Group Accounts 2005 by East Thames Group

GROUP ACCOUNTS

East Thames Group Limited Board Members, Senior Staff, Auditors and Solicitors

Board

Senior Staff

Chairman: Mr R Henchley (to Sept 2004) Mr R Chilton (from Sept 2004)

Group Chief Executive: Ms J Barnes

Vice Chair: Mr J Mallender Treasurer: Mr C Villiers Other Members: Mr O Olanrewaju Mr B Robertson Mr J Norman Mr G McLeary Mr C Dankwa Ms C Thomas (to Mar 2005) Mr D Edwards Mr D Goodman Mr A Bridgwater

Deputy Chief Executive: Mr M Heys Assistant Chief Executive: (Regeneration and New Business) Mr F Vickery (to Jan 2005) Group Director of Development: Mr S Tarry Group Director of Technical Services: Mr K Carter (to Nov 2004) Group Director of Corporate Services: Ms D Boakye Director of Information Technology: Ms J Kutner Group Company Secretary: Mr H Potter

Registered Office 3 Tramway Avenue Stratford London E15 4PN Registered Charity 1084952 Registered under the Companies Act 1985 4091100 Registered by The Housing Corporation No. LH 4309

Solicitors Devonshires Salisbury House London Wall London EC2M 5QY Trowers and Hamlins Sceptre Court 40 Tower Hill London EC3N 4DX Auditors KPMG LLP 1 Forest Gate Brighton Road Crawley West Sussex RH11 9PT Bankers Barclays Bank plc Business Banking PO Box 544 1st Floor 54 Lombard Street London EC3V 9EX

EAST THAMES GROUP LIMITED

Financial Statements 31 March 2005

CONTENTS 01 04 05 06 07 08 09 10 11

Report of the Board Report of the auditors Consolidated balance sheet Consolidated income and expenditure account Consolidated cash flow statement Parent balance sheet Parent income and expenditure account Parent cash flow statement Notes to the financial statements

EAST THAMES GROUP LIMITED

Report of the Board The Board presents its report and audited financial statements for the year ended 31 March 2005.

Legal status The Group is a charity, registered under the Companies Act 1985 and is a Registered Social Landlord under the Housing Act 1996. On 1 April 2001 it assumed responsibility as the parent company for four operating subsidiaries, East Homes Limited (formerly East Thames Housing Association Limited), East Living Limited (formerly East Thames Care Limited), East Choice Limited (formerly Boleyn & Forest Housing Society Limited), and East Potential (formerly Network East Foyers). On 31 December 2001, it assumed responsibility as the parent company for East Street Services Limited, a company established to undertake the Group’s non-charitable activities.

Principal activities The parent company’s principal activities are the provision of central services to its operating subsidiaries. The four operational subsidiaries are East Homes Limited which provides social housing, East Choice Limited which provides low cost home ownership, East Living Limited which provides care and supported housing, and East Potential which manages foyers on behalf of the Group.

Review of the year The year again saw significant growth. During the year the Group has added 111 units of accommodation taking its portfolio of properties to 11,301 units. During the year, the Group spent £59.7 million acquiring and developing its housing stock and an additional £5.2 million (including improvements on housing for rent, aids and adaptations and estate improvements) on its continuing substantial programme of rehabilitating, modernising and repairing its housing stock. It is the intention to fully upgrade each property at least every 25 years.

Performance for the year The Group achieved a surplus for the year of £4.7 million (2004: £8.1 million). Revenue reserves have increased to £50 million (2004: £45.5 million) and restricted, designated reserves and consolidated reserves total £5.5 million (2004: 5.1 million).

Disabled employees Applications for employment from disabled persons are given full and fair consideration for all vacancies, having regard to their particular aptitude and abilities. In the event of employees becoming disabled, every effort is made to retain them in order that their employment within the organisation may continue. It is the policy of the Group that training, career development and promotion opportunities should be available to all employees.

Health and Safety The Group takes its responsibilities for Health and Safety very seriously and has established a training and implementation programme, led by a health and safety committee dedicated to this topic.

Employee involvement The Group has continued its practice of consulting and keeping employees informed on matters affecting them and on the progress of the Group. This is carried out in a number of ways including a formal forum for consultation, departmental meetings and a variety of newsletters.

EAST THAMES GROUP LIMITED

Report of the Board (continued) Donations The Group made charitable donations during the year amounting to some £12,737. No donations were given to charities of which Board members are Trustees.

Internal Controls The Board has overall responsibility for establishing and maintaining the whole system of internal control and for reviewing its effectiveness. This applies to all companies within the East Thames Group. The Board recognises that no system of internal control can provide absolute assurance or eliminate all risk. The system of internal control is designed to manage risk and to provide reasonable assurance that key business objectives and expected outcomes will be achieved. It also exists to give reasonable assurance about the preparation and reliability of financial and operational information and the safeguarding of the Group’s assets and interests. In meeting its responsibilities, the Board has adopted a risk-based approach to internal controls which are embedded within the normal management and governance process. This approach includes the regular evaluation of the nature and extent of risks to which the Group is exposed and is consistent with Turnbull principles as incorporated in the Housing Corporation’s circular R2-25/01: Internal Controls Assurance. The process adopted by the Board in reviewing the effectiveness of the system of internal control, together with some of the key elements of the control framework includes:

