Annual Report & Financial Statements

Transcription

1 Annual Report & Financial Statements Operating and Financial Review 2011/12 1

2 Contents Group Statements The meaning of community 3 Group Board Chair s Statement 4 Group Chief Executive s Statement 6 Annual Report and Financial Statements The Board s Report 8 Operating and Financial Review 14 Independent Auditors Report 22 Income and Expenditure Accounts 23 Statements of Recognised Surpluses and Deficits 23 Balance Sheets 24 Consolidated Cash Flow Statement The meaning of community Sanctuary Group is recognised as one of the country s leading housing and care providers. A social enterprise, we operate under a not-for-profit umbrella with our surplus income reinvested into new homes and into developing better services for all our customers. Sanctuary owns and manages around 80,000 units of accommodation, including rented homes, sheltered and supported housing, places in care homes, and accommodation for students and key workers. As an ethical and responsible business, our work extends beyond the provision of buildings and services. We understand what is implied by the word community and through many diverse and imaginative initiatives, we work with our partners to devise ways in which people s lives and communities can be changed and improved. In short, we aim to make a positive difference to the lives of those in our society who face demanding challenges every day, such as the elderly and infirm, those with learning difficulties and young people from troubled backgrounds. Our experience at Sanctuary is that by working to build balanced communities we really can change people s lives for the better. 2 3

3 Group Board Chair s Statement Accomplishment and more to come I ended my statement in last year s Annual Report on a note of positive optimism safe in the knowledge that our plans were on track to deliver yet another successful year. My confidence was underlined when the Homes and Communities Agency awarded Sanctuary 90 million through its Affordable Homes Programme the highest allocation in England. Sanctuary s success extended beyond the border when the Scottish Government and Glasgow City Council gave Sanctuary 10 million in grants for affordable housing, the highest of its kind in Scotland. As ever, good corporate governance is critical to our ongoing success and to this end we have strengthened Sanctuary s Group Board with the election of three new members, Elizabeth Meek CBE, Robert McComb and Professor Kenneth Gibb who join us in charting our future. All three strands of Sanctuary s business housing, care and facilities management are demonstrating the ability to adapt and grow in a rapidly changing business climate. Recent achievements include new contracts for domiciliary care, construction of affordable housing and care facilities, the acquisition of new care homes, and delivery of facilities management services for universities and key workers. Social responsibility continues to be an integral part of Sanctuary s operational activities. This includes the application of green technologies designed to help residents combat fuel poverty and reduce CO2 emissions. For example, in the South West we have fitted 400 residents homes with PV solar panels giving them access to free electricity. Ensuring that an organisation as large and diverse as Sanctuary stays focused on its core values is vital. It is crucial that we listen to our customers and provide a service in line with their expectations, whether they are a housing tenant, live in managed halls of residence, or reside in a care home. Undoubtedly, our staff are instrumental to our success and it is thanks to their professionalism that we remain a leader in the sector. Nick Baldwin Group Chair All three strands of Sanctuary s business housing, care and facilities management are demonstrating the ability to adapt and grow in a rapidly changing business climate. 4 5

4 Group Chief Executive s Statement Building on solid ground Attracting, developing and retaining a skilled and motivated workforce continues to be an important priority for Sanctuary and never more so than today. Our success in securing the highest grant allocations for new affordable housing in England and Scotland brings significant responsibilities, but our staff are primed and ready for the challenge. They are already demonstrating their commitment to this ambitious programme which will see the delivery of 5,000 homes at a combined capital investment of 750 million over the next four years. A programme of this magnitude will bring a much needed stimulus to local economies, helping to sustain jobs and create new employment and training opportunities in communities up and down the country. Underlining our commitment to tackling unemployment, especially among young people, Sanctuary has made a pledge to create new apprenticeships, including through our development partners on our numerous construction sites. Underlining our commitment to tackling unemployment, especially among young people, Sanctuary has made a pledge to create new apprenticeships, including through our development partners on our numerous construction sites. Our own award-winning apprenticeship programme is growing from strength to strength with numbers standing at over 200 and rising. Opportunities have been created in a variety of business areas, including our in-house estates service and maintenance teams, which we established after listening carefully to the needs of our customers. Such has been the success of our maintenance service, that we are extending it to other organisations, allowing third parties to benefit from the expertise our skilled workforce can provide. Furthermore, the additional revenue generated from this new commercial vehicle will be reinvested into innovative new services, ensuring an improved offering and value for money for all our customers. During the past year Sanctuary has achieved considerable success and with new homes and services in the pipeline, we have an exciting future ahead of us. We must not forget that our achievements depend on the talents and commitment of our people. Working to bring about important improvements in the quality of people s lives, they demonstrate a professionalism to which others can only aspire. Sanctuary continues to build on solid foundations and we look forward to the future with confidence. David Bennett Group Chief Executive 6 7

