The Cambridge Housing Society Limited. for the year ended 31 March 2017

Transcription

1 FINANCIAL STATEMENTS for the year ended December 2017 website

2 Board, Management Team, Auditors, Advisers year ended Page 1 Board, Management Team, Auditor and Advisers 2 Financial and Strategic Review 20 Statement of responsibilities of the Board 21 Independent Auditor s report 22 Profit and Loss Account and Other Comprehensive Income 23 Balance Sheet 24 Consolidated Statement of Changes in Equity 25 Cash Flow Statement Notes to the

3 Board, Management Team, Auditors, Advisers year ended B o a r d M e m b e r s Chair Other Members Nicola Scrivings Sharon Allen Bob Evans (resigned 31 August 2016) Fred Goymour (resigned 31 August 2016) Gill Thomas Anna Constantas (resigned 14 June 2016) Nick Brown (appointed 18 Oct 2016) Carole Herries Tendai Kariwo Siew Yee Pang (resigned 13 Sept 2016) Cecilia Tredget Bruce Kerr (appointed 14 June 2016) Jenny Raine (appointed 18 Oct 2016) M a n a g e m e n t T e a m Chief Executive and Secretary Group Finance Director Interim Operations Director Human Resources Director Nigel Howlett BA (Hons) MCIH Surjit Dhande BSc (Hons) FCCA Peter Hall BA (Hons) PGDip Marie Canning BA (Hons) MCIPD A u d i t o r s a n d A d v i s e r s External Auditor Internal Auditor Principal Solicitors KPMG LLP Botanic House 100 Hills Road Cambridge, CB2 1AR Mazars LLP Tower Bridge House St Katharine s Way London, E1W 1DD Devonshires Solicitors LLP Finsbury Circus London, EC2M 7DT Trowers & Hamlins 3 Bunhill Row London EC1Y 8YZ Banker Lloyds TSB Bank Plc Lloyds Bank Plc 25 Gresham Street London EC2V 7HN O t h e r D i s c l o s u r e s Registered Office Co-operative and Community Benefit Society Homes and Communities Agency registration HMRC Charity reference Endurance House, Chivers Way Histon, Cambridge CB24 9ZR 10457R L0992 X

4 Financial and Strategic Review The Board presents its report and audited group financial statements for The Cambridge Housing Society Limited ( CHS or Society or Company ) and its subsidiary undertakings (the Group ) for the year ended. Our financial statements are also available on our website FINANCIAL REVIEW The Group The year to saw a strong and improving financial performance for the Group. From a turnover of 31.2m (2016: 28.6m) the Group achieved an operating surplus of 8.5m (2016: 6.5m) or an operating margin of 27% (2016: 23%). Total Comprehensive Income (the net surplus) for the year was 4.3m (2016: 1.7m) or 13.9% of the turnover (2016: 5.9%). The Group surplus for the year was affected by the non-cash re-measurement of the pension contribution and changes in assumptions of 0.1m (2016: 1.3m), without which the surplus for the year was 4.4m (2016: 3.0m) or 14.2% of the turnover (2016: 10.6%). CHS CHS s operating surplus for the year was 7.9m (2016: 6.7m). The operating margin, which shows how much of the income received is left after operating costs, was 29% (2016: 25%). CHS s Total Comprehensive Income (net surplus) for the year at 4.3m (2016: 2.0m) included actuarial losses in respect of the pension scheme 0.1m (2016: 1.3m), without which the surplus for the year was 4.4m (2016: 3.3m) or 16.5 % of the turnover (2016: 12.4%). The results for the year included 0.6m surplus on property disposal (2016: 0.5m). CHS must generate sufficient income to meet operating costs, loan interest payments and to invest in existing and new homes. The surplus generated before surplus on sale of housing assets was sufficient to cover interest costs in the year comfortably. CHS Profit and Loss and Other Comprehensive Income summary: 2017 m 2016 m 2015 m 2014 m 2013 m Turnover Operating costs (19.0) (20.1) (17.9) (17.5) (17.7) Operating surplus Operating surplus margin* 29% 25% 28% 26% 24% Gift-aid Net surplus on sale of housing assets Net interest payable (4.9) (5.1) (4.9) (5.1) (5.0) Others 0.3 (0.1) Net surplus for the year Net surplus margin** 16.0% 7.5% 8.5% 7.2% 10.8% * Operating surplus excluding the impact of the actuarial losses for 2017, 2016 and 2015 Operating Margin 30% 30% 28% 26% 24% **Net surplus margin excluding the impact of the actuarial losses for 2017, 2016 and % 12.3% 8.9% 7.0% 11.0% Operating costs included 0.1m (2016: 1.3m) estimated increased pension deficit payment measured at present value (actuarial loss), a non-cash item. Without this cost the operating surplus margin for 2017 was 30%, which given the 1% rent reduction impact in 2017 shows continued sustained improvements. 2