Identification and evaluation of key risks Management responsibility has been clearly defined for the identification, evaluation and control of significant risks. There is a formal and on-going process of management review in each area of the Group’s activities. This process is co-ordinated through a regular reporting framework by the Group Risk Management and Audit Committee. The Group Executive and Officer Risk Management Panel regularly consider reports on significant risks facing the Group. The Group Chief Executive/relevant Managing Director is responsible for reporting to the respective Board(s) any significant changes affecting key risks. Monitoring and corrective action A process of control self-assessment and regular management reporting on control issues provides hierarchical assurance to successive levels of management and to the Board. This process continues to be developed to ensure a rigorous approach and includes action for ensuring that corrective action is taken in relation to any significant control issues. Control environment and control procedures The Board retains responsibility for a defined range of issues covering strategic, operational, financial and compliance issues including treasury strategy and new investment projects. The Board has adopted the National Housing Federation Code of Governance – Competence and Accountability. This is used as a basis for the Group’s policies with regard to quality, integrity and ethics. It is supported by a framework of policies and procedures, with which employees must comply. These cover issues such as delegated authority, segregation of duties, accounting, treasury management, health and safety, data and asset protection and fraud prevention and detection.

EAST THAMES GROUP LIMITED

Report of the Board (continued) Internal Controls (continued)

Statement of responsibilities of the Board

Information and financial reporting systems Financial reporting procedures include detailed budgets for the year ahead and forecasts for subsequent years. These are reviewed and approved by the Board. The Board also regularly review key performance indicators to assess progress towards the achievement of key business objectives, targets and outcomes.

The Companies Act 1985 and the Housing Act 1996 require the Board to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the surplus of the Group for that period. In preparing those financial statements the Board has:

The internal control framework and the risk management process are subject to regular review by Internal Audit who are responsible for providing independent assurance to the Board via its Group Audit and Risk Management Committee. The committee considers internal control and risk regularly during the year.

• made judgements and estimates that are reasonable and prudent;

The Board has received the Group Chief Executive’s annual report, has conducted its annual review of the effectiveness of the system of internal control and has taken account of any changes needed to maintain the effectiveness of the risk management control process. The Board confirms that there is an on-going process for identifying, evaluating and managing significant risks faced by the Group. This process has been in place throughout the year under review, up to the date of the annual report, and is regularly reviewed by the Board. In addition to the above the Group has implemented a number of changes to its approach and day to day management of risk and audit matters, applying current best practice to both areas of its work.

• selected suitable policies and applied them consistently;

• followed applicable accounting standards, subject to any material departures disclosed and explained in the financial statements; and • prepared the financial statements on a going concern basis The Board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and ensure that the financial statements comply with the Companies Act 1985, the Housing Act 1996 and the Accounting Requirements for Registered Social Landlords General Determination 2000. It is also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Auditors The Group is in the process of carrying out a periodic audit tender and will propose a resolution at the forthcoming Annual General Meeting for the appointment of the successful firm as auditors.

H.A. POTTER Group Company Secretary

EAST THAMES GROUP LIMITED

Report of the independent auditors, KPMG LLP, to the members of East Thames Group Limited We have audited the financial statements on pages 5 to 31. This report is made solely to the Company’s members as a body, in accordance with Schedule 1 paragraph 16 and 18 to the Housing Act 1996 and the Companies Act 1985 respectively. Our audit work has been undertaken so that we might state to the Company’s 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 Company and Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Board and Auditors The Company’s Board is responsible for preparing the Board’s report and, as described on page 3, the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Housing Corporation and by our profession’s ethical guidance. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985, the Housing Act 1996 and the Accounting Requirements for Registered Social Landlords General Determination 2000. We also report to you, if in our opinion, a satisfactory system of control over transactions has not been maintained, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding the directors’ remuneration and transactions with the Company are not disclosed. We read the other information accompanying the financial statements and consider whether it is consistent with those statements. We consider

the implications for our report if we become aware of any apparent misstatement or material inconsistencies with the financial statements.

Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Board in the preparation of the financial statements and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 March 2005 and of their surplus for the year then ended and have been properly prepared in accordance with the Companies Act 1985, the Housing Act 1996 and the Accounting Requirements for Registered Social Landlords General Determination 2000.

KPMG LLP Chartered Accountants Registered Auditor 1 Forest Gate Brighton Road Crawley, West Sussex RH11 9PT

EAST THAMES GROUP LIMITED

Consolidated balance sheet at 31 March 2005 Note

2005 £’000

2004 £’000

445,943

403,639

Tangible fixed assets Housing properties at valuation

Other fixed assets

11,709

8,515

457,652

412,154

38,766

37,209

(38,766)

(37,209)

Investments Cost of Homebuy

Less Social Housing Grant

–

4,508

Current assets Investments

1,724

Stock

11,409

7,418

Debtors

7,805

9,088

Cash at bank and in hand

Creditors: amounts falling due within one year

Net current liabilities Total assets less current liabilities

4,398

2,274

25,336

23,290

(40,245)

(27,785)

(14,909)

(4,495)

442,743

407,659

Creditors: amounts falling due after more than one year

177,595

164,779

Provision for liabilities and charges

100

Revenue reserve

50,169

45,516

Designated reserve

3,491

1,953

Restricted reserve

1,791

2,912

Consolidation reserve

263

Revaluation reserve

Capital and reserves Share capital

209,334

192,136

265,048

242,780

442,743

407,659

The financial statements were approved by the Board on 22 August 2005 and signed on its behalf by:

ROBERT CHILTON

CHARLES VILLIERS

HENRY POTTER

Chairman

Treasurer

Group Company Secretary

EAST THAMES GROUP LIMITED

Consolidated income and expenditure account for the year ended 31 March 2005 Note

2005 £’000

2004 £’000

Turnover

72,584

66,700

Operating costs

(63,021)

(56,145)

9,563

10,555

Operating surplus Surplus on property disposals

4,585

6,410

Net interest payable and similar charges

(9,450)

