GROUP FINANCIAL STATEMENTS
EBRAT EL
THAMES
30 ES YE
C
EAST THAMES GROUP LIMITED
S AR
31 MARCH 2009
2
Contents
click: jumps to the page
Board members, senior staff, auditors and bankers.................................................... 3 Report of the Board............................................................................................................................................................ 4 Independent Auditors’ report to the Members of East Thames Group Limited............................................................... 20 Consolidated income and expenditure account.............................................................. 22 Consolidated statement of total recognised surpluses and deficits. ............................................................................................. 23 Consolidated balance sheet............................................................................................................................. 24 Consolidated cash flow statement......................................................................................................... 25 Parent income and expenditure account..................................................................................... 26 Parent balance sheet.................................................................................................................................................... 27 Parent cash flow statement............................................................................................................................... 28 Notes to the financial statements.................................................................................................. 29-57
East Thames Group Limited Financial statements for the year ended 31 March 2009
Board Members, Senior Staff, Auditors and Bankers BOARD Chairman
Dr R Chilton CBE
Vice Chair
Ms M Skelcher (appointed September 2008) Mr O Olanrewaju (resigned September 2008)
Treasurer
Mr A Newell
Other Members
Mr J Norman (resigned September 2008) Mr D Edwards Mr D Goodman Mrs L Perham Ms J Holmes Ms D Sorkin Mr C Ofili Ms M Burke (appointed July 2008) Ms S Fryer (appointed September 2008) Ms K Vowles (appointed July 2008)
SENIOR STAFF Group Chief Executive Director of Finance Director of Resident Services Director of Development and Asset Management Director of Support Operations Director of Social and Economic Regeneration
Ms J Barnes Ms S Forster Mr V da Cunha
Registered Office
29-35 West Ham Lane Stratford London E15 4PH
Auditors
Grant Thornton UK LLP Byron House Cambridge Business Park Cowley Road Cambridge CB4 0WZ
Bankers
Barclays Bank plc Level 28 1 Churchill Place Canary Wharf London E14 5HP
Mr G Pearce Ms F Okosi-Arimah Ms P Gardner
Registered Charity 1084952 Registered under the Companies Act 1985 4091100 Registered by the Tenant Services Authority No. LH 4309
3
East Thames Group Limited
Report of the Board
4
The Board presents its report and audited financial statements for the year ended 31 March 2009.
generated on initial sales are recognised in the income and expenditure account.
Details of the group’s principal activities, performance for the year and a summary of the financial results are presented in the Operating and Financial Review.
The results and balance sheet for the year ended 31st March 2008 have been re-stated to reflect this change. The property valuations have been presented at Existing Use Value for Social Housing (EUV-SH). Accounting policies that are specific to East Thames Group Limited are set out in Note 1 (page 29) of the financial statements.
GOVERNING DOCUMENT East Thames Group Limited is a Company limited by guarantee, and the governing document of the Company is the memorandum and articles of association. GOING CONCERN The Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being a period of twelve months after the date on which the report and financial statements are signed. For this reason, it continues to adopt the going concern basis in the financial statements. A further analysis of the basis of preparing these accounts on a going concern basis is included with the Operating and Financial Review. ACCOUNTING PRINCIPLES These accounts have been compiled in accordance with the Statement of Recommended Practice: “Accounting by Registered Social Landlords” (2008) (“SORP 2008”) the Accounting Requirements for Registered Social Landlords General Determination (2006), United Kingdom Generally Accepted Accounting Practice and the requirements of the Companies Act (1985). This is the first year of adoption of SORP 2008, and the main effect in the accounts is the treatment of initial sales of equity in low cost home ownership housing products. Under the preceding SORP, proceeds from the sale of initial equity were deducted from the cost of the asset, but now surpluses and deficits
EMPLOYEE INVOLVEMENT One of our strengths is the quality of all our employees; it is the key factor in our ability to meet our objectives and commitments to residents and service users, in an effective and efficient manner. We continue to consult and keep employees informed on matters affecting them, and on the progress of the Group. We do this in a number of ways including a formal forum for consultation, departmental meetings and a variety of newsletters and intranet pages. DISABLED EMPLOYEES We give full and fair consideration to applications for employment from disabled persons for all vacancies. Should an employee become disabled, we make every effort to retain them in order that their employment within the Group may continue. It is Group policy to make training, career development and promotion opportunities available to all employees. HEALTH, SAFETY AND WELFARE AT WORK The Group is committed to ensuring the health, safety and welfare of employees, so far as is reasonably practicable. We also fully accept our responsibilities for other persons who may be affected by our activities. We are committed to taking steps to ensure that our statutory duties are met at all times. Each employee is given such information, instruction and training as is necessary to enable the safe performance of work activities.
East Thames Group Limited
TENANT INVOLVEMENT We actively encourage tenants’ involvement in decision making. We encourage tenant board members and have clear reporting arrangements between tenant groups and the Board. COMPLAINTS A clear complaints policy is issued to all service users. This has been streamlined and Housing and Neighbourhood Management believe that the revised procedure should deliver greater consistency in complaint handling and less escalations. The redress and compensation policy has recently been reviewed and will offer alternatives to financial compensation. Partner contractors will be expected to abide by our policies. INTERNAL CONTROL The Board has overall responsibility for establishing and maintaining the whole system of internal control and for reviewing its effectiveness. This applies for 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 processes. This approach includes the regular evaluation of the nature and extent of risks to which the Group is exposed and is consistent with Circular 07/07: Internal Controls Assurance issued by the Housing Corporation (now Tenant Services Authority).
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. The Group has an overall Risk Management Strategy which is reviewed annually and produces Group and individual subsidiary risk maps which identify key risks. These risks are scored in terms of impact (including reputational image) and probability both in terms of the initial risk and the residual risk once adequate control measures are in place. In December 2008 we established a dedicated Risk and Compliance Team. One of their roles is to co-ordinate risk maps across the Group to ensure consistency of approach and use of best practice. A new risk database ensures that all risks will be measured in terms of cause and consequence and going forward risks are linked to the delivery of both our Strategic and Delivery Plans. 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 quarterly reporting framework to the Group Risk Management and Audit Committee/Boards which review changes to the risk map on an on-going basis. The Group Executive and officer Risk Management Panel regularly consider reports on significant risks facing the Group. A separate Development Panel considers risks around new investments in development schemes. The Group Chief Executive/ relevant Director are responsible for reporting to the respective Board(s) any significant changes affecting key risks.
5
East Thames Group Limited
Report of the Board INTERNAL CONTROL continued The Group’s risk management strategy identifies and manages strategic, operational and financial risks. In terms of financial risk, the key risks being managed are:
(d) existing use value of property and
The Internal Audit team and the new Risk & Compliance team have a central role in ensuring internal control compliance. The Risk & Compliance Team also review existing and new policies and procedures ensuring these are embedded across the Group and have the oversight of our delegated authority system.
(e) investment in the development of new homes.
Information and financial reporting systems
Liquidity is managed through robust cash flow forecasting and have adequate available loan facilities.
Financial reporting procedures include detailed budgets for the year ahead and forecasts for subsequent years in the form of 5 and 30 year plans. These are reviewed and approved by the Board. The Board also regularly reviews key performance measures to assess progress towards the achievement of key business objectives, targets and outcomes. A Chief Executive Support Unit was established in 2008 which co-ordinates our approach to performance management and to measuring the critical success factors of the business.
(a) compliance with financial covenants in loan agreements
6
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.
(b) interest rates (c) impact of inflation on rents and costs
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 Group has adopted the National Housing Federation Excellence in Governance – Code for Members. Adherence to this new code has been reviewed to ensure that the Group complies and is at the forefront of best practice. This code replaces the previous Competence and Accountability Code and the new Code will continue to be used as a basis for the Group’s policies with regard to quality, integrity and ethics and is supported by a framework of policies and procedures, with which employees must comply.
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 Risk Management and Audit Committee. The Group Risk Management and Audit Committee consider internal control and risk regularly during the year. During the course of the year two areas of Internal Control weakness were identified and have been addressed. In view of these and the significant changes brought about by our restructure programme we have commenced a wholesale review of our control processes to ensure these remain fit for purpose. This review will provide assurances around these areas into the future.
East Thames Group Limited
Fraud
Sources of Assurance
The Board has an established fraud policy which covers the prevention, detection and reporting of fraud along with the recovery of assets. The Group operates a zero tolerance policy in relation to theft and fraud and reports all such confirmed instances to the relevant authorities. The Fraud Register is reviewed on an on-going basis through the Group’s Group Risk Management and Audit Committee and annually by the Board.
There are a number of internal and external sources of assurance which have been used in compiling this statement some of which have been mentioned above. In summary these sources are:
During the course of the year two incidents of suspected fraud were reported to the Tenant Services Authority and controls have been strengthened as a result. Instances of theft against the organisation and/or residents have occurred during the course of the year and have been fully investigated and reported to the police as appropriate. There has not been any discernable increase in the level of such incidents during the year. Regulatory Intervention There has been no regulatory intervention by the Tenant Services Authority during the course of the year and the Group continues to maintain a satisfactory assessment around governance, financial viability and management. The Annual Viability Review undertaken by the Tenant Services Authority confirms that the Group has, like the majority of large developing associations, achieved a “light green” status for financial viability.
• Strong management structures and clear accountability • Board/Group Risk Management and Audit Committee oversight of the organisation’s business • Management assurances • Management reports on operational and financial matters; • Management reports on operational and financial controls; • Risk management activity; • Control and risk self assessment; • Internal and external audit; • Key performance indicators linked to business plans; • Quality management systems such as Investors in People; • Regulatory reports The Board has received the Group Chief Executive’s annual report which has been endorsed by the Group Executive, 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.
7
East Thames Group Limited
Report of the Board Statement of the responsibilities of the Board for the report and financial statements 8
The Board is responsible for preparing the report and financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice. The Companies Act 1985 and registered social landlord legislation in the United Kingdom 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 the company at the end of the year and of the surplus or deficit of the Group and the company for the year then ended. In preparing those financial statements, the Board is required to: • select suitable accounting policies and apply them consistently; • make judgements and estimates that are reasonable and prudent; and • follow applicable United Kingdom Accounting Standards and the Statement of Recommended Practice: “Accounting by Registered Social Landlords” (Update 2008), subject to any material departures disclosed and explained in the financial statements. • prepare 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 the company and enable it to ensure that the financial statements comply with the Companies Acts (1985), paragraph 16 of Schedule 1 to the Housing Act (1996) and the Accounting Requirements for Registered Social Landlords General Determination 2006. It is also responsible for safeguarding the assets of
the Group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board is responsible for ensuring that the Report of the Board is prepared in accordance with the Statement of Recommended Practice: “Accounting by Registered Social Landlords” (Update 2008). The Board is responsible for the maintenance and integrity of the corporate and financial information on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. AUDITORS The auditors of the 2008-09 accounts are Grant Thornton UK LLP. At the date of making this report, the members and directors, as set out on page 3, confirm the following: • so far as each member and director is aware, there is no relevant information needed by the Group’s auditors in connection with preparing their report of which the Group’s auditors are unaware, and • each member and director has taken all the steps that they ought to have taken as a member or director in order to make themselves aware of any relevant information needed by the Group’s auditors in connection with preparing their report and to establish that the Group’s auditors are aware of that information. In carrying out this review this year the Board has considered and confirms compliance with the Charity Commission’s general guidance on public benefit entitled ‘CCA15a – Charity Reporting and Accounting: The essentials’, the Statement of Recommended Accounting Practice – Accounting by Registered Social Landlords (2008), and considered the review of best practice undertaken by the Tenant Services Authority entitled “2008 Review of Registered Providers with over 10,000 units“.
East Thames Group Limited
Operating and financial review
the quality of life. As at 31st March 2009 we provided nearly 600 foyer spaces in six schemes.
