Annual report and financial statements

Transcription

1 Annual report and financial statements

2 Annual report and financial statements Contents Chair s statement 4 Strategic report 6 Business overview 6 Strategic journey Market overview 8 Operating review 10 Value for money 12 Financial review 16 Treasury review 20 Governance 22 Risks 25 Report of the Audit Committee 26 Directors report 30 Independent Auditor s report to the members of Moat Homes Limited 36 Consolidated statement of comprehensive income 42 Association statement of comprehensive income 43 Consolidated statement of financial position 44 Association statement of financial position 45 Consolidated and Association statement of changes in equity 46 Consolidated statement of cash flows 47 Notes to the financial statements 49 Springhead Park, Ebbsfleet Garden City, Dartford 163 shared ownership homes - Moat s largest shared ownership development to date. Financial Statements

3 Chair s statement The last year has seen Moat celebrate its 50th year of providing affordable homes across London and the South East. Whilst our operating environment has changed, our social purpose remains the same to provide affordable homes across a range of tenures to help people build their lives in stable communities. The cumulative nature of welfare reform, coupled with the 1% rent reduction announced in 2015, led inevitably to a more challenging operating environment. We have concentrated on creating resilience so we can continue to maximise our delivery of affordable homes, which I m proud to say we have done with determination and agility. Consequently, we remain firmly on course to deliver our ambitious development plans. As expected, the sector has also had to absorb this year s wave of welfare cuts, including the second tranche of the benefit cap reduction. But, in response to the Brexit vote, the Government signalled its intention to make no more welfare cuts in this parliament, beyond those which have already been announced. The Autumn Statement and the Housing White Paper gave further respite, announcing a softening of Government attitude towards the availability of rented tenures instead of solely focussing on homes for sale. This approach seems to have been confirmed in the Queens Speech, following the General Election in June. However, given that the Government no longer has an overall majoritythere is still a considerable amount of political uncertainty, and with the recent appointment of a new Housing Minister there is likely to be a review of housing policy. Following the tragic fire at Grenfell Tower inevitably all stakeholders will have concerns about fire safety. Following an immediate review of the 18 blocks which Moat owns and manages that are over five stories (of which six are over six stories), we have established that none of these have the aluminium composite cladding (ACM) that was present at Grenfell Tower. All of the blocks that Moat own and manage have up-to-date fire risk assessments. We have made contact with all blocks over five stories that house our residents which are owned and managed by other organisations to get confirmation that their fire risk assessments are up-to-date and the position in relation to ACM and any actions necessary. We have robust fire safety procedures in place and regularly review the fire safety of our properties to ensure we are fully compliant with the law. We will be working with our fire safety advisors, and others in the sector, to ensure we keep up-to-date with requirements as they emerge. The message from Government remains consistent, housing associations are expected to continue to deliver new homes at scale to meet current and projected need. Moat has always had a large development programme relative to its size and by building on our expertise in shared ownership, we have maximised our pipeline of affordable homes, delivering 406 handovers and 515 starts on site in the year. At the end of the year, we had over 1,400 homes in our pipeline and we remain on track to deliver 3,000 new homes in the period Moat has been a leader in the provision of shared ownership homes since the tenure was introduced some thirty years ago and we have assisted over 15,000 people into home ownership. We remain as passionate as ever about the ability of this tenure to transform lives by giving people a stake in their own home, which is why we were the first housing association to sign the CIH s Shared Ownership Charter a pledge to champion the cause of affordable home ownership. We took advantage of a fall in sterling rates following the EU referendum. We raised 50m of finance by way of a 30 year loan from the European Investment Bank through the government guaranteed aggregator, Affordable Housing Finance Plc, at a rate of 1.539% pa. In , we intend to raise further funding of up to 100m to support our ambitious development programme. We retained our G1V1 status after our In Depth Assessment by the HCA and our Moody s rating remained unchanged at A1, one of the best in the housing association sector. To increase our effectiveness and to support further growth, we have been continuing our policy of stock rationalisation, examining where our stock is located and whether we are best placed to ensure its sustainable future as affordable housing. In some areas, we have made the strategic decision to sell affordable homes to other housing associations that are more active locally and are therefore better placed to invest in those homes and provide local services. We have already exited five local authority areas since making the decision to strategically realign our stock. We have also worked hard to select those local authorities in which to increase our focus, where we have a strong relationship with local stakeholders and an in-depth local knowledge. It is these areas where we are best placed to grow and we are on target to reduce our core operating area to 30 local authorities by Partnership working remains at the heart of our business and we continue to work closely with our key local authorities to answer local housing need. We want to be a partner of choice for developers and we are proud to have the reputation of being a fair but firm partner that delivers on its promises. We are also realigning our offer to customers, ensuring a consistent delivery standard across all tenures. For our rented residents, this includes reframing the landlord and tenant relationship and being clear about the contractual agreement between us. It also means ensuring that we understand the needs and requirements of customers across a range of tenures and being clear about our respective obligations. As we refocus our customer offer, we are making sure our business embraces digital, facilitating self-service and better access to omni-channel services. Ultimately, we will make communicating and transacting with us convenient, quicker and more informative. But digital isn t just limited to customers, our employees will also be using digital to enable new, more flexible ways of working. The changes that we are making are increasingly supported by better data, using analytics to remain ahead of the curve. We recognise that this is a journey of evolution and that we will be constantly adapting our practices to embrace technological change alongside changes in our operating environment and customer base. This will enable us to become a more robust and agile business. As we continue on this journey, we have recruited a number of new Non-Executive Directors to the Board. They bring with them particular expertise in housing and the delivery of digital and strategic transformation, as well as active partnering with other social businesses. These skills and experiences complement those of our existing Non-Executive Board members, allowing for a robust and supportive approach from the Board in the framing and delivery of our strategy. We said good-bye to four Non-Executive Directors of long standing during the course of last year, three of whom retired having served Moat with loyalty, commitment and wisdom over a number of years. It is with great sadness that I report the premature death of Ruth Thompson, who provided effective and meaningful challenge in support of Moat s social purpose throughout her time on the Board. To increase the impact of our community based activities, we have refocused our charitable arm, Moat Foundation, adding a further community house in Sittingbourne to those we already have in Ashford, Gillingham and Gravesend. Going forward, we will be looking to maximise partnership working to deliver more community projects in our key locations. In addition, we have also looked at how we engage with residents to obtain better and more immediate feedback on our services. We have introduced Real Time Customer Feedback via text messaging and are working with residents to create a pool of customer advocates who will give us valuable insight in a more flexible and timely manner than a formal scrutiny panel. Finally, Moat never fails to impress me in its desire not just to meet but to exceed targets. I m delighted that Moat employees went above and beyond in their efforts to raise funds under the banner of Moat 50 for 50 to benefit five charities close to our hearts: Moat Foundation, Children of Choba, Porchlight, Centrepoint and Swale Action to End Domestic Abuse (SATEDA). Of particular note was the January sleepout where 60 Moatees braved temperatures of minus five degrees overnight to raise money and to highlight the plight of the homeless. Our final total reached over 70,000 against a target of 50,000 and is a testament to the social commitment, tenacity and innovation of our people. I would like to express my thanks to the Moat team who have worked tirelessly this year; and to all our partners who have collaborated with us to deliver such a strong performance against a challenging backdrop. Liz McMeikan Chair 4 Chair s statement Chair s statement 5

4 Strategic report Business overview Moat Homes Limited (MHL) is the parent company of the group which is branded as Moat and this year saw us celebrate our half century of providing affordable housing across the South East. Moat s core ambition is to eliminate housing need. We are passionate about continuing to provide real and viable housing options for low income earners. Maintaining a concentrated area of operation in the South East means that we can provide our services more efficiently, delivering value for money. All of our financial surpluses are reinvested to provide additional affordable homes and to provide quality neighbourhood management services. We provide a range of different housing options across our homes to suit the diverse needs of our customers, with 406 new homes delivered in the year from our active development programme. New homes Homes managed Strategic journey With the challenges of the present environment, in particular our increased emphasis on low cost home ownership and market sale products, Moat is in the process of implementing a new plan to take the organisation forward. The approach is aimed at transformational changes that will unlock the capacity of the business and underpin its growth ambition. It is focussed on the following four areas: Focussed on growth which will ensure the continuation of a strong development programme; An innovative, commercial business which will look at the development of new products and tenures as a means to further growth; Easy to do business with which will focus on simplifying our offer and maximising the use of digital technology service delivery, and; A consistent customer experience which will be heavily focussed on setting out a clear and consistent customer offer which will deliver the right outcomes and greater efficiency. Our strategic roadmap will ensure that Moat becomes a more efficient and effective business, able to respond to future challenges. General needs rented 11 8,781 Strategic roadmap Affordable rent (inc for older people) Housing for older people/supported 213 1,458-1,748 Continuing to build new homes is the focus of everything we do Simple effectiveness will underpin how we manage the business and provide services Low cost home ownership 182 5,858 Other social housing - 1,631 Non social housing - 1,631 Total homes in management ,107 By 2020 we will be focussed on 30 local authority areas We will develop around 3,000 properties over the next five years aiming for an annual pipeline of 750 properties by 2020 We will increase our appetite for commercial risk to make the best use of the opportunities that we have to meet our growth target. Focussed on growth Easy to do business with Digital technology will increasingly become our chosen way of working to support our drive towards greater efficiency Services will be delivered by those best able to provide the right services at the right price We will use partnerships and business relationships to maximise impact. MHL is a charitable registered provider of social housing regulated by the Homes and Communities Agency (HCA). The other active companies in the group are: ELIMINATE HOUSING NEED Moat Housing Group Limited Moat Foundation Moat Homes Finance Plc Focussing on developing homes for market sale Our charitable arm, focussing on communities Raised bond finance in the capital markets and on lends to MHL Focussed innovation will be a part of everything we do embedded within the business An innovative, commercial business A consistent customer experience We will be brilliant at doing the basics Increasing product choice through developing a new, sustainable rented product Considering how partner investment can support our growth ambition through new financing options for products and growth Investing in technology to underpin an effective and modern business supporting our outcomes. The offer to our customers will be consistent and clear and we will deliver it without failure We will focus on the outcomes that our customers need through good data and good technology to support great communication and support We will be a learning organisation focussed on getting things through insight, innovation and improvement. 6 Business overview Strategic journey

5 Strategic report Market overview The operating environment for housing providers has remained challenging, particularly with regards to the one per cent reduction to social rents, which came into effect this financial year. This annual reduction will run until , but no rent settlement has been agreed from 2020 onwards, which would provide housing associations with much-needed certainty. As well as the increased number of Housing Benefit claimants being transitioned onto Universal Credit, this year also saw the introduction of several previously announced welfare measures: the initiation of the welfare freeze on working-age claimants in April 2016, running for four years; the reduction of the benefit cap to 23,000 in London and 20,000 outside of London; limiting the support provided to families through tax credits to two children post-april 2017; and the removal of automatic entitlement to housing support for new Universal Credit claims by 18 to 21 year olds post-april The extension of the Local Housing Allowance (LHA) cap to social housing providers has been delayed until However, the eligibility criteria has altered: from tenants who signed their tenancy agreement post-april 2016, to all tenants who have transitioned onto Universal Credit by 1 April 2019, which makes the impact more difficult to manage. ing for supported tenants will operate under a new system, linked to LHA rates but topped up by local government funding, the structure of which has yet to be fully confirmed. However, it is important to note our supported housing makes up only a relatively small amount of Moat s overall stock. The five voluntary Right to Buy pilots have run their course and their evaluation report has been released, but no date for implementation has yet been confirmed. Moreover, a year-long regional pilot has been announced exploring the elements untested by the initial pilot. As this has not yet commenced, it is reasonable to assume the national roll-out will not materialise until mid-2018 at the earliest. Development pressures In November 2016, the Housing Minister announced that there would be a relaxation of the grant available under the Affordable Homes Programme, with some grant released for rented tenures. The Greater London Authority (GLA) announced London Living Rent and London Affordable Rent alongside London Shared Ownership in their Affordable Homes Programme. These changes show a potential shift in national and local Government thinking towards the provision of homes for affordable rent, instead of a sole focus on home ownership. The Government s continued support of shared ownership remains strong, and in the short term this has resulted in more entrants into the market. Despite this, and the revelation that bids for shared ownership grant in the Affordable Homes Programme will be opened to commercial companies, lenders have a strong preexisting relationship with registered providers and this stands the sector in good stead. London and the South East continues to provide a strong market for our shared ownership offer. Across our operating area, the relationship between average house prices and incomes means that outright home ownership is unaffordable for many households. Shared ownership continues to provide an attractive and accessible route to home ownership for a substantial number of first time buyers. The Government s White Paper proposed a significant number of changes, many of which will require consultation or will be part of the review of the National Planning Policy Framework that is due to take place later in It is encouraging to see the Government acknowledge that changes need to be made to the planning system to speed up delivery. This includes a requirement for Local Plans to be reviewed every five years, making local land ownership and interests more transparent, maximising the contribution from brownfield and surplus public sector land, increasing densities and reviewing the role of the Community Infrastructure Levy (CIL). The CIL Review team states that, whilst some authorities have found CIL to be successful, the vast majority have failed to secure the contributions they expected, with CIL only raising between five and 20 per cent of required funding. The proposed solution is a much lower Local Infrastructure Tariff, but far more widely applied and with far fewer exemptions and reliefs its bureaucracy to be substantially simplified. For large housing developments (over ten units) this approach will be supplemented by enhanced S106 packages and, in some areas, the right to raise a Mayoral, low-level Strategic Infrastructure Tariff, to fund flagship projects of wider benefit. Deregulation Following the Office of National Statistics (ONS) decision to reclassify housing associations as public bodies, the government has made it clear that it wants to reach a position where this decision is reversed. This has given an extra impetus to the introduction of deregulatory measures. On 6 April the HCA: removed the constitutional and consents regime, while simultaneously introducing new notification requirements; will be responsible for decision making for certain types of new body post-restructure; and removed the requirement for housing associations to pay into a Disposal Proceeds. The overall effect of these regulations is to give housing associations greater flexibility and to move the sector closer to reclassification as private sector organisations. Broader sector Several notable housing association mergers completed this financial year, with the stated aim of increasing efficiency and development capacity. Some high-profile mergers have been unsuccessful due to a variety of reasons, including strategic and cultural differences. Overall, the rent cut has given greater impetus to the shift towards market tenures such as shared ownership and outright sale, as a means to provide cross-subsidy for affordable rented housing. External pressures In March 2017, Article 50 of the Lisbon Treaty was triggered, initiating the UK s departure from the European Union. In the period following the referendum, there has been little impact on values or demand. Further, any potential effect on interest rates has been lessened by the 0.25% base rate cut. The cost of construction has been gradually increasing throughout 2016, due to a shortage of labour and increasing costs of build materials. A further fall in the value of sterling would lead to a further increase in cost, due to the effect this has on the cost of importing goods from countries inside the Eurozone. We currently find ourselves in uncharted territory with the Government having no overall majority following the General Election and the focus over the next two years on legislating for Brexit. Key issues will centre on immigration, access to the single market and access to the customs union which may have a secondary impact on the housing sector through their impact on interest rates, house prices and market rent levels. 8 Market overview Market overview 9

