AHG Financial Statements 2016 by Adactus Housing Group

Report and Financial Statements Adactus Housing Group Limited For the year ended 31 March 2016

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Company information Registration number

29433R

Registered office

Turner House 56 King Street Leigh Lancashire WN7 4LJ

Board members

P. Joyce (chair) A. Cain P. Chisnell (executive member) E. Clivery R. Davies (resigned September 2015) S. Fussey (resigned August 2015) L. Garsden (appointed September 2015) T. Jenkins (resigned September 2015) S. Klass (appointed September 2015, resigned February 2016) P. Lees (executive member) E. Mellor H. Roberts (executive member)

Senior management team

P. Lees: Group Chief Executive (appointed Transition Director August 2016) H. Roberts: Deputy Chief Executive (appointed Group Chief Executive August 2016) B. Moran: Company Secretary (appointed Deputy Chief Executive August 2016) P. Chisnell: Executive Director of Finance

Company Secretary

B. Moran

Bankers

National Westminster Bank Plc. Manchester City Centre Branch PO Box 305 Spring Gardens Manchester M60 2DB

Auditors

KPMG LLP (UK) 1 St Peters Square Manchester M2 3AE

P a g e |1

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Table of contents

Chair’s statement

Page 3

Strategic report

Page 4

Independent auditor’s report

Page 34

Financial Statements

Page 35

Notes to the Financial Statements

Page40

In order to aid transparency and accessibility, many of the diagrams and tables presented in this document (along with their underlying data) have been made available as interactive visualisations on the Group’s website and may be explored for further detail. Visit www.adactushousing.co.uk and search for ‘financial statements’ to learn more.

P a g e |2

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Chair’s statement On behalf of the board of management, I am very pleased to present the Group’s Report and Financial Statements for the 2015/16 financial year.

•

The year has been one of continued success, with the Group making a number of refinements to a proven operating model to deliver more-and-more for the communities in which it works and for wider society. These refinements and achievements are detailed on pages 12–29 of the document.

•

As the diagram on page 13 of the report shows, in broad terms, the Group has delivered value by investing in its asset base, providing effective services to tenants and supporting community projects. Above all, the Group delivered on its fundamental purpose as a housing association by leveraging its resources to build 351 much needed new affordable homes in the year. Much of the Group’s focus as an organisation in previous years has been on achieving economies and efficiencies in the business. Data published by the Homes & Communities Agency — see page 16 — highlights that one outcome of this work is that the Group now benefits from exceptionally low operating costs. Achieving low costs is not an end in itself however: The Group’s focus on maintaining low operating costs, in a very real sense continues to produce dividends for society at large. Simply put, low costs enable the Group to funnel proportionately more of its income into providing new affordable housing than the vast majority of its peers. An operating surplus of 37% was recorded for the year — see page 7 — which, particularly given the relatively low rents in the north-west, is an exceptional result. The document reports for the year to 31 March 2016. There has been one very important change that has occurred in the business since this date however and it would be remiss of me to not mention it here: In August Paul Lees announced his intention to retire as group chief executive. Paul has led the Group as chief executive since its formation in 2002. Prior to that he was the chief executive of founder member County Palatine Ltd. In total, in a highly successful 36 year career, he has given 20 years of his life as chief executive to secure more and better housing for those who are least able to afford it.

•

The Group’s current development plans — one of the largest in the country to deliver 1,472 new homes by 2018 — are fully funded. A national award was won in the year for the ‘Connect’ customer contact centre (‘Small Centre of the Year’ at the 2015 Customer Contact Association’s Excellence Awards). Both regional and national awards were won for the ‘Adactus500’, the Group’s innovative tenant involvement initiative (’Excellence in digital involvement’ at the 2016 Tenant Participation Advisory Service awards).

Paul should be immensely proud of these most recent achievements and indeed of all that he has achieved during his tenure as chief executive. He leaves his successor with the strongest of platforms to push-on from and I am pleased to report that he will act as transition director during the period of his notice to ensure that there is a smooth handover. The board have appointed Hilary Roberts as the Group’s new chief executive. Hilary has worked hard as deputy group chief executive since 2006. She has been a key part of the Group’s success, and understands what makes Adactus tick. Together with the board, I am sure that she will ensure that the business retains a laser-like focus on its fundamental purpose as a housing association — to provide more affordable housing — which, in my opinion, is what has made Adactus so successful. On a personal note, I also step down as chair — and indeed from the board — later this year. I do this in the knowledge that there are a number of strong potential successors from which the board will select a new chair. The board will make the appointment in November 2016. I will remain keenly interested in the Group’s work. In the meantime, I would like to thank my fellow board members, the staff and the executive at Adactus for a rewarding nine years of service. I wish all involved with Adactus the very best for the future and know and trust that they will continue to achieve exceptional results such as those documented in this report.

And he has done his job extremely well, leaving the Group in an enviable position. To pick just a few recent highlights: 

During the year the Group underwent an In Depth Assessment with its regulator and emerged from this with the best possible rating of G1 for governance, and V1 for viability.

Paul Joyce Chair

P a g e |3

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Strategic report Business and financial review The board is pleased to present its report together with the audited Financial Statements of Adactus Housing Group Limited (the Association) for the year ended 31 March 2016.

The Association is a member of the Adactus Group Structure (the Group), of which Adactus Housing Group Limited is the parent company.

Figure 1: The Adactus Group Structure

For more information: https://www.adactushousing.co.uk

Legal Status The Association is incorporated in England under the Cooperative and Community Benefit Societies Act 2014 and is registered with the Homes and Communities Agency as a Private Registered Provider of Social Housing. The registered office is Turner House, 56 King Street, Leigh, WN7 4LJ.

Principal activities The members of the Group build, renovate and manage affordable housing for rent and sale and work to help regenerate neighbourhoods. The Group's principal subsidiaries are housing associations, legally known as Registered Providers, and regulated by the regulation committee of the Homes and Communities Agency.

The Adactus Housing Group was formed in August 2002 although founder member, Adactus Housing Association’s corporate origin was in 1964. The Group's main offices are in Leigh, Chorley and Manchester. The major organisations in the Group are four independent Co-operative and Community Benefit Societies:  Adactus Housing Group Ltd (AHG, the non-charitable Parent).  Adactus Housing Association Ltd (AHA, charitable).  Beech Housing Association Ltd (BHA, non-charitable).  Chorley Community Housing Ltd (CCH, charitable). Together the Adactus Housing Group owns and manages 13,083 homes across 21 local authority areas in the north-west of England and employs close to 580 staff (520 full-time equivalents). The Group is the 81st largest manager of housing association accommodation in England1. Figure 2 highlights the geographic spread of properties managed by the Group.

1 As measured by turnover. Source: HCA Global Accounts 2014/15 subsidiary performance consolidated to Group level where applicable (239 organisations).

P a g e |4

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 2: Location of stock in management

For more information: https://www.adactushousing.co.uk

Objectives and strategy

This is the basis of the Group’s corporate mission shown here:

The members of the Adactus Housing Group share similar objects within their company rules which state that the Group’s members will:

“To build, acquire and manage safe, warm and affordable housing predominately for those who are unable to pay market rates.” “To respond effectively to the demands of our customers.”

“Carry on for the benefit of the community the business of providing housing, accommodation, and assistance to help house people and associated facilities and amenities”

“To make a difference in neighbourhoods by levering in resources and helping to focus community activity.”

P a g e |5

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 3: Quality, Expansion and Diversity

The Group’s long-term vision is framed by efforts to achieve Quality, Expansion and Diversity (QED) through its activities. Figure 3 highlights how each aspect of the Group’s vision is interlinked.

For example, quality is raised through an appreciation of the diversity of customer needs and through effective investment of the efficiency savings afforded by expansion. The vision of QED provides the framework for the Group’s strategic objectives:

Figure 4: Strategic objectives linked to QED

Objective

Quality

Q1. Maintain effective governance Q2. Provide value for money customer services

Expansion

E1. Increase the size of the business through new group members, transfer or development

Diversity

D1. Provide targeted neighbourhood investment

P a g e |6

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Performance highlights

Figure 5: Five-year financial performance Year

Turnover £’000

Operating expenditure £’000

Operating surplus

Retained surplus £’000

Retained surplus

2012

50,150

33,379

33%

9,000

18%

2013

53,291

33,824

33%

9,936

19%

2014

55,793

34,894

37%

13,259

24%

2015

59,129

34,799

39%

18,382

31%

2015 (restated)2

66,180

36,421

38%

16,655

25%

71,175

38,218

37%

15,812

22%

2016

The above figures are extracted from previous Financial Statements based on accounting standards effective at those dates.

A summary of the Group’s recent financial results are shown in Figure 5.

The board is pleased to report a retained surplus in the year of £15.8m (2015: £16.6m2).

The Group has adopted FRS102: The Financial Reporting Standard applicable in the UK and the Republic of Ireland as of 1 April 2015. As such the comparatives for the year ending 31 March 2015 in Figure 5 and within the Financial Statements have been restated to follow the requirements of FRS102.

Excluding the effect of the one-off sale of an investment, the retained surplus increased year-on-year by 17.3% and amounted to 22.2% of turnover.

For clarity a note explaining the restatement and its effect is set out in note 32 to the Financial Statements.

Operating surplus has remained at similar to levels to those achieved in 2014/15 at 37% of turnover. Operating expenditure per total housing units as calculated under FRS102 increased to £2,921 from £2,8132 in 2015.

Restated to the requirements of FRS102: The Financial Reporting Standard applicable in the UK and Republic of Ireland. P a g e |7

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 6: KPI performance at 31 March 2016

The board uses a balanced scorecard approach to monitor the delivery of the Group’s strategic objectives across a broad range of Key Performance Indicators (KPIs). Figure 6 presents the scorecard reviewed by board at the end of the financial year. The diagram shows that 22 of the Group’s 25 KPIs were within target and three were outside of target at the year end.

P a g e |8

Of these, the KPI’s for responsive maintenance cost per unit and Social Investment Fund were only marginally outside of target. The remaining KPI, sale proceeds from voids disposal was significantly outside the target of £2.5m (actual performance: £1.4m). Overall, the board is extremely pleased with performance.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Highlights of the Group’s financial position are as follows:

Figure 7: Consolidated Financial Position

2016 £’000

2015 (restated)2 £’000

2015 £’000

2014 £’000

2013 £’000

2012 £’000

577,528

530,635

532,693

489,189

478,302

465,633

248,231

241,102

238,506

230,357

Properties for sale

2,147

5,289

5,960

3,024

2,779

4,548

Investments

2,506

12,953

Cash at bank and short term deposits

47,685

26,257

12,690

7,876

11,872

Creditors: amounts falling due within one year

24,991

19,415

16,263

32,342

14,413

22,183

Net current assets/(liabilities)

35,314

31,889

34,560

(12,382)

713

(41)

Total assets less current liabilities

563,123

517,986

299,994

218,381

225,794

221,368

Creditors: amounts falling due after more than one year

483,488

453,195

225,061

162,349

182,895

187,652

77,969

62,157

68,918

51,946

39,360

30,353

Year

Fixed assets Housing properties at cost Social housing and other grant Current assets

Capital and reserves

The above figures are extracted from previous Financial Statements based on accounting standards effective at those dates.

P a g e |9

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Strategic risks and uncertainties Figure 8: Risk analysis

Risks that may prevent the Group achieving its objectives are considered and reviewed quarterly by the senior management team and the board as part of the corporate planning process. The risks are recorded and assessed in terms of their impact and probability and are reported to performance, scrutiny and audit committee quarterly, together with any action taken to manage those risks, including assessment of key controls and the outcome of any action. Figure 8 presents an assessment of the Group’s operational risks that could affect the delivery of its strategic objectives. The analysis shows that the successful delivery of strategic objective Q2 “Provide value for money customer services” is impacted by the greatest number of risks. It also shows that the key residual risks facing the business

P a g e | 10

are:     

Tenant injury/death due to fire. Tenant injury/death due to gas. Inability to retain good staff. Reduction in Supporting People funding. Government policy: housing benefit changes reduce income.  Government policy: reduced grant income leading to lower levels of development. Figure 8 confirms that once the Group’s controls are applied to mitigate the likelihood or impact of risks, the assessment of all residual risks fall within the acceptable levels defined in the Group’s Risk Management Strategy.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Following the UK’s decision in June 2016 to leave the EU strong indications of lower confidence have arisen in the housing market and the wider economy. The Group has updated its risk map and will continue to monitor developments in this area.

The Group’s risk map and the controls it has in place to mitigate risks can be explored in further detail on the Group’s website see: https:www.adactushousing.co.uk and search for ‘risk’.

