Financial statements for Devon & Cornwall Housing Limited

Transcription

1 Financial statements for Devon & Cornwall Housing Limited for the year ended 31 March

2 Financial statements for Devon & Cornwall Housing Year ended 31 March

3 Contents Financial statements for Devon & Cornwall Housing Limited for the year ended 31 March Page Chief Executive s introduction to the board report 4 our business, and how we work 5 reviewing the year governance and management changes 5-6 operational performance 7-10 financial performance future priorities and the shape of our new strategy corporate governance internal controls and further information Independent auditors report 22 Income & expenditure accounts 23 Balance sheets 24 Cash flow statement Notes to the financial statements Registered under the Industrial and Provident Societies Act no: 31217R, and registered with the Homes & Communities Agency no: 4650 Financial statements for Devon & Cornwall Housing Year ended 31 March 3

4 Introduction from Paul Crawford, Chief Executive In a climate of national and sector change, -12 has been one of our most successful years. The strategy that we agreed in 2010 has provided the right platform to address the challenges around us, and this board report reflects how the implementation of that strategy has put us in great shape for the future. In many ways, the financial figures speak for themselves; in one of the most turbulent periods in sector history, we have increased our investment in customer services, responded to significant public sector spending cuts and been able to generate a surplus of 15.3m in -12. Importantly, we believe passionately that the social results we are achieving are changing people s lives through access to decent, secure housing, high-quality support services and the regeneration of local communities. Increasingly, our attention is also focused on understanding the beneficial economic impact our investment in building new homes and in services is having on the local economy of the communities where we work. We are proud to be a leading housing group, managing 19,400 homes, and delivering a substantial new affordable housing programme; over 2,000 affordable new homes in the last four years alone (511 completed in -12). Up to 2015 we will also build a further 536 homes with the assistance of 9.28m of government funding. Over 2,000 affordable new homes in the last four years alone. Performance has improved across all areas of our work, with strong - and continually improving - financial indicators that give us choices on how we can invest in communities. Customer satisfaction continues to improve, with particularly strong results on value-for-money. In almost all areas of our work we are now on target to meet our three-year objective of upper quartile performance. We are supported by a team of over 700 motivated and enthusiastic staff working together to deliver services that make a huge difference to individuals, families and communities across Devon and Cornwall. We are financially strong, socially focused, and recognise that an increased focus on improving our efficiency will only improve our ability to deliver a demanding programme of work so that we make the most of the opportunities that will come our way in the future. During the year we have also not shrunk from hard decisions. Substantial cuts in Supporting People funding for Independent Futures has required us to redesign services so that we make the most of resources available, whilst still maintaining high quality support services to our customers. A focus on increased efficiency in how frontline and central services support the business has also meant that we were able to minimise redundancies in this area. Independent Futures is now in a much more effective position to face further changes in Supporting People grant funding. Effective governance and management structures. You will see from this report that as the world around us has been changing, we have responded to ensure that effective governance and management structures are in place. You will also see from the outline of our new strategic direction on page 15, that we have already been actively responding to the shrinking proportion of capital grant available from government for new homes. Increasingly we are developing without grant, cross-subsiding our social business with substantial income from speculative open-market sales. The amalgamation of our subsidiaries and the transfer of assets to the group parent has been the culmination of extensive work that emphasises the strategic role of DCH, gives effective leadership, and strengthens the service delivery focus of our community interest companies, Tor Homes, Penwith Housing Association and Independent Futures. The smooth path and cost-effective nature of this amalgamation was made possible by the preparatory work we achieved through our group-wide treasury management vehicle, Devon and Cornwall Treasury Limited. New partnerships include our innovative shared service agreement with West Devon Homes, where we are jointly employing staff and sharing service delivery to achieve significant year-on-year savings through a sector-leading arrangement that delivers independence, while also creating a path for ever-closer working. Financially, in -13 the partnership will deliver ongoing annual savings for DCH and West Devon Homes of 290k. Further initiatives are also planned in -13 to improve customer satisfaction and deliver further financial efficiencies for both organisations. Our performance means we are well-placed to work with our stakeholders to carry on delivering much needed high-quality, value-for-money services in challenging times, to customers, including some of the most vulnerable people in the area. Delivering much needed high-quality, value-for-money services in challenging times. Our future is as an expanding housing provider, working closely with partners in both the public and private sector to deliver high-quality services, meet extensive housing need and invest in communities across our region. Paul Crawford Chief Executive 4 Financial statements for Devon & Cornwall Housing Year ended 31 March

5 Board report The board presents its report, including an operating and financial review, and audited consolidated financial statements of the company and its subsidiaries (the group) for the year ended 31 March. Our business and how we work Devon & Cornwall Housing group is one of the largest social landlords in the south west region, and one of the most successful. A major housing developer, we work across Cornwall and Devon, owning and managing 19,400 homes. Our vision is to provide better homes, better places, better lives. We achieve this vision across our diverse activities through our aims of: providing affordable high-quality services and homes, and involving our customers in shaping and scrutinising services developing affordable high-quality new homes that meet customer need and aspirations supporting and developing our staff, and managing our resources effectively and responsibly being a leading regional housing group, working in partnership with stakeholders and local communities. Our vision and aims are underpinned by our strong organisational values of putting our customers first making things happen, and delivering what we promise being open, honest and accountable promoting equality and fairness being responsible about our environmental impact value for money being integral to all areas of our work always looking for ways to improve. Reviewing the year governance and management changes During the year Devon & Cornwall Housing group has undergone a considerable restructure, aligning our governance and operational structure to our strategic priorities. Amalgamating the group has been a three-stage process, with considerable (and very successful) consultation with customers and stakeholders. The three stages have been: amalgamating the previous companies DCHT and DCHA in April, to form the new parent Devon & Cornwall Housing (DCH) amalgamating the subsidiary companies PHA and Tor Homes with DCH in April, to form the current, strengthened, DCH re-creating PHA and Tor Homes as community interest companies, to provide governance oversight for landlord services delivered in Cornwall and Devon respectively. The innovative structure of using community interest companies to operate as service delivery subsidiaries provides accountability opportunities for residents and community stakeholders, while maintaining central control and direction, as well as streamlined governance effectiveness. At the start of the year, Devon & Cornwall Housing Trust amalgamated with Devon & Cornwall Housing Association Limited on 1 April to become Devon & Cornwall Housing Limited (DCH) which is registered under the Industrial and Provident Societies Act 1965 (registration number 31217R) and as a registered provider (registration number 4650). The following entities were direct subsidiaries of DCH during the year, and have been consolidated as required under Financial Reporting Standard 2 (FRS 2): Penwith Housing Association Limited (PHA) Tor Homes Limited (Tor) Westco Properties Limited (Westco) Independent Futures CIC (i-futures) Devon & Cornwall Leasehold Solutions Limited (DCLS) Devon & Cornwall Treasury Limited (DCT) Financial statements for Devon & Cornwall Housing Year ended 31 March 5

6 The following companies are also consolidated under FRS2: Call24Hour Limited (Call24) a 51% subsidiary of Tor Penwith Housing Ancillary Services External Limited (PHASE) a dormant subsidiary of PHA Westco has a 25% interest in Advantage Southwest LLP which is included as an associate. Penwith Housing Association CIC and Tor Homes CIC were incorporated during the year. DCH, PHA and Tor amalgamated on 2 April, retaining the name Devon & Cornwall Housing Limited for the amalgamated entity which registered under the Industrial and Provident Societies Act 1965 (registration number 31573R) and as a registered provider (registration number 4705). The DCH board has the power to direct the use of the group s financial resources in order to deliver the group s strategy. Its role is to direct and control the group s work; to determine strategic direction and policies, to establish and oversee the framework of delegation and systems of internal control including group performance and risk management. The DCH board monitors the performance of all organisations within the group to ensure that they remain financially viable and conduct their affairs properly. Each of the organisations within the group has a specific role to play to deliver the group s objectives: Devon & Cornwall Housing (DCH) is the parent company of our group, providing strong, clear leadership and directing our resources across our 19,400 homes. Tor Homes and Penwith Housing Association (PHA) provide governance oversight of our service delivery for our rented homes in Devon and Cornwall respectively. Independent Futures (i-futures) brings together all our services focused on supporting people to live independent lives, including housing management of 600 properties. Our support services include general support, services for older people and services for younger people. Westco Properties is our speculative development arm, developing a number of sites across the two counties. All profit made is returned to DCH in the form of Gift Aid, facilitating substantial investment for affordable homes in the region. Devon & Cornwall Leasehold Solutions (DCLS) manages over 2,800 shared ownership and leasehold properties (including private retirement schemes). Call24 provides a 24 hour, 7 days a week call response service to 9,500 customers. Call24 is jointly owned with Plymouth City Council. Devon & Cornwall Treasury Ltd (DCT) is our group treasury vehicle, responsible for 415m of the group s borrowing facilities. 6 Financial statements for Devon & Cornwall Housing Year ended 31 March

7 Reviewing the year operational performance In 2010 we set out on a three-year path to achieve upperquartile performance across all indicators, and agreed specific measurements for each of our 12 goals. We have not yet achieved all that we set out to do, but overall progress has been good, and we have also responded effectively to the substantial sector change that has emerged. We had continued growth in our social housing lettings and shared ownership sales but experienced a fall in our other social housing activities as Supporting People grant was reduced. Fig 1.1 Social housing activities Social housing activities outlined below Fig 1.2 and Fig 1.3 include our mainstream affordable rented and shared ownership activities. Fig 1.1 Turnover () /12 /12 growth Operating Surplus () 2010/11 / /11 (restated) Social housing lettings: - general needs 58, % 53,188 20,162 18,567 - supported & sheltered 9, % 9,497 2,141 1,686 - shared ownership 3, % 3,662 2,594 2,220 Other social housing activities 6,533 (26.0%) 8,830 (1,713) 397 Shared ownership initial sales 7, % 4,116 1, Non-social housing activities 8,207 (3.3%) 8,485 1,504 2,321 Fig 1.2 Social housing rented properties / /11 Owned properties in management: - At the start of the year 16,071 15,633 - Into management during the year Disposals (55) (19) - End of the year 16,436 16,071 Growth in properties in management 2.3% 2.8% Tenant satisfaction 88.6% 86.6% Rent loss due to voids and bad debts 1.9% 1.5% Management cost per unit Management costs as % of gross rent (incl service charges) 21.3% 22.3% Responsive maintenance cost per unit Cyclical maintenance cost per unit Responsive and cyclical maintenance costs as % of net rent (excl service charges) 24.6% 23.7% Major repair and component replacement cost per unit (including capitalised components) Major repair and component replacement costs as % of net rent (excl service charges) 17.5% 20.1% % of properties meeting Decent Homes standard 100% 100% Average SAP rating Financial statements for Devon & Cornwall Housing Year ended 31 March 7

