asra Housing Group Limited Financial Statements for the year ended 31 March 2015

Transcription

1 asra Housing Group Limited Financial Statements for the year ended 31 March 2015

2 Contents Board and Directors 3 Operating and Financial Review 4 Value for Money Self-Assessment 13 Statement of the Board s responsibilities in respect of the 17 Board Report and the financial statements Independent Auditor s Report 18 Consolidated Income and Expenditure Account 20 Consolidated Balance Sheet 21 Consolidated Cash Flow Statement 22 Notes to the Financial Statements 23

3 Board and Directors Members of the Board Group Chairman Aman Dalvi OBE Other Members Matt Cooney (Co-optee) Stephen Duck Jaffer Kapasi OBE Ponniah Rasanesan Shaama Saggar-Malik Resigned 31 August 2014 Sally Jacobson Retired 31 August 2014 Anne Turner Appointed 24 March 2015 Wayne Morris Appointed 1 April 2015 Steve Amos Appointed 24 March 2015 Aniekan Umoren Appointed 1 April 2015 Group Chief Executive Matt Cooney Group Company Secretary Martin Lewis Registered Office 3 Bede Island Road Leicester LE2 7EA 3

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5 asra Housing Group s Operating and Financial Review Principal Activities The Group comprises Asra Housing Group Limited (Association), and its subsidiary undertakings, which together form the Group. Asra Housing Group Limited is a non-asset holding, non-trading, non-charitable registered provider registered under the Industrial & Provident Societies Act For the operating subsidiaries were: - Leicester Housing Association (LHA) a charitable Registered Provider (RP) - asra Housing Association Limited (ASRA) a charitable RP - asra Construction Services Limited (ACSL) non-charitable The Group owns and manages approximately 14,000 homes across the Midlands, Greater London and the South East including the provision of care, support and housing to those with special needs. The Group operates four key business streams: housing for rent, primarily by families who are unable to rent at open market rates; supported housing and care for people who need additional housing-related support or additional care; low-cost home ownership, primarily shared ownership; and managed services for local housing co-operatives. The Group remains committed to developing across both London and the Midlands. The programme continues to grow and this year ( ) the Group will complete a further 298 new homes, of which around half will be in the Midlands. The Group s aspiration is to have a programme of circa 200 completions per annum. The Group will be strategically addressing the balance of development in favour of the London area due to the strength of demand. Business and Financial Review The Board is pleased to report a surplus (after tax) for the year of 23,197k (2014: 6,680k). All lender covenants were complied with. We have continued to invest in both our existing housing stock and undertake a series of new developments, for both sale and rent. In November 2014, there were sharp and unexpected changes in the money markets that led us to need to provide additional security to cover some of our interest rate swaps. The speed of the movement between November 2014 and January 2015 risked us temporarily exceeding the security that we had immediately available. However this never risked exceeding our total capacity. As a result the Homes and Communities Agency downgraded our governance and viability rating from G1/V1 to G3/V2. Our priority is to ensure that our systems and processes will prevent this happening again and at the same time restore our regulatory grading s to compliant status. The Group has successfully completed its Affordable Homes Programmes with both the Greater London Authority (GLA) in London and the Homes & Communities Agency (HCA) in the Midlands. Furthermore, the Group has now secured a fresh Social Housing Grant (SHG) allocation to deliver a similar sized development programme over the current four year period from April 2015 through to March 2019, the majority of which will be in London with SHG funding from the GLA, whilst from now on, there will only be modest levels of development in the Midlands, again with SHG funding from the HCA. The work programme for will be largely informed by the new Government s policies most particularly the announcement in the Summer 2015 budget of 1% reduction in rental income for four years, the proposals to extend right to buy to housing associations, and welfare reform. 5

6 asra Housing Group s Operating and Financial Review Objectives and Strategy There were no significant changes to accounting policies in the current year. The Group's five-year income and expenditure accounts and balance sheets are summarised below: Table 1 - Group Highlights, Five-Year Summary asra Housing Group Financial performance: as restated Turnover 79,812 72,439 68,454 60,829 60,085 Operating surplus 27,306 23,183 17,174 14,839 13,865 Surplus for the year before tax 23,374 6,760 2, ,262 Interest payable 16,798 17,306 16,086 14,591 12,322 Cash flow performance: Cash flow from operations 41,537 34,113 30,970 16,756 20,801 Cash flow for the year 37,360 5,834 (15,113) (1,891) (1,286) Balance Sheet performance: Housing properties (net) 449, , , , ,362 Investments ,189 1,305 1,438 Cash and short term deposits 64,737 28,364 16,573 28,887 20,307 Net current assets 56,125 20,827 4,554 23,974 9,892 Debt housing loans 418, , , , ,681 Reserves 83,600 60,403 53,723 50,617 50,361 6