6 Strategic report Operating review Continuing to build new homes is the focus of everything we do Despite the challenging operating environment that the 1% per annum rent cut, rising build costs and increasing values bring, we remain committed to maximising the delivery of new homes. This year we sought to not only meet our annual targets but also to build our forward development pipeline. New homes starts and practical completions Challenges on two complex projects saw some projected completions move into and therefore the handover target was not met. On a more positive note we outperformed significantly on starts on site and beyond this we have contracted on a further 1,164 homes with almost another 250 homes internally approved but not yet in contract. During the year we progressed our outright sale programme and have now approved two significant joint venture projects in Dulwich Village and Sevenoaks. This year saw the launch of the new prospectuses for both the Homes and Communities Agency (HCA) and the Greater London Authority (GLA). We have been successful in achieving our full allocation from the HCA and will look for on-going approval for new projects through the Continuous Market Engagement (CME) route, again utilising our recycled capital grant. Our bid for a London programme has been submitted and we await to hear the outcome. Sales Shared ownership numbers will continue to grow as we build our development programme. It is clear our geographical operating area remains one where values are holding and, in many areas, continuing to increase, and customer demand remains high. We continue to build on our successful delivery of shared ownership with 216 first tranche sales in the year. These sales delivered over 23.2m of sales income and profit in excess of 7.3m a margin of 31%. By year end only one home remained unreserved that was more than six months from handover. During the year 167 existing shared owners bought more equity in their homes (staircasing) and 171 equity loan holders redeemed their loans. This generated income of 27.1m (2016: 29.8m), with a 10.9m (2016: 10.2m) surplus. As part of our asset management strategy to dispose of stock outside of our key areas of operation, we disposed of 274 homes in Kingston, North Essex and Lambeth. This generated almost 23m 10 Operating review Building new homes: Key performance indicators (KPIs) in capital receipts. This has contributed to our aim that by 2020 we will be focussed on 30 local authority areas. Surpluses from property sales are utilised to both fund additional affordable homes and to improve our existing properties. Regeneration During the year we progressed significantly on the estate regeneration of Pollards Hill in Merton, South West London. Planning permission was achieved and the OJEU procurement of the works contractor was completed. The delivery of the first phase of comprehensive refurbishment and environmental works commenced early in 2017 and we expect to complete in two years. The physical works are being complemented by a programme of social regeneration projects as well as the delivery of around 90 new homes. We will be brilliant at doing the basics We aim to provide a consistent customer experience and monitor a range of Key Performance Indicators (KPIs) focusing on our day to day operations (see next page). In six of the seven key operating performance indicators we performed at or better than the target set. Property maintenance and improvements Our long term partnering contract with Mears to deliver responsive and void repairs continues to deliver strong results. Right first time and satisfaction both surpassed their targets for , despite a slight fall from their levels. Gas servicing and compliance was maintained at 100%. Void turnaround The improvement in our void turnaround performance in the final three months of following a reorganisation of the team has continued during the year, resulting in us beating our target. Arrears and financial well-being Having achieved our arrears targets in , we set challenging targets in , which we only narrowly missed. This was against a backdrop of changes, including timing of the weekly rent debit and streamlining our arrears collection and reporting processes, which had a short term impact on performance. The changes have made the process simpler, clearer, more consistent and easier for customers and staff to understand. The new process went live in February 2017 and has shown a week on week reduction in arrears since then. Our focus has been to get ourselves and our customers into the best possible position before Universal Credit impacts the majority Actual Target Actual New home starts New build handovers Unreserved homes: more than six months old 1-1 Shared ownership sales profitability 31% 22.5% 41% A consistant customer experience Key performance indicators (KPIs) of our benefit dependent customers. Our aim remains to assist customers to sustain their tenancy, but equally we will enforce legal action where appropriate. Our customer offer We have started to redefine our customer offer to ensure that we both meet our obligations as set out in our numerous leases and tenancy agreements, and also help better manage our estate services. The aims of the new customer offer are to: Ensure effective, streamlined and clearly defined processes Attain a real business focus at a local level to the management of the properties on behalf of our customers and Moat Improve capacity amongst our front line teams to ensure they truly manage their communities effectively Improve accountability Ensure that we have the right people to deliver the right service Deliver quality through consistency Empower our staff to challenge ourselves and others Ensure compliance against our statutory obligations Support overall key performance indicators, not least our rent arrears and voids targets Ensure a digital-first approach to all that we do and encourage innovation Reduce our management cost per unit. amentally, through delivering a clear and effective service, we will contribute to the capacity needed to build new homes. Investing in technology to underpin an effective and modern business We have been working to implement a new telephony system in our Contact Centre with the first phase due to go live in July The new system will provide a smarter and more efficient service to callers, for example through screen popping, while also providing better data for analysis through enhanced call logging and recording. Alongside the system change we have worked to upskill Actual Target Actual Overall satisfaction with services provided 82% 75% 76% Routine repairs: right first time 95% 95% 97% Resident satisfaction with routine repairs service 98% 90% 99.5% Current landlords gas safety certificates 100% 100% 100% Void turnaround time in days: general needs, housing for older people and supported Current rent gross arrears - eight week rolling average: general needs, housing for older people and supported % 4.95% 4.99% Current rent gross arrears: shared ownership 1.86% 2.00% 2.00% Contact Centre staff as we move towards a first base service that can deal with a larger variety of calls so fewer cases are passed to other parts of the business, saving time and money while increasing caller satisfaction. We are also implementing a rent and arrears analytical tool. The tool will identify the arrears cases that we need to focus on, including highlighting behaviour changes allowing us to intervene early. Our communities During 2017 the business plan of Moat Foundation, our charitable brand, has been refreshed to focus on building on the success of the community house projects (community hubs ) to utilise them to support the agreed priorities: To support young people (16-25) to become more employable through education, training and work experience. We are developing a number of flagship programmes using our hub model, driven by regional customer need. Such services will be targeted, challenging and aspirational to meet the changing training and employment needs of younger customers. In particular, we will focus on employability, training and volunteering projects. To ensure communities thrive. We will work with the principles of the Asset Based Community Development (ABCD) model, to nurture local interests and talent by empowering key customers to take ownership of local projects. The programmes within this strategy are designed to challenge, motivate and empower individuals and groups to utilise their interest, passion and talent for further self development. We will work in collaboration with our customers valuing their input to shape the activities on offer to help build stronger and happier communities together. To support our ageing population. Using the community hubs, we will put in place a number of targeted programmes for older customers (over 65s) to provide advice and practical support. We also intend to target increased funding through external relationship building and grant acquisition. Operating review 11

7 Strategic report Value for money Simple effectiveness will underpin how we manage the business and provide services Our value for money (VfM) strategy brings together a number of supporting strategies to ensure a coherent and coordinated approach across the range of our business activities. Our challenge is to continue to balance delivering new homes, providing high levels of service for our existing customers, improving communities and maintaining financial strength. Achieving VfM across our business underpins our ability to do so. We carry out an annual VfM self assessment which is reviewed and approved by the Board. The assessment reviews our performance against internal targets, benchmarks against other registered providers, highlights ongoing VfM activities and looks at where we could improve. The key highlights are summarised below. A full version of the VfM self assessment for stakeholders can be found on-line at moat.co.uk/vfm and elements of VfM are incorporated into our annual report to residents which is also on our website at moat.co.uk/annual report. Last year s VfM self assessment highlighted key areas of our strategy which were aimed at improving VfM. We commenced projects reviewing third party spend and priorities in our allocation of resources. The initial outcomes have been to combine our Development, Property Services and Technical Field Services teams into the same directorate to facilitate the ownership and management of the majority of third party spend and provide other opportunities for efficient working. We have also reorganised our Customer Engagement and Customer Insight teams and activities, and have implemented Real Time Customer Feedback processes which have resulted in us collecting customer feedback more efficiently and quickly. Effectively using our assets Actual Actual Surplus on average net assets 16.2% 14.8% Return on net fixed assets less unamortised grant received: Rented Return on net fixed assets less unamortised grant received: Shared ownership 5.9% 5.8% 8.1% 9.5% We monitor the high level performance of return on assets by comparing the surplus generated each year to its average net assets, calculated as surplus for the year of 48.1m and the average of the opening and closing net assets of 296.1m. The return on net fixed assets less unamortised grant received is also monitored for rented and shared ownership properties (shared ownership includes first tranche sales). These indicators have been chosen as they provide a broad measure of how successful the business has been in utilising its assets during the year. The overall return on assets has improved significantly with our surplus for the year increasing from 37.9m to 48.1m, helped by an increase of 12.1m in the gain on disposal of fixed assets to 14.4m. The small increase in the return on rented assets results mainly from lower management costs, from 12.7m to 11.6m. The decrease in return on shared ownership reflects the enhanced values that we achieved on first tranche sales in the previous year which delivered a margin of 41% compared to 31% achieved this year against a target of 22.5%. Strategic Asset Management Our Strategic Asset Management team has been heavily focussed on the 21m Pollards Hill Regeneration project where we appointed our main contractor and work started on site in January The first phase of the project is ready for roofing and external works to commence in We have also replaced 60 kitchens and bathrooms prior to the commencement of external works. During we have budgeted to spend 10.1m on this project. We have been proactively working with the local authority to finalise the planning and design of 90 new build properties on the site which will contribute to the overall regeneration and deliver financial returns. The team has also been busy on our stock rationalisation programme where our strategic intention is to reduce our focus to 30 local authority areas by 2020, so that we are focussed on those areas where we can operate most efficiently. During the year we disposed of stock to other registered providers in Kingston (195 units), Lambourne Court (20 units) and North Essex (59 units). These and other minor disposals generated sales proceeds of 23m which have been reinvested in the business. Looking ahead we have plans to dispose of a further 332 homes during to rationalise our geographic spread and reduce future operating costs. We proactively assess the performance of Moat s assets through our own internally developed Stock Appraisal Model. The team assesses the financial performance of our homes, estates and land holdings and provides options appraisals to look at ways of improving this performance. Options typically fall into three areas improve, dispose or re-purpose. Development The total number of new homes handed over during was 406 (2016: 664), just below our target of 465. We also began construction on 515 more homes (2016: 552) which will be completed in future years. The operating environment for development continues to offer challenges through increased cost of labour and raw materials, and competition from other social landlords and private developers that offer their own affordable products. Despite this we have a healthy forward development programme and remain committed to maximise development to eliminate housing need. To ensure all new homes are aligned to Moat s strategic objectives, all development opportunities must be approved by the Capital Projects Committee. Potential developments are appraised using an in-house investment appraisal tool which assesses the long- term cost of funds together with management and maintenance costs. Assumptions within the appraisal model are discussed and approved at least annually by the Finance Committee. A hurdle rate of return is set by the Capital Projects Committee and all projects must achieve a satisfactory net present value for them to be approved. This ensures only schemes which are financially viable and sustainable are approved by the business. The Capital Projects Committee is chaired by the Chief Executive and contains representatives from all areas of the business, who provide formal feedback on the schemes proposed by the Development team. This ensures potential risks related to the housing market, future repairs, service charges and management costs can be identified before the schemes are approved. This Committee is also responsible for monitoring the overall performance of the build programme against investment appraisals. The Committee also monitors the planned utilisation of available funding facilities against a set of treasury risk parameters set by the Board. In addition to Moat s internal review, an independent value for money statement is prepared by an Employer s Agent for each new development. This provides an additional layer of scrutiny to ensure the cost paid for new homes is in line with current market values and build costs are at market rates. The Finance Committee provides oversight on behalf of the Board, receiving a summary of approved schemes and their cumulative net present value at each meeting. Key performance indicators In the Operating Review we focussed on our key operating performance indicators (KPIs). We also monitor a range of KPIs focused on VfM (see below). Financial strength We continue to focus on ensuring we have the financial strength to deliver our ambition and on maintaining our high operating margin and low gearing position to assist when raising additional funds for developing new homes. Our operating surplus and total surplus for the year both outperformed target, as did our gearing. Our financial targets for are based on the detailed budget which has been approved by the Finance Committee and the Board. Procurement We are a member of two procurement consortia, have a number of framework agreements with panels of service providers, and we involve the Procurement team in all tender activity with the aim of securing improved VfM while protecting the quality of our services and maintaining compliance with legislation. Towards the end of the year we completed the retendering of our gas servicing and safety contract, one of our largest maintenance areas. Value for money (VfM): Key performance indicators Despite the challenging environment we successfully met our targets for all of our VfM key performance indicators. Actual Target Actual Operating margin: all activities 45% 40% 46% Management cost per home: all activities 1,080 1,086 1,261 Gearing 28% <35% 30% Operating margin: social housing lettings 43% 42% 41% Management cost per home: social housing lettings Responsive maintenance costs per home: general needs, housing for older people and supported Bad debts per home Homes per FTE staff member Value for money Value for money 13

8 Strategic report Value for money - continued The new contract started from April 2017 and we expect to achieve savings in the first year of almost 420k, and almost 1.7m over the four year contract term. Looking ahead our Property Services team is working on consolidating contractors and suppliers by developing a procurement strategy in conjunction with the Procurement team. The aim is to deliver economies of scale, improve contract management, and develop innovative contracting techniques to secure added value. Benchmarking We use information published by Moody s, English Housing Associations 2016 Results, to compare ourselves with 42 other registered providers for which it provides a credit rating. Moat is rated A1 by Moody s, along with 11 others, with only two housing associations having a higher Moody s rating. Whilst the Moody s rating does not provide a direct opinion on VfM, it demonstrates Moody s positive opinion of Moat s strong financial performance, which leads to reduced funding costs on new borrowings. We carry out an annual review comparing ourselves to ten other registered providers operating within the South East of England by extracting data from their financial statements. By using the same peer group and the same performance indicators each year we are able to compare our relative performance on an ongoing basis. Our performance in was comparable to previous years with our relative position changing little and remaining in the top half of the table. Moat is one of the founding 15 housing associations that have worked together to design a set of metrics to compare performance and check value for money. Announced in January 2017 with the backing of the Housing Minister, CIH, and NHF, the scheme has grown to over 300 member organisations. The scorecard will complete a one year pilot, with a full launch planned for The draft version of the scorecard (with 2016 data) contained 15 indicators to provide a rounded picture of associations business in terms of efficiency and effectiveness. Moat s performance is above the average in most cases. We will continue to influence the development of the scorecard during the pilot year, with the aim of using it as a primary tool for measuring our effectiveness in delivering VfM. Social value Moat generates significant social value which we periodically assess through an internally developed measurement framework. The framework uses a proportionate approach to measuring social value across the following areas where the data is verifiable: New sub-market rented homes New shared ownership homes there is significant social value in moving individuals from socially or privately rented properties to home ownership Employment and apprenticeship activities Financial wellbeing activities Improvements to stock, e.g. reduction in fuel poverty Community related activities through our Moat Foundation arm We have continued to improve the energy efficiency of our homes to provide lower cost in use to our customers. We secured funding of 650,000 euros to deliver our first pilot of Energiesprong, an urban renaissance/neighbourhood renewal approach that will help create social value as well as better performing properties. It is an innovative, European trialled, one touch asset management approach that aims to deliver homes that are affordable for residents to heat and run for life. We will be delivering a ten property pilot project during As discussed in the our communities section we have a number of different ways in which we provide support for the communities in which we work. Moat invests approximately 1.0m each year in customer engagement and social projects much of which goes above and beyond the mandatory requirements of registered providers. During the year we opened our fourth community house in Sittingbourne. The performance of all Moat Foundation initiatives is reviewed at each meeting by the Trustees. This includes the attendance, activities and feedback at community hubs and other activities like youth events and work experience. Moat Promise The Moat Promise was developed to encourage and reward high standards of personal behaviour, whilst promoting independence and personal responsibility with our rented customers. It has become a known brand across the housing sector, leading the way in setting standards to influence customer behaviour in relation to tenancy breaches. The service is designed to tackle low level rent arrears, encourage a payment culture ahead of the introduction of welfare reform and other government changes, drive personal accountability and give our Neighbourhoods teams a tool to help them improve homes and communities. Resident involvement Our Customer and Business Intelligence teams actively seek feedback from residents through surveys and other engagement forums on quality of service provision and VfM. Increasingly we are moving to collecting this information by Real Time Customer Feedback mechanisms. Key areas for improvement We recognise that improving value for money from our activities is a continuous process. As we work through the objectives of our Strategic Roadmap we will put VfM at the heart of process redesign and improvements. The following areas will receive particular focus in : Arrears. We are not satisfied with the level of our arrears and, notwithstanding the tightening impact of the welfare reforms, have set ourselves an ambitious target of 4.25% Customer offer. We have undertaken a review of our customer offer and will be working through a project to improve the clarity of our servicing offer, ensuring that it is supported by effective, streamlined and clearly defined processes Digital strategy. We plan to finalise our Digital Strategy and one of our key milestones is to launch a new website in that will improve the delivery of online services to our customers. Targets for Our targets for next year and beyond are documented in our detailed budget and strategic plan. Our key targets include: Operating margin (including staircasing and redemptions) Target 35% Interest cover 2.1 Management cost per home 1,152 Gearing <35% New home starts 600 New build completions 436 Overall satisfaction with services provided 80% Routine repairs: right first time 95% Current tenant gross arrears: eight week rolling average 4.25% Void turnaround in days Value for money Value for money 15

