North Hertfordshire Homes Limited Report & Financial Statements 2010/11

Transcription

1 Independent Auditors Report page 14 Income and Expenditure Account page 15 North Hertfordshire Homes Limited Report & Financial Statements 2010/11 Balance Sheet page 17

2 North Hertfordshire Homes Limited Annual Report 2010/11 Contents 1 Board Members, Executive Officers and Advisors 2 Operating and Financial Review and Board Report 13 Statement of the Responsibilities of the Board 14 Independent Auditors Report to the Members of North Hertfordshire Homes Limited 15 Income and Expenditure Account 16 Statement of Total Recognised Surpluses and Deficits 17 Balance Sheet 18 Cash Flow Statement 19 Notes to the Report and Financial Statements Mission Statement To be recognised as a market leader by listening to our tenants, developing our staff and delivering on our promises. Industrial and Provident Society Registration Number 30003R (Registered with the Tenants Services Authority Number L4370)

3 Report & Financial Statements 2010/11 Board Members, Executive Officers and Advisors Board: served during year Chair Gordon Johnston Members Tom Brindley (appointed 8 June 2010) Bill Davidson Philip Day Ann Gilligan (resigned 24 February 2011) David Kearns Douglas Kell Ralph Kitchener Peter Lipman Howard Marshall Patricia Marshall Heather McKinlay Lynda Needham (resigned 27 May 2010) David Pickering Jackie Thomas Pauline Walker Executive Officers Chief Executive Kevin Thompson Secretary Kevin Thompson Director of Finance Nathan Mallows Director of Property Paul Murtagh Director of Operations Victoria Hisgrove Registered Office Rowan House Avenue One Letchworth Garden City Hertfordshire SG6 2WW Registered Number: 30003R Auditors Grant Thornton UK LLP 202 Silbury Boulevard Central Milton Keynes MK9 1LW Solicitors Winckworth Sherwood LLP Minerva House 5 Montague Close London SE1 9BB Bankers Barclays Bank PLC 1 Churchill Place London E14 5HP 1

4 North Hertfordshire Homes Limited 2 Operating and Financial Review and Board Report The Board presents its report and audited financial statements for the year ended 31 March North Hertfordshire Homes Limited ( the Association ) is a registered Industrial and Provident Society with charitable objectives. It is registered with the Tenants Services Authority (TSA) and is governed by a non executive Board. The Association operates throughout Hertfordshire, south Bedfordshire and south Cambridgeshire, with its head office in Letchworth and neighbourhood offices in Letchworth, Hitchin, Royston, Baldock and St Albans. The Association s principal activities are the management and development of affordable and supported housing. The Association s performance during the year and position at the year end are summarised below. Activities North Hertfordshire Homes Limited consisted of one registered housing provider ( the Association ), with a wholly owned subsidiary, Rowan Homes (NHH) Ltd, being incorporated in May 2011 with the aim of maximising returns on residential development opportunities within our area of operation. The Association s head office is in Letchworth and the majority of its properties are situated in north Hertfordshire. The Association commenced trading in April 2003 after the housing and ancillary land was purchased from North Hertfordshire District Council. The Association operates four key business streams: Affordable housing for rent. Supported housing and care for people who need additional housing-related support or additional care. Temporary housing to house those who are statutorily homeless. Shared equity developments. As well as managing over 11,000 units, the Association is a developer of new affordable housing now developed primarily via Rowan Homes (NHH) Ltd, having previously been part of the Arc Partnership consortium bid. In addition to rental housing, the Association also lets a number of commercial units to operate community based services in the neighbourhoods and has a motor repair service workshop to repair vehicles and to carry out MOTs, primarily for our own fleet of building services vehicles but available to the public. The Association s focus remains its housing activities and these are expected to continue to constitute over 95% of the Association s activities by turnover. Housing property assets Details of the changes to the Association s fixed assets are shown in notes 12 and 13 to the Financial Statements. Housing property values are considered in the Operating and Financial Review. Reserves After transfer of the surplus for the year of 4,420 million (2010: 5,934 million), the year end Association reserves (revenue & revaluation) amounted to 46,716 million (2010: 40,281 million). External influences Within the terms of the transfer agreement for the transfer of housing to the Association, was a commitment to carry out improvements works over a ten year period to improve the general condition of the housing stock. The Association has spent 138 million to date on these improvement works and as it continues to improve its housing stock, has spent a further 9.3 million during 2010/11 and is committed to spending a further 10 million over the next year. Rent and service charges policy