Capital structure and treasury policy

Figure 9: Debt maturity 2016

2015

£’000

Within one year

5,141

1,546

Between one and two years

4,397

1,632

Between two and five years

40,511

16,986

207,918

209,759

257,967

229,923

After five years

The Group repaid £1.6m (2015: £38.9m) during the year in line with agreed debt repayment profiles. £29.6m (2015: £82.9m) of loan finance was drawn-down during the year. At the year-end borrowings amounted to £258m (2015: £230m), maturing as outlined in Figure 9.

The Group has a clear focus on cash collection and monitors cash-flow forecasts closely and regularly to ensure it has sufficient funds to meet its business objectives, pay liabilities when they fall due and ensure adequate liquidity with respect to emerging risks.

The Group currently borrows from a variety of lenders at both fixed and floating rates of interest. The Group’s Treasury Management Strategy targets the level of fixed rates of interest to be up to 100% of its loan portfolio. At the year-end 89% (2015: 87%) of the Group’s borrowings were at fixed rates between 1.6% and 11.5% with an average borrowing rate of 4.9%. (Further details on the profile of borrowings can be found at note 19 to the Financial Statements).

With respect to short term liquidity, at the year-end the Group had access to £50.2m (2015: £39.2m) of cash balances and investment balances and in excess of £65.7m (2015: £75.0m) of undrawn committed bank facilities.

The Group has no exposure to derivative-based hedging structures.

The Group’s cash and investment funds increased by £11.0m in the year (2015: increased by £26.5m). During the year the Group was successful in raising an additional £20m revolving credit facility from Santander. Consequently the Group’s business plan is fully funded to 2020.

The Group’s lending agreements require compliance with a number of financial and non-financial covenants. The compliance to such covenants is monitored on a monthly basis and reported to board each quarter. The Group was compliant throughout 2015/16 and remains compliant with all loan covenants.

P a g e | 11

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Value for money statement

Value for money (VfM) can be defined as the “optimal use of resources to achieve the intended outcomes.”3 For members of the Adactus Housing Group, efforts to achieve VfM are focused on curating a portfolio of productive housing assets and managing them well to deliver the following core organisational objectives:  Q1. Maintain effective governance  Q2. Provide value for money customer services  E1. Increase the size of the business through new group members, transfer or development  D1. Provide targeted neighbourhood investment. The board consider VfM to be the most prominent issue in the Group’s operating environment. It presents the Group with the largest number of identified strengths, weaknesses, opportunities and threats arising from its PEST analysis and

therefore warrants extensive discussion in the Group’s business plan which sets a number of VfM specific corporate goals4 leading to VfM-focused projects and Key Performance Indicators (as summarised in Figure 6). The Group’s business plan projects and KPI’s are monitored on a quarterly basis by performance, scrutiny and audit committee and by the board. The board is also able to triangulate VfM performance through standing reports received on the topics of management accounts, treasury, development, sales, external assessments, internal audit and tenant scrutiny. The Group’s approach to achieving VfM is summarised in Figure 10 below.

Figure 10: Delivering value for money5

Objectives Q1 maintain effective governance

Other influences

Q2 Provide VfM customer services E1 Increase the size of the business D1 Provide targeted neighbourhood investment

D2 Reduce carbon emissions Resources

Inputs

Housing assets

Finance / Staffing

Outcomes

Processes

Outputs Services/new housing

New housing development. Tenancy services. Community investment.

Economy

Efficiency

Effectiveness

Spending less

Spending well

Spending wisely

Value for money key

The optimal use of resources to achieve the intended outcomes

Contributes to the measurement of….

P a g e | 12

http://www.nao.org.uk/successful-commissioning/general-principles /value-for-money/assessing-value-for-money/

Specifically for operating costs, retained surplus, net promoter score, business growth and community investment.

Diagram adapted from http://www.nao.org.uk/successful-commissioning /general-principles/value-for-money/assessing-value-for-money/

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 10 highlights that VfM can be thought of as an ongoing process of optimising the relationship between resources and outcomes. This VfM Statement therefore sets out a comprehensive assessment of the use and maintenance of the Group’s key resources – its housing assets – and the achievement of its intended outcomes for new housing development; tenancy services; and community investment.

Figure 11 provides a high-level overview – based on the Consolidated Statement of Cash Flows set out on pages 38 and 39 – of how resources were used to achieve outcomes during 2015/16.

Figure 11: Use of resources to achieve outcomes 2015/16

Figure 11 shows where the Group’s cash came from and how it was spent during the year to 31 March 2016. The diagram illustrates that the business generated a cash surplus in the year. It shows that cash spend in the year was prioritised firstly on ‘New housing development’ (69% of total spend) which includes the payment of most of the Group’s capital and interest costs of loan finance.

Following this, expenditure focused on ‘Tenancy services’ (17% of total spend) and then on ‘Housing assets’ (13% of total spend). Finally, cash spent on ‘Community investment’ comprised less than 1% of the total. Each of these outcomes is examined in greater detail in the remainder of this section.

P a g e | 13

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

New housing development

In 2015/16 the Group’s members delivered 351 (2015: 481) units of affordable housing, as show in Figure 12. Figure 12: New affordable housing delivered 2015/16

All new housing developments are expected to provide a positive financial return, acting to strengthen the financial position of the Group’s members and helping to refresh their asset portfolios. The economic impact of housing development can be estimated through the National Housing Federation’s CEBR database6.

An estimate of the impact of the Group’s development activity during the year is shown in Figure 13 below and is clearly significant. Over 1,100 jobs are estimated to have been supported through the Group’s investment in new development in the year. The Group’s provision of new housing generates wider value for society as new housing provides people with better places to live.

Figure 13: Economic impact of housing development 2015/16 Homes provided

Jobs supported

Impact on local economy

351

1,163

£51.8m

Source: Estimates from the NHF CEBR database

P a g e | 14

See: http://www.housing.org.uk/blog/the-economic-benefit-to-investing-in-affordable-and-social-housing/

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

A recent study examines the relationship between well-being and housing7. It suggests that the social impact of good quality housing association accommodation in terms of wellbeing effects alone can be valued at up to £997 per person housed per year in comparison with other rental alternatives. The social value generated from improving the lives of the 638 adults rehoused into the Group’s new developments in the year (2015: 359) is therefore estimated to be in the region of £630k per annum (2015: £350k).

Through careful architectural design, the Group’s housing developments also contribute to improvements to the general built environment and towards efforts to reduce carbon emissions. Figure 14 presents a selection of the new housing delivered by the Group’s members in 2015/16.

Figure 14: Good design in new housing 2015/16

Rose Cottages, Somerford

Langdale, Lancaster

Moor Platt, Caton

School Lane, Guilden Sutton

The Potteries, Lancaster

Riverside, Lancaster

The Social Impact of Housing Providers, Daniel Fujiwara, HACT, 2013 P a g e | 15

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

The Group’s development strategy will yield c1,500 new affordable homes between 2016 and 2018. This is expected to inject an additional £124m into the northwest economy, support in excess of 2,700 jobs per annum, and provide social value to new tenants of up to £3m per annum.

At 31 March 2016, 804 properties were on-site (2015: 607). The Group financed its development commitments of £52m through cash generated from its operations, drawn-down loan finance and grant received from the Homes and Communities Agency. The Group has worked to make the best of each of these streams:

Surplus generation Figure 15: North-west housing association efficiency – social housing lettings

According to Homes and Communities Agency data, for the previous financial year, the Group generated the 25th largest operating surplus in the country and recorded the 12th lowest headline cost per unit8. Figure 15 summarises this data to compare the Group to other north-west housing associations and shows that in 2014/15 it continued to generate above-trend levels of surplus on social housing lettings for every pound received by the business. In 2015/16 the Group’s surplus from social housing lettings improved further, increasing to 39.7% of turnover from 37.6%9 the previous year and is expected to average 40.0% throughout the Group’s thirty year financial projections.

Loan finance The Group remains an attractive proposition to funders. New lines of funding were secured during the year from Santander. 89% of debt is fixed and the Group’s weighted average cost of loan finance is 4.9% (2015: 5.0%). The outstanding loan balances of Group members increased by £28m in the year.

P a g e | 16

Source: HCA Global Accounts 2014/15 subsidiary performance consolidated to Group level where applicable (239 organisations). 9 Restated to the requirements of FRS102.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Grant funding

Figure 16: Development plans with secured grant to 2018

Successful bids for grant funding were made to the Homes and Communities Agency in 2013 and in 2014. As a result, all of the Group’s asset-owning members will continue to be active developers in the coming years. In total, the Group’s current development plans will leverage £22.2m of secured grant funding to deliver 1,472 units by 2018 as shown in Figure 16. The Group expects to retain its position within the top ten of Homes and Communities Agency funded developers despite its size as only the 81st largest as measured by turnover10.

New housing development – 2015/16 value for money gains    

351 new affordable homes provided. Estimated 1,163 jobs supported through development work. Estimated £51.8m of value added into the local economy. Estimated £630k pa of social value generated for tenants of new homes.  Invested £52m of cash resources to support new build programme.  Leveraged grant of £8m to support development in the year.

10 Source: HCA Global Accounts 2014/15 subsidiary performance consolidated to Group level where applicable.

P a g e | 17

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Tenancy services

Figure 17: Services requested

Repairs 41%

Tenancy management 5%

Rents 26%

Estate management 2%

Lettings 8%

Other 18%

The Group provides a range of tenancy services to the tenants and leaseholders of its member housing associations.

This model is extremely effective with 94% (2015: 93%) of those customers surveyed in the year stating that they were satisfied with the response to their enquiry12.

1,418 properties were re-let in the year (2015: 1,409). Rent lost due to empty properties remained low at 0.7% (2015: 0.8%). Properties were empty for a median period of 22 days on average compared with 16 days recorded for the previous financial year.

The Group’s key metric for customer satisfaction, its Net Promoter Score, remained strong at the year-end, recording a result of 48 (2015: 37). This performance is comparable to some of the nation’s most well-known and respected brands. During the year, the Group’s contact centre was recognised for strong performance by the Customer Contact Association with the award of Small Centre of the Year 2015.

The social value generated for tenants from new lettings in the year is estimated to be in excess of £580k11 (2015: in excess of £580k).

Figure 17 sets out an analysis of the services requested by customers.

Tenancy services are generally accessed via the Group’s contact centre which resolves more than 73% of all enquiries ‘right first time’. Over 156,000 (2015: 147,000) customer enquiries were answered in this way during 2015/16.

Requests for property repairs help with rent issues, lettings and anti-social behaviour account for eight in ten of all contacts from customers. The Group continues to place a focus on these areas to ensure that its services are effective.

The minority of issues that cannot be dealt with by the contact centre (typically complex maintenance issues or anti-social behaviour cases) are allocated to specialist teams of staff.

Figure 18 shows how the timescale for the delivery of these services has improved in recent years.

P a g e | 18

See p. 27 The Social Impact of Housing Providers, Daniel Fujiwara, HACT, 2013 for methodology. 12 Source: 4,197 replies to automated surveys undertaken during 2015/16.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 18: Speed of delivery

ASB investigation Non-emergency repairs Re-lets Rent enquiry

The speed of delivery of the anti-social behaviour and lettings services has improved markedly since the Group introduced dedicated teams in 2011 to solely concentrate on these areas.

The Group’s service delivery model is also economic. Figure 19 shows the latest available data on how the Group’s costs for tenancy services compare with 59 other north-west housing organisations.

Figure 19: Benchmarking tenancy services costs

Source: Housemark, peer group of 59 north-west housing organisations, 2014/15 data. Dotted lines represent median cost of peer group.

Taken together, the annual cost of tenancy services is £129 per unit less than the median costs of other north-west housing organisations (2015: £94 lower).

Figure 20 highlights that the Group has been able to reduce the total cost of tenancy services year-on-year since 2012/13 and at a greater rate than its north-west peers.

P a g e | 19

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 20: Trend in tenancy services costs

Source: Housemark, peer group of 59 north-west housing organisations, 2014/15 data

Of particular note are the Group’s costs for rent arrears & collection and for resident involvement services which remain substantially below the peer average. In recent years, the Group has invested in technological innovations in both of these areas to improve the value of service provision. Examples of innovations are as follows: 



The automation of tenant contact within the rent arrears recovery process. This ensures that tenants in rent arrears are automatically and consistently contacted at the earliest opportunity. The creation of the Adactus500, a web-based tenant consultation system to engage with greater numbers of tenants. This has resulted in better and timelier customer intelligence than previously gained through traditional methods of tenant involvement which focused heavily on meetings.

P a g e | 20

Both these innovations were recognised in the year in national awards. The key value for money trade-offs that can be made by the Group with regard to the provision of tenancy services are strategic decisions relating to whether services are provided in-house or are out-sourced. The Group’s medium-term strategy is to maintain and develop its in-house contact centre-based model for service provision providing that value for money continues to be demonstrated. A new customer care strategy was adopted during the year and most significantly will result in a step-change in investment in self-service options for tenants during the next three years.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Tenancy services – 2015/16 value for money gains   

1,418 re-lets were made providing social value of over £580k. Secured additional income for 1,731 referrals to the Group’s financial inclusion service. Introduced a Customer Pledge to promote consistent, high quality customer care across the Group.