WHO WE ARE East Thames Group is the largest housing association operating in east London and Essex. We manage more than 16,800 homes and we are members of the G15, a group of London’s 15 largest housing associations. Our mission is to make a positive and lasting contributions to the neighbourhoods in which we work. We deliver our mission through our aims: • Providing high-quality homes and services that meet the needs of our customers; • Ensuring that our customers can influence our services; • Influencing local, regional and national thinking, policies and strategies; • Developing well-informed, committed and enthusiastic staff; and • Actively using our financial and organisational strength. We are driven by our four core business values: customer focus, ambition, professionalism, and leadership. Our main operational subsidiaries are: EAST HOMES – providing general needs, shared ownership and rent now buy later affordable housing and, through East Place, homes for outright sale and market rent. As at 31st March 2009 we had a total of 14,287 homes in management. EAST LIVING – providing care and supported housing services for people with a wide range of needs. As at 31st March 2009 we had 1,260 homes or bed spaces providing a combination of housing and support and provided support services only to 1,400 further clients. EAST POTENTIAL – foyer accommodation, training, employment and support services for young people; neighbourhood regeneration projects to sustain neighbourhoods and improve
FINANCIAL AND OPERATIONAL HIGHLIGHTS Financially this is a challenging time for parts of our business. Our core business is financially robust. The key challenge has been the development of new affordable homes in a tough property market. The following are the statistical highlights: % customers satisfied with overall service
% customers satisfied that views have been taken into account
Our target for the year was 75%
Our target for the year was 66%
Total turnover
Deficit before tax
76%
£
115m
72.5%
£
2.9m
Our turnover last year was £114m
Our surplus last year was £2.1m
Interest cover
Gearing
102
%*
56
%*
This compares with the minimum target of 95%
This compares with the maximum target of 70%
Number of new homes
Decent Homes Standard
582
97%
Target for the year was 543 homes
Target for the year was 98%
* Calculation based on the results of East Homes Ltd only
9
East Thames Group Limited
Report of the Board OPERATING PERFORMANCE
This operating and financial review is written in context of the dramatic events in the UK economy – led by the near collapse of the banking sector. The turn from economic stability to recession was both swift and brutal, and this is particularly true in the property sector. In the twelve months to March 2009 we have seen nearly 16% reduction in the sales values of property, a collapse in consumer confidence, increasing unemployment, and dramatic reduction in the availability of mortgages.
Our key measure of customer satisfaction at 76.2% exceeded our target for the year and the performance in the previous year. About three quarters of residents are satisfied that their views have been taken into account in shaping the service that they receive, exceeding target and the performance in the previous year.
East Thames resident satisfaction with overall service
% % % 72.9 72.9%% 74.9 74.9 76.276.2%
80% 80%
*
2008-09
2008-09
50% 50%
2007-08
60% 60%
2007-08
70% 70%
2006-07 2006-07
The collapse of the property and mortgage markets has had a major impact on our programmes to develop new homes. Despite the recession, there remains strong demand for our new shared ownership homes, but people are prevented from buying because of the scarcity of reasonably priced mortgages. We responded to this situation by offering prospective purchasers of shared ownership homes a new tenure products that enables them to “rent now buy later”. This allows customers who wanted to buy a home to occupy the property at 80% of market rent whilst retaining the option to convert to ownership within five years time. The Homes and Communities Agency has been very supportive of this strategy and have provided £5.1m of additional funding to enable us to offer this alternative tenure for 252 homes.
Our in house publication “Street by Street” sent to all residents on a quarterly basis provides direct responses to suggestions made by residents.
2006-07 2007-08 2008-09 *2008-09 target was 75%
During the year we enhanced resident involvement in shaping our services. After Like many other housing associations we extensive consultation, we introduced customer used the surpluses generated from customers the% existing %% % involvement % % buying additional equity in the homes, as well 80%panels 80% to supplement structure including the Resident Advisory Group as selling uneconomic properties to fund some and Maintenance Monitoring Group. of our major repair programmes. The economic % 70% 70 downturn reduced the surpluses from asset We have given increased focus to learning sales and this has inevitably led us to defer and from complaints. In the year we received % delay some of our major repair programmes. We 60%662 60stage one complaints. There were two have taken steps to reduce the management complaints referred by residents to the Housing cost base of the Group. Ombudsman. Satisfaction with the handling of
2008-09
50%complaints 50% has improved
2008-09
2007-08
2007-08
57.1 57.1 60.4 60.472.572.5
2006-07 2006-07
10
OPERATING AND FINANCIAL REVIEW
with 47.4% (2008: 34.9%) expressing satisfaction with the way that complaint was dealt with and resolved. In March 2009, we were awarded the enhanced
% % % 68.4 68.4%% 69.6 69.6 70.870.8%
80% 80% 70% 70%
6% 5%
East Thames Group Limited
4% 3% level in the two level certification of service delivery by Quality Housing Standard. This followed a programme of inspection, polling of customers and mystery shopping. East Living and East Potential were accredited with the Customer Service Excellence Award (formerly Chartermark). In 2008-09 we completed 582 new homes against our target of for the year of 543 homes. Nearly 88% of new customers expressed satisfaction with their new home compared with our target of 80% and result for 2007-08 of 74%. Our rent collection and arrears management performance remains strong, however at 31st March 2009 current arrears performance was 5.19%, in line with our target of 4.7%. In the current economic climate we are developing further strategies to deal with arrears, and have been awarded a grant to employ two debt advisers to provide support to customers who may be facing difficulty paying their rent.
GeneralGeneral Needs current rent arrears needs current rent arrears
6% 5% 4% 3%
2006-07 2007-08 2008-09 Target
Actual
G15 upper quartile
Performance on average re-let time and void loss – two linked performance indicators - did not meet our target for the year, and was a General Needs void loss deterioration on the previous year. The rapid downturn in the UK economy led to a number 1.2%
0.8% 0.4% 0.0%
2006-07 2007-08 2008-09
of homes being left empty for longer than planned, but the trend has reversed following the Targetof theActual G15Buy upper quartile introduction “Rent Now Later� product. The trend in the second half of the year showed a marked improvement in performance as strategies to let unsold properties became established.
1.2%
General Needs general void loss needs Percentage void loss
0.8% 0.4% 0.0%
2006-07 2007-08 2008-09 Target
Actual
G15 upper quartile
Customer satisfaction with the repairs service at 71%, was marginally lower than a challenging target set for the year. In April 2008 we introduced a new framework contract for day to day maintenance services, and this led to an initial dip in performance but a better than average performance by the end of the year. In order to maintain performance, we have introduced an in house maintenance quality team to ensure that our contractual arrangements perform as expected. The quality of the maintenance service is the top priority for the majority of tenants and therefore we have set a challenging target for this service in 2009-10. Our partnering contract for gas maintenance provides a three star service provided to all tenants, and improved contract performance has led to 98% customer satisfaction with this service.
11
57.1 57.1 60.4 60.472.572.5
80 80
2008-09
2007-08
2007-08
60% 60%
2006-07 2006-07
East Thames Group Limited
Report of the Board
50% 50%
2008-09
70% 70%
OPERATING PERFORMANCE continued
Residents satisfied with our repairs & maintenance service
% % % 68.4 69.6 68.4%% 69.6 70.870.8* %
80% 80%
2008-09
2008-09
50% 50%
2007-08
60% 60%
2007-08
70% 70%
2006-07 2006-07
12
2006-07 2007-08 2008-09 *2008-09 target was 78%
Over the past five years we have invested ÂŁ31.6m in our homes and nearly 97% (2008: 95%) of our homes now meet the Decent Homes Standard. With the exception of the New Union Wharf estate - totalling 189 homes (of which 75 currently fail Decent Homes) - all of our housing stock will meet Decent Homes Standard by December 2010. Because of the complexity and timing of the regeneration required across the New Union Wharf estate, we have agreed with the Tenant Services Authority that these will be completed by 2014. These are the only properties for which we have sought and achieved an extension to the Decent Homes deadline.
Percentage of our homes meeting Decent Homes standard
100%
84.6%
94.1%
96.7%
95% 90% 85% 80%
2006-07 2007-08 2008-09 Target
Actual
G15 upper quartile
During the year we have focussed on identifying and delivering efficiencies and value for money. At the beginning of the year we started the process of restructuring many of our services and businesses to align our resources with the mission and strategic objectives. This has meant that the annualised staff savings in the year were ÂŁ1.9m. Through the re-tender of maintenance and other services we have generated significant annualised savings. We continuously benchmark our services against other G15 housing associations, and whilst there remains work to be done to further improve efficiency, we have had some notable improvements: tenancy and estate management services and rent arrears management have improved, and lettings service remains in the upper quartile when measured against our peer group. Our social regeneration programmes have continued to improve the life chances of our residents and customers through greater financial independence, educational attainment and employment opportunity. In the year 34% of our community training learners found employment, 25% of all education, training and employment learners have gone on to further education and 160 young people achieved accredited qualifications. In the year we have delivered three new supported housing schemes, secured a new floating support contract and widened choice of housing for people with learning disabilities. Our strength is in the quality of all our employees and is the key factor in our ability to meet our objectives and commitments to residents and service users, in an effective and efficient manner. We continue to consult and keep employees informed on matters affecting them, and on the progress of the Group. We do this in a number of ways including a formal forum for consultation, departmental meetings and a variety of newsletters and intranet pages. Many employees have been affected by the change management programme implemented throughout the organisation. This has been well received and the
East Thames Group Limited
reasons for the changes made have been clearly communicated across the Group. Performance against target is good considering the level of changes made during the year. The percentage of staff employed for more than one year is 82% (target 85%). The percentage employed in the same post is 65% (target 62%). Sickness rate 4.1% (target 3.6%) We give full and fair consideration to applications for employment from disabled persons for all vacancies. Should an employee become disabled, we make every effort to retain them in order that their employment within the Group may continue. It is Group policy to make training, career development and promotion opportunities available to all employees.
AIMS The following is a summary of how we have delivered against our key strategies:Providing high quality homes and services that meet the needs of our customers In 2008-09 we; • Implemented a restructure of the organisation focused on customer experience including savings of £1.1m in staff costs • Introduced a new reactive maintenance partnership
Ensure that our customers can influence our services In 2008-09 we; • Reviewed our customer involvement strategy resulting in the creation of customer panels • Involved residents in mystery shopping on a quarterly basis • Set up a contracts monitoring group, involving residents, as part of the management of the new reactive maintenance partnerships • Involved residents in interviewing for front line staff and in developing competencies when we restructured our Neighbourhood management services Influencing local, regional and national thinking, policies and strategies In 2008-09 we; • Were the homeless champion for London and hosted a successful pan London conference on tackling homelessness, alongside 25% of our total nominations going to statutory homeless families • Revised the High density toolkit, which is now used in all of our schemes and has received very positive feedback from external organisations • Secured representation on the Newham Local Area Agreement decision making body and continue to be represented at local stakeholder partnership events in Havering.
• Delivered against our new build homes programme (582 new homes) including exceeding our Homes and Communities Agency completion target.
Developed well informed, committed and enthusiastic staff
• Improved the consistency of our standards as evidenced by achieving the Quality Housing Standard enhances standards certificate and the Customer Excellence award for care and support services and foyers.
• Devised and implemented a new approach to performance management to strengthen the links between individual objectives through to team and directorate delivery plans.
In 2008-09 we;
• Continued to invest in training and development including an extensive programme of ‘Happy Customer’ training which included our maintenance contract partners
13
East Thames Group Limited
Report of the Board AIMS continued Actively using our financial and organisational strength In 2008-09; • New contracts for care and support have been secured valued at £2.4m over three years
14
• 85% of our care schemes reached either a good or excellent CSCI rating • We have expanded our Neighbourhood Regeneration services and raised £2.7m this year in external funding. Of particular note are two large contracts; the first is a partnership project on child poverty in Newham and Tower Hamlets. The second is an expansion of our employment and training programmes in Barking and Dagenham a £760k investment
FINANCIAL REVIEW Group summary The financial strategy of the Group has been aligned with our mission and strategic objectives – to deliver efficient quality services to residents, maintaining our homes and to make available more affordable homes. This is achieved through making full use of our financial capacity to increase investment capability. Our focus has been to improve efficiency, focus on risk management and make better use of our assets to support a programme of borrowing. Savills LLP have undertaken a full valuation of our housing stock at 31st March 2009. At 31st March 2009 the number of homes owned by the Group was 11,994 (2008: 11,079). This valuation incorporates our full stock condition survey data, revisions to our target rents and detailed evidence on our housing management costs. We have also reviewed the discount rate applied to the cash flow data. Housing properties are shown in the accounts as follows:- Properties held for letting are held at Existing Use Valuation for Social Housing (EUV-SH), shared ownership properties and Rent Now Buy Later at EUV-
SH less the net present value of the liability to repay Social Housing Grant and properties under construction are held at cost less attributable Social Housing Grant The value of the housing stock at 31st March 2009 was £696m (2008: £666m). The Group operates a final salary pension scheme – the Social Housing Pension Scheme – managed by the Pensions Trust. The scheme was closed to new members on 1st April 2008. The latest tri-annual valuation shows that there is a significant deficit on this scheme, with assets at 69.7% of pension liabilities. Our financial plans reflect the additional employer contributions that will be required effective 1st April 2009. The Group also operates a defined contribution scheme operated by Friends Provident for new employees and members joining after April 2008. Application of accounting policies The accounts are prepared on the basis of the accounting policies set out on pages 29 to 32. The application of certain accounting policies require some judgement. The two key areas of judgement in preparing these accounts are: (a) capitalisation of major repairs and (b) the comparison of the carrying cost of assets used in the business with their value in use. The split of major repair and planned maintenance costs between those that are improvements and therefore capitalised and those that are a repair and charged to the income and expenditure account is based partly on an analysis of the types of works undertaken and secondly the incremental income that is generated by the Group as a result of those works. In context of the major repair programmes, we have this year reviewed the valuations and target rents for all of our properties subject to major repair and together with identified savings in operating costs been able to further substantiate our capitalisation policy.
