Consolidated Report and Financial Statements

Transcription

1 Hyde Housing Association Limited Consoidated Report and Financia Statements 31 March 2016 Homes and Communities Agency Registration No. LH0032 Co-operative and Community Benefit Societies Act Registration No R Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

2 Contents Highights Board and Advisors Introduction from the Chair and Chief Executive Strategic Report Independent Auditors Report Statement of Comprehensive Income Statement of Financia Position Statement of Changes in Reserves Statement of Cash Fows Notes to the Financia Statements Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

3 HIGHLIGHTS The Hyde Group Highights The Hyde Group (the Group ) is one of the UK s eading providers of affordabe housing in London, the South East of Engand and the Midands. In 2015/16 the Group revised its Strategic Pan, providing the Group with a cear focus on what it needs to do to achieve its overa vision and mission. An overview of the Group s overa strategic objectives and achievements deivered against these in 2015/16 is provided beow: Deiver quaity services Resident satisfaction increased during the year by 5%, as a resut of panned service improvements. This trend of improvement has continued into 2016/ Group turnover m 42 Group surpus m m was invested into the homes of our residents, to improve faciities and to maintain stock. Through greater efficiencies, a saving of 6m was made on maintenance activities % 24% 257 peope were heped into jobs, 254 into training and 2,950 received advice/support. 153 bursaries and grants were awarded for vauabe oca projects Tota margin % 27% Be efficient Turnover increased from 338m to 351m. This was primariy due to an increase in renta income as a resut of infation-inked renta increases and the deivery of more affordabe homes. Underying surpus increased from 81m to 95m. This was due to an increase in operating surpus and in the surpus generated from strategic asset disposas. This was partiay offset by greater net financing costs and a reduction in joint venture income. Tota margin increased from 24% to 27%, due mainy to the higher surpuses generated in 2015/16 from strategic asset disposas and stock swaps. As noted above, the Group s tota sae and disposa activities generated strong surpuses in 2015/16. A surpuses are retained by the Group and are used to support ongoing investment. Over the past five years the Group has invested on average more than 2.4 times its surpus on the acquisition and construction of housing. In 2015/16 the Group invested the equivaent of 3.5 times its surpus enabed through greater efficiency and maximising income from saes. Buid more homes The Group deivered 730 new homes in the year. Of these, 382 were homes for rent, with the remainder for shared ownership and outright sae. In addition, the Group achieved its highest ever number of and acquisitions (2,646 pots) and starts on site (1,947). Roout of the construction management programme to seected schemes saved the Group 10% on these schemes compared to traditiona buid costs. The Group was awarded a God Award from In House, recognising that 91% of the Group s shared ownership customers woud recommend Hyde to friends or famiy. Vaue our peope The Group invested 799k in training and deveoping our peope. The Group aunched MY Career too heping staff to identify potentia career paths and aunched the Group s first taent deveopment programme. We recruited our third cohort of apprentices and gained successfu outcomes from the second cohort, with seven apprentices securing empoyment within the Group. 4 Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016

4 BOARD AND ADVISORS Board and Advisors The Board Mark Sebba (Chair) Nicoas Badman (resigned 26 September 2015) Aan Coett Pau Cook Lynn Gibert (appointed 26 September 2015) Kishwer Fakner (resigned 26 September 2015) Paua Hay-Pumb Aastair Imrie Duncan Ingram Prodaman Sarwa (resigned 26 September 2015) Piers White Eaine Baiey Simon Peacock (resigned 31 December 2015) Executive Management Team Eaine Baiey Group Chief Executive Stephen Aeppo Group Finance Director (appointed 1 January 2016) Tracy Aison Group Director Corporate Services Caro Carter Group Director of Housing David Gannicott Group Business Deveopment Director Nevie Hounsome Group HR Director Simon Peacock Group Finance Director (resigned 31 December 2015) Company Secretary John Edwards Registered Office 30 Park Street London SE1 9EQ Te: Web: Bankers Nationa Westminster Bank Pc 143 High Street Bromey BR1 1JH Soicitors Devonshires 30 Finsbury Circus London Wa London EC2M 7DT Trowers and Hamins 3 Bunhi Row London EC1Y 8YZ Independent Auditors PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors 1 Embankment Pace London WC2N 6RH Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