5 The Board s Report The Board presents the Sanctuary Group Annual Report (the Annual Report ) and the audited financial statements for the year ended 31 March Legal structure and objectives Sanctuary Housing Association was registered on 5 May 1969 under The Industrial and Provident Societies Act Its objectives are the provision of: Good quality affordable housing and associated services to those in need; Specially designed housing and associated services to older people and people with long term health problems and disabilities; and Value for money services and advice for people in need. Members of the Board Membership details Group Board Group Audit Committee Governance structure Sanctuary Housing Association and its subsidiaries (together the Group ) is controlled and governed through the Board of Sanctuary Housing Association which comprises up to seven non-executive members, one executive member (the Group Chief Executive), and up to three co-opted members. All subsidiaries within the Group have their own boards which are responsible to the Board of Sanctuary Housing Association for overseeing the operations of each subsidiary. Group Housing Committee Nominations Committee Remuneration Committee Supported Housing & Extra Care Committee Nick Baldwin Chair - Chair Jonathan Lander Vice Chair Chair - Chair - David Bennett Chair Rosemary Crawley - Chair - - John Doughty - - Kenneth Gibb (elected September 2011) Liz Meek (elected September 2011) Robert McComb (elected September 2011) Craig Moule Victoria Elvidge (resigned September 2011) Nick Buckland (resigned September 2011) Valerie Leake (resigned September 2011) Barry Stanford (resigned September 2011) Vice Chair - Chair - Chair Nick Baldwin BSc, MSc, CEng, CDir, FIMechE, FIET, FRSA (Age 59) Group Chair Chair of Nominations Committee Elected a Member in September Nick previously worked for Powergen plc for over 13 years in a variety of roles; in his capacity as Chief Executive Nick completed the sale of Powergen to E.ON. He has held numerous non-executive and advisory roles and is currently interim Chair of the Office for Nuclear Regulation, Chair at Public Weather Service Customer Group and Chair of Ambitious About Autism. Prior to joining Sanctuary s Board he was Chair of Worcester Community Housing for six years. Nick was elected Group Chair in November As Group Chair, he is an ex-officio member of all committees of the Board. Jonathan Lander BSc (Hons), FCA (Age 56) Vice Chair of Group Board Chair of Group Audit Committee Chair of Remuneration Committee Jonathan was co-opted onto the Group Board in July 2010 and formally elected in September Jonathan retired as a senior partner at PricewaterhouseCoopers LLP ( PwC ) in 2008, having been with the organisation for over 30 years. At PwC Jonathan was lead assurance engagement partner to public companies, large private and private equity backed companies and businesses with overseas ownership, as well as being a Midlands Leadership team member responsible for strategy, marketing, communications and business development. He is the Chair of the board for the subsidiary Sanctuary Affordable Housing Limited. David Bennett FCA, CCMI (Age 61) Group Chief Executive Chair of Supported Housing & Extra Care Committee David is a chartered accountant and has extensive experience in the housing association sector. He has been the Group Chief Executive of Sanctuary since Prior to that he was the Deputy Chief Executive at Sanctuary, and was Chief Executive at New Spiral Housing Association. Before joining Spiral he held senior positions with the Peabody Trust, the Samuel Lewis Trust and in the private sector. He is a Member of the Pensions Group and on subsidiary boards including Spiral Developments Limited, Sanctuary London Student Accommodation Limited and Riverside Apartments Management Limited. He is a Member of the Committee of Management of Spiral (Number 2) Housing Association Limited and is a Member of the Council of Management of Sanctuary Housing Services. David also chairs Sanctuary Care Limited, Sanctuary Treasury Limited, The Hertford Housing Company Limited, Heart of England Housing and Care Limited, Sanctuary Capital Plc, Sanctuary Land Company Limited and the Committee of Management of Sanctuary Home Care Limited. Rosemary Crawley JP, SRN, SCM, M Soc Sci (Age 68) Chair of Group Housing Committee Elected a Member in September 2007, Rosemary is a Justice of the Peace on the supplemental list and is a qualified nurse and midwife. She was a Member of the Board of Shaftesbury Housing Group and is an independent Member of the Staffordshire Police Authority. She works as a volunteer and fundraiser for a day centre for older people of which she is honorary treasurer. Rosemary is currently a Member of the Committee of Management of Spiral (Number 2) Housing Association Limited and a Member of the Council of Management of Sanctuary Housing Services. John Doughty FFA (Age 65) John was elected as a Member in September 2008 after co-option in May John is a Sanctuary tenant and has been a member of resident committees and subsidiary boards over the years. He has experience working in industrial groups such as Cadbury-Schweppes and GKN and currently works in a Worcester accountancy practice. His voluntary work has included membership of the Bromsgrove and Redditch Community Health Council and being treasurer for various charitable and nonprofit organisations. He is currently a Member of the Committee of Management of Spiral (Number 2) Housing Association Limited and a Member of the Council of Management of Sanctuary Housing Services. Kenneth Gibb MPhil, MA (Hons), MCIH (Age 48) Elected a Member in September 2011, Kenneth is Professor of Housing Economics at the University of Glasgow. He has conducted many research projects at the University, primarily in areas of housing economics, property markets and policy evaluation. Funders of his research have included Scottish Homes, the Scottish Office, the Scottish Government and the World Bank as well as private sector The Board s Report 8 9