East Thames Group Limited
We have also reviewed our assets for impairment (the comparison of the net carrying cost of the asset with the value in use) and have concluded that, with the exception of one site, no provision is required. We have reviewed three asset classes separately: (a) land held for development and schemes in the course of development (b) schemes completed and handed over in the financial year and (c) established housing stock. In this evaluation we have used valuation data provided as part of the overall housing stock valuation as appropriate and board approved appraisal assumptions for schemes that have either been recently completed or are in the course of development. The Board have reviewed the tangible fixed assets and have concluded that, with the exception of one site, that the value of the assets shown in the accounts are not impaired. The Board have made full provision for the costs incurred in respect of a single development site. East Homes Ltd had entered into an option in respect of the affordable housing component. A LPA receiver has been appointed on this site. East Homes is continuing
negotiations with the Receiver with a view to the site being developed for affordable housing, however the Board have concluded that it is prudent to provide for impairment in respect of the costs incurred to date. Implementation of the Statement of Recommended Practice for Registered Social Landlords (2008). These financial statements incorporate the change to accounting policies as a result of the implementation of the Statement of Recommended Practice 2008. The principal policy change relates to the sale of initial equity of shared ownership homes. Under the previous policy, proceeds from sale were deducted from the cost of the asset shown on the balance sheet. Under the new policy, proceeds of sale are included in turnover and cost of sale in operating costs. The results for the preceding year – year ended 31st March 2008 and the balance sheet as at that date have been restated to reflect the change in accounting policy. The surplus in the year ended 31st March 2008, on restatement, has increased from £1.4m to £2.1m. As at 31st March 2008 reserves have increased by £13.2m and net book value of housing assets reduced by £6.5m.
PERFORMANCE IN 2008-09 Group highlights - five year summary for the year ended 31 March £’000 Income and Expenditure Turnover Operating costs Operating surplus Net interest payable Surplus on sale of assets Exceptional items Tax (Deficit)/surplus for the year
2009
2008
restated
114,693 113,537 (108,330) (106,793) 6,363 6,744 (16,529) (11,064) 7,308 7,119 — (667) (292) (21) (3,150) 2,111
2007
84,635 (76,506) 8,129 (10,040) 8,828 (12,579) — (5,662)
2006
2005
81,021 (71,447) 9,574 (9,888) 4,357 (2,340) — 1,703
72,584 (63,021) 9,563 (9,450) 4,585 — — 4,698
15
East Thames Group Limited
Report of the Board PERFORMANCE IN 2008-09 continued
16
The Group has generated a deficit (after tax) in the year of £3.2m, largely attributable to an impairment provision of £3.2m on a scheme in the course of development. This compares with a restated surplus before tax for the previous year of £2.1m. Turnover slightly increased to £114.7m and operating costs increased by 1% to £108.3m. Surplus on sale of property assets increased by 3% to £7.3m. Sale of assets include the surplus generated from the transfer of homes on an estate jointly managed with another Registered Provider, thereby creating a more efficient service for residents. Turnover on social housing lettings increased
by 5% to £78.3m and operating costs increased by 2% to £65.1m. Routine and planned maintenance costs reduced by 5% to £12m. Revenue major repairs included in operating costs increased from £1.3m to £3.0m. Management costs increased by just over the rate of inflation to £37m. Net interest payable charged in the income and expenditure account increased from £11.1m to £16.5m, and before capitalisation of interest increased from £17.4m to £21.2m, reflecting an increase in borrowings of £24m to £460.5m. The timing of loan drawings in 2007-08 and 2008-09 and repayment in 2008-09 resulted in a proportionately greater increase in the interest charge.
BALANCE SHEET PERFORMANCE The following is a summary of the balance sheet for the Group over the last five years. Group highlights - five year summary for the year ended 31 March
2009
£’000
2008
2007
restated
restated
2006
2005
Balance Sheet Housing properties at valuation Other tangible fixed assets Net current assets/(liabilities) Total assets less current liabilities
696,158 60,144 20,937 777,239
666,008 58,740 18,147 742,895
565,264 25,934 (7,726) 583,472
517,734 15,158 9,593 542,485
445,943 11,709 (14,909) 442,743
Long-term creditors Provisions & other long-term liabilities Reserves Total funding
473,240 1,431 302,568 777,239
452,145 1,767 288,983 742,895
303,730 — 279,742 583,472
262,943 100 279,442 542,485
177,595 100 265,048 442,743
Accommodation figures Total housing stock owned or managed at year end (number of dwellings):
14,287
13,618
13,238
11,404
11,301
As at 31st March 2009, Group properties totalled £696.2m (2008: £666.0m). During the year, 582 homes were completed at a cost of £96.6m and supported by Social Housing Grant of £31.9m. Total homes in management increased to 14,287.
Total assets less current liabilities increased by £35m, of which £14m is attributable to the increase in the revaluation reserve, £20m in long term finance and other creditors and the remainder by the surplus generated in the year and other reserve movements of £1m.
East Thames Group Limited
CAPITAL STRUCTURE AND TREASURY POLICY AND COMPLIANCE WITH LENDERS COVENANTS The objective of the Group’s treasury policy is to ensure that the Group has sufficient cash to finance new investment and fund operations, and to support the Group’s strategic objectives. As at 31st March 2009, the Group had loan facilities totalling £552m:(a) Barclays Bank plc - £250m (b) Nationwide Building Society - £195m (c) Lloyds Bank plc - £100m (d) Orchardbrook - £6m (e) THFC - £1m All loans with the exception of those with Orchardbrook and THFC are arranged through East Treasury, a wholly owned subsidiary of East Thames Group Ltd. Amounts borrowed by East Treasury are lent to fellow subsidiaries, principally East Homes. Interest on amounts borrowed are recharged to fellow subsidiaries at the cost to East Treasury. As at 31st March 2009, the Group had loan amounts outstanding of £462m with average maturity of 35 years. The Group has £50m of bullet repayments in the form of Lenders Option Borrowers Option facilities, and the remainder are amortising loan repayments. The Interest Rate Management policy seeks to protect the Group from abnormal fluctuations in interest rates and to give certainty in costs. The policy aims to maintain 20–40% of the portfolio at variable interest rates with the remainder hedged using a combination of embedded fixed rates and free standing long and short term swapped interest rates. Because of market conditions, the actual % of hedged debt exceeded the threshold, and the Group Treasury Committee is monitoring the position and considering the appropriateness of the level hedged in context of the prevailing economic environment. Following the banking crisis in autumn last year, and consequent abnormal condition in the money
markets, the Group – like many other Registered Providers – had an exposure from interest rate swaps. The interest rate management policy seeks to reduce exposure, but had not been framed in context of the abnormal market conditions. The exposures arises where the contracted interest rate swap rate is higher than the rate then available in the market, and this difference is then attributed to the whole period of the interest rate swap contract. The maximum exposure in the year was £46m, requiring security of £36m covered by a combination of cash and property security. At 31st March 2009, the exposure was £39m requiring security of £29m of which £6.6m was provided in cash and remaining in property. As at 31st March 2009, cash balance was £17.5m an increase of £10.8m from the previous year. The Group is required under its agreements with lenders to meet certain financial tests (financial covenants) being interest cover and gearing. Under the terms of the loan agreements with our lenders, these are tested on the basis of the principal borrowing entity East Homes Ltd. Interest cover is calculated as surplus before interest and tax, taking into account a proportion of the surplus on sale of housing assets all divided by interest payable. The Group is required to achieve a minimum one and three year interest cover test. Gearing is calculated as total borrowing divided by reserves and accumulated public subsidy in the form of capital grants. Covenants are monitored by the Group Executive and Group Board as part of the review of monthly management accounts. A certificate confirming compliance with the covenants is audited. The following are interest cover and gearing results for the year ended 31st March 2009, measured on the balance sheet of East Homes Ltd. • Minimum annual interest cover 95%, actual 2009: 102% (2008: 175%), • Maximum gearing 70%, actual 2009: 56% (2008: 59%)
17
East Thames Group Limited
Report of the Board GOING CONCERN After making enquiries, the Board have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. For this reason, members continue to adopt the going concern basis in preparing the accounts.
18
In reaching this conclusion the Board have considered the following facts and issues:(a) The UK economy is in recession and the prospects for recovery remain uncertain. (b) We have responded to the recession by curtailing expenditure, reducing costs and improving efficiency. (c) The full valuation of the housing stock has resulted in an overall increase in value compared with the preceding year. (d) The Board position on risk appetite is framed in context of the current economic reality. (e) The Group is taking a cautious position in relation to assessment of financial risk. The business plan for the Group is framed without placing reliance on sale of housing assets and staircasing. (f) The business plan shows continuing compliance with loan covenants, without placing reliance on sales of housing assets and staircasing. (g) The Group’s total loan facilities at 31st March 2009 were £552m, including unused facilities capable of being drawn of £90m. The Group has sufficient property security to fully draw against the loan facility. In framing this opinion, the Board recognises that the Group continues to be exposed to financial risk. The following are the key financial risks:- (a) continued downturn in the housing and mortgage markets, impacting on the development of our pipeline of new schemes.
(b) the prospect of the Retail Prices Index at September 2009 being less than 0%, resulting in a real reduction in rental income. The Board supports the position put forward by the National Housing Federation that the minimum rate of inflation for the 2009-10 rent increase should be 0%. (c) Uncertainty over future pension liabilities, including the financial strength of our closed final salary pension scheme (Social Housing Pension Scheme) and Government policy on auto-enrolment of employees into a pension arrangement. POST BALANCE SHEET EVENTS East Place Ltd, a wholly owned subsidiary of East Thames Group Ltd, is a one third shareholder in Triathlon Homes, a Limited Liability Partnership jointly formed with Southern Housing Group and First Base Ltd. Triathlon has been created as a special purpose vehicle to purchase 1,379 affordable homes in the Olympic Athletes Village in Stratford. Triathlon will own the homes in the long term, with East Homes providing management services. Because the Village is to be used to house athletes competing in the 2012 Olympics and Paralympics the homes will not begin to be handed over to Triathlon until 2013 with final occupation taking place in 2014. Total investment in the project will be capped at £4m in the form of cash and through the provision of services over the development period. In return for this investment, the Group will receive a commercial return during the period of the investment and will receive a one third share of all surpluses arising from Triathlon in the future. By 31st March 2009 all of the principal commercial terms of the transaction had been negotiated, an allocation of Social Housing Grant from the Homes & Community Agency of £110m secured, and the terms of the private loans agreed with the European Investment Bank and Barclays. Financial close occurred on 19th June 2009,
East Thames Group Limited
and the investment of £4m was committed on that date. As at 31st March 2009 there were no contingent liabilities in respect of this transaction. FUTURE STRATEGY In the current economic environment our financial resources are directed towards delivering services, improving homes and reducing risk. Our financial performance in 2008-09 and financial projections eliminates reliance on asset sales to support core activities. Income from asset sales is an important source of cash to the business and will be used, when received, to support additional investment in regeneration, improvements to existing homes and development of new affordable housing. Notwithstanding the constraints placed upon the business by the economic environment, we continue to maintain a development programme with an overall business plan target of 500 homes per unit. The shortage of mortgages remains a constraint to the marketing of new shared ownership homes and we therefore envisage that we will continue to offer both shared ownership or as an alternative, Rent Now Buy Later or intermediate rent housing products.
DONATIONS The Group made charitable donations during the year of £nil (2008:£2,800). No donations were given to charities of which Board members are Trustees. EXTERNAL AUDITORS A resolution to re-appoint Grant Thornton UK LLP will be proposed at the forthcoming annual general meeting. ANNUAL GENERAL MEETING The annual general meeting will be held on 16th September 2009 at West Ham Lane, Stratford, London E15 4PH. STATEMENT OF COMPLIANCE In preparing this Operating and Financial Review and Board Report, the board has followed the principles set out in SORP 2008. The Report of the Board was approved by the Board on 17th July 2009 and signed on its behalf by:
Our business plan also reflects the drive towards greater efficiency to deliver resources to invest in front line services, repairs and new homes. Henry Potter Group Company Secretary
19
East Thames Group Limited
Independent Auditors’ report to the Members of East Thames Group Limited 20
We have audited the consolidated and parent financial statements (the ‘financial statements’) of East Thames Group Limited for the year ended 31 March 2009, which comprise the consolidated and parent income and expenditure accounts, the consolidated and parent balance sheets, the consolidated and parent cash flow statements, the consolidated statements of total recognised surpluses and deficits and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company’s members, as a body, in accordance with regulations made under section 235 of the Companies Act 1985. 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 auditors’ 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 the 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 responsibilities of the board for preparing the report and financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of responsibilities of the board for the financial statements. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). 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 2006. We also report to you if, in our opinion, the Report of the Board is consistent with the financial statements. In addition, we report to you if, in our opinion, 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 directors’ remuneration and other transactions is not disclosed. We read the other information accompanying the financial statements and consider whether it is consistent with the audited financial statements. The other information comprises only the Report of the Board, including the Operating and Financial Review section. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
East Thames Group Limited
BASIS OF AUDIT OPINION
OPINION
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) 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 judgments made by the board in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and parent’s circumstances, consistently applied and adequately disclosed.