5 Financial and Strategic Review Analysis of CHS Turnover Turnover, excluding shared ownership first tranche sales, increased by 2.4% from 25.5m to 26.1m including a 0.3m increase in care activities and fees, and a 0.2m increase in nursery income. The total increase in turnover of 0.6m, excluding shared ownership first tranche sales, was made up by an increase of 0.54m from care and supported activities, a decrease of 0.34m on general needs and shared ownership, an increase of 0.29m on other social housing activities, and an increase of 0.13m on non-social housing activities. The total voids level at 438k rose by 13% compared to last year. The overall voids, excluding registered care, decreased marginally from last year s level of 0.8% of the rent and service charge, to 0.7% this year. Analysis of CHS expenditure Operating expenditure, excluding shared ownership first tranche cost of sale, increased by 0.5m or 2.8%, to 18.4m. Notably, the increase in operating expenditure was just below the increase in turnover which was 2.5%. We invested 2.9m on routine and planned work plus an additional 1.1m on capital work to the existing properties. 3

6 Financial and Strategic Review We continue our community investments activities and spent 434k in the year (2016: 382k). N.B. Shared ownership first tranche sale refers to sale of the initial portion of the unit. The numbers have been adjusted above to allow better comparison of operational performance over two years. CHS Balance Sheet Summary 2017 m 2016 m 2015 m 2014 m 2013 m Housing properties at cost less depreciation Other fixed assets Investments property Net current assets Total Creditors over one year & Provisions excluding housing grants Social housing grants Reserves Total Housing properties are held at historic cost net of depreciation. During the year 4.1m was invested in new homes and 1.1m in improvements and component replacement to existing homes. The investment in new homes have been made without any grant (other than RCGF) and financed by the loans and reserves. CHS Cash flow m m m m m Cash generated from operations Net capital expenditure (2.4) (2.6) (2.7) (3.9) (0.3) Net interest paid (5.0) (6.1) (5.3) (5.2) (5.1) Financing (4.0) (0.9) (0.7) (1.1) 2.0 Change in cash (3.8) 0.7 (2.7) (2.3) 7.5 For CHS: Generated 7.6m net cash inflow from operating activities Invested 5.2m in new and existing homes and 0.35m in other fixed assets Repaid 6.5m housing loans and 2.5m new loan was drawn during the year to finance the development capital expenditure Received 2.6m from property sales which includes shared ownership and assets disposal. Future Developments CHS s business plan sets out our objectives and financial plans for the future. A period of continued sustainable growth is planned in the areas of housing development, management and service provision. Cash Facilities During the year no new credit facilities were agreed. A net 2.5m was drawn under existing revolving credit facilities, reducing undrawn facilities at year end to 15.4m which together with available cash of 0.9m provided an amount of 16.3m in available facilities and free cash sufficient to comfortably fund current development commitments. CHS also has an agreed overdraft facility of 1.0m. 4

7 Financial and Strategic Review STRATEGIC REVIEW Who we are We are a social enterprise and charitable housing association, helping people and communities to overcome challenges, take opportunities, and develop their ability to achieve their aspirations. We do this through running services, investing in buildings and other assets, developing partnerships, and supporting social capital. We run high-quality services across Cambridgeshire - services that give people opportunities to achieve what they want and a better quality of life. We develop local partnerships to provide local solutions to local problems as the best way to provide value for money. We provide over 2,800 homes and community services to support over 9,000 people. We have a group turnover of 31.2m and total assets less current liabilities of 211.2m. Group turnover from our social and other activities for the year ended was: Turnover million % Core Social Housing Activities: General needs housing % Supported and Sheltered housing % Registered and Extra care % Low-cost home ownership (incl. 1 st tranche sales) 2.0 6% Others 1.3 4% Other Activities: Nurseries and Offices 1.4 5% Open market housing** % Others 0.2 1% Total % ** Market sales carried out through Cambridge and County Developments Ltd What we do We offer low-cost rented and shared ownership homes; residential and domiciliary care for older people; support for young people, parents, people experiencing homelessness or mental ill-health, and with learning disabilities; nurseries for babies and young children; money, debt, and employment advice; computer training and run time-banking groups in our local communities. We also provide property for other agencies, such as Mencap and Mind, to use in supporting their customers. Our subsidiary company, Cambridge and County Developments (CandCD), develops houses for CHS for shared ownership and for rent by social housing tenants, and for itself to sell on the open market. These market sales create profits for CHS, in the form of gift-aid from CandCD, to invest in meeting its charitable aims. What is important to us We are independent and believe we have value as a locally based charity and geographically focussed service provider. This value lies in: Being more accessible to our customers Delivering a wide range of appropriate and relevant services to meet local needs and aspirations Investing in people and communities Providing services which are distinct from other housing and support providers Having strong, local and up to date understanding of local needs and markets Having the capacity, knowledge and desire to engage with our stakeholders Being prepared to develop new services to tackle particular local problems We believe that all people and communities have the capacity to thrive, and that Cambridgeshire has special advantages to offer. We can make a significant contribution by listening to and working alongside customers and partners in an innovative, collaborative, and business-like way, achieving much more value, quality and effectiveness than by working in isolation. 5