9 Strategic report Financial review Continuing financial strength underpins our strategic growth ambitions. Any surplus that we make is reinvested in building new homes, maintaining our existing properties and the provision of housing services. Our financial results for show an improvement over previous years. The overall surplus for the year increased by 10.2m to 48.1m, which included a surplus from stock rationalisation sales of 14.6m (2016: 2.3m). Operating surplus fell to 54.8m (2016: 55.3m). A factor in the decrease was the 1.7m impairment of a redevelopment scheme where an updated flood risk assessment has highlighted additional works. The surplus on social housing lettings, which is analysed in Note 3, increased from 38.1m in to 41.6m. This represents 76% of the operating surplus (2016: 69%). For general needs rented and housing for older people and supported properties, rents were reduced by 1% in line with government policy. Shared ownership properties rents were increased in line with their leases. Service charge income increased to reflect the costs incurred in providing the services, either internally or through external managing agents. In particular, we experienced higher service charge costs on large London based developments with external managing agents. Management costs reduced with no pension deficit valuation (these are carried out triennially on the SHPs pension with a cost in 2016 of 2.2m). Shared ownership property sales are the initial sale of a portion of shared ownership properties and are included in turnover and cost of sales. The margin earned in was 31%, which is lower than the 41% margin in reflecting fewer sales in greater London where higher margins are earned. The surplus on sales of the remaining portion of shared ownership properties and on redemptions of equity loans are now shown as part of the operating surplus. The surplus on stock rationalisation disposals accounts for 30% of the overall surplus for the year. 274 housing properties in Kingston, North Essex and Lambeth were sold to other registered providers. Net interest costs increased by 0.2m to 20.8m (2016: 20.6m). We have benefited from a continued low LIBOR rate and reduced borrowing requirements, partly due to released cash collateral on * * Turnover m Operating costs/cost of sales m (77.1) (75.6) (72.7) (61.2) (59.9) Gain on disposal of fixed assets (staircasing and redemptions)** m 30m 25m 20m 15m 10m 5m - Surplus on social housing lettings Surplus Surplus General needs rented Low cost home ownership Housing for older people / supported housing margin calls following the successful addition of security to ISDA s. To take advantage of current rates, during March we incurred break costs of 3.6m on two swaps which will reduce our interest costs during the next two years until March The adverse movement on fair value of financial instruments of 0.8m (2016: 0.8m adverse) is the change in the mark to market value of interest rate swaps which are not treated as hedging instruments. In other comprehensive income, the movement in fair value of our interest rate swaps which are accounted for as hedging our loan portfolio was 2.7m adverse, the same level as in This reflects the continuing low level of long term interest rates. Gearing remains consistently low at 28% (2016: 30%). Going forward we are anticipating a gradual increase in gearing as we continue to grow our development programme with lower levels of grant. Operating surplus m Gain on disposal of fixed assets m Gain on disposal of investments m Movement in fair values m (0.7) (0.8) (6.8) - - Net interest costs m (20.7) (20.5) (19.5) (16.6) (17.5) Taxation m 0.3 (0.4) (0.2) - - Surplus for the year m Operating margin 45% 46% 35% 37% 35% Property cost m 1,411 1,365 1,304 1,235 1,149 Total debt m Cash balances m Gearing 28% 30% 30% 28% 28% 16m 14m 12m 10m 8m 6m 4m 2m Property sales Surplus Surplus * and are not restated under FRS 102. ** , and gain on disposal of staircasings and redemptions is not in operating surplus. - Shared ownership property sales Staircasing activity Redemption of equity loans Stock rationalisation disposals 16 Financial review Financial review 17

10 Strategic report Financial review - continued Our investment in housing properties continues to grow, financed by loans, grant and reserves, with the proportion of grant funding continuing to fall m % m % Housing property at cost 1,411 1,366 Depreciation and impairment (143) (131) 1,268 1,235 Financed by: Loans (net of cash) % % Grant % % Reserves % % Other 32 3% 26 2% 1, % 1, % Knightswood, Tunbridge Wells 82 homes for affordable rent and 81 shared ownership homes. 18 Financial review

11 Strategic report Treasury review Our treasury activities are designed to ensure sufficient liquidity and reduce our exposure to risk. We work with a number of counterparties to cover the cash requirement for our development activities, and continue to prepare security for future additional borrowing requirements. During the year we secured 50m additional funding through Affordable Housing Finance Plc and the European Investment Bank at a rate of just 1.539%. Cash flows The statement of cash flows is on page 47. The statement shows continued high levels of capital spend on fixed asset housing properties at 74m (2016: 84m) and 28m (2016: 12m) on housing properties to be sold. This has been funded by cash generated from shared ownership sales, property sales resulting from our strategic asset investment programme, and our core social housing activities. Liquidity At 31 March 2017 our borrowings totalled 428m (2016: 432m), we had undrawn facilities in place and fully secured of 139m (2016: 88m), and cash of 27m (2016: 22m). Our debt is predominantly borrowed from banks and building societies in the UK plus some capital bond issuance. All debt is secured by first fixed charges over housing properties. We align our borrowing with the scale and pace of our development programme and will be looking to raise additional finance within the next 12 months. We invest cash surpluses in highly-rated UK regulated institutions, and we borrow and lend in Sterling only. Refinancing risk is managed by ensuring that a minimal proportion of the overall debt portfolio is repayable over the next five years. Hedging Our hedging strategy seeks to manage interest rate risk by requiring between 60% - 90% of our debt to be at fixed rates. Interest rate swap agreements are in place to hedge against exposure to variable interest rates. We monitor market conditions for opportunities to reduce future borrowing costs and if identified we may enter into new swaps and/or break or modify existing swaps. Interest rate swaps are marked to market with movements in the fair value shown in the Statement of Comprehensive Income. The financial impact in is discussed in the Financial Review. The position at 31 March 2017 including interest rate swaps was: m % m % Variable rate 41 10% 85 20% Fixed rate % % Total borrowings Covenants Our primary covenants on our debt facilities are set at borrowing entity level and all were complied with throughout the year. Our bank loans have both interest cover and gearing covenants, whilst our public bond requires the maintenance of required asset cover. Public bond In September 2011, Moat Homes Finance Limited (MHF), which is a financial institution, issued a 150m 5% 2041 secured bond. 100m was sold to investors in 2011 and the remaining 50m was sold during The finance raised has been lent to MHL under a secured loan agreement. Interest rate risk The interest payable on the bond is fixed rate therefore there is no exposure to variable rate movements. The interest payable by MHL to MHF is at the same fixed rate. Liquidity and Credit rate risk The bond is secured by first fixed charges over housing properties. The properties charged are valued at market value subject to tenancy and an annual valuation is carried out to ensure the asset cover ratio is met. The properties charged are owned by MHL and under the Security Trust Deed provide the security for the intergroup loan and the Bond. Currency risk There is no currency risk as the bond is issued in Sterling. 600m 500m Facilities maturity profile 400m 300m 200m 100m Year AHF Bond MHF Bond Other Nationwide RBS HBoS Abbey 20 Treasury review Treasury review 21

12 Strategic report Governance Our Board is responsible for the strategic direction of Moat, and ensuring the business is run effectively and efficiently to achieve the long term ambition to eliminate housing need. The Board has adopted the main principles of the UK Corporate Governance Code and has complied with its provisions as far as they can reasonably be applied to a registered provider with charitable objectives. The areas of non-compliance are: C.1.3 We do not produce half-yearly financial statements, which are not required by the HCA; and E.1, E.1.1, and E.1.2 The requirements in relation to dialogue with shareholders who are not non-executives. Of our 13 shareholders, eight are non-executives and all 13 have equal shareholdings. The Board has adopted the National Housing Federations Code on Excellence in Service Delivery and Accountability. As part of its regulatory regime the HCA conducted an In Depth Assessment (IDA) of Moat in June The HCA uses the IDA to assess financial viability, the approach to value for money, and governance. The outcome of the IDA was positive and Moat has retained its top level G1 V1 regulatory judgement. Board governance values Complementary working Effective decision making Our Board is made up of non-executive members and executives. Board member details are set out on page 30. At the date of approving these financial statements the Board consisted of seven non-executives and three executives. The Board undertakes an annual review of its performance collectively as well as appraising each member individually. Recruitment and selection of new members is based upon the skill set of the Board, aligned with the current and planned activities of the group. Board composition is also monitored against Moat s Equality and Diversity Policy. During the year the Board agreed a set of governance values which underpin the way the Board operates. Everyone brings individual experience and knowledge that enables us to make strategic decisions. All viewpoints are valued. We will be open to constructive challenges, as everyone acknowledges that diversity of thought is key to good governance. The Board delegates some of its responsibilities to the Executive team, listed on page 30, and to Committees. There are five Committees and each has a group wide remit with clear terms of reference and delegated authority. Membership of Committees and attendance records are listed on page 31. The detailed Terms of Reference are reviewed annually and may be accessed online at moat.co.uk/governance. Audit Committee The role of the Audit Committee is to monitor the integrity of the accounts, review the effectiveness of internal control systems including management, operational, and financial controls, and to monitor Moat s risk management systems. As part of this work the committee monitors the terms of appointment and work of both the internal and external auditors, and has a direct and regular line of communication with them. Finance Committee The role of the Finance Committee is to monitor financial and development performance. The committee also ensures that Moat adopts sound treasury management, borrowing, and investment policies and strategies. Customer and Communities Committee The Customer and Communities Committee is responsible for overseeing the delivery of great service for Moat customers. The Committee reviews analysis of business intelligence driven data and customer feedback to identify trends and help the development and implementation of customer focussed solutions. The Committee approves appraisals of significant community initiatives presented via Moat Foundation and oversees the Moat People Strategy. Remuneration Committee The Remuneration Committee is responsible for reviewing the remuneration of the Chief Executive, the Executive team, senior management, and non-executive directors. During the coming year the Committee will be looking at specifying conditions whereby Moat would withhold payment, or recover sums paid, under performance related remuneration for executive directors. This will comply with the revised UK Corporate Governance Code published in April 2016 which applies to reporting periods beginning on or after 17 June Clarity Relevance Everyone should ask questions or seek clarification if they do not understand and make their point clear when challenging. Only relevant information is to be presented and discussed. Governance and Nominations Committee The role of the Governance and Nominations Committee is to review the effectiveness of governance arrangements, the composition of the Board and Committees, and succession planning. The Committee also leads the process for Board appointments, making recommendations to the Board for its approval. External recruitment consultants assisted the Committee with the recruitment of new non-executive directors during the year. Honesty Everyone will work together in an open and honest way to ensure we achieve our objectives. Positive attitude It is expected that everyone will work together with ambition, enthusiasm and drive. 22 Governance Governance 23

13 Strategic report Risks Moat s exposure to risk has increased in recent years due to changes in the operating environment and an increase in noncore activities. Our risk management approach is defined within our Risk Strategy and Management Framework which is reviewed and updated by the Audit Committee annually. The overall aim of the strategy is to identify, control, and manage the level of risk to the extent that the residual risk, that is the risk remaining after any mitigating actions, can be borne by the group without serious permanent damage. Risks are recorded in a Risk Register segregated between Strategic and Operational Risks. The Strategic Risk Register is reviewed at every Audit Committee meeting, and annually by the Board. Operational Risks are delegated to the senior leadership team and reviewed quarterly by the Executive team. The Strategic Risk Register currently includes 14 strategic risks, of which, three have been added during the year relating to increased building regulation requirements, failure to deliver strategy and contractor risk. Three risks are categorised as major risks based on their potential impact and likelihood of occurrence. Risk Mitigating actions Exposure to falling house prices, particularly in market sale business and shared ownership We mitigate this risk by obtaining third party valuations of sales prices and use first tranche sales share levels based on recent experience in our initial investment appraisals. We also monitor these assumptions regularly throughout the development process to maintain a clear view of our exposure to sales risk. The aggregate exposure to sales over a twelve month rolling forecast is reported monthly to the executive team. The Finance Committee monitors our impairment risk as one of its key financial indicators, where we have set the benchmark as our ability to withstand falls in housing values of up to 30%. Reduced availability of credit impacting on market sales and shared ownership products Our approval process to progress development schemes includes a consideration of the ability of customers to secure a mortgage against their home. We also seek to secure reservations and/or sales prior to anticipated handover. Our marketing literature clearly sets out the level of savings and/or deposits that purchasers are likely to need. We maintain relationships with mortgage providers to monitor mortgage lending trends and emerging changes in policy. Our sales teams constantly review demand levels and may occasionally offer incentives on specific plots to secure sales. Welfare reform impact leading to increased customer debt When granting new tenancies we consider the affordability of the home against an assessment of the customer s financial position which includes a consideration of existing and planned welfare reform changes. In some cases we may refuse applicants who we believe are unable to afford the housing costs. Our arrears management processes have been improved to further reduce the likelihood of increased tenant debt. Ringley Road, Horsham 8 homes for affordable rent and 5 shared ownership homes. Risk 25

14 Strategic report Report of the Audit Committee Role The Board delegates certain of its duties and responsibilities and powers to the Audit Committee, so that these can receive suitably focussed attention. Principally its purpose is to ensure, on behalf of the Board, that financial reporting, the audit process and systems of internal control and risk management are appropriate and effective across all parts of Moat. The Audit Committee meets its responsibilities by receiving assurances from the Executive team and other senior managers of Moat, receiving and reviewing reports on risk management and internal control procedures, and directing and receiving reports from the internal and external auditors. The Executive Director: Finance and Corporate Services presents the annual financial statements which the Committee reviews and scrutinises through questioning the external auditor and management. Composition The Audit Committee comprises three non-executive directors as shown on page 31 together with their attendance record. In addition to the formal members of the Committee, the following are invited to attend on a regular basis: Chief Executive Executive Director: Finance and Corporate Services and Company Secretary Director of Accounting Services Director of Corporate Finance and Risk External and internal audit representatives Other occasional attendees included the other Executive Directors and the Chair. Meetings and activities during the year Four Audit Committee meetings were held during the financial year. All meetings include standard items kept under constant monitoring for the Committee s attention: Strategic Risk Register the Committee receives a report detailing the status of strategic risks and updates to mitigating actions, this informs a discussion with management and consideration of any emerging risks which may need to be added. Internal audit the Committee approves the programme which focusses reviews on areas of key risk. At each meeting the internal auditor presents their reports and findings on completed reviews. Management responses and actions are agreed by the Committee, and subsequent progress reported to every meeting. Health and safety (H&S) - the Committee receives a report on H&S audits, H&S performance and changes to legislation and best practice. Fraud, Whistleblowing, and Money laundering monitoring the Committee receives reports of any suspected fraudulent activity, whistle-blowing reports, or suspected money laundering. Cases are updated at each meeting until they are closed. Benefits and Payments Register - the benefits and payments register records transactions with individuals or organisations with links to Moat. For example, lettings and property sales to employees or their close families, and employment of existing employees family members. The Committee is informed of the impartial review undertaken in each case, which is generally approved by the Chief Executive. Work programme at each meeting the Committee reviews its forward work programme over a rolling twelve month period. Other key matters considered are shown below: April 2016 Review of accounting policies Anti-Money Laundering Policy review Update Report progress with Asset and Liabilities Registers Annual review of internal controls Review of Moat s Disaster Recovery and Business Continuity Plans Review of the results of the GLA compliance audit Review of the results of the HCA compliance audit Report on review of potential tenancy fraud and sub-letting. July 2016 Annual assurance to the Board for financial statements: Review of effectiveness of internal controls Assurance over going concern and long term viability Risk of misstatements and key judgement areas Compliance with HCA Governance and Financial Viability Standards Consideration of external auditors report on the annual audit Review of the draft Letter of Representation to the external auditor Review of the draft financial statements for Group and subsidiaries for Review of internal auditors annual report Private meeting with the external and internal auditors (no executives present) Report on Data Protection breach. November 2016 Annual review of effectiveness of internal audit service provision Update on progress of tender for external audit service Annual review of Risk Management Framework Review of Whistleblowing Policy Review of Anti-Fraud and Anti-Bribery Policy, and the Fraud Response Plan Annual review of insurance renewal terms. January 2017 Review of Internal Audit Assessment and Plan for Review of External Audit Plan for Annual review of Asset and Liability Register. Significant issues considered by the Audit Committee The Committee considered the following significant risks to the preparation of these financial statements highlighted by BDO LLP in its Audit planning report which was presented to it in January Revenue recognition and Management override of the system of internal controls To ensure that income and costs are correctly allocated and in the appropriate period, including any critical estimates used, and that effective internal controls are in place. Confidence was obtained by the Committee through the review of internal audits carried out during the year: The key financial controls audit reviewed controls in place: general ledger reconciliations, purchasing and payables, miscellaneous income (excluding rent), payroll and rent account management. Assessed as low risk. The Senior Leadership Team (SLT) quarterly sign-off audit reviewed the quarterly self-certification by directors in which they confirm that the operational risk register is accurate and up-to-date and that identified key controls are operating effectively. Assessed as low risk. A rent uplift audit has also been carried out which reviewed the current controls and processes relating to the annual rent setting process, in-year rent charging and application of adhoc adjustments. A draft report has been reviewed and the final report is awaited. Critical judgements and estimations used in the preparation of the financial statements were reviewed. Net realisable value of properties developed for sale This is one of the major strategic risks identified in the strategic risk register which is reviewed at each Audit Committee meeting. Independent Assurances External Audit During the year the Committee supervised a tender process to appoint a new external auditor. Five auditors (selected based on presence in the sector) were invited to tender. Four tendered and three were invited to a panel interview. The panel comprised the Audit Committee Chair, a member of the Audit Committee, the Executive Director: Finance and Corporate Services and the Director of Accounting Services. The panel selected BDO LLP based on agreed assessment criteria. The Audit Committee and Board approved the appointment of BDO LLP as auditor for the Financial Statements. The auditor is re-appointed annually at the AGM. The fee for the audit was approved by the Committee when it reviewed the External Audit Plan in January No non-audit services were provided by BDO LLP in the year. Internal Audit Internal audit services for the year were provided by Price Waterhouse Coopers (PwC), who were appointed in 2014 following a tendering exercise conducted by the Audit Committee. The annual internal audit programme is agreed in advance by the Audit Committee but remains flexible in order to respond to any concerns that may arise. PwC adopt a risk-based approach to their audits. The audits carried out during the year and the assessed risk levels reported to the Audit Committee were as follows: Report risk classification Business area Critical High Medium Low Investment appraisal Voids Key financial controls Major and minor works review Anti-fraud and money laundering Asset and liability registers SLT quarterly sign-off Section 20 process 26 Report of the Audit Committee Report of the Audit Committee 27