In our opinion:
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.
• the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of affairs of the Group and the company as at 31 March 2009 and of the deficit for the year then ended; • the financial statements 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 2006; and • the information given in the Report of the Board is consistent with the financial statements.
Grant Thornton UK LLP Chartered Accountants and Registered Auditors Cambridge England
21
East Thames Group Limited
Consolidated income and expenditure account FOR THE YEAR ENDED 31 MARCH 2009
22
Note Turnover: continuing activities Operating costs
2009 £’000
2008 £’000
restated
2 114,693 113,537 2 (108,330) (106,793)
Operating surplus: continuing activities
6,363
6,744
Surplus on sale of fixed assets - housing properties 4 Net interest payable and similar charges 7 Exeptional item - loan breakage costs
7,308 (16,529) — (16,529)
7,119 (11,064) (667) (11,731)
(Deficit)/ surplus on ordinary activities before taxation
(2,858)
2,132
Tax on (deficit)/ surplus on ordinary activities
18
(292)
(21)
(Deficit)/ surplus for the financial year
(3,150)
2,111
The notes on pages 29 to 57 form part of these financial statements.
East Thames Group Limited
Consolidated statement of total recognised surpluses and deficits FOR THE YEAR ENDED 31 MARCH 2009
Note (Deficit)/ surplus for the financial year Unrealised surplus on revaluation of housing properties Unrealised (deficit) on grant
2009 £’000
2008 £’000
restated
24 24
(3,150) 16,735 —
2,111 8,041 (911)
Total recognised surpluses for the year
13,585
9,241
Prior year adjustment
13,154
26,739
Note of historical cost surpluses and deficits for the year ended 31 March 2009 Reported (deficit)/surplus on ordinary activities Excess of actual depreciation over historical cost depreciation Realisation of property revaluation surpluses
2009 £’000 (3,150) 625 (625)
2,111 560 831
Historical cost (deficit)/ surplus on ordinary activities before taxation
(3,150)
3,502
Tax on surplus on ordinary activities
(292)
(21)
(3,442)
3,481
Historical cost (deficit)/surplus for the year after taxation
Reconciliation of movements in Group’s funds for the year ended 31 March 2009
2009 £’000
2008 £’000
restated
2008 £’000
restated
Opening total funds
288,983
279,742
Total recognised surpluses relating to the year
13,585
9,241
Closing total funds
302,568
288,983
23
East Thames Group Limited
Consolidated balance sheet AS AT 31 MARCH 2009
Note
2009 £’000
2008 £’000
restated
Tangible fixed assets
24
Housing properties at valuation Other fixed assets Investments
10 11
696,158 60,144 756,302
666,008 58,740 724,748
Cost of HomeBuy and Starter Home Initiative 10 Less; Social Housing Grant 10 Current assets
25,813 (25,813) —
27,806 (27,806) —
Properties for sale 13 Debtors 14 Cash at bank and in hand 15, 29 Creditors: amounts falling due within one year 16
15,878 14,118 17,430 47,426 (26,489)
31,270 23,859 6,680 61,809 (43,662)
Net current assets
20,937
18,147
Total assets less current liabilities
777,239
742,895
Creditors: amounts falling due after more than one year Provision for liabilities
17 22
473,240 1,431
452,145 1,767
474,671
453,912
Share capital 23 Revenue reserve 24 Restricted reserve 24 Revaluation reserve 24 Consolidated funds
— 64,693 99 237,776 302,568
— 65,492 112 223,379 288,983
777,239
742,895
Capital and reserves
The financial statements were approved by the Board on 17th July 2009 and signed on its behalf by:
Robert Chilton Chairman
Andrew Newell Treasurer
Henry Potter Group Company Secretary
East Thames Group Limited
Consolidated cash flow statement FOR THE YEAR ENDED 31 MARCH 2009 Note
2009 £’000
2008 £’000
27
28,042
13,929
Interest received Interest paid Breakage costs paid Net cash outflow on servicing of finance
483 (20,751) — (20,268)
1,267 (16,971) (667) (16,371)
Corporation tax
—
—
Net cash flow from operating activities
Returns on investments and servicing of finance
Capital expenditure and financial investments Purchase and construction of housing properties Purchase of other fixed assets Social Housing Grant received Social Housing Grant repaid Other capital grants received Proceeds of HomeBuy Sales of housing properties Sales of Starter Homes Initiatives
(48,530) (160,546) (2,127) (24,160) 23,270 30,767 (4,871) (1,718) 424 34 346 1,471 14,769 13,097 1,935 3,498
Cash outflow from investing activities
(14,784) (137,557)
Acquisitions Purchase of subsidiary Net overdraft acquired
— —
(6,080) (436)
Cash outflow from acquisitions
—
(6,516)
Cash outflow before financing
(7,010) (146,515)
Housing loans received Housing loans repaid Loan issue costs paid
36,956 297,375 (18,000) (151,928) (459) (189)
Financing
Cash inflow from financing
28
18,497
145,258
Increase/(Decrease) in cash in the year
28
11,487
(1,257)
25
East Thames Group Limited
Parent income and expenditure account FOR THE YEAR ENDED 31 MARCH 2009
Note
26
Turnover: continuing activities Operating costs
2009 £’000
2008 £’000
2 2
16,115 (20,084)
14,314 (14,362)
Operating (deficit): continuing activities
(3,969)
(48)
(Deficit) for the financial year
(3,969)
(48)
The financial statements were approved by the Board on 17th July 2009 and signed on its behalf by:
Robert Chilton Chairman
Andrew Newell Treasurer
Henry Potter Group Company Secretary
East Thames Group Limited
Parent balance sheet AT 31 MARCH 2009
Note Tangible fixed assets
2009 £’000
2008 £’000
11
5,127
6,218
Debtors 14 Creditors: amounts falling due within one year 16 Net current (liabilities) / assets
6,668 (8,701) (2,033)
10,761 (10,692) 69
Total assets less current liabilities
3,094
6,287
Provision for liabilities
22
1,110
334
23 24
— 1,984
— 5,953
3,094
6,287
Current assets
Capital and reserves Share capital Revenue reserve
The financial statements were approved by the Board on 17th July 2009 and signed on its behalf by:
Robert Chilton Chairman
Andrew Newell Treasurer
Henry Potter Group Company Secretary
27
East Thames Group Limited
Parent cash flow statement FOR THE YEAR ENDED 31 MARCH 2009
Note
28
Net cash inflow from operating activities
2009 £’000
2008 £’000
27
1,919
4,198
Capital expenditure and financial investments Purchase of fixed assets Proceeds of disposal of fixed assets
(1,292) 110
(3,936) —
Cashflow from investing activities
(1,182)
(3,936)
Increase in cash in the year
28
737
262
East Thames Group Limited
Notes to the financial statements 1 ACCOUNTING POLICIES
VAT payable or recoverable at the year end is included as a current liability or asset.
BASIS OF ACCOUNTING
INTEREST PAYABLE
The financial statements of the parent Company and the Group (the “Group”) are prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP) Statement of Recommended Practice: Accounting by registered social landlords, issued in January 2008 (SORP 2008) and comply with the Accounting Requirements for registered social landlords General Determination 2006.
Interest is capitalised on borrowings to finance developments to the extent that it accrues in respect of the period of development if it represents either:
The prior period adjustment reflects a change in the accounting policy for shared ownership first tranche sales under SORP 2008. The effect of the change is shown in more detail in note 30. BASIS OF CONSOLIDATION The group accounts consolidate the accounts of the parent Company and all its subsidiaries at 31 March using acquisition accounting. TURNOVER Turnover compromises rental income receivable in the year, income from shared ownership, management fees, first tranche sales, sales of properties built for sale and other services included at the invoiced value (excluding VAT) of goods and services supplied in the year and revenue grants receivable in the year. Income from first tranche sales and sales of properties built for sale is recognised at the point of legal completion of the sale. VALUED ADDED TAX The Group charges valued added tax (VAT) on some of its income and is able to recover part of the VAT it incurs on expenditure. The financial statements include VAT to the extent that it is suffered by the Group and not recoverable from H.M. Revenue & Customs. The balance of
(a) interest on borrowings specifically financing the development programme after deduction of interest on social housing grant (SHG) in advance; or (b) interest on borrowings of the Group as a whole after deduction of interest on SHG in advance to the extent that they can be deemed to be financing the development programme. Other interest payable is charged to the income and expenditure account in the year. DERIVATIVES The Group uses interest rates swaps to reduce its exposure to future increases in the interest rates on floating rate loans. The notional principal is not reflected in the Group’s balance sheet. Payments made under interest rate swaps are recognised in the payment period and adjusted against interest payable on the loans. PENSIONS The Group participates in two funded multiemployer defined benefit scheme, the Social Housing Pension Scheme (SHPS) and the scheme operated by the London Pension Fund Authority. For both schemes, it has not been possible to identify the share of underlying assets and liabilities belonging to individual participating employers. The income and expenditure charge represents the employer contribution payable to the scheme for the accounting period.
29
East Thames Group Limited
Notes to the financial statements 1 ACCOUNTING POLICIES continued PENSIONS continued
30
From the 1st April 2008 defined benefit schemes have been closed to new employees and existing employees not already in the scheme; these employees are eligible to contribute to a money purchase scheme run by Friends Provident. Employer contributions to the pension scheme are charged to the income and expenditure account as incurred. SUPPORTING PEOPLE FUNDING REGIME Charges for support services funded under Supporting People are recognised as they fall due under the contractual arrangements with Administering Authorities. AGENCY MANAGED HOSTELS The Group has brought into its financial statements only income and expenditure under its direct control in respect of agency managed hostels. HOUSING PROPERTIES Housing properties are principally properties available for rent, shared ownership, Rent Now Buy Later and intermediate/ market rent. Completed housing properties are stated at Existing Use Value for Social Housing (EUV-SH). Full revaluations of the properties are undertaken every three years and interim valuations are carried out where there are indications of a significant change in value. Housing properties under construction are stated at cost less related social housing grant and other capital grants. Cost includes the cost of acquiring land and buildings, development costs, interest charges incurred during the development period and expenditure incurred in respect of improvements of stock and estates. Shared ownership properties are split proportionally between current and fixed assets based on the element relating to expected first tranche sales. The first tranche proportion is
classed as a current asset and related sales proceeds included in turnover, and the remaining element is classed as fixed asset and included in housing properties at cost, less any provisions needed for depreciation or impairment. Works to existing properties are works which result in an increase in the net rental income, such as a reduction in future maintenance costs, or result in a significant extension of the useful economic life of the property in the business. Only the direct overhead costs associated with new developments or improvements are capitalised. Land donated by local authorities and others is added to cost at the market value of the land at the time of the donation. Where the land is not related to a specific development and is donated by a public body an amount equivalent to the increase in value between market value and cost is added to other grants. Where the donation is from a non-public source, the value of the donation is included as income. SOCIAL HOUSING GRANT Social Housing Grant (SHG) is payable by the Homes & Community Agency (formerly 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 within creditors. SHG is repayable in certain circumstances and in these circumstances 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 Homes & Communities Agency. Under the requirements of the SORP 2008, capital grants are shown as a deduction from the cost of housing properties on the balance
East Thames Group Limited
sheet (see note 10). This is a departure from the rules under schedule 4 of the Companies Act 1985 but in the opinion of the Board is a relevant accounting policy, comparable to that adopted by other Registered Providers that has been adopted in order to present a true and fair view. OTHER GRANTS Other grants include grants from local authorities and other organisations. 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. DEPRECIATION OF HOUSING PROPERTIES Freehold land, shared ownership properties and assets held in the course of completion are 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: Houses 100 to 150 years Low level flats 100 to 150 years Blocks over four floors 60 years These useful economic lives apply equally to the Groups rented and supported housing and care stock of housing properties. Shared ownership properties are not depreciated because the shared owner has the significant equity and is responsible for the maintenance of the property. Properties held on leases are amortised over the life of the lease or their estimated useful economic life, if shorter. IMPAIRMENT Housing properties which are depreciated over a period in excess of 50 years are subject to impairment reviews annually. Other assets are reviewed for impairment if there is an indication that impairment may have occurred.