8 Excellent governance Improve Financial Sustainability and VfM trengthen CHS Values and Brand Deliver excellent services Secure our future through strategic reviews STRATEGIC REVIEW (Cont d) The year under review The Cambridge Housing Society Limited Financial and Strategic Review Some of the key highlights during the year were: Retained V1 and G1, highest viability and governance regulatory rating in the HCA assessment CHS received gift aid of 400,000, 100,000 more than planned, from its subsidiary CandCD, the commercial arm of the Group On-going improvement in CHS s net surplus margin from 7.5% last year to 15.6% this year Repaid an old high interest loan Completed review of CandCD s operational and governance arrangement so it is more closely integrated with CHS. Increase in the number of units in development. The Board agreed a set of objectives as part of the Corporate Plan at the start of the year. The progress against the objectives is monitored through quarterly reports to the Board and regular monitoring of our Corporate Key Performance Indicators. The following table summarises the key achievements against the objectives: Corporate plan performance Progress in delivering corporate priorities Objectives Tasks Progress Adapt Development of Care Services Week-day Home Care service from Vera James House and flexicare for John Beckett Court started Adapt Review of sheltered housing Review carried out Review of Housing Development Strategy Strategy revised in light of recent and pending government changes. Continue to review and improve our financial Development Scheme Appraisal and Approval approach reviewed & treasury capacity Gearing constraints with Santander and RBS released Loan portfolio further rationalised Improve repairs and maintenance service Improved value from contractors Improve communication with customers Online self-service for customers MyCHS portal launched ahead of schedule October 2016, with 12% eligible CHS customers now signed up Improved use of customer feedback e.g. for day to day repairs Strengthen CHS Culture Project management process reviewed Introduce a performance management culture PRP for Heads of Service and Management team introduced from April 2017 Implement Communication Strategy Use of social media expanded Twitter, LinkedIn and Facebook platforms developed Implement key VfM projects HRIS Core HR went live March 2017 phased roll-out 2017 for rest of system Review and reduction in cash handling Agree on Plan B savings Long term Business plan reflects Plan B; Plan A savings identified Deliver Plan A savings to meet budget Consultation on staff terms and conditions carried out and changes introduced as of Jan 2017 Savings on repairs delivered through revised contract arrangements 2 successful ESF/Lottery bids for New Horizons project; plans in place for crowd funding campaigns 2017/18 Budget exceeds Plan A Fully implement accounting changes FRS102, SORP and HCA Accounting Directions Sept 2015 now fully implemented Carry out business stream reviews to deliver target levels of profit Business stream reviews carried out with new 6 month assessment of improvement plans now in place Establish comprehensive assurance system for Comprehensive QA processes developed and enforced. regulated and non-regulated services KPI system re-designed, linked to corporate plan Meet revised HCA requirements to ensure Asset and Liability Register completed, continued compliance Full preparation for In-Depth Assessment including stress testing and risk management Consistent V1 / G1 ratings by HCA since March 2016 Self-assessment against HCA standards Implement new Government housing policies Although Voluntary Right to Buy now deferred by Govt, full review of CHS property eligibility carried out in preparation for eventual implementation Pay to Stay remains voluntary for Housing Associations and will not be implemented by CHS at present Maintain Board effectiveness Terms of Reference comprehensively reviewed Governance arrangements for CandCD revised Source: Extract from CHS Corporate Plan

9 TASKs/PROJECTs STRATEGIC REVIEW (Cont d) Looking ahead The Cambridge Housing Society Limited Financial and Strategic Review In we continue our work on the agreed corporate objectives, building on CHS s strengths. Substantially, the objectives remain the same as last year with minor changes to the wordings and emphasis of our work in the coming years. As shown in the table below CHS Group s work is underpinned by the five values and the objectives are supported by specific projects or tasks. VALUES RESPECT APPROACH PARTNERSHIP OPENNESS DELIVER OBJECT- IVES OBJECT- IVE Sustainable Growth Increase Flexi-care services Increase home care from residential care sites Establish hubs for range of care services Strategic reviews for growth Develop new income streams New Funding Medium term funding RCF Long term funding Private placement Opportunities from Devolution funding Adapt Develop potential of key sites Intergenerational tenure pilot established and evaluated Housing Development Deliver increased affordable housing programme Deliver increased market sale programme Establish new service for young people Deliver New Horizons financial capability programme Deliver CLAS and expansion of Time Banking Excellent Services Doing-Things-Better Cross-organisational reviews to identify New ways of working Improvements in what, how and why things are done Adoption and integration of digital technologies Listening to Customers - Respond to UK Customer Service Institute Results: Learn from top performing sectors and organisations on resolving informal and formal complaints Apply learning to amend complaints and compensation policies and procedures Contain costs and performance within top quartile Overall Operating Costs per property remain top quartile within HCA Global Accounts local benchmarking Repairs costs per property remain top quartile within HCA Global Accounts local benchmarking Digital Strategy: Mobile working for customerfacing staff Data Warehousing to integrate IT systems across CHS Bespoke IT system for Nurseries ICT systems External Review of connectivity and speed at projects & schemes Review and revise PC refresh programme to enable uniform hot desking and network access at all offices/schemes EXCELLENT GOVERNANCE Strong CHS identity Re-think CHS Rental Policy Review which groups CHS is best placed to serve in order to fully achieve our charitable objectives Implement Communication Strategy Re-launch website Continue to develop social media platforms Deliver 90 th Anniversary Celebration Plan Continue to develop performance management culture Develop and deliver leadership and workforce development programme Strong financial sustainability, VfM and risk management Implement key value for money projects Full roll out of new HR/Payroll system Review pension options Implement electronic invoicing Analyse and understanding of asset performance on a unit basis Sector Scorecard - pilot Funding Security Revalue and maximise existing security Use of Security Trustee arrangements Manage risks and compliance with GDPR Improve cost certainty through revised repairs contracts Cost per property and fixed void banding costs deliver within agreed budgets CandCD to deliver planned surplus and gift aid Manage Risks arising from VRTB and Supported Housing funding Sustain HCA V1/G1 rating ongoing preparation for In-Depth Assessment Establish and report quarterly to Board on Golden Rules Carry out Self-Assessment, completing any outstanding tasks Incorporate 2017 HCA requirements (e.g. for disposals) into CHS processes Source: Extract from Corporate Plan We will continue to monitor progress and keep the plans flexible to respond to the changing economic and political environment. Specifically, the post-brexit and post-election implications need to be reflected in our corporate and business plans. 7