5 Report & Financial Statements 2010/11 Rent and service charges policy The Association is committed to an affordable rent policy. Rents are set on the basis of location and size of accommodation. These are reviewed on an annual basis. The Association is fully compliant with the TSA guidelines on rents and service charges. The Board and Executive Officers The Association s Board and Executive Officers are listed on page 1 of this report. The Board currently consists of fourteen nonexecutive members (recruitment pending discussions with North Hertfordshire District Council over reduction of the total board number to 12, as per National Housing Federation recommendations) comprising four tenant members, five nominees from North Hertfordshire District Council and five independent members. Each tenant and independent board member holds one fully paid 1 share in the Association and NHDC corporately holds the remaining five shares and exercises one third of the votes at shareholder meetings. The Executive Officers hold no interest in the Association s share capital and, although they do not have the legal status of directors, they act as executives within the authority delegated by the Board. The Executive Officers are the Chief Executive and the other members of the Association s executive management team, who served throughout the year. The previous Director of Finance, Brian Millward, resigned with effect from the end of July 2010 with the new Director of Finance, Nathan Mallows, taking up post at the same time. Association insurance policies These indemnify Board members and Officers against liability when acting for the Association. Service contracts Tenant and Independent Members of the Board are employed via a service contract which requires that they retire by rotation every three years. They are entitled to offer themselves for re-election by the membership of the Association if they so choose. They are paid for their services. Council nominees are also paid via a service contract but their nomination and retirement is in the gift of North Hertfordshire District Council. All Members of the Board must retire after nine years service, except for the Chair who must retire either after nine years or after completing five years as Chair if this is a longer period. The Chief Executive and other Executive Officers are appointed on an employment contract which has the same terms as other staff, other than different arrangements for annual leave and the notice period for the Chief Executive being for a period of six months. Pensions The Executive Officers are members of either the Hertfordshire Local Government Pension Scheme ( LGPS ) or the North Hertfordshire Homes Ltd Stakeholders Pension Scheme ( NHSPS ).The LGPS is a defined benefit final salary pension scheme while the NHSPS is a money purchase scheme. They participate in the schemes on the same terms as all other eligible staff and the Association contributes to the schemes on behalf of its employees. Other benefits The Executive Officers are entitled to other benefits such as the provision of a car allowance and health care insurance. Objectives and strategy The North Hertfordshire Homes vision statement is: To be recognised as a high quality, successful and progressive housing association with a positive sub-regional and regional profile. The Board agreed the following key strategic objectives for the Association: Increase the supply of affordable homes in the region, working in partnership with local authorities, other housing associations and other agencies. Expand and develop our supported housing and care provision. Develop our Building Services team into a thriving repairs and maintenance business. Make a real difference to people s lives through increasing our neighbourhood work and through substantial investment in social enterprise. Develop strong partnerships with other organisations to generate new initiatives, efficiencies and continuous improvement. The Board continues to be committed to delivering an effective and efficient service to tenants and other stakeholders. In order to achieve the key strategic objectives the Board has incorporated these into the Association s three year Operational Plan. These key strategic objectives are analysed within the three year Operational Plan under the following high level objectives: Innovation and efficiency Growing the business High performance and excellent customer service An effective Board and workforce Better neighbourhoods and communities Supported housing and care Providing high quality homes Investing in the environment Performance and development for the period to 31 March 2011 The key targets used by senior management and the Board to monitor achievement of the Association s objectives are set out below. The Board agreed the Association s second three year Operational Plan in 2009 which covers the period April 2009 through to March The targets that were set in the plan were those that it was agreed were necessary to deliver continuous service improvement in the second year of the Operational Plan of the Association. The Association achieved 96% of the targets that were set for the year ended 31 March

6 North Hertfordshire Homes Limited The key targets were as follows Objective Treasury to ensure that long term loan finance is in place to fund the improvement and development programmes. Development to achieve an annual development programme of 200 homes. Asset management Operations Target Review the net income of the housing stock that is charged as security to secure the bond debt so as to release from charge any security that exceeds the net income requirement of the bond debt. Review capacity for increasing long term funding in order to fund further developments of new build social homes. Negotiate additional long term funding of up to 50million to fund the future improvements and development programmes. Deliver an annual programme of 200 homes in the year to March Develop 250 new starts for the year ended 2010/2011. Be a housing partner for three local authorities. Provide 90 self contained temporary accommodation units. 50% of new projects to be delivered with in-house employers agent and planning supervisor services. Deliver 10% of new homes in districts outside of North Hertfordshire. Carry out the improvement programme to meet the Decent Homes Standard by Carry out the improvement programme to the sheltered housing schemes in line with the scheme-by-scheme review. Review the Association s procurement arrangements for the maintenance, improvement and refurbishment of its housing stock. Achieve 30%-50% match funding through the Disabled Facilities Grant to supplement the Association s budget allocations for the disabled adaptations service. Review the staff resources of the Depot so that they can plan for carrying out an increasing proportion of the maintenance work that is currently allocated to external contractors. Increase revenue generation of the vehicle workshop. Develop a Repairs Service marketing strategy that will win maintenance contracts from external clients. 4