(8,837)

Surplus for the year

4,698

8,128

Transfer from revaluation reserve

372

Transfer (to)/from designated reserves

(1,538)

116

Transfer (to)/from restricted reserves

1,121

325

4,653

8,594

Unallocated surplus Revenue reserves brought forward

45,516

36,922

Revenue reserves carried forward

50,169

45,516

2005 £’000

2004 £’000

Consolidated Statement of total recognised surpluses and deficits for the year ended 31 March 2005 Surplus for the year Unrealised surplus on revaluation of housing properties Prior year adjustment - Revaluation

4,698

8,128

17,570

55,932

–

43,552

22,268

107,612

Note of historical cost surpluses and deficits for the year ended 31 March 2005

2005 £’000

2004 £’000

Surplus on ordinary activities before taxation

4,698

8,128

Excess of actual depreciation over historical cost depreciation

255

–

Total recognised surpluses for the year

Realisation of property revaluation surpluses of previous years

117

Historical cost surplus on ordinary activities before taxation

5,070

8,153

Historical cost surplus for the year after taxation and gift aid

5,070

8,153

All turnover and operating surpluses are attributable to continuing operations. The financial statements were approved by the Board on 22 August 2005 and signed on its behalf by:

ROBERT CHILTON

CHARLES VILLIERS

HENRY POTTER

Chairman

Treasurer

Group Company Secretary

EAST THAMES GROUP LIMITED

Consolidated cash flow statement for the year ended 31 March 2005

Net cash flow from operating activities

Note

2005 £’000

2004 £’000

4,972

27,028

169

538

Returns on investments and servicing of finance Interest received Interest paid

(10,153)

(9,071)

(9,984)

(8,533)

(56,865)

(45,263)

Purchase of other fixed assets

(4,206)

(3,824)

Purchase of investments

(2,315)

(26,819)

Social Housing Grant received

12,769

40,730

Net cash outflow on servicing of finance Capital expenditure and financial investments Purchase and construction of housing properties

Other capital grants repaid

(1,679)

Proceeds of first tranche sales

18,187

7,300

Proceeds from Homebuy

1,072

990

Sales of housing properties

8,629

11,429

2,784

8,713

Sales of other fixed assets Sales of investments

(224)

Cash outflow from investing activities

(21,589)

(6,949)

Cash (outflow)/inflow before financing

(26,601)

11,546

Financing Housing loans received

31,489

6,379

Housing loans repaid

(5,906)

(18,387)

25,583

(12,008)

Cash inflow/(outflow) from financing

Corporation Tax

–

(150)

Gift Aid

–

(116)

Decrease in cash in the period

(1,018)

(728)

EAST THAMES GROUP LIMITED

Parent balance sheet at 31 March 2005 Note

2005 £’000

2004 £’000

3,676

741

Debtors

7,420

1,026

Cash at bank and in hand

982

7,420

2,008

Tangible fixed assets Current assets

Creditors: amounts falling due within one year

(8,152) (732)

Total assets less current liabilities

(367) 1,641

2,944

2,382

Capital and reserves Reserves

713

680

Restricted reserves

1,750

Designated reserves

481

1,702

2,944

2,382

The financial statements were approved by the Board on 22 August 2005 and signed on its behalf by:

ROBERT CHILTON

CHARLES VILLIERS

HENRY POTTER

Chairman

Treasurer

Group Company Secretary

EAST THAMES GROUP LIMITED

Parent income and expenditure account for the year ended 31 March 2005 Note

2005 £’000

2004 £’000

Turnover

12,427

9,239

Operating costs

(11,865)

(8,389)

Operating surplus Net interest receivable

Surplus on ordinary activities Transfer from designated reserves

Unallocated surplus

562

850

562

919

(529)

919

Revenue reserves brought forward

680

(239)

Revenue reserves carried forward

713

680

The financial statements were approved by the Board on 22 August 2005 and signed on its behalf by:

ROBERT CHILTON

CHARLES VILLIERS

HENRY POTTER

Chairman

Treasurer

Group Company Secretary

EAST THAMES GROUP LIMITED

Parent cash flow statement for the year ended 31 March 2005 Note

Net cash (outflow)/inflow from operating activities

2005 £’000 (356)

2004 £’000 1,688

Returns on investments and servicing of finance Interest received

Net cash inflow on investments and servicing of finance

(356)

Cash (outflow)/inflow before financing Purchase of fixed assets Gift aid (Decrease)/Increase in cash in the period

1,757

(3,397)

(741)

(371)

(34)

(4,124)

982

East Thames Group Limited Notes to the financial statements 31 March 2005

1. Accounting policies (a) Basis of accounting The financial statements of the parent company and the Group are prepared under the historical convention (as amended by the revaluation of the Group’s housing assets) in accordance with the Companies Act 1985, the Housing Act 1996 and comply with Accounting Requirements for Registered Social Landlords General Determination 2000. Applicable accounting standards and statements of recommended practice have been followed. Basis of consolidation The Group financial statements consolidate the financial statements of East Thames Group Limited and its operating subsidiaries East Homes Limited, East Choice Limited, East Street Services Limited, East Living Limited and East Potential.

(d) Depreciation of housing properties Freehold land is not depreciated. Depreciation is charged so as to write down the value of freehold housing properties other than freehold land to their estimated residual value on a straight line basis over their remaining expected useful economic lives as follows:

(b) Turnover

Houses

100 to 150 years

Turnover represents rental and service charge income from tenants, management fees, sales of properties developed for other Registered Social Landlords and certain revenue grants.