Where there is evidence of impairment, fixed assets are written down to their recoverable amount. Any such write down is charged to operating surplus. LEASED ASSETS Rentals payable under operating leases are charged to the income and expenditure account on a straight-line basis over the lease term. PROPERTIES FOR SALE (INCLUDING SHARED OWNERSHIP PROPERTIES) Completed properties for outright sale and properties under construction are valued at the lower of cost and net realisable value. Cost comprises materials, direct labour and direct development overheads. Net realisable value is based on estimated sales price after allowing for all further costs of completion and disposal. First tranche shared ownership sales are included in turnover. First tranche elements of shared ownership housing properties are disclosed as properties for sale within current assets. Properties for sale within current assets include other development for sale such as properties for outright sale. Properties for sale within current assets is stated at the lower of cost and net realisable value. Subsequent tranches are dealt with in the same way as fixed asset property sales and shown as a separate item after operating surplus in the Income and Expenditure Account. STARTER HOMES INITIATIVE Where properties built for sale are disposed of during the year, the disposal proceeds are included in turnover, and the attributable costs are included in cost of sales. The Group receives grant via the Homes and Communities Agency to enable key workers to purchase their own homes. The loan is included in Fixed Asset Investments at cost together with the associated grant.
31
East Thames Group Limited
Notes to the financial statements 1 ACCOUNTING POLICIES continued
32
INVESTMENT AND COMMERCIAL PROPERTY
TAXATION
Properties held for their investment potential are accounted for as investment properties in under SSAP 19 “accounting for investment properties”. Accordingly the properties are recorded at their current market value and because value is of prime importance, these are not depreciated. Commercial property under construction is recorded at the lower of cost and net realisable value, and on completion will be treated as investment properties.
The parent company is a registered charity and is registered under the Companies Act 1985 and is not generally subject to Corporation Tax.
OTHER TANGIBLE FIXED ASSETS
The majority of the Group’s activities are not subject to Corporation Tax. Any charge for taxation is based upon any taxable profit for the year and takes into account deferred tax where applicable.
Other fixed assets include commercial property, investment property, offices, plant and machinery and motor vehicles. All other classes of other tangible fixed assets 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 subsidiaries East Place Ltd and East Regen Ltd are subject to Corporation Tax, and other subsidiaries, including East Homes Ltd may be liable to Corporation Tax on those activities that are not exempted either through charitable/ public benefit objectives or being a registered charity.
PROVISIONS
Freehold offices other than Head office
4%
Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, 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.
Head office
2%
RESERVES
Lifts
4%
The revaluation reserve represents the increase in value of completed housing properties and property held for investment. Restricted reserves are only expendable in accordance with the wishes of the funder or donor.
Office furniture & improvements 14.3% Service equipment
20%
Motor vehicles
25%
Computer equipment Major software
33.3% 13% - 20%
CURRENT ASSET INVESTMENTS Current asset are stated at the lower of cost and net realisable value. Liquid resources are readily disposable current asset investments. They include some money market deposits, held for more than 24 hours, that can only be withdrawn without penalty on maturity or by giving notice of more than one working day.
East Thames Group Limited
2 PARTICULARS OF TURNOVER, COST OF SALES, OPERATING COSTS AND OPERATING SURPLUS 2009 2008 Turnover Operating Operating Operating costs surplus/ surplus/ (deficit) (deficit) £’000 £’000 £’000 £’000 restated
GROUP Social housing lettings Housing accommodation Supported housing accommodation Temporary social housing Shared ownership accommodation
42,113 17,901 7,697 10,574
35,415 18,013 7,703 3,956
6,698 (112) (6) 6,618
5,859 424 (167) 4,674
Other social housing activities
78,285
65,087
13,198
10,790
Regeneration and development services Abortive costs Community involvement First tranche shared ownership sales Sales of properties developed for sale to other Registered Providers Impairment on schemes in the course of development Other
5,491 — 4,949 13,157
5,491 74 6,715 12,997
— (74) (1,766) 160
413 (329) (2,538) 746
7,197 — 1,626
7,197 3,147 4,739
— (3,147) (3,113)
— — (2,696)
32,420
40,360
(7,940)
(4,404)
Development for sale - outright sales Surplus on disposal of other fixed assets
3,503 485 3,988
2,742 141 2,883
761 344 1,105
358 — 358
Total
114,693
108,330
6,363
6,744
Group recharge Donation received from Group member Other
14,565 — 1,550
20,084 — —
(5,519) — 1,550
(2,741) 1,916 777
Total
16,115
20,084
(3,969)
(48)
Non-social housing activities
PARENT Other income and expenditure
33
East Thames Group Limited
Notes to the financial statements
34
Shared ownership
Temporary Social housing
Residential care homes
Supported housing
Housing accommodation
3 INCOME AND EXPENDITURE FROM SOCIAL HOUSING LETTINGS
2009 2008 £’000 £’000 £’000 £’000 £’000 £’000 £’000 GROUP
restated
Rent receivable net of identifiable service charges Service charges receivable
35,191 2,016
2,549 4,254
437 —
6,979 —
7,821 52,977 50,512 914 7,184 6,537
Net rental income
37,207
6,803
437
6,979
8,735 60,161 57,049
3,357 — 76 — 1,473
2,474 1,757 — — 795
5,547 87 — — 1
— — — — 718
— 11,378 11,352 — 1,844 2,083 11 87 100 1,332 1,332 963 496 3,483 3,287
42,113 11,829
6,072
7,697 10,574 78,285 74,834
Services 1,524 1,025 Management 17,629 2,852 Support — 6,174 Rent payable to landlords 1,127 — Routine maintenance 6,511 640 Planned maintenance 3,505 282 Rent losses from bad debts 580 (10) Revenue element of major repairs expenditure 3,024 — Housing properties depreciation 1,433 — Other costs 82 — Operating costs on social housing lettings 35,415 10,963
7 406 6,527 — 107 11 (8)
13 836 — 5,958 765 — 131
1,152 3,721 4,091 2,585 24,308 23,063 — 12,701 12,330 — 7,085 8,774 205 8,228 9,030 11 3,809 3,650 — 693 512
— — — 7,050
— — — 7,703
3 3,027 1,326 — 1,433 1,233 — 82 35 3,956 65,087 64,044 6,618 13,198 10,790
Revenue grants from local authorities and other agencies Support charges - fixed contract Other grants Sales & marketing fees Other income Turnover from social housing lettings
Operating surplus/(deficit) on social housing lettings Void losses
6,698
866
(978)
(6)
608
178
31
450
1,396
2,663
1,524
Restatement of costs The results for 2008 have been restated to reflect the cost of providing support under supporting people and similar contracts. The impact of the change in presentation is £12,330k transferred from management and service costs to support.
East Thames Group Limited
4 SALE OF FIXED ASSETS - HOUSING PROPERTIES
Sales proceeds £’000 GROUP
Cost of sales £’000
2009 Surplus £’000
2008 Surplus £’000 restated
Sales of older and shared ownership properties HomeBuy Starter Homes Initiative - current year sales
14,769 346 1,935
7,832 242 1,668
6,937 104 267
6,133 406 580
17,050
9,742
7,308
7,119
2009
2008
General housing Supported housing and housing for older people Low cost home (shared) ownership Rent now buy later Social Homebuy Temporary social housing Intermediate rent Total Owned
7,305 1,619 1,660 257 7 43 303 11,194
7,281 1,455 1,743 — — 34 266 10,779
General housing Supported housing and housing for older people Temporary social housing Total accommodation managed for others
80 110 531 721
80 115 706 901
Total social housing managed
11,915
11,680
34 62 633 6 63 — 2 800
22 30 124 34 60 25 5 300
Offices and community centres Market and commercial rent Long leased properties Homebuy Starter home initiatives Fixed equity Other Total managed for others
2 124 618 325 462 38 3 1,572
23 141 587 334 507 38 8 1,638
Total non-social housing managed
2,372
1,938
Total social and non-social housing
14,287
13,618
5 UNITS OF ACCOMMODATION IN MANAGEMENT Social Housing – Owned
Social Housing – Accommodation managed for others
Non-Social Housing – Owned Offices and community centres Market and commercial rent Garages Out of management Static homebuy Outright sales Other Total Owned Non-Social Housing – Accommodation managed for others
35
East Thames Group Limited
Notes to the financial statements 6 OPERATING SURPLUS This is arrived at after charging:
36
Depreciation of housing properties Depreciation of tangible fixed assets Profit or loss on sale of other fixed assets Impairment on schemes in the course of development Operating leases on land and buildings -
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
1,433 3,248 344
1,233 1,198 —
— 2,274 —
— 740 —
3,147 7,085
— 8,774
— —
— —
14
11
11
11
76
54
—
—
29
44
—
—
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
—
—
(to cover rental payments to private sector landlords for properties used for temporary accommodation for START tenants)
Fees payable to the company’s auditor for the audit of the financial statements Audit of the financial statements of the Company’s subsidiaries pursuant tolegislation Fees payable to the company’s auditor for other services
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
282
205
— (21,224)
— (17,372)
— —
— —
(20,942)
(17,167)
—
—
Interest receivable from other RSLs Interest payable capitalised on housing properties under construction Interest payable capitalised on commercial properties under construction Interest receivable transferred to the RCGF/DPF Amortisation of loan issue costs Interest receivable transferred to the Housing Corporation SHI
201
1,062
—
—
4,511
4,574
—
—
261 (433) (90)
1,567 (887) (87)
— — —
— — —
(37) (16,529)
(126) (11,064)
— —
— —
5%
5%
—
—
Capitalisation rate used to determine the finance costs capitalised during the period
East Thames Group Limited
8 EMPLOYEES
Group 2009
Group 2008
Parent 2009
Parent 2008
Administration Care staff Direct labour
518 379 —
528 455 60
119 — —
120 — —
897
1,043
119
120
STAFF COSTS
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
Wages and salaries Social security costs Other pension costs
23,751 2,232 1,869
26,715 2,487 1,576
4,152 382 634
4,191 396 398
27,852
30,778
5,168
4,985
Number of employees expressed in full time equivalents
FRIENDS PROVIDENT
NHS PENSION SCHEME
From 1st April 2008 employees and future employees have the opportunity to participate in a money purchase pension scheme provided by Friends Provident.Until 2012 employees have an option of joining the scheme on the starter scale or the main scale. The starter scale will increase to a minimum contributionof 4% for employees by 2012, which is also the minimum contribution allowable on the main scale with a maximum contribution being 8%.
East Thames Group Limited employ 17 staff who are members of the NHS Pension Scheme. Employees pay contributions averaging 6% and East Thames GroupLimited pay contributions of 14%.
Contributions for employees who have joined the scheme this year range from 1% to 8% the maximum allowed. East Thames Group contribute one and half times the contribution made by the employee. During the year 9 employees joined the scheme. Contributions to the scheme total £11,135 for employee and £16,703 for the employer.
The NHS Pension Scheme is a statutory 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 cost of increasing benefits each year by the rate of inflation. This extra cost is not met by contributions from scheme members or employers.
37
East Thames Group Limited
Notes to the financial statements 8 EMPLOYEES
continued
SOCIAL HOUSING PENSION SCHEME (SHPS)
38
East Thames Group Limited participates in the Social Housing Pension Scheme (SHPS). The Scheme is funded and is contracted out of the state scheme. SHPS is a multi-employer defined benefit scheme. Employer participation in the Scheme is subject to adherence with the employer responsibilities and obligations as set out in the “SHPS House Policies and Rules Employer Guide”. The Scheme operated a single benefit structure, final salary with a 1/60th accrual rate until 31 March 2007. From April 2007 there are three benefit structures available, namely: 1.1 Final salary with a 1/60th accrual rate. 1.2 Final salary with a 1/70th accrual rate. 1.3 Career average revalued earnings with a 1/60th accrual rate. An employer can elect to operate different benefit structures for their active members (as at the first day of April in any given year) and their new entrants. An employer can only operate one open benefit structure at any one time. An open benefit structure is one which new entrants are able to join. East Thames Group Limited has elected to operate the final salary with a 1/60th accrual rate, benefit structure for active members as at 31st March 2008. The Trustee commissions an actuarial valuation of the Scheme every 3 years. The main purpose of the valuation is to determine the financial position of the Scheme in order to determine the level of future contributions required, in respect of each benefit structure, so that the Scheme can meet its pension obligations as they fall due. From April 2007 the split of the total contribution rate between member and employer is set at individual employer level, subject to the employer paying no less than 50% of the total
contribution rate. The actuarial valuation assesses whether the Scheme’s assets at the valuation date are likely to be sufficient to pay the pension benefits accrued by members as at the valuation date. Asset values are calculated by reference to market levels. Accrued pension benefits are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. During the accounting period East Thames Group Limited paid contributions at the rate of 17.1%. Member contributions varied between 6.4% and 8.4%. As at the balance sheet date there were 267 active members of the Scheme employed by East Thames Group Limited The annual pensionable payroll in respect of these members was £1,869k. It is not possible in the normal course of events to identify on a consistent and reasonable basis the share of underlying assets and liabilities belonging to individual participating employers. This is because the scheme is a multi employer scheme where the scheme assets are co-mingled for investment purposes, and benefits are paid from total scheme assets. Accordingly, due to the nature of the Scheme, the accounting charge for the period under FRS17 represents the employer contribution payable. The last formal valuation of the Scheme was performed as at 30 September 2008 by a professionally qualified actuary using the Projected Unit Method. The market value of the Scheme’s assets at the valuation date was £1,527 million. The valuation revealed a shortfall of assets compared with the value of liabilities of £663 million, equivalent to a past service funding level of 70%.