7 Report & Financial Statements 2010/11 Corporate The Association has been actively involved in the consultation by the Tenant Services Authority on its regulatory framework and preparing for the new regime. This work has included the development of scrutiny arrangements through formal liaison between the Tenants Forum and the Board s Resident Services Committee and introducing tenant mystery shopping and inspections. A new integrated performance management system, CorVu, has been implemented. This enables us to manage, monitor and report operational planning, performance management and risk management through a single system. Development The Association developed or acquired 165 new homes and these were transferred into management during the year. Of these 31 were shared ownership (with 10 of them being let on a Rent to Homebuy basis). In addition, 16 were Intermediate Rent. A further 265 new homes were under construction during the year. The 30 year Business Plan Model demonstrates a significant capacity for future development and investment in the Association s existing housing. The Association will improve the environmental sustainability of its new buildings by using tried and tested rather than cutting-edge, high-risk methods of construction, components and materials. It is selecting components and materials on the basis of life-time value for money assessments, rather than on the basis of capital cost alone. It is also designing homes that are not only fit for their intended purpose now, but are also flexible enough to accommodate future changes in lifestyle and demographics and designing environments and facilities that increase biodiversity, promote health and wellbeing, and encourage more environmentally sustainable lifestyles. Asset management The Association will continue to improve its general needs and sheltered home accommodation. 9.3 million has been invested during the year to improve the infrastructure of its homes. This included 0.9 million spent on new kitchens and bathrooms, 0.5 million on aids and adaptations, 1.7 million on sheltered schemes, 1.1 million on structural works and electrical wiring, 0.6 million on insulation and 1.1 million on central heating systems. The Association has brought a significant number of non-decent properties up to the Decent Homes standard this year. As a result the overall percentage of homes meeting the standard has risen significantly to 99.6%. The Association s Corporate Social Responsibility strategy ensures that investment in all of its assets is properly planned from an environmental sustainability perspective. 10 million will be spent over the next year on continuing improvement programmes and will be financed principally through existing loan facilities and operational surpluses. Key Performance Indicators The Association s performance against its key performance indicators is summarised below: Key Performance Indicators 2010/11 Emergency repairs: Combined heating and general repairs Actual: 99.4% (2009/10: 99.5%) Urgent repairs: Combined heating and general repairs Actual 98.7% (2009/10: 99.4%) Rent Arrears: All Social Housing Actual 2.19% (2009/10: 2.36%) Average re-let time: All Social Housing Actual 24.6 days (2009/10: 32 days) Percentage of tenants with a current support plan (renewed within past year) Actual 100% (2009/10: 99.7%) Percentage of complaints completed within 10 working days Actual 83.2% (2009/10: 78.4%) Rent losses from voids and bad debts The target for the year was to keep rent losses and bad debts at or below 2.0% of rental income receivable. This target was not achieved with rent losses of 2.31% (2010: 1.45%). Rent arrears Overall rent arrears at the year-end have decreased over previous years to 2.16% (2010: 2.35%). The Association is not experiencing a significant increase in rent arrears. Repair response times Performance against this indicator has a direct impact on the Association s service to its customers and the Association is pleased to report a continued high level of performance in the repairs service. Performance against target response times averaged 98.9% compared with 99% in 2009/10. Staff turnover The Board recognises that the success of the business depends on the quality of the Association s managers and staff. Staff turnover, calculated as the number of leavers in the year divided by the permanent staff headcount at the end of the year, was 12.4% (2010: 10.4%) against a target of 12%. Risks and uncertainties The risks that may prevent the Association achieving its objectives are considered and reviewed quarterly by the senior management team and every six months by the Board as part of the corporate planning processes. The main risks are recorded and assessed in a Risk Map which sets out the significance of their potential probability and impact should they materialise, together with action plans to manage the risks, the outcome of the action, and the assessments of key controls used to manage the risks. The major risks, presenting the greatest threats to the Association are analysed in a report to the Audit and Risk Committee and the full Board annually. 5