6 The Board s Report (continued) organisations. Kenneth joined the Management Committee of Sanctuary Scotland Housing Association Limited in 1996 and served as its Chair from August 2006 to August He was also the Chair of Sanctuary Management Services Limited from November 2004 until August Liz Meek CBE, BA (Hons) (Age 61) Elected a Member in September 2011, Liz is currently Chair of a London think-tank the Centre for London. She is also involved with work to improve services for people with schizophrenia and for ex-offenders. Until 31 March 2011, Liz was Regional Director at the government office for the North West based in Manchester and Liverpool with responsibility for delivering projects and programmes for 11 Whitehall departments. Her long civil service career has involved specialisation in urban regeneration, combating social exclusion and worklessness, as well as housing association policy and the delivery of European funding streams. Robert McComb MSc (Age 57) Elected a Member in September 2011, Robert is an investment banker with over 23 years experience at Dresdner Kleinwort. His banking experience has been in treasury, structured and asset finance and debt capital markets. Prior to retiring from Dresdner Kleinwort in 2007, Robert was treasurer of the bank s $36bn structured credit fund, issuing bonds to investors worldwide. He was a senior member of the bank s structured finance group, with specific responsibility for structured finance in France. Since retiring, Robert has been a non-executive chair of a venture capital funded hospitality business and is a board member of a small north London housing association. He continues to take a close interest in the financial markets. Craig Moule BSc (Hons) (Age 46) Group Director Finance and Resources Secretary and Co-opted Board Member Craig joined Sanctuary in 1989 from Coopers & Lybrand. Craig is responsible for finance, portfolio analysis and planning, treasury, business information, procurement and legal services. He is the Secretary to Sanctuary and all its subsidiaries. Craig is the lead officer at Group Audit Committee meetings in addition to being a member of the Pensions Group. He is also on subsidiary boards including The Hertford Housing Company Limited, Sanctuary Treasury Limited, Sanctuary London Student Accommodation Limited, Sanctuary Land Company Limited, Sanctuary Capital Plc and Sanctuary Affordable Housing Limited. He also chairs Riverside Apartments Management Limited, Sanctuary Maintenance Contractors Limited, Sanctuary Management Services Limited, Spiral Developments Limited and the Committee of Management of Spiral (Number 2) Housing Association Limited and St Albans Mount Management Limited. Craig is also Chair of the Council of Management of Sanctuary Housing Services. Victoria Elvidge BA (Hons) (Age 50) Elected a Member in September 2004 and appointed Vice Chairman in September Victoria worked for ten years as a city solicitor. Victoria resigned from the Group Board, the Group Housing Committee and the Remuneration Committee in September Nick Buckland MA, FIA, FPMI (Age 66) Elected a Member in September 2005, Nick is an Actuary and former Partner at Bacon & Woodrow. Nick resigned from the Group Board and as Chair of the Pensions Group in September Valerie Leake (Age 70) Elected a Member in September 2008, Valerie is a retired school teacher. Valerie resigned from the Group Board in September Barry Stanford RIBA (Age 70) Co-opted onto the Board in June 2007, Barry is an architect based in London and Stansted and founder of Stanford Eatwell & Associates. Barry resigned from the Group Board in September Tenant Board Members have tenancies on normal commercial terms and cannot use their position to gain advantage in relation to tenancy agreements. There are no related party transactions with councillors or employees of any related local authority that are not on normal commercial terms. Executive Directors The Board has delegated day-to-day management to a group of Executive Directors to control the operations of the Group. In addition to David Bennett (Board Member) and Craig Moule (Co-opted Board Member), the other Executive Director is: Ian McDermott BSc (Hons), ARICS, MCIH, PGDip (Age 49) Chief Operating Officer Ian is a chartered surveyor and a member of the Chartered Institute of Housing. From February 1999, Ian was Chief Executive of Stonebridge Housing Action Trust and then from April 2005 he was Group Chief Executive for Shaftesbury Housing Group. Shaftesbury joined the Group in April As Chief Operating Officer, Ian is now responsible for driving operating performance measures and looking at how to create maximum value for all of Sanctuary s stakeholders. Ian is on subsidiary boards including Sanctuary Management Services Limited, Sanctuary Maintenance Contractors Limited, Sanctuary London Student Accommodation Limited, Sanctuary Land Company Limited, Sanctuary Care Limited and Heart of England Housing and Care Limited. He is a Member of the Committee of Management of Sanctuary Home Care Limited and Spiral (Number 2) Housing Association Limited and a Member of the Council of Management of Sanctuary Housing Services. Ian is also Chair of the board of Sanctuary Green Technologies Limited. Ian is a member of the Group Housing Committee and the Supported Housing & Extra Care Committee. Corporate governance The Board is working towards ensuring that the Group complies with the provisions of the National Housing Federation s Excellence in Governance code. In response to the evolving regulatory framework for housing, the Board has reviewed governance arrangements across the Group. As a result, changes have been implemented around the composition of the Group Board, remuneration of non-executive members, and the terms of reference of its substantive sub-committees. During the year KPMG were appointed as the provider of Internal Audit services in conjunction with the in-house assurance team. A re-tendering process was conducted during the year for the provision of external audit services and PricewaterhouseCoopers LLP were re-appointed. The Group Audit Committee has approved a policy in relation to non-audit work undertaken by PricewaterhouseCoopers LLP and KPMG. Where such work is expected to be in excess of a specified amount, the Chair of the Group Audit Committee must approve the