East Thames Group Annual Report 2016

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board Independent auditor’s report

Financial Statements

Annual Report and Financial Statements 2015/16

East Thames Annual Report and Financial Statements 2015/16

Association information Co-operative and Community Benefit Societies Act Number: 7298 Homes and Communities Agency Number: LH 4309 East Thames Group Limited The Association is a registered provider of social housing and a Community Benefit Society.

East Thames Group Limited is the strategic arm of the Group, setting overall strategic direction for its nine subsidiaries. The Group also provides governance, human resources, IT, business support, internal audit, risk and compliance, marketing and communications, and financial services to each of its subsidiaries to ensure consistency of approach and to achieve effective economies of scale. All subsidiaries are wholly controlled and/or owned and mutual agreements ensure their independence.

East Thames Group Limited was incorporated under the Companies Act 1985 (Number 4091100) until 17 March 2016, when it converted to a Community Benefit Society (Number 7298). Given the close proximity to the year end (being 31 March 2016) this Annual Report and Financial Statements have been prepared on the basis of continuity (i.e. that in substance the Group was in place for the whole of the financial year).

Solicitors Trowers & Hamlins 3 Bunhill Row London EC1Y 8YZ Auditors Grant Thornton UK LLP Kingfisher House 1 Gilders Way St. James Palace Norwich Norfolk NR3 1UB Subsidiaries of East Thames Group Limited: East Homes Limited Registered under the Co-operative and Community Benefit Societies Act Number: 22557R Registered by the Homes and Communities Agency Number: LH 2833 East Living Limited Registered under the Co-operative and Community Benefit Societies Act Number: 27902R East Potential Limited Registered Charity Number: 1053142 Registered Company Number: 03123368 East Place Limited Registered Company Number: 04301063

Board Members Tina Tietjen (Chairman) Yvonne Arrowsmith Rajiv Jaitly (appointed 21 March 2016) Duncan Beardsley Larissa Joy James Scott

East Thames Partnership Limited Registered Company Number: 04701731

Company Secretary Henry Potter

East Finance plc Registered Company Number: 07984573

Registered Office 29-35 West Ham Lane London E15 4PH Bankers Barclays Bank plc 1 Churchill Place London E14 5HP 2-3

East Treasury Limited Registered Company Number: 04660101

East Regen Limited Registered Company Number: 04660100 East Homes Services Limited Registered Company Number: 08747446

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board Independent auditor’s report

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Our partners and supporters We would like to say a huge thank you to all of our partners, who have given us the support we need to carry out the work we do, whether that means mentoring a young person, offering work placements to our residents or giving us the funding we need to build new homes and create sustainable communities.

If you would like to help us make a difference by working with local people and changing lives, please call 020 8522 2461 or email john. bryson@east-thames.co.uk If you would like more information about East Thames or want to keep up to date with all our latest news: Visit the website at www.east-thames.co.uk Follow us on Twitter @EastThamesGroup Visit our Facebook page at www.facebook.com/ EastThames

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Our local authority partners

East Thames Annual Report and Financial Statements 2015/16

Association Information

2

Our partners and supporters 4 Message from the Group Chairman

6

Message from the Group Chief Executive

7

Strategic Report including the Operating and Financial Review

8 10

Our performance Corporate social responsibility Financial review Value for money Principal risks and uncertainties Capital structure, treasury policy and compliance with lenders covenants Equal opportunities Future developments Statement of compliance

11 16 18 21 25

Report of the Board

30

48

Financial Statements

54

Income and Expenditure Accounts

56

Statement of Changes in Reserves

57

Balance Sheets

58

Consolidated Cash Flow Statement

59

Notes to the Financial Statements

61

Report of the Board

About East Thames

Independent auditor’s report

Strategic Report Including the Operating and Financial Review

Contents

26 27 27 28

32

Compliance with our adopted governance code

32

Governing East Thames

33

Internal controls and risk management

34

Board composition and roles

37

Board membership

38

Senior team

41

East Thames committee structure

42

Key governance and risk Committees

44

Independent auditor’s report

Principal activities, business review and future developments

Statement of responsibilities 47

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Message from the Group Chairman, Tina Tietjen However, as talks progress it is important that East Thames does not lose sight of our core business goals.

Despite the significant performance improvements made in the past 12 months, we know that there are still areas which require more work: satisfaction with East Thames as a landlord is improving, but we’re not on target yet, and our customer’s satisfaction with their most recent repair is still not good enough.

2015/16 saw East Thames making several significant achievements.

As well as stabilising our financial performance we have made major advances in our quest to provide top quartile customer service, notably increasing the speed of our repairs service and improving complaints satisfaction. Our good practice has also been recognised through several national awards, including a UK Housing Award for Beverley Lewis House women’s refuge and two First Time Buyer Readers’ Awards for our Mayfield development in Waltham Forest, and for our latest shared ownership marketing campaign.

It is this success that has enabled us to consider a bigger and better future for East Thames. At the time of writing we are in merger talks with one of the largest players in the London housing sector: L&Q. The merger will result in East Thames being part of one of the largest housing associations in the south east, and one of the UK’s top housebuilders, but it will also mean that we will ensure the delivery of our mission for years to come: to make a positive and lasting contribution to the neighbourhoods in which we work.

East Thames has a strong, proud history of developing homes and services in east London and Essex.

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We believe we can deliver much more for our customers by working in partnership. Together we want to build 100,000 new homes in the next ten years, with 50% of these being truly affordable for those on low or average incomes.

Both organisations are committed to supporting their local communities and want to deliver more homes and services. However it is testament to East Thames’ record for social and economic regeneration that, in a merged body, we will chair a joint community foundation investing into local projects, with a focus on resident education, training and employment.

The new organisation will also create a new training academy to provide nationally accredited apprenticeship schemes, greater career development opportunities for staff and training and employment options for residents in the communities we serve.

Finally, through East Thames’ expertise we will create a large care and support subsidiary, taking in supported housing from both partners. This will include a new offer for vulnerable and older people which will cater for London’s ageing population.

In addition to these challenges we must continue to evolve to accommodate the demands of new government policy. 2016 will see changes to housing benefit come into effect; these will make it harder than ever for our social tenants to pay their rent. We will aspire to provide them with as much support as possible through our welfare benefits advice service. We have also decided that we will voluntarily offer eligible tenants the Right to Buy – this will allow us to keep more control of our portfolio, whilst still offering many of our long-term residents the chance to realise their dream of home ownership.

By December 2016 our merger talks will be complete and we will be able to announce full details of the new organisation, which I will be helping to shape as a member of its group board. However as we go forward our focus will remain firmly on providing an uninterrupted, and top quartile performance for existing East Thames residents.

East Thames Annual Report and Financial Statements 2015/16

and increasing satisfaction with the way we deal with complaints by over 10%.

Our governance improvements were also rewarded in October when the Homes and Communities Agency upgraded our regulatory judgement for this area to a G1.

There were external challenges in year too; a new government, new housing policies including the extension of Right to Buy to housing associations, the starter homes

But despite these changes we have been able to keep focused on improving our business.

One of the things I’m most proud of is that through all of these challenges we have managed to take our staff with us. A survey conducted in December showed that staff engagement is at its highest level in four years, with colleagues stating that they believe that they’re getting the right support from their line managers; they enjoy working for East Thames and have confidence in the senior management team.

For this reason I was delighted that for the first time since introducing our new performance management review system, we have met the corporate targets needed to release performance related pay awards for staff; beating our surplus before sales target by almost £1 million,

Lastly, and perhaps most crucially, we have met all of our financial targets for this period. This is proof that the effort we have made over the past twelve months has ensured that we remain a strong and stable business. It is achievements like this which will shape our future, as they have given us the space to think about what’s best for the organisation and our residents going forward, putting us in an ideal position to consider a merger with one of our largest g15 peers.

For this reason we begin 2016/17 in talks to negotiate one of the most exciting developments in East Thames’ 35 year history, to create a new organisation using the strength of two existing providers. But we will not be neglecting our ambition to deliver even better results as we continue our journey from good, to great.

Financial Statements

Much of this has been achieved through our internal change programme: Good to Great. This programme set out to improve our business outcomes by looking at five key areas: our culture, systems, processes, finances and reputation. As a result we’ve already implemented positive changes such as the introduction of Lean management practices, strong performance management and robust financial management, and we have refreshed our brand at no cost to the business, however there is still much to do, and the programme will continue to gather momentum as we go into 2016/17.

initiative and the policy to cut social rents by one percent for the next four years. This meant that social landlords had to completely reevaluate their business plans. For us this meant having to find several million pounds worth of efficiencies, whilst figuring out how we could continue to help those residents who would be hardest hit by yet more welfare reform.

Independent auditor’s report

This has been a busy year for East Thames: we announced new strategic aims and had very clear improvements to make. Our vision is strong: to become a top performing housing association by 2020, providing high quality homes and services in east London and Essex. This has been our focus and as a result we have made real and impactful changes to our performance.

Report of the Board

In addition to this we have achieved top quartile results (when compared to other associations within the g15) for over one third of our key performance indicators. Notably rent arrears remain low at less than 4%, we are re-letting our properties more quickly than ever before – beating our target by almost 10 days, and the time it takes us to complete repairs has reduced.

Strategic Report Including the Operating and Financial Review

Message from the Group Chief Executive, Yvonne Arrowsmith

East Thames Annual Report and Financial Statements 2015/16

Strategic report Including the Operating and Financial Review

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East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board Independent auditor’s report

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

About East Thames East Thames is one of the largest providers of affordable housing in east London and Essex. We own and manage almost 15,000 homes.

Our mission is to make a positive and lasting contribution in the neighbourhoods in which we work.

We do this by: --

Providing affordable homes for people in east London and Essex. This includes social rented homes and a range of affordable rented and home ownership options;

--

Building quality new homes in east London and Essex and improving neighbourhoods;

--

Providing care and supported accommodation for people with more intensive needs, including young people at risk of being made homeless, elderly people, people with mental health needs and learning disabilities and women fleeing domestic violence;

--

Offering a range of programmes to help people get back into work or training, as well as initiatives to strengthen communities.

Our vision is be a top performing housing association providing high quality homes and services in east London and Essex.

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East Thames Annual Report and Financial Statements 2015/16

During 2015/16 we measured our performance against the following four aims from our 2015/18 strategic plan: Strategic aim 1: strengthen our resources through value for money initiatives

--

Strategic aim 2: improve our customer experience and business performance

--

Strategic aim 3: build more affordable homes and support the regeneration of neighbourhoods in east London and Essex

--

Strategic aim 4: grow our care and support services

Report of the Board

--

Strategic Report Including the Operating and Financial Review

Our performance

Independent auditor’s report Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Our performance Strategic aim 1: strengthen our resources through value for money initiatives

3.2%

£7.7m

£0.6m 12 - 13

We have seen improvements in efficiency and our surplus over the past few years. And we are committed to do more to secure our future ability to grow. Our work in 2015/16 has shown that we are able to make significant

steps forward in an environment of austerity. In the past year, some of our key achievements have included:

Reducing rent arrears despite the growing impact of welfare reform and difficult economic conditions for our residents - our rent arrears performance continues to improve year on year, standing at 3.2% of our total rental income.

Generating £7.7 million in receipts as part of our strategic asset management programme.

Exceeding all of our financial targets for 2015/16.

Introducing Lean methodology to review and streamline our systems and processes to generate efficiencies and focus on customer value as part of our over-arching Good to Great programme.

Reducing our overheads as a per cent of turnover to 14.2%, an improvement on our target of 15.5%.

Saving over £0.6 million through a more competitive approach to procurement.

14.2%

Reducing usage of agency staff by recruiting and developing our own bank of flexible care and support staff.

East Thames Annual Report and Financial Statements 2015/16

Strategic aim 2: improve our customer experience and business performance

77%

Changing our complaints process to be more focussed on resolution for the customer.

As a result our complaint satisfaction level increased by 13% to 51%.

Helping our residents to access more than ÂŁ0.75 million in welfare benefits.

Improving our repairs partnership with Interserve throughout the year. 90% of our repairs appointments have been kept: 94% of our jobs have been technically satisfactory and customer satisfaction with repairs has increased by 10% to 77%.

Reducing average time it takes us to re-let a property by 11 days.

Reducing the amount of phone calls we receive about repairs by over 20,000 by providing a first time fix more often, and completing works to a higher standard than ever before.

11

Improving the performance of our customer contact centres: 86% of all calls were answered within our 20 seconds target and we reduced the proportion of abandoned calls.

Financial Statements

20,000

610

Working with 610 of our residents to help shape our services as part of panels, and through a variety of consultation exercises.

Independent auditor’s report

51%

Rolling out customer service training across our entire business to ensure an unified, customer centred approach - 224 of our staff are now accredited by the Institute of Customer Service.

well maintained. In addition to this we have implemented activities to ensure that customers experience better quality in all of their interactions with us. In the past year, some of our key achievements have included:

Report of the Board

224

Our customers are at the centre of everything we do. We know that the key to success in this area is an efficient and effective repairs service, so we have continued to work closely with our partners to improve the service we deliver and ensure our homes are

Strategic Report Including the Operating and Financial Review

Our performance

East Thames Annual Report and Financial Statements 2015/16

Our performance Strategic aim 3: build more affordable homes and support the regeneration of neighbourhoods in east London and Essex

399

150

Supporting regeneration enables us to provide affordable homes for more people. We strive to provide good quality homes that are fit for now and the future too. The successful delivery of excellent housing developments requires strong partnerships and we value the relationships we have developed with government, other

Moving residents into the first phase of newly developed homes on our New Union Wharf estate. The estate will see 189 homes on the 1970’s estate replaced with 399 modern homes.

Welcoming the Mayor of Tower Hamlets, John Biggs, to our new affordable housing scheme, ‘The Dockyard’, in Poplar. East Thames comanage the 150 homes with Poplar HARCA and the development also includes a brand new waterside centre.

Achieving recognition through a number of important industry awards. VIVO and So Stepney were jointly named as one of the Top 60 Developments for 2015 by Inside Housing magazine, Weavers Quarter secured a Housing Design Award and the First Time Buyers Readers’ Awards also named Mayfield as the best small development of 2015.

14 - 15

housing associations, builders, developers and private enterprise. In addition to physical regeneration we continue to improve opportunities for local people with a comprehensive programme of employment and training. In the past year, some of our key achievements have included:

421

Entering into a contract for the first phase of the redevelopment of the Gascoigne Estate in Barking, which will deliver 421 new homes, a public square and retail units.

£57m 25%

227

Investing £57 million in new homes during 2015/16.

Completing 227 new homes, and starting a further 223 during the year.

East Thames Annual Report and Financial Statements 2015/16

Strategic aim 4: grow our care and support services

Providing quality care and support for vulnerable people has always been an important area of business for East Thames. We have an ageing population and an increasing number of older people living with dementia, which means the demand on our

services will continue to increase. We are therefore undertaking work to grow our services to ensure that they are fit for the future and offer value for money.

In the past year, some of our key achievements have included:

Transforming our approach to support planning to make it more person-centred and user friendly. This includes creating bespoke support plans for each individual, replacing the previous ‘one size fits all’ approach, and commissioning Helen Sanderson Associates, who are leaders in the field of person-centred care, to train our staff.

89% of our customers are satisfied with the service they receive.

Launching East Thames Together to help combat loneliness and social isolation. The initiative enables residents to volunteer, swap skills, fundraise for the local area and access tailored employment and training opportunities. Residents can also apply for a grant through the scheme to fund social events and activities.

Financial Statements

Opening two new supported living schemes in Chingford: Verdon Roe Court is an extra care scheme for older people that offers 45 apartments and has been equipped with assistive technology. Everall Court features eight high quality apartments and provides personalised support for people with mental health issues.

Independent auditor’s report

Gaining a ‘Good’ rating by the Care Quality Commission for all of our registered care schemes and services.

Report of the Board

Introducing assistive technology to support older residents and residents with learning disabilities at six of our schemes. The technology, which includes motion sensors and smart watches, enables us to effectively target care and takes safeguarding of vulnerable adults to the next level.

Strategic Report Including the Operating and Financial Review

Our performance

East Thames Annual Report and Financial Statements 2015/16

Corporate social responsibility

East Thames is about more than just homes – we are fully invested in the people who live in our schemes, and the community that surrounds them. We make supporting the social and economic regeneration of local communities part of our core business, but where possible, we go above and beyond to add value to the lives of the people in our patch of east London and Essex: --

--

--

Last year we invested £1.35 million into our social economic and regeneration programmes and attracted more than £0.77 million in external funding; During 2015/16, 263 local people found work through East Thames’ employment and training schemes; Our Routes to Work business mentoring and work experience programme last year saw 80 customers complete two week placements at East Thames and our partner organisations.

Following their work experience, four participants were offered paid jobs at East Thames Group, and three others found work with Trowers and Hamlins, their host employer;

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--

--

--

--

We continue to work with our supply chain to provide apprenticeship opportunities. After a successful internship with our contractor, Durkan, on the site of our new older people’s scheme, Verdon Roe Court in Chingford, apprentice Courtney Henry-Sang was shortlisted for a Young Builder of the Year award; 32 local people secured jobs through a variety of schemes as part of our regeneration projects, including our Construct Your Career construction training programme; In 2015/16 we launched our furniture re-use social enterprise, ‘Reclaim at the Lane’, offering low cost furniture from a range of sources, with a discount available to residents of East Thames Group or those on a low income. We run the service with the support of two long-term volunteers; As part of our commitment to the regeneration of the Gascoigne Estate in Barking, we continue to partner with Eastbury Community School to provide employability training to pupils of all ages. In 2015/16 we:

•

Arranged for four sixth form students studying catering and hospitality to undertake residential placements at Cambridge University;

•

Provided work experience placements at East Thames for six students;

•

Mentored 14 year ten students as they embarked on work experience;

•

Supported a careers event with the help of our partners and local connections, offering 10 stands ranging from cycle maintenance to careers in law; and

•

Helped the school run mock interview days to prepare pupils for job seeking.

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board Independent auditor’s report

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Financial review Summary Income and Expenditure Accounts (year ended 31 March) GROUP

Former

Former

Former

FRS 102

FRS 102

UK GAAP

UK GAAP

UK GAAP

2016

2015

2014

2013

2012

£’000

£’000

£’000

£’000

£’000

recurring 1

98,718

96,948

94,950

94,368

92,223

properties for sale

30,005

49,421

77,765

15,005

1,619

128,723

146,369

172,715

109,373

93,842

(16,369)

(37,479)

(47,309)

(10,748)

(1,365)

(60,950)

(60,876)

(68,939)

(71,864)

(69,966)

(10,603)

(10,515)

(8,845)

(7,140)

(5,962)

Turnover

Cost of sales Operating costs recurring 2 housing depreciation additional SHPS liability

3

Operating surplus

(5,020)

-

-

-

-

(76,573)

(71,391)

(77,784)

(79,004)

(75,928)

35,781

37,499

47,622

19,621

16,549

(28,059)

(28,414)

(26,643)

(21,745)

(18,159)

Net interest payable recurring 4 derivative fair values deficit amortisation options buy out Income from investment in joint venture Surplus on sale of assets Surplus / (deficit) on revaluation of investment properties Surplus before taxation Taxation Surplus for the year

634

(4,152)

-

-

-

1,490

1,457

-

-

-

-

-

(9,097)

-

-

(25,935)

(31,109)

(35,740)

(21,745)

(18,159)

2,144

-

2,138

(79)

810

15,337

4,337

5,541

2,932

2,441

1,096

(379)

-

-

-

28,423

10,348

19,561

729

1,641

(387)

456

(2,524)

(342)

(38)

28,036

10,804

17,037

387

1,603

(3,694)

(28,226)

-

(2,638)

Other comprehensive income Change in value of effective hedges Housing properties impairment

(3,694)

(30,864)

24,342

(20,060)

Results for the years ended 31 March 2012, 2013 and 2014 have not been restated for the adoption of FRS 102 the new UK GAAP. Notes 1 Excludes properties for sale.

2 Excludes housing depreciation and the charge for the additional Social Housing Pension Scheme (SHPS) liability.

3 The charge for the additional Social Housing Pension Scheme (SHPS) liability has been treated as a non-recurring item.

4 Excludes changes in derivative fair values, amortisation of a net present value deficit arising from a financing transaction and the option buy out in 2013/14.

18 - 19

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Financial review Summary Balance Sheets (at 31 March) GROUP

Former

Former

Former

FRS 102

FRS 102

UK GAAP

UK GAAP

UK GAAP

2016

2015

2014

2013

2012

£’000

£’000

£’000

£’000

1,012,097

966,663

915,313

809,725

Other tangible fixed assets

23,857

24,552

26,469

28,219

36,768

Investment properties

18,754

18,490

17,930

22,289

15,675

Intangibles and investments

37,470

35,033

5,164

3,206

3,124

Net current assets Long-term creditors Provisions Reserves Total funding

63,394

44,085

48,810

61,676

21,853

1,171,453

1,134,257

1,065,036

1,030,703

887,145

807,589

794,663

553,316

578,162

515,205

447

519

515

1,041

648

363,417

339,075

511,205

451,500

371,292

1,171,453

1,134,257

1,065,036

1,030,703

887,145

Former

Former

Former

Report of the Board

£’000 1,027,978

Housing properties

Other data GROUP FRS 102

UK GAAP

UK GAAP

UK GAAP

2016

2015

2014

2013

2012

Number

Number

Number

Number

Number

14,996

15,103

14,011

13,390

12,743

Percentage

Percentage

Percentage

Percentage

Percentage

all activities

27.8

25.6

27.6

17.9

17.6

social housing lettings

32.1

32.3

33.3

29.8

27.1

excluding asset sales 1

139.1

130.6

186.8

89.9

95.6

including asset sales 2

193.7

145.9

207.6

103.4

109.0

231.5

182.9

240.8

136.2

141.9

£

£

£

£

£

4,064

4,031

4,713

4,669

4,921

Total housing stock owned or managed Operating margin

Independent auditor’s report

FRS 102

Interest cover

Cash interest cover

Notes 1 Profit before tax, interest and surplus on sale of assets divided by the recurring interest charge.

