EMH Housing and Regeneration Limited. Report and Financial Statements For the year ended 31 March 2015

Transcription

1 EMH Housing and Regeneration Limited Report and Financial Statements For the year ended 31 March 2015

2 Contents Association Information 2 Operating and Financial Review 3 18 Statement of Board s responsibilities in respect of the Board s report and the financial statements 19 Statement of Internal Controls Assurance Independent Auditor s Report 22 Income and Expenditure Account 23 Statement of Total Recognised Surpluses and Deficits 24 Balance Sheet 25 Cash Flow Statement Notes to the Financial Statements 28 47

3 emh homes report and financial statements for the year ended 31 March Association Information Board of Management Chairman: Jo Fox Kathleen Alick (resigned 4 September 2014) Colin Ball Tracey Davenport (appointed 7 September 2014) Christopher Edwards Reg Francis Robert Hingston Christopher Hobson (appointed 7 September 2014) Mohammed S. Jeewa (resigned 4 September 2014) Chan Kataria Colin Norman (appointed 12 September 2014) Secretary: Joanne Tilley Auditor: KPMG LLP One Snowhill Snow Hill Queensway Birmingham B4 6GH Principal Banker: Barclays Bank PLC Registered Head Office: Memorial House Whitwick Business Park Stenson Road Coalville Leicestershire LE67 4JP emh homes is the trading name of EMH Housing and Regeneration Limited. EMH Housing and Regeneration Limited is incorporated under the Co-operative and Community Benefit Societies Act 2014 (Registered Number 32198R) and registered by the Homes and Communities Agency (Registered Number 4775).

4 3 emh homes report and financial statements for the year ended 31 March 2015 Operating and Financial Review FINANCIAL RESULTS, FIVE YEAR SUMMARY IN MILLION Income and expenditure account m m m m m Turnover Operating costs (49.0) (51.5) (49.2) (23.2) (21.1) Operating surplus Surplus on sales Net interest charge (19.5) (17.8) (15.6) (10.0) (8.8) Surplus for the year Balance sheet Housing properties at cost less depreciation Social housing and other grant (228.0) (209.5) (207.6) (187.7) (186.0) Other tangible assets Investments Creditors due within one year (28.3) (30.2) (15.7) (10.4) (9.2) Loans due after one year Pension liability Other long term liabilities Reserves Statistics Operating margin 36% 30% 31% 34% 33% Interest cover 145% 127% 145% 127% 125% Interest cover excluding property 186% 176% 194% 158% 154% depreciation Gearing 54% 61% 53% 46% 48% Units of accommodation in ownership or management 17,048 16,686 16,530 8,104 7,925 The figures from 2013 relate to emh homes. Figures for 2011 and 2012 relate to East Midlands Housing Association. OVERVIEW OF THE BUSINESS EMH Housing and Regeneration Limited is one of the leading providers of affordable housing in the East Midlands Region, now managing over 17,000 affordable homes. The organisation employs over 340 people, delivering services across 49 local authority areas. A profit for purpose 1 organisation, we do not distribute profits, but reinvest them in our business, helping us to achieve our mission of providing high quality homes and services which contribute to sustainable communities. This year has been a year of consolidation. Four registered providers amalgamated on 13th September 2013, to form one new social landlord, emh homes. Building on these changes, our focus this year has been to embed this new structure and hone its operational arrangements to ensure that they deliver on-going service quality, efficiency and value for money. There has also been a new focus on future aspirations, through the launch of Project Platinum, our organisational development programme, setting out key objectives and measures of success for the next two years. 1 EMH Group s rules prohibit it from trading for profit. The association cannot pay or transfer by way of profit to its shareholders.

5 emh homes report and financial statements for the year ended 31 March Operating and Financial Review OVERVIEW OF THE BUSINESS CONTINUED The Group comprises the following: East Midlands Housing Group Limited Parent Registered Provider under Cooperative and Community Benefit Society Act 2014 (non charitable) Non asset holding Registered Provider 95 staff Turnover 8.1m Regulated by Social Housing Regulator (Homes and Communities Agency) EMH Housing and Regeneration Limited Subsidiary of EMH Group Registered Provider under Co-operative and Community Benefit Society Act 2014 (charitable rules) Registered Provider 16,686 homes 342 staff Turnover 76.8m Regulated by Social Housing Regulator (Homes and Communities Agency) Enable Housing Association Limited Subsidiary of EMH Group Co-operative and Community Benefit Society (charitable rules) Non registered social landlord 199 homes 15 staff Turnover 3.8m Non regulated Enable Care and Home Support Limited Subsidiary of Enable Housing Association. Company Limited by Guarantee. (Registered with Charities Commission) Care and Support provider 595 staff Turnover 14.3m Care activities regulated by Care Quality Commission Sharpes Garden Services Limited Subsidiary of EMH Group. Company Limited by Guarantee. (non charitable) In-house garden and landscaping service 28 staff Turnover 1.8m Non regulated Midlands Rural Housing and Village Development Association Limited Subsidiary of EMH Housing and Regeneration Limited. Registered Provider under Co-operative and Community Benefit Society Act 2014 (non charitable) Non asset holding rural housing specialist 1,530 homes in management 2 staff Turnover 0.4m Non regulated EMH Treasury plc Subsidiary of EMH Group. Public Limited Company. Special Purpose vehicle No staff Turnover not applicable Non regulated East Midlands Housing Group Limited (trading as emh group) as the parent organisation, it sets the strategic direction for the Group and provides a range of support services including Finance, Information and Communication Technology, Human Resources, and other business support functions including communications, quality and standards, governance support, and performance information. EMH Housing and Regeneration Limited (trading as emh homes) - providing landlord services to over 17,000 homes across the East Midlands region. Its homes are a mixture of new build and rehabilitated properties, the majority of which are located within Leicestershire, Nottinghamshire, Derbyshire, Northamptonshire and Lincolnshire. emh homes currently has two Direct Labour Organisations providing in-house property maintenance services, one based in the North and one in the South of its area of operation. It also provides development services across the group, and leads the Quantum Development consortium which is an investment partner with the Homes and Communities Agency. Enable Housing Association Limited Enable joined the Group on 1st April 2013 and comprises two legal entities: Enable Housing Association Limited and its subsidiary, Enable Care and Home Support Limited. Enable has historically worked primarily with people with Learning Difficulties in Derbyshire, supporting approximately 350 adults. It houses 180 tenants, and has 92 residents within its three nursing homes and 10 registered homes. Joining emh group provided Enable with the opportunity to widen its geographical areas of operation whilst diversifying its target client groups, through the management of the Group s current and future floating and accommodation-based support services. It also allows Enable to receive cost effective services.

6 5 5 emh homes report and financial statements for the year ended 31 March 2015 Operating and Financial Review OVERVIEW OF THE BUSINESS CONTINUED Sharpes Gardening Services Limited (trading as emh sharpes) - joined the group on 1st April 2013, as an in-house landscape maintenance company which acts as a social enterprise within the Group. Midlands Rural Housing & Village Development Association Limited (trading as Midlands Rural Housing) - provides specialist management services to four independent rural housing associations. The Association also facilitates the work of rural housing enablers to identify new housing opportunities and aid sustainable developments in rural areas. EMH Treasury PLC - a special purpose vehicle established as a subsidiary of emh group on 16th September 2013, primarily to raise funds through the Debt Capital Markets. The Group is managed by an Executive Management Team headed by the Group Chief Executive and supported by six Executive Directors: Finance, Development, Human Resources, Business Support, Housing and Care. emh homes values are set out in their business plan. They are: Integrity Diversity Openness Accountability Clarity Excellence We are an independent, profit for-purpose organisation working to the highest ethical standards. We will promote equality and fair treatment for all and treat people with decency and respect We will be open about our work and share information with all our stakeholders. We will be accountable to the communities we work with and empower customers to meaningfully influence our priorities. We will be consistently clear about our vision, values and strategy. We will aspire to be the best among our peers, particularly in the quality of customer services and standards of performance. emh homes maintains an open and transparent dialogue with the Social Housing Regulator, which is part of the Homes and Communities Agency. They have awarded emh group and emh homes their highest regulatory rating for viability and governance. On the strength of a AA- rating from credit agency Standard and Poor s, in January 2014 emh group secured 200 million (including 50 million retained) in the capital markets through a public bond issue. The group raised the funds to boost its plans to develop much-needed affordable homes across the East Midlands, as well as to refinance existing facilities. The injection of cash will allow the group to fulfil its growth aspirations of developing up to 350 new properties each year. Following the July 2015 Budget announcement, the growth targets of the organisation are under review and new targets will be put in place as appropriate. Our credit report describes the Group as having a very strong market position supported by strong management and extremely strong operational performance. emh homes seeks to strongly influence regional and local housing, planning, economic and social policy. To this end, its members play a leading part in a range of organisations, including the National Housing Federation, Chartered Institute of Housing, PlaceShapers and Health and other commissioning bodies. emh group is actively engaging with Local Authority partners, CCG Health and Wellbeing Boards, the Confederation of British Industry (CBI), East Midlands Chamber of Commerce, House Builders Federation (HBF) and with all the Local Enterprise Partnership (LEPs) in the East Midlands to continue to make the case for the impact of housing and construction investment on economic growth. OBJECTIVES AND STRATEGY Our vision is to be widely recognised as the best social housing and care business in the country, leading the market as service provider and employer. The Group s five year business plan, which is reviewed annually, sets out how we plan to meet this goal. The business planning process is led by the Board with input from the executive management team, and wider stakeholders including staff and customers. The review process includes an assessment of how changes in our operating environment might impact upon the business, plus an appraisal of our strengths, weaknesses, and the opportunities and threats that face the business. Over the recent past, we have seen the external environment change significantly, with the impact of prolonged economic hardship, Welfare Reform and the Localism Act affecting every aspect our business. At the same time, the regulatory regime has changed with a new focus within social housing on economic rather than consumer regulation. Consumer standards are largely addressed through tenant scrutiny of services within the Group s co-regulation mechanisms.