8 North Hertfordshire Homes Limited Key risk There is a risk of grant funding not being fully paid to the Association. The Association s development programme is based on achieving a defined % grant as a contribution to the cost of its development programme. If the grant rate reduces then this will reduce the development programme. Action being taken Close monitoring of bid submission for 2008 to 2011 to ensure accurate and realistic grants are applied for. Maintain good working relationships with other prospective partners such as the Homes and Communities Agency and local council authorities. The Association has identified the major risks to successful achievement of its objectives and these are considered in the table that follows: Key risk Availability of bank finance. Economic downturn and the associated non availability of bank finance to potential shared ownership customers may prevent the sale of shared ownership and market homes, leading to reduced cash inflows to subsidise the development programme. Action being taken Hiring of internal direct sales staff to ensure that there are resources and expertise to effectively market the shared ownership and market sales homes. Develop appropriate branding and marketing strategies for new products. Develop alternative intermediate market products, including intermediate rent and Rent to Homebuy homes. Close monitoring of sales and intermediate lettings against targets. Post-project financial out-turn appraisals. Head of Development monitors market conditions and trends to identify and react to customer needs. Key risk Government targets lead to a reduction in Temporary Accommodation units provided and loss of business and income for the Association. Action being taken Ensure that all new Temporary Accommodation units built are of a design and type that ensures optimum flexibility for alternative uses in the event that hostels are decommissioned. 6

9 Report & Financial Statements 2010/11 Key risk The inflation rates used in the Business Plan may be higher than the actual future inflation rates. The Business Plan has rental income that is higher than operational costs and the future operational surpluses will therefore be negatively impacted in cases where the future inflation rates are lower than the inflation rates that are modelled into the Business Plan. A future negative inflation rate would cause a reduction in rental income and this loss of income will severely impact upon the Association s ability to repay loan debt and to remain compliant with the lenders loan covenants. Action being taken The Business Plan is based on the RPI of 1.0% only for the first year ended March 2011 and then on an RPI of 2.0% only for the next two years from April 2011 to March These inflation rates for the next three years are lower than the predicted RPI inflation rates and allow scope for the current inflation rates to fall lower in the next three years. The Business Plan is based on the RPI of 2.50% plus 0.50% uplift for increased costs from April 2013 onwards. It is flexed (that is tested) with various inflation rates to validate that it remains viable should the inflation rate fall below 2.50% from April Key risk Maintenance Depot exposes itself to contractual and financial risks associated with longer term contracts with external clients. The Depot is planning to diversify into providing maintenance services to external clients in order to increase its revenues and net income. Action being taken Depot staff will liaise with Finance and, where appropriate, seek external advice on tenders prior to submission. The Business Plan will incorporate the costs and other resources required to provide the service for the external customer contracts. 7

10 North Hertfordshire Homes Limited Key risk Increase in rent arrears. The current economic climate will probably cause financial hardship to our tenants and they will experience difficulty in paying their rents. Action being taken Work closely with the local council s housing benefit department to maximise speed and efficiency of benefit allocation to tenants and to ensure adherence to the signed protocol that is in place. Initiatives are being undertaken to address the effects of the credit crunch and fuel cost increases on tenants ability to pay rent. Close and regular monitoring of arrears collection and adherence to arrears collection procedures. Working group looking at ways to assist tenants to reduce their fuel bills. Better methods of rent payment such as direct debit payments will be introduced. Service level agreements have been agreed with partners such as the Citizens Advice Bureau and credit unions to assist tenants who require financial advice or low cost loans. The Association donates cash to fund the cost of the services and low cost loans that are provided to tenants under these service level agreements. Key risk Sheltered housing schemes may not be suitable for purpose. Some of the sheltered housing schemes require modernisation and the Association will invest 7 million to carry out this improvement programme. There is a risk of Supporting People Grant not being fully paid to the Association. Failure to develop the Care Agency. Action being taken Complete decommissioning of non-viable schemes within agreed resources and timescales as set out in the scheme-by-scheme review. Programme of scheme improvements in accordance with the scheme-by-scheme review action plan. Ensure that services meet best practice and all Supporting People requirements are met, including consultation and agreement with North Hertfordshire District Council and other stakeholders. Maintain Business Plan for each scheme. The Association s Business Plan to incorporate all funding requirements. Monitor all changes at national and local level and ensure that all service requirements are met. Seek strategic partnerships with other localised sheltered housing providers in Hertfordshire. Review cost structure of support services. Continue to meet care quality commission standards and fulfil contractual requirements for Hertfordshire County Council. 8

11 Report & Financial Statements 2010/11 Key risk Loss of funding for temporary accommodation services due to changes in strategic operating environment. The Association builds hostels to provide homes for temporary accommodation for the homeless families that are to be housed by the local district council. Funding needs to be assured for the costs to provide this temporary accommodation. Action being taken Monitor all changes for temporary accommodation at national and local government level. Broaden use of Tenancy Sustainment Service internally or externally. Monitor services provided by the Director of Operations and Head of Care and Supported Housing. Development of service and agreement of rents to be charged to the district council in accordance with agreed Rent Guarantee schemes. Key risk Increased costs of improvement and maintenance works. Costs are planned to increase through inflation by 3.0% per annum and a sustained increase above this level will significantly impact upon the cash flow as set out in the Business Plan. Action being taken Review of procurement is underway the Association will maximise its procurement options through a combination of services provided by its own Depot, external partnerships and external contractors. Regular assessment of market conditions. Flexibility to amend specification/performance standards to react to change. Build on the strengths of the Association s own Depot to maximise internal resources and reduce reliance on external contractors for capital works. Regularly review and update the stock condition survey to re-assess likely costs and identify savings. 9