2 Profit before tax and interest divided by the recurring interest charge.

Financial Statements

Total operating cost per property managed (excluding depreciation and non-recurring items)

East Thames Annual Report and Financial Statements 2015/16

Financial review

Development and performance of the Group’s business during the financial year

Property sales have added £30.0 million to the Group turnover (2015: £49.4 million) at a sales margin of 45% (2015: 24%). The increase in margin is a result of higher selling prices reflecting the strengthening housing market.

Operating costs per home at £4,064 (2015: £4,031) were kept at the same level of last year, despite the reduction in homes under management and inflation increase during the year.

Strengthening our resources is a key theme throughout our strategic plan and we have delivered a year of strong financial performance. The Group generated a surplus before taxation of £28.4 million (2015: £10.3 million) on a turnover of £128.7 million (2015: £146.4 million).

The interest charge (excluding nonrecurring items) was £28.1 million (2015: £28.4 million). The reduction of £0.3 million was due to a higher level of interest capitalisation. During the year the liability in respect of derivative fair values decreased by £0.6 million whereas in 2014/15 it increased by £4.2 million, resulting in the 2015/16 total interest charge being £5.2 million lower than the prior year.

Balance sheet Total assets less current liabilities were £1,171.5 million at the year end, an increase of £37.2 million from the previous year.

Income and expenditure Turnover on the Group’s recurring activities before property sales has increased by 2% to £98.7 million (2015: £96.9 million). The corresponding operating surplus increased by 5% to £37.8 million (2015: £36.1 million). The improvement in operating surplus is mainly due to our tight control over operating costs which was at the same level as 2015 despite inflationary increases.

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Other comprehensive income contained a deficit of £3.7 million (2015: £28.2 million) which relates to the changes in the fair value of effective hedges. FRS 102 permits the movement in the fair value of effective hedges (interest rate swaps) to be charged to other comprehensive income rather than the Income and Expenditure Account.

The total amount invested in housing properties was £64.8 million (2015: £68.9 million). The increase in stock held for sale to £42.6 million (2015: £31.2 million) reflects our continuing investment in mixed tenure programmes, including shared ownership and private sale to support the funding of affordable homes.

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Financial review Value for money

The external environment has become tougher in recent years, with on-going austerity measures. This means we need to continue to deliver services and build much needed homes with fewer resources, to demonstrate real value for money.

Our strategic approach to value for money We have a strong social purpose and our Strategic Plan makes it clear we want to refocus on our core social housing activities:

We have reduced rent arrears despite the growing impact of welfare reform and difficult economic conditions for our residents;

--

We have reduced our general needs void turnaround times to 14.5 days (2015: 25.8 days). This had a positive impact on the void loss for general needs and older people which decreased to 0.46%; and

--

We have greatly improved the performance of our customer contact centres. The average time it took to answer calls was 28 seconds and we reduced the proportion of abandoned calls.

The current Value for Money Strategy was adopted in May 2014, and good progress has been made.

--

providing affordable housing;

--

care and support services; and

--

employment and inclusion programmes to make a positive and lasting contribution to the neighbourhoods in which we work.

Providing value for money homes and services forms a key strategic aim within this.

Our costs and performance To understand how we compare with other similar providers, we benchmark our performance against peer groups, in particular, the g15 London housing associations. We are pleased that our performance has significantly improved in a range of areas:

East East Thames Thames 20163 20153 Current tenant arrears 1 Void loss as a percentage of rent

1

Percentage of properties accepted on first offer Average time taken to answer inbound telephone calls (in seconds)

g15 median 20152

g15 upper quartile 20152

3.52%

3.88%

3.93%

3.88%

3.55%

0.46%

0.57%

1.01%

0.69%

0.57%

32.7

39.7

48.5

29.0

25.9

79.8%

76.4%

52.5%

76.5%

80.1%

28

30

25

72

50

Percentage of calls dealt with at first contact

92.5%

97.9%

84.2%

88.6%

94.0%

Percentage of units with a valid gas certificate

99.92%

99.83%

99.72%

99.83%

99.97%

9.2

16.3

11.5

13.7

11.7

Average number of calendar days taken to complete repairs

Independent auditor’s report

Number of days to re-let properties

1

East Thames 20143

Report of the Board

--

Notes: 1. Across general needs properties and housing for older people.

2. Latest benchmarking data available from the g15 is for 2015.

3. None of the above key indicators are impacted by the adoption of FRS 102.

--

In 2015/16 we have rolled out to all staff a comprehensive customer satisfaction training and accreditation programme to assist with improving our customer service and handling of complaints.

Our overheads are higher than our peers and we have plans in place to reduce these as part of our Good to Great transformation programme. By the end of 2015/16, we had achieved the first target which was to reduce our overheads as a % of non-sales income from 16.4% to 14.2%.

Under the Good to Great programme we have also introduced Lean methodology to simplify and streamline our systems and processes, with a view to generating further efficiencies.

Following the changes to the Rent Setting Mechanism introduced in the Summer 2015 Budget, a comprehensive review of our costs was undertaken. As a result, a total of ÂŁ4.6 million per annum of cost savings were identified and these were incorporated into our 2016/17 operating budget.

Financial Statements

We are aware of the challenges we still face to improve our customer satisfaction further: -- We have continued to work with our maintenance partner to improve our repairs service.

A comprehensive improvement plan was implemented in August 2014, and this has progressively delivered service improvements during 2015/16. The level of complaints has reduced significantly and the customer satisfaction with repairs had reached 76.7% (2015: 73.5%) by March 2016;

East Thames Annual Report and Financial Statements 2015/16

Financial review Unit costs compared to g15 Total cost of housing management per property1 Total cost of major works and cyclical maintenance per property Total cost of responsive repairs and void works per property Overhead costs as a percentage of turnover3

East Thames 20164

East Thames 20152

East Thames 20142

g15 median 2015

£525

£597

£555

£589

g15 upper quartile 2015 £488

£983

£923

£472

£1,544

£1,133

£655

£854

£700

£905

£844

14.2%

16.4%

16.9%

11.9%

10.8%

Notes: 1. Total cost per property include direct costs, third party costs and overheads.

2. 2014 and 2015 data was increased by 2.3% to reflect the inflation uplift as recommended by Housemark.

3. Overhead costs and turnover are calculated as recommended by Housemark.

4. 2016 figures are provisional and subject to final validation of Housemark data.

Our 2015/16 performance is lower quartile for overall gross margin and our overall net margin is the lowest of all g15 members. The lower margin reflects our care and support work, which operates on a very low margin, and which therefore reduces the Indicator

combined result.

Core social housing lettings margin has decreased slightly to 32.3% (2015: 31.1%) compared to a g15 median of 30.3% and a top quartile result of 47.1%. Our performance

is therefore second quartile, but if we look at the general needs margin only (the greater part of our operations), performance is top quartile.

East Thames 2016

East Thames 2015

East Thames 2014

g15 median 2015

g15 upper quartile 2015

Gross margin (all activities)

27.8%

25.6%

27.6%

27.9%

31.1%

Net margin (all activities)

21.8%

7.4%

9.1%

25.1%

44.0%

Social housing lettings margin

32.1%

32.3%

33.3%

30.3%

47.1%

In order to improve performance, we have developed a series of new strategies. Because of the importance given to care and support services, we do not Our assets In 2015/16 we have continued using strategic asset management principles, based on a detailed and comprehensive understanding of the performance of our stock.

This enables us to make informed decisions on the level of investment required to maintain our stock at a decent homes plus standard, and enables us to assess the future of underperforming properties.

The model, developed with Ark Consultancy, generated the analysis detailed in the table in 2015 (to the right) and continues to be used.

Individual properties which are underperforming are disposed of when they become void. Where there is an underperforming asset which is 22 - 23

expect to achieve upper quartile performance overall, but within each business stream, we are targeting improvements and are working towards upper quartile performance.

As an example, we have already improved our social housing lettings gross margin despite increasing our planned maintenance expenditure by £0.7 million.

2014/15 stock performance Outcome

Assets performing well against both social and financial tests and making a return for the business Assets performing well in one of the tests and making a return for the business Assets underperforming against both tests and/or not making a return for the business Total a scheme or an estate this is option appraised to look at its potential for future opportunities.

Number of Percentage Surplus/ units of total (deficit) per units unit pa 7,903

73.4%

£1,133

1,199

11.1%

£417

1,659

15.4%

(£758)

10,761

100.0%

£762

Of the 1,659 properties identified by the model as underperforming, the value realised through sales in 2015/16 was £1.57 million.

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Financial review Operating margins achieved in the past two years, by tenure, are shown in the table below: Book value 2016 £m

Operating margin 2016 %

Operating margin 2015 %

Gross yield 2016 %

Gross yield 2015 %

General needs housing

594.1

49.1

21.5

41.8

41.0

8.2

8.0

Foyers

18.4

1.3

(0.5)

(18.7)

(14.6)

7.2

6.7

Supported housing and housing for older people

69.7

5.2

(0.4)

(2.6)

(1.1)

7.5

6.9

2.2

0.4

0.7

15.1

18.0

18.7

16.7

175.9

9.1

4.1

33.5

44.1

5.2

4.9

Intermediate rent

37.3

3.0

1.4

43.6

48.7

8.2

7.8

Affordable rent

55.7

3.6

2.5

64.9

52.5

6.5

12.0

953.3

71.7

29.3

32.1

32.3

7.5

7.0

18.8

3.4

2.5

75.4

58.2

18.1

8.3

972.1

75.1

31.8

33.6

32.8

7.7

7.4

Residential care homes Shared ownership and rent now buy later

Total social housing lettings Commercial properties Total

Rental Operating income surplus 2016 2016 £m £m

We have taken the decision to withdraw from some housing products that did not fit in with our core social purpose, or for which we did not have the necessary management capacity. During 2015/16 we reduced the number of Foyers we operated, and it is anticipated that the number of Foyers

--

We have a significant amount of care and supported housing stock, some of which could become hard to let.

We have therefore completed the first year of a programme to:

--

Dispose of care and support assets where we do not manage the properties or provide the care services; Dispose or convert to shared ownership our portfolio of market rent and intermediate market rent homes, key worker and rent now

buy later units; --

maximise the performance of mid-performing assets through redevelopment or investment.

In 2015/16 we generated £7.7 million proceeds from stock rationalisation sales or conversions, which will be reinvested in our stock and build our financial strength.

Prior to 2015/16 we spent an average of £2.3 million per year on planned works, but commencing 2015/16, we increased this by an average of £5.4 million a year, for the next five years.

Financial Statements

the Group operates will decrease further in the near future.

Independent auditor’s report

In March 2015 the Board approved our asset management strategy and plans to tackle underperforming properties. This will increase the value of our stock overall and shape our property portfolio so it better meets the needs of our current and future residents.

Report of the Board

Tenure type

East Thames Annual Report and Financial Statements 2015/16

Financial review Our value for money achievements In 2016, we delivered a number of value for money achievements which are detailed below.

Value for money achievement

Met

Comments

Summer Budget 2015 – cost savings of £4,600,000.

P

In response to the measures in the July 2015 Budget, introducing a 1% reduction into the Rent determination formula for a four year period, a total of £4.6 million of overhead savings were identified and incorporated into the 2016/17 operating budget.

Saving of £348,000 due to a reduction in our use of Care and Support agency staff.

P

During 2014/15 a number of ‘bank’ staff were recruited by our Care and Support team. This enabled us to significantly reduce our use of agency staff during 2015/16, thereby achieving savings in our staffing costs.

Saving of £208,000 per annum on insurance premiums.

P

As a result of the progressive improvement of our claims ratios over the past three years and following a competitive tender procedure, a saving of £208,000 was made in our annual insurance premiums for 2015/16 and the subsequent two years.

Procurement savings totalling £394,000 (excluding insurance saving).

P

A number of procurement savings were achieved during 2015/16 through the aggregation of spend, competitive tendering and negotiation.

Strategic Maintenance Partnership contract embedded cost improvements.

P

The Strategic Maintenance Partnership contract with Interserve incorporates year-on-year reductions in the price of certain elements of the service provided to East Thames.

Saving in legal costs associated with property sales of £171,000.

P

Working with a single legal firm on property sales has enabled us to save £171,000 on legal costs.

Our social return We have continued to rationalise our social and economic regeneration (SER) services through 2015/16 to maximise impact of money spent on enhancing the well-being of our residents. This resulted in a restructure of the SER team and the removal of services that were not providing value for money; Employment and enterprise has been retained as the core offer best able to improve residents’ lives. The cost of services has been halved and the remaining employment and enterprise services are more focused on supporting our residents. This has enabled us to help more residents than ever into work with 275 people supported into sustainable employment, with new external funding worth £320,000 secured for the next three years.

24 - 25

Continuous improvement We have targets set for a further two years that will improve our performance to above median or upper quartile. This applies to a wide range of performance measures as well as key cost ratios such as housing management costs per unit, maintenance costs per unit and overheads expressed as a percentage of turnover.

our services, looking at delivery from a customer perspective and making recommendations for improvement.

In 2015/16, the panel reviewed planned maintenance (where they made nine recommendations) and communications (where they made six recommendations). The panel has selected anti-social behaviour and communal repairs as the areas to be reviewed in 2016/17.

We have completed the first year of our three year Good to Great transformation programme to support our vision to become an upper quartile housing association and transform East Thames into a genuinely customer centric organisation that is at the forefront of service delivery.

Board assurance Value for money is intrinsic to all applicable discussions with the Board. The Board uses a range of regular activities and reports to gain assurance on value for money and views self-assessment as an opportunity to satisfy itself that East Thames produces accurate performance reports and demonstrates commitment to compliance with the regulatory standard.

Our scrutiny arrangements continue to be effective. The Housing Scrutiny Panel (HSP) carries out inspections of

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Financial review Principal risks and uncertainties Nature of risk

Welfare reform

The announced rent reduction and benefits cut will potentially affect collection, arrears and operating cashflow. This will impact on social and economic activities, regeneration and housing management.

Mitigation and management

Independent auditor’s report Financial Statements

We analysed the impact these changes will have on our customers.

We upskilled staff, particularly the welfare benefits team, to support affected residents; ensuring our communications keep residents up to date on any changes affecting their benefit entitlement; and ensuring residents are aware of the support we can provide.

We identified the efficiency savings needed to offset the rent reduction impact and scenario tested the long-term business plan to ensure service delivery and covenants compliance, including the extension of rent cuts.

Extension of Right The Right to Buy extension to housing The actual plans of the extension are being drawn up following to Buy to housing associations tenants could lead to a a pilot scheme across the country. Key uncertainties remain association tenants depletion of our social housing stock. including the practicalities of like for like replacement and funding arrangements. We included the impact of Right to Buy in the stress testing of our business plan. We reviewed the number of East Thames residents who are likely to qualify for the Right to Buy discounts, and we continue our discussions on the policy through our work with the National Housing Federation and our g15 contemporaries.

Housing market New properties for sale are exposed to Prudent values are included in scheme appraisals and are volatility in the property market. A material supported by independent professional advice. Close monitoring and sustained downturn in the property of actual and planned sale programmes is undertaken. We have market would adversely affect the identified alternative-use plans in the event that expected values Group’s business plan. fail to materialise and/or sales are delayed. We include alternative scenarios in the testing of our 30-year plan. The 30-year plan also seeks to strengthen our core operating performance and eliminate dependence on sales.

Uncertainty of Our principal exposures here consists of: Where possible we seek to manage costs within the inflationary the impact of the --inflation and interest rate risks; envelope that exists for our income streams, both rent and other result of the EU -- our ability to raise finance to fund our income sources. referendum development plan; With respect to interest rates, 83% of our current debt is fixed and -- the borrowing rate should we need to we seek to maintain borrowing within the fixed/variable limits set access the capital market; and out in our treasury management policy.

-- the impact of the economy on outright We have facilities in place to cover the foreseeable future, which and shared ownership sales. fully covers the funding required for our contractually committed development projects.

Maintenance The maintenance partnership with Across East Thames and Interserve, roles and responsibilities partnership Interserve may not lead to improvement in have been redefined and areas of overlap have been addressed. service delivery which result in detriment Systems, processes and procedures have been improved and to reputation and reduction in Board, governance arrangements are embedded within the day to day staff, resident and regulatory confidence. operations of the partnership.

Regulation If the business cannot adequately comply We continue to undertake an annual compliance review against the within the regulatory framework, our HCA regulatory standards. viability and social housing assets may be at undue risk.

Adoption of FRS Adoption of FRS 102 has resulted in The fair values for the derivative financial instruments are regularly 102 increased volatility of the Group’s results monitored and formally reported to Finance Committee and through the recognition of fair values for Regulator every quarter. Whilst there is volatility in these values the derivative instruments. impact thereof is minimised by adopting hedge accounting. Hedge accounting permits changes in the value of the derivative financial instruments to be offset against changes in the value of the item being hedged. There is also little or no resultant cash volatility as all the derivative financial instruments are intended to run to their final scheduled maturity dates.

We actively monitor the merger activities and have an extensive Merger The planned merger with L&Q doesn’t joint merger and integration plan developed with our merger complete within agreed time and partner to ensure that the progress is well monitored and well resources, which impacts negatively planned out. We actively monitor the progress of the agreed plan. on the delivery of the agreed efficiency targets, and affects business as usual delivery.

Report of the Board

Key risks

East Thames Annual Report and Financial Statements 2015/16

Financial review Capital structure, treasury policy and compliance with lenders’ covenants The Group’s treasury management policy sets out the controls and parameters for treasury activities.

The main objectives of the treasury management policy are to ensure that the Group maintains sufficient liquidity, remains risk adverse, maintains compliance with lenders’ covenants and manages financial resources prudently.

Loan structure As at 31 March 2016, the Group had total loan facilities of £721.0 million (2015: £727.1 million) and outstanding loans of £543.5 million (2015: £539.6 million) with £177.5 million (2015: £187.5 million) of unused revolving credit loan facilities which were fully secured and available for utilisation.

The loan facilities at 31 March 2016 were as follows: Lender

Facility £m

Drawn £m

Bank loans

464.3

286.8

Bonds

256.7

256.7

Total

721.0

543.5

£286.8 million (2015: £282.9 million) of bank loans were sourced through East Treasury Limited’s £414.3 million (2015: £420.4 million) of bank loan facilities. East Treasury acts as a borrowing vehicle for the Group and on-lends all drawn loans within the Group. A further £50.0 million (2015: £50.0 million) undrawn bank loan facility was held by East Homes Limited, another subsidiary undertaking.

The drawn bank loans consisted of £10.0 million (2015: £nil) revolving loans and £276.8 million (2015: £282.9 million) term loans. The £276.8 million of term loans included £50.0 million of Lender’s Option Borrower’s Option (LOBO) loans which were subject to periodic re26 - 27

pricing options by the bank. On 29 June 2016 the bank informed the Group that it had unilaterally waived all its future rights to re-price the LOBO loans. £250.0 million (2015: £250.0 million) of bonds were sourced through East Finance plc with the remaining £6.7 million (2015: £6.8 million) of bonds being issued directly by East Homes Limited.

Debt repayment profile The Group’s treasury policy includes an objective to avoid refinancing material amounts of debt in any one year. The weighted average maturity of debt facilities across the Group is 21 years.

Fixed charge security All loan facilities are secured using individual properties owned by the Group. All bank loan facilities and the £250.0 million bond arranged

by East Finance plc are secured through the Prudential Trustee Company Limited. The remaining bond facilities are directly secured by the Group in favour of the lenders.

The Group has provided property security in favour of hedge counterparties as support for markto-market valuations of interest rate swaps. In addition £11.0 million (2015: £13.9 million) of cash collateral is held by the hedge counterparties and a further £0.2 million (2015: £0.2 million) held by a bond counterparty to make up for a security valuation shortfall.

Financial risk management The Group uses various financial instruments, including loans and cash, together with the management of the working capital. The main purpose of these financial instruments is to provide finance for the Group’s operations.

The existence of these financial instruments exposes the Group to a number of financial risks. The main risks are considered to be interest rate risk, liquidity risk and credit risk.

Interest rate risk management The Group’s treasury management policy seeks to protect it from adverse interest rate volatility, to provide an appropriate level of certainty on interest costs and to ensure compliance with the financial covenants attaching to financing agreements.

This policy seeks to make prudent use of approved financing and investment instruments within the loan portfolio.

The policy seeks to maintain at least 70% of outstanding borrowings at fixed interest rates whilst recognising that it may be necessary to operate either above or below this level on a shorter term basis. The policy allows for a significant proportion of debt to be hedged by way of a combination of embedded fixes and stand-alone interest rate swaps. £65.0 million (2015: £65.0 million) of bank loans, which includes £50.0 million (2015: £50.0 million) of LOBO loans, contain embedded fixes. All bonds carry fixed rates of interest.

The Group has adopted Financial Reporting Standard 102 with regards to disclosing financial instruments. As permitted by this standard, the Group has adopted the accounting practice for financial instruments as prescribed

by International Financial Reporting Standard 9 (IFRS9).

At 31 March 2016, 83% (2015: 84%) of the Group’s drawn debt was hedged by way of embedded fixes or interest rate swaps. These hedges give rise to a mark-to-market value that recognises the change in market interest rates since inception of the hedge. The fair value of the Group’s interest rate swaps amounted to £89.6 million liability at 31 March 2016 (2015: £97.1 million). This fair value has been derived using midmarket pricing on the instruments with further adjustments for credit values, debit values and funding values as prescribed by IFRS9.