8 On overall resident satisfaction, the improvement to 88.6% places the group fractionally below top-quartile performance, while significant improvements in satisfaction with neighbourhoods (from 84.9 to 87.1%) achieves top quartile a year earlier than expected in our three-year strategy. Repairs and maintenance satisfaction fell slightly during the year, and work is in progress to deliver improvements. Rents for the year were increased generally at above the standard rate of 5.1% (RPI plus 0.5%) in order to utilise more of the target rent tolerance but subject to a maximum increase for any tenant of 6.9%. As a result the average increase for the year was 5.7%. The group s performance on managing its income has improved, with rent loss from voids and current tenant rent arrears both falling. Both these figures are in the second quartile, with performance being on target to achieve top-quartile performance by The increase in combined voids and bad debts in the financial statements is largely due to an understatement of the bad debts figure in. The comparable figure would be 2.0% for voids and bad debts in. Fig 1.3 Social housing shared ownership / /11 Properties in management: - At the start of the year 1,678 1,605 - Into management during the year Outright sales of retained equity (17) (7) - End of the year 1,782 1,678 Growth in properties in management 6.2% 4.5% Other social housing activities Other social housing activities include housing support services, care & repair home improvement agency services, call alarm services, shared ownership sales and housing development revenue costs. Although we increased income from new housing support service contracts, this was insufficient to cover a major reduction in income following government cutbacks in Supporting People grant and the removal of the requirement for local authorities to ring fence the grant for housing support. The group s home improvement service, care & repair, operates in Cornwall, Devon and Plymouth, with each agency also operating a home handyperson service. All agency and handyperson services met the performance targets set by the commissioners of the service during the year. During the year, Call24 continued to make a significant contribution to the group s income through telecare call alarm services, with a turnover of 801,000 (: 809,000). Despite the general shortage of retail mortgage finance, shared ownership sales held up well for a sales programme that was 51% up on the previous year. Shared ownership initial sales / /11 Number of unsold new units at start of year - New units developed for sale Number of sale completions (117) (61) Number of unsold units at end of year The group continued to have a substantial social housing development programme supported by social housing grant. In common with other similar organisations, there was a pause in new housing starts as the programme was completed and the /15 Affordable Rent product came on stream. Social housing development / /11 HCA grant funded: Number of units completed Achievement of HCA targets: - Grant claim draw down 94% 117% - Start on sites N/A 229% - Completed units 94% 82% Non HCA grant funded: Number of units completed Housing support services / /11 New income due to contracts won 690, ,000 Loss of income due to contracts lost 2,601, ,000 8 Financial statements for Devon & Cornwall Housing Year ended 31 March

9 Financial statements for Devon & Cornwall Housing Year ended 31 March 9

10 Non-social housing activities Non-social housing activities comprise market rent lettings, market housing sales and leasehold management services. Turnover and operating surplus on non-social housing activities increased due to market housing sales during the year. Market housing sales undertaken by Westco Properties are the most significant non-social housing activity. Sales activity during the year was generated by seven schemes and work commenced on one new scheme and further phases of existing schemes. The number of units unsold at the year end includes 46 units (: 61 units) which have been released for sale but were still under construction at the year end. Market housing sales / /11 Number of unsold new units at start of year New units developed for sale Number of sale completions (70) (67) Number of unsold units at end of year The group also acknowledges the importance of engaging with all staff through the continued use of the annual Best Companies survey. In we maintained our ones to watch Best Companies rating, putting us in the top 50% of participating organisations. The group is committed to ensuring equality, diversity and inclusion in all our relationships, whether in our services, our governance or as an employer. Following the introduction of the new Public Sector Equality Duty, part of the Equality Act 2010, DCH has drafted an equality strategy and proposed five equality objectives to be established over the next three years. The board takes seriously its responsibilities on matters relating to health and safety. The board approved the group s health and safety policy in January. Staffing and resourcing The group recognises that to achieve its business objectives it needs skilled, enthusiastic and committed staff. During the year we have invested significantly in staff training programmes to support our business objectives. This investment is recognised with the Investor in People awards held by DCH, PHA and Tor. 10 Financial statements for Devon & Cornwall Housing Year ended 31 March

11 Reviewing the year financial performance Five year summary (restated) Income & Expenditure Account ( 000) Total turnover 94,178 87,778 80,383 78,102 77,337 Income from rents 67,255 61,686 59,624 55,016 51,460 Operating surplus 25,914 27,510 15,615 16,974 18,139 Surplus 15,290 17,947 6,294 6, Balance Sheet ( 000) Historical cost of properties (excluding cost of components) 900, , , , ,706 SHG and other capital grants 425, , , , ,970 Fixed assets net of capital grants and depreciation 498, , , , ,459 Net current assets/(liabilities) 25,362 6,713 (3,826) 18,622 11,796 Loans (due over one year) 327, , , , ,299 Reserves: revaluation 2, designated 38,978 35,849 33,813 33,364 31,112 revenue 150, ,756 48,994 46,646 44,647 Total 191, ,184 83,237 80,638 75,991 Residential property (housing stock owned at year end) Social housing 18,218 17,749 17,238 16,753 16,167 Non-social housing Statistics Operating surplus as % of turnover 27.5% 31.3% 19.4% 21.7% 23.5% Surplus as % of turnover 16.2% 20.4% 7.8% 8.9% 1.2% Interest cover (operating surplus adding back depreciation divided by net interest payable) Interest cover (as above but including profits on property sales) Gearing (net debt divided by total assets adding back SHG) 31% 31% 33% 36% 36% Debt as a multiple of turnover Social housing letting revenues (as % of turnover) 77% 76% 80% 76% 71% Social housing surplus as multiple of net interest payable Total debt per dwelling owned 17,918 16,858 15,957 16,666 15,525 figures in the previous table have been restated for component accounting. Earlier years have not been restated. Financial statements for Devon & Cornwall Housing Year ended 31 March 11

12 Turnover Turnover increased by 7.3% to 94.2 million (: 87.8m). Social housing lettings income increased by 8.8% to 72.2m (: 66.3m). Increased income reflects a 2.6% increase in units and an average rent increase on rented properties of 5.7%. Turnover on other social housing activities increased by 6.5% to 13.8 million (: 12.9m). A 2.5m reduction in Supporting People and care and repair income was offset by a 3.1m increase in first tranche shared ownership sales. Operating costs and prior year adjustments Total operating costs for have been restated following adoption of the 2010 SORP. The adjustments reflect the adoption of component accounting and the transfer of negative goodwill to revenue reserves. The overall effect has been to decrease operating costs for by 5.1m to 61.8m. Details of the adjustments are shown in note 28. Total operating costs increased by 10.4% to 68.3 million ( restated: 61.8m). Operating costs on social housing lettings increased by 7.8% to 47.3million ( restated: 43.7m) in line with the 8.8% increase in social housing lettings income. Operating costs on other social housing activities increased by 21.2% to 14.3 million (: 11.8m), mainly due to a 2.7m increase for cost of sales on first tranche shared ownership sales to 6.0 million (: 3.3m). Exceptional item In the government announced that it plans to increase future pensions in line with the Consumer Price Index (CPI) rather than the Retail Price Index (RPI). This change will affect all pension benefits earned to date (and future benefits). In accordance with UITF abstract 48 this was accounted for as a past service gain of 1.6m in the Income & Expenditure Account. The gain relates to the Cornwall and Devon County Council Pension Funds. Interest Interest payable, net of interest receivable, increased by 3.7% to 12.0 million (: 11.5m). A 27m increase in loan finance during the year was offset by a 9m increase in cash held. Surplus for the year The surplus on ordinary activities before taxation for the year amounted to 15.2 million ( restated: 18.2m). On a comparable basis removing the effect of an exceptional item in and the effect of component accounting, the underlying surplus for the two years was the same. Taxation The overall taxation credit relates to losses in Independent Futures CIC and a taxation charge on profits in Call24hour Limited. Reserves The group utilised 5.5 million from reserves set up in earlier years for major repairs and other purposes and set aside a further amount of 8.6 million from the current year s surplus. Following the adoption of the 2010 SORP revenue reserves brought forward increased by 76.6m to 139.8m as explained on note 28. Total reserves increased during the year by 15.5 million to million ( restated: 176.2m). Cash flow The group increased its borrowings by 27 million during the year to 327 million (: 300m). Operational cash flows after interest costs were 0.8 million lower at 25.1 million. Capital expenditure and financial investment were 3.5 million lower at 43 million. Housing properties Following adoption of component accounting the restatement of the opening net cost of housing properties has been increased by 46m to 870m. The group continued to have a substantial development programme with additions of 54 million to housing properties, including 8m of capitalised components. Social Housing Grant (SHG) of 426 million remains the most significant element of the group funding of its property portfolio of 914 million. Funding for the year s development programme came from an 18 million increase in SHG, the 27m increase in loan finance and operational cash flows. 12 Financial statements for Devon & Cornwall Housing Year ended 31 March

13 Funding and treasury management The group s operations expose it to a variety of financial risks that include the effects of changes in debt market prices, credit risk, liquidity risk and interest rate risk. The treasury function operates within a framework of clearly defined board approved policies, procedures and delegated authorities that seek to limit the adverse effects on the financial performance of the group. Securities price risk - the group is exposed to price risks on fixed interest investments of 10.1 million. The interest rate risk on a 10.25m million long-dated gilt is hedged by a matching fixed interest swap. The group has no direct exposure to equity securities price risk in its business. It does have an indirect exposure in respect of its obligations as a member of the Social Housing Pension Scheme and Cornwall and Devon County Council Superannuation Funds. Credit risk - the group operates within clearly defined limits on the credit exposure to any one counterparty. The group s policy is to make long-term investments in gilts or housing association related bonds and short-term investments with a minimum rating of at least A. In view of concerns about bank security, the group has increased its list of approved deposittakers. Liquidity risk - the group actively maintains a mixture of long-term and short-term debt finance that is designed to ensure the group has sufficient available funds for operations and planned developments. Other than investments that were required to be held in accordance with the terms of a bond issue borrowing, the group normally only holds cash on current and deposit accounts at the minimum level required to meet liquidity requirements. During periods of perceived liquidity risks the group holds more short-term cash on deposit and continues to hold a gilt investment as described earlier. The resources available to the group at 31 March include un-drawn long-term loans of million and a short-term facility of 10m to February 2013 of which 43.3m has been secured and is available for draw down. At 31 March the group had 85.6m of properties secured with its security trustee which has not been allocated to lenders. The group also has overdraft facilities of 3 million to provide further flexibility. Interest rate risk - in order to manage its exposure to interest rate changes the group has a policy of maintaining a balanced portfolio of fixed, variable and index linked debt. Also, the group seeks to minimise the risk of uncertain funding in its operations by borrowing within a spread of maturity periods. Details of the interest and maturity profiles of the loan portfolio at 31 March are shown in note 18 of these financial statements. The group has entered into inflation differential and fixed interest rate swaps to manage interest rate costs. The average duration at 31 March was 8.0 years. The group also has an indirect exposure to bond rates through its pension scheme commitments. Margin call risk - The group has free-standing derivatives which can give rise to margin calls. This risk has been managed by charging additional properties as security when the loan facilities were secured. Financial statements for Devon & Cornwall Housing Year ended 31 March 13

14 14 Financial statements for Devon & Cornwall Housing Year ended 31 March

15 Future priorities and the shape of our new strategy Welfare reform, regulatory change, new tenancies and new planning frameworks are all taking shape at the same time as continued economic instability, and a housing market that remains fundamentally unaligned with incomes. At the same time as this, there are increased demands from customers and stakeholders to provide higher quality and better value services than ever before. It is these factors that set the scene for our current strategic review. Two years into our three-year strategy, the board is now considering the successor strategy that will take us to 2016 and beyond. We will be consulting with stakeholders on this during the summer and autumn of this year, before launching the strategy early in In initial work on our strategy we are: articulating a continuing determination to provide ever better services to our customers reaffirming our commitment to social and community investment reinforcing the importance of business efficiency and optimising the use of our assets. We are also recognising the pivotal role we have in contributing to economic regeneration and prosperity where we work, and working with the National Housing Federation in making the sector s case for this to government. In moving forwards, our innovative approach to diversifying our activities, in tandem with effective risk management, places the group in a position where we are financially sound and no longer solely reliant on public subsidy to grow our business. In the current strategic review, areas for particular current focus include: continued performance improvements, particularly on cash-generating areas such as lettings (taking into account challenges posed by welfare reform) enhancing our programme and project management capability and delivery, making sure that business systems support the overall strategy implementation of the group s new asset management strategy, ensuring effective management of a key area of risk for the group s core work continuing work on our partnership with West Devon Homes, where we are one of the first housing organisations that will be taking advantage of the new cost-sharing exemption for VAT, enabling a cost effective partnership that delivers real benefits to each organisation and all our joint customers delivering the Westco business plan, in order to support provision of new affordable homes through cross-subsidy from sales, as set out above. Financial statements for Devon & Cornwall Housing Year ended 31 March 15