12 North Hertfordshire Homes Limited Financial position The Association income and expenditure account and balance sheet for the past five years are summarised on page 11 and the following paragraphs highlight key features of the Association s financial position at 31 March Operating surplus, before the cost to service loan debt, is 14 million, which is 6.2% above the budget. Association borrowings have increased to million. The Association has undrawn loan facilities of 39.3 million that will be used to fund future improvement programmes and new developments. Revenue reserves are 46.7 million (2010: 40.3 million). Accounting policies The Association s principal accounting policies are set out on pages 19 to 20 of the financial statements. The policies that are most critical to the financial results relate to accounting for housing properties and include capitalisation of interest for developments, deduction of capital grant from the cost of assets, housing property depreciation and capitalisation of major improvements to the housing stock. Each of these policies has remained unchanged during the period under review. The Association s financial statements include a provision for pension liability. The liability has been calculated by a qualified actuary in accordance with accounting practice outlined in Financial Reporting Standard 17, Accounting for Retirement Benefits. The pension liability relates solely to the Association s membership of the Hertfordshire Local Government Pension Scheme. Housing properties At 31 March 2011 the Association owned and managed 11,702 properties (2010: 11,578). The properties are carried in the balance sheet at historical cost (after depreciation and capital grant) of million (2010: million). The Board appointed professional valuers to value the Association s housing properties at existing use valuation for social housing ( EUV-SH ) values. These EUV-SH values are used to calculate the gearing ratio in accordance with the loan covenants that are included in the loan facility agreements of the Association s long term lenders. At the 31 March 2011 the EUV-SH values of the properties, on an existing use for social housing valuation basis, was 390 million (2010: 365 million). The Association invested 24.5 million in the year in newly acquired housing properties and 93.5 million in aggregate over the past four years. Pension costs The Association participates in two pension schemes: the Hertfordshire Local Government Pension Scheme ( LGPS ) and the North Hertfordshire Homes Stakeholder Pension Scheme ( NHSPS ). The LGPS is a final salary scheme, while the NHSPS is a money purchase scheme. Both offer good benefits for staff. The Association has contributed 17.6% of payroll to the LGPS scheme in accordance with the contribution rate set by the actuaries and contributes between 5.0% and 12.5% of payroll to the NHSPS depending on the age of employees. The latest actuarial valuation of the LGPS was for the 31 March Contributions to the scheme have increased to 20.9% of pensionable salaries from April Capital structure and treasury policy The Association borrowed 23 million during the year to fund the improvements programmes for housing properties and the new build programme. At the year end Association borrowings amounted to million of which 24 million has to be repaid by January The repayment profile of this debt is as follows: Maturity m m Within one year One to two years Two to five years After five years The Association has a long term syndicated loan facility comprising a bank and a building society, from which it has borrowed at both fixed and floating rates of interest. It also has received borrowings via bond debt issued by Harbour Funding Plc. Interest rate swaps are used to manage the Association s exposure to interest rate fluctuations and to secure the interest rate profile that can be supported within the 30 year business plan model. The Association s treasury policy is to maintain not less than 70% of its borrowings at fixed rates of interest. At the year end, 74% of the Association s borrowings were at fixed rates after taking account of interest rate swaps (2010: 78.7%). Fixed rates of interest have been swapped for LIBOR based floating debt of 95 million; 75 million of these fixed rates range from 4.51% to 4.80% for periods of 16 to 28 years. There is a 15 million cancellable swap for 28 years at 3.97% that is cancellable at bank s option. The bonds have a coupon cost of 5.28%; in 2005/06 the bonds were increased by 21.5 million at a net coupon cost of 4.9%. The Association has approved loan facilities of 287 million and will seek to increase these loan facilities once the debt profile of the Homes and Communities Agency framework bid has been confirmed. The trend information on page 11 shows that gearing, calculated as total loans as a percentage of the net social housing market value of assets, was 62% at 31 March The Association borrows only in sterling and so is not exposed to currency risk. Cash flows Cash inflows and outflows during the year are shown in the cash flow statement on page 18. The cash inflow from operating activities decreased this year to 4 million (2010: 17.4 million). Cash flows from operating activities have decreased largely due to an investment in housing properties for sale. 10