10 RISK MANAGEMENT The Cambridge Housing Society Limited Financial and Strategic Review Our Risk Policy and Risk Framework set our approach to managing risk within the CHS Group. We recognise the importance of effective identification, evaluation and management of all key strategic and operational risks. Risk management is a key element of CHS Group s overarching governance arrangement as it demonstrates that we have considered what might go wrong with our plans, that we have analysed the consequence of things going wrong and that we have considered the actions and controls we need to prevent or limit these consequences. The Risk Policy and Risk Framework are reviewed annually by the Board. As part of this review the Board assesses the Risk Appetite which sets the total amount of risk that can be taken by the organisation and clarifies Board s attitude to risk and reward in particular areas. Generally, the appetite is set so as to ensure that it remains comfortably compliant with lenders covenants, legal and regulatory requirements and remains attractive to lenders for future borrowings. The scenario planning and stress testing carried out on the long term financial plan provide assurance on financial robustness of the business and on other key aspects of the risk management. Role and responsibilities To ensure the successful implementation of the Risk Management Policy, clear roles and responsibilities for the Risk Management process have been established. The Board has overall responsibility for ensuring the effectiveness of this framework. The Management Team ensures the agreed Risk Policy and Risk Framework is effectively implemented, ensuring the right level of monitoring, reporting and management of risks. Quarterly updates of the risk register are carried out and the service managers provide updates for their respective areas, including any new and emerging risks. The Group Audit and Finance Committee considers the Risk Register quarterly. A quarterly conference call, chaired by the Group Audit and Finance Committee Chair ensures that we pick-up members views of the organisation s risks. Quarterly, the Board receive a summary of the Risk Register and are provided with a further opportunity to feed into the register. In addition, a full review of the Risk Register takes place once a year, usually as part of the strategy day. Top 5 CHS risks as at March 2017: RISK Risk of not delivering CandCD business plan Governance failure and the impact on CHS Group Financial/performance failure by a major contractor Failure to maintain the security of business data and confidential information Workforce planning failure to recruit and retain staff, specifically in care homes and nurseries Lower than expected volume of and contribution from provision of residential care services and supported housing HOW MANAGED: EXAMPLES OF CONTROLS AND ACTIONS Continued review and monitoring of the sites, contracts, housing market, performance etc. Collaboration agreements with partners Adequate pipeline of new schemes Regular committee effectiveness reviews, training/development, annual objectives and appraisal of board members Clear delegations of authority from board to subcommittees, Group companies etc. Annual self-assessment Regular core monitoring meetings with contractors, enhancing customer feedback and learning, enact penalty clause Use of Dun and Bradstreet alert system to highlight financial issues; relevant approval required before entering into contracts Exit strategies in place Data protection training for staff External review of cyber security of ICT systems Ensure compliance with GDPR Bi-annual market salary review Review of employment terms Review of recruitment methods Business streams reviews setting improvements target Reviewing the residential care fee levels with local authority partners Quantify the risk LHA cap for supported housing and develop contingency plan Other risk such as the impact of the 1% reduction in rent, delivering efficiencies and impact of the welfare reforms also form part of our risk map but they do not feature into our top risks. We have well developed plans to manage these risks. 8