East Thames Group Limited
The financial assumptions underlying the valuation as at 30 September 2008 were as follows: Valuation Discount Rates Pre retirement Non Pensioner Post retirement Pensioner Post retirement Pensionable earnings growth Price inflation
% pa 7.8 6.2 5.6 4.7 3.2
Pension Increases Pre 88 GMP Post 88 GMP Excess over GMP
% pa 0.0 2.8 3.0
Expenses for death in service insurance, administration and PPF levy are included in the contribution rate. The valuation was carried out using the following demographic assumptions: Mortality pre retirement – PA92 Year of Birth, long cohort projection, minimum improvement 1% pa Mortality post retirement – 90% S1PA Year of Birth, long cohort projection, minimum improvement 1% pa The long-term joint contribution rates that will apply from April 2010 required from employers and members to meet the cost of future benefit accrual were assessed at: Benefit structure
Long-term joint contribution rate (% of pensionable salaries)
Final salary with a 1/60th accrual rate
17.8
Final salary with a 1/70th accrual rate
15.4
Career average revalued earnings with a 1/60th accrual rate
14.9
If an actuarial valuation reveals a shortfall of assets compared to liabilities the Trustee must prepare a recovery plan setting out the steps to be taken to make up the shortfall.
Following consideration of the results of the actuarial valuation it was agreed that the shortfall of ÂŁ663 million would be dealt with by the payment of deficit contributions of 7.5% of pensionable salaries, increasing each year in line with salary growth assumptions, from 1 April 2010 to 30 September 2020, dropping to 3.1% from 1 October 2020 to 30 September 2023. Pensionable earnings at 30 September 2008 are used as the reference point for calculating these deficit contributions. These deficit contributions are in addition to the long-term joint contribution rates set out in the table above. Employers that participate in the Scheme on a noncontributory basis pay a joint contribution rate (i.e. a combined employer and employee rate). Employers that have closed the Scheme to new entrants are required to pay an additional employer contribution loading of 3.0% to reflect the higher costs of a closed arrangement. A small number of employers are required to contribute at a different rate to reflect the amortisation of a surplus or deficit on the transfer of assets and past service liabilities from another pension scheme into the SHPS Scheme. Employers joining the Scheme after 1 October 2002 that do not transfer any past service liabilities to the Scheme pay contributions at the ongoing future service contribution rate. This rate is reviewed at each valuation and applies until the second valuation after the date of joining the Scheme, at which point the standard employer contribution rate is payable. Contribution rates are changed on the 1 April that falls 18 months after the valuation date. A copy of the recovery plan, setting out the level of deficit contributions payable and the period for which they will be payable, must be sent to the Pensions Regulator. The Regulator has the power under Part 3 of the Pensions Act 2004 to issue scheme funding directions where it believes that the actuarial valuation assumptions and / or recovery plan are inappropriate. For example the Regulator could require that the
39
East Thames Group Limited
Notes to the financial statements 8 EMPLOYEES
40
continued
Trustee strengthens the actuarial assumptions (which would increase the scheme liabilities and hence impact on the recovery plan) or impose a schedule of contributions on the Scheme (which would effectively amend the terms of the recovery plan). The Regulator has reviewed the recovery plan for the SHPS Scheme and confirmed that, in respect of the September 2005 actuarial valuation, it does not propose to issue any scheme funding directions under Part 3 of the Pensions Act 2004. A copy of the recovery plan in respect of the September 2008 valuation will be forwarded to the Regulator in due course. As a result of pension scheme legislation there is a potential debt on the employer that could be levied by the Trustee of the Scheme. The debt is due in the event of the employer ceasing to participate in the Scheme or the Scheme winding up. The debt for the Scheme as a whole is calculated by comparing the liabilities for the Scheme (calculated on a buyout basis i.e. the cost of securing benefits by purchasing annuity policies from an insurer, plus an allowance for expenses) with the assets of the Scheme. If the liabilities exceed assets there is a buy-out debt. The leaving employer’s share of the buy-out debt is the proportion of the Scheme’s liability attributable to employment with the leaving employer compared to the total amount of the Scheme’s liabilities (relating to employment with all the currently participating employers). The leaving employer’s debt therefore includes a share of any ‘orphan’ liabilities in respect of previously participating employers. The amount of the debt therefore depends on many factors including total Scheme liabilities, Scheme investment performance, the liabilities in respect of current and former employees of the employer, financial conditions at the time of the cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time.
East Thames Group Limited has been notified by The Pensions Trust of the estimated employer debt on withdrawal from the Social Housing Pension Scheme based on the financial position of the Scheme as at 30 September 2008. As of this date the estimated employer debt for East Thames Group Limited was £51,855k. PENSION TRUST – GROWTH PLAN East Thames Group Limited participates in the Pensions Trust’s Growth Plan (the Plan). The Plan is funded and is not contracted out of the state scheme. The Growth Plan is a multiemployer pension plan. Contributions paid into the Growth Plan up to and including September 2001 were converted to defined amounts of pension payable from Normal Retirement Date. From October 2001 contributions were invested in personal funds which have a capital guarantee and which are converted to pension on retirement, either within the Growth Plan or by the purchase of an annuity. The rules of the Growth Plan allow for the declaration of bonuses and / or investment credits if this is within the financial capacity of the Plan assessed on a prudent basis. Bonuses / investment credits are not guaranteed and are declared at the discretion of the Plan’s Trustee. The Trustee commissions an actuarial valuation of the Growth Plan every 3 years. The purpose of the actuarial valuation is to determine the funding position of the Plan by comparing the assets with the past service liabilities as at the valuation date. Asset values are calculated by reference to market levels. Accrued past service liabilities are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. The rules of the Growth Plan give the Trustee the power to require employers to pay additional contributions in order to ensure that the statutory funding objective under the Pensions Act 2004 is met. The statutory funding objective is that a
East Thames Group Limited
pension scheme should have sufficient assets to meet its past service liabilities, known as Technical Provisions. If the actuarial valuation reveals a deficit, the Trustee will agree a recovery plan to eliminate the deficit over a specified period of time either by way of additional contributions from employers, investment returns or a combination of these. The rules of the Growth Plan state that the proportion of obligatory contributions to be borne by the Member and the Member’s Employer shall be determined by agreement between them. Such agreement shall require the Employer to pay part of such contributions and may provide that the Employer shall pay the whole of them. East Thames Group Limited does not pay contributions to the Growth Plan. Members paid contributions at the rate of their choice. It is not possible in the normal course of events to identify on a reasonable and consistent basis the share of underlying assets and liabilities belonging to individual participating employers. Growth Plan is a multi-employer scheme where the scheme assets are co-mingled for investment purposes, and benefits are paid from the total scheme assets. Accordingly, due to the nature of the Plan, the accounting charge for the period under FRS17 represents the employer contribution payable. The valuation results at 30 September 2008 have now been completed and will be formalised shortly. The valuation of the Scheme was performed by a professionally qualified actuary using the Projected Unit Method. The market value of the Scheme’s assets at the valuation date was £742 million and the Plan’s Technical Provisions (i.e. past service liabilities) were £771 million. The valuation therefore revealed a shortfall of assets compared with the value of liabilities of £29 million, equivalent to a funding level of 96%. The financial assumptions underlying the valuation as at 30 September 2008 were as follows:
- Investment return pre retirement - Investment return post retirement Actives / Deferreds Pensioners - Bonuses on accrued benefits - Rate of price inflation
% pa 7.6 5.1 5.6 0.0 3.2
In determining the investment return assumptions the Trustee considered advice from the Scheme Actuary relating to the probability of achieving particular levels of investment return. The Trustee has incorporated an element of prudence into the pre and post retirement investment return assumptions; such that there is a 60% expectation that the return will be in excess of that assumed and a 40% chance that the return will be lower than that assumed over the next 10 years. If an actuarial valuation reveals a shortfall of assets compared to liabilities the Trustee must prepare a recovery plan setting out the steps to be taken to make up the shortfall. In view of the small funding deficit and the level of prudence implicit in the assumptions used to calculate the Plan liabilities the Trustee has prepared a recovery plan on the basis that no additional contributions from participating employers are required at this point in time. In reaching this decision the Trustee has taken actuarial advice and has been advised that the shortfall of £29 million (as at 30 September 2008) will be cleared within 10 years if the investment returns from assets are in line with the “best estimate” assumptions. “Best estimate” means that there is a 50% expectation that the return will be in excess of that assumed and a 50% expectation that the return will be lower than that assumed over the next 10 years. These “best estimate” assumptions are 8.4% per annum pre retirement, 5.1% per annum post retirement (actives and deferreds) and 5.6% per annum post retirement (pensioners).
41
East Thames Group Limited
Notes to the financial statements 8 EMPLOYEES
42
continued
A copy of the recovery plan must be sent to the Pensions Regulator. The Regulator has the power under Part 3 of the Pensions Act 2004 to issue scheme funding directions where it believes that the actuarial valuation assumptions and / or recovery plan are inappropriate. For example the Regulator could require that the Trustee strengthens the actuarial assumptions (which would increase the scheme liabilities and hence impact on the recovery plan) or impose a schedule of contributions on the Scheme (which would effectively amend the terms of the recovery plan). A copy of the recovery plan in respect of the September 2008 valuation will be forwarded to the Pensions Regulator in due course. The next full actuarial valuation will be carried out as at 30 September 2011. Following a change in legislation in September 2005 there is a potential debt on the employer that could be levied by the Trustee of the Plan. The Trustee’s current policy is that it only applies to employers with pre October 2001 liabilities in the Plan. The debt is due in the event of the employer ceasing to participate in the Plan or the Plan winding up.
The debt for the Plan as a whole is calculated by comparing the liabilities for the Plan (calculated on a buyout basis i.e. the cost of securing benefits by purchasing annuity policies from an insurer, plus an allowance for expenses) with the assets of the Plan. If the liabilities exceed assets there is a buy-out debt. The leaving employer’s share of the buy-out debt is the proportion of the Plan’s pre October 2001 liability attributable to employment with the leaving employer compared to the total amount of the Plan’s pre October 2001 liabilities (relating to employment with all the currently participating employers). The leaving employer’s debt therefore includes a share of any ‘orphan’ liabilities in respect of previously participating employers. The amount of the debt therefore depends on many factors including total Plan liabilities, Plan investment performance the liabilities in respect of current and former employees of the employer, financial conditions at the time of the cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time. East Thames Group Limited has been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Plan based on the financial position of the Plan as at 30 September 2008. As of this date the estimated employer debt for East Thames Group Limited was £80,337.39.
9 DIRECTORS EMOLUMENTS The directors are defined as the members of the Group Board, including the Chief Executive and any other person reporting directly to the Chief Executive or the Board and any member of the Group Executive team. The remuneration of the members of the Board and the Executive Directors was:Fees for members of the Board
2009 £’000
2008 £’000
82
—
Management services of Executive Directors (including pension contributions and benefits in kind)
861
908
Remuneration for management services (excluding pension contributions) of the highest paid director
148
145
East Thames Group Limited
9 DIRECTORS EMOLUMENTS Chief Executive June Barnes
continued Basic Benefits Pension salary in kind contribut’ns £’000 £’000 £’000
Total 2009 £’000
Total 2008 £’000
147
1
24
172
165
—
—
—
—
85
Acting Group Director - Finance Paul Thomson (from 1/1/2008)
117
—
17
134
27
Group Director - Resident Services Victor da Cunha
126
—
22
148
127
Managing Director - East Homes Ltd Pamela Gardner (from 10/9/2007 - 31/3/2008)
—
—
—
—
49
Managing Director - East Living Ltd Martin van Tol (resigned 21/12/2007)
—
—
—
—
71
Managing Director - East Living Ltd Caroline Cayzer (resigned 31/7/2008)
29
—
5
34
19
Managing Director - East Potential David Chesterton
81
1
14
96
91
121
1
21
143
119
Group Director - Corporate Services Francesca Okosi-Arimah (from 16/6/2008)
79
—
—
79
—
Group Director - Finance Suzanne Forster (from 16/2/2009)
15
—
—
15
—
Group Director - Corporate Services Davina Boakye (resigned 31/7/2008)
34
1
5
40
97
Group Director - Business Services Jacky Kutner (resigned 23/11/2007)
—
—
—
—
58
749
4
108
861
908
Deputy Chief Executive Martin Heys (resigned 31/12/2007)
Group Director - Development Geoff Pearce
The Chief Executive is an ordinary member of the pension scheme and has a contractual arrangement with East Thames Group Limited covering additional voluntary contribtions (AVC’s). There are no other enhanced pension arrangements to which East Thames Group or any of its subsidiaries make a contribution. During the year directors received compensation payments for loss of office totalling £83k (2008: £213k). Remuneration paid to committee members for the year amounts to £150,400 (2008: £136,800). Expenses paid during the year to members of the Board amount to £25,469 (2008: £15,247).