Low level flats

100 to 150 years

Blocks over four floors

60 years

(c) Housing properties Housing properties represent the Group’s investment in properties for rent and properties subject to shared ownership leases. Completed housing properties held for letting are stated at Existing Use Value for Social Housing (EUV-SH). Shared ownership properties are stated at EUV-SH less the Net Present Liability to repay Social Housing Grant. Housing properties under construction are stated at cost less related SHG and other capital grants. Cost comprises the cost of acquiring land and buildings, development costs, rehabilitation costs, attributable interest charges incurred during the development period and the capital element of expenditure incurred in respect of the major repair programmes of stock modernisation and estate improvement.

Development and modernisation costs include the capitalisation of the Group’s own directly related employee costs from the direct labour force involved in the development process and directly attributable development management costs and other direct costs. The cost of shared ownership properties is stated net of proceeds of first tranche sales. Land donated by public authorities is brought into cost at market value at the time of donation.

These useful economic lives apply equally to the Group’s rented, shared ownership and care stock of housing properties.

(e) Social Housing Grant (SHG) SHG is payable by the Housing Corporation and is utilised to reduce the capital costs of a scheme to a value which may be supported by rental income. Where SHG is received in advance of aggregate expenditure it is disclosed as a short-term creditor. When the SHG is retained following the disposal of property, it is shown under the disposal proceeds or recycled capital grant funds in creditors. SHG is repayable in certain circumstances. When SHG becomes repayable it is included as a current liability until it is repaid. The repayment of SHG is generally subordinated to the repayment of housing loans, as agreed with the Housing Corporation.

East Thames Group Limited Notes to the financial statements 31 March 2005

1. Accounting policies (continued) (f) Other grants

(i) Pensions

Other grants include grants from local authorities and other organisations, primarily the London Docklands Development Corporation. Capital grants are treated in the same way as SHG and include amounts attributable to land donated by public authorities. Grants in respect of revenue expenditure are included in the income and expenditure account in the same period as the expenditure to which they relate.

Stock is valued at the lower of cost and net realisable value.

The Group participates in the Social Housing Pension Scheme final salary pension scheme and retirement benefits to Group employees are funded by contributions from all participating employers and employees in the scheme. Payments are made to a fund operated by the Pensions Trust, an independent trust providing superannuation benefits for employees of voluntary organisations. These payments are made in accordance with periodic calculations by consulting actuaries and are based on pension costs applicable across the various participating associations taken as a whole.

(h) Other tangible fixed assets

(j) Agency managed hostels

Service charge assets and other fixed assets, such as office buildings, are stated at cost less depreciation. Depreciation is provided evenly on the cost of service charge assets and other tangible fixed assets to write them down to their estimated residual values over their expected useful lives on a straight line basis at the following rates:

The Group has brought into its financial statements only income and expenditure under its direct control in respect of agency managed hostels.

(g) Stock

Freehold offices Lifts

4.0% 4.0%

Office furniture and improvements

14.3%

Service equipment

20.0%

Motor vehicles

25.0%

Computer equipment

33.3%

Major software

10.0%

(k) Taxation East Thames Group Limited is a registered charity and is registered under the 1985 Companies Act and is not generally subject to corporation tax.

(l) Homebuy A subsidiary of the group, East Choice Limited participates in the Homebuy scheme. Purchasers are given a grant of 25% of the value of their home by the company which is in turn reimbursed by the Housing Corporation by way of SHG. No rent is payable to the company. The company receives an allowance for handling the transaction, paid by way of further grant.

East Thames Group Limited Notes to the financial statements 31 March 2005

2. Particulars of turnover, cost of sales, operating costs and operating surplus

GROUP

Turnover £’000

Operating costs £’000

2005 Operating surplus/ (deficit) £’000

2004 Operating surplus/ (deficit) £’000

Income and expenditure from lettings Housing accommodation

34,867

18,317

16,550

12,376

Special needs accommodation

14,875

12,233

2,642

2,619

Temporary social housing

16,709

15,671

1,038

949

4,620

2,460

2,160

1,521

71,071

48,681

22,390

17,465

Regeneration and development services

377

414

Grants received

123

Shared ownership accommodation

Other income and expenditure

Other

(37) 123

(505) -

1,013

13,926

(12,913)

(6,405)

1,513

14,340

(12,827)

(6,910)

72,584

63,021

9,563

10,555

Regeneration and development services

377

413

Grant from subsidiary

123

Group recharge

9,644

11,407

Other

2,283

2,238

281

Total

12,427

11,865

562

850

Total

PARENT Other income and expenditure

(36) 123 (1,763)

(505) 1,074

East Thames Group Limited Notes to the financial statements 31 March 2005

3. Particulars of income and expenditure from lettings Care and Supported Housing Housing Accommodation

Supported Housing

Residential Care Homes

Temporary Social Housing

Shared Ownership

2005 £’000

2004 £’000

Income from lettings Rent receivable net of identifiable service charges

28,232

1,935

334

16,027

2,978

49,506

45,528

Service charges receivable

1,485

4,138

626

6,249

6,971

29,717

6,073

334

16,027

3,604

55,755

52,499

Gross rents receivable

Less: Rent losses from voids Net rents receivable Revenue grants from local authorities and other agencies Support Charges - Fixed contract Other grants Other income Total income from lettings

(1,595)

(1,320)

29,150

(567)

5,785

(288)

309

(25)

15,312

(715)

