase in the cost of
repairing empty homes over recent years as the volume has increased as a
direct result of welfare reform, but we believe it is the right thing to do,
because giving new tenants the best possible start in their new home will
ultimately improve the sustainability of their tenancy and our
neighbourhoods, and pay dividends in the long term.
Our tenancy turnover rates remain high (2016: 9.3% compared to the top
quartile performance of 8.8%) which means that, on average, we are dealing
with 70 more empty homes per year than other comparable organisations.
Our intelligence tells us that tenants are leaving because they can’t afford
their rent because of the bedroom tax, or they are being evicted due to rent
arrears.
Through our transformation programme, we are facing the empty homes
challenge head-on. Our new home offer, and the new way of managing our
empty properties, has already started to pay dividends, which is reflected in
the lower costs above.
During 2016/17, as part of the response to the rent reduction, we will reduce
our asset management costs by a further £6m per year from April 2016,
which will have a further positive impact on repairs and maintenance costs.
This is a challenging but achievable target, and we know through
benchmarking that the remaining business plan allocation for asset
management is sufficient to maintain our homes and protect our asset
values in the future. We will keep our asset management costs under close
scrutiny to ensure that the standard of our homes is acceptable and able to
provide the right quality of home to our customers, whilst also maintaining
the value of homes to maintain our ability to manage our existing and future
loan portfolio.
Keeping our operating costs low gives us the capacity to invest in new and
existing homes, and in the infrastructure that will drive continuous
improvement. Ultimately, the key focus of the transformation agenda is to
improve service and customer excellence, which will be evidenced by
improved performance and customer satisfaction in the future.
Looking to the future, over the next few years our objective is to significantly
change the way we deliver services to customers through



the new home offer;
driving further improved efficiency and effectiveness through
transformation; and
continuing to ensure that our costs and resources are in the right
place to deliver customer excellence.
Major Repairs & Improvements
All of KHT’’s homes achieve the Decent Homes Standard, however to
ensure our homes are maintained to a high standard to attract and retain
future customers, and to maintain the value of our assets, a cyclical
programme of major repairs and improvements is built into our operational
and financial planning processes.
The annual major repairs and
improvement expenditure for the last 5 years is shown below.
The fluctuations in expenditure levels reflect the cyclical nature of the
programmes that have been carried out over the last 5 years. During
2016/17, using the new stock condition survey data that is outlined below,
we will be reviewing the improvement programme requirements within the 30
year business plan to smooth the programmes out as much as possible so
that our annual expenditure profile remains consistent, whilst still maintaining
the standard and the value of our housing assets.
b) Performance
To demonstrate whether or not VFM is being achieved, the second element
that we consider is the quality and efficiency of service that we provide. To
do this we compare our performance against those of other organisations
that are smaller and larger than us in the North of England (we have
selected this comparator group because we feel that no particular business
model or size of organisation has a monopoly on efficiency or good
practice). Our latest benchmarking data for March 2016 is shown below:
Source: Housemark
The bottom quartile performance on void loss, the number of properties that
are vacant, and the high levels of tenancy turnover reflects the challenging
operating environment in Knowsley. It is important to note that over 12% of
KHT’s homes are in neighbourhoods which are ranked in the 1% most
deprived according to the Index of Multiple Deprivation (22% are in the
bottom 3%), which has a material adverse impact on the number of empty
homes and the tenancy turnover rates. Although the cost of repairing our
empty homes is reducing through the transformation changes we have
introduced, the challenge remains to reduce the volume of empty homes to
a more acceptable level.
By attracting a more economically active customer base, our target is to
reduce tenancy turnover to 6% over the next 5 years. This will reduce the
number of empty homes that we have to manage by around 400 per year,
and reduce our overall cost base even further, as well as improving other
key performance indicators, for example rent collection and customer
satisfaction.
The Board is confident that the transformed empty homes process, and the
customer-led housing offer, will see further significant improvements in costs
and performance over the next twelve months.
Although below the top quartile, our rent collection performance has
remained consistent despite the challenges that we face in Knowsley.
During 2015/16 the level of housing benefit received by KHT customers
reduced by £1.1m compared to the previous year, however our rent
collection performance was maintained through increased cash collection
from customers. The transformation agenda has introduced several new
systems and processes to improve rent collection performance, including
automated calling to customers who are in arrears, which has helped to
maintain the current performance.