15 Strategic report Report of the Audit Committee - continued Internal Audit resource continues to be directed purposely towards areas where management, the Board, or PwC, raise concerns of increased risk and/or suspicion that controls may be weak or failing. In depth end-to-end, cross-functional reviews are undertaken to ensure processes are considered in their entirety. This is possible because of the assurance PwC gains from a Senior Leadership Team Quarterly Sign Off process which is subject to annual audit by PwC. This robust, departmental, quarterly internal assurance process covers a wide range of operational risks and associated controls. PwC has undertaken a follow-up review of prior findings and Executive Directors and other Moat officials attended committee meetings to provide explanations as appropriate. It was pleasing to note the continued positive track record in keeping the number of outstanding action points to a minimum. Summary and conclusion The Audit Committee has examined the manner in which the Board and management ensure and monitor the adequacy of the nature, extent and effectiveness of internal control systems, and has concluded that sufficient reviews of the risk management and internal control arrangements are in place. These arrangements are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable, not absolute assurance against material misstatement or loss. The Committee is satisfied that its own report and those of the Internal and External Auditors cover all necessary matters and are supported by appropriate evidence to provide reasonable assurance to the Board on the effectiveness of internal controls, both operational and financial reporting controls, and that these are incorporated into normal governance procedures. Gerard McCormack Audit Committee Chair Date 27 July 2017 The Vales, Sevenoaks 2 homes for affordable rent and 9 shared ownership homes. 28 Report of the Audit Committee

16 Directors report Moat Homes Limited Board Number of meetings attended (7 in total) Audit committee Number of meetings attended (4 in total) Liz McMeikan Chair, Independent 7 Steve White (appointed July 2016) Senior Independent 5 Jeffrey Hume (retired September 2016) Senior Independent 3 Mark Foster (appointed May 2016) Independent 7 Owen Ingram (retired July 2016) Independent 3 Ian Lindsay Independent 6 Gerard McCormack Chair 4 Mark Foster (appointed June 2016) 3 Owen Ingram (retired July 2016) 1 Jo Moran (interim) 1 Elizabeth Rantzen (appointed December 2016) 1 Ruth Thompson (deceased July 2016) 2 Gerard McCormack Independent 7 Jo Moran Independent 4 Finance Committee Number of meetings attended (4 in total) Elizabeth Rantzen (appointed December 2016) Independent 1 Sean Hanafin (appointed December 2016, resigned May 2017) Independent 1 Ruth Thompson (deceased July 2016) Independent 1 Andrew Wells (retired July 2016) Independent 3 Elizabeth Austerberry Executive 6 Hugh Fenn (resigned May 2016) Executive - Steve Nunn Executive 7 Steve White (appointed July 2016) Interim Chair 3 Jeffrey Hume (retired September 2016) Chair 2 Sean Hanafin (appointed December 2016, resigned May 2017) Chair 1 Ian Lindsay 1 Gerard McCormack 4 Andrew Wells (retired July 2016) 1 Greg Taylor 4 Greg Taylor Executive 7 Customer & Communities Committee Number of meetings attended (5 in total) Executive team Elizabeth Austerberry, Chief Executive Hugh Fenn (resigned May 2016), Executive Director: Housing and Customer Services Carli Harper-Penman (appointed July 2016, resigned May 2017), Executive Director: Communications, Strategy and Business Intelligence Steve Nunn, Executive Director: Development and New Business Greg Taylor, Executive Director: Finance and Corporate Services Jo Moran Chair 5 Mark Foster (appointed June 2016) 3 Owen Ingram (retired July 2016) 2 Elizabeth Rantzen (appointed December 2016) 1 Ruth Thompson (deceased July 2016) 1 Steve White (interim) 1 Elizabeth Austerberry (interim) 4 Hugh Fenn (resigned May 2016) 1 Secretary Legal status Remuneration Committee Number of meetings attended (2 in total) Greg Taylor Registered office and advisors Registered office Mariner House, Galleon Boulevard, Crossways Dartford, Kent DA2 6QE Registered auditor BDO LLP, 55 Baker Street, London W1U 7EU Banker Royal Bank of Scotland Plc, Europa House 49 Sandgate Road, Folkestone, Kent CT20 1RU Registered under the Co-operative and Community Benefits Societies Act 2014, No.17434R. Registered under Section 5 of the Housing Associations Act 1985 No. L0386. Jo Moran Chair 2 Jeffrey Hume (retired September 2016) 2 Liz McMeikan 2 Steve White (appointed February 2017) - Andrew Wells (retired July 2016) 1 Governance & Nominations Committee Number of meetings attended (2 in total) Liz McMeikan Chair 2 Ruth Thompson (deceased July 2016) Chair 1 Jeffrey Hume (retired September 2016) 1 Jo Moran 2 Steve White (appointed February 2017) - 30 Directors report Directors report 31

17 Directors report The Directors present their annual report on the affairs of the Group together with the financial statements and auditor s report, for the year ended 31 March Principal activities MHL is a registered provider of social housing which is regulated by the Homes and Communities Agency (HCA). The activities of MHL and its subsidiaries (see note 15) have been detailed in the Strategic report. Business review Details of Moat s performance for the year and its future plans are set out in the Strategic report and form part of this report by crossreference. Post year end events There have been no events post 31 March 2017 which require disclosure. Reserves Moat s year end reserves for 2017 amounted to 318.7m (2016: 273.6m), including a cashflow hedge reserve of 55.9m (2016: 53.2m). Board members and executive officers The Board and the Executive team are set out on page 30. The Board members are drawn from a wide background bringing together professional and commercial experience. The Executive officers hold no interest in Moat s shares and act as executives within the authority delegated by the Board. UK Corporate Governance Code The Board reviewed its practices against the UK Corporate Governance Code and ensured that it has applied the main principles of the Code and complied with its detailed provisions. The Governance section in the Strategic report contains the required disclosures. Value for money (VfM) The Board is responsible for ensuring compliance with the VfM standard. The Board has reviewed and approved the VfM section of the Strategic report and Moat s annual self-assessment report to its stakeholders and customers, which can be found on-line at moat.co.uk/vfm. Transparency Moat is committed to being open with its residents, stakeholders and the public as to how it spends its money and manages its business and publishes additional information on-line at moat.co.uk. Going concern After making enquiries and reviewing the budget for and the long-term financial plan, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, it continues to adopt the going concern basis in the financial statements. Viability statement As required by the provisions of the UK Corporate Governance Code, the Board has undertaken an assessment of the future prospects of Moat taking account of its current position and principal risks. This assessment was made using Moat s core business processes, including the following: Long Term Plan (LTP) the Board reviews the LTP each year as part of its strategy review process. The LTP process includes detailed stress testing which involves flexing a number of the main assumptions underlying the forecast both individually and together under particular scenarios. Risk management as set out in the Risk section of the Strategic report, Moat has a structured approach to the management of risk and the principal risks identified are reviewed regularly by the Board. Liquidity based on the output of the LTP and regular re-forecasting of cash flows the Board regularly reviews an analysis looking at the forecast working capital requirements, cash flow, committed borrowing and other facilities available to Moat. In undertaking this review a period of three years has been selected. For the initial year of this three year period there is a greater level of certainty because detailed annual budgets are prepared and regularly re-forecast. Quarterly cash flow forecasts are reviewed by the Board covering a rolling three year period, and are used to ensure sufficient facilities are in place. The largest single area of spend is the development programme and the bulk of the committed development programme completes within a two year timeframe. Whilst development spend and required facilities are planned over a longer term than three years, the period chosen ensures that Moat is viable beyond its usual development commitment timeframe. On the basis of this and other matters considered and reviewed by the Board during the year, the Board has reasonable expectations that Moat will be able to continue in operation and meet its liabilities as they fall due over the three year period used for the assessment. Employees The skills, expertise and goodwill of our employees are central to Moat s continued success and Moat respects and values everyone s contribution. Moat places considerable value on the involvement of its employees. An Employee Forum, where employee representatives are consulted on a range of matters affecting their current and future interests, meets regularly and minutes of meetings are published to all employees. Regular communication with all employees takes place through publications like Moat in Brief and information is disseminated through Town Hall meetings for all managers. All employees have regular one-to-one meetings with their manager and annual appraisals. Training programmes aim to equip employees with the skills they need to be successful in the future. A particular focus on the development of employees continues to be on promoting diversity and opportunity to ensure that Moat is a great place for all to work. Slavery and human trafficking Moat is fully committed to combatting slavery and human trafficking. As part of its initiative to identify and mitigate risk during procurement it has implemented and enforces, effective systems and controls. Moat s Slavery and Human Trafficking Statement can be found on-line at moat.co.uk Health and safety The Board is aware of its responsibilities on all matters relating to health and safety. Moat has prepared detailed health and safety policies and provided staff training and education on health and safety matters. Anti-fraud and anti-bribery statement The Board has a policy on anti-fraud and anti-bribery covering the prevention, detection, and elimination of fraud, bribery, corruption, and dishonesty in all of Moat s activities. Moat expects its business partners to adopt a similar approach and makes this a condition when entering into new contracts. A register is maintained of any reported frauds or potential frauds which is reviewed by the Audit Committee at every meeting. The Audit Committee has taken account of the register in its report to the Board. Statement of confirmation The Board confirms that it considers that the strategic report and financial statements, taken as a whole, are fair, balanced and understandable and provides the information necessary for members to assess Moat s performance, business model and strategy. Statements of compliance The Board confirms that the strategic report follows the principles set out in the Statement of Recommended Practice, Accounting by Registered Social Housing Providers Update 2014 (SORP). The Board confirms its compliance with the HCA s Governance and Viability Standard. Internal controls The Board has overall responsibility for establishing and maintaining the whole system of internal control for Moat, and for reviewing its effectiveness and management of fraud. The Board s responsibility extends over matters covering strategic, operational, financial, and compliance issues including treasury strategy and large new investment projects. 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, rather than eliminate, the risk of failure to achieve business objectives; and to provide reasonable, but not absolute, assurance against material misstatement or loss. It also exists to give reasonable assurance about the preparation and reliability of financial information and the safeguarding of Moat s assets and interests. In meeting its responsibilities, the Board has adopted a risk-based approach to internal controls, which are embedded within the normal management and governance process. This approach includes the regular evaluation of the nature and extent of risks to which Moat is exposed. The Board has a current strategy and policy on fraud covering prevention, detection and reporting of fraud and the recovery of assets. A separate fraud response plan and a whistle-blowing policy are also in place. Control procedures The Board has adopted and disseminated to all employees a Code of Conduct for Employees. This sets out Moat s requirements around the integrity and ethics of its employees. The Code is supported by a framework of policies and procedures which cover fraud prevention and detection, health and safety, data and asset protection, financial delegated authorities, segregation of duties, accounting, and treasury management. Internal controls assurance Board meetings are held regularly and there is a defined schedule of matters reserved for decision by the Board. The process adopted by the Board in reviewing the effectiveness of the systems of internal control, together with some of the key elements of the control framework, includes: Identification and evaluation of key risks Management responsibility has been clearly defined for the identification, evaluation and control of significant risks. There is a formal and on-going process of management review in each area of Moat s activities. This process is co-ordinated through a reporting framework to the Board. The Executive team reviews the identified strategic risks facing Moat every month and is responsible for reporting to the Board any significant changes affecting key strategic risk areas as well as emerging strategic risks. Monitoring and corrective action A process of control, self-assessment, and regular management reporting on control issues provides hierarchical assurance to management and to the Board. This includes a rigorous procedure for ensuring that corrective action is taken in relation to any significant control issues, particularly those that may have a material impact on the financial statements and effective delivery of services. Information and financial reporting systems The Board approves a strategic plan in each financial year as well as a long term financial plan and budget. Financial reporting procedures include monthly management accounts and forecasts for the remainder of the financial year. Management accounts are reviewed at every Finance Committee meeting and the Board receives a comprehensive performance report measuring progress towards key business objectives, targets, and outcomes. The Board 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 and control process. There has been no major breach within the year and up to the date of signing the financial statements that require disclosure. The Board continues to believe that outsourced provision of the internal audit function best supports an independent and detailed review of key procedures and controls across the business. 32 Directors report Directors report 33

18 Directors report Statement of responsibilities of the Board The Board is responsible for preparing the Directors report and the financial statements in accordance with applicable law and regulations. Co-operative and Community Benefit Society law requires the Board to prepare financial statements for each financial year. Under those regulations the Board has elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The Board must not approve the financial statements unless it is satisfied that they give a true and fair view of the state of affairs of the Group and the Association and of the surplus or deficit for that year. In preparing these financial statements, the Board is required to: Auditor A resolution to reappoint BDO LLP as external auditor shall be proposed at the annual general meeting. Approved by the Board and signed on its behalf by: Liz McMeikan Chair Date 27 July 2017 select suitable accounting policies and apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards and the Statement of Recommended Practice have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis, unless it is inappropriate to presume that Moat will continue in business. The Directors are responsible for keeping proper books of account that disclose at any time the financial position of the Group and the Association and enable them to ensure that the financial statements comply with the Co-operative and Community Benefit Societies Act 2014, the Housing and Regeneration Act 2008, and the Accounting Direction for Private Registered Providers of Social Housing They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and the Association and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on Moat s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Annual general meeting The annual general meeting will be held in September Disclosure of information to auditors The Board members who held office at the date of approval of this Directors report confirm that, so far as they are each aware, there is no relevant audit information of which our auditor is unaware and each Board member has taken all the steps that he/she ought to have taken as a Board member to make himself/herself aware of any relevant audit information and to establish that our auditor is aware of that information. St Clements Lakes, Greenhithe 19 homes for affordable rent and 28 shared ownership homes. 34 Directors report

19 Independent Auditor s report to the members of Moat Homes Limited Risk of material misstatement Our response to the risks identified Opinion on the financial statements In our opinion: The financial statements give a true and fair view of the state of the Group s and Parent Association s affairs as at 31 March 2017 and of the Group s and Parent Association s surplus for the year then ended; The Group and the Parent Association s financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and The financial statements have been prepared in accordance with the requirements of the Co-operative and Community Benefit Societies Act 2014, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing The financial statements of Moat Homes Limited for the year ended 31 March 2017 comprise: The Consolidated and Parent Association statement of comprehensive income; The Consolidated and Parent Association statements of financial position; The Consolidated and Parent Association statements of changes in equity; The Consolidated statement of cash flows; and The notes to the financial statements. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102, the financial reporting standard applicable to the UK and the Republic of Ireland. Respective responsibilities of the board and auditor As explained more fully in the statement of the board s responsibilities, the Board is responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council s (FRC s) Ethical Standards for Auditors. This report is made solely to the Association s members, as a body, in accordance with the Housing and Regeneration Act 2008 and Section 87 of the Co-operative and Community Benefit Societies Act Our audit work has been undertaken so that we might state to the Association s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Association and the Association s members as a body, for our audit work, for this report, or for the opinions we have formed. Our assessment of risks of material misstatement and overview of the scope of our audit A description of the scope of an audit of financial statements is provided on the FRC s website at frc.org.uk/auditscopeukprivate. Our audit was scoped by obtaining an understanding of the group and its environment, including the group s and parent s system of internal control, and assessing the risks of material misstatement in the financial statements at the group level. We set out on the next page the risks that had the greatest impact on our audit strategy and scope. The Audit Committee s consideration of these matters is set out on page 27: Rental income Systems and controls over rent data are susceptible to manual intervention and variation in the increases/decreases applied and there is therefore a significant risk in respect of the amount of revenue recognised as rental income due to error. Proceeds on sale of properties including first tranche shared ownership For proceeds on sale of properties the significant risk relates to the potential for sales to be recorded in the incorrect period. Cost of sales allocation There is a significant risk in respect of profit recognition via cost apportionment between first tranche and the retained equity on shared ownership plots sold and between units within a development scheme. Net realisable value of properties developed for sale Due to the level of judgement involved in estimating both sales proceeds and costs to complete we consider the recognition of properties developed for sale at the lower of cost and net realisable value to be a risk. During the year a number of developments have been completed with sales currently ongoing. Profits on these developments have been positive. For completed shared ownership properties (first tranche element) and outright sales properties under construction management has performed an assessment of their realisable value using the support of external valuations. Revenue recognition We tested management s controls around the changes to rental income to confirm that any changes were appropriately controlled and authorised as well as controls associated with the reconciliation of rental income recorded within the Housing Management system to bank. We agreed a sample of weekly rentals from the Housing Management system back to source documentation and the accounting system. Cut off testing was performed for all rental income. A sample of first tranche and staircasing sales in the year was agreed to completion statements and bank receipts. We selected a sample of first tranche and staircasing sales recognised shortly before and after the year end to confirm that each transaction was recognised in the correct accounting period. For a sample of schemes we identified the basis of cost allocation between tenure types and individual units, considered the appropriateness of this allocation basis, and then re-performed the calculation. We considered the assumptions made and judgements applied by management in their assessment of carrying amounts, with detailed consideration of five larger schemes with an anticipated gross profit margin of less than 15%. Third party property valuations were obtained to support anticipated sales values for these schemes. Sensitivity analysis was performed to determine the point at which a uniform reduction in anticipated sales prices or a rise in costs to complete would result in a material misstatement. Thresholds required to trigger a material misstatement were in excess of levels that would trigger further testing. 36 Independent Auditor s report to the members of Moat Homes Limited Independent Auditor s report to the members of Moat Homes Limited 37