3,604

54,160

51,179

4,193

1,439

4,927

10,559

8,081

1,563

162

1,725

1,185

911

613

690

1,397

1,016

3,716

3,313

34,867

9,477

5,398

16,709

4,620

71,071

63,758

Expenditure on letting activities Services

1,465

793

360

291

2,909

3,083

Management

6,726

4,471

4,155

14,619

454

30,425

28,146

726

1,038

1,764

1,794

Routine maintenance

4,983

549

792

578

6,992

6,492

Planned maintenance

2,719

Overhead Allocation

317

Revenue element of major repairs expenditure

1,107

Housing properties depreciation

1,000

104

Total expenditure on lettings

18,317

6,488

5,745

Operating Surplus on letting activities

16,550

2,989

Other costs

(51)

Rent losses from bad debts

(2) -

(347)

2,719

2,393

260

524

641

1,107

1,078

1,000

523

1,137

1,241

2,143

15,671

2,460

48,681

46,293

1,038

2,160

22,390

17,465

East Thames Group Limited Notes to the financial statements 31 March 2005

4. Surplus on property sales GROUP

Sales Proceeds £’000

Cost of Sales £’000

2005 Surplus £’000

2004 Surplus £’000

Sales of older properties

8,629

4,358

4,271

6,157

Homebuy

1,072

758

314

253

Sales of properties developed for sale

24,341

34,042

29,457

4,585

6,410

5. Units of accommodation in management Self-contained rental stock

GROUP

Total

Managed by East Managed Thames by others

Hostels and Shared Housing

Managed for others

Hostels/ Supported Managed SelfShared Housing by East Managed contained Housing Stock Thames by others units Bedspaces

Temporary Social Housing

Shared Ownership

1 April 2004

11,190

6,820

432

227

489

119

1,497

1,421

31 March 2005

11,301

7,114

392

159

180

265

291

1,376

1,503

East Thames Group Limited Notes to the financial statements 31 March 2005

6. Operating surplus Group 2005 £’000

Group 2004 £’000

Parent 2005 £’000

Parent 2004 £’000

1,000

523

946

657

462

13,582

12,258

- for audit services

- for non-audit services

Group 2005 £’000

Group 2004 £’000

Parent 2005 £’000

Parent 2004 £’000

169

202

This is arrived at after charging: Depreciation of housing properties Depreciation of other fixed assets Profit or Loss on sale of other fixed assets Operating leases land and buildings Auditors’ remuneration:

7. Net interest payable and similar charges

Interest receivable Interest payable on loans and leases: - repayable wholly within five years - repayable in more than five years Interest payable capitalised on housing properties under construction Interest receivable transferred to the capital grant recycling fund

(10,615)

(9,091)

(10,446)

(8,889)

1,548

151

(552)

(99)

(9,450)

(8,837)

East Thames Group Limited Notes to the financial statements 31 March 2005

8. Employees Group 2005 No.

Group 2004 No.

Parent 2005 No.

Parent 2004 No.

Average number of employees: Administration

446

415

154

128

Care Staff

317

275

Wardens, caretakers, cleaners

823

746

154

128

Administration

446

404

151

124

Care Staff

313

263

Direct labour

Number of employees expressed in full time equivalents:

Wardens, caretakers, cleaners

873

722

151

124

Wages and salaries

21,491

16,758

5,269

3,536

Social Security costs

1,899

1,510

496

336

Other pension costs

993

819

374

264

24,383

19,087

6,139

4,136

Direct labour

Staff costs:

East Thames Group Limited Notes to the financial statements 31 March 2005

8. Employees (continued) The Group participates in the Social Housing Pension Scheme (SHPS). SHPS is multi-employer defined benefit scheme. The Scheme is funded and is contracted out of the state scheme. The last formal valuation of the Scheme was performed at 30 September 2002 by a professionally qualified actuary using the “projected unit credit” method. The market value of the Scheme’s assets at the last valuation date was £650 million. The Group paid contributions at the rate of 11.7% during the accounting period. Member contributions vary between 3.1% and 6.1% depending on their age at the date of joining the Scheme. It is not possible to identify the share of underlying assets and liabilities belonging to individual participating employers. Due to the nature of the scheme, the income and expenditure account charge for the period under both SSAP 21 and FRS 17 represents the employer contribution payable.

Financial assumptions The financial assumptions underlying the valuation were as follows: % per annum Rate of return on future contributions

6.6

The valuation revealed a shortfall of assets compared with the value of liabilities of some £117 million (equivalent to a past service funding level of 85%). The long term joint contribution rate required from employers and members to meet the cost of future benefit accrual was assessed as 15% of pensionable salaries. Following consideration of the results of actuarial valuation, with effect from 1 April 2004 most employers (including East Thames Group) are required to contribute at the standard rate of 11.7% of pensionable salaries. Member contributions will also be increased by 1.1% from 2.0%-5.0% to 3.1-6.1% of pensionable salaries depending on age. Employers that participate in the Scheme on a noncontributory basis pay a joint contribution rate (i.e. a combined employer and employee rate). This rate will increase from 15.0% to 17.3% of pensionable salaries with effect from 1 April 2004. Employers that have closed the Scheme to new members are required to pay an additional employer contribution loading of 3% to reflect the higher costs of a closed arrangement. A small number of employers are required to contribute at a different rate to the standard 11.7% to reflect the amortisation of a surplus or deficit on the transfer of assets and past service liabilities from another pension scheme into the SHPS Scheme.

Rate of return on accumulated assets

7.2

Rate of salary increases

4.5

If the valuation assumptions are borne out in practice this pattern of contributions should be sufficient to eliminate the past service deficit by 31 March 2017.

Rate of pension increases

2.5

The next valuation is due at 30 September 2005.

Rate of price inflation

2.5

The accumulated assets of the Scheme were assumed to earn the same return as if they had been invested in a portfolio comprising 100% UK equities for non-pensioner liabilities and 25% UK equities/75% gilts for pensioner liabilities.