To improve our rent collection performance, over the next 12 months we will
be further refining our outbound contact to customers, and will use our
customer and business intelligence to target specific customer groups and
neighbourhoods where collection rates are lower than expected.
c) Customer Satisfaction
The third element that we consider to demonstrate VFM is customer
satisfaction. Our ambition is to provide our customers with an experience
that is comparable to the best of all sectors, not just the housing sector. To
understand how we compare to other sectors, we are members of the
United Kingdom Customer Satisfaction Index (UKCSI). The results of our
UKCSI performance, compared to different sectors and well-known brands,
is shown below.
Source
The 2015 survey improved our index score performance from 80.2 to 81.8,
which is a significant positive improvement achieved whilst implementing
significant change throughout the business. The Board’s objective is to
deliver service and customer excellence, so our ambition is to improve our
UKCSI index to be consistent with Amazon as part of our transformation
agenda.
d) Corporate Services
The Corporate Services provided to the Group by First Ark are a key enabler
of front-line service delivery. To demonstrate value from our corporate
services, we compare their cost and effectiveness to other organisations.
Source: Baker Tilly Back Office Benchmarking
Whilst the cost of the First Ark Group’s Corporate Services is on a par with
our peers, the performance, and the ‘value’ added, can be further improved
– our aim is to be as efficient and effective as the best practice benchmarks
from other sectors. Our corporate services teams are continuing to drive
value in their own areas. For example, in March 2016 we started a
transformation programme within the finance team to improve efficiency and
effectiveness to the whole organisation.
Treasury Management
The Board adopts a conservative approach to treasury management. No
stand-alone derivatives are used, and we seek independent advice from
Treasury Management experts along with quarterly reports from
management on treasury and investment performance.
The Group has a comprehensive Treasury Management Strategy in place,
which underpins how the Board ensures the funds required to deliver the
strategic objectives are in place at the right time, and that we are getting the
most out of our cash reserves.
During 2015/16 the Board completed a £195m refinancing project, which
included KHT’s first entry into the Private Placement (PP) market. The new
funding arrangement has a positive impact over the life of the KHT Business
Plan, despite significant break costs from the previous arrangement. The
PP allowed the Board to access longer-term money than that which is
available through traditional bank financing, at lower interest rates, and the
new arrangement provides the Board with greater freedom and flexibility
around the future funding arrangements.
During the year we have appointed new Treasury Management advisors,
who bring a greater understanding of the Group’s wider growth ambitions,
and levels of expertise to support those ambitions.
In April 2016 the KHT Board gave outline approval for the development of
1,000 homes (40% for shared ownership and 60% for outright sale) which is
a key part of the Group’s growth strategy. During the summer of 2016 a
new business plan incorporating the 1,000 homes will be presented to the
KHT Board, along with a new Treasury Management Strategy to outline how
the Board’s growth aspirations will be funded.
Optimising the Value we get from our assets
The main assets of the First Ark Group are the KHT homes. We have a
long-established approach to asset management which balances stock
investment with option appraisals and disposals, and which helps ensure we
make informed decisions on whether to hold stock in its current form,
dispose of it, or convert it to another tenure. We have established systems
and processes in place which produce indicators of whether a block or an
estate may be in decline. Option appraisals are then undertaken and
consideration is given to how performance and profitability can be improved.
Option appraisals consider a number of techniques, including acquisitions,
disposals and conversions, as well as differing sales and rent options.
Where significant changes are deemed appropriate, appraisals are
submitted to the Board for approval. This model of appraisal ensures that
KHT’s housing stock remains fit for purpose and is able to deliver the
Board’s strategic objectives.
Alongside the above techniques we also appraise all high cost voids prior to
commencing the works to determine the estimated financial return, with the
aim of remodelling or disposing of properties offering low or negative
returns. Based on analysis of the costs and financial return, the options
could include – letting in its current condition, further investment to enhance
the property, conversion, disposal or demolition.
During the year we carried out 329 value for money assessments of highcost empty homes, and the outcomes were:
Ensuring that we understand our homes portfolio remains key to managing it
effectively. To ensure our investment requirements remain up to date,
during 2015/16 we have commissioned a full stock condition survey, based
on a 20% sample, the results of which are due in the summer of 2016. We
will continue to survey 20% of our homes each year to ensure our
requirements continue to be up to date. The results of the stock condition
survey will be fed into the 30 year business plan to ensure the resources
required to maintain our homes and asset values are available when
required. All investments have defined target rates of returns.
During 2015/16 we have started to implement a new Asset Management
system which will further enhance our business intelligence approach.