5 INTRODUCTION Introduction from the Chair and Chief Executive During the ast year there have been severa major changes in Hyde s operating environment. Since winning the genera eection, the Conservative government has made house buiding and home ownership cear priorities. It has adopted a more chaenging approach to housing associations by stressing the need for them to be more efficient and buid more homes. Arguaby the biggest chaenge to the sector came in government s first budget in the summer of 2015, when the Chanceor announced that socia housing rents shoud be reduced by 1% each year, for four years, from Apri This has resuted in a rea reduction in housing associations income. It prompted organisations ike Hyde to reconsider their pans and to make sure that they are fit and abe to deiver more for ess. Then, as we were finaising this report, the resut of the Brexit referendum was announced. At the time of writing, the intention for Britain to eave the European Union has been made cear, but the pan for how this wi actuay happen has not. The consensus is that poitica and economic uncertainty is ikey to continue for months - if not years. On the surface then, the word might seem to be a more chaenging pace today than it did a year ago. However, at Hyde, we ve worked tireessy to prepare ourseves for the chaenges ahead. We have refreshed our corporate strategy, our financia pan and our deveopment strategy to take account of the rent reduction and other reevant factors. We remain committed to deivering quaity services, buiding more homes, being efficient and vauing our peope. We wi continue to reinvest every penny of our surpus into the business. Our business wi continue to generate heathy surpuses and this wi maximise our capacity to deiver services and buid new homes. Our deveopment strategy refects this ambition by showing an increase in investment and output we are determined to buid more homes that are so bady needed in the areas that we work in. These homes wi be a mix of market and sub-market, for rent and for sae. We have stress tested our pans extensivey, using simiar tests to the UK banking sector. This gives us great confidence that Hyde is resiient enough to cope with extreme economic shocks. Towards the end of the financia year we announced our intention to merge with our feow socia andords London and Quadrant and East Thames. We beieve that we are a ike-minded organisations who wi fit together we. We beieve that we can do more together than we can apart we wi become even more efficient and buid even more homes. Our progress so far has been good. We hope to concude the merger successfuy ater in In the meantime, we wi continue to deiver our services and we wi not aow the work on the merger to be a distraction. 2015/16 was yet another strong year for Hyde financiay. We deivered a record surpus of 95m, up from 81m a year ago. This surpus wi be reinvested in deivering services and buiding more homes. We have set out cear pans to be more efficient and reduce our costs to offset the rent reduction, making sure that we continue to deiver quaity andord services. We are aready deivering these pans and we incuded initia savings in our budget for 2016/17. 6 Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016

6 We deivered 730 new homes in the year, around haf of which were for sub-market rent. We acquired more than 2,600 pots of and that wi eventuay yied around 3,000 homes. We started construction on projects that wi deiver 1,947 units. We are on track to increase our output in ine with our deveopment strategy. We are a responsibe andord and our residents are important to us. We want to make sure they are happy with the services we provide, so in we aunched a new programme caed Look Again which wi define our andord services more ceary and make them more efficient and easy to access by the end of 2016/17. We have aready seen some positive impacts from this programme. We have reorganised the way we dea with empty homes and how we re-et them and we have done the same for our anti-socia behaviour service. In addition, we have revamped our compaints handing process to focus more on the customer experience and the ratio of compaints to transaction voumes is now extremey ow. Customer satisfaction with repairs improved to 82% from 76% a year ago. Rent oss due to empty homes was just 1.07% of income. Our operating cost per unit of accommodation is among the owest in the G15. Peope make an organisation, and we are ucky to have such passionate, taented and motivated peope working for Hyde. They were centra to our achievements this year and they wi be centra to our future success. We want to enhance opportunities for our peope, giving them more scope to deveop and progress their careers. We are excited about the prospect of increasing investment in training and apprenticeships. We want to create a strong cuture that brings the vaues of the organisation to ife. We continue to be a we-run and we-governed organisation. The reguator carried out an in-depth assessment of us and confirmed that Hyde meets its highest standards for good governance and financia viabiity. We aso maintained our strong reputation and good reationships with our stakehoders, incuding investors, suppiers and oca authorities. These reationships with our externa partners are critica to our success. In summary, we re in great shape. We know what we want to achieve, we ve aid rock-soid foundations, and we re very excited and inspired about what the future hods. We ook forward to working with staff, residents and partners to make our business the very best it can be, without osing sight of our socia purpose: to provide decent, affordabe homes and to manage them responsiby. Mark Sebba Hyde Group Board Chair Eaine Baiey Group Chief Executive Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

7 STRATEGIC REPORT Strategic Report The Directors present their strategic report for the year ended 31 March Operating review for the year Review of the business The Hyde Group (the Group ) is one of the UK s eading and award winning providers of affordabe housing in London, the South East of Engand and the Midands. The Group is primariy a group of not-for-profit organisations (headed by Hyde Housing Association Limited (the Association )) whose main business is the provision and management of good quaity accommodation at affordabe rents. The Group is a pubic benefit entity. As at 31 March 2016, the Group owned 41,520 homes (2015: 41,880) and managed a further 6,687 homes (2015: 7,766) under contracts with both the London Borough of Isington and the London Borough of Brent. As shown in notes 3 and 4 of the financia statements, the Group is a diverse business operating in the foowing activities: Genera needs, Affordabe Renta Tenure and Intermediate Market Rent homes, primariy for individuas/famiies who are unabe to rent or buy at open market rates Supported housing Low cost home ownership, primariy shared ownership, whereby residents purchase a share in the equity of their homes and pay rent to the Group on the remaining share Temporary socia housing (easehod and management schemes) Heath accommodation Market rent Leasehod management Outright sae to the private market to generate profits to buid more socia homes. This is predominanty specific to Hyde Vae, a whoy owned subsidiary of the Group. Group Association Genera Needs 26,058 26,302 17,823 18,046 Affordabe Renta Tenure 1,679 1,203 1,404 1,110 Supported Housing 2,425 2,947 2,408 2,479 Oder Peope Accommodation 1, Shared Ownership 3,314 3,394 3,092 3,207 Leasing and Management Schemes Heath & Education Accommodation Intermediate Market Rent Other Rented Properties Leasehoders 5,340 4,880 3,629 3,200 Tota Owned 41,520 41,880 30,571 31,143 Contract Management 6,687 7,766 6,341 7,420 Tota 48,207 49,646 36,912 38,563 8 Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016