East Thames Group Limited Notes to the financial statements 31 March 2005

9. Directors, members and senior staff emoluments The Directors of the parent company as defined under the Accounting Requirements for Registered Social Landlords General Determination 2000 are

Basic Salary £

Benefits In Kind £

Pension Contributions £

Parent Total 2005 £

Parent Total 2004 £

The aggregate amount of emoluments paid to the directors was

611,684

1,196

51,405

664,285

519,116

Emoluments of the Chief Executive, who was also the highest paid director, excluding pension contributions.

116,614

1,196

117,810

103,081

The Chief Executive is an ordinary member of the pension scheme and has no enhanced or special terms and does not have an individual pension arrangement to which East Thames Group or any of its subsidiaries makes a contribution.

its Management Board, the Chief Executive and any other person who is a member of the senior management team.

Expenses paid during the year to members of the Board amount to £38,804 (2004: £24,786). No payments of benefits other than those permitted, were made to the persons referred to in Part 1, Schedule 1 of the Housing Act 1996.

East Thames Group Limited Notes to the financial statements 31 March 2005

10. Tangible fixed assets Housing properties Housing properties held for letting £’000

Housing properties under construction £’000

Shared ownership properties held for letting £’000

Shared ownership properties under construction £’000

Total £’000

320,064

26,603

58,958

37,763

443,388

3,922

20,731

1,347

33,983

59,983

109

328

1,071

1,548

Valuation As at 1 April 2004 Additions Interest capitalised Schemes completed Disposals Valuation adjustment At 31 March 2005

12,514 (818)

(12,514) -

23,819 (20,249)

(23,819)

(21,067)

(3,732)

8,110

4,378

332,059

35,148

72,025

48,998

488,230

Depreciation and impairment As at 1 April 2004 Depreciation charged in year Impairment charged in year Depreciation released on disposals Valuation adjustment At 31 March 2005

1,000

(1,000)

Social Housing and other grants

24,713

15,036

39,749

Additions

2,172

11,374

529

2,096

16,171

Schemes completed

6,064

(6,064)

As at 1 April 2004

Disposals Valuation adjustment

4,868

(4,868)

(526)

(915)

(1,441)

(7,710)

(4,482)

(12,192)

30,023

12,264

42,287

At 31 March 2005

332,059

5,125

72,025

36,734

445,943

At 31 March 2004

320,064

1,890

58,958

22,727

403,639

At 31 March 2005

Net book value

East Thames Group Limited Notes to the financial statements 31 March 2005

10. Tangible fixed assets Housing properties (continued) 2005 £’000

2004 £’000

387,493

372,977

387,493

372,977

445,868

403,176

355

463

446,223

403,639

Total accumulated capital and revenue social grant receivable Capital grants Revenue grants

Housing properties comprise: Freehold land and buildings Long leasehold land and buildings

Completed housing properties held for letting are stated at Existing Use Value for Social Housing (EUV-SH) and shared ownership properties are stated at EUV-SH less the Net Present Liability to repay Social Housing Grant. Housing properties have been valued by professional valuers, FPD Savills, Chartered Surveyors.

The desktop valuation of completed housing properties was prepared as at 31 March 2005 in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. This has resulted in a positive valuation adjustment as follows:

£’000 Completed properties at valuation East Homes Limited

332,059

East Choice Limited

72,045 404,104

Housing properties under construction at cost East Homes Limited

35,148

East Choice Limited

48,998 84,146

East Thames Group Limited Notes to the financial statements 31 March 2005

10. Tangible fixed assets Housing properties (continued) In the valuing of housing properties, discounted cash flow methodology was adopted and key assumptions included: Discount rate

6.0%

Annual inflation rate

2.5%

Level of annual rent increase

0.5%

The carrying value of the housing properties that would have been in the financial statements had the assets been carried forward at historical costs less SHG and depreciation is as follows:

2005 £’000

2004 £’000

680,245

639,664

Social Housing Grant

(389,386)

(372,977)

Other capital grants

(49,888)

(51,567)

(4,362)

(3,617)

Historical cost

Depreciation and impairment

236,609

211,503

39,498

37,931

(39,498)

(37,931)

Investment in Homebuy: Long term investment in properties (Homebuy) Less grants received Grants recycled Decrease in investment in properties

732

722

(732)

(722)

East Thames Group Limited Notes to the financial statements 31 March 2005

11. Tangible fixed assets - Other

Freehold Office £’000

Plant, equipment and furniture £’000

Motor vehicles £’000

Total £’000

GROUP Cost At 1 April 2004

9,475

5,550

275

15,300

Additions

703

3,472

4,206

Disposals

(76)

At 31 March 2005

10,102

(323)

(174)

8,699

132

(573) 18,933

Depreciation At 1 April 2004

(2,722)

(3,837)

(226)

(6,785)

Charged in year

(352)

(563)

(31)

(946)

295

140

507

Disposals At 31 March 2005

72 (3,002)

(4,105)

(117)

(7,224)

At 31 March 2005

7,100

4,594

11,709

At 31 March 2004

6,753

1,713

8,515

741

Additions

1,319

2,078

3,397

Disposals

1,319

2,819

4,138

Net book value

PARENT Cost At 1 April 2004

At 31 March 2005 Depreciation At 1 April 2004 Charged in year

Disposals

At 31 March 2005

(462) (462)

Net book value At 31 March 2005 At 31 March 2004

1,319

2,357

3,676

741

East Thames Group Limited Notes to the financial statements 31 March 2005

12. Investments 2005 £’000

2004 £’000

450

Fixed term Treasury Deposit

1,274

4,058

Total

1,724

4,508

Passmore Urban Renewal Limited

East Homes Limited, formerly known as East Thames Housing Association Limited, together with three other registered social landlords and the London Borough of Newham has invested in Passmore Urban Renewal Limited. This Industrial and Provident Society has been set up for the promotion of urban regeneration in the London Borough of Newham. At 31 March 2002, East Homes Limited had invested £450,000 in this project. The parent company owns one £1 nominal share in East Choice Limited, formerly known as Boleyn and Forest Housing Society Limited, whose main activity is developing and managing shared ownership schemes. The parent company has entered into trust arrangements with the members of East Choice Limited which require it to classify it as a subsidiary. East Choice Limited is a Registered Social Landlord with charitable status, registered with the Housing Corporation.