11 VALUE FOR MONEY The Cambridge Housing Society Limited Financial and Strategic Review Achieving value for money (VFM) in terms of the quality and cost of the services to our residents remains one of CHS s key corporate objectives. At a time of significant constraints on resources and increasing expectation to do more with less, CHS is committed to utilising the available resources in the most efficient way. Ensuring residents remain at the heart of what we do, we want to understand and invest in their priorities. The Management Team meet quarterly to oversee the implementation of the Strategy and the quarterly progress is reported to the Group Audit and Finance committee. The annual VFM self-assessment will be available on the CHS Group website Here is a summary version of the self-assessment. How we deliver on VFM We have integrated VFM into the organisation s operations in a number of ways: Governance Board members duties include reviewing performance and efficiency and ensuring compliance with the regulator s VFM standard. Managers and staff are encouraged to question how we work and find ways of providing a better and more efficient service. There is a VFM incentive scheme to encourage ideas both from staff and our residents. Financial VFM is an integral part of our annual budget, business planning and corporate planning processes that set targets that will produce improvements to the service and better use of the resources. The Business Stream Review sets out clear improvement targets for each business unit over the next five years. This provides a basis for developing our annual budget, business plans and service improvement plans for each area. Business Stream Review An update and detailed financial review of each key business area continues to be conducted annually. The aim of the review is to improve the profitability of CHS by setting medium term plans for each business stream. More specifically, the Review aims to address the following: To ensure we are better informed about the cost structure of each business unit To help better understand the profitability and return on housing assets for the individual business units Set overall CHS and business unit targets in terms of profitability and asset return Agree improvement targets and plans in order to address the low performing areas Identify the social return on the business units. In conducting the Review we aim to address the regulatory standard requirements. Planning process our corporate plan and business plans set out our key aims not only to improve services and increase residents satisfaction but also to allow us to invest in services and responsible growth. Our Doing-Things-Better project commenced in April Its objectives are to carryout cross-organisational reviews to identify new ways of working, improvements in what, how and why things are done. This project will also focus on adoption and integration of digital technologies to deliver better value for money in term of cost as well quality. Resident focus Improvement in residents satisfaction with an emphasis on VFM is one of our key corporate objectives. Residents satisfaction with VFM is measured through the STAR survey. The survey results for the year showed that overall 83% of the residents were satisfied that their rent provided value for money; this represents a 2% improvement from the previous year. Our residents are encouraged to contribute VFM ideas through an incentive scheme; our Scrutiny Panel also considers VFM as part of the reviews that they undertake on our services. In helping to deal with some of the impacts of the public sector cuts and welfare reforms our Community Investment Service provides money and debt advice, benefit advice, career preparation and employment advice. We continue to involve our customers in procurement; during Eastern procurement Ltd undertook a large procurement exercise for a compliance framework and CHS customers were involved in evaluation of the quality aspects of the submissions. 9

12 VALUE FOR MONEY (Cont d) 10 The Cambridge Housing Society Limited Financial and Strategic Review Our People We are committed to staff training and development and investing in our staff to improve resident satisfaction. CHS was awarded 14 th place in the Sunday Times 100 Best Not-for-Profit Organisations to Work for How we perform Year-on-year comparison of key financial performance indicators: Total operating surplus margin excluding impact of actuarial losses Operating surplus margin on social housing letting Operating surplus margin on social letting excluding residential and extra care Operating surplus margin on social letting excluding residential & extra care and Supported & Sheltered Operating surplus per general needs unit/ margin Total maintenance cost per unit charged to I&E account Maintenance cost charged to I&E account plus major repairs capitalised per unit CHS 2017 CHS 2016 CHS 2015 CHS 2014 Notes 30% 30% 28% 26% Operating surplus, excluding the impact of the actuarial losses - as per Note 3(a) to the accounts 31% 33% 32% 30% As per Note 3 (a) to the accounts 43% 48% 45% 45% As per Note 3(b) to the accounts 51% 56% 53% 53% As per Note 3(b) to the accounts 2,909 49% 3,455 55% 3,353 52% 2,795 52% General needs operating surplus as per Note 3(b) divided by the number of general needs units 1, Routine and planned maintenance as per Note 3(b) divided by the total number of units 1,435 1,335 1,243 1,156 Routine and planned maintenance plus major repairs charged to balance sheet divided by the number of units Management cost per unit* 1,484 1,479 1,262 1,252 Management cost as per Note 3(b) divided by the number of units Rent arrears 3.13% 4.8% 4.3% 2.8% Total rent arrears as a % of rent due Average rent arrears ** 2.96% 3.4% 3.3% 3.6% Current tenants rent arrears as % of rent due Bad debt on all letting 0.3% 0.4% 0.2% 0.5% Bad debt charged to I&E divided by net rental income as per Note 3(b) Void loss on all letting 2.2% 2.0% 2.4% 2.7% Void loss from all letting divided by gross rental income Note 3(b) Void loss excluding registered and extra care letting 0.7% 0.8% 0.9% 1.3% Void loss from letting excluding registered and extra care divided by gross rental income Note 3(b) ** Rent arrears can vary from one week to another depending on the timing of the housing benefit receipts. The Average rent arrears line provides better indication of the trends. The table above shows year-on-year improvement in the operating profit margin, from 26% in 2014 to 30% in This was sustained at 30% from 2016 despite the 1% reduction in rent. The operating margin from our social housing letting also improved from 30% to 31% during the same period, although this varies significantly for different business streams. Operating margin from social housing lettings 2015 General needs & Shared Ownership 51% 56% 53% Supported & Sheltered 6% 8% 2% Registered & Extra Care 6% 0% (3%) Overall 31% 33% 32% Source: 31 March The results show steady improvements, particularly in Supported housing and Care, two areas which have traditionally shown a deficit or low profit margins: Supported & Sheltered Registered & Extra Care Operating surplus/(deficit) Operating surplus/(deficit) % of turnover Operating (deficit) Operating (deficit) % of turnover 2012 (787) (43%) (680) (13%) 2013 (701) (36%) (372) (6%) % (5) % (206) (3%) % (26) % 453 6% Source: 31 March