8 Deveopment and performance of the business during the year and at the end of the year Deiver Quaity Services Resident satisfaction with repairs significanty increased during the year by 5% to achieve a stabe eve of 81% at year end. This was short of our 85% target but performance has continued to improve into 2016/17 and as of May 16 was 85%. This improvement has been achieved through a comprehensive recovery pan which incuded additiona staff training; quicker access to contractor appointment systems; a strengthening of contract management expertise and coaborative working at a eves with contractors on resource panning and probem soving. Overa, the number of compaints received across the Group tota fewer than 1% of a transactions. During the year, the Group s compaints management process was reorganised, with most of the centra compaints team resource redepoyed into specific service teams. Additiona training was provided to staff and new processes put in pace to improve service and efficiency. These changes enabed the Group to exceed its satisfaction target for handing repair compaints. During the year, some performance indicators (ca answering and resoution, repair recas, void oss, compaints satisfaction) experienced a dip in performance during the mobiisation of new repairs and maintenance contractors. These contractors are now fuy mobiised and performance indicators have returned to target eves in the first quarter of 2016/17. Void rent oss ended the year beow target and beow peer group average, but since then we have reduced the number of empty homes which we intend to re-et by 50% and expect to reach our target of 0.95% void rent oss by the end of 2016/17. In 2015/16 the Group set a chaenging target to achieve 83% overa satisfaction with Hyde s services. As of year-end, overa satisfaction was 75%, just beow our peer group average (77%). Satisfaction with our repairs service ended the year at 81% and resident services at 78%, so we expect overa satisfaction with Hyde s services to begin to rise in ine with these key drivers of satisfaction. The Group has continued to manage the impact of wefare reforms and other key changes in our operating environment, maintaining our income and keeping bad debt eves to 3.9% (2015: 3.9%). This was enabed in part by improved customer data and a robust approach to debt coection combined with speciaist support for those in financia difficuty. During the year we strengthened the capacity and skis of our heath and safety compiance team and bedded-in the new contracts mobiised in ate The Group maintained fu compiance in the key area of gas servicing and ran a substantia servicing and inspection programme for a other areas incuding fire risk, asbestos and egionea. We are continuing to invest in the deveopment of a new compiance IT system to enabe more efficient administration and data handing. Performance indicator Target measure Actua measure 31 March 2016 Actua measure 31 March 2015 Resident satisfaction 85% 81% 78% with repairs Overa satisfaction 40% 24% 23% with compaints Percentage of jobs 1.0% 4.6% 4.0% with reca Percentage of cas 83% 75% 81% resoved at contact centre Void rent oss 1.1% 1.4% 1.1% Rent arrears 4.5% 3.9% 3.9% Overa resident 83% 75% 73% satisfaction Compiance of 100% 100% 100% properties with gas certificates Satisfaction with first 85% 90% 86% point of contact Overa satisfaction with ASB Handing N/A 71% 67% Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

9 STRATEGIC REPORT The Group has continued to invest in the deveopment of a new service charge system to ensure that service charges continue to be accurate and fair and it is anticipated that the new system wi deiver improved efficiency and savings through greater automation and improved processes. During the year, we aso introduced processes to capture and recharge more of our andord costs particuary in reation to heath and safety compiance. We deivered savings on the maintenance budget of 6.0m per annum through more efficient working practices, a new Commonsense Investment approach and contract savings. Our Direct Labour Organisation Hyde Property Services which provides maintenance services to 17,000 of our tenants, benefited from investment in a new Contractor Management System, new suppy chain arrangements and new feet, and is set to achieve operationa savings of 1.1m per annum from next year. During the year, we successfuy deivered 57.3m of investment in stock renewa and generated 9.0m additiona income from the disposa of poor performing assets. An independent property stock condition survey was carried out, confirming that our stock is in good condition with amost no catch up repair requirements. Our Asset Management Strategy continues to ensure we achieve vaue for money and is forecast to deiver significant savings over the next four years. Hyde Pus our socia investment team continues to provide services to hep residents sustain their tenancies and access opportunities. During 2015/16, 257 peope were heped into jobs, 254 into training and 2,950 received advice/support. Additionay, 13 apprenticeships were secured through our maintenance contractors and 224 young tenants improved their financia management skis through our Money House project. We provided 153 grants to the vaue of 87k to support peope in reaising their aspirations. Buid More Homes During 2015/16 the Group deivered 730 much-needed new homes in the year. Of these, 382 were homes for rent, with the remainder for shared ownership and outright sae. In addition, the Group achieved its highest ever number of and acquisitions (2,646 pots) and starts on site (1,947). Over the next five years the Group aspires to deiver 6,000 new homes, supported by investment of around 60m in oca infrastructure such as schoos, community centres and open spaces and, through our buid programme, create 700 apprenticeships and more than 1,000 fu time jobs. Over the ast coupe of years we have focused on growing the deveopment pipeine. Our new deveopment strategy is targeting the deivery of around 1,500 homes per year from 2017/18. We have discretion over a significant portion of the programme and we wi ony make these investments provided conditions are favourabe. Hyde s Design and Quaity Pane assesses a new deveopments to minimise costs and maximise vaue. During 2015/16 we saved 11m on our deveopment programme through improving design and buid specifications, enough to hep fund a further 60 new homes. This pane oversaw a number of innovative ideas, incuding creating private gardens where possibe reducing common space, improving communa ighting and standardisation of kitchen units and window sizes and styes. In addition to this, continued roout of the Group s construction management programme to seected schemes saved the Group 10% on these schemes compared to traditiona buid costs. The Group has continued to seek opportunities to work in partnership through joint ventures, particuary where schemes have a high eve of compexity or risk and in which a partner can hep mitigate and add vaue. Recenty secured opportunities incude being seected as a Transport for London (TFL) deveopment partner and our joint venture with Brighton and Hove City Counci to deiver 1,500 homes. During the year a number of our schemes were recognised by industry awards, incuding a Five Star award for the Best Residentia Deveopment in East Sussex for One Hove Park and a God Award from In House, recognising that 91% of the Group s shared ownership customers woud recommend Hyde to friends or famiy. 10 Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016