43
East Thames Group Limited
Notes to the financial statements
44
Shared Own’shp properties under construction
Shared Own’shp properties held for letting
Rent to buy properties under construction
Rent to buy properties held for letting
Housing properties under construction
Housing properties held for letting
10 TANGIBLE FIXED ASSETS - HOUSING PROPERTIES
Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 Valuation At 1 April 2008 restated (note 30) 455,594 110,944 — — 103,168 45,382 715,088 Additions 6,710 5,859 — 7,930 14,612 6,364 41,475 Tenure change transfers 8,899 — 48,489 — (57,388) — — Transfer to properties for sale — (774) — — — (506) (1,280) Transfer from properties for sale — — — — — 5,192 5,192 Works to existing properties 5,795 — — — — — 5,795 Interest capitalised 211 1,986 — 462 256 1,596 4,511 Schemes completed 46,113 (46,113) — — 50,494 (50,494) — Disposals (17,836) 2 — — (4,050) (54) (21,938) Valuation adjustment 1,158 — (12,506) — (6,774) — (18,122) At 31 March 2009 506,644 71,904 35,983 8,392 100,318 7,480 730,721 Decpreciation and impairment As at 1 April 2008 — — — — — — — Depreciation charged in year 1,433 — — — — — 1,433 Impairment provision in year — 3,147 — — — — 3,147 Valuation adjustment (1,433) — — — — — (1,433) At 31 March 2009 — 3,147 — — — — 3,147 Social housing and other grants At 1 April 2008 restated (note 30) Additions Schemes completed Disposals Valuation adjustment Tenure change transfers At 31 March 2009
— 41,496 — 12,394 11,665 — 24,818 (24,818) — (14,114) — — (23,988) — (9,551) 890 — 9,551 — 28,343 —
— — 7,584 49,080 1,218 4,037 1,350 30,664 — 7,079 (7,079) — — (1,914) — (16,028) — 1,239 — (32,300) — (10,441) — — 1,218 — 1,855 31,416
Net book value At 31 March 2009
506,644 40,414 35,983
7,174 100,318
At 31 March 2008
455,594 69,448
—
5,625 696,158
— 103,168 37,798 666,008
The Board have reviewed the tangible fixed assets and have concluded that, with the exception of one site, that the value of the assets shown in the accounts are not impaired. The Board have made full provision for the costs incurred in respect of a single development site. East Homes Ltd had entered into an option in respect of the affordable housing component. A LPA receiver has been appointed on this site. East Homes Ltd is continuing negotiations with the Receiver with a view to the site being developed for affordable housing, however the Board have concluded that it is prudent to provide foimpairment in respect of the costs incurred to date.
East Thames Group Limited
Expenditure on works to existing properties Amount capitalised Amounts charged to income and expenditure account
2009 £’000
2008 £’000
5,795 3,027 8,822
17,591 1,326 18,917
Total accumulated capital and revenue social grant receivable
2009 £’000
2008 £’000
Capital grants Revenue grants
526,571 — 526,571
511,933 — 511,933
Housing properties comprise: Freehold land and buildings Long leasehold land and buildings
2009 £’000 695,803 355 696,158
2008 £’000 665,653 355 666,008
45
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 last valuation of completed housing properties was prepared as at 31 March 2009 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: Completed properties at valuation East Homes Limited Housing properties under construction at cost East Homes Limited
£’000 642,945
87,776
730,721
In the valuing of housing properties, discounted cash flow methodology was adopted and key assumption included: Discount rate
5.5%
Long term (beyond 2010-11) annual inflation rate
2.5%
Short term (2009-10 & 2010-11) annual inflation rate ≈ -2.5% to 0% The carrying value of the housing properties that would have been in the financial statements had theassets been carried forward at historical costs less SHG and depreciation is as follows: 2009 £’000 Historical cost
992,003
2008 £’000
restated
960,807
Social Housing Grant (488,431) (460,872) Other capital grants Depreciation and impairment
Level of annual rent increase
0.5%
Investment in HomeBuy and Starter Home Initiative:
Long term investment in properties
2009 £’000
2008 £’000
27,806
31,706
Decrease in investment in properties
(1,993)
(3,900)
(38,139)
(51,061)
Cost of HomeBuy and Starter Home Initiative
25,813
27,806
(7,053)
(6,246)
458,380
442,628
Less; Social Housing Grant
(25,813)
(27,806)
—
—
East Thames Group Limited
Notes to the financial statements
46
Motor vehicles
I.T. software development
I.T. equipment
Furniture & equipment
Freehold office
Investment property
Commercial prop’s under construction
11 TANGIBLE FIXED ASSETS - OTHER
Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 GROUP - Cost At 1 April 2008 6,608 — 49,732 4,460 4,221 3,958 96 69,075 Additions 1,602 — 886 726 267 298 — 3,779 Valuation adjustment — 1,124 — — — — — 1,124 Transfers in the year — 6,117 (6,117) — — — — — Disposals — — (213) (169) — — (28) (410) At 31 March 2009 8,210 7,241 44,288 5,017 4,488 4,256 68 73,568 GROUP - Depreciation At 1 April 2008 Reclassification of assets Charged in year Disposals Transfers in the year At 31 March 2009
— — (4,070) (2,040) (3,355) (776) — 3,141 (3,141) — — — — — (931) (458) (369) (1,489) — — 72 60 — — — (3,141) 3,141 — — — — — (4,929) (2,438) (3,724) (2,265)
Net book value At 31 March 2009 At 31 March 2008
8,210 6,608
PARENT - Cost At 1 April 2008 Additions Disposals At 31 March 2009
— — — —
— — — —
— — — —
PARENT - Depreciation At 1 April 2008 Charged in year Disposals At 31 March 2009
— — — —
Net book value At 31 March 2009 At 31 March 2008
— —
7,241 39,359 — 45,662
(94) (10,335) — — — (3,247) 26 158 — — (68) (13,424)
2,579 2,420
764 866
1,991 3,182
— 60,144 2 58,740
3,568 727 (169) 4,126
4,221 267 — 4,488
3,958 298 — 4,256
— 11,747 — 1,292 — (169) — 12,870
— — — —
— (1,398) (3,355) (776) — (416) (369) (1,489) — 60 — — — (1,754) (3,724) (2,265)
— (5,529) — (2,274) — 60 — (7,743)
— —
— —
— —
2,372 2,170
764 866
1,991 3,182
5,127 6,218
Investment property is held at valuation and all other assets at cost. Investment properties have been valued by Stretton Ltd, Chartered Surveyors. The last valuation was prepared as at 31st March 2009 in accordance with the Valuation Standards of the Royal Institution of Chartered Surveyors. The market value was based on potential rental income and sales achieved on similar buildings in the same area. The net initial yield used in the valuation is 8%. Following the occupation of 29-35 West Ham Lane as the head office, the former head office has been let at a commercial rent and is therefore classified as an investment property. The freehold office at 29-35 West Ham Lane has been valued by the Directors, based on the value in use to the East Thames Group. As at 31st March 2009, the value in use was £34m and this value is not less than the net book value of the offices shown in the accounts.
East Thames Group Limited
12 INVESTMENTS AND RELATED PARTY TRANSACTIONS East Thames Group Ltd is a registered charity registered under the Companies Act 1985. The parent and all subsidiaries are registered in England and Wales.
Main operational subsidiaries: East Homes Limited
Registered Social Landlord and a charitable Industrial and Provident Society that provides social housing including low-cost home ownership;
Company limited by shares, 47 issued shares one held by East Thames Group Ltd #
East Living Limited
Charitable Industrial and Provident Society that provides care and supported housing;
Company limited by shares, 18 issued shares one held by East Thames Group Ltd #
East Potential Limited
Registered charity that manages foyers and neighbourhood regeneration programmes on behalf of the Group.
Company limited by guarantee with seven members, one being East Thames Group Ltd #
Other subsidiaries providing specialist and support services: East Foundation Limited
Registered charity that funds projects to help build sustainable communities;
Company limited by guarantee with eight members, one being East Thames Group Ltd #
East Regen Limited
Non-charitable company that provides management and development services;
Company limited by shares, 100% shares held be East Thames Group Ltd
East Place Limited
Non-charitable company that undertakes commercial activities and a subsidiary of East Homes Limited;
Company limited by shares, single share held be East Homes Ltd
East Treasury Limited
Non-charitable company that raises finance and provides treasury services;
EH Street Properties Limited
Non-charitable company acquired in March 2008 as a subsidiary of East Homes Limited. We have transferred the properties from the Company into East Homes Limited. The Company is dormant and will be wound up.
#
Company limited by shares, 100% shares held be East Thames Group Ltd Company limited by shares 25,000 ordinary and 75 Ordinary A shared held by East Homes Ltd
East Thames Group Ltd exercises control through the power to appoint and remove Directors/Trustees to the Board.
At 31st March 2009 there were three members on the Board who had tenancy agreements or leases with East Homes Ltd.The tenancy agreements have been granted on the same terms as for all other tenants and the housing managementprocedures, including those relating to manangement of arrears are applied consistently to these tenants.
47
East Thames Group Limited
Notes to the financial statements 13 PROPERTIES FOR SALE
2009 £’000
48
2008 £’000
restated
Shared ownership properties completed Shared ownership properties under construction Completed properties for sale to other Registered Providers Properties for sale to other Registered Providers under construction net of Social Housing Grant
8,044 —
13,154 6,497
6,029
5,160
1,805
6,459
15,878
31,270
14 DEBTORS
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
Due within one year: Arrears of rent and service charges Less: Provision for bad and doubtful debts
3,962 (2,100) 1,862
4,128 (2,126) 2,002
— — —
— — —
Other debtors Prepayments and accrued income Amounts due from group companies ( net of provisions ) Other taxation
10,393 1,344
20,876 981
233 382
528 153
— 519
— —
5,534 519
10,080 —
14,118
23,859
6,668
10,761
15 CASH AT BANK AND IN HAND Included in cash at bank and in hand are amounts totalling Group £6.6m (2008: £nil), Parent Company £ nil (2008: £nil) of restricted cash. The restricted cash relates to collateral provided in respect of exposure on interest rate swaps (“mark to market valuations”), and paid to Barclays Bank Plc. This cash is subject to restrictions and are not freely available for general use.
East Thames Group Limited
16 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
Other creditors Loans (note 20) Bank overdraft Rent and service charges received in advance Social Housing Grants received in advance Corporation Tax (note18) Amount due to group companies Other taxation and social security Other creditors Accruals and deferred income Recycled Capital Grant Fund (note 19) Disposal Proceeds Fund (note 19)
50 145 1,855 668 284 — 659 8,866 7,665 5,531 766
5,038 882 1,593 991 73 — 745 15,703 14,632 3,639 366
— 145 — — — 4,643 209 596 3,108 — —
— 882 — — — 4,531 201 2,072 3,006 — —
26,489
43,662
8,701
10,692
Social Housing Grant received in advance will be utilised against capital expenditure in 2009-10.