The parent company owns one £1 nominal share in East Living Limited, formerly known as East Thames Care Limited whose main activity is providing care and housing management for supported housing and residential care homes. The parent company has entered into trust arrangements with the members of East Living Limited which require it to classify it as a subsidiary. The parent company has entered into trust arrangements with the members of East Potential, formerly known as Network East Foyers which require it to classify it as a subsidiary. The principal activity of East Potential is the provision of housing management services at Stratford (Focus E15), Harlow, Redbridge and Tower Hamlets (Drapers City) foyers, First Step Assessment Centre and related training and information services to young people in east London and Harlow.

The parent company has a 100% shareholding in East Street Limited, formerly known as Boleyn and Forest Commercial Services Limited, whose main activity is to undertake property management services for other associations and to deal with other non-charitable housing activities.

East Thames Group Limited Notes to the financial statements 31 March 2005

13. Stock and work in progress

Completed properties for sale to other Registered Social Landlords Properties for sale to other Registered Social Landlords under construction – net of SHG

Group 2005 £’000

Group 2004 £’000

8,385

7,968

3,024

(550)

11,409

7,418

14. Debtors Group 2005 £’000

Group 2004 £’000

Parent 2005 £’000

Parent 2004 £’000

3,672

3,981

(1,827)

(2,291)

1,845

1,690

Other debtors

4,495

5,200

497

160

Prepayments and accrued income

1,465

2,198

184

Due within one year: Arrears of rent and service charges Less: Provision for bad and doubtful debts

Amounts due from group companies (net of provisions )

15. Cash at bank and in hand Included in cash at bank and in hand are amounts totalling: 2005 - Group: £200,000 (Parent Company: £Nil) 2004 - Group: £200,000 (Parent Company: £Nil) which are subject to restrictions and are not freely available for general use.

6,739

866

7,805

9,088

7,420

1,026

East Thames Group Limited Notes to the financial statements 31 March 2005

16. Creditors: Amounts falling due within one year

Loans (note 18)

Group 2005 £’000

Group 2004 £’000

Parent 2005 £’000

Parent 2004 £’000

13,546

1,590

Bank overdraft

3,142

Rent and service charges received in advance

1,272

1,121

Corporation Tax Other taxation and social security

396

478

(75)

122

4,352

6,894

789

197

12,440

16,331

4,296

Accruals and deferred income Other creditors Capital Grant Recycling Fund

3,997

916

Disposal Proceeds Fund

1,100

455

40,245

27,785

8,152

367

Group 2005

Group 2004

Payments to creditors Average number of days between receipt and payment of purchase invoices

17. Creditors: Amounts falling due after more than one year Group 2005 £’000

Group 2004 £’000

167,361

153,734

Deferred income

1,344

1,402

Capital Grant Recycling Fund

6,148

7,141

Disposal Proceeds Fund

1,213

1,393

Loans (note 18)

Other

1,529

1,109

177,595

164,779

The deferred income represents the premium on the HACO loan, net of issue costs. This premium will be amortised over the period of the loan.

East Thames Group Limited Notes to the financial statements 31 March 2005

18. Loan analysis Group 2005 £’000

Group 2004 £’000

Parent 2005 £’000

Parent 2004 £’000

3,142

908

1,246

Due within one year: Bank overdraft Bank loans Orchardbrook Limited (originally the Housing Corporation) loans 29

12,609

322

16,688

1,590

3,142

114,717

100,397

5,839

5,864

HACO

25,000

Other loans

22,281

22,914

Other loans

Due after more than one year: Bank loans Orchardbrook Limited (originally the Housing Corporation) loans

Capitalised costs

(476)

(441)

167,361

153,734

16,688

1,590

Loans are repayable as follows: Within one year Between one and two years

1,603

1,553

Between two and five years

19,161

36,651

146,597

115,530

184,049

155,324

After more than five years

Loans and finance leases to the value of £181 million (Parent Company: £Nil) are secured by a combination of fixed and floating charges on individual properties. The loans from Orchardbrook Limited are repaid in half-yearly instalments over the estimated life of the scheme on which the loan is secured, at fixed rates of interest ranging from 9.50% to 10.625%. The final instalments are due for repayment in the period 2005 to 2037. The final instalments

on bank, HACO and other loans are due for repayment in the period 2006 to 2029. Out of the total of loans and finance leases of £181 million (Parent Company: £Nil) interest is payable at fixed rates varying from 5.05% to 16.5% on £124 million (Parent Company: £Nil) and at rates linked to LIBOR on the remaining £57 million (Parent Company: £Nil). Of the floating rate £20 million is hedged to reduce the exposure to interest rate movement.