    

Tenant communication review to introduce customised digital information to target services to tenants. Tenant scrutiny reviews of call backs, risk of gas leak and risk of fire resulted in improved processes. Enabled tenants to book gas service appointments out of normal office working hours Selected a new credit check supplier to provide enhanced value for money. Piloted and rolled-out a simplified method of recording repairs orders reducing average call lengths.

P a g e | 21

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Housing assets

Figure 21: Financial return of housing assets 2015/16

Source for national average: Global Accounts 2014/15, HCA

The Group’s housing assets provide the financial platform for the delivery of its social objectives. The Group’s members own and manage 13,083 properties (2015: 12,94613) which generated an income of £68.6m14 (2015: £61.2m15) against costs of management, maintenance and investment of £38.2m16 in 2015/16 (2015: £36.4m). In total, the Group’s members have £292m (2015: £284m) of capital deployed in their housing assets17 which are expected to generate an average annual return of 8.79% over the next thirty years18. This return has increased from the previous year’s estimate of 7.8%. It remains comfortably above the Group’s weighted average cost of loan finance of 4.9%, demonstrating that the asset portfolio as a whole generates a worthwhile financial investment.

Figure 21 summarises the return on capital employed generated by the Group’s housing asset portfolio in the year to 31 March 2016. Figure 21 shows that the overall return on capital employed of 8.9% (2015: 9.0%) out-performs the sector average of 5.5% recorded for 2014/15 19. It also indicates that return on capital employed is higher for those Group members with proportionally more general needs housing within their stock holdings. The Group’s better than average return on assets is explained by its better than average operating costs. Low costs are partly the result of the Group’s delivery model for tenancy services (see above) but in the main result from an economic approach to asset management. Figure 22 shows how the Group’s asset management costs compare with other northwest housing associations.

13 14

P a g e | 22

Restated figure now excludes leasehold properties where the Group’s members only retain a freehold interest. Net rent receivable and management income excluding sales, note 2 to the Financial Statements. 15 Restated for FRS102. 16 Total expenditure on social housing lettings and housing management contracts, note 2 to the Financial Statements. 17 Net of grant received, note 12 to the Financial Statements. 18 Internal Rate of Return before interest costs. 19 Source: 2015 Global accounts of Housing Providers, HCA.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 22: Benchmarking the cost of asset management

Source: Housemark, peer group of 59 north-west housing organisations, 2014/15 data Dotted lines represent median cost of peer group.

In comparison with other north-west based housing associations, Figure 22 demonstrates that the Group’s costs per unit for asset management are below median levels overall and are far below median levels for major works and cyclical maintenance. Taken together, the Group’s costs for asset management are within the top ten per cent of its peer group and £678 per unit lower than the median costs of other north-west housing organisations (2015: £1,076 per unit lower). Figure 23 shows that the Group’s totals costs for asset management services have remained relatively static in recent years.

Costs are low primarily because the Group’s maintenance services are almost entirely provided in-house. In-house provision enables the Group to save the profit and VAT elements that would otherwise be paid through external procurement (amounting to an estimated 8% saving on VAT alone). It also allows major maintenance spend to be targeted to individual properties as-and-when needed which is more difficult to achieve through externally procured contracts that tend to package works together on an area-wide basis. Typically, the Group undertakes major maintenance work in empty properties before new tenancies commence.

Figure 23: Trend in asset management service costs

P a g e | 23

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 24: Asset component investment 2015/16

Of course, investment in improving housing assets remains a relatively high-spend area for the Group with £9m20 invested during the year (2015: £9m).

Figure 24 shows that investment principally took the form of decoration to improve the attractiveness of housing available for let and also the upgrade of property components in order to maintain compliance with regulatory and statutory requirements.

This investment included £1.6m undertaken in the year (2015: £1.4m) to ensure that housing assets continue to meet the changing expectations of customers and remain in demand and productive.

Investment also focused on improving the street-scape of ten estates with work to improve fencing, external cladding and off-street parking; plus the modernisation of six retirement living schemes. Figure 25 presents a selection of the improvements made.

20 Source: Expenditure on work to existing properties, note 12 to Financial Statements P a g e | 24

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 25: Wider asset investment 2015/16

Ingleside Court

Wesley House

Joan Bartlett Court

Hazel Court

Ingleside Court

St Pauls Place

Clayton House

P a g e | 25

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Data is used to drive decisions about stock investment, disposal or retention. The Group’s strategy is to retain uneconomic housing only in cases where the strategic value of retaining those assets is judged to outweigh the financial cost to the business. This strategy has resulted in an active programme of stock disposals undertaken with the consent of local authority partners. During the year, 26 disposals, shown in Figure 26 (2015: 52), generated capital receipts of £1.3m and a surplus of £0.5m. A further 22 properties (also shown in Figure 26) were transferred for nil value to Haig Housing Trust to support a project to provide housing for ex-service personnel. Adactus Housing Association has future plans to dispose of approximately 50 units per annum. Capital receipts will be used in support of its housing development programmes.

Figure 26: Stock disposals 2015/16

P a g e | 26

Housing assets – 2015/16 value for money gains     

Growth in asset base of £46.9m. Estimated savings of £1.3m through in-house delivery of asset management services. Modernisation of six retirement living schemes at a cost of £804k. Street-scape improvements to ten estate areas at a cost of £772k. Disposal of 26 uneconomic properties generating a capital receipt of £1.3m.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Community investment In 2015/16 the Group’s members expended £479k (2015: £426k) on initiatives to improve the quality of life of tenants. The social impact of the Group’s community investment activities has been estimated through the Social Value Bank maintained by HACT21. This work indicates that every £1 invested by the Group in community investment activities generates a much greater return for society.

The Group’s flagship initiative in this area is the Neighbourhood Fund – a tenant controlled vehicle for providing financial support to community projects.

Figure 27: Neighbourhood Fund investment 2015/16

In 2015/16 227 projects (2015: 240) were supported benefiting people throughout the north-west as shown in Figure 27.

Examples of some of the initiatives supported in 2015/16 are provided in Figure 28.

Title: Community investment values from the Social Value Bank, Authors: HACT and Daniel Fujiwara (www.hact.org.uk / www.simetrica.co.uk), Source: www.socialvaluebank.org, License: Creative Commons Attribution-Non Commercial-No Derivatives license (http://creativecommons.org/licenses/by-nc-nd/4.0/deed.en_GB) P a g e | 27

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 28: Neighbourhood Fund projects

Sefton Freestyle – Street Soccer

Sefton OPERA – Health and Wellbeing

People First - Befriending Service

Buggy Active – Chorley Healthy Mums

Wigan and Leigh Culture Trust

The Group’s strategic aim remains to invest £900,000 in community projects during the three years to 2018.

P a g e | 28

Chorley Freestyle Urban Soccer

Teen Youth Carers

Figure 29 shows the investment planned for 2016/17.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Figure 29: 2016/17 planned community investment

Community investment – 2015/16 value for money gains    

227 community projects supported through £192k Neighbourhood Fund spend. 91 participants in training. 9 helped into employment. 6 new apprentices.

P a g e | 29

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Assurance and governance Board members and executive directors The present board members and those who served during the year are set out on page 1. The executive directors are the senior management team highlighted on page 1. The senior management team remained unchanged during the year. However, in August 2016, the group chief executive announced his intention to retire. As a result, the board appointed him to the post of transition director and promoted the incumbent deputy group chief executive to the role. The executive directors hold no interest in the Association's shares and act as executives within the authority delegated by the board. Group insurance policies indemnify board members and officers against liability when acting for the Group and Association.

The board is aware of its responsibilities on all matters relating to health and safety. The Group has prepared detailed health and safety policies and provides staff training and education on health and safety matters.

Donations During the year, the Group and Association made no political donations. Any charitable contributions are made within the Group's normal activities.

Slavery and human trafficking statement This statement is made pursuant to Section 54, Part 6 of the Modern Slavery Act 2015 and sets out the steps the Group has taken to ensure that slavery and human trafficking is not taking place in its supply chains or in any part of its business.

The executive directors are appointed on employment contracts with six months’ notice.

The Group publishes information about its supply chains on its website. Specifically, details of all invoiced expenditure over £99.99 are published at https://www.adactushousing.co.uk /information/333.

Pensions

For 2015/16 this information details payments to c800 suppliers during the year.

Service contracts

During the year, all of the executive directors with the exception of the group chief executive were members of the Social Housing Pension Scheme, a defined benefit (final salary) pension scheme. They participated in the scheme on the same terms as other eligible staff and each relevant association within the Group contributed to the scheme on behalf of its employees. The group chief executive who held office during the year was not an active member of any pension scheme.

Other benefits The executive directors are entitled to other benefits such as the provision of a car (or car allowance) and health care insurance.

Employees The Group recognizes that the success of the business depends on the quality of its managers and staff. It is the policy of the Group and Association that training, career development and promotion opportunities should be available to all employees. The Group is committed to equal opportunities. Of particular note is its support of disabled people, both in terms of recruitment and also retention of employees who become disabled whilst employed by the Group. P a g e | 30

A list of approved suppliers and contractors is maintained and periodically reviewed by the board of management. Approved suppliers and contractors undergo rigorous checks to ensure that the Group undertakes business with reputable organisations that commit to the highest standards of conduct and good practice. These steps work to mitigate the risk of slavery and human trafficking taking place in the Group’s supply chain. No further steps are taken.

Financial risk management objectives and policies The Group uses various financial instruments including loans and cash and other items such as rent arrears and trade creditors that derive directly from its operations. The main purpose of these financial instruments is to raise finance for the delivery of the Group’s objectives. The existence of these financial instruments exposes the Group to a number of financial risks. The main risks arising from the Group’s financial instruments are considered by board to be interest rate risk, liquidity risk and credit risk. The board as part of the overall Risk Management Strategy and Treasury Management Strategy reviews and agrees policies for managing each of these risks as summarised below.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Interest rate risk The Group finances its operations through a mixture of retained surpluses and bank borrowings. The Group’s exposure to interest rate fluctuations on its borrowings is managed by the use of both fixed and variable rate facilities.

The process for identifying, evaluating and managing the significant risks faced by the Group is on-going and has been in place throughout the period commencing 1 April 2015 up to the date of approval of this document. Key elements of the control framework include: 

Liquidity risk The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and invest cash assets safely and wisely.

 

Credit risk The Group’s principal credit risk relates to tenant rent arrears. This risk is managed by robust recovery procedures, providing support to existing tenants where necessary and the pre-let screening of applicants for tenancies. The Group’s financial inclusion service provides the necessary support to tenants and the Group’s arrears recovery team closely monitors tenant arrears as a whole. The introduction of Universal Credit has been identified as a key risk to the Group and therefore the Group has made a prudent assumption in relation to bad debts in its financial plan and forward budget, to ensure the impact of this risk is more than covered by the financial results of the organisation as a whole.



 

Going concern The board has a reasonable expectation that the Group and Association has adequate resources to continue in operational existence for the foreseeable future, being a period of twelve months after the date on which this document is signed. The annual update of the financial and business plan coupled with the available loan facilities in place gives the board reasonable assurance to continue to adopt the going concern basis in the Financial Statements.

Internal controls assurance



The board acknowledges its overall responsibility for establishing and maintaining the whole system of internal control and for reviewing its effectiveness. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and to provide reasonable assurance against material misstatement or loss.