17 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
Other creditors Loans (note 20) Deferred income Recycled Capital Grant Fund (note 19) Disposal Proceeds Fund (note 19) Other
460,488 2,189 6,467 1,410 2,686
436,914 — 10,224 1,412 3,595
— — — — —
— — — — —
473,240
452,145
—
—
49
East Thames Group Limited
Notes to the financial statements 18 TAXATION
50
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
United Kingdom Corporation Tax: Current tax on income for the year Adjustments in respect of prior years
292 —
20 1
— —
— —
Tax on surplus/(deficit) on ordinary activities
292
21
—
—
Current tax reconciliation: (Deficit)/ surplus on ordinary activities before taxation Theoretical tax at UK corporation tax rate 28% (2008:30%)
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
(2,858)
2,132
(3,969)
(48)
(800)
640
1,111
(14)
Surplus/(deficit) in respect of charitable activities Overprovision in prior years Movement in tax losses
1,092 — —
(620) 1 —
(1,111) — —
14 — —
Current tax on surplus/(deficit) on ordinary activities
292
21
—
—
restated
Effects of:
East Thames Group Limited
19 RECYCLED CAPITAL GRANT FUND
2009 £’000
2008 £’000
At 1 April 2008
13,862
12,607
Grants recycled Interest Accrued Purchase/development of properties
2,143 374 (4,381)
4,029 779 (3,552)
Balance at 31 March 2009
11,998
13,863
Amount due for repayment to Homes and Communities Agency
5,531
3,639
Included in creditors due over one year
6,467
10,224
2009 £’000
2008 £’000
At 1 April 2008
1,778
1,657
Net sale proceeds recycled Interest accrued Major repairs and works to existing stock
705 59 (366)
650 108 (637)
Balance at 31 March 2009
2,176
1,778
766
366
1,410
1,412
DISPOSAL PROCEEDS FUND
Amount due for repayment to Homes and Communities Agency Included in creditors due over one year
Grants from the Recycled Capital Grant Fund and Disposal Proceeds Fund are used to build more affordable homes and to meet local and regional housing priorities. On larger schemes use of the funding offers better value for money therefore less is then required from central government.
51
East Thames Group Limited
Notes to the financial statements 20 DEBT ANALYSIS
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
145
882
145
50 —
38 5,000
— —
— —
195
5,920
145
882
5,924 223,500 195,000 37,000 1,395 (2,331)
5,966 236,500 195,000 — 1,410 (1,962)
— — — — — —
— — — — — —
Loans are repayable as follows: (excluding capitalised costs)
460,488
436,914
—
—
Repayable on maturity Repayable by instalments - within one year - between one and two years - between two and five years - after more than five years
50,000
55,000
—
—
195 55 201 412,563
920 42 154 388,680
145 — — —
882 — — —
463,014
444,796
145
882
52
Due within one year: Bank overdraft Royal Bank of Scotland (originally the Housing Corporation) loans Other loans Due after more than one year: Royal Bank of Scotland (originally the Housing Corporation) loans Barclays Bank Nationwide Building Society Lloyds Other loans Capitalised costs
Parent 2008 £’000 882
As at 31st March 2009, total loans outstanding for the Group was £463m, of which £455m was arranged and shown in the accounts of the wholly owned subsidiary, East Treasury Ltd. During the year, the Group utilised £37m of arranged loan facilities and repaid £13m under existing facilities, of which £8m is available for re-drawing. Loans arranged by East Treasury Ltd have been on lent to East Homes and have been utilised primarily to fund development activities and other business initiatives. All East Treasury Ltd loans are secured through the Prudential Trust by fixed charges on individual properties owned by East Homes Ltd. Fixed rate loans totalling £181.5m , 40% of the total loan book were subject to interest rates ranging from rates of 4.12% to 4.62%(4.38%-4.63% including margins). Variable rate loans represented 60% of the total loan book have interest rates linked to LIBOR, which varied from 2.43% to 6.2% in the year. The £1.25 million THFC Bond is fixed at 12.97% and is due to be repaid in 2019. The consolidated loan from Royal Bank of Scotland of £5.9m and the Natwest Financial Markets (originally the Housing Corporation) loan of £0.2m are repaid in half-yearly instalments over the estimated life of the schemes on which the loans are secured, at a fixed interest rate of 10.65%. The final instalments are due for repayment in the period 2009 to 2037. Interest rate swap agreements have been entered into with Lloyds TSB Bank plc, Barclays Bank plc and Abbey National Treasury Services Ltd to manage the risk association with the level of variable rate loans. As at the 31st of March 2009 the Group had entered into £260m nominal value of interest rate swap agreements. Appropriate management controls are in place to manage interest rate risk and swap contracts. The fair value of the interest rate swaps have been determined by reference to prices available from the markets on which the instruments involved are traded. As at 31st March 2009 the fair value of the. Interest rate swap contracts totalled £39m in the banks favour (2008:£2.5m in favour of East Homes Ltd).
East Thames Group Limited
21 ANNUAL OBLIGATIONS UNDER OPERATING LEASES Operating leases on land and buildings which expire: Within one year In the second to fifth years inclusive Over five years
22 PROVISION FOR LIABILITIES
Group 2009 £’000 2,529 2,264 1,277
Group 2008 £’000
restated
3,586 2,492 1,401
53
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
At 1st April Transfer (to)/from income & expenditure account - new and increased provisions - other Utilised in the year
1,767
—
334
—
1,160 (245) (1,251)
1,767 — —
1,000 (83) (141)
334 — —
At 31st March
1,431
1,767
1,110
334
Comprising: Dilapidation fund LPFA pension Change management
260 1,000 171
100 — 1,667
— 1,000 110
— — 334
1,431
1,767
1,110
334
The dilapidation fund will be used for property improvements at the Lavender Road project; leases rununtil 2015. Due to the retirement of the last active member of the LPFA pension scheme a cessation debt of £1m will crystalise. Change management costs relate to the remaining costs expected from the outcome of the current restructure within East Thames Group. Total costs comprise settlement of redundancy payments and other statutory obligations to be paid to staff affected by the restructure.
23 SHARE CAPITAL Shares of £1 each issued and fully paid
2009 £
2008 £
At 1 April Shares issued during the year Shares surrendered during the year
56 4 (1)
44 13 (1)
At 31st March
59
56
The shares provide members with the right to vote at general meetings, but do not provide any rights to dividends, redemption of share capital or distribution on winding up.
East Thames Group Limited
Notes to the financial statements 24 RESERVES Revaluation GROUP
54
Restricted £’000 £’000
Revenue £’000
Total £’000
At 1 April 2008 as previously stated Prior year adjustment (note 30) At 1 April 2008 as restated Surplus for the year Property revaluation adjustment Transfers Utilisations
218,628 4,751 223,379 — 16,735 (2,338) —
112 — 112 — — (13) —
57,089 8,403 65,492 (3,150) — 2,351 —
275,829 13,154 288,983 (3,150) 16,735 — —
At 31 March 2009
237,776
99
64,693
302,568
PARENT
Revenue £’000
Total £’000
At 1 April 2008 Surplus for the year
5,953 (3,969)
5,953 (3,969)
At 31 March 2009
1,984
1,984
Restricted reserves comprise: Donations Gift Aid East Potential
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
79 — 20
79 — 33
— — —
— — —
99
112
—
—
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. The deficit on ordinary activities this year of £3.2million and the adverse movement on reserves of £0.8million were deducted from the restated reserves brought forward of £65.5 million resulting in £64.7million being carried forward. Unlike commercial organisations the Group’s rules prevent the distribution of reserves. Instead these are applied to furthering our aims and objectives. At 31st March 2009 the Group’s reserves were all used in financing investments in social housing. Restricted reserves comprise of amounts donated that can only be utilised for agreed specific projects.
East Thames Group Limited
25 FINANCIAL COMMITMENTS
Group 2009 £’000
Group 2008 £’000
Capital Commitments Expenditure contracted for but not provided in the accounts Expenditure authorised by the Board but not contracted for
119,660 18,603
101,609 34,442
138,263
136,051
55
This expenditure will be funded from loan facilities (49.6%), which are in place at the date of signing the accounts and from Social Housing Grant (50.4%).
26 CONTINGENT LIABILITIES The Group had no contingent liabilities at 31 March 2009 (2008: £ Nil)
27 RECONCILIATION OF OPERATING SURPLUS TO OPERATING CASH FLOWS
Group 2009 £’000
Operating surplus Depreciation of fixed assets Impairment on fixed assets (Surplus) on disposal of commercial properties Write off of abortive costs Sales allowances Movement in Working Capital Decrease in investments Net (decrease)/ increase in provisions Decrease in properties for sale Decrease/(increase) in debtors (Decrease) / increase in creditors Net cash inflow from operating activities
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
6,363 4,681 3,147 (344) 74 (114)
6,744 2,431 — — 401 (208)
(3,969) 2,274 — — — —
(48) 2,181 — — — —
13,807
9,368
(1,695)
2,132
— (336) 11,480 11,640 (8,549)
— 1,844 12,317 (16,664) 7,064
— 776 — 4,093 (1,255)
— 334 — 18,103 (16,372)
28,042
13,929
1,919
4,197
restated
East Thames Group Limited
Notes to the financial statements 28 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
56
Group 2009 £’000
Group 2008 £’000
Parent 2009 £’000
Parent 2008 £’000
Increase/(decrease) in cash in the period 11,487 (1,257) Cash inflow from increase in debt & lease financing (18,956) (145,447) Cash outflow from loan issue costs 459 189 Change in net debt resulting from cash flows (7,010) (146,515) Change in net debt resulting from non cash flows (89) (88) Change in net debt from acquisitions (excluding overdrafts) — (1,878) Net debt at the start of the period (436,154) (287,673)
737 — — 737 —
262 — — 262 —
— (882)
— (1,144)
Net debt at the end of the period (443,253) (436,154)
(145)
(882)
29 ANALYSIS OF Acquisitions (excl NET DEBT 2008 Cash flow (overdraft) GROUP
£’000
£’000
Other changes £’000 £’000
2009 £’000
Cash at bank and in hand Bank overdraft Loans due within one year Loans due after more than one year Capitalised loan issue costs
6,680 10,750 (882) 737 5,798 11,487 (5,038) 4,988 (438,876) (23,944) 1,962 459
— — — — — —
— 17,430 — (145) — 17,285 — (50) — (462,820) (89) 2,332
(436,154)
(7,010)
—
(89) (443,253)
(882)
737
—
PARENT Bank overdraft
—
(145)
30 PRIOR YEAR ADJUSTMENT The prior year adjustment reflects the change in accounting for shared ownership first tranche sales in accordance with SORP 2008. The previous SORP recommended that first tranche sale proceeds should be credited against shared ownership housing properties classified as fixed assets. The SORP 2008 treatment requires an appropriate proportion of development costs representing first tranche development to be accounted for as current assets and the related sales proceeds shownin turnover.
East Thames Group Limited
The remaining proportion of property development costs are accounted for as fixed assets with any subsequent sale treated as a disposal of the fixed asset. The effect of the change in accounting policy is an increase in the group’s turnover for the year ending 31 March 2008 of £11,833k, and increase in the cost of sales of £11,087k with a consequent increase in surplus before and after tax of £746k. The cumulative effect on reserves is an increase of £13,154k.
Cumulative prior year adjustment to 31 March 2007
Prior year adjustment for 2007-08
Cumulative prior year adjustment to 31 March 2008
£’000
£’000
£’000
123,657 (116,000)
11,833 (11,087)
135,490 (127,087)
7,657
746
8,403
Revenue reserves Revenue reserves at 31 March as previously stated Add; surplus on first tranche shared ownership sales Less: corporation tax
52,356 7,657 746
57,089 8,403
Revenue reserves at 31 March as restated
60,013
65,492
Revaluation reserves Revaluation reserves as at 31 March as previously stated Add; first tranche amounts held as current assets Less: surplus on first tranche shared ownership sales
224,386 — 13,154 (7,657) (746)
218,628 13,154 (8,403)
Revaluation reserves at 31 March as restated
216,729
223,379
Shared ownership first tranche sales Turnover - proceeds of first tranche sales Cost of sales Surplus
The prior year adjustment to current asset balances for the group for the year ended 31 March 2008 is an increase of £19,651k, being the transfer of the shared ownership first tranche proportion from fixed assets to current assets. The impact of the adjustment on completed shared ownership properties within housing property balances is shown below:
Tangible fixed assets - properties Cost or valuation At 31 March as previously stated Add: accumulated first tranche surpluses from prior years Less: first tranche amounts held as current assets Less: adjustment to revaluation re change in attributable costs At 31 March as restated
Cumulative prior year adjustment to 31 March 2007
Prior year adjustment for 2007-08
Cumulative prior year adjustment to 31 March 2008
611,384 7,657 746 — (19,651)
721,585 8,403 (19,651)
(7,657)
12,408
4,751
611,384
715,088
57
C
THAMES
30 ES YE
EBRAT EL
C
S AR
THAMES
30 ES YE
EBRAT EL
C
S AR
THAMES
30 ES YE
EBRAT EL
S AR
www.east-thames.co.uk East Thames Group Limited Registered OfďŹ ce: 29-35 West Ham Lane, Stratford, London E15 4PH Switchboard: 020 8522 2000 Minicom: 020 8522 2006 Fax: 020 8522 2001 Registered by the Housing Corporation, No. LH4309 | Registered under the Companies Act 1985, No. 4091100 Registered charity 1084952 | Member of the National Housing Federation Produced by the Marketing and Communications team, East Thames Group.