work. Below that amount, the Group Director - Finance and Resources has authority to approve such work once he is satisfied that PricewaterhouseCoopers LLP or KPMG are the most appropriate providers. There is an annual review of the provision of, and fees for, non-audit services as part of Group Audit Committee s review of the services provided by PricewaterhouseCoopers LLP and KPMG. Statement of internal control The Board is ultimately responsible for ensuring that the Group maintains a system of internal control that is appropriate to the various business environments in which it operates. Internal control systems are designed to meet the particular needs of the Group and the risks to which it is exposed. The controls by their nature can provide reasonable but not absolute assurance against material misstatement or loss. The Board has established key procedures to provide internal control and there are clear lines of responsibility for the creation and maintenance of the procedures through the designated senior executives of the Group. These controls are designed to give reasonable assurance with respect to: The reliability of financial information used within the Group or for publication; The maintenance of proper accounting records; and The safeguarding of assets against unauthorised use or disposition. Major business risks are identified through a system of continuous monitoring. The financial control framework includes the following key features: The Board being directly responsible for strategic risk management; The adoption of formal policies and procedures including documentation of key systems and rules relating to a delegation of authorities which allows the monitoring of controls and restricts the unauthorised use of the Group s assets; Experienced and suitably qualified staff being responsible for important business functions. Annual appraisal procedures have been established to maintain standards of performance; The Board s Report 10 11

7 The Board s Report (continued) Statement of internal control (continued) Executives to monitor the key business risks and financial objectives allowing the Group to progress towards its financial plans set for the year and the medium term. Regular management accounts are prepared promptly providing relevant, reliable and up-to-date financial and other information including significant variances from budgets which are investigated as necessary; All significant new initiatives, major commitments and investment projects are subject to formal authorisation procedures; and The Group Audit Committee reviews reports from management, KPMG and from the in-house assurance team to provide reasonable assurance that control procedures are in place and are being followed. The Group Audit Committee receives an annual report on internal controls from the Executive Directors. The Group Audit Committee makes regular reports to the Board. The Group follows formal procedures for instituting appropriate action to correct weaknesses identified in the above reporting. On behalf of the Board, the Group Audit Committee has reviewed the effectiveness of the systems of internal control in existence in the Group for the year ended 31 March 2012 and is not aware of any material changes at the date of signing the financial statements. Arrangements for managing the risk of fraud The Group has robust arrangements in place for managing the risks of fraud. These include: Prevention the Group seeks to generate a strong anti-fraud culture supported by appropriate controls over operational and employment systems; Detection the Group has implemented comprehensive systems and procedures to detect evidence of fraud and to facilitate and encourage the reporting of fraud; Investigation the Group follows a comprehensive Group policy on fraud investigation and reporting; and Insurance the Group has appropriate insurance cover in place to mitigate the potential financial losses associated with fraud. The Group s external statutory auditors, PricewaterhouseCoopers LLP, have audited the Group statutory financial statements. The Group Audit Committee has met with KPMG and PricewaterhouseCoopers LLP to discuss their work throughout the year. Statement of responsibilities of the Board The Board is responsible for preparing the Board s Report and the financial statements in accordance with applicable law and regulations. The Friendly and Industrial and Provident Societies Act 1968 and registered social housing legislation require the Board to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the Association and of the surplus of the Group and the Association for that period. In preparing these financial statements, the Board is required to: Select suitable accounting policies and then apply them consistently; Make judgements and estimates that are reasonable and prudent; State whether applicable accounting standards 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 the Group and the Association will continue in business. The Board is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and of the Association and to enable it to ensure that the financial statements comply with the Friendly and Industrial and Provident Societies Act 1968 and the Industrial and Provident Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Requirements for Registered Social Landlords Determination It has general responsibility for taking reasonable steps to safeguard the assets of the Group and of the Association and to prevent and detect fraud and other irregularities. Health and safety It is the clear intention of the Group to ensure, as far as reasonably practicable, the health, safety and welfare at work of all its employees. The Group undertakes to comply, as a minimum, with the provisions of the Health and Safety at Work Act 1974 and other relevant legislation to meet the objective of achieving the highest possible standards. Political and charitable donations The Group made no donations to political organisations. The Group made donations to charitable organisations of 173,297 (2011: 180,070). Employee involvement It is Group policy to involve all employees in matters affecting their functions. At a formal level this takes place through the Staff Council where management consult with elected staff