7 asra Housing Group s Operating and Financial Review Objectives and Strategy - continued Table 1 - Group Highlights, Five-Year Summary - continued For the year ended 31 March As restated Housing properties owned & managed at year end: No No No No No Social housing 11,872 11,620 11,534 10,271 9,829 Shared ownership Non-social housing Total owned 12,770 12,479 12,366 11,401 10,837 Managed stock 1,148 1,002 1, Total owned & managed 13,918 13,481 13,389 12,228 11,647 Statistics: Operating surplus as % of turnover 34.2% 32% 25% 24.4% 23.1% Surplus for year as % of income from lettings 34.4% 10.3% 4.7% 0.5% 4.2% Rent losses (voids and bad debts as % of rent and service charges receivable) Rent arrears (gross arrears as % of rent and service charges receivable) Liquidity (current assets divided by current liabilities) Gearing (total loans as % of capital grants plus reserves) 2.5% 3.8% 4.8% 3.1% 3.7% 6.7% 6.5% 7.5% 7.5% 7.3% 3.2:1 1.9:1 1.2:1 2.1:1 1.4:1 71.9% 65.7% 63% 62% 57.9% The Group adopted the Statement of Recommended Practice (SORP) Accounting by Registered Social Housing Providers Update 2010 for the first time in The key change was the requirement for the Group to identify and separately account for the major components which make up its housing property assets. Prior period balances were adjusted to reflect this implementation which decreased opening reserves at 1 April 2012 by 1.9m. 7

8 asra Housing Group s Operating and Financial Review Performance Review The Group is a housing and regeneration provider that is committed to Providing homes, not just places to live. Our vision is to be the affordable housing provider of first choice by Underpinning the Group s purpose and vision are three core values. These are: - To review the services from the customer s perspective; Ensure we are serving diverse communities on their doorstep; and To take responsibility for our actions, both individually and as a team. Welfare changes Following the Welfare Reform changes in April 2013 the Group identified tenants affected by the 'Spare Room Subsidy' in order to assist them with Discretionary Housing Payment applications. The Group has also appealed to Councils on behalf of tenants that are exempt due to their tenancy starting before January This was successful for tenants to maximise their income and reduce the Group rent arrears. The team also identified and contacted all tenants affected by maximum benefit caps in order to advise them on how to reduce the risk. Most were found to be in work and were therefore not affected by the cap. The Group has identified over 4,000 tenants that are potentially at risk due to Universal Credit and, by using savings from vacant posts in the Income Team, has created three posts to focus on contacting and supporting these tenants to prepare for Universal Credit. Although the work outlined above has averted a decline in rent collection performance thus far, it is recognised that Universal Credit will require intensive management that will stretch resources and increase transaction costs significantly. There will also be a need to consider the impact of ineligible service charges. These will create a further gap in benefit entitlement for some tenants. The focus has moved towards debt prevention with early intervention and support for new tenants and swift action for those who fall into rent arrears in order to remove obstacles to rent payment. Developing new affordable homes with low or nil grant The affordable development programme with low grant rates and the ability to charge rents up to 80% of market rates has essentially turned the development model, that was previously based on capital subsidy, to one of revenue. The implications of this change will mean that the Group will take on more debt with each development, leading to using up it s asset headroom faster and increasing it s gearing. Post 2015, assuming the funding model remains, then the ability to deliver new homes will be constrained over the medium term in ASRA as the asset capacity is used up. Future development levels will be amended in line with our capacity. Lending Environment The Global banking crisis which began in 2007 continues to influence the credit markets. Traditional lending from banks is now offered by most lenders for up to 10 years with margins above 2007 levels. This has encouraged registered providers to turn to alternatives for long term finance such as bonds, private placements and pension funds. 8

9 asra Housing Group s Operating and Financial Review Housing A programme of 40% of stock condition surveys has recently been completed by Ridge and Partners. The data from this exercise is held on the Keystone Asset Management database. The survey process collected information on the general description of the stock, the condition of components and life cycle predictions on key components such as roofs, kitchens, bathrooms, windows and doors, heating and boilers. This information has been extrapolated into 621 property types to provide a basis for investment. In May 2015 we commissioned a further 40% stock condition survey which will be complete by September 2015 which will improve the database accuracy saw the largest ever investment into improving the condition of our homes. We achieved 9.6 million spend on improving 940 homes, the programmes centred around new kitchens and bathrooms and a UPVC window programme to replace single glazed properties. Capital Structure and Treasury Policy The Group's lending agreements require compliance with a number of financial and non-financial covenants. The Group's position is monitored on an on-going basis and reported to the Board each quarter. Recent reports confirmed that the Group was in compliance with its loan covenants at the balance sheet date and the Board expects to remain compliant in the foreseeable future. The Group borrowed a further 53.3m (and made principal repayments of 4m) during the year to develop shared ownership, elderly and general needs housing accommodation. By the year end Group borrowings, after repayments, amounted to 420m of which 3.9m falls due to be paid within the next year: Table 2 Net Long Term Borrowings Maturity Within one year 3,854 3,732 Between one and two years 5,319 3,825 Between two and five years 86,460 30,099 After five years 325, ,739 Total 420, ,395 The Group borrows, principally from banks and building societies, at both fixed and floating rates of interest. Interest rate swaps are used to generate the desired interest profile and to manage the group's exposure to interest rate fluctuations. At the year-end, 74% of the Group's borrowings were at fixed rates after taking account of interest rate swaps (2014: 91%). The weighted average cost of capital for the Group was 4.63% (2014: 4.99%). The Group has cash balances of 46.5m at 31 March 2015 (2014: 10.4m) and short term investments of 18.2m (2014: 17.9m) and the current ratio stands at 3.2:1 (2014: 1.9:1). 9