20 Independent Auditor s report to the members of Moat Homes Limited An overview of the scope of our audit The Group financial statements are a consolidation of Moat Homes Limited, Moat Housing Group Limited, Mariner Facilities Management Limited, Moat Foundation, Moat Homes Finance Plc, Moat Development Limited (dormant) and Moat Construction Services Limited (dormant). In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed on each organisation. The Group operates solely in the United Kingdom. Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the group s system of internal control, and assessing the risks of material misstatement in the financial statements at the Group and individual entity level. In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. Our audit evidence was largely obtained through substantive procedures. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. We determined materiality for the group financial statements as a whole to be 25.6m, which approximates to 1.8% of total assets, with specific materiality of 3.6m, which approximates to 5% of adjusted operating surplus. We consider total assets to be a key indicator for members of the Association in assessing the financial position of the Group, with adjusted operating surplus relevant where members are assessing the operating performance of the Group. Adjusted operating surplus is calculated by adding back depreciation and impairment and deducting open market sales to/ from operating surplus. Performance materiality was set at 69% of the above materiality levels. Where financial information from components was audited separately, component materiality levels were set at a level lower than that used for the group as a whole. We agreed with the Audit Committee that we would report to the committee all individual audit differences in excess of 0.5m with separate thresholds for components. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. Statement regarding the board s assessment of principal risks, going concern and longer term viability of the Group We have nothing material to add or to draw attention to in relation to: the board s confirmation in the strategic report and directors report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity; the disclosures in the Strategic report and Directors report that describe those risks and explain how they are being managed or mitigated; the Board s statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the entity s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; or the Board s explanation in the Strategic report and Directors report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the strategic report and directors report is: materially inconsistent with the information in the audited financial statements; or apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or is otherwise misleading. In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors statement that they consider the Strategic report and Directors report are fair, balanced and understandable and whether the strategic report and directors report appropriately discloses those matters that we communicated to the Audit Committee which we consider should have been disclosed. In the light of the knowledge and understanding of the Group and the Parent Association and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic report or the Directors report. Under the Co-operative and Community Benefits Society Act 2014 we are required to report to you if, in our opinion: adequate accounting records have not been kept by the parent Association, or returns adequate for our audit have not been received from branches not visited by us; or a satisfactory system of control has not been maintained over transactions; or the parent association financial statements are not in agreement with the accounting records and returns; or we have not received all the information and explanations we require for our audit. Philip Cliftlands Senior Statutory Auditor For and on behalf of BDO LLP, statutory auditor 55 Baker Street, London W1U 7EU Date BDO is a limited liability partnership registered in England and Wales (with registered number OC305127). 38 Independent Auditor s report to the members of Moat Homes Limited Independent Auditor s report to the members of Moat Homes Limited 39

21 Moat Homes Limited statements of comprehensive income statements of financial position statements of changes in equity statement of cash flows The Broadwalk, Brighton Marina 20 shared ownership homes. Financial Statements

22 Consolidated statement of comprehensive income For the year ended 31 March 2017 Association statement of comprehensive income For the year ended 31 March 2017 Notes Turnover 3 120, ,726 Operating costs 3 (61,075) (60,798) Cost of sales 3 (15,990) (14,885) Gain on disposal of fixed assets (staircasing and redemptions) 3 10,943 10,229 Operating surplus 3 54,848 55,272 Gain on disposal of fixed assets 4 14,441 2,344 (Loss)/gain on disposal of investments 5 (23) 2,014 Interest receivable Interest and finance costs 9/10 (20,891) (20,689) Movement in fair value of investments Movement in fair value of financial instruments 27 (762) (836) Surplus before taxation 11 47,752 38,276 Taxation (425) Surplus for the year 48,084 37,851 Movement in fair value of hedged financial instruments 27 (2,662) (2,693) Remeasurement of net defined benefit (liability)/asset 30 (357) 181 Total comprehensive income for the year 45,065 35,339 All amounts relate to continuing activities. Movements in reserves are shown in the consolidated statement of changes in equity. There is no difference between the surplus for the year stated above and its historical cost equivalent. Notes Turnover 3 120, ,551 Operating costs 3 (60,928) (60,821) Cost of sales 3 (15,990) (14,885) Gain on disposal of fixed assets (staircasing and redemptions) 3 10,943 10,229 Operating surplus 3 54,947 55,074 Gain on disposal of fixed assets 4 14,441 2,344 Interest receivable Interest and finance costs 9/10 (20,928) (20,604) Movement in fair value of financial instruments 27 (762) (836) Surplus before taxation 11 47,801 36,094 Taxation 12-4 Surplus for the year 47,801 36,098 Movement in fair value of hedged financial instruments 27 (2,662) (2,693) Remeasurement of net defined benefit (liability)/asset 30 (357) - Total comprehensive income for the year 44,782 33,405 All amounts relate to continuing activities. Movements in reserves are shown in the statement of changes in equity. There is no difference between the surplus for the year stated above and its historical cost equivalent. 42 Financial Statements Financial Statements 43

23 Consolidated statement of financial position As at 31 March 2017 Association statement of financial position As at 31 March 2017 Notes Fixed assets Housing properties 14 1,267,567 1,234,685 Investment properties 16 1,059 2,585 Other tangible fixed assets 17 12,883 13,359 Homebuy loans receivable 60,608 67,557 1,342,117 1,318,186 Current assets Housing stock for sale 18 34,758 17,848 Debtors 19 21,502 36,463 Cash and cash equivalents 27,208 21,882 83,468 76,193 Creditors - amounts falling due within one year 20 (27,436) (37,969) Net current assets 56,032 38,224 Total assets less current liabilities 1,398,149 1,356,410 Creditors - amounts falling due after more than one year 21 (1,004,583) (1,011,728) Derivative financial instruments 27 (73,222) (69,797) Provision for liabilities - pension provision 30 (1,679) (1,285) Net assets 318, ,600 Capital and reserves Called up share capital Reserves - General reserves 374, ,826 - Cash flow hedge reserve (55,888) (53,226) 318, ,600 Notes Fixed assets Housing properties 14 1,267,121 1,234,233 Investment in subsidiary company Investment properties Other tangible fixed assets 17 12,883 13,359 Homebuy loans receivable 60,482 67,307 1,340,994 1,315,407 Current assets Housing stock for sale 18 25,563 17,561 Debtors 19 19,707 34,738 Cash and cash equivalents 25,625 20,748 70,895 73,047 Creditors - amounts falling due within one year 20 (29,289) (55,522) Net current assets 41,606 17,525 Total assets less current liabilities 1,382,600 1,332,932 Creditors - amounts falling due after more than one year 21 (1,003,063) (1,003,281) Derivative financial instruments 27 (73,222) (69,797) Provision for liabilities - pension provision 30 (1,679) - Net assets 304, ,854 Capital and reserves Called up share capital Reserves - General reserves 360, ,080 - Cash flow hedge reserve (55,888) (53,226) 304, ,854 The financial statements were approved by the Board on 27 July 2017 and signed on its behalf by The financial statements were approved by the Board on 27 July 2017 and signed on its behalf by L i z M c M e i k a n Chair Gerard McCormack Board Member Greg Taylor Secretary L i z M c M e i k a n Chair Gerard McCormack Board Member Greg Taylor Secretary 44 Financial Statements Financial Statements 45

24 Statement of changes in equity As at 31 March 2017 Consolidated statement of cash flows For the year ended 31 March 2017 General reserves Cash flow hedge reserve Reserves Consolidated Balance at 1 April ,794 (50,533) 238,261 Surplus for the year 37,851-37,851 Movement in fair value of hedged financial instruments - (2,693) (2,693) Remeasurement of net defined benefit asset Balance at 1 April ,826 (53,226) 273,600 Surplus for the year 48,084-48,084 Movement in fair value of hedged financial instruments - (2,662) (2,662) Remeasurement of net defined benefit asset (357) - (357) Balance at 31 March ,553 (55,888) 318,665 General reserves Cash flow hedge reserve Reserves Association Balance at 1 April ,982 (50,533) 226,449 Surplus for the year 36,098-36,098 Movement in fair value of hedged financial instruments - (2,693) (2,693) Balance at 1 April ,080 (53,226) 259,854 Surplus for the year 47,801-47,801 Movement in fair value of hedged financial instruments - (2,662) (2,662) Remeasurement of net defined benefit asset (357) - (357) Balance at 31 March ,524 (55,888) 304, Net cash generated from operating activities (note 32) 67,275 70,198 Cash flow from investing activities: Purchase of housing properties (74,281) (84,336) Purchase of other fixed assets (1,248) (815) Purchase of current asset stock (28,046) (11,740) Proceeds from sale of tangible fixed assets 49,249 33,805 Proceeds from sale of investments 1,543 2,969 Grants received 105 4,400 Grants repaid - (3,169) Homebuy loans repaid 1,622 1,888 Interest received Net cash outflow from investing activities (50,952) (56,875) Cash flow from financing activities: Interest paid (23,276) (22,296) Interest element of finance lease rental payment (48) (54) Cash collateral returned/(paid) 16,600 (12,380) New secured loans 50,000 23,596 Repayment of borrowings (53,847) (844) New cash outflow from financing activities (10,571) (11,978) Taxation paid (426) - Net increase in cash and cash equivalents 5,326 1,345 Cash and cash equivalents at 1 April ,882 20,537 Cash and cash equivalents at 31 March ,208 21, Financial Statements Financial Statements 47

25 Notes to the financial statements for the year ended 31 March 2017 Blackheath Quarter, Kidbrooke Village 11 shared ownership homes. Financial Statements

26 Notes to the financial statements For the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Principal accounting policies Basis of preparation MHL is a public benefit entity. The financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland (FRS 102), the Accounting Direction for Private Registered Providers of Social Housing from April 2015 and the Statement of Recommended Practice for registered social housing providers 2014 (SORP), published by the National Housing Federation. The financial statements have been prepared on the historic cost basis except for modification to a fair value basis for certain financial instruments and investment properties as specified in the accounting policies below. The financial statements are presented in Sterling ( 000s). Basis of consolidation The consolidated financial statements of MHL incorporate the financial statements of its subsidiaries Moat Housing Group Limited, Moat Development Limited, Mariner Facilities Management Limited, Moat Foundation, Moat Homes Finance Plc and Moat Construction Services Limited. Intercompany transactions are eliminated in full. Disclosure exemptions In preparing the group financial statements, advantage has been taken of the disclosure exemption not to disclose transactions with wholly owned group undertakings that are eliminated on consolidation. In preparing the separate financial statements of the parent company, advantage has been taken of the disclosure exemption available in FRS 102 not to present a statement of cash flows and related notes. Going concern After making enquiries and reviewing the financial plan and the viability assessment, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, it continues to adopt the going concern basis in the financial statements. Housing properties Housing properties are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes the cost of acquiring land and buildings, development costs, interest capitalised during the development period, directly attributable administration costs, and expenditure incurred in respect of improvements which comprise the modernisation and extension of existing properties. Housing properties for rent are split between land, structure and major components with a substantially different economic life. Shared ownership properties are split between current and fixed assets on the basis of the first tranche portion. The first tranche portion is accounted for as a current asset. The fixed asset portion is split between land and structure as the rights and obligations towards improving the property reside with the resident. Housing properties in the course of construction are stated at cost and are not depreciated. They are transferred to completed properties when they are ready for letting or sale. Gains and losses on disposals of housing properties are determined by comparing the proceeds with the carrying amount and incidental costs of sales. Gains and losses on staircasings and redemptions are now recognised in operating surplus. Gains on stock rationalisation disposals are shown in gain and loss on disposal of fixed assets below operating surplus. Housing properties - Depreciation Depreciation is charged on a straight line basis over the expected economic useful lives of each component part of housing properties. Land is not depreciated. The estimated useful lives are as follows: Structure Kitchens Bathrooms Windows Heating Roofs Doors Electrical wiring 100 years 20 years 30 years 30 years 15 years 50 years 20 years 40 years Depreciation methods, useful lives and residual values are reviewed if there is an indication of a significant change since the last reporting date in the pattern by which the Group expects to consume an asset s future economic benefits. Non component works to existing properties The amount of expenditure incurred which relates to an improvement, which is defined as an increase in the net rental stream or the life of a property, has been capitalised. Expenditure incurred on other major repairs, cyclical and day-to-day repairs to housing properties is charged to operating expenditure in the consolidated statement of comprehensive income in the year in which they are incurred. Interest capitalised Interest on borrowings is capitalised to housing properties during the course of construction up to the date of completion of each scheme. The interest capitalised is either on borrowings specifically taken to finance a scheme or on net borrowings to the extent that they are deemed to be financing a scheme. This treatment applies irrespective of the original purpose for which the loan was raised. Interest is capitalised at the weighted average effective interest rate on the Group s borrowings. Other tangible fixed assets Other tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is charged on a straight line basis over the expected economic useful lives of the asset. No depreciation is provided on freehold land. The estimated useful lives are as follows: Office buildings Motor vehicles Office equipment, fixtures and fittings Computer equipment Scheme furniture and equipment 50 years 3 years 5-10 years 3 years 3-40 years Leases Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. All other leases are classified as operating leases. Leased assets acquired by way of finance leases are capitalised as tangible fixed assets at their fair value (or, if lower, the present value of the minimum lease payments as determined at inception of the lease), and are depreciated over the shorter of the lease terms and their useful lives. The capital elements of future lease obligations are recorded as liabilities, while the interest elements are charged to interest in the consolidated statement of comprehensive income over the period of the leases to produce a constant periodic rate of interest on the remaining balance of the liability. Payments (excluding costs for servicing and insurance) made under operating leases are recognised in operating expenditure in the consolidated statement of comprehensive income on a straight line basis over the term of the lease unless the payments to the lessor are structured to increase in line with expected general inflation, when the payments are recognised as incurred. Lease incentives received are recognised over the term of the lease as an integral part of the total lease expense. Impairment of fixed assets (excluding investments) The carrying amounts of the Group s fixed assets (excluding investments) are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. For the purpose of impairment testing, assets are grouped into the smallest group of assets that generates cash flows from continuing use. An impairment loss is recognised for the amount by which the asset s carrying value exceeds its estimated recoverable amount and is recognised in operating expenditure in the consolidated statement of comprehensive income. An impairment loss is reversed if and only if the reasons for the impairment have ceased to apply. Impairment losses recognised in prior periods are assessed at each reporting date for indications that the loss has decreased or no longer exists. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, if no impairment loss had been recognised. Social Housing Grant (SHG) SHG is recognised as deferred grant income and released as turnover in the consolidated statement of comprehensive income over the life of the structure of housing properties in accordance with the accrual model. Grants relating to expenditure on tangible fixed assets are credited to turnover at the same rate as the depreciation on the assets to which the grant relates. The deferred element of the grants is included in creditors as deferred income. On disposal of properties, all associated SHG is transferred to either the recycled capital grant fund (RCGF) or disposal proceeds fund (DPF) until the grant is recycled or repaid to reflect the existing obligation under the social housing grant funding regime. Investments in Homebuy Under the Homebuy scheme, the Group receives Homebuy grant representing a percentage of the open market purchase price of a property in order to advance interest free loans to a homebuyer. The loans advanced by the Group meet the definition of concessionary loans and are shown as Fixed asset investments in the consolidated statement of financial position. The Homebuy grant provided by the government to fund all or part of a Homebuy loan is shown as deferred income in creditors due in more than one year. In the event that the property is sold, the Group recovers the equivalent loaned percentage of the property at the time of the sale. The grant is reclassified to the recycled capital grant fund when the loans are redeemed up to the amount of the original grant and to the extent the proceeds permit. The Group retains any surplus proceeds less sale costs attributable to the equivalent loaned percentage share of the value of the property. If there is a fall in the value of the property the shortfall of proceeds is offset against the grant. 50 Notes to the financial statements Notes to the financial statements 51