13 Report & Financial Statements 2010/11 Association Highlights: Five-year summary for the year ended 31 March Association Income & Expenditure Account 000s Total turnover 42,590 41,013 37,992 36,576 33,769 Turnover from lettings 40,127 38,734 36,031 34,663 32,222 Operating surplus 14,035 14,896 12,085 13,230 12,675 Surplus for the year transferred to reserves 4,420 5,934 3,089 4,390 5,303 Association Balance Sheet Housing properties, net of depreciation 313, , , , ,171 SHG and other capital grants (41,482) (35,936) (24,372) (19,624) (15,497) Housing properties, net of depreciation and grants 271, , , , ,674 Other fixed assets, net of depreciation 6,854 7,097 7,496 7,881 7,715 Fixed assets, net of capital grants and depreciation 278, , , , ,389 Net current assets/(liabilities) 10,147 8,046 1,657 (1,086) (2,831) Total assets less current liabilities 288, , , , ,558 Loans (due over one year) 247, , , , ,640 Less investments to secure interest (5,672) (5,755) (5,432) (5,490) (5,983) Net loans (due over one year) 241, , , , ,657 Pensions liability 603 3,287 1, Reserves Revaluation Revenue 46,684 40,266 36,479 34,212 29,356 Total reserves 46,716 40,281 36,479 34,212 29, , , , , ,558 Accommodation figures Total housing stock at year end Social housing 11,151 11,025 10,979 11,034 11,080 Leaseholders *Total dwellings 11,702 11,578 11,528 11,581 11,622 Statistics Operating surplus for the year as % of turnover 32.95% 36.32% 31.81% 36.17% 37.53% Net surplus for the year as % of turnover 10.38% 14.47% 8.13% 12.00% 15.70% Rent losses (voids and bad debts as % of rents and service charges receivable) 2.31% 1.45% 1.65% 1.46% 1.98% Rent arrears (gross arrears as a % of rent and service charges receivable) 2.32% 2.50% 2.85% 2.90% 2.20% Interest cover (surplus before interest divided by interest payable) Liquidity (current assets divided by current liabilities) Gearing (total loans as % of net asset values as valued by valuer at 31 March) Asset cover ratio (loan debt divided by housing assets as valued by valuer) Total reserves per social home owned 5,665 4,960 4,518 4,208 3,591 Debt per rental unit 30,032 28,511 25,829 22,645 20,382 *Note that commercial properties (being garages) have been included in 2011 for the first time. The prior year numbers have been restated to reflect this change. 11

14 North Hertfordshire Homes Limited Internal Controls Assurance The Board is the ultimate governing body. It is responsible for ensuring that adequate systems of financial control are in place and are appropriate to the business environment in which the Association operates. These systems of internal control can only provide reasonable, but not absolute, assurance against material misstatement or loss. In meeting its responsibilities, the Board has adopted a risk-based approach to establishing and maintaining internal controls which are embedded within day to day management and governance processes. This approach includes the regular evaluation of the nature and extent of risks to which the Association is exposed. The process for identifying, evaluating and managing the significant risks faced by the Association is ongoing and has been in place throughout the year commencing 1 April 2010 up to the date of approval of the annual report and financial statements. The Board receives and considers reports from management on these risk management and control arrangements every six months during the year. The Board has adopted the following arrangements to review the effectiveness of the system of internal control: All major investments in existing properties, new properties, plant, equipment and software are subject to appraisal and individual approval by the Executive Management Team or the relevant committees as determined by the delegated financial authority and Board terms of reference. Management and reporting structures that provide clear accountability and effective decision making within the Association. Operations such as housing, property services and finance are managed by separate directors who report to the Association s Chief Executive. An internal audit function which is directed by the Audit and Risk Committee to audit the Association s controls and systems based on a three year risk assessment and audit plan. The Association uses the services of an independent firm of auditors to carry out its internal audit function. Forecasts, budgets and regular management accounts are prepared which allow the Association s Board and management to monitor the key business risks and financial objectives and progress towards financial plans set for the year and the medium term. An on-going risk management strategy that defines and, where possible, minimises risks across the Association. Responsibility for the overall strategy for the management of risk, and the continuing review and approval of the Association s Risk Map rests with the Board. The Board, through the reports of the Audit and Risk Committee, has reviewed the effectiveness of the systems of financial control. The Audit and Risk Committee has received the Chief Executive s annual review of the effectiveness of the system of internal control for the Association, and the annual report of the internal auditor, and has reported its findings to the Board. These findings are that, in general, laid down procedures and controls are adequate to meet management objectives and that the internal controls operating were reasonable. North Hertfordshire Homes has a Whistle Blowing Policy and takes allegations seriously. It also has a Fraud Policy. The police will be notified in all cases where it is appropriate. No cases of fraud have been reported during The internal audit of anti-fraud and corruption measures carried out in 2010 concluded that there was substantial assurance that effective arrangements were in place. National Housing Federation Code of Governance The Association complies with the principal recommendations of the National Housing Federation Code of Governance (revised). The Association observes best practice with regard to corporate governance and complies with all of the recommendations in the Code with the exception of the disclosure of Members dates of birth and the introduction of upper age limits, which were not considered appropriate by the Board. These are set out in formal Codes of Governance and Board Member Conduct which are consistent with the National Housing Federation model codes. Donations The Association, during the year ended 31 March 2011, donated a total of 100,000: 36,000 to North Hertfordshire and District Citizens Advice Bureau; 13,000 to Herts Young Homeless Group; 16,000 to the North Herts Minority Ethnic Forum; 10,000 to Groundwork Hertfordshire; 10,000 to Black Squirrel Credit Union and 15,000 to other causes. 12