10 asra Housing Group s Operating and Financial Review Governance and the Board The Group is governed by a common board comprising eight Non-Executive Directors, who are members of both LHA and AHA as well as the parent Board, and the Chief Executive. Each Director is selected for the skills and knowledge they offer relative to the strategic priorities of the Group. The Board also delegates authority to four specialist committees, Risk & Audit, Governance & Remuneration, Customer Services and Investment. Roles, responsibilities and accountabilities are established in Standing Orders, a document owned by the board. The Board must adhere to Community Benefit Society Rules; a set of standards determined by the Housing Regulator; and a recognised code of governance. The chosen code is the National Housing Federation Code (2015 edition), which the Board is fully committed to. Under the Code the Group has an obligation to comply, or explain non-compliance. We have complied. Table 3 shows the attendance record of the Board and Committee members at Board and Committee meetings during the year. Table 3 Board Member Attendance Name Board Risk & Audit Committee Investment Panel Board Members: Aman Dalvi 7 of 7 Stephen Duck 7 of 7 3 of 3 5 of 5 Jaffer Kapasi 7 of 7 Ponniah Rasanesan 5 of 7 2 of 3 3 of 5 Sally Jacobson 2 of 2 Shaama Saggar-Malik 2 of 2 0 of 1 Anne Turner 1 of 1 Steve Amos 1 of 1 Committee members: Paul Periton 2 of 3 Mark Illingworth 2 of 2 Matt Cooney 7 of 7 3 of 3 5 of 5 Paresh Parekh 5 of 5 William Cornall 4 of 5 10

11 asra Housing Group s Operating and Financial Review Non-executive members received the following remuneration for the year: Table 4 Board Member Remuneration Board members received the following pay in: Remuneration (including pension contributions) Expenses reimbursement Aman Dalvi 20,627 20, Sally Jacobson 5,706 13, ,595 Stephen Duck 11,189 10,850 1, Shaama Saggar-Malik 4,657 10, Jaffer Kapasi 8,586 8, Ponniah Rasanesan 11,088 5, Anne Turner Steve Amos TOTAL 61,853 68,927 2,994 2,879 With effect from 1 April 2015 Board members will receive the following remuneration: 20,890 per Group Chairman, 13,995 per Deputy (vacant), 11,332 per Chair of Committees and 8,967 per ordinary member per annum. (2014: 20,440 per Group Chairman, 13,694 per Deputy, 11,088 per Chair of Committees and 8,586 per ordinary member per annum.) Only Group Board non-executive Directors receive remuneration. Pension Obligations The Group has been notified by the Pensions Trust of the estimated employer debt on withdrawal from the Social Housing Pension Scheme based on the financial position of the Scheme as at 30 September As of this date the estimated employer debt for LHA and asra was 41.6m and 17.5m respectively. Future Developments A key influence on the timing of borrowings is the rate at which development activity takes place and the levels of grant funding available. The Board has approved plans to spend over 46m during to develop general housing. 10m of the investment will be through drawdown of existing borrowing facilities with the balance funded through net operating surpluses. Undrawn loan facilities of 36m are available under existing arrangements and we anticipate commencing negotiations for further new facilities in Asra Housing Association to support future development programmes. No investment is planned in Leicester Housing Association for onwards. The Group continues to assess the impact of government policy on its business plan and intended future developments. The Group's resources are only committed to a scheme once funding has been secured. Other initiatives will be developed over the next year to assist our tenants in dealing with changes to housing and other benefits. 11

12 asra Housing Group s Operating and Financial Review Statement of Compliance In preparing this Operating and Financial Review and Board report, the Board has followed the principles set out in the Statement of Recommended Practice accounting by registered social landlords Update Auditors KPMG LLP have expressed their willingness to continue in office as auditors to asra Housing Group Limited. A resolution recommending their reappointment will be proposed at the Annual General Meeting. 12