13 Financial and Strategic Review VALUE FOR MONEY (Cont d) How we compare HouseMark benchmarking Cost Per Property (CPP) of Services Cost Indicator CHS HouseMark ranking Peer Group Median CHS HouseMark ranking Total CPP of housing management Total CPP of responsive repairs Total CPP of voids work Total CPP of cyclical maintenance Total CPP of Major works Overhead costs as a percentage of 9.1% 12.1% 10.4% adjusted turnover Total CPP of rent arrears collection Total CPP of resident involvement Total CPP of lettings Total CPP of tenancy management Quartile Key Upper Quartile Middle Upper Median Middle Lower Lower Quartile M The figures above compare CHS to other traditional housing associations in Eastern, South East, London and West Midlands regions. Figures for were reported using a different peer group, but have been restated above to enable year on year comparisons to be made. The under-performance on cost in responsive repairs is being addressed through the implementation of a Price Per Property (PPP) model, which commenced in January Similarly, the introduction of banding for voids should improve control over costs and see a reduction in the overall cost of void works. The table below shows our performance in relation to key business effectiveness indicators including customer satisfaction with services. Business effectiveness performance indicators CHS CHS quartile ranking Percentage of resident satisfaction with the overall service provided by their 88% landlord (GN and HfOP*) Percentage of residents satisfied very or fairly satisfied with repairs & 83% maintenance Percentage of tenants satisfied with their neighbourhood as a place to live 83% Average time taken to re-let empty properties (standard voids) days 19 Total rent arrears as a percentage of rent due (GN and HfOP*) 4.17% Rent loss due to empty properties (voids) as a percentage of rent due (GN 0.54% and HfOP*) Arrears written off as % of annual rent debt (GN and HfOP*) 0.27% Rent collected as % of rent due 99.9% % of properties that failed to meet Decent Homes standard 0.0% % of residents satisfied that their rent provides value for money 85% % of properties with valid gas certificate 99.94%** Average SAP rating 78% CHS CHS quartile ranking % 78% 82% % 0.47% 0.14% 99.7% 0.08% 85% 100% 80% * GN General needs housing HfOP Housing for older people ** Relates to one commercial boiler that was non-compliant for one month 11

14 VALUE FOR MONEY (Cont d) How we compare Global Accounts The Cambridge Housing Society Limited Financial and Strategic Review CHS CHS CHS Global A/Cs Traditional HAs 2016 Operating margin 26% 29% 30% 28% Operating margin for all social housing letting 30% 34% 33% 32% Operating margin for all social housing letting excl. Care and Extra Care 45% 51% 48% n/a Operating margin from social housing letting excl. Care and Extra Care 53% 61% 57% n/a and Supported & Sheltered EBITDA MRI interest cover 140% 142% 157% 158% EBITDA MRI interest cover social housing letting 125% 128% 147% 147% Operating surplus per unit for social housing letting 2,066 2,371 2,566 1,747 Operating surplus per unit for all social housing excl. Care and Extra Care 2,490 2,524 2,828 n/a Average loan per unit for all social housing 39k 38k 38k 33k Management cost per unit for all social housing 1,252 1,264 1, Management costs per unit excl. Care and Extra Care 1,067 1,075 1,313 n/a Management costs per unit excl. Care & Extra Care and Supported & n/a Sheltered Major repairs cost per unit Routine and planned maintenance costs per unit ,016 The overall operating margin is 2% above compared to our peers, whilst the margin for social housing letting is 1% above that of our peers. However, a high proportion of CHS s turnover (43%) relates to the Care and Supported housing part of the business; after adjusting for this, the operating margin for social housing letting is at 57%. Similarly, the management cost per unit of 1,479 is well above our peers but once adjusted for Care and Supported activities it falls to 673 per unit, well below our peers. Using the HCA s Understanding Difference in Unit Costs (regression Report) published in 2016, we have carried out our unit costs analysis based on the Global Accounts for The results for CHS are summarised below: Headline social housing costs CPU Management CPU Service charge CPU Maintenance CPU Major repairs CPU Other social housing cost CHS Median CPU = cost per unit CHS CPU for Management, Other and, consequently, the Headline CPU, are above the median. This is explained by the high proportion of CHS s business being Care and Supported housing which by their nature are high cost activities, matched with equally high income per unit: 6.6% of CHS s units are Supported housing which is well above the upper quartile of 4% for the Global Accounts In terms of the turnover Supported housing is 11.5% of CHS s total turnover. 13.1% of CHS s units are for older people (Care), near the upper quartile for the Global Accounts In terms of turnover Care constitutes 31.6% CHS s total turnover. Our internal analysis shows that when Care and Supported elements were taken out the CPU is at or below the lower cost quartile, except for Other social housing costs, and to a lesser extent Maintenance cost per unit see below. 12