These interest rate swaps include £130.0 million (2015: £130.0 million) of notional swaps where the Group pays a fixed interest rate. These instruments had a fair value liability of

East Thames Annual Report and Financial Statements 2015/16

£55.8 million (2015: £52.1 million) at 31 March 2016 and were designated as cash flow hedges of floating rate loans. Subject to remaining fully effective cash flow hedges, any changes in the fair value of these swaps will be taken to other comprehensive income.

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

Management of credit risk In addition to financial counterparty risk the Group’s other principal credit risk relates to tenant arrears. This risk is managed by providing support to eligible tenants with their application for Housing Benefit and by monitoring the arrears of self-funding tenants. The UK Government’s

Going concern The Group’s business activities, financial position, principal risks and other factors likely to affect its future are set out in this Strategic Report. The Group has committed and drawn long-term debt facilities, undrawn long-term loan facilities and cash at 31 March 2016 of £177.5 million (2015: £187.5 million) and £38.3 million (2015: £28.3 million), respectively, which provide resources to support the development programmes. Operating cash flow is positive and we maintain sufficient liquidity to manage shortterm working capital requirements.

The Group’s long-term business plan, sensitised for key risk factors outlined in the operating and financial review, shows that debt facilities can be repaid whilst also continuing to comply with lenders’ covenants.

The Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the

Equal opportunities The Group is committed to an active equal opportunities policy from recruitment and selection, through training and development and appraisal and promotion to retirement. It is the Group’s policy to promote an environment free from discrimination, harassment and victimisation. All decisions relating to employment practices will be objective, free from bias and based solely on work criteria and individual merit. We are responsive to the needs of our employees, residents and the community at large.

The Group will fairly consider any employment applications made by disabled people. The Group will also attempt to continue employing staff who become disabled during their employment.

Future developments East Thames is currently in merger talks with fellow housing association L&Q. The resulting organisation will see East Thames becoming part of one of the largest housing associations in the south east, and one of the UK’s top housebuilders.

Financial Statements

Cash management At 31 March 2016 the Group had £56.5 million (2015: £48.6 million) of cash and deposits. This included £18.3 million (2015: £20.3 million) of restricted cash, details of which can be found in note 22. The Group operates conservative investment parameters that state cash may only be invested with limitations by counterparty. This policy limits investments to institutions authorised by the Financial Conduct Authority as UK deposit takers and which also satisfy minimum credit rating criteria.

Viability statement As part of the going concern review set out below, in detail, the Board has assessed the 30-year business plan twice within the last 12 months, with extensive stress testing undertaken, consistent with HCA’s regulatory framework and with full compliance of the governance and financial viability standard. The Board has a reasonable expectation that the Group is able to continue in operation and meet its liabilities.

In reaching this conclusion, the Board has considered the possible impact of changes announced in the Chancellor’s Budget statement on 8 July 2015, including the impact on the future rental income streams.

The Board has also considered the potential implications of the decision to leave the European Union. Based on initial research the Board is satisfied that it does not impact the immediate or long-term viability of the organisation and will not lead to covenant breaches. The Board has concluded that it is appropriate to prepare the Group accounts on a going concern basis.

Independent auditor’s report

The Group’s treasury management policy requires that sufficient liquidity in cash and lending facilities are in place to fund the Group’s business activities for at least 18 months.

Current projections indicate that the Group has sufficient committed funding facilities to comfortably fund the Group’s current development programme and other known requirements for at least the next 18 months.

Loan covenant compliance Loan covenants are based on the results of the Group’s subsidiary undertakings that are in receipt of borrowings from external lenders.

These loan covenants primarily relate to interest cover, gearing, and asset cover. These are monitored monthly and reported to lenders annually.

Throughout the year to 31 March 2016 the Group was compliant with all covenants on its borrowing facilities.

foreseeable future and meet its liabilities as they fall due, being at least 12 months after the date on which the report and accounts are signed. It is felt that 12 months is a reasonable assessment period and for this reason, the Board continues to adopt the going concern basis for the financial statements.

Report of the Board

The weighted average cost of debt, inclusive of margins and hedging activities, was 5.5% as at 31 March 2016. This would fall to 4.4% if all loan facilities were fully drawn.

proposed changes to the benefits system have been identified as a key risk to the Group.

Strategic Report Including the Operating and Financial Review

Financial review

East Thames Annual Report and Financial Statements 2015/16

Financial review

Together we want to build 100,000 new homes, with 50% of these being truly affordable for those on low or average incomes, and will create a new training academy for both residents and staff. As part of this investment East Thames will chair a joint community foundation that will invest in local projects, with a focus on resident education, training and employment, and will also lead a new Care and Support subsidiary.

While talks progress we continue to focus on delivering quality housing and an excellent service through our existing schemes: already in 2016 we have received First Time Buyer Awards for our sales and marketing campaigns and our Mayfield development in Waltham Forest, and the same projects have now been nominated for a National Housing Award. Work is continuing on Weavers Quarter; our flagship regeneration project in Barking and Dagenham which will transform the 28 - 29

eastern side of the 1960’s Gascoigne Estate into over 1,500 new homes complete with two schools, retail and community spaces, as well as a green public square. In Newham we are preparing for the completion of Prospect East, a new community of over 300 homes nestled next to the Queen Elizabeth Olympic Park.

We continue to innovate by installing assistive technology in our supported living schemes that allows us to effectively target care and take safeguarding of vulnerable adults to the next level.

And, as part of our commitment to delivering personalised care that gives residents choice and control, we’re implementing training for staff in person-centred care and transforming our systems to make them more user friendly for our residents.

Statement of compliance In preparing this Strategic Report including the Operating and Financial Review, the Board has followed the principles set out in the Housing SORP 2014 Statement of Recommended Practice for registered social housing providers.

In approving the Strategic Report including the Operating and Financial Review, the Board Members are doing so in their capacity as Board Members of the Association.

The Strategic Report including the Operating and Financial Review was approved by the Board on 23 September 2016 and signed on its behalf by:

Tina Tietjen Group Chairman

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board Independent auditor’s report

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Report of the Board

30 - 31

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board Independent auditor’s report

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Report of the Board The Board of East Thames Group Limited is pleased to present its report together with the nonstatutory audited financial statements of East Thames Group Limited (the Association), a Community Benefit Society, and East Thames Group and its subsidiaries (the Group) for the year ended 31 March 2016.

Principal activities, business review and future developments Details of the Group’s principal activities, its performance during the year and factors likely to affect its future development are contained within the Strategic Report including the Operating and Financial Review, which precedes this report.

Compliance with our adopted governance code East Thames Group has adopted the UK Corporate Governance Code (UK CGC) as its preferred code.

This reflects the fact that the Group as a whole consists of a number of different legal entities and the Board feels that this is a more appropriate code for our operating environment.

We will continue to monitor new good practice around corporate governance and will consider adopting changes where they are appropriate for the Group. We have undertaken a review of compliance with the UK Corporate Governance Code and fully comply with this except for the following provisions: --

Where organisations should report that they are a going concern in their annual and six monthly published accounts (UK CGC Provision C1.1.3).

East Thames is not required to publish six monthly accounts, so this is not applicable. We do however remain a going concern and did during the whole of the reporting period;

--

Where organisations are required to consult and have an ongoing relationship with shareholders (UK CGC Provisions D2.4, E1.1 and E1.2). East Thames has a closed shareholding membership and therefore

32 - 33

this is not applicable. We do however engage with our major stakeholders on a regular basis.

Board effectiveness We undertake an annual review of Board effectiveness through a series of individual Board Member appraisals.

These consist of a Board effectiveness questionnaire, 360 degree feedback on the performance of individual Board Member and any identified development needs. Every three years, this annual review is externally facilitated and this was undertaken during the course of the reporting period. We are conscious of the need to continually develop our knowledge and skills so we can respond to our operating environment. Board development sessions this year have focused on: --

The Homes and Communities Agency regulatory framework;

--

The external political environment.

During the course of the year we reviewed our entity structure and a decision was taken to rationalise these by amalgamating East Thames Group Limited, East Homes Limited and East Living Limited with a target date of April 2016. In order to mitigate pension liabilities and for a statutory amalgamation to be undertaken it was necessary that all three entities were the same legal form. Consequently East Thames Group Limited converted to a Community Benefit Society on 17 March 2016 with the aim of a formal amalgamation being registered in April 2016. The amalgamation process was halted at the beginning of April due to merger discussions. Further rationalisation is intended once the merger negotiations have been finalised.

Risk During the course of the year we have developed a risk appetite statement which identifies the possibility of future adverse impacts.

East Thames Annual Report and Financial Statements 2015/16

These include: -- Strategy; Oversight of internal controls and risk management;

--

Authorisation of strategic development schemes;

--

New business areas or decisions to close existing business areas;

--

Remuneration policy;

--

Treasury policy and fundraising;

--

Appointment and removal of NonExecutive Board Members; the Chief Executive and the Company Secretary.

The Board has delegated certain responsibilities to a number of Groupwide committees. The minutes of committee meetings are considered by the Board on an ongoing basis and an overview presented by the respective committee Chairman at each meeting.

Terms of reference for the Boards and committees along with full details of all committee members, including career background and external appointments, are available on our website.

Independent auditor’s report

--

Report of the Board

The East Thames Group Limited Board, as part of an integrated governance structure, is responsible for the success of the Association and the Group as a whole. It provides strategic leadership, monitors delivery of its objectives and manages its risk.

It ensures that the right people and resources are in place in order to deliver our strategic aims and to benefit the communities in which we work.

The Board has established a formal schedule of matters reserved for the Board which require its approval.

Strategic Report Including the Operating and Financial Review

Governing East Thames

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Internal controls and risk management The Board has overall responsibility for ensuring that there is a robust system of internal control across the Group and for reviewing its effectiveness. The system of internal control is designed to manage, rather than eliminate, risk and to provide: -- Reasonable assurance that strategic objectives will be achieved; --

Reasonable assurance that there will be no material misstatement or loss.

During 2015/16 we operated under the Committee of Sponsoring Organisations (COSO) model. This is a principle based approach to internal controls based on five overarching components: 1. The control environment; 2. Risk assessment; 3. Control activities; 4. Information and communication; 5. Monitoring activities.

The Board’s approach to risk management can only provide reasonable assurance, not absolute assurance, against material loss or misstatement. The Board is supported by an oversight structure which includes the Group Risk Management and Audit Committee.

--

--

--

Specify suitable objectives;

--

Identify and analyse risk;

The Group Risk Management and Audit Committee and the Board have reviewed the effectiveness of the Group’s internal controls system.

This is undertaken by a review of internal controls statements based on the COSO principles, completed

by Assistant Directors/Operational Directors as well as Executive Board Members.

--

Assess the risk of fraud;

--

Identify and analyse significant change.

The statements are reviewed by our Group Executive prior to a summary report being considered by the committee. This summary report also includes the view of the Chief Executive on the system of internal controls in place and is supplemented by a report from the engagement partner of BDO, who are our internal auditors.

1. The control environment The control environment is the organisational structure and the culture embedded in the organisation which allows business processes, tasks, policies and procedures to be carried out to meet objectives. As part of this we look to: --

Demonstrate commitment to integrity and ethical values;

--

Exercise oversight responsibility;

--

Establish structure, authority and responsibility;

Assesses and quantifies risk in terms of probability and impact;

--

Demonstrate a commitment to competence;

Develops plans to mitigate risks and reassess these on an ongoing basis;

--

Enforce accountability.

Our risk management process has been in place for a number of years and can be summarised as a process which: -- Identifies risk to the business; --

Internal controls’ assurance

Reports risk and mitigation to the relevant committee and Board.

34 - 35

2. Risk assessment Risk assessment involves identification and analysis of risk and also includes fraud risk. Risks include internal and external events or circumstances that may occur and adversely affect the Group. Once risks are identified, management consider their impact; the likelihood of them happening; and how they can be managed. As part of this we look to:

3. Control activities Internal control activities are tools, policies and procedures deployed to mitigate risks in order to achieve objectives. Control activities help identify, prevent or reduce risks.

Control activities occur throughout the organisation at all levels and in all functions and include items such as approvals; authorisations; verifications; reconciliation; documentation; separation of duties; and safeguarding of assets. As part of this we look to: --

Select and develop control activities;

--

Select and develop general controls over technology; and

--

Deploy thorough policies and procedures.

4. Information and communication Information and communication is related to information security, data quality, data protection and how information is communicated internally and externally. As part of this we look to: --

Use relevant information;

--

Communicate internally; and

--

Communicate externally.

5. Monitoring activities Monitoring activities involves ongoing evaluation and monitoring of risks and control processes. The organisation also assesses any internal control deficiencies identified and communicates internally/ externally. As part of this we look to: --

Conduct ongoing and/or separate evaluations;

--

Evaluate and communicate deficiencies.

East Thames Annual Report and Financial Statements 2015/16

--

--

A comprehensive and regularly updated 30-year business plan covering all activities. This is subject to periodic independent review and detailed scrutiny by the Finance Committee prior to Board consideration. The Group prepares an annual budget and publishes regular management accounts and financial forecasts which are considered by the Group Executive team, Finance Committee and the Board; A comprehensive system and set of processes to identify, manage and mitigate strategic and operational risks. This system has been embedded into the operational culture of the business. The effectiveness of the system is reviewed by the Group Risk Management and Audit Committee. The Board is

--

Appraisal and consideration of investment in new property or regeneration schemes by the Group Executive, Development and Property Committee and, where required, the Board;

--

Oversight of the investment in strategic change programmes;

--

Full compliance with the UK Corporate Governance Code;

--

A comprehensive system to manage health and safety and

statutory compliance risk. As a minimum, the Board receives an annual report on health and safety and at each Board meeting receives ‘comply or explain’ key performance indicators; --

A comprehensive set of regularly reviewed and updated policies, procedures and delegated authorities covering all major policy/operational areas;

--

An anti-fraud policy covering the prevention, detection and reporting of fraud. All suspected frauds are recorded in the fraud register and are investigated in line with the anti-fraud policy.

The Group has an anti-money laundering policy and a money laundering reporting officer;

--

A comprehensive system of performance reporting which is considered by the

Report of the Board

involved in both the identification and management of strategic risks and receives reports on both strategic and summarised operational risks. The Group Executive team leads on the system and has oversight of operational risks which have been identified, reviewed and managed throughout the business;

The key elements of the system of internal controls include:

Strategic Report Including the Operating and Financial Review

Internal controls and risk management

Independent auditor’s report Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Internal controls and risk management

Board, Customer Experience Committee and Housing Scrutiny Panel on a ‘comply or explain’ basis.

Internal Auditor, and reports its findings to the Board.

--

The Board obtains assurance on the systems of internal control via reports and a comprehensive system of audit and assurance that includes: --

Scrutiny by the Group Risk Management and Audit Committee, which meets at least four times each year and on behalf of the Board:

--

-- Reviews the systems of risk management and internal control; -- Plans the work of internal audit;

--

-- Receives internal audit reports; -- Reviews incidents of fraud, reporting on these to the Board annually;

36 - 37

Commissioning specialised assurance during the year either as part of planned system improvements or where a particular control risk has been identified; Recommendations from the Group’s external auditors over systems of controls which are considered by the Group Risk Management and Audit Committee;

--

The Board of East Treasury (and East Finance in relation to the public bond) considering treasury strategy, policies and procedures annually;

--

Procedures for the recruitment, development, retention and training of suitably qualified staff.

-- Reviews the work of external audit and considers the audit findings report of the external auditor; -- Considers the annual reports on internal controls provided by the Chief Executive and

A combined programme of risk-based and core internal audit activity. The programme is considered and approved by the Group Risk Management and Audit Committee. The Internal Auditor meets regularly with the Chairman of the Group Risk Management and Audit Committee;

Board’s conclusion on internal control The Board has considered the system of internal control and the annual report from the Group Risk Management and Audit Committee.

The Homes and Communities Agency has provided a G1 regulatory judgement for Governance and a V2 judgement for Financial Viability; both of which demonstrate compliance with their regulatory framework.

The Board has concluded that there are no material weaknesses in internal controls sufficient to lead to material misstatement or loss.

Whistleblowing The Group Risk Management and Audit Committee oversees the Group’s Whistleblowing policy which enables employees to raise issues on a confidential basis. The committee ensures that any whistleblowing incidents are independently investigated. There were no cases reported to the committee during the reporting year.

East Thames Annual Report and Financial Statements 2015/16

The Integrated Board comprises the Chairman, one Executive Board Member and eight independent NonExecutive Board Members.

The Chairman is responsible for leading the Integrated Board, its effectiveness and governance. She sets the Board leadership tone for the Association and ensures the Board’s relationship with both management and stakeholders remains strong.

The Senior Independent Board Member chairs the Governance and Remuneration Committee and is available to discuss any concerns which the Non-Executive Board Members or the Group Executive have, which cannot be resolved through normal channels (that is with the Chairman of the Group or Chief Executive). Other responsibilities of the role include: --

--

Ensuring that issues and concerns raised by members are communicated to the other NonExecutive Board Members and that appropriate action is taken; Chairing meetings with other Non-Executive Board Members (at which the Chairman is not present) to discuss the Chairman’s annual performance evaluation;

--

Providing a sounding board for the Group Chairman and supporting the delivery of the Chair’s objectives.

Length of service The length of service for NonExecutive Board Members is six years. This can be extended annually, by up to a further three years in exceptional circumstances.

During 2015/16, one Non-Executive Board Member retired having completed his six years’ service.

Length of service of current Board Members (Non-Executive Board Members only) 0 - 2 years

33%

2 - 4 years

33%

4 - 6 years

33%

Former Board Members

Integrated Board

East Homes Paula Higson (Chairman) Angela Williams (resident)

East Potential Malcolm Basing (Chairman)

The Board Member listed below stood down during the course of the year due to retirement.

Ashley West* Date resigned: 21 March 2016 Board attendance: 7/8

Financial Statements

Core Members Yvonne Arrowsmith James Scott Larissa Joy Duncan Beardsley East Thames Group Tina Tietjen (Chairman) Ashley West* Rajiv Jaitly1

Independent auditor’s report

Board effectiveness is monitored and managed through a variety of processes including Board Member appraisal, monitoring attendance at Board Meetings and dialogue with the regulator.

The Chief Executive is responsible to the Board for the day to day operations of the Group; for recommending strategy; and for implementing this once agreed by the Board.

Report of the Board

The Boards of East Thames Group, East Homes, East Living and East Potential operate within an overlapping Board structure known as the Integrated Board. Under this arrangement there are a number of core Board Members who sit on each Board. This arrangement allows for a ‘one group’ approach to be undertaken but within the confines of our established entity structure.

Strategic Report Including the Operating and Financial Review

Board composition and roles

East Living John Drew (Chairman)

Notes: 1. From March 2016

East Thames Annual Report and Financial Statements 2015/16

Board membership

Board Member

Tina Tietjen Remuneration: £16,750 Tina is the independent Chairman of the Board and a member of the Governance and Remuneration Committee. She was appointed in September 2010.

Tina has a wealth of experience in the public, private and voluntary sectors, and also provides consultancy services on leadership and change management. In 2010 she was awarded an OBE for her services to the transport industry.

Tina is the Chair of the Billing Code of Practice for Energy UK and is also a consultant with Business in the Community. Tina was previously Chair of the Air Transport User Council and Women’s Royal Voluntary Service (now RVS).

Yvonne Arrowsmith Remuneration: not applicable in Yvonne’s capacity as a Board Member.

Yvonne is an Executive Board Member and the Chief Executive of East Thames. She was appointed in October 2014.

Yvonne was formerly Group Operations Director at Family Mosaic, where her portfolio included housing, care and support, social and economic regeneration and the customer contact centre. She has worked in housing associations covering London, Essex and the south east of England for the past 20 years, initially within care and support services, moving into general operations in the last decade. Prior to this Yvonne worked for the NHS, having originally trained as a registered nurse.

Malcolm Basing Remuneration: N/A Malcolm is an independent NonExecutive Director and Chairman of East Potential. He is also a member of the Customer Experience Committee and the Governance and Remuneration Committee. He was appointed in May 2012.

Malcolm has a strong background in a range of senior marketing, management, financial and trading positions worldwide.

External appointments

None

Non-Executive Director of St Mungo’s Broadway.

--Trustee of the Royal College of Psychiatry.

--Trustee of the RMBI Pension Fund.

--Independent NonExecutive Director of Merrill Lynch.

Boards and attendance

East Thames Group 8/8

East Thames Group 8/8 East Homes 8/8 East Living 8/8 East Potential 8/8 East Treasury 3/4 East Regen 3/4 East Finance 3/4

East Potential 6/8

38 - 39

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Board membership

John Drew Remuneration: £8,375

Paula Higson Remuneration: £8,375

Rajiv Jaitly Remuneration: £nil

Duncan is an independent NonExecutive Board Member, Chairman of the Finance Committee and therefore a Director of East Treasury, East Finance and East Regen. He was appointed in October 2013.

John is an independent Non-Executive Board Member and Chairman of East Living. He is a member of the Customer Experience Committee and the Governance and Remuneration Committee. He was appointed in May 2013.

Paula is an independent Non-Executive Board Member, Chairman of East Homes and Chairman of the Customer Experience Committee. She is also a member of the Governance and Remuneration Committee and a member of the Development and Property Committee and therefore a Director of East Place and East Thames Partnership.

Paula was appointed in May 2013.

Rajiv is an independent Non-Executive Board Member and Chair of the Group Risk Management and Audit Committee.

Rajiv was appointed in March 2016.

John holds a CBE for services to youth justice.

He spent four years as the Chief Executive of the Youth Justice Board of England and Wales and eight years as the Director of Housing and Community Services/ Director of Social Services at the London Borough of Redbridge. He has extensive experience of both adult social services and children’s social care and has lived and worked in east London for over 25 years.