13 asra Housing Group s Operating and Financial Review Value For Money (VFM) Self-Assessment Statement Our annual value for money self-assessment is published on our website at This self-assessment concludes that there has been reasonable progress in the year with more work to do in The assessment for is influenced by the proposed merger with Viridian Housing to form the combined VA Housing. In April 2015, the Boards of both associations mutually agreed to not proceed with the merger. The work programme for will be largely informed by the new Government s policies most particularly the announcement in the Summer 2015 budget of 1% reduction in rental income for four years, the proposals to extend right to buy to housing associations, and welfare reform. The self-assessment sets out our calculation of return on assets for and the extensive programme of work to gain a comprehensive understanding of the return and options available to us on our complex property portfolio. The assessment sets out a comparative analysis against our own internal targets and other selected Registered Providers. We have also described performance in against resident priorities for that year. 13

14 asra Housing Group s Operating and Financial Review Internal Controls Assurance The asra Housing Group Board has overall responsibility for establishing and maintaining the system of internal control. As with all systems of internal control, it is designed to manage rather than eliminate all risk of failure to achieve business objectives and can therefore provide reasonable and not absolute assurance against material misstatement or loss. The system of internal control is subject to continuing review and development. Annual Review of the effectiveness of the System of Internal Control The Group Board delegates responsibility for the annual review of the effectiveness of the system of internal control to the Risk & Audit Committee. The Risk & Audit Committee document their review in an annual report which is presented to the Group Board. The Risk & Audit Committee met three times during the course of the year. Assurance over the control environment was obtained from the following main sources: Risk Management Framework An effective risk management framework sits at the heart of the system of internal control. The Group Board confirms that the process for identifying, evaluating and managing the significant risks faced by the Group is ongoing, the process has been in place throughout the year and up to the date of approval of the annual report and accounts and is regularly reviewed by the Board. The Group Board approves the Risk Management Framework, reviews the Group risk register at each meeting assessing the effectiveness of risk mitigation strategies and performs annual review of the Groups appetite for risk taking. The Executive Team is responsible for overseeing the operation of the Group s Risk Management Framework, ensuring a consistent approach to risk management is taken across the Group. The Risk Management Framework includes both the strategy and policy for risk management and sets out in detail how risks are identified, assessed, responded to and monitored. The Risk & Audit Committee receives risk management reports at each meeting and receives the Internal Audit annual review of the effectiveness of risk management and the risk assurance map. Board sub-committees receive risk management reports tailored to their specific business requirements. Internal Audit Service The prime responsibility of the internal audit service is to provide the Board with assurance on the adequacy and effectiveness of the internal control system, including risk management and governance. Internal audit also plays a valuable role in helping management to improve systems of internal control and so to reduce the potential effects of any significant risks faced. Internal Audit is delivered by the in-house team. The Internal Auditors have direct access to the Risk & Audit Committee and meet with the Committee and Committee Chair privately. 14

15 asra Housing Group s Operating and Financial Review The Risk & Audit Committee reviews the findings arising from all Internal Audit Reports and is provided with progress reports on the implementation of all agreed recommendations for improvement to the point of conclusion. Internal Audit made no recommendations of a critical nature during , but subsequent to the year-end undertook a review of Treasury and made one critical recommendation. The Internal Audit Manager provides an annual report and overall assurance opinion on the system of internal control based on the work performed during the year and management response to that work. External Audit Any issues raised in the external audit management letter issued at conclusion of the annual audit are dealt with to the satisfaction of both the external auditors and the Risk and Audit Committee with progress tracked to the point of conclusion. The External Auditors made no observations of a significant nature during Treasury management In February 2015, asra notified the Homes and Communities Agency that as at 29 th January 2015 there was a risk that the Group could not meet a proposed margin call by an interest rate swap counterparty. The call was to be satisfied with property security and /or cash and as at the date of the margin call, the Group had insufficient immediately accessible secured property or liquid resources to meet the call. The call was subsequently satisfied by agreeing a two week delay to process sufficient secured properties and to organise restructuring of some interest rate swaps. Regulatory Judgement In April 2015, The Homes and Communities Agency published a Regulatory Judgement. The Group was downgraded by the HCA from G1/ V1 to G3/V2, the G3 being a grade indicates noncompliance with the Regulatory Framework. This downgrade was substantially as a result of the events outlined above. Governance Arrangements The Group s governance arrangements are subject to continuing review and development to ensure they remain fit for purpose. Board & sub-committee membership is reviewed annually in line with the membership policy terms. Compliance with the Group s chosen code of governance is reviewed annually. Senior Management Certification The Senior Management Group undertakes an annual year end self assessment and certification of the key control environment on a departmental basis which includes a signed letter of representation of individual responsibilities with regard to internal control and risk management. This process continues to be developed and enhanced annually. Financial & Performance Reporting Systems The financial control framework as set out in the Group s Financial Regulations is reviewed annually. Continual assurance over the adequacy of financial and operational performance of the Group is gained through Board scrutiny of a range of management information reports and the suite of key performance indicators. 15