10 Vaue our Peope Our staff are at the heart of what we do, and we remain committed to heping them to meet their career aspirations and in ensuring that we retain and attract the best peope. During 2015/16 we invested 799k in training and deveoping our peope. This equated to more than two days of training per person, with around a third of this deivered in-house. In tota 30 staff attended accredited programmes to improve their management, eadership and/or commercia skis and a further 38 were offered sponsorship to undertake a professiona or accredited quaification. Having aunched the MY Career too to hep staff identify potentia career paths in 2015, we buit on this work by aunching our first taent deveopment programme in Twenty peope were incuded in this programme which is part of our overa approach to succession panning. We retendered for our Learning and Deveopment managed service provider this year, reappointing Thaes. As part of this exercise, we improved a number of our core Learning and Deveopment processes to provide a more efficient operation. Our earning and deveopment programmes across the Group continue to equip our peope with the skis and knowedge they need. We continued to deveop our Fexibe Benefits Scheme during the year, aowing empoyees to choose their benefits package. More than 90% of empoyees are members of one of Hyde s pension schemes. We recruited our third cohort of apprentices who are on a customer services or business administration programme. Hyde Property Services aso recruited a group of apprentices on a muti trades programme. We continue to gain successfu outcomes with seven apprentices from the second cohort securing jobs with Hyde. Empoyees and equa opportunities The Group continues to reward performance through its performance-reated pay scheme. Negotiations regarding genera eves of pay commence with the Joint Negotiating Counci from January each year. We benchmark individua saaries at appointment, upon promotion, and one-off increases outside the annua pay review. Benchmarking is against reevant market data and pay refects an individua s performance and contribution. We operate a strong performance management process. A our staff have an annua appraisa and a managers attend assessment centres as part of their recruitment, to ensure that they have the right skis and are provided with the right eve of support for them to be successfu in their eadership roe. We share information about our objectives, progress and activities through reguar individua team and departmenta meetings. Reguar staff communications are produced and consutations with staff and union representatives take pace on appropriate matters affecting staff. We aso run reguar staff surveys and action pans to improve empoyee engagement. The Group recognises its ega and socia obigations with regard to the empoyment of disabed persons and those with protected characteristics. Appications for empoyment by disabed persons are given fu consideration, taking account of aptitude and abiity. The Group recognises its responsibiity to support empoyees who become disabed during the course of their empoyment. Our peope are instrumenta to our success and we vaue the diversity that each empoyee brings to the business. The Group maintains its IiP God status and Positive about Disabed Peope accreditation. The Group is aso a Stonewa Diversity Champion. Figure 1.1 Breakdown of the gender of the Executive Management Team, Senior Leadership Group and empoyees at the end of the financia year Executive Management Team Senior Leadership Group Men Women Men Women 50% 50% 50% 50% 54% 46% 51% 49% A other empoyees 45% 55% 44% 56% Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