Paula has 16 years of experience at Board level including two years as the Chief Operating Officer/ Interim CEO at NHS Direct and five years as the Senior Director of Managed Migration at the UK Border Agency.

--Director of John Drew Limited.

--Senior Associate of the Prison Reform Trust.

--Chair of the Medway Safeguarding Children Board.

--Director of Paula Higson Associates Limited.

--Director of Firm Foundations for Children and Adolescents CIC

--Audit Committee MHS Homes Limited, Heirloom Investment Fund SPC, Buckinghamshire Healthcare NHS Trust, Board Apprentice Global Limited.

--Director of Board Apprentice Limited --Partner of Jaitly LLP.

East Thames Group 8/8 East Homes 8/8 East Living 8/8 East Potential 8/8 East Treasury 4/4 East Regen 4/4 East Finance 4/4

East Living 8/8

East Homes 8/8 East Place 4/8 East Thames Partnership 4/8

East Thames Group 0/0

Financial Statements

--Director of Aceshow Management Limited.

--Director of Gardners Charity.

Independent auditor’s report

Duncan previously served as Group Treasurer for Hammerson plc and has over 25 years of corporate finance and treasury experience including treasurer at The Rank Organisation plc.

Rajiv is managing partner of Jaitly LLP, a consultancy specialising in risk, governance and operational due diligence. He holds other Non-Executive Directorships and previously held senior positions at Santander and Axa Investment Managers. Rajiv is a Chartered Accountant and Licensed Insolvency Practitioner, a Fellow of the Chartered Institute of Securities and Investment and a Fellow of the Association of Business Recovery Professionals.

Report of the Board

Duncan Beardsley Remuneration: £8,375

East Thames Annual Report and Financial Statements 2015/16

Board membership

Board Member

Larissa Joy Remuneration: £8,375

James Scott Remuneration: £8,375

Angela Williams Remuneration: £5,500

Larissa is an independent Non-Executive Board Member, and Chair of the Governance and Remuneration Committee.

She is a qualified lawyer.

James is an independent Non-Executive Board Member. He is Chairman of the Development and Property Committee and a Director of East Place and East Thames Partnership. James was appointed in September 2014 having previously served as a Committee Member.

Angela is an independent NonExecutive Board Member, a resident member of the East Homes Board and a member of the Customer Experience Committee. She was appointed in March 2011.

Larissa is also Independent Non-Executive Director of Saxton Bampfylde and Chairman of The Foundling Museum. She is a former Partner and Global Chief Operating Officer of Actis LLP, a private equity firm.

She was formerly Vice Chairman at WPP’s Ogilvy and Mather, and European Chief Operating Officer of Weber Shandwick.

She was a founding Director and Chair of the Remuneration Committee of V Inspired (formerly Russell Commission) and Chairman of the House of Illustration.

James is a solicitor and is Director of Planning & Communication at Urban and Civic plc.

Angela is a Newham resident and currently works with the London Borough of Ealing as a Regulatory Service Officer.

External appointments

--Chair of the Foundling Museum.

--Independent NonExecutive Director, Saxton Bampfylde.

--Director of Planning & Communication at Urban and Civic plc.

None.

Boards and attendance

East Thames Group 7/8 East Homes 7/8 East Living 7/8 East Potential 7/8

East Thames Group 8/8 East Homes 8/8 East Living 8/8 East Potential 8/8 East Place 8/8 East Thames Partnership 8/8

East Homes 6/8

40 - 41

East Thames Annual Report and Financial Statements 2015/16

The Group Executive consists of the Chief Executive and other members of the Group’s senior management team. They act as executives within the authority delegated by the Board.

The Chief Executive and the other

Executive Board Members are employed on permanent contracts with a notice period of six months.

They are entitled to participate in the Social Housing Pension Scheme on the same terms as all other eligible staff. The aggregate remuneration

package of all Executive Board Members is included in note 10 of the financial statements.

Strategic Report Including the Operating and Financial Review

Senior team

Report of the Board

Yvonne Arrowsmith Chief Executive Yvonne joined East Thames in October 2014, and was formerly Group Operations Director at Family Mosaic, with a large portfolio responsible for housing, care and support, social and economic regeneration and the customer contact centre.

She has worked in housing associations covering London, Essex and the south east of England for the past 20 years, initially within care and support services, moving into general operations in the last decade. Prior to this Yvonne worked for the NHS, having originally trained as a registered nurse.

A chartered accountant, Simon has worked in the public, private and charity sectors, specialising in finance, corporate resources and business change. He is an associate member of the Association of Corporate Treasurers and Treasurer of Praxis Community Projects.

Trevor joined East Thames in January 2009 as Assistant Director of Development before taking on his current role in August 2014.

Trevor has worked in the social housing sector for over 25 years, both developing and managing a range of award winning housing and regeneration projects. He has a particular passion for regeneration, supported housing, and the role customers have to play in creating an exciting new place to live.

Olu Olanrewaju Executive Board Member of Communities and Neighbourhoods Olu joined East Thames in October 2013 as Interim Director of Communities and Neighbourhoods and took on the role permanently in December 2013. He has a wide remit including all the Group’s landlord services, customer service, care and support, and repairs.

Olu has previously served as a member of East Thames’ Board, first as Chairman of East Homes in April 2001, then as Vice Chairman of the Group, from April 2007 to September 2008.

He has two decades of experience in housing, including senior roles at several housing associations. He is also on the Board of a small housing charity and is a trustee at Common Purpose.

Financial Statements

Simon joined East Thames in February 2013. He is responsible for overseeing the finance and treasury functions as well as a wide range of support services and business improvement activities.

Trevor Burns Executive Board Member of Development, Sales and Asset Management

Independent auditor’s report

Simon Bass Executive Board Member of Corporate Resources

East Thames Annual Report and Financial Statements 2015/16

East Thames Committee structure

Committees

Committee

Group Risk Management and Audit Committee

Finance Committee

Primary function

To oversee the risk management and internal controls frameworks on behalf of the Board, to oversee financial reporting for the Group and to be the main interface for the internal and external auditors.

To oversee finance (management accounting, statutory accounts and business planning) and treasury matters (debt financing and compliance) and to make recommendations to the Board. The committee also acts as the Board for East Treasury, East Finance and East Regen.

Integrated Board Members

--Rajiv Jaitly --Duncan Beardsley --Ashley West to February 2016

--Duncan Beardsley

Independent Committee Members

--Malcolm Zack --Asif Bhatti --Derek Morrison

--Calum Mercer -- Brian Mulholland

Executive Directors

None

--Yvonne Arrowsmith --Simon Bass

Number of meetings in 2015/16

5

4

42 - 43

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

East Thames Committee structure

Report of the Board

Development and Property Committee

Customer Experience Committee

To oversee human resource and governance issues and ensure that these are at the forefront of best practice; to recommend remuneration policy and pay to the Board; and to ensure compliance with the Homes and Communities Agency’s Regulatory Framework and our adopted Codes of Governance and Conduct.

To oversee the appointment of new Non-Executive Board Members and committee members.

To oversee development and asset management activity for the Group. The committee has delegated authority to agree schemes on behalf of East Homes within set financial and/or unit numbers. The committee also acts as the Board for East Place and East Thames Partnership.

To oversee service performance to our residents; to understand the customer journey and to act as the main interface between the Board and the elected resident Housing Scrutiny Panel.

--Larissa Joy --Tina Tietjen --Paula Higson --John Drew --Malcolm Basing

--James Scott --Paula Higson

--Paula Higson --Angela Williams --Malcolm Basing --John Drew

None

--Nick Berry* --Angela Forbes

--Nozmul Hussein --Jennifer Sano --Christopher Nyeki

None

--Simon Bass --Trevor Burns*

--Olu Olanrewaju

3

8 * not a Board Member of East Place and East Thames Partnership.

4

Independent auditor’s report

Governance and Remuneration Committee

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Key governance and risk Committees East Thames’ key governance and risk committees are the Governance and Remuneration Committee and the Group Risk Management and Audit Committee.

The Governance and Remuneration Committee The committee considered the following matters during 2015/16: -- A line by line compliance exercise against the UK Corporate Governance Code; --

A review of our compliance with the Homes and Communities Agency regulatory framework;

--

A review of independence criteria for Non-Executive Board Members;

--

Engagement with our executive search consultant to recruit new Non-Executive Board Members and committee members and ensure effective succession planning;

--

A review of proposed changes to our entity structure;

--

The agreement of Executive Director remuneration;

--

The Modern Slavery Act 2015. (A copy of the Group’s slavery and human trafficking statement can be found on our website).

All Board and committee appointments are made on an open and transparent basis, and (with the exception of resident appointments) are currently undertaken through an external candidate search company, Saxton Bampfylde.

Appointment panels are generally made up of the Group Chairman and members of the Governance and Remuneration Committee or lead Board member for a particular area plus one executive member.

During 2015/16, two Non-Executive appointments were made to Boards

44 - 45

and committees across the Group (those applicable to these financial statements are covered in the table entitled Integrated Board membership).

Details of Board Member remuneration are disclosed in note 10 and in the previous section relating to Board membership.

Compliance with the Homes and Communities Agency Governance and Financial Viability Standard We have undertaken a review of compliance with the Governance and Financial Viability Standard which has been considered by the Governance and Remuneration Committee and Board. In our view we continue to meet the standard.

Diversity The Board is committed to recruiting Non-Executive Board Members from different backgrounds and with different perspectives, skills and knowledge. We believe diversity contributes to a high performing

Board composition Female (2015: 50%)

50%

Board. In the context of making the best appointments possible we take decisions which aim to improve our gender and ethnicity mix and, where possible, ensure that Board Members have a connection to the areas in which we work.

Conflicts of interest The Group operates a policy to identify and, where appropriate, manage existing or potential conflicts of interest. With the introduction of our Integrated Board membership structure it was agreed that conflicts between companies within the Group would be specifically permitted as allowed under section 180 of the Companies Act 2006.

The Governance and Remuneration Committee monitors all conflicts of interest on an ongoing basis and receives a report annually. There were no specific conflicts of interest which arose during the course of the year.

Target Achievement 50%

30% BME 10% (2015: 10%) This is less than we would hope but representation at committee level is much higher.

Live or work in area of operation (2015: 30%)

30%

25%

Achieved

Work-in-progress

Achieved

East Thames Annual Report and Financial Statements 2015/16

The Group Risk Management and Audit Committee (GRMAC)

Appointments to the Committee are by nomination made by the Board.

The Committee operates to terms of reference, formally considered and reviewed on an annual basis.

In discharging its responsibilities in connection with the preparation of the financial statements for the year to 31 March 2016, the Committee is responsible for reviewing the appropriateness of the Group’s accounting policies, assumptions, judgements and estimates as applied by the executive management to the financial statements. Following a review and debate about the issues that have impacted the Group in relation to the year ended 31 March 2016, the Committee identified the following as being significant matters in relation to the accuracy of financial reporting:

The Committee met five times during the year and considered a range of matters during 2015/16 that included a review of internal controls and their effectiveness; the 2015 financial statements; a review of risk management strategy and policy (including an ongoing review of corporate risks); ensuring that effective value for money and risk appetite initiatives are established within the Group; the internal and external audit plans; the results

Action

Introduction of FRS 102 The changes from former UK GAAP to FRS 102/IFRS9 introduced a range of volatilities, most of which are outside management control, e.g. fair value estimates realting to financial instruments, movements in valuation of investment properties, recognition of Social Housing Pension Scheme liabilities.

The Committee has received training on the aspects of changes between the two frameworks, and receives monthly management information for the Group’s financial performance, including changes in valuations of financial instruments from external treasury advisors.

The performance report makes clear reference to and distinctions between the estimation and judgement made on such items and the underlying performance of core activities. The Committee agreed with the estimates and judgements made by management and disclosures included in the financial statements.

Impairment assessment Under FRS 102 and SORP 2014, the Group is required to consider indicators of impairment. Where identified, a full impairment calculation is required to ensure assets held reflect the appropriate recoverable amount. The consideration is subjective, requiring judgement, whilst the outcome can be significant for the Group in terms of financial positon and investment capacity.

The Committee has reviewed the impairment review prepared by management (in the context of changes to the rent setting framework announcement in July 2015), and agreed with the judgements made by management, which confirmed that the existing valuations remained appropriate.

Financial Statements

Matter considered

Independent auditor’s report

The Committee endorses the principles set out in the FRC Guidance on Audit Committees. The Board has formal and transparent arrangements for considering how it applies the Group’s financial reporting and internal control

of internal audit reviews (including management actions to address identified weaknesses); the result of the external financial statement audit of 2015; the performance of the Association’s auditors; and ongoing reporting around fraud, theft and bribery. They also receive other reports as appropriate within the Committee’s terms of reference.

Report of the Board

Details of those making up the Committee can be found on page 42. None of the Committee members have any personal or financial interests in the matters considered, potential conflicts of interest arising from cross-directorships, or any day to day involvement in running the business. Meetings of the Committee were attended by Executive Board Members and the Director of Governance and Company Secretary. In addition, the internal auditor, BDO attends each meeting and the external auditor, Grant Thornton UK LLP, attended on three occasions during the year.

principles and for maintaining an appropriate relationship with its auditors. Whilst all Board Members have a duty to act in the interest of the Group, the Committee has a particular role acting independently from the executive, to ensure that the interests of stakeholders are properly protected in relation to financial reporting and internal control.

Strategic Report Including the Operating and Financial Review

Key governance and risk Committees

East Thames Annual Report and Financial Statements 2015/16

Key governance and risk Committees Effectiveness of the external auditor During the year, the Committee reviewed Grant Thornton UK LLP’s fees, effectiveness and whether the agreed audit plan had been fulfilled, and the reasons for any variation from the plan. The Committee also considered its robustness and the degree to which Grant Thornton UK LLP was able to assess key accounting and audit judgements, and the content of the management report issued by the external auditor. This was performed through meeting with the external auditor and discussing the issues they had addressed. The Committee concluded that both the audit and the audit process were effective.

Audit independence The GRMAC considers the external auditor to be independent and has satisfied itself as to the effectiveness of the external auditor.

46 - 47

The Committee has noted there is no requirement for it to consider the rotation of its auditor. The Committee will keep this matter under regular review and will act in accordance with the EU regulations and the Code as appropriate. Grant Thornton UK LLP has acted as the Group’s auditors since 2005/06 although the position has been tendered on two occasions since then, most recently in 2013/14. The current Responsible Individual first acted in that capacity for the year ended 31 March 2014 and there has been appropriate rotation of other key personnel involved in the audit process.

The Group’s policy on awarding nonaudit work to its auditor is designed to ensure that the Group receives the most appropriate advice without compromising the independence of the auditor. A policy for reviewing audit independence has been adopted whereby non-audit services

undertaken by the auditor, subject to ethical considerations for Public Interest Entities, are approved prior to work being carried out. Fees for nonaudit work cannot exceed £50,000 (including the Service Charge audit) without the appointment being approved by GRMAC. In the year to 31 March 2016, certain fees were paid to the auditors for non-audit work as disclosed in note 5. The nature and scope of such work has been discussed with the auditors and the Committee are satisfied that independence has been appropriately safeguarded (including where appropriate by the use of different team members).

The narrative relating to the GRMAC has been considered and approved by the members of the Committee.

East Thames Annual Report and Financial Statements 2015/16

Statement of the responsibilities of the Board for the Annual Report and Financial Statements

Made judgements and accounting estimates that are reasonable and prudent;

--

Stated whether applicable UK Accounting Standards and the Housing SORP 2014 Statement of Recommended Practice for registered social housing providers, have been followed, subject to any material departures disclosed and explained in the financial statements;

The Board is responsible for preparing the Strategic Report including the Operating and Financial Review and financial statements in accordance with applicable law and regulations.

--

Selected suitable accounting policies and then applied them consistently;

Prepared the financial statements on the going concern basis unless it is inappropriate to presume that the Association will continue in business.

The Board Members are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the financial position of the Group and the Association enable them to ensure that the financial statements (although non-statutory) 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.

They are also responsible for safeguarding the assets of the Association and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In so far as each of the Board Members is aware: --

There is no relevant audit information of which the Association’s auditors are unaware;

--

The Board Members have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Board is responsible for the maintenance and integrity of the

External auditors Grant Thornton UK LLP have expressed their willingness to continue in office and will be deemed reappointed for the next financial year.

Public benefit statement The Board confirm that they have referred to the guidance contained in the Charity Commission’s general guidance on public benefit when reviewing the Group’s aims and objectives and in planning future activities and setting the grant making policy for the year.

The report of the Board was approved by the Board on 23 September 2016 and signed on its behalf by:

Tina Tietjen Group Chairman

Financial Statements

In preparing these financial statements, the Board has:

--

The Board considers that the Annual Report is fair, balanced and understandable. The Board has carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity.

Independent auditor’s report

Co-operative and Community Benefit Society legislation requires the Board to prepare financial statements for each financial year. As the Association did not formally exist as an entity until 17 March 2016 there is no legislative requirement for the association to prepare financial statements to 31 March 2016. Notwithstanding this fact, the Association and Group has regulatory and other obligations, to report its performance for the year ended. Consequently financial statements have been prepared on a non-statutory basis for the year ended 31 March 2016 as though the Association and Group had been in existence throughout the period.

In that context the Board Members have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws) including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. In doing so Board Members are mindful that under Co-operative and Community Benefit Society legislation, they must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and the surplus or deficit of the Group and the Association.

corporate and financial information on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Report of the Board

--

Strategic Report Including the Operating and Financial Review

Statement of responsibilities

East Thames Annual Report and Financial Statements 2015/16

Independent auditor’s report

48 - 49

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board Independent auditor’s report

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Independent auditor’s report to the Board of East Thames Group Limited

Our opinion on the financial statements is unmodified In our opinion the financial statements: --

--

--

Give a true and fair view of the state of the Group’s and the parent Association’s affairs as at 31 March 2016 and of the Group’s surplus and the parent Association’s result for the year then ended; Have been properly prepared in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2015; and Have been prepared in accordance with the basis of preparation set out therein.

50 - 51

Who we are reporting to This report is made solely to the Board Members, as a body, in accordance with the terms and conditions of our engagement letter dated 19 September 2016. Our audit work has been undertaken so that we might state to the Board Members those matters we are required to state to them 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 and the Association’s members as a body, for our audit work, for this report, or for the opinions we have formed.

is United Kingdom Generally Accepted Accounting Practice including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (FRS 102), the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing 2015.

Overview of our audit approach --

Overall Group materiality: £2.5 million which represents 1.9% of the Group’s turnover;

--

We performed full scope audit procedures over all locations and entities other than the joint venture where we performed comprehensive review procedures; and

--

Key audit risks were identified as first time reporting under FRS 102 and the carrying value of properties.

What we have audited East Thames Group Limited’s nonstatutory financial statements comprise the Group and parent Association income and expenditure accounts, the Group and parent Association statements of changes in reserves, the Group and parent Association balance sheets, the consolidated cash flow statement and the related notes.

The financial reporting framework that has been applied in the preparation of these non-statutory financial statements

Our assessment of risk In arriving at our opinions set out in this report, we highlight the following risks that, in our judgement, had the greatest effect on our audit:

East Thames Annual Report and Financial Statements 2015/16

How we responded to the risk

First time reporting under FRS 102

Our audit work included, but was not restricted to:

This is the first year that the Group’s financial statements have been prepared under FRS 102 as applied via the Housing SORP 2014 Statement of Recommended Practice for social housing providers and as modified by the optional application of IFRS 9 ‘Financial instruments’ in respect of financial instruments. The transitional adjustments arising upon adoption of this framework are significant. We therefore identified first time reporting under FRS 102 as a significant risk that requires special audit consideration.

--

Consideration of the appropriateness of accounting policies adopted on transition;

--

Review of the restated balance sheets at 1 April 2014 and 31 March 2015;

--

eview and testing of material transitional adjustments including areas of R the financial statements subject to amended methods of estimation and calculation (including those relating to financial instruments);

--

Review of the valuation of all hedges, and assessment of the reasonableness of such valuations on a sample basis using our own experts;

--

Evaluation and verification of criteria required for the adoption of hedge accounting for certain interest rate swaps; and

--

Review the disclosure of hedge liabilities within the financial statements.

Report of the Board

Audit risk

Strategic Report Including the Operating and Financial Review

Independent auditor’s report to the Board of East Thames Group Limited

The Group’s accounting policy on basis of preparation, including first time reporting under FRS 102, is shown in note 1 to the financial statements and related disclosures are included in note 39. The Group Risk Management and Audit Committee identified first time reporting under FRS 102 including the valuation and accounting for financial instruments as a significant matter in its report on pages [45 and 46], where the Committee also described the action that it has taken to address this matter.

Carrying value of housing properties Our audit work included, but was not restricted to: We obtained the Group’s impairment review documentation and considered the assumptions underpinning that review, giving due regard to our contextual knowledge of the Group and the sector;

--

We selected a sample of additions to housing properties and corroborated the reasonableness of their capitalisation by reference to supporting documentation;

--

or a sample of schemes in the course of construction, we verified the F cost of additions to third party or internally generated documentation and compared actual spend, plus estimated costs to completion, with the original scheme appraisal to consider whether there are indications of impairment, having regard to planned subsidies and the wider public benefit objects of the Group; and

--

or properties held for sale (both completed and those in the course of F construction) we obtained and corroborated information to support the assertion that such properties will be sold for a value equal to or in excess of their cost (i.e. the value at which they are included in the financial statements). Such information included details of sales made after 31 March 2016, scheme appraisals (including where applicable the costs to complete construction), marketing information and consideration of previous sales values.