16 asra Housing Group s Operating and Financial Review The Group Board delegates responsibility for Treasury Management to the Investment Panel. The Investment Panel reviews performance of the Treasury department and approves the 30 year Business Plan, Treasury Policy, Strategy and risk appetite, considers and approves capital investment projects and monitors progress of the development programme. Recommendations on investment projects over a pre-determined value are presented to the Board. Policy Review During the year the Group Board and Executive Team have given approval to a range of key policies which are designed to provide effective internal control. All Group policies are subject to a rolling programme of review. Managing Probity The Group has an established code for Managing Probity and operates a zero tolerance approach to any instances of fraud or corruption. The Group confirms it has an Anti-Fraud & Whistleblowing Policy that covers prevention, detection and reporting of fraud and the recovery of assets. The Policy is explained to all employees during induction and reinforced regularly thereafter. A Fraud Response Plan is maintained. The Risk & Audit Committee review the fraud and loss register and reflect the information contained within it in their assessment of the control environment. Human Resources The HR department ensures that there continues to be an effective system in place for the recruitment, retention and development of employees. Scrutiny Panel The Group has an active Scrutiny Panel. All members are customers of the Group. Through the completion of its annual scrutiny plan the Scrutiny Panel make recommendations to the Board on how services can be improved from a customer perspective. Conclusion The Group Board, through the Risk & Audit Committee, has reviewed the effectiveness of the Group s risk management, internal control and governance processes throughout the year ended 31 March 2015 and up to the date of approval of the annual report and accounts. The Group Board confirms that no significant weaknesses in internal controls, have been identified up to the date of signing the annual report and accounts that would result in material losses, contingencies or uncertainties, and requiring disclosure in the financial statements. Following the events outlined above, a review of controls relating to treasury and of the wider business has been undertaken. The wider review of controls has identified areas for improvement but has not identified any material weaknesses that would affect the overall opinion made by the Board on the effectiveness of controls. 16

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18 Independent auditor s report to the members of asra Housing Group Limited We have audited the financial statements of asra Housing Group for the year ended 31 March 2015 set out on pages 20 to 52. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the association s members, as a body, in accordance with section 128 of the Housing and Regeneration Act 2008 and section 87 of the Co-operative and Community Benefit Societies Act Our audit work has been undertaken so that we might state to the association s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the association and the association s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the Board and auditor As more fully explained in the Statement of Board s Responsibilities set out on page 17, the association s Board is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council s website at Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of affairs of the Group and the Association as at 31 March 2015 and of the surplus of the Group and the Association for the year then ended; comply with the requirements of the Co-operative and Community Benefit Societies Act 2014; and have been properly prepared in accordance with the Housing and Regeneration Act 2008 and the Accounting Direction for Private Registered Providers of Social Housing

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20 Consolidated Income and Expenditure Account for the year ended 31 March restated Note Turnover 2 79,812 72,439 Less: Operating Costs 2 (52,506) (49,256) Operating Surplus 2 27,306 23,183 Surplus on disposal of fixed assets 7 12, Interest receivable and other income Interest payable and similar charges 10 (16,798) (17,306) Surplus for the year before tax 6 23,374 6,760 Tax on surplus on ordinary activities 11 (177) (80) Surplus for the year 25 23,197 6,680 The Group turnover and expenses for the current year all relate to continuing operations. Historical costs surpluses and deficits were identical to those shown in the Consolidated Income & Expenditure Account. All recognised gains and losses are included in this statement. 20

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22 Consolidated Cash Flow Statement for the year ended 31 March 2015 Note Net cash inflow from operating activities 27 41,537 34,113 Returns on investments and servicing of finance Net cash outflow from returns on investments and servicing of finance 30 (18,509) (18,457) Tax paid 30 (7) (29) Capital expenditure and financial investment Net cash outflow from capital expenditure and financial investment 30 (38,401) (32,162) Net cash outflow before use of liquid resources and financing (15,380) (16,535) Management of liquid resources 30 (310) (5,999) Net cash outflow before financing (15,690) (22,534) Financing Net cash inflow from financing 30 53,050 28,368 Increase in cash 30 37,360 5,834 22