11 STRATEGIC REPORT Be Efficient Achieving VFM The Group Board is responsibe for ensuring Hyde estabishes and maintains a comprehensive and strategic approach to achieving vaue for money in meeting our Corporate Objectives. This approach is designed to ensure a robust assessment of the performance of our assets and resources (incuding, for exampe, financia, socia and environmenta returns) and takes into account the interests and commitments to our stakehoders. The VFM strategy is designed to assist the Group in managing our resources economicay, efficienty and effectivey, to provide quaity services and homes and to pan for and deiver ongoing improvements in vaue for money. The key eements in deivering our VFM approach incude; 1. Group Board approva of the Strategic Pan which incudes VFM objectives and annua review of the VFM Strategy, supported by detaied budgets and VFM targets that are reviewed annuay and cascaded down to budget hoders 2. Decision-making supported by robust strategies and business panning that seeks to optimise the use of resources to deiver our objectives, taking into account the priorities of our residents (through HRV- Hydewide Residents Voice), our obigations to maintain decent homes and to invest in buiding new homes 3. Our Asset Management Strategy ensures we understand the returns on our housing and commercia assets, and provides the toos to assess how best to optimise future returns in both socia and financia terms. This may incude additiona investment, redeveopment, change in tenure type or disposa 4. Our performance monitoring framework is overseen by the Group Housing Services Board for housing service deivery, the Group Investment Committee for investment and deveopment deivery, the Group Board for treasury management and the Group Audit Committee for risk and interna contro. This is supported by resident scrutiny of oca performance through Resident Assurance Committees and for service experience by HRE (Hydewide Residents Eye). In addition we carry out a yeary sef-assessment against the HCA Nationa Standards to ensure that we are compiant and note pans for continuous improvement 5. A strategic approach to service enhancement. This is supported by a business case approach to change deivery and investment proposas, with cear cost benefit measures refected in budgets and service KPIs. Our approach makes use of we-estabished toos such as Best Vaue reviews, benchmarking within the G15 (the 15 argest associations in London) peer group and comparison to service modes outside of the sector 6. Estabishing centres of expertise to support Group activities; such as Hyde Pus (supporting residents to manage debt and sustain their tenancies), our in-house ega team (faciitating eary intervention and mediation on tenancy matters and supporting Housing Officers with tenancy enforcement), and our centraised procurement team (aowing us to take a strategic approach to procurement, heping to shape interna service deivery and benchmark to market). Our aim is to strengthen frontine services, focusing on digita and teephone resoution, with residents accessing more services on ine and through socia media channes. Measuring success in VFM The Group has a suite of performance KPIs (page 9) which capture how we Hyde is deivering on its socia purpose and ensuring it is a viabe, thriving organisation that wi deiver its Corporate Pan. Further detais on how we are deivering against our VFM pan, our VFM sef-assessment and pans for the future can be found summarised in our annua report, in our annua vaue for money pan and aso on our website ( 12 Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016

12 Financia performance Figure 1.2 Financia highights 2012* 2013* 2014* m m m m m Group Statement of Comprehensive Income Tota turnover Operating surpus Net financing costs (interest payabe and receivabe) (58.7) (55.8) (58.2) (61.0) (66.0) Underying Surpus for the year before taxation Derivative instrument adjustments (56.4) (27.7) 27.3 (109.6) (73.3) (Loss)/surpus for the year before taxation (42.6) (2.0) 68.9 (28.8) 22.4 Group Statement of Financia Position Housing properties net of depreciation 2, , , , ,764.3 Long term assets Fixed assets net of depreciation and grants 2, , , , ,895.5 Current assets ess current iabiities Tota assets ess current iabiities 2, , , , ,043.3 Long term iabiities (2,526.7) (2,701.8) (2,782.8) (2,772.9) (2,739.4) Net assets Reserves Consoidated Statement of Cash Fows Net cash fow from operating activities Net cash outfow from returns on investment and servicing of finance (72.8) (70.9) (75.1) (87.9) (69.5) Net cash (infow)/outfow from capita expenditure (87.7) (110.8) (25.3) 61.9 (52.1) Financing (18.7) (76.1) (15.2) (Decrease)/increase in cash (101.0) (0.4) (59.3) Interest cover (parent entity ony) Gearing (parent entity ony) 68% 68% 67% 63% 66% Surpus before asset saes 000 (Group) 8,742 19,334 21,231 20,174 25,282 Net operating margin (Group) 29% 29% 28% 31% 31% Interest cover (Group) Margin before asset saes (Group) 30% 29% 25% 31% 33% * 2012 to 2014 is under previous UK GAAP. The Group s underying surpus before taxation in the year was 95.7m (2015: 80.8m). This surpus is before refecting the impact of market vaue movements on financia instruments used by the Group to hedge its interest costs. The impact of the market vaue movements in 2015/16 was a negative net movement of 73.3m (2015: negative net movement of 109.6m). The resut of the Group, incuding these items, was therefore a 22.1m surpus (2015: 29.0m oss) on ordinary activities before taxation. The underying surpus of 95.4m after tax, up 14.8m on ast year, refects a very strong performance from the Group s core housing management operations and, in particuar, our property trading sae activity. We are aso seeing the benefits of our sustained investment in business transformation made over the ast three years for the benefit of both the business and our residents, as we as our active management of interest costs. Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