representatives. At an operational level a team briefing system is in place to keep all employees updated on core Group business issues. Ethical business The Group is committed to conducting its business in an ethical and responsible manner. This involves making decisions which take into account not only economic considerations but social and environmental impacts too. It also means running our operations efficiently, supporting the communities where we work, providing training and employment opportunities and ensuring that the homes we own and operate are energy efficient. We understand that the work we do affects people s lives and we are working hard to ensure that the difference we make is a positive one. For more information about our commitment to ethical business and details of our performance over the last year, please visit our website. Equality and diversity The Group aims to be an open and inclusive organisation, where diversity is promoted and discrimination eliminated. Our single equality scheme Fairness for All outlines our commitment to ensuring that our services meet the needs of all our diverse customers. It ensures that equality, diversity and human rights are integrated into the way we plan, develop and deliver our services, covering our internal functions as an employer and our external operations as a provider of housing, care and facilities management services. Directors and Officers liability insurance The Group has maintained Directors and Officers liability insurance throughout the year and up to the date of approval of the financial statements. Disclosure of information to auditors In the case of each of the persons who are Members of the Board at the date when this report was approved: So far as each of the Members of the Board is aware, there is no relevant audit information of which the Association s auditors are unaware; and Each of the Members of the Board has taken all the steps that he/she ought to have taken as a Member of the Board to make himself/herself aware of any relevant audit information and to establish that the Association s auditors are aware of that information. Independent Auditors PricewaterhouseCoopers LLP have indicated their willingness to continue in office and a resolution concerning their reappointment will be proposed at the Annual General Meeting. By order of the Board. Craig Moule Secretary Group Director Finance and Resources 28 June 2012 Registered Office Sanctuary House Chamber Court Castle Street Worcester WR1 3ZQ The Board s Report 12 13

8 Operating and Financial Review Activities The Group is a national provider of accommodation and related services. It operates in the following key areas: social housing, care, including care homes and domiciliary home care, and facilities management including student and key worker accommodation. The Group manages 78,215 (2011: 79,011) units of accommodation. Operating review The Group remains committed to providing high quality, well managed accommodation and services. As a Registered Provider, performance in terms of how the Group provides homes and delivers services is monitored by the Homes and Communities Agency against particular standards. Accommodation in management The Group has a range of property types and tenancies across the UK: general rented homes for people who need affordable accommodation; lowcost home ownership schemes for people making their first move into owner occupation; sheltered housing for rent and for purchase; care homes for people who need nursing support; as well as student and key worker accommodation. Lettings During the year the Group had 3,119 (2011: 3,049) new general needs tenancies; 11.7% (364) (2011: 7.0% (214)) of these were new properties being let for the first time and 88.3% (2,755) (2011: 93.0% (2,835)) were existing properties being relet. New residents are asked to provide basic details about their household when they move into their home and this information is used to provide services that meet the specific needs of residents. The analysis of new general needs lettings in the year shows there was an increase in the number of people nominated to our homes by local authorities. Method of access % % Voids One of the key performance indicators is the amount of money that the Group loses when properties become void and cannot be immediately relet. The Group always aims to relet properties as soon as possible after the previous resident leaves. However, sometimes this is not possible because the property may need redecorating or refurbishing. At 31 March 2012, 198 (2011: 315) owned general needs rented homes were empty and ready for letting. A further 378 (2011: 278) properties were not available because they were either undergoing major improvement works or being held for decant purposes. Void losses for general needs, sheltered and supported expressed as a percentage of rents and service charges receivable are: Operating and Financial Review In addition to monitoring quality of services, the Group benchmarks its performance with other large housing associations. The Executive Directors regularly review processes to improve efficiency and ensure that best practice techniques are used. All of these measures help to identify areas for improvement and enable action to be taken where necessary. Nominated by local authority Applicants from our own waiting list Existing tenants who transferred to another Sanctuary property Other Voids % % Group Association Nominated by local authority Applicants from our own waiting list 24.6% 26.1% 65.6% 47.5% Social housing accommodation: General needs housing 46,913 46,941 43,251 43,918 Sheltered & supported housing accommodation 13,888 13,810 13,160 13,386 Shared ownership 2,831 2,777 2,829 2,777 Existing tenants who transferred to another Sanctuary property Other 7.9% 10.0% 1.9% 16.4% Social housing leased outside Group tenancy agreement ,704 63,598 59,312 60,151 Non-social housing accommodation: Student & key worker 7,974 9,008 7,974 9,008 Registered care homes 2,675 2,513 2,208 2,056 Home ownership 3,671 3,698 3,543 3,570 Commercial Ethnic origin % % White Mixed Black Other Market rented accommodation ,511 15,413 13,913 14,825 White 83.3% 84.1% units in management 78,215 79,011 73,225 74,976 Mixed 2.8% 4.8% Some units in management within the 2011 comparative have been reclassified to align to the activities of the Group. At the same date the Group had 5,552 (2011: 2,414) units under development of which 1,404 (2011: 2,055) were onsite and a further 3,848 (2011: 359) were committed. 1,379 owned units are managed by third parties (2011: 1,404). Black Other 7.7% 6.4% 6.2% 4.7%