16 Identifying and managing risk Our greatest general exposure continues to be government policy on rents. The rent formula remains unchanged until 2015, but at that point may change, including through its indexing or structure. Responding to this, in April we increased our rents in line with the government RPI+0.5% rent formula, based on the September RPI of 5.6%. However, the board recognised the affordability issue that could be caused by the additional + 2 increase within the government formula, while also wishing to maximise financial capacity available for provision of much-needed new affordable housing. On this basis, the board agreed to cap all individual increases at a maximum of 6.9%. The financial value generated by the difference between that figure and 6.1% has been ringfenced as capital subsidy for additional affordable housing development in /15. This decision capped the increase at a reasonable amount during a high-inflation period, while also optimising the use of our assets for new building. Our greatest market exposures are to short-term increases in interest rates and the effect of a collapse in the housing market on our shared ownership sales and Westco profits. We are able to withstand short-term negative market movements and would then adapt to a changed world if interest rates remained high and/or house prices remained low. Funding risks exist as described earlier under funding and treasury management, together with the longevity risks inherent in pension scheme commitments. Action has been taken to address exposures to pension commitments by capping the group s future service Social Housing Pension Scheme (SHPS) contributions and providing a defined contribution option from October. During the coming year we will be addressing exposure arising from the September SHPS valuation, together with issues arising from the Local Government Pension Scheme. On other issues, our greatest cost exposure is on maintenance, which is why the business plan includes prudent assumptions, and why the asset management strategy is a fundamental part of protecting the business. Our operational exposures on collecting rent and letting properties are relatively low, but will be exacerbated by welfare reform. During the year the risk posed by welfare reform was identified as having a higher impact than in previous years, with management action including a major group-wide project on identifying, managing and minimising the risk of future increased arrears and higher tenancy turnover. On wider government funding, the next comprehensive spending review (CSR) is due in autumn 2013, and we are modelling for a future that offers little, if any, grant for newbuild. For /15 we have secured 9.28m to build 536 further homes, but once this is delivered there is likely to be limited grant-funded growth looking beyond this. It is on this basis that the DCH board has agreed that Westco will significantly expand its growth to subsidise developing affordable housing. Up to 2017, Westco will develop 1,100 open market and affordable homes, and deliver substantial gift aid to support the development programme. 16 Financial statements for Devon & Cornwall Housing Year ended 31 March

17 Corporate governance The section below sets out details of our corporate governance, including: our board board skills, recruitment and training our committee structure the ServiceWatch scrutiny panel our executive management team regulation. Our board Devon & Cornwall Housing Limited (DCH) is the parent body in the group. It is governed by the board, which is ultimately responsible for the control of the group, including the determination of its overall objectives and strategy. The board meets formally at least four times a year. It consists of non-executive members from a wide variety of disciplines and backgrounds, and the Chief Executive and the Director of Finance. In December the board considered its composition, skills and effectiveness, and developed improvement plans for membership and recruitment. This took particular account of its increasing focus on return on investment and effective use of all our assets, together with effective risk management, governance and strategic planning. Board members at 31 March were: Angela Dupont (Chairman, appointed to the board 29 September ) Carol Bosworth (resigned 31 March ) Paul Crawford ( Chief Executive appointed to the board 29 September ) Graham Facks-Martin Gail Hunt (resigned 31 March ) Philip Hutt Michael Jane Tony MacGregor ( Director of Finance, appointed to the board 6 December ) Les Mazurek (resigned 31 March ) Simon Sanger-Anderson Tim Tamblyn Vice-Chairman Peter Shipley resigned as a board member on 1 November. In spring and summer a board recruitment process took place, with new members joining in late July. Members of the board are required to direct the affairs of the company in accordance with its rules and to comply with the obligations set out in the NHF Code of Governance. In addition members are required: to have no financial interest personally or through a related party in any contract or transaction with the group except as allowed under the articles to act only in the interests of the group whilst undertaking its business. Board skills, recruitment and training Direction of the group requires a wide set of skills, qualities and experience. No one member is expected to exhibit all skills that are needed but the board together should have from amongst its membership a range of skills, experience and understanding of corporate governance, general business strategy and management, finance, property investment and neighbourhood development and management. From April board members have been remunerated, with levels set following an independent assessment of comparable organisations. Remuneration is accompanied by clear expectations of individual and collective board member performance, with appropriate frameworks being put in place to manage this. The group has adopted the NHF code of excellence in governance and complies with the latest version of the code with the exception of the length of tenure of one board member which is just over nine years and the absence of a current training programme for board members, which it is expected will be in place shortly. The current policy is to require all members of the board to be members of the company. Our committees The board has four committees; audit and risk, treasury, remuneration and community investment fund. In addition, DCH and each of its subsidiaries have separate recruitment panels for appointments to their boards. Audit and risk committee The audit and risk committee has the task of ensuring that all organisations in the group place appropriate emphasis on their responsibilities for financial reporting, audit (both internal and external), internal control, risk management and regulatory compliance. During the year the committee comprised up to eleven members (with representatives from each of DCH, PHA and Tor) and met six times. Financial statements for Devon & Cornwall Housing Year ended 31 March 17

18 From April membership has been reduced to five non-executive board members based on skills and experience and including at least one chartered accountant with audit skills. Treasury committee The treasury committee is responsible for approving treasury policy and strategy for the group and monitoring its implementation within a framework of risk management. During the year the committee comprised eight members (from the DCH, PHA and Tor) and met four times. Membership of the committee is currently under review. Remuneration committee The remuneration committee is responsible for setting the remuneration of the board, Chief Executive, group directors and directors of the housing subsidiaries. During the year the committee comprised five members (from DCH, PHA and Tor) and met twice. From April membership has been amended to five non-executive members being the group chairman, group vice chairman, one independent DCH board member and the chairmen of the employing organisations wholly owned by DCH. Community investment fund committee The community investment fund committee is responsible for overseeing the management of community investment grants and awards, a small grants scheme and donations from a community fund. During the year the committee comprised nine members (three each from DCH, PHA and Tor), and met four times. Recruitment panels Recruitment panels are established by the parent and each subsidiary board, as appropriate, to facilitate recruitment of new board members. The panels are made up of three members: the chair, a non-executive and an executive board member of the recruiting entity. The ServiceWatch scrutiny panel During the year we formalised our co-regulatory approach by setting up ServiceWatch, our strategic customer panel that scrutinises our work to make sure we are taking full account of resident views and priorities. Following our new shared services arrangement, ServiceWatch is now also going to be working with our partners West Devon Homes. The success of ServiceWatch is of great importance to the DCH approach to managing our services. Effective scrutiny by ServiceWatch is intrinsically important to supporting both strong governance and effective service delivery. Following open recruitment, 12 residents have completed our training programme and have begun work making a difference to our services. The residents will be taking a close look at the services we provide, and influencing the way we develop and improve services in the future. ServiceWatch puts residents in the lead, and is supported independently to ensure that it takes a fresh eye to scrutinising our work and delivering results. Our group executive management team The group executive management team has delegated authority from the board and the boards of the subsidiary organisations for: the day-to-day operations of the group monitoring the operational performance of the group and reporting appropriately to the board and the boards of the subsidiary organisations implementing policies and strategies agreed by the board and the boards of the subsidiary organisations, reviewing those policies and strategies and proposing changes as appropriate. The team comprises: Chief Executive Chief Executive PHA Chief Executive Tor Homes Director of Asset Management Director of Finance Director of Human Resources Director of Development Managing Director Independent Futures Regulation Paul Crawford Andrew Moore Howard Toplis Doug Stein Tony MacGregor Sheila Whelan Richard Connolly Kathy Gilmore Leading up to the amalgamation of DCHT and DCHA on 1 April the Tenant Services Authority (TSA) conducted a revised regulatory judgement which was published in May. It stated: viable the group meets the requirements set out in the Governance and Financial Viability standard of the Regulatory Framework in relation to financial viability properly governed the governing body, supported by appropriate governance and executive arrangements, maintains satisfactory control of the organisation. 18 Financial statements for Devon & Cornwall Housing Year ended 31 March

19 Internal controls and further information Internal controls assurance The board has overall responsibility for establishing and maintaining the whole system of internal control and for reviewing its effectiveness. This responsibility applies for all organisations within the group, including those not registered with the Homes & Communities Agency. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and to provide reasonable, and not absolute, assurance against fraud, material misstatement or loss. In meeting its responsibilities, the board has adopted a risk-based approach to establishing and maintaining internal controls which are embedded within day-to-day management and governance processes. This approach includes the regular evaluation of the nature and extent of risks to which the group is exposed. The process for identifying, evaluating and managing the significant risks faced by the group is ongoing. It has been in place throughout the period commencing 1 April up to the date of approval of the annual report and financial statements. The arrangements adopted by the board in reviewing the effectiveness of the system of internal control, together with some of the key elements of the control framework, include: leadership by the board and its subsidiary boards in analysing the strengths, weaknesses, opportunities and threats of the group and requiring a risk assessment before any decision is made and by the audit and risk committee reviewing internal control and major risks of the group clear delegation of responsibility for risk management within the organisation as documented in the financial regulations and standing orders, individual job descriptions and a risk map active regular assessment of risks by management and a formal annual review of risks and controls in place to manage them accountability for risk management through formal reports by management to the audit and risk committee and boards embedding risk management into the culture of the group by ensuring that risk is assessed as part of the decisionmaking process by management and a proactive approach to identifying changes in risks and controls using external means of validation through regular riskbased audits and acting on resulting recommendations a group anti-fraud policy, covering prevention, detection and reporting of fraud, the recovery of assets and review of entries in the fraud register by the group audit and risk committee. Statement of Board s responsibilities The board is responsible for preparing the financial statements in accordance with applicable law and regulations. The Industrial and Provident Societies law requires the Board to prepare financial statements for each financial year. Under those regulations the Board have elected to prepare the and Association 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 and the Association and of the surplus or deficit 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 accounting estimates that are reasonable and prudent state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the and Association will continue in business. The Board is responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Associaiton and the and enable it to ensure that the financial statements comply with the Industrial and Provident Societies Acts 1965 to The Housing Regeneration Act 2008 and the accounting requirements for Social Landlords Determination The Board has general responsibility for taking such steps as are reasonably open to it to safeguard the assets of the Company and Association and to prevent and detect of fraud and other irregularities. Financial statements for Devon & Cornwall Housing Year ended 31 March 19