7 emh homes report and financial statements for the year ended 31 March Operating and Financial Review OBJECTIVES AND STRATEGY CONTINUED The recent announcements in the Budget 2015 will have significant effects on the business, which we are currently assessing. Key changes include the new rent directive to reduce rents by 1% for each of the next four years The Social Housing sector manages a total of 2.6m homes. There are some 1,500 providers but most of them own less than 1,000 homes each. Just 5% of total providers (79 providers including emh group) own or manage more than 10,000 homes each. The overall picture is one of a diverse and fragmented social housing sector with significant asset base, high surpluses, high reserves and capacity to develop. Demographic projections indicate that the increasing average age of the population is one of the greatest challenges to National Health Service resources. Appropriate housing and high quality domiciliary care is beginning to be recognised as a value for money option by commissioners, presenting opportunities to care for older people with complex needs outside of hospitals. This year saw the completion of a new Extra Care scheme built by emh homes in the Blaby District, for which, following a competitive tender, emh homes sister organisation Enable have been awarded the contract to provide the Care. This is a model that the Group plans to replicate going forward, with funding secured from the Homes and Communities Agency for a further scheme to be built in Loughborough. Our development strategy includes a commitment to explore funding opportunities for a further two schemes by Our latest business plan is published on our website emh homes main strategic objectives are summarised below: Objectives Governance Deliver a Board Development programme that focuses on skills, leadership, shared values and cultural integration across emh group; Implement a robust succession plan to refresh skills, broaden the diversity of outlook and experience within our Boards and ensure on-going constructive challenge Move towards coterminous board membership supported by a specialist safeguarding committee structure providing independent challenge. Consumer regulation Human Resources and Organisational Development Growth and Business Development Provide on-going support for the emh homes tenant scrutiny panel and ensure that they are adequately trained and resourced; Achieve a recognised quality accreditation for Tenant Scrutiny by December Deliver Project Platinum, a comprehensive organisational development programme; Become a Sunday Times Top 100 Employer which will include delivering an employee survey and action plans to address areas for improvement; Achieve the Investors in People Gold accreditation across the group within two years; Work towards the OHSAS accreditation for health and safety across the group; Embed a behavioural framework linked to our values and implement this as a basis for recruiting and managing performance; Review recruitment and selection practices across the group, including strategies for attracting and retaining staff in highly competitive job markets; Carry out a review of pensions and propose options once the outcome of planned valuations are known; Continue to develop and expand EMH Academy, developing links with a range of potential local employers to expand employment opportunities for apprentices. Maintain our investment partner status with the Homes and Communities Agency, leading the Quantum Consortium; Core Affordable Housing will comprise Social Rent, Affordable rents (80% of market rent levels), and Shared ownership / equity sales. These will be delivered primarily through emh homes at an average target of 350 homes each year; Explore options to enable diversification into non core development products, including Market Rent and outright sale, through consideration of a pilot with a key development partner; In consultation with key stakeholders, develop plans for the regeneration of key schemes in the Group; Develop effective links with Local Enterprise Partnerships (LEPs), Clinical Commissioning Groups (CCGs) and other local bodies; Continue with the existing 5m land banking facility to strengthen the formal pipeline and to help

8 7 emh homes report and financial statements for the year ended 31 March 2015 Operating and Financial Review OBJECTIVES AND STRATEGY CONTINUED achieve its development targets; Continue to actively lobby at the neighbourhood, local and national level on housing need including rural housing issues. Housing Services Deliver and embed the cultural and structural changes, ensuring that customer services are enhanced across the organisation; Continue to deliver emh homes strategy for responding to the challenges of Welfare Reform, using customer profile information to target timely support, intervention and information and advice services at those most affected by the change. In particular, respond effectively to the introduction of universal credit within our area of operation during 2015; Develop an action plan in response to the value for money assessment of our in-house maintenance teams; Develop a social and financial inclusion strategy for emh homes; Review emh homes traditional sheltered housing products and support services including the lifeline, to ensure that they are fit for the future; Carry out review of the Allocations system in consultation with partners, local authorities and customers; Maintain a focus on delivering high levels of performance and customer satisfaction. Asset management Information Technology Business Excellence Accountability & corporate social responsibility Financial Management Maintain and build on the Decent Homes Standard; Identify properties suitable for neighbourhood renewal and remodelling, such as sheltered blocks or reconversion of houses or flats to meet changing demand; Continue to invest in our Green Team in order to explore opportunities arising from environmental initiatives to broaden sources of investment income in energy efficient home improvements; Review the Group s asset management strategy on the basis of updated stock condition data, ensuring convergence of asset management plan with financial plan commitments. Develop a clear digital vision and ambition to be a leading digital housing business by 2016; Continue to invest in the Group s core network, infrastructure and communication links to facilitate growth and the consolidation the Group s networks to deliver safe, secure, robust systems to meet the business needs; Continue to invest and develop our core social housing solution and our asset management system, to provide a consistent and effective approach to the housing and repairs service across the Group; Continue to ensure that we maximise the benefits of investment and systems and that internal process are reviewed and automated where beneficial to do so. Embed principles of customer service excellence across the Group; Implement a clear and effective strategy for capturing customer feedback; Introduce effective channels for customers and staff to contribute ideas that enhance the working environment, service delivery, efficiency or value for money; Regularly test our disaster recovery and business continuity systems; Ensure that we maintain appropriate levels of controls and clear lines of accountability to ensure the security and integrity of our data; Work with customers to establish an independent residents complaints panel. Ensure that governance activities across the Group are transparent and accountable to residents and service users; Actively promote a commitment to diversity; Refresh the Group s Social Enterprise strategy; Refine the Group s approach to quantifying the social impact of its activities; Meet regularly with the Group s Active Stakeholder Forum, whose remit is to provide external and independent challenge to the Board in relation to the delivery of our values and corporate social responsibilities; Pursue innovative ways to support national and global strategies for environmental protection and sustainable development. Maintain the robust financial position of the Group; Ensure that all financial covenants with lenders are achieved, with sufficient headroom built in as contingency; Implement Value for Money Strategy, including efficiency savings to support the Group Business Plan;

9 emh homes report and financial statements for the year ended 31 March Operating and Financial Review OBJECTIVES AND STRATEGY CONTINUED Rigorously stress test our long-term financial model in order to ensure it is based on prudent assumptions to maintain viability; Prepare for the issue of our retained Bond for 50m to meet business needs. The above objectives are translated into an annual operational plan with responsibility allocated to individuals and agre timescales for completion. The Board and Executive Management Team monitor the delivery of this plan on a regular basis. Furth monitoring activity also takes place as follows: Monthly reports on all key performance indicators affecting the business; Monthly management accounts and treasury reports; Regular updates to Board on the achievement of targets within the operational plan; Routine monitoring and reporting of delivery of development programme to Homes and Communities Agency. Continuous improvement activities and the group s drive for greater efficiency and value for money is overseen by the Busine Improvement Group, made up of representatives from our Boards. REVIEW OF THE YEAR During the year, significant progress has been made against the majority of objectives. Highlights include: The reconfirmation in February 2015 of our AA- rating from credit ratings agency Standard and Poor s, first awarded in January 2014; Completing a comprehensive review of our operational service delivery within emh homes, including restructuring most of its service delivery teams; The completion and handover of a new extra care development in Blaby; Being named as one of City & Guilds Top 100 apprenticeship employers in the country; The launch of our lets get digital project, aimed at emh group becoming a leading digital housing association by 2016; 100% success in our bid for grant funding from the Affordable Homes Programme (AHP) , equating to 13.1 million grant funding to build 607 new homes for rent and sale over the next three years; The completion of a comprehensive process review in preparation for a new ICT housing systems implementation, mapping out new streamlined ways of working; The strengthening of our co-regulation structures through the recruitment, induction and training of a new Independent Tenant Scrutiny Panel; Emh homes Green Team were top prize winners of the Energy Efficiency Best Practice Awards, winners of the Association of Gas Safety Managers Gas Safety Awards 2014 and winners of the Heating and Ventilation News Awards Collaboration of the Year award. Development performance In 2014/15, 310 homes were completed for retained ownership by emh homes. Looking forward over the next 3 years the current pipeline will deliver a further 937 identified units with an extra 35 that will be transferred post completion to our rural housing association partners or community groups. During this year s development programme, the Homes and Communities Agency (HCA) asked for partners to offer accelerated starts, where building starts before March end enabling 75% of the project grant to be drawn down rather than the usual 50%. Across the Quantum consortium, led by emh homes, 182 units were offered and delivered. Of these, emh homes accounted for 120 units. This helped mitigate the negative impact of an overall shortfall of 15 against Quantum s year end completions target.

10 9 emh homes report and financial statements for the year ended 31 March 2015 Operating and Financial Review REVIEW OF THE YEAR CONTINUED emh homes performance for the year can be summarised as: Grant claimed - 3.6m (167% of the start of year target) Starts on site 156 (156% of year start) Completions (98% of year start) One of the biggest challenges facing the social housing sector is that of Welfare Reform. The introduction of Universal Credit and its associated payment methods, benefit caps, and the under-occupancy provisions present new challenges for social landlords and their customers. Universal Credit is being rolled out across the UK and will affect working aged tenants who need to make a new application for Income Based Job Seekers Allowance from February 2015 to April A total of 3,742 emh homes tenants could be affected during 2015/16. Our income recovery team is working in partnership with neighbourhood based staff to minimize the impact of these changes. Early intervention, advice and support strategies are being targeted at high risk customers, and real-time outcomes are being closely monitored. Future Outlook Despite the austerity measures affecting the rest of the economy the emh homes has operated in a relatively benign environment in recent years. The announcements in the Budget in July 2015 significantly change this position. The proposal to reduce rental income by 1% per year for four years, together with further cuts in the welfare budget and the already announced extension of the Right To Buy will have a major impact. The Group will respond positively to these changes from a position of financial strength and will reassess future targets and risks accordingly. The Board will oversee the restructure of the business to ensure financial viability is maintained. However there will almost certainly be a reduction in services provided; reinvestment in our existing properties; as well as on the provision of new homes. RISK MANAGEMENT The main risks faced by the Group are considered by a Risk Panel which includes the Executive Management Team. The Risk Panel report to the Group Audit Committee. The Board receives a summary of the key strategic risks associated with the delivery of the Business Plan. A comprehensive risk map is used to record risks, assess the likelihood and impact of occurrence, the key controls necessary to manage each risk and persons accountable for specific controls. The Strategic Risks identified in the Business Plan are listed below together with the response taken to minimise the impact. Risk Effect Response Financial Viability Breach of financial covenants Credit rating and regulatory downgrade Reduced access to funding Governance Poor performance Regulatory intervention Reputational issues Health & Safety Legal liability and regulatory intervention Injuries to staff Development Capacity Not meeting growth objectives Unmet housing needs Welfare Reform Uncertain income streams Increased arrears and bad debts Higher void losses Treasury Liquidity issues Increased cost of funding Capacity issues for development Review allocation of resources Reduce development programme Increased efficiencies Annual Board evaluations Code of governance Strong governing instruments Health & Safety Committee Internal audit function Development appraisal systems Sourcing low cost funding Access wider range of grants Increased resources for income collection Cautious planning assumptions Impact reports to Board Treasury Committee with external support Robust Treasury Strategy Cautious Business Plan

11 emh homes report and financial statements for the year ended 31 March Operating and Financial Review RISK MANAGEMENT CONTINUED For the year ended 31 March 2015 Economic Conditions People Asset Management FINANCIAL ISSUES Deflation impacting on rents Inflationary impact on costs Viability threatened Loss of key staff Unable to recruit Poor employee relations Deterioration in assets Redundant properties Inefficient use of assets Review development commitments Streamline processes Deliver efficiencies Organisational development programme underway Learning & Development strategy including leadership development Asset appraisal model to prioritise investment Stock rationalisation strategy Turnover increased during the year by 6.5% due to the development of an additional 263 properties and the annual rent increase. The annual rent increase is normally determined by the Retail Price Index in the preceding September, this was 3.2%. Operating costs reduced by 4.9% as savings from the Fit for the Future project were realised in the year following the amalgamation. The Association continues to develop properties for low cost home ownership. The first tranche of sales resulted in a small profit of 2k and at the end the financial year there were 29 unsold properties. During the year there was an increase in the number of other disposals; this included 37 sales under the Right To Buy/Right To Acquire and 24 Shared Ownership staircasings. The overall surplus on these disposals was 1,191k ( k). During the year, the total loans decreased by 11 million. Total interest payable of 20 million ( million) represents an averag cost of funds of 5.44% ( %). The resulting surplus of 9.5 million ( million) is the highest ever surplus achieved by the organisation and demonstrates the continuing financial strength of the Association. Accounting Policies The Association has implemented the Statement of Recommended Practice for Accounting by Registered Social Landlords Capital structure and treasury policy Borrowings at the end of the year decreased by 11 million to million. The Association has sufficient funding for all contracted development activity. In January 2014 the Association issued a 200m public bond including a retained element of 50m that is available to be issued for a 3 year period to January Existing debt was restructured prior to the formation of emh homes in 2013 and this along with the bond issue increased the proportion of debt at fixed rates which remained high at 98% at 31 March The Association s loans are repayable as follows: years 15,086 11, years 4,586 21, years 30,989 20,613 Over 5 years 320, , , ,946 All interest rate management is by fixed rates or forward fixed rates embedded within loan facilities. Therefore the Association is not exposed to risks linked to free standing derivatives. The Association borrows only in sterling and so does not have any currency risk. Surpluses are invested in approved UK institutions and the Group Treasury Committee monitors investment returns.