15 Report & Financial Statements 2010/11 Statement of the Responsibilities of the Board The Board is responsible for preparing the Report of the Board and the financial statements in accordance with applicable law and regulations. Industrial and Provident Societies Acts and registered social landlord legislation requires the Board to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws). Under the Industrial and Provident Society legislation the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and surplus or deficit of the association for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently. make judgments and accounting estimates that are reasonable and prudent. state whether applicable UK Accounting Standards and the Statement of Recommended Practice: Accounting by Registered Social Landlords (2008), have been followed, subject to any material departures disclosed and explained in the financial statements. The Board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the association and enable it to ensure that the financial statements comply with the Industrial and Provident Societies Acts 1965 to 2002, the Housing and Regeneration Act 2008 and the Accounting Requirements for Registered Social Landlords General Determination It is also responsible for safeguarding the assets of the association and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Board is responsible for ensuring that the Report of the Board is prepared in accordance with the Statement of Recommended Practice: Accounting by Registered Social Landlords (2008). The Board is responsible for the maintenance and integrity of the corporate and financial information on the Association s website. Going concern After reviewing the Association s budget, business plan and cash forecasts for 2011/12, the Board has a reasonable expectation that the Association has adequate resources to continue in operational existence for the foreseeable future being a period of 12 months after the date on which the Report and Financial Statements are signed. For this reason it continues to adopt the going concern basis in preparing the Association s financial statements. Post Balance Sheet Events Rowan Homes (NHH) Limited, a wholly owned subsidiary was incorporated in May 2011 with the aim of maximising returns on residential development opportunities within our area of operation. Payment to creditors The Association estimates that on average, creditors are paid within 28 days ( days). Employees Details of employees are set out in note 9 of the Financial Statements. The Board considers that the involvement of staff in all its relevant business activities is essential in providing a high quality service to the Association s tenants and clients. The Association is committed to consulting staff on all aspects of its operations through recognised unions, its formal staff consultation group, management team meetings, through monthly team briefs and through written newsletters and circulars. All staff are entitled to join the recognised unions. The Association operates an equal opportunities policy and has encouraged disabled people to apply for jobs. The Association s policy on training, career development and promotion of disabled people is, as far as possible, identical to that established for other employees and if employees become disabled every effort is made to ensure their continued employment, with appropriate adjustments and training, as necessary. The Association achieved accreditation as an Investor in People in April 2003 and was accredited again in Health and Safety The Board is aware of its responsibilities on all matters relating to health and safety. The Association has prepared detailed health and safety policies and provides staff training and education on health and safety matters. The Association has a standing Health and Safety Committee, comprising staff, managers and the trade unions and has appropriate staffing arrangements for maintaining the health, safety and wellbeing of its workforce and compliance with legislation. Annual General Meeting The Annual General Meeting will be held on the 28 September Disclosure of information to auditors At the date of making this report each of the Association s board members, as set out on page 1, confirm the following: So far as each board member is aware, there is no relevant information needed by the Association s auditors in connection with preparing their report of which the Association s auditors are unaware. Each board member has taken all the steps that he ought to have taken as a board member in order to make himself aware of any relevant information needed by the Association s auditors in connection with preparing their report and to establish that the Association s auditors are aware of that information. External Auditors A resolution to reappoint Grant Thornton UK LLP as auditors of the Association will be proposed at the forthcoming Annual General Meeting. Statement of Compliance In preparing this Operating and Financial Review and Board Report, the Board has followed the principles set out in the Statement of Recommended Practice The Operating and Financial Review and Board Report was approved by the Board on 27 July 2011 and signed on its behalf by: Gordon Johnston Chair 13