20 Provision of information to auditors The directors who held office at the date of approval of this directors report confirm that, so far as they are each aware, there is no relevant audit information of which the company s auditors are unaware; and each director has taken all the steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information and to establish that the company s auditors are aware of that information. Advisers Auditors: KPMG LLP Plym House 3 Longbridge Road Plymouth PL6 8LT Principal bankers: National Westminster Bank Plc South West Corporate Business Centre 246 High Street Exeter EX4 3PD Registered office and company secretary Secretary: Jill Farrar Registered office: The Mount Paris Street Exeter EX1 2JZ Auditors A resolution to re-appoint KPMG LLP as auditors will be proposed at the forthcoming annual general meeting. The report of the board was approved on 26 July and signed on its behalf by: Angela Dupont Chairman Principal solicitors: Trowers and Hamlins The Senate Southernhay Gardens Exeter EX1 1UG Treasury advisors: Traderisks 21 Great Winchester Street London EC2N 2JA 20 Financial statements for Devon & Cornwall Housing Year ended 31 March

21 Financial statements for Devon & Cornwall Housing Year ended 31 March 21

22 Independent auditors report to the members of Devon & Cornwall Housing Limited We have audited the group and company financial statements of Devon & Cornwall Housing Limited for the year ended 31 March set out on pages 23 to 59. 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 company s members, as a body, in accordance with section 9 of the Friendly and Industrial and Provident Societies Act Our audit work has been undertaken so that we might state to the company 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 company and the company s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As more fully explained in the Statement of directors responsibilities set out on page 20 the company s directors are 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 (APB s) Ethical Standards for Auditors. Matters on which we are required to report by exception We have nothing to report in respect of the following. We have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts 1965 to 2003 and the Industrial and Provident Societies ( Accounts) Regulations 1969 require us to report to you if, in our opinion: a satisfactory system of control over transactions has not been maintained; or the association has not kept proper accounting records; or the financial statements are not in agreement with the books of account; or we have not received all the information and explanations we need for our audit. H Mears (Senior Statutory Auditor), for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Plym House Plymouth PL6 8LT Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB 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 group and company as at 31 March and of the group and company surplus for the year then ended; and have been properly prepared in accordance with the Industrial and Provident Societies Acts 1965 to 2003 and the Industrial and Provident Societies ( Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Requirements for Registered Social Landlords General Determination Financial statements for Devon & Cornwall Housing Year ended 31 March

23 Income and Expenditure Account for the year ended 31 March Note (restated) Company (restated) Turnover 2 94,178 87,778 50,123 43,769 Operating costs 2 (68,264) (61,819) (32,578) (28,360) Exceptional item pension schemes past service gains , Operating surplus 2 25,914 27,510 17,545 15,409 Share of profit/(loss) in associate 19 (18) 0 0 Profit on property sales 3 1,240 2,263 1, Profit on sale of fixed asset investment Interest receivable and other income Interest payable and similar charges 8 (12,636) (12,125) (7,383) (6,804) Other finance costs pensions 27 (52) (230) 0 0 Surplus on ordinary activities before tax ,154 18,168 11,955 9,827 Minority interest (15) (48) 0 0 Tax on surplus on ordinary activities (173) 0 0 Surplus on ordinary activities for the year after tax 15,290 17,947 11,955 9,827 Transfers to designated reserves 22 (3,129) (2,036) (3,129) (2,036) Actuarial (loss)/gain 27 (1,826) 3, Actuarial loss/(gain) minority interest 51 (49) ,386 19,344 8,826 7,791 Revenue reserves brought forward , ,412 52,553 44,762 Revenue reserves carried forward 150, ,756 61,379 52,553 All amounts relate to continuing activities. Statement of total recognised surpluses and deficits Surplus on ordinary activities for the year: 15,290 17,947 11,955 9,827 Prior year adjustment in relation to the adoption of 46, ,474 0 component accounting Unrealised profit on current asset investments 21 1, , Actuarial (loss)/gain 27 (1,775) 3, Total recognised surplus relating to the year 61,728 21,529 19,426 9,976 Financial statements for Devon & Cornwall Housing Year ended 31 March 23

24 Balance Sheet as at 31 March (restated) Company (restated) Note Fixed assets Housing Properties Cost net of depreciation , , , ,696 SHG 10 (425,516) (408,711) (370,111) (355,828) 488, , , ,868 Other tangible fixed assets 11 9,460 9,694 6,229 6,573 Financial assets Investments ,796 2,508 Homebuy loans 6,201 6,243 5,870 6,031 Homebuy grants (5,940) (6,077) (5,870) (6,031) 498, , , ,949 Current assets Properties for sale 13 9,704 9,323 3,979 3,704 Debtors 14 9,772 15,532 8,671 13,427 Financial assets Investments 15 12,721 10,724 12,721 10,724 Cash at bank and in hand 20,351 11,313 15,325 5,224 52,748 47,096 40,696 33,079 Creditors: amounts falling due within one year 16 (27,386) (40,383) (19,215) (28,978) Net current assets 25,362 6,713 21,481 4,101 Net assets 524, , , ,050 Creditors: amounts falling due after more than one year , , , ,069 Provision for liabilities and charges Pension liability 27 4,976 3, Deferred tax , , , ,069 Minority interest Capital and reserves Called up share capital Investment revaluation reserve 21 2, , Designated reserves 22 38,978 35,849 38,978 35,849 Revenue reserves 150, ,756 61,379 52, , , ,933 88,981 Total funds 524, , , ,050 These financial statements were approved by the board on 26 July and were signed on its behalf by: Angela Dupont (Chairman) Tony MacGregor (Board Member) 24 Financial statements for Devon & Cornwall Housing Year ended 31 March

25 Cash Flow Statement for the year ended 31 March Note (restated) Net cash inflow from operating activities (a) 36,927 37,206 Return on investments and servicing of finance Interest received Interest paid (12,364) (11,917) (11,839) (11,313) Taxation Corporation Tax paid (78) (27) Capital expenditure and financial investment Purchase of housing properties (60,239) (72,858) Purchase of other fixed assets (1,016) (2,768) Capital grants received 13,589 25,060 Sale of housing properties 4,013 3,772 Sale of other fixed assets Redemption of Homebuy loans Investment in associate and other housing associations (43,050) (46,487) Management of liquid resources Investment in short term deposits Financing Loans received 28,900 27,800 Loans repaid (1,822) (3,793) (c) 27,078 24,007 Increase in cash (c) 9,038 4,165 Notes to the Cash Flow Statement (a) Reconciliation of operating surplus to net cash inflow from operating activities Operating surplus 25,914 27,510 Depreciation charges -other fixed assets Depreciation charges - housing properties 8,466 7,632 Shared ownership - cost of 1st tranche sales 5,618 3,030 (Increase) in debtors (309) (1,141) (Decrease)/increase in creditors (3,382) 3,455 (Increase) in properties for sale (381) (2,624) Increase/(decrease) in pension liability 223 (1,271) (Increase) in retained equity sales (95) (166) Net cash inflow from operating activities 36,927 37,206 Financial statements for Devon & Cornwall Housing Year ended 31 March 25

26 Cash Flow Statement for the year ended 31 March Note (restated) (b) Reconciliation of net cash flow to movement in net debt Cashflow increase in cash 9,038 4,166 Cash flow from (increase)/decrease in loan finance (27,078) (24,007) (18,040) (19,841) Non cash changes in loan finance (264) (327) (18,304) (20,168) Net debt at 1 April (287,796) (267,628) Net debt at 31 March (306,100) (287,796) 1 April Cash Flow Non - Cash Changes 31 March (c) Analysis of movement in net debt Cash 11,313 9, ,351 Debt < 1 year (736) 736 (885) (885) Debt > 1 year (298,373) (27,814) 621 (325,566) (299,109) (27,078) (264) (326,451) Total (287,796) (18,040) (264) (306,100) 26 Financial statements for Devon & Cornwall Housing Year ended 31 March

27 Notes on the financial statements for the year ended 31 March 1 Principal accounting policies The financial statements have been prepared in accordance with applicable UK accounting standards, the Accounting Requirements for registered social landlords General Determination 2006 and the Statement of Recommended Practice Accounting by Registered Social Landlords Update 2010 (2010 SORP). Basis of accounting The financial statements have been prepared under the historical cost convention as modified by the revaluation of investments. The board is satisfied that the current accounting policies are the most appropriate for the group. Going concern The board, after reviewing the group and company budgets for /2013 and the group s medium term financial position as detailed in the 30-year business plan is of the opinion that the group and company have adequate resources to continue in business for the foreseeable future. The board therefore continue to adopt the going concern basis in preparing the annual financial statements. Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and all its subsidiaries made up to 31 March. Associates are incorporated using equity accounting. The accounting policy of releasing negative goodwill on consolidation over 100 years has been changed following adoption of the Statement of Recommended Practice (SORP) 2010 (see prior year restatement below). Related party transactions Transactions within the group that have been eliminated on consolidation are not disclosed as the group has taken advantage of the exemption available under FRS8 Related party disclosures. Prior year restatement The Statement of Recommended Practice (SORP) 2010 has been adopted for the first time in these financial statements. The SORP 2010 requires that where a tangible asset comprises two or more major components with substantially different useful economic lives, each component should be accounted for separately for depreciation purposes and depreciated over its individual useful economic life. Consequently a prior year adjustment has been recorded and comparative figures restated accordingly (note 28). The SORP 2010 requires that where acquisitions in the social housing sector are non-reciprocal transfers any negative goodwill arising on the transfer should be included in revenue reserves. Opening revenue reserves have been restated accordingly (note 28). Turnover Turnover represents rental, service charge and support charge income, revenue grants, charges for other services receivable in the year and proceeds from initial sales of shared ownership properties (excluding VAT). Housing properties Housing properties include properties available for rent and retained interests in properties sold under shared ownership leases and are stated at cost less depreciation. Cost includes the cost of acquiring land and buildings, development costs, interest charges during the development period and directly attributable development administration costs. Shared ownership properties in work in progress are stated net of the estimated cost of the first tranche sale. Donated land is added to the cost of housing properties at the market value of the land at the time of the donation. Depreciation and impairment of housing properties Housing properties are split between land, structure costs and, where the group has a maintenance liability, major components that require periodic replacement. No depreciation is provided on freehold land. Structure costs, after deduction of an applicable portion of Social Housing Grant, are depreciated by equal annual instalments over the estimated useful economic life from the date of acquisition. Where the group has a maintenance liability for components these costs are depreciated separately over their estimated useful lives. Financial statements for Devon & Cornwall Housing Year ended 31 March 27