12 11 emh homes report and financial statements for the year ended 31 March 2015 Operating and Financial Review FINANCIAL ISSUES CONTINUED Cash flows Cash inflows and outflows for the period under review are set out in the cash flow statement. The Group is generating a significant net cash inflow on operating activities that is primarily utilised through the servicing of finance, with any residual inflow being used to reduce the financing required to fund capital expenditure on new properties and reinvestment. Current liquidity Cash and bank balances at the year-end were 16.5 million ( m) and there were net current assets of 23.1 million ( m). Additional liquidity is provided through a revolving loan facility of 50m with Santander UK plc, 20m with Lloyds Bank plc and 10m with The Housing Finance Corporation. At 31 March 2015, million was secured and available to draw under these facilities. VALUE FOR MONEY The Board of emh group is committed to VfM and to being an effective and efficient social business. To ensure there is an appropriate focus on VfM they have established a committee called the Business Improvement Group (BIG), the remit of BIG includes overseeing VfM. Membership of BIG comprises board members from across the Group as well as officers as appropriate. The Group Business Plan includes VfM objectives and there is a VfM strategy setting out the way in which these objectives will be delivered. The current VfM strategy was put in place in July 2014 when it was approved by the Group Board and it covers a two year period. The strategy recognizes that VfM is not a new initiative; it has been an intrinsic part of Group operations for many years. There are a number of themes covered by the strategy including the following: Governance Customer involvement Financial management Procurement Effective Customer Services Funding and treasury management The strategy also recognises there are different approaches to measuring VfM, including: Economy achieving the best price and making cost savings. Efficiency more efficient ways of delivering the service. Effectiveness achieving a better result for the customer. However, in order to continue to deliver the strategic objectives for the Group, including the provision of new housing as well as investing in existing properties, the major focus is on Economy. That is making cashable savings to invest in the business. The strategy requires the production of an annual VfM statement. The following sections summarise some of the more important aspects of the statement. A full copy is available on the group website Value for money objectives The Group s VfM objectives have remained consistent during the year. In order to achieve VfM in practice the above themes need to be linked to specific objectives. The Group Board have agreed to the following, which will be monitored by the Business Improvement Group on behalf of the Group Board and include:

13 emh homes report and financial statements for the year ended 31 March Operating and Financial Review VALUE FOR MONEY CONTINUED Comprehensive reporting to customers Upper quartile cost efficiency Measure social return on investment In house teams Accessing cost effective funding Customer involvement Customers are involved in the various aspects of VfM. A number of Special Interest Groups (SIG) have been set established under the oversight of the Customer Co-ordinating Committee. Each SIG is consulted as relevant over the various aspects of the Business Plan including VfM. An independent Scrutiny Panel has been established to conduct reviews into service delivery. During 2014/15 their review focused on the Void process and was reported to the Board of emh homes. A major reimplementation of the housing management system (Orchard Housing) is underway. This includes a review of all processes as well as journey mapping. Wherever there are any touch points with customers Co-regulation groups are involved in the process review. Value for money in practice The strategic approach provides the framework. In practice there are a range of activities ensuring the Group is making the most of the resources available and ensuring VfM is being improved. This includes the following: Resource Allocation and Financial Objectives Resources are allocated to the various Business Plan priorities on an annual basis. This is primarily through the Financial Plan which converts Business Plan objectives into financial projections and is a key supporting document to the Business Plan. The priorities identified by the Group Board and Group Treasury Committee have remained constant during the year and they include the following: Maintaining financial viability Provide cost effective customer services Fund the reinvestment in existing stock Maintain and increase the development programme Develop our care and support activities. Financial viability is a fundamental requirement and whilst there will always be a need to compromise on competing priorities there can be no compromise over financial viability. Within the Group the financial structure and therefore risks vary significantly. Therefore different targets are set for different parts of the Group. For the Care & Support business the target is to achieve a broadly break even position. For emh homes, which is the largest part of the Group there is a more sophisticated approach. Therefore the Financial Plan, for emh homes, contains targets that must be achieved in relation to financial ratios and covenants. Cost Effective Customer Services These are central to the Group operations. During 2014/15 the recently amalgamated emh homes had the first full year of operations. This has brought in a new organisational structure 2014/15 implemented through the Fit for the Future and created new regional teams as well centralised Income Collection and Customer Service Teams. When compared to the previous structure, with services being delivered through four separate operating companies service have improved at a reduced cost. The target for the amalgamation was to achieve a 1milion reduction in overheads. This was delivered and exceeded during 2014/15 when savings of 1.3million were achieved. The next stage in our journey to improve Customer Services is encompassed within our 2014 to 2016 Organisational Development Programme, Project Platinum (reflecting the 70th anniversary for the Group). It sets out our key organisational development objectives and measures of success for the next two years. This includes having a clear vision of the kind of culture we want to foster within the group, and a shared understanding of the emh way of doing things, underpinned by a strong commitment to our values.

14 13 emh homes report and financial statements for the year ended 31 March 2015 Operating and Financial Review VALUE FOR MONEY CONTINUED An essential element of Project Platinum is the Orchard Housing project. This commenced in 2014/15 and is the largest ICT project ever undertaken by the Group. Following the amalgamation into emh homes there were four separate versions of the housing systems in operation. This was very inefficient and costly and therefore requires consolidation into a single system. It represents a major investment but is essential to the delivery of effective services. Return on Assets and Investment The allocation of resources must be linked to the return on assets. Not all investments will make a financial return. However the Board will approve investments on the basis of being fully aware of the impact of investment decisions and also on the condition it meets the wider objectives of the Group. emh homes as a registered provider is long term asset driven business whereas Enable is short term revenue led operation. Therefore investment decisions and return on assets are measured in different ways. Existing Properties Return on investment is obtained by using the estimated value of the property compared to the net return. The appropriate value will be either Existing Use Value Social Housing (EUV-SH) or Market Value Subject to Tenancy (MV-T). The type of valuation used will be dependent on underlying restrictions on the ownership of the property. The return on investment for the major asset categories and operating margin over the last two years are as follows: Property Type Margin Return Margin Return General Needs 38.9% 3.7% 32.2% 3.0% Supported Housing 11.9% 1.8% 6.6% 1.0% Sheltered Housing 37.5% 5.9% 30.5% 4.7% Low Cost Home Ownership 61.9% 4.3% 56.0% 4.1% Total 38.4% 4.0% 29.8% 3.1% The above analysis shows an overall return of 4.0% in 2014/15 compared with 3.1% on the previous year. The improved return reflects the generally improved financial performance of the Group. Similarly operating margins have increased from 29.8% to 38.4%. This relates to emh homes performance only. Within each property type there is significant variance although the relative movement over the year is consistent. Sheltered housing provides the highest return on investment. This is expected because management costs including voids, bad debts and maintenance are lower on this type of property whereas values are relatively high. Low Cost Home Ownership (LCHO) provides the highest operating margin. This is as expected because the operating costs of this type of accommodation are minimal and do not include maintenance or rent losses through voids and bad debts. The intention is to align this organisation wide information with the return at an individual property level. Reinvestment Programme During 2014/15 a project to assess performance of individual properties was undertaken. This was supported by Rand Associates who provided the modelling tool which assessed financial return as well as various measures of sustainability. An initial assessment has been produced identifying which properties are potentially suitable for disposal or conversion. The outputs will be included in an updated Asset Management Strategy in Reinvestment expenditure during 2014/15 was approximately 9 million and is the amount deemed appropriate by the Board to maintain our assets. Development Programme The development programme will always be the largest area of investment. During 2014/15 the Development Strategy has been updated however the key objectives remain as follows: Meet regional housing needs. Target the key local authority areas where the Group has the highest concentration of stock. Deliver one of the designated core products; social rent, affordable rent, low cost home ownership or mortgage rescue.

15 emh homes report and financial statements for the year ended 31 March Operating and Financial Review VALUE FOR MONEY CONTINUED With the reduction in the availability of grant the Board acknowledge investing in new properties does not provide a financial return even in the long term. Almost all new developments, whether developed through the planning gain system, the affordable housing programme or other funding routes generate a negative Net Present Value (NPV). During 2014/15 the Group identified a wide range of development opportunities. An appraisal tool is in place to measure the viability of each scheme and prioritise investment. Using the assumptions in the appraisal model the average NPV is approximately minus 25k. The overall development programme is measured though the impact on the projected surplus and the increased level of investment agreed in 2014/15 has increased the impact. To date there has not been any investment in Non Core products such as Outright Sales and Market Rent. However the Board have approved a pilot project in the current Business Plan approved in Investments for Social Return The Board recognise not all activities are expected to make a financial return. Sharpes Garden Services was established in 2012/13 for the purpose of generating funding to support the emh academy. This has proved to be very successful. In 2014/15 it was possible to Gift Aid 150k which covered the bulk of the costs of running the Academy. During 2014/15 the Academy went from strength to strength. A pre-apprenticeship trainee scheme was arranged for six individuals, with two being offered an apprenticeship. Seven apprentices were taken on at the academy and three of the apprentices from the previous year were offered an undergraduate position. The success of the Academy has been increasingly recognised externally with a number of awards received including: Invited to join European Apprenticeship Alliance as an Ambassador. Chartered Institute of Housing (CIH) 2014 Achiever of the Year awarded to the Leader of the academy. City & Guilds top 100 Apprenticeship Employer from the National Apprenticeship Service. Regional Apprenticeship Award Newcomer Large Employer of the Year To provide more structure to the measurement of Social Return on Investment the Group has been investigating the various modelling tools. It was decided to use the Action Research Social Impact Evaluation from Baker Tilly. A number of group projects have been selected for assessment as follows. In House Teams A large proportion of the Group maintenance and landscaping services are provided through the in house teams. The Group is committed to providing a cost effective service through these teams that offers VfM for our customers. Therefore we need to benchmark with external contractors to ensure performance and productivity are comparable. Echelon Consultancy was employed to carry out the review. The initial observations have been reported and further work is ongoing. Initial findings suggest there is scope to increase productivity and therefore financial performance, the pricing arrangements are higher than would be available from external contractors and procedural and structural changes are necessary to obtain the best possible VfM. During the review will be concluded and an improvement plan developed. Procurement The five year rolling programme of procurement continued in 2014/15 and tenders were carried out in several areas including roofing, audit/taxation, asbestos removal, rural property maintenance. The total annual expenditure tendered was approximately 1.8 million and annual savings of approximately 0.15 million.. The programme will continue in and will include internal refurbishments, electrical works, door entry systems, utilities and legal services. Efficiencies Reducing costs remains an essential part of the VfM culture within the Group. There are a whole range of activities where efficiencies are being delivered. These can be initiated from numerous sources including customers recommendations and staff generally. Some of the more significant examples are detailed below.