9 Operating and Financial Review (continued) Rents For the majority of our social housing stock the annual rent increase was calculated with reference to the September 2010 published retail prices index for inflation which resulted in a basic increase of 5.1%. The Group has various different types of social housing tenancies, the rents for which are set in accordance with the Regulatory Framework for Social Housing in England from April 2012 Annex A Rent Standard Guidance. This replaces previous Housing Corporation Circulars. Average weekly rents General needs tenancies Type of property Bedsits Bed Bed Bed Bed Bed Bed Rent arrears Another key performance indicator is the amount of unpaid arrears. At 31 March 2012 rent arrears represented 4.26% of rental income, a decrease in comparison with 2011 (4.41%) which was primarily attributable to improved timing of payments from local authorities. Monitoring of rent collection and arrears levels is a key management function. Staff throughout the country have worked hard to keep arrears under control, the dedicated debt recovery teams in the regions work closely with housing officers to maximise rent collection and to avoid debt escalating by taking early and prompt action. These specialist teams work with residents who have difficulty paying rent and, where appropriate, refer them to debt advice agencies to investigate whether they may be eligible for greater financial support or housing benefit. Rent arrears % % Repairs service The centralised Customer Service Centre based in Hull deals with all calls from residents requesting repairs and we believe that this is improving housing management efficiency. The centre has had a busy year processing 264,883 (2011: 244,903) requests and operates 24 hours a day, 7 days a week improving accessibility to the service and meeting the needs of residents. All repairs that are reported to the Customer Service Centre are dealt with in order of priority depending upon the type of repair and the individual needs of the resident. Customer advisers are trained to ask the right questions of callers to identify the potential repairs required and to establish the needs of the resident. Completed repairs are monitored to see if target timescales are achieved. Every time a repair is carried out, residents are asked to complete a brief questionnaire about the repairs service. This allows for the opportunity to follow up any immediate problems. To encourage residents to return these questionnaires there is a monthly prize draw to win 100 of supermarket vouchers. Of those who replied, 87% (2011: 88%) of residents rated the service excellent or good. The table below shows residents satisfaction with the repairs service for the last two years. Complaints analysis In the year to March 2012 we received 35 enquiries from the Housing Ombudsman (2011: 20), plus eight carried over from the previous year. Six of those cases were outside the Ombudsman s jurisdiction. Seven investigations have been completed, and four investigations are ongoing. Of the completed investigations, maladministration was found in three cases and no maladministration was found in four cases. Operating and Financial Review Repairs satisfaction Level of service % % Excellent Good Could do better 8 6 Poor Excellent 58% 58% Good 29% 30% Could do better 8% 6% Poor 5% 6% 16 17

10 Operating and Financial Review (continued) Performance in the year The results for the year are set out in the Income and Expenditure Accounts on page 23. The Group (excluding joint ventures) has continued to expand during the year increasing turnover by 26.5 million (6.5%) although units in management decreased by 796 (1.0%). Group operating surplus increased to million (2011 restated: 94.3 million). Operating margins increased to 24.2% (2011 restated: 23.3%) whilst interest cover increased to 1.73 (2011 restated: 1.68). Overall the Group made a surplus for the year before taxation of 23.7 million (2011 restated: 46.9 million). The net surplus includes 3.0 million (2011 restated: 8.7 million loss) from the sale of properties. Also included within the surplus for the year is 2.2 million (2011: 4.1 million) in respect of amortisation of the cash flow hedge reserve and changes in the value of unhedged derivative financial instruments. The Group complied with all its loan covenants. During the year two subsidiaries transferred their engagements to Sanctuary Housing Association, Shaftesbury Housing Association on 26 April 2011 and The Beth Johnson Housing Association Limited on 28 December Further detail is given in note 31. Prior year adjustments The Group has adopted the Statement of Recommended Practice for Registered Social Landlords (Revised 2010) ( SORP 2010 ). Certain aspects of this give rise to a change in accounting policy as described in note 1. The adjustment has increased the surplus by 22.2 million for the year ended 31 March 2011 and increased revenue reserves by million. Post balance sheet events On 26 April 2012 the Group, through its subsidiary Sanctuary Capital Plc, issued 300 million 5.0% Secured Bonds. The proceeds of the bond issue will be used to contribute towards a 750 million national development programme over the next four years. On 27 June 2012 the Group completed the transfer of engagement of its subsidiary Asra Midlands Housing Association Limited to Asra Greater London Housing Association Limited. In return Sanctuary Housing Association acquired a portfolio of seven care homes and two supported schemes. A provision for loss on disposal has been disclosed in the financial statements. See notes 9 and 10. The table opposite highlights the underlying surplus for the year and summarises the overall results in comparison to previous years: m Restated Turnover: Group and share of joint venture Less: Share of joint venture turnover (3.7) (3.5) (3.4) (3.4) (3.2) Group turnover Cost of sales (3.5) (8.0) (9.2) (2.7) (0.5) Operating