East Thames Group Limited Notes to the financial statements 31 March 2005

19. Annual obligations under operating leases Group 2005 £’000

Group 2004 £’000

Within one year

4,184

643

In the second to fifth years inclusive

7,301

10,424

Over five years

1,638

1,869

Operating leases on land and buildings which expire:

20. Provision for liabilities and charges

At 1 April 2004 and 31 March 2005

Group Dilapidation Repair 2005 £’000

Group Dilapidation Repair 2004 £’000

100

21. Non-equity share capital 2005 £’000

2004 £’000

Shares issued during the year

Shares surrendered during the year

Shares of £1 each issued and fully paid: At 1 April 2004

At 31 March 2005

The shares provide members with the right to vote at general meeting, but do not provide any rights to dividends or distributions on winding up.

East Thames Group Limited Notes to the financial statements 31 March 2005

22. Reserves Revaluation £’000

Restricted £’000

Designated £’000

Consolidated £’000

Revenue £’000

Total £’000

192,136

2,912

1,953

263

45,516

242,780

4,698

17,570

(1,121)

1,538

1,791

3,491

263

50,169

265,048

Restricted £’000

Designated £’000

Revenue £’000

Total £’000

At 1 April 2004

1,702

680

2,382

Surplus for the year

562

GROUP At 1 April 2004 Surplus for the year Property revaluation adjustment Transfers At 31 March 2005

(372) 209,334

(45)

PARENT

Transfers

1,750

(1,221)

(529)

At 31 March 2005

1,750

481

713

2,944

Group 2005 £’000

Group 2004 £’000

Parent 2005 £’000

Parent 2004 £’000 -

Restricted reserves comprise: Donations Giftaid from East Choice Limited to Parent Reinvestment fund - transferred to designated reserves

200

1,750

2,712

1,791

2,912

1,750

2,066

218

RCGF & DPF

911

Giftaid from East Choice Limited to Parent

514

1,735

481

1,702

3,491

1,953

481

1,702

Designated reserves comprise: Major repairs new funded schemes

The Group plans its financial affairs to ensure that each year revenue income exceeds revenue expenditure. This policy ensures that the Group has a margin of safety to manage unexpected expenditure or shortfalls in income. The annual surpluses ensure that East Thames Group Limited is able to meet its commitment to providers of

private finance and continue to provide social housing. Unlike commercial organisations the Group’s rules prevent the distribution of reserves. Instead, these are applied to furthering our aims and objectives. At 31 March 2005 the Group’s reserves were all used in financing investments in social housing.

East Thames Group Limited Notes to the financial statements 31 March 2005

23. Financial commitments Group 2005 £’000

Group 2004 £’000

Expenditure contracted for but not provided in the accounts

50,649

93,455

Expenditure authorised by the Board but not contracted for

12,515

52,100

63,164

145,555

Capital commitments

24. Reconciliation of operating surplus to operating cash flows Group 2005 £’000

Group 2004 £’000

Parent 2005 £’000

Parent 2004 £’000

14,149

16,966

933

850

Depreciation of fixed assets

1,946

1,180

462

On sale of other fixed assets

442

Operating surplus before taxation

On sale of housing properties Net increase/(decrease) in provisions

(4,585) (522) 11,019

(6,410) (54) 12,124

1,395

850

Movement in Working Capital (Increase)/decrease in stock

(3,991)

6,891

(Increase)/decrease in debtors

1,101

(2,457)

(6,394)

919

Increase/(decrease) in creditors

(3,157)

10,470

4,643

(82)

Net cash inflow from operating activities

4,972

27,028

(356)

1,687

East Thames Group Limited Notes to the financial statements 31 March 2005

25. Reconciliation of net cash flow to movement in net debt Group 2005 £’000 (Decrease)/Increase in cash in the period

(1,018)

Group 2004 £’000 (728)

Cash inflow from increase in debt and lease financing

(25,583)

12,008

Change in net debt resulting from cash flows

(26,601)

11,280

Net debt at the start of the period

(153,047)

(164,327)

Net debt at the end of the period

(179,648)

(153,047)

Parent 2005 £’000 (4,124) (4,124) 982 (3,142)

Parent 2004 £’000 982 982 982

26. Analysis of net debt

Cash at bank and in hand Bank overdraft Loans due within one year Loans due after more than one year

Group 2005 £’000

Group 2004 £’000

Parent 2005 £’000

Parent 2004 £’000

4,398

2,275

982

(3,142)

(13,546)

(1,590)

(167,359)

(153,732)

(179,648)

(153,047)

(3,142)

982

Mission, Aims and Values Our mission

Our values

To make a positive and lasting contribution to the neighbourhoods in which we work.

We will be customer focused • responding to what our customers say • providing excellent and reliable services • enabling customer choice

Our key aims 1 Providing high-quality homes and services that meet the needs of our customers. 2 Ensuring that our customers can influence our services. 3 Influencing local, regional and national thinking, policies and strategies. 4 Developing well informed, committed and enthusiastic staff. 5 Actively using our financial and organisational strength.

We will be ambitious • creating new approaches to service delivery • producing excellent outcomes • striving for excellence in everything we do We will be professional • being straightforward in everything we do • adopting a flexible approach to delivering services • demonstrating a respectful approach to our customers • being open, reliable and consistent We will be leaders • empowering our staff to act responsibly • showing creativity in service provision • inspiring those who work with us • campaigning on key issues

iii

Registered Office 3 Tramway Avenue Stratford London E15 4PN Switchboard: 020 8522 2000 Fax: 020 8522 2001 ConnectDirect: 0845 600 0830 Minicom: 020 8522 2006 www.east-thames.co.uk Registered by the Housing Corporation, No. LH4309 Registered under the Companies Act 1985, No. 4091100 Registered charity 1084952 Member of the National Housing Federation