Formal policies and procedures are in place, including the documentation of key processes and rules for the delegation of authorities. These policies and procedures are reviewed on an agreed cycle. Experienced and suitably qualified staff are responsible for important business functions. A performance management framework is in place to provide monitoring information to the board and management. Employee progress against agreed, documented objectives is formally reviewed. Management report regularly on risks and how these are managed. Forecasts and budgets are prepared which allow the board and management to monitor financial objectives and risks. Monthly management accounts are prepared promptly with significant variances from budget investigated and accounted for. This reporting includes the monitoring of all loan covenants. All significant new initiatives and projects are subject to formal appraisal and authorization procedures by the appropriate board. The governance committee receives quarterly reports on board appraisal, recruitment and succession. An internal audit service is provided by the Group incorporating a team managed by a qualified, full-time employed audit manager. The performance, scrutiny and audit committee (PSAC) approves the audit programme and reviews internal audit reports, reports from management and third-party reviews including reports from tenant scrutiny. The performance, scrutiny and audit committee makes quarterly reports to the board and reviews the assurance procedures, ensuring that an appropriate range of techniques are used to obtain the level of assurance required by the board. Risks are identified, assessed and documented in a risk register with details of how each risk will be managed. The risk register is completed with approval on a quarterly basis by the performance, scrutiny and audit committee and annually by the board. Internal audit independently reviews the risk identification procedures and control process implemented by management and reports to performance, scrutiny and audit committee. The group chief executive also reports to the board on behalf of the senior management team on significant changes in the business and external environment which affect significant risks. The board receives quarterly information on the financial performance together with a summary of key performance indicators covering the main business risks. P a g e | 31

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

 A fraud register is maintained by the group company secretary and all significant frauds are reported to the audit committee. No significant frauds were reported during 2015/16.  The performance, scrutiny and audit committee reviews and approves this statement of the Group and Association's internal controls assurance. Adactus Housing Group has two unregulated subsidiaries, which traded in the year, Palatine Contracts Limited and Acuna Limited. Although not registered providers and not regulated by the Homes and Communities Agency they are both managed and monitored under the same internal control framework as outlined above, specifically:  



Directors of the boards include current board members of Adactus Housing Group. The Group’s standard policies/procedures and financial regulations have been adopted into all unregulated subsidiaries. All unregulated subsidiaries are subject to the same financial and internal control scrutiny by both the Group’s internal and external audit functions. The Group’s performance, scrutiny and audit committee carries out an annual scrutiny of the unregulated subsidiaries’ financial statements. There is no detrimental financial risk to the Group should these two unregulated subsidiaries cease operations at any point as the assets exceed the likely debt.

Code of governance The Group has adopted Excellence in Governance (National Housing Federation, 2010) as its Code of Governance. During the year the Group’s compliance with the Code was subject to internal audit. The board is pleased to report full compliance with the Code.

Merger code The Group has adopted the voluntary Mergers, Group, Structures and Partnership Code (National Housing Federation, 2015). During the year, one early proposal for another housing association to join the Group was considered by the board. This opportunity did not progress due to the other party ending discussions.

Statement of compliance This document has been prepared in accordance with applicable reporting standards and legislation. The Board also confirms that the Group has complied with the HCA’s Governance and Financial Viability Standard.

Statement of responsibilities of the board for the report and 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 FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. 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 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 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 2015. 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

P a g e | 32

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

External auditors In accordance with the Co-operative and Community Benefit Societies Act 2014, a resolution to appoint KPMG LLP (UK) as external auditors will be proposed at the annual general meeting.

AGM The annual general meeting will be held on 19 September 2016 at The Lowry Hotel, 50 Dearmans Place, Chapel Wharf, Salford, M3 5LH. Approved by the board on 19 September 2016: Signed on their behalf by:

Paul Joyce Chair

P a g e | 33

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Independent auditor's report to Adactus Housing Group Limited We have audited the financial statements of Adactus Housing Group Limited for the year ended 31st March 2016 which comprise the Group and Association Statement of Comprehensive Income, the Group and Association Statement of Financial Position, the Group Statement of Changes in Equity, the Group Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. 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 as a body, for our audit work, for this report, or for the opinions we have formed.



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.

Respective responsibilities of the board and auditors As more fully explained in the Statement of Board’s Responsibilities set out on page 32, 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

Hywel Jones for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants

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.

1 St Peter’s Square

Opinion on Financial Statements

26 September 2016

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 31st March 2016 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

P a g e | 34

Manchester M2 3AE

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Consolidated Statement of Comprehensive Income Notes

Year ended

Restated year ended

31 Mar 2016

31 Mar 2015

Consolidated

Association

Consolidated

Association

£’000

Turnover

71,175

21,953

66,180

20,960

Cost of sales

(6,713)

(4,883)

Operating expenditure

(38,218)

(21,873)

(36,421)

(20,798)

26,244

24,876

162

Operating surplus (Loss)/gain on disposal of non housing assets

(3)

Interest receivable

241

3,484

Interest and financing costs

(11,588)

(45)

(11,154)

(74)

324

Movement in fair value of financial instruments Surplus before tax

14,894

17,556

102

Taxation

(249)

(68)

(168)

(20)

14,645

(28)

17,388

Actuarial gain/(loss) in respect of pension schemes

1,167

(733)

Total comprehensive income for the year

15,812

(28)

16,655

Surplus for the year after tax

The financial statements on pages 35 to 39 were approved and authorised for issue by the Board on 19 September 2016 and were signed on its behalf by:

P Joyce: Chair

The consolidated and parent association results relate wholly to continuing activities and the notes on pages 40 to 82 form an integral part of these accounts.

P Lees: Executive member

B Moran: Secretary

P a g e | 35

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Consolidated Statement of Financial Position

Notes

Year ended

Restated year ended

31 Mar 2016

31 Mar 2015

Consolidated

Association

Consolidated

Association

£’000

Fixed assets Tangible fixed assets

527,617

485,905

Investment properties

192

527,809

486,097

Current assets Stock

2,147

236

5,289

242

Trade and other debtors

7,967

1,557

6,805

892

Investments

2,506

12,953

Cash and cash equivalents

47,685

194

26,257

509

60,305

1,987

51,304

1,643

(24,991)

(1,436)

(19,415)

(1,465)

35,314

551

31,889

178

563,123

551

517,986

178

(483,488)

(2,591)

(453,195)

(2,190)

(1,666)

(2,634)

77,969

(2,040)

62,157

(2,012)

77,969

(2,040)

62,157

(2,012)

77,969

(2,040)

62,157

(2,012)

Less: Creditors: amounts falling due within one year

Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities Pension provision Total net assets Reserves Non-equity share capital

Income and expenditure reserve Total reserves The financial statements on pages 35 to 39 were approved and authorised for issue by the Board on 19 September 2016 and were signed on its behalf by:

P Joyce: Chair P a g e | 36

The notes on pages 40 to 82 form an integral part of these accounts.

P Lees: Executive member

B Moran: Secretary

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Consolidated Statement of Changes in Reserves Non-equity share capital

Restricted reserves

Income & expenditure reserve

Designated reserves

£’000

Total

£’000

Balance as at 1 April 2014 as previously stated

3,171

870

47,902

51,943

Changes on transition to FRS 102 (note 33)

(3,171)

(870)

(2,400)

(6,441)

Balance as at 1 April 2014 restated

45,502

Surplus from Statement of Comprehensive Income

17,388

Actuarial loss in respect of pension schemes

(733)

Balance at 31 March 2015

62,157

Surplus from Statement of Comprehensive Income

14,645

Actuarial gain in respect of pension schemes

1,167

Balance at 31 March 2016

77,969

The notes on pages 40 to 82 form an integral part of these accounts.

P a g e | 37

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Consolidated Statement of Cash Flows

Restated Year ended

year ended

31 Mar 2016

31 Mar 2015

£’000

30,890

21,553

(52,101)

(47,994)

Proceeds from sale of tangible fixed assets

8,844

6,074

Grants received

7,980

9,883

241

3,403

(35,036)

(28,634)

(12,918)

(10,417)

New secured loans

29,600

82,940

Repayment of borrowings

(1,555)

(38,922)

15,127

33,601

Net change in cash and cash equivalents

10,981

26,520

Cash and cash equivalents at beginning of the year

39,210

12,690

Cash and cash equivalents at end of the year

50,191

39,210

Net cash generated from operating activities (see note i) Cash flow from investing activities Purchase of tangible fixed assets

Interest received

Cash flow from financing activities Interest paid

P a g e | 38

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Consolidated Statement of Cash Flows cont’d

Note i

Year ended 31 Mar 2016

Restated year ended 31 Mar 2015

£’000

15,812

16,655

7,155

6,847

(1,761)

(1,162)

(1,334)

2,025

(1,655)

846

(640)

6,392

4,823

Proceeds from the sale of tangible fixed assets

(9,222)

(7,027)

Government grants utilised in the year

(2,384)

(2,048)

11,588

11,154

(241)

(3,484)

30,890

21,553

Cash flow from operating activities Surplus for the year Adjustments for non-cash items: Depreciation of tangible fixed assets Decrease/(increase) in properties for sale Increase in trade and other debtors Increase/(decrease) in trade and other creditors Pension costs less contributions payable Carrying amount of tangible fixed asset disposals Share of operating surplus in joint venture Adjustments for investing or financing activities:

Interest paid Interest received Net cash generated from operating activities The notes on pages 40 to 82 form an integral part of these accounts.

P a g e | 39

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

Legal status Adactus Housing Group Limited is incorporated in England under the Co-operative and Community Benefit Societies Act 2014 and is registered with the Homes and Communities Agency as a Private Registered Provider of Social Housing. The registered office is Turner House, 56 King Street, Leigh, Lancashire, WN7 4LJ. The Group comprises the following entities:

Name Adactus Housing Group Limited Adactus Housing Association Limited Beech Housing Association Limited Chorley Community Housing Limited

Incorporation

Registered/Non-registered

Co-operative and Community Benefit Societies Act 2014 Co-operative and Community Benefit Societies Act 2014 Co-operative and Community Benefit Societies Act 2014 Co-operative and Community Benefit Societies Act 2014

Registered Registered Registered Registered

Acuna Limited

Companies Act 2006

Non-registered

Palatine Contracts Limited

Companies Act 2006

Non-registered

1 Principal accounting policies Basis of accounting The Group’s financial statements have been prepared in accordance with applicable United Kingdom Accounting Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice for registered housing providers: Housing SORP 2014. The Group is required under the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969 to prepare consolidated Group accounts. The financial statements comply with the Co-operative and Community Benefit Societies Act 2014, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2015. The accounts are prepared on the historical cost basis of accounting as modified by the revaluation of investments and are presented in sterling £.

P a g e | 40

The Group’s financial statements have been prepared in compliance with FRS102 as it applies for the first time to the financial statements of the Group for the year ended 31 March 2016. In complying with FRS102 the Group meets the definition of a public benefit entity. The Group transitioned from previous UK GAAP to FRS102 as at 1 April 2014. An explanation of how the transition to FRS102 has affected the reported financial position and performance, as well as the exemptions taken on transition, is given in note 32.

Parent company disclosure exemptions In preparing the separate financial statements of the parent company, advantage has been taken of the following disclosure exemptions available in FRS102:

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

 No cash flow statement has been presented for the parent company,  Disclosures in respect of the parent company’s financial instruments have not been presented as equivalent disclosures have been provided in respect of the group as a whole, and  No disclosure has been given for the aggregate remuneration of the key management personnel of the parent company as their remuneration is included in the totals for the group as a whole.

Basis of consolidation The consolidated financial statements incorporate the results of Adactus Housing Group Limited and all of its subsidiary undertakings as at 31 March 2016 using the acquisition method of accounting as required. Where the acquisition method is used, the results of subsidiary undertakings are included from the date of acquisition, being the date the Group obtains control.

Going concern The Group’s financial statements have been prepared on a going concern basis which assumes an ability to continue operating for the foreseeable future. Government’s announcements in July 2015 impacting on the future income of the Group have led to a reassessment of the Group’s business plan as well as an assessment of imminent or likely future breach in borrowing covenants. No significant concerns have been noted and the board consider it appropriate to continue to prepare the financial statements on a going concern basis.

Judgements and key sources of estimation uncertainty The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

a. Development expenditure The Group capitalises development expenditure in accordance with the accounting policy described on page 43. Initial capitalisation of costs is based on management’s judgement that development scheme is confirmed, usually when board approval has taken place including access to the appropriate funding. In determining whether a project is likely to cease, management monitors the development and considers if changes have occurred that result in impairment. b. Categorisation of housing properties The Group has undertaken a detailed review of the intended use of all housing properties. In determining the intended use, the Group has considered if the asset is held for social benefit or to earn commercial rentals. The Group has determined that a proportion of the Miles Platting PFI office should be classed as investment property. c. Impairment The Group has identified a cash generating unit for impairment assessment purposes at a property scheme level. Other key sources of estimation and assumptions: a. Tangible fixed assets Other than investment properties, tangible fixed assets are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. b. Revaluation of investment properties The Group carries its investment property at fair value, with changes in fair value being recognised in the statement of comprehensive income. The Group engaged independent valuation specialists to determine fair value at the transition date, 31 March 2015 and at 31 March 2016. The valuer used a valuation technique based on a discounted cash flow model. The determined fair value of the investment property is most sensitive to the estimated yield as well as the long term vacancy rate. The key assumptions used to determine the fair value of investment property are further explained in note 13.