The Group’s accounting policy on housing properties is shown in note 1 to the financial statements and related disclosures are included in notes 12 and 14. The Group Risk Management and Audit Committee identified the carrying value of properties as a significant matter in its report on pages [45 and 46], where the Committee also described the action that it has taken to address this matter.

Financial Statements

There is also a risk that capitalised expenditure on Housing Properties may be overstated or that cost overruns relating to assets in the course of construction could lead to impairment against the Group’s planned financial or public benefit parameters. We therefore identified the carrying value of properties as a significant risk that requires special audit consideration.

--

Independent auditor’s report

Housing properties (comprising fixed assets for letting and current assets held for sale) are held at deemed cost and comprise 88% of the Group’s total assets. There is a risk that housing properties, including those under development, could be impaired as a consequence of changing economic, regulatory or environmental factors.

Such factors include changes in the rent setting framework and housing market conditions. Although the Group is building such properties in areas of high demand and has in recent years reported profits on the sale of such assets, there remains a general risk that volatility in demand, as well as scheme specific risks, could lead to net realisable value being below costs incurred.

East Thames Annual Report and Financial Statements 2015/16

Independent auditor’s report to the Board of East Thames Group Limited Our application of materiality and an overview of the scope of our audit

Overview of the scope of our audit A description of the generic scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/ auditscopeukprivate.

Materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work.

We conducted our audit in accordance with International Standards on Auditing (ISAs) (UK and Ireland).

Our responsibilities under those standards are further described in the ‘Responsibilities for the financial statements and the audit’ section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

We determined materiality for the audit of the Group financial statements as a whole to be £2.5 million which is 1.9% of the Group’s turnover. This benchmark is considered the most appropriate as turnover is one of the principal considerations for members of East Thames Group Limited in assessing the ongoing financial performance of the Group.

Materiality for the current year is unchanged from the level of specific materiality that we determined for the year ended 31 March 2015 to reflect the consistency in operations of the Group between the two reporting periods.

We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financial statement materiality.

We also determine lower levels of specific materiality for certain areas such as Board Members’ remuneration and related party transactions.

We determined the threshold at which we will communicate misstatements to the audit committee to be £125,000.

In addition we will communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.

52 - 53

evidence had been obtained, as a basis for our opinion on the Group financial statements as a whole; --

Setting materiality levels individually for each component having regard to the Group materiality levels and the size and nature of those components’ activities. The materiality levels applied to the Group’s components ranged from £125,000 to £2.5 million; and

--

or components with a fullF scope approach we evaluated and tested key controls within Revenue, Purchasing, Payroll and Journal systems identified as part of our risk assessment, reviewed the accounts production process and addressed critical accounting matters. We sought, wherever possible, to rely on the effectiveness of the Group’s internal controls in order to reduce substantive testing. We then undertook substantive testing on significant transactions and material account balances.

We are independent of the Association in accordance with the Auditing Practices Board’s Ethical Standards for Auditors, and we have fulfilled our other ethical responsibilities in accordance with those Ethical Standards.

The Group comprises eleven components, all of which were the subject of statutory audits. Our audit approach was based on a thorough understanding of the Group’s business and is risk based, and included: --

Assessment of the separate components of the Group.

We performed full scope audit procedures over all subsidiaries within the Group, which are all located in the UK and share several common operating and management processes. Only one component (the joint venture Triathlon Homes LLP) was not audited by the Group engagement team. Triathlon Homes LLP represents nil% of the Group’s funds and contributed (7.6)% of the Group’s surplus for the financial year. Where the work was not conducted by the Group engagement team, we determined the level of involvement we needed to have in the audit work at that component to be able to conclude whether sufficient appropriate audit

Other reporting Our opinion on other matters is unmodified In our opinion: --

the information given in the Strategic Report and Report of the Board for the financial year for which the financial statements are prepared is consistent with the financial statements.

--

the information given in the Corporate Governance Statement with respect to internal control and risk management systems in relation to financial reporting processes is consistent with the financial statements.

East Thames Annual Report and Financial Statements 2015/16

Matters on which we are required to report by exception In accordance with our engagement letter dated 19 September 2016 we are required to report to you if, in our opinion:

--

the annual report does not appropriately disclose those matters that were communicated to the Group Risk Management and Audit Committee which we consider should have been disclosed.

--

a satifactory system of control over transactions has not been maintained; or

We also confirm that we do not have anything material to add or to draw attention to in relation to:

--

proper accounting records have not been kept by the parent Association, or returns adequate for our audit have not been received from branches not visited by us; or

--

--

--

the financial statements are not in agreement with the books of account; or

materially inconsistent with the information in the audited financial statements; or

--

apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Association acquired in the course of performing our audit; or

--

otherwise misleading.

In particular, we are required to report to you if:

the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated;

--

the Board Members’ statement in the financial statements about whether they have considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Association’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and

Tobias Wilson Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Norwich

we have identified any inconsistencies between our knowledge acquired during the audit and the Board Members’ statement that they consider the annual report is fair, balanced and understandable; or

--

the Board Members’ explanation in the annual report as to how they have assessed the prospects of the Association, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Association will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related

23 September 2016

Financial Statements

--

--

Independent auditor’s report

--

What the Board Members are responsible for: As explained more fully in the Statement of the responsibilities of the Board, the Board is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

What we are responsible for: Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

we have not received all the information and explanations we require for our audit.

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

the Board Members’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing the Association including those that would threaten its business model, future performance, solvency or liquidity;

Responsibilities for the financial statements and the audit Report of the Board

We have nothing to report in respect of any of the above matters.

disclosures drawing attention to any necessary qualifications or assumptions.

Strategic Report Including the Operating and Financial Review

Independent auditor’s report to the Board of East Thames Group Limited

East Thames Annual Report and Financial Statements 2015/16

Financial statements

54 - 55

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board Independent auditor’s report

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Financial statements Income and Expenditure Accounts GROUP

ASSOCIATION

Note

2016 £’000

2015 £’000

2016 £’000

2015 £’000

Turnover

3

128,723

146,369

20,861

18,113

Cost of sales

3

(16,369)

(37,479)

-

-

Operating costs – recurring

3

(71,553)

(71,391)

(17,063)

(17,374)

3

(5,020)

-

(3,467)

-

Operating surplus

5

35,781

37,499

331

739

Surplus on property disposals

6

15,337

4,337

-

-

Income from investment in joint venture

19

2,144

-

-

-

Revaluation of investment properties

13

1,096

(379)

-

-

Interest receivable and similar income

7

759

135

-

-

Interest payable and similar charges

8

(26,694)

(31,244)

(331)

(264)

28,423

10,348

-

475

-

-

-

(200)

28,423

10,348

-

275

(387)

456

-

-

28,036

10,804

-

275

8

(3,694)

(28,226)

-

-

12

-

(2,638)

-

-

(3,694)

(30,864)

-

-

24,342

(20,060)

-

275

– SHPS (note 36)

Gift Aid Surplus before tax Taxation on surplus on ordinary activities

11

Surplus for the financial year

Other Comprehensive Income Changes in value of effective hedges Impairment of housing properties

Total comprehensive income for the year

All activities are classified as continuing.

The notes on pages 61 to 103 form part of these financial statements.

56 - 57

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Financial statements Statement of Changes in Reserves GROUP

At 1 April 2014

Revenue reserve £’000

Hedge Revaluation reserve reserve £’000 £’000

Total £’000

202,644

359,135

10,804

-

-

10,804

Change in value of effective hedges

-

(28,226)

-

(28,226)

Impairment of revalued properties (note 12)

-

-

(2,638)

(2,638)

928

-

(928)

-

2,136

-

(2,136)

-

174,006

(31,873)

196,942

339,075

28,036

-

-

28,036

-

(3,694)

-

(3,694)

845

-

(845)

-

12,499

-

(12,499)

-

215,386

(35,567)

183,598

363,417

Surplus for the year

Transfer in respect of depreciation on revalued properties Transfer in respect of realised gain on disposal of revalued properties At 1 April 2015 Surplus for the year Change in value of effective hedges Transfer in respect of depreciation on revalued properties Transfer in respect of realised gain on disposal of revalued properties At 31 March 2016

ASSOCIATION

At 1 April 2014 Surplus for the year At 1 April 2015 Surplus for the year At 31 March 2016

Revenue reserve £’000 (9,350)

Independent auditor’s report

(3,647)

Report of the Board

160,138

275 (9,075) (9,075) Financial Statements

The notes on pages 61 to 103 form part of these financial statements.

East Thames Annual Report and Financial Statements 2015/16

Financial statements Balance Sheets

Note

GROUP 2016 £’000

2015 £’000

ASSOCIATION 2016 2015 £’000 £’000

Non Current Assets Tangible fixed assets Housing properties Investment properties Other tangible

12 13 14

1,027,978 18,754 23,857 1,070,589

1,012,097 18,490 24,552 1,055,139

232 232

328 328

Intangibles and Investments Intangibles Group entities Derivatives Shared equity HomeBuy and Starter Home Initiative Joint Venture

15 16 29 17 18 19

Total Non Current Assets Current Assets Properties for sale Debtors Cash at bank and in hand

569 19,149 1,844 15,908 37,470 1,108,059

706 14,381 1,844 17,602 500 35,033 1,090,172

569 13 582 814

705 13 718 1,046

20 21 22

42,615 9,389 56,459 108,463 (45,069) 63.394 1,171,453 807,589 447 808,036

31,175 12,764 48,575 92,514 (48,429) 44,085 1,134,257 794,663 519 795,182

11,596 11,596 (8,260) 3,336 4,150 13,225 13,225

10,691 10 10,701 (9,787) 914 1,960 11,035 11,035

215,386 (35,567) 183,598 363,417 1,171,453

174,006 (31,873) 196,942 339,075 1,134,257

(9,075) (9,075) 4,150

(9,075) (9,075) 1,960

Current Liabilities Net Current Assets Total Assets less Current Liabilities Non Current Liabilities Provision for liabilities and charges Capital and reserves Share capital Revenue reserve Hedge reserve Revaluation reserve Total reserves

23

24 30

31

The notes on pages 61 to 103 form part of these financial statements.

These financial statements were approved by the Board on 23 September 2016 and signed on its behalf by:

Tina Tietjen Chairman 58 - 59

Duncan Beardsley Treasurer

Henry Potter Company Secretary

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Financial statements Consolidated Cash Flow Statement 2016 £’000 55,186

2015 £’000 68,466

(64,791)

(68,857)

(21)

-

(441)

(386)

(57)

(120)

-

(1,672)

42,916

19,677

– investment properties

3,890

-

– HomeBuy properties

1,065

510

– Starter Home Initiative properties

1,863

1,329

Social Housing Grant received (note 27)

2,506

15,395

Receipts from investment in joint venture

2,644

-

125

135

(10,301)

(33,989)

Housing loans repaid

(6,136)

(6,127)

Housing loans drawn

10,000

-

Derivatives terminated (note 29)

(10,749)

-

Interest paid

(30,116)

(30,089)

-

(500)

(37,001)

(36,716)

7,884

(2,239)

Cash and cash equivalents at the beginning of the year

48,575

50,814

Cash and cash equivalents at the end of the year

56,459

48,575

Net cash inflow from operating activities Cash flow from investing activities – investment properties – other Purchase of intangible assets Purchase of shared equity investment Proceeds from sale – housing properties

Interest received Cash flow from financing activities

Loan issue costs Net cash used in financing activities Net increase / (decrease) in cash and cash equivalents

Independent auditor’s report

Net cash used in investing activities

Report of the Board

Purchase and construction of tangible fixed assets – housing properties

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Financial statements Consolidated Cash Flow Statement 2016 £’000

2015 £’000

28,036

10,804

387

(456)

28,423

10,348

(15,337)

(4,337)

(1,096)

379

(759)

(135)

Interest payable and similar charges

26,694

31,244

Income from investment in a joint venture

(2,144)

-

Operating surplus

35,781

37,499

Depreciation of tangible fixed assets

11,933

12,353

(108)

-

4,916

641

(1,541)

(1,479)

50,981

49,014

Decrease in properties for sale

5,947

16,765

Decrease / (increase) in debtors

3,263

(2,013)

(Decrease) / increase in creditors

(3,403)

5,728

(72)

(130)

5,735

20,350

Net cash inflow from operating activities before corporation tax paid

56,716

69,364

Corporation tax paid

(1,530)

(898)

Net cash inflow from operating activities

55,186

68,466

Note to the Consolidated Cash Flow Statement Cash flows from operating activities Surplus for the financial year Corporation tax charge / (credit) Surplus for the financial year before taxation Surplus on property disposals Revaluation of investment properties Interest receivable and similar income

Amortisation of deferred capital grants Increase in pension liability charged to operating surplus Pension contributions paid Movement in working capital

Decrease in provisions

60 - 61

East Thames Annual Report and Financial Statements 2015/16

1. Accounting Policies

The Group and the Association’s presentation currency is Great Britain Pounds. Amounts are presented in thousands.

The preparation of the financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires the Group’s management

Fee income is receivable when the conditions for receipt of the fees under the relevant contractual agreements have been met.

The Group has chosen not to retrospectively apply FRS 102 to business combinations that occurred before the date of transition to FRS 102 (being 1 April 2014) as allowed by the transitional exemption available in FRS 102.

All intra Group transactions, balances and expenses are eliminated on consolidation.

Going Concern After making enquiries, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Board continues to adopt the going concern basis in preparing the Group’s financial statements.

Turnover Turnover comprises rental income receivable for the year, management fees, income from shared ownership (including rent now buy later properties) first tranche property sales, sales of properties built for outright sale, and other services at the invoiced amount (excluding VAT) of goods and services supplied in the year, revenue grants receivable in the year and the amortisation of deferred capital grants.

Income from first tranche sales and sales of properties built for outright sale is recognised at the point of legal completion of the sale.

Revenue grants are recognised when the conditions for receipt of agreed grant funding have been met.

Income from deferred capital grants is recognised in a systematic basis over the useful economic life of the asset (usually the properties structure) for which it was received.

Value added tax (VAT) The Group charges value added tax (VAT) on some of its income and is able to recover part of the VAT it incurs on expenditure. The Income and Expenditure Account includes VAT to the extent that it is suffered by the Group and is not recoverable from HM Revenue & Customs. The balance of VAT payable or recoverable at the reporting date is included as a current liability or asset.

Interest payable and similar charges Interest on borrowings is charged to the Income and Expenditure Account over the term of the debt using the effective interest rate method, to ensure that the amount charged is at a constant rate on the carrying amount.

Costs of issuing debt are recognised as a reduction in the associated capital instrument. Costs in obtaining undrawn facilities are amortised over the life of the facility.

Financial Statements

The Association has taken advantage of the exemption allowed by FRS 102 not to present a Statement of Cash Flows as it is the parent of the East Thames Group which prepares publicly available consolidated financial statements, and the Association is included in the consolidation.

Basis of consolidation The Group consolidated financial statements include the results of the Association and all of its subsidiary undertakings. A subsidiary is an entity controlled by the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Any subsidiary undertaking acquired or sold during the year are included up to, or from, the date of change of control.

Independent auditor’s report

As the Association did not formally exist as an entity until 17 March 2016 there is no legislative requirement for the Association to prepare financial statements to 31 March 2016. Notwithstanding this fact, the Association and Group has regulatory and other obligations, to report its performance for the year ended 31 March 2016. Consequently financial statements have been prepared on a non-statutory basis for the year ended 31 March 2016 as though the Association and Group had been in existence throughout the period.

Revenue recognition Rental income is recognised from the point when properties under development reach practical completion or otherwise become available for letting. Rental income is recognised net of rent and service charge losses from voids.

Report of the Board

Basis of preparation The financial statements of East Thames Group Limited (the Association) are prepared on a non-statutory basis in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102), and the Housing SORP 2014 Statement of Recommended Practice for registered social housing providers (Housing SORP 2014), and comply with the Accounting Direction for Private Registered Providers of Social Housing 2015 (the Accounting Direction 2015). The Group has adopted IFRS 9 Financial Instruments (IFRS 9) for the recognition and measurement of its financial instruments as permitted

by FRS 102 Paragraph 11.2 (c). These are the first financial statements of the Association that have adopted FRS 102. Details of the impact of the adoption of FRS 102 on the financial statements is given in note 39.

to exercise judgement in applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2.

Strategic Report Including the Operating and Financial Review

Notes to the Financial statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 1. Accounting Policies (contd) Debt instruments Debt instruments are accounted for using an amortised cost model, and are initially measured at the transaction price (usually the nominal value of the instrument) less any transaction costs.

Debt instruments are subsequently measured at amortised cost, using the effective interest rate method. Where a debt instrument does not satisfy the criteria set out in IFRS 9 to be accounted for using amortised cost, it is initially measured at its fair value, and subsequently at the end of each reporting period, it is measured at its fair value, with any changes in fair value being recognised in the Income and Expenditure Account.

Where the terms of a financial liability are renegotiated with substantially different terms, the original financial liability is derecognised and a new financial liability is recognised. The difference between the carrying amount of the financial liability derecognised and the consideration paid (including any non cash assets transferred or liabilities assumed) for the new financial liability is recognised in the Income and Expenditure Account.

Where a loan is entered into at a non-market rate interest rate the debt instrument is accounted as a financing transaction. Where an arrangement constitutes a financing transaction, the debt instrument is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument. The unwinding of the net present value surplus or discount over the debt instruments nominal value is recognised in the Income and Expenditure Account.

Derivatives The Group holds floating rate loans which expose the Group to interest rate risk, to mitigate against this risk the Group uses interest rate swaps. These instruments are measured at fair value at each reporting date. They are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

62 - 63

Where a derivative instrument has a number of different elements, the different elements are bifurcated and recognised separately according to their individual provisions. This applies to fixed rate loans where the lender has the option to re-price the loans at preagreed dates, the fixed rate loan would be bifurcated from the option.

When there is an economic relationship between the interest rate swap and the debt instrument, the interest rate swap is accounted for using hedge accounting. To the extent that the hedge is effective, movements in the interest rate swap fair value (other than adjustments for the Group or counterparty’s credit risk) are recognised in other comprehensive income and presented in a separate cash flow hedge reserve. Any movements in fair value relating to ineffectiveness and adjustments for the Group’s or counter party credit risk are recognised in the Income and Expenditure Account.

Pensions The Group operates both defined benefit schemes (where the benefit the employee will receive upon retirement is usually dependent upon a number of factors including age, length of service and remuneration) and defined contribution schemes (where the Group pays fixed contributions to a separate entity). (i) Defined benefit schemes Where the Group’s share of underlying assets and liabilities can not be identified on a consistent and reasonable basis (as in the case of multi-employer schemes) the scheme will be accounted for as a defined contribution scheme. (ii) Defined contribution schemes Contributions are recognised as an expense in the Income and Expenditure Account when due. Where contributions are not expected to be settled wholly within 12 months after the end of the reporting period in which the employees render the related service, the liability is measured at the present value of the contributions payable. The discount rate used is the market yield at the reporting date of high quality corporate bonds. Future payments

are offset against the liability, and the unwinding of the discount is recognised as a finance cost in the Income and Expenditure Account.

Housing Properties Housing Properties are principally properties available for rent, shared ownership, rent now buy later and intermediate rent.

Properties acquired prior to 31 March 2014 are stated at Existing Use Value for Social Housing (EUV-SH) (being the valuation at 31 March 2014) less depreciation charged on these properties since 31 March 2014.

The valuation at 31 March 2014 has been adopted as the deemed cost as permitted by FRS 102 Paragraph 35.10(c). Properties acquired or completed subsequently to 31 March 2014 are stated at cost less depreciation (and any provision for impairment).

Housing properties under construction are stated at cost.

Cost includes the purchase price of acquiring land and buildings, development costs and capitalised interest.

Works to existing properties which replace a component that has been identified separately for depreciation purposes, along with those works that result in enhancing the economic benefits of the properties, are capitalised as improvements. Where a component is replaced the cost and related depreciation are eliminated from tangible fixed assets. Economic benefits are enhanced if work performed results in an increase in rental income, a reduction in future maintenance costs or a significant extension to the useful economic life of a property.

Shared ownership properties are split between current and non-current assets based on the anticipated proportion to be a first tranche sale with the first tranche proportion recognised as a current asset. Where the actual first tranche proportion differs from the anticipated proportion, the difference is transferred to or from current assets immediately prior to disposal. The remaining proportion is recognised

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements as a non-current asset, at cost less depreciation and any provision for impairment (if required).

Depreciation of housing properties Housing properties are split between land, structure and other major components that have different expected useful economic lives to the structure.

Properties held on leases are amortised over the life of the lease or their estimated useful economic life, if shorter.

The following major components together with their expected useful economic lives are listed below: Years 20

Bathrooms

30

Boilers

15

Other heating systems

30

External doors and windows

30

Roofs

60

Electrical installations Structure

30 60 - 150

Depreciation is charged so as to writedown the cost of each component to its estimated residual value, on a straight line basis, over its estimated useful economic life. Depreciation is charged to the Income and Expenditure Account, with the difference between

Years Freehold offices other than head office

25

Head office

30

Lifts

25

Office furniture and improvements

7

Service equipment

5

Motor vehicles

4

Computer equipment

3

Investment properties Investment properties consist of commercial properties and other properties not held for social benefit or for use in the business. Investment properties are measured at cost on initial recognition and subsequently at fair value at the Balance Sheet date, with changes in fair value recognised in the Income and Expenditure Account.

Fair value is determined annually by appropriately qualified valuers, and is derived from current market rents and investment property yields for comparable properties, adjusted if necessary for any difference in the nature, location or condition of the specific asset. Investment properties are not depreciated.

Intangible assets Intangible assets are recognised when it is probable that the expected future benefits that are attributable to the asset will flow to the entity, and the cost of the asset can be measured reliably.