28 Notes on the financial statements for the year ended 31 March Rented properties - structure - new build - not exceeding 100 years - other - not exceeding 75 years Rented properties - components - roof - 50 years - windows/external doors - 30 years - bathrooms - 30 years - kitchens - 20 years - boilers/electric heating - 15 years - heating systems - 30 years Shared ownership properties Leasehold properties Commercial properties - not exceeding 100 years - shorter of the remaining useful life and the remaining lease term - not exceeding 50 years Housing properties are reviewed annually for evidence of impairment. Where there is evidence of impairment properties are written down to their recoverable amount. Enhancements to existing properties Enhancement expenditure consists of works to existing properties which result in an increase in the net rental stream and is capitalised only to the extent that the total costs, including enhancements, do not exceed the greater of net realisable value and value in use. Capital grants Social Housing Grant (SHG) and other capital grants receivable, including donated land, in respect of the capital cost of housing properties, are shown separately in the balance sheet as a deduction from the cost of housing properties. SHG due from the Homes and Communities Agency is included as a current asset and SHG received in advance is included as a current liability. SHG can be recycled upon certain occurrences, principally the disposal of the property. Any SHG eligible for recycling is transferred to the Recycled Capital Grant Fund (RCGF) and included in creditors. To the extent that the RCGF is repayable within one year unless utilised it is included within creditors falling due within one year. The balance of the RCGF is included within creditors falling due after more than one year. All SHG remains repayable unless abated or waived by the Homes and Communities Agency but, with the agency s agreement, is subordinated to other loans. Capitalisation of interest Interest on net borrowings, to the extent that it is financing developments, is capitalised up to the date of practical completion of the scheme. Interest capitalised is net of interest receivable on SHG received in advance of practical completion. Long term contracts Long term contracts are assessed on a contract by contract basis. Turnover and profit on the sale of individual properties is recognised upon sales completion. Turnover on development contracts is recognised as valuation payments become due, profit is recognised as properties are completed. Full provision is made for any foreseeable losses. Properties for sale Properties for sale are included within current assets at the lower of cost and net realisable value and comprise properties developed for sale and the estimated first tranche disposal of shared ownership properties unsold or under development at the year end. Profit on property sales The profit or loss on property sales includes the sale of rented properties and the sale of second and subsequent tranches of shared ownership properties. Provision is made for any expected loss, after the abatement of Social Housing Grant, on properties which have been or are expected to be repossessed. Surpluses on Right to Acquire sales after allowable expenses, as defined in the Housing Corporation Capital Funding Guide, are transferred to the disposal proceeds fund (DPF). To the extent that the DPF is repayable within one year unless utilised it is 28 Financial statements for Devon & Cornwall Housing Year ended 31 March

29 Notes on the financial statements for the year ended 31 March included within creditors falling due within one year. The balance of the DPF is included within creditors falling due after more than one year. Other fixed assets and depreciation No depreciation is provided on freehold land. Depreciation is provided to write off the cost of other fixed assets by equal annual instalments over their estimated useful economic lives as follows: Freehold buildings Fixtures & fittings Computer equipment Motor vehicles - 30 to 50 years - 4 to 10 years - 3 to 5 years - 5 years Financial instruments and financial assets The group uses interest rate swaps to manage its exposure to interest rate changes. The notional principal is not reflected in the group s balance sheet. Payments made under swaps are adjusted against interest payable on the loans. The fair value of swaps held by Tor at the date of joining the group are included as financial assets and are being amortised over the life of the swaps. Amounts due to be amortised within one year are shown in current assets. Investments Listed investments are stated at market value. Investments held for sale are included in current assets. Homebuy, Key Worker and Starter Home Mortgages Mortgages granted under the Homebuy, Key Worker and Starter Home schemes are included in fixed asset investments at cost net of the Social Housing Grant receivable. The mortgages are not held for their investment potential and the group has no discretion to realise them. Therefore they are included at cost rather than valuation. Designated reserves The group maintains designated reserves where reserves are earmarked for particular purposes. Major repairs reserve The group maintains a major repairs reserve to recognise the future cost of major repairs, re-improvement and rehabilitation works to housing properties. The amount transferred is based on an estimate of expected future liabilities using the group s life-cycle costing model. Re-investment reserve The group maintains a re-investment reserve to recognise the future cost of enhancement expenditure that does not fall within the group s policy for capitalisation. Other reserves The group maintains other designated reserves to recognise the future start up and on-going revenue costs of specific projects. Cyclical repairs and maintenance The group has a regular programme for cyclical repairs and maintenance. The actual costs are charged to the Income & Expenditure Account as incurred. Supporting People income and expenditure Block grant income and its associated expenditure are included in the financial statements as other social housing activities. Block subsidy income and its associated expenditure are included as social housing lettings activity. Supported housing managed by agencies Social housing capital grants are claimed by the group as developer and owner of the property and included in the balance sheet of the group. The treatment of other income and expenditure in respect of supported housing projects depends on the nature of the partnership arrangements between the group and its managing agents and on whether the group carries the financial risk. Financial statements for Devon & Cornwall Housing Year ended 31 March 29

30 Notes on the financial statements for the year ended 31 March Where the group holds the support contract with the Supporting People Administering Authority and carries the financial risk, all the project s income and expenditure is included in the group s income and expenditure account. Where the agency holds the support contract with the Supporting People Administering Authority and carries the financial risk, the income and expenditure account includes only that income and expenditure which relates solely to the group. Other income and expenditure of projects in this category is excluded from the group s income and expenditure account. Care & Repair Care & Repair activities are included in turnover and operating costs. Operating costs include overheads on a fully apportioned basis. Revenue Grants Revenue grants are credited to the income and expenditure account over the period in which the related expenditure is incurred. Taxation including deferred tax The charge for taxation is based on surpluses arising on certain activities which are liable to tax. Provision is made for deferred tax under the liability method on timing differences that have arisen, but not reversed, at the balance sheet date. Deferred tax assets are recognised to the extent that they are regarded as recoverable. Deferred tax assets and liabilities are not discounted. VAT The group charges Value Added Tax (VAT) on some of its income and is able to recover part of the VAT it incurs on expenditure. The financial statements include VAT to the extent it is not recoverable. The balance of VAT payable or recoverable is included as a current liability or asset. Pensions The group participates the following pension schemes; The Social Housing Pension Scheme - which is a multi employer pension scheme administered by The Pensions Limited. For staff joining before 1 April 2007 it is a defined benefit is based on final salary. For staff joining from 1 April 2007 the defined benefit is based on career average re-valued earnings. From 1 October a defined contribution option was introduced which is available to all staff in place of the defined benefit scheme. The assets of the scheme are invested and managed independently of the group. Pension costs are assessed in accordance with the recommendation of an actuary based on the costs applicable to the participating associations taken as a whole. The assets and liabilities of the scheme cannot be attributed to individual employers and accordingly the scheme is accounted for as a defined contribution scheme. Contributions to the scheme are charged to the Income & Expenditure Account over the service lives of the employees. The Cornwall Council Pension Fund and the Devon County Council Pension Fund which are defined benefit final salary pension schemes. The assets of the schemes are invested and managed independently of the group. Pension 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 costs, finance costs and, in the statement of recognised gains and losses, actuarial gains and losses. Call24 participates in a defined contribution pension scheme operated by The Social Housing Pension Scheme making contributions based on annual salaries. The assets of the scheme are held separately from those of the company. The amount charged to the profit and loss account represents the contributions payable to the scheme in the respect of the accounting period. William Sutton Limited Pension Scheme which is defined benefit final salary pension scheme. The assets of the scheme are invested and managed independently of the group. Pension costs are assessed in accordance with the recommendation of an actuary. The assets and liabilities of the scheme cannot be attributed to individual employers and accordingly the scheme is accounted for as a defined contribution scheme. Contributions to the scheme are charged to the Income & Expenditure Account over the service lives of the employees. 30 Financial statements for Devon & Cornwall Housing Year ended 31 March

31 Notes on the financial statements for the year ended 31 March 2 Turnover and operating surplus (restated) Turnover Operating costs Operating surplus Turnover Operating costs Operating surplus Social housing lettings 72,178 (47,281) 24,897 66,347 (43,874) 22,473 Other social housing activities Supporting People contract income 3,061 (3,779) (718) 4,199 (3,844) 355 Care & Repair 1,846 (2,135) (289) 3,212 (3,107) 105 Alarm call service income 801 (631) (705) 187 Shared ownership fee income 74 (60) (53) 20 Shared ownership initial sales 7,260 (6,034) 1,226 4,116 (3,348) 768 Development costs 128 (959) (831) 138 (838) (700) Impairment charges (40) (40) Other 623 (682) (59) ,793 (14,280) (487) 12,946 (11,781) 1,165 Non-social housing Non-social housing lettings 729 (297) (218) 529 Property sales 6,794 (5,907) 887 7,034 (5,573) 1,461 Other 684 (499) (373) 331 8,207 (6,703) 1,504 8,485 (6,163) 2,321 94,178 (68,264) 25,914 87,778 (61,819) 25,959 Exceptional item (note 25) - Pension schemes past service gains ,551 1,551 Total 94,178 (68,264) 25,914 87,778 (60,268) 27,510 Income and expenditure from social housing lettings General needs Shared ownership Supported housing Total Total (restated) Income from social housing lettings Rent receivable net of identifiable service charges 56,085 3,715 6,570 66,370 60,714 Charges for support services Service charges receivable 1, ,678 4,780 4,238 Net rents receivable 57,968 3,975 9,811 71,754 65,767 Revenue grants from local authorities and other agencies Total income from social housing lettings 58,392 3,975 9,811 72,178 66,347 Financial statements for Devon & Cornwall Housing Year ended 31 March 31

32 Notes on the financial statements for the year ended 31 March 2 Turnover and operating surplus (cont d) General needs Shared ownership Supported housing Total Total (restated) Expenditure on social housing letting activities Rent losses from bad debts (14) Support services Services 1, ,204 4,266 3,963 Management 12, ,216 15,300 14,913 Responsive maintenance 8, ,608 10,429 9,715 Cyclical maintenance 4, ,000 3,876 Major repairs expenditure 2, ,175 3,201 Depreciation of housing properties 7, ,380 7,543 Total expenditure on social housing lettings 38,230 1,381 7,670 47,281 43,874 Operating surplus on social housing letting activities 20,162 2,594 2,141 24,897 22,473 Rent losses from voids (362) 0 (523) (885) (972) Company (restated) Turnover Operating costs Operating surplus Turnover Operating costs Operating surplus Social housing lettings 41,083 (26,161) 14,922 37,058 (23,584) 13,474 Other social housing activities Supporting People contract income 582 (459) (662) 63 Care & Repair (513) (87) Shared ownership fee income 68 (60) 8 65 (53) 12 Shared ownership initial sales 5,726 (4,976) 750 3,006 (2,500) 506 Development costs 128 (642) (514) 127 (534) (407) Impairment charges (40) (40) Other 72 (50) (274) (25) 6,577 (6,166) 411 4,598 (4,576) 22 Non-social housing activities Non-social housing lettings 583 (251) (200) 405 Gift Aid receivable 1, ,880 1, ,508 2,463 (251) 2,212 2,113 (200) 1,913 Total 50,123 (32,578) 17,545 43,769 (28,360) 15, Financial statements for Devon & Cornwall Housing Year ended 31 March

33 Notes on the financial statements for the year ended 31 March 2 Turnover and operating surplus (cont d) Company General needs Shared ownership Supported housing Total Total (restated) Income from social housing lettings Rent receivable net of identifiable service charges 29,751 3,007 4,549 37,307 33,263 Charges for support services Service charges receivable 1, ,056 3,577 3,255 Net rents receivable 31,084 3,195 6,786 41,065 36,900 Revenue grants from local authorities and other agencies Total income from social housing lettings 31,102 3,195 6,786 41,083 37,058 Expenditure on social housing letting activities Rent losses from bad debts (149) Support services Services 1, ,015 3,537 3,161 Management 6, ,873 8,422 7,836 Responsive maintenance 4, ,174 5,278 5,027 Cyclical maintenance 2, ,791 1,957 Major repairs expenditure ,435 Depreciation of housing properties 4, ,576 3,873 Total expenditure on social housing lettings 18,746 1,099 6,316 26,161 23,584 Operating surplus on social housing letting activities 12,356 2, ,922 13,474 Rent losses from voids (156) 0 (458) (614) (644) 3 Profit on property sales Company Disposal proceeds 4,605 4,068 4,072 1,304 Cost of fixed assets (3,365) (1,805) (2,930) (846) Profit on property sales 1,240 2,263 1, Surplus on ordinary activities (restated) Company (restated) Surplus on ordinary activities before taxation is stated after charging: Auditors remuneration - Audit Other services relating to taxation Depreciation and other amounts written off housing properties 8,466 7,626 4,652 3,955 Depreciation and other amounts written off other tangible fixed assets Operating lease rentals Financial statements for Devon & Cornwall Housing Year ended 31 March 33