P a g e | 41

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

c. Pension and other post-employment benefits The cost of defined benefit pension plans and other postemployment benefits are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and the long term nature of these plans, such estimates are subject to significant uncertainty. In determining the appropriate discount rate, management considers the interest rates of corporate bonds in the respective currency with at least AA rating, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The underlying bonds are further reviewed for quality, and those having excessive credit spreads are removed from the population bonds on which the discount rate is based, on the basis that they do not represent high quality bonds. The mortality rate is based on publicly available mortality tables for the specific sector. Future salary increases and pension increases are based on expected future inflation rates for the respective sector. Further details are given in note 25. d. Impairment of non-financial assets Reviews for impairment of housing properties are carried out when a trigger has occurred and any impairment loss in a cash generating unit is recognised by a charge to the Statement of Comprehensive Income. Impairment is recognised where the carrying value of a cash generating unit exceeds the higher of its net realisable value or its value in use. A cash generating unit is normally a group of properties at scheme level whose cash income can be separately identified. Following the assessment of impairment no impairment losses were identified in the reporting period.

Turnover and revenue recognition Turnover represents rental income receivable, amortised capital grant, revenue grants from local authorities and the Homes and Communities Agency, income from the sale of shared ownership and other properties developed for outright sale and other income and are recognised in relation to the period when the goods or services have been supplied. Rental income is recognised when the property is available for let, net of voids. Income from property sales is recognised on legal completion. Supporting People income is recognised under the contractual arrangements.

Support income and costs including Supporting People income and costs Supporting People (SP) contract income received from Administering Authorities is accounted for as SP income in the turnover as per note 2. The related support costs are matched against this income in the same note. Support charges included in the rent are included in the Statement of Comprehensive Income from social housing lettings note 3 and matched against the relevant costs.

Service charges Service charge income and costs are recognised on an accruals basis. The Group operates both fixed and variable service charges on a scheme by scheme basis in full consultation with residents. Where variable service charges are used the charges will include an allowance for the surplus or deficit from prior years, with the surplus being returned to residents by a reduced charge and a deficit being recovered by a higher charge. Until these are returned or recovered they are held as creditors or debtors in the Statement of Financial Position. Where periodic expenditure is required a provision may be built up over the years, in consultation with the residents until these costs are incurred this liability is held in the Statement of Financial Position within long term creditors.

P a g e | 42

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Loan interest costs

Value Added Tax (vat)

Loan interest costs are calculated using the effective interest method of the difference between the loan amount at initial recognition and amount of maturity of the related loan.

The Group charges VAT on some of its income and is able to recover part of the VAT it incurs on expenditure. All amounts disclosed in the accounts are inclusive of VAT to the extent that it is suffered by the Group and not recoverable.

Loan finance issue costs These are amortised over the life of the related loan. Loans are stated in the Statement of Financial Position at the amount of the net proceeds after issue, plus increases to account for any subsequent amounts amortised. Where loans are redeemed during the year, any redemption penalty and any connected loan finance issue costs are recognised in the Statement of Comprehensive Income in the year in which the redemption took place.

Taxation The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income, except that a change attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the company’s subsidiaries operate and generate taxable income. Deferred balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date, except: 



The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits, Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met, and Where timing differences relate to interests in subsidiaries, associates and joint ventures and the Group can control their reversal and such reversal is not considered probable in the foreseeable future.

Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair value of liabilities acquired and the amount that will be assessed for tax. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

Tangible fixed assets and depreciation Housing properties Tangible fixed assets are stated at cost, less accumulated depreciation. Donated land/assets or assets acquired at below market value from a government source, e.g. local authority, are included as an asset and equal liability in the Statement of Financial Position at the fair value less consideration paid. Housing properties under construction are stated at cost and are not depreciated. These are reclassified as housing properties on practical completion of construction. Freehold land is not depreciated. Where a housing property comprises two or more major components with substantially different useful economic lives (UELs), each component is accounted for separately and depreciated over its individual UEL. Expenditure relating to subsequent replacement or renewal of components is capitalised as incurred. The Group depreciates freehold housing properties by component on a straight-line basis over the estimated UELs of the component categories. UELs for identified components are as follows:

Years Boilers

Kitchens

Bathrooms

Roofs

Windows

Doors

Lifts

Structure

100

P a g e | 43

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Other tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation. Freehold land is not depreciated.

Depreciation is charged on a straight-line basis over the expected economic useful lives of the assets at the following rates:

Land & buildings

3.33% per annum on cost or the length of the lease

Furniture, fixtures & fittings

10% per annum on cost

Office & computer equipment

25% per annum on cost

Motor vehicles

25% per annum on cost

Shared ownership properties

Leasing

The costs of shared ownership properties are split between current and fixed assets on the basis of the first tranche portion. The first tranche portion is accounted for as a current asset and the sale proceeds shown in turnover. The remaining element of the shared ownership property is accounted for as a fixed asset and subsequent sales treated as sales of fixed assets.

Rental payments under operating leases are charged to the Statement of Comprehensive Income on a straight line basis over the term of the lease.

Capitalisation of interest and administration costs

Investment property

Interest on loans financing development is capitalised up to the date of the completion of the scheme and only when development activity is in progress.

Investment property includes commercial and other properties not held for the social benefit of the Group. Investment property is measured at cost on initial recognition, which includes purchase cost and any directly attributable expenditure, and subsequently at fair value at the reporting date. Fair value is determined annually by external valuers and derived from the current market rents and investment property yields for comparable real estate, adjusted if necessary for any difference in the nature, location or condition of the specific asset. No depreciation is provided. Changes in fair value are recognised in the Statement of Comprehensive income.

Administration costs relating to development activities are capitalised only to the extent that they are incremental to the development process and directly attributable to bringing the property into their intended use.

Property managed by agents Where the Group carries the majority of the financial risk on property managed by agents, income arising from the property is included in the Statement of Comprehensive Income. Where the agency carries the majority of the financial risk, income includes only that which relates solely to the Group. In both cases, the assets and associated liabilities are included in the Groupâ&#x20AC;&#x2122;s Statement of Financial Position.

P a g e | 44

Reverse premiums and similar incentives received on leases to enter into operating lease agreements are released to Statement of Comprehensive Income over the term of the lease.

Current asset investments Current asset investments include cash and cash equivalents invested for periods of more than 24 hours. They are recognised initially at cost and subsequently at fair value at the reporting date. Any change in valuation between reporting dates is recognised in the statement of comprehensive income.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Stock and properties held for sale Stock of materials are stated at the lower of cost and net realisable value being the estimated selling price less costs to complete and sell. Cost is based on the cost of purchase on a first in, first out basis. Work in progress and finished goods include labour and attributable overheads. Properties developed for outright sale are included in current assets as they are intended to be sold, at the lower of cost or estimated selling price less costs to complete and sell. At each reporting date, stock and properties held for sale are assessed for impairment. If there is evidence of impairment, the carrying amount is reduced to its selling price less costs to complete and sell. The impairment loss is recognised immediately in the Statement of Comprehensive Income.

Short-term debtors and creditors

SHG must be recycled by the Group under certain conditions, if a property is sold, or if another relevant event takes place. In these cases, the SHG can be used for projects approved by the Homes and Communities Agency. However, SHG may have to be repaid if certain conditions are not met. If grant is not required to be recycled or repaid, any unamortised grant is recognised as turnover. In certain circumstances, SHG may be repayable, and, in that event, is a subordinated unsecured repayable debt.

Recycling of capital grant Where SHG is recycled, as described above, the SHG is credited to a fund which appears as a creditor until used to fund the acquisition of new properties, where recycled grant is known to be repayable it is shown as a creditor within one year.

Disposal proceeds fund (DPF)

Debtors and creditors with no stated interest rate and receivable or payable within one year are recorded at transaction price. Any losses arising from impairment are recognised in the income statement in other operating expenses.

Receipts from the sale of SHG funded properties less the net book value of the property and the costs of disposal are credited to the DPF, this creditor is carried forward until it is used to fund the acquisition of new social housing.

Non-government grants

Holiday pay accrual

Grants received from non-government sources are recognised under the performance model. If there are no specific performance requirements the grants are recognised when received or receivable. Where grant is received with specific performance requirements it is recognised as a liability until the conditions are met and then it is recognised as turnover.

A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the balance sheet date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.

Retirement benefits

Social housing and other government grants Where developments have been financed wholly or partly by social housing and other grants, the amount of the grant received has been included as deferred income and recognised in turnover over the estimated useful life of the associated asset structure (not land), under the accruals model. Social Housing Grant (SHG) received for items of cost written off in the Statement of Comprehensive Income is included as part of turnover. When SHG in respect of housing properties in the course of construction exceeds the total cost to date of those housing properties, the excess is shown as a current liability.

The cost of providing retirement pensions and related benefits is charged to management expenses over the periods benefiting from the employeesâ&#x20AC;&#x2122; services. The disclosures in the accounts follow the requirements of Section 28 of FRS 102 in relation to multi-employer funded schemes in which the Group has a participating interest. Contributions payable under an agreement with the Social Housing Pension Scheme to fund past deficits are recognised as a liability in the Groupâ&#x20AC;&#x2122;s financial statements calculated by the repayments known, discounted to the net present value at the year-end using a market rate discount factor of 3.02% at 31 March 2014, 1.92% 31 March 2015 and at 31 March 2016. The unwinding of the discount is recognised as a finance cost in the Statement of Comprehensive Income in the period incurred.

P a g e | 45

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Financial instruments Financial assets and financial liabilities are measured at transaction price initially, plus, in the case of a financial asset or financial liability not at fair value through surplus or deficit, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. At the end of each reporting period, financial instruments are measured as follows, without any deduction for transaction costs the entity may incur on sale or other disposal: Debt instruments that meet the conditions in paragraph 11.8(b) of FRS 102 are measured at amortised cost using the effective interest method, except where the arrangement constitutes a financing transaction. In this case the debt instrument is measured at the present value of the future payments discounted at a market rate of interest for a similar debt. Commitments to receive or make a loan to another entity which meet the conditions in paragraph 11.8(c) of FRS 102 are measured at cost less impairment. Investments in non-convertible preference shares and nonputtable ordinary shares or preference shares are measured at: Fair value with changes in fair value recognised in the statement of comprehensive income if the shares are publicly traded or their value can otherwise be measured reliably,

Financial assets and financial liabilities at fair value are classified using the following fair value hierarchy:  



Impairment of financial assets Financial assets are assessed at each reporting date to determine whether there is any objective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence of impairment, an impairment loss is recognised in the Statement of Comprehensive Income immediately. The following financial instruments are assessed individually for impairment:   

At cost less impairment for all other such investments. Financial instruments held by the Group are classified as follows:



 



Financial assets such as cash, current asset investments and receivables are classified as loans and receivables and held at cost less impairment. Financial liabilities such as loans are held at amortised cost using the effective interest method, Loans to or from subsidiaries including those that are due on demand are held at amortised cost using the effective interest method, Commitments to receive or make a loan to another entity which meet the conditions above are held at cost less impairment, An investment in another entity’s equity instruments other than non-convertible preference shares and nonputtable ordinary and preference shares are held at fair value, Derivatives such as interest rate swaps are classified as financial assets or financial liabilities at fair value.

P a g e | 46

The best evidence of fair value is a quoted price in an active market. When quoted prices are unavailable, the price of a recent transaction for an identical asset, adjusted to reflect any circumstances specific to the sale, such as a distress sale, if appropriate. Where there is no active market or recent transactions then a valuation technique is used to estimate what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations.



All equity instruments regardless of significance; and Other financial assets that are individually significant. Other financial instruments are assessed for impairment either individually or grouped on the basis of similar credit risk characteristics. An impairment loss is measured as follows on the following instruments measured at cost or amortised cost: For an instrument measured at amortised cost, the impairment loss is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. For an instrument measured at cost less impairment, the impairment loss is the difference between the asset’s carrying amount and the best estimate of the amount that the entity would receive for the asset if it were to be sold at the reporting date.

If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed either directly or by adjusting an allowance account. The reversal cannot result in a carrying amount (net of any allowance account) which exceeds what the carrying amount would have been had the impairment not previously been recognised. The amount of the reversal is recognised in the statement of comprehensive income immediately.