27 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March 2017 Investment properties Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Investment properties are not depreciated but are held at fair value. Changes in fair value are recognised in surplus for the year in the consolidated statement of comprehensive income. Rental income from these properties is taken to turnover. Investments in subsidiaries Investments in subsidiaries are measured at cost less accumulated impairment. Housing stock for sale Completed properties and properties under construction for open market sales and the first tranche portion of shared ownership properties are recognised at the lower of cost and net realisable value. Net realisable value is based on estimated sales price after allowing for all further costs of completion and disposal. At each reporting date, the housing stock for sale is assessed for any adjustment. If a write down is necessary the carrying amount is reduced to its selling price less costs to complete and sell. The loss is immediately recognised in the consolidated statement of comprehensive income. On disposal, sales proceeds are included in turnover and the cost of sales, including costs incurred in the development of the properties, marketing and other incidental costs, are included in operating expenses. Mixed tenure developments Where a mixed tenure development includes shared ownership or open market sales, the costs incurred in acquiring and developing the land attributed to each element of the scheme reflect the different tenure types. Future repair funds Charges which are made to leaseholders for future major repairs such as replacement windows and roofs and the replacement of equipment within their estates are ring fenced for use on their properties/estates only. Such funds are disclosed in the statement of financial position as creditors. Financial instruments Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Basic financial instruments Debtors and creditors Debtors and creditors with no stated interest rate and receivable or payable within one year are recorded initially at transaction price less attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method, less any impairment losses. Any losses arising from impairment are recognised in operating expenses. Recoverable amount of rental and other trade receivables The recoverable value of rental and other receivables is estimated and the debtor is impaired by appropriate amounts. Interest-bearing borrowings classified as basic financial instruments Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Other financial instruments (not considered to be basic financial instruments) Derivative financial instruments The Group uses certain financial instruments to reduce exposure to interest rate movements. The Group does not hold or issue derivative financial instruments for speculative purposes. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in the surplus for the year immediately unless the derivative is designated and effective as a hedging instrument, see below. Hedge accounting The Group designates certain derivatives as hedging instruments in cash flow hedges. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the surplus for the year. Amounts previously recognised in other comprehensive income are reclassified to surplus for the year when the hedged item is recognised in surplus for the year or when the hedging relationship ends. Impairment of financial assets Financial assets not carried at fair value are assessed for indicators of impairment at each reporting date. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Impairment losses are recognised in the surplus for the year. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. For financial assets carried at cost less impairment, the impairment loss is the difference between the asset s carrying amount and the best estimate of the amount that would be received for the asset if it were to be sold at the reporting date. When a subsequent event causes the amount of the impairment loss to decrease, the decrease is reversed through the surplus for the year. Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are shown as an operating expense in the surplus for the year during which services are rendered by employees. The Group participates in the Aviva defined contribution plan, closed to new members, and the Social Housing Pension Scheme (SHPS) defined contribution plan which is open to all new employees and current employees have the opportunity to switch into it. Defined benefit plans The Group participates in the multi-employer defined benefit Social Housing Pension Scheme (SHPS) operated by TPT Retirement Solutions and is deemed to participate in the Growth Plan as an Additional Voluntary Contribution (AVC) Vehicle for members of the SHPS scheme. It is not possible to identify the share of the underlying assets and liabilities belonging to individual participating employers on a consistent and reasonable basis and therefore the Group accounts for the scheme as if it were a defined contribution scheme. As a result, the amount charged to operating expenditure in the surplus for the year represents the contributions payable to the scheme in respect of the accounting period. To the extent that payment plans relate to funding a deficit, the contributions are recognised as a liability payable arising from the agreement and results in a charge to operating expenditure. Where the payments are not expected to be settled within 12 months the liability is measured at the present value of the contributions paid. The scheme is closed to new employees. The Group participates in the defined benefit Essex County Council and London Borough of Merton pension schemes which are closed to new employees. The amounts charged to operating surplus are the costs arising from the employee services rendered during the period and the cost of plan introductions, benefit changes, settlements and curtailments. They are included as part of staff costs. The net interest cost on the net defined benefit liability is charged to surplus for the year and included within finance costs. Re-measurement amounts of the net assets/defined liability are recognised in other comprehensive income. Defined benefit schemes are funded in separate trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit credit method. The actuarial valuations are obtained triennially and are updated at each reporting date. Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment. Provisions for liabilities Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised as the best estimate of the amount required to settle the obligation at the reporting date. Annual leave A provision is made for annual leave accrued by employees which they are entitled to carry forward and use within the next 12 months. The provision is measured at the salary cost payable for the period of absence. Turnover Turnover represents the following material income streams which are measured at the fair value of the consideration received or receivable: Rent and service charge income receivable (net of void losses), fees receivable, revenue grants from public authorities are recognised on an accruals basis as they fall due. Proceeds from first tranche sales of low-cost home ownership properties and from properties developed for open market sales are recognised at the point of legal completion of the sale. Social Housing Grant (SHG) is amortised to turnover over the useful economic life of the property to which the grant relates. Agency managed accommodation Where the agency holds the support contract with the Supporting People Administering Authority and carries the financial risk, the consolidated statement of comprehensive income includes only that income and expenditure which relates solely to Moat such as rental income in turnover and repairs in operating costs. Taxation Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on timing differences which arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements. VAT Moat Homes Limited, Moat Housing Group Limited, Mariner Facilities Management Limited and Moat Homes Finance Plc are registered as a VAT group. A large proportion of Moat s income comprises rental income, which is exempt for VAT purposes and gives rise to a partial exemption calculation. Expenditure is therefore shown inclusive of VAT. Recoverable VAT arising from partially exempt activities is credited to the consolidated statement of comprehensive income. 52 Notes to the financial statements Notes to the financial statements 53

28 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Critical accounting judgements and key sources of estimation uncertainty In the application of the Group s accounting policies, which are described in note 1, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future periods if the revision affects both current and future periods. Critical judgements In preparing these financial statements, the key judgements have been made in respect of the following: Impairment As explained in note 1, a review of the carrying value of housing properties is carried out annually to determine whether there are any indicators of impairment. Indicators considered included indicators in paragraph 27.9 of FRS102 and paragraph 14.6 of Housing SORP In the review, schemes (groups of properties in the same location where the same services are provided) were taken to be cash-generating units. If a different level of cash generating units had been used (e.g. individual properties within a particular scheme) the conclusion on impairment may have been different. Rented properties There were no indicators of impairment on rented properties. Low cost home ownership properties The need for an impairment review of the fixed asset portion of shared ownership properties is indicated if there have been losses on staircasings during the year or if there were losses made on the original first tranche sales on the scheme. For historic schemes where first tranche sales resulted in a deficit, an increase in the current market value of the properties has resulted in a 125k release of impairment. There were no material losses on staircasings during the year to indicate the need for impairment. Schemes in development/land banked All development schemes are assessed using an investment appraisal model, which is reviewed annually by the Finance Committee, to ensure the appropriateness of assumptions. During development the schemes are reviewed against the investment appraisal for any fluctuations in costs or anticipated sales values which adversely affected the net present value of the scheme, highlighting any schemes which needed to be assessed for impairment. No impairment of schemes in development was necessary. Land banked schemes where there is no current investment appraisal are reviewed to compare the carrying value to the estimated fair value if the land is sold. For one scheme an updated flood risk assessment reduced the estimated fair value of the land and an impairment of 1,724,000 was created. Loan agreements with embedded fixes 211,600,000 (2016: 260,600,000) of the group s loan agreements contain clauses which entitle the borrower to compensation in the event that, on cancellation or redemption of a loan, the underlying derivative positions would return a benefit to the lender. In preparing these financial statements, management have judged that the requirements of FRS 102 are unclear as to whether these arrangements result in the affected loans being classified as basic or other. On the basis of this lack of clarity and because it is not the intention of the group to redeem or actively trade in these borrowings for speculative purposes, management consider that the criteria for classification as basic instruments are met. These amounts are therefore carried at amortised cost. Should management determine that the alternative judgement becomes appropriate or additional clarity be offered by FRS 102 in future that indicates that the instruments are other financial instruments, they would be required to be presented at their fair value in the financial statements with annual fair value movements reported through the statement of comprehensive income. The information to determine the financial impact of presenting these instruments at fair value is not available. Key sources of estimation uncertainty Estimated useful lives Fixed assets are depreciated over their estimated useful lives. The components into which housing properties are split and their associated estimated lives are considered to be the appropriate level based on knowledge of the repairs and maintenance programme carried out. The actual lives of individual components can however vary based on factors such as product life, wear and tear, maintenance programmes and environmental factors. Housing property cost allocation In mixed tenure developments costs are allocated between different tenures on a floor area basis. The allocation of the cost of shared ownership properties between housing properties and housing stock for sale is based on the estimated first tranche sale portion. We predict the amount to be sold by reviewing historic sale portions, current economic conditions and location. Rent arrears The amount of arrears that will not be collected is estimated based on past experience of collection of different types of debt. The impact of changes in welfare reform including Universal Credit and benefit caps have been estimated based on data provided from pilot studies and Moat s experience based on a small population. Pensions The liability for future pension payments depends on a number of complex judgements relating to the discount rate used, the expected rate of price inflation, the rate at which salaries and pensions are expected to increase and mortality rates. Qualified actuaries are engaged to provide expert advice in each of the pension schemes Moat is a member of. Interest rate swaps Uncertainties in the valuation of interest rate swaps include future interest rates and counterparty credit risk. Moat uses a debt and derivative advisory company, regulated by the Financial Conduct Authority, to value its derivatives. The key assumptions used in the valuation are a discount rate of six months LIBOR and in order to calculate the effective/ineffective values, the dollar offset method on a cumulative basis is used. Housing stock for sale Housing stock for sale is recognised at the lower of cost and net realisable value. In assessing net realisable value management considers publicly available information and internal forecasts on future sales activity. Operating segments The provision of social housing is the principal activity. Segmental information is disclosed in note 3 where social housing lettings activity is split into different tenures and into other social housing activities such as sale of social housing and development administration. Housing property cost is split into different tenures and stages of construction in note 14. The Board do not routinely receive any further segmental information. 54 Notes to the financial statements Notes to the financial statements 55

29 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Particulars of turnover, operating costs, cost of sales and operating surplus - Group 3. Particulars of turnover, operating costs, cost of sales and operating surplus - Group (continued) Turnover Operating costs 2017 Cost of sales Gain on disposal of fixed assets Operating surplus 000 Social housing lettings 95,706 (54,095) ,611 Other social housing activities Contracted services 620 (611) Development administration - (2,690) - - (2,690) Regeneration project - (912) - - (912) Impairment of scheme under construction - (1,724) - - (1,724) Shared ownership property sales 23,235 - (15,990) - 7,245 Staircasing activity on low cost home ownership ,143 8,143 Redemption of equity loans ,800 2,800 Other 1,337 (837) Non-social housing activities Market renting lettings 70 (43) Open market sale activity 2 (47) - - (45) Other - (42) - - (42) Charitable donations - (74) - - (74) Total 120,970 (61,075) (15,990) 10,943 54,848 Turnover Operating costs 2016 Cost of sales Gain on disposal of fixed assets Operating surplus 000 Social housing lettings 93,101 (55,050) ,051 Other social housing activities Contracted services 628 (632) - - (4) Turnover from social housing lettings General needs Low cost home ownership Housing for older people / supported housing Total Total 000 Rents receivable 58,404 15,731 7,483 81,618 79,341 Service charge income 3,736 3,579 1,620 8,935 8,410 Net rental income 62,140 19,310 9,103 90,553 87,751 Amortisation of Social Housing Grant 3, ,153 5,100 Other revenue grants Total turnover from social housing lettings 65,820 20,307 9,579 95,706 93,101 Operating costs on social housing lettings Management (9,461) (3,943) (2,104) (15,508) (17,393) Service charge costs (3,748) (4,079) (1,530) (9,357) (8,644) Routine maintenance (7,544) (32) (1,264) (8,840) (8,467) Planned maintenance (2,773) (61) (797) (3,631) (3,374) Major repairs (2,819) (5) (747) (3,571) (8,496) Capitalised major repair expenditure 1, ,770 6,193 Rent losses from bad debts (342) (1) (57) (400) (795) Depreciation of housing properties (11,246) (2,009) (1,428) (14,683) (14,513) Impairment of housing properties Total operating costs on social housing lettings (36,417) (10,005) (7,673) (54,095) (55,050) Operating surplus on letting activities 29,403 10,302 1,906 41,611 38,051 Void losses (634) (22) (208) (864) (934) Development administration - (2,813) - - (2,813) Regeneration project - (686) - - (686) Impairment of scheme under construction - (414) - - (414) Shared ownership property sales 25,077 - (14,885) - 10,192 Staircasing activity on low cost home ownership ,279 7,279 Redemption of equity loans ,950 2,950 Other 1,263 (1,082) Non-social housing activities Market renting lettings 195 (29) Other income Charitable donations 5 (92) - - (87) Total 120,726 (60,798) (14,885) 10,229 55, Notes to the financial statements Notes to the financial statements 57

30 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Particulars of turnover, operating costs, cost of sales and operating surplus - Association Turnover Operating costs 2017 Cost of sales Gain on disposal of fixed assets Operating surplus 000 Social housing lettings 95,682 (54,086) ,596 Other social housing activities Contracted services 620 (611) Development administration - (2,690) - - (2,690) Regeneration project - (912) - - (912) Impairment of scheme under construction - (1,724) - - (1,724) Shared ownership property sales 23,235 - (15,990) - 7,245 Staircasing activity on low cost home ownership ,143 8,143 Redemption of equity loans ,800 2,800 Other 1,337 (846) Non-social housing activities Market renting lettings 48 (9) Charitable donations - (50) - - (50) Total 120,922 (60,928) (15,990) 10,943 54,947 Turnover Operating costs 2016 Cost of sales Gain on disposal of fixed assets Operating surplus 000 Social housing lettings 93,078 (55,185) ,893 Other social housing activities Contracted services 599 (588) Development administration - (2,813) - - (2,813) 3. Particulars of turnover, operating costs, cost of sales and operating surplus - Association (continued) Turnover from social housing lettings General needs Low cost home ownership Housing for older people / supported housing Total Total 000 Rents receivable 58,386 15,731 7,483 81,600 79,323 Service charge income 3,732 3,579 1,620 8,931 8,407 Net rental income 62,118 19,310 9,103 90,531 87,730 Amortisation of Social Housing Grant 3, ,151 5,098 Other revenue grants Total turnover from social housing lettings 65,796 20,307 9,579 95,682 93,078 Operating costs on social housing lettings Management (9,461) (3,943) (2,104) (15,508) (17,539) Service charge costs (3,748) (4,079) (1,530) (9,357) (8,644) Routine maintenance (7,542) (32) (1,264) (8,838) (8,463) Planned maintenance (2,773) (61) (797) (3,631) (3,374) Major repairs (2,819) (5) (747) (3,571) (8,496) Capitalised major repair expenditure 1, ,770 6,193 Rent losses from bad debts (342) (1) (57) (400) (795) Depreciation of housing properties (11,239) (2,009) (1,428) (14,676) (14,506) Impairment of housing properties Total operating costs on social housing lettings (36,408) (10,005) (7,673) (54,086) (55,185) Operating surplus on letting activities 29,388 10,302 1,906 41,596 37,893 Void losses (634) (22) (208) (864) (934) Regeneration project - (686) - - (686) Impairment of scheme under construction - (414) - - (414) Shared ownership property sales 25,077 - (14,885) - 10,192 Staircasing activity on low cost home ownership ,279 7,279 Redemption of equity loans ,950 2,950 Other 1,267 (1,130) Non-social housing activities Market renting lettings Other income 457 (5) Charitable donations Total 120,551 (60,821) (14,885) 10,229 55, Notes to the financial statements Notes to the financial statements 59