16 15 emh homes report and financial statements for the year ended 31 March 2015 Operating and Financial Review VALUE FOR MONEY CONTINUED Enhanced contract standing orders were introduced during the year to ensure full compliance with the group financial regulations which set the framework for tenders and quotes. The Fit for the Future programme was delivered and efficiency savings exceeded the identified target and costs were reduced by 1.3 million. During 2014/15 further savings were achieved through the closure of the Sutton in Ashfield and Northampton offices with an expected saving of 250k. Treasury and Funding The funding restructure agreed in 2013 has continued during 2014/15. Older loans of 8.6m, at high rates of interest, were replaced with the proceeds of the bond. This resulted in a reduction of interest payable of 75k per annum. This process will continue in 2015/16. VALUE FOR MONEY PERFORMANCE Performance Indicators - Internal Key performance indicators for 2014/15 together with a comparison for the previous year are as follows: 1 Operating costs as percentage of turnover 63.8% 71.4% 2 Housing management costs per unit 1,006 1,083 3 Maintenance costs per unit 895 1,088 4 Current tenant rent arrears 3.7% 3.3% 5 Telephone Calls abandoned 8.4% 5.2% 6 Incoming calls matured at first point of contact 86.6% 89.6% 7 Repairs appointments made and kept 96.2% 95.7% 8 Homes failing Decent Homes Standard None 5.9% 9 Evictions for rent arrears Average relet times (days) Tenancy turnover 8.4% 12.1% 12 Growth in unit numbers 2.2% 0.9% To allow a meaningful comparison the internal performance indicators relate only to emh homes. The inclusion of the Enable companies distorts performance because the financial model of a care company is fundamentally different to a registered provider. The main issues arising from the performance indicators are as follows: Operating costs have increased reduced significantly as a proportion of turnover. This is a combination of a 6.4% increase in turnover and a 5.2% reduction in operating costs. The increase in income is attributable to growth in unit numbers as well as a 3.7% increase in rents. Operating costs have reduced in relation to housing management and maintenance as detailed below. Additionally 2013/14 included a lot of one off costs relating to the amalgamation, also depreciation charges are lower than the previous year. Housing Management costs per unit have reduced by 77 per unit or 7.1%. The completion of the Fit for the Future programme removed costs of 1.3 million which caused this improvement. Maintenance costs have reduced by 193 per unit or 17.7%. There are a number of factors causing this reduction. The performance of the In House maintenance teams improved and the internal trading account delivered a small deficit of 87k compared with a deficit of 846k in the previous year. Expenditure on major repairs reduced by 688k as there was a planned reduction in the programme. Finally maintenance overheads were also reduced as a result of the Fit for the Future programme. Maintenance performance has been maintained despite the disruption caused by the restructure of the staffing teams. All properties are compliant with the Decent Homes Standard. Housing Management performance has deteriorated over the year, in relation to rent arrears, relet times and the customer services. This area was profoundly affected by the restructure of the organisation and the creation of centralised teams looking at income collection and call answering. There were vacancies within the new departments for most of the year. These have now been filled and it is expected performance will improve.

17 emh homes report and financial statements for the year ended 31 March Operating and Financial Review VALUE FOR MONEY CONTINUED Housemark Benchmarking The Group is a member of the HouseMark benchmarking service which provides a breakdown of the costs and resources involved in managing the housing management and maintenance functions and sets them in the context of performance. The purpose of the annual report is to provide information to member associations which they can then use to assess the efficiency of their organisation and to judge whether the services are of good quality and offer value for money. Business activities are benchmarked on both quality KPIs and on costs. The peer group is made up of similar organisations based on size and geographical location. The Housemark Scorecard focuses on four areas: Process Overview - In three out of the four process areas tested, our peer group performance is better, with our peer group significantly out performing us on average relet time. People Overview - Staff turnover is higher for emh than the peer group at 18.9% placing us in the lower quartile. Upper quartile is 10.1%. Sickness absence is significantly lower than the peer group at 7.1% which places us in the top quartile. The majority of the peer group reported levels in excess of 8%. Business Health - Growth in turnover is lower than our peer group, but the operating margin is higher. Total cost per property of the housing management service in line with our peer group. Cost of responsive repairs and void works is approximately 200 per property higher than the peer group, with the majors and cyclical works being 50% less than the peer group. The cost of overheads is roughly 20% higher than our peers. Rent arrears are in line, but rent losses due to voids and the arrears written off are higher than our peer group. Value a comparison on this measure is not possible as the tenant survey is not completed every year. A survey was undertaken in 2015 and will be included in the next Housemark Benchmarking. Initial findings from this survey suggest satisfaction levels have reduced in several areas. Financial Benchmarking The annual financial statements of a number of directly comparable organisations are used to carry out financial benchmarking. A number of conclusions can be drawn from the comparison: Operating Margins the operating margin for EMH Group has fallen from 30.3% in 2012/13 to 25.3% in 2013/14 and is now one of the lowest in the peer group. The inclusion of the Enable Companies has caused this reduction and it is an inevitable consequence as operating margins are so much lower in a care business. Operating Costs Social Housing this has remained relatively constant during the year at 71% of social housing turnover. Therefore despite the removal of 1m the operating costs are amongst the highest in the peer group. Further cost control will be required to improve this position. Void Losses at 2.0% of rental income have increased from the previous year of 1.4%. Voids within the Enable Companies are much higher than the rest of the Group causing the deterioration. This measure of performance is now well below our peers and is a focus for management action, particularly those properties linked to the care activities. Bad Debt Losses - at 0.9% of rental income have increased slightly but are still comparable with the peer group average, indicating the challenging economic conditions for all registered providers. There will be increased focus on performance as the Universal Credit is rolled out across our region. Rent Arrears this measure is outstanding arrears net of bad debt provision. Therefore any comparison will be affected by the accounting policy on bad debts. For EMH Group arrears are 2.0% which again has increased on the previous year but still compares favourably against the peer group. The impact of the under occupancy provisions is still having a limited impact on arrears.

18 17 emh homes report and financial statements for the year ended 31 March 2015 Operating and Financial Review VALUE FOR MONEY CONTINUED VFM IMPROVEMENTS The VfM statement for 2013/14 included a number of specific targets and outcomes. Progress on these targets is detailed below: Objective Projected VfM Outcome Actual VfM Outcome Implementation of new staffing structure within emh homes and emh group 1m reduction in overhead budget Saving of 1.3m achieved Review office accommodation, in conjunction with customers, to identify potential savings 0.2m reduction in overhead budget Two offices closed making 0.2m saving Undertake independent VfM assessment of in house teams, including landscaping services Independent report on VfM performance Review underway with Echelon consultancy, initial report produced and further work required Commence programme of service reviews Agreed savings for each review Service review to be carried out by Residents Scrutiny Panel in future Deliver the procurement plan for 2014/15 Annual cost savings 0.25m Plan delivered with savings of 0.15m Deliver the Development programme to improve operating margins and reduce costs per unit Increased unit numbers by 1.5% Increased unit numbers by 2.2% Carry out return on assets project The targets for are as follows: Allow quantification of return on assets by product type Return on Assets now included in statement Objective Responsibility Target Date VfM Outcome Carry out Scrutiny Panel Review of complaints process Executive Director-Housing March 2016 Streamlined complaints process Continue progress with reimplementing Orchard Housing System Executive Director Housing July 2016 Single housing system for whole group Implement recommendation of VfM assessment of in house teams Executive Director Housing March 2016 Improved performance and customer satisfaction Deliver procurement plan for 2015/16 Executive Director Finance March 2016 Annual cost saving 0.25m Deliver the Development programme to improve operating margins and reduce costs per unit Executive Director Development March 2016 Increased unit numbers by 1.75% Produce a new VfM Strategy Executive Director Finance March 2016 Set out the new strategic approach to deliver VfM Conduct Social Return on Investments reviews on agreed projects Executive Director Business Support December 2015 Set out new strategic approach to deliver VfM

19 emh homes report and financial statements for the year ended 31 March Operating and Financial Review GOVERNANCE CONTINUED During the year we have completed a comprehensive review of governance arrangements across the group, involving: Reducing the number of boards to reflect the new legal structures and removing duplication of role; Cutting the number of board members within the group by almost two thirds; Moving to closed membership across all organisations; Strengthening controls through revised intragroup agreements; Moving away from local authority and tenant representation on boards to recruitment processes that are exclusively skills based; Reviewing board terms of reference and board member role profiles; Reviewing the group s governance membership and recruitment policy, and developing a clear succession plan for board membership; Completing appraisals and a review of board effectiveness across emh group, emh homes and enable s boards. emh homes has adopted and is compliant with the National Housing Federation s (NHF) Excellence in Governance Code for Members. In line with emh group s governance succession plan there will be two vacancies on emh homes board during 2014/15. Recruitment to these vacancies will be skills based, but diversity considerations such as age, gender and ethnicity will also be a factor, with the aim of increasing the diversity of the Board. STATEMENT OF COMPLIANCE The Board confirms that this Operating and Financial Review has been prepared in accordance with the principles set out in the 2010 SORP Update for registered social landlords. On behalf of the Board of Management JO FOX Chairman EMH Homes 9 September

20 19 emh homes report and financial statements for the year ended 31 March 2015 Statement of Board s Responsibilities in Respect of the Board s Report and the Financial Statements The Board is responsible for preparing the Board s Report and the financial statements in accordance with applicable law and regulations. Co-operative and Community Benefit Society law requires the Board to prepare financial statements for each financial year. Under those regulations the Board have elected to prepare the financial statements in accordance with UK Accounting Standards. The financial statements are required by law to give a true and fair view of the state of affairs of the association and of its income and expenditure 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 UK Accounting Standards and the Statement of Recommended Practice have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the association will continue in business. The Board is responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the association and enable them to ensure that its financial statements comply with the Co-operative and Community Benefit Societies Act 2014, the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing The Board has general responsibility for taking such steps as are reasonably open to it to safeguard the assets of the association and to prevent and detect fraud and other irregularities. The Board is responsible for the maintenance and integrity of the corporate and financial information included on the association s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board of Management JO FOX Chairman EMH Homes 9 September