34 Notes on the financial statements for the year ended 31 March 5 Remuneration of directors and executive management team The directors of the group and company are the members of the board, the Chief Executive and Director of Finance. During the year the group executive management team also included the Chief Executives of PHA and Tor, the Directors of Asset Management, Human Resources and Investment and the Managing Director of Independent Futures. The Director of Human Resources was appointed during the year. The remuneration of the Chief Executive and group executive management team are determined by the Remuneration Committee. All members of the group executive management team are entitled to a similar range of benefits. The amounts disclosed are based on the taxable value of providing those benefits. The remuneration of the Chairman is shown below. No emoluments were paid to other non executive board members. Expenses reimbursed to members of the board were as follows: Company Expenses reimbursed to board members The emoluments of the Chairman and group executive management team were as follows: Salary Benefits Pension in Kind Contributions Total Total (restated) Non executive directors chairman (appointed 4 July ) Executive management team Chief Executive Chief Executive of PHA Chief Executive of Tor Director of Asset Management (appointed 1March 11) Director of Finance Director of Human Resources (appointed 10 June 11) Director of Investment Managing Director of Independent Futures Managing Director of DCHA & DCLS (resigned 10 Sept 10) Financial statements for Devon & Cornwall Housing Year ended 31 March

35 Notes on the financial statements for the year ended 31 March 5 Remuneration of directors and executive management team (cont d) Salary Company Benefits Pension in Kind Contributions Total Total (restated) Non executive directors chairman (appointed 4 July ) Executive management team Chief Executive Director of Asset Management (appointed 1 March 11) Director of Finance Director of Human Resources (appointed 10 June 11) Director of Investment Managing Director of Independent Futures Managing Director of DCHA & DCLS (resigned 10 Sept 10) Staff numbers and costs Company Average monthly number of employees : Housing & Support Investment Asset Management Central services Average monthly number of employees : Housing & Support Investment Asset Management Central services The aggregate payroll costs of these employees was as follows : Wages and salaries 16,784 16,835 5,525 5,283 Social security costs 1,329 1, Other pension costs 1,444 1, ,557 19,657 6,726 6,367 Financial statements for Devon & Cornwall Housing Year ended 31 March 35

36 Notes on the financial statements for the year ended 31 March 7 Interest receivable and other income Company Listed Investments Bank and deposits Intra-group loans Loans to housing associations Other Interest payable and similar charges Company Intra-group loans 0 0 5,678 5,171 Bank loans & overdrafts 12,794 12,226 2,027 1,893 Other Less: capitalised and 3.7% (: 0.71% and 3.8%) (376) (311) (330) (268) 12,636 12,125 7,383 6,804 9 Taxation Company UK corporation tax On surplus for the (: 28%) (144) Adjustments in respect of prior periods (153) Expenditure not deductible for tax purposes 143 (17) 0 0 Other timing differences 3 (15) 0 0 (151) The company has charitable status and its surpluses are exempt from corporation tax to the extent that they are applied for charitable purposes. 36 Financial statements for Devon & Cornwall Housing Year ended 31 March

37 Notes on the financial statements for the year ended 31 March 10 Tangible fixed assets housing properties Completed schemes Rented Social housing Shared Ownership Under construction Rented Shared Ownership Non -social housing Total Rented Cost At beginning of year - as previously reported 733,199 75,540 36,607 4,709 6, ,751 Prior year adjustment 68, ,859 At beginning of year - restated 802,058 75,540 36,607 4,709 6, ,610 Additions in year 1, ,301 9, ,992 Works to existing properties Components capitalised 7, ,816 Disposals (800) (658) 0 0 (303) (1,761) Component disposals (83) (83) Transferred on completion 38,574 7,336 (38,574) (7,336) 0 0 At end of year 848,999 82,243 33,334 6,602 6, ,580 Depreciation At beginning of year - as previously reported 29,642 2, ,744 Prior year adjustment 22, ,643 At beginning of year - restated 52,285 2, ,387 Charge for year 7, ,466 Disposals (6) (20) 0 0 (25) (51) Component disposals (25) (25) At end of year 60,155 3, ,777 Cost net of depreciation At 31 March 788,844 79,077 33,254 6,602 6, ,803 At 31 March 749,773 72,848 36,527 4,709 6, ,223 At 31 March - as previously reported 703,557 72,848 36,527 4,709 6, ,007 SHG and other public subsidy At beginning of year 355,001 31,021 19,605 3, ,711 Additions in year ,033 3, ,880 Transferred (to)/from RCGF (739) (336) (1,075) Transferred on completion 21,181 3,072 (21,181) (3,072) 0 0 At end of year 375,659 33,843 12,457 3, ,516 Net book value At 31 March 413,185 45,234 20,797 3,045 6, ,287 At 31 March 394,772 41,827 16,922 1,625 6, ,512 At 31 March - as previously reported 348,556 41,827 16,922 1,625 6, ,296 Financial statements for Devon & Cornwall Housing Year ended 31 March 37

38 Notes on the financial statements for the year ended 31 March 10 Tangible fixed assets housing properties (cont d) Additions to housing properties in the course of construction during the year includes: Capitalised 0.89% and 3.7% (: 0.71% and 3.8%) Direct development costs 1,186 1,320 The net book value of housing properties comprises: Freehold 464, ,505 Long leasehold - under 50 years remaining Long leasehold - over 50 years remaining 22,969 20, , ,296 Works to existing properties: Capital 6 (28) Revenue (included within major repairs expenditure) 1,969 2,484 1,975 2,456 Capitalised components included in the net book value of the properties: Cost At beginning of year (restated) 68,859 Additions 7,816 Disposals (83) At end of year 76,592 Depreciation At beginning of year (restated) 18,494 Additions 2,819 Disposals (25) At end of year 21,288 Cost excluding component accounting adjustments 900,988 Cost net of depreciation excluding component accounting adjustments 858, Financial statements for Devon & Cornwall Housing Year ended 31 March

39 Notes on the financial statements for the year ended 31 March 10 Tangible fixed assets housing properties (cont d) Company Completed schemes Rented Social housing Shared Ownership Under construction Rented Shared Ownership Non -social housing Total Rented Cost At beginning of year - as previously reported 512,267 62,471 26,250 3,862 5, ,387 Prior year adjustment 18, ,785 At beginning of year - restated 531,052 62,471 26,250 3,862 5, ,172 Additions in year 1, ,458 7, ,028 Works to existing properties Components capitalised 4, ,938 Disposals (770) (393) 0 0 (303) (1,466) Component disposals (83) (83) Transferred on completion 33,737 5,844 (33,737) (5,844) 0 0 At end of year 570,178 67,983 20,971 5,220 5, ,595 Depreciation At beginning of year - as previously reported 12,734 2, ,165 Prior year adjustment 13, ,311 At beginning of year - restated 26,045 2, ,476 Charge for year 4, ,652 Disposals (3) (13) 0 0 (25) (41) Component disposals (25) (25) At end of year 30,193 2, ,062 Cost net of depreciation At 31 March 539,985 65,538 20,891 5,220 4, ,533 At 31 March 505,007 60,426 26,170 3,862 5, ,696 At 31 March - as previously reported 499,533 60,426 26,170 3,862 5, ,222 SHG and other public subsidy At beginning of year 307,063 28,650 17,316 2, ,828 Additions in year ,909 3, ,289 Disposals Transferred (to)/from RCGF (739) (267) (1,006) Transferred on completion 19,327 2,809 (19,327) (2,809) 0 0 At end of year 325,827 31,278 9,898 3, ,111 Net book value At 31 March 214,158 34,260 10,993 2,112 4, ,422 At 31 March 197,944 31,776 8,854 1,063 5, ,868 At 31 March - as previously reported 192,470 31,776 8,854 1,063 5, ,394 Financial statements for Devon & Cornwall Housing Year ended 31 March 39

40 Notes on the financial statements for the year ended 31 March 10 Tangible fixed assets housing properties (cont d) Company Additions to housing properties in the course of construction during the year includes: Capitalised 3.7% (: 3.8%) Direct development costs 1,128 1,257 The net book value of housing properties comprises: Freehold 252, ,254 Long leasehold - under 50 years remaining Long leasehold - over 50 years remaining 13,695 11, , ,394 Works to existing properties: Capital 6 (28) Revenue (included within major repairs expenditure) Capitalised components included in the net book value of the properties: Cost At beginning of year (restated) 18,785 Additions 4,938 At end of year 23,723 Depreciation At beginning of year (restated) 10,170 Additions 973 At end of year 11,143 Cost excluding component accounting adjustments 645,872 Cost net of depreciation excluding component accounting adjustments 623, Financial statements for Devon & Cornwall Housing Year ended 31 March

41 Notes on the financial statements for the year ended 31 March 11 Other tangible fixed assets Freehold land and buildings Fixtures and fittings Computer Equipment Motor vehicles Total Cost At beginning of year 9,359 2,129 4, ,398 Additions (58) ,027 Disposals (550) (160) (363) (76) (1,149) At end of year 8,751 2,342 4,155 1,028 16,276 Depreciation At beginning of year 1,675 1,497 2, ,704 Charge for year On disposals (184) (160) (346) (71) (761) At end of year 1,653 1,529 2, ,816 Net book value At 31 March 7, , ,460 At 31 March 7, , ,694 Freehold land and buildings Company Fixtures and fittings Computer Equipment Total Cost At beginning of year 6, ,075 9,326 Additions (58) Disposals (550) (118) 0 (668) At end of year 5, ,274 9,094 Depreciation At beginning of year ,430 2,753 Charge for year On disposals (184) (118) 0 (302) At end of year ,670 2,865 Net book value At 31 March 5, ,229 At 31 March 5, ,573 Company The net book value of properties comprises; Freehold 5,557 6,111 3,763 4,258 Long leasehold 1,541 1,573 1,541 1,573 7,098 7,684 5,304 5,831 Financial statements for Devon & Cornwall Housing Year ended 31 March 41

42 Notes on the financial statements for the year ended 31 March 12 Investments Company Investments in subsidiaries: Shares 0 0 2,288 2,288 Intragroup Loan Loans to other housing associations Interest in associate ,796 2,508 Details of the subsidiaries are as follows: The company has a controlling interest in the following subsidiaries: Country of Registration or Incorporation Principal activity Devon and Cornwall Leasehold Solutions Limited England Property management services Devon and Cornwall Treasury Limited England borrowing vehicle Independent Futures CIC England Housing support services Penwith Housing Association Limited England Registered Provider Penwith Housing Association CIC England Dormant Tor Homes England Registered Provider Tor Homes CIC England Dormant Westco Properties Limited England Property development and services In addition: Advantage Southwest LLP is 25% owned by Westco Properties Limited England Procurement using modern methods of construction Penwith Housing Ancillary Services Limited England Dormant is wholly owned by PHA Call24Hour Limited is 51% owned by Tor England 24-hour telecare monitoring and response solutions 13 Properties for sale Company Properties developed for outright sale 4,446 4, Shared ownership properties - first tranche sales - completed units 1,332 1,180 1, units in progress 3,926 3,620 2,769 2,842 9,704 9,323 3,979 3, Financial statements for Devon & Cornwall Housing Year ended 31 March