31 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Gain on disposal of fixed assets - Group and Association 6. Board members and Executive team 2017 Disposals Other fixed Total assets Proceeds of sale 22,997-22,997 Less: Attributable book value (8,056) (168) (8,224) Incidental selling costs (332) - (332) 14,609 (168) 14, , ,344 The key management personnel are defined as members of the Executive team, listed on page 30. The total emoluments, including pension contribution, received by Executive team members were 810,638 (2016: 696,647) in the year. The emoluments of the Chief Executive, who was also the highest paid director, in the year were as follows: Emoluments, excluding pension contributions Pension contributions - in respect of services as director - 18 The Chief Executive is an ordinary member of the SHPS defined contribution scheme Gain on disposal of investments - Group Investment property 2017 Investment in Chrysalis Total Proceeds of sale 1,576-1,576 Less: Attributable fair value (1,566) - (1,566) Non-executive board members received 77,542 (2016: 78,000) as fees for their services to the group and also received 4,801 as expenses during the year (2016: 3,825). They were paid on a pro-rata basis: Remuneration per annum MHL chair 18,000 18,000 Senior independent director 11,000 10,000 Board member 10,000 10,000 Details of Board and Committee members can be found on pages 30 and 31. Incidental selling costs (33) (33) (23) - (23) ,675 2, Notes to the financial statements Notes to the financial statements 61

32 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Employee information - Group All employee s contracts of employment were with Moat Housing Group Limited until 1 September 2016 when they transferred to Moat Homes Limited. The average number of employees (including the Executive team) expressed as full time equivalents (calculated based on a standard working week of 35 hours) during the year was as follows: 8. Interest receivable Group Association Interest receivable Housing Management New business and sales Staff costs (including the Executive team) consist of: Wages and salaries 12,056 12,064 Social security costs 1,189 1,152 Other pension costs 1,165 3,698 14,410 16, Interest and finance costs Group Association On bank loans, overdrafts and other loans 22,988 22,313 23,025 22,375 Interest on finance leases Notional interest on RCGF balances Less: interest capitalised (2,530) (2,070) (2,530) (2,070) 20,694 20,542 20,731 20,604 Interest payable by the Group and Association includes loan indexation of 82,113 (2016: 52,308). The average rate of interest used for capitalisation was 4.67% (2016: 4.95%). 33 (2016: 25) employees, including the Executive team, earned over 60,000 in remuneration in the following bands: No of employees No of employees 60,000-69, ,000-79, ,000-89, ,000-99, , , , , Other finance costs Group Association Pension finance costs Merton and Essex pension schemes SHPs pension scheme SHPs Growth Plan pension scheme , , , , , , , , , , , , Remuneration includes salary, allowances, pension contributions, bonuses and compensation for loss of office. 62 Notes to the financial statements Notes to the financial statements 63

33 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Surplus before taxation Group Association Surplus before tax is stated after charging: Depreciation of housing properties Charge for the year (14,510) (13,917) (14,504) (13,913) Accelerated depreciation on replaced components (173) (596) (172) (593) (14,683) (14,513) (14,676) (14,506) Depreciation of other fixed assets (1,126) (1,092) (1,126) (1,092) Impairment of scheme under construction (1,724) (414) (1,724) (414) Impairment of housing properties Permanent write off of impairment Amortisation of government grant 5,153 5,100 5,151 5,098 Operating lease rentals Auditor s remuneration: Audit of financial statements Taxation - continued Association Current tax: UK corporation tax - (4) Surplus before tax 47,801 36,094 Current tax at 20% (2016: 20%) 9,560 7,219 Effects of: Adjustment in respect of prior year - (4) Surpluses subject to charitable exemption (9,560) (7,219) Total current tax credit - (4) Audit related assurance advice Services relating to taxation In 2017 BDO LLP is the external auditor and KPMG LLP is the tax advisor. In 2016 KPMG LLP was both the external auditor and the tax advisor. 12. Taxation Group Current tax: UK corporation tax (332) Surplus before tax 47,752 38,276 Current tax at 20% (2016: 20%) 9,550 7,655 Effects of: Surpluses subject to charitable exemption (9,560) (7,219) Timing differences - (7) Adjustment in respect of prior year (332) (4) Loss carried forward 10 - Total current tax (credit)/charge (332) Notes to the financial statements Notes to the financial statements 65

34 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Number of homes in management 14. Tangible fixed assets - housing properties - Group The number of homes in Moat s management at the year end was: Social housing At 31 March 2017 Group At 31 March 2016 At 31 March 2017 Association At 31 March 2016 General needs 8,781 8,946 8,778 8,943 Affordable rent 1,458 1,251 1,458 1,251 Housing for older people 1,519 1,538 1,519 1,538 Supported housing Shared ownership 4,808 4,726 4,808 4,726 Leasehold properties 1,050 1,083 1,050 1,083 Staff housing Other ,854 17,804 17,851 17,801 Equity loan properties 1,622 1,792 1,617 1,787 Non-social housing 19,476 19,596 19,468 19,588 Open market rented properties Leasehold properties Freehold properties Garages Mariner Facilities Management Nursing homes Commercial A further 673 homes were under development at 31 March 2017 (2016: 572). 1,631 1,725 1,614 1,624 21,107 21,321 21,082 21,212 Cost Rented properties Shared ownership Completed Under Completed Under Total construction construction 000 At 1 April ,003,270 40, ,407 22,166 1,365,473 Additions 2,453 19, ,115 96,814 Schemes completed 31,523 (31,523) 33,200 (33,200) - Change in tenure (2,764) - 2, Transfers to current assets - - (5,861) (17,701) (23,562) Disposals (18,988) - (8,958) - (27,946) At 31 March ,015,494 28, ,996 45,380 1,410,779 Depreciation At 1 April 2016 (112,179) - (16,406) - (128,585) Charge in year (12,501) - (2,009) - (14,510) Change in tenure (213) - - Released on disposal 3, ,638 At 31 March 2017 (121,381) - (18,076) - (139,457) Impairment At 1 April 2016 (983) (1,194) (26) - (2,203) Charge in year - (1,724) (1,599) Disposals At 31 March 2017 (983) (2,918) (3,755) Net Book Value - 31 March ,130 25, ,066 45,380 1,267,567 Net Book Value - 31 March ,108 39, ,975 22,166 1,234,685 Included within additions in cost of properties is 2,530k (2016: 2,070k) for interest capitalised during the year. Additions include 2,410k (2016: 5,252k) of replacement of components. 66 Notes to the financial statements Notes to the financial statements 67

35 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Tangible fixed assets - housing properties - Association 15. Investment in subsidiaries - Association Cost Rented properties Completed Under construction Shared ownership Completed Under construction Total 000 At 1 April ,002,797 40, ,407 22,166 1,365,000 Additions 2,453 19, ,115 96,814 Schemes completed 31,523 (31,523) 33,200 (33,200) - Change in tenure (2,764) - 2, Transfers to current assets - - (5,861) (17,701) (23,562) Disposals (18,988) - (8,958) - (27,946) Description Country of incorporation % of ordinary shares held Holding company Investment Moat Housing Group Ltd Non Charitable RP England 100% MHL 1 Moat Homes Finance Plc Finance Company England 100% MHL 50,000 Moat Foundation Charity England 100% MHL - Moat Construction Services Ltd Dormant England 100% MHL 1 Moat Development Ltd Dormant England 100% MHG 1 Mariner Facilities Management Ltd Managing Agent England 100% MHG 100 MHL has paid 12,500 of the allotted share capital in MHF (2016: 12,500) 50,103 At 31 March ,015,021 28, ,996 45,380 1,410,306 Depreciation At 1 April 2016 (112,157) - (16,407) - (128,564) Charge in year (12,495) - (2,009) - (14,504) Change in tenure (213) - - Released on disposal 3, ,638 At 31 March 2017 (121,353) - (18,077) - (139,430) Impairment At 1 April 2016 (983) (1,194) (26) - (2,203) Charge in year - (1,724) (1,599) Disposals At 31 March 2017 (983) (2,918) (3,755) Net Book Value - 31 March ,685 25, ,065 45,380 1,267,121 Net Book Value - 31 March ,657 39, ,974 22,166 1,234, Investment properties Group Association Investment properties at 1 April 2,585 5, Additions Disposals (1,566) (2,630) - - Movement in fair value Investment properties at 31 March 1,059 2, Investment properties are held at fair value. All of the residential properties at 31 March 2017 were sold in April and May 2017 and are valued at 601k using actual sales values achieved. The commercial properties were revalued internally based on future rental income. Included within additions in cost of properties is 2,530k (2016: 2,070k) for interest capitalised during the year. Additions include 2,410k (2016: 5,252k) of replacement of components. Group Association Housing properties at cost comprise: Freeholds 1,327,839 1,335,792 1,327,366 1,335,318 Long leaseholds 81,890 28,631 81,890 28,632 Short leaseholds 1,050 1,050 1,050 1,050 1,410,779 1,365,473 1,410,306 1,365, Notes to the financial statements Notes to the financial statements 69

36 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Other tangible fixed assets - Group and Association 19. Debtors Cost Freehold land and buildings Other Total At 1 April ,374 10,793 22,167 Additions Disposals - (210) (210) At 31 March ,481 11,294 22,775 Depreciation At 1 April 2016 (2,234) (6,574) (8,808) Charge for the year (247) (879) (1,126) Disposals At 31 March 2017 (2,481) (7,411) (9,892) Net book value at 31 March ,000 3,883 12,883 Net book value at 31 March ,140 4,219 13,359 Included within the net book value of Other is an amount of 845k (2016: 923k) in respect of assets held under a finance lease. These are classed as finance leases as the rental period amounts to the estimated useful life of the asset concerned and the assets are either transferred to Moat at the end of the period or sold to Moat for a nominal value. Group Association Due within one year Arrears of rent and service charges 5,376 5,555 5,355 5,529 Provision for bad and doubtful debts (2,878) (2,828) (2,858) (2,828) 2,498 2,727 2,497 2,701 Amounts due from Group entities Prepayments and accrued income 7,124 7,854 7,122 7,815 Cash collateral given 6,210 22,810 6,210 22,810 Corporation tax refund Other debtors 3,153 1,563 3,119 1,412 19,314 34,954 18,997 34,738 Due after one year Other debtors 2,188 1, ,502 36,463 19,707 34, Housing stock for sale Housing stock for sale is the cost of open market sales schemes and the cost attributed to the first tranche element of shared ownership schemes. The cost of shared ownership schemes is split between current and fixed assets based on the expected percentage of first tranche sales which is currently 25%-35%. Completed schemes Group Association First tranche sale 3,902 2,801 3,902 2,801 Under construction First tranche sale 21,661 14,760 21,661 14,760 Open market sale 9, ,758 17,848 25,563 17, Creditors: amounts falling due within one year Group Association Bank overdraft Housing loans (note 21) 974 4, ,411 Trade creditors 672 2, ,329 Owed to other Group entities - day to day ,097 Owed to other Group entities - loan - - 2,010 12,300 Recycled capital grant fund (note 23) 3,891 10,119 3,891 10,119 Finance lease liabilities (note 21) Other creditors 6,479 7,643 6,256 5,682 Accruals and deferred income 14,746 13,324 14,627 12,452 27,436 37,969 29,289 55,522 The HCA has confirmed that RCGF three years or older will not be repayable in and the HCA and GLA have both confirmed that DPF three years or older will not be repayable in Notes to the financial statements Notes to the financial statements 71

37 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Creditors: amounts falling due after more than one year 21. Creditors: amounts falling due after more than one year (continued) Group Association Group Association Housing loans 275, , , ,242 Bond issue 150, , Government grant - housing properties 459, , , ,135 Homebuy grant 52,059 57,386 52,059 57,261 Owed to other Group entities , ,872 Recycled capital grant fund (note 23) 53,544 41,478 53,544 41,478 Disposal proceeds fund (note 24) 1,157 1,103 1,157 1,103 Service charge creditor 2,548 2,401 2,541 2,363 Finance lease liabilities Other creditors 9,437 10,014 6,416-1,004,583 1,011,728 1,003,063 1,003,281 Group Association The Finance for Residential Social Housing Plc 3,859 3,996 3,859 3,996 HALOS Limited 10,000 10,000 10,000 10,000 The Housing Finance Corporation - 3,500-3,500 The Housing Finance Corporation Index Linked 2,992 3,650 2,992 3,650 Banks and building societies 211, , , ,600 Affordable Housing Finance Plc 50,000-50,000 - Moat Homes Finance Plc 150, , Discount on issue of Bond (1,442) (1,472) - - Other issue costs (1,644) (1,093) (1,644) (1,093) 425, , , ,653 Housing loans and Bond issue All of the above are secured by fixed charges on the Group s housing assets and are repayable at variable and fixed rates of interest in the range of 0.51% to 12.84% (2016: 0.76% to 12.84%) per annum. Within one year (note 20) 974 4, ,411 Between one and two years 17,525 4,037 17,525 4,037 Between two and five years 22,426 41,798 22,426 41,798 In more than five years: Repayable by instalments 237, , , ,500 Repayable other than by instalments 150, , Other issue costs (1,644) (1,093) (1,644) (1,093) Finance leases Group Association Within one year (note 20) Between one and five years In more than five years , , , ,242 Discount on issue of Bond (1,442) (1,472) , , , ,653 Government grant Group Association Social Housing Grant (SHG) and other government grant 520, , , ,121 Cumulative amortisation (61,510) (57,992) (61,504) (57,986) 459, , , , Notes to the financial statements Notes to the financial statements 73

38 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Total government grant assistance Total government grant assistance received or receivable to date is as follows: Group Association SHG on housing properties 520, , , ,121 Homebuy and starter home initiative 52,059 57,386 52,059 57,261 Recycled capital grant fund 57,435 51,597 57,435 51,597 Disposal proceeds fund 1,157 1,103 1,157 1,103 Add: cumulative amount credited to statement of comprehensive income 13,307 13,307 11,588 11, , , , , Other financial commitments At 31 March 2017 Moat had minimal future commitments under non-cancellable operating leases as follows: Operating leases which expire: Land and building lease commitments Other lease commitments Within one year Between one and five years In more than five years Recycled capital grant fund - Group and Association HCA GLA HCA GLA At 1 April 42,115 9,482 34,710 9,599 Inputs to reserve: Grants recycled 7,637 1,049 10,454 1,667 Interest accrued ,904 10,564 45,354 11,316 Withdrawals: New build (2,418) (528) (3,228) (1,834) Repaid - (50) Capital commitments Capital expenditure contracted for but not provided in the financial statements Capital expenditure authorised but not yet contracted for Group Association 213, , , ,404 32,247 16,686 32,247 11,627 Flexible tenure (37) - (11) - Capital commitments will be funded from existing facilities, cash from operating activities and first tranche/open market sale proceeds. At 31 March 47,449 9,986 42,115 9,482 Amounts three years or older where repayment may be required 18,256 3,891 8,952 1, Disposal proceeds fund - Group and Association HCA GLA HCA GLA At 1 April Inputs to reserve: Right to Acquire/Social Homebuy sales Financial instruments Group Association Financial assets Measured at undiscounted amount receivable: Trade and other debtors (note 19) 14,378 28,609 12,585 26,923 14,378 28,609 12,585 26,923 Interest accrued Withdrawals: New build (200) At 31 March Amounts three years or older where repayment may be required Notes to the financial statements Notes to the financial statements 75

39 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Financial instruments (continued) 28. Hedging financial instruments - Group and Association Group Association Due within one year Due after one year Financial liabilities Measured at fair value and designated as an effective hedge: Derivative financial liabilities (note 28) 55,888 53,226 55,888 53,226 Measured at fair value through the surplus for the year: Cancellable interest rate swaps 17,069 16,571 17,069 16,571 Ineffective interest rate swaps Measured at amortised cost: 73,222 69,797 73,222 69,797 Loans payable (notes 20, 21) 276, , , ,653 Bond payable (note 21) 150, , Obligations under finance leases (notes 20, 21) Intercompany loans payable (notes 20, 21) , ,172 Measured at undiscounted amount payable: Trade and other creditors (notes 20, 21) 34,414 35,722 31,229 30, , , , ,503 Cancellable and ineffective interest rate swaps are valued at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. Assumptions used in the valuation are a discount rate of six months LIBOR and the dollar offset method on a cumulative basis for calculating effective/ineffective values. Loans payable include 211,600k (2016: 260,600k) of loans with two way break costs. These have been measured at amortised cost. On derivative financial liabilities designated as an effective hedge: Interest rate swaps ,888 53,226 Interest rate swaps are valued at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. Assumptions used in the valuation are a discount rate of six months LIBOR and the dollar offset method on a cumulative basis for calculating effective/ineffective values. Cash flow hedges The following table details the notional principal amounts and the remaining terms of interest rate swap contracts designated as cash flow hedges outstanding as at the reporting date: Average contract fixed interest rate Notional principal value Fair value % % More than five years , ,000 55,888 53,226 The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is three months LIBOR. The Group settles the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts, except cancellable swaps which are measured at fair value through the surplus and deficit, exchanging floating rate interest amounts are designated as cash flow hedges. All interest rate swaps reduce the Group s cash flow exposure resulting from variable interest rates on borrowings. The hedged cash flows are expected to occur and to affect surplus and deficit over the period to maturity of the interest rate swaps. 48,000k of the cash flow swaps mature in 2029 and the remaining 65,000k matures in The Group s income, expense, gains and losses in respect of financial instruments are: Group Association 29. Called-up share capital Interest income and expense Total interest income for financial assets at amortised cost Total interest expense for financial liabilities at amortised cost (23,036) (22,367) (23,073) (22,429) Fair value gains and losses On derivative financial liabilities designated as an effective hedge (2,662) (2,693) (2,662) (2,693) On financial liabilities measured at fair value through surplus for the year (762) (836) (762) (836) Association Allotted, issued and fully paid 1 shares At 1 April Cancelled during the year (4) (1) Issued during the year 4 - As at 31 March (26,356) (25,773) (26,394) (25,842) Each of Moat s non-executive members holds one share of 1 in the Association. The shares confer the right to vote at general meetings and are irredeemable, being cancelled on cessation of membership. They do not confer a right to dividends or a provision for distribution on a winding-up. 76 Notes to the financial statements Notes to the financial statements 77