23 1 Basis of accounting The financial statements have been prepared in accordance with applicable law and United Kingdom Accounting standards (United Kingdom Generally Accepted Accounting Practice) and in accordance with the Co-operative and Community Benefit Societies Act 2014, the Accounting Direction for Private Registered Providers of Social Housing 2012 and the Statement of Recommended Practice (SORP) Accounting by Registered Social Landlords Accounting Convention The Financial statements are prepared under the historical cost convention. After making enquiries, reviewing budgets and forecasts and examining major areas which could give rise to significant financial exposure, the Directors are satisfied that no material or significant exposures exist other than as reflected in these financial statements and that asra Housing Group Limited has adequate resources to continue its operations for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing accounts. 1.2 Basis of consolidation The Group is required by the Co-operative and Community Benefit Societies Act 2014 to prepare group accounts. The Group accounts comprise those of asra Housing Group Limited together with its subsidiaries, in accordance with the requirements of Financial Reporting Standard 2 Accounting for subsidiary undertakings. The Association itself had no turnover, operating costs or other income or expenditure and had no assets or liabilities other than investment in subsidiaries. All notes are the consolidated Group position. 1.3 Principal accounting policies Turnover Turnover is net of voids and VAT and includes: Rents and service charges Residential charges Revenue grants Supporting People income receivable Management Fees Call Centre income Training Centre / Office rent Regeneration Grants Charges for services provided and Supporting People income are recognised as income when asra has provided the service concerned. Grants made as contributions to revenue expenditure are credited to income in the period in which the related expenditure is incurred. Turnover has been analysed in accordance with the requirements of Homes and Communities Agency Regulatory Committee guidance Regulating a Diverse Sector (see note 2). 23

24 1.3.1 Turnover - continued During the year there has been a re-classification of central overhead charges to net the Group overhead recharge income against related costs in Note 3. This has adjusted turnover and operating costs. Operating surplus remains unchanged. The prior year figures have been adjusted to reflect this reclassification Interest Payable Interest is capitalised on borrowing to finance developments to the extent that it accrues in respect of the period of development if it represents either: a) interest of borrowings specifically financing the development programme after deduction of interest on social housing grant in advance; or b) interest on borrowings of asra as a whole after deduction of interest on social housing grant in advance to the extent that they can be deemed to be financing the development programme. Other interest payable is charged to the income and expenditure account in the period Pensions Social Housing Pension Scheme The Group participates in the defined contribution schemes of the Social Housing Pension Scheme. The Group participated until 31 December 2013 in a pension scheme providing benefits based on career average pay. The assets of the scheme are held separately from those of the Group companies. The Group is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as required by FRS17 Retirement Benefits accounts for the scheme as if it were a defined contributions scheme. As a result the amount charged to income and expenditure represents the contributions payable to the scheme in respect of the accounting period. Stakeholder Pension Scheme Contributions payable to the Group stakeholder s pension scheme are charged to the income and expenditure account in the period to which they relate. 24

25 1.3.4 Taxation The charge for taxation is based on surpluses arising on certain activities which are liable to tax. The Group accounts for deferred tax in line with the requirements of FRS19. A deferred tax asset is only recognised on the basis of available evidence where it is more likely than not that there will be taxable profits in the future, against which a deferred tax asset will be offset VAT Certain members of the group are VAT registered but a large proportion of the income (rents), is exempt for VAT purposes and this therefore gives rise to partial exemption calculation. Expenditure is therefore shown inclusive of VAT and the input VAT recovered is included in turnover Supported Housing schemes In respect of supported housing schemes owned by the Group where the managing agents suffer the risks and have control of benefits, the income and expenditure and related current assets and liabilities are not included in the financial statements Housing properties Housing properties are stated at cost less social housing grant, other capital grants and depreciation. Cost for housing properties includes the cost of acquiring land and building, construction costs including internal equipment and fittings, directly attributable development administration costs, cost of capital employed during the development period and expenditure incurred in respect of improvements and extension of existing properties to the extent that it enhances the economic benefit derived from the assets. Directly attributable development administration costs are the labour costs of the Group s own employees arising directly from the construction or acquisition of the property, and the incremental costs that would have been avoided, only if the property had not been constructed or acquired. Expenditure on repairs to properties and equipment arising through normal wear and tear is charged to the income and expenditure account in the year in which it occurs. Shared ownership properties are split between fixed and current assets, with the element relating to the expected first tranche sale being treated as a current asset. Any surplus made on the sale of the first tranche is treated as turnover in the Income and Expenditure Account in accordance with the treatment proposed in the SORP Second and subsequent tranche surpluses or deficits are shown after operating surplus has been determined, but before interest. 25

26 1.3.8 Housing properties - continued The Group separately identifies the major components which comprise its housing properties, and charges depreciation to write down the cost of each component to its estimated residual value, on a straight line basis, over its estimated useful economic life. The major components of its housing properties and their useful economic lives are as follows: Building structure Roofs Kitchens Bathrooms Windows and doors Heating and boilers Photo-voltaic Panels years - 50 years - 30 years - 40 years - 40 years - 15 years - 24 years Freehold land is not depreciated. Also, assets in the course of construction are not depreciated. Social housing grant and other capital grants are apportioned against land and buildings in the same proportion as their carrying value. Depreciation has been provided to write down the cost of housing buildings, less capital grants received, to their estimated residual value, over the useful economic life of the buildings in equal annual instalments. The useful economic life of a property has been deemed to commence at: a) the completion of major refurbishment work after purchase; or b) completion of building work for new build properties; or c) date of purchase if no major refurbishment works take place Impairment reviews are carried out annually where properties have an economic life in excess of 50 years, and provision made against the carrying value where appropriate. 26