43 Notes on the financial statements for the year ended 31 March 14 Debtors: due within one year Company Rent and service charges receivable 5,173 4,618 3,207 2,926 Less : Provisions for bad and doubtful debts (1,550) (1,284) (1,034) (738) 3,623 3,334 2,173 2,188 Service charges recoverable Amounts owed by companies Other Debtors 1,655 1, Social Housing Grant receivable 2,558 8,771 2,558 7,712 Corporation Tax receivable Prepayments and accrued income 1,499 1,385 2,553 2,386 9,772 15,532 8,671 13, Investments (held as current assets) Company Listed valuation 12,721 10,724 12,721 10, Creditors: Amounts falling due within one year Company Housing loans (see note 18) ,677 1,428 Issue Costs (76) (76) (32) (32) Finance Leases Recycled Capital Grant Fund & Disposal Proceeds Fund (note 25) Trade creditors 1,000 3, ,260 Rent and service charges received in advance 6,193 5,327 5,299 4,624 Contracts for capital works 3,099 4,282 2,302 3,775 Interest charges 1,818 1, Social Housing Grant received in advance 3,818 12,850 3,787 10,824 Amounts owed to companies 0 0 1,537 2,103 Other taxation and social security Corporation Tax Other creditors 994 3, ,742 Gwen Joseph fund Accruals and deferred income 8,887 6,770 2,308 1,774 27,386 40,383 19,215 28,978 Financial statements for Devon & Cornwall Housing Year ended 31 March 43

44 Notes on the financial statements for the year ended 31 March 17 Creditors: Amounts falling due after more than one year Company Recycled Capital Grant Fund & Disposal Proceeds Fund (note 25) 1, , Finance leases Housing loans (note 18) 326, , , ,917 Issue costs (1,049) (1,125) (749) (781) Premium on bond issues , , , ,069 The premium arising on bond issues is amortised over the term of the loan to which it relates. 18 Housing Loans Company The sources of housing loan finance are as follows: 316, ,814 20,000 0 Banks & building societies 7,112 7,469 7,112 7,469 Capital market issues , ,878 Inter group 3,945 3,997 3,945 3,998 Other 327, , , ,345 Housing loan finance is repayable as follows: In one year or less ,677 1,428 Between one and two years Between two and five years 3,455 3,098 2,605 2,299 In five years or more 322, , , , , , , ,345 All loans are repayable by instalments. The final instalments fall to be paid in the period 2010 to Housing loans are secured as follows: Fixed charges on properties 327, , , ,508 Unsecured , , , ,345 Interest rate basis Fixed less than 5 years 125, ,310 76,686 51,453 Fixed more than 5 years 148, , , ,695 Index linked 4,887 5,123 4,887 5,123 Variable 48,295 38,395 8,038 8, , , , ,345 In order to manage its interest rate profile the group holds inflation differential and fixed rate swaps. The interest basis including fixed rate swaps is shown above. The fixed rates of interest range from 1.155% to 12%. Annual fixed interest payments of 2,423,000 have been swapped into inflation linked payments for periods up to 2034 and At 31 March swaps had a negative market value of 43,344,000 (: negative value 17,271,000). The group s average cost of borrowing at 31 March was 4.29% (: 4.98%). 44 Financial statements for Devon & Cornwall Housing Year ended 31 March

45 Notes on the financial statements for the year ended 31 March 19 Deferred tax At 1 April 0 Fixed asset timing differences 30 Short term timing differences Pension scheme timing difference At 31 March 3 (1) (26) 20 Called up share capital Allotted, issued and fully paid shares of 1 Balance at 1 April Issued during year 6 0 Cancelled during year (23) (2) Balance at 31 March 6 23 The share capital of the company consists of non-equity interest shares with a nominal value of 1 each which carry no rights to dividends or other income. Shares in issue are not capable of being repaid or transferred. Where a shareholder ceases to be a member that share is cancelled and the amount paid up becomes the property of the company. 21 Investment Revaluation Reserve At 1 April Movement in year 1, At 31 March 2, Designated Reserves Major Repairs Re- Investment Reserve Other Total At 1 April 31,622 3, ,849 Movement in year: Contributions in year 8, ,634 Expenditure incurred (5,364) (118) (23) (5,505) 3,270 (118) (23) 3,129 At 31 March 34,892 3, ,978 Financial statements for Devon & Cornwall Housing Year ended 31 March 45

46 Notes on the financial statements for the year ended 31 March 22 Designated Reserves (cont d) Company Major Repairs Re- Investment Reserve Other Total At 1 April 31,622 3, ,849 Movement in year: Contributions in year 8, ,634 Expenditure incurred (5,364) (118) (23) (5,505) 3,270 (118) (23) 3,129 At 31 March 34,892 3, , Reconciliation of movements in total funds Company Capital and reserves at 1 April: As previously reported 129,968 83,507 Prior year adjustments (note 28) 46,216 5,474 As restated 176,184 88,981 Surplus on ordinary activities for the year 15,290 11,955 Unrealised profit on current asset investments (Note 21) 1,997 1,997 Actuarial (losses)/gains (Note 27) (1,775) 0 Capital and reserves at 31 March 191, , Housing Stock Units in Management Units under Development Social Housing Owned and managed by the group: Rented 14,342 13, Shared ownership 1,782 1, Sheltered 1,517 1, Supported housing (bedspaces) Managed by the group: Rented Owned by the group: Supported housing (bedspaces) ,256 17, Non-Social Housing Owned and managed by the group: Rented Managed by the group Owner occupied 1,043 1, Commercial properties Owned and managed by the group: Financial statements for Devon & Cornwall Housing Year ended 31 March

47 Notes on the financial statements for the year ended 31 March 24 Housing Stock (cont d) Company Units in Management Units under Development Social Housing Owned and managed by the company: Rented 4,762 4, Sheltered Supported housing (bedspaces) Owned by the company: Rented 2,966 2,774 Shared ownership 1,468 1, Supported housing (bedspaces) ,716 10, Non-Social Housing Owned and managed by the company: Rented Managed by the company Owner occupied Commercial properties Owned and managed by the company: Recycled Capital Grant Fund (RCGF) & Disposal Proceeds Fund (DPF) RCGF DPF Company RCGF DPF Balance at 1 April 1, ,021 0 Inputs to reserve: Grants recycled 1, ,139 0 Intra group transfer Interest accrued Withdrawals from reserve: New build (135) (178) (135) (178) Major repairs and works to existing stock (45) 0 (45) 0 Flexible Tenure 0 (40) 0 (40) Balance at 31 March 2, , Financial statements for Devon & Cornwall Housing Year ended 31 March 47

48 Notes on the financial statements for the year ended 31 March 26 Financial Commitments Company Capital commitments for which no provision has been made: - Housing properties Contracted 16,341 26,934 8,690 23,886 - Housing properties Approved not contracted 44,368 11, Housing properties - components Contracted Housing properties - components Approved not contracted 10, ,614 0 The capital commitments will be financed by a combination of grant funding and existing loan finance Annual commitment under operating lease: Land and Buildings - lease expiring 1-2 years Land and Buildings - lease expiring 2-5 years Land and Buildings - lease expiring beyond 5 years Pension schemes As explained in the accounting policies set out in note 1 the group operates five separate pension schemes. The assets of the schemes are held separately from those of the group. The Social Housing Pension Scheme The group and company participate in the Social Housing Pension Scheme (SHPS). The scheme is funded and contracted out of the state 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, to March From April 2007 there are three benefit structures available, namely: Final salary with a 1/60th accrual rate. Final salary with a 1/70th accrual rate. Career average re-valued earnings with a 1/60th accrual rate. From April there are a further two benefit structures available, namely; Final salary with a 1/80th accrual rate. Career average re-valued earnings with a 1/80th accrual rate. A defined contribution option 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 benefit structure at any one time. An open benefit structure is one which new entrants are able to join. The group and company have elected to operate the final salary with a 1/60th accrual rate benefit structure for active members as at 31 March 2007 and the career average re-valued earnings with a 1/60th accrual rate benefit structure for new entrants from 1 April From 1 October the group and company have offered the defined contribution scheme as an alternative for active and new entrants. 48 Financial statements for Devon & Cornwall Housing Year ended 31 March

49 Notes on the financial statements for the year ended 31 March 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 an individual employer level, subject to the employer paying no less than 50% of the total contribution rate. From 1 April 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 values. Accrued pension benefits are valued by discounting expected future benefit payments using a discount rate calculated by reference to the expected future investment returns. The group and company paid contributions at the rate of 7% on the final salary structure and on the CARE structure during the accounting period. Member contributions varied between 9.2% and 11.2% on the final salary structure and between 6.3% and 8.3% on the CARE structure, depending on their age. For the defined contribution scheme the company and employee pay equal contributions ranging from 3% to 7%. As at the balance sheet date the number of active members and the annual pensionable payroll was: Company Active members Annual pensionable payroll () 7,954 3,847 The group and company continue to offer membership of the scheme to its employees. 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. This is because the scheme is a multi employer scheme where the scheme assets are co-mingled for investment purposes and benefits are paid from 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 2008 by a professionally qualified actuary using the projected unit method. The market value of the scheme s assets at the last valuation date was 1,527 million. The valuation revealed a shortfall of assets compared with the value of liabilities of 663 million, equivalent to a past service funding level of 70%. The financial assumptions underlying the valuation were as follows; Valuation discount rates % pa - pre retirement non pensioner post retirement pensioner post retirement pensionable earnings growth price inflation pension increases - pre 88 GMP post 88 GMP excess over GMP 3.0 Expenses for death in service insurance, administration and PPF levy are included in the contribution rate. Financial statements for Devon & Cornwall Housing Year ended 31 March 49

50 Notes on the financial statements for the year ended 31 March The valuation was carried out using the following demographic assumptions: - Mortality pre retirement - PA92 year of birth, long cohort projection, minimum improvement 1%pa - Mortality post retirement 90% S1PA year of birth, long cohort projection, minimum improvement 1%pa The long term joint contribution rates required from April 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 1/60th accrual rate 17.8 Final salary with a 1/70th accrual rate 15.4 Career average re-valued earnings with a 1/60th accrual rate 14.9 Final salary with a 1/80th accrual rate 13.5 Career average re-valued earnings with a 1/80th accrual rate 11.9 If an 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 663 million would be dealt with by the payment of deficit contributions of 7.5% of pensionable salaries, increasing each year in line with salary growth assumptions from April to 30 September 2020, dropping to 3.1% from 1 October 2020 to 30 September Pensionable salaries at 30 September 2008 are used as the reference point for calculating these deficit contributions. These deficit contributions are in addition to the long-term joint contribution rates set out in the table above. The Scheme s 30 September valuation is currently in progress and will be finalised by 31 December. The results of the valuation will be included in next year s Disclosure Note. 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 3.0% to reflect the higher costs of a closed arrangement. The scheme actuary has prepared an actuarial report that provides an approximate update on 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 funding update revealed an increase in the assets of the scheme to 1,985 million and indicated a reduction in the shortfall of assets compared to liabilities to approximately 497 million, equivalent to a past service funding level of 80%. 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 buyout 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. 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. 50 Financial statements for Devon & Cornwall Housing Year ended 31 March