13 STRATEGIC REPORT Figure 1.3 Turnover Anaysis Figure 1.4 Operating surpus % m m % Turnover m m m m Operating surpus m m 74.8m 79.0m 113.3m 104.8m 30.0% 25.0% 20.0% 15.0% 10.0% Operating surpus margin % % Turnover from ettings Outright saes Other turnover Operating surpus Tota operating margin % Shared ownership first tranche sae proceeds Lettings and other margin % Turnover increased this year from 338.3m to 350.5m due to an increase in renta income and property saes. Turnover from ettings increased ony sighty because athough there were increases due to new deveopments and infation inked renta upifts, this was offset by a reduction in temporary and student accommodation units. Turnover from outright saes and first tranche shared ownership homes increased by 6.1m to 92.5m due to a sighty higher number of competions during 2015/16. Operating Surpus has increased by 8.5m in 2015/16 to a 113.3m surpus. The operating surpus margin has stayed the same at 31%. Tota operating expenditure increased year on year by 3.7m to 237.2m. 14 Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016

14 Net interest payabe in the year increased to 66.0m, due to greater net borrowing baances on average. Our overa Group surpus of 22.1m (after taking into account the fair vaue financia instruments oss of 73.3m) has resuted in our accumuated reserves increasing to 330.8m. We wi continue to use these reserves to support reinvestment into our business, with the aim of providing good quaity services and deivering more new homes. Materia estimates and judgements were made on provision for bad debts, impairment of pant, property and equipment, investment property vauation, provisions and pension obigations. Provisions for bad and doubtfu debts are cacuated based on average coection rate by amount overdue. Judgements made in this cacuation are around grouping eves of arrears to assess recoverabiity. Investment properties are vaued annuay by third party vauers. Management reies on estimates to determine the vaue such as discount factors, timing of cash fows, predicted future rents and the ife of the asset. Impairment adjustments are made where there is evidence of impairment. Any impairment is charged to operating profit. Impairment is assessed by comparing carrying vaue of cost generating schemes to the higher of vaue in use and fair vaue ess costs to se. If the carrying vaue is greater than the higher of vaue in use and fair vaue ess costs to se, an impairment provision is made. Vaue in use requires management estimates of timing of cash fows, discount rate and the ife of the asset. Management use estimates to determine fair vaue ess costs to se based on information avaiabe regarding saes of simiar properties and depreciated repacement cost. Provisions are made for ease diapidations, onerous eases and ega caims where an obigation is probabe. These provisions require management s best estimate of the costs that wi be incurred based on egisative and contractua requirements. In addition, the timing of cash fows and discount rates used to estabish net present vaue of the obigations require management s judgement. The Group has obigations to pay pension benefits to certain empoyees. The cost of these benefits and the present vaue of the obigation depend on a number of factors incuding; ife expectancy, saary increases, asset vauations and the discount rate on corporate bonds. The assumptions refect historica experience and current trends. Figure 1.5 Use of reserves m % m % Property cost ess depreciation and impairment 2, ,726.5 Financed by: Loans (net of cash) 1, % 1, % Grant 1, % 1, % Reserves % % Other % % Ni 100% Ni 100% As the above tabe shows, the Hyde Group has a tota investment of 2,764.3m in property, of which 57% has been financed from reserves and oans. Given the changes to sector funding (in particuar the reduction in grant funding) we use our surpus to support our deveopment programme. Over the past five years we have invested more than 2.4 (2015: 3.5) times our surpus in the acquisition and construction of housing, as the foowing tabe shows: Tota average underying surpus over the past five years Tota average cash spent on acquisition and construction of housing over the past five years (net of grant) Cash spent on housing as a mutipe of surpus 51.4m 123.7m 2.4 times The mutipe of surpus has decreased due to us having increased our surpus over the past five years by making efficiencies and maximising our income through saes, which aows us to reinvest in more socia housing. Capita structure and treasury poicy The Group is financed by a combination of committed bank faciities (ong dated term, and shorter dated revoving credit faciities), senior secured stering bonds issued in the capita markets, private pacement funding, Socia Housing Grant funding from the UK Government and retained reserves. The Group s Corporate Finance and Treasury department maintains sufficient cash and readiy-avaiabe committed credit faciities to fund the Group s working capita requirements and investment programmes in the short to medium term. The Group s treasury strategy and poicy is reviewed and approved annuay by the Group Board to ensure it underpins the financia budget, operationa targets and onger term strategic and financia pans of the Group. The Group reduces voatiity in cash fows and interest payabe through the use of an activey managed interest rate risk hedging programme. The Group s financia and treasury strategy is reviewed annuay by both S&P and the HCA as part of their financia assessment of the Group. The Group is rated AA negative by S&P and has a top financia viabiity rating of V1 from the HCA. Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