21 emh homes report and financial statements for the year ended 31 March Statement of Internal Controls Assurance The board of emh homes is committed to the highest standards of business ethics and conduct across all its operations. The group board has overall responsibility for ensuring that a sound and comprehensive system of internal controls exists across the group and for reviewing its effectiveness. The board of emh homes works with the group board to support this. The following is an extract from the group s statement on internal controls. Control systems have been designed to proactively manage, rather than eliminate, the risks of failure to achieve business objectives and provide reasonable, but not absolute, assurance against material misstatement or loss. The key features of the group s system of internal controls include:- The group has adopted the National Housing Federation s Code of Governance. A comprehensive governance review carried out during the restructure of the group completed last year. There is strong focus on ensuring the effectiveness of and continuous improvement in governance across the group, including robust succession planning. All governing instruments have been revised in the context of a clearly defined organisational structure, backed up by appropriate accountability and delegated authority framework. Rules, standing orders, intra-group agreements and financial regulations have all been reviewed to meet legal, regulatory and good practice requirements. The group takes a corporate and strategic approach to risk management to ensure the delivery of business and financial plans. The risk panel has a crucial role in identifying current and emerging risks, taking appropriate actions to mitigate them and developing appropriate assurance mechanisms. All directors and corporate managers provide robust certification to the group chief executive on the robustness of systems and processes, which feeds into the annual assessment of internal controls by the board. All significant new initiatives, major commitments and investment projects are subject to a robust risk assessment process and formal authorisation procedures through designated committees/boards. The group audit committee has delegated authority from the board to approve and monitor the delivery of the internal audit plan, consider any control weaknesses, approve management actions and review follow up work on implementation of audit recommendations. The group audit committee meets independently with internal and external auditors to seek additional assurance on the robustness of control systems. Group-wide monitoring of health and safety issues is carried out by the group audit committee. Sound probity policies are being harmonised across the group, supported by appropriate mechanisms such as codes of conduct and policies on dealing with corruption, money laundering, bribery and whistle-blowing. The group confirms it has robust arrangements for managing fraud contained within a board approved policy which has been communicated to all staff. Details of identified frauds are maintained in a fraud register which is reviewed annually by the group audit committee on behalf of the board. All staff are appointed on the basis of robust selection and recruitment processes, with comprehensive induction and training programmes. A strong performance review framework exists to move the group towards upper quartile performance. As part of the continuous improvement process, the group has been externally assessed by Investors in excellence. It carries out regular surveys of customers and other stakeholders on all aspects of its services, resulting in robust action plans. This year has been the first full year following the amalgamation of the group and the second year with enable as a full member of it. Within emh homes new operational structures have been established and are being implemented in light of issues such as welfare reform. The group control and risk framework has been applied to enable. This resulted in a number of internal audit reports to the group audit committee, which highlighted some control issues. Action plans have been implemented to address these issues. The group chief executive has reviewed the internal control and assurance arrangements by reference to the above and has reported to the board that he is satisfied with the effectiveness of the control systems. The group audit committee has also expressed its satisfaction with these arrangements in its review of the effectiveness of internal control systems.

22 21 emh homes report and financial statements for the year ended 31 March 2015 Statement of Internal Controls Assurance The board confirms that there are on-going processes for identifying, evaluating and managing significant risks faced by the group. These processes have been in place throughout the year, up to the date of signing of these financial statements. The board regularly reviews them. On behalf of the Board of Management JO FOX Chairman EMH Homes 9 September 2015

23 emh homes report and financial statements for the year ended 31 March Independent Auditor s Report to the Members of EMH Housing and Regeneration Limited We have audited the financial statements of East Midlands Housing and Regeneration Limited for the year ended 31st March 2015 set out on pages 23 to 47. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the association s members, as a body, in accordance with section 128 of the Housing and Regeneration Act 2008 and section 87 of the Co-operative and Community Benefit Societies Act Our audit work has been undertaken so that we might state to the association s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the association and the association s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Board and auditor As more fully explained in the Statement of Board s Responsibilities set out on page 19, the association s Board is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council s website at Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of affairs of the association as at 31st March 2015 and of its surplus for the year then ended; comply with the requirements of the Co-operative and Community Benefit Societies Act 2014; and have been properly prepared in accordance with the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Co-operative and Community Benefit Societies Act 2014 requires us to report to you if, in our opinion: the association has not kept proper books of account; or the association has not maintained a satisfactory system of control over transactions; or the financial statements are not in agreement with the association s books of account; or we have not received all the information and explanations we need for our audit. Harry Mears for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants One Snowhill Snow Hill Queensway Birmingham B4 6GH September 2015

24 23 emh homes report and financial statements for the year ended 31 March 2015 Income and Expenditure Account Note Turnover 2/3 76,775 72,747 Operating costs 2/3 (48,966) (51,532) Operating surplus 2/3 27,809 21,215 Surplus on sale of fixed assets 4 1, Interest receivable and other income Interest payable and similar charges 6 (20,494) (17,890) Finance income/(costs) Surplus on ordinary activities before taxation 8 9,452 4,758 Tax on surplus on ordinary activities Surplus for the year 25 9,452 4,758 Turnover is derived from continuing activities.

25 emh homes report and financial statements for the year ended 31 March Statement of Total Recognised Surpluses and Deficits Surplus for the year 9,452 4,758 Actuarial (loss)/gain on pension fund (3,049) 850 Total surplus recognised since last annual report 6,403 5,608

26 25 emh homes report and financial statements for the year ended 31 March 2015 Balance Sheet Note Tangible fixed assets Housing properties at cost 683, ,994 Less social housing grants (217,309) (209,519) Less other grants (10,725) - Less depreciation (56,039) (48,473) Total housing properties , ,002 Other tangible fixed assets 13 8,417 7,928 Investments 14 1,367 1,152 Homebuy loan 7,462 7,953 Homebuy grant (7,462) (7,953) Total fixed assets 409, ,082 Current assets Stock and work in progress 15 1,475 1,644 Debtors 16 5,503 5,302 Investments 17 27,815 35,565 Cash at bank and in hand 18 16,549 36,595 Total current assets 51,342 79,106 Creditors: amounts falling due within 1 year 19 (28,270) (30,236) Net current assets 23,072 48,870 Total assets less current liabilities 432, ,952 Represented by: Creditors: amounts falling due after more than one year , ,175 Pensions liability 8,403 5,280 Called up share capital Designated reserves 25 1,328 1,324 Revenue reserves 25 64,572 58,173 Total funds 432, ,952 The financial statements on pages 23 to 47 were approved by the Board on 9 September 2015 and were signed on its behalf by: JO FOX Chairman EMH Homes ROBERT HINGSTON Board Member EMH Homes JOANNE TILLEY Secretary

27 emh homes report and financial statements for the year ended 31 March Cash Flow Statement Note Net cash inflow from operating activities I 30,633 36,234 Returns on investments and servicing of finance II (20,635) (17,815) Capital expenditure and financial investment II (26,337) (25,971) Taxation - - Net cash outflow before use of liquid resources and financing (16,339) (7,552) Management of liquid resources II 7,750 (30,544) Financing II (11,457) 68,890 (Decrease)/Increase in cash (20,046) 30,794 Reconciliation of net cash flow to movement in net debt III (Decrease)/Increase in cash in the year (20,046) 30,794 Cash outflow/(inflow) from decrease/(increase) in loan debt 10,895 (69,988) Cash (outflow)/inflow from (decrease)/increase in liquid resources (7,750) 30,544 Movement in net debt in the year (16,901) (8,650) Net debt at 1 April (309,786) (301,136) Net debt at 31 March (326,687) (309,786)

28 27 emh homes report and financial statements for the year ended 31 March 2015 Cash Flow Statement I RECONCILIATION OF OPERATING SURPLUS TO NET CASH INFLOW FROM OPERATING ACTIVITIES Operating surplus 27,809 21,215 Depreciation charges 8,951 9,261 Amortisation charges 563 1,098 Gift aid received Pension non cash adjustments (Increase)/decrease in stock and work in progress 169 (284) (Increase)/decrease in debtors (645) (816) Increase/(decrease) in creditors (5,498) 6,315 Development costs capitalised (1,113) (1,213) Net cash inflow from operating activities 30,633 36,234 II ANALYSIS OF CASH FLOWS Returns on investment and servicing of finance Interest received Interest paid (21,258) (17,831) (20,635) (17,815) Capital expenditure and financial investment Acquisition and construction of housing properties (42,894) (34,666) Purchase of other fixed assets (1,138) (1,244) Capital grants received 12,519 5,795 Sale of housing property 5,391 4,059 Purchase of investment securities (215) 85 (26,337) (25,971) Management of liquid resources (Acquisition)/disposal of short term investments 7,750 (30,544) 7,750 (30,544) Financing Loan advances received (5) 210,529 Loan principal repayments (1,852) (2,574) Loan redemption payments (9,600) (139,065) (11,457) 68,890 III ANALYSIS OF CHANGES IN NET DEBT At 1 April Cash At 31 March 2014 Flows Cash at bank and in hand 36,595 (20,046) 16,549 Debt due within one year (11,453) (3,633) (15,086) Debt due after one year (370,493) 14,528 (355,965) Current asset investments 35,565 (7,750) 27,815 Total net debt (309,786) (16,901) (326,687)

29 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 1 PRINCIPAL ACCOUNTING POLICIES The financial statements have been prepared in accordance with applicable accounting standards and the Statement of Recommended Practice Accounting by Registered Housing Providers Update 2010, and comply with the Accounting Direction for Private Registered Providers of Social Housing A summary of the more important accounting policies, which have been applied consistently, is set out below. Basis of accounting The financial statements are prepared upon the historical cost basis of accounting. Going Concern The Association s business activities, together with the factors likely to affect its future development and position, are set out in the Review of the Year section of the Operating and Financial Review. The Association is expected to continue to generate positive cash flows on its own account for the foreseeable future. The Board, having assessed the responses of the Executive Directors of the Association s parent East Midlands Housing Group Limited to their enquiries have no reason to believe that a material uncertainty exists that may cast significant doubt about the ability of the East Midlands Housing Group to continue as a going concern or its ability to continue with the current banking arrangements. On the basis of their assessment of the Association s financial position and of the enquiries made of the Executive Directors of East Midlands Housing Group Limited, the Association s Board have a reasonable expectation that the Association will be able to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. Turnover Turnover represents rental income receivable, income from the sale of other services, sale of first tranche ownership properties and grants receivable from third parties. Charges for services provided and Supporting People income are recognised as income when the Association has provided the service concerned. Fixed assets and depreciation Tangible fixed assets, except housing properties, are stated at cost less accumulated depreciation. Depreciation is charged on a straight-line basis over the expected useful economic lives of the assets at the following annual rates: Office furniture and equipment 10% to 33% Motor vehicles 25% Computer equipment 25% Improvements to occupied premises 10% Office buildings 2% Housing properties Freehold properties are stated at cost less accumulated depreciation. Where appropriate the development cost of housing properties funded with traditional SHG or under earlier funding arrangements includes the following: (i) cost of acquiring land and buildings; (ii) development expenditure; (iii) interest charged on the mortgage loan raised to finance the scheme; (iv) amounts equal to acquisition and development allowances receivable. All invoices and architect s certificates relating to capital expenditure incurred in the year at gross value before retentions, are included in the financial statements for the year. Expenditure on schemes which are subsequently aborted is written off in the year in which it is recognised that the schemes will not be developed to completion. For schemes developed with fixed SHG, the above applies but actual development overheads are capitalised in place of (iv) above and interest on the Association s unsecured loans used to finance the development programme has been capitalised. The depreciable amount of housing property is defined as the cost of the asset less its residual value.