40 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Pension obligations 30. Pension obligations (continued) On 1 September 2016, all employees of Moat Housing Group Limited were transferred to Moat Homes Limited under Transfer of Undertakings (Protection of Employment) Regulations At that date all Pension Schemes (open and closed) in which MHG participated were transferred to MHL. Social Housing Pension Scheme (SHPS) MHL participates in the scheme, a multi-employer scheme which provides benefits to some 500 non-associated employers. The scheme is a defined benefit scheme in the UK. It is not possible for MHL to obtain sufficient information to enable it to account for the scheme as a defined benefit scheme. Therefore it accounts for the scheme as a defined contribution scheme. MHL has closed the scheme to new employees. The scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December This, together with documents issued by the Pensions Regulator and Technical Actuarial Standards issued by the Financial Reporting Council, set out the framework for funding defined benefit occupational pension schemes in the UK. The scheme is classified as a last man standing arrangement. Therefore MHL is potentially liable for other participating employers obligations if those employers are unable to meet their share of the scheme deficit following withdrawal from the scheme. Participating employers are legally required to meet their share of the scheme deficit on an annuity purchase basis on withdrawal from the scheme. A full actuarial valuation for the scheme was carried out with an effective date of 30 September This actuarial valuation was certified on 23 November 2015 and showed assets of 3,123m, liabilities of 4,446m and a deficit of 1,323m. To eliminate this funding shortfall, the trustees and the participating employers have agreed that additional contributions will be paid, in combination from all employers, to the scheme as follows: Deficit contributions Tier 1 From 1 April 2016 to 30 September 2020 Tier 2 From 1 April 2016 to 30 September 2023 Tier 3 From 1 April 2016 to 30 September 2026 Tier 4 From 1 April 2016 to 30 September m per annum (payable monthly and increasing by 4.7% each year on 1 April) 28.6m per annum (payable monthly and increasing by 4.7% each year on 1 April) 32.7m per annum (payable monthly and increasing by 3.0% each year on 1 April) 31.7m per annum (payable monthly and increasing by 3.0% each year on 1 April) Note that the scheme s previous valuation was carried out with an effective date of 30 September 2011; this valuation was certified on 17 December 2012 and showed assets of 2,062m, liabilities of 3,097m and a deficit of 1,035m. To eliminate this funding shortfall, payments consisted of the Tier 1, 2 and 3 deficit contributions. Where the scheme is in deficit and where the company has agreed to a deficit funding arrangement, the company recognises a liability for this obligation. The amount recognised is the net present value of the deficit reduction contributions payable under the agreement that relates to the deficit. The present value is calculated using the discount rate detailed in these disclosures. The unwinding of the discount rate is recognised as a finance cost. The Growth Plan MHL participates in the scheme, a multi-employer scheme which provides benefits to some 1,300 non-associated participating employers. The scheme is a defined benefit scheme in the UK. It is not possible for MHL to obtain sufficient information to enable it to account for the scheme as a defined benefit scheme. Therefore it accounts for the scheme as a defined contribution scheme. MHL has closed the scheme to new employees. The scheme is subject to the funding legislation outlined in the Pensions Act 2004 which came into force on 30 December This, together with documents issued by the Pensions Regulator and Technical Actuarial Standards issued by the Financial Reporting Council, set out the framework for funding defined benefit occupational pension schemes in the UK. Deficit contributions From 1 April 2013 to 31 March m per annum (payable monthly and increasing by 3% each year on 1 April) A full actuarial valuation for the scheme was carried out at 30 September This valuation showed assets of 793m, liabilities of 970m and a deficit of 177m. To eliminate this funding shortfall, the trustee has asked the participating employers to pay additional contributions to the scheme as follows: Deficit contributions From 1 April 2016 to 30 September 2025 From 1 April 2016 to 30 September , per annum (payable monthly and increasing by 3% each year on 1 April) 54,560 per annum (payable monthly and increasing by 3% each year on 1 April) The recovery plan contributions are allocated to each participating employer in line with their estimated share of the Series 1 and Series 2 scheme liabilities. Where the scheme is in deficit and where MHL has agreed to a deficit funding arrangement, MHL recognises a liability for this obligation. The amount recognised is the net present value of the deficit reduction contributions payable under the agreement that relates to the deficit. The present value is calculated using the discount rate detailed in these disclosures. The unwinding of the discount rate is recognised as a finance cost. The Growth plan SHPS Present value of provision ,235 7,707 The Growth plan SHPS Reconciliation of opening and closing provisions: Provision at start of year ,707 5,449 Unwinding of the discount factor (interest expense) Deficit contribution paid (7) (8) (843) (567) Remeasurements: Impact of any change in assumptions 2 (1) 221 (51) Amendments to contribution schedule ,777 Provision at end of year ,235 7,707 The scheme is classified as a last man standing arrangement. Therefore MHL is potentially liable for other participating employers obligations if those employers are unable to meet their share of the scheme deficit following withdrawal from the scheme. Participating employers are legally required to meet their share of the scheme deficit on an annuity purchase basis on withdrawal from the scheme. A full actuarial valuation for the scheme was carried out at 30 September This valuation showed assets of 780m, liabilities of 928m and a deficit of 148m. To eliminate this funding shortfall, the trustee has asked the participating employers to pay additional contributions to the scheme as follows: 78 Notes to the financial statements Notes to the financial statements 79

41 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Pension obligations (continued) The Growth plan SHPS Income and expenditure impact Interest expense Remeasurements: Impact of any change in assumptions 2 (1) 221 (51) Amendments to contribution schedule ,777 Contributions paid in respect of future service Costs recognised in surplus , Pension obligations (continued) Essex pension Essex Pension Merton Pension Merton Pension The assumed life expectations from age 65 are: Years Years Years Years Retiring today: Males Retiring today: Females Retiring in 20 years: Males Retiring in 20 years: Females The financial assumptions, set with reference to market conditions at 31 March 2017, used to calculate the results are as follows: The Growth plan SHPS Essex pension Essex Pension Merton Pension Merton Pension % per % per % per % per Assumptions annum annum annum annum Rate of discount The discount rates shown above are the equivalent single discount rates which, when used to discount the future recovery plan contributions due, would give the same results as using a full AA corporate bond yield curve to discount the same recovery plan contributions. Defined Contribution Schemes MHL also participates in the defined contribution scheme with SHPS. The total expense charged to surplus in the period ended 31 March 2017 was 607k (2016: 588k). This scheme is open to all new employees and current employees also have the opportunity to switch into this scheme. MHL also participates in the Aviva defined contribution scheme. The total expense charged to surplus in the period ended 31 March 2017 was 212k (2016: 244k). This scheme is closed to new employees. London Borough of Merton and Essex County Council Pension schemes MHL provides two smaller pension schemes under the Local Government Pension Scheme (LGPS) to its employees. Both schemes are defined benefit statutory schemes. A defined benefit scheme is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, dependent upon on one or more factors such as age, years of service and compensation. These schemes have been closed to new employees. The schemes have rules which specify the benefits to be paid and are financed accordingly with assets being held in independently administered funds. A full actuarial valuation of each scheme is carried out every three years with interim reviews in the intervening years. The last full actuarial valuations were conducted as at 31 March 2016 by independent, qualified actuaries, Barnett Waddingham for both schemes, using the projected unit credit method. The valuation has set the contributions for the period from 1 April 2017 to 31 March To assess the value of the Employers liabilities at 31 March 2017, Barnett Waddingham have rolled forward the value of the Employers liabilities calculated for the funding valuations as at 31 March 2016, using financial assumptions that comply with FRS 102. To calculate the asset share, they have rolled forward the assets allocated to MHL at 31 March 2016 allowing for investment returns (estimated where necessary), contributions paid into, and estimated benefits paid from, the by and in respect of MHL and its employees. The valuation uses a set of demographic assumptions that are consistent with those used for the most recent valuation, carried out as at 31 March Assumptions as at 31 March: % pa % pa % pa % pa RPI increases 3.6% 3.2% 3.5% 3.2% CPI increases 2.7% 2.3% 2.6% 2.3% Salary increases 4.2% 4.1% N/A N/A Pension increases 2.7% 2.3% 2.6% 2.3% Discount rate 2.7% 3.6% 2.6% 3.5% The expected return on assets is the discount rate. Movements in deficit are as follows: Essex pension Essex pension Merton Pension Merton Pension Total Total Deficit brought forward (604) (680) (681) (748) (1,285) (1,428) Remeasurement of the net (defined liability)/assets (204) 104 (153) 77 (357) 181 Amounts recognised in surplus (33) (35) (26) (25) (59) (60) Contributions paid Deficit carried forward (834) (604) (845) (681) (1,679) (1,285) Amounts recognised in the surplus are as follows: Essex pension Essex pension Merton Pension Merton Pension Total Total Service cost (10) (11) - - (10) (11) Net interest on defined liability (22) (23) (24) (24) (46) (47) Administration expenses (1) (1) (2) (1) (3) (2) Total (33) (35) (26) (25) (59) (60) 80 Notes to the financial statements Notes to the financial statements 81

42 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Pension obligations (continued) 30. Pension obligations (continued) The amount included in the statement of financial position arising from obligations from these defined benefit schemes is as follows: Essex pension Essex pension Merton Pension Merton Pension Total Total Net pension asset as at 31 March: Present value of defined benefit obligation (2,976) (2,439) (2,580) (2,172) (5,556) (4,611) Fair value of assets (bid value) 2,142 1,835 1,735 1,491 3,877 3,326 Deficit (834) (604) (845) (681) (1,679) (1,285) Movements in the present value of the define benefit obligation: Essex pension Essex pension Merton Pension Merton Pension Movement in the present value of the scheme: Opening defined benefit contribution (2,439) (2,541) (2,172) (2,257) Current service cost (10) (11) - - Interest cost (87) (83) (75) (72) Change in financial assumptions (581) 120 (449) 112 Change in demographic assumptions 54 - (4) - Experience gain on defined benefit obligation Estimated benefits paid net of transfers in Contributions by scheme participants (6) (5) - - (2,976) (2,439) (2,580) (2,172) Movements in the fair value of scheme assets were as follows: Essex pension Essex Pension Merton Pension Merton Pension Opening fair value of assets 1,835 1,861 1,491 1,509 Interest on assets Return on assets less interest 288 (16) 273 (35) Other actuarial gains/(losses) 17 - (25) - Administration expenses (1) (1) (2) (1) Contributions by employer including unfunded Contributions by participants Estimated benefits paid plus unfunded net of transfers in (75) (81) (68) (45) The total return on the Essex Pension assets for the year to 31 March 2017 is 353,000. The total return on the Merton Pension assets for the year to 31 March 2017 is 324,000. The analysis of the scheme assets at reporting date was as follows: Essex Pension Employer asset share - bid value 2,142 1,835 1,735 1, % 000 % Equities 1,464 68% 1,241 68% Gilts 81 4% 54 3% Other bonds 87 4% 88 5% Property % % Cash 64 3% 60 3% Alternative assets 143 7% 82 4% Other managed funds 95 4% 91 5% 2, % 1, % Merton Pension Employer asset share - bid value % 000 % Equities 1,245 72% 1,047 70% Gilts % % Property 59 3% 47 3% Cash 12 1% 46 3% 1, % 1, % 82 Notes to the financial statements Notes to the financial statements 83

43 Notes to the financial statements for the year ended 31 March 2017 Notes to the financial statements for the year ended 31 March Contingent liabilities MHL has been notified by TPT Retirement Solutions 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 As of this date the estimated employer debt for MHL was 58.7m (2016: 46.7m). MHL has been notified by TPT Retirement Solutions of the estimated employer debt on withdrawal from the Growth Plan based on the financial position of the Growth Plan as at 30 September As of this date the estimated employer debt for MHL was 162k (2016: 133k). 32. Statement of cash flows - Group Reconciliation of surplus for the year to cash generated from operations Surplus for the year 48,084 37,851 Adjustments for non-cash items Depreciation of tangible fixed assets 11,956 11,810 Amortisation of government grants (3,518) (4,368) Impairment of tangible fixed assets 1,667 (25) Decrease in investments 1,526 2,590 Decrease/(increase) in stock 11,021 (5,126) Decrease/(increase) in debtors 14,963 (10,356) (Decrease)/increase in creditors, excluding loans and grants (4,558) 6,033 Capital accruals (226) (3,498) Cost of tangible fixed asset disposals 29,733 36,580 Pension costs less contributions payable Movement in fair value of financial instruments Adjustments for investing or financing activities Proceeds from sale of tangible fixed assets (49,249) (33,805) Proceeds from sale of investments (1,543) (2,969) Interest payable 23,324 22,350 Interest receivable (104) (123) Cash collateral (returned)/paid (16,600) 12,380 Cash generated from operations 67,275 70, Accommodation managed by others We have 95 (2016: 95) bed spaces in our registered care homes and 217 supported units (2016: 226) which were managed on behalf of Moat under management agreements by other organisations. These other organisations contract with Supporting People Administering Authorities and carry the financial risk relating to the supported housing homes and bed spaces. 34. Related party transactions Key management personnel are Board members and the Executive Team. Their only transactions with Moat are remuneration which is disclosed in notes 6 and 7. The names of all Group members are set out in note 15. MHL is regarded by the Board as the ultimate parent undertaking of the Group. The consolidated financial statements incorporate the financial statements of all Group members. Transactions with pension schemes which benefit employees are disclosed in note Analysis of intra group transactions between regulated and non regulated entities Moat consists of MHL and MHG which are both registered providers of social housing regulated by the HCA. Other group members are not regulated by the HCA. These are MDL, MCS which are both dormant; MHF which is a special purpose vehicle set up to raise funds through a bond issue; MF, a registered charity and MFM which provides managing agent services. MHL intra-group transactions with MHF: MHF obtains finance directly from capital markets and on-lends to MHL. The on-lent funding to MHL is under a secured loan agreement, which is backed by housing assets of MHL. If there are any payments which are not made to MHF, then it has the right to enforce the security under the loan. During the year MHL paid 7.5m to MHF in interest payments. At 31 March 2017, MHL owed MHF 184k (2016: 184k) of accrued interest and 151.6m (2016: 151.9m). MHL/MHG intra-group transactions with MFM: MFM ceased trading on 1 April 2016 and all transactions during the year related to the settlement of net assets. MHL therefore paid no management fees to MFM (2016: 13k) and MFM did not utilise MHL facilities and staff (2016: 29k was paid to MHL). MHG provided funding to MFM during the year in the form of a loan arranged at an arms length market rate. MFM paid 3k (2016: 3k) to MHG as interest on the loan. The loan was repaid on 31 March 2017 (2016: 150k). MHG increased its investment in MFM by 10k in the year (2016: 17k). At 31 March 2017 MFM owed MHL 16k (2016: MHL owed MFM 89k) and MHG owed MFM 10k (2016: 17k) relating to day-today operations. MHL intra-group transactions with MF: MHL provides management and administration services to MF in the form of the supply of staff and the use of facilities but does not charge as these are deemed to be insignificant. During the year MHL donated 60k (2016: 80k) to MF. 36. Legislative authority Moat Homes Limited and Moat Housing Group Limited are incorporated under the Co-operative and Community Benefits Societies Act Moat Development Limited, Mariner Facilities Management Limited, Moat Homes Finance Plc, Moat Construction Services Limited and Moat Foundation are incorporated under the Companies Act Moat Foundation is also a registered charity under the charities commission. In addition Moat Homes Limited and Moat Housing Group Limited are Registered Providers. 84 Notes to the financial statements Notes to the financial statements 85

44

45 Registered under the Co-operative and Community Benefits Societies Act 2014 No R Registered under Section 5 of the Housing Associations Act 1985 No. L0386 moat.co.uk Broadacres, Southwater, Horsham 45 homes for affordable rent and 64 shared ownership homes. Moat Homes Limited is a charitable housing association. 7/17-435