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 2. Turnover, cost of sales, operating expenditure and operating surplus

2016 Turnover

Cost of sales

Operating expenditure

Operating surplus

£’000

55,898

(34,627)

21,271

Housing management contracts

6,104

(3,685)

2,419

First tranche low cost home ownership sales

6,161

(4,924)

1,237

Sales of housing properties

2,598

(1,789)

809

Other

414

508

Total

71,175

(6,713)

(38,218)

28,244

Social housing lettings (note 3) Other social housing activities

2015 Restated Turnover

Cost of sales

Operating expenditure

Operating surplus

£’000

52,882

(32,205)

20,677

(2)

Housing management contracts

6,128

(4,010)

2,118

First tranche low cost home ownership sales

1,845

(1,551)

294

Sales of other housing properties

5,008

(3,332)

1,676

Other

317

(204)

113

Total

66,180

(4,883)

(36,421)

24,876

Social housing lettings (note 3) Other social housing activities Supporting people

P a g e | 47

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

3. Turnover and operating expenditure

General housing

Supported housing and housing for older people

Low cost home ownership

Total 2016

Restated

£’000

37,733

8,307

1,825

47,865

44,920

1,256

3,123

222

4,601

4,775

1,043

1,049

1,146

1,745

477

161

2,383

2,041

40,740

12,950

2,208

55,898

52,882

Management

5,213

1,746

368

7,327

6,556

Service charge costs

1,325

4,067

228

5,620

5,751

Routine maintenance

5,279

1,315

6,672

6,434

Planned maintenance

3,400

1,759

118

5,277

5,773

669

118

798

786

Bad debts

(5)

(3)

(11)

(19)

495

Property lease charges

219

307

335

Depreciation of housing properties

4,845

1,221

336

6,402

5,880

Other costs

1,406

780

2,243

195

Operating expenditure on social housing lettings

22,351

11,063

1,213

34,627

32,205

Operating surplus on social housing lettings

18,389

1,887

995

21,271

20,677

322

129

252

703

540

total 2015

Income Rent receivable net of identifiable service charges and net of voids Service charge income Charges for support services Amortised government grants Turnover from social housing lettings Operating expenditure

Major repairs expenditure

Void losses

P a g e | 48

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 4. Accommodation owned, managed and in development

Group â&#x20AC;&#x201C; Owned and managed

2016 No. of properties

Restated 2015 No. of properties

Owned

Managed

Owned

Managed

Social rent

7,379

1,551

7,650

1,551

Affordable rent

1,328

980

1,279

465

466

1,010

949

11,461

1,622

11,324

1,622

2016 No. of properties

2015 No. of properties

695

454

Sheltered housing for older people

Supported housing

804

607

Social housing General needs housing

Sheltered housing for older people Supported housing Low-cost home ownership Total units social housing

Group â&#x20AC;&#x201C; In development Social housing General needs housing Social rent Affordable rent

Low-cost home ownership Total units social housing

The Association had no units in management (2015: 0). The Group owns 298 (2015: 298) properties which are managed by others.

P a g e | 49

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 4. Accommodation owned, managed and in development cont.

Movement in the year (owned properties)

No.

Opening number of units at 1 April 2015

11,324

New units developed in the year

351

Units disposed/demolished in the year

(214)

Closing number of units at 31 March 2016

11,461

5. Gain on disposal of non-housing assets

Restated Group

2016 £’000

2015 £’000

174

(88)

(148)

Incidental costs

(7)

Total surplus

(3)

2016 £’000

2015 £’000

241

196

Income from investments

3,179

Other finance income

109

241

3,484

Proceeds of sales Carrying value

6. Interest receivable and other income

Group Bank interest receivable

Total

P a g e | 50

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 7. Interest and financing costs

Restated Group

2016 £’000

2015 £’000

Loans and bank overdrafts

12,430

10,753

Notional interest on RCGF/DPF

Interest on SHPS pension deficit

156

191

Interest capitalised on housing properties under construction

(1,083)

(661)

Total

11,588

10,298

The weighted average interest on borrowings of 4.87% (2015: 5.30%) was used for calculating capitalised finance costs.

8. Surplus on ordinary activities

Restated Group

2016 £’000

2015 £’000

Audit of the group financial statements*

Audit of subsidiaries

Land and buildings

337

326

Other

600

648

6,402

5,880

753

755

The operating surplus is stated after charging: Auditors remuneration (excluding VAT):

Fees payable to the company’s auditor and its associates for other services to the group Taxation advice Other Operating lease rentals:

Depreciation of housing properties Depreciation of other fixed assets *£3,000 (2015: £3,000) of this relates to the company.

P a g e | 51

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 9. Taxation

Group

Restated 2016

2015

£’000

249

(2)

247

115

(57)

249

168

Current tax Current tax on income for the year Adjustments in respect of previous periods Total current tax charge Deferred tax Origination and reversal of timing differences Adjustment in respect of previous years Effect of tax rate change on opening balance Total deferred tax charge Total tax recognised in the statement of comprehensive income

2016

2015

Current tax

Deferred tax

Total tax

Current tax

Deferred tax

Total tax

£’000

Recognised in statement of comprehensive income

247

249

115

168

Total tax

247

249

115

168

P a g e | 52

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 9. Taxation (continued)

Reconciliation of effective tax rate

Restated

Surplus for the year Total tax expense Surplus excluding taxation Tax using the UK corporation tax rate of 20% (2015: 21%) Effect of tax free income due to charitable activities Net expenses not deductible for tax purposes Adjustments in respect of prior periods

2016

2015

£’000

14,645

17,388

249

168

14,894

17,556

2,979

3,687

(2,785)

(3,537)

(3)

Unrecognised losses utilised

(26)

(45)

Deferred tax not recognised

Gift aid related back

249

168

Tax rate differences on deferred tax

Total tax charge

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. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015. The recent March 2016 Budget announced that the rate effective from 1 April 2020 will further reduce to 17%. This will reduce the Group's future current tax charge accordingly. The deferred tax assets as at 31 March 2016 have been calculated based on the rate of 18% substantively enacted at this year end date.

Deferred tax assets and liabilities

Assets

Liabilities

Net

2016

2015

2016

2015

2016

2015

£’000

Accelerated capital allowances

Unused tax losses

(29)

(537)

(500)

(537)

(500)

(537)

(529)

(495)

(497)

Other short term timing differences Tax (assets) / liabilities

In addition to the deferred tax asset above, the Group has additional unrecognised gross tax losses of £20,849 (2015: £128,837) in respect of capital losses carried forward and short term timing differences.

P a g e | 53

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 10. Directors’ remuneration

2016

2015

£’000

The aggregate emoluments paid to or receivable by non-executive directors and former nonexecutive directors

The aggregate emoluments paid to or receivable by executive directors and former executive directors

671

584

1,272

1,011

199

174

Group

The aggregate compensation paid to or receivable by directors (key management personnel) The emoluments paid to the highest paid director excluding pension contributions

Directors (key management personnel) are defined as members of the board, the group chief executive and any other person who is a member of the senior management team or its equivalent. There were no pension payments made in 2015/16 for the executive who held the post of group chief executive during the year.

Total 2016 £

Total 2015 £

AHG

AHA

BHA

CCH

P Joyce

10,260

6,667

 chair



O Baker

5,000

J Clayton

5,056

5,000

A Cain

5,210

8,333



 chair

E Clivery

3,500

5,080



E Mellor

4,395

1,288



Cllr G Dunn

S Fyfe

L Garsden

Board members Non-executive

Cllr S Murfitt

 chair  chair

  

R O’Connell

1,010

L Cope

1,026

PSAC PSAC

D Addy

1,010

3,000

4,333

T Jenkins

1,761

3,500

S Klass

3,437

S Fussey

1,713

R Davies

S Holgate

812

D Gilkes

2,042

S Abbas

2,042

M Babiker Eisa El Bedawi

2,042

A Williams

583

47,190

45,910

Total

P a g e | 54



 



Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 11. Employee information Group

Association

2016 No.

2015 No.

2016 No.

2015 No.

152

153

150

Housing, support and care

343

225

220

Total

520

518

400

392

2016 £’000

2015 £’000

2016 £’000

2015 £’000

14,496

13,772

11,542

10,909

Social security costs

1,196

1,094

995

905

SHPS pension deficit re-measurements

2,682

765

837

819

680

654

19,211

15,685

13,982

12,468

The average number of persons employed during the year expressed in full time equivalents (35 hours per week) was: Administration Development

Staff costs Wages and salaries

Other pension costs Total

Aggregate number of full time equivalent staff whose remuneration (including pension contributions) exceeded £60,000 in the period: Group

£60,0001 - £70,000

2016 No. 8

2015 No. 6

£70,0001 - £80,000

£80,0001 - £90,000

£90,0001 - £100,000

£100,0001 - £110,000

£110,0001 - £120,000

£120,0001 - £130,000

£130,0001 - £140,000

£140,0001 - £150,000

£150,0001 - £160,000

£160,0001 - £170,000

£170,0001 - £180,000

£180,0001 - £190,000

£190,0001 - £200,000

P a g e | 55

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

12. Tangible fixed assets

Social housing properties for letting completed

Social housing properties for letting under construction

Shared ownership properties completed

Shared ownership properties under construction

Total housing properties

£’000

460,225

19,444

49,174

1,792

530,635

Additions to properties acquired

39,493

7,097

46,590

Capitalised administration costs

1,176

122

1,298

Interest capitalised

986

1,082

Adjustment

(479)

Transfers from stock

1,154

1,907

3,061

189

(189)

Component replacements

3,190

Components replaced

(905)

Schemes completed

27,541

(27,541)

10,721

(10,721)

Disposals

(1,274)

(5,670)

(6,944)

488,966

34,712

53,557

293

577,528

50,838

2,527

53,365

Charge for the year

6,115

287

6,402

Components replaced

(906)

Disposals

(266)

(85)

(351)

55,781

2,729

58,510

433,185

34,712

50,828

293

519,018

409,387

19,444

46,647

1,792

477,270

Housing Properties Cost At start of the year (restated)

Reclassification

At end of the year Depreciation and impairment At start of the year (restated)

At end of the year Net book value: At 31 March 2016 At 31 March 2015 (restated)

All properties are held on either a freehold or long leasehold basis. There are 1,740 properties held on a long leasehold basis with an associated asset cost of £52.5m. 94% of the remaining lease periods are greater than 70 years.

P a g e | 56

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

12. Tangible fixed assets (continued)

2016 £’000

2015 £’000

Improvement works capitalised

3,190

2,680

Amounts charged to expenditure

6,075

6,559

9,265

9,239

Group Works to existing properties in the year:

Total

Land and buildings £’000

Furniture and equipment £’000

Motor vehicles £’000

Total other fixed assets £’000

7,987

5,664

411

14,062

Additions

606

188

852

Disposals

(273)

(327)

(208)

(808)

At end of the year

7,772

5,943

391

14,106

1,956

3,291

180

5,427

271

427

753

Disposals

(270)

(264)

(139)

(673)

At end of the year

1,957

3,454

5,507

At 31 March 2016

5,815

2,489

295

8,599

At 31 March 2015 (restated)

6,031

2,373

231

8,635

Other fixed assets

Cost At start of the year (restated)

Depreciation and impairment At start of the year (restated) Charge for the year

Net book value:

P a g e | 57

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

13. Investment properties held for letting

2016

2015

£’000

192

Additions

Gain/(loss) from adjustment in value

192

Group At start of year

At end of year

Investments properties relates to retail space at the Miles Platting office in Manchester. Fair value of the investment properties is based on a valuation on 29 May 2014 by independent valuer S Sokun, of S. Kershaw and Son, who holds a Royal Institution of Chartered Surveyors qualification and has recent experience in the location and class of investment property being valued. The valuation was made on an ‘existing use value’ basis in light of the RICS Appraisal and Valuation Standards (The Red Book), as amended. The Directors feel that there has been little movement in the value of commercial properties in the area since the 2014 valuation. A further formal valuation will be carried out in early 2017 and every three years thereafter.

14. Stock

Group

Association Restated

2016 £’000

2015 £’000

2016 £’000

2015 £’000

1,617

5,003

250

Stock

236

242

236

242

Total

2,147

5,289

236

242

First tranche shared ownership properties Completed Work in progress Outright sale properties Completed

P a g e | 58

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

15. Trade and other debtors

Group

Association

2016 £’000

2015 £’000

2016 £’000

2015 £’000

2,123

2,457

(1,042)

(1,450)

1,081

1,007

4,911

3,581

225

236

Amounts owed by group undertakings

701

Related party debtor

159

112

Deferred tax

537

529

537

529

Other

599

623

Lease debtor

785

895

7,967

6,805

1,557

892

Rent arrears Less: provision for bad debts Sub-total Prepayments and accrued income

Other taxation and social security

Total Lease debtor of £0 (2015: £785k) is due in over one year. A number of tenants in arrears are in formal repayment agreements with the Group. An assessment of the net present value of those repayment agreements was carried out. The potential adjustment identified was insignificant and was less

than the provision for bad debts against those tenancies. On this basis, no adjustment has been made in the accounts in relation to the net present value of the repayment agreements.

16. Investments The investment relates to an amount held on deposit which will be released to the Group upon completion of a charging exercise.