30 29 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 1 PRINCIPAL ACCOUNTING POLICIES CONTINUED For this purpose residual value equates to the cost of land. These two cost elements are then reduced by the Social Housing Grant (SHG) appropriate to each element to arrive at the net depreciable amount. Depreciation is charged on a straight line basis over the useful lives of the properties, as follows: Flats (rehab) Flats (new) Houses (rehab) Houses (new) 80 years 100 years 100 years 125 years Leasehold properties are depreciated over the useful lives above, or the length of the lease, whichever is the shorter period. Housing properties in the course of construction are stated at cost and are transferred into housing properties when completed. Completed housing properties have been split between their land and structure costs and a specific set of major components that require periodic replacement. Refurbishment or replacement of such a component is capitalised and then depreciated over the estimated useful life of the component at the following rates: Boilers Kitchens Windows and doors Roofs Bathrooms Other Components 15 years 20 years 30 years 50 years 30 years 30 years Impairment Impairment reviews are carried out on an annual basis. Social housing and similar grants Where developments have been financed wholly or partly by Social Housing Grant (SHG), the cost of these developments has been reduced by the amount of the grant received. SHG due from the Homes and Communities Agency or received in advance is included as a current asset or liability. SHG received in respect of revenue expenditure is credited to the income and expenditure account in the same period as the expenditure to which it relates. SHG is repayable under certain circumstances, primarily following sale of a property, but the amount repayable is usually restricted to the net proceeds of sale. From 1 April 1999 the Association may opt to recycle SHG through a Recycled Capital Grant Fund or repay the SHG to the Homes and Communities Agency. SHG is an unsecured repayable debt, subordinated in respect of loans in agreement with the Homes and Communities Agency. Homebuy Homebuy loans represent equity loans made by the Association to eligible people in order to enable them to purchase a home on the open market. Homebuy grants represent money received from the Homes and Communities Agency to cover the equity loan. Operating leases Rentals payable under operating leases are charged to the income and expenditure account on a straight-line basis over the lease term. Sale of shared ownership properties Shared ownership properties are split between fixed and current assets, with the element relating to the expected first tranche sale being treated as a current asset. Any surplus made on the sale of the first tranche is treated as turnover in the Income and Expenditure Account in accordance with the treatment proposed in SORP Second and subsequent tranche surpluses or deficits are shown after operating surplus has been determined, but before interest.

31 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 1 PRINCIPAL ACCOUNTING POLICIES CONTINUED Designations The Association designates those reserves which have been set aside for designated uses, which prevent them, in the judgement of the Board, from being regarded as part of the free reserves of the Association. Sinking fund reserve Unutilised contributions to service charge sinking funds are treated as a separate designated reserve. Apportionment of management expenses Direct employee, administration and operating costs have been apportioned to the income and expenditure account on the basis of the actual expenditure incurred. Management, finance and administration costs are further apportioned as appropriate, based on time spent by staff. VAT The group is VAT registered but a large proportion of its income, rents, is exempt for VAT purposes and therefore gives rise to a partial exemption calculation. Expenditure is therefore shown inclusive of VAT and the input VAT recovered is included as a credit in the income and expenditure account. Pensions The association participates in three staff pension schemes providing benefits based on final pensionable salaries. The assets of the schemes are held separately from those of the group. a) The Pensions Trust Social Housing Pension Scheme The association is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as required by FRS17 Retirement Benefits, accounts for the scheme as if it were a defined contribution scheme. As a result, the amount charged to the profit and loss account represents the contributions payable to the scheme in respect of the accounting period. Contributions to these schemes are charged to the income and expenditure account so as to spread the cost of pensions over employees working lives with the group. The group also operates a defined contribution pension scheme, the assets of which are held separately from those of the Association. The amount charged to the profit and loss account in respect of this scheme represents the contributions payable to the scheme in respect of the accounting period. b) Leicestershire County Council Pension Fund Pensions scheme assets are measured using market values. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The pension scheme surplus (to the extent that it is recoverable) or deficit is recognised in full. The movement in the scheme surplus/deficit is split between operating charges, finance items and, in the statement of recognised surpluses and deficits, actuarial gains and losses.

32 31 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 1 PRINCIPAL ACCOUNTING POLICIES CONTINUED c) Derbyshire County Council Pension Scheme Pensions scheme assets are measured using market values. Pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The pension scheme surplus (to the extent that it is recoverable) or deficit is recognised in full. The movement in the scheme surplus/deficit is split between operating charges, finance items and, in the statement of recognised surpluses and deficits, actuarial gains and losses. Hostels managed by agencies Housing Association Grants and other revenue grants are claimed by the group as owner of the hostels. The grants are included in the income and expenditure account and balance sheet of the group. The treatment of other income and expenditure in respect of hostels depends on whether the group carries the financial risk. Operating Operating Operating Operating Turnover costs Surplus Turnover Costs Surplus PARTICULARS OF TURNOVER, OPERATING COSTS AND OPERATING SURPLUS Social housing lettings Housing accommodation 49,809 (30,799) 19,010 47,076 (33,223) 13,853 Supported housing and housing for older people 18,839 (12,518) 6,321 18,118 (13,422) 4,696 Shared ownership accommodation 3,595 (1,596) 1,999 3,496 (1,554) 1,942 72,243 (44,913) 27,330 68,690 (48,199) 20,491 Other social housing activities Charges for support services 1,204 (1,558) (354) 1,315 (1,081) 234 Other Current asset property sales 2,497 (2,495) 2 2,254 (2,252) 2 76,775 (48,966) 27,809 72,747 (51,532) 21,215

33 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements Supported housing & Shared Housing housing for Ownership accom- Older accom- modation People modation Total Total PARTICULARS OF INCOME AND EXPENDITURE FROM SOCIAL HOUSING LETTINGS Rent receivable net of identifiable service charges 47,955 15,545 3,086 66,586 63,133 Service charge income 1,854 3, ,634 5,520 Other revenue grants Turnover from social housing lettings 49,809 18,839 3,595 72,243 68,690 Operating costs Management 12,068 4, ,824 17,288 Service charge costs 2,331 3, ,789 5,660 Routine maintenance 7,196 2, ,860 11,676 Planned maintenance 2, ,982 3,151 Major repairs ,053 Bad debts Lease charges Depreciation of housing 6,285 1, ,303 8,762 properties Operating costs on social housing lettings 30,799 12,518 1,596 44,913 48,199 Operating surplus on social housing lettings 19,010 6,321 1,999 27,330 20,491 Void losses ,376 1,238 4 SURPLUS ON SALE OF FIXED ASSETS Proceeds of sales 6,019 4,688 Costs of sales (4,828) (3,737) Surplus on property disposals 1, INTEREST RECEIVABLE AND OTHER INCOME Interest receivable from unlisted investments Gift Aid received INTEREST PAYABLE AND SIMILAR CHARGES On bank loans, overdrafts and other loans 21,166 17,003 Costs of funding review - 1,171 Less capitalised (672) (284) 20,494 17,890 7 FINANCING INCOME/(COST) Expected return on pension scheme assets 1,518 1,300 Interest on pension scheme liabilities (1,345) (1,274)

34 33 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 8 SURPLUS ON ORDINARY ACTIVITES BEFORE TAXATION Surplus on ordinary activities before taxation is stated after charging: Depreciation of tangible fixed assets Housing properties 8,303 8,762 Other owned assets Auditor s remuneration In their capacity as auditors In respect of other services 9 16 Operating lease payments Motor vehicles Office equipment 3 - Land and buildings TAXATION Analysis of tax charge/(credit) for the period Current tax UK corporation tax at 21%/23% - - Deferred tax Origination and reversal of timing differences - - Effect of tax rate on opening balance - - Total deferred tax charge/(credit) - - Tax on surplus on ordinary activities - - Provision for deferred tax Movement in provision: Provision at start of period - - Deferred tax charged in the income and expenditure account for the period - - Provision at end of period - - Provision for deferred tax on defined benefit schemes Movement in provision: Provision at start of period - - Deferred tax charged in the income and expenditure account for the period - - Provision at end of period - - Deferred tax (asset)/liability not recognised - - FRS19 reconciliation of current tax charge Surplus on ordinary activities before tax 9,452 4,758 Tax on surplus on ordinary activities at standard CT rate of 21%/23% 1,985 1,094 Effects of: Charitable exemption (1,985) (1,094) Expenses not deductible for tax purposes fixed assets - - Expenses not deductible for tax purposes - - Income not taxable for tax purposes - - Amounts (charged)/credited directly to STRGL or otherwise transferred - - Capital allowances in excess of depreciation - - Defined benefit scheme timing differences - - Utilisation of tax losses and other deductions - - Current tax charge/(credit) for the period - -

35 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 10 DIRECTORS AND SENIOR STAFF EMOLUMENTS The total remuneration paid to the directors of the Association (the Board and Executive Management Team) was: Emoluments (including pension contributions and benefits-in-kind) paid to: Executive directors Directors and senior staff Board members Full details of Board Member pay is disclosed within the consolidated accounts of the parent company, East Midlands Housing Group Limited. The consolidated financial statements of East Midlands Housing Group are available at Emoluments (excluding pensions contributions) include the following amounts paid to the highest paid director: 70* 97 The number of directors and senior staff, including the highest paid director, who received emoluments (including pension contributions and compensation for loss of office) in the following ranges was: 60,001-70, ,001-80, ,001-90, , , , , , ,000 1* - Emoluments disclosed include payments to all members of the Executive Management Team in accordance with the Accounting Direction for Private Registered Providers of Social Housing The Executive Director is an ordinary member of the Social Housing Pension Scheme (SHPS), a multi-employer defined benefit scheme. No enhanced or special terms apply. *The Executive Director was employed by the organisation for the period 1 April 30 November 2014 and was employed by the parent company, emh group from 1 December Total expenses reimbursed to the directors not chargeable to United Kingdom income tax EMPLOYEE INFORMATION Number Number The average weekly number of persons (including the Chief Executive) employed during the year, expressed as full time equivalents and based on a 35 hour week, was: Office staff Wardens and caretakers Hostel staff Operatives Staff costs for the above persons: Wages and salaries 8,925 8,919 Social security costs Pension costs 1,094 1,082 10,773 10,703

36 35 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements The Pensions Trust Social Housing Pension Scheme emh homes participates in the Social Housing Pension Scheme (the Scheme). The Scheme is funded and is contractedout of the State Pension scheme. SHPS is a multi-employer defined benefit scheme. Employer participation in the Scheme is subject to adherence with the employer responsibilities and obligations as set out in the SHPS House Policies and Rules Employer Guide. The Scheme operated a single benefit structure, final salary with a 1/60th accrual rate until 31 March From April 2007 three defined benefit structures have been available, namely: Final salary with a 1/60th accrual rate Final salary with a 1/70th accrual rate Career average revalued earnings (CARE) with a 1/60th accrual rate From April 2010 a further two defined benefit structures have been available, namely: Final salary with a 1/80th accrual rate Career average revalued earnings (CARE) with a 1/80th accrual rate A defined contribution benefit structure was made available from 1 October An employer can elect to operate different benefit structures for their active members and their new entrants. An employer can only operate one open defined benefit structure at any one time. An open benefit structure is one which new entrants are able to join. emh homes currently operates the final salary 1/60th accrual rate benefit structure for active members as at 31 March The career average revalued earnings (CARE) with a 1/60th accrual rate benefit structure was made available to new and active members from 1 April 2007 and the defined contribution benefit structure was made available to new and active members from 1 October The Trustee commissions an actuarial valuation of the scheme every three years. The main purpose of the valuation is to determine the financial position of the Scheme in order to determine the level of future contributions required, in respect of each benefit structure, so that the Scheme can meet its pension obligations as they fall due. From April 2007 the split of the total contribution rate between member and employer is set at individual employer level, subject to the employer paying no less than 50% of the total contribution rate. From 1 April 2010 the requirement for employers to pay at least 50% of the total contribution rate no longer applies. The actuarial valuation assesses whether the Scheme s assets at the valuation date are likely to be sufficient to pay the pension benefits accrued by members as at the valuation date. Asset values are calculated by reference to market levels.