15 Financial and Strategic Review VALUE FOR MONEY (Cont d) Headline social housing costs CPU Management CPU Service charge CPU Maintenance CPU Major repairs CPU Other social housing cost CHS - adjusted Global Account Lower quartile Further analysis on cost per unit trend over last three years, using the same basis as the Global Accounts, is summarised below: Cost per unit for all CHS social housing lettings: Headline social housing cost CPU 5,787 5,763 5,554 Headline social housing cost CPU - % change on previous year 0.4% 3.7% 3.6% Management CPU 1,484 1,479 1,265 Service Charge CPU Maintenance CPU 1, Major Repairs CPU Other Social Housing Costs CPU 2,569 2,656 2, The increase in Maintenance CPU in is explained by 170k of cyclical works that were brought forward. Cost per unit excluding Supported and Care lettings: Headline social housing cost CPU 2,841 2,823 2,610 Management CPU Service Charge CPU Maintenance CPU Major repairs CPU Other Social Housing Costs CPU Here we see a general downward trend in the costs with the exception of Management CPU, which is due to the changes in central overhead cost allocation, bringing this in line with the management accounts. Further analysis of CPU and comparison with housing associations in the Global Accounts is provided in the full Value for Money Self-Assessment Return on assets One of the indicators for measuring the financial return on assets is the surplus generated for the year as a percentage of historic cost of assets Surplus before interest and property sales 8,045k 7,991k 6,893k 6,057k 5,515k Historic cost of assets 220m 217m 214m 211m 207m % Return on assets 3.7% 3.7% 3.2% 2.9% 2.7% As part of the Business Stream Review we annually assess the return on assets using the latest property valuation available for each business stream and for each key unit/scheme within a particular business area. 13

16 Financial and Strategic Review VALUE FOR MONEY (Cont d) The results varied for different business areas: General needs 5.0% Shared ownership 4.2% Community Support Services 4.8% Older People services 4.0% We reinvest the entire return back into new homes and services. One of the factors affecting the return on assets is the level of borrowing. At CHS we are committed to using our asset base to fund new homes and as a consequence we have a relatively high level of borrowing, the debt per property is 37k (2016: 38k) (HouseMark 2016 median for peer group: 35k). The adjusted net leverage (net debt as percentage of total assets) at 51%, remained at the same level as last year, against HouseMark benchmark median 41%. The higher debt per unit also highlights the fact that more recently CHS has been building new social rent housing units (as opposed to the more expensive Affordable Rent) without the capital grant. As at : 67% of our homes were general needs housing at social rent 13% of homes were low-cost home ownership 11% of our homes were supported and sheltered housing 9% of our homes were registered care and extra care homes for the elderly In we reviewed our Asset Management Strategy and we continue to make progress on the action plan. This strategy covers repairs and improvements, disposals and rationalisation across the property portfolio. This strategy is based on our understanding of the condition of stock and its investment needs, the level of demand and the business case for new and continued investment in order to provide homes that meet minimum standard. For the assets that are low performing or where the future demand looks uncertain we are carrying out option appraisals under the Adapt programme. We have identified each assets performance on a unit by unit basis and will be developing plans to address the top 10 lowest performers. We assess the condition of 20% of our properties every year and the information is used to establish maintenance and replacement programmes, cyclical maintenance plan and to identify disposal programmes. Social return CHS s diverse range of activities enables it to make a considerable contribution in terms of social return. In addition, CHS has a strong record of investments in the local community through our Community Investment team. In we continued to adopt the HACT Social Value calculator, to assess the social value generated by some of the activities by the Community Investment team. We realise such a model has its limitations but it provides some measure of the social return. For the areas of Community Investments that were assessed, the results for the reporting year show that for every 1 spent there was a social impact of The results are summarised below by activities: Social return Budget: Impact ratio Customer involvement Outreach employment Time-banks Skills & Employment Money Matters Total 1,140 Below are some further examples of the social return from the Community Investment team and our other business areas. Community Investments 501k extra in tenants pockets through provision of money advice e.g. welfare benefits, tax credits or grants 28 vulnerably housed customers achieved an employment related outcome 31 new people moved on-line, enabling them to use the internet 1,311 hours of Time Credits earned. These credits may be redeemed at various local leisure services and there is demonstrable evidence that Time Credits are linked to improvements in quality of life (University of Cambridge 2017). 14