During 2016 we will be updating our asset management strategy, which will
focus on the following key objectives:





Achieving an optimum balance of supply and demand for homes for
social or affordable rent and homes for sale, using an increasing
range of sales models including shared ownership, outright sale, rent
to buy and other bespoke offers;
Optimising the financial return on our assets;
To deliver our ongoing Five Year Promises that means we maintain
decent homes compliancy and the value of our assets, achieve
affordable warmth, meet our customers identified needs, and
contribute to community development;
To manage the stock portfolio, not just in terms of age, condition and
standard, but also as part of a process of assessment to guide
policies of re-investment to meet the needs of current and future
tenants;
To support our corporate priorities through investment plans that
reflect the agreed allocation of resources for re-investment and will
contribute to sustainable neighbourhoods.
The new Asset Management strategy will complement our existing New
Homes and Investment strategy, and align to our Growth ambitions and our
key business drivers.
We will align our Asset Management approach to the wider Place and
Housing Strategies for the areas that we operate in, to ensure we have a
housing offer that will meet both future and current demand.
Current Housing Stock
An overview of our owned property portfolio is shown below:
The latest performance information for our assets is shown below:
Our asset management and investment plans are supported by a detailed
data intelligence system which has been developed through the accurate
mapping of properties, blocks and neighbourhoods and linked to an estate
mapping exercise which captured estate based data in one place.
Our approach to using the high quality asset performance data enables us,
through analysis, to identify properties, schemes and neighbourhoods which
are becoming uneconomic or are no longer fit for purpose. This then
triggers the options appraisal, process that is outlined above.
Stock Valuation and Loan Security
Periodically a valuation of housing properties is undertaken. The most
recent valuation was carried out in 2014 by Savills (UK) Limited, an external
property consultancy, in accordance with the Royal Institute of Chartered
Surveyors’ Appraisal and Valuation Manual (The Red Book) on an Existing
Use Value for Social Housing (EUV-SH) basis. The 2014 valuation was
£344.9m.
Following the refinancing exercise in 2015, 8,600 properties are secured
against the current loan facility, which means we have 4,873 unencumbered
assets that can be utilised to support the Board’s strategic objectives.
Following the rent reduction announcements we have worked with Savills to
understand the impact on our property valuation. Due to the levels of
savings identified by the Board, KHT’s property valuation is not affected.
Neighbourhood Performance
One of the Group’s key efficiency objectives, and a key driver of the
customer led housing offer, is to improve the surplus per property by
creating sustainable tenancies and commercially managing our
neighbourhoods.
Our in-house system is utilised to evaluate and
continuously improve the financial return on KHT’s core assets. The
financial performance of KHT’s assets for 2015/16, and the target for
2016/17, is shown in the table below:
Actual
2015/16
Target
2016/17
Turnover (per property)
Direct Costs (per property)
£4,477
£4,437
£4,385
£4,114
Surplus (per property)
£129
£271
Return on assets
2.9%
6.2%
A return on assets of 2.9% (£129 per property) equates to a total surplus of
£1.7m (note the internal calculation of surplus per property includes capital
expenditure and interest, and excludes non-rental income, so does not
match note 4(b) in the financial statements). A business target of 6.2%
return on assets (£271 per property) has been set for 2016/17, which
includes the impact of the summer budget savings, and a further stretch
target of £1m surplus in the year.
The operating surplus on social housing lettings (£15.7m, see note 4(b)),
reflects a financial return of 25%. However, when interest payable is
deducted, the operating surplus reduces to £6.4m, which reflects a financial
return of 10%. Over the next five years our business plan anticipates an
average return of 17%, but this will fluctuate between 14% and 20%
depending on the profile of investment in our services and our assets. The
continued positive return on assets, despite the difficult operating
environment, reflects our approach of maintaining a total cost base that is
both viable and affordable.
Our asset management reporting framework provides the intelligence to
change our whole approach to managing and maintaining our assets. This
approach will help staff to develop a deeper understanding of the key
performance drivers in each neighbourhood, and empower them to develop
plans to further improve financial performance over time.
New Homes and Investment
At First Ark we use our development activity as the catalyst for the social
and economic investment in the people and the places in which we operate.
The Board considers and sets the parameters for all new homes and
investment appraisals, and each scheme is assessed to ensure it achieves
the required financial, social or environmental return.
One of the Board’s key aims is to grow the business by developing new
homes without a corresponding increase in management costs, which will
help us to reduce our overall management costs per unit.