37 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 11 EMPLOYEE INFORMATION CONTINUED Accrued pension benefits are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. During the accounting period emh homes paid contributions at the rate of 6.7% to 9.8%. Member contributions varied between 9.1% and 10.6%. At the balance sheet date there were 62 active members of the Scheme employed by emh homes. The annual pensionable payroll in respect of these members was 1,709,118. emh homes ceased to offer membership to it s employees from 30 June It is not possible in the normal course of events to identify on a reasonable and consistent basis the share of underlying assets and liabilities belonging to individual participating employers. The Scheme is a multi-employer scheme, where the assets are co-mingled for investment purposes, and benefits are paid out of total Scheme assets. Accordingly, due to the nature of the Scheme, the accounting charge for the period under FRS17 represents the employer contribution payable. The last formal valuation of the Scheme was performed as at 30 September 2011 by a professionally qualified Actuary using the Projected Unit Method. The market value of the Scheme s assets at the valuation date was 2,062 million. The valuation revealed a shortfall of assets compared with the value of liabilities of 1,053 million, equivalent to a past service funding level of 67.0%. The Scheme Actuary has prepared an Actuarial Report that provides an approximate update of the funding position of the Scheme as at 30 September Such a report is required by legislation for years in which a full actuarial valuation is not carried out. The market value of the Scheme s assets at the date of the Actuarial Report was 2,718 million. The Actuarial Report revealed a shortfall of assets compared with the value of liabilities of 1,151 million, equivalent to a past service funding level of 70%. The financial assumptions underlying the valuation as at 30 September 2011 were as follows: Valuation discount rates %pa Pre retirement 7.00% Non pensioner post retirement 4.20% Pensioner post retirement 4.20% Pensionable earnings growth 2.5% per annum for 3 years, then 4.4% Price inflation (RPI) 2.90% Pension increases Pre 88 GMP 0.00% Post 88 GMP 2.00% Excess over GMP 2.40% Expenses for death in service insurance, administration and Pension Protection Fund (PPF) levy are included in the contribution rate. The valuation was carried out using the following demographic assumptions: Mortality pre retirement 41% SAPS S1 Male / Female All Pensioners (amounts), Year of Birth, CMI_2009 projections with long term improvement rates of 1.5% p.a. for Males and 1.25% p.a. for Females. Mortality post retirement - 97% SAPS S1 Male / Female All Pensioners (amounts), Year of Birth, CMI_2009 projections with long term improvement rates of 1.5% p.a. for Males and 1.25% p.a. for Females. The long-term joint contribution rates required from April 2013 from employers and members to meet the cost of future benefit accrual were assessed at: Benefit structure Long term joint contribution rate (% of pensionable salaries) Final salary with a 1/60 th accrual rate 19.40% Final salary with a 1/70 th accrual rate 16.90% Career average revalued earnings (CARE) with a 1/60 th accrual rate 18.10%

38 37 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 11 EMPLOYEE INFORMATION CONTINUED Benefit structure Long term joint contribution rate (% of pensionable salaries) Final salary with a 1/80 th accrual rate 14.80% Career average revalued earnings (CARE) with a 1/80 th accrual rate Career average revalued earnings (CARE) with a 1/120 th accrual rate 14.00% 9.70% If the actuarial valuation reveals a shortfall of assets compared to liabilities the Trustee must prepare a Recovery Plan setting out the steps to be taken to make up the shortfall. Following consideration of the results of the actuarial valuation it was agreed that the shortfall of 1,035 million would be dealt with by the payment of deficit contributions as shown in the table below: From 1 April 2013 to 30 September 2020 From 1 October 2020 to 30 September 2023 From 1 April 2013 to 30 September 2026 A cash amount(*) equivalent to 7.5% of Members Earnings per annum (payable monthly and increasing by 4.7% per annum each 1 April) A cash amount(*) equivalent to 3.1% of Members Earnings per annum (payable monthly and increasing by 4.7% per annum each 1 April) 30,640,000 per annum (payable monthly and increasing by 3% per annum each 1 April; first increase on 1 April 2014) (*) The contributions of 7.5% will be expressed in nominal pound terms (for each Employer), increasing each year in line with the Earnings growth assumption used in the 30 September 2008 valuation (i.e. 4.7% per annum). The contributions of 3.1% will be calculated by proportioning the nominal pound payment at the time of the change. Earnings at 30 September 2008 (for each Employer) will be used as the reference point for calculating these contributions. These deficit contributions are in addition to the long-term joint contribution rates as set out above. The next formal valuation of the Scheme will begin later this year and will give an update on the financial position as at 30 September The results of this valuation will be available in Spring Employers that participate in the Scheme on a non-contributory basis pay a joint contribution rate (i.e. a combined employer and employee rate). Employers that have closed the defined benefit section of the Scheme to new entrants are required to pay an additional employer contribution loading of 2.5% to reflect the higher costs of a closed arrangement. A small number of employers are required to contribute at a different rate to reflect the amortisation of a surplus or deficit on the transfer of assets and past service liabilities from another pension scheme into SHPS. New employers that do not transfer any past service liabilities to the Scheme pay contributions at the ongoing future service contribution rate. This rate is reviewed at each valuation and new employers joining the Scheme between valuations up until 1 April 2010 do not contribute towards the deficit until two valuations have been completed after their date of joining. New employers joining the Scheme after 1 April 2010 will be liable for past service deficit contributions from the valuation following joining. Contribution rates are changed on the 1 April that falls 18 months after the valuation date. A copy of the Recovery Plan, setting out the level of deficit contributions payable and the period for which they will be payable, must be sent to The Pensions Regulator. The Regulator has the power under Part 3 of the Pensions Act 2004 to issue scheme funding directions where it believes that the actuarial valuation assumptions and/or Recovery Plan are inappropriate. For example the Regulator could require that the Trustee strengthens the actuarial assumptions (which would increase the Scheme liabilities and hence impact on the Recovery Plan) or impose a schedule of contributions on the Scheme (which would effectively amend the terms of the Recovery Plan). As a result of pension scheme legislation there is a potential debt on the employer that could be levied by the Trustee of the Scheme. The debt is due in the event of the employer ceasing to participate in the Scheme or the Scheme winding up. The debt for the Scheme as a whole is calculated by comparing the liabilities for the Scheme (calculated on a buy-out basis i.e. the cost of securing benefits by purchasing annuity policies from an insurer, plus an allowance for expenses) with the assets of the Scheme. If the liabilities exceed assets there is a buy-out debt.

39 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 11 EMPLOYEE INFORMATION CONTINUED The leaving employer s share of the buy-out debt is the proportion of the Scheme s liability attributable to employment with the leaving employer compared to the total amount of the Scheme s liabilities (relating to employment with all the currently participating employers). The leaving employer s debt therefore includes a share of any orphan liabilities in respect of previously participating employers. The amount of the debt therefore depends on many factors including total Scheme liabilities, Scheme investment performance, the liabilities in respect of current and former employees of the employer, financial conditions at the time of the cessation event and the insurance buy-out market. The amounts of debt can therefore be volatile over time. emh homes has been notified by The Pensions Trust of the estimated employer debt on withdrawal from the Social Housing Pension Scheme, based on the financial position of the Scheme as at 30 September At this date the estimated employer debt for emh homes was 17,154,491. Growth plan emh homes participates in The Pension Trust s Growth Plan ( the Plan ). The Plan is funded and is not contracted-out of the State Scheme. emh homes has been notified by The Pensions Trust of the estimated employer debt on withdrawal from the Plan based on the financial position of the Plan as at 30 September As of this date the estimated employer debt for emh homes was 23,122 (including Series 3) or 17,183 (excluding Series 3). Leicestershire County Council Pension Fund The Association also participates in the Local Government Pension Scheme, which is administered by Leicestershire County Council. The Local Government Pension Scheme is a defined benefit scheme and is contracted out of the state scheme Fair value of employer assets 4,362 3,678 Present value of funded liabilities (5,054) (3,925) Net underfunding in funded plans (692) (247) Present value of unfunded liabilities - - Net liability (692) (247) Reconciliation of defined benefit obligation Opening defined benefit obligation 3,925 3,587 Current service cost Interest cost Contributions by members Actuarial losses Estimated benefits paid (33) (30) Closing defined benefit obligation 5,054 3,925 Reconciliation of fair value of employer assets Opening fair value of employer assets 3,678 3,671 Expected return on assets Contributions by members Contributions by employer Actuarial gains/(losses) 369 (290) Benefits paid (33) (30) Closing fair value of employer assets 4,362 3,678 Expenses recognised in the profit and loss account Current service cost Interest cost Expected return on employer assets (224) (190) Total pension cost recognised in the profit and loss account