17 VALUE FOR MONEY (Cont d) The Cambridge Housing Society Limited Financial and Strategic Review Older People Services Some 70% of our residents in our Residential Care homes are private payers and the remaining 30% local authority funded. The cost of delivering good quality services is reflected in the fees for the private payers being more than double the local authority benchmark. In CHS have imposed a minimum fee for Social Services residents of 585 per week. This is in an attempt to improve the profitability of the business and reduce the cross subsidy, estimated to be over 600k p.a. There is no differential in the quality of service or outcomes for residents. CHS took the decision to cancel the contract for Alex Wood House 20 Local Authority funded Day Centre places as this facility was no longer viable or value for money for either CHS, service users, or the Commissioners (County Council). The day centre at Moorlands remains popular and good value for money. This service enables older people to remain in their own home for longer. Our Residential Care Homes offer respite stays which allow family carers to take breaks, and extends the time families can continue supporting those suffering with dementia at home. All our Older Peoples Services are rated Good by the Care Quality Commission. CHS provides an aids and adaptations service for tenants, research has shown that appropriate adaptation/equipment can delay admission to residential care by around 4 years. Our Extra Care scheme kitchens provide meals to local volunteer-run lunch clubs, and to residents in our sheltered schemes, these events reduce social isolation amongst the elderly. Our schemes act as a community hub for NHS services such as flu jab and memory clinics, chiropody and wellness therapies. Our residential care homes, extra care and sheltered schemes are Wi-Fi enabled to facilitate digital inclusion and includes the use of assistive technology where appropriate. Across our schemes we have upgraded a range of commercial laundry and catering equipment with more efficient, eco-friendly machines, which use less water or power for example. The existing PV cells at Richard Newcombe Court continue to reduce running costs and have a positive impact on residents communal electricity charges. Community Support Services CHS has a good record of delivering high quality services at Supporting People Quality Assessment Level A at very competitive prices. Our services are viewed as providing good VfM by the local commissioning manager and we are successful at securing new contracts or as they become due for re-tender. Our support services for vulnerable people prevent crises and create and maintain independence, which saves central and local government spending on intensive care services which would otherwise be needed. They also help people to develop the skills to undertake education or to enter employment, and help reduce anti-social behaviour, reduce the adverse impact of isolation and loneliness on mental health, reduces the risk of service users committing crime, all of which contribute social benefit to the wider communities we work within. Our Sunflower Nurseries Bursary Fund subsidises Nursery places, allowing parents on low income to seek training and employment opportunities. The Nurseries also accept the Government s Early Years Funding for 2 and 3 year olds, without requiring parents to pay for wrap around hours which is especially beneficial to low income parents who could otherwise not afford Nursery day care. Around 25% of the child places include Early Years Funded hours. 15

18 Financial and Strategic Review VALUE FOR MONEY (Cont d) VFM gains during Below are some examples of efficiencies during the year: Cashable efficiencies Reduction in cyclical maintenance spend (compared to ) 58 Quality/noncashable efficiencies Staff salary constraints 160 Change to staff sick pay 10 Expansion of Domiciliary Care and other miscellaneous income from Extra Care 127 Social return Treasury refinancing 30 Introduction of an online customer portal 10 Quality Successful ESF bid 20 Additional income from 120 Mill Road 13 ICT procurement 27 Group Governance review 40 Stop subscription to Community insight and Social Value model 7 Participation in UKCSI annual survey - Quality Procurement of Ground Maintenance contract through a procurement consortium 60 Adoption of pumping station 17 VFM efficiencies for In response to the 1% rent reduction CHS has identified the savings required. These are factored into our budget for and the progress in achieving these will be monitored and reported as part of the monthly management accounts. Cashable efficiencies Reduction in repairs spend 99 Staff salary related savings from changes terms & conditions, staff changes Quality/noncashable efficiencies Expansion of domiciliary services Enhance net income from Supported projects 10 Social return 5 Social return Online customer portal 1 Quality & noncashable gains Group governance arrangements review 40 Adoption of pumping station 17 Improving customer feedback systems; revised multi-channel STAR survey Call to Survey customer feedback system for repairs New handy person service for repairs - Quality - Quality 10 Non-cashable Company sponsorship/online fundraising 5 Improve customer satisfaction with repairs to 86% New HR/Payroll system implementation in the year - Quality - Non-cashable ICT reviews / procurement 92 Further improvement to customer feedback systems Consider recommendations from Scrutiny Panel reviews (Service Charges and Customer Dissatisfaction (via STAR Survey results) Increased contribution from Community Investment due to new contracts (CLAS, New Horizons) - Quality - Quality 49 Social Value

19 Financial and Strategic Review VALUE FOR MONEY (Cont d) The above cashable efficiencies of 458k equates to 2.2% of the operating cost (excluding property depreciation). 130k of the above savings is staff related, which constitutes approximately 28% of the above planned savings for the year. The progress against delivering the above is monitored by the Management Team and the Board and the Group Finance and Audit committee. TREASURY POLICY Each year the Board approves the treasury management strategy and also updates the treasury policy. The treasury policy addresses funding and liquidity risks, covenants compliance and investment policy. The policy was reviewed and the findings reported to the Board during the year to ensure it remains relevant and fit for purpose. The treasury management activities are monitored by the Group Audit and Finance Committee which meets at least four times per year. Summary of CHS housing loans: Fixed 82,460 85,784 86,462 Variable 21,129 21,715 21,715 Total 103, , ,177 At the debt falls due for repayments as follows: Less than 1 year 1,919 2% Between 1-2 years 1,360 1% Between 2-3 years 1,652 2% Between 3-4 years 5,254 5% Between 4-5 years 10,567 10% Over 5 years 82,837 80% Total 103, % As at 80% (2016: 80%) of the CHS debt was at fixed rates of interest, and the rest was floating. The average cost of borrowing in the year was 4.95% (2016: 4.79%). The average debt per unit was 36,734 (2016: 38,393). At CHS has undrawn secured loan facilities of 15.4m Loan covenant compliance The Finance team monitors covenant compliance at all times and is required to report on covenant compliance to the Group Audit and Finance committee and the lenders on a quarterly basis. Monthly monitoring is done internally at the Senior Management Group and Management Team. As at, CHS complied with all its covenants and is forecasted to comply for the forthcoming twelve months and the period covered by the approved business plan. Actual in Gearing Year-end 48.0% Max. 49.6% Min. 48.0% Interest Cover Year-end 180% Highest 222% Lowest 180% 17