costs (323.7) (302.8) (261.5) (249.3) (231.0) Operating surplus Share of operating surplus in joint venture Group operating surplus Net gain on business combinations Surplus/(loss) on sale of fixed assets 3.0 (8.7) Net interest payable in respect of loan instruments (85.9) (81.1) (76.0) (66.6) (62.2) Gain/(loss) on revaluation of investments (0.5) - Financing (cost)/income - (0.7) (1.2) (0.4) 0.5 Net amounts credited in respect of derivative financial instruments Surplus for the year before tax Taxation (0.1) - - (0.1) - Surplus for the year after tax Operating costs (including cost of sales) as % of Group turnover % % % % % Net interest payable as % of Group turnover Operating margin (operating surplus as a % of Group turnover) Net margin (surplus for the year after tax as a % of Group turnover) Interest cover (operating surplus plus depreciation/ net interest payable) Following the implementation of the SORP 2010 from 1 April 2011 the comparatives have been restated to include adjustments for the recognition of consolidated gains on business combinations arising from new entities joining the Group and to recognise a provision for loss on sale of fixed assets. At 31 March 2012 the Group owned properties with a depreciated cost of 3,482.1 million (2011: 3,327.6 million). The Group had borrowings totalling 1,477.1 million (2011: 1,434.3 million) of which 24.9 million (2011: 26.9 million) falls due for repayment within one year. Reserves at the year end amounted to million (2011 restated: million). Operating and Financial Review 18 19

11 Operating and Financial Review (continued) Key risks of the Group The Group operates a comprehensive risk mapping process as part of its annual business planning cycle. This process identifies a number of external factors which affect the Group. These factors include: Differential inflationary pressures The majority of the Group s income is reviewed annually by reference to retail price indices. Although income levels remain in line with general cost inflation there is a risk that the Group is exposed to real cost inflation. The Group looks to use the benefits of economies of scale, competitive tendering, fixed price contracts and national procurement arrangements to mitigate risks of cost inflation in addition to initiatives such as the Internal Maintenance Service. The Group continues to base financial plans on prudent inflation assumptions to ensure the impact of inflation can be managed. Welfare Reform Bill The Welfare Reform Bill sets out proposed changes to benefit payments including the universal credit, alterations to benefit caps and changes to the method of payment that could impact on the cash flows and debt collection approach within the Group. The Group is participating in a pilot scheme to assess the impact of direct payment of Housing Benefit and is developing strategies to maximise rent collection. Austerity Pressure on government revenue budgets, in particular adult social care and supporting people funding, have had an impact on local authority funding, the housing association sector and in particular Sanctuary s care and support business. The risk of reductions in fee income is managed through the review of scheme viability and changes to the services offered. Changes in the housing market In the year the Group was awarded 90 million towards building new affordable housing. The reduction in levels of capital grant funding for new developments is partially offset by a reliance on higher affordable rents, conversion of existing social rented stock, shared ownership and outright sales to crosssubsidise new affordable housing development. The impact of these changes will alter Group cash flows, result in higher gearing and give greater exposure to the general housing market. The Group has updated the Five Year Plan including modelling a range of sensitivities to accommodate a range of scenarios and to ensure the impact of the changes can be managed and funded. Cost and availability of funding The changes in the economic and banking environment have impacted on both the pricing and availability of private finance for the housing association sector. Low costs of funding have historically been in part linked to strong regulation. The new regulatory arrangements have been reviewed by funders and credit rating agencies who remain satisfied with the arrangements in place. Sanctuary has secured committed credit lines with funders and has continued to reduce the cost of funds through preserving external credit ratings, through meeting regulatory financial viability requirements and maintaining a close dialogue with investors and partners. Compliance with legislation Legislative or regulatory breaches can have a material and adverse impact on organisations, stakeholders and directors with significant financial, reputational and individual consequences. Sanctuary dedicates specialist teams to monitor and co-ordinate compliance activities. In the year the Group has put in place revised governance arrangements to ensure there is full compliance with economic and consumer regulatory requirements. In addition all staff undertake training to ensure continued good practice and compliance. The Executive Directors and Group Audit Committee review and scrutinise the risk maps for all Group entities. The Board approves the Group Risk Map. Investment for the future The Executive Directors are continually looking to grow the Group s business and improve organisational performance and service to customers. Investing in existing and new properties remains at the centre of the Group s asset management and development strategies. In total the Group has incurred million (2011: million) on property additions in the year. A further 48.2 million has been incurred repairing and maintaining existing property (2011: 43.2 million). The Group was successful in a 90 million bid to the Homes and Communities Agency for a four year grant funded affordable housing development programme. The programme will see a total capital investment of 750 million. This has already led to a greater involvement of private finance, evidenced by the issue of 300 million 5% Secured Bonds on 26 April Over time there will also be changes to the range of housing markets the Group operates in and the