By keeping our operating costs low, we are able to direct significant
investment into improving our existing homes, and developing new homes.
In the last twelve months we have invested £11.5m into improving our
existing homes, and £9.3m into developing 79 new homes, of which £1m
was funded by grants. Over the next 5 years, to further maximise the return
on the value of our assets, we anticipate investing an additional £115m to
develop 400 new homes for shared ownership and 600 homes for outright
sale. The Group’s development programme will provide a diverse housing
offer that will attract more people to move into our homes and
neighbourhoods, and will generate profits for reinvestment into the corporate
strategy to further mitigate the increasingly challenging operating
environment.
Social Value
The First Ark Group is recognised nationally as a pioneering organisation
that is regenerating communities and changing lives. Our business model
has social value and social impact at its core. All of the companies within
the Group deliver social value through the way they work, however a
significant element of our social impact investment is driven through One
Ark, the Group’s social investment charity.
Currently, One Ark is
predominantly funded through a contract with KHT, which drives increased
outcomes and support for KHT’s customers, which in turn contributes to
KHT’s performance and on-going viability. As part of the Group’s growth
strategy One Ark is seeking to increase its external funding to build capacity
and, in the medium-term, to reduce its reliance on the contract funding from
KHT.
The strategic priorities for One Ark are shown below:
For the past 18 months we have been working to establish First Ark as a
Social Investment Finance Intermediary (SIFI). We have recently been
successful in securing a £4m social investment fund which will help us to
develop the social economy in the North West of England, and to deliver the
One Ark social impact objectives outlined above.
First Ark is proud to be an accredited Living Wage employer and we
continue to only work with suppliers and contractors who meet our Living
Wage requirement, so that our social value objectives can have a much
wider impact.
Social levies, gift aid, internal contracts and external funding are all used to
invest in projects and schemes that generate substantial social impact,
many being reflected in our annual social accounts.
Overall, with an LM3 score of 1.42, the First Ark Group can demonstrate
that, through grant and investment funding, and local supply chain
expenditure and staff salaries, we have generated additional expenditure of
£22.6m within the Liverpool City Region, as shown below.
We will soon be issuing our fourth set of social accounts, which demonstrate
the positive social and environmental impact that the First Ark Group has in
the communities that it works within.
Procurement
Procurement is an intrinsic element of the Group’s drive for efficiency and
value for money. Our procurement function is key to the achievement of the
strategic objectives, and is evolving and maturing to meet the challenges the
Group faces, and to deliver the best possible value to the Group. The
procurement team has delivered £6.4m in procurement gains over the last 6
years.
Procurement legislation and contract regulations have all been changed in
the last year, and these changes, in combination with the rapidly changing
political and economic environments within which we operate, present both
challenges and opportunities for the procurement function.
To further embed social value within our procurement processes, we adopt
a variety of approaches to leverage third party expenditure to deliver social
value and social impact to benefit our communities, including:

Apprenticeships and training programmes within our procurement
contracts where possible;




Procuring repairs and maintenance services through Vivark, our
social enterprise facilities management arm, which reinvests its
profits in the local community to create jobs, training and
apprenticeships;
Supporting the local economy by developing partnerships and
procuring supplies and services with contractors and suppliers in the
local area;
Incorporating a social levy into our procurement contracts where
possible, where a percentage of the contract value is used to
generate social value;
KHT is a founder member of Fusion 21 – Fusion 21 creates a fund
for social value projects by reinvesting 1% of the management fee
from its members;
Our innovative procurement activity demonstrates the First Ark Group’s
emphasis on social value. Going forward our aim is to further increase the
social impact that we obtain from each and every procurement activity,
unless there are exceptional circumstances which prevent us doing so.
Aims for the future to further maximise Value for Money
Our strategic approach to Value for Money continues to be one of
maintaining viability whilst improving business effectiveness, customer
excellence, and maximising the total value that we create. The business
transformation programme is the key driver of our far-reaching Value for
Money agenda to drive further efficiencies and maximise value over the next
few years.
In our 2015 VFM self-assessment we outlined the activity that we would be
completing over the next few years as part of our VFM activity. An update
on the VFM activities that we have outlined in previous self-assessments is
provided below:
‘We said’
2015 self-assessment
Our new home offer that is
looking at how we will attract
new customers into our homes
for rent, and from new markets
whilst shaping the service and
the product to meet customer
needs.
In 2015 we said we would:
Continue to implement the
Customer led offer.