27 1.3.9 Social housing grant Social Housing Grant is receivable from central government agencies and local authorities and is offset against the cost of housing properties on the face of the balance sheet. The Companies Act 2006 required tangible fixed assets to be included at purchase price, or production cost, less any provision for depreciation or diminution in value. However, this requirement conflicts with the generally accepted accounting principles for RPs set out in the Statement of Recommended Practice: Accounting by Registered Social Landlords (SORP). The purpose of social housing grant is to subsidise the capital cost of affordable housing, and the income from properties is a function of net cost. Accordingly, the Directors consider it necessary to adopt the accounting treatment set out in the SORP to give a true and fair view. Social housing grant due from such agencies or received in advance is included as a current asset or liability. Where, following the sale of the property, social housing grant becomes repayable, to the extent that it is not subject to abatement, it is included as a liability until it is repaid or utilised. Any social housing grant received in respect of revenue is credited to the income and expenditure account in the same period as the expenditure to which it relates Recycled Capital Grant Fund The Group has the option to recycle social housing grant, which would otherwise be repayable, for re-use on new developments. If unused within a three year period, it will be repayable to the Homes and Communities Agency with interest. Any unused recycled capital grant held within the fund, which it is anticipated will not be used within one year is disclosed in the balance sheet under creditors due after more than one year. The remainder is disclosed under creditors due within one year Other grants The capital costs of housing properties are stated net of capital grants receivable from public bodies. Grants in respect of revenue are credited to the income and expenditure account in the same period as the expenditure to which they relate. 27

28 Other tangible fixed assets Other freehold properties Office buildings are depreciated down to their residual value over 50 years. Other fixed assets Depreciation is charged on a straight line basis over the expected useful lives of other assets at the following annual rates:- Furniture, fixtures and fittings 10% & 20% Motor vehicles 20% Computer and office equipment 20% to 33.3% Designated reserves Major repairs asra is committed to a continuous reinvestment policy and only provides for future major repairs in respect of supported housing properties. Equipment replacement The equipment replacement reserve is available to meet expenditure on replacement of furniture and equipment in sheltered schemes for which statutory finance is not available and is funded from rental income from those specific schemes. Tenant s welfare The tenant s welfare fund is a reserve for asra Housing Association tenant s welfare and similar purposes Impairment When a review of individual fixed assets or income generating units indicates impairment has occurred this is recognised in the income and expenditure account and included within cumulative depreciation. 28

29 Stocks Stocks are stated at the lower of cost and net realisable value Negative Goodwill on fair value exchanges Negative goodwill, being the excess of fair value of the underlying separable net assets over the fair value of the consideration, is shown as part of intangible fixed assets. An amount equal to the fair value of the non-monetary assets acquired is being released to the income and expenditure account commensurately with the recovery of the non-monetary assets acquired, whether through depreciation or sale Goodwill and Negative Goodwill on non- exchange transactions For non-exchange transactions (acquisitions in the social housing sector that are in substance a gift of one business to another), the fair value of the gifted recognised assets and liabilities is recognised as a gain or loss in the income and expenditure account in the year of transaction Leases Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors. Operating lease rentals are charged to the profit and loss account on a straight-line basis over the period of the lease Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event. It is probable that a transfer of economic benefit will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation Finance issue costs The cost of raising loans is amortised over the period of the loan. The deferred cost is offset against the liability and included within creditors: amounts falling due after more than one year, in accordance with FRS4: Capital Instruments. 29

30 2 Particulars of turnover, operating costs and operating surplus Analysis of turnover Restated Operating Operating Operating surplus/ Operating surplus/ Turnover costs (deficit) Turnover costs (deficit) Income and expenditure from lettings Housing accommodation 62,348 40,059 22,289 58,288 38,689 19,599 Supported Housing accommodation 2,022 3,104 (1,082) 2,819 3,279 (460) Registered care homes - 35 (35) (218) Shared ownership accommodation 2, ,471 2, ,592 Market Rented 1,166 1,318 (152) 1, ,908 45,417 22,491 64,687 43,970 20,717 Other income and expenditure Current asset property sales 5,971 4,510 1,461 2,628 1, Development costs written off (252) (642) Managed services Goodwill Amortisation 1,626-1,626 1,549-1,549 Sub-let of offices Other ,056 1,366 1,690 1,980 1, ,812 52,506 27,306 72,439 49,256 23,183 Total development administration costs capitalised were 684k (2014: 588k). 30