mix of social housing stock. The Group has put in place the correct structures and resources to ensure it is well placed to deal with the development programme. Treasury management The Group s treasury activities are coordinated through the central treasury function and overseen by the Group Director Finance and Resources. The central treasury function operates within a framework of clearly defined Board approved policies and procedures including permissible funding and hedging instruments, exposure limits and a system of authorities for approval and execution of transactions. The central treasury function prepares regular reports for the Group Director Finance and Resources who reports directly to the Board on all treasury matters. The central treasury function is subject to review by the in-house assurance team. Treasury risk management The Group has used derivatives within its borrowing agreements to manage interest rate and currency risk arising from its sources of finance. It is the Group s policy that no speculative trading in financial instruments shall be undertaken. The main risks arising from the Group s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Board reviews and agrees the management of these risks. Further information is contained within note 17. Funding and liquidity The Group funds its operations through a mixture of retained reserves, grants and borrowings, including bank and capital market borrowings and leasing. All of the Group s facilities are arranged by the central treasury function. Funds raised are either directly lent to operating subsidiaries, are lent from Sanctuary Housing Association or are lent from the Group borrowing vehicle, Sanctuary Treasury Limited, on commercial terms. The Group s policy is to minimise cash held whilst ensuring that loan facilities are in place to cover 12 months cash flow or more. Cash flow requirements are monitored through the Group s rolling projections. Group borrowings currently comprise 92.2% fixed rate debt (2011: 96.3%). Going concern The Board confirms it has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly it continues to adopt the going concern basis in preparing the Group s financial statements. By order of the Board. Craig Moule Secretary Group Director Finance and Resources 28 June 2012 Registered Office Sanctuary House Chamber Court Castle Street Worcester WR1 3ZQ Operating and Financial Review 20 21

12 Independent Auditors Report to the Members of Sanctuary Housing Association Income and Expenditure Accounts for the year ended 31 March 2012 We have audited the financial statements of Sanctuary Housing Association for the year ended 31 March 2012 which comprise the Group and Association Income and Expenditure Accounts, the Group and Association Statement of Recognised Surpluses and Deficits, the Group and Association Balance Sheet, the Consolidated Cash Flow Statement, the Reconciliation of Consolidated Net Cash Flow Movement in Net Debt 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). Respective responsibilities of the Board and Auditors As explained more fully in the Statement of responsibilities of the Board, set out on page 12, 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 (ISAs) (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Association s members as a body in accordance with Section 9(1) and Section 13(5) of the Friendly and Industrial and Provident Societies Act 1968 and the Housing and Regeneration Act 2008 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group s and Association s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the board; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Sanctuary Group Annual Report and Financial Statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Group s and Association s affairs as at 31 March 2012 and of the Group s and Association s income and expenditure and the Group s cash flows for the year then ended; and have been properly prepared in accordance with the Friendly and Industrial and Provident Societies Act 1968 and the Industrial and Provident Societies (Group Accounts) Regulations 1969, 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 Friendly and Industrial and Provident Societies Act 1968 requires us to report to you if, in our opinion: the Association has not kept proper books of account in accordance with Section 1(1)(a) of the Friendly and Industrial and Provident Societies Act 1968; or a satisfactory system of control over transactions has not been maintained in accordance with Section 1(1)(b) of the Friendly and Industrial and Provident Societies Act 1968; 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. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Birmingham 28 June 2012 Notes Restated Restated Turnover: Group and share of joint venture Less: Share of joint venture turnover 32 (3.7) (3.5) Turnover Cost of sales 2 (3.5) (8.0) (3.1) (4.7) Operating costs 2 (323.7) (302.8) (224.6) (157.9) Other income Operating surplus Share of operating surplus in joint venture Group operating surplus Net gain on business combinations 4, Surplus/(loss) on sale of fixed assets 4a 3.0 (8.7) Interest receivable and similar income 6a Interest payable and similar charges 6b (85.3) (79.1) (70.4) (49.9) Financing cost 25 - (0.7) (0.1) (0.7) Surplus on ordinary activities before taxation Taxation on surplus on ordinary activities 7 (0.1) - (0.1) - Surplus for the year after taxation 2, There is no material difference between the surplus on ordinary activities before taxation and the surplus for the financial year stated above and their historical cost equivalents. The results for the current year and prior years relate wholly to continuing activities. Statements of Recognised Surpluses and Deficits for the year ended 31 March 2012 Group Association Notes RestatedRestated Surplus for the year Unrealised surplus on revaluation of listed investments Actuarial (loss)/gain on pension schemes 23,25 (9.9) 13.1 (9.5) 10.9 Gain on hedged instruments surplus recognised for the year Prior year adjustment surplus recognised since the last annual report The notes on pages 26 to 78 form part of these financial statements. 22 The maintenance and integrity of the Association s website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 23