16 North Hertfordshire Homes Limited Independent Auditors Report to the Members of North Hertfordshire Homes Limited for the year ended 31 March 2011 We have audited the financial statements of North Hertfordshire Homes Limited for the year ended 31 March 2011 which comprise the income and expenditure account, the statement of total recognised surpluses and deficits, the reconciliation of movement in association funds, the Balance Sheet, the Cash Flow Statement and the related notes. 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). This report is made solely to the housing association s members, as a body, in accordance with regulations made under Section 4 of the Friendly and Industrial and Provident Societies Act Our audit work has been undertaken so that we might state to the housing 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 housing association and the housing association s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Board and Auditors As explained more fully in the Statement of Responsibilities of the Board (set out on page 13), the Board is responsible for the preparation of 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 Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Auditing Practices Board s website at Opinion on financial statements In our opinion the financial statements: Give a true and fair view of the state of the Association s affairs as at 31 March 2011 and of its surplus for the year then ended. Have been properly prepared in accordance with the Industrial and Provident Societies Act1965 to 2002, the Housing and Regeneration Act 2008 and the Accounting Requirements for Registered Social Landlords General Determination Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts 1965 to 2002 require us to report if, in our opinion: A satisfactory system of control over transactions has not been maintained; or The association has not kept proper accounting records; or The financial statements are not in agreement with the books of account; or We have not received all the information and explanations we need for our audit. Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Central Milton Keynes 27 July

17 Report & Financial Statements 2010/11 Income & Expenditure Account for the year ended 31 March 2011 Notes 31 March 31 March Turnover: continuing activities 3 42,590 41,013 Operating costs 3 (28,555) (26,117) Operating surplus: continuing activities 5 14,035 14,896 Surplus on sale of fixed assets housing properties Interest receivable and other income Interest payable and similar charges 8 (9,949) (9,662) Increase in investment Other finance costs (79) (97) Surplus on ordinary activities before taxation 4,405 5,954 Tax credit/(charge) on surplus on ordinary activities (20) Surplus for the financial year 4,420 5,934 The notes on pages 19 to 37 form part of these financial statements. Historical cost surpluses and deficits were identical to those shown in the income and expenditure account. 15

18 North Hertfordshire Homes Limited Statement of Total Recognised Surpluses and Deficits for the year ended 31 March March 31 March Surplus for the financial year 4,420 5,934 Actuarial gain/ (loss) relating to pension scheme 1,998 (2,147) Total recognised surpluses and deficits relating to the year 6,418 3,787 Reconciliation of movements in Association funds 31 March 31 March Opening funds as previously stated 40,281 36,479 Total recognised surpluses and deficits relating to the year 6,418 3,787 Unrecognised surplus Closing total funds 46,716 40,281 16

19 Report & Financial Statements 2010/11 Balance Sheet at 31 March March March 2010 Notes Tangible fixed assets Housing properties , ,487 Social housing grants 12 (18,912) (15,271) Other grants 12 (22,570) (20,665) 271, ,551 Other tangible fixed assets 13 6,854 7,097 Total fixed assets 278, ,648 Current assets Properties for sale 14 15,167 1,482 Stock & work in progress Debtors 16 4,309 9,464 Cash at bank and in hand 128 5,147 19,747 16,249 Creditors amounts falling due within one year 17 (9,600) (8,203) Net current assets 10,147 8,046 Total assets less current liabilities 288, ,694 Creditors amounts falling due after more than one year , ,881 Investments 21 (5,672) 241,338 (5,755) 225,126 Provision for liabilities Net pension liability ,287 3,287 Capital and reserves Non-equity share capital 22 Revenue reserve 23 46,684 40,266 Revaluation reserve , , , ,694 The notes on pages 19 to 37 form part of these financial statements The financial statements were approved by the Board of Directors on 27 July Gordon Johnston (Chairman) David Kearns (Board Member) Kevin Thompson (Secretary) 17

20 North Hertfordshire Homes Limited Cash Flow Statement for the year ended 31 March 2011 Notes 31 March 31 March Net cash inflow from operating activities 25 4,016 17,393 Returns on investments and servicing of finance Interest received Interest paid (10,607) (9,461) Net cash outflow from returns on investments and servicing of finance (9,984) (9,457) Taxation Corporation tax refund 5 Capital expenditure Purchase and construction and improvements of housing properties (27,199) (35,060) Social Housing Grant received 8,725 7,842 Other grant received 1,905 Increase in bond debt reserve 100 Purchase of other fixed assets (404) (231) Sales of housing properties 1, Financing fee (5) (665) Net cash outflow from capital expenditure and financial investment (15,190) (27,365) Management of liquid resources Cash withdrawn from/(invested in) money market deposit accounts 26 4,000 (3,602) Financing Loans received 16,134 23,000 Housing loans paid (Decrease) in cash 26 (1,019) (31) 18