P a g e | 59

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

17. Cash and cash equivalents

Group

Cash at bank Total

Association

2016 £’000

2015 £’000

2016 £’000

2015 £’000

47,685

26,257

194

509

47,685

26,257

194

509

18. Creditors: amounts falling due within one year

Group

Association

2016 £’000

2015 £’000

2016 £’000

2015 £’000

5,141

1,546

484

279

104

501

315

1,614

1,828

457

354

103

10,355

7,970

636

737

2,509

2,420

517

Other creditors

2,829

3,754

207

SHPS pension agreement plan (Note 25)

1,006

731

392

309

24,991

19,415

1,436

1,465

Loans and overdrafts (Note 19b) Trade creditors Social housing grant received in advance Amounts owed to group undertakings Rents and service charges paid in advance Deferred tax Other taxation and social security payable Accruals and deferred income Deferred capital grant (Note 20) Recycled capital grant fund (Note 21)

Total

P a g e | 60

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 19 (a). Creditors: amounts falling due after more than one year

Group

Association Restated

2016 £’000

2015 £’000

Social housing loans (note 19b)

249,815

225,917

Deferred capital grant (Note 20)

224,413

218,212

Recycled capital grant fund (Note 21)

1,415

3,083

SHPS pension agreement plan (Note 25)

7,425

5,685

420

298

483,488

453,195

Disposal proceeds fund (Note 22) Total

2016 £’000

2,591

2015 £’000

2,190 -

2,591

2,190

P a g e | 61

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 19 (b). Debt analysis

Group

Restated 2016 £’000

2015 £’000

Within one year

1,613

1,519

In one year or more but less than two years

4,369

1,605

In two years or more but less than five years

13,676

13,403

170,492

145,559

3,500

In two years or more but less than five years

26,750

3,500

In five years or more

37,163

63,913

856

(3,867)

(3,316)

Within one year

In one year or more but less than two years

In two years or more but less than five years

263

287

254,956

227,463

Social housing loans Loans repayable by instalments:

In five years or more Loans not repayable by instalments: Within one year In one year or more but less than two years

Cost on restatement of a financial liability Less: loan issue costs Non housing loans Loans repayable by instalments:

In five years or more Total loans

Loans from external funders are secured by fixed charges on individual housing properties. Housing loans are repayable with interest chargeable at varying rates 2.10% to 11.5% during the year.

P a g e | 62

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 19 (b). Debt analysis cont.

The interest rate profile of the Group at 31 March 2016 was:

Instalment loans Non-instalment loans Total loans

Fixed rate

Weighted average rate

Weighted average term

£’000

Years

186,554

4.94

27.8

71,413

29,513

41,900

4.70

9.4

257,967

29,513

228,454

4.87

22.7

Total

Variable rate

£’000

At 31 March 2016 the group has the following borrowing facilities: £’000 Undrawn facilities Total

65,650 65,650

P a g e | 63

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

20. Deferred capital grant

Group

Association Restated

2016 £’000

2015 £’000

2016 £’000

2015 £’000

220,632

215,544

9,721

10,089

Disposals

(1,048)

(2,953)

Released to income in the year

(2,383)

(2,048)

226,922

220,632

2,509

2,420

224,413

218,212

226,922

220,632

At start of the year Grant received in the year

At end of the year Amount due to be released within one year Amount due to be released after more than one year Total

21. Recycled capital grant fund

Group At the start of the year Inputs: Grants to recycle Interest accrued Recycling: Grants recycled At the end of the year Amount three years or older where repayment may be required

P a g e | 64

2016

2015

£’000

3,083

2,075

500

1,190

(1,666)

(196)

1,932

3,083

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 22. Disposal proceeds fund

2016

2015

£’000

At the start of the year

299

247

Net PRTB receipts

121

420

298

2016

2015

At the start of the year

Issued during the year

At the end of the year

Group

Interest accrued At the end of the year Amount three years or older where repayment may be required

23. Non-equity share capital

Association Allotted issued and fully paid

The par value of each share is £1. The shares do not have a right to any dividend or distribution in a winding-up, and are not redeemable. Each share has full voting rights. All shares are fully paid.

P a g e | 65

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 24. Capital commitments

2016

2015

£’000

Capital expenditure that has been contracted for but has not been provided for in the financial statements

53,923

42,489

Capital expenditure that has been authorised by the Board but has not yet been contracted for

58,819

100,048

112,742

142,537

19,189

20,622

6,741

7,873

86,812

114,042

112,742

142,537

Group

Total The Group expects these commitments to be financed with: Social housing grant Proceeds from the sales of properties Committed loan facilities and surpluses generated from operating activities Total The above figures include the full cost of shared ownership properties contracted for.

25. Pensions

Pension obligations The Adactus Housing Group participates in three pension schemes, the Social Housing Pension Scheme (SHPS), Greater Manchester Pension Fund (GMPF) and Lancashire County Pension Fund (LCPS). All three schemes are multiemployer defined benefit schemes. The schemes are funded and are contracted out of the state scheme.

Social Housing Pension Scheme (SHPS) The Group participates in the scheme, a multi-employer scheme which provides benefits to some 500 non-associated employers. The scheme is a defined benefit scheme in the UK. It is not possible for the Group to obtain sufficient information to enable it to account for the scheme as a defined benefit scheme. Therefore it accounts for the scheme as a defined contribution scheme. The scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December 2005.

P a g e | 66

This, together with documents issued by the Pensions Regulator and Technical Actuarial Standards issued by the Financial Reporting Council, set out the framework for funding defined benefit occupational pension schemes in the UK. The scheme is classified as a 'last-man standing arrangement'. Therefore the Group is potentially liable for other participating employers' obligations if those employers are unable to meet their share of the scheme deficit following withdrawal from the scheme. Participating employers are legally required to meet their share of the scheme deficit on an annuity purchase basis on withdrawal from the scheme. A full actuarial valuation for the scheme was carried out with an effective date of 30 September 2014. This actuarial valuation was certified on 23 November 2015 and showed assets of £3,123m, liabilities of £4,446m and a deficit of £1,323m. To eliminate this funding shortfall, the trustees and the participating employers have agreed that additional contributions will be paid, in combination from all employers, to the scheme as follows:

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

Deficit contributions: Tier 1

£40.6m per annum

From 1 April 2016 to 30 September 2020:

(payable monthly and increasing by 4.7% each year on 1st April)

Tier 2

£28.6m per annum

From 1 April 2016 to 30 September 2023:

(payable monthly and increasing by 4.7% each year on 1st April)

Tier 3

£32.7m per annum

From 1 April 2016 to 30 September 2026:

(payable monthly and increasing by 3.0% each year on 1st April)

Tier 4

£31.7m per annum

From 1 April 2016 to 30 September 2026:

(payable monthly and increasing by 3.0% each year on 1st April)

Note that the scheme’s previous valuation was carried out with an effective date of 30 September 2011; this valuation was certified on 17 December 2012 and showed assets of £2,062m, liabilities of £3,097m and a deficit of £1,035m. To eliminate this funding shortfall, payments consisted of the Tier 1, 2 & 3 deficit contributions.

Where the scheme is in deficit and where the Group has agreed to a deficit funding arrangement, the Group recognises a liability for this obligation. The amount recognised is the net present value of the deficit reduction contributions payable under the agreement that relates to the deficit. The present value is calculated using the discount rate detailed in these disclosures. The unwinding of the discount rate is recognised as a finance cost.

Present values of provision 31 March 2016 £’000

31 March 2015 £’000

31 March 2014 £’000

Present value of provision (Group)

8,431

6,416

6,624

Present value of provision (Association)

2,983

2,499

2,612

Reconciliation of opening and closing provisions Period ending 31 March 2016 £’000 Group Association

Period ending 31 March 2015 £’000 Group Association

6,416

2,499

6,624

2,612

116

189

(731)

(309)

(702)

(296)

(52)

(17)

(304)

109

Remeasurements - amendments to the contribution schedule

2,682

765

Provision at end of period

8,431

2,983

6,416

2,499

Provision at start of period Unwinding of the discount factor (interest expense) Deficit contribution paid Remeasurements - impact of any change in assumptions

P a g e | 67

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

Statement of comprehensive income impact Period ending

Period ending

31 March 2016

31 March 2015

£’000

Group

Association

Group

Association

116

189

(52)

(17)

304

109

Remeasurements – amendments to the contribution schedule

2,682

765

Contributions paid in respect of future service

1,201

741

1,159

697

3,947

1,534

1,652

880

Interest expense Remeasurements – impact of any change in assumptions

Costs recognised in statement of comprehensive income

Assumptions

Rate of discount

The discount rates shown above are the equivalent single discount rates which, when used to discount the future recovery plan contributions due, would give the same results as using a full AA corporate bond yield curve to discount the same recovery plan contributions.

P a g e | 68

31 March 2016

31 March 2015

31 March 2014

% per annum

2.06

1.92

3.02

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

Deficit contributions schedule 31 March 2016

31 March 2015

31 March 2014

£’000

Group

Association

Group

Association

Group

Association

Year 1

1,006

392

731

309

702

296

Year 2

1,044

408

761

322

731

309

Year 3

1,086

425

883

336

761

322

Year 4

1,128

443

826

351

883

336

Year 5

986

367

860

367

826

351

Year 6

832

284

710

288

860

367

Year 7

862

295

548

203

710

288

Year 8

235

229

569

211

548

203

Year 9

166

159

440

143

569

211

Year 10

170

163

302

440

143

Year 11

310

302

Year 12

160

310

Year 13

160

Year 14 to year 20

Year ending

The Group must recognise a liability measured as the present value of the contributions payable that arise from the deficit recovery agreement and the resulting expense in the income and expenditure account i.e. the unwinding of the discount rate as a finance cost in the period in which it arises.

It is these contributions that have been used to derive the Groups statement of financial position liability.

P a g e | 69

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements Greater Manchester Pension Fund (GMPF) Adactus Housing Association Limited (AHA) participates in the Greater Manchester Pension Fund (GMPF). GMPF is a multi-employer defined benefit scheme under the regulations governing the Local Government Pension Scheme. This scheme is funded and is contracted out of the state scheme. There is an actuarial valuation of the GMPF every 3 years. The main purpose of the valuation is to determine the financial position of the GMPF in order to determine the level of future contributions required so that the GMPF can meet its pension obligations as they fall due.

The last formal valuation of the GMPF was performed at 31 March 2013 by a professionally qualified actuary using the Projected Unit Method. The market value of the GMPF’s assets at the last valuation date was £12,590m. The valuation revealed a deficit of assets compared to liabilities of £1,317m. AHA paid contributions at the rate of 18.3% (2015: 17.5%) during the year to 31 March 2016. Member contributions varied between 5.8% and 6.5%. The employers’ contributions to the GMPF by AHA for the year ended 31 March 2016 were £35,004 (2015: £32,889). The following information is based upon a full actuarial valuation of the fund at 31 March 2013 updated to 31 March 2016 by a qualified independent actuary.

Financial assumptions 31 March 2016 % p.a.

31 March 2015 % p.a.

Pension increase rate

2.2%

2.4%

Salary increase rate

2.2%

2.4%

Discount rate

3.5%

3.2%

Period ended

Mortality VitaCurves with improvements in line with the CMI 2010 model assuming the current rate of improvements has peaked and will converge to a long term rate of 1.25% p.a.

Based on these assumptions, the average future life expectancies at age 65 are summarised below:

Males

Females

Current pensioners

21.4 years

24.0 years

Future pensioners*

24.0 years

26.6 years

* Figures assume members aged 45 as at the last formal valuation date.

P a g e | 70

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements Historic mortality Life expectancies for the prior period end are based on the Fund's VitaCurves. The allowance for future improvements are shown below:

Period Ended

Prospective pensioners

Pensioners

31 March 2016

CMI 2010 model assuming the current rate of improvements has peaked and will converge to a long term rate of 1.25% p.a.

Please note that the mortality assumptions are identical to those used in the previous accounting period.

Commutation An allowance is included for future retirements to elect to take 55% of the maximum additional tax-free cash up to HMRC limits for pre-April 2008 service and 80% of the maximum tax-free cash for post-April 2008 service.

P a g e | 71

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements Changes in the Fair Value of Plan Assets, Defined Benefit Obligation and Net Liability for year ended 31 March 2016.

Period ended 31 March 2016 Fair value of plan assets

Assets £’000

Obligations £’000

1,796

Present value of funded liabilities

Net (liability)/ asset £’000 1,796

2,531

(2,531)

1,796

2,531

(735)

Current service cost*

(53)

Past service cost (including curtailments)

Effect of settlements

Total service cost

(53)

Interest cost on defined benefit obligation

(81)

Impact of asset ceiling on net interest

Total net interest

(24)

Total defined benefit cost recognised in Surplus or (Deficit)

134

(77)

Plan participants' contributions

Employer contributions

(55)

Unfunded benefits paid

Effect of business combinations and disposals

1,845

2,622

(777)

Changes in demographic assumptions

Changes in financial assumptions

(272)

272

Other experience

(30)

(68)

Total remeasurements recognised in Other Comprehensive Income (OCI)

(68)

(302)

234

Fair value of plan assets

1,777

Present value of unfunded liabilities Opening position as at 31 March 2015 Service cost

Net interest Interest income on plan assets

Cashflows

Contributions in respect of unfunded benefits Benefits paid

Expected closing position Remeasurements

Return on assets excluding amounts included in net interest Changes in asset ceiling

Present value of funded liabilities Present value of unfunded liabilities** Closing position as at 31 March 2016

P a g e | 72

1,777

1,777 2,320

(2,320)

2,320

(543)

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements * The current service cost includes an allowance for administration expenses of 0.2% of payroll. ** For unfunded liabilities as at 31 March 2016, it is assumed that all unfunded pensions are payable for the remainder of the member's life.