15 STRATEGIC REPORT Loans and credit faciities At 31 March 2016 the Group had committed faciities of 1,576.2m (2015: 1,556.9m), of which 1,320.1m (2015: 1,309.5m) net of oan costs had been drawn. Committed undrawn faciities were 244.0m (2015: 234.0m). Additionay, cash of 80.0m meant that the tota iquidity at the end of the March 2016 was 324m. This is considered sufficient to fund over two years worth of contractua commitments incuding both capita spend and oan repayments due. 75% (2015: 75%) of the credit faciities were provided by the UK bank and private pacement debt markets and 25% (2015: 25%) by the bond capita markets. The Group monitors the maturity and duration of its borrowings to ensure an ordery repayment profie, thereby reducing refinancing and iquidity risk. The maturity profie is shown beow: Figure 1.6 Loan faciities m m 0-1 years years years years More than 5 years 1, ,228.9 Tota 1, ,556.9 The weighted average maturity duration of faciities across the Group is 15.6 years (2015: 17.4 years). Treasury ensures refinancing risk is kept ow by ensuring that no more than 20% of the oan portfoio matures in any one year. Hedging and risk poicy The Group considers the management of its exposure to interest rate risk to be a critica eement in achieving its business objectives. The Group is abe to manage its exposure to this risk through oan agreements and the embedded hedging instruments contained therein (a cosey reated to the host contracts) and by arranging standaone hedging with approved counterparties governed by ISDA (Internationa Swaps and Derivative Association) agreements. The Group has a poicy of hoding a portfoio of hedges incorporating a mix of characteristics and maturities that provides it with substantia protection against the effects of adverse movements in interest rates and, to a esser extent, infation movements. The Group s interest rate risk management poicy sets minimum and maximum threshods for its fixed to foating debt ratio within the Board approved treasury poicy. The current approved range for fixed rate debt is 70%-95% (incuding interest rate swaps) and the mix is shown beow: Figure 1.7 Group borrowing m % m % Fixed Rate 1, % % Variabe Rate % % Tota drawn down 1, ,309.5 Financia instruments Derivatives are initiay recognised at fair vaue on the date a derivative contract is entered into and are subsequenty remeasured at their fair vaue. The method of recognising the resuting gain or oss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. Due to imitations on the appication of hedge accounting, voatiity has been introduced into the Statement of Comprehensive Income as market vaue movements are not fuy offset by movements in the underying hedged item within each period. There is no cash fow impact to the Group s resuts due to Internationa Accounting Standard 39 Financia Instruments Recognition. Given that the reasons for entering into the derivatives remain commerciay sound (i.e. they are intended to be hed to maturity to reduce voatiity in the Group s cash fows), the Group has opted to report the underying resut of the Group before refecting the impact of these accounting standards. This approach refects the manner in which the Group manages its risks. It is supported by funders of the Group who, where appicabe, have amended ending covenants to excude the impact of these accounting standards in recognition of the fact that the Group s ongoing cash fows are not impacted and hence there is no change in the abiity of the Group to continue to service its debt. The incusion of this accounting voatiity decreases the reported 2016 surpus by 73.3m (2015: 109.6m decrease of surpus). The reativey arge movement in vaue this year refects the reative decrease in appicabe ong term interest rates during 2015/16. The Group monitors and manages concentrations of risk for individua oan and swap counterparties, hedge type or hedge instruments on a daiy basis. Specuative financia transactions are not permitted and the Group uses financia instruments for risk management purposes ony. 16 Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016

16 The Group monitors on a daiy basis its exposure and sensitivity to potentia mark-to-market (MTM) cash margin cas on its standaone interest rate swap arrangements. Sufficient cash baances, property coatera and readiy-avaiabe committed credit faciity reserves are maintained at a times to cover reasonaby foreseeabe iabiities, even during times of unfavourabe interest rates. Any Group MTM exposures created by the fair vaue cacuations at month-end or year-end on any standaone interest rate swaps are aways covered by property and/or cash coatera to reduce any outstanding exposure to zero. Other treasury risks The Group does not have any natura currency or major security or commodity market risks due to the nature of its business. Liquidity surpuses are deposited with a Group Board approved pane of counterparties having approved credit ratings and are monitored on a daiy basis. Covenants and covenant headroom Financia covenant compiance is managed centray by the Corporate Finance and Treasury department and reported on a monthy basis. Interest cover, gearing, tangibe net worth and asset cover covenant ratios are the main financia tests required by enders. There were no breaches in the year and a fu covenant compiance report is maintained as part of management reporting procedures. Cash fow The main factor infuencing the amount and timing of borrowings drawn is the pace of the deveopment programme. Whie the amount and timing of payments may be monitored and predicted, the timing of saes receipts, and acquisitions and interim payments to contractors may materiay infuence the cash fow profie. Short, medium and ong term cash fow forecasts are used to manage the Group s iquidity positions and headroom avaiabiity. The Group s weighted average cost of capita for the year was 5.27% (2015: 5.36%), refecting the ower interest rate environment. Loan faciity security A committed faciities were secured by fixed charges over properties at the year-end. In addition, the Group hed 8,190 (2015: 7,899) unencumbered properties avaiabe for use as security for new oans. These properties were estimated to provide potentia security for a further 685.0m (2015: 624.0m) of new oans. Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