‘We have’
2016 Update
During 2015/16 have developed
the staffing structures and started
to develop the skill sets within the
lettings team to implement the
new ways of working. We have
also mapped all of our processes,
drafted new process user guides
for all staff, and rolled out mobile
technology to drive efficiencies in
the administrative processes.
A new marketing approach has
been developed to attract
customers to our homes (25% of
all lettings are now marketed
through alternative routes) and
the Organisational Design
changes have developed the
roles of the customer facing
teams to focus on the promotion
and sign up of new customers.
‘We will’
2016/17 activity
We expect the new ways of
working for the Lettings Team to
be in place and further embedded
during the year. The new lettings
service will be based on the
principles of a private lettings
agency alongside the more
efficient and effective discharging
of the Choice Based Lettings
service.
Revised targets are in place to
reduce the number of empty
homes by the end of 2017/18,
and to reduce the empty homes
repairs budget by £2.6m.
During 2016/2017 we will be
reviewing our allocation policies
to ensure we only let properties to
customers who can afford to
sustain their tenancy. We will
‘We said’
2015 self-assessment
The delivery of £1.1m annual
efficiency gains across the
First Ark Group
In 2015 we said:
The new organisational design
will have bedded in, and along
with our investment in new
Information Technology, we
anticipate we will start to see a
sustained improvement in
operational performance and
efficiency. We will start to rollout the IT Roadmap, with key
projects outlined for the next
twelve months including a new
repairs and maintenance
system, a new asset
management system, and
mobile technology for all
customer facing staff.
The strength of the First Ark
Group lies in the quality and
commitment of its people, so
we will continue to invest in our
staff and Board members to
further embed the high
performing culture across the
Group.
In 2015 we said:
We have planned further
investment in our people, and
‘We have’
2016 Update
The new ways of working have
already started to have a positive
impact on performance, because
during the year an additional
£1.1m rent was collected from
our customers, which offsets a
corresponding reduction in
housing benefit.
The new organisational design
was implemented in March 2015,
which reduced the Group’s
employment costs by around £1m
per year. During 2015/16 we also
implemented several new IT
systems as part of the
transformation programme,
including:
‘We will’
2016/17 activity
also be starting to implement an
online lettings portal to enable our
customers to do business with us
online.
2016/17 is all about the ICT
transformation, streamlining
systems, introducing agile and
mobile solutions and partnering
with Orchard on an exciting
solution to introduce an
integrated strategic commercial
solution – a ‘Total Facilities
Management’ (TFM) and ecommerce system.

Internal return on assets
solution
 Orchard systems
development to support
commercial and growth
agenda
 Electronic document
management storage and
retrieval:
 Use of mobile technology to
improve administration
processes
 Updated telephony
functionality
 Promaster – an integrated
Asset management platform
will take centre stage for 2016
 New Repairs solution – the
new system will increase the
levels of integration between
customer, asset, responsive
and financial information and
processes
 Open Accounts – reimplementation of the Group’s
finance system
During 2015/16 we have
supported a number of Team
Away Days to promote a high
performing team culture across
the Group. In addition, we have
initiated the following training
programmes for our people:
 Customer Experience
Programme
 ILM Level 5 for Directors
 Framework for Success
manager workshops
 HR Policy training for
We have planned further
investment in our people for 2016
which includes:
 A Leadership Development
‘steps to success’ programme
 Carry out a full employee
engagement survey, and
develop a culture and
engagement programme to
further drive the highperforming culture
 Continue with our staff
training programme which will
‘We said’
2015 self-assessment
we will also continue to
develop our e-learning
platform to deliver tailored
training at low cost.
Completing the review of our
governance arrangements to
ensure we have the right
models in place across the
First Ark Group to deliver the
challenging transformation
agenda and mitigate the
business risks.
In 2015 we said we would:
Push forward with our
governance review, which we
anticipate will be in place by
the AGM’s in September 2015.
Reviewing and refining all core
processes and maximising the
use of technology across the
First Ark Group to ensure we
are intelligently and efficiently
delivering a world class
customer experience.
In 2015 we said:
We will continue to reengineer all of our key
customer-facing processes to
drive further efficiency and
customer excellence. We will
also develop our Business
Intelligence capability to drive
our ambition of being an
intelligence led organisation
delivering customer
excellence to maximise growth
and social impact.