Intangible assets are amortised on a straight line basis over the assets anticipated useful life. The useful

Major software

5-7

Shared Equity, HomeBuy and Starter Home Initiative These investments are accounted for as Public Benefit Entity Concessionary Loans as permitted by FRS 102 Paragraphs PBE34.90 to PBE34.97.

These loans are initially measured at the amount paid. In subsequent years the loan is adjusted for any interest receivable and any impairment loss.

Joint Ventures An entity is treated as a joint venture where the Group holds an interest and shares control under a contractual arrangement with one or more parties external to the Group.

In the Group accounts, joint ventures are accounted for using the equity method. A joint venture is initially recognised at the transaction price (including transaction costs) and is subsequently adjusted to reflect the investor’s share of the profit or loss, other comprehensive income and equity of the joint venture. The consolidated Income and Expenditure Account indicates the Group’s share of the joint venture’s turnover and includes the Group’s share of the operating results, interest, pre-tax results and attributable taxation.

Where a joint venture’s net assets become negative and the Group has no legal obligation to fund the net liabilities, the Group ceases to adopt the equity method for the joint venture.

All earnings, assets and liabilities of the joint venture are derecognised whilst the joint venture has net liabilities. The Group will recognise distributions from the joint venture as income.

Financial Statements

Kitchens

Depreciation of other tangible fixed assets Other tangible fixed assets include offices, plant and machinery and motor vehicles. These are stated at cost less depreciation. These assets are depreciated over their expected useful lives on a straight line basis to their estimated residual values. The useful expected lives are as listed below:

Independent auditor’s report

Freehold land, shared ownership properties and assets in the course of construction are not depreciated.

Shared ownership properties are not depreciated reflecting an assessment that the expected residual values are anticipated to result in an immaterial change (in turn reflecting the fact that the shared owner has significant equity in the property and is responsible for maintenance).

Years

Report of the Board

Rent now buy later properties are recognised as non-current assets, at cost less depreciation and any provision for impairment (if required).

When the first tranche disposal occurs the first tranche proportion is transferred to current assets immediately prior to disposal.

expected lives are as listed below:

the depreciation on the carrying value and the depreciation on the historic cost transferred from the Revaluation Reserve to the Revenue Reserve.

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 1. Accounting Policies (contd) Impairment of fixed assets Fixed assets (mainly housing properties) are assessed for the indicators of impairment at each reporting date. Where indicators are identified a detailed assessment is then undertaken to determine the assets or cash generating units (CGU) recoverable amount. The recoverable amount will be the higher of fair value less costs to sell, or Existing Use Valuation for Social Housing (EUV-SH), or Value in Use (in respect of assets held for their service potential (VIU-SP)). As permitted by Housing SORP 2014 the Group uses depreciated replacement cost as a reasonable estimate of VIU-SP. Where the carrying amount of an asset or CGU is deemed to exceed its recoverable amount, the resulting impairment loss is recognised in other comprehensive income to the extent of any previously recognised revaluation increase accumulated in the Revaluation Reserve, in respect of that asset or CGU. If an impairment loss exceeds the accumulated revaluation gains accumulated in the Revaluation Reserve in respect of that asset or CGU, the excess will be recognised in the Income and Expenditure Account.

The Group defines CGUs as schemes except where its schemes are not sufficiently large enough in size or where it is geographically sensible to group schemes into larger CGUs. Properties for sale (including first tranche shared ownership properties) Completed properties for outright sale, the first tranche element of shared ownership properties and properties under construction are valued at the lower of cost and net realisable value. Net realisable value is based on estimated sales price after allowing for all further costs of completion and disposal.

The disposal proceeds received in respect of properties for sale is recognised in turnover, and the attributable costs are included in cost of sales.

64 - 65

Government grant Grants received in respect of completed properties at 31 March 2014 have been accounted for using the performance model. In applying this model, such grant has been presented as if it were originally recognised in the Income and Expenditure Account in the year it was receivable, and has therefore been included in brought forward Revenue Reserves.

Grant receivable subsequent to 31 March 2014 has been accounted for using the accrual model. The Grant is recognised as deferred income in the Balance Sheet, and released to the Income and Expenditure Account on a systematic basis over the useful economic life of the asset for which it was received. Usually the life of the property’s structure is used.

When a Social Housing Grant (SHG) funded property is sold the Grant becomes recyclable. If the property was acquired subsequent to 31 March 2014 the SHG is transferred to a Recycled Capital Grant Fund (RCGF) until it is reinvested in a replacement property, with the related amortisation charged to the Income and Expenditure Account. If the property was acquired prior to 31 March 2014 (i.e. the related SHG is included in brought forward Revenue Reserves) a RCGF liability is created by charging the surplus on sale with the value of the SHG to be recycled. If there is no requirement to recycle or repay the SHG on disposal of the assets any unamortised SHG remaining within creditors is released as income within the Income and Expenditure Account.

Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be estimated reliably.

Where the effect of time value of money is material the amount expected to be required to settle the obligation is recognised at the present value using a discount rate. The unwinding of the discount is recognised as a finance cost in the Income and Expenditure Account.

Contingent liabilities A contingent liability is recognised when the Group has a possible obligation, for which it is not yet confirmed that a present obligation exists that could lead to an outflow of resources. For example a contingent liability exists for grant repayment which is dependent on the disposal of the related property.

Taxation Tax is recognised in the Income and Expenditure Account, except that a charge attributable to an item of income or expense recognised in other comprehensive income is also recognised in other comprehensive income.

The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantially enacted by the reporting date.

The Association is a charitable registered society under the Cooperative and Communities Benefit Societies Act, and has charitable / public benefit objectives. The majority of the Group’s activities are not subject to Corporation Tax. Any charge for taxation is based upon taxable profit for the year and takes into account deferred tax where applicable.

2. Critical accounting judgements and estimation uncertainty Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Critical judgements in applying the Group’s accounting policies (i) Whether there are indicators of impairment Judgement is required to determine whether an event is an indicator of impairment or not. Indicators include, changes in government policy, a reduction in the market value of properties where the occupant has a right to acquire, a reduction in the

East Thames Annual Report and Financial Statements 2015/16

demand for a property, obsolescence of a property or contamination of a site. (ii) The group of assets that constitutes a cash generating unit for impairment testing

(iii) Categorisation of housing properties and investment 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 number of market rented properties should be reclassified as investment properties.

The Group participates in the Social Housing Pension Scheme (the Scheme) which has been accounted for as a defined contribution rather than a defined benefit scheme, because management are of the view that it is not possible to identify on a consistent basis the Group’s share of the underlying assets and liabilities of the Scheme. (v) Adoption of hedge accounting

(b) Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future.

The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates

The Group makes an estimate of the recoverable value of tenant and other debtors. When assessing impairment of tenant and other debtors, management considers factors including the ageing and profile of debtors and historical experience.

Other than investment properties, tangible fixed assets are depreciated over their useful lives taking into account residual values, where appropriate. The annual depreciation charge for tangible fixed assets is sensitive to changes in the estimated useful economic lives and residual values of the assets. 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. (ii) Build cost used in calculating Depreciated Replacement Cost (DRC) When calculating DRC as a reasonable estimate of Value in Use (in respect of assets held for their service potential) (VIU-SP)), the Group uses available data of the cost of constructing or acquiring replacement properties to provide the same level of service potential to the Group as the existing property being tested for impairment. (iii) Anticipated costs to complete a development scheme The cost to complete a scheme requires estimates to be made of the costs yet to be incurred. Failure to accurately estimate the total costs

(iv) Impairment of debtors

(v) Fair value estimates Valuation techniques are used to determine the fair value of financial instruments (where active quotes are not available) and non-financial assets.

This involves developing estimates and assumptions consistent with how market participants would price the instrument. Assumptions are based on observable data as far as possible but when not available, the best information currently available is used.

Adjustments relating to credit valuation adjustments for derivative contracts are accounted for using the swaption approach which is based on unobservable data. The key elements that underpin such adjustments are default probability and exposure level. (vi) Market interest rates for financing transactions On calculating the net present value of its two ÂŁ50,000,000 variable rate loans maturing in 2046 and 2048 the Group used the effective interest rate of the loans prior to the change in their terms to discount the new cash flows. The rates used were 2.358% and 2.274%.

Financial Statements

The Group has adopted hedge accounting in respect of certain interest rate swap derivative instruments.

Judgement is required in determining whether these instruments meet the requirements to be treated as effective hedges. In forming that judgement it has been determined that there is no material impact on the assessment of effectiveness arising from credit valuation adjustments for derivative contracts.

(i) Useful economic lives of tangible fixed assets

Independent auditor’s report

(iv) Determining whether a defined benefit pension scheme should be accounted for as a defined contribution scheme

of a development could result in the recognition of incorrect profits on property disposals, and potential impairments may not be detected.

Report of the Board

Judgement is required when determining the smallest identifiable group of assets that generates cash flows, that are largely independent from the cash flows of other assets or groups of assets.

and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

Strategic Report Including the Operating and Financial Review

Notes to the financial statements

East Thames Annual Report and Financial Statements 2015/16

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 3. Turnover, Cost of Sales and Operating Surplus (continued)

292

20,246

£’000

-

-

-

£’000

Turnover Cost of sales

(17,063)

-

-

(17,063)

£’000

Operating costs

(3,467)

3,798

323

292

3,183

£’000

Operating surplus / (deficit)

18,113

-

18,113

515

196

17,402

£’000

-

-

-

-

-

-

£’000

Turnover Cost of sales

(17,374)

-

(17,374)

-

-

(17,374)

£’000

Operating costs

739

-

739

515

196

28

£’000

Operating surplus / (deficit)

2015

323

-

(3,467)

331

2016

20,861

-

(20,530)

Non-social housing activities

Commercial rental income

-

-

SHPS additional liability (note 36)

Total – recurring

Group recharge

Other

20,861

Total

66 - 67

ASSOCIATION

Notes to the financial statements

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board

East Thames Annual Report and Financial Statements 2015/16

Independent auditor’s report

Notes to the financial statements 3. Turnover, Cost of Sales and Operating Surplus

Financial Statements

Homeownership

Housing management

First tranche sales

Support charges

-

1,505

123,871

-

123,871

32,435

828

370

694

-

28,500

1,613

430

-

91,436

£’000

-

-

(937)

(15,432)

-

(15,432)

(15,432)

-

-

-

-

(15,432)

-

-

-

-

£’000

Turnover Cost of sales

(824)

(824)

-

-

(75,749)

(5,020)

(70,729)

(8,638)

(854)

(490)

(722)

(434)

(3,022)

(1,613)

(1,271)

(232)

(62,091)

£’000

Operating costs

35,781

3,091

2,523

-

568

32,690

(5,020)

37,710

8,365

(26)

(120)

(28)

(434)

10,046

-

(841)

(232)

29,345

£’000

Operating surplus / (deficit)

146,369

35,690

1,777

13,180

20,733

110,679

-

110,679

20,505

868

329

853

-

15,508

2,074

643

230

90,174

£’000

(37,479)

(26,901)

-

(10,565)

(16,336)

(10,578)

-

(10,578)

(10,578)

-

-

-

-

(10,578)

-

-

-

-

£’000

Turnover Cost of sales

(71,391)

(1,703)

(742)

(17)

(944)

(69,688)

-

(69,688)

(8,679)

(1,119)

(534)

(722)

(185)

(2,095)

(2,074)

(1,696)

(254)

(61,009)

£’000

Operating costs

37,499

7,086

1,035

2,598

3,453

30,413

-

30,413

1,248

(251)

(205)

131

(185)

2,835

-

(1,053)

(24)

29,165

£’000

Operating surplus / (deficit)

2015

Other

3,347

(937)

(76,573)

2016

Total social housing - recurring

4,852

(16,369)

Total

Other income

Other property sales

Outright sale properties

Non-social housing activities

Total social housing

Abortive costs

Community involvement

Regeneration and development

Other social housing activities

Social housing letting

SHPS additional liability (note 36)

128,723

GROUP

Notes to the financial statements

East Thames Annual Report and Financial Statements 2015/16

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 4. Income and Expenditure from Social Housing Lettings (continued)

Routine maintenance

Rent payable to landlords

Support

Management

Service charge costs

Turnover

Amortisation of deferred capital grants

Revenue grants

Support charges – resident subsidy

Service charge income

Rent receivable net of identifiable service charges

(7,674)

(228)

(354)

(2,277)

(4,637)

-

-

(12,767)

(2,504)

51,567

1,123

-

4

-

2,734

47,706

£’000

General needs housing - social rent

(1,196)

(295)

-

(8)

(27)

(44)

-

-

(736)

(86)

2,518

(1)

-

-

-

110

2,409

£’000

General needs housing - affordable rent

(499)

(3,921)

(543)

(296)

(93)

(84)

(828)

-

-

(724)

(1,353)

3,422

455

-

(131)

-

1,014

2,084

£’000

(762)

(150)

(13,770)

(755)

(147)

(150)

(817)

(994)

(202)

(7,190)

(1,274)

(2,241)

13,620

425

-

4,610

1,642

2,045

4,898

Supported housing and housing for older people £’000

(47)

808

(3,686)

-

-

-

-

-

(9)

(3,069)

(597)

(11)

4,494

3

-

4,090

-

-

401

£’000

(193)

1,505

(1,587)

(477)

-

(7)

(7)

(114)

-

-

(949)

(33)

3,092

(3)

-

-

-

6

3,089

£’000

Residential Intermediate care homes housing

(649)

5,053

(6,408)

(771)

(18)

(149)

(122)

(425)

-

-

(2,733)

(2,190)

11,461

632

-

-

-

2,050

8,779

£’000

Shared ownership and ‘Rent now buy later’

(2,364)

29,165

(61,009)

(10,515)

(689)

(761)

(3,334)

(7,042)

(211)

(10,259)

(19,780)

(8,418)

90,174

2,634

-

8,573

1,642

7,959

69,366

£’000

2015 Total

Housing property depreciation Operating costs Operating surplus / (deficit)

Foyers

Planned maintenance

(30,441)

1,322

(277)

GROUP

Revenue element of major repairs expenditure

21,126

(105)

Void (losses)

68 - 69

Other income

Rent losses from bad debts

(331)

Notes to the financial statements

East Thames Annual Report and Financial Statements 2015/16

Strategic Report Including the Operating and Financial Review

Report of the Board

East Thames Annual Report and Financial Statements 2015/16

Independent auditor’s report

Notes to the financial statements 4. Income and Expenditure from Social Housing Lettings

Routine maintenance

Rent payable to landlords

Support

Management

Service charge costs

Turnover

Amortisation of deferred capital grants

Revenue grants

(7,669)

(154)

(32)

(2,994)

(5,016)

-

-

(11,617)

(2,562)

51,588

363

45

(10)

-

2,216

48,974

£’000

General needs housing - social rent

(1,368)

(273)

(31)

1

(87)

(135)

-

-

(661)

(182)

3,902

10

1

-

-

258

3,633

£’000

General needs housing - affordable rent

(498)

(3,166)

(454)

(388)

(18)

(29)

(562)

-

-

(314)

(1,401)

2,668

352

-

(12)

-

1,005

1,323

£’000

Foyers

(609)

(353)

(13,896)

(944)

7

34

(371)

(695)

(128)

(6,776)

(2,700)

(2,323)

13,543

77

26

5,088

1,033

2,096

5,223

£’000

Supported housing and housing for older people

(45)

667

(3,762)

-

-

-

-

-

-

(3,284)

(473)

(5)

4,429

-

-

4,017

-

-

412

£’000

(147)

1,367

(1,766)

(560)

(18)

(2)

(113)

(148)

-

-

(890)

(35)

3,133

25

-

-

-

64

3,044

£’000

Residential Intermediate care homes housing

(658)

4,084

(8,089)

(703)

2

(17)

(467)

(732)

-

-

(3,948)

(2,224)

12,173

1,167

36

-

-

1,855

9,115

£’000

Shared ownership and ‘Rent now buy later’

(2,430)

29,345

(62,091)

(10,603)

(582)

(34)

(4,061)

(7,288)

(128)

(10,060)

(20,603)

(8,732)

91,436

1,994

108

9,083

1,033

7,494

71,724

£’000

2016 Total

Financial Statements

Planned maintenance

(30,044)

2,534

(193)

GROUP

Revenue element of major repairs expenditure

21,544

(295)

Void (losses)

Operating surplus / (deficit)

Operating costs

Housing property depreciation

Other income

Support charges – resident subsidy

Service charge income

Rent receivable net of identifiable service charges

Rent losses from bad debts

(483)

Notes to the financial statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 5. Operating surplus GROUP The operating surplus is arrived at after charging / (crediting): Depreciation of housing properties Depreciation of other tangible fixed assets Amortisation of intangibles Amortisation of deferred capital grants

ASSOCIATION

2016

2015

2016

2015

£’000

£’000

£’000

£’000

10,603

10,515

-

-

1,136

1,503

163

424

194

214

193

215

(108)

-

-

-

44

36

44

38

122

84

-

-

39

32

-

-

-

6

-

-

Fees payable to the auditors for: Audit of the financial statements: Association Association’s subsidiaries Non-audit services: Audit related assurance Taxation advisory services

70 - 71

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 6. Surplus on property sales GROUP

Starter Home Initiative

2016 Total

£’000

£’000

£’000

£’000

£’000

43,294

3,896

1,073

1,863

50,126

(23,030)

(1,214)

(579)

(1,115)

(25,938)

Grant reinstated

(8,459)

-

-

-

(8,459)

Incidental costs

(378)

(6)

(8)

-

(392)

11,427

2,676

486

748

15,337

Housing Properties

Investment Properties

HomeBuy

Starter Home Initiative

2015 Total

£’000

£’000

£’000

£’000

£’000

19,677

-

510

1,329

21,516

(10,470)

-

(347)

(899)

(11,716)

Grant reinstated

(5,463)

-

-

-

(5,463)

Incidental costs

-

-

-

-

-

3,744

-

163

430

4,337

2016 £’000

2015 £’000

Interest receivable on deposits

125

135

Movement in fair value of financial instruments

634

-

759

135

Sales proceeds Cost of sales

Surplus

Sales proceeds Cost of sales

Surplus

7. Interest receivable and similar income GROUP

Financial Statements

HomeBuy

Independent auditor’s report

Investment Properties

Report of the Board

Housing Properties

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 8. Interest payable and similar charges GROUP

ASSOCIATION

2016 £’000

2015 £’000

2016 £’000

2015 £’000

Interest payable on borrowings

30,116

30,089

-

-

Amortisation of the net present value of a financing transaction deficit

(1,490)

(1,457)

-

-

203

117

-

-

-

-

168

1

Recycled Capital Grant Fund

80

64

-

-

Disposal Proceeds Fund

12

6

-

-

244

396

163

263

-

4,152

-

-

29,165

33,367

331

264

Interest capitalised on housing properties under construction

(1,391)

(1,606)

-

-

Interest capitalised on outright sale properties under construction

(1,080)

(517)

-

-

26,694

31,244

331

264

3,694

28,226

-

-

Amortisation of loan issue costs Loans from Group entities

Unwinding of the pension liability discount (note 36) Movement in fair value of financial instruments

Other financing costs through other comprehensive income Movement in fair value of effective interest rate swaps

72 - 73

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 9. Employees The monthly average number of persons employed during the year, is based on the assumption that a Full Time Equivalent (FTE) works 35 hours and includes employees on both permanent and fixed term contracts.

GROUP 2016 FTE

2015 FTE

2016 FTE

2015 FTE

Administration

347

376

140

166

Care staff

294

292

-

-

641

668

140

166

GROUP

Report of the Board

Average number of employees

ASSOCIATION

ASSOCIATION

2016 £’000

2015 £’000

2016 £’000

2015 £’000

22,292

20,539

6,819

6,242

-

-

(1,239)

(1,214)

22,292

20,539

5,580

5,028

2,145

2,052

666

689

-

-

(138)

(139)

2,145

2,052

528

550

5,762

1,447

3,814

845

-

-

(91)

(96)

5,762

1,447

3,723

749

30,199

24,038

11,299

7,776

-

-

(1,468)

(1,449)

30,199

24,038

9,831

6,327

Staff costs Wages and salaries

- recharged to other Group entities

Social security costs - incurred by the Group / entity - recharged to other Group entities

Independent auditor’s report

- incurred by the Group / entity

Other pension costs (note 36) - incurred by the Group / entity - recharged to other Group entities

- incurred by the Group / entity - recharged to other Group entities

Financial Statements

Total

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 9. Employees (continued) The number of staff receiving remuneration (including compensation for loss of office) in excess of £60,000 per annum at 31 March is as follows:

GROUP

ASSOCIATION

2016 FTE

2015 FTE

2016 FTE

2015 FTE

£60,000 to £69,999

14

23

5

16

£70,000 to £79,999

9

-

3

-

£80,000 to £89,999

7

7

5

4

£90,000 to £99,999

3

7

3

6

£100,000 to £109,999

1

-

-

-

£110,000 to £119,999

-

-

-

-

£120,000 to £129,999

3

3

3

2

£130,000 to £139,999

1

-

-

-

£140,000 to £149,999

-

-

-

-

£150,000 to £159,999

-

1

-

1

£160,000 to £169,999

-

1

-

1

£170,000 to £179,999

1

-

1

-

39

42

20

30

2016

2015

Gross salary of highest earner (£’000)

159

167

Gross salary of lowest earner (£’000)

16

14

1:10

1:12

Ratio of highest to lowest earners

Ratio

74 - 75

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 10. Key management personnel emoluments The key management personnel of the Association as defined under the Accounting Direction 2015 as the members of the Board of East

Thames Group Limited, including the Chief Executive and any member of the Group Executive team (Executive Board Members).