31 3 Particulars of income and expenditure from lettings Housing Accommodation Supported Housing accommodation Shared Ownership accommodation Market Rent Registered Care Homes Total Re-stated Total Income from lettings activities Rents receivable 56,643 1,000 1, ,536 55,773 Supporting people ,397 Service charges receivable 5, ,169 6,654 Net rents receivable 62,348 1,676 2,372 1,166-67,562 63,824 Revenue grants from local authorities and other agencies Miscellaneous income from lettings Total income from lettings activities 62,348 2,022 2,372 1,166-67,908 64,687 Expenditure on lettings activities Services 4, ,585 5,698 Management 13,958 2, ,481 16,989 Day to day repairs 9, ,336 9,489 Planned maintenance 2, ,093 2,812 Major repairs and stock re-investment Rent losses from bad debts Depreciation of housing properties 7, ,485 7,438 Impairment Total expenditure on lettings activities 40,059 3, , ,417 43,970 Operating surplus from lettings activities 22,289 (1,082) 1,471 (152) (35) 22,491 20,717 Void Losses ,110 1,790 31

32 4 Intra group transactions between regulated and non-regulated entities asra Construction Services Limited (ACSL) provides design and build development services to LHA and to ASRA. It is not a registered provider and is therefore classified by the HCA as a nonregulated entity. Service Level and Framework Agreements are in place between LHA, ASRA and ACSL. Development services are provided to ACSL by both ASRA and LHA. Finance services are provided by LHA. These are recharged by ASRA and/or LHA at cost with an appropriate transfer pricing mark-up applied. ACSL recharges ASRA or LHA with design and build costs for development services carried out. ACSL has no employees. Aggregate costs recharged for the year ended 31 March 2015 are as follows: ACSL ASRA LHA ACSL recharges - 21,793 13,902 ASRA development recharge ASRA finance recharge LHA development recharge LHA finance recharge

33 5 Units of accommodation 2015 Number 2014 Number Social Housing Properties General needs housing 10,420 10,551 Affordable rent Intermediate rent Supported housing Shared ownership Total owned 12,105 11,907 Managed on behalf of others 1,148 1,002 Total Managed Social Housing 13,253 12,909 General needs Housing 58 - Supported Social owned but managed by others Non-social housing Key workers Student accommodation Market rent Total owned Managed on behalf of others - - Total Managed Non-social Housing Non-social owned but managed by others All accommodation Owned 12,770 12,479 Managed 1,148 1,002 Total 13,918 13,481 33

34 6 Surplus on ordinary activities before taxation Surplus on ordinary activities before taxation is after charging: Depreciation of housing properties and write off of replaced components 7,677 7,555 Depreciation on other tangible owned fixed assets 1, Impairment of properties Operating lease payments Auditor s remuneration: In their capacity as auditors In respect of other services Sale of Properties Shared Nonhousing assets Voluntary sales ownership subsequent tranches Right to buy Total 2015 Total 2014 Proceeds of sale 12,356 4,308 2, ,770 7,133 Less: costs of sale (3,505) (1,435) (1,815) (458) (7,213) (6,785) Abated losses Net surplus on disposal 8,851 2, ,

35 8 Directors and senior staff emoluments The directors are defined as the Chief Executive and the Directorate Team. Directors (including former directors) Emoluments (including pension contributions and benefit in kind) Executive Directors Emoluments (including pension contributions and benefit in kind) Non-Executive directors Compensation payable to past directors in respect of loss of office The emoluments of directors disclosed above (excluding pension contributions, but including benefits in kind) include amounts paid to: The highest paid director The highest paid director refers to Matt Cooney, Group Chief Executive. The amount includes basic salary of 143,544 (2014: 140,454) and a car allowance. The Group Chief Executive is an ordinary member of the pension scheme as set out in note 23. The Non-Executive Directors were remunerated as follows: From 1 April 2015: 20,890 per Group Chairman, 13,995 per Deputy Chairman, 11,832 per Chair of Committees and 8,967 per ordinary member per annum. From 1 April 2014: 20,440 per Group Chairman, 13,694 per Deputy Chairman, 11,088 per Chair of Committee s and 8,586 per ordinary member per annum. From 1 April 2013: 20,000 per Group Chairman, 13,400 per Deputy Chairman, 10,850 per Chair of Committee s and 8402 per ordinary member per annum. Only Group Board non-executive Directors receive remuneration, named individual remuneration and expenditure reimbursement details in compliance with Provision D11 of the 2015 NHF code can be found in the Operating & Financial Review. 35

36 Directors and senior staff emoluments - continued Staff emoluments (includes redundancy payments) 2015 number 2014 number Full time equivalent number of staff (including directors) whose remuneration payable (including compensation for loss of office, benefits in kind and pension contributions) was between: 60,000-70, ,001 to 80, ,001 to 90, ,001 to 100, ,001 to 110, ,001 to 120, ,001 to 130, ,001 to 140, ,001 to 150, ,001 to 160, ,000 to 170, Total