17 STRATEGIC REPORT Looking forward Objectives and strategy The Hyde Group s vision and mission statements drive everything we do. Our vision is to make a asting difference to peope s ives, and our mission is to be a responsibe andord; to operate as a successfu business with charitabe objectives and to buid more new homes. During 2015/16, the Group revised its Strategic Pan ( Strategic Pan, pubished Apri 2016), providing the Group with a cear focus on what it needs to do to achieve its overa vision and mission. The Group s overa strategic objectives are to: Deiver Quaity Services Buid More Homes Vaue Our Peope Be Efficient The tabe beow provides an overview of our strategic objectives, targets and panned activities against these (actua KPI resuts for 2015/16 are shown on page 9). Deiver Quaity Services Objectives Cutivate a cuture of responsibiity to deiver straightforward accessibe services. Use new technoogy to deiver major projects to hep us reshape our service mode to better deiver easy to use and digita services to a good standard Review our product range and customer segments to address future changes in market demand and aspirations of home ownership for our customers Hep our most vunerabe residents to sustain their tenancies. Projects panned in 2016/17 Simpify access to ceary defined core andord services, creating a service experience for our tenants which is as effortess as possibe Promote channe shift to digita services Provide targeted support to those residents who are most vunerabe and at risk of osing their tenancy Consider new innovative product offerings as part of deveopment strategy. KPI targets in 2015/16 Compiance of properties with gas certificates 100% Satisfaction with repairs service > 89% Satisfaction with compaints service > 65% Cas handed within service eve agreement > 85% Long term targets Customer satisfaction wi be 84%; and in the top quartie of our peers. Our customers are our most important stakehoders and so we wi give them the best service we can. This wi start by ensuring our services are simpe and easy to use and our customers can achieve the outcome they want, with the east amount of effort. 18 Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016

18 Buid More Homes Objectives Increase the number of homes we own and buid to increase the housing suppy and maximise our financia strength. Maximise the number of homes we buid across a tenures Work coaborativey with partners to deiver new suppy Expore innovative funding structures to support mechanisms for new suppy Maintain the confidence of our reguator and investors Enhance Hyde s reputation as a thought eader to shape thinking and increase infuence on poicy makers. Projects panned in 2016/17 Deiver 6,000 homes over the next five years and 1,000 from 2016/17 Continue to pursue opportunities to work in partnership with oca authorities, joint ventures, and with pension funds Increase capacity through new funding vehices Maintain strong governance, viabiity and credit ratings Generate profits from property transaction. KPI targets in 2015/16 100% start on site homes against forecast 100% practica competions against forecast 100% outright saes against target 100% shared ownership saes against target Long term targets We wi have buit over 6,000 homes of varying tenure. We are passionate about buiding more homes to ease housing pressures. We wi grow our core areas, through deveopment and stock acquisition, so we become more efficient and improve our service offer to our residents and other stakehoders. Vaue our Peope Objectives Support our peope to deiver organisationa objectives and improve our empoyees working ives. Have the right peope in pace, with the right capabiities, who are innovative and passionate about what we do Embed a cuture of working together and individua responsibiity to deiver exceent customer service Invest in effective staff engagement strategies so our peope fee empowered, vaued and ready to give their best Ensure Hyde remains an attractive and competitive empoyer and good staff are retained, deveoped and promoted. Projects panned in 2016/17 Retain god Investors in Peope (IIP) status Increase staff retention, engagement and promotion eves increase staff deveopment activity Promote a cuture that enabes Hyde s vaues to come aive during interactions between staff, residents and each other. KPI targets in 2015/16 Increase staff engagement to 73% Long term targets Our staff engagement, deveopment and retention wi be within the upper quartie of our peer group. We beieve that a highy engaged, innovative and skied workforce is the key buiding bock to achieving our objectives. We wi embed a cuture of working together and individua responsibiity and maintain our programme of staff webeing initiatives. Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March

19 STRATEGIC REPORT Be Efficient Objectives Maximise vaue, embrace digita soutions and streamine our systems and processes. Continue to modernise our service to meet customer expectations. Core service areas wi be reviewed to create confident, expert teams who know how to deiver good outcomes Consoidate operating geography and markets through swaps, disposas and proactive mergers and acquisitions Maximise the asset vaue of both new and existing homes Sustain income coection given the current environment but activey seek out opportunities to increase this across the business Recognise the environmenta impact of our business and continue to reduce waste and other undesirabe impacts. KPI targets in 2015/16 Rent arrears < 4.2% Void rent oss < 0.8% Projects panned in 2016/17 Simpify access to ceary defined core andord services, creating a service experience for our tenants which is as effortess as possibe Promote channe shift to digita services Provide targeted support to those residents who are most vunerabe and at risk of osing their tenancy Consider new innovative product offerings as part of deveopment strategy. Long term targets Our transactiona cost per home wi be among the best within the G15. We wi ensure that our interna costs deiver even better vaue for money, aowing us to maximise our surpus to re-invest into providing quaity services for our customers and buiding more homes. Future prospects During the coming year the Hyde Group and the Association wi begin its five year programme of deivering savings to the budget to meet the chaenging externa pressures in the market such as the rent reduction. These wi be deivered mainy in the areas of management, maintenance and financing costs. This wi enabe the Group and Association to fufi its ongoing commitment to buiding new homes. On 6 Apri 2016, the Group announced that it was entering merger discussions with London and Quadrant Homes (L&Q) and East Thames Homes. This is an exciting opportunity for the Group and at the time of writing we anticipate that the merger wi come to ega competion by the end of Hyde Housing Association Limited Consoidated Report and Financia Statements for the year ended 31 March 2016