2015 £’000

76

81

2

3

78

84

Remuneration payable

41

49

Expenses reimbursed

-

-

41

49

2016 £’000

2015 £’000

171

78

-

205

393

367

564

650

45

49

609

699

Non-Executive Board Members Fees payable Expenses reimbursed

Report of the Board

2016 £’000

Non-Executive Committee members

Current Chief Executive (from 1 October 2014) Former Chief Executive (up to 30 September 2014) Other Executive Directors

Total emoluments

Financial Statements

Pension contributions

Independent auditor’s report

Executive Board members

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 10. Key management personnel emoluments (continued) Executive Board Members Basic Expenses Total salary / remuneration fees

Bonus / Pension other contributions payments

Benefits in kind

2016 Total emoluments

£’000

£’000

£’000

£’000

£’000

£’000

£’000

Yvonne Arrowsmith

159

1

160

11

14

-

185

Simon Bass

128

1

129

1

15

-

145

Olu Olanrewaju

128

-

128

6

1

-

135

Trevor Burns

125

1

126

3

15

-

144

Total

540

3

543

21

45

-

609

Bonus / Pension other contributions payments

Benefits in kind

2015 Total emoluments

Basic Expenses Total salary / remuneration fees £’000

£’000

£’000

£’000

£’000

£’000

£’000

Yvonne Arrowsmith

78

-

78

-

7

-

85

June Barnes

84

-

84

121

10

-

215

Simon Bass

125

-

125

-

15

-

140

Olu Olanrewaju

125

-

125

-

2

-

127

Trevor Burns

117

-

117

-

15

-

132

Total

529

-

529

121

49

-

699

2016 £’000

2015 £’000

14,996

15,103

£160,000

£155,000

£16,750

£16,750

£10.67

£10.26

£1.12

£1.11

The current Chief Executive is an ordinary member of the Social Housing Pension Scheme defined contribution pension scheme on the same basis as that available to all

staff, and no enhanced or special terms apply. No enhanced or special terms applied to the previous Chief Executive.

Chief Executive and Chairman’s remuneration on a £ per social housing unit basis Number of Units Remuneration of Chief Executive Chairman Chief Executive cost per Unit Chairman cost per Unit 76 - 77

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 11. Taxation on surplus on ordinary activities

United Kingdom (UK) corporation tax GROUP Adjustments in respect of prior years

Current tax reconciliation GROUP Surplus on ordinary activities before taxation Theoretical tax at UK corporation tax rate of 20% (2015: 21%)

2015 £’000

577

1,561

(190)

(2,017)

387

(456)

2016 £’000

2015 £’000

28,423

8,891

5,685

1,867

(5,004)

(3,461)

(429)

(182)

325

1,420

-

(38)

(190)

(2,017)

-

1,955

387

(456)

Report of the Board

Current tax on income for the year

2016 £’000

Effects of: Surpluses from charitable activities not chargeable to corporation tax Income from investment in joint venture not chargeable to corporation tax

Deferred tax not recognised on temporary timing differences Adjustments in respect of prior years Gift Aid Current tax charge / (credit) on surplus on ordinary activities

Independent auditor’s report

Tax on share of profit from investment in joint venture

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 12. Tangible Fixed Assets – Housing Properties GROUP

Housing Properties held for letting Completed

Housing Properties held for letting Under construction

Shared ownership and rent to buy properties held for letting Completed £’000

Shared ownership and rent to buy properties held for letting Under construction £’000

£’000

£’000

767,812

Total

£’000

61,724

185,565

13,487

1,028,588

-

31,318

-

26,455

57,773

7,000

-

18

-

7,018

-

892

-

499

1,391

Deemed cost or cost At 1 April 2015 Additions Components capitalised Interest capitalised Reclassification

4,566

(746)

(4,566)

746

-

38,337

(39,297)

10,436

(9,476)

-

(104)

(29)

(285)

-

(418)

Transfer to properties for sale

(1,776)

(1,160)

(4,768)

(8,971)

(16,675)

Redevelopment transfer

(5,536)

4,160

-

494

(882)

(14,433)

(3,733)

(8,779)

(578)

(27,523)

795,866

53,129

177,621

22,656

1,049,272

(10,306)

-

(1,352)

-

(11,658)

(9,900)

-

(703)

-

(10,603)

Schemes completed Transfer to investment properties

Disposals At 31 March 2016 Depreciation At 1 April 2015 Charge for the year Transfer to investment properties

15

-

42

-

57

Transfer to properties for sale

164

-

204

-

368

Redevelopment transfer

882

-

-

-

882

Disposals

683

-

77

-

760

(18,462)

-

(1,732)

-

(20,194)

At 1 April 2015

-

(4,833)

-

-

(4,833)

Disposals

-

3,733

-

-

3,733

At 31 March 2016

-

(1,100)

-

-

(1,100)

At 31 March 2016

777,404

52,029

175,889

22,656

1,027,978

At 31 March 2015

757,506

56,891

184,213

13,487

1,012,097

At 31 March 2016 Impairment

1

Net Book Value

Notes: 1. Prior to 31 March 2015 three development schemes were impaired due to unanticipated costs reducing the economic benefits the schemes were able to deliver.

Two schemes have been disposed of resulting in the impairment being released.

Housing Properties comprise Freehold land and buildings

2016 £’000 901,067

2015 £’000 885,319

Long leasehold land and buildings

126,911

126,778

1,027,978

1,012,097

78 - 79

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements

of value in use the Group used Depreciated Replacement Cost (DRC) as the estimation technique for measuring the recoverable amount of Units within a CGU (having regard to the service potential to such assets). In calculating the DRC the Group assumed that the current build cost would be £2,905 per sq mt.

As a result of the impairment review no Units were impaired.

Additions to Housing Properties Components capitalised Amounts charged to Income and Expenditure Account

2016 £’000

2015 £’000

7,018

3,370

34

761

7,052

4,131

Properties charged as security The borrowings are secured by fixed charges on the Group’s housing properties. At the year end 10,403 (2015: 10,679) properties were charged as loan security.

13. Investment Properties GROUP

£’000

At 1 April 2015

18,490

Additions

21

Transfer from fixed assets

361 (1,214)

Revaluation surplus

1,096

At 31 March 2016

18,754

were valued using an internal expert.

All the valuations were undertaken in accordance with the Appraisal and Valuation Manual of the Royal Institute of Chartered Surveyors.

Financial Statements

Disposals

Investment properties were valued on 31 March 2016. One property with a value at 31 March 2016 of £6,078,000 (2015: £5,004,000) was valued by professional external valuers. The remaining properties

Independent auditor’s report

Additions to Housing Properties during the year included capitalised interest of £1,391,000 (2015: £1,606,000). The capitalisation rate used was 3.5% (2015: 3.5%).

At 31 March 2014 a number of properties were incorrectly valued resulting in an overstatement of the valuation of £2,638,000. This overstatement was reversed at 31 March 2015 as part of the valuation adjustment as at that date. At 31 March 2015 the valuation deficit in respect of these properties was not reversed as part of the FRS 102 adjustments to ensure that the properties were correctly stated at that date.

Report of the Board

Impairment Following the Governments Budget on 8 July 2015, which reduced the income from social housing rents for four years, all Cash Generating Units (CGUs) were tested for impairment. In determining the CGU, the main factors considered were the management of properties, location and the overall development programme. The most appropriate CGU was considered to be scheme level. Having fully considered net realisable value and other measures

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 14. Tangible Fixed Assets – Other GROUP

Freehold Equipment IT office and equipment furniture £’000 £’000 £’000

Motor Estate vehicles equipment

Total

£’000

£’000

£’000

Cost At 1 April 2015

30,573

2,736

4,902

68

267

38,546

Additions

-

-

66

-

375

441

Disposals

-

-

-

(68)

-

(68)

30,573

2,736

4,968

-

642

38,919

(6,758)

(2,464)

(4,704)

(68)

-

(13,994)

(933)

(60)

(115)

-

(28)

(1,136)

-

-

-

68

-

68

(7,691)

(2,524)

(4,819)

-

(28)

(15,062)

At 31 March 2016

22,882

212

149

-

614

23,857

At 31 March 2016

23,815

272

198

-

267

24,552

Equipment IT and equipment furniture £’000 £’000

Total

At 31 March 2016 Depreciation At 1 April 2015 Charge for the year Disposals At 31 March 2016 Net book value

ASSOCIATION

£’000

Cost At 1 April 2015

2,084

4,901

6,985

-

67

67

2,084

4,968

7,052

(1,953)

(4,704)

(6,657)

Charge for the year

(48)

(115)

(163)

At 31 March 2016

(2,001)

(4,819)

(6,820)

At 31 March 2016

83

149

232

At 31 March 2015

131

197

328

Additions At 31 March 2016 Depreciation At 1 April 2015

Net book value

None of the above assets are pleged in resoect of any liability.

80 - 81

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 15. Intangible Assets GROUP

ASSOCIATION

£’000

£’000

5,208

5,208

57

57

5,265

5,265

(4,502)

(4,503)

Charge for the year

(194)

(193)

At 31 March 2016

(4,696)

(4,696)

At 31 March 2016

569

569

At 31 March 2015

706

705

Major Software At 1 April 2015 Additions At 31 March 2016

Report of the Board

Cost

Amortisation At 1 April 2015

Net book value

Independent auditor’s report Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 16. Group Entities ASSOCIATION

£’000

At 31 March 2015 and 31 March 2016

13

The Association has interests in the following Group entities: Name of entity

Country of incorporation

Nature of business

Interest

East Homes Limited 1

United Kingdom

Registered provider of social One share held out of six housing

East Living Limited 1

United Kingdom

Provides care and supported housing

East Potential Limited 1

United Kingdom

Manages foyers and One member out of five neighbourhood regeneration programmes

East Regen Limited

United Kingdom

Provision of design and build services

100% ordinary shares

East Place Limited 2

United Kingdom

Property investment and property management

100% ordinary shares

East Thames Partnership Limited 2

United Kingdom

Development of housing for both market sale and social housing

100% ordinary shares

East Finance plc

United Kingdom

Finance raising and provision of treasury services

100% ordinary shares

East Treasury Limited

United Kingdom

Finance raising and provision of treasury services

100% ordinary shares

East Homes Services Limited 2,3

United Kingdom

Cost sharing company

90% ordinary shares

One share held out of five

Notes: 1. The shares in these subsidiaries provide the right to vote at general meetings but do not give any rights to dividends, redemption of share capital or distribution on winding up. The remaining shares / members in these entities are held by the Board Members and independent shareholders. As a consequence East Thames Group Limited exercises control over these entities.

2. Interest held by East Homes Limited.

3. The remaining 10% of the ordinary share capital of East Homes Services Limited is controlled by Triathlon Homes LLP a joint venture entity of the Group.

82 - 83

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 17. Shared equity GROUP

£’000

At 1 April 2015 and 31 March 2016

1,844

In 23 cases, an incentive payment was made to leasehold tenants, in the form of a loan, to cover the shortfall in the purchase price of a new property. The

full purchase price of these properties was £8.6 million. The loan was provided to the leaseholders on the same basis as the HomeBuy scheme.

Report of the Board

To enable the modernisation of the Ocean Estate, several properties were decanted to facilitate the demolition of the estate on a block by block basis.

18. HomeBuy and Starter Home Initiative

£’000

At 1 April 2015

17,602

Disposals

(1,694)

At 31 March 2016

15,908

HomeBuy and Starter Home Initiative are terms used to describe a programme of low cost home ownership products where a loan is provided by the Group to the purchaser of a property at a zero interest rate. The programme is funded by government grant. The

loan made to the purchaser has no fixed repayment date and there are no monthly repayment requirements. The Group shares in any future capital gain realised on redemption of the loan, which will be when the property is sold or if the purchaser chooses to repay the loan without selling the property.

In the circumstances where the purchaser chooses to repay the loan without selling the property, the value of the loan to be repaid is based on the property market value at that date. Any capital loss realised on the redemption of the loan will be offset against the government grant.

Independent auditor’s report

GROUP

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 19. Joint Venture The Group has a one third interest in Triathlon Homes LLP. Triathlon Homes LLP has been accounted for as a joint venture entity because

strategic financial and operating decisions relating to the entity require the unanimous consent of the parties sharing control.

As Triathlon Homes LLP has net liabilities and the Group has no legal obligation to fund these liabilities, the equity method of accounting has not been applied, and the net liabilities have not been recognised.

GROUP share of joint venture’s income and expenditure

2016 £’000

2015 £’000

Turnover

6,250

20,156

(3,535)

(10,857)

2,715

9,299

(3,164)

(874)

(449)

8,425

-

(3,282)

(449)

5,143

2016 £’000

2015 £’000

77,480

79,503

6,575

11,915

Total assets

84,055

91,418

Creditors: amounts falling due within one year

(3,351)

(5,367)

Creditors: amounts falling due after one year

(87,415)

(90,169)

(90,766)

(95,536)

-

500

(90,766)

(95,036)

(6,711)

(3,618)

Operating costs Operating surplus Interest payable (Loss) / profit on ordinary activities before and after taxation Other comprehensive income Changes in value of effective hedges Total comprehensive income

GROUP share of joint venture’s assets and liabilities Fixed assets Current assets

Members Capital Loan Total liabilities Net liabilities

84 - 85

East Thames Annual Report and Financial Statements 2015/16

GROUP net investment in joint venture At 1 April Total comprehensive income Loss not recognised as Triathlon Homes LLP not equity accounted

At 31 March During the year ended 31 March 2016, Triathlon Homes LLP made a distribution of £2,144,000 to the Group. This distribution was broadly

2015 £’000

500

500

(449)

(5,143)

449

5,143

(500)

-

-

500

to recompense the Group for the tax charge arising in the prior year in respect of Triathlon Homes LLP profits which are taxable in the Group.

Report of the Board

Repayment of the Members Capital Loan

2016 £’000

Strategic Report Including the Operating and Financial Review

Notes to the financial statements

20. Properties for sale GROUP Shared Ownership properties – completed

2015 £’000

292

4,886

10,969

5,500

11,261

10,386

-

-

31,354

20,789

31,354

20,789

42,615

31,175

Outright Sale properties – completed – under construction

None of the above properties are pledged as security in respect of any liability.

Independent auditor’s report

– under construction

2016 £’000

21. Debtors: due within one year GROUP

ASSOCIATION 2015 £’000

2016 £’000

2015 £’000

2,548

3,612

-

-

(1,344)

(1,436)

-

-

1,204

2,176

-

-

Other debtors

2,877

4,014

466

245

Prepayments and accrued income

5,308

6,574

378

444

-

-

10,752

10,002

9,389

12,764

11,596

10,691

Arrears of rent and service charges Less: Provision for bad and doubtful debts

Amounts due from Group entities

Financial Statements

2016 £’000

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 22. Cash at bank and in hand Cash at bank and in hand includes restricted cash balances of £18,268,000 (2015: £20,272,000). £11,219,000 (2015: £14,124,000) is

held as collateral in respect of interest rate swaps. The remaining £7,409,000 (2015: £6,148,000) is held in a sinking fund on behalf of leaseholders.

23. Creditors: amounts falling due within one year GROUP

ASSOCIATION

2016 £’000

2015 £’000

2016 £’000

2015 £’000

6,145

6,136

-

-

– unamortised loan deficit

1,535

1,490

-

-

– unamortised issue costs

(207)

(203)

-

-

7,473

7,423

-

-

-

-

3,176

-

SHPS pension deficit liability (note 36)

2,063

1,541

1,369

1,011

Rent and service charges received in advance

2,384

2,223

-

-

378

1,521

-

-

-

-

583

5,783

678

760

279

581

8,639

9,724

729

1,038

17,283

21,871

2,124

1,374

786

-

-

-

4,462

3,016

-

-

Disposal proceeds fund (note 26)

705

175

-

-

Deferred capital grants (note 27)

218

175

-

-

45,069

48,429

8,260

9,787

Borrowings – principal (note 28)

Bank overdraft

Corporation tax Amount due to Group entities Other taxation and social security Other creditors Accruals and deferred income Retentions and uncertified work Recycled capital grant fund (note 25)

86 - 87

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 24. Creditors: amounts falling due after one year GROUP

ASSOCIATION 2015 £’000

537,356

533,501

-

-

– unamortised loan deficit

52,398

53,933

-

-

– unamortised issue costs

(3,778)

(3,985)

-

-

585,976

583,449

-

-

120,571

123,492

-

-

15,056

11,959

10,175

7,985

-

-

3,050

3,050

6,830

6,135

-

-

-

1,196

-

-

2,205

299

-

-

14,158

10,431

-

-

Disposal proceeds fund (note 26)

1,614

1,560

-

-

Deferred capital grants (note 27)

61,179

56,142

-

-

807,589

794,663

13,225

11,035

GROUP

2016 £’000

2015 £’000

At 1 April

13,447

10,612

Grant reinstated on property disposals (note 6)

7,538

4,778

Grant transferred from deferred grant on property disposals (note 27)

1,793

-

80

64

Utilised on purchase / development of new properties (note 27)

(4,238)

(2,007)

At 31 March

18,620

13,447

Amounts due within one year

4,462

3,016

Amounts due after one year

14,158

10,431

18,620

13,447

Amounts three years old or older where repayment may be required

4,696

1,563

Amount due to the Homes and Communities Agency

1,872

1,000

16,748

12,447

18,620

13,447

Borrowings – principal (note 28)

Derivatives (note 29) SHPS pension deficit liability (note 36) Amount due to Group entities Amount due to leaseholders Other creditors Accruals and deferred income Recycled capital grant fund (note 25)

25. Recycled Capital Grant Fund

Interest accrued

Amount due to Greater London Authority

Financial Statements

2016 £’000

Independent auditor’s report

2015 £’000

Report of the Board

2016 £’000

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 26. Disposal Proceeds Fund GROUP

2016 £’000

2015 £’000

At 1 April

1,735

1,044

921

685

12

6

(349)

-

2,319

1,735

705

175

1,614

1,560

2,319

1,735

350

175

-

-

2,319

1,735

2,319

1,735

Grant recycled on property disposals (note 6) Interest accrued Utilised on purchase / development of new properties (note 27) At 31 March Amounts due within one year Amounts due after one year Amounts three years old or older where repayment may be required Amount due to the Homes and Communities Agency Amount due to Greater London Authority

88 - 89

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 27. Deferred capital grants GROUP

Properties under construction

Total

£’000

£’000

£’000

30,777

25,540

56,317

Additions

847

1,968

2,815

Reduction in grant receivable

(90)

(22)

(112)

13,004

(13,004)

-

Transfer from recycled capital grant fund (note 25)

108

4,130

4,238

Transfer from disposals proceeds fund (note 25)

175

174

349

(1,743)

(50)

(1,793)

-

(309)

(309)

43,078

18,427

61,505

-

-

-

Amortisation for the year

(108)

-

(108)

At 31 March 2016

(108)

-

(108)

At 31 March 2016

42,970

18,427

61,397

At 31 March 2015

30,777

25,540

56,317

218

-

218

42,752

18,427

61,179

42,970

18,427

61,397

175

-

175

30,602

25,540

56,142

30,777

25,540

56,317

Grant At 1 April 2015

Transfer on completed scheme

Transfer to recycled capital grant fund (note 25) Repaid At 31 March 2016

Report of the Board

Completed properties

Amortisation At 1 April 2015

At 31 March 2016 – Amounts due within one year – Amounts due after one year At 31 March 2015 – Amounts due within one year – Amounts due after one year

Independent auditor’s report

Net Book Value

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 28. Borrowings GROUP Financial liabilities measured at amortised cost Fixed Rate Debt Instruments

2016 £’000

2015 £’000

Rate

Maturity

Repayment

Bank loan (see below)

4.47%

Jan 2068

On maturity

50,000

50,000

Building Society loan

4.51%

Mar 2036

Instalments

15,000

15,000

Capital Markets issue

10.98%

Sep 2019

Instalments

1,321

1,337

Capital Markets issue

10.65%

Mar 2037

Instalments

5,380

5,450

Capital Markets issue

5.49%

Jun 2042

Instalments

250,000

250,000

321,701

321,787

Variable Rate Debt Instruments

Margin over LIBOR

Maturity

Repayment

Bank loan

0.28%

Jan 2038

Instalments

10,000

-

Bank loan

0.25%

May 2038

Instalments

25,000

25,000

Bank loan

3.12%

Jun 2046

Instalments

50,000

50,000

Bank loan

3.35%

Jan 2048

Instalments

50,000

50,000

Building Society loan

0.38%

Mar 2036

Instalments

86,800

92,850

221,800

217,850

543,501

539,637

Net present value deficit of loan maturing in 2046

23,995

24,684

Net present value deficit of loan maturing in 2048

29,938

30,739

53,933

55,423

Unamortised issue costs

(3,985)

(4,188)

Total financial liabilities

593,449

590,872

Total financial liabilities measured at amortised cost

Net present value of loans maturing in 2046 and 2048 In the year ended 31 March 2013 the Group renegotiated the terms of two £50,000,000 variable rate loans maturing in 2046 and 2048 with the Lender. The Group agreed to an increase in the margin on the interest rate payable in return the Lender terminated a number of interest rate swaps. The change in terms was considered sufficiently substantial for

90 - 91

the two loans to be derecognised and new debt instruments to be recognised.

As the interest rate that these new instruments incur is not a market rate the debt instruments have been accounted for as a financing transaction. The future cash flows of the new debt instruments were discounted using the effective interest

rate the loans were incurring prior to the change of the terms of the loans, being 2.358% and 2.274%, respectively. This gave a net present value of the two loans of £26,014,000 and £32,289,000 at 31 March 2013, over the nominal values of the loans.

The net present value deficits will be amortised over the life of the loans using the effective interest method.

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements Bank loan January 2068 This is a Lender Option Borrower Option (LOBO) loan which may be repaid earlier under certain conditions (see note 29).