51 Notes on the financial statements for the year ended 31 March The group and company have been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Social Housing Pension Scheme and Growth Plan Scheme based on the financial position of the scheme as at 30 September was: Company Social Housing Pension Scheme 50,493 37,780 Growth Plan Scheme Defined Benefit Scheme Cornwall Council Pension Fund PHA participates in this fund as an admitted body under the Local Government Superannuation Regulations The Local Government Superannuation Scheme is funded jointly by employees participating in the scheme and PHA. The scheme is a defined benefit salary scheme based on final pensionable salary. The scheme is administered by Cornwall Council. The scheme was closed to new entrants with effect from 1 April The pension cost of PHA payable to the fund for the year ended 31 March relates to 15 employees who were members of the scheme at the date of transfer. The expected employer contribution payable in the next financial year is 188,000. PHA s actuarial liabilities in relation to the scheme are subject to triennial valuation by a qualified independent actuary. The most recent valuation was carried out as at 31 March 2010 and has been updated by independent actuaries to the Cornwall Council Pension Fund to take account of the requirements of FRS 17 in order to assess the liabilities of the Fund as at 31 March. Liabilities are valued on an actuarial basis using the projected unit method which assesses the future liabilities discounted to their present value. The main assumptions used for the purposes of FRS 17 are as follows: 31 March % 31 March % Discount rate Rate of increase in salaries Rate of increase in pensions Rate of inflation Mortality assumptions 31 March % 31 March % Longevity at age 65 for current pensioners - Males Females Longevity at age 65 for future pensioners - Males Females Financial statements for Devon & Cornwall Housing Year ended 31 March 51

52 Notes on the financial statements for the year ended 31 March The fair value of the assets held by the Pension Fund at 31 March, and the expected rate of return for each class of asset is as follows: Long Term Return % Fund value Long Term Return % Fund value Type Equities 6.2 3, ,504 Bonds Property Other Total 4,922 4,867 Funding position Assets 4,922 4,867 Estimated liabilities (6,772) (6,208) Deficit in the scheme (1,850) (1,341) The movement in the fair value of assets and present value of liabilities for the year to 31 March is as follows: Fair value of assets - At beginning of the year 4,867 5,144 - Expected return on assets Actuarial (losses)/gains on assets (229) (588) - Employer contributions Employee contributions Net benefits paid out (235) (212) 55 (277) - At end of the year 4,922 4, Financial statements for Devon & Cornwall Housing Year ended 31 March

53 Notes on the financial statements for the year ended 31 March Present value of liabilities - At beginning of the year 6,208 8,968 - Current service cost Interest cost Contributions by participants Actuarial losses/(gains) on liabilities 350 (2,393) - Net benefits paid out (235) (212) - Past service cost 0 (754) 564 (2,760) - At end of the year 6,772 6,208 Actual return on assets Expected return on assets Actuarial gains/(losses) on assets (229) (588) Actual return on assets 100 (230) Analysis of the amount charged to income and expenditure account Current service cost Past service cost 0 (754) Total operating charge 84 (646) Expected return on assets Interest on pension liabilities (338) (459) Other finance income (9) (101) Actuarial losses Cumulative actuarial (losses)/gains in the statement of recognised gains and losses (1,041) (462) Financial statements for Devon & Cornwall Housing Year ended 31 March 53

54 Notes on the financial statements for the year ended 31 March Amounts for current and previous four years Defined benefit obligation 6,772 (6,208) (8,968) (5,339) (5,437) Plan assets (4,922) 4,867 5,144 3,951 5,075 Surplus deficit (1,850) (1,341) (3,824) (1,388) (362) Experience adjustments on plan assets (229) (588) 867 (1,548) (37) Experience adjustments on plan liabilities (77) 1, (420) Total amount recognised in the statement of total recognised gains and losses (579) 1,805 (2,404) (1,004) 599 Defined Benefit Scheme Devon County Council Pension Fund The disclosures below relate to the Devon County Council Pension Fund (the Fund). Tor and Call24Hour participate in this Local Government Pension Scheme which is a defined benefit (final salary) funded pension scheme, administered by Devon County Council, and is available to all staff that transferred to Tor from South Hams District Council under TUPE arrangements in March During the financial year contributions were paid at two rates for relevant employees, 16.3% and 25.7%. The pension costs for the year were 168,000 (: 178,000) covering 25 employees (: 28). Contributions for the year ending 31 March are estimated to be 167,000. In accordance with FRS 17 Retirement Benefits, disclosure of certain information concerning assets, liabilities, income and expenditure related to pension schemes is required. The latest actuarial valuation of the Devon County Council Pension Fund took place on 31 March The principal assumptions used by the independent qualified actuaries in updating the latest valuations of the Fund for FRS17 Retirement benefits purposes were: Financial assumptions 31 March % p.a. 31 March % p.a. Inflation - RPI Inflation - CPI Rate of general long-term increase in salaries Rate of increase to pensions in payment Rate of increase to deferred pensions Discount rate The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the time scale covered, may not necessarily be borne out in practice. 54 Financial statements for Devon & Cornwall Housing Year ended 31 March

55 Notes on the financial statements for the year ended 31 March The current mortality assumptions include sufficient allowance for future improvements in mortality rates. The assumed life expectations on retirement at 65 are: Mortality assumptions 31 March 31 March Retiring today: - Males Females Retiring in 20 years: - Males Females The fair value of the assets held by the pension fund at 31 March, and the expected rate of return for each class of asset is as follows: Long Term Return % Fund value Long Term Return % Fund value Type Equities 6.3 4, ,310 Government bonds 3.3 1, ,050 Corporate bonds Property Other Total 6,367 6,159 Funding position Assets 6,367 6,159 Estimated liabilities (9,494) (8,029) Deficit in the scheme (3,127) (1,870) Financial statements for Devon & Cornwall Housing Year ended 31 March 55

56 Notes on the financial statements for the year ended 31 March The movement in the fair value of assets and present value of liabilities for the year to 31 March is as follows: Fair value of assets - At beginning of the year 6,159 5,846 - Expected return on assets Actuarial gains/(losses) on assets (199) (83) - Employer contributions Employee contributions Net benefits paid out (201) (211) At end of the year 6,367 6,159 Present value of liabilities - At beginning of the year 8,029 10,071 - Current service cost Past service cost 0 (792) - Interest cost Contributions by participants Actuarial losses/(gains) on liabilities 1,048 (1,761) - Net benefits paid out (211) (211) 1,465 (2,042) - At end of the year 9,494 8,029 Actual return on assets Expected return on assets Actuarial (gains)/losses on assets (199) (83) Actual return on assets Analysis of the amount charged to income and expenditure account Current service cost Past service cost 0 (802) Total operating charge 139 (630) Expected return on assets Interest on pension liabilities (440) (507) Other finance income (43) (132) 56 Financial statements for Devon & Cornwall Housing Year ended 31 March

57 Notes on the financial statements for the year ended 31 March Actuarial losses Cumulative actuarial gains/(losses) in the statement of recognised gains and losses (1,569) (2,069) Amounts for current and previous four years Defined benefit obligation (9,494) (8,029) (10,071) (7,336) (6,492) Plan assets 6,367 6,159 5,846 4,430 5,417 Surplus deficit (3,127) (1,870) (4,225) (2,906) (1,075) Experience adjustments on plan assets (199) (83) 1,193 (1,491) (583) Experience adjustments on plan liabilities (2,303) (304) 1,496 Total amount recognised in the statement of total recognised gains and losses (1,247) 1,581 (1,110) (1,795) 913 Defined Benefit Scheme William Sutton Limited Pension Scheme The William Sutton Limited Pension Scheme is a non contributory multi-employer defined benefit scheme which is closed to new entrants. The scheme is funded, contracted out of the state scheme and relates to some of the employees who transferred to Tor from William Sutton Limited in January The assets of the scheme are held by the Pensions Limited, an independent administrator. During the accounting year Tor Homes paid contributions at a rate of 22.8%. The net pension cost for the year was 22,000 (: 19,000) covering 3 employees (:3). The last formal valuation of the scheme was performed at 30 September 2009 and updated to 31 March by an independent professionally qualified actuary. The market value of the scheme s assets at this date was 57.1 million. It is not possible to identify the share of underlying assets and liabilities belonging to individual participating employers and due to the nature of the scheme, the income and expenditure charge for the year under both SSAP 24 Accounting for pension costs and FRS 17 Retirement benefits represents the employer contribution payable. The financial assumptions underlying the valuation were: % pa Discount rate 4.6 Expected return on scheme assets 6.6 Rate of salary increases 4.6 Rate of pension increases Rate of price inflation - CPI 2.2 Rate of price inflation - RPI 3.1 The valuation revealed a shortfall of assets compared with the value of liabilities of some 21.5 million. The long term contribution rate required to meet the cost of future benefits is currently under review and therefore subject to change. Defined Contribution Scheme - Social Housing Pension Scheme This scheme administered by the Pensions Trust is the occupational pension scheme of choice for Call24Hour. All staff employed by Call24Hour after 1 December 2002 are eligible to join this scheme. Participating employees have the option of contributing to a growth plan or a unitised ethical plan. Both the employee and employer contribute to the scheme at 5% of pensionable earnings. The pension cost charge for the period represents contributions payable by the group to the fund and amounted to 6,000. On retirement, funds or units earned can be converted into a pension with the Trust, or used to secure a pension with another provider. At 31 March there were 8 active members (: 7) of the scheme. Financial statements for Devon & Cornwall Housing Year ended 31 March 57

58 Notes on the financial statements for the year ended 31 March 28 Prior year adjustments The prior year adjustments reflect the adoption of the SORP The SORP requires that where a tangible asset comprises two or more major components with substantially different useful economic lives, each component should be accounted for separately for depreciation purposes and depreciated over its individual useful economic life. The SORP also requires that where acquisitions in the social housing sector are non-reciprocal transfers any negative goodwill arising on the transfer should be included in revenue reserves. Opening revenue reserves have been restated accordingly. The adoption of the SORP impacts the income and expenditure account as follows: Company Increased depreciation charge housing properties (3,505) (1,733) Reduced major repairs expenditure previously expensed now capitalised as a component addition 8,336 4,828 Amortisation of negative goodwill ,147 3,095 Analysis of prior year adjustment - Housing Properties Revenue Reserve Negative Goodwil Total Funds Balance at 31 March (as previously stated) 824,007 63,195 30, ,752 Adjustment to depreciate significant components within housing properties separately: - year ended 31 March 4,827 4,827 4,827 - prior years 41,389 41,389 41,389 Transfer of negative goodwill to revenue reserves: - year ended 31 March 316 (316) - prior years 30,029 (30,029) Total adjustments 46,216 76,561 (30,345) 46,216 Balance at 31 March (as restated) 870, , , Financial statements for Devon & Cornwall Housing Year ended 31 March

59 Notes on the financial statements for the year ended 31 March Analysis of prior year adjustment Company Housing Properties Revenue Reserve Total Funds Balance at 31 March (as previously stated) - DCHA 595,222 45, ,755 - DCHT 0 1,721 1,821 Amalgamation of DCHA and DCHT 595,222 47, ,576 Adjustment to depreciate significant components within housing properties separately: - year ended 31 March 3,095 3,095 3,095 - prior years 2,379 2,379 2,379 Total adjustments 5,474 5,474 5,474 Balance at 31 March (as restated) 600,696 52, , Related parties During the year two members of the board were tenants of the group, one each from DCH and PHA. These members held tenancies on the same terms as non board members. These members resigned on 31 March. 30 Post balance sheet event On 2 April DCH amalgamated with Penwith Housing Association and Tor Homes retaining the name Devon & Cornwall Housing Limited for the amalgamated entity and registered under the Industrial and Provident Societies Act 1965 (registration number 31573R) and as a registered provider (registration number 4705). Financial statements for Devon & Cornwall Housing Year ended 31 March 59

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