40 39 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 11 EMPLOYEE INFORMATION CONTINUED The total amount recognised in the statement of total recognised gains and losses in respect of actuarial gains and losses is 424,000 (loss). The amount of cumulative actuarial gains/losses reported in the statement of total recognised gains and losses is 1,485,000. The fair value of the plan assets and the return on those assets were as follows: Equities 2,486 2,684 Bonds 1, Property Cash Actual return on plan assets 4,362 3,678 Principal actuarial assumptions at the year end were as follows: Inflation/pension increase rate 2.40% 2.80% Salary increase rate 4.30% 4.60% Expected return on assets 3.20% 6.00% Discount rate 3.20% 4.30% Life expectancy is based on the Fund s VitaCurves with improvements in line with the CMI 2010 model assuming current rates of improvement have peaked and will converge to a long term rate 1.25% p.a. Based on these assumptions, the average future life expectancies at age 65 are summarised below: Male Female Current pensioners Future pensioners Five year history Fair value of employer assets 4,362 3,678 3,671 3,084 2,897 Present value of funded liabilities (5,054) (3,925) (3,587) (2,813) (2,387) (Deficit)/surplus (692) (247) Experience gains and (losses) on assets Amount ( 000) 369 (290) 279 (196) (45) Percentage of scheme liabilities 7% (7%) 8% (7%) (2%) The Association expects to contribute approximately 86,000 to its defined benefit plan in the next financial year. Derbyshire County Council Pension Fund The Association also participates in the Local Government Pension Scheme, which is administered by Derbyshire County Council. The Local Government Pension Scheme is a defined benefit scheme and is contracted out of the state scheme Fair value of employer assets 24,750 22,233 Present value of funded liabilities (32,390) (27,200) Net underfunding in funded plans (7,640) (4,967) Present value of unfunded liabilities (71) (66) Net liability (7,711) (5,033)

41 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 11 EMPLOYEE INFORMATION CONTINUED Reconciliation of defined benefit obligation Opening defined benefit obligation 27,266 26,405 Current service cost Interest on pension liabilities 1,173 1,109 Contributions by members Actuarial (gains)/losses 3,977 (272) Losses/(gains) on curtailments Benefits / transfers paid (792) (779) 32,461 27,266 Reconciliation of fair value of employer assets Opening fair value of employer assets 22,233 20,383 Expected return on plan assets 1,294 1,110 Actuarial gains on assets 1, Employer contributions Member contributions Benefits / transfers paid (792) (779) 24,750 22,233 Expenses recognised in the profit and loss account Current service cost Interest cost 1,173 1,109 Expected return on employer assets (1,294) (1,110) Total pension cost recognised in the profit and loss account The total amount recognised in the statement of total recognised gains and losses in respect of actuarial losses is 2,625,000 (loss). The amount of cumulative actuarial gains and losses reported in the statement of total recognised gains and losses is 2,863,000 (loss). The fair value and expected return on emh homes share of the scheme s assets were as follows: Market Value Expected Rate of Return Market Value Expected Rate of Return 000 % pa 000 % pa Equities 17, , Bonds 4, , Property 1, , Cash 1, , ,750 22,233

42 41 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 11 EMPLOYEE INFORMATION CONTINUED Principal actuarial assumptions at the year end were as follows: Salary increase rate 3.30% 3.60% Pension increase rate 2.40% 2.80% Discount rate 3.20% 4.30% Expected return on assets 3.20% 5.84% Life expectancy is based on the Fund s VitaCurves with improvements in line with the CMI 2010 model assuming current rates of improvement have peaked and will converge to a long term rate 1.25% p.a. Based on these assumptions, the average future life expectancies at age 65 are summarised below: Future life expectancy assumptions: Male Female Current pensioners Future pensioners Five year history Fair value of employer assets 24,750 22,233 20,383 17,962 17,599 Present value of funded liabilities (32,461) (27,266) (26,347) (22,426) (20,468) Deficit (7,711) (5,033) (5,964) (4,464) (2,869) Experience gains/(losses) on assets Amount ( 000) 1, ,477 (850) 790 Percentage of scheme assets 5.5% 4.0% 7.1% 4.7% 4.5% Experience gains/(losses) on liabilities Amount ( 000) ,244 Percentage of scheme liabilities 0.8% 1.0% % The Association expects to contribute approximately 444,000 to its defined benefit plan in the next financial year.

43 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 12 HOUSING PROPERTIES Housing Shared Housing Total Properties Ownership properties Housing for letting Properties Construction Property Cost At 1 April ,701 60,883 22, ,994 Adjustment for other grants 5, ,561 b/f Additions ,861 35,861 Replacement of components 8, ,818 Schemes for letting completed 25,697 6,348 (32,045) - Disposals (1,923) (1,121) (2,627) (5,671) Transfers (6,830) 6,833 (3) - At 31 March ,359 73,740 24, ,563 Social Housing Grant At 1 April ,099 19,860 6, ,519 Receivable - - 9,894 9,894 Repayable / Disposals (397) (384) (1,323) (2,104) Transfers (2,145) 2, Schemes for letting completed 7,387 1,082 (8,469) - At 31 March ,944 22,703 6, ,309 Other Grant At 1 April Adjustment for other grants b/f 5, ,561 Receivable - - 3,523 3,523 Repayable / Disposals - - (359) (359) Transfers (554) - At 31 March , ,478 10,725 Accumulated Depreciation At 1 April ,807 3, ,473 Charge for the year 8, ,303 Disposals (666) (71) - (737) Transfers (186) - At 31 March ,247 3,792-56,039 Net book value At 31 March ,734 46,432 14, ,490 At 31 March ,795 37,543 15, ,002 The net book value of housing properties comprises: Freehold 394, ,481 Long leasehold 4,696 4,499 Short leasehold , ,002 Additions to housing properties include capitalised interest of 672,287 (2014: 284,486) and 1,113,368 (2014: 1,212,612) direct administration costs.

44 43 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 13 OTHER FIXED ASSETS Leasehold Freehold Equipment Properties Properties Total Cost At 1 April , ,874 12,612 Additions ,138 At 31 March , ,121 13,750 Accumulated depreciation At 1 April , ,962 4,685 Charge for the year At 31 March , ,099 5,333 Net book value At 31 March , ,022 8,417 At 31 March , ,912 7, FIXED ASSET INVESTMENTS At 1 April ,152 1,237 Transfer in year 215 (85) At 31 March ,367 1, STOCK AND WORK IN PROGRESS Schemes developed for shared ownership disposal and outright sale 1,475 1, DEBTORS Rental debtors 3,972 3,700 Provisions for rental debtors (2,607) (2,388) 1,365 1,312 Trade debtors 1, Provisions for trade debtors (237) (180) Prepayments and accrued income 2,280 2,906 Group undertakings Housing Associations Property Mutual Insurance Zurich Insurance 3 6 5,503 5,302 Housing Associations Property Mutual Insurance The cost of this insurance is amortised over the life of the policy i.e. 20 years. The amount of the insurance cost carried forward for more than one year amounted to 34,751 (2014: 47,363). Zurich Insurance The cost of this insurance is amortised over the life of the policy i.e. 15 years. The amount of the insurance cost carried forward for more than one year amounted to 204 (2014: 3,198).

45 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 17 CURRENT ASSET INVESTMENTS Bank deposits 27,815 35, CASH AT BANK AND IN HAND Cash held at bank 16,385 36,431 Cash pledged as security ,549 36, CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Loans and overdrafts 15,086 11,453 Trade creditors 4,753 1,445 Rent received in advance 1,872 1,792 Other taxation and social security Group undertakings Disposal proceeds fund Accruals and deferred income 5,481 14,747 28,270 30, CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Loans 355, ,493 Recycled Capital Grant Fund 2,078 1,649 Disposal Proceeds Fund , , LOANS Bank loans 176, ,115 The Housing Finance Corporation 30,588 30,775 Building Societies 15,869 19,387 Bond finance from emh treasury plc 147, , , ,946 The Building Society and Bank loans are secured by fixed charges on individual properties. The Housing Finance Corporation loans are secured by floating charges over the assets of the Association and by fixed charges on individual properties. Loans are repayable at varying rates of interest in instalments due as follows: In one year or less 15,086 11,453 Between one and two years 4,586 21,569 Between two and five years 30,989 20,613 In more than five years 320, , , , RECYCLED CAPITAL GRANT FUND At 1 April , Inputs to reserve: Grants recycled 1, Interest accrued 9 5 Transfers from other Group members - - New build (866) - Major repairs and works to existing stock - - Other - - At 31 March ,079 1,649

46 45 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 23 DISPOSAL PROCEEDS FUND At 1 April Inputs to reserve: Grants recycled - - Interest accrued - - New build - - Major repairs and works to existing stock - - Other - - At 31 March CALLED UP SHARE CAPITAL Allotted, issued and fully paid at 1 April 2014 and 31 March At 31 March 2015, the Association had 9 ordinary shares (2014: 8) in issue, with each share having a nominal value of 1. The shares have no rights to dividends nor to any share of the assets of the Association in the event of it ceasing to operate. 25 RESERVES Revenue Sinking Reserve Fund Total At 1 April ,173 1,324 59,497 Surplus for the year 9,452-9,452 Transfers (4) 4 - Actuarial gain recognised in the pension scheme (3,049) - (3,049) At 31 March ,572 1,328 65, Revenue reserve excluding pension asset/(liability) 72,975 63,453 Pension liability (8,403) (5,280) 64,572 58, CAPITAL COMMITMENTS Capital expenditure that has been contracted for but has not been provided for in the financial statements 31,702 22,029 Capital expenditure that has been authorised by the Board of Management but has not yet been contracted for 14,453 21,925 The above commitments represent the gross commitments of the Association. In respect of the commitments at 31 March 2015, the Group is likely to receive Social Housing Grant (SHG) totalling 7,195k against capital expenditure that has been contracted for and 4,987k against that which has been authorised. The balance of these commitments will be financed by loans or from the Association s accumulated revenue reserves.

47 emh homes report and financial statements for the year ended 31 March Notes to the Financial Statements 27 OPERATING LEASES Annual commitments in respect of non-cancellable operating leases are as follows: Land and buildings: Expiring within one year Expiring between two and five years Expiring in more than five years Others: Expiring within one year - 15 Expiring between two and five years Expiring in more than five years RELATED PARTY TRANSACTIONS No board members or shareholders at 31 March 2015 were tenants of the Association during the year. There were some customer representative board members and shareholders prior to amalgamation. Tenant Board and Committee members are charged, and required to pay, rent on standard terms. During the year emh homes had the following income/(expenditure) with non regulated entities within emh group: Enable Housing Association Limited Midlands Rural Housing Association emh group Sharpes Garden Services Limited - 40 emh group (6,893) (6,695) emh treasury plc (6,902) (1,168) Sharpes Garden Services Limited (1,753) (1,001) 29 ULTIMATE PARENT ORGANISATION The Association is a subsidiary of East Midlands Housing Group, which is regarded by the Board of Management as the ultimate parent organisation of the Association. The consolidated financial statements of East Midlands Housing Group are available at

48 47 emh homes report and financial statements for the year ended 31 March 2015 Notes to the Financial Statements 30 PROPERTY NUMBERS Number Number Housing accommodation Units in management at end of year 14,011 13,859 Units in development at end of year ,315 14,129 Housing accommodation externally managed Units in management at end of year Units in development at end of year Hostels Bedspaces in management at end of year Bedspaces in development at end of year Hostels externally managed Bedspaces in management at end of year Bedspaces in development at end of year Shared ownership Units in management at end of year 1,524 1,314 Units in management at end of year (externally managed) Units in development at end of year ,668 1,445 Managed Freeholds Units in management at end of year Properties managed on behalf of other RSLs Rented Supported housing Total Units managed (including freeholds) 17,048 16,686

49 East Midlands Housing Group Limited Memorial House Whitwick Business Park Stenson Road Coalville Leicestershire LE67 4JP T E.