It is further assumed that 90% of pensioners are married (or cohabiting) at death and that their spouse (cohabitee) will receive a pension of 50% of the member's pension as at the date of the member's death.

Information about the defined benefit obligation

Liability split (£’000) as at 31 March 2016

Liability split (%) as at 31 March 2016

Weighted average duration at previous formal valuation

1,135

48.9%

28.6

Deferred members

309

13.3%

19.8

Pensioner members

876

37.7%

12.0

2,320

100.0%

20.1

Active members

Total

Please note that the above figures are for the funded obligations only and do not include any unfunded pensioner liabilities. The durations are as they stood at the previous formal valuation as at 31 March 2013.

Sensitivity analysis The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:

Approximate % increase to

Approximate monetary

employer liability

amount £’000

12%

269

1 year increase in member life expectancy

0.5% increase in the salary increase rate

104

0.5% increase in the pension increase rate

161

Change in assumptions at 31 March 2016:

0.5% decrease in real discount rate

P a g e | 73

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements Lancashire County Pension Fund (LCPF) Chorley Community Housing Limited (CCH) participates in the Lancashire County Pension Fund (LCPF). The LCPF is a multi-employer defined benefit scheme under the regulations governing the Local Government Pension Scheme. This scheme is funded and is contracted out of the state scheme.

The market value of the LCPF’s assets at the last valuation date was £5,011m. The valuation revealed a deficit of assets compared to liabilities of £1,377m. The employer’s contributions to the LCPF by CCH for the year ended 31 March 2016 were £116,267 (2015: £124,750). The employer’s contribution for the year to 31 March 2016 was 15.1% (2015: 14.1%).

There is an actuarial valuation of the LCPF every 3 years. The main purpose of the valuation is to determine the financial position of the LCPF in order to determine the level of future contributions required so that the LCPF can meet its pension obligations as they fall due.

The following information is based upon a full actuarial valuation of the fund at 31 March 2013 updated to 31 March 2016 by a qualified independent actuary.

The last formal valuation of the LCPF was performed at 31 March 2013 by a professionally qualified actuary using the Projected Unit Method.

The major assumptions used by the actuary in assessing scheme liabilities for FRS102 purposes as at 31 March 2016 were as follows:

Financial assumptions

2016

2015

Rate of CPI inflation

2.0%

Discount rate

3.6%

3.3%

Future salary increases

2.0%

Future pension increases

2.0%

2016

2015

Males

23.0

22.9

Females

25.6

25.4

Males

25.2

25.1

Females

27.9

27.8

The mortality assumptions used for longevity (in years) on retirement at age 65 are:

Retiring today:

Retiring in 20 years:

P a g e | 74

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

Statement of Financial Position items: 2016 £’000

2015 ’000

12,362

12,650

Total present value of benefit obligations

12,362

12,650

Fair value of plan assets

(11,239)

(10,751)

1,123

1,899

2016 £’000

2015 £’000

220

177

Administrative expenses

Past service cost/(gain)

Effect of curtailments

Effect of settlements

Effect of asset ceiling

284

227

2016 £’000

2015 £’000

(933)

679

(933)

679

Present value of funded benefit obligations Present value of unfunded benefit obligations

Unrecognised past service cost Deficit/(surplus)

Components of pension cost for the period:

Current service cost Net interest cost

Total pension cost recognised in Statement of Comprehensive Income

Statement of other comprehensive income:

Re-measurements (liabilities and assets) Effect of asset ceiling Total pension cost recognised in Statement of Comprehensive Income

P a g e | 75

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

Change in benefit obligations: 2016 £’000

2015 £’000

12,650

10,672

Current service cost

220

177

Interest on pension liabilities

415

477

(769)

1,455

Curtailments

Settlements

Benefits/transfers paid

(213)

(190)

Business combinations

12,362

12,650

2016 £’000

2015 £’000

10,751

9,554

Interest on plan assets

354

430

Re-measurements (assets)

164

776

Administration expenses

(3)

Business combinations

Settlements

Employer contributions

127

125

Member contributions

Benefits/transfers paid

(213)

(190)

11,239

10,751

518

1,207

Benefit obligation at beginning of period

Member contributions Past service cost / (gain) Re-measurements (liabilities) Experience (gain)/loss (Gain)/loss on assumptions

Benefit obligations at end of period

Change in plan assets:

Fair value of plan assets at beginning of period

Fair value of plan assets at end of period Actual return on plan assets

P a g e | 76

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements

Asset allocation: 2016

2015

£’000 Equities

£’000

3,866

34.4%

5,300

49.3%

Government bonds

225

2.0%

333

3.1%

Other bonds

225

2.0%

151

1.4%

1,079

9.6%

1,086

10.1%

382

3.4%

516

4.8%

Other

5,462

48.6%

3,365

31.3%

Total

11,239

Property Cash/liquidity

10,751

Sensitivity analysis as at 31 March 2016 Central

Sensitivity

+0.1% p.a. discount rate

+0.1% p.a. inflation

+0.1% p.a. pay growth

1 year life expectancy increase

Disclosure item

£’000

Liabilities

12,362

12,116

12,613

12,419

12,592

(11,239)

1,123

877

1,374

1,180

1,353

201

196

208

201

206

Assets Deficit/(surplus) Projected service cost for next year Projected net interest cost for next year

P a g e | 77

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 26. Operating leases Operating lease payment obligations are as follows:

Group

Association Restated

2016 £’000

2015 £’000

2016 £’000

2015 £’000

Within one year

189

263

Between two and five years

647

666

After five years

793

939

Within one year

448

311

448

311

Between two and five years

861

138

861

138

480

2,961

2,797

1,309

929

Land and buildings:

Others:

After five years Total

The lease agreements do not include any contingent rent or restrictions. Other operating leases for motor vehicles include purchase options. Leases for land and buildings include renewal periods after 5 years throughout the lease.

P a g e | 78

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 27. Finance leases (Group) Finance leases relate to the leasing of housing properties.

The gross investment in the lease and present value of minimum lease payments receivable (net investment lease) are as follows:

2016

2015

Gross investment in lease

Unearned finance income

Net investment in lease

Gross investment in lease

Unearned finance income

Net investment in lease

£’000

In one year or more but less than two years

1,505

1,466

197

109

In two years or more but less than five years

1,505

1,466

In five years or more

1,505

1,466

1,702

127

1,575

(681)

824

785

1,021

127

894

Total Less social housing grant Net total

At the end of the lease term, on 31st January 2017, the lessee has an obligation to purchase the freehold for the amount outstanding, in accordance with the lease agreement.

This relates to properties leased to Arawak Walton Housing Association and is included in debtors due within one year (note 15)

28. Contingent liability There are no known contingent liabilities (2015: nil).

P a g e | 79

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 29. Grant and financial assistance

Group

2016

2015

£’000

226,922

220,632

27,694

25,524

254,616

246,156

The total accumulated government grant and financial assistance received or receivable at 31 March: Held as deferred capital grant Recognised as income in Statement of Comprehensive Income Total

30. Related parties Adactus Housing Group Limited was registered with the Financial Services Authority on 26 June 2002. The Group Structure contains:      

Adactus Housing Group Limited Adactus Housing Association Limited Beech Housing Association Limited Chorley Community Housing Limited Acuna Limited Palatine Contracts Limited

The legal status of each company is described on page 40.

The Association provides core administration, finance, development, management and maintenance services for each of the Group's subsidiaries. All transactions are recharged from the Group under a management agreement at an agreed return on cost. Charges in the year were: £14.5m to Adactus Housing Association Ltd; £5.5m to Chorley Community Housing Limited; £1.2m to Beech Housing Association Limited The board of Adactus Housing Association Limited are trustees of the James Tomkinson Memorial Cottages Trust. During 2015/16 there was one tenant member of the board, P Joyce. His tenancy with CCH was on normal social housing terms and he is unable to use his position to his advantage. The Group has taken advantage of the exemption available under Section 33 FRS 102 not to disclose transactions with wholly owned subsidiary undertakings.

31. Post balance sheet events

There are no known post balance sheet events.

P a g e | 80

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 32. First time adoption of FRS 102 On adoption of FRS102 the Group and Association have restated the financial statement comparatives and the impact on reserves is as follows:

Group

Note

As previously stated under former UK GAAP Prior year adjustment – correction of error As restated under former UK GAAP

Reserves as at transition date 1 April 2014

Surplus/(deficit) year ended 31 March 2015

Reserves as at 31 March 2015

£’000

51,946

16,972

68,918

257

269

52,203

16,984

69,187

Transitional adjustments Increase in depreciation of housing properties

(23,565)

(2,048)

(25,613)

Increase in amortisation of grants relating to housing properties

23,565

2,048

25,613

Inclusion of SHPS pension deficit payment liability

(6,624)

208

(6,416)

Fair value adjustment for investment properties

(272)

(257)

Fair value adjustment for financial instruments

(324)

324

Deferred tax asset

519

(20)

499

Recognition of additional cost following the restatement of a financial liability

(856)

Net interest cost (or income) on defined benefit pension schemes

45,502

16,655

62,157

Reserves as at transition date 1 April 2014

Surplus/(deficit) year ended 31 March 2015

Reserves as at 31 March 2015

£’000

(4)

(9)

(13)

(4)

(9)

(13)

(2,612)

113

(2,499)

(2,616)

104

(2,512)

As stated in accordance with FRS 102

Association

Note

As previously stated under former UK GAAP Prior year adjustment As restated under former UK GAAP Transitional adjustments Inclusion of SHPS pension deficit payment liability As stated in accordance with FRS102

P a g e | 81

Adactus Housing Group Limited Report and Financial Statements for the year ended 31 March 2016

Notes to the financial statements 32. First time adoption of FRS102 cont.

Explanation of changes to previously reported surplus and equity: a

FRS102 requires that capital grant previously deducted from the cost of fixed assets, is treated as creditors where the fixed assets are carried at cost. The effect compared to previous UK GAAP is an increase to the carrying cost of housing properties resulting in an increase in the depreciation at transition of £23.6m and a decrease in the surplus for the year ended 31 March 2015 of £2m.

FRS102 requires that government capital grant previously deducted from the carrying cost of housing properties is treated as a deferred capital grant creditor and released to the statement of comprehensive income over the useful life of the associated assets. The effect compared to current UK GAAP is an increase in income recognised on transition of £23.6m and £2m increase in surplus for the year ended 31 March 2015.

FRS102 requires that a liability is recognised for the contributions that arise from an agreement to fund a deficit in a multiemployer pension scheme. The effect is that a liability for the SHPS payment plan has been recognised at the present value of the contributions payable using the discount rate specified in note 25. This has resulted in a decrease in reserves of £6.6m at transition (Group) and an increase in the surplus in the year ended 31 March 2015 of £208k (Group).

FRS102 requires that property where commercial rentals are earned is carried at fair value at the reporting date. The effect is that the value of the market rented properties has been recognised at transition (£191k) and the movement in the year to 31 March 2015 (£nil).

FRS102 requires that changes in the fair value of financial instruments are recognised in the statement of comprehensive income for the period. This related to a stand-alone swap the Group had in place at March 2014, which was repaid during 2014/15. The effect was to recognise the mark to market liability of £324k in 2014/15 and reverse in the following financial year upon repayment.

FRS102 adjustments in relation to the SHPS pension scheme have resulted in the recognition of a deferred tax asset.

FRS102 requires the recognition of any difference between the carrying amount of a financial liability extinguished and the consideration paid. This relates to a significant restatement of the association’s loan facility at March 2015 and as such resulted in an increased financial liability of £856k.

FRS102 requires the recognition in the Statement of Comprehensive Income of a net interest cost (or income) on defined benefit pension schemes. This is calculated by multiplying the net pension liability (or asset) by the market yields on high quality corporate bonds. The effect of this, when compared to previous UK GAAP, has been to reduce reported surpluses for the year ended 31 March 2015 because previous UK GAAP led to the recognition of finance income calculated by reference to the expected returns on the pension plan's specific assets be they equities, properties or bonds. The change has had no effect on reported equity as the measurement of the net defined pension scheme liability (or asset) has not changed. Instead, the decrease in reported surplus is mirrored by an increase in actuarial gains which are presented within other comprehensive income.

P a g e | 82