Growth and diversification our target is to double our
commercial turnover over the
next 4 years, which is
anticipated to deliver an
additional £2m profits for
social investment
‘We have’
2016 Update
Managers
 Equality & Diversity training
 Outplacement programme
support
 Safeguarding Children &
Adults
 Team Away Days to promote
a high performing team
culture across the Group
During 2015/16 we have:
 Appointed12 new Board
members across all Boards
and the Audit and Risk
Committee.
 Completed a remuneration
review and shared a proposal
with the Governance Working
Group and the First Ark
Board
 The Customer Assurance
Panel (CAP) is up and
running with Terms of
reference agreed and a 12
month delivery plan drafted
 Agreed a pilot appraisal
process for all new members
 M&A’s review
During 2015 we have recruited a
Business Intelligence Manager to
provide insight and drive the BI
agenda across the Group.
We have also:
 Implemented a Customer
Relationship Management
system to ensure we capture
all customer touch points
 Used business intelligence to
target customers in arrears,
and implemented an
automated telephone system
to better engage with our
customers and collect
payment.
 Further developed and
implemented our return on
assets solution, which
determines the profitability of
each KHT home.
We have recruited a new
Business and Service
Development Team which has
the skills to focus on growth and
diversification. Early successes
include selling some of the
Group's services in to the
education and commercial
‘We will’
2016/17 activity
include CIH, NVQ,
Management and IT
qualifications.
We will continue to move towards
our preferred governance model
of skills based Board members
on all Group Boards.
We will also set up the
governance frameworks to
support and achieve the Group’s
growth ambitions through the
development subsidiaries and the
social investment fund.
We will be developing a BI
Roadmap and a BI Strategy to
ensure we understand the
customer and market needs to
ensure we manage the business
effectively and grow the business
sustainably.
In the next twelve months we will
continue to focus our efforts on
targeting the sale of repairs,
maintenance and refurbishment
services to a wider range of
organisations - our aim is to grow
our market share for facilities
management through Vivark by
‘We said’
2015 self-assessment
‘We have’
2016 Update
sectors, and piloting the provision
of a wider range of value led
products and services to KHT
tenants.
Increase our Social Impact One Ark is forecast to
increase the First Ark Group’s
external Investment by 140%
over the next 5 years to
increase our social activity and
maximise social impact. In
2015 we said:
It is anticipated that
investments will increase to
more than £0.8m in 2016
through funds already secured
from partners and within the
Group, and we are on target to
achieve our 5 year social
impact ambitions through One
Ark.
Review our borrowing
arrangements. In 2015 we
said:
The Board will continue to
develop its business plans,
particularly around the
development of new homes,
and now has the flexibility to
return to the funding market
when additional funds are
required, and when the funding
markets are appropriate.
Corporate strategy – new
corporate strategy. In 2015 we
said:
We will continue to review our
Corporate Strategy annually,
checking the robustness of the
business model, risk appetite,
progress to date and
refreshing our future mission.
We are on target to achieve our 5
year social impact targets and in
2015 we engaged 1,149
residents across 25 social impact
projects.
We increased our investments to
£0.5m in year, and at year-end
had committed a further £0.8m of
investments to impact
programmes for 2016
‘We will’
2016/17 activity
£27m of external growth and
retained profit of £3.1m over the
next 4 years. In addition, we will
continue to develop new valueled Products and Services that
will add benefit to our customer
and the business.
In the next twelve months our
focus will move to generating an
increase in the number of mixed
motive investments with a target
for 30% of all investments made
generating a financial return.
In 2016 we also plan to
commence the delivery of the first
of a series of social investment
funds that will enable social
business sector growth in the
North West.
In March 2016 the KHT Board
provided outline approval for the
set-up of two new subsidiaries to
deliver 1,000 homes for shared
ownership and outright sale.
We will set up the two new
development subsidiaries (one of
which will be KHT Services),
develop a new business plan,
and work with our treasury
advisors to develop a funding
strategy to deliver the Group’s
growth aspirations.
The Corporate Strategy has been
reviewed and refined in light of
the changing operating
environment. In May 2016, at an
all Boards Away Day, the Group
Boards reviewed and approved
the new Corporate Strategy.
We will continue to review our
Corporate Strategy annually,
checking the robustness of the
business model, risk appetite,
progress to date and refreshing
our future mission.
VFM Self-Assessment
Taking into account the actions and initiatives that are included above, the
Board believes that the Group complies with the requirements of the Value
for Money standard. In completing this self-assessment we feel that we
have demonstrated the Board’s strategic approach to Value for Money, and
that the current and future plans will continue to maximise the economic and
social value that the First Ark Group delivers to its customers and other
stakeholders.