Maturity profile of the borrowings Payable by instalment £’000

Payable on maturity £’000

Total £’000

Less than one year

6,145

-

6,145

Between one and two years

6,156

-

6,156

Between two and five years

35,878

-

35,878

In more than five years

195,322

300,000

495,322

In more than one year

237,356

300,000

537,356

Total

243,501

300,000

543,501

Less than one year

6,136

-

6,136

Between one and two years

6,145

-

6,145

Between two and five years

29,241

-

29,241

In more than five years

198,115

300,000

498,115

In more than one year

233,501

300,000

533,501

Total

239,637

300,000

539,637

2016

Report of the Board

GROUP

2015

Of the unamortised issue costs £207,000 (2015: £203,000) will be amortised within one year.

Financial Statements

Security The borrowings are secured by fixed charges on the Group’s housing properties. At the year end 10,403 (2015: 10,679) properties were charged as loan security.

Independent auditor’s report

Of the unamortised loan deficit £1,535,000 (2015: £1,490,000) will be amortised within one year.

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 29. Derivatives GROUP

Fixed rate

Maturity

Effective Hedges Interest rate swap paying fixed Interest rate swap paying fixed Interest rate swap paying fixed Interest rate swap paying fixed Interest rate swap paying fixed Interest rate swap paying fixed Interest rate swap paying fixed Interest rate swap paying fixed Interest rate swap paying fixed

4.41% 3.39% 4.23% 4.61% 4.64% 4.19% 3.92% 3.95% 4.35%

Dec 2030 Oct 2038 Mar 2037 Jul 2037 Jul 2037 Dec 2035 Aug 2048 Aug 2048 Sep 2037

Ineffective Hedges Interest rate swap paying fixed Interest rate swap paying variable Interest rate swap paying fixed Interest rate swap paying variable Interest rate swap paying fixed Interest rate swap paying variable Interest rate swap paying fixed Interest rate swap paying variable Interest rate swap paying fixed Interest rate swap paying variable Interest rate swap paying fixed Interest rate swap paying variable

5.03% 2.23% 4.59% 2.56% 4.62% 2.53% 4.67% 2.52% 4.77% 2.74% 4.35% 2.54%

Jan 2029 Jan 2029 Apr 2038 Apr 2038 Jan 2037 Jan 2037 Dec 2037 Dec 2037 Dec 2035 Dec 2035 Dec 2035 Dec 2035

Retail Price Index swap paying floating

3.99%

Aug 2038

LOBO Written Options Interest rate swap paying fixed Interest rate swap paying fixed Interest rate swap paying fixed

4.27% 4.62% 4.51%

Jan 2068 Jan 2068 Jan 2068

Nominal value £’000 20,000 10,000 15,000 15,000 15,000 20,000 10,000 10,000 15,000 130,000

Fair value 2016 £’000 7,191 3,160 6,459 7,560 7,647 7,178 4,727 4,972 6,866 55,760

Fair value 2015 £’000 6,971 2,777 6,038 7,150 7,235 6,861 4,199 4,394 6,441 52,066

10,000 10,000 30,000 30,000 15,000 15,000 15,000 15,000 20,000 20,000 20,000 20,000 220,000 20,000 240,000

4,017 (951) 15,342 (5,660) 7,422 (2,600) 7,649 (2,611) 9,966 (4,014) 8,601 (3,313) 33,848 33,848

3,891 (664) 14,392 (4,227) 7,021 (1,954) 7,209 (1,913) 9,382 (3,114) 8,079 (2,509) 35,593 9,454 45,047

15,000 15,000 20,000 50,000

3,623 3,280 4,911 11,814 101,422 (19,149) 120,571 101,422

3,743 3,167 5,088 11,998 109,111 (14,381) 123,492 109,111

Total Financial Assets Financial Liabilities As above LOBO Written Options Until the 29 June 2016 the lender had the option to re-price the first £15,000,000 tranche annually in February until maturity in 2068. The other two tranches of £20,000,000 and £15,000,000 could have been re-priced in February 2018 (and every 92 - 93

two years thereafter until maturity), and February 2023 (and every five years thereafter until maturity), respectively. If the Group did not wish to accept the new rate, the Group had 12 months to repay the loan. On 29 June 2016 the lender unilaterally decided to waive all its future rights to re-price the loans.

Derivatives terminated During the year the Retail Price Index swap was terminated by the Group making a payment of £10,749,000 to the counterparty.

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 30. Provision for liabilities and charges GROUP

Other

Total

£’000

£’000

£’000

247

272

519

Amounts charged to the Income and Expenditure Account

-

50

50

Released in the year against expenditure

-

-

-

(122)

-

(122)

125

322

447

2016 £

2015 £

At 1 April

5

5

Shares issued during the year

1

2

(1)

(2)

5

5

At 1 April 2015

Unused amounts reversed in the year At 31 March 2016 Dilapidations The provision represents the estimated costs that will be incurred to return an office previously rented by the Group to a suitable condition. It is anticipated that the amount will be agreed in the year ended 31 March 2018.

Other The provision relates to the estimated legal and repair costs owed to tenants at one of the Group’s property schemes. It is anticipated that the amount will be agreed in the year ended 31 March 2018.

Report of the Board

Dilapidations

31. Share capital Shares of £1 each issued and fully paid

Shares surrendered during the year At 31 March The shares provide members with the right to vote at general meetings, but do not provide any rights to dividends, redemptions of capital or distributions on a winding up. Shares in issue are not capable of being repaid

Independent auditor’s report

ASSOCIATION

or transferred. Where a shareholder ceases to be a member, that person’s share is cancelled and the amount paid up thereon becomes the property of the Association.

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 32. Capital commitments GROUP

2016 £’000

2015 £’000

Contracted for but not provided in the financial statements

116,198

205,243

Authorised by the Board but not contracted for

310,257

195,565

Expenditure

The expenditure will be funded from loan facilities (£187,800,000) and grants (£24,652,000). The Group’s treasury management policy requires minimum funding facilities for 12 month’s trading activities and this is monitored through

weekly cash flow forecasts. Sufficient funding to cover the full committed spend of £116,198,000 is in place at the date of signing these financial statements.

33. Contingent liabilities The Association has provided certain financial guarantees in connection with the trading obligations of East Regen Limited, a subsidiary of the Association.

At 31 March 2016 these guarantees amounted to £60,410,000 (2015: £3,100,000).

The Group has a contingent liability in respect of Social Housing Grant and Other Capital Grants (Grant) that have been released to the Income and Expenditure Account, either through the performance model or the accruals

GROUP At 1 April Grant amortised in the year Reinstated on disposal of properties Grant amortisation released on property disposals At 31 March

94 - 95

model. A liability will be recognised where a property that was funded by way of Grant is disposed. The movements on the contingent liability are set out below:

2016 £’000

2015 £’000

634,979

640,442

108

-

(8,756)

(5,463)

-

-

626,331

634,979

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 34. Legal status

35. Related party transactions GROUP At 31 March 2016 there was one (2015: one) member of the Board who had a tenancy agreement with a subsidiary of the Group. The tenancy agreement has been granted on the same terms

as for all other tenants, and the housing management procedures, including those relating to the management of arrears are applied consistently to all tenants. At 31 March 2016 there was no rent outstanding (2015: £nil).

As permitted by FRS 102 Paragraph 33.1A, the Association has not presented details of related party transactions with other companies that are wholly owned within the Group.

Report of the Board

East Thames Group Limited is registered under the Cooperative and Community Benefit Societies Act 2014 and is registered with the Homes and Communities Agency (HCA) (Number LH4309) as a Private Registered Provider of Social Housing.

Income from non-wholly owned Group members Nature of transaction

2016 £’000

2015 £’000

East Homes Services Limited

Housing management services

828

805

Triathlon Homes LLP

Administration fees

-

287

Triathlon Homes LLP

Interest

-

40

828

1,132

2016 £’000

2015 £’000

44

83

44

83

Expenditure with non-wholly owned Group members Entity

Nature of transaction

East Homes Services Limited

Fees

Independent auditor’s report

Entity

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 35. Related party transactions (continued) ASSOCIATION The Association recharges its net cost (costs less income) to each of the Group’s entities. The net costs are the running costs of the Group’s head office at West Ham Lane and shared

services (including finance, human resources, information technology, internal audit, risk management, health and safety, marketing, etc.). The amounts are recharged on the basis of a number of factors including staff

numbers, computers used, etc.

The Association recharged £20,246,000 (2015: £17,402,000) to Group entities. The amounts charged to non-Private Registered Providers were as follows:

Entity

2016 £’000

2015 £’000

East Living Limited

1,645

1,909

East Potential Limited

129

300

East Place Limited

259

170

East Treasury Limited

-

-

East Finance plc

-

-

1,804

1,409

East Thames Partnership Limited

-

-

East Homes Services Limited

-

-

3,837

3,788

East Regen Limited

96 - 97

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements 36. Pension schemes Pension Scheme which are both multiemployer schemes. Both schemes are accounted for as defined contribution schemes because it is not possible to identify the Group’s share of the underlying assets and liabilities on a consistent and reasonable basis.

Scheme) have been closed to new employees and existing employees not already in the scheme; these employees are eligible to contribute to a defined contribution scheme run by the Pension Trust. All further service accruals to these defined benefit schemes ceased on 1 July 2014.

From 1 April 2008 both defined benefit schemes (SHPS and the NHS Pension

GROUP The amount recognised in the Income and Expenditure Account

Report of the Board

The Group participates in three pension schemes, two providing benefits based on final pensionable pay (defined benefit schemes), and a scheme providing benefits based on contributions made (a defined contribution scheme). The defined benefit schemes that the Group participates in are the Social Housing Pension Scheme (SHPS) and the NHS

ASSOCIATION

2016 £’000

2015 £’000

2016 £’000

2015 £’000

4,947

671

3,396

433

815

776

327

316

5,762

1,447

3,723

749

Charged in operating profit Defined benefit scheme Defined contribution scheme

the trustees and the participating employers have agreed additional contributions will be paid to the Scheme. The agreed future payments have been recognised at their present value using the market yields on high quality bonds. The discount rate used was 2.06% (2015: 1.92%, 2014: 3.02%).

Independent auditor’s report Financial Statements

Defined benefit schemes – accounted for as a defined contribution scheme (i) Social Housing Pension Scheme documents issued by the Pensions The Group participates in the Social Regulator and Technical Actuarial Housing Pension Scheme (the Standards issued by the Financial Scheme). The Scheme is funded and Reporting Council, set out the contracted-out of the State Pension framework for funding defined benefit Scheme. occupational pension schemes in the UK. It is not possible in the normal course of events to identify on a consistent The Scheme is classified as a ‘last-man and reasonable basis the share of standing arrangement’. Therefore, the the underlying assets and liabilities Association is potentially liable for other belonging to individual participating participating employers’ obligations if employers. This is because the those employers are unable to meet Scheme is a multi-employer Scheme their share of the Scheme deficit where the Scheme assets are cofollowing withdrawal from the Scheme. mingled for investment purposes, and Participating employers are legally benefits are paid from total Scheme required to meet their share of the assets. Accordingly, due to the nature Scheme deficit on an annuity purchase of the Scheme, the Scheme has been basis on withdrawal from the Scheme. accounted for as a defined contribution plan.

A full actuarial valuation for the Scheme was carried out at 30 September 2011.

The Scheme is subject to the funding The actuarial valuation showed assets legislation outlined in the Pensions Act of £2,082 million, liabilities of £3,097 2004 which came into force on 30 million and a deficit of £1,035 million.

December 2005. This, together with To eliminate this funding shortfall,

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 36. Pension schemes (continued) Defined benefit schemes – accounted for as a defined contribution scheme (i) Social Housing Pension Scheme

GROUP The amount recognised in the Income and Expenditure Account

ASSOCIATION

2016 £’000

2015 £’000

2016 £’000

2015 £’000

At 1 April

13,500

13,942

8,996

9,271

Deficit contributions paid

(1,541)

(1,479)

(1,011)

(971)

(104)

641

(72)

433

5,020

-

3,468

-

4,916

641

3,396

433

244

396

163

263

17,119

13,500

11,544

8,996

Amount due within one year

2,063

1,541

1,369

1,011

Amount due after one year

15,056

11,959

10,175

7,985

17,119

13,500

11,544

8,996

Charged to staff costs impact of change in discount rate impact of change in amount payable Charged to interest payable Unwinding of the discount factor At 31 March Analysed as follows:

Non-recurring item During the year ended 31 March 2016, the Group was informed by the Scheme that the Group would be required to make additional contributions to reduce the deficit. The additional payment is £458,000 per

annum, commencing in the year ended 31 March 2017 for 10.5 years. The payments increase by 3.0% annually.

The net present value of these future payments is £5,020,000, and this has been treated as a non-recurring item for the year.

GROUP

ASSOCIATION

The amount recognised as an expense was:

2016 £’000

2015 £’000

2016 £’000

2015 £’000

Current period charge

4,916

641

3,396

433

98 - 99

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements

(ii) NHS Pension Scheme The NHS Pension Scheme is a statutory multi-employer scheme, with benefits fully guaranteed by the government. Contributions from both

members and employers are paid to the exchequer, which meets the cost of the scheme benefits. The exchequer also pays for the costs of increasing benefits each year by the

rate of inflation. This cost is not met by contributions from scheme members or employers. As a consequence the scheme is accounted for as a defined contribution scheme.

Current period charge

2016 £’000

2015 £’000

31

30

Report of the Board

The amount recognised as an expense was: GROUP

Defined contribution scheme

Social Housing Pension Scheme GROUP The amount recognised as an expense was:

2016 £’000

2015 £’000

2016 £’000

2015 £’000

815

776

327

316

Independent auditor’s report

Current period charge

ASSOCIATION

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 37. Units of accommodation in management GROUP

2016 Number

2015 restated Number

7,707

7,716

444

341

222

440

1,123

1,137

89

89

310

393

2,232

2,202

12,127

12,318

707

707

68

69

Intermediate rent

296

296

Low cost home (shared) ownership

379

401

1,450

1,473

13,577

13,791

46

56

118

108

1,205

1,120

21

21

1,390

1,305

29

7

1,419

1,312

14,996

15,103

Social housing Owned General needs housing – social rent – affordable rent Foyers Supported housing Residential care homes Intermediate rent Shared ownership and ‘rent now buy later’ Accommodation managed for others General needs housing – social rent Supported housing and housing for older people

Total social housing owned or managed Non social housing Owned Market rent * Temporary housing Fully staircased (long leasehold) properties Shared equity Accommodation managed for others Fully staircased (long leasehold) properties Total non social housing owned or managed Total social and non social housing owned or managed

* included in investment properties.

100 - 101

East Thames Annual Report and Financial Statements 2015/16

38. Post balance sheet event On 29 June 2016 the Group was informed by the lender of its LOBO loans (see notes 28 and 29) that it had unilaterally waived all its future rights to re-price the LOBO loans. As a consequence, these instruments will be subject to a substantial modification in the year ending 31 March 2017 which may have a material impact on the Income and Expenditure Account; although no cash flows have arisen as

a consequence of such modifications.

The impact has not yet been fully evaluated being dependent upon the determination of respective fair values relating to the original and modified arrangements.

Report of the Board

On 6 April 2016 the Association announced that it had entered into merger negotiations with L&Q and Hyde. On 4 August 2016 Hyde withdrew from the negotiations, with L&Q and East Thames remaining in talks. The Board Members believe that whether or not the negotiations result in a merger or not there is unlikely to be a significant impact on the Assocation’s financial position.

Strategic Report Including the Operating and Financial Review

Notes to the financial statements

39. Reconciliation of the previous Financial Reporting Framework to FRS 102 The Group’s transition date for the adoption of FRS 102 is 1 April 2014.

The transition date has been selected in accordance with FRS 102 Paragraph 35.6.

B. Recognition of the net present value of two loans renegotiated in the year ended 31 March 2013. Taking

C. Debt issue costs are required to be amortised using the Effective Interest Method rather than the straight line method previously used; D. Property, Plant and Equipment (Housing) is now carried at depreciated historical cost rather than being revalued annually. As allowed by FRS 102 Paragraph 35.10 (d) the Association has used the external valuation at 31 March 2014 as the deemed cost. This deemed cost is depreciated over the remaining useful economic lives of each property; E. Derecognition of the investment in Triathlon Homes LLP (which was previously accounted for as a joint venture using equity accounting), as a result of the transition to FRS 102 the net assets of Triathlon Homes LLP became negative following the recognition of the fair values of a number of financial instruments. The Group has no contractual obligation to fund net liabilities;

G Revaluations on Investment Properties are recognised in the Income and Expenditure Account (rather than directly to Reserves as previously); H. Short-term Employee Benefits (such as holiday and sick pay) are accrued as the employees become entitled to them; and I. Where the Group has a contractual agreement to fund a deficit of a multi-employer pension plan (Long-term Employee Benefits) it recognises a liability for the discounted contributions payable.

Financial Statements

A. Fair valuing a number of Financial Instruments. Depending upon their nature the changes in their fair value will either be recognised in the Income and Expenditure Account or within Other Comprehensive Income; Where there is an economic relationship between the interest rate swap and the debt instrument, the interest rate swap is accounted for using hedge accounting. To the extent that the hedge is effective, movements in the interest rate swap fair value (other than adjustments for the Group or counter-party’s credit risk) are recognised in other comprehensive income and presented in a separate cash flow hedge reserve. Any movements in fair value relating to ineffectiveness and adjustments for the Groups or counter party credit risk are recognised in the Income and Expenditure Account;

F. Social Housing Grant (SHG) is now recognised as a liability within deferred income rather than being netted off against the cost of Property, Plant and Equipment (Housing) in Tangible Fixed Assets. As a consequence of the Association adopting a previous revaluation of its Housing Properties at the date of transition, SHG at that date has been accounted for using the Performance Model (i.e.

SHG has been released to the Income and Expenditure Account).

SHG received subsequent to the transition date has been accounted for using the Accruals Model (i.e. the SHG is amortised over the useful economic life of the structure of the property to which it relates);

Independent auditor’s report

The principal differences for the Group between reporting under FRS 102 and the previous Financial Reporting Framework (UK GAAP) as at 1 April 2014 are:

together the provisions of previously applied GAAP (under which no derecognition event was deemed to have arisen) with the requirements of FRS 102 regarding the valuation of financial instruments, the additional liability has been recognised as a transitional adjustment – calculated to reflect the present value of future cash flows;

East Thames Annual Report and Financial Statements 2015/16

Notes to the financial statements 39. Reconciliation of the previous Financial Reporting Framework to FRS 102 (continued) Reconciliation of the Group’s Financial Position at 31 March

2015 £’000

2014 £’000

585,712

511,205

(A) Recognition of Derivative Instruments

(109,111)

(76,733)

(B) Recognition of the net present value of financing transactions

(55,423)

(56,880)

342

283

(D) Reverse 2015 Revaluation Surplus

(20,352)

-

(E) Derecognition of Triathlon Homes LLP

(40,157)

(4,492)

(F) Recognition of Recycled Grant on property disposals

(3,594)

-

(D) Impairment of properties (reversal of previous surpluses)

(2,738)

-

(271)

-

(D) Increased depreciation charge

(1,527)

-

(H) Employee Benefits: short-term

(306)

(306)

(13,500)

(13,942)

(246,637)

(152,070)

339,075

359,135

Surplus for the year £’000

Total comprehensive income £’000

24,607

74,507

(4,152)

(32,378)

1,457

1,457

59

59

-

(20,352)

(E) Derecognition of Triathlon Homes LLP

(6,447)

(35,665)

(F) Derecognition of Recycled Grant on property disposals

(3,594)

(3,594)

-

(2,968)

230

230

(271)

(271)

(D) Increased depreciation charge

(1,527)

(1,527)

(H) Employee Benefits: short-term

-

-

442

442

(13,803)

(94,567)

10,804

(20,060)

Total net assets as determined by the previous accounting framework FRS 102 Adjustments

(C) Loan Fee Amortisation using Effective Interest Method

(G) Revaluation deficit on investment properties

(I) Employee Benefits: post-employment Financial Position as determined by FRS 102 Reconciliation of the Group’s Financial Performance for the year ended 31 March 2015

Financial Performance as determined by the previous accounting framework FRS 102 Adjustments (A) Movement in the fair value of Derivative Instruments (B) Amortisation of the net present value of financing transactions (C) Loan Fee Amortisation using Effective Interest Method (D) Reverse 2015 Revaluation Surplus

(D) Impairment of properties (reversal of previous surpluses) (D) Reduced book values on disposal of properties (G) Revaluation deficit on investment properties

(I) Employee Benefits: post-employment Financial Performance as determined by FRS 102 102 - 103

East Thames Annual Report and Financial Statements 2015/16 Strategic Report Including the Operating and Financial Review

Notes to the financial statements

Reconciliation of the Association’s Financial Position at 31 March

2015 £’000

2014 £’000

-

-

(79)

(79)

(8,996)

(9,271)

(9,075)

(9,350)

(9,075)

(9,350)

Total net assets as determined by the previous accounting framework FRS 102 Adjustments (I) Employee Benefits: post-employment Financial Position as determined by FRS 102

Reconciliation of the Association’s Financial Performance for the year ended 31 March 2015

Financial Performance as determined by the previous accounting framework

Surplus for the year £’000

Total comprehensive income £’000

-

-

-

-

275

275

275

275

275

275

Report of the Board

(H) Employee Benefits: short-term

FRS 102 Adjustments (H) Employee Benefits: short-term

Financial Performance as determined by FRS 102

Independent auditor’s report

(I) Employee Benefits: post-employment

Financial Statements

East Thames Annual Report and Financial Statements 2015/16

East Thames 29-35 West Ham Lane Stratford, London E15 4PH Tel: 0300 303 7333 Email: customerservices@east-thames.co.uk www.east-thames.co.uk 104 - PB